The Market-How High is High?

Posted by & filed under Investment Portfolio Management for Less, Legislation and Regulation Affecting Investments, Portfolio Management, The Economy.

Declaration of Independence by John Trumbull

The Market-How High is High?

Remember the Crash of 1987, the S&L and Commercial Real Estate Crises of the Early 90’s, the Bursting of the Internet Bubble in March of 2000, 9/11, the Closing of the Markets for Two Weeks, the Ensuing 2001-2003 Recession, the 2008 Financial Crises.

Has a Pro Business President Who Says he is 10 Feet Tall and Can Shoot Lightning, Combined With a Treasury Secretary by the Name of Steve Mnuchin Who is a Hedge Fund Pro, Created Expectations so High They Cannot Possibly be Reconciled With the Markets Valuations?

Crashes Seem Like They Come Out of Nowhere. In Reality, the Pressures Build Over Time.

Is This the Case Now?

Maybe, Maybe Not. Perception is Reality. Bubbles Can Build For a Very Long Time Before They Burst.

As Long as the Markets Believe Valuations Can be Justified by the Underlying Fundamentals the Indexes Will Continue to Rise.

The Most Recent Example. Passage of Tax Reform. Despite the Fact the Tax Reform Law Adds to the Deficit.

Just Remember, if the Markets Get to Far Ahead of Themselves, What Goes Up Will Come Down. We Have Seen it Before and We Will See it Again.

Not to Mention the Prospect of Geo-Political Tensions.

How, When, If and What the Catalyst Will be is Anyone’s Guess.

But, Given Trump’s Teflon Political Image, Where His Electorate Supports Him Based on How He Makes Them Feel, Rather Than What He Does, the Only Thing That May Be Able to Bring Trump Down Would be a Fall in the Nation’s Wealth Precipitated by a Decline in the Markets.

Remember George W. Bush.

Losing Money Never Makes Anyone Feel Good.

The Article Below Will Provide You With Some of the Evidence and Metrics Which Support a Cautious View.

In the End, You Will Have to Develop a Framework and Philosophy About Where You See the Markets Heading and How You Will React If Your Right and If Your Wrong.

Let Us Know if We Can Help.

https://www.bloomberg.com/gadfly/articles/2017-12-04/98-750-067-000-000-reasons-to-be-scared-about-2018?cmpid=socialflow-facebook-business&utm_content=business&utm_campaign=socialflow-organic&utm_source=facebook&utm_medium=social

https://www.theinvestmentadvisor.net/request-consultation.html

 

Building a New Foundation-The Fiduciary Rule

Posted by & filed under Legislation and Regulation Affecting Investments.

Affluent Family Small 2

It started with Dodd-Frank. The legislative response to the Financial Crises. The battle cry of never again has touched every corner of the financial and investment industry. Banks, mortgages, credit cards, investments, retirement plans and loans have all been reregulated. Banks are now required to keep higher capital requirements as a result of the expanded oversight by U.S Government Agencies and Basel III. Proprietary trading with depositors money is coming to an end at investment and commercial banks. Consumer credit cards and loans are regulated by the agencies they should be regulated by such as: the Federal Reserve, the Office of the Comptroller of the Currency, the U.S. Treasury and the expanded oversight of the Consumer Finance Protection Bureau. Not to mention, the adoption by state goverments of laws which embody these principles.

In many respects, the financial and regulatory landscape looks similar to the early 70’s prior to the deregulation of brokerage commissions, the creation of the 401(k) and the IRA. Beyond Dodd Frank, Rule 408(b)(2) created by the Employee Benefits Security Administration (an agency of the Department of Labor)  in 2012 cast the die because, it requires the fees charged in complex retirement plans such as a 401(k) be “reasonable”. It also requires, any plan expense or plan asset such as revenue sharing with Plan Sponsors (Employers) or Expenses (Fees) that are necessary to operate and maintain a retirement plan be looked at through the lens of what is in the best interest of employees and their beneficiaries. It applies this test to just about every party required to operationally run a 401(k). These parties are known as Covered Service Providers.  As a result of the rule, Plan Sponsors and Covered Service Providers are now Fiduciaries to Retirement Plans.

Dodd-Frank is the legislative basis under which our financial system and infrastructure governing saving, investing and lending became subject to expanded oversight. This involves the rules and regulations of just about every federal agency and Government Sponsored Enterprise regulating financial activity from: the SEC, to the Department of Labor, Housing and Urban Development, the U.S Treasury and the Federal Reserve. You can add dozens of agencies to the list.

Rule 408(b)(2) spawned a new body of law about Retirement Plan Fees.  Governed by ERISA, created and regulated by the Employee Benefits Security Administration, the cases that were subsequently litigated as a result went as high as the Supreme Court. The concept of the lowest cost investment is what prevailed in courts across the land and the principles of 408(b)(2) have been upheld.

With the release of the new Conflict of Interest Fiduciary Rule, Retirement Plan regulation now extends down to the Individual Retirement Account. Fiduciary Responsibility, Ownership of Recommendations and the potential resulting liability for Investment Advice which is provided to anyone, in any type of retirement plan, is now the subject of these rules with a few exceptions.

Not since Ronald Reagan became President and ushered in an era of deregulation has such a profound paradigm change occurred. The pendulum has swung and the investment industry has nobody to thank but itself. Finding multiple ways to charge the same client became the hallmark of financial innovation. The investment industry relied on creating accounts subject to complex documents to create them, along with the complexity of the financial instruments used to fund them. When the value of these investments fell, so did the fortune of America.  Smoke and mirrors is a phrase for such activity.

The most profound failure of the baby boom generation may be that the Financial Crises and the economic malaise that has followed were created by a generation that outsmarted itself. A generation who thought everything could be run by a model, by the numbers, on autopilot without the need for a person with common sense to review decisions. Where clients were charged multiple times in multiple ways. Millennials take note, technology seems to be heading down the same path.

Investment Advisors and Financial Advisors were always “supposed” to have their clients best interest in mind. However, only Investment Advisers, those registered under the Investment Advisers Act of 1940, had a recognized legal fiduciary obligation to do so. Investment Advisers have always been required to put client interests ahead of their own. Not only for retirement plans but, for anybody an Investment Adviser does business with.

It is unfortunate this will spawn a new wave of litigation. Unfortunate, because many firms are entangled in a web of revenue streams that have been hidden from their clients and not properly disclosed. There is no such thing as a free lunch. Regardless of where the compensation comes from the client pays. When methods of a firms compensation are not properly disclosed it becomes difficult for a client to know what is being payed for the service being provided. It also becomes difficult to know which master the advisor serves. Litigation in the United States is the mechanism used to test laws and regulations. Judicial decisions and the resulting common law, created on a case by case basis refines the meaning and scope of the regulation.

It is well known fees eat into returns. The effect high fees can have over the long term can substantially reduce the value of assets that are saved for any purpose. High fees can reduce how much income a person who is saving for retirement can create, how long their retirement savings may last during retirement and consequently, how much they will have to live on.

The problem is regulation sometimes obscures the real issue which is the creation of wealth. Growing the GDP pie is really what is important. Without growth it all becomes a bit meaningless. You can only split the existing pie so many ways.  It is a good thing that people are protected. It’s a good thing professionals in the investment industry will be held accountable for their recommendations and actions. It’s a good thing fees have to be in line with the investment services being provided. It’s a good thing lower fees will subtract less from assets which are saved for retirement. It is not such a good thing compounded rates of return will be lower for those currently saving for retirement unless growth returns. More than 50% of all working age Americans are not prepared for retirement. People can’t adequately save and invest for retirement if they don’t make enough to do so. You can’t protect people if they are afraid of the markets or if they can’t make enough money to participate.

The Investment Advisor, LLC is a Registered Investment Adviser. As the Managing Principal, I can tell you The Investment Advisor stands ready to help you with your financial concerns as a Fiduciary. This means your interests are held above the interests of the firm. It means when The Investment Advisor helps you with saving and investing for your retirement, your health care, the education of your children, your home, your business, your income and your estate, what you see is what you get. You won’t be charged in a myriad of different of ways. There are no conflicts of interest. If one appears or is created you will be told about it. The Investment Advisor will do this with a person advising you, to help you achieve your goals and leverage technology to your best advantage.

The Investment Advisor Helps Companies, Self-Employed Individuals and Non-Profit Organizations Manage their Qualified Retirement Plans. The Investment Advisor Provides a Comprehensive Consulting Service with Respect to Defined Contribution Qualified Retirement Plans. The Investment Advisor Also Performs Feasibility Studies For Those Companies, Self Employed Individuals and Non-Profit Organizations Who Wish to Create or Evaluate Their Existing Qualified Defined Contribution Plan such as Their 401(k), 403(b), Profit Sharing Plan, KEOGH, SEP-IRA, SIMPLE-IRA or IRA Plan.

The Investment Advisor Also Helps Families, Individuals, Small and Mid-Size Companies, Trusts and Estates Manage Their Savings, Investments, Life Insurance, Health Insurance and Planning Concerns to Help Them Meet Their Financial Goals.

For a Complementary Review of Your Retirement Plan and Investment Portfolio Contact The Investment Advisor by Phone at  (570)815-0770 or (877)414-9021 or on the website of The Investment Advisor at https://www.theinvestmentadvisor.net/request-consultation.html

The Investment Advisor LLC is a Registered Investment Adviser registered in the state of Pennsylvania. Pennsylvania is the only state in which The Investment Advisor is currently registered to conduct business.

The Investment Advisor is unable to accept trade instructions by email. If you are client of The Investment Advisor and have trade instructions for your account please contact The Investment Advisor by phone at (570)815-007 or (877)414-9021.

This communication should not under any circumstance be construed as a recommendation for any security or any type of financial planning activity. Recommendations are only made in individual consultation with each client after the individual and unique circumstances of each client have been disclosed by the client to The Investment Advisor.

Investing in Bonds-A Bond Primer

Posted by & filed under Portfolio Management.

Bonds Are an Integral Part of Our Economy and Your Investment Portfolio. Bonds Help Set Interest Rates and Rates on Mortgages, Credit Cards and Loans. When Used Properly Bonds Can be an Important Asset Class in Your Investment Portfolio. Bonds Have Also Been at the Center of Many Economic Issues. When Used Improperly Bonds Can Create Havoc in the Economy. This Presentation is Designed to Give You a Working Knowledge of What Bonds Are and How They Work.

With the Feds Increases in Interest Rates and the the Markets Rise it is More Important Than Ever to Understand Bonds and How They Impact Your Investment Portfolio.

The Presentation is a Few Years Old, But the Principles Remain the Same. It Will Also Serve as a Reminder About Where The Economy Came From and How Bonds Can be an Early Warning Indicator.

If You Have Further Questions or Would Like Help With Your Investment Portfolio Contact Louis Wolkenstein Managing Principal, The Investment Advisor LLC at (570)815-0770.

Portfolio Management

Posted by & filed under Portfolio Management.

The Investment Advisor Believes it is More Important Than Ever to Have an Investment Philosophy, Strategy and Tactics in Place. With the Government Shut Down and Possibility of a Default on the Debt Cap Can You Afford Not too? As a Guide to Getting Started Review The Investment Advisor’s Views About Portfolio Management at https://www.theinvestmentadvisor.net/portfolio-management.html

You Can Review The Investment Advisor’s Investment Philosophy at www.theinvestmentadvisor.net/investment_philosophy.html

5 Tips For Managing Your Company or Non-Profit Retirement Plan

Posted by & filed under Retirement Plans.

Affluent Family Small 2

Your Organization’s Retirement Plan. When was the Last Time You Reviewed it? Creating and Maintaining Your Retirement Plan Produces a Great Employee Benefit Which Helps You Attract and Retain Talent to Help You Grow Your Company or Non-Profit Organization. Over the Last Few Years the Department of Labor (DOL) and the Employee Benefits Security Administration (EBSA) Have Made Changes to the Regulations Governing How You Manage Your Qualified Retirement Plan. This Affects Not Only Your 401k, 403b or Profit Sharing Plan. It Affects Less Complicated Retirement Plans such as Individual Retirement Accounts (IRA) Which Could Include Both SEP-IRA Plans (Simplified Employer Plans) and SIMPLE Plans (Savings Incentive Match Plan for Employees of Small Employers).

This Article Provides a Few Helpful Tips to Help You Understand the Concepts, Regulations and Laws to Help You Administer Your Retirement Plan for the Benefit of Your Employees. Retirement Plan Regulation Has Become Synonymous With the Best Interest of Your Employees. For Purposes of Discussion This Article is Limited to Defined Contribution Plans. The Scope of This Article Profiles Broad Categories Involving the Regulation of Qualified Retirement Plans and is Not a Comprehensive Discussion. It Should Not Replace Counsel with Your Attorney, Accountant, Investment or Financial Advisor.

1. Fiduciary Responsibility: Since the Financial Crises the Government has Become Very Serious About Protecting Your Employees Retirement Savings. The Balances in 401k Plans for the Average Person is Low in Relationship to the Amount Needed to Fund a Secure Retirement.  Therefore, the Government Wants Money Saved for Retirement Protected in the Belief that More Secure and Cost Effective Retirement Plans Will Help Prompt Employees to Use Them. This is Really Just One Arrow in the Quiver to Spurring Greater Retirement Savings. Most Business Owners, Managers, Employees and Professionals Not Schooled in the Operation of Retirement Plans Still have Trouble Understanding How to Administer and Invest Within Them. One of the Outgrowths of This has Been to Make You the Plan Sponsor (i.e.: You the Company, Non Profit, Organization, Plan Trustee) Responsible for Managing Your Retirement Plan in the Best Interest of Your Employees Who Participate in Your Plan.

Fiduciary Responsibility Holds You to the Status of an “Expert” in Managing Your Retirement Plan. Under ERISA (Employees Retirement Income Security Act) You are Held Accountable for How the Plan is Managed. It is Vitally Important You Perform the Necessary Due Diligence for Each Aspect of Your Plan. This includes Documenting the Steps You Take in Managing Your Plan and Monitoring the Investments Held in Your Plan.

According to the Department of Labor a Retirement Plan Fiduciary is Required to:

  • Act Solely in the Interest of Plan Participants and Their Beneficiaries, With the Exclusive Purpose of Providing Benefits to Them
  • Carry Out Their Duties with Skill, Prudence, and Diligence
  • Follow the Plan Documents (Unless Inconsistent with ERISA)
  • Diversifying Plan Investments
  • Pay Only Reasonable Expenses of Administering the Plan and Investing its Assets
  • Avoiding Conflicts of Interest

2. Parity: Parity Refers to the Relative Equality of Plan Contributions Between Management and Rank and File Employees. Retirement Plans Are Managed for the Benefit of All the Employees for Which They Are Created. Not Simply Owners, Senior Management or Other Highly Compensated Employees. A Good Rule of Thumb is No More Than 60% of Your Retirement Plan’s Assets Should Come From Highly Compensated Employees.

Qualified Retirement Plans Are Required to Have Non-Discrimination Testing Performed Each Year. Non-Discrimination Testing is Used to Determine Whether or Not Your Retirement Plan “Discriminates” in Favor of Highly Compensated Employees. If This is the Case Your Retirement Plan Will be Deemed to be Out of Compliance.

3. Fees: Under Retirement Plan Regulations Created by Rule 408b(2) by the DOL (Department Labor) and the EBSA (Employee Benefit Security Administration) All Fees Paid by Your Retirement Plan Must Be Fair and Reasonable. As the Trustee of Your Retirement Plan it is Your Responsibility for You to Determine That the Fees Your Plan Pays Offers the Best Value. Simply Choosing the Least Expensive Providers and Vendors Does Not Satisfy the Requirements of Rule 408b(2). Rule 408b(2) Requires Choosing Providers That are the Most Effective in Helping You to Properly Administer Your Plan to Help You Secure the Best Outcomes and Produce the Greatest Value for Your Employees and Their Investments in Your Plan.

Some Examples of Service Provider Fees You May Need to Document While Managing Your Retirement Plan May Include: Accounting, Auditing, Actuarial, Banking, Consulting, Custodial, Insurance, Investment Advisory, Legal, Recordkeeping, Securities Brokerage, Third Party Administration and Valuation Services.

The Types of Services These Providers Offer Range From Plan Design, to the Investments Held in Your Plan to the Platform From Which Your Plan is Delivered. Fee Sharing Arrangements or Revenue Sharing Where Fees are Allocated Back to Your Retirement Plan to Cover Certain Plan Costs May be Considered to be Plan Assets. Fee Revenue Sharing Arrangements Should Be Structured to Benefit Your Retirement Plan. As Plan Assets They Should be Used to Benefit Your Employees as Participants in Your Retirement Plan. It is Also Important to Determine Which Fees Your Organization Will Pay and Which Fees Your Employees Will Pay.

It is Vitally Important You Document Your Philosophy and Process Around Which You Select Providers, Vendors and Investments for Your Retirement Plan with Respect to the Fees Your Plan Pays.

4. Employee Communication: Communicating to Your Employees How Your Retirement Plan Operates, Functions and How to Invest in Your Plan is Critical to Your Employees Successfully Creating a Financially Secure Retirement. Some of the Documents You May Need to Create for Your Plan to Communicate With Your Employees Include:

a. Your Plan Document: This is the Document Which Creates the Terms and Conditions Under Which Your Retirement Plan is Created. It Can be Provided by Your Retirement Plan Services Provider. It May be a Prototype Plan Document (a Pre-Created Document) or a Custom Document. Custom Documents are Generally Created by an Attorney Well Versed in ERISA Law Specifically for Your Organization.

b. Your Plan’s Summary Plan Description: Your Summary Plan Description (SPD) is an “Important Disclosure Document Prepared by the Plan that Describes, in Understandable Terms, the Rights, Benefits, and Responsibilities of Participants and Beneficiaries in ERISA Covered Pension, Health and other Employee Benefit Plans. The SPD Must Include Important Information Regarding the Plan, Such as Information on How the Plan Works, Eligibility requirements, What Benefits the Plan Provides, and How Those Benefits May be Obtained.

Plan Sponsors are Required to Automatically Provide Copies of These Documents to Plan Participants Upon Enrollment and Upon Written Request of a Plan Participant or Beneficiary. ERISA also gives the Department of Labor the Authority to Request Copies of These Documents from Plan Administrators/Employers on Behalf of Participants and Beneficiaries.”

c. Annual Report (Form 5500): Your Retirement Plan’s Annual Report Provides Financial Information About Your Plan. “This Report is Required to be Submitted Annually by Many ERISA-Covered Plans. It Contains Various Schedules with Information on the Financial Condition and Operation of the Plan. Certain Entities in Which Plans Invest or Participate Also File Annual Reports with the Department of Labor. These Entities, Called Direct Filing Entities or “DFEs,” Include Banks, Common or Collective Trusts, Insurance Company Pooled Separate Accounts, Master Trusts, Group Insurance Arrangements and Entities Covered by Department of Labor regulation 29 CFR 2520.103-12. These Reports Include Financial Information Regarding the DFE and a List of the Investing or Participating Plans. Generally, the Six Most Recent Reports filed by Employers or Plan Administrators are Available. (Note: electronic copies of the data contained on all of the Forms 5500 and schedules filed each year are available for a fee by submitting a Freedom of Information Act request)”

d. Summary Annual Report (SAR): Your SAR “Outlines in Narrative Form the Financial Information in the Plan’s Annual Report, the Form 5500 and is Furnished Annually to Participants.”

e. Summary of Material Modification (SMM): Your SMM “Apprises Participants and Beneficiaries of Changes to the Plan or to the Information Required to be in the SPD. The SMM or an Updated SPD for a Retirement Plan Must be Furnished Automatically to Participants Within 210 days After the End of the Plan Year in Which the Change Was Adopted.”

f. Individual Benefit Statement (IBS): Your Employees IBS “Provides Participants With Information About Their Account Balances and Vested Benefits. Plans That Provide for Participant-Directed Accounts Must Furnish Statements on a Quarterly Basis. Individual Account Plans That do Not Provide for Participant Direction Must Furnish Statements Annually.”

g. Automatic Enrollment Notice: Your Plan’s Automatic Enrollment Notice “Details the Plan’s Automatic Enrollment Process and Participant’s Rights. The Notice Must Specify the Deferral Percentage, the Participant’s Right to Change That Percentage or Not Make Automatic Contributions, and the Plan’s Default Investment.”

h. Blackout Period Notice: The Blackout Period Notice “Requires at Least 30 days’ (but Not More Than 60 Days’) Advance Notice Before a 401(k) or Profit Sharing Plan is Closed to Participant Transactions. During Blackout Periods, Participants (and Beneficiaries) Cannot Direct Investments, Take Loans, or Request Distributions. Typically, Blackout Periods Occur When Plans Change Recordkeepers or Investment Options, or When Plans Add Participants Due to a Corporate Merger or Acquisition.”

i. Plan and Investment Information for Participant Directed Accounts: Plan and Investment Information, Including Information about Fees and Expenses, so Participants Can Make Informed Decisions to Manage Their Individual Accounts. The Investment Information Must be Provided in a Format, Such as a Chart, That Allows for Comparison Among the Plan’s Investment Options.

j. Operational  Process: Documents Communicating to Your Employees in Plain Language the Details of Processes for How Your Plan Functions Including  Where Employees Can Find Information to Access Your Plan Such as Websites, Investment Information, Enrollment Kits, PDF’s and Other Printed Material.

This May Include Communicating How Plan Services and Investments Help You Manage Your Plan and How They May Help Your Employees Succeed in Saving for Their Retirement.

5. Employee Education: The Purpose of Retirement Plan Regulation is Protecting Your Employees Retirement Savings. A Corollary of This Goal is to Help Ensure Your Employees Feel Comfortable Enough to Invest and Save for Their Retirement in Your Plan. Providing Tools to Help Your Employees Succeed in the Endeavor of Creating a Financially Secure Retirement is Paramount in Importance. This is the Reason to Provide Investment Education for Your Employees.

Investment Education for Your Retirement Plan Falls Into Two Categories:

a. General Investment Education: General Investment Education is Not Specific to Your Employees Individual Circumstances. It is Information Only. It May for Example Provide Descriptions and Examples of Investment Concepts Such as:

  • Asset Allocation
  • What a Mutual Fund is
  • How a Mutual Fund Can Be Used to Achieve Diversification
  • How to Project Your Retirement Savings Goal
  • Tools Such as Calculators to Determine the Amount Your Employee Needs to Save to Reach Their Retirement Savings Goal Based on a Presumed Rate of Return

This Type of Investment Education is Typically Delivered via a Website or Other Self Learning Method.

b. Personalized Investment Education: Personalized Investment Education is Specifically Tailored to Each Employees Unique Financial Situation. It is Typically Delivered by an Investment or Financial Advisor Through an in Person Consultation with Your Employee. It takes into Account Your Employees Complete Financial Picture Including: Income, Size of Portfolio, Net Worth, Tax Bracket, Marital Status, Age, Number of Children, and Aversion to Risk. It Considers Other Investment and Savings Accounts the Employee May Have, What Rates of Return are Needed to Achieve Your Employees Retirement Savings Goal, the Retirement Lifestyle Your Employee Wants to Achieve and Over What Period of Time. It Also Considers Where Best to Position Taxable, Tax Free, Tax Advantaged, Growth and Income Producing Investments.

Acting as an Investment Advisor to Employees Participating in your Retirement Plan Makes an Investment or Financial Advisor a Fiduciary to Your Retirement Plan. Providing an Investment Advisor to Counsel Employees as to How Best Invest Within Your Retirement Plan May Involve Financial Planning.

This Article is an Introduction to Some of the Concepts Involved in Managing Your Qualified Retirement Plan. There is a Great Deal More You Will Need to Consider. The Overriding Theme of Managing Your Retirement Plan in the Best Interest of Your Employees Based on Both Regulatory Adherence and Investment Outcomes Sets the Stage for You to Create and Manage Your Retirement Plan so Your Employees Have the Best Opportunity to Create a Secure Retirement.

The Investment Advisor Helps Companies, Self-Employed Individuals and Non-Profit Organizations Manage their Qualified Retirement Plans. The Investment Advisor Provides a Comprehensive Consulting Service with Respect to Defined Contribution Qualified Retirement Plans. The Investment Advisor Also Performs Feasibility Studies For Those Companies, Self Employed Individuals and Non-Profit Organizations Who Wish to Create or Evaluate Their Existing Qualified Defined Contribution Plan such as Their 401(k), 403(b), Profit Sharing Plan, KEOGH, SEP-IRA, SIMPLE-IRA or IRA Plan.

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The Investment Advisor Can Be Reached by:

Phone

877-414-9021-Toll Free

570-815-0770-Mobile

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On the Request Consultation or Contact Us Page on the Website of The Investment Advisor at https://www.theinvestmentadvisor.net/request-consultation.html

The Investment Advisor is a registered investment adviser exclusively serving business, non-profit organizations, families and individuals doing business and residing in the state of Pennsylvania.  Pennsylvania is the only state in which The Investment Advisor is registered to conduct business. Therefore, only residents of the state of Pennsylvania, businesses or non-profit organizations with a physical place of business and who conduct business in Pennsylvania may consider this article an offer to conduct business. If you are a resident of a state other than Pennsylvania or a business or non-profit that does not have a physical place of business and conduct business in Pennsylvania you may view this article for informational purposes only. If you are a resident, business or non-profit that does not reside in or have a physical place of business and conduct business in Pennsylvania this article is not an offer or solicitation to conduct business in any state other than in Pennsylvania.

This communication should not under any circumstance be construed as a recommendation for any security or any type of financial planning activity. Recommendations are only made in individual consultation with each client after the individual and unique circumstances of each client have been disclosed by the client to The Investment Advisor.

Shareholders Service Group, Pershing, My New Financial Advisor and Free Retirement Report.com are not affiliated with The Investment Advisor. Shareholders Service Group, Pershing, My New Financial Advisor and Free Retirement Report.com are third party vendors who act as financial intermediaries and service providers on behalf of The Investment Advisor and its clients.

Investing and Technology

Posted by & filed under Portfolio Management.

Small Business Men shaking Hands

Focus on the Numbers: Like any Good Business Person You Use Numbers to Measure the Financial Health of Your Business and Your Household. The Federal Government Also Uses Numbers to Measure the Growth and Health of the Economy. Several Months Ago the Federal Government Announced an Initiative to Make the Information Resources of the Federal Government Available to Business. A Good Example of This is the United States Census Bureau’s App Which Makes the Econometric Numbers Reported by the Bureau of Labor Statistics Available Through the App the Moment They are Released. These Numbers Make Up a Good Portion of the Economic Calendar and are Comprised of 19 Statistics Used to Monitor the Economy. These included Measures Ranging from Gross Domestic Product (GDP), Housing, Manufacturing, Unemployment, Inflation, Personal Income, International Trade and More.

You May Have Also Heard that Certain Economic Reports such as the University of Michigan Consumer Confidence Survey Have Been Released a Second or Two Early to Large Institutional Investors Such as Hedge Funds, Private Equity and Others for a Fee. This Begs the Question are All Investors Operating on an Even Playing Field or are Some Investors Being Given an Unfair Advantage?

The Securities and Exchange Commission (SEC), the Commodity Futures Trading Commission (CFTC), the Department of Justice (DOJ), and other Federal Agencies Have Been Busy Over the Last Number of Years Shoring up the Nation’s Financial Regulations. Many Have Argued the Onerous Burden Such Regulations Impose on Securities and Investment Firms Mandated by Dodd-Frank and Other Laws. These Regulations Combined with Stepped Up Oversight of the Investment Community by the SEC, the CFTC, the DOJ and other Federal and State Agencies Have had the Effect of Exposing Firms Such as: SAC Capital for Insider Trading , JP Morgan Chase Over the London Whale Trades, Goldman Sachs for Conflicts of Interest and Self-Dealing, Bank of America for Securities and Mortgage Violations and  the Exposure of a Number of Various Ponzi Schemes and Securities Law Violations Stemming From the Financial Crisis too Numerous to Mention Here.  These Enforcement Actions Have Resulted in Prosecution, Criminal Convictions and Fines Sending a Message the Laws Will be Enforced.

The Nation is Systematically Working Through Issues Affecting the Operational Integrity and Fairness of the Financial Markets from Securities to Credit to Lending.  The Markets Have Been in a Healing Process for Several Years. The Evidence Showing Rising Asset Values in Housing, Securities, GDP and the Recent Debate by the Federal Reserve to Start an End to Quantitative Easing is Evidence of the Improvement.  As the Country Continues to Work Through This Restructuring the Cumulative Effect of Regulation and Enforcement is Helping to Restore the Health of the Financial Markets Over Time. Given this Approach the Financial Markets and the Economy Will Continue to Improve Despite the Fact There are Still Issues Yet to be Resolved.

Government Economic Information Released Through Apps Like the One Made available by the Bureau of the Census and the Bureau of Labor Statistics as Well as the Federal Government’s Open API (Which Allows Direct Feeds of Government Information to Business, Institutions and Small Investors Who Wish to Avail Themselves of it) is Released the Moment the Government Reports This Information to the Public. You Become Among the First to Receive This Information Electronically if You Have Downloaded the App or Have Set Up Feeds Through the Open API. Access to Information in This Manner While Not Granting Early Access May Serve to Level the Investment Playing Field as Those Who Have Set Up Access are Informed as Fast as Legally Possible.

Fast Access to Government Information Which May Move Markets Delivered Through an App on Your Smart Phone, Tablet, Through a Feed to Your Desktop or IT Network Will Allow You to Access Information on a Timely Basis Helping to Keep You Well Informed.

You Can View Information About the App and Download it at https://www.census.gov/mobile/

 

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The Investment Advisor-Exclusively Serving Individuals, Families, Business and Non-Profit Organizations in Pennsylvania.

 

The Investment Advisor Can Be Reached by:

Phone

570-299-7416-Direct

877-414-9021-Toll Free

570-815-0770-Mobile

On the Request Consultation or Contact Us Page on the Website of The Investment Advisor at www.theinvestmentadvisor.net

Email:lwolkenstein@theinvestmentadvisor.net

The Investment Advisor is a registered investment adviser exclusively serving business, non-profit organizations, families and individuals doing business and residing in the state of Pennsylvania.  Pennsylvania is the only state in which The Investment Advisor is registered to conduct business. Therefore, only residents of the state of Pennsylvania or organizations with a physical place of business and who conduct business in Pennsylvania may consider this letter an offer to conduct business. If you are a resident of a state other than Pennsylvania or an organization that does not have a physical place of business and conduct business in Pennsylvania you may view this article for informational purposes only. If you are a resident or business that does not reside in or have a physical place of business and conduct business in Pennsylvania this article is not an offer or solicitation to conduct business in any state other than in Pennsylvania.

This communication should not under any circumstance be construed as a recommendation for any security or any type of financial planning activity. Recommendations are only made in individual consultation with each client after the individual and unique circumstances of each client have been disclosed by the client to The Investment Advisor.

Shareholders Service Group, Pershing, My New Financial Advisor and Free Retirement Report.com are not affiliated with The Investment Advisor. Shareholders Service Group, Pershing, My New Financial Advisor and Free Retirement Report.com are third party vendors who act as financial intermediaries and service providers on behalf of The Investment Advisor and its clients.

 

 

Has the Market Cycle Turned?

Posted by & filed under Portfolio Management.

This Hypothesis is One of Many Espoused in the Investment Industry and is Presented for Your Consideration.

The Release of the Case-Schiller Home Index Showed a 10.9% Increase. This was Followed by a Year Over Year Increase in the Price of Homes. The Median Price of a Home Now Stands at $271,600. However, the Real Story in Residential Real Estate is Told by Homeowners Equity. Homeowner Equity has a lot to do with Consumer Spending and the Perceived Wealth of Homeowners.

The Wealth Effect is Created When an Asset Owned by a Consumer or Investor Rises in Value. This Could be Stocks, Bonds Mutual Funds or Real Estate. The Markets Rise in 2013 Has Helped Investors. This May Have Helped Consumer Spending so Far This Year. However, the Clouds on the Horizon Relating to the Pullback in Government Spending Vis a Vie the Sequester, the Markets Skittishness Over the Possible Unwinding of Quantitative Easing, the Lack of Approval of a Permanent Raise in the Debt Ceiling and Gridlock in the Federal Government are Still Fueling Uncertainty.

Residential Real Estate has Indeed Risen. It was Reported Earlier This Year by Economists and Pundits Who Saw Real Estate Contributing About .5 or ½ of 1% to Gross Domestic Product (GDP) in 2013. This is Not Only Due to the Rise in Home Values but Includes all the Related Purchases People Make When Buying a Home Such As Furniture, Appliances, Home Improvements and the Like.

Zillow Real Estate Research Has Recently Published Their Negative Equity Report. Negative Equity is the Amount by Which a Home is Worth Less Than the Value of the Loan Used to Buy it. The Report Finds that Negative Equity Rate Fell From 27.5% in 2012 to 25.4% in the First Quarter of 2013. It Also Showed a Sequential Year Over Year Decrease From the First Quarter of 2012 to the First Quarter of 2013 Falling 31.4% to 25.4% Respectively.

The Street.com Reported:

“About 44% of Homeowners With Mortgages Cannot Afford to Sell Their Homes”, according to Zillow.

“Despite a Recovery in Prices, Over a Quarter of Homeowners With Mortgage Loans Still Owe More Than Their Homes are Worth. But another 18.2 percent of Homeowners with Mortgages, While Not Technically Underwater, Likely Do Not Have Enough Equity to Afford to Move,”

“43.6% of Homeowners Have Less Than 20% Equity in Their Homes. That Makes it Hard for Them to Move or Trade-Up, Given the Considerable Costs Involved in Buying and Selling a Home, Including the Cost of a Down Payment for the Next Mortgage.”

“This Inability to Sell is One of the Big Factors Behind the Acute Shortage of Existing Homes for Resale in the Country. Strong Investor Demand for Foreclosed Homes is Another Reason.”

Zillow’s Negative Equity Report States:

“In the First Quarter of 2013, More Than 730,000 American Homeowners Were Freed From Negative Equity. However, 13 Million Homeowners with a Mortgage Remain Underwater. Moreover, the Effective Negative Equity Rate Nationally —Where the Loan-to-Value Ratio is more than 80%, Making it Difficult for a Homeowner to Afford the Down Payment on Another Home — is 43.6% of Homeowners With a Mortgage. Home Value Appreciation Across the Nation Has Been the Main Factor Reducing Negative Equity Levels. Some Markets, Such as Phoenix (25.5%), Las Vegas (23%) and Several California markets, Such as San Francisco (24.8%), Los Angeles (17.9%) and Sacramento (25.4%), are Experiencing Very Strong Appreciation. Furthermore, Continued Foreclosure Liquidations are Also Driving Down the Negative Equity Rate. Despite These High Rates of Appreciation, Negative Equity is Still Very High and Will Remain High as Deeply Underwater Homeowners are Slowly Being Lifted Toward Positive Equity. However, the Effective Negative Equity Rate Remains Very High at 43.6%. In a Move-Up-Market, Homeowners with Less Than 20% Equity Will Effectively Still be “Locked” Into Negative Equity. On average, a U.S. Homeowner in Negative Equity Owes $73,059 More Than What Their House is Worth, or 42% More Than the Home’s Value. While Roughly a Quarter of Homeowners With a Mortgage are Underwater, 91% of These Homeowners are Current on Their mortgage and Continue to Make Payments.”

There Has Been a Negative Equity Feedback Loop, as Regions With High Negative Equity Have Experienced Acute Inventory Shortages Brought on in Part by Locked-in Underwater Homeowners, and These Shortages in Turn Have Produced Home Value Appreciation Spikes, Which Have Been Reducing Negative Equity at a Fast Pace. The Zillow Negative Equity Forecast Predicts the Negative Equity Rate Among all Homeowners with a Mortgage Will Fall to at Least 23.5% by the first Quarter of 2014, Freeing More Than 1.4 Million Additional Underwater Homeowners Nationwide.

Negative Equity Will Continue to Impact the Real Estate Market, Even Though the Negative Equity Rate is Continuing to Drop Relatively Quickly, and the Depth of Negative Equity is Falling Significantly. However, as Home Values Continue to Appreciate and Mortgage Rates Increase Homes Will Become Increasingly More Expensive, Leading to Slowing Demand Which, in Some Markets, Will Lead to Stagnant Home Values or Even Home Value Depreciation. Once That Occurs, Negative Equity Will be Reduced at a Much Slower Pace and Might Even Increase Again. We Expect These Dynamics to Unfold in Two to Three years From Now Once Mortgage Rates Begin to Return to Normal Levels. In the Short Term, Home Values are up 5.2 % on a year-over-year basis in April 2013, and Given our Forecast of an Additional 4% Home Value Appreciation over the Next Year (April 2013 to April 2014), We Expect That Negative Equity Rates Will Continue to Decrease in the Next Year to a Rate of, at Most of 23.5% by the first quarter of 2014. Next year (April  2013 to April 2014), We Expect That Negative Equity Rates Will Continue to Decrease in the Next Year to a Rate of, at Most, 23.5% by the First Quarter of 2014.”

So Real Estate is on the Mend. At Least Until Mortgage Rates Return to More Historically Normal Levels. As a Sign the Economy is Improving There Appears to be Concern by Some Federal Reserve Governors That it May be Time to Consider Scaling Back or Perhaps Eliminating Quantitative Easing. Rising Interest Rates and Falling Unemployment are Both Signals the Economy is Improving. As Evidence the Yield on the 10 year Bond has Recently Spiked Just above 2% and Unemployment has Fallen to 7.5%. The Fed’s Targets for Elimination of Quantitative Easing is an Inflation Rate of 2.5% or an Unemployment Rate of 6.5%.

It is Most Likely a Reduction in Quantitative Easing Would Create an Initial Knee Jerk Reaction in the Markets to the Downside. However, the Corresponding Increase in Economic Activity Fueled by the Real Economy Such as a Decrease in Negative Equity Could Create a Consumer Wealth Effect that May Facilitate a Continued Upward Movement in the Markets as Bond Prices Fall.

Equities and Real Estate Assets are Pivotal in Creating the Wealth Effect.

Based on Recent Comments by Several Federal Reserve  Governors and Ben Bernanke’s Remarks in Front of Congress the Federal Open Market Committee (FOMC) Will be Watching Economic Reports for Further Economic Strength. Should Such Strength Appear and Become Consistent the Likelihood of a Reduction in Quantitative Easing Increases. At Least One Fed Governor Has Suggested a Clearer Picture of the Health of the Economy May Emerge in Three to Four Months.

The Zillow Report Suggests There May be an Intermediate Term Cap on the Rise in Real Estate Within Two to Three years as Rates Rise with the Broader Economy.

Shorter Term Real Estate Seems to be Leading the Real Economy Higher Fueling Employment, the Market and Leading to a Rise in Interest Rates. Real Estate Got Us Into the Financial Crises and the Federal Reserve has Thrown Everything at it From Quantitative Easing to Historically Low Short Term Interest Rates.  Government Programs Such as Mortgage Modifications and Block Sales of Foreclosed Homes to Investors Seems to be Having a Positive Effect.

The Question That Remains is at What Point Does the Economy Move Past Slow Growth to a Meaningful Recovery.  The Zillow Report Suggests Real Estate as Historical Driver of the U.S Economy Will Continue to Grow for Two or Three More Years. This is Positive for the Markets and the Real Economy. It Also Creates a Counter Argument to the Recent Debate that the Markets Rise in 2013 is Disconnected From the Real Economy and Begins to Show a Connection Between the Two.  The Negative Equity Feedback Loop Zillow Points Out Represents an Engine Upon Which Real Estate Can Grow. This May Represent a Fundamental Paradigm Shift Leading to Higher and Self Sustaining Economic Growth. Now May be the Time to Position Your Portfolio for This Fundamental Shift.

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Pennsylvania – 7th in U.S. Technology Employment

Posted by & filed under On the Pennsylvania Economy.

Pennsylvania is 7th in the Nation in Technology Employment. Tech America Foundation  has Completed Their Study of the United States Technology Industry. Tech America’s Cyber States Study Looks at Technology Employment, Wages and Important Metrics in the United States as a Whole and in all 50 States Individually.

Important Results of the Study Include: 

The Technology Industry in Pennsylvania Employs Approximately 4.3% of Pennsylvania’s Workforce

Pennsylvania‘s Technology Industry Created 3500 New Jobs in 2012

Pennsylvania’s Technology Industry Pays Employees $18 Billion in Annual Wages

Technology Workers in Pennsylvania Earn 85% More Than Pennsylvania’s Average Private Sector Wage

There are 14,200 Tech Businesses in Pennsylvania including Research and Development, Testing Laboratories, Electronic Components Manufacturing and Engineering Services

National Results Include: 

Total United States Technology Employment was 5.95 Million in 2012

Technology Employment Rose in 2012 by 1.1% or 67,400

Employment in Software Services Increased 3.5% or 63,900

The Technology Industry’s Payroll Was $558 Billion in 2012

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The Investment Advisor-Helping Technology Companies and Their Employees in Pennsylvania