Russell Bailyn's Financial Planning Blog tag:www.russellbailyn.com,2008:/weblog//2 2008-05-02T22:31:12Z Exploring the World of Financial Planning: investment products and ideas, retirement plans including 401k and 403b's, economic commentary, and picks from my bookshelf. Movable Type 3.2 Simple Rules for Making Money with Stocks tag:www.russellbailyn.com,2008:/weblog//2.116 2008-05-01T22:09:25Z 2008-05-02T22:31:12Z Recently I had a client call in to sell his position in a fertilizer stock in which he made a 20% profit. His reason for selling was that the stock showed signs of weakness and he thought the Federal Reserve speech might spook the market into a downtrend. Fair enough. A few hours later I had a different client call to buy the same stock, saying he saw signs of weakness and thought it might be a good time to buy the stock. Plus, he thought the Fed speech might be positive and give the markets a boost. Two smart guys with totally different opinions. The experience reinforced my belief that most investors don’t know a thing about the markets. Trying to guess the short-term direction of a stock is usually a losing proposition. I’ve been thinking for the last few hours about what strategy a moderately conservative investor could use to seek out some growth in their portfolio without taking on too much risk. The below strategies should help you mitigate risk and hopefully teach you a thing or two about the movement of stocks.... Russell Bailyn www.russellbailyn.com Recently I had a client call in to sell his position in a fertilizer stock in which he made a 20% profit. His reason for selling was that the stock showed signs of weakness and he thought the Federal Reserve speech might spook the market into a downtrend. Fair enough. A few hours later I had a different client call to buy the same stock, saying he saw signs of weakness and thought it might be a good time to buy the stock. Plus, he thought the Fed speech might be positive and give the markets a boost. Two smart guys with totally different opinions. The experience reinforced my belief that most investors don’t know a thing about the markets. Trying to guess the short-term direction of a stock is usually a losing proposition. I’ve been thinking for the last few hours about what strategy a moderately conservative investor could use to seek out some growth in their portfolio without taking on too much risk. The below strategies should help you mitigate risk and hopefully teach you a thing or two about the movement of stocks.

]]> The first thing we can do is stop trying to guess where the markets are going. Instead, focus on what you can buy when the market goes down. The way to do this is by keeping a decent percentage of your money in cash. This way, when the market drops, you can buy more of your stocks or funds. Buying on the dips will usually be more profitable than buying on a rally. So, keep some money in cash and look at those ‘down days’ as opportunities.

Next, look for companies which don’t correlate directly with the overall market. The idea is to find companies which may go up even on days when the overall markets are down. Usually, this happens with ‘value-oriented’ stocks which appear to have a more limited downside and greater appreciation potential. There are several fundamental metrics which investors can look at to determine how the market is valuing each stock.

Finally, learn how to take a profit. Psychology plays a strange role when investing in that it begs us to do the wrong thing. Most people who make money with stocks in a short period of time want to hold on for more. Similarly, most people who are losing money on a stock refuse to sell it until it bounces back to a certain level. We need to rid ourselves of emotion and establish prices to enter and prices to exit. If you do set up a quantitative strategy for your investments, stick by it. It will cause you to take more profits. Recently, with market volatility at an all time high, this strategy has worked particularly well.

There you have it. Keep some of your portfolio in cash, buy value-oriented investments, and learn when to take your profits. These common sense ideas aren’t practiced enough by investors and really work. Good luck!

Russell Bailyn

Wealth Manager
Premier Financial Advisors
14 E. 60th Street, #402
New York, NY 10022
P: 212-752-4343 *31
F: 212-752-7673
rbailyn@premieradvisors.net

Securities and certain investment advisory services offered through: First Allied Securities, Inc., a registered Broker/Dealer. Member: FINRA/SIPC. Premier Financial Advisors, Inc. is a Registered Investment Advisor. First Allied Securities & Premier Financial Advisors are not affiliated entities.

]]> Are Market Predictions a Waste of Time? tag:www.russellbailyn.com,2008:/weblog//2.115 2008-04-18T17:57:30Z 2008-04-18T18:03:56Z There was a spread in the Wall Street Journal at the end of 2007 in which a variety of seasoned financial experts were asked where the markets were headed in 2008. The predictions were mostly bullish - Dow 14,000 - Dow 15,000 - Dow 16,000 - true dreamers. A couple of people more accurately predicted flat markets in the face of staggering oil prices and a weak housing market. But nobody--none of the experts--expected a 10% decline in the first quarter alongside a massive credit crisis. I’ve listened to hundreds of bulls and bears make predictions about market direction over the past five years and I keep returning to the same conclusion: these people have no clue where the market is headed.... Russell Bailyn www.russellbailyn.com There was a spread in the Wall Street Journal at the end of 2007 in which a variety of seasoned financial experts were asked where the markets were headed in 2008. The predictions were mostly bullish - Dow 14,000 - Dow 15,000 - Dow 16,000 - true dreamers. A couple of people more accurately predicted flat markets in the face of staggering oil prices and a weak housing market. But nobody--none of the experts--expected a 10% decline in the first quarter alongside a massive credit crisis. I’ve listened to hundreds of bulls and bears make predictions about market direction over the past five years and I keep returning to the same conclusion: these people have no clue where the market is headed.

]]> The prime example of this sustained foolishness is Jim Cramer. I’ve met Jim a few times and he happens to be a very nice guy with a genuine interest in helping people. Regardless, his role as a daily stock picker on Mad Money is impossibly difficult and his track record is really starting to look bad. Jim didn’t predict the 2,000 point drop we experienced late last year into this year. He sat on television when the market hit 14,000 talking about how the rally was real. Then he talked about why we were destined for a correction after the averages already fell. Buy high and sell low Jim? That doesn’t sound right.

But Jim Cramer is just one of many. Countless experts are on television these days making predictions. Some talk about why the recession fears are overblown and how we’ve seen the worst of it. Yet others predict earnings season is going to be weak and continued decreasing home prices will hamper the economy until mid-2009. Who should you listen to? And why do all these experts have such varying opinions?

It doesn’t hurt to listen to what experts have to say. They may provide you with an idea for your portfolio and ultimately help you become a more informed investor. The time to stop listening is when the market predictions come out. Markets are emotional and nobody has a clue when and where the markets are going. Experts may understand the patterns and fundamentals reasons behind market movement--but they don’t ultimately know any better than you do when or if the Dow will reach 15,000.

If any winner were to emerge from the endless steam of market predictions, it’s the financial networks that feature people with opposite opinions all day long. They hook viewers and listeners with their content and get rewarded with advertising dollars. What a racket!

Russell Bailyn
Wealth Manager
Premier Financial Advisors
14 E. 60th Street, #402
New York, NY 10022
P: 212-752-4343 *31
F: 212-752-7673
rbailyn@premieradvisors.net

Securities and certain investment advisory services offered through: First Allied Securities, Inc., a registered Broker/Dealer. Member: FINRA/SIPC. Premier Financial Advisors, Inc. is a Registered Investment Advisor. First Allied Securities & Premier Financial Advisors are not affiliated entities


]]> Market Turmoil: Taking Personal Responsibility tag:www.russellbailyn.com,2008:/weblog//2.114 2008-03-27T19:21:40Z 2008-03-27T19:25:10Z As we continue to question the softening economy, I’ve noticed lots of finger pointing in the media. Originally it was let’s blame Greenspan and the old Fed for keeping interest rates too low for too long. Now people are blaming Bernanke and the current Fed for not anticipating the credit crisis earlier and brainstorming a solution. Yet others blame the mortgage brokers and banks for not adequately disclosing the terms and risks inherent in certain loans which we now know to be junk. And of course, why not blame Bush? The president has driven up our federal deficit by paying for a war which is totally out of favor with the public. So who should really take the heat for the current economy? You should.... Russell Bailyn www.russellbailyn.com As we continue to question the softening economy, I’ve noticed lots of finger pointing in the media. Originally it was let’s blame Greenspan and the old Fed for keeping interest rates too low for too long. Now people are blaming Bernanke and the current Fed for not anticipating the credit crisis earlier and brainstorming a solution. Yet others blame the mortgage brokers and banks for not adequately disclosing the terms and risks inherent in certain loans which we now know to be junk. And of course, why not blame Bush? The president has driven up our federal deficit by paying for a war which is totally out of favor with the public. So who should really take the heat for the current economy? You should.

]]> I’m not suggesting that any single reader is responsible for the recent market turmoil. That would be impossible. But I do believe that people skirt responsibility for their actions and then turn to the government for a grand bailout package. That’s not how the United States grew to be so strong and more federal intervention simply makes us weaker as individuals. We survived the Great Depression and we can certainly survive a credit crisis brought on by greedy speculators.

Suggestions such as the government providing an unlimited line of liquidity to aggressive investment banks and brokerage firms make me very nervous. Why should my tax dollars protect greedy financiers who can’t see the danger in buying bad debt, packaging it up, and marketing it to the public as high-grade securities? If the financial industry continues to turn a blind eye to risk, let the banks fail until they get the equation right. That will be our country’s best path to re-gaining our financial prosperity.

On a more personal level, we must consider our own involvement in the current economic crisis. Most people simply are not giving enough thought to the financial decisions they make. When my retired parents hear about negative savings rates and people treating their homes like ATM machines, they are baffled. Do middle class people really understand risk and leverage? Probably not, and most of them don’t know what they’re signing when they take out a new mortgage or some other line of credit. Based on stories I’ve heard, here’s what often happens: someone, perhaps at the bank or an old friend, talks you into a new loan or shows you a fancy financial planning strategy which will allow you to live richer. The subtle understanding is that your lifestyle will improve and the money you spend to service your debts will be the same--if not lower--in the short run. The unspoken variables in most cases are how quickly your real estate assets will appreciate and how consistently you can earn money to keep pace with servicing debt. The end result, as we’ve seen, is a giant misunderstanding of financial products, the blame for which can be shared between individuals, mortgage brokers, and financial professionals. The prevalence and severity of these financial mistakes has sent a shock wave through the economy.

We must get a grasp on the financial decisions we are making. If something looks too good to be true, it probably is. So, let me return to basics and make a few suggestions which worked twenty years ago and still work today.

Don’t ever have credit card debt. I want you to ignore every person who gives you a reason why carrying a credit card balance can be advantageous. Its all just talk and it’s mostly untrue. The best way to handle credit cards is to use them and pay the balance in full at the end of every month. You should do this even if you’re on a promotion and can carry a balance at 0%. You’ll still get your points and rewards when you pay your balance in full. Until your credit cards are paid off, you shouldn’t save or invest anywhere else.

Put 20% down on your home. In the old days, people put 20% down on their home. This protects the buyer from home price volatility and it protects the bank from home price volatility. Look what happens when we put 0% down. The buyer ends up having a negative equity position and defaulting on the home while the bank takes the heat for it. Nobody wins in that scenario. If you’re buying a condo and it only requires 10% down, that is fine so long as you are able and willing to pay your mortgage comfortably and without sacrificing your lifestyle. Analyze your monthly mortgage payment carefully to ensure that you can afford it. Do not swear by the rule that “home prices always go up.” It’s not that simple and it’s certainly not true.

Stop living above your means. The society we live in is very competitive. It’s tempting to buy a new BMW when it costs nothing up front and only $399/month thereafter. Maybe you can afford that. But, have you considered the insurance costs, gasoline, parking, and tolls--not to mention the depreciation of the car? You must think through the entire purchase before you make it. And, only buy it if you truly love it, not because your neighbor has one and you’re driving the dinky old Toyota. If somebody is basing a relationship on how much money you can spend with them, rid yourself of that relationship. I have a friend like this who always wants to do expensive things together. He has a trust fund and I don’t. I had one honest conversation with him about it and now we’re better friends than ever and spending less money together.

Stop financing things. A few years back I would have given different advice. I would have suggested that you take advantage of interest-free financing and earn interest on your funds in the meanwhile. It’s a balancing act that organized people can often do very efficiently. Forget about it. Dedicate your time and energy to earning real money, not playing games with the banks to earn a few hundred extra dollars each year. The easy availability of credit is what brought on this entire crisis which has driven down the stock market and caused lost jobs and hurt feelings. Let’s just start paying for things with cash that we have either in our wallets or in our bank account. If you can’t afford to pay cash for a new couch or TV, don’t buy it.

Like many financial planning concepts, this stuff isn’t rocket science. It’s more about discipline and being conscious of our own decisions. If you’re not typically “good with money” find somebody, a financial advisor or otherwise, who can help you understand your lines of credit and iron them out. The current economic crisis is one that probably could have been avoided. Let’s do our part to get past it as soon as possible.

Russell Bailyn

Wealth Manager
Premier Financial Advisors
14 E. 60th Street, #402
New York, NY 10022
P: 212-752-4343 *31
F: 212-752-7673
rbailyn@premieradvisors.net

Securities and certain investment advisory services offered through: First Allied Securities, Inc., a registered Broker/Dealer. Member: FINRA/SIPC. Premier Financial Advisors, Inc. is a Registered Investment Advisor. First Allied Securities & Premier Financial Advisors are not affiliated entities.

]]> Reconsidering Retirement? tag:www.russellbailyn.com,2008:/weblog//2.113 2008-03-13T20:31:26Z 2008-03-14T21:02:59Z There was an article in Boomer magazine this month about prospective retirees who may be thinking twice about their retirement plans in light of the recently sour economy. It sounds like a reasonable concern to me. If your investment portfolio is off 15% over the past three months and your home price is steadily declining, your confidence about retiring is probably lower today than it was last year. How can you handle this situation?... Russell Bailyn www.russellbailyn.com There was an article in Boomer magazine this month about prospective retirees who may be thinking twice about their retirement plans in light of the recently sour economy. It sounds like a reasonable concern to me. If your investment portfolio is off 15% over the past three months and your home price is steadily declining, your confidence about retiring is probably lower today than it was last year. How can you handle this situation?

]]> My guess is that most people don’t view a retirement date as a black and white sort of event. You do it when you’re emotionally and financially able to face life with less responsibilities and a presumably lower income. I mention emotional readiness because retirement is about a lot more than having a million dollars in the bank. It’s a state of mind and retiring too early can have very negative affects on people. I’ve seen it with my own clients. The idea of postponing retirement because of what could be a brief market fluctuation is alarming to me. What if the market fluctuation occurred next year, right after you quit your job and moved to North Carolina? I suppose you would have altered your portfolio around the time of retirement so that less of your money is in growth-oriented investments and more of it is bonds and cash. That might not have helped too much given the weak performance in the bond market lately.

Coupled with an increasing life expectancy, I think people need to be truly confident about their future income sources before dismissing any current ones. If you own your home and plan to have a modest retirement funded by Social Security and taking income from a few hundred thousand dollars in savings, it’s good to understand precisely how much monthly income this will ultimately yield. Coming up with these figures is usually a good time to sit down with your financial advisor--if you have a good one.

On the theme of income production, you may have noticed the surge in television ads from financial institutions marketing insurance products to retirees lately. Much of this marketing is targeting people who have lump sums of money and are considering trading that lump sum for guaranteed income payments--often for life. This is a big deal for many people because the traditional strategy of growing your portfolio and taking out distributions when you need them becomes really difficult in the market we have today. There is intense volatility in both the stock and bond markets which makes it hard to determine from month to month how much money you have available.

As I’ve talked about on the blog and in my book, retirement in the 21st century isn’t like it was in the 1980s and 90’s. People often retain part-time jobs during retirement to keep busy and bring in a little extra side income. Some of my clients have even found web-based jobs in which they can earn a few hundred extra dollars each month from the comfort of their home. All of these things should be considered before you retire. If you’re married, have an open discussion with your spouse about any and all concerns including the financial implications of retirement and the overall lifestyle changes.

Overall, if you’re reconsidering your ability to retire, this is probably a good thing. It will polarize the issues and force you to consider your future scenarios. Ultimately this should lead to better planning. Questions or Comments? Feel free to e-mail me.

Wealth Manager
Premier Financial Advisors
14 E. 60th Street, #402
New York, NY 10022
P: 212-752-4343 *31
F: 212-752-7673
rbailyn@premieradvisors.net

Securities and certain investment advisory services offered through: First Allied Securities, Inc., a registered Broker/Dealer. Member: FINRA/SIPC. Premier Financial Advisors, Inc. is a Registered Investment Advisor. First Allied Securities & Premier Financial Advisors are not affiliated entities

]]> The Economic Stimulus Package + Other Helpful Tax Strategies tag:www.russellbailyn.com,2008:/weblog//2.112 2008-02-29T20:27:12Z 2008-02-29T20:30:27Z We’re entering the heart of tax season so I figured now would be a good time to do this post. If you are a client and haven’t brought in your tax documents for 2007 yet, please get in touch with us sooner than later. For those who read my blog from other parts of the world besides New York, here are a few tips that may help you this tax season. Let’s start with the best part: free money the government may give you this year as an ‘I’m sorry’ for the recessionary pressures hanging over all of us. I’d like to thank the broader financial services sector for creating a $500 billion liability we all must grapple with.... Russell Bailyn www.russellbailyn.com We’re entering the heart of tax season so I figured now would be a good time to do this post. If you are a client and haven’t brought in your tax documents for 2007 yet, please get in touch with us sooner than later. For those who read my blog from other parts of the world besides New York, here are a few tips that may help you this tax season. Let’s start with the best part: free money the government may give you this year as an ‘I’m sorry’ for the recessionary pressures hanging over all of us. I’d like to thank the broader financial services sector for creating a $500 billion liability we all must grapple with.

]]> Economic Stimulus Package Payments

You’ve probably heard about this economic stimulus package which was recently signed into law. Fortunately, all you need to do is file a 2007 tax return to get your payment. The IRS will automatically figure out how much you are owed and send a check out to you. Here is the once over:

In most cases, payments will range from $300 to $600 for individuals and $600 to $1200 for joint filers. Taxpayers may receive $300 for each qualifying child. Payments could be less, depending on tax liability and Adjusted Gross Income. Phase-out reduction begins at $75,000 for single filers and $150,000 for joint filers.

Stay Organized

Why is it that my clients are always struggling to figure out what is and isn’t tax deductible when tax season rolls around? We should be keeping a tab on our tax-deductible purchases so that when April rolls around they are at our fingertips. How can one do this? The old-fashioned method is to write a note to oneself on the back of a receipt. That note might say “business lunch with Mel” or something like that. The more modern way to do this is by designating one credit card for your business or tax-deductible expenses. This way you can simply reference your credit card statements (paper or online) at the end of the year to know what you can deduct.

On a separate note, good organization can keep your tax preparation fee lower as well. Often CPAs and tax preparers will charge you based on how much time it takes them to prepare and file your return. If you come in with an excel sheet which shows your income sources, itemized deductions (if that applies to you) and above-the-line deductions (student loan interest, IRA contributions, etc) you’ve just saved your tax preparer some time. If your fee is $300 instead of $500, it makes a difference, right? Make sure you collect and organize all of your w2s, 1099s, and other tax documents which ultimately are given to your tax preparer.

Establish a Retirement Plan

If you read my blog from time to time you know by now that I strongly recommend establishing a retirement plan. It’s a tax-savings concept established and encouraged by the IRS. The more you save, the less the government needs to save on your behalf. For this reason, there are lots of different retirement plan options. The plans generally vary depending on whether you work at a for-profit corporation (where you would likely encounter a 401k) to non-profits (most likely a 403b) to self-employed individuals who could see a variety of plans ranging from a SEP IRA to a profit-sharing plan or a smaller version of the 401k.

You can even establish and fund certain retirement plans by April 15th of the following year, rather than by December 31st of the tax year. If you aren’t contributing to a retirement plan at work don’t have an IRA, I recommend you start asking about it.

Always Double-Check your Return

Tax preparers make mistakes--plenty of them. Last year when I was looking over my completed return I noticed that my student loan interest, $860 that year, hadn’t been included on the front page of form 1040. That little error would have cost me a few hundred dollars had I not caught it. Errors can be made when copying figures from one sheet to the next, when calculating tax owed, even missing a 1099 or w2. When your preparer gives you back the return to look over, read through it and try to make sense of the numbers, even if taxes bore you to tears.

Questions or Comments? E-mail me.

Russell Bailyn
--
Wealth Manager
Premier Financial Advisors
14 E. 60th Street, #402
New York, NY 10022
P: 212-752-4343 *31
F: 212-752-7673
rbailyn@premieradvisors.net

Securities and certain investment advisory services offered through: First Allied Securities, Inc., a registered Broker/Dealer. Member: FINRA/SIPC. Premier Financial Advisors, Inc. is a Registered Investment Advisor. First Allied Securities & Premier Financial Advisors are not affiliated entities.

]]> Five Smart Ideas for Your Money tag:www.russellbailyn.com,2008:/weblog//2.111 2008-02-01T15:38:20Z 2008-02-01T16:27:27Z Becoming wealthy is not only about how good you are at earning money. It’s also about understanding and protecting your money. Below I’ve outlined a few concepts which plenty of people—plenty of very smart people—often overlook. Perhaps you can pick up an idea or two which improves your own personal financial life.... Russell Bailyn www.russellbailyn.com Becoming wealthy is not only about how good you are at earning money. It’s also about understanding and protecting your money. Below I’ve outlined a few concepts which plenty of people—plenty of very smart people—often overlook. Perhaps you can pick up an idea or two which improves your own personal financial life.

]]> Spend less than you earn – There are those that earn a dollar and spend fifty cents and there are those that earn a dollar and spend a dollar fifty. One may be inclined to think this sort of irresponsible spending happens most frequently with those earning small sums of money. I’ve found that the opposite is most often true. Plenty of individuals who earn over $100,000 per year spend more than that, often without even realizing. Between kids, housing, college costs, cars, vacations, etc, people simply cannot keep up. For many people, the idea of saving money eventually takes a back seat to simply ‘staying afloat.’ If this is you, it may be time to analyze how you’re living.

Protect oneself with insurance – There’s a very good reason why the insurance industry is the size it is. It doesn’t make sense for people to retain certain risks. What can one do? Transfer certain risks to an insurance company, pay the premium, and have some peace of mind. Take a doctor without malpractice insurance as an example. He or she may have worked for 20 years to save a million dollars towards retirement. What if, by accident, a doctor gives a patient medication which they’re allergic to, resulting in permanent injury or death to the patient? You can be reasonably certain the family of the patient will sue the doctor for a huge sum of money, quite possibly more than the doctor is worth. In a situation like this it would be silly not to have insurance. Even if it cost $10,000/year (which it might) to insure the doctor, they can rest assured that their livelihood is not at risk. The same lessons hold true with life insurance, health insurance, homeowner’s insurance, automobile insurance, etc. Proper (not excessive) insurance coverage is crucial to any well designed financial plan.

Carefully organize your finances - A client of mine recently missed a great opportunity to refinance their home because of bad credit. When the client found out he averaged a 600 credit score, he looked flabbergasted, as if that wasn’t possible. After we dissected the report, it turned out he was late one month on a mortgage payment and kept one credit card maxed out, even though he had ample funds to pay it down. I explained to him that credit scoring agencies don’t care how rich you are, they want to see how responsible you are. The point is everybody should be setting up some sort of automatic system for paying bills on time. Missing an opportunity to buy real estate or refinance an existing loan can cost you tons of money in the form of lost opportunity over the years. So please, take your bills seriously.

Take advantage of tax-friendly retirement plans - As much as you may hate Uncle Sam, he is interested in helping you saving for retirement. Why? The more you save, the less the government needs to save on your behalf. For this reason, we have vehicles such as the IRA and 401(k) available to us. These plans give us a tax deduction for the money saved inside and allow the funds to grow tax-deferred assuming you follow a few rules imposed by the IRS. At the end of the day, it’s a good way to save--often better than saving through non-tax-advantaged plans. Also, because contributions are often deferred directly from your paycheck, the savings become automatic and it becomes difficult for you to ‘forget to save.’ I recommend you meet with a financial professional and learn more about these plans. You can even utilize them if you are self-employed. The government doesn’t discriminate.

Diversify your portfolio* - 20 years ago it may not have been so uncommon to own a portfolio consisting only of stocks found in the Dow Jones Industrial Average. We are the US and our economy is the best, right? Well, maybe, but I’d advise you entertain the extent to which we are now a global economy. At my firm, and many others, portfolios must now pay attention to variables such as rapidly emerging third world markets, oil price volatility, currency fluctuation, real estate, etc. And as the world evolves, so do the financial products an investor can find to help them gain exposure to new and less popular asset classes. I recommend you think about the world we live in today and build a portfolio in which you feel invested and protected at the same time.

Russell Bailyn
--
Wealth Manager
Premier Financial Advisors, Inc
14 E. 60th Street, #402
New York, NY 10022
P: 212-752-4343 *31
F: 212-752-7673
rbailyn@premieradvisors.net

Securities and certain investment advisory services offered through: First Allied Securities, Inc., a registered Broker/Dealer. Member: FINRA/SIPC. Premier Financial Advisors, Inc. is a Registered Investment Advisor. First Allied Securities & Premier Financial Advisors are not affiliated entities.

*Diversification does not guarantee against loss, it is a method used to help manage investment risk.

]]> Catch the Falling Mortgage Rate tag:www.russellbailyn.com,2008:/weblog//2.110 2008-01-17T21:11:34Z 2008-01-29T20:54:46Z A common misconception is that all mortgage rates drop when the Fed cuts interest rates. The truth is that the exact opposite may be the case. When you hear that the “Fed cut rates today” the reference here is the Federal Funds Rate, the overnight lending rate that the Fed uses with other banks. The stock market often gets excited about the lowering of this rate because short-term borrowing becomes cheaper, generally increasing economic activity for businesses. However, homeowners with 15 and 30-year fixed mortgages shouldn’t be so sure that a lower federal funds rate will equal a refinancing opportunity.... Russell Bailyn www.russellbailyn.com A common misconception is that all mortgage rates drop when the Fed cuts interest rates. The truth is that the exact opposite may be the case. When you hear that the “Fed cut rates today” the reference here is the Federal Funds Rate, the overnight lending rate that the Fed uses with other banks. The stock market often gets excited about the lowering of this rate because short-term borrowing becomes cheaper, generally increasing economic activity for businesses. However, homeowners with 15 and 30-year fixed mortgages shouldn’t be so sure that a lower federal funds rate will equal a refinancing opportunity.

]]> When short-term rates are lower, the bond market often interprets that as higher long-term rates to come in the future. I held this misunderstanding last year when I closed on my apartment and got very frustrated when the Fed lowered rates and my 30-year fixed loan actually nudged up an 1/8th of a point. Inflation concerns can help nudge mortgage rates up as well following a reduction in interest rates. With food and oil prices at all time highs, the Fed is only willing to lower interest rates because the economy seems to be headed for a recession. Inflation concerns cause treasuries to sell off, pushing the yield higher--and generally the mortgage rates with it.

Remember, if you have one of those ARM loans which adjust in the short-run, the Jan 30th rate cut could be very helpful. It makes it less likely your payment is going to skyrocket in the short-term. It’s really the long-term, fixed-rate mortgage holders that need to look for other economic indicators. Right now, for example, the sub-prime mess is making it more difficult to obtain a loan. At the same time, the housing market has softened in many parts of the country. This has brought rates down almost a full point over the past 6 months.

Good luck with your mortgage shopping. If you are considering a refinance and want to throw around some ideas, feel free to send me an e-mail.

Russell Bailyn
--
Wealth Manager
Premier Financial Advisors
14 E. 60th St. #402
New York, NY 10022
212-752-4343 *31
rbailyn@premieradvisors.net

Securities and certain investment advisory services offered through: First Allied Securities, Inc., a registered Broker/Dealer. Member: FINRA/SIPC. Premier Financial Advisors, Inc. is a Registered Investment Advisor. First Allied Securities & Premier Financial Advisors are not affiliated entities.


]]> Consider the Benefits of a Roth 401k tag:www.russellbailyn.com,2008:/weblog//2.109 2008-01-14T19:01:59Z 2008-01-29T20:55:18Z Not all corporate employees realize that Roth 401k deferrals have been allowed since January 1st of 2006. The Roth 401k, like a Roth IRA, allows accounts to grow tax-free and allows for tax-free withdrawal of contributions, earnings, and interest. Funds are eligible for withdrawal at age 59 1/2 assuming you’ve held the account for at least 5 years. The ‘drawback’ is that you can’t take a tax deduction at the time of deferral the way you can with a traditional 401k. Many financial advisors feel that Roth plans, if you qualify for them, are more valuable than traditional plans. Technically, it depends on a few different factors including your current tax bracket, your retirement tax bracket, and which direction marginal tax rates are headed for in the future.... Russell Bailyn www.russellbailyn.com Not all corporate employees realize that Roth 401k deferrals have been allowed since January 1st of 2006. The Roth 401k, like a Roth IRA, allows accounts to grow tax-free and allows for tax-free withdrawal of contributions, earnings, and interest. Funds are eligible for withdrawal at age 59 1/2 assuming you’ve held the account for at least 5 years. The ‘drawback’ is that you can’t take a tax deduction at the time of deferral the way you can with a traditional 401k. Many financial advisors feel that Roth plans, if you qualify for them, are more valuable than traditional plans. Technically, it depends on a few different factors including your current tax bracket, your retirement tax bracket, and which direction marginal tax rates are headed for in the future.

]]> The reason I mention qualifying is that many of my readers don’t realize that you can get ‘phased out’ of making a contribution. For an IRA, the phaseout is $156,000-$166,000 in adjusted gross income if you’re married. It’s $99,000-$114,000 if you’re single. For an IRA, the annual contribution limit is $5,000 in 2008, $6,000 if you’re age 50 & above.

For a Roth 401k the boundaries are non-existent. A taxpayer who is married will not be phased out of making these contributions at any level. The only question you need to ask is whether your 401k plan offers the Roth contribution. If it doesn’t, and you want to make Roth contributions, should speak to your employer or HR department.

The Roth 401k is particularly attractive to higher-earnings individuals, or those that would mostly likely be phased out of IRA contributions. Unlike the $5,000 max in the IRA, an employee could defer the full $15,500 for 2007, or $20,500 if they are over age 50. Do you see what I’m getting at here? The restrictions don’t apply if you’re contributing through the 401k plan. So if you have a Roth IRA but are making 401k deferrals, you may want to re-examine your options.

If an employee is split about whether a Roth IRA is more valuable than taking the tax deduction now, they can split contributions between the regular and Roth 401k plans. It really is the best of both worlds.

Money held in Roth accounts also avoids the Required Minimum Distribution (RMD) rules. In non-Roth 401k and IRA plans, you must begin taking distributions when you pass age 70 1/2. While that may seem insignificant to a 40 year-old now, you will complain about the taxes when you eventually get older--I promise  RMD is really the government’s way of saying “hope you’ve enjoyed your tax shelter--now start paying!” Roth money is not subject to RMD and thus continues the theme of tax-free growth forever! Avoiding RMD obviously helps beneficiaries as well, who may have a greater chance at getting the full value of your IRA if it’s in a Roth-ruled account.

Just some food for thought.

Russell Bailyn
--
Wealth Manager
Premier Financial Advisors
14 E. 60th St. #402
New York, NY 10022
212-752-4343 *31
rbailyn@premieradvisors.net

Securities and certain investment advisory services offered through: First Allied Securities, Inc., a registered Broker/Dealer. Member: FINRA/SIPC. Premier Financial Advisors, Inc. is a Registered Investment Advisor. First Allied Securities & Premier Financial Advisors are not affiliated entities.

]]> The Mortgage Contingency Clause tag:www.russellbailyn.com,2008:/weblog//2.108 2008-01-10T19:01:42Z 2008-01-29T20:55:42Z The Real Deal posted a front page article earlier this month on the growing popularity of mortgage contingency clauses found within buyers’ purchase contracts. For those who aren’t familiar, this is a provision in the purchase contract in which the buyer is only obligated to the sale if he/she is able to get a mortgage. Put another way, the buyer doesn’t risk losing their deposit--often 10% or more--if factors affecting the credit markets force them out of a deal.... Russell Bailyn www.russellbailyn.com The Real Deal posted a front page article earlier this month on the growing popularity of mortgage contingency clauses found within buyers’ purchase contracts. For those who aren’t familiar, this is a provision in the purchase contract in which the buyer is only obligated to the sale if he/she is able to get a mortgage. Put another way, the buyer doesn’t risk losing their deposit--often 10% or more--if factors affecting the credit markets force them out of a deal.

]]> Most sellers understand that outside factors which affect banks (such as a bank’s ability to resell their mortgages elsewhere) can cause the seller a delay or even a denial of financing. Because this could happen to a buyer with substantial income/assets and a high credit score, it would be unfair to cause them to lose a down payment because of market conditions. This is why buyer’s attorneys have been more conservative lately on the wording of these clauses.

On the other hand, the sellers often do not want this clause because in the past it has been used to provide protection for unqualified buyers who are trying to bite on a big purchase and hope the banks will offer them a loan. Sellers might also suspect that buyers are using the clause as an overall escape route from a purchase. It could be a way of buying time while they further examine the market and analyze other pending deals.

Some different or more detailed clauses might also cap the interest rate on the loan. This would give the buyer a right to exit if rates jump substantially between accepted offer and closing. When I bought my apartment six months ago the interest rates were very volatile. The rates for a 30-year fixed were swinging by almost a quarter of a point each week. Just before the closing the bank informed me that they could close on schedule but only with a rate that was 1/8th of a point above my expected rate. In my case I took the higher rate because it meant not extending the lease on my pricey rental. But as you can see, these clauses are added in for a reason, especially in a housing market like we’re seeing right now.

It should be noted, since many of my readers are in the New York area, that new condominium developments typically don’t allow mortgage contingency clauses and don’t negotiate on that point. This issue is more about existing home sales. Please feel free to e-mail me with questions or comments.

Russell Bailyn
--
Wealth Manager
Premier Financial Advisors
14 E. 60th St. #402
New York, NY 10022
212-752-4343 *31
rbailyn@premieradvisors.net

Securities and certain investment advisory services offered through: First Allied Securities, Inc., a registered Broker/Dealer. Member: FINRA & SIPC. Premier Financial Advisors, Inc. is a Registered Investment Advisor. First Allied Securities & Premier Financial Advisors are not affiliated entities.

]]> How to Pay for a Wedding tag:www.russellbailyn.com,2007:/weblog//2.107 2007-12-21T14:17:41Z 2008-01-29T20:57:25Z I understand the value of a dollar extremely well. Each day I break the world around me down into dollars and cents. I try to assign a value to the meals I eat, the clothing I buy, and the services I pay for. If I can’t justify my purchase, I won’t make it based on principal. Because I’m in my mid 20’s, there are plenty of expenses which I haven’t covered yet. College tuition would be a good example. Clearly this is a good thing because shelling out for education expenses is hardly what I feel like doing right now. The big-ticket purchase which I’m curious about today is weddings. I’ve been to plenty and have a pretty good idea about what the financial breakdown looks like, but I still have to wonder, why does it need to be so expensive?... Russell Bailyn www.russellbailyn.com I understand the value of a dollar extremely well. Each day I break the world around me down into dollars and cents. I try to assign a value to the meals I eat, the clothing I buy, and the services I pay for. If I can’t justify my purchase, I won’t make it based on principal. Because I’m in my mid 20’s, there are plenty of expenses which I haven’t covered yet. College tuition would be a good example. Clearly this is a good thing because shelling out for education expenses is hardly what I feel like doing right now. The big-ticket purchase which I’m curious about today is weddings. I’ve been to plenty and have a pretty good idea about what the financial breakdown looks like, but I still have to wonder, why does it need to be so expensive?

]]> Studies show that the average wedding in 2006 cost $26,802. In the breakdown, the reception usually eats up about half the money, while photography, ceremony, flowers, and outfits consume most of the rest. Engagement parties and the ring are a separate issue I guess. As a New Yorker, I have to assume the higher end of the spectrum, perhaps around $40,000 for wedding that accommodates about 100 people which isn’t particularly flashy or overdone.

My instincts tell me that the age of the bride and groom probably factor strongly into both the cost of the wedding and how it gets divided. I would think that 25 year-old couples generally spend less money on weddings than 35-year old couples, presumably because they have less money. However, this may not be the case if we’re discussing a traditional wedding in which the bride’s parents are footing the bill. Then it wouldn’t matter how old the marrying couple is, only how much money the bride’s parents have. I would think older couples (35+) getting married either pay for the wedding on their own or merely seek out parents for a contribution. If the groom’s family has substantially more money than the bride’s family, why not ditch tradition and be practical? Also, if one guest has a larger family than the other, wouldn’t it make sense to account for that in a discussion about cost.

So how do we pay for the wedding? Ramit Sethi, another financial blogger, suggests saving in advance for your wedding based on the average ages in which we tend to get married. In the United States, women tend to tie the knot around 26, and men around 27. If we start putting even $300/month into an interest-bearing account at age 21, it could cover the majority of your expenses. The earlier you start saving, the lower the monthly amount needs to be. While this idea sounds practical and would be extremely responsible, I find it highly unlikely that people will save for a wedding before they are engaged. C’mon, you could be saving forever :-)

Another idea I’ve heard is financing a wedding. You could take out a loan from the bank, or *cringe* take some equity out of your home to pay for it. This is very troubling for me to hear as a financial planner. For either couple (newlyweds or parents) risking your retirement security or even delaying it to pay for the wedding sounds like a disaster waiting to happen. There are too many other life events which require large sums of money. Buying a home and paying for children’s college costs would be two examples. Regardless of how important your wedding day may be, it shouldn’t take jeopardizing your own financial security to mark its significance. I would say in most circumstances financing a wedding is a bad decision.

I think what it comes down to is that every family has different finances and different views about what a wedding should cost. The two families should have an open discussion about wedding costs and any other issues that may come up. Perhaps the bride’s family, the groom’s family and the bride and groom, split the cost. This would spread out those expenses in plenty of directions. I would also assume the guest list ties into the payment issue. If one side invites only 20% of the guests, perhaps they make a smaller contribution to the reception. You may as well get all of these issues out in the open. Most importantly, consider that your future is with this one person. If that registers well with both of you, the financial issues should ultimately take second fiddle.

As for suggestions on how to throw a fabulous wedding for not-so-much money… unfortunately I’m not there yet. But please share your ideas and experiences.

Russell Bailyn

--
Wealth Manager
Premier Financial Advisors
14 E. 60th St. #402
New York, NY 10022
(212)752-4343 *31
rbailyn@premieradvisors.net

Securities and certain investment advisory services offered through: First Allied Securities, Inc., a registered Broker/Dealer. Member: FINRA/SIPC. Premier Financial Advisors, Inc. is a Registered Investment Advisor. First Allied Securities & Premier Financial Advisors are not affiliated entities.

]]> A Simple Breakdown of Agflation tag:www.russellbailyn.com,2007:/weblog//2.106 2007-12-12T22:15:00Z 2007-12-12T22:18:39Z I have a hunch that food inflation is about to take center stage. Some may have noticed the increase in chatter about farm subsidies and commodity prices already in the early rounds of presidential debate. This is likely to continue into 2008 because agriculture prices are currently in ‘spike’ mode. Take a look at the Deutsche Bank Liquid Commodity Index--up 18.6% since January 1st--as proof.* This index covers wheat, corn, soybeans, and sugar among other commodities. So what’s driving these prices higher? And what can you do to protect a portfolio against agflation (agriculture inflation)?... Russell Bailyn www.russellbailyn.com I have a hunch that food inflation is about to take center stage. Some may have noticed the increase in chatter about farm subsidies and commodity prices already in the early rounds of presidential debate. This is likely to continue into 2008 because agriculture prices are currently in ‘spike’ mode. Take a look at the Deutsche Bank Liquid Commodity Index--up 18.6% since January 1st--as proof.* This index covers wheat, corn, soybeans, and sugar among other commodities. So what’s driving these prices higher? And what can you do to protect a portfolio against agflation (agriculture inflation)?

]]> The Economist ran a cover story on this issue last week, citing the growing wealth in emerging economies as the primary driver behind food prices. More specifically, the change in diet which accompanies this greater wealth ultimately leads to these higher prices. And the stats are very interesting. Did you know that it takes 8kg of grain to produce 1kg of beef? Studying the food chain sheds some light on where and how these prices increases may expose themselves. Most reports also cite government intervention, specifically regarding ethanol, as a major price driver. However, camps differ on how effective ethanol will ultimately be as a fuel supplement.

What people seem particularly united about these days is cutting farm subsidies to American companies, along with trade barriers to bring food prices back down. Along with cheaper food, we could dramatically reduce poverty as a result of jobs and trade opportunities realized through greater globalization. Alan Greenspan hammered this point into his speeches as often as possible. Of course there are quite a few old-timers who may go under without those government checks, which partially explains why they still exist.

The higher food prices we’re seeing typically benefit farmers first along with others in the business of food production. Studies show that these higher prices typically don’t affect wealthier people who may already be overspending on food and disregard it as a budget item. In theory, it will affect poor people the most, who count food as a substantial portion of expenses. The Economist seemed to think it would specifically harm the urban poor, and could actually help the rural poor in the form of job growth and new opportunities.

What can you do as an investor? Similar to oil, you can hedge against price increases by picking up an investment which tracks a commodity index, such as the one mentioned above. For compliance reasons, I can’t point out individual stocks which I think could benefit from higher corn, wheat, soybean, and sugar prices--but do some research and you should find plenty of other people who have already done this research. In my world, buying an index, rather than individual stocks, is the safer way to speculate or hedge in your portfolio.

Questions or comments? E-mail me.

Russell Bailyn
--
Wealth Manager
Premier Financial Advisors
14 E. 60th St. #402
New York, NY 10022
(212)752-4343 *31
rbailyn@premieradvisors.net

Securities and certain investment advisory services offered through: First Allied Securities, Inc., a registered Broker/Dealer. Member: FINRA/SIPC. Premier Financial Advisors, Inc. is a Registered Investment Advisor. First Allied Securities & Premier Financial Advisors are not affiliated entities.

*As of December 10th, 2007

]]> Is a Recession on the Horizon? tag:www.russellbailyn.com,2007:/weblog//2.105 2007-11-28T21:24:03Z 2008-01-10T19:38:15Z At times like this, old-fashioned advice such as ‘buy, hold, and don’t pay attention’ works extremely well. I’ve had several clients call over the past few weeks concerned about the day-to-day volatility in the stock and bond markets. I try to quickly remind everyone that asset allocation, diversification, and a solid financial plan are the ways to help achieve wealth--not cashing out a stock when it’s making money and trying to time getting back in after the price drops. That strategy, known as market timing, is a losing proposition over the long run and is better to avoid altogether. So what has the market in such a panic? I’ll give you a few different perspectives:... Russell Bailyn www.russellbailyn.com At times like this, old-fashioned advice such as ‘buy, hold, and don’t pay attention’ works extremely well. I’ve had several clients call over the past few weeks concerned about the day-to-day volatility in the stock and bond markets. I try to quickly remind everyone that asset allocation, diversification, and a solid financial plan are the ways to help achieve wealth--not cashing out a stock when it’s making money and trying to time getting back in after the price drops. That strategy, known as market timing, is a losing proposition over the long run and is better to avoid altogether. So what has the market in such a panic? I’ll give you a few different perspectives:

]]> First, you have those technical guys who think market conditions such as tight credit and high oil prices have nothing to do with anything. They believe the market moves from a technical standpoint only and analyzing the state of the economy is a waste of time. Technical traders believe markets can be read--even predicted--based on chart patterns. Having a technical perspective probably makes sense to many when it seems like even when good news pervades the markets, stock prices find a way to decline by 4:00. Many people who analyze the market in this way expect to see a 10% ‘correction’ (dip) in stock prices at least once every five years. As of this week, we’ve seen the 10% correction and the markets bounced back strongly between yesterday (November 27th) and today.

At a more logical level, we have the ‘fundamentalists’ who believe that incoming economic data is the greatest driver of stock and bond prices. For example, if home sales are doing poorly, consumers will likely spend less money in the future, resulting in lower sales for corporations and ultimately lower stock prices. This is certainly easier to digest than technical theory, even if the markets seems to ‘do their own thing’ every so often. In the current market, fundamental traders and advisors will blame lower stock prices on the weak US dollar (relative to the Euro and Yen) high oil prices, slowing home sales and a tightened environment for borrowing.

At a personal level, I agree with much of the current fundamentalist sentiment--except for the weak US dollar. My understanding is that a weak dollar will ultimately balance itself out in the stock market. If our goods are cheaper to purchase with Euros and Yen, then Europe and Asia will buy a lot more goods. We’ve already seen this in the real estate market, as more international buyers have been flocking to the US than every before. We also saw a major investment yesterday in a US financial company from Abu Dhabi. In this case, the purchase was in the form of petrodollars rather than Euros or Yen, but still exemplifies using foreign cash to buy into dollar-denominated goods. If you studied the business models of each company in the S&P 500, you’d learn that most of them do substantial business overseas. The currency discrepancy simply improves one aspect of their business (overseas sales) and weakens others (US sales). Over time, it balances out.

So we return to the old adage ‘buy and hold.’ If anything, lower stock and bond prices present an opportunity to purchase more securities at lower prices. Once oil prices return to historical levels, the dollar gains some traction, and people stop buying homes which they can’t afford, the attention will shift back to corporate profits, where things seem to be business as usual. And as for a recession... no I don't think its on the horizon. Quite the contrary.

Russell Bailyn
--
Wealth Manager
Premier Financial Advisors
14 E. 60th St. #402
New York, NY 10022
(212)752-4343 *31
rbailyn@premieradvisors.net

Securities and certain investment advisory services offered through: First Allied Securities, Inc., a registered Broker/Dealer. Member: FINRA/SIPC. Premier Financial Advisors, Inc. is a Registered Investment Advisor. First Allied Securities & Premier Financial Advisors are not affiliated entities.

]]> Surviving the ‘Sandwich Years’ tag:www.russellbailyn.com,2007:/weblog//2.104 2007-11-14T22:09:13Z 2007-11-14T22:12:49Z There was a great article on Bankrate last week called “Surviving the Sandwich Years.” The reference here is to people typically in their 40’s and 50’s, grappling with paying for aging parents while saving for both kid’s educations and retirement. The article points out that only 20% of people can rely on an inheritance and proper planning should really disregard any potential windfalls. Here are the ‘survival tips’ pertaining to estate planning which are offered by the article along with some of my own commentary:... Russell Bailyn www.russellbailyn.com There was a great article on Bankrate last week called “Surviving the Sandwich Years.” The reference here is to people typically in their 40’s and 50’s, grappling with paying for aging parents while saving for both kid’s educations and retirement. The article points out that only 20% of people can rely on an inheritance and proper planning should really disregard any potential windfalls. Here are the ‘survival tips’ pertaining to estate planning which are offered by the article along with some of my own commentary:

]]> 1- Educating oneself on legal issues - I think the author is talking about estate planning here. The most common issues are: reviewing who the beneficiaries are on your life insurance policies and factoring that into your giving strategy. Also, think through the implications of registering a home to yourself or a child. While registering it to a child may be desirable because it avoids probate, you then need the ‘new owner’ involved in any transactions which may affect the house. This could include taking out a reverse mortgage, renovating, or tax issues.

2- Talk to your parents - Having good lines of communication will always help. People who avoid dealing with financial issues until it’s too late learn this lesson the hard way. Plus, studies show that people in their 30’s and 40’s are much more inclined to speak openly about money than people who grew up in the post-depression era, where financial matters were treated with greater privacy. Open up to parents about financial concerns, college costs, and the idea of meeting with a professional about transfer strategies. One great idea for grandparents (when possible) is to establish college savings plan for grandchildren. The investment in the future will also ease the burden of parents trying to save money for their own issues.

3- Helping parents - Remember when your parents took care of everything for you? Well, the tables have turned. Many parents know less than you think about their healthcare plans, social security, investment choices, and insurance. Ask them about these things to see if they have concerns. If they are overpaying for a health care plan, call the insurance company with them and iron out the options. Perhaps the health plan isn’t strong enough and money could be freed up elsewhere to compensate. You won’t know unless you ask.

4- Considering housing options - For elderly parents, a rental unit or condo may be financially possible, but expensive when considering other financial needs. There are several options for aging parents who need care during the day: Personal home care may actually be the least expensive. Finding somebody who is state-licensed is recommended and will usually provide care during most of the day. You could also consider an assisted living facility or nursing home. Assisted living is expensive, but cheaper than nursing homes, where people may need constant attention. Sometimes Medicare will pay a portion of nursing or home care as well. You could also try checking with HUD (Housing & Urban Development) to see if you qualify for a lower-cost option.

5- Don’t cheap out on yourself - If you’re one of those people who likes to please everyone, and you get around to yourself last, be careful! Retiring with enough money should be a more important concern than pre-paying for college in cash. Your kids are young and can take out government-subsidized loans. If you can afford to, help them pay back the loan later, rather than liquidating your cash now. They have their whole lives ahead of them to earn money, whereas you may not. Just something to think about.

In the end, financial issues are very personal and every person has different amounts and attitudes towards money. The best advice I can give is to pay attention to the issues which could come up in your life.

As always, feel free to contact me with any questions or comments.

Russell Bailyn
--
Wealth Manager
Premier Financial Advisors
14 E. 60th St. #402
New York, NY 10022
(212)752-4343 *31
rbailyn@premieradvisors.net

Securities and certain investment advisory services offered through: First Allied Securities, Inc., a registered Broker/Dealer. Member: FINRA/SIPC. Premier Financial Advisors, Inc. is a Registered Investment Advisor. First Allied Securities & Premier Financial Advisors are not affiliated entities.

]]> Wealthy Parents & Inheritances: Transmitting Values with Money tag:www.russellbailyn.com,2007:/weblog//2.103 2007-11-09T20:55:22Z 2007-11-09T20:58:44Z An interesting article in Worth magazine this month talks about how many of the country’s leading attorneys are helping their clients grapple with how to pass money along to their kids. The problem, of course, is making sure the wealth is treated as an opportunity and not as a tool to derail motivation and the desire to succeed. The lawyers in the article point out that in the 70’s and 80’s, a typical meeting between a client and his or her attorney or financial advisor would be comprised of strategies which ensure giving the IRS as little money as is legally possible during a wealth transfer. The goal was to maximize the amount of money being transferred to younger generations and minimize the tax implications. Nowadays, the shift is away from taxes and onto the effects of inherited wealth.... Russell Bailyn www.russellbailyn.com An interesting article in Worth magazine this month talks about how many of the country’s leading attorneys are helping their clients grapple with how to pass money along to their kids. The problem, of course, is making sure the wealth is treated as an opportunity and not as a tool to derail motivation and the desire to succeed. The lawyers in the article point out that in the 70’s and 80’s, a typical meeting between a client and his or her attorney or financial advisor would be comprised of strategies which ensure giving the IRS as little money as is legally possible during a wealth transfer. The goal was to maximize the amount of money being transferred to younger generations and minimize the tax implications. Nowadays, the shift is away from taxes and onto the effects of inherited wealth.

]]> In many cases, values and attitudes about money are learned from ages 4-18, in which case newly found concerns about passing along wealth may be a moot point. If your child is already accustomed to a lifestyle which he or she doesn’t necessarily deserve or appreciate, it may be a good idea to appoint your child as a co-trustee on one or more of their trusts. By involving themselves with their own money, they will learn basic principles of investing and see that money has other uses besides buying cars and drinks.

The common understanding between most parents with a net worth of $5M+ is that they want to provide funds for education, possibly seed money for a business or a down payment on a home. However, from that point forward they want their kids to take these advantages in life (which many of the parents didn’t start with) and use them to lead productive and financially fruitful lives. Parents will rarely provide the extra few hundred thousand dollars which allow their kids to remain lazy and not form an identity in the work world.

The scary reality for kids is often that parents don’t see a reason to leave via inheritance more than a certain amount of their money. A family worth $100M may decide to give a total of $20M to family member’s and give the rest away to charity. The hope is often that the child will have the motivation to bring their wealth to the same or higher level than the older generation. This ambition can be near impossible if a child is given an extremely large sum of money.

Another emerging pattern, which is a big switch from 30 years ago, is that kids are getting involved with financial decisions including real estate, charities, and trusts. This involvement gives kids a greater perspective on the value of money and often makes them feel partially responsible for the impacts of family decisions. As I’ve discussed in prior posts, depression-era parents are used to secrecy and privacy regarding their money and sometimes want to keep their kids in the dark.

One lawyer in the article who had a more ‘extreme approach’ suggested matching distributions from a trust with a child’s earned income. In other words, if your child earns $100,000, they are entitled to a $100,000 distribution from the trust. If their earnings cut in half, the distribution follows. The author points out that this strategy has flaws, such as stay-at-home kids and jobs such as teaching which generally don’t produce a high income. That being said, the point of wording the trust this way is very clear.

The bottom line is quite similar in a lot of the estate planning books I’ve read: parents must communicate with kids. Grandparents often must overcome old values which don’t work as well in today’s world. Most importantly, kids must be raised with a head on their shoulders, regardless of what their parents may be achieving in their careers. As always, feel free to e-mail me with questions or comments.

Russell Bailyn
--
Wealth Manager
Premier Financial Advisors
14 E. 60th St. #402
New York, NY 10022
(212)752-4343 *31
rbailyn@premieradvisors.net

Securities and certain investment advisory services offered through: First Allied Securities, Inc., a registered Broker/Dealer. Member: FINRA/SIPC. Premier Financial Advisors, Inc. is a Registered Investment Advisor. First Allied Securities & Premier Financial Advisors are not affiliated entities.

]]> Do What You Love & You May Earn More Money tag:www.russellbailyn.com,2007:/weblog//2.102 2007-10-30T16:52:41Z 2007-10-31T04:29:43Z Do you love what you do? When I pose this question to my clients about half say yes and the other half say no. From what I’ve read, the actual number of people who truly enjoy their day job is around 30%, indicating the other 70% are either miserable at work or just plain accepting it. To be fair, not everyone can do exactly what they love. Once you have a family and a mortgage, the ability to take risks with your career and “pursue your passions” can quickly dissipate. Also, once you reach a certain level of job security and income stability, change may take a backseat to sheer survival and maintenance of our current lifestyles. What I envision for an improved work-world would be more people getting fired up to take charge of their destiny and make positive changes in their life.... Russell Bailyn www.russellbailyn.com Do you love what you do? When I pose this question to my clients about half say yes and the other half say no. From what I’ve read, the actual number of people who truly enjoy their day job is around 30%, indicating the other 70% are either miserable at work or just plain accepting it. To be fair, not everyone can do exactly what they love. Once you have a family and a mortgage, the ability to take risks with your career and “pursue your passions” can quickly dissipate. Also, once you reach a certain level of job security and income stability, change may take a backseat to sheer survival and maintenance of our current lifestyles. What I envision for an improved work-world would be more people getting fired up to take charge of their destiny and make positive changes in their life.

]]> I believe part of the problem stems from our experiences in high school and college where we learn to “work hard” but not necessarily on things we’re interested in. An attitude of complacency evolves as we get used to working hard on projects we otherwise wouldn’t choose to. The misconception here--what you can avoid if you think outside the box--is that working can’t coincide with passion. Not only that, you’ll probably earn more money and be happier if you find something you genuinely enjoy doing.

My thought process regarding work serves as a good example of how I believe others should think as well. I fully acknowledge my passion for real estate and finance. I derive tremendous pleasure from looking at mansions, observing architecture, and speculating about the endless number of ways the inhabitants may have gained enough money to comfortably afford to live inside. As a result, I started my career as an assistant at a real estate brokerage firm, showing pricey homes to deep-pocketed buyers. This allowed me to surround myself with money and real estate. Shortly after working there, I came to realize that the financing aspect of buying real estate was equally interesting to me. Ultimately, I ended up working at an asset management firm, advising people on how to save and invest money, and finance real estate purchases. The process of adapting my passions into a career was very linear albeit somewhat accidental that I ended up where I did and when. The result has been greater success and happiness at a young age--something, unfortunately, not all of my friends and family can relate to.

The ways in which higher earnings follow job enjoyment are very natural. You’ll actually want to work more hours, perhaps 9-9, if you’re having a good time. It’s sort of like playing a video game which you don’t want to shut off. You end up working harder and accomplishing more because you’re interested. You may also notice that your knowledge and interest of peripheral topics improves as well. For example, my passion for money management has led me to learn about estate planning and insurance as well. This will ultimately help me earn more money, as I am able to advise clients on a broader scope of topics.

So what steps can you take now? First, give it some real thought. I wouldn’t recommend quitting your job and becoming a pro wrestler tomorrow simply because you’re passionate about it. Having a plan and executing it slowly and carefully will surely make the process easier. If you ultimately decide to transition out of the corporate lifestyle and work for yourself, you may find that your investments are coming out of stocks and bonds and into your own business. In my eyes, this is your best shot at “total return.” Why? You have complete control. If you get your business up and running, the money should follow. If you aren’t careful and spend irresponsibly, you could lose money.

Also, it never hurts to think about your list of contacts. People don’t do this often enough and it can really provide some motivation. When my book came out last month, I had to think carefully about anyone who could help boost sales. I contacted friends who work at all sorts of places, including PR firms, book stores, and publishers. Plenty of my friends were able to offer advice which, even if it didn’t directly earn me money, it certainly saved me some. When you’re looking to switch careers, consider who may work within that field, or may know somebody who works in that field, or may have some advice about jumping ships and how to stay focused.

Finally, don’t get discouraged. I’m a fairly young guy, but I could talk for hours about any number of distractions, obstacles and people who have clouded my vision. I’ve learned that if you’re tirelessly committed to your goals, they are much more likely to happen. Some people will help you out, offering advice, money and time to watch you realize a dream--others may try to bring you down, usually out of jealousy or resentment. Focus on the positive, not the negative.

For me, I need to constantly remind myself of the amazement I felt as a child admiring a mansion. If I can stay focused enough on my goals, eventually I will monetize my passions enough to succeed. The best part, hopefully, will be the journey getting there.

Please e-mail me with thoughts and comments.

Russell Bailyn
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Wealth Manager
Premier Financial Advisors
14 E. 60th St. #402
New York, NY 10022
(212)752-4343 *31
rbailyn@premieradvisors.net

Securities and certain investment advisory services offered through: First Allied Securities, Inc., a registered Broker/Dealer. Member: FINRA/SIPC. Premier Financial Advisors, Inc. is a Registered Investment Advisor. First Allied Securities & Premier Financial Advisors are not affiliated entities.

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