Archive for August, 2008

Trading Oil

Published August 27, 2008 Finance , Financial advice , Money management Leave a Comment
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By Douglas Goldstein, CFPâ

When a client saw the high price of oil recently, he asked me if he could trade the commodity. The answer was yes; however, the follow-up question I asked was, “Why? Do you really think you can predict the trends?” While it’s true that the price of oil has steadily climbed in recent months, oil prices are based on many factors, not just a clear-cut supply and demand issue. If it is difficult to predict the movement of a “traditional” stock, it is even all the more difficult to predict the movement of a commodity greatly controlled by the world’s dictators.

These days, the markets are so sophisticated that you can trade most anything, from oil and water, to soybeans and silver. But just because the trading instruments exist, it doesn’t mean that they are appropriate for you and that you should invest your hard-earned money there.

Before starting any investment program, think about your goals. Just like you wouldn’t choose a vacation destination based on which train happens to be leaving the station next, you shouldn’t choose an investment just because that’s the one in the news most frequently. Sit with a financial planner to consider how much risk you can afford to take (both emotionally and financially) and what your timeframe is. Then, rather than trying to pick the next hot investment, choose a money manager whose outlook on the economic trends jives with your overall financial plan.

If you like oil, or think you should have commodity exposure, you can certainly find money managers who incorporate these types of investments in their well-diversified portfolios. Be aware, though, that past performance is no guarantee of future returns, and if you choose some manager that heavily invests in one particular sector, you open yourself up to potential disappointment if the bet goes sour.  The challenge is to keep your portfolio well-oiled and able to withstand normal market fluctuation, but not necessarily invested in oil.

Douglas Goldstein, CFPâ, is the director of Profile Investment Services. He is a licensed financial professional both in the U.S. and Israel. He offers securities through Portfolio Resources Group, Inc. Member FINRA(formally NASD), SIPC, MSRB, SIFMA. Accounts carried by National Financial Services LLC. Member NYSE/SIPC, a Fidelity Investments company. His book, Building Wealth in Israel: A Guide to International Investments and Financial Planning, (with a guest chapter on taxation by Leon Harris, International Tax Partner, Ernst & Young) is available in bookstores, on the web, or can be ordered at: www.profile-financial.com. (02) 624-2788 or (03) 524-0942. Building Wealth in Israel, ISBN 193268784X 308 pages

Will U.S. Bank Failures Affect You?

Published August 14, 2008 Finance , Financial advice Leave a Comment
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By Douglas Goldstein, CFPâ

When I was buying a CD (certificate of deposit in a bank) for a client the other day, he asked if it was safe. So we reviewed the three common relationships that people have with their banks: depositors, shareholders and mortgage clients.

“It’s like ‘money in the bank.’”

In 1933, the U.S. government created the FDIC (Federal Deposit Insurance Corporation), spurred by the numerous bank failures of the Great Depression. For each bank in which a person deposits money, he will have $100,000-worth of protection. This means that if the bank goes under, the FDIC will take responsibility to make sure that he will get back all of his money up to that amount. In 2005, the FDIC upped the limit for the protection of individual retirement accounts to $250,000. If you own CDs in a bank, or if you hold them through your brokerage account (which is often easier, especially when you have more than $100K that you wish to insure), speak to your adviser to confirm that you’ve got full coverage.

“A piece of the action.”

A few years ago, Citigroup, UBS, Morgan Stanley, Bear Stearns and other reputable financial institutions thought that sub-prime mortgages were an smart way to increase investment income.  But loaning money to low-quality borrowers backfired, and when the defaults starting racking up, the banks lost billions.  These losses were passed to their shareholders, who also suffered real losses. Remember, FDIC insurance doesn’t protect people who own stock in a bank; it only applies to people who deposit their money in the bank.

“Borrow money from a pessimist – he won’t expect it back.”

If you took a mortgage from a bank and the bank declares bankruptcy, don’t assume that your debt is cancelled. As banks go into receivership, the FDIC will not forgive the outstanding loans. Rather, they’ll repackage them and sell them off to another lender. So you will probably still have the same monthly payments, just to a different institution.  With the exception of retirement savings, your mortgage loan may be your single longest fiscal obligation, so make sure to read the small print and do due diligence on the terms.

Douglas Goldstein, CFPâ, is the director of Profile Investment Services. He is a licensed financial professional both in the U.S. and Israel. He offers securities through Portfolio Resources Group, Inc. Member FINRA(formally NASD), SIPC, MSRB, SIFMA. Accounts carried by National Financial Services LLC. Member NYSE/SIPC, a Fidelity Investments company. His book, Building Wealth in Israel: A Guide to International Investments and Financial Planning, (with a guest chapter on taxation by Leon Harris, International Tax Partner, Ernst & Young) is available in bookstores, on the web, or can be ordered at: www.profile-financial.com. (02) 624-2788 or (03) 524-0942. Building Wealth in Israel, ISBN 193268784X 308 pages