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The Independent Investor: Should You Manage That 401(k)?
By Bill Schmick On: 05:47PM / Thursday April 23, 2015
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When the Federal government, together with Corporate America, offered the American worker 401(k) and 403(b) tax-deferred savings plans, as an alternative to pension plans, they forgot one thing. The vast majority of employees have no idea how to manage these plans.

Back in my Dad's day, managing American's retirement savings was the job of professional pension plan managers. The money was invested conservatively, with a long-term view, regardless of market conditions. Clearly, it was the tortoise approach to investing, but by the time he retired his nest egg had grown considerably.

Today, less than 3 percent of all workers are enrolled in traditional pensions. The demise of pensions has many causes. At one time, workers spent a life-time working at only one or two companies. Today employees hop-scotch from job to job, since there is little loyalty left on either side of the desk or production line. Pensions under those circumstances make little sense. The practice of under-funding pension liabilities by corporations certainly did not help. The Pension Protection Act in 2006 ended that gimmick and with it signed the death warrant for most pension plans in America.

Instead, employees today are allowed to contribute a certain amount of their pay, tax-deferred, to these government/company-sponsored savings plans. Some companies will match your contribution up to a certain percentage level and most offer workers a menu of investment choices.  From there, you are on your own.

Let's say you have been conscientious in contributing to your company's tax-deferred savings plan for 25 years and you are getting ready to retire. You call me and arrange a meeting to discuss your options. More often than not, the first thing I discover is that all of your money is invested in one or two bond funds or even worse, a money market fund.

"How long have you been invested in these funds," I ask.

"Since the beginning," the prospective client says, sheepishly.

"I didn't know what to do and I had no idea what any of the funds did, so I just stuck it into whatever came first on the list."

Don't laugh. I have encountered this situation in a variety of forms time and time again. It is not your fault. I have invested six years of education and 34 years of financial experience to get where I am. I suspect that you are every bit as good at your job as I am at mine. And you have probably spent a similar amount of time and effort remaining good at what you do. So why are you expected to also be good at investing your money - and in your spare time?

Let's face it, most workers do not have the time, education or inclination to acquire the knowledge necessary to make good investment choices over many years. What can you do?

You can read columns like this and hope enough sinks in to make the right choices. You can ask people like me, professional money managers, to take a look at your investment and suggest alternatives. I do this for many, many people at no charge. Another alternative to consider that could drastically increase your investment results would be to switch some or all of your money to a self-directed 401(k) or 403(b) plan.

There are two types of these plans. If you are self-employed, you can open a solo or one-participant 401(k) plan. This can be managed by a professional for a fee while you are still contributing to the plan. Normally, the expenses involved in managing the plan are cheaper than the costs and fees involved in a company 401(k), plus you will be receiving professional management advice.

The second type is a little-known investment option that some companies offer in their retirement plans called the self-directed brokerage account. These "Selfies" are part of your investment menu. They allow employees to take advantage of many more investment choices than are normally offered in a 401(k) menu. For individuals who have investment experience, the brokerage option offers a great opportunity to fine-tune an asset allocation strategy. But if you don't have that knowledge, you can hire an investment advisor to do it for you.

Better yet, you have the flexibility to farm out some of the money to a manager for a fee and keep some with your traditional 401(k) plan, if you so desire. This way you can get the professional financial advice you need now, while you are still contributing, rather than having to wait until you retire. As for fees, most company-sponsored, tax-deferred plans charge a yearly fee without providing advice. If you are going to pay a fee, you might as well pay it to someone who is going to manage it as well.

Not all companies offer this option. You should check with your human resources department and if they don't offer the option, suggest that maybe they should. Make sure you take the time to select the proper investment manager, one that has a "fiduciary responsibility" to his/her clients, unlike a broker, who simply is required to put you into a "suitable" investment. Make sure you understand the difference. If you don't, contact me and I'll explain it.

Bill Schmick is registered as an investment adviser representative with Berkshire Money Management. Bill’s forecasts and opinions are purely his own. None of the information presented here should be construed as an endorsement of BMM or a solicitation to become a client of BMM. Direct inquires to Bill at 1-888-232-6072 (toll free) or email him at Bill@afewdollarsmore.com.



     
The Independent Investor: Brazil Not For the Faint of Heart
By Bill Schmick On: 01:35PM / Friday April 17, 2015
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Beset by scandals that could reach as high as the presidential office, suffering from an epic drought, low oil prices, high inflation, a declining currency and a negative economic growth rate, the world's seventh largest economy could be an interesting long-term investment but not for the faint of heart.

No question about it, Brazil is a basket case right now. Dilma Rousseff, the two-term Brazilian president and former head of the state-owned energy behemoth, Petrobras, is embroiled in scandal. So far she has managed to elude prosecutors, who are pursuing 28 different investigations involving 54 politicians. Present and former Petrobras executives, including heads of both Chambers of Congress, former ministers, an ex-president, as well as the top members of President Rousseff's ruling Worker's Party are all involved.

The multibillion dollar kickback scandal involved funneling money through Petrobras and into the pockets of politicians and the election coffers of the Worker's Party from 2003-2010, (when Rousseff was president of the company). She maintains no knowledge of the scheme, however, three out of four Brazilians think she is lying and 44% of the population disapproves of her administration.  Business and consumer confidence are touching historic lows while the Brazilian currency, called the Real, has depreciated 40 percent against the dollar.

Brazil is also suffering from a wide-spread and lingering drought that is hurting their vast agricultural export sector (3.5 percent of GDP and employs 15 percent of the labor force). It gets worse. The country's main source of energy is derived from hydroelectric plants, which depends solely upon water to drive their industrial sector (23 percent of GDP). As a commodity-rich country, the decline of that sector over the last few years has crippled growth. Yet, government spending continued to climb while much-needed and long-postponed structural reform of the country's rigid labor laws continued to be ignored.

As a result, economists forecast that debt as a percentage of GDP will end the year at 65.2%, while the economy will see a 1.5 percent decline in GDP growth. Inflation could reach as high as 7.5 percent. In the face of all this terrible news, why am I recommending buying?

Brazil's stock market has always had a boom or bust element to it. My first visit to Brazil was during the "Lost Decade" of the '80s when the condition of most Latin American countries resembled those of present-day Greece. Needless to say, Brazil's stock market was a total bust. The Bovespa, (Brazil's major index) reached a low in December of 1989.

By the early 1990s, however, thanks to a massive debt-for-equity swap by its bank creditors, the country's investment prospects greatly improved. During the 1990s, the market experienced sizable gains for investors, as well as major losses. Another market low was registered in 2002. At that time (unlike today) investors feared the country would default on their debt, which was far worse. Foreign reserves were also much lower, inflation was higher and the pressure on the Real was greater.

Worst of all, Lula de Silva, a radically liberal candidate of the Worker's Party, was elected president. That horrified the country's financial markets, who believed he would lead the country into a socialistic ruin. "Lula" did the opposite. He took severe measures, with the aid of the central bank, to control inflation, while imposing market-friendly policies and structural reforms. As a result, the Bovespa registered a 250 percent gain from 2003-2004. In the next eight years the stock market was up 1,705 percent versus a 57 percent increase in the S&P 500 Index. At that point the financial crisis drove the market down and it has never really recovered.

Today, I sense that investors' fear may be approaching the level that prevailed back in 2002. And yet, the economic conditions in Brazil are far better today. Some say the commodity cycle has bottomed and so have oil prices. If so, that would be a big shot in the arm for Brazil.

I do know that the U.S. is the country's second largest trading partner and the strong dollar benefits Brazil's exports. The political scandals may topple the president, in which case there is a distinct possibility that a new administration would implement "Lula"-like reforms to jump-start the economy and restore both business and consumer confidence. As for the drought, who knows when the weather will change?

Will all of this happen overnight? Not likely, but for those long-term investors that have the risk-tolerance and patience to wait, Brazil seems like an interesting place to nibble.

Bill Schmick is registered as an investment adviser representative with Berkshire Money Management. Bill’s forecasts and opinions are purely his own. None of the information presented here should be construed as an endorsement of BMM or a solicitation to become a client of BMM. Direct inquires to Bill at 1-888-232-6072 (toll free) or email him at Bill@afewdollarsmore.com.



     
The Independent Investor: How to Teach Your Kid to Become the Next Warren Buffet
By Bill Schmick On: 03:41PM / Thursday April 02, 2015
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Children in America need to learn more about money. How to value it, save it, spend it and retire on it. The evidence thus far indicates that we have all been doing a poor job in educating our kids. Here are some suggestions to remedy that failing.

Let's start with the munchkins, pre-kindergarten through third grade, and the concept of cash. To those little people, credit card purchases mean nothing at all, but watching Dad, Mom (or a grandparent like me) plunk down some greenbacks for a treasured game, book or ice cream makes a lot of difference. Don't miss an opportunity to have your child watch you count out and put the coins in the parking meter or pay for a purchase when they are old enough.

A piggy bank that one can see through is also high on my priority list, especially one with four slots like the "Money Savvy Pig," which offers several different savings slots. If that doesn't work, simply find several plastic jars and apply different labels. One should be for saving, another for spending, and a last one for donations. As the child grows older, add an investment jar as well as a "matching jar."

As your children age, introduce them to money games. Games allow parents to teach without lecturing and create an atmosphere of fun and excitement around money. The Internet now offers plenty of such games at different age levels. At risk of dating myself, my first memorable learning experience with money evolved through my family's tradition of playing weekend "Monopoly" games, sometimes way past my bedtime. It was fun. My parents let me be the banker, which was a special reward, and those feel-good memories surrounding finance still remain vivid years later.

Use the money in those plastic jars or piggy bank to show your kids that stuff costs money. At some point, every child will want something special, maybe an action figure, crayon set, or something they have seen on television. Help them count out the amount from their piggy bank and go with them to the store as they physically hand over the money to the cashier.

Hopefully, they will want two items exceeding their savings, which allows you to teach them the opportunity cost of buying one item or the other, but not both.

In my last column on this subject ("Kids and Money"), we discussed the pros and cons of giving an allowance. I came down on the side of giving an allowance for efforts earned and not as simple cash stream because their friends get one. I don't even like the word "allowance" and would rather use words like commission, earnings, or some other word that equates effort for income.

Equally important when teaching the concept of earnings for effort is the idea of saving, rather than spending. Here one can incentivize your child to save by the concept of "matching."

For every dollar your child earns and saves, you can match that savings with money you can contribute just like your company's match in your 401(k) at work. The more the child saves, the more you match. But be aware that most children will need a goal in order to save. It most likely will be a high-priced item such as a bike, a trip, or something that will require a long-term plan and a reason to save.

As your children grow into their teens, help them find a job. Once they have one, make sure you help them open a checking and savings account. My first job, at 11 years old, was a daily paper route. I was sweeping up the local drug store after school a year later and was earning regular income well before I graduated from high school. For me, it was a requirement, and the money I saved went towards books, clothes and occasionally entertainment. In hindsight, I wouldn't have it any other way. Jobs, whether part or full time, teaches the teen that working is a great way of making money, and what teenager doesn't need money?

If you follow some or all of these suggestions, by the time your child enters college or technical school, they should be able to understand and appreciate the costs and opportunities when selecting a major, a profession or career. It may not guarantee that they will grow up as the next Mr. Buffet bit it certainly won't hurt.

Bill Schmick is registered as an investment adviser representative with Berkshire Money Management. Bill’s forecasts and opinions are purely his own. None of the information presented here should be construed as an endorsement of BMM or a solicitation to become a client of BMM. Direct inquires to Bill at 1-888-232-6072 (toll free) or email him at Bill@afewdollarsmore.com.



     
The Independent Investor: Financial Challenges Facing Single Parents
By Bill Schmick On: 08:01PM / Thursday March 19, 2015
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Over 13 million Americans struggle each day to be the best single parent they can. It can be a thankless job and one that requires an entire set of financial tools that couples rarely face. This column is dedicated to helping the single parent cope.

Twenty-five percent of children under the age of 18 in the U.S. are being raised without a Dad. That's not to say that there aren't plenty of single fathers bringing up children, but the facts are that the majority (80 percent) of single parents in this country are women. Nearly half of them live below the poverty line. Here's how you can avoid that fate.

The first change you must make is in developing a new attitude toward life and your finances. If your spouse had been handling the finances before you broke up, that responsibility is now squarely on your shoulders. Step one is to know how much you are spending. Create a budget. Record everything you spend each day for the next three months and then divide the total by three. That will give you an understanding of how much you are spending on average each month. With knowledge comes power.

Continue to do this for that first year and make sure to monitor your spending on everything. The next thing to do is establish an emergency fund that can be accessed easily. This pool of money is earmarked for unexpected expenses like home repairs, new tires, etc. You should keep a reserve of 3-6 months of expenses on hand for emergencies, or in case you lose your job.

If you are now or have been a stay-at-home spouse, you will probably need to consider a new career. That may require taking classes to earn a degree or attend a vocational school. Sometimes divorce courts allow for "rehabilitation maintenance," which can be negotiated in a marital settlement agreement requiring one spouse to pay for the other's training. This is especially so when one spouse initially worked and paid for the other spouse's law, medical, MBA or other degree. Now it's your turn.

For those of you who already have a good-paying job, retirement savings will now become critical to your future and that of your family. You need to save at least 15 percent of your salary each year and if you can afford it, much more.

You must also reevaluate all of your financial documents. Term life insurance is important in the event that something happens to you. It is the obvious way that your children can be cared for financially if you or your ex dies suddenly. Life insurance, for those who are in the throes of divorce right now, can be mandated in a divorce decree. I suggest you insist on it and make sure your ex does not allow it to lapse by law. The policy should be large enough to insure there are ample funds to provide a home, basis living needs, medical expenses and college tuition for all your children.

Make sure that all of your retirement accounts and other pools of money have the proper beneficiaries recorded. This includes any money your parents may intend to leave to your kids. Normally, your children should now be the legal beneficiaries of any inheritance. The last thing you want is to see your ex-spouse receive your assets or become the custodian of assets while your children come of age. And while you are at it, you might give some thought to who you would like to have as guardians of your children in case of your death if not your ex-spouse.

Single parenting is a hard job and the relationship you have with your ex can make it that much more difficult if it is mired in recrimination and hostility. What is done is done. Your future success demands that you acquire a new self-image, devoid of the past, that will allow you to treat your ex as a business partner for the sake of your children and your future self. The sooner you accept these facts, the sooner you and your children can start enjoying life again.

Bill Schmick is registered as an investment adviser representative with Berkshire Money Management. Bill’s forecasts and opinions are purely his own. None of the information presented here should be construed as an endorsement of BMM or a solicitation to become a client of BMM. Direct inquires to Bill at 1-888-232-6072 (toll free) or email him at Bill@afewdollarsmore.com.



     
The Independent Investor: Kids & Money
By Bill Schmick On: 08:39PM / Thursday March 12, 2015
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Given that most Americans grow up with little or no idea of how to save, budget, or spend money, it might be a good idea to ask why.  It begins with the family but discussing money in this country is as uncomfortable as talking about sex.  That needs to change and it starts with our children.

"My kids were taught about personal finances as part of their school curriculum, but it went in one ear and out the other," said one hard-working client, who called asking for advice on how to teach his teenagers the value of money.

Although the majority of states now mandate some kind of classroom training in finance, most students fail to "get it." Children learn best when they apply what they've learned to their daily life, especially when it concerns their own money. If money is a taboo subject at home (and in most homes it is not), than managing one's money, no matter how little, simply becomes a hopeless task.

Yet kids are naturally curious about money. Last year, T Rowe Price, a global financial company, polled parents on the subject and learned that 37 percent of children asked their parents "how much things cost." Another 29 percent asked about an allowance, while 19 percent wanted to know where money comes from.

The majority of parents (77 percent) used their children's allowances as the main tool in family finance education. But there is a lot of controversy over whether kids should work for their allowances, just receive it as part of family environment, or get nothing at all.

Suze Orman, television's finance guru, believes that the word should not be part of the household vocabulary. Instead, children should be paid for chores. The more chores one does, the more one is paid, depending on the task and the child's age. This teaches a work ethic, she believes, while negating the allowance as their "due" simply because their best friend receives one.

On the other hand, an allowance for accomplishments above and beyond the expected daily chores (room cleaning, bed-making and other household chores) does help prepare the child for a future in the work place. Simply doling out an allowance to your kid, as many parents do, is no answer, since money never earned is money never valued.

The only way kids learn about savings, budgeting and spending money, in my opinion, is by practicing with money they have earned. But here is where the allowance concept falls down. Of roughly half the children who receive an allowance, in the survey, fully one-third spend it all and come back to their parents for more money. Eighty percent of the families polled in the study gave in to their children's demands. Is it any wonder that most Americans grow up to constantly live above their means? Even worse, only 1 percent of children save any money from their allowance, according to the American Institute of CPAs.

Most American families have never addressed sensitive issues like family debt or how much income their parents generated. When asked why that new bike won't be forthcoming, Mom and Dad simply say "no," or "we can't afford it." That is usually the end of the conversation. In my next column, I will discuss some methods you can use to further your children's (or grandchildren's) concept of money, while also teaching them how to budget and save and spend wisely; so stay tuned.

Bill Schmick is registered as an investment adviser representative with Berkshire Money Management. Bill’s forecasts and opinions are purely his own. None of the information presented here should be construed as an endorsement of BMM or a solicitation to become a client of BMM. Direct inquires to Bill at 1-888-232-6072 (toll free) or email him at Bill@afewdollarsmore.com.



     
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News Headlines
Berkshire County Remembers the Fallen on Memorial Day
Adams Free Library Rededicated
Lanesborough Marks Memorial Day, Honored for 250 Years
New Italian Restaurant Opens in North Adams
Cheshire & School District Agree to Better Communications
Williamstown Con Comm OKs Restoration Plan for Waubeeka
Doug Clark To Leave Director of Community Development Post
Williamstown Town Meeting OKs Parking, Signage
iBerkshire Tag Sales: May 22-24
Sullivan Students Celebrate Memorial Day

Bill Schmick is registered as an investment advisor representative and portfolio manager with Berkshire Money Management (BMM), managing over $200 million for investors in the Berkshires. Bill’s forecasts and opinions are purely his own and do not necessarily represent the views of BMM. None of his commentary is or should be considered investment advice. Anyone seeking individualized investment advice should contact a qualified investment adviser. None of the information presented in this article is intended to be and should not be construed as an endorsement of BMM or a solicitation to become a client of BMM. The reader should not assume that any strategies, or specific investments discussed are employed, bought, sold or held by BMM. Direct your inquiries to Bill at 1-888-232-6072 (toll free) or email him at Bill@afewdollarsmore.com Visit www.afewdollarsmore.com for more of Bill’s insights.

 

 

 



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