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The Independent Investor: Money & Divorce — What You Should Know
By Bill Schmick On: 06:27PM / Thursday October 02, 2014
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You never paid attention to the family finances. Suddenly, your spouse wants a divorce. Fortunately, it's an amicable separation and you agree to split things up equitably. Where do you begin?

The above scenario is much more common than you think since the odds that your marriage will end in divorce are about even at best. More than 50 percent of first marriages end in divorce and 60 percent of remarriages, so the statistics are weighted against a successful marriage in America. It is extremely important therefore that both spouses understand their current financial situation and what their income needs will be post-divorce.

First, think of what your immediate cash needs will be. If one of you is working and the other is not, then cash flow is going to be highly important to the unemployed spouse. In that case, the cash-strapped party will want to receive assets that one can sell easily, quickly and with the least tax consequences. This would include stocks, mutual funds, exchange-traded funds bonds and possibly Roth IRA assets. For the spouse that is working, a combination of assets makes more sense. Some might not have immediate liquidity such as a home, a limited partnership, retirement plans and certain taxable accounts.

Remember also that you may decide to split up, but that does not mean your debtors will agree to let one or the other off the hook when it comes to your liabilities. Mortgage lenders, credit card companies, the IRS and even your credit report agencies will want to know exactly who and how each party are going to honor their debt obligations. As such, it is important that before you get divorced you agree to either pay off your mutual debt or determine each spouse's responsibility for that debt. It might also be a good idea to request a credit report as well since sometimes there may be some outstanding debt that has slipped through the cracks over the course of a long marriage.

By the way, don't ignore the tax ramifications of splitting up your assets. For example, if the spouse in need of cash flow sells securities there may be taxes to pay at the end of the year. If you are going to agree to sell your home and you think you can sell it for more than the purchase price, you might want to hold off getting a divorce until after the sale. Why?

The first $500,000 in capital gains from the proceeds of a home sale is not taxed as a married couple. However, if you are single the tax exclusion drops in half to $250,000. In addition, you may have also accumulated tax assets, which are tax losses that can be applied against taxable gains over the years. Make sure this issue is examined and those assets divided appropriately.

Next to your home, retirement assets are usually a major part of any couple's net worth.

Employer–sponsored retirement plans, IRAs, even pensions can be divided and transferred on a tax-free basis as long as the rules and regulations are followed. Divison of some of these retirement assets requires both the divorce court and the plan administrator's approval.

Getting a divorce for most of us is a traumatic emotional decision but it also has a major financial impact as well. Separating emotion from the financial decisions is tough enough when the both sides are relatively civil about the decision. It can be almost impossible when the divorce is acrimonious. And I have not even mentioned the subject of children. That is another topic for another time.

In any case it is a good idea to seek out someone who can advise you on these financial matters that has an objective point of view.

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: Is Wall Street Responsible for Climate Change?
By Bill Schmick On: 10:57PM / Friday September 26, 2014
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Monday's Wall Street sit-in by a few hundred radicals would lead us to believe that Wall Street is responsible for the present changes in the world's climate. Maybe so, but remember this, what Wall Street has done, it can also undo.

Readers know that I am no apologist for big business, the financial community or Wall Street. As for climate change, I am clearly on the side of those 300,000-plus people who participated in the People's Climate March on Sunday. The earth is in jeopardy today thanks to carbon emissions generated by fossil fuels.

The simplistic approach, preferred by this "Flood Wall Street" crowd, condemns Corporate America, Capitalism in general, and oil companies, specifically, for the global dilemma we face. The solution, they offer, is to do away with these entities with the assumption that once that is accomplished, the world shall once again be green and free. If only things were so easy.

Historically, I can understand why they blame all things business. You see, it takes a long time for climate to change, according to the scientific community. As such, we could blame the Robber Barons of the 19th century for today's ills.

After all, without a Rockefeller or Morgan(and Wall Street to fund them), there would be no oil and gas industry, nor railroads to transport these products. Of course, we probably wouldn't have computers or medical technology or a host of other things that makes up today's society either.

We could go back further still in our search for a scapegoat to the Dawn of Industrialization, but then we would have to bring Europe into the equation, specifically Great Britain where it all started. Remember, too, that it was foreign nations, not Wall Street, capitalism or America, that first developed and exploited the globe's natural resources. The world's populations ravaged the earth while mining for coal, tin, gold and dozens of other metals for centuries.

How many forests were cut down worldwide before the New World was even discovered in order to clear the way for population expansion and farming? We wring our hands in anguish today over the downing of trees in the Amazon and other locales but conveniently forget how we have all abused the environment to get us where we are today.

Some say that we need to radically change our priorities. Walk rather than drive, forsake flying and stop mining altogether. Give up fossil fuels even if it would drive the world into a global depression. Radical times, they argue, call for radical solutions.

So who wants to go first, you?

For most of us, those kinds of remedies are beyond the pale, but does that mean that we should simply continue as we are? Of course not, but let's not shoot ourselves in the foot by getting rid of the very engine of change we need to turn around this situation. The forces that got us into this mess are the ones that will get us out of it. Evidence abounds.

It is Wall Street and capitalism that is making it possible for any number of carbon-reducing technologies to flourish. Who funded and is developing the world's first, second and third electric car companies? Where are solar companies getting their backing?

Read my lips: it is private capital that will convert this generation of fossil burning vehicles into one powered by electricity and other clean technologies. Wind farms, rooftop solar panels, organic farming, solar powered utility plants, pollution controls, scrubbers, in fact, just about everything we will need to clean up the environment is either funded by or made by companies that are listed on Wall Street or soon will be.

Yes, world governments have a role in providing the incentives for companies to take a chance on new technologies. But all the governments in the world do not have the money, knowledge or technology to effect climate change. That's the job of the private sector. And as long as there is a profit to be made in cleaning up the environment, Wall Street will be happy to oblige.

So let's use 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: The United States of Scotland?
By Bill Schmick On: 05:38PM / Thursday September 11, 2014
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Will the ghost of William Wallace finally see the British thrown out of his country once and for all? If the latest polls on the outcome of the Sept. 18th referendum on Scottish Independence are any indication, Scots are in a dead heat over the political and economic future of their country.

Last weekend, for the first time, polls showed that the majority of voters in Scotland were leaning toward independence. Since then new polls show the public vacillating between yes and no on a daily basis. The news has shocked the world and galvanized the three major British political parties to implement a no-holds-barred program of damage control.

UK Prime Minister David Cameron, Liberal Democrat leader Nick Clegg and opposition Labour Party chief Ed Millbank dropped whatever they were doing and headed for the Highlands on Wednesday. The British leaders are pulling out all the stops in trying to convince Scottish voters to stay with the Union. Even Harry Potter has been enlisted or at least his author, JK Rowling, is backing the Union, which has been in effect for 307 years.

On the financial front, the polls caught "The City" (England's Wall Street) by surprise. For months, European financial institutions had been discounting the referendum as a non-event, just another opportunity for those dour Northern people, who talk funny, to blow off a little electoral steam. No one seriously considered that Scotland would actually embrace independence.

For most of the week both the British pound and the UK stock markets have been declining. And they should, because if Scotland does decide to fly the coop, there will be severe economic consequences for all parties concerned.  No less a presence than billionaire fund manager George Soros has weighed in warning Scotland that now would be the worst possible time to leave the United Kingdom.

A group of big global bank experts also joined the fray arguing that Scottish independence could threaten the UK's economic recovery, weaken the sterling by as much as 5 percent against the dollar, throw Scotland into a deep recession, and wipe billions off the value of big Scottish corporations.

Those for independence argue the positives outweigh the negatives. Exports would grow. North Sea oil revenues, they also contend, would be Scotland's and worth billions, even if energy production from those deep, cold waters is peaking out. Scotland would be able to tax its citizens and determine how that money would be spent. Investments, jobs and future productivity would be for Scotland's benefit alone, not simply as part of a greater United Kingdom budget plan.

Of course, the Scotts would have to come up with a new currency. U.K. politicians have already said they would be against the use of their own currency in the event Scotland went its own way. The Euro would be out of the question, since Scotland would first have to petition and wait for membership in the European Union before using that currency.

Scotland now represents just under 10 percent of Britain's GDP. Independence would pose a potentially lethal blow to the UK's fragile recovery. The loss of billions of dollars in oil revenues alone would throw the country into a much larger deficit.  It would also jeopardize the Labour Party's chances of winning the next election. At present, Labour leads in the polls for parliamentary elections that are scheduled for next year. Of 59 Scottish seats in Parliament, Labour holds 41 of them. Independence would at best reduce the race to a tie between Labour and the reigning Conservative Party of David Cameron.  

The Scots are sitting in the catbird seat. As it is, the politicians have promised the Scots more autonomy on everything from social to economic issues including income tax, housing and transportation. The people of William Wallace might demand even more and receive it. By next Thursday's vote, it could be that the canny Scots, without raising a sword, could come away with independence in everything but name. And for you of Scots birth — "Alba gu bràth."

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: Europe Follows the U.S. lead
By Bill Schmick On: 05:23PM / Thursday September 04, 2014
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The European Central Bank has lagged behind both the U.S. and Japanese counterparts in their efforts to stimulate the economies of the European Union. Today, they attempted to address that fault before Europe sinks into a recession.

Both bond and stock market investors have been anticipating additional stimulus for several weeks. ECB President Mario Draghi did not disappoint. He said the bank would begin purchasing asset-backed securities and covered bonds, which are investments based on loans to corporations and residential mortgages. The hope is that others will now also jump on board and buy them too.

If that occurs, then European banks would have the courage to make more such loans knowing that the central bank and others would be there to buy them. The thinking is that if it worked in the U.S., it should probably work in Europe.

The ECB also cut its benchmark interest rate to just 0.05 percent and the deposit rate (what European banks pay to keep their money in the ECB) to minus 0.2 percent.They stopped short, however, of actually buying government debt, at least for now.

The ECB reduced its forecast for economic growth this year to just 0.9 percent while lowering its inflation expectations to 0.6 percent. Some economists think that is still too optimistic. As of August, the EU’s inflation rate was 0.3 percent, far below the targeted rate of just under 2 percent.

The ECB has only one job and that is to manage inflation. A slide in inflation (0 or below) can be just as bad as an inflation rate rise. Deflation, rather than inflation, appears to be the greatest fear of officials in the EU. In a deflationary economy, it becomes much more difficult for governments, businesses and consumers to service their debt payments. Investment falls and so does spending. This downward spiral becomes extremely difficult to break.

Japan is a textbook case of what happens to a country caught in this kind of cycle. For over 20 years, Japan has suffered from low to negative growth, falling exports, declining wages and jobs and negative interest rates.  It has taken massive amounts of monetary stimulus, combined with government spending to break out of this cycle and the jury is still out on whether they will succeed.

The European Community, however, is a union of competing interests and it is difficult to arrive at a consensus among 18 members. It is one reason why the ECB has lagged behind its brethren banks around the world in supporting its economies. Although the ECB has conducted a low-interest rate policy, it has stopped short of more aggressive programs such as employing their balance sheet to buy vast amounts of debt in the financial markets. However, today it appears European officials have reached a moment of truth. Cutting interest rates alone has not been able to turn around the situation so even the foot draggers among the EU have finally agreed to more drastic measures.

Most observers would agree that Germany has been the loudest voice in opposing any bond buying actions by the ECB. However, today's actions set the stage for even more stimulus in the months ahead. Let's hope it works.

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: Baby Boomers and Retirement
By Bill Schmick On: 05:28PM / Friday August 29, 2014
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The nation's work force has experienced some traumatic events over the past five years. Between the financial crises, global competition and the slow pace of domestic economic growth, is it any wonder that employment in the U.S. is not what it should be? Yet the biggest challenge of all may be right around the corner as the Baby Boomers retire in droves.

From 1946 to 1964, there was a boom of baby making in this country. A total of 76 million Americans were born during those 19 years. Now those Americans are between the ages of 50 to 68 and are eyeing the prospect of retirement in the near future.

Think of it: Nearly one quarter of all Americans alive today will be leaving the labor force in the years to come. In their heyday, this demographic group shaped much of what this country is today. They lived through the greatest economic boom in our nation's history. They spent more, consumed more, bought more homes and by the late 1990s, had pushed the labor force participation rate (the share of Americans who have a job or who are looking for one) to record highs. By 2003, 82 percent of Baby Boomers were in the labor force. But times they are a changing.

Every month, more than a quarter million of us are turning 65 years old. The share of those 55 and older who are working or looking for work is beginning to fall dramatically. We didn't really notice this change until now because the financial crisis and subsequent recession put many Boomer's retirement plans on hold. Only 10 percent of Boomers had decided to retire by 2010.

Since then, however, the financial markets have come back and so has American's retirement savings accounts. Older workers are deciding to retire as portfolios increase and their confidence in the future gains ground. In the last four years, that Baby Boomer retirement figure has jumped from 10 percent to 17 percent while their labor force participation rate has just hit a 36-year low in 2014.

Over time this trend will have some profound implications for the economy. Retirees, for example, contribute less to the growth of an economy than active workers. Retirees do not produce anything. They also spend much less than they did when they were working. What's worse, the retiree community in this country has little savings. Over 31 percent of Americans have no savings at all. That means a fair amount of Baby Boomers will need to depend on others, such as government or family to support them.

All this is measured by what economists call "the dependency ratio." It is the number of people outside of working age (under 18 or over 64) per 100 adults. Adults are classified as those between ages 18 and 64. The idea is that the higher the ratio of young or old in a given population, the more difficult it is for those of working age to support these dependents.

The good news is that the dependency ratio has been improving in this country in recent decades, from 65 in 1980 to 61 in the year 2000. But the trend is beginning to reverse. By 2020, we will be back up to 65 again. And by 2030 it will be 75. But it could be worse.

Today, the U.S. has fewer residents over 65 years old than most other developed nations. By 2050, about 21 percent of our population will be 65 or older, compared to more than 30 percent in Western Europe and 40 percent in Japan. And as luck would have it, Baby Boomers are retiring at the very time their children are hitting their prime work years.

These "echo-boomers" are an even larger demographic group in size than the Baby Boomers. Many of them can't wait until we old fogies retire and open the professional work-place pipeline to their advancement. Some economists believe our reticence in embracing retirement has just led to lost opportunity for the young. In any case, more and more of us will be stepping aside in the years to come.

At the very least it will mean a sea change in how and who grows the U.S. economy for the foreseeable future.

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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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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