Posted on Friday, April 24, 2009 - by Katie Tkaczyk
All About Variable Annuities
The Securities and Exchange Commission has published a very helpful discussion of Variable Annuities: what they are and how they work. If you would like to look into them, here is the link: www.sec.gov/investor/pubs/varannty.htm.

If you find you have further questions, please feel free to ask me or Scott Klatt for some explanation. Just click on our contact line, under Advisors. We hope to hear from you.

For questions or additional information on this blog entry, please contact us.

Posted on Wednesday, April 22, 2009 - by Henry Walter
FINANCIAL SAFETY & SECURITY – A SAFETY QUIZ
Fraud is always present so we need to be continually on guard, but in recessionary times it increases as people become desperate. Victims are often older people especially widows who are taken advantage of by not only con artists but by so-called legitimate businesses like banks and brokers. Sophisticated investors are often victims too. Just look at the lists of Bernie Madoff and the Stanford Group victims which include a number of prominent investors who should have known better like Mort Zuckerman and Steven Spielberg. Younger people are also often victims, but the dollar amounts are smaller and there is ample time for them to recover.

Your writer learned his lesson when he was 18. At a railroad station a well-dressed, well-spoken man approach him and asked for help, a $20 loan, big money in those days. He claimed his wallet had just been stolen and he didn’t have enough money to get home. As soon as he got home he would repay the loan and he offered his business card. Your writer handed over the $20, and never saw it again. After he waited a few days for repayment, he checked out the address on the card and found there was no such residence. Some of you probably had similar experiences. A valuable lesson.

Here are a few ideas to protect your safety and security. First, take this safety quiz.
It’s fast, easy and the smart move. 14 short questions will rank if your daily habits are keeping your identity safe or putting you at risk. Of course, you have to be honest with your responses.

Your writer recently took the test and scored 20. A perfect score is 0 and the worst possible score 100. Your writer, who believes he is safety conscious, learned a lot.

To take the quiz open: http://www.idsafety.net/quiz1.asp

While you are at it, don’t forget to order your free credit reports (free every 12 months) from Equifax, Experian and Transunion. To order, visit www.annualcreditreport.com or call 1-877-322-8228. You can also order by mail from Annual Credit Report Service, P.O. Box 105281, Atlanta, GA 30348-5281.

If you want to go further, retrieve and read “2009 Identity Fraud Survey Report: Consumer Version” by Javelin Strategy & Research. Just Google the title and click on the first item that comes up. The report is 22 pages long and includes lots of good information on how to protect yourself.

We hope the above is helpful. If you have any comments, suggestions or questions, you can contact the writer directly at sip@frontiernet.net.

For questions or additional information on this blog entry, please contact us.

Posted on Tuesday, April 21, 2009 - by Henry Walter
Weekly Roundup, April 21, 2009
1. The Dow just completed the best six consecutive weeks since 1938, regaining the 8000 level, and is up 26% from the March 9, 2009 low. Year-to-date the market is still down with some exceptions. As of the close April 17, the Dow was -7.3%, the S&P 500 -3.7%, NASDAQ Comp +6.1%, the Russell 2000 (small stocks) -4.0%. 1

2. Overseas, the larger markets in Europe are down year-to-date, but Israel is +21.2% and Sweden +15.6%. In South America, Brazil, a component of BRIC (Brazil, Russia, India and China) is +21.9% and Venezuela +25.7%. Asia continues to be the strongest region with China +37.5%, India +14.3%, South Korea + 18.2% and Taiwan + 25.4%. 2

3. How’s business? Well Ben Bernanke has seen ‘green shoots’ and President Obama ‘glimmers of hope’ supposedly indicating that the pace of economic declines is leveling off. Last week the Federal Reserve released its beige book which describes the economic landscape in the Fed’s 12 districts. While the reports described continuing economic woes in all districts, in 5 of the 12, the downward slide was described as slowing. The beige book is notoriously optimistic, perhaps because the president of each district is well aware of the old adage, “The truth will set you free and may put you on unemployment”. We should also note that “hope” is not generally considered a viable investment strategy. One particularly disturbing report was that capacity utilization fell in March, to 69.3%, the lowest level in the 42 years the government has been keeping track. Over in China, the economy grew 6.1% in the first quarter, the worst quarter in nearly two decades, although there is some question as to whether China is fudging the data.

4. There seems to be a renewed interest in bonds, and SIP participants have a wide range of choices, probably too wide. In Tier II you have the Barclays Aggregate Bond Index Fund. It invests in investment-grade bonds but unlike a money market fund its price and yield will fluctuate. In Tier III there are at least 12 bond categories, not counting munis. Here are some of the categories that may be of interest: Intermediate-term bonds, short-term bonds, multi-sector bonds, and the more speculative high yield bonds and emerging markets bonds. Outside SIP you can invest in bonds through ETFs. Currently there are at least 58 choices. Google “Bond ETFs” to see the list. 3

5. Here are some of the things to consider when picking a bond fund. First is credit quality. You probably will want to stick to investment grade bond funds. Second would be the expense ratio. As Jack Bogle, founder of Vanguard, and others have pointed out repeatedly, low expenses are critical for long-term performance in a bond fund. It is hard to beat the Vanguard funds for low, low fees. Third is duration, which measures the sensitivity of bonds to interest rate movements. Quoted in years, it is the approximate percentage by which the value of a bond or bond fund will fall for a 1% per annum increase in market interest rates. For example, if a bond fund has a duration of 7, the price of the fund would fall approximately 7% if interest rates increase by 1 %. Similarly, the fund would rise 7% if interest rates fall by 1%. Finally one needs to consider the diversification of a bond fund. Some bond funds have heavy weightings in financial bonds which may not be desirable in terms of risk control. As a starting point, you may want to stick with Vanguard bond funds or their equivalent ETFs. Since the avowed objective of the Fed is to re-inflate the economy, you may also want to keep your duration low. Talk to your financial adviser but realize that not all financial advisers are knowledgeable about bonds. 4

6. Oil inventories just hit an all-time high which is keeping oil prices down, at least in the short-term. As a result, oil companies around the world are making substantial reductions in their budgets for exploration, drilling and just about every other aspects of the energy business. When the global economy recovers there is likely to be a shortage of oil, and if that is the case, prices for oil and oil stocks will spike again.

7. The battle between inflation and deflation continues and no one knows how it will end, although every one has an opinion. Former Fed chairman Paul Volcker was appointed by President Obama to chair the president’s Economic Recovery Advisory Board which has yet to meet. According to a report in the Wall Street Journal, “Paul was surprised at the failure to consult him, particularly on issues of financial rescue after his dominant role in resolving financial crises in the 1980s, says one person who has spoken to Mr. Volcker recently.” And Allan Meltzer, the Fed historian and professor of political economy at Carnegie Mellon says the current rescue efforts will end in tears. Inflation “will get higher than it was in the 1970s” he says.[Unclear?]

8. In spite of the title, this book is worth reading: The Ultimate Survival Guide: Protect Your Savings, Boost Your Income, and Grow Wealthy Even in the Worst of Times, by Martin D. Weiss (Amazon $15.37). Published on April 6, 2009, it is already #1 on Amazon’s Investing, Management & Leadership and Personal Finance categories. Overall it is #11. Thus far 11 customers have reviewed the book, and all 11 gave the book 5 stars. Check out the reviews at www.amazon.com.

9. All eyes are on the consumer. Frugality is in, frivolity out. Spending is down and savings up to as much as 5% of income. Savings were actually negative a few years ago. None of this is surprising given that consumers are spooked by the financial crisis, foreclosures and job losses, either actual or feared. Of course the austerity does not help the economy, something economists call the Paradox of Thrift. There are dozens of web sites springing up to help consumers become more frugal. Here are a few: www.stretcher.com, www.allthingsfrugal.com, and www.frugalmom.net.

10. On tax day (April 15) there were more than 750 Tax Day Tea Parties to protest government spending and high taxes, and just to have a good time. We liked the sign seen at a tea party in Annapolis, “Bring back the Brits – they taxed us less!”

11. The case of the orphaned month. Goldman Sachs lost a lot of money in December 2008. But that loss was not included in the results for the last quarter of 2008 or the first quarter of 2009, making Goldman’s results look better than they were and paving the way for a $5 billion sale of new stock. According to the Washington Post (April 15, 2009) the firm was required to shift to a calendar year as a result of its decision in September to become a bank holding company. Previously, its fiscal year ended in November. How convenient.

12. According to Morningstar, mutual fund expense ratios were flat to slightly lower in 2008, but are likely to be higher in 2009. It is not that fund managements are raising fees, rather mutual fund assets are down sharply from the beginning of 2008, and there are automatic breakpoints in the fee structure for many funds. For example, a management fee might be 70 Basis Points (BP) for the first billion, 65 BP for $1 billion to $5 billion and 60 BP for all sums above that. So as assets decline, higher fees apply to a greater proportion of the total assets of the fund. For instances, the Vanguard U.S. Value (VUVLX) recently saw a 9 BP hike in fees to 0.46%. 5

1. Past performance is not a guarantee of future return. The above referenced indexes are unmanaged and cannot be invested in.

2. Past performance is not a guarantee of future return. Risks of foreign investment include currency fluctuations, economic, political or social instability. These risks may be significantly higher in emerging markets.

3. The information provided is not specific financial advice or a recommendation to buy or sell. We must review your profile, needs and accounts specifically to determine what is right for you.

4. You should consider an Exchange Traded Fund’s investment objectives, risks, charges and expenses carefully before you invest. The fund’s prospectus contains this and other information about the fund, and should be read carefully before investing. A prospectus may be obtained from your adviser or from the fund company directly.

5, 6. You should consider a fund’s investment objectives, risks, and charges and expenses carefully before you invest. The fund’s prospectus contains this and other information about the fund, and should be read carefully before investing. A copy of the prospectus can be obtained from the fund company directly.

The above information has been taken from trade and statistical sources which we deem reliable. We do not represent that it is accurate and it should not be relied upon as such. Any opinions expressed herein are not the opinions of High Falls Advisors.

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