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The Independent Investor: Trade Schools versus College
By Bill Schmick On: 05:56PM / Thursday February 14, 2013
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When was the last time anyone seriously considered a choice like that? Over the last 50 years, most Americans considered a college education as the only ticket to their slice of the American dream. The high cost of that education, coupled with declining incomes and fewer openings for today's college grads make me wonder if there isn't a better way forward for a large portion of our work force.
 
When was the last time you could get an electrician, plumber, or other skilled laborer to show up on the same day you called? Have their fees gone up or down? Why are there 200,000 or more high-paying manufacturing jobs left unfilled in this country in the face of 7.8 percent unemployment? My point is that there is an enormous opportunity for millions of Americans to earn more money and live a more prosperous life than ever before, but they lack the skills to apply.
 
During the Cold War, John F. Kennedy urged this nation's youth to enroll in college. It was their patriotic duty in order to counter Soviet aggression and technological gains. We listened and enrolled in college by the millions. The Vietnam War and the draft spurred even greater growth in university attendance. By the 1980s, college was the only answer to getting ahead. If you wanted an even better life, graduate school was the next step, so I applied. We called it the age of the MBA. 
 
Trade and technical schools fell by the wayside. It was a place where only those who couldn't pass their SATs would go, quietly and in shame. Attendance declined, schools were shuttered and those that did survive were as popular as the plague.
 
The globalization of the world's economies, however, threw the world's labor force on its head. What followed was a 30-year wrenching readjustment of worldwide employment practices. The developed world's work force experienced a substantial decline in real wages, especially among its unskilled workers, while the labor force among emerging economies has enjoyed a high income and standard of living.
 
Here in America those trends have resulted in a stubbornly high unemployment rate (especially among the nation's youth) and an imbalance in our skill sets. We have an overabundance of college-trained workers, an increasing (and unfulfilled) demand for skilled "blue collar" workers and a large number of undereducated high school graduates making the minimum wage.
 
The Center on Education and the Workforce at Georgetown University projects that between now and 2018, the U.S. economy will create 47 million job openings. However, less than a third of those jobs will require a college degree. Many of these new jobs will require some occupational training and skills. This new national demand will come from healthcare, construction, manufacturing and natural resources among other areas.
 
As a result, vocational or trade schools are making a comeback. Over the last five years these schools have experienced relatively strong growth, about 4.1 percent annually and are expected to continue to grow by about 2.6 percent a year over the next five years. At the same time, much of academia as well as the present government have changed their attitude toward vocational training.
 
Traditionally, we have considered vocational training as an institution that trains students for entry-level positions in jobs that don't require a college degree. That may have been the case in my "Daddy's Day" but vocational training is in a state of transition. Trade schools increasingly offer a much broader approach to education and are providing students with a variety of applicable skills. Today, technical school graduates are working in business, health, computer technology and various areas of administration as well as in the more traditionally recognized blue collar jobs.
 
I have often said that opportunities for U.S. workers with only a high school degree are dismal at best and shrinking daily. These are today's minimum wage employees. The present debate over whether or not to increase that minimum wage addresses a symptom rather than a cause in this country. 
 
In my next column, we will look at how technical schools and vocational training could help turn around the high unemployment rate of America's youth, while lifting an entire segment of workers out of the minimum-wage trap.
 
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: America, the Battered
By Bill Schmick On: 04:40PM / Thursday February 07, 2013
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On the eve of what is supposed to be one whopping big snow storm here in the Northeast, one can only wonder if Mother Nature is preparing us for yet another horrendous weather year. Last year was one of the costliest on record.

In 2012, at least 11 weather events, each causing more than $1 billion in losses, were delivered upon this nation. Tornados, hurricanes, wildfires, and drought were just some of the fire and brimstone that left 349 people dead while leaving millions of inhabitants seeking shelter.

Out West, those "purple mountain majesties" were hidden by months of thick smoke as almost 10 million acres of national forest was reduced to blackened stumps. At the same time, those "fruited plains" and "amber waves of grain" shriveled away, replaced by acres of cracked, parched earth. After months of waterless weather, the 2012 drought spread over half the United States, from California, north to Idaho and the Dakotas and then east to Indiana and Illinois. Think "Dust Bowl."

That drought persisted all year and continues today in much of the nation's mid-section. Over 123 of those deaths and billions in damages can be attributed to that drought alone. Of course, the drought played a major role in spreading the wild fires, which gave us our second worst fire season in over a decade in the western U.S.

One can only wonder how the high temperatures interacted with other weather conditions to trigger an unrelenting series of tornados and severe thunderstorms in places like Texas, Oklahoma, Colorado and much of the Southern Plains. Forty-eight deaths, countless casualties and $14.5 billion in damages had many residents in a dozen states as shell-shocked as war victims.  

There was even an unusual combination of high winds and severe storms (called the Derecho Event) that cut a swath of death and damage through the mid-Atlantic from New Jersey to South Carolina this summer. It caused 28 deaths and $3.75 billion in losses.

There was also little left shining from "sea to shining sea" except search lights during the nation's two largest hurricanes: "Isaac," which blew in from the Gulf of Mexico and Hurricane Sandy that made a shambles of much of the East Coast.

It was Sandy that skewed the numbers last year. The Superstorm killed 131 people and estimated damages have peaked at $50 billion. Only 2005, the year of Hurricane Katrina, Wilma, Rita and Dennis, generated more deaths (2,000) and worse damage ($187 billion). And the damage caused by Mother Nature is on the increase.

Back in the '80s and '90s, according to the National Climatic Data Center, which is part of the National Oceanic and Atmospheric Administration, it was rare to see more than two or three $1 billion, weather-related damage events annually. We had many years where the losses totaled less than $20 million a year. But today, the standout years during those decades have now become fairly common. Billion-dollar events have become twice as frequent as they were back in 1996 and in the proceeding 15 years.

So as you read this today, "Nemo the Nor'easter," will have descended upon us. It is forecasted to pile up the white stuff at the rate of an inch an hour around here. Over in Boston, it could be much worse. Let's hope everyone survives it. Unfortunately, this may only be the first big weather event of many that we will endure this year. In which case, 2013 will simply be adhering to what is now the new normal in weather-related costs.

C'mon, Mother Nature, go pick on someone else.

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 Business of the Super Bowl
By Bill Schmick On: 01:07PM / Saturday February 02, 2013
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It is one of the few businesses that continues to grow year after year. Whether one looks at the ads, the attendance or the number of television viewers, the Super Bowl has survived where others of its species have died off. It is truly one of the last mass-audience live television events of our society.

Super Bowl XLVII will be played on Sunday, Feb. 3, in the Mercedes-Benz Superdome in New Orleans. It will mark the 10th time the "Big Easy" hosted the event. The last one was in 2002. It could mean as much as $450 million in business for the city.

Now, that would only be half as much as New Orleans has spent preparing for the game. The city spent more than $1 billion on infrastructure improvements, including renovations at the airport, a new streetcar line, and enhancements to the Superdome itself. After the devastation of Katrina, New Orleans needed to rebuild and have used a number of major sporting events, including the NCAA men's basketball Final Four in 2012, a couple of BCS National Championship Games and the NBA All-Star Game in 2008 to do just that. But the Super Bowl is the big jambalaya in the menu of possible events.

Experts say that for every $100 spent in the city, about 50-70 percent remains there, while the rest leaks out into other surrounding locales. New Orleans, like other cities who have hosted the event, is hoping that by putting their best foot forward, they will convince some of the attendees to remain and even establish businesses in the areas.

Given that the attendance at the Super Bowl is largely a corporate event, businesses get first choice of rooms, flights, special events and just about everything else involved in the Super Bowl and the days surrounding it. The chance to shine cannot be underestimated and the city fathers know it.

For those of us unable to attend the live event, all is not lost. We can look forward to countless parties (either at home or your favorite bar or cafe), root for your favorite team, dance to the half-time show (Beyonce will man the stage this year) and, of course, watch the commercials.

Americans continue to watch the Super Bowl in record numbers. More than 46 percent of TV households watched last year's game, according to Nielsen, which makes it just about the most watched broadcast in U.S. history. And the wealthier you are, the more likely you are to tune in. For advertisers, who strive to reach the age demographic of 18-49 years old, the Super Bowl is the best game in town.

It is probably why Super Bowl ads keep climbing in cost. Ad slots for this year's game sold out at the asking price of $3.5 million per 30-second spot by December. That is up from $3 million/spot last year. But corporations will pay it because there is a gold mine for those who can come up with the right ad.

This year, viewers will see some big names populating the ads. Singer Beyonce, hip-hopper Jay-Z, supermodels Catrinel Menghia, Bar Refaeli and Kate Upton. And that is only a taste of the lineup. Personally, I will be looking forward to the return of the French bull dog, Mr. Quiggly, (which replaced Kim Kardashian in a Skechers' ad). Last year he captured the hearts, minds and pocketbooks of many of us.   

There will also be a number of new ad sponsors this year including Oreos. For me, the day after the event will be as much about my favorite commercial than it is the game. That's why the Super Bowl has become such a business generator for corporations.

Given that the ads are 58 percent more memorable than your average TV commercial, I can see why. If you doubt that, just recall the ad with the little boy dressed as Darth Vader. I bet you can even remember what auto manufacturer sponsored it. That company reaped a cool $100 million in free publicity from the spot, which is not bad for $3.5 million investment. When it comes to the Super Bowl, what is good for business, is also good for America, so let the games begin and the cashier register ring!

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: Get Ready for a Surprise
By Bill Schmick On: 12:00PM / Friday January 25, 2013
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Pay special attention to the new disclosure box when you open your year-end, 401(k) statements. That's where you will discover for the first time just how much you are paying for the privilege of investing in those company-sponsored menus of mutual funds. You may be in for a surprise.

More than 70 percent of all 401(k) participants fail to realize that they are paying fees for investing in these tax-deferred retirement plans, according to an AARP study. I have to agree. Over the years, I have met with many prospective clients who had not rolled their 401(k) over to an IRA once they retired. They were under the impression that keeping their savings plan with their company offered a fee-free benefit for life. Nothing could be further from the truth.

The Department of Labor, after many delays and postponements, has finally forced employers, advisers and fund companies to own up to just how much they have been charging you, the employee, for this fringe benefit. Longtime readers may recall my past columns concerning the battle to prevent these fees from becoming public knowledge. Wall Street has lost that battle but probably not the war.

The problem, you see, is that consumers may simply fail to comprehend the long-term impact of these fees on their retirement savings. Let's say you open your statement and discover that you are paying a $100 in expense ratios (fees), per mutual fund each year. That may not mean much when the overall worth of the account is $10,000. What you fail to understand is that over the life of contributing part of your paycheck towards retirement — 20 or 30 years — those fees will add up.

Demos, a policy research firm, recently released a study which revealed that a two-income family, earning average wages, will lose $155,000 or about 30 percent over the life of their savings plan, to these Wall Street fees. That is in line with most independent studies on the subject which indicate you will pay one-third of your retirement savings in fees.

Wall Street defends its fees and has released its own studies that show the average investor pays less than $248 a year in 401(k) fees and no more than $20,000 during the life of the plan. Even if they are right, given that the average 401(k) in this country is around $75,000, that still results in over 26 percent of the plan consumed by fees.

So what can you, the employee, do about it? Your first reaction may be to stop investing in your 401(k). That would be a big mistake. These deferred savings plans have at least two major benefits over an IRA. The employers' "match" whereby your company contributes dollar for dollar up to a certain percentage of your own contribution is free money and worth any contribution you make.

Second, the government allows you, the employee, to contribute much more to a 401(k) than to an IRA. This year employees can contribute $17,500 to their 401(k) plans and, for those over 50 years of age, an additional $5,500 can be contributed. That compares to just $5,500 (or $6,500 for those over 50) in contributions to a traditional IRA.

However, you can cut down on the fees by urging your company representative to select mutual fund families with the lowest fees possible. That's what I do every day for my clients. Better yet, tell the company to abandon mutual funds altogether and invest in exchange traded funds (ETFs) instead. Some 401(k) plans already offer ETFs. These index funds are much cheaper than their high-priced cousins and outperform comparable mutual funds over 80 percent of the time.

Remember, too, that you are managing your own 401(k). That puts the onus on you to decide what investments to make and when to move to the sidelines. That's tough to do when few of us have the professional knowledge to cope with today's markets. Part of my job is to advise my non-retirement clients on how to invest those savings and when. It is also one of the reasons I write these columns. Hopefully, it gives you, the reader, some advice on how to manage your retirement savings.

Finally, if you are retiring soon, my advice is to plan to roll over your 401(k) savings into a traditional IRA. You likely will enjoy a cost savings of as much as 1-2 percent annually. You will also be able to expand your investment choices from the limited menu your company plans offers. If you need advice on how to accomplish that give me a call. It is much easier to do than you might think.

Bottom line: the new fee disclosures is a giant step forward for you the consumer but now that you know how much you are paying, it is up to you to do something about 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: Are Fringe Benefits Coming Back?
By Bill Schmick On: 12:32PM / Friday January 18, 2013
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Since the Financial Crisis, those who have kept their jobs consider themselves as lucky. That may be so, but at the same time many complain that their benefits have been cut as the price for further employment. There are signs that may be changing.

During 2008, I, like millions of other American workers, attended a mandatory meeting at a former employer. The room was rife with fear and trepidation, since just days before the owner had laid off almost half the company. Instead of more firing, he announced that the company would no longer be providing a match to our employee 401(k) retirement plans. He also reduced the number of paid time off for all of us. His announcement was met with relief that no one else would lose their job.

I'm not sure whether that employer ever reinstated his employees' benefits because I left shortly thereafter. I do know however, that many companies have started to become a bit more generous in what fringe benefits they provide their employees. The employer "match," for example, is making a comeback in some companies, but with a new twist. At that time was a company would match a certain percentage of your own contribution to a deferred benefit plan. Normally the match would range from 3 percent to as much as 6 percent of your yearly contribution.

However, IBM, the business services company with a great reputation for fringe benefits among its corporate peers, introduced a new wrinkle in their employee 401(k) matching compensation this year. Big Blue will still match contributions (and never cut them during the recession), but will now delay its contributions until the end of the year on Dec. 31. They will then pay them in a lump sum. If you leave before Dec. 15, you lose the match. The only exceptions are those that retire that year.

This week, Morgan Stanley, the global brokerage house, announced a variation on that theme. It will defer for up to three years a part of the bonuses for all those who make more than $350,000 and whose bonuses are at least $50,000.  They will also pay those sums in both cash and stock. Although it does not affect the company's financial advisers (brokers) this year, it may be a warning shot about how compensation will be paid in that group in the future. Of course, if you quit prior to the end of those three years, you forfeit any bonus that remains.

In another area, more companies are switching to a "paid time off" (PTO) option rather than the traditional allotment of a certain number of days for holidays, vacation, sickness, pregnancy leave, etc. This gives the employee the option of choosing how many days they can take off from a finite number, whether it is 15-20-30 days or whatever their company decides.

Although this change appears to be in the employee's favor, many companies are nicking away at this benefit in marginal ways. Some companies are limiting the number of days one can carry over from the preceding year while others are reducing the total number of days off that employees enjoyed under the old method.

Of course, the most formidable challenge to employee benefits is yet to come. Obamacare. The Patient Protection and Affordable Care Act, becomes effective in 2014. This year, corporations will have to devise ways to overhaul their employee health care coverage in answer to this new legislation. A couple of firms have already changed their provisions in the health care field. They are opting for what has been termed "Employee Choice" plans.

This plan will give each employee a fixed sum of money (indexed to the rate of yearly inflation) and allow them to choose their own medical coverage and health insurer in an online marketplace.

The employees, according to at least one of the companies, will be paying roughly the same out-of-pocket contributions under the new plan as they did in the old one. They claim the new approach will allow the employee to spend as little or as much on their health care as they think wise. The fear among opponents of this approach is that with the rising costs of health care, the lump sum won't be nearly enough to cover future health care needs.

All in all, the return of employee benefits has been marginal at best, but it is in the early days right now. As the nation's economy continues to grow and unemployment drops, there may yet come a time when fringe benefits will actually expand as a tool to woo hard to find workers. Right now that may seem like a pipe dream but unless this country is doomed to an eternity of lackluster growth, that day will come.

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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