Hidden Cameras and Annuity Salesmen

I've been fielding a lot of questions lately about equity-indexed annuities. Someone here in Dallas is advertising an annuity product that he says guarantees a 7 percent annual return with no downside risk.

Of course, that oversimplifies what the product actually is, which is an insurance contract with a payout value tied to a stock market index like the S&P 500. Equity-indexed annuities are really no better than their close cousins, variable annuities, and they're sold in much the same way.

Set aside for a moment that there are much better investment vehicles out there. My biggest problem with these annuities is the way they're sold. These products are frequently on the SEC and FINRA watch lists because they're aggressively sold to inappropriate investors, especially seniors.

Chris Hansen, the Dateline reporter famous for his hidden-camera investigations, recently focused on the annuity business. What he found is disturbing, awful, and not at all surprising.

See for yourself:

http://www.msnbc.msn.com/id/21134540/vp/24108012#24108012

Play close attention to the way these guys give themselves fancy titles that don't mean anything and make promises that just aren't true. Also check out the "Annuity University," where salespeople are taught how to hit seniors' fear, anger and greed buttons and how to deflect questions about the products' liquidity and safety.

What disturbed me most, though, is how these scumbags try to buy credibility. They can pay $2,500 to have their name and photo printed on a book they didn't write. They can have their picture on the cover of a fancy-looking magazine, right beside Fed Chairman Ben Bernanke. And they can read a script for a phony national radio show and give out the audio CDs to potential customers.

This obviously struck a nerve with me, as I have a book coming out in October (which I did write myself), numerous articles on the web and in print (ditto), and a real radio show where we're live and taking calls from real people almost every week.

The ways these guys distort the truth to convey a sense of credibility show why the industry has such a bad reputation. If these guys will lie to you about their credentials, what else do you think they'll lie about?

People want to know who they're really dealing with. They want truth and honesty. If you're a commissioned salesperson, fine -- tell me that up front so I know what I'm getting into. The problem with the financial services industry is that there's so much incentive for advisors to confuse and mislead their investors. People deserve much more respect than that.

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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.

 

Protecting seniors from predatory practices

Chances are, you are over 65, have a loved one over the age of 65, or both. Financial services firms are targeting older Americans because of the tremendous opportunity they represent for these firms. Older Americans control record amounts of wealth in the United States and where there is bait, there will be sharks.

 

Regulators are particularly concerned about predatory practices aimed at seniors. These practices fall into four broad categories:

 

• Recommending products or services that are not appropriate given the person's individual situation;
• The use of false designations which imply special expertise in retirement and senior issues;
• High-pressure sales seminars aimed at seniors;
• Diminished capacity and the financial abuse of seniors by caregivers.

 

Suitability

 

Regulations require brokers and registered financial advisors to always place the customers best interest ahead of their own. Before recommending “the purchase, sale or exchange of any security, a member shall have reasonable grounds for believing that the recommendation is suitable” for that customer, based on “the facts, if any, disclosed by such customer as to his other security holdings and as to his financial situation and needs.”

 

Unfortunately, financial advisors often ignore this rule by selling products inappropriate for the customer because they pay a high commission. The Financial Industry Regulatory Authority (FINRA) is the largest non-governmental regulatory agency for securities firms doing business in the United States. FINRA's examiners have been focusing specifically on recommendations to seniors that involve:

 

• Products that have withdrawal penalties or otherwise lack liquidity, such as deferred variable annuities, equity indexed annuities, some real estate investments and limited partnerships;
• Variable life settlements;
• Complex structured products, such as collateralized debt obligations (CDOs);
• Mortgaging home equity for investment purposes; and
• Using retirement savings, including early withdrawals from IRAs, to invest in high risk investments.

 

FINRA has repeatedly stated that variable annuities are generally considered to be long-term investments and are therefore typically not suitable for investors who have short-term investment horizons, like seniors. FINRA has stated in various regulatory bulletins, that this is true even of some variable annuities that offer riders specifically designed for seniors, including those offering guaranteed life benefits.

 

FINRA has also held forth on the lack of suitability of variable life settlements, which are often improperly aimed at investors over the age of 70; and taking out home equity for investment purposes. FINRA also warns against recommendations that investors use retirement savings, in some cases by making early withdrawals from IRAs pursuant to Section 72(t) of the Internal Revenue Code, to make unsuitable alternative investments.

 

In spite of these rulings, I continue to see these investments being sold to seniors. You don't have to dig hard to find them either. I hear stories from my clients every day. If you or your loved one is over the age of 65 and an advisor recommends any of these products or strategies to you, chances are, he or she is taking advantage of you. I admit there are exceptions but they are extremely rare.

 

Misleading Credentials

 

Several state securities regulators have adopted rules aimed at protecting older investors from misleading professional designations and credentials. In Massachusetts, for example, new regulations govern use of credentials and professional designations that use words such as "senior," "retirement" and "elder" in combination with words such as "certified," "advisor" and "specialist" to imply an expertise in advising senior investors. Most regulatory agencies, government and non-government alike, consider anyone 65 years of age or older "senior." Nebraska and Washington have followed suit.

 

This was necessary because there has been a rash of these designations that have sprung up over recent years with little or no transparency as to what they actually mean. In fact, the largest of these, The Society of Certified Senior Advisors, which offers the "certified senior advisor" designation, will begin requiring its CSA's to disclose that they may have no particular expertise when it comes to financial issues affecting seniors.

 

Beginning June 1, financial advisors in Massachusetts, can use only senior designations that have been accredited by a national accrediting agency. Nebraska maintains a list of "approved" designations. The North American Securities Administrators Association (NASAA), which represents state securities regulators, plans to develop similar guidelines by the end of the year and recommend their adoption to other states.

 

Similarly, FINRA found that some third-party vendors are marketing ghostwritten books on senior investing to registered representatives as tools to establish credibility. Basically, the advisor buys the book and then puts their name on it as the author.

 

Rules, such as NASD Rule 2210 and NYSE 472 prohibit firms and registered representatives from making "false, exaggerated, unwarranted or misleading statements or claims in communications with the public". So does the Investment Advisor Act, a federal law. FINRA has stated that representing yourself as an author of a book you didn't write, to confer some level of expertise you don't really have, is misleading and may violate state and federal law.

 

High pressure sales seminars

 

Many financial services firms, including ours, use sales seminars. But regulators are particularly concerned right now about the so-called "free-lunch seminars" that target seniors.

 

SEC Chairman Christopher Cox said the agency is scrutinizing brokers and advisers who conduct meetings over free meals at "fancy hotels and restaurants." The effort will begin in Florida in the coming weeks, Cox said today at a conference in Washington hosted by the Consumer Federation of America.

 

"If we find that instead of a legitimate sales seminar and a free meal, seniors are being exposed to pitches for unsuitable products, with high-pressure sales tactics and wild claims about projected returns, and no disclosure of the actual risks of the investment, we'll move in hard and fast," Cox said.

 

The initiative is part of "a comprehensive national strategy for protecting older investors" that is being carried out by SEC field offices, state and local regulators and law enforcement, said Cox, 53. NASD enforcement chief James Shorris, named to the post yesterday, said his agency will also make protecting elderly investors a priority.

 

I have to admit, some of the findings of this sweep are scary to a legitimate firm like ours because it is difficult to tell the difference. For example, a Yahoo article says:

 

While their promoters paint the "free lunch" seminars as educational sessions, sometimes promising that nothing will be sold, "they are designed to sell — either at the seminar itself or later," said Lori Richards, director of the SEC's Office of Compliance Inspections and Examinations. "They're not educational events."

 

The investigation conducted by the SEC, state regulators and FINRA found the use of scare tactics to get seniors to question their current investments, claims of fantastic returns with no risk, and "ringers" in the audience who would stand up and offer testimonials of how much they had earned.

 

For one, we don't target seniors - our demographics mirror the general population. But as the number of seniors in the population increases, so will the number of seniors served by us. It seems that we must now err on the side of caution to avoid being painted with the same brush - probably not a bad idea anyway.

 

We have called our free sales events, "educational seminars" but we have never said we aren't selling anything because we obviously are. The sub-title of our events is "An introduction cash flow investing and the Snider Investment Method™." What we do say is you won't be subjected to a high-pressure sales pitch, which you won't. We try to respectfully give you the facts and then leave you alone.

 

But while we don't try to get anyone to sign up on the spot, we do sometimes offer a discount if you sign up for a paid workshop within seven days. When our classes are not full, encouraging someone to sign up for an earlier class seems like a wise business decision. Is that high pressure? I'd like to hear your thoughts.

 

The one that really sets my teeth on edge is the one about the "ringers" in the audience. This should really make some of our students who routinely show up to talk with others pretty mad. We have never, ever paid someone for their testimonial. Anyone who shows up at our marketing events is a client who paid to learn the Snider Investment Method™, is using it, and wants to tell others. They get nothing in return.

 

The last information session we did in Frisco, there was a woman in the audience who I didn't even recognize as being one of our graduates. During the Q&A, she asked me if she could stand up and tell her story. I didn't ask her to be there. I didn't ask her to stand up. She just did - and I appreciated it. I am grateful to know that what I taught her made a meaningful difference in the quality of her life.

 

I know some firms may use shills or "ringers." I don't know how they sleep at night, but I know they do. So how does someone differentiate between a legitimate customer who is there because they really believe in the product and a shill? How does someone distinguish between a legitimate firm using a seminar to sell a legitimate product to people for whom it is appropriate from a sleaze ball who doesn't care about anything other than generating the highest possible commission? Again, I'd like to know your thoughts. You can leave them in the comments below.

 

At the end of the day, I guess that is the regulator's concern as well. So from my perspective, and that of any other legitimate firm who wants to use seminars to educate potential customers about their products or services, we should be thankful the regulators are trying to clean this area up. If successful, attendees can feel confident the material being presented is accurate and they will not be subjected to any high-pressure sales pitch.

 

My very real concern though, is that in the process, some legitimate firms like ours may get painted with the same, very broad brush.

 

Diminished Mental Capacity and Suspected Financial Abuse

 

The last issue regulators are concerned about is diminished capacity and financial abuse by caregivers. This is obviously a non-regulatory issue and has nothing to do with a firm like ours - except that we have the potential to spot it and take actions to protect the client.

 

What can you do?

 

The first thing is to make sure you or any family members have a will, a living will and a durable power of attorney in case of incapacity. That will save you from going through the court system if a loved one loses the mental capacity to make decisions.

 

The second is to begin a dialog with aging family members about their financial situation as early as possible. Don't wait until the last minute. A conversation now about whether your parents have long-term care insurance, for example, may lead them to let you in more on their finances as you go along.

 

Third, offer to accompany them on appointments with financial advisors - especially if you have any doubts about their capacity to make sound financial decisions. The elderly are much more susceptible to fraud or just being taken advantage of.

 

Finally, educate yourself on financial matters. You not only need it to protect yourself, but you may also need it to protect those who once protected you.

 

SOURCES (direct quotes are indented):

 

1. Financial Industry Regulatory Authority. "Seniors" Regulatory Notice 07-43 September, 2007.

 http://www.finra.org/RulesRegulation/NoticestoMembers/2007NoticestoMembers/P036815

 

2. "Mass limits use of senior credentials"; Boston Globe; May 17, 2007.

http://www.boston.com/business/ticker/2007/05/mass_limits_use.html

 

3. "States re-evaluating who should be licensed"; Financial Advisor; September, 2007.

http://fa-mag.com/issues.php?id_content=2&idIssue=125&show=fronline

 

4. Annys Shin. "SEC targets free-lunch scams"; WashingtonPost.com; March 24, 2006.

http://blog.washingtonpost.com/thecheckout/2006/03/sec_targets_free_lunch_scams.html

 

5. Marcey Gordon. "Free lunch seminars can entrap seniors"; Associated Press; September 10, 2007.

http://www.boston.com/business/ticker/2007/05/mass_limits_use.html

 

2. Bruce Fraser. "Role Reversal"; Financial Advisor; September, 2007.

http://fa-mag.com/issues.php?id_content=2&idArticle=1568

 

 

Kim Snider, Kim Snider Financial Communications, Chronim Investments and/or Snider Advisors make 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 are subject to risk including possible loss of principal.

 

The Need For Financial Education

I write a lot about the need for financial education - not surprising given I am in the financial education business!

 

The Employee Benefits and Research Institute (EBRI) published an issue brief this month which looks at how new retirees are doing financially in retirement. The study finds that many Americans age 65 - 75 appear to be starting of rather well. 53% have experienced no decline in household income and 71% had no decline in total wealth. That is good news.

 

The bad news is those who are losing money are losing it fast.

 

There was a roughly 50 percent median decline in total wealth from 1992–2004 among those who experienced a decline, and the median average annual decline in total wealth surpassed 5 percent for this group — putting them at significant risk of running out of money in retirement. Those seeing a decline in financial wealth are posting a median decrease at approximately twice the level that research suggests is advisable. Although the HRS dataset does not allow detailed analysis, this is probably due to excessive spending rather than investment loss.

 

I am going to make a bit of a leap here and suggest the most likely reason these retirees are spending down their nest egg so quickly is not extravagant spending but because they didn't have enough to support a retirement income in the first place.

 

The study also finds a clear correlation between those with regular income from pensions and financially successful retirements. Of course, an increasingly smaller percentage of Americans will have the benefit of pension income in the future as employers shift from traditional pension plans to 401(k) type plans.

 

The report concludes that many individuals need to learn much more about managing assets in retirement. The data suggests that how individuals manage their individual account assets—especially IRAs—will be a critical factor.

 

Current data indicate that many Americans appear to be on the right track for financing their retirement, have successfully managed their assets to date, and could likely have a reasonably comfortable retirement. However, other Americans appear to be in for a trying time in retirement—not just because of insufficient savings, but also because of their apparent lack of money management skills to properly utilize whatever retirement assets they do have.

 

The Snider Investment Method workshop is for people who have accumulated at least $25,000 in retirement savings, either in their IRA or taxable accounts. The goal of the Snider Investment Method is to grow the amount of income your portfolio can generate while you are young and then give you the means of harvesting it when you retire.

 

But what about all those people who have the majority of their retirement savings locked up in 401(k), 401(b) or SIMPLE plans? It isn't as much as is held in IRA's but still - it is a lot. For many people, their 401(k) will be the foundation of their retirement savings. It is critically important that you make the right decisions in your 401(k) from the get-go to maximize it's benefit later on.

 

That is why we created our newest course, How To Turn Your 401(k) Into A Million Dollar Nest Egg.

 

Our new course is a system, like the Snider Investment Method, for picking from among the different funds available in your 401(k), 403(b) or SIMPLE plan, deciding how much to allocate to each, what to do in a brokerage window, and how to rebalance. It also gives you guidelines for how much to contribute, the real skinny on company stock, loans and hardship withdrawals, what to do when you leave your employer and how to make your money last once you stop working.

 

If you read my blog or have heard me speak, you know I don't like mutual funds. I think it is a travesty that we are limited, unless you are one of the lucky few with a brokerage window, to mutual funds when the 401(k) and similar type plans are the cornerstone of our retirement system. Furthermore, I think it is particularly problematic that the people responsible for putting these plans together, namely HR folks, probably don't know beans about investing. As a result, the choices we get are bunch of horribly over-priced, under-performing actively managed funds.

 

That being said, it is no use tilting at windmills. Until the system changes, you have to do the best with the choices you are given. In spite of all the problems with 401(k) plans, I still believe that every person with an employer sponsor plan should contribute as much as they possibly can. The tax benefit outweighs the negatives and the company match, if you have one, makes it a no-brainer.

 

The question I have been asked most often over the years is what to do with retirement money that can't be invested using the Snider Method? So this course is our answer to that question. My plan is 1) to teach people how to maximize the many choices they must make in their employer sponsored plan for as long as they have it 2) give them enough information to know if their choices are really awful and encourage them to go pitch a fit to management and 3) give them a better alternative in the Snider Investment Method as soon as they are able to roll their 401(k) fund out into an IRA when they leave their employer.

 

F you have a 401(k) or other similar type plan and you are baffled by the fund choices and all the terminology, I hope you will take our new online course. You can watch the free preview here.

 

SOURCE:

 

1. Craig Copeland. "How Are New Retirees Doing Financially In Retirement?" EBRI Issue Brief Number 302; February, 2007.

http://www.ebri.org/pdf/briefspdf/EBRI_IB_02-20071.pdf

 

Kim Snider, Kim Snider Financial Communications, Chronim Investments and/or Snider Advisors make 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 are subject to risk including possible loss of principal.

 

Why the Rich Are Headed Back to School

It is my contention that financial education is going to become a very hot topic in the next few years. It is needed at every level, from school age children to retirees, for those living on minimum wage to those who have a very high net worth. It seems, like many things, the market is developing at the top of the financial spectrum, where people can afford to pay for it.

 

According to a January 17, 2007 article in the Wall Street Journal ...

 

The wealthy are flocking back to school to learn how to be rich.

 

As investing and estate planning grow ever more complex -- with labyrinthine trusts, derivatives, hedge funds, structured products, complex philanthropic options and ever-changing tax laws -- wealthy individuals increasingly want to get a better handle on what to do with their money.

 

Often, the students are successful business owners who have recently sold out and are struggling with how to invest their windfall. In other cases, they are women who have been widowed or divorced and may not have handled tough financial decisions before. And a growing number of fortunes are passing into the hands of baby boomers, who are more apt than their parents to reach out for help in understanding how to manage their finances.

 

To that end, they are signing up for courses offered by universities and business schools, financial-services companies and independent firms that focus solely on wealth education. In addition, peer-education groups are sprouting up, allowing wealthy individuals to meet regularly and learn from each other and from guest speakers.

 

[..]

 

The classes and seminars don't teach the secrets of how to become rich; instead they focus on how to handle the money that the participants already have. As a result, they are all geared to those who anticipate having taxable estates and who can afford to invest in hedge funds, private equity and other investments generally open to accredited investors. Although none of the courses have hard and fast wealth thresholds, the University of Miami course, for instance, is targeted toward individuals whose family holdings are at least $4 million, while many students at the Wharton program have at least $25 million in family assets.

 

My company teaches wealth management to the next tier down, people who have accumulated between $500,000 and several million in investable assets, or those who expect to.

 

Some of Ms. Anderson's clients say they are frustrated with their experiences at larger private banks. "One thing that Wall Street sometimes does is deliberately talk over people's heads to make their financial consultants sound smart," she says. "Much of what is called education is actually disguised product sales."

 

The core problems are the same, whether you have $10,000 to invest or $10 million: 1) How do I formulate my investment objectives? 2) How do I decide which tactics will have the highest likelihood of meeting those objectives? 3) How do I measure my performance against those objectives? and 4) Who do I trust?

 

The fact that we all need a working knowledge of money and investing is a given. If you don't have that working knowledge yet, or it is sketchy in places, your choices for obtaining it are simple: 1) You can educate yourself - which is time consuming but doable; 2) You can pay for sensible financial education; or 3) You can do nothing and hope that your naïve choices work out.

 

The smart thing is probably a combination of the first two. Unfortunately, most people will likely continue to opt for naiveté - at least until we begin to see the consequences come home to roost for the Baby Boomers.

 

The smart ones won't wait.

 

SOURCE:

 

1. Rachel Emma Silverman, "Upper Class: Why the Rich Are Heading Back to School" Wall Street Journal 17 January 2007; p D1.

http://online.wsj.com/article/SB116899825849778371-email.html

 

Kim Snider, Kim Snider Financial Communications, Chronim Investments and/or Snider Advisors make 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 are subject to risk including possible loss of principal.

 

The Most Important Skill Today

The most valuable skill set you can have has nothing to do with your 9 to 5 job. The most important skill set today is financial know-how - the knowledge to manage your own personal finances to maximize their benefit to you over your lifetime.

 

This is from a Vanguard white paper:

 

Despite increased levels of advice and education, many people today have a relatively low level of understanding about investments. Indeed, investors generally recognize how little they know. In the Vanguard 2003 Participant Relationship Study, 28% of respondents fully agreed with the statement “A lot of financial information is confusing to me.”

 

A 2002 John Hancock survey, Insight into Participant Investment Knowledge and Behavior, found that 40% of retirement plan participants believed money market funds include stocks; just 8 knew that money market funds contain only short-term securities. Investors who fit this profile may assume unintended risk, construct poorly diversified portfolios, and fail to save adequately

for retirement.

 

Sadly, adequate financial education is not being provided in our families, our schools, our employers, or by Wall Street itself. Much of what passes for financial education is either old and out-dated or a sales pitch.

 

I believe you are smart enough, that once you start learning, you will quickly be able to tell the difference. But you need enough information from enough different sources to be able to weigh different approaches and viewpoints.

 

So get out there and start soaking it in. Listen to as many different people and different ideas as you can. Find people you trust and who make sense to you. Then learn as much from them as you can.

 

The financial impact over a lifetime is truly extraordinary.

 

SOURCE:

 

1. Kathryn D. Gordon and Cynthia Stockton. "Retirement Funds: The 'Life-Cycle' Approach." Vanguard Investment Counseling and Research 4 Dec 2006; p4.

https://institutional.vanguard.com/iip/pdf/life_cycle_funds.pdf

 

Kim Snider, Kim Snider Financial Communications, Chronim Investments and/or Snider Advisors make 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 are subject to risk including possible loss of principal.

 

Should you pay for financial education?

Name me a skill or expertise you have acquired for free. Can you do it?

 

It is highly unlikely. Every skill we possess has cost us something -- either money, time, or more likely both.

 

Some people are reluctant to pay for financial education. I hate to be the one to break it to you. You are already paying.

 

Financial education has become critical in this country. Increasing choices and access to information makes our primary job as Family CFO, planning and funding 30 years of retirement, like navigating a baby carriage through a minefield. One wrong move and something very precious and fragile is going to go up in smoke.

 

 

When it comes to your money your choices are:

 

1. Hire someone to manage it for you - this is very costly in terms of money and poor performance -- you pay a lot and get very little in return.

 

2. Trial and error - also known as the school of hard knocks. This is very costly in terms of time and poor performance. Those lessons don't come cheap. I know. This is the way I did it.

 

3. Pay for education - pay someone to teach you the skills and knowledge they have acquired. This is, in my opinion, a nice balance. It should cost less money than paying someone else to do it for you and less time than the school of hard knocks. Your performance should be better too because you eliminate conflict of interest and many of the costly mistakes.

 

So how do you get through a minefield? Do you want to figure it out with trial and error or do you want to follow in the footsteps of someone who has already mapped the minefield and navigates it successfully day after day?

 

As always, I'd like to know what you think -- not only about the three choices above, but also about the future of financial education. Is it necessary? Where is it going to come from? Who is going to provide it? Leave your thoughts and comments below.

 

 

Kim Snider, Kim Snider Financial Communications, Chronim Investments and/or Snider Advisors make 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 are subject to risk including possible loss of principal.

Get a financial education

Only 19% of Americans in a recent EBRI study could correctly identify the age at which they become eligible for Social Security benefits. Only 37%, in a Washington State survey, knew that bond prices fall as interest rates go up. And most surprisingly, only 61% knew that stocks returned more than bonds over a 40 year period.

 

The simple fact is Americans are basically clueless when it comes to money. There should be a big incentive for each of us to get educated - money sticks to people who know what to do with it. It flees from those that don't. The cost of ignorance is very real. Yet that doesn't seem to have sunk in for most people.

 

Bankrate.com gave people a test to see what level of financial sophistication they had. Then it looked at differences between the financially literate and the financially dense. It found high scorers had mortgages with an average interest rate of 5.95 percent. Those who received an "F" in financial literacy ended up with loans averaging 6.80 percent. It may not sound like much, but Bankrate.com tallies up the savings and the results may surprise you:

 

If you get a $150,000 30-year fixed-rate mortgage at 5.95, you end up paying $322,024. But with a 6.80 percent loan, the final total is $352,040 for the same home. The difference: a tidy $30,016. And who wouldn't want that money earning interest in a 401(k)?

 

You know the phrase work hard, play hard, right? In a former life, I worked at a company that was the poster child for the work hard play hard mentality. We were all very young, unmarried mostly and very, very ambitious. We had our little rituals that we used to torture new employees. They were part of our culture, part of our lore. Those in the know were on the inside. For those that were the victims of our innocent pranks, it marked their passage from outsider to a member of the club.

 

One of those rituals was called spoon fighting, which only occurred after too many drinks, up at Fridays after work. The uninformed newcomer would be spun this great tale, usually by a senior executive about our long tradition of spoon fighting brought over from England. He would then be told that one of us, who by the way, knew all about spoon fighting – we were informed! – was the reigning spoon fighting champ and that all new employees had to face the champ in a spoon fight. That was the tradition.

 

Well, no one could resist, what with all of us chanting spoon fight, spoon fight! And of course, being a relative newcomer there was a lot of pressure to impress your peers and to fit in so of course I’ll spoon fight! Bring on the champ.

 

The rules of the game were explained to each warrior. You had to hold a regular teaspoon between your teeth and then you had whack your opponent on the head as hard as you can. Each person got five tries. Oh yeah, and there was a catch, both were blind folded.

 

A napkin was used to blind fold each participant and the new guy always went first. He would put the spoon in his teeth and try mightily to hit his opponent as hard as he could on the top of the head with the spoon. You can imagine us roaring at his clumsy efforts. “Keep going”, everyone would shout in encouragement. “You’ll get the hang of it.”

 

When it was the champs turn, he would have his blind fold off and he would act as if he had the spoon in his mouth but at the same time, the “referee” would have a spoon in his hand and would rare back and thwack the poor blind folded newbie as hard as he could. "Oww", he would cry. "Dang that hurt!" The bystanders would all cheer for the champ. "Yea! Well done!"

 

This would go on for some time until one of two things would happen. The unaware newcomer would get bashed in the head all the way to the end of the game vowing to practice his spoon fighting skills and come back another day to meet his tormentor, or it finally dawned on him that the game was rigged and everyone else was in on it except him.

 

Now I freely admit this was a juvenile ritual performed by a bunch of drunks and you may find it appalling. But if you do, so much the better.

 

Are you starting to feel that lump yet? This is the game most of us play. The difference is, in the spoon fight, the victim almost always figured it out. In the financial markets most of us never do. We remain on the outside getting thwacked, paying the penalty that the uninformed must pay until they understand the game as well.

 

Here is the good news. Learning the rules to spoon fighting is quite simple. You just have to be let in on the secret and you will never be taken advantage of again - at least not in a spoon fight.

 

Same is true when it comes to the investment game, the rules are a little more complicated, but still, all it takes is someone who is willing to learn and someone who is willing to teach.

 

The most important thing you can do, in my opinion, is to find someone who is achieving the results you want, glom onto them, make them your mentor, seek out their advice, and learn as much from that person as you can. Take them out to dinner, put them on your personal board of directors – whatever it takes to get the benefit of their wisdom.

 

On the other hand, if someone is not getting the results you want, their advice isn’t worth very much is it? Discard it. It’s worthless.

 

SOURCES:

 

1. "Do You Know When You Qualify for Full Social Security Benefits?" Fast Facts from EBRI 25 May 2006

http://www.ebri.com/pdf/publications/facts/fastfacts/fastfact052506.pdf

 

2. "Survey of Financial Literacy in Washington State: Knowledge, Behavior, Attitudes, and Experiences" Washington State Department of Financial Institutions; December 2003

http://www.dfi.wa.gov/news/finlitsurvey.pdf

 

3. Dana Dratch; "Financial literacy pays off in many ways " Bankrate.com 6 April 2004

http://www.bankrate.com/brm/news/financial-literacy2004/pay-off-home.asp

 

Kim Snider, Kim Snider Financial Communications, Chronim Investments and/or Snider Advisors make 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 are subject to risk including possible loss of principal.

 

Up, Down or Sideways?

Warning: This post deviates from my standard policy of not discussing the Snider Investment Method on this blog. But, in this context, I hope the information will be educational rather "salesy". At least - that is the way it is intended. So here goes ...

 

Have you noticed how many commercials on the radio lately are talking about making money whether the market goes "up, down or sideways"? I have been using that phrase for a long time to describe the Snider Method - long before it became so fashionable apparently. But is everyone talking about the same thing?

 

The answer is an emphatic NO.

 

There are three possible interpretations of the phrase "makes money whether the market goes up, down or sideways". Let me take you through each, talk about who uses them and what they really mean.

 

Insurance Salesmen

 

This phrase is often used in connection with a principal protected annuity product. It will sound something like this … "You get stock market returns or x%, whichever is higher, so you can't lose. You make money whether the market is going up, down or sideways!"

 

There is no point in my rehashing all the problems with deferred annuities in this post when I have already covered them so extensively elsewhere on this blog. If you are interested just click the link for the category "Variable Annuities".

 

Speculators

 

The way the phrase is used most often is the way people think we (read: I) mean it - but don't. The majority of investments (and investment seminars or strategies) are speculative in nature. They depend on correctly guessing which way the price of the underlying asset will move and then placing a bet on the accuracy of that guess.

 

This category would include owning stocks, selling stocks short, mutual funds, long-short funds, and buying or selling options, commodities or currencies (either in combinations with one another or as a straight bet). The most common usage of the phrase "up, down or sideways", in this context, comes from people who sell trading seminars or software.

 

One example would be WizeTrade or 4X Made Easy. These two software platforms work on the same premise. Their software lights up with red and green lights to tell you when you should buy or sell the underlying security. The theory is that is the software tells you something is going up, you buy it. When it thinks it is going down you sell it - or even sell it short which is a bet on the security going down in price rather than up.

 

Another example would be a covered call seminar like Compound Stock Earnings or the now defunct Wade Cook. In order to make money with a traditional covered call strategy you must be able to find stocks that are consistently going up - preferably, not too fast - even in bear markets. If they rise slowly, the covered call will be more profitable. If it rises too far, too fast, the covered call will have left money on the table and you would have been better off in a straight bet on up - either by owning it outright or by buying the call option.

 

Other examples in this vein would be Optionetics, Trade Secrets, Options Made Easy, Optioneer and others that are primarily options based. If I know that a stock is going to rise, or even better, how much and over what time frame, there is an option strategy I can use to make money from that. If I know that a stock is going to remain range-bound for some period of time there is a different option strategy that will make me money from that. And if I know a stock is going to go down, there are yet more strategies I can use to make money from that. But, there is no one options strategy that can make money under all three scenarios.

 

So when these folks talk about making money whether the market goes "up, down, or sideways" there is a HUGE unspoken assumption underlying it which says "provided you have a crystal ball" and none of us do! If they tell you their system or software is that smart, they are lying, you should put on your track shoes and run like hell! Market timing or stock picking are a fool's game that you cannot win.

 

The Snider Investment Method

 

When I say "up, down or sideways" I am saying two things different from what you just read above:

 

1.) I am saying that the Snider Method makes no attempt to time the market or pick stocks that will move in a given direction because we don't care - we are not trying to bet on direction, and

 

2.) We use the exact same methodology in every case, regardless of what the underlying asset does so we can accurately say "make money regardless of market conditions".

 

No trading seminar or software peddler can say that.

 

I think the main point is this, with investments - as in all things - people often say the same thing but mean something different. It is up to you to understand what they are REALLY saying, or SHOULD BE saying, and base your decisions on that. Don't fall for slick rhetoric without understanding what lies underneath. (Pun intended!)

 

Thoughts? Comments? As Always - please leave them below. Thanks for stopping by.

 

Kim Snider, Kim Snider Financial Communications, Chronim Investments and/or Snider Advisors make 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 are subject to risk including possible loss of principal.

Investment Education: How to put technology to work?

The use of technology to deliver educational content, both over the Web and in the classroom, is a subject I'm increasingly interested in.

One of the best resources for Web collaboration tools are Robin Good’s various web sites. But what I am less familiar with is a good resource for technology to deliver content more effectively face-to-face, in a classroom setting. I am especially interested in tools which would allow more interaction and hands-on experience.

If anyone has any relevant experience in this area they would be willing to share, either as a teacher or a student, I would really appreciate it. Any teachers or professors out there who are working with some cool tools? I sure would like to see them. Please leave your thoughts and ideas in the comments below.

 

Kim Snider, Kim Snider Financial Communications, Chronim Investments and/or Snider Advisors make 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 are subject to risk including possible loss of principal.

Managing Retirement Income Conference

I'm really looking forward to this next week. I will be traveling to Boston tomorrow. Tuesday, Terry Burnham and I will be getting our lizard brains together over lunch. That should be great fun!

 

Then beginning Wednesday, I will be blogging from the Managing Retirement Income Symposium. The subject of this conference is "innovative strategies to capture and retain retirement income."

 

Topics to be covered at the conference include the shift in focus from accumulation to retirement income and distribution, what population demographics tell us about the need for retirement income, a discussion of whether Wall Street is prepared to meet retirement income needs over the next decade, the impact of Social Security reform, pension plan innovations, and a look at current and proposed legislation affecting retirement income.

 

I'll do my best to blog the each day while I am there so I can share with you the latest thinking on retirement income. If possible, I will also try to get a few interviews with the speaker's for the radio show.

 

I will be back in Dallas, late Friday night, just in time for Rich Dad's Investment Workshop on Saturday where I will be speaking from the main platform with Robert Kiyosaki in the morning and then doing two breakouts during the concurrent sessions.

 

It should be quite a week!  And one I am really looking forward to!

 

Kim Snider, Kim Snider Financial Communications, Chronim Investments and/or Snider Advisors make 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 are subject to risk including possible loss of principal.