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Independent Investor: The Internet Will Change
By Bill Schmick On: 04:21PM / Thursday January 16, 2014
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"Net Neutrality" is the official name for an open Internet. It means that all Internet providers are to be treated the same regardless of whether you are a mom and pop company or a global behemoth. This week's federal appeals court ruling pulled the plug on that concept.

The judges ruled that the Federal Communication Commission's anti-discrimination rules were beyond the scope of its authority when it came to the Internet. Congress gave the FCC authority to regulate common carriers, such as telecommunication companies, years ago. The FCC has always ruled that telephone networks cannot discriminate against consumers.

However, back in the Bush administration, the FCC was pressured by phone and cable lobbyists to categorize Internet service providers differently. They are considered information services, which we now discover exempts them from common carrier rules. In hindsight, that was a big mistake.

For consumers the fallout could be huge. Fee-free services that we now take for granted may not work as well as before. Internet service providers could now charge fees for the privilege of "service in the fast lane" while the rest of us find we have been consigned to the tortoise lane.

If you're a company that really needs a large amount of bandwidth to provide your services to the consumer in a timely fashion, fees will be going up. Think of companies such as Netflix, Amazon Prime, YouTube, Facebook and others that may have to pay more to ISPs in order to ensure that their content remains accessible to their customers. We all know what that means — higher costs will be passed on to us in the form of higher charges for the same service.

Higher fees could also mean less innovation. Much of today's new ideas are Internet-related, simply because anyone with a good idea can try it out with little to no cost on the Internet. There will be fewer garage startups by Internet and Web-enabled entrepreneurs. Small companies will find it harder to launch new services or compete with existing players that have the resources to pay and keep new players out.

But this is not only about the cost of your next viewing of "House of Cards" or "Orange is the New Black." The Internet has become society's great equalizer. Anyone, regardless of background, income, or race can access the Web for any number of reasons from education to entertainment. As ISPs begin to resemble cable companies, those who can pay will receive a far different level of service from those that can’t.

Society in general will suffer as yet another great divide will be created. Those who can pay will have access and those who don't will see further stratification of society based on incomes and demographics. From the great equalizer, the Internet could become the great divider over time.

There is still hope, however. Net neutrality could still survive. There is nothing in the court's ruling that prevents the FCC from reversing their Bush-era decision. They could simply change the definition and treat the Internet providers as part of the telecommunications industry. Of course, that would put them at logger heads with a very powerful lobbying army and a number of politicians who are being paid to represent the interest of the ISPs.

That's where you come in. You could always call your elected official and express your opinion.

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: Make a Financial Resolution This Year
By Bill Schmick On: 10:23AM / Friday January 03, 2014
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As most of us resolve to lose weight, quit smoking or in some other way change our lives this year, don't forget to re-evaluate where you stand financially. There are some simple steps you can take that will reshape your fortunes for years to come.

Most people don't know where they stand financially. Many can't tell you how much they spend or make, what their tax bracket is or how much they have saved. My advice is to create a budget as well as a statement of net worth.

It is not that complicated. Just track your spending for a month, separating essential from non-essential expenses. Next keep track of whatever income comes in. Subtract one from the other and you now have a cash flow. Now you can figure out what you spend and what you make a year simply by multiplying by 12 months.

Now comes the important part. If you spend more than you earn, as most of us do, you will at least know how much debt you are accumulating each year. There is no way anyone can get out from under a heavy debt burden unless they know how much debt they have in the first place. A first step in reducing that debt would be to cut back on those non-essential spending items.

On the other hand, some of us may find that we earn more than we spend each month but somehow the money just disappears. Usually, it is found among those same non-essential items that you don’t need but buy anyway. This is money that you should be saving toward retirement. You should be saving 10-15 percent of your pre-tax income each year, starting in your 20s, and add 10 percent more for every decade you don't.

Personal net worth is also a good thing to know. Once again, sit down and add up everything you own and how much it is worth. Next, figure out what you owe: mortgages, car payments, medical bills, school loans, etc. Subtract one from the other and you now have your net worth.

Armed with this new budget and net worth information, you can now create some goals and objectives. Are you spending too much? If so, create a spending reduction goal each month through the end of the year. Establish a debt-reduction goal for the year and make sure you are on track each month to achieve it.

If you can save, establish a goal for how much you will put away this year, and keep to it. At first it may only be an emergency fund, which in a pinch; would cover 3-6 months of expenses. After that, you might want to think about saving toward retirement through one of the many tax-deferred savings plans available.

These are simple steps that cost nothing but time and effort. The trick is to stick with the process. So often, New Year's resolutions last about as long as it takes to write them down. This year don't let that happen to you.

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: Japan Embraces Bushido
By Bill Schmick On: 07:31PM / Thursday December 26, 2013
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It was a word rarely spoken in postwar Japan. Bushido, or the "Way of the Warrior," evoked too many embarrassing and shameful memories culminating in the horror of Hiroshima and Nagasaki. But times have changed.

On Dec. 26, Prime Minister Shinzo Abe did the unthinkable. Defying the Koreas, China and the U.S., he visited the Yasukuni war shrine. It is where the memories of 2.4 million Japanese dead from three wars are remembered. His 30-minute visit sparked outrage from Japan's neighbors who view the shrine as a symbol of Japan's imperial military past.

Last Tuesday, the Japanese government confirmed my thesis presented to readers six months ago. On Tuesday, it announced a significant increase in its defense spending over the next five years amounting to 24.6 trillion yen ($237 billion). That's an increase over the current plan and, in my opinion, the defense budget will be increased again and again as time goes by.

They will use the money to acquire surveillance drones, 28 American F-35A fighter jets, 17 Osprey aircraft, five naval destroyers, six submarines plus amphibious vehicles. That's not all. Japan's existing Self-Defense Forces will be beefed up with a new amphibious unit (similar to the U.S. Marine Corp) whose job would be to re-take islands captured by the enemy.

Abe also announced the establishment of a U.S.-style National Security Council and gained support for changing the country's constitution, specifically Article 9, which prevents Japan from "collective self-defense" (coming to the aid of its allies).

Clearly, Japan is rebuilding its defense capability. This sea change will have long-term repercussions for the Japanese economy and the balance of geopolitical power in Southeast Asia. It also adds to U.S. security while reducing our costs as we begin to share the role of the world's policeman.

In my last column back in August, "Japan's New Frontier," I argued that this island nation was on the eve of re-inventing itself. I predicted that as part of an economic renaissance, Prime Minster Abe and his cabinet was preparing to expand its defense capabilities. Re-armament, in my opinion, would address several issues simultaneously.

An expanding defense industry would provide a large number of highly skilled, highly paid jobs for the country's workforce. It would also be an easy avenue for the government to provide spending and additional stimulus to the economy. It would answer the U.S. government's on-going request that Japan shoulder more responsibility in policing their side of the globe, specifically Southeast Asia. And finally, the return of the samurai in the form of a stronger army, navy and air force would provide a strong detriment against encroachment from China, North Korea and, someday, possibly a more aggressive Russia under Putin.

Recent events have played into the hands of Abe in martialing support in his quest toward bushido. China's arbitrary declaration of an exclusive "air-defense identification zone," covering the disputed Senkaku Islands recently lent credence to Abe's argument that Japan must be willing and able to protect its own territory or else others would take it from them.

This argument reverberates in other parts of Asia. Vietnam and the Philippines have their own disputes with China over territory. It is no accident that Japan, using last month's typhoon damage in the Philippines, dispatched troops, ships and generous amounts of aid while China did next to nothing. It was the largest deployment of Japanese forces since 1945.

Most readers are aware that I have been bullish on Japan, its economy and stock market for the last two years. Everything I see convinces me that my investment stance is correct.

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: What the Fed Taper Means For You
By Bill Schmick On: 05:10PM / Thursday December 19, 2013
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This week the Federal Reserve Bank announced the beginning of the end of its years-long support of the financial markets. Granted, $10 billion per month of reduced purchases is a baby first step, but over the next year, the Fed is hoping they can reduce its bond buying altogether.

For the overwhelming majority of Americans, the fact that the central bank has begun to taper its $85 billion a month of bond purchases is good news. It reflects their view (and mine) that both employment and the economy overall are gathering momentum.

In Wednesday's policy statement, the Federal Open Market Committee took great pains to promise that they would keep short-term interest low until after the unemployment rate dropped below 6.5 percent. They said nothing about longer-term interest rates. We can expect to see medium and long-term interest rates (but not short-term) continue to climb for the foreseeable future.

That means that the return you can get in a money market fund or certificates of deposits of one year or less will remain abnormally low.

If you have been vacillating on whether to take out a15 or 30 year mortgage now, or wait for lower rates, don't wait any longer — commit. On the other hand, if you have been hoping against hope that the price of that long-term U.S. Treasury bond or municipal bond you hold is going to regain its former premium price level — forget about it.

You, who remain unemployed and about to give up, don't. Corporations and small businesses will take their cue from the Fed. If the Fed sees growth, and they do, corporations will begin to add to capacity. That means more jobs. As time goes by, those of you who are not satisfied with your job, for whatever the reason, good news is around the corner. More job openings, at better salaries, with more opportunities usually accompany economic growth, so get your resume ready.

Stock market investors also benefit. Market participants can deal with the good and the bad, but uncertainty is a stock market killer. For most of this year, investors have been waiting and worrying about the impact of the Fed's taper. It is true that quantitative easing was an experiment born of necessity. During the financial crisis, the Fed had no choice but to step in to avoid a melt-down of the entire financial system.

The experiment continued as the Fed then tried to use monetary stimulus to grow the economy and stem unemployment. No one knew what would happen or if they would succeed.

Would the end of stimulus trigger a collapse in the financial markets? Would the Fed get it right, tapering at the same rate as the economy grew? Would interest rates spike and stock markets swoon?

These were all legitimate concerns and now we appear to be getting some answers. True, it is still early days and tapering has just begun, but so far so good. It appears that the Fed just might pull off the greatest experiment in modern financial history and benefit us all to boot.

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: IRA Distribution Time
By Bill Schmick On: 08:58AM / Friday December 13, 2013
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Information abounds on why and when you should contribute to a tax-deferred savings plan such as an Individual Retirement Account (IRA). Less is known about what happens in retirement when you have to take money out of these plans. For those who turned 70 1/2 years or older in 2013, pay attention, because it's distribution time.

The original idea behind tax-deferred savings was to provide Americans a tax break in order to encourage us to save towards retirement. Individuals could stash away money tax-free while they were working and then take it out again once they retired, when they were presumably earning less and at a lower tax rate. The government determined that once you reached 70 1/2 you have until April 1 of the next tax year to take your first distribution. If you are older than that, you only have until the end of the year.

Officially, it's called a Required Minimum Distribution (RMD) and applies to all employee-sponsored retirement plans. That includes profit-sharing plans, 401(k) plans, Self Employed Persons IRAs (SEPS), SARSEPS and SIMPLE IRAs, as well as contributory or traditional IRAs.

The individual owner of each plan is responsible for computing the MRD and taking it from their accounts. There are stiff IRS penalties (of up to 50 percent of the total MRD) levied on those who fail to comply. The RMD is calculated by taking the total amount of money and securities in each IRA, or other tax-deferred plan, as of December 31 of the prior year and dividing it by a life expectancy factor that the Internal Revenue Service publishes in tables. The document, "Publication 590, Individual Retirement Arrangements," can be easily accessed over the Internet.

As an example, let's say at the end of last year your IRA was worth $100,000. You are 72 years old. Looking up the life expectancy ratio in the IRS table for that age, which is 15.5, you divide your $100,000 by 15.5. Your RMD for this year would be $6,451.61 (100,000/15.5 = 6,451.61).

Remember that you must compute your RMD for every tax-deferred account you own. However, you can withdraw your entire distribution from just one account if you like. You can always withdraw more than the MRD from your accounts, but remember that whatever you withdraw is taxed at your tax bracket. If you make an error and withdraw too much in one year, it cannot be applied to the following year. And before you ask, no, you can't roll the RMD over into another tax-deferred savings account.

What happens if you forget or for some reason you cannot take your RMD in the year it is required? You might be able to avoid the 50 percent penalty if you can establish that the shortfall in distributions was the result of a reasonable error and that you have taken steps to remedy the situation. You must fill out Form 5329 and attach a letter of explanation asking the IRS that the penalty be waived.

For those who have an Inherited IRA, you too may have to take a RMD before the end of the year. The calculations and rules are somewhat different. Generally, if you have received the inheritance this year, as the beneficiary, you have the choice of taking one lump sum, taking the entire amount within five years or spreading out the distributions over the course of your life expectancy, starting no later than one year following the former owner's death. The IRS produces a table for use by beneficiaries in Publication 590 as well.

Many retirees have a hard time remembering to take their MRD each year. It is a good idea to ask your money manager or your accountant to handle the distribution or at least to remind you each year when the RMD is due. The last thing you want to do is give back to the IRS half your hard-earned savings each year.

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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