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Archive for March, 2009

All that Glitters is not Gold…it might be a Financial Scheme

Published March 30, 2009 Finance , Financial advice , Money management , aliya Leave a Comment

By Douglas Goldstein, CFP(R)

At the moment, it seems as if a new financial scandal is making the news every day. Last summer, people who invested in a real-estate program with a guaranteed annual return were shocked to find out that the arrangement was run by thieves who absconded with the money. A few months later, others were struck by the Bernard Madoff Ponzi scheme. And now, those who invested in the offshore bank Stanford International Bank Ltd. of Antigua are watching as U.S. federal investigations challenge its integrity.

Why do people fall for schemes?
People work hard for their money, so why do they fall for schemes? The common thread among investment scandals is that they offer a better than average return, but not so high that it’s unbelievable. After years of double-digit stock returns, many people felt that an 8% annual return was conservative, so they were comfortable investing in an under-regulated institution. What these investors didn’t realize was that at the time, bank deposits were paying 4%, so the scheme’s return was 100% more than a safe investment. Other burst investment schemes offered sizeable returns, but not so high as to set off a red flag.

Can you protect yourself?
Always insist on transparency when choosing investments. Your money should never be held directly by an insurance agent, stockbroker, or an investment’s representative. Instead, it should be deposited with a third-party investment firm or bank that reports directly to you. A money manager should have the ability to trade on the account, not have access to your money.

SIPC-insured brokerage accounts (like the ones we open for clients in America) are popular since they offer a certain level of security. Many folks like the protection of SIPC insurance on their stocks and FDIC insurance on their bank deposits (CDs), combined with personalized service from a certified financial planner in Israel (learn more about SIPC and FDIC-insured CDs at the “education” tab of www.profile-financial.com). Before you invest in a product or with a particular firm, do due diligence and make sure regulations are in place to protect you and your money. And, if it seems too good to be true, think twice, because it may not turn out the way you wish.

Special Needs Require Special Financial Plans

Published March 28, 2009 Finance , Financial advice , Money management , aliya Leave a Comment

By Doug Goldstein, CFP®

Families with special-needs children, whether they are young or old, physically or emotionally handicapped, face several unique challenges when creating a financial plan. If you have a special-needs child, your financial plan must be broad enough in focus to prepare for your own economic future, as well as to ensure that your child’s needs are met both during your lifetime and after your passing.

Frequently, parents don’t want their special-needs child to become a burden on their siblings, and they decide to create a trust to fund their child’s needs after they are no longer around to do so. However, before putting your entire estate in trust for your child’s needs, consider what his needs actually are, as well as those of your other children. Placing too much money in trust may hurt even the most loving and dedicated sibling, but not depositing enough funds into the trust may create a difficult situation for those same siblings.

In a recent financial plan that I did for a client, the teenage daughter needed certain medications and would require a home healthcare aide for the rest of her life. Though the state would be providing some assistance, the family needed to plan not just for the parents’ eventual retirement, but also for ensuring the long-term financial security of their daughter. They had to weigh the costs of a home healthcare worker versus an institution.

Since the plan would need to cover two separate generations, it was necessary to assemble two plans, one for the parents and one for the daughter. By understanding her long-term needs, we could calculate her financial requirements. Then, we could build those numbers into her parents’ plan. By coordinating these two disparate, yet integrally connected lifetimes, we created an investment model designed to solve many of their issues.

Though all families should create a financial plan, special-needs families have an even greater necessity to do so. For free financial planning worksheets, go to the “financial planning” tab at www.profile-financial.com.

Douglas Goldstein, CFP®, 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, SIPC, MSRB, SIFMA. Accounts carried by National Financial Services LLC. Member NYSE/SIPC, a Fidelity Investments company. His book is available in bookstores, on the web, or can be ordered at: www.profile-financial.com (02) 624-2788 or (03) 524-0942.

Personal Finance is not Gender Neutral

Published March 16, 2009 Finance , Israel , Money management , women and finance Leave a Comment

Though men and women are both subject to getting trapped in the web of inappropriate investments, single women, divorcees, and widows have different concerns from their male counterparts. Statistically, women’s pensions are only a fraction of men’s payments. This means that once a woman reaches retirement and is dependent upon pensions for her living expenses, she may be in for trouble if she doesn’t have sufficient savings.

Since women often get less income, they are more susceptible to the temptations of risking too much of their principal in order to try to get above-market returns. Whereas it is reasonable for people to have some amount of risk in their portfolios, risk should only be undertaken in the context of a financial plan with a clear asset-allocation model.

Whenever an investor considers an investment, the level of risk needs to be taken into account. If “hot” ideas with great returns were really as wonderful as they sounded, you can be sure the large mutual fund companies would buy into them. And, if you’re ever told an investment is guaranteed, be wary. It’s impossible to guarantee investment programs that can return unbelievable numbers.

On the opposite side of the spectrum, there are women who are too afraid to risk anything and prefer to invest in extremely conservative investments or just place their funds in a bank account. This approach to investing is problematic in so far as their money may not receive high enough interest payments to keep pace with inflation. This means that even though their bank balance may be the same over the years, the real value of their dollars diminishes. So even though they may have the same balance (or slightly more if interest payments were paid), their money has actually lost purchasing power.

Remembering the golden mean, the lucky middle between two extremes, can help you make sure your golden years are the way you want them to be. Women of all ages should educate themselves about their investment choices so they can differentiate between the reasonable risks and the improbable scams.

Women Need More

Published March 8, 2009 Finance , Financial advice , Israel , Money management Leave a Comment
Tags: women and finance

While presenting a series of seminars recently on “Women and Investing,” I was approached by a gentleman who asked me, “What’s the difference in investing for men and women?” And, he chided, “You should teach a class on ‘Investing for Men.’”

Why Are Women Different?
Did your mother work out of the house? Odds are that she did, but nowhere near the amount that your father did. As such, she probably didn’t earn as much as he did, she didn’t gather as much money in her pensions, and she probably won’t get the same level of government pension (social security, bituach leumi, etc.). This means that unless her husband has a sizeable spousal benefit for his pension, or their savings are sufficient and their post-retirement withdrawals are minimal, she may be at risk of becoming a poor widow. Unfortunately, it is not uncommon for a widow’s lifestyle to drop after her spouse dies, since his death brings an end to his pension.

Though with some couples, the wife doles out an allowance to her husband, more often than not, the husband handles the money. Even if the Mrs. deals with day-to-day expenses, usually it is the Mr. who makes the big money decisions like investment choices.

Why Do Women Need to Handle Money?
In today’s modern world, women need to be able to fend for themselves. Indeed, today’s generation of schoolgirls might not even be able to understand gender-related discrimination in finances or the work field since they are learning that girls, with the right education, can do just as well, if not better, than their male counterparts. However, older women may need to be taught crucial fiscal skills that weren’t the norm when they were growing up. Indeed, if you look at the disparity of income, the prevalence of divorce, and the fact that women live longer than men, it is clear that courses on the topic of women and investing are critical.

Miscommunication Can Cost Money

Published March 2, 2009 Finance , Financial advice , Money management , aliya Leave a Comment

By Douglas Goldstein, CFP®

Understanding your parents’ financial situation is a vital part of putting your own financial house in order. Before you plan your retirement dreams, you need to know whether you’ll need funds to support your parents. And, if you know that one day you will receive a sizeable inheritance, there may not be any need to scrimp now.

Stereotypically, elderly parents are reluctant to talk about their finances. However, according to a 2005 study by The Hartford, 76% of parents were comfortable talking finances with their adult children, while only 45% of boomers felt comfortable discussing these issues with their folks. So, why is there resistance?

One reason may be denial. It’s hard to admit that your parents won’t be around forever. Financial fears may come into play since it’s overwhelming to imagine supporting both children and parents. And, frequently, there’s a measure of avoidance; perhaps a sibling thinks another sibling should deal with finances.

If initiating these conversations is daunting, ask your financial adviser to join in. Recently, I joined a conversation between a woman and her father. The woman knew her parents had assets, and wanted to know approximately what she could expect one day as an inheritance. The conversation was eye-opening, since my client learned the inheritance wouldn’t be large enough to base her retirement on, as she was counting on. Upon their retirement, her parents purchased an annuity, which covers their current and future needs, but would leave very little in terms of an inheritance. Now my client has to beef up her savings plan in order to make sure she, too, can retire one day.

While dialogue is important when it comes to your – and your parents’ – fiscal situation, respect your parents’ right to keep their affairs private. If they don’t want to review the details with you, suggest they review them with a financial adviser for a “safety check.” Don’t imply that you expect an inheritance; remind them that you understand their money is theirs. Asking, “What would you like your legacy to be?” can lead to a discussion of values, wishes, goals, and also, estate plans. Keeping an open communication channel can help eliminate unpleasant surprises in the future.