Happy Holidays from Woodstock

"Christmas in Woodstock"

Photo by Harold Rail

Wishing everyone a glorious holiday season from snowy Woodstock, Illinois. Treasure the true gifts of the season—love, family, peace, and sharing.

--Robert S. Jackson.

Cashing Out Your 401(k) Plan? Understand the Impact First

According to a new study by Hewitt Associates, an alarmingly high percent of workers — 46 percent — took a cash distribution from their 401(k) plan when they left their job in 2008. The remainder of employees either rolled over their money to a qualified Individual Retirement Account (IRA) or other retirement plan (25 percent) or kept their savings in their prior employer's 401(k) plan (29 percent).

Young vs. older workers

Hewitt's study showed that younger workers were more likely to cash out their 401(k) account than those who are older and more tenured. Six in ten (60 percent) employees in their 20s took a cash distribution, compared to just one-third (34 percent) of those in their 50s.

"The high cash-out rate among young and middle-aged workers is troublesome because these employees are missing out on the opportunity for decades-worth of tax-deferred growth on their investments," Pamela Hess, Hewitt's director of retirement research, said in a release. "Over the course of 20 or 30 years, modest amounts of savings can turn into surprisingly large sums of money."

A guaranteed looser

What's more, workers who take a cash distribution will likely pay taxes and a penalty on the distribution. "Cashing out of a 401(k) is a guaranteed way to increase taxes and pay more to Uncle Sam," said Bill Winterberg, technology editor at advisors4advisors.com. When leaving a job, even if your balance is small, Winterberg suggests that you consider the decision in this light. "Reframing in terms of more taxes paid rather than a penalty should deter some from cashing out," he said.

A Registered Investment Adviser (RIA) like Oaktree Capital can help address the impact of a cash distribution on your financial plan and advise you on the best way to roll over your investment.

***
This article was produced by the Financial Planning Association, the membership organization for the financial planning community, and was edited by FPA member Robert S. Jackson, PhD. and Patrick Murfin of Oaktree Capital Corporation.

As Medical Expenses Rise, Don’t Miss Key Deductions

There are plenty of horror stories about uncovered medical expenses these days, and the truly horrifying part is that many of them belong to people who actually have health insurance. But anytime you or a family member is facing a health crisis or an unusual medical-related expense, it’s best to check to see if you might get a break from Uncle Sam.

A tax professional and a financial planner should be consulted to determine whether there are any tax issues or any ways to defer cost or save money at any part of the process. The Internal Revenue Service lets you deduct medical costs as long as they are more than 7.5 percent of your adjusted gross income (AGI). That means if your AGI is $50,000, you can deduct only those unreimbursed expenses that exceed $3,750.

Getting there requires some planning, which is why it’s so important to gather up every dime of unreimbursed medical, dental and vision care expenses and review it carefully.

Here are things people often miss

Medically related travel: The IRS evaluates the standard cents-per-mile allowance each year for travel to and from medical treatments. Between Jan. 1-June 30, that rate was 19 cents a mile. Between July 1 and Dec. 31, the rate will rocket to 27 cents a mile.

Insurance payments from already taxed income: This includes the cost of long-term care insurance, up to certain limits based on your age.

Uninsured medical treatments: This includes what you spend for an extra pair of eyeglasses or set of contact lenses, false teeth, hearing aids or artificial limbs.

Rehab treatment: What you pay for alcohol or drug-abuse treatments can be noted on Schedule A.

Weight-loss to smoking cessation: If a doctor prescribes it, you’ll be able to deduct it.

Laser vision correction surgery: May be an allowable expense to deduct on your current taxes.

Doctor-recommended equipment and related expenses: If your doctor tells you that you need a humidifier installed on your heating and air conditioning system to help your breathing problems, you might be able to deduct all or part of the cost for the device as well as the additional energy costs to run it.

Some medical education costs: If you, your spouse or child have a chronic medical condition and you attend a conference to learn more about it, you can count admission and transportation expenses as a deduction, but not meals and lodging.

If you’re self-employed: You may deduct, as an adjustment to gross income, the full cost paid for medical insurance for you, your spouse and your dependents.

Lodging for out-of-town treatment: When accompanying a minor dependent to out-of-town medical treatment, hotel bills may be partially deductible.

Here are some less common expenses to watch

Medically necessary home improvements or equipment: If you do a home improvement or bring in special equipment that’s considered medically necessary for you, your spouse or your dependents, you’ll be able to deduct the cost. These may include special entrance/exit ramps to your house, widening doorways, modifying kitchens or bathrooms, or adding a chairlift for the physically disabled. Because these improvements are not expected to add to the market value of the home, they are considered fully deductible. If the improvement increases the value of your home, only the amount of the expense that exceeds the increase in the property value of your home is deductible.

Nursing services: If you are paying out-of-pocket for a home-based nurse, these expenses may be deductible.

Lead paint removal: Lead paint is dangerous, and the money needed to remove the paint from a home is deductible.

###

This article was produced by the Financial Planning Association, the membership organization for the financial planning community, and was edited by Robert S. Jackson, PhD. and Patrick Murfin of Oaktree Capital Corporation.

Add the Human Element to Your Estate Plan

When most people think about estate planning they envision trusts, trustees, executors, lawyers, and all the other complications associated with providing for loved-ones. All this is, of course, necessary and often takes a team of experts to put together. But there is something that you can do on your own, modify whenever you wish, and that will outlast the largest estate.

Create a Cultural Heritage Document

A Cultural Heritage Document is a legacy of your life — a kind of farewell letter.

You can make it as short or as long as you wish. It is a way for you to tell your family and future generations how you feel about life, your experiences, and decisions you’ve made, and the moral standards you hope they will inherit from you.

There is no right or wrong way to start. You can begin with something that happened today or go back to your childhood. Just let it come from the heart and the words will flow. You could include stories about your ancestors, people or events that shaped your life, previously untold tales, or things that you did which you now regret. If you don’t feel comfortable writing, make a Cultural History documentary. Record it on audio tape, a C.D. or in a video format.

What’s in it for you?

Besides offering guidance to your heirs, a Cultural History document — or documentary — may help you come to terms with your own mortality. You are passing on to future generations some part of yourself beyond your estate assets. You are giving it a life beyond your lifetime.

After you create your Cultural History, make sure someone knows about it. You should tell a close friend, your attorney, and/or a trusted family member where it is, who should receive it, and when they should read it.

If you would like a free skeleton outline on which to prepare your Cultural History document, e-mail robertsumnerjackson@yahoo.com. with the request.

A Lesson from Michael Jackson--Safeguard Your Wishes in Estate Planning

You may not think you have a lot in common with Michael Jackson. But like the late icon, chaos could follow in the wake of your death if you're not careful about your estate plan. Consider this: Jackson's mother was named the guardian of his children, but apparently she expected also to be the executor of his estate. While it is usual for the writer of a will to want an experienced financial adviser to handle the money and a nurturing family member to raise the children, conflicts can rise out of unfulfilled expectations.

An additional potential conflict could have arisen if the mother of Jackson’s three children opted to demand custody. Unless clearly unfit, being a mother will normally trump being a grandmother.

Although most people don't have estates the size of Jackson's, nor the complications that come with it, there are universal lessons to be learned. They apply to small and large estates and everything in between.

Review Your Estate Plan Annually

Financial planners suggest establishing a comprehensive estate plan that includes your will and reviewing it annually. You might have a will in place, but when was it last updated? In Jackson's case, his last will and testament was reportedly signed in 2002. And, given the size and complexity of his estate, his family situation and changes in tax law, his probably should have been updated more often.

Reviewing your will annually gives you the chance to reexamine your desires — your bequests, the guardians of your children and the executor or executors of your estate — as things change in your life. In Jackson's case, he named in 2002 his mother as the temporary guardian of his children and Diana Ross as an alternate guardian in the event that Jackson's mother could not or would not serve. But it's quite possible that his wishes had changed in the ensuing years.

Guardianship of the Minors

Choosing a guardian for minor children can be a difficult. It's important that you consult with financial professionals including a trusted lawyer and an investment advisor or other professional who can help you evaluate your choices and select the guardian that's right for you, your minor children, and the guardian you select. In Jackson's case how will his children fare with his mother? Will her lifestyle be suitable for the children? Does she have the energy and patience needed? What experience did Ms. Ross have with children? Are either of the designated guardians willing to make changes in their current lifestyle to devote their time and strength to the children?

Choosing a guardian should be the result of careful consideration and should always be driven by how to give the children the greatest possibility for a healthy, happy and productive life.

Besides naming a guardian of your minors, you'll also need to name a guardian of the estate, someone who will have the responsibility to invest your children's money until the children reach, typically, the age of majority.

Decision Makers for Incapacity

As important as it is to name the decision makers in the will, it is equally as important to name those responsible for making medical and property decisions if you are “merely” incapacitated. Can you imagine the conflicts that would have occurred if Michael Jackson had become incapacitated without naming someone to hold his Powers of Attorney? Having Medical Directives and Durable Powers of Attorney (for business affairs) are as important as having documents for the disposition of your assets when you pass. Many people fail to contemplate their incapacity and as a consequence create tremendous heartache, costs and conflicts for their families.

Probate and Alternatives

Having a will typically means probate. That's the process where the parts your estate or at least the parts don't get transferred by contract (such as life insurance death benefits and retirement accounts) will be administered and processed through the legal system after you die. Although there are advantages with the probate process, there are also disadvantages. For the average estate, probate can be a complicated and a lengthy process, costs can be onerous, and — as has happened in Jackson's case — there's a lack of privacy.

If you do not want your estate to become a public matter, you may want to consider the use of a revocable trust rather than a will as a key testamentary instrument.

A revocable trust is any trust in which the grantor (i.e., creator of the trust) retains the right to amend, modify or revoke the trust at any time until his or her death or incapacity.

There are many different types of revocable trusts. Contact your financial planner to work with your estate attorney to help you establish an estate plan that fits your — and your children’s — needs.

***
This article was produced by the Financial Planning Association, the membership organization for the financial planning community, and was edited by FPA member Robert S. Jackson, PhD. and Patrick Murfin of Oaktree Capital Corporation.

Saving for College and Retirement--How to Save for Competing Priorities

When it comes to saving for college and saving for retirement, many couples with children sometimes opt to save for the former and not the latter. That's a big mistake.

You need to look at your goals as part of a total picture, instead of taking them sequentially. A financial planning rule of thumb says that while there are safety nets in the form of financial aid for college, there are no loans or financial aid for retirement.

Furthermore, ignoring retirement in favor of your children means missing 18 years — or more if you have multiple children — of retirement savings. That could put you significantly behind the eight-ball when it comes to your life after work.

If you fund your children's education to the exclusion of your retirement, it's likely that you will underfund your retirement so significantly that you will have to "play catch up" big time later on.

Over time money in a retirement plan such as a 401(k) or 403(b) accrues without taxes, allowing this tax deferred pot of cash to grow faster than in a taxable account. If you are among those parents who are funding a 529 plan but not your 401(k), it might be time to shift your priorities.

You don’t have to cut your children off — just don’t put all your eggs into one proverbal basket. If you start early, both savings plans can grow—including the green and yellow basket with your retirement nest egg.

Consult a Registered Investment Advisor (RIA) like Oaktree Capital on how best to balance your savings plans.

***
This article was produced by the Financial Planning Association, the membership organization for the financial planning community, and was edited by FPA member Robert S. Jackson, PhD. and Patrick Murfin of Oaktree Capital Corporation.

Why Women Need to Save More for Retirement

Women remain at a higher risk in retirement than men according to research recently published by the National Institute on Retirement Security (NIRS).

Women, according to the report, Shattering the Retirement Glass Ceiling: Women Need a Three-Legged Stool, need to accumulate more retirement assets than men because they on average live longer. However, acquiring enough assets is more difficult for women because they still have lower wages and less access to retirement plans during their working years as compared to men.

Lower Wages Continue to Haunt Women

Retirement is made secure with a combination of a traditional pension, supplemental 401(k) type individual savings and Social Security. Because of her longer life expectancy a woman with a salary of $50,000 must save $1,000 per year more than her male counterpart to achieve equitable retirement income. That might be hard to do given that full-time female workers made just 76.2 percent of their male counterparts' wages according to figures from 2007, the last year available.

To be fair, both men and women need to save more for retirement, said Financial Planning Association (FPA) board member, Karin Maloney Stifler, of True Wealth Advisors, LLC. Men and women also need to take more responsibility. "Women and men can both choose to make long-term financial security a higher priority," she said.

Women Less Prepared for Retirement

But women are worse off. "Unfortunately, it is a reality that women are less prepared for retirement," warned Senior Vice President Stacy Schaus of PIMCO and Defined Contribution Practice. "We also know elderly women are also far more likely than men to fall below the poverty line."

Deena Katz, an associate professor at Texas Tech University, agrees with the study's results that women are worse off and need to save more. "The demands on a woman's resources post retirement are far more dramatic than a man's," she said. For example, women are the primary caregiver for parents. The average age of widowhood is 56, and over 60 percent of marriages end in divorce.

Women Likely to be Alone Through Much of Later Life

Women need to plan for the probability that they will be alone during their lifetime especially during the last years of life, Maloney Stifler said.

"While is less able to prepare financially for retirement, her need for the resources at retirement are generally more," Katz said. "I'd say forget the three-legged stool and plan on a big sturdy four-legged chair that includes an expectation of needing double the personal savings."

Plan for “Me First”

Women need to take a "me-first" approach when it comes to planning for retirement. "Like pulling down the oxygen mask in a bumpy plane ride and then helping others, women would be well served to look after themselves when it comes to saving for retirement," said Bonnie Hughes, of The Enrichment Group.

Maloney Stifler added that "Many women put their own well being, financial and otherwise, on the back burner while tending to other's needs first….Women need to know that it is not selfish to make self-care a priority. If you do not care for yourself, you have less to give to others. Self care includes investing in skills and careers to remain employable, to save for retirement long-term before paying for the children's "wants" to maintain good health and to boost financial literacy so they can make wise decisions about the money they do have. Being financially secure is part choice and part luck (good or not so good), but it is undoubtedly one of the best gifts we can give to ourselves and to the people we care about most.”

***
This article was produced by the Financial Planning Association, the membership organization for the financial planning community, and was edited by Robert S. Jackson, PhD. and Patrick Murfin of Oaktree Capital Corporation.

DON'T PAY TAXES! — Legally — On Your Tax-Deferred IRA…

…If You Are at Least 70½ Years Old

Here’s How:

This calendar year, a gift distributed from your tax-deferred IRA to your church, your favorite charity, or other non-profit organization will be a tax-free distribution.

You may make such a tax-free charitable gift from your tax-deferred IRA to any eligible charitable, educational, or religious institution only if:


You make the gift before the end of this 2009 calendar year. Congress may extend this benefit, but act now to be on the safe side.

You cause thedistribution check from your IRA administrator to be made payable directly to the eligible institution.

You contribute less than $100,000 per year.

Reap These Benefits

Because of this tax-advantage, you could make your usual gift at lower cost to you, or make a larger gift at the same cost to you.

This charitable gift is subtracted from your Adjusted Gross Income (AGI) and counts toward your Required Minimum Distribution and so it may move you down into a lower tax bracket.

Since this gift is subtracted from your AGI, it does not count toward 50% of your AGI limitation on charitable gifts of cash.

Taxpayers in states that do not allow itemized deductions and follow federal income inclusion rules may realize state as well as Federal tax benefits.

For more information call Robert S, Jackson, PhD, principal of Oaktree Capital Corporation, a Registered Investment Advisor (RIA) at 772 725-8787 to set up a personal consultation, email oaktreecapitalgroup@comcast.net or contact your professional financial or tax advisor.


This article was prepared by Robert S. Jackson, PhD and Patrick Murfin of Oaktree Capital Corporation and may be reproduced with attribution.

Financial Industry Regulatory Reform is on the Way—And We Will be Ready.

This week President Barack Obama unveiled his proposal for the most significant regulatory reform of the banking, investment, and financial industries since the Great Depression. Coming on the heals of a financial meltdown and the near collapse of the banking system even staunch supporters of decades of deregulation and relaxed enforcement have acknowledged that something must be done.

The President’s proposal was neither as sweeping as some critics had called for, nor as restrained as some industry leaders had hoped.

As summarized in the Wall Street Journal the plan includes the following key elements:

Regulation of Financial Firms:

Creates Financial Services Oversight Council, to coordinate activities among regulators, replacing the President's Working Group.

Brings financial firms big enough to pose a risk to the financial system the under Federal Reserve (Fed) regulatory umbrella, including regular stress tests.

Gives the Fed oversight over parent companies and all subsidiaries, including unregulated units and those based overseas.

Brings industrial banks, non-bank financial firms and credit-card banks into a more traditional bank holding company structure subject to federal oversight.

Kills the reputedly weak Office of Thrift Supervision (OTS) and redistributes its regulatory duties over “Thrift” institutions, credit unions, and certain insurance company functions.

Kills the Security and Exchange Commission (SEC) program that supervised investment banks.

Registers hedge funds, private-equity funds and venture-capital funds with the SEC, allowing the agency to collect data from the firms.

Levies new requirements on hedge funds in areas such as record keeping, disclosure and reporting.

Regulation of Financial Markets:

Regulates markets for over-the-counter derivatives and asset-backed securities, strengthens regulation of derivatives dealers, and forces trades to be executed through public counterparties, such as exchanges.

Cedes more power to the Fed over the infrastructure that governs these markets, such as payment and settlement systems.

Calls for more conservative capital requirements and tougher rules on counterparty credit exposure.

Tightens laws to protect unsophisticated parties from trading derivatives inappropriately."

Harmonizes the powers and authority of the SEC and Commodity Futures Trading Commission (CFTC) to avoid conflicting rules relating to the same products.

Consumer and Investment protection:

Establishes the Consumer Financial Protection Agency (CFPA), a new agency with broad authority over consumer-oriented financial products, such as mortgages and credit cards which will coordinate with state regulators.

Defines standards for simple plain vanilla products, such as mortgages, which would have to be offered "prominently" by companies offering such products.

Empowers the CFPA to write rules and levy fines based on a wide range of existing statutes.

Calls for new authority for the Federal Trade Commission (FTC) over the banking sector in areas such as data security.

Beefs up the FTC’s power to regulate unfair, deceptive or abusive practices.

Mandates duties of care that will have to be followed by financial intermediaries, such as stock brokers and financial advisers.

Crisis Management:

Provides authoritive means for the government to take over and unwind large, failing financial institutions.

Outlines a process for deciding when to invoke this power, which could be initiated by the Treasury Department, Fed, FDIC or SEC.

Reserves final authority to make decision to the Treasury, with the backing of other regulators.

Authorizes the Treasury to decide how to fix such failing firms through a conservatorship, receivership or some other method.

Makes the Federal Deposit Insurance Corp. (FDIC) the conservator or receiver, except for broker dealers or securities firms, which the SEC would take over.

Requires prior written approval by the Secretary of the Treasury to exercise the Fed's emergency lending powers.

Meanwhile, Congress has been considering its own plans. Senate Banking Committee Chair Christopher Dodd, for instance, instead of beefing up the Fed’s authority has proposed stripping the central bank of all of its regulatory authority and combining those powers with the regulatory duties of the FDIC in a wholly new consolidated bank regulator.

Powerful business interests, including the U.S. Chamber of Commerce announced opposition to key element’s of the administration plan almost immediately.

Some influential financial gurus, most notably Nobel Prize winning New York Times columnist Paul Krugman argue that the President has made a good start, but has still not come to grips with the underlying causes of the recent crisis.

But whatever the final result will be, change—big change—is coming to the financial industry and how it does business. You can rely on a Registered Investment Advisor (RIA) like Oaktree Capital, to not only keep current with those changes, but to assure you that come what may our clients will get the highest standard of service.

Please feel free to contact me at oaktreecapitalgroup@comcast.net if you have any questions or concerns.

GuideStar Survey Shows Hard Times for Charitable Organizations

GuideStar, which gathers and publicizes information about nonprofit organizations, reported in it May that these are indeed Hard Times for Charitable Organizations.

A survey of GuideStar Newsletter readers representing 2,979 organizations including 501(c)(3) public charities and private foundations conducted on-line between March 2 and March 16, 2009 found that 52 percent of organizations reported a decrease in giving. That figure was significantly higher than the 35 percent who reported lower contributions for January-September 2008, which was nearly double the 19 percent who reported a decline for January-September 2007.

Clearly the economic hard times are squeezing donors. At the same time non-profits are also being hit by losses to endowments and other invested funds as well as cut-backs of government support from all levels and often slowing payments of money due from state and local agencies.

All the while many organizations, particularly those in the social service and health care areas are also facing an explosion of new clients. 59 % of organizations reported increased demand for their services.

31% of grant makers reported having to make decreases in awards.

No wonder that 8% of respondents said that they were in “imminent danger of folding because of financial reasons.”

Non-profits are understandably tightening their belts in these circumstances. While only 35% had yet cut their budgets from the last fiscal year, that figure would have been much higher if demand for services had not also risen rapidly. More are expected to make cuts—deep cuts—in the next budget cycle.

Of those who have already slashed expenditures, GuideStar reports that “57 percent had reduced services, 45 percent had frozen staff salaries, 37 percent had imposed hiring freezes, and 30 percent had resorted to layoffs. Other strategies included salary reduction (20 percent), reduction in employee benefits (20 percent), and reduction in operating hours (13 percent).”

Small and medium size non-profits with slender staff resources are particularly hard hit at times like this.

Oaktree offers both investment and asset management services and management, consulting, and staff support services to these hard pressed organizations.

If you are involved in a non-profit—or care about one—contact us for information on how we can help. Call 773 725-8787 or e-mail oaktreecapitalgroup@comcast.net .

Taking Steps to Safer Investment Decisions

It’s tough to tell how much one investor can do alone to preserve their assets through these tough times, particularly with unprecedented government intervention in world markets. But there are some general ideas to employ as markets and economies hopefully stabilize in the New Year:

Start with a plan – or review an old one

If you’ve worked with a good financial planner, you should be able to articulate your long-term investment goals by yourself. If you can’t discuss such goals in detail, it might be time to meet with a professional financial advisor. Much of the riskiest investing, overbuying and panic selling during the late 1990s and early 2000s could have been avoided if individual investors had sought advice for achieving long-term specific goals such as retirement or a college education.

Check all your assets in banks

As a result of federal economic bailout legislation, the Federal Deposit Insurance Corporation (FDIC) temporarily raised the per-deposit account, per bank coverage level from $100,000 to $250,000 through Dec. 31, 2009. Certain retirement-related accounts carry $250,000 of FDIC coverage, but again, check in with your bank to make sure you’re covered, and if not, get the right advice for moving funds so you don’t incur an unexpected tax liability or fees.

Review your risk tolerance

Having a plan doesn’t mean make the plan and leave it to sit for years. You and your planner should decide when it’s time for a review of your investment goals and your feelings about them. An annual conversation makes sense if nothing’s going on, but when unusual circumstances in life or the markets take place, a phone call might be a good idea.

Prepare to stay invested

Stock downturns are always filled with panic selling – and buying. If your financial plan is sound, be prepared to stay the course, but work with your advisor to make sure you have your priorities covered. While times are tough, it’s wise to examine all your investment choices, but if they make sense, definitely put what you can afford in. You’ll reap rewards when the market returns.

Check your credit

No one knows how long it might take to unravel the nation’s current credit situation. That’s why creditworthy individuals might want to delay looking for new lines of credit until things loosen, and it’s definitely a good time to schedule review of each of your latest credit reports at staggered intervals throughout the next year. Why? Because in tough economies and times of tight credit, identity theft might be on the rise, and you’ll need to make sure the information on your credit data is truly your own.

Pay attention to your cash

You should have an emergency fund of three to six months’ worth of living expenses in case your job situation goes south, but the market turbulence we’ve experienced also highlights the need to be somewhat liquid in your investment positions so you can take advantage of certain opportunities. Not every investment that’s lost value is necessarily a bad investment, and with careful study, you should be able to have cash on reserve so you can capitalize on legitimate opportunities.

Re-budget

It’s a good time to make a budget or re-assess the one you have. Though the federal government would love for consumers to start spending again to lift the economy, that doesn’t mean you have to jump in with both feet. Keep your spending smart, your debt low so it’s easier to set savings and investment priorities that will do you the most good when the economy and the market come back.

Check your retirement

How will the activity in the market affect your retirement timetable? You might want to continue working full-time or plan a phased-in approach as you continue to build assets. There is a great danger now that people may become either too risk-adverse or assume too much risk in planning for their retirement, and that’s why it’s wise to get advice.

***
This article was produced by the Financial Planning Association, the membership organization for the financial planning community, and was edited by Robert S. Jackson, PhD. and Patrick Murfin of Oaktree Capital Corporation.

Look for more great financial articles like this in our Document Library.

Comparing Costs of Investment Advise is Harder Than You Think

These days all of us have to watch our pennies. Whether you are buying gasoline or grand pianos smart consumers comparison shop for price. But when you go shopping for investment advice comparing costs isn’t so easy. It can be like comparing apples to oranges while the oranges are in a burlap bag,

TRADITIONAL STOCK BROKERS

When it comes to investment advice, most people probably think of traditional stock brokers first. Full Service brokers are considered your agent in buying and selling securities. The “bid-ask spread” means that the person buying the security pays a bit more than the person selling that security; the difference goes to the folks who maintain trading systems. In addition, brokers charge fees for each trade, whether buying or selling. There also may be an array of other fees for maintaining your account, even for fully reporting to you the status of investments. His or her income thus rises by maximizing the number of trades he or she performs for you. But the broker might also be paid incentives or commissions for promoting favored securities.

REGISTERED INVESTMENT ADVISORS

A Registered Investment Advisors (RIA) like Oaktree Capital has a fiduciary responsibility only to the client. We accept no commissions on or fees from any of the products or investments they recommend. Our only income is derived from fees for service paid by the customer. That means their only interest is in maximizing the client’s return on investment with in the parameters of that clients risk profile.

ADVISORS AFFILIATED WITH BROKERAGES

In recent years the Securities and Exchange Commission (SEC) has allowed brokerage firms to offer fee-based accounts similar to those offered by RIA’s if they proximately disclose account structures in which commissions or fees are paid to the broker ad the affilaited brokerage company not only by the client, but by the issuers of the product or security. An individual broker working as an agent of a brokerage firm can provide financial advice to clients and, like RIA, charge fees for maintaining and managing an account. And they can also collect fees and commissions from the instruments they are selling. They don’t have to disclose what or how much those other fees and commissions are. Some of these fees and commissions are called tails—fees paid continuously from the securities held by the client. Some are charged to you when you first purchase the product, and some are chraged when you sell. Since the broker doesn't know how long you will hold the security, he doesn't now that is tails will amount to, and when you will be paying a fee on the sale. Consequently, in this type of an account even the agent may not fully be able to tell you what those will be.

Furthermore, since these brokers or agents have no exclusive “fiduciary responsibility” to the client they may also benefit from pushing products that may not be in the client’s best interest. Because they are getting income from two sides of the same transaction, the fees to the customer might, at first glance, appear smaller than those charged by an RIA. But beware of this “bargain.” Because of the broker’s lack of a “fiduciary responsibility” to you, and the consequent presence of under-performing assets in your account, your brokerage-company account may cost you much more than the clearly-identified fees you may to an RIA.

LOOK FOR BROKER DISCLOSURE STATEMENT

How can you distinguish whether you are getting our apples or their oranges? If the person you are working with is functioning fundamentally as an agent of a brokerage company, even if your account with this person is called “fee-based” and so might appear to you to be identical to an account with us, the SEC requires that this agent prominently disclose the following in account applications, advertisements and sales materials:


“Your account is a brokerage account and not an advisory account. Our interests may not always be the same as yours. Please ask us questions to make sure you understand your rights and our obligations to you, including the extent of our obligations to disclose conflicts of interest and to act in your best interest. We are paid both by you and, sometimes, by people who compensate us based on what you buy. Therefore our profits and our salesperson’s compensation may vary by product and over time.”*

Brokerage also may not offer Discretionary accounts, except in accounts regulated as investment advisory accounts or Financial planning services, except in accounts regulated as investment advisory accounts.*

So go ahead, go price shopping. But if you notice that "prominent" disclaimer, ask a lot of questions. You will be glad you did.

Then come back and talk to us. See if our apple doesn’t shine just a little bit more than it did before you had full informantion.

*Cited by TD Ameritrade Institutional in What You Need to Know About Financial Advice, 2006.

Also of interest see the SEC publication
Investment Advisers: What You Need to Know Before Choosing One.

And check out the Oaktree handy Glossary of financial terms.

Financial Information at Your Finger Tips—Introducing the Oaktree Document Library

Immediately below this entry you will find a useful article on consumer credit. It is one of many articles I have edited and adapted provided by the Financial Planning Association (FPA), the membership organization of the financial planning community.

These timely articles cover a wide range of personal financial issues including planning for retirement, planning for your children’s or grandchildren’s education, portfolio management and investment, estate and legacy planning, business ownership, real estate investment, taxes, employment, insurance, and government benefits. I’m sure I left something out. But you get the picture—if there is an issue affecting your financial well being, one or more of these articles will cover it.

From time to time, I will post an article here.

But if you are looking for guidance, you can find many articles in our Document Library on the Oaktree Captial web site. Just visit the library, select articles of interest and use the handy Request for Information Form to request copies. We will e-mail you the requested documents within one business day.

Now scroll down to see the kind of information you can have available!

Consumer Borrowing Now Means Making a Plan

If you’re planning to buy a home or a car in this year, the process is going to be a lot tougher without an excellent credit score and a significant down payment. That means you’re going to have to work harder — and possibly wait a little longer — to make those key purchases.

What’s a good credit score?

According to credit scoring giant Fair Isaac Corp., the best FICO score range as of late 2008 stood at 760-850. That minimum is roughly 20 points higher than it would have been a year ago.

Barring any major federal action to loosen up these markets on the consumer level, these factors make it particularly important to make sure there are no skeletons in your credit closet.

The Federal Reserve Board’s statistics show that outstanding consumer credit has increased from a bit more than $2 trillion in 2003 to $2.5 trillion by the end of the second quarter of 2008, representing a 25 percent increase over five years. These high levels of debt, combined with a global credit crunch, have tightened up lending to all but the best customers — and they’re having trouble too.

If you have extraordinarily high debt levels, a record of late payments or very little money to put down on that home or car, you need to do some advance planning before you contact any lenders.

What you need to incorporate into your planning

Get some advice: You might be focused on paying down debt or saving up your down payment, but credit is only one part of your lifetime financial picture. It might be a good idea to talk with a tax professional or a financial planner to learn how to best use credit. It’s always good to determine what your limits should be.

Pay down the balances you have: Next year, Fair Isaac Corp., the company that created the FICO score, will be adjusting the way it computes its credit scores. One of the top changes will be a greater negative weight on credit utilization — how close you get to the borrowing limit of each of your accounts. The company says that for optimal scoring, each account’s outstanding credit should be no more than 50 percent of the credit line and hopefully less. As you’re paying down your balances, it’s wise to focus on the highest-rate credit cards or loans first.

Set a credit report review schedule: You have the right to get all three of your credit reports — from Experian, TransUnion and Equifax — once a year for free. You can do so by ordering them at www.annualcreditreport.com. Don't order all three of them at the same time, though. By spreading out the dates you receive each of your credit reports, you'll get a continuous view of how your credit picture looks because the three bureaus feed each other the latest information. It's a good way to clean up errors and keep a steady watch for identity theft.

Don’t swallow the bait of all those ads that advertise free credit reports on TV: Most of them will demand a credit card number from you, which means at some point those reports won’t be free. www.annualcreditreport.com is the best place to get reports that are truly free of charge.

Pay on time and pay more than the minimum: If you’ve been late with payments or have stuck only to paying the minimums, it’s time to give that up now. Here’s what you do. To avoid late payments, note the due dates when the bills arrive and then set a date for payment five to seven days ahead so you’ll definitely be able to mail your payment on time. To put more toward the balance, finally do a budget–this will help you identify the non-essential spending you’ve been doing so you can pay your outstanding credit balances faster.

Cut up cards, but don't close the account: Closing accounts — even those that have had zero balances for years — is a bad idea. Lenders want to see a long record of responsible credit management, and longtime accounts that you haven't touched in years may actually help your score because it shows you have some restraint.

No-doc or low-doc loans? Find another way: If you are self-employed or otherwise don’t have a lot of verifiable income, you may have the most trouble getting a loan. While banks and other lenders two years ago might have bent over backwards to lend to people with unverifiable income, that gravy train is over now. If you do get a loan, you’ll pay far more for it than you would have before the credit markets blew up.

***
This article was produced by the Financial Planning Association, the membership organization for the financial planning community, and was edited by Robert S. Jackson, PhD. and Patrick Murfin of Oaktree Capital Corporation.

Gold is an Inflation Hedge--An indepth view of investing in gold stocks

The current world wide economic crisis is quite naturally and necessarily being met by vigorous government stimulus packages like that initiated in the United States by President Barack Obama. Faltering economies are being pumped up by the investment of billions of dollars on infrastructure, research and development, and other government programs. Without such investment the crisis could become catastrophically deeper and longer.

Of course stimulus funds must necessarily be borrowed in the form a rising national debt. When the economy improves, at it will eventually, those debts must be paid off. Some portion can be retired on the strength of rising economic activity. But much will eventually be paid off by expanding the money supply—printing money. The inevitable result is future inflation.

Gold is the traditional hedge against inflation. But owning gold as a commodity is not necessarily the best or most efficient way to use its value as a hedge. Investing in gold mining stocks is another way.

An investor looking ahead and thinking counter-cyclically might choose to add gold stocks to his or her portfolio now in order to reap the benefits later.

Back in the late 1980’s I spent more than a year researching and writing North American Gold Stocks: New Investment Opportunities and Strategies in U.S. and Canadian Gold Mining Stocks. I am proud to say that after all of these years most experts in the field still regard it as the best book on the subject.

Visit the web page of Oaktree Captial Group to peruse the chapter Gold: an Inflation Hedge? from the book.

Let Me Introduce Myself and the Company I Lead

OAKTREE CAPITAL CORPORATION is an Independent, Fee-only, Registered Investment Advisor (RIA.) Although RIAs were authorized by Congress back in 1940, we remain the “new kid on the block” in comparison to the brokerage industry and its many “reps.”


What’s the difference? As the representative of an Independent RIA we represent you and your interests. We do not work on a commission based on the number and value of trades that we exercise on your behalf. Nor do we represent a line of mutual funds or other proprietary products that we need to sell to you. We are free to work with you to determine your personal needs and your own vision for the future, to help you select from a virtually unlimited menu of securities options those that can best make your vision come true.


A Fee-only RIA is compensated solely by a percentage of the dollar-value of the assets being managed, typically 3% to 1% per year. Thus the mounting value of your assets under our management is the key not only to your, but also to our, financial interests. What an incentive!

OAKTREE CAPITAL is a “wealth manager” for the under ultra-wealthy. We provide a high level of service beyond our state-of-the-art investment management. A few of our target service areas are retirement planning, estate planning, tax-effective charitable giving, and services to non-profit agencies and their donors.


As you can imagine, with the increasing complexity of the financial markets, information abounds. Conditions and government regulations change rapidly. We regularly review financial information from a wide range of sources. I hope to use this blog to regularly communicate information that we monitor, create, and select from this vast flow.