Archive for November, 2010

Two Sides to Every Annuity

Posted by geier on Wednesday, November 24th, 2010

There are two sides to every Annuity

Someone recently shared with me that they were being courted by a banker trying to sell them an annuity. They of course were told all of the advantages an annuity has to offer. However, I was surprised to hear that they had not been advised of some of the disadvantages.

First let’s do the annuity justice by recounting the warm and sunny side of things.

  • There is no annual contribution limit so you are able to put away more money for retirement.
  • Money that you invest in an annuity grows tax-deferred. Taxes do come into play though. The earnings are taxed at your regular income tax rate, but the amount you contributed to the annuity is not taxed.
  • When you decide to withdraw the cash, you have the option of taking a lump sum payment or you can set it up so you receive a steady income stream via monthly payments.

Now we need to shed light on the darker side of the annuity.

  • Variable annuities have high annual expenses comprised of insurance charges, investment management fees, and fees associated with insurance riders, etc… All of these fees added together can amount to 3% or more.
  • Because most annuities are actively being sold by financial professionals receiving commissions, those commissions can be anywhere from 3 – 10%.
  • Annuities have charges referred to as “surrender charges.” This is basically a fee to take the money out before a specified time (usually the first several years after purchasing one). The average is about 7% of the account value after year one and then it decreases by 1% each subsequent year until it hits zero.

There are of course other factors and details surrounding annuities. We’ve managed to capture only a handful of their traits. The important thing to remember is one should do their homework before jumping into an annuity or any investment vehicle for that matter. What may be a good investment for one person may not be a good investment for another.

Please be advised due to SEC rules/regulations Geier Asset Management, Inc. can not and will not accept or respond to any reader comments or feedback with respect to any blogs Geier Asset Management, Inc. posts. You should always consult with your personal financial advisor before making decisions based on blog content.

“Securities offered through Triad Advisors. Member FINRA/SIPC.”

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Key Economic Findings

Posted by geier on Thursday, November 18th, 2010

Key Findings

As we all begin to look ahead to 2011, we have taken the time to gather some key findings that we found interesting about the current state of the economy and what lies ahead in the new year.

  • No increase for social security next year. Social Security Administration has stated inflation has been too low since the last increase in 2009 to justify a raise in 2011. This will affect more than 58 million retirees and disabled Americans.
  • The Federal Reserve is discussing taking further steps to jumpstart the economy by instituting a Treasury bond program. However, at this point they are not sure how big the program needs to be according to Chairman Ben Bernanke during comments made on October 15, 2010. This plan would attempt to ward off deflation. The thought is that the bond purchases would stimulate buying, lower unemployment and lower longer term interest rates. Fed policymakers will more than likely announce such a program at their November meeting.
  • Unemployment rate as of September is 9.6%.
  • Retail sales are up for the third month straight.
  • Paul Dales, chief U.S. economist at Capital Economics, has changed his forecast for consumer spending to somewhere between 2.5 percent and 3 percent, up from his original 2 percent estimation. Consumer spending makes up 70% of economic activity.
  • Businesses increased their inventories for the eighth consecutive month as of August.
  • Real gross domestic product — the output of goods and services produced by labor and property located in the United States — increased at an annual rate of 1.7 percent in the second quarter of 2010.
  • If you have a decent amount of equity in your home and have good credit, now may be an appropriate time to refinance. Below is a recent rate table from Wells Fargo Home Mortgage:

    • Product Interest Rate
    APR

    Conforming 1and FHA Loans

    30-Year Fixed 4.250% 4.433%
    30-Year Fixed FHA 4.250% 5.087%
    15-Year Fixed 3.625% 3.943%
    5-Year ARM 2.750% 3.083%
    5-Year ARM FHA 2.750% 2.948%
    Larger Loan Amounts in Eligible Areas – Conforming and FHA.1

    30-Year Fixed 4.375% 4.508%
    30-Year Fixed FHA 4.375% 5.165%
    5-Year ARM 3.125% 3.167%
    Jumbo1 Loans – Amounts that exceed conforming loan limits1

    30-Year Fixed 4.875% 5.012%
    5-Year ARM 3.625% 3.343%

Please be advised due to SEC rules/regulations Geier Asset Management, Inc. can not and will not accept or respond to any reader comments or feedback with respect to any blogs Geier Asset Management, Inc. posts. You should always consult with your personal financial advisor before making decisions based on blog content.

“Securities offered through Triad Advisors. Member FINRA/SIPC.”

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The Real Estate Vortex

Posted by geier on Tuesday, November 9th, 2010

The Crux of the Problem

We continue to be threatened by the state of our real estate housing market.  There is a ton of debt floating around that needs to get serviced.  How did this come about?

Sub prime lenders have prospered in prior years by low interest rates and a popular refinancing trend using nontraditional terms, such as interest-only loans, low down payments and more. Regulators expressed concerns as to these practices and as a result we are now faced with stricter lending regulations, which has propagated the credit crunch we are experiencing today.  Borrowers are defaulting on their mortgages and therefore putting a huge strain on the big banks.  By cutting off access to credit for these extra buyers, demand for homes has fallen further, depressing prices and adding fuel to the already blazing economic slow down fire.

Behind the Scenes of the Domino Effect

Most sub prime lenders sell the loans they’ve originated to big banks, which then bundle them up and sell them on again as mortgage-backed securities to hedge funds and other institutional investors. During the several weeks it takes for them to sell these loans, the big banks agree to store them and keep lenders supplied with enough funds to continue making loans without skipping a beat.  As payment for passing the loan onto these big banks, the originators or lenders get cash equal to the value of the asset, minus a fee, which protects them from late payments and delinquencies.  As more sub prime borrowers struggled to meet their monthly mortgage payments, the big banks began asking sub prime lenders for bigger fees, putting the squeeze on the lenders and even forcing some into bankruptcy.

What Next?

The government continues to offer cost free refinancing incentives to get more homeowners locked in at today’s low rates, and special incentive packages to help drive the push to unload the overflowing inventory of houses for sale.  Will this be enough?  Housing inventories rose for the ninth straight month in September of 2010.  This is driven by further weakening sales, lenders unloading foreclosed homes on the market, short sales, and sellers who can no longer put off listing a home, according to an article in The Wall Street Journal providing insights from Leslie Tyler, Ziprealty’s Vice President of Marketing. So for now, the wildfire has yet to be contained.

Please be advised due to SEC rules/regulations Geier Asset Management, Inc. can not and will not accept or respond to any reader comments or feedback with respect to any blogs Geier Asset Management, Inc. posts.   You should always consult with your personal financial advisor before making decisions based on blog content.

“Securities offered through Triad Advisors. Member FINRA/SIPC.”

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What To Do When Unemployment Knocks At Your Door

Posted by geier on Friday, November 5th, 2010

Besides eating every high calorie food in the house, reading the classifieds every day until “dishwasher” begins to look appealing, and growing a new found respect for those who hold up the grocery line with their 100 freshly clipped coupons… what else do you do?

First and foremost, pull yourself up by your boot straps and understand that chances are your current situation is a result of a severely damaged economy and not something you should feel embarrassed about.  Secondly, do your due diligence and get started with the unemployment insurance claim process.  Here is how you get started:

Note: You must be willing, ready, and able to work, as well as looking for full-time work, and have lost your job through no fault of your own.

Step 1: Go to the following web page and complete the required information, such as social security number, date of birth, list of prior employers, and list of dependents under the age of 16: https://secure-2.dllr.state.md.us/NetClaims/Welcome.aspx

You’ll have to apply at an unemployment office or over the phone if you worked for a company outside of Maryland, were employed by the Federal Government, had more than three different jobs, or filed for unemployment in another state within the past 18 months.

Step 2:  Once you’ve filed your initial claim using their online form, you will need to request payment through the “web cert” system every two weeks in order to receive your bi-monthly payments.  Use the following link:

https://secure-2.dllr.state.md.us/webcert/welcome.aspx

Step 3:  You should receive a pre-paid Visa debit card from the state in the mail within 10 days. Once received, you will need to call the number on the back of the card to activate it.

Step 4:  You will need to enroll in the “Division of Workforce Development Program” within four weeks of the date you filed your initial claim in order to continue receiving unemployment payments.

http://www.dllr.maryland.gov/employment/

Step 5: Ensure your resume is updated and accessible through various outlets such as www.careerbuilder.com, www.craigslist.com, www.monster.com, www.quietagent.com, www.linkedin.com, www.resumedirector.com, www.careerdirectory.com, as well as others.  Be vigilant about checking your e-mail and following-up with potential leads.  You can even create your own web site via www.intuit.com and share your skills and portfolio in a customized and creative way by supplying your link within your actual resume.

Finally, take a deep breath and don’t be afraid to let friends and family help!

Please be advised due to SEC rules/regulations Geier Asset Management, Inc. can not and will not accept or respond to any reader comments or feedback with respect to any blogs Geier Asset Management, Inc. posts.   You should always consult with your personal financial advisor before making decisions based on blog content.

“Securities offered through Triad Advisors. Member FINRA/SIPC.”

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