Savant Blog

Savant offers perspective on a variety of topics. Entries range from current events to timeless insights in the world of finance and investments.

20 Oct
October 20, 2009

Fresh off the highly publicized cash for clunkers program, the government is trying a new round of stimulus dubbed “cash for refrigerators.” This $300 million program will provide rebates between $50 and $200 for purchases of energy efficient household appliances. In order to qualify for this rebate, however, the purchased appliances need to be covered by the Energy Star seal. In 2008, approximately 55% of new household appliances met this standard.

This new initiative is expected

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13 Oct
October 13, 2009

From 1998 until 2008, the outstanding loan balance of private student loans increased substantially – from 7% to 23%. As a result of the recent credit freeze, many of these private loan companies are no longer in the student loan business. Those companies who are still around are making private loans more expensive and more difficult to obtain.

Federal student loans – such as Stafford, Perkins, or PLUS loans – generally carry fixed rates and have flexible

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05 Oct
October 05, 2009

I’ve had a small black book in my possession for 8-9 years. No, it is not a list of past girlfriends; each page is devoted to a different part of my financial life or my plethora of passwords. Just to give a few examples:

One page is devoted to each life insurance policy I keep on my wife and I. I detail the issue date, policy number, annual premium, the term and the toll-free phone number for the insurance

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28 Sep
September 28, 2009

Have you been considering installing new windows or doors in your home? Now may be the perfect time to do so. On February 17 of this year, President Obama signed the American Recovery and Reinvestment Tax Act of 2009 into law. This law extends and increases the tax credits introduced by the Energy Policy Act of 2005. This law creates a tax credit equal to 30% of the cost of new energy efficient windows and doors up

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23 Sep
September 23, 2009

If you are a regular reader of these blogs, you’ll notice ongoing references to costs. Costs are important because they directly lower returns. With this in mind, I’d like to share an interesting investment industry tactic that confuses investors.

Mutual funds dominate the investment world. They offer diversification and are easy to buy, sell, and own. Every mutual fund has costs detailed near the front of their prospectus. Too often, the same fund offers multiple variations with

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24 Aug
August 24, 2009

The financial media seems to get things wrong more often than not. This is no surprise since communicating fear and anxiety seems to keep people tuned in when things are scary.  The folly of relying on the predictions made by the media becomes apparent when you look at the pattern.

August 03, 2009

Climbing the Wall of Worry

US stocks extended their winning streak as the S&P 500® Index jumped 7.41% in July; it was the first time since 2003 that the index

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19 Aug
August 19, 2009

The recently passed Consumer Assistance to Recycle and Save Act of 2009 (CARS Act), or Cash for Clunkers as it is affectionately referred to, is a measure introduced by the government to reduce pollution and jump start auto sales. The CARS Act allows you to trade in your old “clunker” (domestic or foreign) for a credit between $3,500 and $4,500 towards the purchase or lease of a new domestic or foreign made car that gets at least 22

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05 Aug
August 05, 2009

From Employer Retirement Plans

Employees who make (or who have made) after-tax contributions to your employer’s retirement plan, listen up. You can now take that money and convert it to a Roth IRA tax-free.

For 2009, to qualify for a Roth conversion, your adjusted gross income may not exceed $100,000, whether you are single or married. Good news though, the income limit on conversions disappears in 2010. Income limits on new contributions to Roth IRAs,

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22 Jul
July 22, 2009

The decision to waive Required Minimum Distributions (RMDs) for 2009 was made to allow the investments in various retirement accounts the opportunity to recover before selling assets to make RMD withdrawals. This applies not only to tax-deferred retirement accounts like IRAs and 401(k)s, but also to inherited IRAs and Roth IRAs.

Inevitably, changes to the tax code – even temporary ones – can raise some questions. So what exactly does this mean for inherited IRAs/Roth IRAs in

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20 Jul
July 20, 2009

It’s human nature for us to feel sorry for ourselves. Some of us are very upset with the losses incurred in the stock market. If not impacted directly, we know a family member or friend that is currently collecting unemployment. My daughter has fallen victim to this. Her employer provided media research to nation wide companies, but with businesses cutting down on their research & development, her employer had to make cuts. My husband and son had been working overtime

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14 Jul
July 14, 2009

 The main responsibility of an Executor is to distribute property to the beneficiaries ccording to the instructions set out in a person’s will. It may sound simple, but executors are often faced with many duties that can become complicated and time consuming. It is usually best to get advice from professionals including an attorney, accountant, and financial planner. You may perform some or all of the following steps when settling an

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06 Jul
July 06, 2009

If Bailout was the 2008 Word of the Year then this has to be in the running for the 2009 honors…

Stimulus– stim-u-lus : something that rouses or incites to activity as a: Incentive b: Stimulant c: an agent (as an environmental change) that directly influences the activity of a living organism or one of its parts (as by exciting a sensory organ or evoking muscular contraction or glandular secretion) Merriam-Webster There is not a person in

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01 Jul
July 01, 2009

Given the market decline from the fall of 2007, many retirees are trying to determine if they need to reduce their expenses. Adjusting expenses to reflect current asset values may diminish the risk of running out of money. I recognize cutting expenses is never simple or fun. After all, in most cases it involves reducing something you may enjoy. Here are a few tips that may help you reduce the pain of lowering your expenses.

1.  Charitable Distributions – While we’d

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29 Jun
June 29, 2009

Earlier this week I learned that Merriam-Webster picks a word of the year. They have apparently been doing this for a few years now. In 2003 the winner was DEMOCRACY, followed by BLOG in 2004, 2005 went to INTEGRITY, while 2006 gave us TRUTHINESS, and 2007 was W00T. Prior to 2008 the Word of the Year was selected based on the number of lookups on the Merriam-Webster website as well as how these words have slipped into everyday discussions. Thus

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22 Jun
June 22, 2009

In the emerging field of “behavioral economics” academics are studying what makes us tick as investors and how we make investment decisions. You’re probably not surprised to learn that the process of investment decision-making is not always rational. Often times what we know we should do and what we actually do are vastly different. We often buy high, sell low, and succumb to panic selling. We attempt to time markets in spite of the preponderance of academic evidence

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03 Apr
April 03, 2009

Another tax season is winding to a close. And while the subject of taxation is not known for being particularly colorful, it has a long and storied past. Taxation and its associated problems date back to some of the earliest recorded history. Who would have guessed that a protest over taxation gave us the dubious moniker “Peeping Tom”?

In ancient times, Egyptian tax collectors known as scribes imposed a tax on cooking oil. To ensure compliance with

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01 Apr
April 01, 2009

With the volatile markets we have been experiencing recently, investors are on a heightened state of alert. With such a captive audience, media outlets are quick to make a headline out of almost any new economic data they can find. The data the media is typically reporting are known as economic indicators. The challenge for investors is understanding what the data means and how it might impact their portfolio. Depending on the type of indicator, it may have no impact

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27 Mar
March 27, 2009

The current market and economic conditions have been frustrating for everyone. Almost all of us have begun “tightening our belts” in an effort to cut back on discretionary expenses. While cutting back on expenses during a down economy is normal, I would encourage you not to cut back on your 401(k) contributions. The reason for continuing your retirement plan contributions can be found by analyzing historical stock markets. During the period from 1946 through 2002, the S&P

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13 Mar
March 13, 2009

Nothing is easy in the current banking world and one of the latest casualties “waiting to happen” is the Home Equity Line of Credit (HELOC). Home equity lines have, for better or for worse, been a way to tap the equity in your home for things like remodeling or buying a car. Unfortunately, these home equity lines were also abused in the credit crunch we’ve seen. Now, even the homeowners in good financial standing are getting hit from

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06 Mar
March 06, 2009

A living will is a legal document that outlines the medical treatments you do (and do not) want should you encounter a serious life threatening illness. Living wills can communicate your wishes to your doctor and family even if you are not capable of communicating yourself. A living will is an advance directive meaning it should be given to your doctor before any care is given.

Living wills were brought to many people’s attention recently with the

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10 Feb
February 10, 2009

The average investor realized cumulative returns of 140% over a recent period of time. But by following a different strategy, you could have earned 833% during that same time period!

During the turbulent market conditions of the past year, investors would be happy to have positive returns of any kind. So what is the period referred to above? It is the 20 years ending 12/31/07. The next logical question is, “How could a person gain an astounding

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06 Feb
February 06, 2009

If you use a cell phone or have recently added your teenager to your cell phone contract, you need to read on. I have not talked to a parent yet that has not been surprised at least once by a phone bill that has exceeded their mortgage payment. Why? Because of hidden fees and charges for services they had no idea they had or used.

Many features are automatically available on your phone. Just because you didn’t buy it doesn’t mean

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04 Feb
February 04, 2009

The temptation is almost impossible to resist. You are standing at the checkout counter with your new spring wardrobe and the sales clerk asks you if you want to save 15% by opening a store credit card. You think, “Wow, I could save $100 just by signing up for a credit card. I would never have to use it again and can always cancel as soon as I pay off the balance.”

Sounds like a winning situation,

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23 Jan
January 23, 2009

Most of us with assets invested in the market have been in a state of depression, shock, or stupor for what seems like an eternity.  And there doesn’t seem to be much relief in site anytime in the near future.  Well to quote a famous line from one of Cher’s movies “Snap out of it!”  There is little we can do to drastically sway the markets, so while riding through the storm, direct your focus on the other

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18 Jan
January 18, 2009

Historically low mortgage rates may prompt you to consider refinancing your mortgage, but yes, it is different this time.

In the old days you would call your local mortgage lender and ask for the rate du jour (just like soup) on a 30-year fixed mortgage. All day long the rate that was quoted stayed the same, like Chicken Noodle at your local diner. Now, the mortgage process is a WHOLE different ballgame! No longer can the lender just quote you a

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27 Oct
October 27, 2008

If Dr. Evil were in charge of our government, and the governments of the world, how would he go about creating chaos -AKA a Great Depression?   For guidance on how to truly create chaos, Dr. Evil would need to dust off his history books.

STEP 1: It seems there would need to be a triggering event of sorts, just to get things started.  A housing and credit bubble would certainly work, and have the added benefit of going largely unnoticed while

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22 Oct
October 22, 2008

Glassbooth is a nonprofit organization that is developing innovative ways to access political information.  Glassbooth believes that their success is contingent on a nonbiased process and is not affiliated with any political party, organization or ideology. At the website you will take a short quiz, where Glassbooth shows you how your views line up with the stated positions of each candidate.  Part one of the quiz asks you to assign a total of 20 points to 14

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22 Oct
October 22, 2008

At the recent Savant Town Hall meeting, we talked about how the stock market is a leading indicator of what may occur in the economy.  This means that the stock market often begins to fall before the start of a recession or financial crisis.  It also tends to recover at the point of maximum despair – well before there are any signs of an economic recovery.

In his book “Wealth, War, and Wisdom,” Barton Biggs shows that

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12 Sep
September 12, 2008

So times are rough in the markets. In my last posting we discussed ways to take advantage of those losses by employing effective loss harvesting strategies. But this does not solve the entire problem. Your long-term financial goals require you to maintain significant equity exposure. Now that you have harvested your losses, what do you do?

For most long-term investors, the prudent move is to maintain the market exposure that is needed to accomplish their financial goals.

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10 Sep
September 10, 2008

While the recent market volatility has certainly ruffled a lot of investor’s feathers, long-term investors with proper asset allocation and diversification strategies have no need to panic. Patience in tough market times has proven rewarding time and time again. Since markets have a history of rebounding, time may be running out to lock in those losses. “LOCK IN THOSE LOSSES???” you ask incredulously. But this is exactly what seasoned investors are doing while biding their time for better

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