My finance infos

Avoiding Investment Fraud

It’s darn near impossible to open a newspaper today without at least one headline referencing financial fraud and abuse.Frankly the sad existence of financial criminals whose incomprehensible greed and deceit should be labeled financial terrorism makes me sick to my stomach. As the financial world shakes out its demons amidst a global meltdown more
and more financial shenanigans are likely to come to light. The Bernard Madoff scheme has revealed that no investor is exempt whether you are rich or super rich whether you are a charity or even if you are in the “notsorich” columneveryone is fair game for these perpetrators. Who is going to protect you? It’s quite clear that federal regulators like the SEC have been asleep at the switch. So who is an investor to trust? How can you assure yourself that you are not a sitting duck?

The Perpetrators

There is no shortage of fresh financial scandals in the pages of the Wall Street Journal lately. Perhaps the most visible has been the ponzi plot of Bernard Madoff and his wealthy “feeder” friends. While the true cost of this elaborate heist may take years to uncover the estimate of the impact hovers at over 60 billion. Then we have Allen Stanford the Texas Financier who may have swindled about 50000 investors out of US 8 billion give or take using high fixed rate CD’s. The overwhelming majority of Stanford’s funds disappeared into a “black box” controlled by Stanford and his CFO James Davis. With a “black box model” the manager is essentially saying “trust us we know what we are doing”. And in the latest allegation of financial fraud as reported by the Wall Street Journal hedge fund manager Paul Greenwood and Stephen Walsh stand accused of misappropriating over 550 million of investors’ cash and using it to fund their lavish lifestyles and rich man’s hobbies.

Red Flags

On Wall Street there’s no such thing as easy money or riskless investments. If something sounds too good to be true it probably is. As the CFA Institute reveals one of the red flags in the Madoff affair is that reported performance was too consistently good. Other popular Internet based investment scams purport to use ultrasafe “prime bank” financial
instruments from the world’s largest banks. Rewards without clear risk simply do not exist. Here are some other clues that should have sent investors running the other direction:

• The advisor who gave the investment advice and executed trades also held custody of the account more will follow in the next paragraph on why this is important.

• Madoff’s website described a sophisticated system for trading securities but did not describe a process for managing
  client assets

• Paying fines without admitting guilt are an unusual characteristic of the financial services industry Madoff

• Multiple complaints by regulatory agencies have been filed

• Account information is not transparent or difficult to obtain ie. No online access

• Statements appear doctored or printed inhouse without the ability to audit account positions from an independent party

Safety Tips

As a financial advisor please heed my suggestionnever do business with a financial professional who does not separate the brokerage custody function from the advice function. More importantly if you do not know what the advisor is buying on your behalf find out. This lack of transparency or “black box model” of investing is one my biggest reservations about
investing in hedge funds. I suspect that many investors are going to start asking many more questions of their managers and might be much less tolerant of black box managers in the future.

The first tip in safeguarding your assets is to do your due diligence by visiting the websites of the regulatory agencies that govern the advisor’s business. Investors should get in the habit of visiting both the FINRA and SEC websites to review the firm’s and the advisor’s compliance history.

Next understand the investment strategy. If you don’t know what you are buying then don’t buy it. The nature of the risks involved can vary widely and should be well understood. Buying investments for the sake of their perceived complexity may sound sexy or alluring but may not be a wise use of your dollars.

If it sounds too good to be true it probably is. One of the red flags in the Madoff affair is that reported performance was too consistently good. Perfect positive returns simply do not exist. Returns will vary year to year some by drastic variations.Also be sure to match investment strategy to reported performance. In the case of Stanford CD rates being offered were
paying obscenely high rates. Risk and reward are directly related. By definition CD’s are on the low risk to almost norisk side of the spectrum. Something just did not jive there.

Be wary of “sure things”. Legitimate investment professionals do not promise sure bets. Financial scams often begin with the allure of inviting only a “select group of people” to participate in such “crafty investment opportunities”. Do your
homework about what if any regulatory oversight exists with regard to the investment products being suggested to you.For example mutual funds stocks and exchange traded funds are heavily regulated while hedge funds and certain offshore investments are significantly less regulated.

Finally you should consider limiting your exposure to any one investment. No more than ten percent of your assets should be invested in a single fund. Despite recent market volatility and the increased short term correlation of global assets diversification is one of the most fundamental and enduring investment principles.

About the writer:nbsp;nbsp;Cathy Pareto MBA CFP AIF is the Founder and President of Cathy Pareto Associates Inc. a feeonly financial planning and investment management firm.www.cathypareto.comBlog http://cathypareto.blogspot.com/

An Uncertain Economy Your Retirement Money

Many of you are in the red zone right before retirement or you’ve already retired. No doubt your number one fear is running out of money in retirement. You’re part of a very large and growing demographic force: 35 million over age 65 50 million drawing Social Security and 78 million baby boomers now turning 62. This means the future demand for everything used by the “retirement set” will increase and “retirement prices” will rise dramatically. Many of you may have accumulated a retirement nest egg in a pension account will draw a company pension and/or have other savings and investments earmarked for retirement. Where should you keep your retirement money?

If you’re keeping up with economic and financial developments here’s what you’re seeing: subprime credit meltdown that has destroyed housing and is now spilling over into automobile debt and credit cards; highly volatile stock and bond markets; a weak dollar fueling higher prices for oil and other goods; more unemployment and rising inflation; retail sales consumer confidence and new jobs creation in sharp decline; drastic interest rate cuts by the Federal Reserve to avoid a recession; a money giveaway stimulus package from Washington to prop up the lagging economy; widespread talk of recession and stagflation. These all add up to troubled economic times which should prompt you to review where you have your retirement money.

You’re told the stock market is the best long term but “long term” has a different meaning in retirement. Didn’t the dot.com stock market meltdown in 20002002 send many retirees back to work and prevent others from retiring? Aren’t the current inflationadjusted stock market indexes below their previous peaks? Regardless the loud voices of Wall Street and investment companies are advising you to buy now at bargain prices. Are the markets headed higher or is their advice selfserving? Who can forecast the economy or the stock market?

If the stock market craters as it did in 200002 and 197374 and you lose some of your retirement money how will you replace it? Since there will be no second chance I encourage you to think carefully before you commit your money. If you’ve been told that you’ll do just fine over the longer run generally meaning ten years make sure you can wait this long for a market rebound. Also remember that a rebound is not certain!

What about fixed rate places like government bonds bank CDs and money market accounts? These are rocksolid safe unless your greatest fear is outliving your money. Since current fixed rates are lower than inflation you’ll be losing purchasing power with these choices. The potential loss of purchasing power will only add to the risk of outliving your money. What about real estate collectibles and nonmarket investments? These are not only risky but generally illiquid. Before committing your retirement money ask yourself this question: “How will I handle the worse case outcome?”

There is one savings place that offers an “opportunity” to make an abovemarket rate of return without the risk of loss if held to term. It is guaranteed by some of the world’s oldest strongest and largest financial companies. The rate of return is determined by stock/bond market indexes with owners sharing in the upside potential but avoiding downside losses. The worse case outcome is a guaranteed positive rate of return. The earned interest is income tax deferred until actually withdrawn and there is no mandatory age when the money must be used. Additionally it can be turned into a guaranteed lifetime income that can be started stopped and stored. What’s more it offers penaltyfree partial liquidity for emergencies and bypasses probate if the owner names a beneficiary. It can be opened for a small or a large amount and sometimes more money can be added later. There is no law which limits the amount of money that can be placed in it. It is truly a safe place to keep retirement money.

It is maligned by Wall Street and bankers because it competes with their products. The financial press doesn’t like it either primarily because they are uninformed misinformed or just plain biased. I’m talking about fixed indexlinked annuities that are offered by insurance companies: the same companies that insure your home live health business and other valuable assets. The worse case outcome is a positive albeit small rate of return if held to maturity but there is an opportunity to do much better. Fixed indexlinked annuities are not for everyone but you need to consider them as one of your safe options for retirement money. Where are you keeping your retirement money in today’s uncertain and troubled economic climate? If in risky places now is a great time to review your options.

Shelby J. Smith Ph.D.
March 2008

Learn about safe money places check out the Retirement Pros website http://www.theretirementpros.com/ I’m also doing free monthly video seminars online sign up at: http://www.theretirementpros.com/TeleSeminarMRM.php

About the writer:  Dr. Smith has an earned Doctorate in Economics from Iowa State University of Science and Technology along with a Bachelors and Masters degree in Economics from the University of Wyoming. He started his professional career as a college professor and held professorships at several Midwestern and Southern universities. He entered the corporate arena as the Chief Economist of a Regional Federal Home Loan Bank moved then into the banking business where he served as Economists Chief Financial Officer President CEO and Chairman of several institutions. He started a financial marketing company that catered to financial institutions and their clients by providing investment products. For the past twenty years Dr. Smith has been providing consultation and services to conservative investors and savers positioning their assets for retirement. In the process Dr. Smith has managed a broker dealer and held licenses that allowed him to offer securities and insurance products to the general public. He is currently the ask the expert at the Retirement Pros a senior officer at BHC Marketing Ltd. and writes newsletters and other retirement articles for the retirementminded.

Its Raining Deals! Now Is The Time To Buy!!!

Arguably the most accomplished investor of our time is the Oracle of Omaha Warren Buffet. Fortunately for us Mr. Buffet is not in the real estate business or there may not be any property left for us to buy. The point is when does Buffet buy his investments? Answer: When the market or asset is at the bottom and EVERYONE else is selling. Conversely IF he sells he sells when the market or asset is at the top and everyone else is usually buying.
As real estate investors while our assets are different than Buffets the same principles applyand that means really good news for us right now in our current market phase. Thats right GOOD NEWS! Across the nation right now we are experiencing a correction in the real estate market from the aggressive bullish market of the past 5 years. This correction is portrayed by the media and perceived by many as the Bubble Bursting with a very negative connotation. From my perspective when Bubbles Burst it starts raining deals!
In order to truly understand this principle in this article we will evaluate the four 4 distinct phases of the real estate Market Cycle. If you think of the real estate market as cyclical alternating between buyers markets and sellers markets with the Buyers Market on the bottom and the sellers market on the top each half can be broken into two clearly defined phases. In industry lingo these phases are commonly referred to as Buyers Market Phase 1 BM1 Buyers Market Phase 2 BM2 Sellers Market Phase 1 SM1 and Sellers Market Phase 2 SM2.

Sellers Market Phase 1 SM1 Also called the Expansion Market In an expansion market population incomes and employment is on the rise. Because of that apartment vacancies are decreasing and rents are rising. New complexes are in the planning and construction phase. People are looking for units to buy and because you have invested in a few you have units to sell. Its an excellent time to sell.

Sellers Market Phase 2 SM2 Also called the Equilibrium Market Good news property buyer. Things have gone to hell in a handbasket. Both unemployment and inflation are on the rise. Sellers have had a reality check and the market has slowed considerably increasing the demand for apartments dramatically as people choose to rent rather and wait for home prices to adjust downward. Now heres the tricky thing about an equilibrium market. Its a ripe time for buyers if and only if they can afford to sit on the investment for a while. Other markets have a somewhat more predictable lifespan but the length of time an equilibrium market will last depends largely on how overbuilt a particular market might have become during Expansion and Absorption days and local lending policies.

Buyers Market Phase 1 BM1 Also called the Decline Market There comes a time in every markets life when it must put aside sellerfriendly trends and cuddle up to potential buyers. After all there can be no selling without initial purchase. During a decline market trends that began during the last Absorption Market BM2 have progressed to the point where its more appealing to buy than sell. Builders find that the properties planned during the expansion market and brought online during the last Absorption Market BM2 are now sitting empty making them difficult to sell. The higher interest rates introduced by the Fed are making holding onto property particularly unoccupied property a more expensive prospect. Vacancies and foreclosures are becoming a more common occurrence. Its a good time to buy but not nearly as good as a

Buyers Market Phase 2 BM2 Also called the Absorption Market Admittedly the home in the valley is not nearly as sexy as the big house on the hill and for a seller looking to unload while in an absorption market doesnt quite have the boomtown appeal of an expansion market. Still there is potential money to be made. In an absorption market the apartment projects that were planned in the expansion market are now coming online. Inflation is on the rise and in an attempt to normalize the economy the Federal Reserve will probably increase interest rates causing a leveling of prices and a slowing in property purchases. Yes there is money to be made but it is out on the horizon. Now is the time to be buying.

Across the country we are currently sitting at nearly the bottom of this visual cycle in a Buyers Phase 2 Absorption Market. This phase has also been affectionately nicknamed The Millionaire Maker Phase. In this phase there is an oversupply of properties on the market unemployment is high and foreclosures are peaking. The great news isthere is only one way to go from hereUP! As such we as real estate investors should be capitalizing on acquiring as much property as we possibly can right now while it is raining deals.
As recently as one year ago in many cities it was still extremely competitive finding and securing deals. Now that has all changed. Deals are everywhere. In fact there are so many deals that for the first time in the last 5 years or so we are actually able to cherry pick the BEST deals to shape our portfolios for the next 5 years.
In this Millionaire Maker Phase the biggest money will be made by Rehabbers that can BUY and HOLD until we transition into the upswing of a Sellers Phase 1 Market where Job Growth is driving demand and properties begin to become absorbed again into the marketplace. Since we make our money when we BUY not when we sell this is THE optimal time to buy while prices are low sellers are desperate other investors are running for the hills and its raining deals!

About the writer:  Justin Anderson is a seasoned real estate investor with over 10 years experience in the Real Estate industry. He owns over 500 rental units has rehabbed over 300 units in the last 5 years and has an additional 170 units in the pipeline to be redeveloped or rehabbed in the next 12 months. Additionally Justin has mentored and trained over 2000 students over the course of the last 4 years. He is the cofounder of the Art of Real Estate Investing www.ArtOfRealEstateInvesting.com where you can get Your FREE Copy of The Official Rehabbers Guide to Financial Freedom! The Best Free Real Estate Investment Resource Out There!