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The Independent Investor: Gambling Could Be Your Next Download Application
By Bill Schmick On: 05:06PM / Thursday April 04, 2013
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Last month, the New Jersey legislature passed a bill allowing regulated online gambling within their state. Nevada already has such a network in place as do several other states. Many state capitals across the nation are also debating the same type of legislation. There is a real possibility that someday soon you may be able to play the roulette wheel from your living room couch.

Depending on how quickly the right to gamble via the Internet occurs, people will be able to bet on casino games from their mobile phones, laptops and other Internet hardware. That has created some concern among those who believe gambling is an addiction. However, state legislatures appear to be ignoring those issues as they forge ahead with plans to legalize this form of gambling. And given the numbers it involves, it is easy to understand why.

Globally, online gambling is worth $30 billion and is expanding at a 2-3 percent rate annually. It is estimated that 51 percent of the world's population partakes in some form of gambling.  At the same time, by the end of 2013, 39 percent of the world's population will have access to the internet. That represents 2.7 billion people.

Both vendors and state tax officials are eyeing Europe as a model for potential U.S. expansion. Europe experienced a 45 percent increase in a total online gambling yield last year largely because Europe has the highest penetration of internet access (75 percent of the population) in the world. More and more officials realize that when you combine the public's desire to gamble along with the growth and penetration of the internet the numbers become staggering.

So as the Internet expands, so do the opportunities to offer several forms of wagering, casino betting and poker. To date, Southeast Asia has been the main driver of growth, followed by Europe. America comes in a poor third, but thanks to the Federal government things are changing here.

The 2011 decision by federal courts that online gambling was not illegal gave new life and impetus to advocates of online betting nationwide. To date, seven states have moved to enact legislation. So far the plans only include casino betting but the real jackpot would be legalized sports betting over the internet.

New Jersey voters approved a ballot initiative for sports betting back in 2009 and Governor Christy signed sports betting into law, but the federal government sued to block it. The case is now being heard before the courts. No matter who wins, the case is expected to go all the way to the Supreme Court before a verdict is final. If the courts decide in favor of sports betting, a boatload of states is expected to push for passage among their own citizenship.

Opponents are afraid the proliferation of sports betting will breed corruption, addiction and tarnish the image of sports figures throughout the sports world. Advocates maintain these arguments are hypocritical at best, pointing to the fact that Americans gamble in casinos, racetracks, off-track betting parlors, and even lotto and other state lotteries but neither crime nor corruption has resulted from these endeavors.

Behind this new development are those old most popular of motivators: fear and greed. A generation ago, Atlantic City, New Jersey, was the only game in town for east coast gamblers. The boardwalk properties generated enormous tax revenues, tourism and profits for the casino owners and the state.

Over the last 20 years, however, there has been an explosion of state-sponsored casinos cutting in on the action. The tax revenues generated by New Jersey and the windfall profits of the Indian Reservations of Connecticut, coupled with inflows of new tourist money was simply too lucrative to resist.

In the case of New Jersey, all this new competition has reduced the "take" on the boardwalk, driving down profitability and state tax receipts as well. Officials fear it will only get worse as new states like Maryland and Massachusetts grant licenses. Internet gambling is a way of turning that situation around.

I suspect it will give a boost to revenues for both the gambling industry and state governments in the short term. However, like the experience of New Jersey casinos, I'm sure internet gambling will reduce both attendance and profits at existing gambling hubs such as racetracks, off-track betting parlors and the like. In the end, we may simply see a shift away from physical betting to internet betting without much of a change in the dollar value of the betting.

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: An Educational IRA for Kindergarten and Above
By Bill Schmick On: 06:38PM / Thursday March 28, 2013
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Most savers are familiar with state-sponsored 529 Plans, a tax-advantaged savings plan to help put your children through college. However, there is another savings plan that could assist you in meeting the bills for school Grades 1 through 12 as well as college. It is called a Coverdell Education Savings Account (ESA).

This plan is ideal for families with multiple children or who want to start saving for their children's educational needs early in their lives. In addition, if you are thinking of sending your child to an independent or private school (or prep school) prior to college then this ESA is meant for you.

You can contribute $2,000 annually to an ESA, although similar to a Roth IRA, contributions are not tax deductible. However, the earnings on contributions and distributions are tax-free as long as they are used for educational purposes. The tax-free money can apply to tuition, room and board, computers, laptops, supplies, tutoring and transportation as long as they are legitimate educational expenses. Attendance at colleges, secondary or elementary schools, as well as vocational schools and other post-secondary educational institutions (whether public, private or religious) are eligible.

Take the example of my grandson, Miles, he is 16 months old, lives in Manhattan and faces horrendous future educational costs. His mother wants to begin saving for his education now. I can't blame her. There are kindergartens in the Big Apple that will set you back $40,000, if you are so inclined. Private grammar and high schools could easily cost $100,000 plus.

Now $2,000 a year in savings doesn't sound like much if you live in Manhattan, but it will certainly help and elsewhere it could be a windfall for many lower-income families. If invested properly, five years of $2,000 contributions could generate a considerable amount of money. Money that would certainly pay for some of the expenses every child will incur through high school and beyond.

So what, you may ask, is the downside to ESAs? The $2,000 contribution per year, per student is negligible compared to the $14,000 a year you can stash away in a 529 Plan. There is also an income limit which kicks in for single taxpayers making over $110,000/year and married couples making over $220,000.

You also have to use the money before the child turns 30 years of age, otherwise the earnings (not the contributions) will be taxed and a 10 percent penalty will also be applied. You could avoid that by simply rolling over the full balance to another ESA for another family member.

The American Taxpayer Relief Act signed into law January 2nd removed any lingering uncertainty concerning the future of ESAs. They are here to stay just like 529 Plans. But unlike their bigger more popular brethren, you can manage your ESA yourself while saving hefty expenses that 529 Plans charge.

Many savers have also been disillusioned with the performance of their 529 Plans thus far. That is an important point since many hoped that the growth of these plan contributions would at least match the rate of increase of educational costs, which are about 6 to 7 percent a year.

If one can afford it, most planners recommend that families contribute to both plans. You still have time to open an ESA account and make a $2,000, 2012 ESA contribution. You can also contribute another $2,000 for 2013 if you are so inclined. The paperwork involved is no more onerous than a standard IRA application that you can obtain from most brokers or your local bank. Do your kid a favor, open an ESA today.

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: Will Beer Become an Acquired Taste?
By Bill Schmick On: 05:18PM / Thursday March 21, 2013
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Twenty-five years ago, American beer had more in common with spring water than with one of the oldest beverages of the human race. Today, thanks to a return to the methods of the past, microbreweries and craft beer brewers are hoping to create a renaissance among beer drinkers in America.

Overall, beer consumption in America has seen a steady decline for the past 20 years as consumers abandoned the practically tasteless, calorie-loaded brews in favor of new product offerings in the wine and spirits industries. In hindsight, the launch of Lite beers only made the matter worse. Beer experts debate whether the consolidation among American brewers using mass production techniques accelerated that downtrend or was simply a survival response in the face of disappearing profits and plummeting sales.

It doesn't matter, since the end result was the same. Today, two megacompanies (Anheuser-Busch InBev and Miller Coors) control 90 percent of the American market. That amounts to roughly $200 billion in sales, or 2.787 billion cases last year, a 1.3 percent decline from the prior year. The two big companies now have so many brands that your local bar can offer eight different brands of beer on tap and, unknown to you, all of them are made by the same company using roughly the same brewing procedures and priced carefully to create an illusion of real choice.

However, there is a burgeoning niche market of craft beers with names like "Flying Dog," "Green Pig" and "Sierra Nevada" that have wrestled a 6 percent market share from the big guys largely built on a return to producing beer in smaller batches with the highest quality ingredients. These mini-breweries have been embraced by as many as 50 million Americans. The segment grew 15 percent in volume and 17 percent in dollars last year, equating to about $10.2 billion in sales. There are 2,347 craft breweries operating in this country as of last year, comprising 1,132 brewpubs and 97 regional craft breweries, according to the Brewers Association. Most beer industry analysts expect that the craft-beer market share will continue to climb as more consumers are willing to pay up for tastier brews with hints of dark molasses, cherries and other exotic flavors.

The blossoming renaissance in demand for beer produced by small, independent brewers can be traced back to Boston Beer Co., the brewer of Samuel Adams beer, almost 30 years ago. Since then the market and the microbreweries have expanded to the point where the market is becoming even more segmented.

For example, a distinction is growing between microbreweries, especially regionals such as Sam Adams and Yuengling, which now account for as much as 1 percent of the overall beer market, and those breweries that produce no more than 6 million barrels of beer annually. They can usually be found within 10 miles of their customers.

Craft brewers, according to the criteria, should be independent, with less than 25 percent of their brewery owned or controlled by another alcoholic beverage industry member. Brewers should have at least 50 percent of its volume composed of all malt beers, which uses adjuncts to enhance rather than lighten flavor. Craft brewers, like great chefs, take the basic ingredients of beer—water, yeast, malt and hops — and produce wonderful and unusual flavors through innovation and education.

Recently, the two big brewers have been muscling their way into the micro and mini-markets producing their own brands disguised as craft beers. The attraction of higher profitability and additional growth, given that craft beers can cost twice the price (if not more) of a mass-produced domestic beer, makes that market irresistible.

The competition within the beer sector has always been fierce. There are now more breweries in this country than before Prohibition. It will be interesting to see whether once again the big guys, through money and clout, force the crafters off the shelf and out of the bars.  In the end, I believe, it will come down to whether America's consumers are willing to pay up for a sip, rather than a gulp, and acquire a taste for truly exceptional beer.

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 Richest Man on Earth
By Bill Schmick On: 06:41PM / Friday March 15, 2013
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As the white smoke clears, the first Argentinean was appointed to the pinnacle of the Roman Catholic Church. Pope Francis I, formerly known as Cardinal Jorge Mario Bergoglio, assumed the reigns of what many believe is the wealthiest instituition on Earth and since he is the boss that makes him one wealthy individual.

At the helm of this financial behemoth representing 3,000 dioceses and 1.2 billion Catholics worldwide, is a 76-year-old man who likes to be called "Father Jorge," who takes the subway and prefers to dress in clerical black, rather than the rich red of his fellow cardinals. He is a man who rejected the palatial digs of his predecessors as Archbishop of Buenos Aires, opting instead to live in a small apartment where he cooked his own meals.

Francis I is responsible for untold billions in assets that range from priceless art works to real estate holdings that are so large they rival the size of many small countries. No one knows for sure how much the Catholic Church is worth although over the years various media organizations and research centers have made a stab at estimating portions of the net worth of this 2,000-year-old religious order.

For example, back in 2010, The Economist estimated that the church and organizations owned by them in just the United States was spending roughly $179 billion a year. They estimated that the 34 metropolitan provinces managed by 270 bishops spent 57 percent of that money in health-care networks, 28 percent went to colleges while parish and diocesan operations (of which there are 196) accounted for only 6 percent. It might surprise some to know that charitable donations only accounted for 2.7 percent.

The church employs 2,800 lay workers worldwide, which isn't much considering the number of Catholics out there. Pope Francis' new digs, Vatican City, alone accounts for 1,900 of these workers. Given that the Vatican is officially a city state, its employees are responsible for issuing its own passports, license plates, postal service as well as the administration of a host of offices and buildings, including its own hospital. Much of that infrastructure has outgrown the confines of the world's smallest country and has sprawled throughout Rome's urban landscape.

If we confine our discussion to just the assets the Vatican owns, we know that its portfolio includes billions in property across Europe. Included in the portfolio are buildings in London, Paris and Switzerland. Then there are the landmarks in Rome, which draw 5 million tourists a year such as the Apostolic Palace (the pope's official residence) the Sistine Chapel (with its murals by Botticelli and Michelangelo) and St. Peter's Basilica, the largest church in the world. You could combine Disneyland, Disney World and a couple more such attractions and you wouldn't come close to the worth of those historical spiritual shrines in the middle of some of the highest priced real estate in Europe.

There are estimates that worldwide, the Church owns roughly 716,000 square miles of real estate - about the size of Alberta, Canada - which includes churches, cathedrals, monasteries, schools and convents among other properties. Its bank, called the Institute for Works of Religion (IOR), is estimated to be worth $8 billion to $10 billion and has investments in multiple corporations ranging from finance, insurance, chemicals, steel, construction and real estate.

It is thought that the Vatican holds a mountain in gold worth several billion dollars. The real money, however, is tied up in artwork and other irreplaceable religious relics. They are both practically impossible to categorize and even more difficult to price, since the Church would never sell these objects.

Yet, despite its wealth, the Catholic Church has been cash-flow poor for several years. Scandal and mismanagement has cost this colossal non-profit an enormous sum. The abuse scandals have drained the church of well over $3.3 billion to date. That number is expected to grow as more cases are decided in favor of the plaintiffs. For an organization that receives $170 billion annually in revenues, a couple billion might seem like small change; but many of the settlements have been made by individual dioceses and religious orders, which are not nearly as wealthy as the Church overall. Eight U.S. dioceses have already declared bankruptcy as a result of these settlements and more of the country's 196 dioceses could wind up in similar straits.

The Vatican Bank, itself, has also been the subject to repeated multimillion dollar scandals ranging from money laundering, to mismanagement and the lack of financial controls. So don't envy the new pope too much. Francis I has his work cut out for him and I suspect he will have precious little time to enjoy his status as the wealthiest guy on Earth.

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 Planners: The Good, the Bad and the Ugly
By Bill Schmick On: 03:08PM / Friday March 08, 2013
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Recently a number of clients have expressed an interest in hiring a financial planner to provide a roadmap toward retiring or saving money toward a child's college education. They asked me what they should look for when hiring such an individual. Here is my advice.

First off, one needs to understand what a financial planner actually does. A practicing financial planner looks at all aspects of your personal finance and that of your family. After understanding your goals and objectives, they create a plan that should include everything from how much money you make, spend and save, to your retirement objectives, education and insurance needs, estate and tax planning concerns and even business planning (for those who own a business).

Many older clients simply want to cut to the chase — how much will they need to retire and when. Creating a financial plan takes a lot of work and there are no short cuts. You have to put in the effort and it can end up costing you anywhere from $1,000 to $5,000, depending on what you want.

In addition, you need to spend time with the planner because they need to gather a lot of data about you and your household and it helps if you keep good records. Once the data is assembled, planners input that information into one of several financial planning software programs. The output should give you a fairly clear idea of where you are going financially.

Most of today's financial planning programs are interactive, which means that by changing assumptions (like retiring at 65, instead of 70 years of age, or saving $100 more a month rather than $50 over the next 15 years) you can generate different outcomes. Depending upon their experience and knowledge, a financial planner can come up with scenarios and solutions that best fit your circumstances. I strongly advise everyone to undergo this process and do so more than once. It could mean the difference between a happy retirement for you and your family or bagging groceries for a living to make ends meet when you are eighty.

Since there are literally hundreds of thousands of people who call themselves financial planners, how do you whittle it down to the one or two that are best for you?

One way would be to narrow your search is to select a Certified Financial Planner (CFP). CFPs must prove that they have completed a rigorous program of study on all aspects of the discipline and are then required to pass a two-day examination. It doesn’t guarantee that they are good at the job, but at least you know they have acquired the knowledge base.

My next suggestion would be to hire a "fee-only" planner as opposed to someone who is "fee-based." Fee-only planners charge you for the financial plan and that's all. Fee-based planners can and do sell a whole host of products and make commissions and fees on those products as well as charging a fee for the plan itself.

Clearly a potential conflict of interest arises when the same person who creates your plan "discovers" you need more insurance, or an annuity, or a new money manager and makes more money selling these services to you than the cost of the plan itself.

That doesn't mean that all fee-based planners are bad or all fee-only planners are good. I know, for example, excellent planners that are fee-based. I also know planners, who are not CFPs, but have vastly more experience than most CFPs. It simply means that you should be aware of these differences when shopping around and never, ever accept a planner that you have not checked out.

It is always smart to ask others for names of planners who have done a good job for them. That doesn't mean you are off the hook. You should still check references, vet the person (at least on the Internet) and find out what the charges will be before you agree to hire the planner.

If you follow this advice, you still may end up with a bad planner but chances are you will avoid a really ugly one and find someone who will provide real value for your money.

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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