Kimmunications

Yin and Yang Need a Home

The Best Friends Animal Society is my primary charity. In fact, my Mother and I will be headed to Kanab in October to volunteer for a few days at the sanctuary. They are probably best known for taking the Michael Vick dogs, which groups like PETA felt should be destroyed, and working to rehabilitate them.

 

From their site:

In the late 1980s, when Best Friends was in its early days, roughly 17 million dogs and cats were being killed in shelters every year, and the conventional belief was that little could be done to lower that number.

In the early 1990s, Best Friends' No More Homeless Pets campaign began as a grassroots effort to place dogs and cats who were considered "unadoptable" into good homes, and to reduce the number of unwanted pets through spay/neuter programs. Since then, the number of dogs and cats being destroyed in shelters has fallen to less than five million a year. There has been much progress, but there is still much more to do.

Most of the animals who find a safe home at Best Friends have special physical or behavioral needs, and our expert staff of veterinarians, trainers and caregivers offer them all the help they require. Most of them are ready to go to good new homes after just a few weeks of special care. Others, who are older or sicker, or who have suffered extra trauma, find a home and haven at the sanctuary, and are given loving care for the rest of their lives.

In addition to the sanctuary itself, Best Friends does wonderful work around the country and around the world including public education and disaster relief. Occasionally, they send out alerts about animals in a local area that desperately need a forever home. If you are thinking about a dog, please consider rescuing dogs like Yin and Yang, rather than buying from a breeder. There are so many wonderful dogs outs there, like my German Shepherd Dritte, who need homes.

 

 

Dear Best Friends Member,

 

Yin & Yang, who reside in Greenville, Texas, don't come with a great deal of history.  The boys are both under two years old and were turned over to a shelter when a gentlemen discovered that they have been dumped on his property.  These gorgeous boys have been evaluated by two trainers and a veterinarian who all agreed that Yin & Yang are very sweet and adoptable.  They have even spent the last month with a trainer who is brushing up on their manners!   

 

As I'm sure most of you know, this breed and breed mix can many times be hard to place.  We are asking our members to help by passing their information on to others and by posting their flyers in your community.  Click here for  Yin's Flyer and here Yang's Flyer.

 

Yin & Yang are young boys with so much love to give.  Please help them achieve the happy ending that they both deserve. 

 

Please direct all questions and/or inquiries to Annie at:  stuart.mcclintock@mwsu.edu

 

Thank you for your continued support Members!  Together we are making a difference. 

 

Sincerely,

Ms. Troy Lea

Animal Help Specialist

Best Friends Animal Society

5001 Angel Canyon Road

Kanab, Utah 84741

(435) 644-2001 ext. 4800

troy@bestfriends.org

www.bestfriends.org

http://network.bestfriends.org

 

"A Better World Through Kindness To Animals"

 

This email was sent to: kim@kimsnider.com

This email was sent by: Best Friends Animal Society

5001 Angel Canyon Road, Kanab, UT 84741

Guarantees and Generalizations

This week, I want to do things a little differently. Instead of writing my usual article, I sat down with newsletter editor (and radio show sidekick) James Pecht and discussed some feedback we received from our recent "Red Flag" articles. It's an audio file about 14 minutes long, and you can download it to listen from your computer or move it to your mp3 player.

Click here for the audio Kimmunique (Hi - 128k | Lo - 24k)

Notes:
0:00 Introduction
2:00 What we mean by the statement "If a financial advisor constructs a portfolio with an expected return of less than 10 percent, that's a red flag"
4:40 Why that statement did not reflect a guarantee but rather a goal
5:45 Generalizations in the articles -- why I use inflexible rules
8:25 About the information session scheduled for Saturday, May 31. (After my talk, we'll head over to Boston's the Gourmet Pizza on 635 and MacArthur in Irving to broadcast the weekly radio show live on location. Then we'll stick around to answer questions and talk to folks one-on-one.)
10:45 New virtual office hours -- a twice-weekly conference call.

Details on the office hours: 

• Wednesdays 5 p.m. - 6 p.m. Central Time
• Thursdays Noon-1 p.m. Central Time

Ask anything that's on your mind about the Snider Method, personal finance, the economy -- you name it! We have a special toll-free conference call line -- you can call in and ask your questions, or just listen in to what others are asking. The office hours have an online component, too -- the technology we're using allows me to show you calculations, visit websites, etc. It's like you're sitting right beside me, looking at my computer screen together.

To join me, here's what you do:

1. Call 1-888-617-3400 and enter the access code 791564.
2. (Optional) Go to https://www1.gotomeeting.com/join/597893666.Please note: Attendance is limited for the online component, and you may be prompted to download some software the first time you log on.

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Kim Snider is the President and Founder of Snider Advisors, an SEC Registered Investment Advisor, focused on teaching individual investors a sensible, long-term investment approach focused on maximizing cash flow. For more information on Snider Advisors or the Snider Investment Method and how to stop enriching your investment advisors at your expense, please visit snideradvisors.com. Her book, How to Be the Family CFO: Four Simple Steps To Put Your Financial House in Order, will be in bookstores October 1, 2008.

Snider Advisors makes no representation that the information and opinions expressed are accurate, complete or current. The opinions expressed should not be construed as financial, legal, tax, or other advice and are provided for informational purposes only. Call 866-952-0100 to request the Snider Investment Method® Owner's Manual, which includes a description of the Snider Investment Method, investment objectives, risks, suitability and other information. Please read and consider carefully before investing. All investments, including the Snider Investment Method™ are subject to risk, including possible loss of principal.

Financial Advisor Red Flags - Part 2

Last week, I listed six red flags to watch out for when dealing with a financial advisor or broker. To recap, they were:

1. Invoking a dead relative in an effort to keep your account
2. Recommending variable annuities when they're not appropriate -- such as in an IRA
3. Recommending you move money out of your 401(k) or stop contributing. Also: recommending that you borrow from your 401(k)
4. Constructing a portfolio for you with an expected annual return of less than 10%
5. Recommending only mutual funds, especially those that are only available through his/her company
6. Accepting a commission from products they sell

The post was getting long, so I stopped there. This week, I'd like to continue where we left off with more red flags, some of which were suggested by readers like you. Again, these are in no particular order.

7.  Suggesting that you borrow from your home equity to invest

I am not an advocate of taking a loan for the specific purpose of investing. This includes taking out a home equity loan to play the arbitrage game many salesmen are suggesting these days.

An arbitrage is when you try to take advantage of a price or interest rate differential between two markets. For example, you take out a home equity loan at, say, 6 percent and invest the money in a mutual fund with an expected return of 10 percent.  If successful, you would profit from the 4 percent spread between the loan and the mutual fund.

Salesmen will claim that this strategy is low-risk or even risk-free, but it isn't. What happens if the mutual fund doesn't return 10 percent? What if it returns only 5 percent? Or if it loses money? Compound interest works against you and you stand to lose a lot more than you bargained for.

Also, you can't forget about the fees, commissions and taxes involved in such a strategy. Even if there's a positive spread, these can severely cut into your returns. For me, it doesn't seem worth it.

8. Assuring you that an investment cannot lose money.

An employee of mine showed me a postcard she received from a financial advisor near her neighborhood. He advertised a historical annual return of almost 15 percent with "no known history of loss." The implication is that he can deliver high returns with no risk. Sounds like the perfect investment, right?
RED FLAG! There is no such thing as a risk-free return above what is guaranteed by the U.S. government. It's a basic principle of economics: reward is the profit for risk. As an investor, your job is to manage the trade-offs between risk and reward. A risk-free investment such as a bond will give you about 4-5 percent. If you want more than that -- and most of us do -- you have to be willing to take on a little more risk.

9. Claiming he/she can turn a small amount into a large amount

I heard an advisor on the radio the other day claim he could get his clients a 500 percent return with very little risk. He suggested that he could get that return through a combination of techniques, including investing in real estate.

Is he saying that real estate is low risk? Millions of homeowners, particularly along the West Coast, would disagree! Since the recent housing bubble burst, home prices across the country have been declining steadily. In the top 10 metropolitan areas, home prices declined more than 13 percent since last year, according to the Case-Shiller Home Price Index. Different markets are performing differently, but nowhere are prices ratcheting higher right now. Common sense tells me this claim of a risk-free 500 percent return is simply bogus.

Another financial advisor-type is claiming that he can show you how to turn $10,000 into $3 million in just a couple of years and that he has a 30-year track record to prove it. I did a little math… if he started with $10,000 30 years ago and did what he says, he'd have billions of dollars by now. I haven't seen his name on the Forbes list of the world's richest people, so something tells me his claim doesn't hold water, either.

When someone makes outrageous claims like these, they're playing to your greed. Just remember that with higher returns comes much bigger risk, and if it sounds too good to be true, it probably is.

10. Claiming he/she can successfully and consistently time the market.

Some advisors love to claim that they can tell you when to get out of the market and when to get back in. They'll tell you they have the tools and the research staffs that nobody else has. What they won't tell you is that all the evidence says it can't be done successfully over the long term. Read my recent post on market timers.

11. Attempting to sell you on a fast-moving trend

A former criminal judge told me about numerous schemes that crossed his bench over the years. One of them involved an advisor who sold fractional shares of oil and gas royalties.

"They will lure an investor in with a higher-than-normal return, playing on your greed. Then they come back again several months later and want you to buy more of that share for an even higher return. The house of cards will ultimately fail, leaving the investor with nothing."
A guy called me up not too long ago and offered to sell me fractional shares in something like this, saying that because of rapidly rising energy prices, now is the time to invest. I told him, "If you're calling me, trying to get me to pitch your oil deals to my clients, this tells me that this is the top of the oil rush, not the bottom."

The more people who are calling you and taking out ads regarding a fast-moving trend, it probably means it's time to get out, not get in. To make money, you have to buy when everyone else is irrationally selling and sell when everyone else is irrationally buying. When the sales pitches are fast and furious, alarm bells should go off.

12.  Offering you professional services for free.

One reader told me he was suspicious when his CPA offered to do his taxes for free. What kind of a CPA does that? In this reader's case, it was because the accountant wanted him to open an investment account through him. The investment account would probably generate more in commissions and fees than he would charge for doing a tax return.

This isn't necessarily wrong, but it is something to be aware of. Look, people in the financial services business -- or any business, for that matter -- always get paid. None of us does this for free. As a customer, you need to know how they get paid. Would you rather pay them up front and know what you're paying for, or would you rather take your chances with hidden fees and commissions? Look for transparency in pricing.

There are, of course, many more red flags to watch out for. Keep emailing me your suggestions, and I'll keep adding to the list.

SOURCES:
1. Glink, Ilyce. "Homeowners react to falling real estate values." The Boston Globe, May 13, 2008 (accessed May 15, 2008).
2. "The World's Billionaires." Forbes, March 5, 2008 (accessed May 15, 2008)

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Kim Snider is the President and Founder of Snider Advisors, an SEC Registered Investment Advisor, focused on teaching individual investors a sensible, long-term investment approach focused on maximizing cash flow. For more information on Snider Advisors or the Snider Investment Method and how to stop enriching your investment advisors at your expense, please visit snideradvisors.com. Her book, How to Be the Family CFO: Four Simple Steps To Put Your Financial House in Order, will be in bookstores October 1, 2008.

Snider Advisors makes no representation that the information and opinions expressed are accurate, complete or current. The opinions expressed should not be construed as financial, legal, tax, or other advice and are provided for informational purposes only. Call 866-952-0100 to request the Snider Investment Method® Owner's Manual, which includes a description of the Snider Investment Method, investment objectives, risks, suitability and other information. Please read and consider carefully before investing. All investments, including the Snider Investment Method™ are subject to risk, including possible loss of principal.

Financial Advisor Red Flags

I've been talking with a number of our prospects the last couple of weeks, and the stories they tell of being ripped off by various financial advisors and investment schemes are amazing. The chutzpah of some of these advisors is incredible - I don't see how they can sleep at night when they sell so many investments that are clearly designed to benefit the advisor more than the client.

I thought it would be useful to jot down some of the things to look out for when dealing with a financial advisor or broker. We'll call these Financial Advisor Red Flags. Here they are, in no particular order:

1. Invoking a dead relative in an effort to keep your account.

I met with someone the other day - I'll call her Ann - who gave this egregious example. Her husband was a rapidly climbing young executive before he died unexpectedly. Fortunately, he had life insurance.

Ann said she didn't know anything about investing, so she contacted the salesman who sold her husband the policy. The insurance guy sold her all sorts of insurance products like variable annuities. He convinced her that all these products were in her best interest. But after a couple of years, Ann looked at her investments and realized that they didn't meet all her objectives, so she called up the insurance guy and told him she wanted to pull money out.

Instead of defending the investments he sold her on their merits, he tried to shame her in to staying put. "Your husband trusted me," he said, "and he would be so disappointed in you."

I wish I could say that surprised me, but I've heard stories like this from lots of people. Some of them inherited their parents' financial advisor when they inherited money, and were guilt-tripped when they tried to move the investments somewhere else. Others said their advisor invoked the "but we're friends!" card: "But we've been in Rotary together for 20 years! I thought you trusted me!"

Any time a financial advisor uses a guilt-trip or an emotional plea to try to keep your account, that should be a big red flag.

2. Recommending variable annuities when they're not appropriate - such as in an IRA.

I've written a lot about the problems with variable annuities. They cost too much, they rely on terrible mutual funds that underperform the market, the list goes on. (You can read up on the problems with variable annuities here.) But my primary objection is that they're appropriate for only a small portion of investors. Most of us would be better off in something else.

I get particularly mad when I hear about an advisor selling someone a variable annuity inside their IRA. An IRA is already a tax-advantaged vehicle. A variable annuity is tax-advantaged, too - it makes absolutely no sense to have one tax-advantaged investment inside of another.

3. Recommending you move money out of your 401(k) or stop contributing.

This is financial malpractice at its worst. Sure, 401(k) and similar plans have their faults, but for most of us they form the cornerstone of our retirement plan.  Until you leave your employer and are eligible to roll over the money into an IRA, you probably should stick with your 401(k) plan. And if your employer matches part of your contributions, that's free money you'd be leaving on the table by shifting your savings elsewhere.

It's also a red flag when an advisor recommends you borrow from your 401(k). Treat your retirement funds as sacred. If you need cash to deal with an emergency, pretend that 401(k) money doesn't exist. If you borrow from your 401(k), you're robbing yourself of the power of compounding and exposing yourself to penalties if you leave your job before the loan is paid off.  Read more about 401(k)s here.

4. Constructing a portfolio for you with an expected annual return of less than 10%.

Many advisors still ascribe to the old way of thinking, that the best way to ensure your money lasts as long as you do is with a typical 60/40 portfolio (60% stocks, 40% bonds). But this construction is too conservative, and its expected annual return is only 8%. That 8% may give you a high probability you won't run out of money, but it almost assures you won't be able to buy anything with the money you have left.  In other words, the 60/40 portfolio doesn't take into account inflation and taxes.

To pay yourself 4% of your portfolio each year in retirement (the generally accepted "safe" withdrawal percentage), keep up with the historical rate of inflation and pay Uncle Sam at a marginal tax rate of 25%, you have to earn a 10% return. The formula is your withdrawal rate plus inflation divided by one minus your marginal tax rate, or (4 + 3.5)/(1-0.25). If you want to withdraw more or if your tax rate is higher, you'll have to earn an even higher return.

So a double-digit annual return is your goal. If your advisor builds a portfolio for you that is designed to return less than that, you should look for another advisor.

5. Recommending only mutual funds, especially those that are only available through his/her company.

I don't like mutual funds as a rule. I really don't like actively managed mutual funds because their high fees virtually guarantee over time that you will underperform the market itself. So mutual funds are bad enough - but conflict-of-interest from your broker or financial advisor makes it even worse.

A groundbreaking study by Daniel Bergstresser and Peter Tufano of the Harvard Business School and John Chalmers of the University of Oregon found that mutual funds sold by financial advisors badly underperformed the funds selected by investors on their own. The study is titled "Assessing the Costs and Benefits of Brokers in the Mutual Fund Industry," and you can read more about it here. You can also listen to my interview with one of the authors here.

A lot of financial advisors will try to steer you toward proprietary funds that are only available through their company. For example, an Ameriprise advisor may try to steer you toward RiverSource mutual funds, which are only available through Ameriprise. It's not because these funds are the best performing. It's because the financial advisor's employer pays him or her to sell the firm's product. It's another example of conflict-of-interest and is a reason to avoid commission-based advisors. For that matter, let's make accepting commissions its own flag:

6. Accepting a commission from products they sell

Any advisor who takes a commission off the products they sell you has a conflict of interest. You can't tell whether the product he recommends is really in your best interest or if he is recommending the product because it pays him well.

If you do use a financial advisor, your best bet is to go with a "fee-only" advisor, one who doesn't get paid commission on the products they recommend. That's the only way you can be sure to avoid the conflict-of-interest.

This post is getting pretty long, so let's stop there for now. I have lots of other red flags to watch out for, and I'll post those later on. If you have a suggestion for a red flag, send me an email. I will compile your suggestions for a future post.

Investing Like Yale

In times when the market is going every which way, it can be comforting -- and rewarding -- to follow a rigid system. This video from Investment News shows how large university endowment funds follow a system to get better results. It also features an interview with a big-name fund manager who also follows a system.

Key quote: "We've found over the years that the numbers are more reliable than opinions, and that includes my own opinion." - Steve Leuthold, The Leuthold Group

Also, for those of you in the Snider Method® who are nervous about the international stocks Lattco® gives you, pay close attention to the discussion of overseas markets.

Go here to watch the video: http://link.brightcove.com/services/link/bcpid1125967528/bclid1125949998/bctid1498976295

Snider Advisors makes no representation that the information and opinions expressed are accurate, complete or current. The opinions expressed should not be construed as financial, legal, tax, or other advice and are provided for informational purposes only. Call 866-952-0100 to request the Snider Investment Method® Owner's Manual, which includes a description of the Snider Investment Method, investment objectives, risks, suitability and other information. Please read and consider carefully before investing. All investments, including the Snider Investment Method™ are subject to risk, including possible loss of principal.

Market Timers Creep Out of the Woodwork

Have you ever been driving around, listening to the radio, when you hear something so offensive, so wrong, that you can't help but scream? That happened to me last Saturday afternoon. 

I was driving home from our after-show "Lunch Bunch" when I heard a financial advisor - on the same station my show comes on - tell his listeners that we should trust him because he said to get out of the market back in November. He said if everyone had done as he advised, we'd all be happier right now amid this market volatility.

Several other so-called advisors are on the airwaves warning of an impending recession. "Get your money out of the stock market now," they say.

These advisors are suggesting that they can properly time the market. And they want you to pay them a hefty premium to do it.

Why the myth persists

Why do so many think you can successfully time the market? Because we hear about the successful calls all the time. Elaine Garzarelli correctly predicted the stock market crash of 1987. Ralph Acampora became famous for predicting the dot-com bubble. We don't hear about all the market calls they made that didn't come true. But because they got it right once or twice, the media treat them as geniuses.

You're probably familiar with the phrase, "Even a stopped watch is right twice a day." It's the same for many market timers. Abby Joseph Cohen is always bullish, and when she turns out to be right, she's labeled brilliant. Roger Babson is credited with predicting the stock market crash of 1929. But he was giving doom-and-gloom speeches throughout the 1920s, even as the market reached historic highs year after year. When the crash happened, suddenly he was right.

I've even heard stories from friends in the financial services industry that the big firms keep analysts who make opposite calls, just so they can point to the one who gets it right.

The evidence

So our radio financial advisor friend correctly predicted when to get out of the market. Congratulations. But to be a successful market-timer, you can't just know when to get out. You also have to know when to get back in. And that's no easy task. There's about a one-in-ten chance of guessing it correctly, according to Vanguard's John Bogle. He tells William A. Sherden in The Fortune Sellers:

To make money, you have to make two market calls: one to get near a low point and one to get out near a high one, which means that your chance of success is about one hundred to one (one-tenth times one-tenth). And, doing it twice has a one-in-ten-thousand chance of succeeding.

…

In the 30 years in this business, I do not know anybody who has done it successfully and consistently, nor anybody who knows anybody who has done it successfully and consistently. Indeed, my impression is that trying to do market timing is likely not only not to add value to your investment program, but to be counterproductive.

Bogle's impressions are supported by several studies, one of which is from Dalbar. Their Quantitative Analysis of Investor Behavior has, for many years, shown how investors shoot themselves in the foot trying to chase returns. In other words, impulsive investors. But market timers do even worse, according to their 2004 study:

Although the S&P 500 on average grew by 13 percent over that 20-year sample, Market timers actually lost money.

And these financial advisors are suggesting that timing the market is a good thing?

By getting out of the market, as these advisors suggest, you may avoid losing some capital in the short term. But you're almost assured of missing out on the gains when the market starts going back up. According to a study from SEI Investments, the majority of a bull market's gains come in its first few days and weeks. If you wait until you see the market turn, you've already missed a golden opportunity.

From The Wall Street Journal:

SEI looked at the dozen bear markets since World War II. If you held stocks at the market bottom, you made an average 32.5% over the next 12 months. But what if you bought one week after the bottom? Your gain was trimmed to an average 24.3%. Meanwhile, if you didn't buy until three months after the market bottom, your gain was just 14.8%

So what do we do?

I have no idea whether we're headed for a recession or a prolonged bear market. I don't have a crystal ball, and I'm not in the business of predicting the future direction of the stock market. What I do know is that the stock market is the best place for long-term growth over time, just not all the time. Trying to time the market is a fool's errand.

Any advisor who tells you otherwise is either lying or sadly misguided.

SOURCES:

1. Dalbar Inc., Quantitative Analysis of Investor Behavior, 2004.

2. "It's Time to Prepare Yourself for an (Inevitable?) Bull Market." Getting Going, The Wall Street Journal, Oct. 23, 2002. http://online.wsj.com/article/SB1035309775900025391.html?mod=googlewsj (accessed April 30, 2008)

3. Sherden, William A. The Fortune Sellers: The Big Business of Buying and Selling Predictions. New York: John Wiley & Sons Inc., 1998.

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Kim Snider is the President and Founder of Snider Advisors, an SEC Registered Investment Advisor, focused on teaching individual investors a sensible, long-term investment approach focused on maximizing cash flow. For more information on Snider Advisors or the Snider Investment Method and how to stop enriching your investment advisors at your expense, please visit snideradvisors.com. Her book, How to Be the Family CFO: Four Simple Steps To Put Your Financial House in Order, will be in bookstores October 1, 2008.

Snider Advisors makes no representation that the information and opinions expressed are accurate, complete or current. The opinions expressed should not be construed as financial, legal, tax, or other advice and are provided for informational purposes only. Call 866-952-0100 to request the Snider Investment Method® Owner's Manual, which includes a description of the Snider Investment Method, investment objectives, risks, suitability and other information. Please read and consider carefully before investing. All investments, including the Snider Investment Method™ are subject to risk, including possible loss of principal.