Danielle DiMartino Booth tell us what is really going on at the federal reserve board and why this might not end so well. We discuss her new book, Fed Up: An Insider’s Take on Why the Federal Reserve is Bad for America.
Cardhub.com released its 2014 credit card debt study this week and some interesting clues came out as a result. The numbers would suggest that the consumer is back to survival mode again. The study revealed that consumers ended the year with a record $57.1 billion net increase in credit card debt. That amounts to 47% more than 2013 and 55% more than 2012.
With an increase that large, there are likely 1 of 2 thing happening. First, the consumer is spending money like crazy and racking up debt. Second, the consumer is using credit cards as a means of survival.
The reality is that consumer spending and retail numbers don’t support this type of a rise in consumer debt. This all points to the consumer being back in survival mode again.
Credit has really loosened up over the past 2 years. With Crowdfunding avenues such as prosper and the egg, there are even more ways to get credit. The problem is that high interest rates are attached to that credit. It was apparent that the consumer had learned a lesson about high interest rate purchasing on credit cards. The financial crisis was a painful reminder and a good teacher. At this point, financial survival is the only reason that the consumer would take out high interest rate credit. It is about using credit to pay expenses.
There was one other interesting statistic that came out of the survey at cardhub.com. Typically the consumer pays down a great deal of debt in the first quarter because of tax refunds and bonuses. For the first time in the past six years (dating back to the financial crisis) the consumer wiped out almost the entirety of their standard first quarter pay down. During the first quarter of this year, consumer paid down $32.5 billion worth of debt and then turned around and incurred $28.5 billion dollars of debt during the second quarter.
Economists and the government can talk of the increasing confidence and health of the consumer. The underlying trends might be telling a different story.
By Bob Brooks
March 5, 2015
When it comes to investment risk, people take it for all types of reasons. Some of them make sense while others don’t. Some take it and have no idea that they are taking it. This is one of the reasons why I have offered my risk survey as a free resource. I am on a mission to help people understand risk. I believe it is one of the most misunderstood concepts in investing. So, make sure that you take advantage of this free resource.
Here are the three most dangerous reasons to take risk.
- Trying to play catch up – You are behind in your saving for retirement and you are being as aggressive as possible to make up for lost time. It is understandable. If there is a possibility to get caught up you want to take that risk. So, be as aggressive as possible, right? There is one overriding problem with that reason. Most people will be so busy focusing on being aggressive to make higher returns that they will not do anything to protect themselves from risk. Thus, their investment plan becomes no different than high stakes poker. If you are going to be aggressive, you have to plan for risk. A growth only strategy will put you on the investment roller coaster at best.
You are young – This is a rationalization that has been fostered by the mutual fund industry. You are young and can afford to take risk because you have time on your side. In fact, the mutual fund industry has developed a whole like of mutual funds that base the amount of risk that you take on your age. In theory, as you age the fund you are in decreases risk level. Maybe you are 25 years of age and taking a lot of risk is not a fit for you. If so, take the level that is appropriate versus going all in because you have “time on your side.” There is more to it then age when assessing a risk level.
Because my advisor recommended that I do – Are you and your advisor on the same page in regards to risk? The initial conversation usually goes like this.
Advisor: On a scale from 1 to 10, what is your risk level?
Client: I am a 6.
Advisor: Great – then let’s look at putting together a portfolio that resembles a 6.
Do you know what a 6 is? There is no commonly accepted definition for any of the numbers between 1 and 10. Chances are what you think is a 6 and what your advisor thinks is a 6 are two different things. Get on the same page with your advisor and have a very well thought out conversation about risk. This is a conversation that the advisor should take seriously. If not, maybe you need a new one.
There is a formula for taking risk. The formula is involves risk and reward. You take more risk when the likelihood exists that you will get more reward. You take less risk when you feel there is a likelihood exists when you will get less reward.
By Bob Brooks
March 2, 2015
There is the misconception that buying in bulk aways saves you money. It is that concept that has made companies like Costco and Sam’s very profitable Kiplinger Magazine put out an article today debunking that notion. Here were a few examples:
Cereal – You don’t need to buy in bulk to get the best deal on cereal. Just stock up whenever it’s on sale at the supermarket. . For example, a large, 30-ounce box of Kashi Organic cereal usually costs $3 more than two smaller 16.3-ounce boxes (32.6 ounces total) on sale at the supermarket.
Cooking oil might seem like a great bulk buy, but it has a shelf life of six months. Unless you’re frying food daily, you might not be able to go through a gallon of vegetable oil before it goes bad.
Bleach has a shelf life of about six months once you bring it home from the store. After that, its effectiveness naturally degrades. So over bulk-size name-brand bleach.
For the full article, visit: http://www.kiplinger.com/slideshow/spending/T050-S001-worst-things-to-buy-in-bulk/index.html.
By Bob Brooks
February 26, 2015
Through the years, I have interviewed many authors who written some great books. Then there are the books that I would call the authority on a subject. Said another way, if you want to learn everything about a certain subject, this is the book to read.
I wanted to start this list and update as I encounter more books. So, this week I wanted to start the list
The One Page Financial Plan by Carl Richards
The vast majority of people don’t plan and set to goals. There are a number of reasons why this is the case. First, Carl helps you get through those roadblocks so that you go through the process. Most importantly, he breaks down the process into an easy to understand plan.
Most financial plans end up not being very realistic. Carl adds a dose of reality and makes the entire process relatable. This is the first book of its’ kind that I whole heartedly recommend on the financial planning process.
Carl is known for his hand drawn illustrations which really work to help the reader get a clearer understanding. The book is full of his simple sketches.
Carl is a weekly columnist for the New York Times where his weekly Sketch Guy column has run every Monday for over 5 years.
Listen to the interview HERE
I have known Dan for well over a decade. Dan is considered one of the foremost authorities on the IRS. This is by far is best most complete book on dealing with the IRS. He gives step by step instruction on just any problem or situation you can encounter with the IRS. To listen to the interview with the author, go here.
This is Dan’s latest book. If you are facing an audit, this is a must read. You will be prepared to defend and protect yourself after reading this book. If you want to listen to the interview on this book, go here.
Most people don’t understand how social security works. This book details everything that you need to know about social security. There are strategies where you can maximize your social security benefit. The book goes through every one of them detail by detail. It also thoroughly answers the biggest question about social security. When do I take it? If you want to listen to the interview on this book, go here.
Student Loan Debt
This is a field that is constantly changing. Reyna Global has written the most complete guide that I have come across. She goes into great detail on managing student loans and all of the options that are available to get lower interest rates and relief from high payments. If you want to listen to the interview on this book, go here.
OK, it might seem a little self-serving to add my book to a list of books that I call authorities on a subject. The reality is that Deceptive Money covers every single detail that you need to know and understand to get out of debt. It was written as a how to book and covers everything from dealing with debt collectors to improving your credit score to understanding the game that the credit industry plays with consumers.
Investing – Trading
Trade Mindfully – Gary Dayton, Psy.D.
I realize that most of my listeners and readers are not trading investments. However, for those of you who are, this is a must read. This is all about the psychology of investing and trading. It will increase your ability to make better decisions and make better trades. Most importantly, it will help you understand yourself when it comes to trading. Hands down the best book I have encountered on trading. If you would like to listen to the interview, click here.
By Bob Brooks
February 25, 2015
Well of course your broker/advisor has your best interest at heart….right? Aren’t there laws that protect the individual investor? Well, actually, not really. It depends on the type of advisor.
To understand the level of protection you have as an investor, you have to understand two standards. There are fiduciary responsibility and suitability standards. The fiduciary standard is the highest standard for an advisor and carries the highest responsibility. This states that the advisor is required to do what is right for the client. Securities regulations states that advisors who are part of Registered Investment Advisory firms (fee based firms) are fiduciaries for their clients.
Commissioned brokers/advisors are not required to meet that standard. They are only required to make recommendations that are considered suitable. Suitability is a much easier standard to obtain. This is where the rub comes.
Take for example Jack and his client Bill. Investment Product A and Investment Product B are both suitable for Bill. Jack, the investment advisor, makes 7% on investment Product B and only 3% on Investment Product A. Jack knows that the fees are lower on Investment Product A and that the return probability is better. Yet, he convinces himself that Investment B is better and he gets the higher commission. Since both investment products are suitable and since Jack doesn’t have fiduciary standards to meet, the only thing keeping Jack from the higher commissions is his conscience versus a requirement.
To be fair, suitability standards do weed out some transactions that are clearly in the best interest of the advisor versus the client. This is not to say that commissioned advisors are inherently bad and recommending products based on commission size. Unfortunately, when introducing these higher commission products to advisors, the industry does a pretty good job of convincing the advisor community that they are doing the right thing and getting paid handsomely for doing so. It removes the need for the advisor to go through the ethical Q and A in their mind. You commissioned based advisor that you want is one that holds themselves to fiduciary standards even though the law does not require it. Fortunately, there are many out there who do.
So what is the moral of the story? First, investors need to be aware of these two standards. Second, this just emphasizes that investors need to be extremely careful with who they select to help them on the journey of investing.
Regulators are currently fighting with the industry to change the rules and make ALL advisors fall under the fiduciary standard. However, as long as the industry has deep pockets and lobbyists in the pockets of lawmakers, it is going to be an uphill fight.
By Bob Brooks
February 18, 2015
I believe that understanding your Prudent Money DNA when it comes to risk is critical to long-term success with investments. In fact, I am addressing it thoroughly in my latest book that I am writing. So, I want to make you an offer.
In order to thoroughly research this idea of risk and Prudent Money DNA, I need real time research. So, I created a very quick questionnaire that helps identify your Prudent Money DNA when it comes to risk.
So, if you take a few moments to answer the survey as well as give me any feedback on questions you don’t understand, I am happy to offer this as a ministry resource and send you a written analysis of your risk assessment. This will tell me your tendencies and what could influence your decision making in the future. Understanding your tendencies will help you make better financial decisions.
Further, I will include your financial strengths and weaknesses. It is important to be aware of them. This information will also help you analyze whether or not you are taking too much risk with your retirement money.
From all of this research and your feedback, I can make this writing project a better resource and help further the cause of prudent stewardship.
Just go to this link and fill out the information. It won’t take very long. Incidentally, the only reason we ask for your phone number is in the event we aren’t able to connect with you via email.