Good news for those of you who think corporate directors should have to pay attention and respond to the wishes of their company’s shareholders. Shareholder rights have long been an issue at many annual shareholders’ meetings. A recent vote by the Securities and Exchange Commission is sure to stir the pot in boardrooms across the country and it’s likely businesses will push back on this one.
The proxy access rule, which has been percolating at the SEC for years, requires companies to include the names of all board nominees (even those not backed by the corporation) to be listed on the ballots provided to shareholders’ annual meetings. Shareholders, either individually or as a group, must own at least 3% of the firm’s stock in order to nominate somebody. And the companies will now have to pay the costs of a campaign to oust a member of the board of directors. In the past, those opposing a director had to pay those costs themselves.
Time will tell as to whether this new proxy access rule will stand. I think it’s a great idea…and I’ll keep you posted. Until next time, here’s to good planning
You probably don’t have to worry about whether or not the money you contribute to your 401(k) gets into your account. You may have to be thinking about the fees you’re paying (I discussed that last time). But there have been increasing numbers of employers who have pilfered employee money before it’s gotten invested. I know times are tough, but do these people think they won’t be caught or that the employees aren’t eventually going to notice?
The federal agency responsible for monitoring this activity is the U.S. Labor Department’s Employee Benefit Security Administration. They’ve really had their hands full in the last few years. One recent case involved Eric C. Mitchell & Associates, Inc. in Bedford, New Hampshire. Seems the plan’s trustee, Eric C. Mitchell, directed more than $20,000 of employee contributions into the company’s accounts for regular business operations. Then there is Explore General which snatched $70,000 in employee contributions and $100,000 in employer matches.
To protect yourself, monitor your account statements (on paper and online) to guarantee that your dough is getting to your account. If you think your employer is having money trouble, be especially vigilant in your review. Companies have 7 days to deposit the employee contributions. If they seem to be consistently late, don’t hesitate to call the Labor Department: 1-866-444-3272. Until next time, heres to good planning!
That probably seems like an odd question. But if you contribute to a 401(k) plan at work, then you’re going to want to know about the new regulations issued recently by the U.S. Department of Labor. In a move that’s good news for employees, these new rules will require 401(k) service providers to disclose all the fees that are deducted from a participant’s account. In addition, service providers that are paid $1,000 or more must document the direct and indirect compensation they receive. You may be surprised at what you see.
Direct compensation is paid directly from the 401(k) plan; indirect compensation comes from sources other than the plan sponsor (your employer) and goes to the 401(k) record-keeper, investment manager, etc., for things like sales charges, redemption fees, surrender charges, etc. There are a number of moving parts to every 401(k). Each gets its cut. More than 50 million Americans are saving for retirement in a 401(k) plan. These plans vastly outnumber the number of pension plans (defined benefit).
And that 1%? The Government Accountability Office reports that a 1% difference in 401(k) fees can cut your retirement assets by almost 20%. Fees do matter. And on July 16, 2011, you’ll be able to see just how much your employer’s plan costs. In the meantime, find out what the expenses are for the funds you’re currently holding in your account. If it’s not on your statement, call the fund company and ask for a prospectus. That’ll tell you everything you need to know. Good luck. Until next time, here’s to good planning!
Like many others out there, you probably got your second quarter investment statements in the last week. You had to sit down. Thoughts of March 2, 2009 rushed through your mind when the Dow Jones Industrial Average ended the day at 6,763.29. Are we headed for a double-dip recession like the newspapers and commentators are saying? But what about the Dow’s comeback…when it topped off at 11,005.97 on April 4, 2010? Maybe those columnists and commentators don’t have a clue what’s going to happen. All we really know is what’s happened in the past and how markets have responded to economic conditions at the time. There have been comparisons to a long recession that started in 1937, but our economy is so much larger and different than it was 73 years ago.
It’s obvious to me the federal government’s stimulus programs have helped start the engine on the post-recession recovery. There’s still a huge chunk of that money to be spent, although politics now seems to be directing this bus since we’re coming up on mid-term elections in four months. High deficits and unemployment have given conservatives their platform. Others worry that slashing spending now will choke any hopes of a recovery (which might help some politically). Housing has slowed, orders for durable goods and automobiles are down and retail sales have dropped. Things are better than a year ago, however. Everyone’s keeping an eye on the Asian and European economies. Some American manufacturers are pulling out of China, because Chinese workers are starting to demand higher wages. That may increase our employment numbers if companies bring those jobs back home. In the meantime, many U.S. corporations will be reporting their earnings this week which should provide some good news. It’s all a huge puzzle and we’re just going to have to wait to see how things shake out.
So, what can investors do as the volatility continues? Keep doing what you’ve been doing all along: save regularly, reduce spending and don’t panic. When the markets swoon, lower share prices are your friend. It’s like shopping at a consignment store: quality at a low price. And if you noticed that the Dow was up 512 points between July 6-9, then you may have already forgotten about your second quarter statement. Keep the faith. Until next time, here’s to good planning!
There’s been a lot written in the last nine months about converting Traditional IRAs to a Roth in 2010. Some folks are converting because the income limit has been eliminated. Roth IRAs are attractive for many people because the assets in the Roth can be withdrawn tax-free. And, those converting in 2010 can take two years to pay the income taxes that will be owed. But it may not be a good idea for you to convert some or all of a Traditional IRA to a Roth. Here’s why:
* Retirement’s just around the corner. If you’ve got more time before retiring (say, at least 15 – 20 years) then it’s more likely your account will grow enough to make up for the income taxes you’ll have to pay upon conversion. If you’re 58 or older, it may not make sense
* The tax bill would choke a horse. This is how we used to phrase it back in Missouri. If you don’t have the cash (in non-retirement accounts) to pay the tax bill, even if you spread the taxes over the next two years, then I’d think twice about converting. If you use retirement funds to pay the taxes, then you’ll have to pay more taxes on the money you used to pay the taxes. It’s an evil web
* A different tax bracket in retirement. At this point, none of us knows if our tax bracket will be lower or higher once we’re retired. The rule of thumb used to be: “I’m won’t be working…just getting Social Security and drawing from my IRA, so I’ll be in a lower bracket.” But that may not be the case. Given the huge deficits that our country has had, now, for almost ten years, income taxes may be higher in retirement. It’s certainly not out of the realm of possibility
* Converting may bump you into a higher bracket now. Bummer. But, seriously…you convert your $100,000 Traditional IRA to a Roth, you’re looking at a pretty big tax bite
You can always convert a portion of your Traditional IRA. Just some food for thought. Until next time, here’s to good planning!
Yesterday was a double whammy with some whiplash thrown in. The Dow Jones Industrial Average dropped like a rock (998 points) in a short period of time and then recovered roughly two thirds of its loss by the close of trading. Concerns about European debt and a stupid trading error in the U.S. appear to be the culprits. I hope you didn’t do anything rash.
The first whammy was Greece, a country with huge budget deficits. Things can’t continue there without belt tightening, tax increases and BIG spending cuts. At least that’s what the country must do in order to have its debt guaranteed by the European Union (EU). Protestors are trying to prevent the impending frugality, but they will not succeed. There’s much at stake for the EU, because if Greece falters and can’t sell its bonds to raise money, Portugal, Spain and Italy may not be far behind. Many believe this is similar to what happened in the U.S. after Lehman Brothers failed back in 2008.
Whammy #2 reportedly happened at Citibank, where a trader appears to have mistakenly sold Billions of shares of Proctor and Gamble instead of Millions. That snowballed into the longest downward roller coaster ride for the Dow, in one day, in its history. Now…..looking at my keyboard, I see that the “n” is the only letter between the “b” and the “m”. I’m sure these traders are working fast, but this really shouldn’t happen. Maybe that trader just has fat fingers and needs some cutbacks at the dinner table. The market was able to come back up 650 points, which created the whiplash. I’d say that’s just a little too much excitement for one day. I’m hoping the Europeans pull together and help each other get through these tough times. Typing classes at the big banks may also be a good idea. With all those bonuses they’ve handed out, surely there’s some dough for that. Until next time, here’s to good planning!
I hope you’ll be paying attention on Thursday when the President makes a speech in New York on why financial reform must be passed by Congress. If it were me, I’d sit atop that famous bull that epitomizes the Wall Street culture. Probably wouldn’t be very presidential.
I swear I heard people cheering last Friday when the news broke about the civil lawsuit by the Securities and Exchange Commission (SEC) against Wall Street powerhouse Goldman Sachs. (OK….maybe it was just me making the noise.) The timing was pretty interesting, don’t you think? Did the SEC wait until the economy and markets were strong enough to withstand such news? Or, maybe, the Friday before Congress started debating ways to rein in Wall Street, as a way to influence the final vote? Sorry to be so cynical. Either way, it’s about time!
Back in 2007, there were people in the Goldman Sachs mortgage division, reportedly backed by management, bundling together bonds, backed by residential mortgages to homeowners who couldn’t afford their payments (sub-prime mortgages). When the mortgage payments stopped coming, the loans defaulted, and the results, as you know, were disastrous. Everything went south. But not the pinheads at Goldman Sachs. Knowing things would go south (but not disclosing that to investors), they had used complicated investments known as derivatives, to bet against their own bonds, thus making billions when the bottom fell out of the housing market. And now there are some in Congress (the minority) that thinks we don’t need financial reform. They must have owned some of those derivatives, because I can’t imagine why anyone wouldn’t want to prevent such a disaster in the future. Call your senator or congressperson. I suspect more shoes will drop from this centipede before it’s all over. Until next time, here’s to good planning!
Do you pay attention to the expenses for your investments? If you’ve been reading my missives for a while, then you know I’ve been known to rant about fees and expenses. They do matter because they do add up.
The U.S. Supreme Court issued a ruling recently on a case about mutual fund expenses. This may put pressure on fund managers to justify the expenses they charge, particularly if there’s one fund for retail investors (folks like you and me) and an identical one for institutional investors (like pensions and 401(k)’s). Traditionally, the expenses have been lower for the institutional accounts. The reasoning was that the institutional fund would be dealing with fewer “customers” and have economies of scale, so the fund’s expenses would be lower (so the expenses would be lower for the pension funds, etc.). Well, some retail investors in Oakmark Mutual Funds didn’t think they should be paying higher fees to the fund’s investment advisor, Harris Associates, so they sued. Many mutual funds have an outside investment advisor do the heavy lifting of deciding which companies to invest in, when to buy, when to sell….
The Supreme Court’s ruling, I suspect, will be tough for the mutual funds: going forward, if an investment advisor like Harris Associates manages money for mutual funds A, B and C, Harris will have to explain to each fund how it calculates its fees that it charges the other funds. Seems to me all that will add to the cost. But, hey, what do I know? The high court was unanimous. Until next time, here’s to good planning!
File this under “Securities and Exchange Commission Looking under Every pebble Since they Missed the big Bernie Madoff Boulder.” OK, they’re doing their job. The agency filed a lawsuit last week in U.S. District Court in New York against one Sean David Morton and his wife Melissa, charging them with securities fraud. Starting in 2006, Morton (a self proclaimed psychic, intuitive consultant, screenwriter and TV producer) told prospective investors he would use his psychic expertise to provide investment guidance to his investment team. In addition, the suit alleges that he fibbed about his past success in psychically predicting the numerous ups and downs of the market. He raised $6 million from 100 investors, but, the SEC says, only used half the money to buy the foreign currencies his investors were expecting. At least $240,000 of investor money was diverted to the nonprofit religious organization that he and his wife run, the Prophecy Research Institute (PRI).
There is no substitute for solid, old fashioned investing principles. Nobody knows what will happen in the future. I’m astounded that anyone would hand over any money to someone like Morton. Here’s hoping the SEC lawsuit ends successfully. Until next time, here’s to good planning!
I’ve got some more ideas to get you thinking about getting your financial house in order (or tweaking it if you’ve done some stuff). If you missed my first installment, scroll down and see Tuesday’s posting. So, what about:
* Keep your important documents where you can access them. While I keep my tax preparation records for seven years, I do keep every income tax return I’ve ever filed in my life (yes….there are a lot of them). In case there’s a question about my Social Security contributions, I’ll have the answer. My life, disability and long term care insurance policies are all in the portable safe. The will is there, too. It’ll be the first thing I grab if there’s a fire
* Reduce your debt. The credit bureau Experian says the average American carried about $17,000 in debt, other than a mortgage. Much of it is from credit cards. List your credit cards with the highest interest rate on top and make a consistent effort to pay extra toward the balance. This kind of debt can choke you, especially if you have an emergency or lose your job
* Check your credit score. You should be entitled to one free credit report a year from each of the major credit bureaus (at least that’s the law in Massachusetts). Take advantage of this and make sure there’s nothing there that doesn’t belong to you. It happens all the time
* Make sure you understand where your investments are and how they’re invested. Talk with the representative that established the plan with your employer. Or call your own financial advisor. The economy has been in rough shape for more than a couple of years now. It’s all connected to investing. It’s your money, so make sure you know if it’s working for you
Resolve to change your financial habits for the better…..and follow through on it. Good luck. Until next time, here’s to good planning!
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