School of Hard Knocks starts after Graduation.

Headline: I Went to a University, and I got Schooled

Date: 1/15/2021

Body: In another blog post, I extolled the potential virtues of a community college education as opposed to a 4-year institution.   Well, let’s say you decided to give that 4-year institution the “old college try” and went into debt to finish.   What do you do now?  I was reminded of this when I read a great article on the Penny Hoarder, How to Pay Off Student Loans Fast, No Matter What Your Income (thepennyhoarder.com)

Is it REALLY a big deal?

Did you know that less than 20% of students escape post-secondary education debt-free?  In fact, the totals of student loan debt in the U.S. is overwhelming; There is $1.46 Trillion in total student loan debt, and more than $166 Billion is delinquent.   Wow!!!  These numbers can be paralyzing, even without a perspective of how quickly it has piled up.  Since 2009, mortgage debt has roughly followed inflation, and added 3.2%.  Over the same 10-year period, student loan debt has risen 102%.  Even if one opts for a certificate program at a community college, the $10,000 average debt is substantial.

Why is Student Loan Debt so “special?”

One alternative, if you have a lot of debts to pay off is to declare bankruptcy.  (We have studied this briefly in a previous entry.)  But student loan debt is special because unlike a car loan or something similar, student loan debt is usually not dischargeable.  Said another way; In most circumstances you cannot get rid of this debt by going into Bankruptcy.    (Interesting side note, I did say “usually.”   If you satisfy 3 pretty onerous conditions, called the Brunner test, you MIGHT be able to get this debt discharged.)

OK, I Get It!!  Paying off this type of debt is important.  What do I do?

1. First, be very honest with yourself and develop a list of student loans you have and the status of each.   Be sure to write down:
   1. Entity to which you owe
   1. Contact information for that entity (Names are gold, e-mail addresses, telephone numbers and snail mail addresses.)
   1. Balance owed to each
   1. Interest rate of each loan.
   1. Any unusual terms that are important
   1. Notate whether the loan is public or private.

I asked you to note if it was public or private debt for a very important purpose.    If you have public debt, often the interest rate is lower, and repayment plans are more possible.  So, these loans are much appreciated.    Not infrequently, these public loans have an income-driven repayment plan where your payments are linked to your income.  (Say 10% of your income.)  So, if you are unemployed, the loan repayment is deferred. But the other flavor is private loans, and they leave a bad taste in my mouth.   These loans are from private entities, and usually have higher interest fees, penalties for slow payment, and loan modification is VERY difficult.  They do sometimes offer an emergency 90-day forbearance period, but that is usually the only modification The reason that many people fall into this trap is 2-fold:  The ads for these loans are EVERYWHERE. People are not educated properly on how to productively search for public sources of funding.

• Once you have your information together, contact each entity and do what you can to either cut down the interest rate or spread out the payments to be more sustainable.   Communication is key.
• Consider Public Service Loan Forgivenessà If you work for government or NFP.   Word of warning, 99% of first applicants are rejected.   So, display persistence and appeal with every chance you have.
• After you have your best terms, develop a repayment plan.   If we were Vulcan and used pure logic (we don’t) we would pay off the debt with the highest interest rate first.   Instead, I would recommend paying off the smallest debt first.   I recommend this because, when you have that first success, you get a big emotional boost, and it becomes more likely that you’ll be able to get out of debt.  (Behavioral Economics can be fascinating!!)  When making this plan, figure how much money you can devote to your student loan debt, and then cover the minimum payments on all of the debts that you have to.   With any remaining money, allocate all of that to the smallest debt.   Do this month after month until debt #1 has been satisfied.   Rinse and repeat.

But, I have no room in my budget to make these payments?

OK, this is going to risk being a little brusque; I apologize in advance.  There are only 2 ways to get more money to settle debts.  You can either cut your other expenses or increase your earnings.

Decrease Your Expenses–> This does not have to be as daunting as it sounds.  If you go to a coffee shop in the morning, go with the normal brew instead of splurging on a latte every morning.    Perhaps you have some subscriptions to publications or services that you don’t get value out of.  Once again, be very honest with yourself, and then cut aggressively.  (One year ago, I decided to go without TV, and I have saved a lot of money, and I am much less stressed.)  There are hundreds of other little ‘hacks” you can do to your everyday expenses that are not terribly painful.  Take your time, think through the expenses in your life, and be creative.  (Online, there are literally millions of articles on this kind of thing; Feel free to piggyback carefully on any one of the reputable sources.)

Increase Your Earnings–>  You could also do what you can to increase your earnings.   Perhaps there is a small additional project at work, that undertaken, would improve your chances of a raise.   Take the opportunity!!  Or, do what I am doing right now, and obtain employment in a “side gig” that you might very much enjoy.  There are a multitude of small employment “side gigs” to consider.   Once again, be creative and utilize your entire social network to find something perfect.

The Verdict

One student really encapsulates this problem for me.   There was a quote from her in one article, and she admits that she is one of the “lucky ones” and after 4 years of education only owes $14,000.   She is quoted as “It hurts my soul.”  Amidst all the speaking about finances, mental and spiritual health are also important attributes here.

So, when you get those acceptance letters, allow yourself a moment of exultation.   Celebrate!!!  You’ve earned it!!  Then put some ice water into your veins and examine each one, and consider the TOTAL costs.   Tuition and Room & Board are the big ones, but the small ones add up quickly.  The “small ones” can include books, fees, travel expenses and many other bills.  Going to a school with a formidable reputation can be wonderful, but make sure that the debt you incur is not forbidding when weighed against your increased opportunities.

REFERENCES

Looking Over the Average Education Loan Debt Carried by College Graduates and Drop Outs (collegescholarships.org)

How to handle college loan debt as an unemployed recent grad – ABC News (go.com)

Misleading Info Causes College Loan Debt – Business Insider

Three Ways to Manage Student Debt While in Occupational Therapy School – AOTA

Editor’s Note: Please note that the information contained herein is meant only for general education: This should not be construed as Tax Advice.   Personal attributes could make a material difference in the advice given, so, before taking action, please consult your tax advisor or CPA.

You can’t spell Space without SPAC.

Headline: What the heck is a SPAC?

Date: 1/9/2021

Body: I was on my way home from work yesterday and I was listening to  NPR, and on the Marketplace segment, they spoke in glowing terms of something called a SPAC.  (I know, it sounds vaguely racist, doesn’t it?)   But, I looked it up when I got home and found a great Motley Fool article on this subject: What Is a SPAC and Why Do Investors Like Them So Much? | The Motley Fool

What is a SPAC and what is it used for?

SPAC  stands for a “Special Purpose Acquisition Company.”   They are often organized as a Delaware corporation or organized abroad, usually in the Cayman or Marshall Islands.   It manufacturers nothing and provides no services; It exists with a sole purpose to acquire other companies.  Investors use it for potential capital appreciation, but, it should be noted what they are investing in.   Specifically, they are investing in a management team, and essentially betting on them to select profitable businesses to acquire.  Often, a SPAC will go almost immediately into an Initial Public Offering because, by regulation, if these companies do not do an acquisition within 2 years (with some legal wiggle room) they are supposed to liquidate.

Are SPACs REALLY that BIG right now?

In a word, yes, they are.  To give you some perspective, in 2019, there were $13.6 Billion in SPAC-related IPOs in the market.  In the third quarter of 2020 alone, 77 SPACs went public and have raised more than $31 Billion.  (One well-publicized SPAC in 2020 was Virgin Galactic.)  SPACs are attractive to these private companies because when they are acquired, they can forgo the regulatory and economic costs normally related to an IPO.  As can be seen in the following graph, this increasing interest in SPACs has been constant over a period of time.

When an investor buys a “unit” of this type of IPO, they are essentially buying a share of stock bundled with an “option” to buy another share or fractional share, sometime in the future.  (This “option” is really called a warrant, but I get a little nervous when I hear the word, “warrant.”)

How does a SPAC work?

A SPAC in usually created by a combination of “sponsors” (think investors) who all have strong academic credentials and business experience in a certain industry.  They work with other investors to acquire funding sufficient to purchase a private company.   The sponsors then take this company public through an IPO.  (It is important to note here that the sponsors often have a good idea for their target, but are careful to not produce any records of these discussions which would often have to be turned over to the SEC.)  The process follows the same steps as in any IPO including a “roadshow” where the SPAC management team meet with potential investors like hedge funds.  In the past, these “blank check companies” were often fraudulent setups that would disappear with investors’ money, so the SEC tightened restrictions on them.  You might be excused for thinking that most of these SPACs are backed by private equity, and in the past that was true.  Nowadays, private equity almost evenly splits SPAC ownership with other investors.

The lifespan of a SPAC really breaks down into 3 stages, as seen in the illustration below

Why would an investor find it to be interesting?

1.  They’re inexpensive.  à a unit of a SPAC is often trading for around $10 per unit.  Given that large companies  like Google or Apple are trading for hundreds of dollars per share, the “normal investor” can acquire a number of units for a modest price point. 
2. They invest in “hot” sectors of the marketà  SPACs tend to focus on areas like technology that people can easily get excited about. 
3. Usually, participation in IPOs is limited to sophisticated investors (read “wealthy”) and other people who are on intimate terms with Wall Street.  But, given the large number of units usually offered, ‘regular

Why might and investor NOT want to invest in a SPAC?

1. Blind Investment It is not transparent at all, just what the SPAC is going after.   This is why the investment is REALLY in the Management Team.
2. Lag time. There can be up to 2 years (perhaps more time) between investment and the acquisition of any company.
3. Mixed track record. The average SPAC will outperform the index (Either the S&P or the Russel 2000, usually) in the very short term.  But, go out more than a quarter beyond the first acquisition, and most SPACs underperform compared to the index.
4. Even if the SPAC performs poorly, the Management team will likely escape with a pretty sweet deal.  (Think “Golden Parachute.”)
5. On occasion, the SPAC might acquire a company many times larger than itself through a PIPE deal.   PIPE stands for “Private Investment in Public Equities” and have been around for a long while.  Be aware, when the SPAC makes a PIPE deal with an institutional investor, they often have to reveal their targets to that investor before anybody else in the market.   This asymmetry of information seems to be a strong reason against the individual investing in a SPAC.

The Verdict

Investment in a SPAC can be an extremely risky thing.   This means that you COULD make A LOT of money quickly, or lose it all, both are possible.  I guess my advice would have to be that investment in a SPAC can be responsibly done by an individual investor, if they first invest most of their money in retirement accounts and less risky assets.  Investing in a SPAC should be the cherry on top of the sundae, NOT the whole sundae.

REFERENCES

Special Purpose Acquisition Company (SPAC) Definition (investopedia.com)

What is a SPAC? Definition, risks, how to invest – Business Insider

Almost everything you need to know about SPACs | TechCrunch

Special Purpose Acquisition Companies: An Introduction (harvard.edu)

Editor’s Note: Please note that the information contained herein is meant only for general education: This should not be construed as Tax Advice.   Personal attributes could make a material difference in the advice given, so, before taking action, please consult your tax advisor or CPA.

Be Fiscally Fit

Headline: Fiscal Fitness is important too

Date: 1/8/2021

Body: I just went to the doctor, and he sighed, “Drew, you’re going to have to diet.”  I nodded, and answered, “Yes Doctor.   What color?”  So, it seems that I am not alone when considering New Year’s resolutions regarding weight loss and health.  And, yes, this can relate directly to your finances.  I read a great article in the Penny Hoarder on the subject, and I linked it below: https://www.thepennyhoarder.com/save-money/fitness-resolutions/?aff_sub2=save-money

As important as physical fitness is, fiscal fitness is just as crucial, and some lessons can apply to both.

Thrift (and shift) begins at home.

The first point made in this article is that a lot can be done in a cost-effective manner at home.  The point can easily be applied to fiscal fitness as well.   You don’t need any fancy budgeting software; Excel will work just fine.   You don’t need any fancy arrangements like private life insurance: taking advantage of retirement accounts offered by your employer is a really good start.  You don’t always need access to experts on esoteric subjects (like you might need when investing in sector mutual funds); index mutual funds will usually do, just fine.

But, the second point of this section is that if you setup the equipment you need at home, you can eliminate the excuse against starting a workout regimen: the fact that you have to commute to the gym.  In fiscal health, avoiding this delay is vital as well.   The longer you have your money invested, the longer interest accrues, AND in many accounts, this is compounded interest that can grow on itself, as it adds to the principle.    For these reasons, physical and fiscal health are quite similar.

Join an online community

Joining an online community can be really useful in keeping ourselves accountable, for either physical or fiscal health goals.  I joined an online program called Noom, and a portion of that program was a chat group where you can share joys and concerns with others in the program.   This keeps one accountable to the group and more likely to stick with the program.   This same program can help when considering financial health.

And, these groups don’t have to be formal at all.   I have a friend at work named Jay.  In the earlier years of our career, we had a good-natured competition to see who could stockpile a larger share of one’s income into the retirement account.  He helped me stay accountable to myself, and encouraged me to invest as much as I could.  Perhaps you and a friend could hold each other accountable in a similar manner?

 

Take a long walk with a shorter peer.

 Fitness gurus always say that just taking a quick walk around your neighborhood is an excellent way to get exercise.  No fancy or expensive clothes or equipment needed.   (And, if you have a dog, I’m sure they would be appreciative.) In a similar way, a walk “around your neighborhood” can also lead to excellent fiscal health.  Sniff around your local banks, sometimes the local banks offer accounts or rates not offered by the larger banks.  After all, you don’t need much; A checking account tied to a savings account should be fine for most people.   More metaphorically, though, in your neighborhood, you might see ideas that  would make for dandy investments.  You might stroll past the local senior center, and note some smiling residents.   Do some research on the company, and you might’ve found a fine investment, possibly before the larger investment groups.  You might note how many gray Amazon vans are patrolling the streets, and how many smiling packages are on porches, do some research, and you might decide that this investment makes sense for you.  All of this can be observed directly, and you didn’t need to invest in even 1 e-newsletter.

The Verdict

One can easily be overwhelmed by the amount of information there is on fiscal health; Paralysis by analysis can easily result.  But, if one simplifies the advice, down to the essence of what is truly needed, both physical and fiscal health gets a lot more approachable.  Please don’t forget the most direct connection either

REFERENCES

Editor’s Note: Please note that the information contained herein is meant only for general education: This should not be construed as Tax Advice.   Personal attributes could make a material difference in the advice given, so, before taking action, please consult your tax advisor or CPA.

A Healthy Ticker

Headline: It’s Always Good to Have a Healthy Ticker

Date: 1/7/2021

Body: I was reading the February 2021 edition of Kiplinger’s Personal Finance, and they had a really nice article, starting on p.62,  on the “Anatomy of a Stock Trade.”   There are a lot of moving parts.  Before I start, I will likely be using the word “execution” within this discussion.   This has no connection to capital punishment (unless you lose your capital in the trade… get it?)   OK, lame jokes aside, execution simply means the processing and fulfillment of an order on the stock market.   This is seen by many as a “black box”, and my objective is to shine a flashlight so as to get an idea of the contents.

How does this process work?

OK.   You want 100 shares of Ford stock, so you write out an order (it’s on your cell phone, they make it VERY simple) saying that you wish to purchase 100 shares “at the market.”   This means that the company is now required to give you the “best execution” that they can (required by the SEC.)   This is a complicated calculation between speed of execution, execution costs and share price.   Their computer picks the best place to purchase your 100 shares (e.g. either internally, on a public exchange or perhaps there is a non-public exchange that they know about.)

Whatever route is taken, that entity receives your cash and issues a confirmation that you now own the shares that they used to own, that goes back to your brokerage.   After that, the brokerage gives you a confirmation that your trade has been executed.  But, missing from this illustration is a fascinating portion of the computer loop that happens so fast today.   Between the receiving of your cash and the issuance of the shares, the transaction has to go to a clearinghouse where it is “cleared.”   In essence, these (computers now) confirm that your seller does indeed have 100 shares of Ford to sell, and that you do indeed have the ready cash to pay for them.   Then the trade is “done” the shares disappear from their account and appear in yours, and the share price for these shares is withdrawn from your bank account and credited to them.  This trade does affect the stock price in some way.  (100 shares is miniscule, if you were buying thousands of shares as an institutional investor, then you could materially change the stock price.)  This clearance process used to take days, and now takes microseconds.

I thought it was more complicated than this?

In High School Economics class, you probably learned about how there were people, with different colored shirts or vests, literally running through an inch of paper thrown on the floor.   That was the stock market of old: Except in some rare instances, this is not the case.   Even Usain Bolt cannot outrun an electron passing from computer to computer.  These people that you learned about in High School had such jobs as “Market Maker” or “specialist” and would have different jobs in facilitating trades.   But this doesn’t happen anymore, unless you’re investing in commodities markets or perhaps using options.

How much does it cost to trade a stock?

Let’s take an example.  Say I wanted to purchase 100 shares of Ford stock, same as before   Such a simple order used to be $9 per trade or so, and now, it’s much cheaper.  So, we are not speaking of a material expense.  But, the companies are not trading for others out of the goodness of their hearts, and the SEC requires them to do some fairly extensive reporting, so, there will always be some cost.

Be aware that the stock price you see on your choice of website may differ from the stock price you are charged.  (It’s usually pretty close.)   Especially within volatile markets, price changes can happen quickly, and your price will fluctuate (a little) as a result.

When does it make sense for me to trade individual stocks?

In my view, trading should take place pretty rarely.  Being a normal human (ostensibly) most of your investment activity would probably be most responsibly done in a mutual fund of some type.   But, sometimes, you do research, and you find something that you don’t think many others have discovered.  (For instance, there was a storage company that wasn’t doing well, but one investor realized that the physical real estate of the company was a HUGE asset that most others were ignoring.  So, he bought shares at a very low price.   As they began to sell off their very valuable urban real estate, the share price skyrocketed.  He made a lot of money.)   So, this doesn’t happen often, but sometimes it does.   When you do see a potential opportunity, I recommend that you “sell the idea” to yourself.   Write down 4 to 5 reasons you should purchase the stock, and then 4-5 reasons that you shouldn’t.   If you can refute each item in the second group (while maintaining a straight face), AND feel confident about the first group, then you might want to invest in that individual stock.   It is my further suggestion to keep this writing so that you might have a better idea of when to sell the stock.

REFERENCES

Execution Definition (investopedia.com)

SEC.gov | Trade Execution:

How Does Stock Trading Work? (thebalance.com)

Editor’s Note: Please note that the information contained herein is meant only for general education: This should not be construed as Tax Advice.   Personal attributes could make a material difference in the advice given, so, before taking action, please consult your tax advisor or CPA.

We Mean Business!!

Headline: We mean Business

Date: 1/4/2021

Body: I was reading a wonderful article in the Penny Hoarder.  It is linked below: How to Start a Business in 10 Steps: Ideas, Plans & Funding (thepennyhoarder.com)

I have to say, I both love and loathe this article.

Make up your dang mind!!

I really can’t.    Starting a business is very much like deciding to start a family and have a baby.  The article seems to say how easy and rewarding it is: Rewarding it is, easy, not so much.  So, I salute the author for encouraging people to start their own businesses, but at the same time, I think that caution might be important.  Let me explain.

Step #1 is to “Come up with Business Idea.”  

OK, this is true, as far as it goes.   But, to stand a chance of having a successful business, you must have more than this, even emotionally.  To stand a chance of gaining success, you must be passionate about your idea.   When you wake, you should have an idea or 2, at another job you should feel compelled to draw a picture or write something in support of your idea.  When you get home, you should relish the idea of hours of research on your idea, and dreams should bring you related themes.   THIS is how dedicated you have to be.  They also forget the corollary, “Don’t let ANYBODY tell you otherwise.”

Step #6 is to “Secure Startup Funding.”

 This is a necessary evil.   But, the article forgets a few things that should be considered.   First, startup funding might not be possible.  You might have no option but to work out of your home.   Assuming that zoning laws allow for this, it is important to understand that this IS a valid place to begin.  (I grew up with 2 sisters as neighbors, and for 10 years, they ran their soap-making concern out of the basement of their parents’ house.  Now, they have their products available in many Whole Foods locations, and have been featured on Maryland Public TV several times.)  So, these humble beginnings can be entirely possible.  But, the article also forgets one of the major forms of currency that the startup has: barter.   Very often, as an entrepreneur, you have some expertise that is needed by another professional, who in-turn could be important to the business.  Said differently, if you have a writing business, and you need help with constructing your website, you can always offer the programmer a trade of professional services, and avoid the outlay of cash.  I have known many entrepreneurs, and so many have regaled me with stories of effective (and unexpected) partnerships. 

Step #9 Make Your Website and Social Media

This step suggests that these are easy to do, and it is not.  In my case, I found a coder on the suggestion of an entrepreneur I happen to know.  My logic was simple: to get the website, I MUST expend money or time (to obtain expertise.)  I am by no means wealthy, but to obtain expertise sufficient to construct the site, it would take a copious amount of time, and the money was more available to spend on my enterprise.    So, I paid a pair of programmers to construct the rudimentary site.  (Their skills are excellent: All mistakes made are my fault, as I did not give good instructions.)  Your situation might differ, but if you already have that full-time job demanding your time, your calculation might be similar.

Step #10 Register with the Government

Yeah, no, not simple.   There are multiple levels to government, and you must look at all 3.   On the Federal level, you must obtain an FEIN from the IRS (don’t sweat it, it’s not too hard.)  This is your account number for the business, so that if you have to withhold employment taxes, this can be done: You also use it on your business return, or personal return.  You also need this FEIN to open up a business bank account.  Once the Feds are happy, you have to register with the Secretary of State of your individual state.  (Requirements vary, so be sure to do your research.)   In Maryland, it costs only $25 to register a “Doing Business As” (DBA) name, but $300 per year if you want the protection of an LLC.  Be aware that the state could (probably will) require insurance in some cases.  Finally, you must make sure that your local municipal government doesn’t have any zoning restrictions or other regulations that would make your business not permissible. 

The Verdict

Starting a Business is NEVER simple.   In addition to the hoops mentioned above, you might have to obtain licensure (e.g. a CPA license or a cosmetologist license) in order to begin your business.  All of these regulations make starting a business challenging, but if it is your burning desire to do so, it is possible.  The bottom line seems to be to do your homework carefully, and talk to other people who have done something similar.  There will still be surprises, so, as the Boy Scouts would close a meeting, BE PREPARED!!

Editor’s Note: Please note that the information contained herein is meant only for general education: This should not be construed as Tax Advice.   Personal attributes could make a material difference in the advice given, so, before taking action, please consult your tax advisor or CPA.

You have to have SOME standards!!

Headline: You Have to Have Some Standards

Date: 1/1/2021

Body: This one’s a little different.  I was listening to NPR today, and specifically, I was listening to a podcast that was speaking about the standards we have to deal with in the financial sector.   Constantly repeated were the terms “suitability standard” and the very different “fiduciary standard.”   Given the New Year, I thought this was a very appropriate subject.

What is a fiduciary and what is the “fiduciary standard?”

A fiduciary is anybody entrusted to make investment or money decisions for the benefit of clients.   To enforce this trust, the government (particularly, the SEC) requires these professionals to do or not do certain things.  For example, an advisor is prohibited from buying the same stock for their own account BEFORE investing in the same stock on behalf of their client. . Additionally the fiduciary is required to use the “best execution” method, optimizing the combination of cost and efficiency of each trade. There are some other requirements too, but basically, they are legally required to subordinate their own profit to the cause of their clients’ profit, if they are under the fiduciary standard.  If they fail in this requirement, they can be sued.

There have been changes in the modern day

A 2016 ruling from the Department of Labor required a large new group, retirement specialists, adhere to these standards.  This is important because if they are not held to this standard, these brokers can select securities that offer them a better commission rate.  This subordination of priorities would be perfectly legal under the “suitability standard.”

What is a “suitability standard?”

The fiduciary standard is a very high standard of care required of some professionals.   The suitability standard is somewhat less stringent, and often is the standard to which brokers are held.   To make it more concrete: consider an example.  Client A is a conservative investor, who only invests in stocks and bonds or mutual funds.   Under a Suitability standard, the broker-dealer can invest in any stock, bond or mutual fund, and are permitted to suggest investments that might be sub-optimal for the client, but would bring them a larger commission.  Under a fiduciary standard, this behavior would not be permitted, and the broker would be required to invest only in the things that are best for their clients, under the circumstances that are best for the client.   It might be more helpful to see these standards side-by-side.

Attribute	Suitability Standard	Fiduciary Standard
Transaction Costs	Transaction costs cannot be excessive.	“Best execution” must be followed and costs must be minimized.
Transaction Frequency	“churning” moving from investment to investment for the purpose of increasing fees is sometimes OK.	This is not permitted.
Conflicts of Interest	Potential conflicts of interest SHOULD be disclosed.	Potential conflicts of interest MUST be disclosed
Investments Permitted	The Broker may invest in a broad array of investments	The Broker can only invest in investments consistent with the investing profile of the client.
Personnel Affected	Broker-dealers	CPAs and retirement professionals.

The Verdict

The importance of this topic is somewhat elusive, but it really is key to your bottom line as an investor.     The common investor must be constantly aware of the standard to which their advisor is being held.  This can be tough sometimes, because broker-dealers are so numerous, and advisors under the more stringent fiduciary standard can be thin on the ground.   As a result, it might appear that the broker-dealer is the professional to use, as they tend to offer cheaper service.  But, I urge you to consider getting information and services from a professional under the fiduciary standard, because in the long-run, you will likely make more  money with these professionals than the brokers because they minimize transaction fees.  Further, the investments made by these professionals are  required to be consistent with the investing philosophy of the client.  As a result, you might be able to sleep a bit better, if you use a professional who has to abide by this more strict standard.

REFERENCES

Fiduciary vs. Suitability: Know The Difference (thebalance.com)

Suitability vs. Fiduciary Standards: What’s the Difference? (investopedia.com)

What Is a Fiduciary? (fool.com)

What Is a Fiduciary? – NerdWallet

Editor’s Note: Please note that the information contained herein is meant only for general education: This should not be construed as Tax Advice.   Personal attributes could make a material difference in the advice given, so, before taking action, please consult your tax advisor or CPA.

RansomWHERE??

Headline: RansomWhere??

Date: 7/5/21

Body :This one’s going to be a little different.   Usually we cover a financial topic, and this one might not be exactly financial, but a financial risk is certainly involved.   Over the past few months, I have read many articles about ransomware attacks, and I think  it’s a severe enough threat to be dealt with in blog form.   Warning: I am in NO way an  IT professional, but, I think a little basic information could be of use here, and this basic information could certainly save you or your entity serious money.

What is ransomware?

The thing to know about ransomware is that it is a moving target.  In basic terms, it locks up an entity’s IT system from being usable.  It does so by encrypting the files using a key that only the ransomware creator has.   Often, the only way to regain access is to pay a sum of money (usually in untraceable Bitcoin) to the creator, who will then supply the password.   Examples in the popular press are legion and the problem is likely much larger than reported because many entities are worried about reputational damage.  Recently, the DC Police department had to deal with this problem when a bad actor stripped some data of potential police violence, and they were threatened with wide distribution of this footage.  More than once, the targets have included hospitals.   Without doubt, this can be life-endangering and must be dealt with.

The gangs that do this work are sophisticated

These are often gangs of professionally trained computer programmers, and not juveniles who are barely making rent payments on their childhood bedroom at Mom’s house.    They will often look at data they have swept up before making a demand, to uncover just how much money they can charge (and hopefully get) from the victim entity.  Second, these people know how people think and will often launch their attacks just prior to a holiday weekend so that the threat of detection of their intrusion is lower.  Finally, some of these gangs write software for use by others, for the purpose of perpetrating ransomware attacks; This is referred to as “ransomware as a service” and it seems the crime “wave of the future.”

What can be done to prevent an attack?

A good source for information on this is CISA, a Federal agency.  CISA (and no, I had never heard of them either), stands for “Cybersecurity and Infrastructure Security Agency.”   They list a variety of things that can be done to make ransomware attacks less likely.   But, please note, this makes them less probable, not impossible

Recommendation	Comment
Update software and operating systems with the latest patches.	Patches are small sections of code that are issued by software vendors after a vulnerability has been found.
Never open links or attachments in e-mails received where you don’t know the sender.	Opening e-mails is usually a fairly safe activity.  The problem is when links or clicked or attachments are opened.   This can send you to a disreputable site or give permissions to an unknown system to add data to your system.
Backup data on a regular basis.	For my own business, I backup to an external hard drive every month.   So, if something untoward happens, I only lose a little.   Another option is to have a Dropbox account or something similar.
Restrict users’ permissions to install software applications.	Only your IT administrator should have rights to do this work.   If anybody can install software, you do not know the source of the product, and malware of all types can infect your system.

To the best of my research, there are any number of products for sale to use against malware in general and ransomware in particular.  But they all seem to boil down to buyer (of data) beware.

If an Ounce of Prevention is worth a Pound of Cure… An ounce of Detection is worth at least half a pound of Cure…

How do you know if your computer is infected? Here are some ways to detect a ransomware attack:

Detective Protection	Comment
Anti-virus scanning programs can sometimes detect ransomware, and send you an alert.	Some ransomware is specifically engineered to avoid these scans.
Be aware of the file extensions on attachments.	You might want to start a firm policy that only attachments with a .pdf or .doc extension can be downloaded from e-mail applications.
Increased CPU activity.	If the program being used is small, the CPU activity required should also be minimal.  For instance, I am writing this on Word, a local program.   So, if opening it took a long time, there could be malware or ransomware lurking on the network and slowing down the processing.

Just like a disease in your body, the sooner you discover it, the better.   Skin cancer is a serious and threatening condition, so to prevent it, look for “freckles” on you skin to change in shape or size.  If you see this happen, consult your doctor immediately because it is most treatable if caught in the early stages.    A similar logic can be applied to the information technology assets of your organization.

What if I am attacked?

If you are attacked, it is generally not recommended that you pay the ransom demanded because there is no protection that the bad actor will supply the decryption code promised.

1.  Limit the damage by separating the potentially infected machine from your network (both physically and logically.)
2. Contact the authorities immediately.  The FBI takes this kind of crime VERY seriously.
3. Implement the most recent of backup data that you know is clean.
4. Notify your clients, vendors and personnel.

Verdict

Just like a disease in our physical bodies, ransomware can be scary.  It was not clear to me how much threat there was until I realized that there were now insurance products to insure organizations from this threat.  But, regardless of how serious this threat CAN be, simple policy changes and building awareness in your personnel can go a long way in protecting yourself and your clients.

 REFERENCES

https://www.cisa.gov/ransomware

https://www.npr.org/2021/07/05/1013117515/scale-details-of-massive-kaseya-ransomware-attack-emerge

https://www.kaspersky.com/resource-center/preemptive-safety/ransomware-removal

https://www.ftc.gov/tips-advice/business-center/small-businesses/cybersecurity/ransomware

Editor’s Note: Please note that the information contained herein is meant only for general education: This should not be construed as Tax Advice.   Personal attributes could make a material difference in the advice given, so, before taking action, please consult your tax advisor or CPA.

Where there is a Will, there is a Way!!

Headline: The Will to Win, Sort of.

Date: 12/27/2020

Body:  I just read a great article at The Penny Hoarder on the importance of setting up a Will.  It is linked below:

How to Write a Will, Even if You’re Young and Broke (thepennyhoarder.com)

WHOA, death AND taxes??  I’m gone!!

And, that is EXACTLY the point.  Usually, we work very hard to avoid these issues because it is “easier” to do so.   But, the flip side of the argument is that with a little pre-planning, you can ensure that your wishes are carried out as you want them to be.  As this can be a major weight off of your mind, the setting up of a Will is really an act of self-love, not preparation for an imminent death, as so many seem to believe.

Advanced directives and related documents are a very complicated topic, and consulting an attorney is a must for nearly everybody.   For the sake of “brevity” I will keep my discussion to discussion of a Will.

What is a Will and what are these legal terms I have seen?

Term	Definition
Will	This document will designate your executor (the person who carries out your wishes after death) and lists your wishes with regard to distribution of your assets.
Probate	This is the process whereby your executor receives permission from the Court to handle your affairs.
Living Will	This document, also known as an advanced directive, lists what medical treatments you do or do not want administered to you in case you cannot communicate your desires.
Trust	A Trust is a document that conveys the obligation of a trustee to hold, preserve and grow assets for a third person, the beneficiary.
Revocable Trust	A revocable trust allows you to retain control of the trust assets during your life.  Upon your death, the assets in the trust are transferred outside of Probate.
Power of Attorney	Not a Superpower, this document allows the named person to make healthcare or financial decisions for you in case you are incapacitated.
Estate Plan	An Estate Plan is a comprehensive plan of how you want decisions to be made upon your death.   This plan could include all of the above documents, and crucially, it includes communication with your family of your wishes.

Should I get a Will?

So many people ask this simple question, but the answer is complex.  I lived in PA once, and asked an attorney friend of mine, and he suggested that for me, in that state at that time, no Will might be the better option.  However, most of the time, it is likely the best answer to have a Will.  According to a study done by AARP, 2 out of every 5 Americans over 45 have no Will.

One option, to avoid Probate, is to setup a “pour-over Will” where all assets in the Estate go into the Trust (and avoid Probate.)  In this case, the Will is very simple and merely instructs that 100% of assets go into the Trust.  The Trust (a service, accessible to more people than you’d think) can be important because even “simple” estates can take a year to go through Probate.   Some assets, like life insurance and retirement accounts can transfer outside of probate: Just be very sure that your beneficiaries are up to date.

What does a Will cost to setup?

 Sorry to sound like a broken record, but it really does depend.   If you have complex needs, and go to an attorney to get a bunch of these documents setup and executed, the package can cost you $2,500 or more.   But, if you have no kids, and your financial situation is simple (like me) you can go onto a site like LegalZoom and download a template Will for whatever state you reside in, for $25-$50.   So, the financial costs can be constrained, but I would strongly advise you to invest some time and energy into speaking with family members involved, too.  If you’re not all on the same page, the family members can sometimes contest the Will, and probate can drag on.    Before you purchase one of these “kits” please be sure to do your research on both the platform and the document itself.

I don’t see the need to invest in an attorney, but, I want some guidance.  What are my options?

If all that you need is a little basic guidance, then you have a variety of places to get that help.   Local libraries and not-for-profit organizations often have seminars that can offer guidance with no strings attached.   Five Wishes is a booklet including a template for several documents, and this booklet is a legal document in 42 states and DC.  Doing you will completely on your own is not legal in some jurisdictions, and not recommended anywhere.  (Even a Supreme Court Justice made a Will that was so poorly-written that his heirs spent over $450,000 in taxes and fees, during probate.)

The 9 Steps in setup of a Will

1. Identify your assets
2. Select your beneficiaries, carefully.
3. Choose your Executor, carefully.  
4. Select a guardian for your children.
5. Be specific as to who gets what.
6. If you wish to say more, then attach a separate letter.  This is called a Letter of Instruction, and can be useful and helpful, but be sure it is legally binding in your jurisdiction.
7. Remember that when you sign your Will, you will need 2-3 witnesses who are over 18, and not to receive assets from the Will.
8. Find a safe place for your will and empower somebody you trust to have access to it.   Also, place with it a statement with passwords and identifying information.
9. Review and revise your Will after major life events like purchase of a home, marriage, birth of children etc.  You want to be sure that the right people are taken care of, and that the Court is not dealing with out-of-date information.

 The Verdict

It seems that the old saw might be true: When there is a Will, there is a way!!

REFERENCES

10 Steps to Writing a Will | Family Finance | US News

How Do I Create a Will? | legalzoom.com

Cost of a Making a Will (investopedia.com)

10 Things You Should Know About Writing a Will – Assets, Inheritance (aarp.org)

Editor’s Note: Please note that the information contained herein is meant only for general education: This should not be construed as Tax Advice.   Personal attributes could make a material difference in the advice given, so, before taking action, please consult your tax advisor or CPA.

Give it the Old College Try

Headline:  Go ahead, give it the good college try

Date: 12/27/2020

Body:  OK, this might seem like a major change of pace, but, the largest expenses, outside of a house is often retirement and college education.  So, it seemed to me that addressing this might be central to the checkbooks of many Americans.    Many people have been told for years that they should go to college.   But debt will likely be a future you have contemplate if you attend a 4-year college.    A good alternative might be a local community college.  The article from the Penny Hoarder is linked below

4 Ways Community Colleges Can Help Boost Your Earning Potential (thepennyhoarder.com)

When many people think of community college, they think of Welding, carpentry and training HVAC professionals.  All of these programs are offered, and each are potentially profitable because there are few younger people going into these trades, and many people aging out of them.  But, community colleges also offer a lot of other opportunities.

1.Explore Well-Paying Jobs That Require Only a Two-Year Degree–> There are some well-paid positions that can be obtained with only a 2-year degree.   Among these are medical assistants, massage therapists, and bookkeepers. 

2. Earn Valuable Career Credentials–> Perhaps a credential could put you on a fast-track to promotion at work.  If this credential is offered at a community college, tuition might be approachable.

3. Take the First Step Into an Apprenticeship Program–> Often, businesses will take on apprentices to see if they will be good employees.   These apprenticeships often are not well-paid, but you do get significant job skills and the opportunity to network.

4. Make Use of a Makerspace–> Very often, somebody might have an idea for a product, but lack the facilities to fabricate it or do R&D work.   Not infrequently, the community colleges will either sponsor or be in cooperation with a makerspace that will allow you to quickly mock-up a design for your creation.  (Makerspaces are places where people can

If I just completed High School, should I consider a community college?

Yes, you should consider community college.  You could go there and get your 2 year associates degree, and then either go directly into a job, or apply to transfer to a 4-year school, with many of your credits already earned.   There are a few more important things to consider, too:

1.You save a LOT of money!!–>  Community College tuition is usually VERY inexpensive, and often people can live at home, and work part-time jobs to help pay for rent.  Remember, this is all debt (with interest) that one is avoiding.  A HUGE savings of money.

2. Classes with a flexible schedule can be a lot more approachable than in High School, and you can usually earn pretty good grades, which might offset some possibly less-than-stellar ones in High School.

3. If one is unsure what to “major” in, these 2 years provide a nice time to look around and see what makes sense to them.  The smaller classes too, can free up discussion time with teachers and fellow-students, and this can help foster the needed exploration.

What are the “cons” of attending community college for the first 2 years?

The #1 “problem” is that some of the students can be uninvolved (either with the academics or the school community) and students who WANT to get involved can feel short-changed.    This can become a sap on motivation to do well, and this lack of motivation is something to be avoided, if possible.

The other thing that might be difficult, is executing the transfer and getting your community college credits on your 4-year transcript.  But, this can be mitigated and is not really an issue, usually.

1.  If the 4-year school is “in-state” with respect to the residency of the student, the community college will often have a codified transfer program with the 4-year institution.
2. The student who is considering a transfer should obtain the syllabus for each class taken at the community college.  In the transfer, they will want to know just what material was covered, in an effort to determine a just awarding of credits.  (This was advice given me by a caring professor.)
3. If the transfer is “out-of-state”, the student can  often take achievement tests that will corroborate their already having had this material, and they can skip classes at the more expensive 4-year institution.

The Verdict

As so often happens in Life, it depends so much upon the student making the decision.  But nobody can argue that graduating with \less debt can be liberating.  I guess that the verdict would have to be to examine your heart, and then your finances.  If either is borderline, perhaps community college could be a very responsible choice.   Remember, school is NEVER out!!!

REFERENCES

4 Reasons to Consider Community College | The Princeton Review

The Pros And Cons Of Community Colleges – Scholarships.com

Why Starting At Community College Is Better (And Why It’s Not) (forbes.com)

Community College: You’ve Heard the Myths, Now Let’s Talk Benefits (bestcolleges.com)

Editor’s Note: The information in this blog should not be construed as tax advice.   Each individual has attributes that could change the recommendations in a material manner.  For this reason, please enjoy this blog, but before taking action, consult a CPA or tax professional to discuss the details of your situation.

You Gotta Keep it Negotiated!!

Headline: You Gotta Keep it Negotiated

Date: 12/26/2020

Body:   I was reading a wonderful article on the Penny Hoarder, on the topic of negotiation.   I have inserted the link below:https://www.thepennyhoarder.com/make-money/career/how-to-negotiate-salary/?aff_sub2=homepage

When you are rafting the whitewater, people can say that you are learning to “negotiate” the rapids, and a negotiation for an initial salary or a raise can certainly feel like this very bumpy trip.  But, this new expedition for you is very important, even though it can be difficult.  Future raises, future bonuses and your future opportunities could be governed by this one success or failure.

Why are these talks so important?

Salary negotiations are important because they demonstrate to the company that you have done your preparation and know the market rates and that you are confident in your skills for success.  Negotiations are also a time for you to think about your financial needs and to use the tight labor market to your advantage to score a higher starting salary.

Take Heart, You Probably Have Better Cards Than You Think.

Despite the pandemic, the largest issue cited by small business owners remains retention of talent.  Yet, per a 2019 study done by Robert Half, 70% of hiring managers are ready to negotiate, and 45% of job seekers simply grab the job offered, regardless of the accompanying benefits package.   Please know that you DO have power in these negotiations

How To Negotiate a Salary

Overall, before you have the negotiation with your prospective employer, you need to have a plan.   I propose the following plan:

1. Decide what is really important to YOU.–>Many articles will focus on getting the most money out of an employer, and this IS important.  But, I think it is even more important to define what you consider to be “mission critical.”   To do this, develop an idea of your expenses per month and whatever your savings goals are.   Then, if there are non-financial goals that you have (e.g. a nicer office, better job title, better health insurance or something similar) you can use these “non-financial” inducements to bargain with your prospective employer.  You might ask for $5,000 per year and the employer might explain that this position has already been budgeted for.  In this case, you can say, “Alright, but in recompense, I would really like the larger office.”  Which is what you really wanted in the first place.   (Classic, “If you want a puppy, ask for a snake” negotiation tactics.)   But, until you are truly aware of your needs and wants, you can’t do this technique.
2. Compile a list of specific, measurable achievements you have lived up to in the period since your last Review.
3. Do research on competitors to see what is truly the “Market Rate” for a person with your experience.        
4. When you receive the first offer, breathe, say  “thank you” and ask when they need the response by.  If you can’t put any time between the offer and acceptance, think of your non-financial concerns and accomplish 1 or 2 as you can, in lieu of the income that your research indicated.    It is always better to counter after a period of time, so that your emotions are less raw.
5. When you do get an offer that you like, be sure to get it in writing.   As lawyers say, “verbal contracts are not worth the paper they’re printed on.”

But, negotiation is like any skill.   To become proficient, you must practice it.  If need be, break it down into practicing one technique at a time, until you can master all of them that you need.   When you do this discussion in person, please do all that you can to non-verbally impress upon the interviewer that you are confident.    To do this,

1. Be sure to keep good eye contact with the interviewer.
2.  Be sure to keep your posture open, but confident.  Leaning forward subtly is often helpful.
3. Your handshake should be firm and brief.   Do not break the interviewer’s hand with your shake.
4. Feel free to use appropriate hand gestures confidently, but please ensure that you don’t do anything unusual.    
5. Observe the facial expressions of the interviewer closely to get clues to what they are thinking.  In return, please ensure that you do smile when it is appropriate.
6. Be careful with any fidgeting.  Your body movements should be purposeful.   Perhaps cut back on the coffee on negotiation day, or do some guided imagery before the interview.

As you progress in your practice, it is a help to video-tape yourself, but also, ask your trusted assistant how they felt your non-verbal communication affected them.  One final suggestion is that you should be VERY cautious when you give an ultimatum.   If they call your bluff, you now have a VERY tricky decision to make.  NOT a good situation to be in.

What if they say “NO”??

It is important to admit that your boss might have to say no.  This is not the end of the world.   You might want to try to get 1 or 2 of the non-financial objectives that you had.   If this is a flat, “NO” and you are human, you WILL feel a flush of anger.  It is important to ignore this flush of anger, and best to reply in an ambiguous manner, like “I understand your position.”   Then, you have to determine if they are close enough to what you should be earning to stay with that employer, or look elsewhere. 

However, life is what happens while we are making other plans, so sometimes you have to say “Yes” to the offer expressed.   If this happens, you can accept the offer and ask the employer if you can revisit this in 6-12 months when you’ve proven your worth to the company.

What if they do ask for Salary History?

This is a tough one, because you want to give your future employer all of the information that they might need, but at the same time, you DON’T want to negotiate against yourself.  In fact, some states have passed laws prohibiting potential employers from asking this question.  If they push the issue, it seems best to offer them a range.  This range should be based upon your research into the market, and your needs.

Can I just phone it in? 

Some people are so threatened by this negotiation process that they would prefer to do it via e-mail.  Most HR experts seem to suggest that this is a really bad idea, and suggest that in-person negotiations are best, but if not feasible, phone interviews are second-best.   The on-going theme seems to be that you are trying to remind the HR professional that you are a human being.   If you are right in front of them, it’s self-evident.   If you are on the phone, they can hear the nuances in your voice that remind them of your human needs, and they might be more positively disposed to accommodate your requirements.

REFERENCES

https://www.kiplinger.com/article/business/t012-c006-s001-five-steps-to-negotiating-a-raise.html

https://www.roberthalf.com/blog/salaries-and-skills/be-ready-for-salary-negotiations-with-these-8-tips

https://money.usnews.com/money/careers/salaries-and-benefits/articles/how-to-negotiate-your-salary-and-succeed

https://www.shrm.org/hr-today/news/hr-magazine/fall2019/pages/talking-your-way-into-a-bigger-raise.aspx

 Editor’s Note: The information in this blog should not be construed as tax advice.   Each individual has attributes that could change the recommendations in a material manner.  For this reason, please enjoy this blog, but before taking action, consult a CPA or tax professional to discuss the details of your situation.