From Roland: With all the scary news on the debt crisis of Greece and others, I hope this will help you better understand the real issues versus the media hype.

First Trust – Problems in Europe right now are serious, especially if you live there and even more so if you work for the government. Greece has basically defaulted, and there are riots in the streets. Spain and Portugal could be next. Global equities markets are selling off. Is this the “W” all those pessimists have been waiting for? No one knows for sure.

But one thing we do know is that the world has experienced many defaults before. The Asian financial crisis in 1998 was serious of course, but we believe a better comparison is the Latin American debt crisis of the early 1980s.

Look at the table above.

Just about every major country in the hemisphere (other than the U.S. and Canada) defaulted on its debt. What is interesting to note is that the market was up significantly in almost every year of defaults. Most importantly, the US had significant exposure to these loans, in fact, the 8 largest banks had 263% of their capital lent to Latin American countries.

Today the situation is different. As far as we know, no US financial institution has any kind of significant exposure to Greece or any other European country and the US is in a V-shaped recovery. If the Latin American debt crisis can be our guide, current fears are overblown and the market has (or will) create a great new entry point.

There will probably be some more bad news in the weeks ahead, but these problems will likely blow over as the US economy continues to strengthen. We remain convinced that another leg down for the economy is unlikely at this juncture.

Visit us at Manarin.com.

“If broke people are making fun of your financial plan, you’re on track.” – Dave Ramsey

People have different views on tax refunds.  On one hand some will say that by receiving a refund you overpaid the government this year and you should have given them less of your money.  And there are those who view a tax refund as a special windfall.

If you do receive a refund this year we hope you put it to good use with a little financial common sense.  Afterall, you did work for this money – it came out of your paycheck, so why not make it work hard for you?

Some quick ideas:

Restock Your Emergency Fund  An economic downturn can be much less painful if a few months of expenses are stashed away on the side and readily available.   How much is enough?  Whatever gives you the most peace of mind. 

Reduce Any Bad Debt  To us a mortgage or a student loan is still debt but they’re not always bad debt since the home value has an opportunity to appreciate and a student loan will hopefully provide more earning potential.  Any other high interest consumer debt should be aggressively paid down. 

Invest in Your Future  Have you addressed the first two points?  Great, then consider taking the funds from your refund and investing in a retirement account.  Each of us is responsible for funding our own retirement so anything that you can save away today will grow over time and pay off later on.

If you do have funds left over from your tax refund to invest, our vote is to be an owner if it is money you know you won’t touch for 10+ years.  Common stocks have historically given investors the highest rate of return over the long run but our word of caution is always diversify, diversify, diversify. 

 Here is the investment model that we often recommend.

The two conflicting models of economics are the Austrian and Keynesian models. The Keynesian model is the policy of the federal government and is used by nearly all of the financial media.

The former is the most free market economic analysis and is the model we use in making our investment decisions. Few people know of or understand this model because it receives little, if any, mainstream attention.

The below three-minute video offers a layman’s understanding of these economic models and the impact each has on your money:

Omaha, NE – Manarin Investment Counsel advisors Aron Huddleston and Weiyu “Wendy” Guo have both recently earned the Chartered Financial Analyst® (CFA®) designation.

From the CFA Institute website:

CFA Institute is a global, not-for-profit organization comprised of the world’s largest association of investment professionals. With nearly 100,000 members and 137 regional societies around the world, we are dedicated to developing and promoting the highest educational, ethical, and professional standards in the investment industry.

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The CFA charter is respected as the gold standard of professional credentials within the global investment community. The prestige of the charter is due, in part, to the challenging nature of the exams.

Aron is Vice President of Manarin Investment Counsel and a Portfolio Manager of Lifetime Achievement Fund.

Wendy is an investment advisor with Manarin Investment Counsel in addition to being an Assistant Professor in the Department of Finance, Banking, and Law at the University of Nebraska – Omaha.

All of us who work feel the bite that Social Security taxes take out of our paycheck.  Most of us take comfort in the hope that when we retire, Social Security will be there, giving back all the money that we paid into the system over the course of our careers.  Isn’t that how it works?

Well, the short answer is no, it doesn’t work that way.  The Social Security taxes deducted from your paycheck are not sitting in a special account someplace, earmarked to be returned to you upon your retirement.  Instead, the taxes you pay today are used to pay benefits to today’s beneficiaries, just as when you retire, the benefits you receive will come from the taxes paid by people who are still working.  This arrangement works as long as there are enough people sending in taxes; it doesn’t work so well if the number of current workers per retiree is decreasing.

The baby boomer generation (those born between 1946 and 1964) have started to retire.  This large group retiring, coupled with increasing life expectancies and decreasing birth rates, means that the number of retirees will grow faster than the number of workers. 

According to the Social Security Administration, the number of workers sending in Social Security taxes to pay each retiree’s benefits has plummeted from 42 workers per beneficiary in 1945 to 3.1 in 2009.  What is more is that this number is projected to go down even further to 2.1 workers per beneficiary by 2040.  Since the ratio of workers to retirees is expected to continue declining, a shortfall in future Social Security funding is likely.

The trustees of the program project that by 2014, the Social Security benefits it pays out will exceed the amount of money coming in.  Moreover, they are forecasting that the “trust fund” will be exhausted in 2037 unless changes are made.

What does all that mean for you?

Well, that depends on how old you are and what changes the United States government decides to implement.  If you are nearing retirement, it is unlikely that your Social Security benefits will change dramatically.  Younger workers, however, are more likely to see sweeping changes in the way Social Security works in the form of higher taxes, lower benefits, or a combination of the two.

Key Point: This was never intended to provide Americans with all of the income they would need in their retirement.  Social Security is only one leg of a three-legged stool that also includes pension plans and personal savings.  With concerns mounting over the stability of one leg of the stool, retirees need to take control of their retirement by investing in personal savings plans such as IRAs and 401(k)s.

Visit us at Manarin.com.

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Photo Credit: Fabricator of Useless Articles

A commonly-overlooked benefit of 401k investing is that contributions can be made pre-tax, so that even a small contribution can go a long way.  In this situation, 401k contributions are not taxed unitl you retire.  Therefore, the more you contribute to your retirement account, the smaller your taxable income becomes, and the more federal taxes you are able to defer.

The image presents the tax savings (reduction in tax liability) achieved by 401k contributions of $100 for six marginal tax rates.  For example, if you are subject to a 35% marginal tax rate and you choose not to contribute, you will pay $35 in taxes and only have $65 to invest in another account.  If, however, you invest pre-tax in your 401k, you will have $100 that is yours and can grow tax-deferred until you retire.

For additional help with 401k investing, visit us at Manarin.com.

The key point one should take from the above chart is that from 1890 to now is there have been only two major bull markets in residential real estate: The period during World War II and the most recent real estate bubble starting in the late 90’s. In fact, over the long haul the return on residential real estate has covered inflation and that’s about it.

So while a home may be a large financial asset, in no way should someone view it as a major investment asset.

As this article suggests: “The biggest value of the house is the shelter it provides … Too many people are fixated on speculation whereas most of the benefit really comes from usage.”

If at the end of the month you have an extra $100 and your two choices are to invest the money in the stock market or pay down your mortgage, seek out someone qualified to help you run the numbers so that the investment you do make is the right one for your situation.

Aggressively paying down a mortgage might make one feel good but there is a chance that it can take away valuable wealth-building opportunities.  Also keep in mind that a homeowner never truly “owns” their home unless they love in a state with no property.  For most of us, we simply lease it from the state until it is sold.

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Seth Godin’s recent post on how one thinks about buying a house is good. I like this passage:

…If you’re investing, you’re doing it in something that you don’t have to fix, water, fuel or live in. You shouldn’t fall in love with a bond or a stock or a piece of gold, because if you do, you won’t be a smart investor. The problem (as people who sell and fix and build houses understand) is that you just might fall in love with a house.”

Image Credit: James Quinn

Visit us at Manarin.com

This latest Rasmussen poll is fascinating and may very well set the (way too early) stage for an election that will be monumentally important to investors.   

An excerpt:

Pit maverick Republican Congressman Ron Paul against President Obama in a hypothetical 2012 match-up, and the race is – virtually dead even.

A new Rasmussen Reports national telephone survey of likely voters finds Obama with 42% support and Paul with 41% of the vote.  Eleven percent (11%) prefer some other candidate, and six percent (6%)  are undecided.

Ask the Political Class, though, and it’s a blowout.  While 58% of Mainstream voters favor Paul, 95% of the Political Class vote for Obama.

Visit us at Manarin.com.

Last month Aron Huddleston was invited to speak to Portfolio Practicum at Creighton University led by Dr. John Wingender.   

An overview of the course:

Portfolio Practicum is a two semester “hands-on” undergraduate course in the College of Business at Creighton University.  The class oversees a student managed investment fund with approximately $2.5 million in equity investments for the Creighton University Endowment Fund.  Eligible students apply for the class during the Spring semester of their Junior year.  Applicants enter an interview process to gain acceptance to the class for the following academic year.

Excerpts from Aron’s presentation are broken out by topic below.

An overview of Manarin Investment Counsel and the clients we work with:

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Ownership and making your money last through retirement:

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On the management and creation of Lifetime Achievement Fund:

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Our reason for owning gold:

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Future investment decisions: What has our attention?

This is a guest post from Manarin Investment Counsel’s Don Davidson on Auto Insurance.

Following the birth of our son six months ago, my wife and I took a hard look at our family budget to see where we could tighten things up and save some extra cash.  One area we looked at closely was big ticket expenses we needed to have such as our auto insurance coverage. 

We had been with our current provider for several years, had no complaints about the service but we figured it would be worth it to investigate current rates. 

Before making calls, I read up on ways that we could save some extra money and sought out other smart people in the personal finance world.

You’ve heard the saying, “Invest your time before you invest your money” – well, in this case investing my time resulted in more money to invest because the difference between the highest quote I received (AAA) and the lowest (Progressive, who I went with) was $600 per year.    

Here is how I did it:

1.  Make Sure Your Coverage Doesn’t Overlap with Other Memberships  Since it was already covered in other memberships we had there was no reason for us to include emergency road service or rental reimbursement on our policy.  All other coverage amounts remained the same. 

2.  Raise the Deductible Up To Your Comfort Level    To be honest I hadn’t changed my deductible since I was in college so I was amazed at the amount I saved on my Comp and Collision by increasing it to $1000.  The key point here is to NOT increase your deductible just to save a few bucks – make sure you have that savings cushion in place so that if you were in an accident you could pay that amount.

3.  Shop Around But Stick With the Major Providers  I’m all for seeking out the best deal but I have no interest in doing business with some off brand insurance company that could potentially go out of business and then not be able to fulfill my claim if needed. 

The companies I contacted for quotes were: AAA, Allstate, Geico, Progressive and State Farm.

4.  Understand You Typically Cannot “Negotiate” Auto Insurance  I tried but soon discovered that the companies were not going to budge after they had provided me their quotes.  This step was mostly about me asking the right questions and being fully aware of all the benefits – i.e. premium reductions – offered by each company and those I was eligible for.

One last thing before I close this out…

Some insurance companies will punish you heavily if you or anyone on your policy has been in an accident in the last few years.  My wife was in an accident 2 years ago so each one of the quotes I received came with an accident surcharge added on.  Had that accident not been on our record then the most expensive quote I received from AAA instead would have beaten the lowest quote I received from Progressive by over $100 thus saving me even more money. 

You can bet that in a few years once that accident is not factored in I’ll start this process all over again.

Give this a try and let me know how it works out for you. 

Visit us at Manarin.com.

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Photo Credit: Andrew