Thu, February 05, 2009
Last year, one of my clients asked me this question. He was well-educated, but had simply never had an occasion to learn how investments work. It struck me at that moment that if he didn't know, then plenty of other people probably don't, so I decided to prepare a short introduction to the topic. Read the full article
Fri, January 16, 2009
The Emergency Economic Stabilization Act of 2008 (a.k.a. “the Bailout Bill”) changed the reporting requirements for annual tax statements from brokers. Form 1099-B, which formerly had to be sent by January 31, is now due on February 17 this year (the statutory date is February 15, but in 2009 that's a Sunday and the 16th is Presidents' Day). Read the full article
Mon, January 05, 2009
Today the House Financial Services Committee will hear testimony from the SEC inspector general on the Madoff scandal. It promises to be the beginning of what Rep. Paul Kanjorski (chairman of the House Subcommittee on Capital Markets, Insurance and Government-Sponsored Enterprises) is calling “the most substantial rewrite of laws governing U.S. financial markets since the Great Depression.” Wall Street could not have escaped congressional scrutiny after the year that we’ve had even if Madoff had never happened, but the failure of regulators to protect the public from his massive fraud has drawn fresh attention to the shortcomings of existing regulatory protections. Expect a cacophony of voices offering opinions as to what should or should not be changed in order to prevent future market crises and protect investors from unscrupulous con artists.
Read the full article
Wed, December 31, 2008
The Bernard Madoff scandal has been extraordinary. The amount of money lost, the number of years that the scheme went on undetected, and world-wide extent of the fraud are unprecedented. The fact that Madoff’s victims were mostly highly sophisticated investors is unsettling for a lot of people – if experienced investors could be fooled, how can the average investor avoid getting taken by an unscrupulous adviser? Here's how. Read the full article
Tue, December 16, 2008
The news media continue to reverberate with details of Bernard Madoff’s fraudulent investment scheme. Sadly, a number of charitable foundations, including Elie Wiesel's Foundation For Humanity, Steven Speilberg’s Wunderkinder Foundation, the Carl and Ruth Shapiro Foundation, and the Robert Lappin Foundation, had most of their funds invested with him. The Lappin Foundation, based on the North Shore of Boston, has had to shut down. Read the full article
Sat, December 13, 2008
2008 has been firmly established as an annus horribilis for the financial world. Yesterday, Wall Street got another big dose of bad news as a well-known stockbroker and former chairman of the NASDAQ stock exchange was arrested yesterday for swindling investors out of tens of billions of dollars. Read the full article
Mon, December 08, 2008
With stock markets down precipitously and few asset classes that haven’t declined significantly this year, many investors in 529 college savings plans are wondering what to do. In some situations, it may make sense to make a change in your child’s 529 plan. Read the full article
Wed, December 03, 2008
A comment that I've heard several times in the last few weeks is, "I took a look at my 401(k)/mutual fund statement and it was really depressing." Well, take heart: at least you're not down by eight billion dollars.... Read the full article
Wed, November 26, 2008
In my earlier post on Roth IRA conversions, I noted that if you converted an IRA into a Roth earlier this year it may make sense to recharacterize the funds if the value of your account has slumped and you still owe taxes on the earlier, larger conversion amount. I also stated that you can’t go back this year and do another conversion. However, I realized that there is a way to sort of do a conversion/recharacterization/reconversion. Read the full article
Fri, November 14, 2008
I've written several posts on the asset protection limits available to consumers who have invested in a variety of financial assets. With all the changes and adjustments that have taken place in the last few months in the financial landscape, I thought it might be helpful to provide a single article summarizing the insurance /protections currently available to investors. Read the full article
Tue, November 11, 2008
Last week, financial journalist and author Jane Bryant Quinn polled several members of the National Association of Personal Financial Advisors (NAPFA) for our opinions on whether it's still a good idea to have stocks in a retirement portfolio. The consensus? In a word, "yes." Read the full article
Tue, October 21, 2008
The parties involved in the Lehman credit default swap (CDS) auction are settling up today, and everyone is hoping that none of the participants got too badly burned (even if they're hedge funds). Read the full article
Fri, October 10, 2008
Until now, it hasn’t been entirely clear how much damage will result from the Lehman bankruptcy. An auction taking place today will be an important step in assessing which financial institutions stand to take a hit.
Today’s auction involves a type of security that many people know little about or have only heard of recently: credit default swaps.
Read the full article
Thu, October 02, 2008
Dimensional Financial Advisors is a passive-investment-oriented investment firm closely associated with Eugene Fama, 2003 Economics Nobel Laureate and father of the efficient market hypothesis. Today they sent me a link to a very nice presentation by their vice president, Weston Wellington.
The presentation, “Is It Different This Time?” runs about 18 minutes long and puts the present stock market gyrations into a historical perspective by reviewing some of the “bear markets” of the last 50 years. It’s not overly jargon-filled and should be pretty accessible.
The present market downturn reflects concerns about the non-availability of credit, the extent and duration of the housing market downturn, and the fact that we are probably in a recession. But in the end, if you’re investing for the long term, the question you must to ask is whether you think the economy is going to completely collapse. If not, you should hang on, assuming you’re holding a diversified portfolio that fits your tolerance for risk.
The presentation is marked for general use, so I don’t think I’m breaking any rules by sharing it.
Read the full article
Wed, October 01, 2008
Congress voted down the Troubled Assets Relief Program ("TARP") legislation, much to the chagrin of the financial markets. At the moment, the markets continue to be in distress, despite a "dead cat bounce" in stocks today. What should you be doing in terms of your household finances? Read the full article
Sat, September 27, 2008
Unless you live in Lake Wobegon, it hasn't been a quiet month:
- Fannie Mae and Freddie Mac are in federal conservatorship
- Merrill Lynch is now part of Bank of America
- Lehman Brothers Holdings filed for Chapter 11; its assets have been purchased by Barclay's PLC
- The two investment banking giants left standing, Goldman Sachs and Morgan Stanley, have been converted to bank holding companies
- AIG has received an infusion $85 of billion from the Federal Reserve in return for a 79.9% ownership position
- Washington Mutual became the 13th bank failure of the year (and the largest bank failure in U.S. history); the bank's assets have been sold to J.P. Morgan Chase
Read the full article
Wed, September 24, 2008
I don't write many blog-centric posts, but I've noticed something interesting in the past week. Last Monday, as the wizards of Wall Street blinked and the markets went crazy, traffic to the FFS Blog jumped by 4 or 5x. I assumed it was a one-day event, but as you can see from the attached Quantcast graph, traffic on the site has remained higher than normal.
A number of people got here by Googling phrases like, "are mutual funds insured," "are brokerage firms insured," and the like. The traffic hasn't dropped back to where it was, suggesting that there are still a lot of folks anxious about the safety of the financial markets. I hope the information here is helpful to you.
If any of my readers have questions that you'd like me to tackle in the blog, please drop a note to FFSBlog "at" FFSCambridge.com (I've avoided using the "at" sign to thwart spammers, but you know to substitute an @ for that). I can't promise to post on every idea I get – this isn't my day job, after all – but I'll seriously consider anything that comes in. Be patient, though.
A final note: readers who would like to get a once-a-week summary of my posts may do so using the new FeedBlitz widget on the upper left-hand side of the blog.
Read the full article
Mon, September 22, 2008
The Subprime mortgage mess and its aftermath were partly the result of risks not being priced appropriately. Interest rates for risky mortgages and bonds should have been much higher given the level of risk involved. As financial markets still recover from the aftermath of risk being underestimated, there is a good chance that there are now areas where risk is being overestimated. This week’s issue of Barron’s has two interesting suggestions in this regard. Read the full article
Mon, September 22, 2008
The financial markets seem to be taking a breather after last week's roller-coaster rides. We're all digesting the latest news of short-selling restrictions and a $700 Billion stabilization plan for mortgage-related debt. But now is also a good time to step back and think more broadly. Read the full article
Fri, September 19, 2008
This Monday, something very unusual happened: a money market fund began trading its shares at 97 cents, instead of a dollar.
Reserve Primary Money Fund (RPFXX) was forced to write down three quarters of a billion dollars of Lehman Brothers debt as a consequence of the Lehman bankruptcy. Even though the debt may eventually be partially paid through the bankruptcy process, as a current obligation the debt has no value. Thus the fund’s share value had to drop, forcing the fund to “break the buck.” On Monday and Tuesday, investors in the fund pulled out $27 billion in response.
FT Alphaville reports that one of Putnam Investments’ institutional money market funds has decided to close and liquidate itself, not because it needs to “break the buck” now, but because of concern that a future run on the fund might force a fire sale of its assets.
Money market funds are normally thought of as stable places to put cash, but even money market funds are not guaranteed not to lose money. How can you judge how safe your money market funds are?
Read the full article
Mon, September 15, 2008
Douglas Adams' Hitchhiker's Guide to the Galaxy described a fictional intergalactic travel manual of the same name. The guide had the words "DON'T PANIC" written "in large friendly letters" on its cover. Investors could use a copy of the Hitchhiker's Guide right about now. Read the full article
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