This Month:
Prudential Retirement adds guarantees 2 Funds
MassMutual Streamlines Structure of Proprietary Mutual Fund Trustee Boards
The Decade Ahead: The Great De-leveraging
SEC issues risk alert on advisor use of social media
Selengut: IGVS outperforms S&P & Dow
Selengut: Modern portfolio theory assumptions: the root of all evil
Absolute return funds
Selengut: Volatility: Why not sit back and enjoy it?
Caner: Control. Transparency. Stability
Heisman: Charitable Giving

Prudential adds guarantees to

J.P. Morgan SmartRetirement target date strategies

and Fidelity VIP Freedom Funds

Benefits of Prudential's guaranteed income product now available with a new set of target-date fund providers

NEWARK, N.J., - Prudential Retirement is now offering J.P. Morgan SmartRetirement Target Date Strategies and Fidelity VIP (Variable Insurance Product) Freedom Funds in its line-up of target-date funds with a guaranteed lifetime income component. Prudential Retirement is a business unit of Prudential Financial, Inc. (NYSE: PRU).

"These income guarantees combined with the benefits of target-date funds offer investors protection from market downturns and help protect their future retirement income," said Srinivas Reddy, senior vice president of Prudential Retirement's Institutional Income. "We are thrilled to add J.P. Morgan SmartRetirement Target Date Strategies and Fidelity VIP Freedom Funds to an impressive roster of target-date funds that already includes Vanguard and T. Rowe Price."

The target-date funds in the J.P. Morgan Asset Management and Fidelity Investment line-ups adjust their asset mix as investors' approach their target retirement date. Ten years before the target date of the selected fund, the guaranteed minimum withdrawal benefit (GMWB) is automatically activated, guaranteeing a minimum withdrawal amount for the participant's entire life.

"Now is the time to change investment plan design to increase the probability of better outcomes for participants,” said Michael Falcon, Head of Retirement, J.P. Morgan Asset Management. “We believe our partnership between Prudential Retirement and J.P. Morgan SmartRetirement strategies will help move the industry in the right direction in addressing participants’ critical need for lifetime income.”

“We are delighted that Prudential has selected the Fidelity VIP Freedom Funds for its program," said Scott Couto, CFA, president, Fidelity Financial Advisor Solutions. "The quality of our fund family provides a strong foundation for Prudential's guarantees."

Prudential Retirement delivers retirement plan solutions for public, private, and non-profit organizations. Services include state-of-the-art record keeping, administrative services, investment management, comprehensive employee investment education and communications, and trustee services. With over 85 years of retirement experience, Prudential Retirement helps meet the needs of over 3.6 million participants and annuitants. Prudential Retirement has $214.7 billion in retirement account values as of September 30, 2011.

Prudential Financial, Inc. (NYSE: PRU), a financial services leader with approximately $871 billion of assets under management as of September 30, 2011, has operations in the United States, Asia, Europe, and Latin America. Prudential’s diverse and talented employees are committed to helping individual and institutional customers grow and protect their wealth through a variety of products and services, including life insurance, annuities, retirement-related services, mutual funds, investment management, and real estate services. In the U.S., Prudential’s iconic Rock symbol has stood for strength, stability, expertise and innovation for more than a century. For more information, go here.

MassMutual Streamlines Structure

of Proprietary Mutual Fund Trustee Boards

Targeting improved operating efficiencies and lower costs

SPRINGFIELD, Mass. - MassMutual has announced it has combined the two Boards of Trustees that formerly oversaw the company's four proprietary mutual fund families into one Board of Trustees that now oversees all four trusts, the MassMutual Premier Funds, MassMutual Select Funds, MML Series Investment Fund, and MML Series Investment Fund II.

MassMutual enacted the plan following approval by the Funds' shareholders, which was obtained through shareholder solicitations that took place during 2011. Both Boards of Trustees had recommended the action, which became effective January 1, 2012.

"We see a number of benefits from combining the Boards, particularly improved operating efficiencies and lower costs, enhanced governance and oversight through the additional experiences, abilities, and perspectives of the combined Boards, and broader insight into all issues affecting the MassMutual Funds," said Richard Ayers, Chairman of the combined Board. "All of the Trustees worked together to structure the new Board and outline Committee tasks and Trustee assignments."

"Combining the two Boards into one makes financial sense for our Funds' shareholders," agreed Nabil El-Hage, former Chairman of the Board of Trustees of the MassMutual Premier Funds and MML Series Investment Fund II and a current Trustee on the new combined Board. "And in terms of the human element, the two Boards have worked together on a number of matters in the past, so we expect the integration will be seamless."

MassMutual believes the new Board structure will eliminate the need to replace any independent Trustees for the foreseeable future, and thereby eliminate the time and cost that would be required.

Eric Wietsma, president of the MassMutual Premier Funds and MassMutual Select Funds, also concurs. "The combined Board will benefit all of the Funds and shareholders by reducing duplication of certain expenses, management responsibilities, and duties related to having multiple Boards, and by providing the Trustees with more flexibility in hiring and replacing the subadvisers who handle the day-to-day portfolio management of the Funds," said Wietsma.

Current investors in these Funds and members of the public may access prospectuses and summary prospectus pertaining to these mutual funds via www.massmutual.com/productssolutions/productperformance.

Investors should consider an investment option's objectives, risks, fees and expenses carefully before investing. This and other information can be found in the applicable prospectuses or summary prospectuses for the investment options listed, which are available from MassMutual by calling 1-888-309-3539. Please read them carefully before investing.

Principal Underwriter: MML Distributors, LLC, 1295 State Street, Springfield, MA 01111.

The Decade Ahead: The Great De-leveraging

Investment strategies to address global de-leveraging during 'potentially disruptive time'

NEW YORK - UBS Wealth Management Reseaarch, the research division of UBS Wealth Management Americas (WMA), today released The Decade Ahead: The Great De-leveraging, a report identifying de-leveraging as the major theme of the next ten years. Authored by Chief Investment Strategist Mike Ryan and Head of Wealth Management Strategies Tony Roth, the report finds that de-leveraging will likely unfold in a gradual manner, making diversification investment strategies more important than ever.

"We are confident our eight recommended investment and portfolio strategies will help investors better position themselves during this challenging and potentially disruptive time."

The report is part of an ongoing research and white paper client advisory series titled The Decade Ahead which was first published in 2010. The series has been developed with the aim of helping clients better prepare for the decade ending in 2020.

The report argues the de-leveraging cycle is unique to this decade because it simultaneously cuts across three major sectors of the economy Households, Financial Sector and Government- and carries with it the following implications:
- Slow and volatile economic growth may drive the Federal Reserve to tolerate higher inflation as a tool in easing debt burdens.
- Further bank restrictions on credit will inhibit economic activity.
- De-leveraging's exposure of global trade imbalances will promote geopolitical tensions.
- Market returns will be more compressed, indicating equity investors should expect only 'normalized' returns until the de-leveraging process ends, and government bonds will appear riskier.

"Our team has worked diligently to offer a balanced and well-researched perspective on how the de-leveraging process will likely play out through 2020," said Mike Ryan. "We are confident our eight recommended investment and portfolio strategies will help investors better position themselves during this challenging and potentially disruptive time."

UBS Wealth Management Research developed the eight investment and portfolio strategies in partnership with the firm's Portfolio Advisory Group.
To obtain a copy of the report or seek more information, please contact Emma Stradling at Emma.Stradling@ubs.com.

About Wealth Management Research
UBS Wealth Management Research provides objective investment research and guidance to help clients pursue their personal financial goals. WMR analysts and strategists across the globe provide concise, reader-friendly, relevant research to help clients make confident investment decisions. Using a globally consistent approach, we examine a comprehensive range of asset classes while also concentrating on topics, such as social, demographic and geopolitical trends, that have a unique relevance to our private clients. Backed by the resources of one of the world's leading wealth managers, WMR is focused on one goal: to identify the trends and events affecting global and local markets and apply them to the interests and financial objectives of our private clients.

About UBS Wealth Management Americas:
Wealth Management Americas provides advice-based relationships through its financial advisors who deliver a fully integrated set of products and services specifically designed to address the needs of high net worth and ultra high net worth individuals and families. It includes the former Wealth Management US business area as well as the domestic Canadian business and the international business booked in the United State

SEC Office of Compliance Inspections and Examinations

Issues Risk Alert on Investment Adviser Use of Social Media

Advisor use of social media must comply with federal securities laws

by Timothy M. Clark, Heather L. Traeger, Edgar Martinez
of O'Melveny & Myers LLP

The Securities and Exchange Commission's Office of Compliance Inspections and Examinations (OCIE) recently published a national examination risk alert relating to investment adviser use of social media. OCIE noted that registered investment advisors are increasingly using social media to communicate with existing and potential clients, promote services, educate investors, and recruit new employees. OCIE emphasized that advisors' use of social media must comply with federal securities laws, and accordingly, that advisers should adopt and periodically review the effectiveness of policies and procedures regarding social media, paying particular attention to issues relating to third-party content and record keeping responsibilities. OCIE's risk alert is available here.

Effective Compliance Procedures Pursuant to Advisers Act Rule 206(4)-7
OCIE expressed concern that many advisers' compliance procedures are not specifically tailored to social media or do not make clear what standards apply to social media use. OCIE identified a non-exhaustive list of factors that investment advisers should consider when evaluating the effectiveness of their compliance programs with respect to use of social media.

Among others, these factors include:
- Usage Guidelines and Functionality. Providing, for example, an exhaustive list of approved social media networking sites and identifying functionalities that the advisor's representatives and solicitors are prohibited from using based on an analysis of legal risk to clients and potential for breaches of privacy.
- Content Standards and Content Pre-Approval. Providing, for example, clear guidelines with respect to content that contains investment recommendations or information on specific investment services or investment performance, and potentially requiring pre-approval for certain content.
- Monitoring. Implementing policies to monitor adviser and solicitor activity on social media sites, with the frequency of monitoring based on the volume and pace of communications posted on a site and the likelihood of the subject matter discussed to be interpreted as misleading.
Information Security. Reviewing security procedures to ensure protection against elevated risks posed by social media.

Management of Third-Party Content
OCIE explained that the ability of third parties to post content on an advisor's social media site poses special problems with respect to federal securities laws, and highlighted the issue of testimonials. Rule 206(4)-1(a)(1) of the Advisers Act prohibits the publishing or distributing of advertisements that directly or indirectly refer to testimonials concerning an investment adviser. OCIE explained that SEC staff have consistently interpreted testimonials to include a statement of a client's experience with, or endorsement of, an investment adviser. Under such an interpretation, the use of 'social plug-ins' such as the 'like' button could constitute a prohibited testimonial.

Record Keeping Responsibilities
OCIE emphasized that Advisers Act record keeping obligations do not differentiate between various media, and that they apply equally to e-mails, instant messages, and other internet communications relating to an advisor's recommendations or advice. The content of the communication, not its form, is determinative. Accordingly, OCIE recommended that advisers review their document retention policies to ensure that any required records generated by social media communications are retained in compliance with federal securities laws, and that such records remain readily accessible for at least five years.

Registered investment advisers should have a comprehensive set of social media policies and procedures. O'Melveny & Myers LLP is available to assist advisers in developing social media policies and procedures or in reviewing current policies and procedures. Visit here.

Investment Grade Value Stocks outperform S&P 500 and The Dow

Evidenced by the 4-Year, Peak-to-Peak, Financial Crisis Drawdown, and Recovery Numbers

by Steve Selengut
Mr. Selengut, a professional investment portfolio manager, is CEO of Sanco Services, St. John's, SC. He is a contributing editor for LIFE&Health Advisor and the author of 'The Brainwashing of America: The Book Wall Street does not want you to read.' You can contact him at sanserve@aol.com

Both the S & P 500 and DJIA lag the Investment Grade Value Stock Index (IGVSI) and neither has come close to 2007 all time high levels; the IGVSI established new high ground in April 2011. The IGVSI is a barometer of a small but elite sector of the stock market called Investment Grade Value Stocks. Some IGVSs are included in all averages and indices, but even the "blue chip" Dow includes several issues that are well below Investment Grade, very few boast an A+ rating.

IGVSI companies are B+ or better rated by S & P, dividend paying, and historically profitable. See The Charts & Numbers at ValueStockIndex.com.

Comparing Market Cycle Investment Management (MCIM) component Indices with the S & P 500 confirms what you should expect. These quality based measures fall more slowly, don't bend as far, and regain their upward momentum more quickly than the S & P 500,they pretty much have to. But it gets better. Because the MCIM operating system demands buying on weakness (and because all securities produce income), positions are increased and new positions are added while others panic. A true MCIM user would be taking profits during rallies, in preparation for the next inevitable downturn, it's part of the methodology.

Investment Grade Value Stocks and high quality income securities - mostly CEFs - are the primary securities contained in Market Cycle Investment Management (MCIM) Methodology portfolios. Then, using disciplines that encourage profit-taking during rallies, and selective buying during corrections, it should be clear that market value performance just has to do better than brainless (passive, if you will) averages and indices.

Assuming that the average MCIM portfolio has an asset allocation of roughly 50% IGVSI equities and 50% MCMSI income closed end funds, it is clear why these portfolios just blow away all forms of passive (lazy) investment strategies, particularly in volatile market scenarios.

The figures really do speak for themselves, with the MCIMI being the combined IGVSI and WCMSI Indices:

* 9/30/07 - 3/9/09: MCIMI down 41% vs. S&P down 56% and DJIA down 53%; MCIMI drawdown significantly less

* 9/30/07 - 4/30/11: MCMI up 2% vs. S&P down 11% and DJIA down 9% ; MCIMI up, others down an average 10%

* 9/30/07 - 12/31/11: MCIM down 1% vs. S&P down 18% and DJIA down 13%; MCIM near total recovery, others down an average 15%

And, by the way, both the IGVSI and the MCMSI on their own, seriously outperformed both major averages during the same time periods, with the IGVSI establishing new All Time High levels in April, 2011.

* 9/30/07 - 3/9/09: IGVSI down 47% and MCMSI down 35%; 25% better than the (combined) popular averages

* 9/30/07 - 4/30/11: IGVSI up 12% and MCMSI down 8%; 600% better than the averages

* 9/30/07 - 12/31/11: IGVSI up 1% and MCMSI down 4%; 800% better than the averages

Now sit back and imagine how a Market Cycle Investment Management portfolio would have performed during this time frame (and any other true market cycle you can come up with). What if you had bought IGVSI equities and high quality income securities every time the market fell, panicked, or hic-cupped? And then, what if you had the courage to take your profits each and every time they reached a reasonable level on an individual issue basis?

Well that's exactly what happens in a portfolio managed this way, not to mention the added benefit of a consistent and constantly growing monthly cash flow. Embrace the Market Cycle Investment Management Methodology; smile about your investment portfolio way more often. No, it's not as sexy as Modern Portfolio Theory "hocus-pocus", and hardly an intellectual challenge. But unlike MPT, it works. Cycle, after cycle, after cycle...

Prudential completes

a major longevity reinsurance transaction with Deutsche Bank

Broadens international reinsurance business

Prudential Retirement, a business unit of Prudential Financial, Inc. (NYSE: PRU), announced this week the successful completion of a key longevity reinsurance transaction with Deutsche Bank. Under the terms of the transaction, Prudential Retirement will be one of several reinsurers of longevity risk to Deutsche Bank and its client, the Rolls-Royce Pension Fund. Prudential's transaction covers pension liability values of approximately £500 million GBP, over $780 million U.S. dollars.

"We are pleased to complete our first such transaction with Deutsche Bank, a leading global investment bank, and provide reinsurance for its transaction with the Rolls-Royce Pension Fund," said Phil Waldeck, senior vice president and head of Prudential's Pension & Structured Solutions business. "In providing reinsurance for this important transaction, one of the largest longevity risk transfers completed to date, Prudential continues to enhance retirement security through pension de-risking solutions around the world."

"Falling interest rates, market volatility, increasing life expectancy, and accounting and regulatory changes are prompting plan sponsors, around the world, to explore available options to manage their exposure to risk and protect their balance sheets," said Amy Kessler, senior vice president and head of Prudential's Longevity Reinsurance business. "Prudential delivers pension risk transfer solutions that help plan sponsors respond to market turmoil and enhance retirement security for plan participants."

"Our team from across the Corporate & Investment Bank combined structuring expertise with Deutsche Bank's balance sheet strength to deliver a cost effective solution for the Rolls-Royce Pension Fund," said Andrew Reid, Managing Director of European Head of Pensions Origination, Deutsche Bank. "Deutsche Bank is delighted to have worked with Prudential Retirement as a key partner to deliver the solution to the client."

In November, 2011 Prudential Retirement provided reinsurance of longevity risk covering $723 million U.S. dollars of pension liability value for a leading U.K. based pension insurer. This transaction followed Prudential's initial June 2011 longevity reinsurance transaction.

Reinsurance contracts are issued by Prudential Retirement Insurance and Annuity Company (PRIAC), Hartford, CT 06103. PRIAC is not a U.K. Financial Services Authority (FSA) authorized insurer and does not conduct business in the United Kingdom or provide direct insurance to any individual or entity therein. In the transaction with Deutsche Bank, the longevity risk has first been insured by an unaffiliated company prior to PRIACâ€™s reinsurance. Prudential Financial, Inc. of the United States is not affiliated with Prudential plc, which is headquartered in the United Kingdom.

Deutsche Bank is a leading global investment bank with a substantial private client franchise. Its businesses are mutually reinforcing. A leader in Germany and Europe, the bank is continuously growing in North America, Asia and key emerging markets. With more than 100,000 employees in 73 countries, Deutsche Bank offers unparalleled financial services throughout the world. The bank competes to be the leading global provider of financial solutions, creating lasting value for its clients, shareholders, people and the communities in which it operates.

Prudential Retirement delivers retirement plan solutions for public, private, and non-profit organizations. Services include state-of-the-art record keeping, administrative services, investment management, comprehensive employee investment education and communications, and trustee services. With over 85 years of retirement experience, Prudential Retirement helps meet the needs of over 3.6 million participants and annuitants. Prudential Retirement has $214.7 billion in retirement account values as of September 30, 2011.

Prudential Financial, Inc. (NYSE: PRU), a financial services leader with approximately $871 billion of assets under management as of September 30, 2011, has operations in the United States, Asia, Europe, and Latin America. Prudential's diverse and talented employees are committed to helping individual and institutional customers grow and protect their wealth through a variety of products and services, including life insurance, annuities, retirement-related services, mutual funds, investment management, and real estate services. In the U.S., Prudential's iconic Rock symbol has stood for strength, stability, expertise and innovation for more than a century. For more information, please visit here.

Modern Portfolio Theory Assumptions:

The root of all evil

by Steve Selengut
Mr. Selengut, a professional investment portfolio manager, is CEO of Sanco Services, St. John's, SC. He is a contributing editor for LIFE&Health Advisor and the author of 'The Brainwashing of America: The Book Wall Street does not want you to read.' You can contact him at sanserve@aol.com

Rumor has it that a group of economists were sitting around their super-computers one day, smoking a "pot-pourri" of perfect statistics, when they came to the fairly-easy-to-support conclusion that not too many professional investment managers were able to "beat the market averages" consistently.

With the right statistics (and widely accepted assumptions) this was a simple suit of imperial clothing to weave. And with a ready audience on both Wall Street and Main Street (don't you just hate that expression), this conclusion laid the framework for the passive investment mentality that has overrun the markets.

Armed with some pretty impressive theory, the economists "poipetrated" the very first occupation of Wall Street!

We now have more derivative betting mechanisms masquerading as common stocks than we have common stocks themselves --- 'nuff said on volatility. So long as derivative chips are in play, it (high volatility) will run the casino. Clearly, the MPT creators were once Mutual Fund investors, looking for something better after years of disappointing investment returns. True, mutual fund managers rarely beat the markets --- but why? And also true, private, individual, portfolio managers rarely fail to beat the market averages over significant time periods.

Mutual Fund managers were destined to failure on the day that the first "self-directed" retirement/savings plan was created. This transfer of management responsibility to inexperienced "main streeters" spelled disaster from the get-go. At about the same time, market cycle analytics (Peak-to-Peak, Peak-to-Trough, etc) were scrapped in favor of a competitive, calendar year, racetrack scenario. When the going gets tough, professional Mutual Fund managers become sell-order-takers. When bubbles develop, they are "prospectusly" required to join the lemmings in their race up to and over the cliff. Open-end Mutual Funds are managed by the mob, quite literally.

Independent managers (particularly MCIM practitioners and CEF portfolio managers) have no push-pull relationship with the mob. Management rules are applied to economic realities; probabilities being left to statistical Monday morning QBs. Real managers call the shots, taking our profits before the mob panics and selecting bargains while the cyclical rout is in progress.

The Probability Of Winning The Bet On Probabilities
MPT (Modern, lazy if you will, Portfolio Theory) has other erroneous ideologies and assumptions in its DNA. It wants investors to believe that short term growth in portfolio market value is the be all and end all of investing activity, and that the proper alignment of any number of speculations is an acceptable investment strategy.

The creation, development, and growth of a portfolio's income component is systemically ignored and left to chance in the MPT portfolio design process, while an all consuming battle is waged against the simple fact of a rather simple to deal with reality called the market cycle. Economists are just naturally averse to admitting that they can neither predict, nor control, nor cope with market, interest rate, and economic cycles as well as a seasoned professional investor just has to. They observe and study the past --- managers, and actual investors, operate in the present, and deal with an unknowable future using rules and disciplines --- not probabilities.

But MPT promoters, university funded economists, and Wall Street have deeper pockets than small and independent investment professionals. The ability to create all manner of securities (and theories) from thin air is clearly more profitable and less risky (from a law suit perspective) than dealing with the intricacies of individual stocks and bonds. There is no real question about the prospects for market volatility, it is here to stay. The real question is how to deal with it profitably. The most obvious solution is rapid trading for fun and profit, a conclusion that most readers of this article will nod their heads to.

But long term, portfolio development-wise, looking to a more secure retirement or other objective, there is a non-MPT, non short-term-trading solution --- one that embraces both the extremes of volatility and the repetitive (if not predictable) nature of the market cycle. Market Cycle Investment Management, with its core equity trading discipline, and mandated "base income" growth mechanisms, is a proven common sense methodology that no self respecting economist will ever appreciate.

The K.I.S.S. principle is just not as sexy as standard deviations, correlation coefficients, alphas, and betas. But basic investment principles, applied with professional decision-making and risk minimization skills, have fared far-better without MPT mumbo-jumbo than they ever will with it.

And, for the record, market volatility is nothing to be afraid of, really... just bring it on!

Harnessing Stock Market Volatility

It's here to stay, until multi-level and multi-directional derivatives

are relocated to the Las Vegas markets where they belong

If you were to Google "Stock Market Volatility", you would find a wide range of observations, conversations, reports, analyses, recipes, critiques, predictions, alarms, and causal confusion. Books have been written; indices and measuring tools have been created; rationales and conclusions have been proffered. Yet, the volatility remains.

Statisticians, economists, regulators, politicians, and Wall Street gurus have addressed the volatility issue in one manner or another. In fact, each day's gyrations are explained, reported upon, recorded for later expert analysis, and head scratched about.
The only question I continue to have about all this comical hubbub is why don't y'all just relax and enjoy it. Jon Methuen nailed it in his August 15, 2011 parody of the financial world's ridiculous obsession with "volatility". A Reasonable Guide To Stock Market Volatility is a must view, but only for mature adults with a semi-sick sense of humor.

Decades ago, a nameless college Statistics professor brought me out of a semi-comatose state with an observation about statisticians, politicians, and economists. "In the real world", he said, "there are liars, damn liars, and any member of the groups just mentioned". An economist or a politician, armed with a battery of statistics, is an ominous force indeed.
Well, now all the economists and statisticians have high powered computers and the ability to analyze volatility with the same degree of certainty (or is it arrogance) that they have developed with regard to individual-stock risk analysis, economic and geographical sector correlation dynamics, and future prediction in general.

But the volatility (and the uncertainty it either causes or results from, depending upon the expert you listen to) persists.
Modern computers are so powerful, in fact, that economists and statisticians can now calculate the investment prospects of just about anything. So rich in statistics are these masters of probabilities, alphas, betas, correlation coefficients, and standard deviations that the financial world itself has become, mundane, boring, and easy to deal with. Right?
Since they can predict the future with such a high degree of probability, and hedge against any uncertainty with yet another high degree of probability, why then is the financial world in such a chronic state of upheaval? And why-o-why does the volatility, and the uncertainty, remain?

Why the Volatility and Uncertainty Remain
I expect that you are expecting an opinion - yet another opinion - on why the volatility is as pronounced as it seems to be compared with years past. I'll do that next. But, first a sentence or two on "uncertainty" of the playing field of the NFL (National Financial League). An uncertain environment is the only "for real" certainty you will ever experience in investing. Every investment has some form of risk and uncertainty.

Volatility, on the other hand is simply a force of nature, one that you need to embrace and deal with constructively if you are to succeed as an investor. But this new force of nature, this extreme volatility that we have been experiencing recently, has been magnified by the darkest forces of the Dismal Science and the changes that it has encouraged in the way financial professionals view the makeup of the modern investment portfolio.

On the bright side, enhanced market volatility enhances the power of the equity and income security trading disciplines and strategies within the Market Cycle Investment Management (MCIM) methodology, an approach to market reality that embraces market turbulence, and harnesses market volatility for results that leave most professionals either speechless or in denial. But, with no statistical data necessary (or available) to support the following opinion, consider this simplistic rationale for the hyper-volatility of today's stock market.

Volatility is a function of supply and demand for the common stock of a finite number of dirty, evil, greedy, polluting, congress corrupting, job creating, product and service providing, innovation and wealth developing, foundation supporting, gift giving, tax-collecting corporations to finance their growth and development. "Tax collecting" raise an eyebrow? Look at a rental car statement or your next hotel bill. Those greedy corporations collect more money for state and local governments than the income tax collectors, but that is a whole 'nother issue.

Those of us who trade common stocks in general, IGVSI stocks in particular, owe a debt of gratitude to the real volatility creators, the hundreds of thousands of derivative products that bring an entirely speculative kind of indirect supply and demand to the securities markets. Generally speaking, the fundamental, emotional, political, economic, global, environmental, and psychological forces that impact stock market prices have not changed significantly. Short term market movements are just as non-predictable as they have ever been --- they continue to cause the uncertainty you need to deal with using proven risk minimization techniques like asset allocation diversification and trading.

The key change, the new kid on the block, is the impact of derivative betting mechanisms on the finite number of shares available for trading. Every day on the New York Stock Exchange, thousands of stocks are traded, a billion shares change hands. The average share is "held" for mere minutes. On top of derivative trading in real things such as sectors, countries, companies, commodities, and industries, we have a myriad of index betting devices, short-long parlor games, option strategies, etc. What's a simple common share of Exxon to do?

Market volatility is here to stay, at least until multi-level and multi-directional derivatives are relocated to the Las Vegas markets where they belong.

Absolute Return Funds

A strategy to fund healthcare expenses

It is no secret that healthcare expenses will have a compelling impact on the quality of life of all Baby Boomers in retirement, and many believe that costs will eventually swell beyond their control. "The assumption on expenses is accurate; however, a safe and secure investment now can create a reservoir that can be tapped when unforeseen healthcare expenses arise down the road," according to Ron Mastrogiovanni, CEO of HealthView Services and one of the founders of FundQuest.

Unlike traditional mutual funds, a new, innovative investment vehicle called absolute return funds provide investors with steady, stable returns in both bull and bear markets. Given the current instability in global markets, there is ostensibly a demand for a mutual fund designed to limit losses while achieving an intended return over inflation. Established in late 2008, absolute return funds have been structured so that fund managers can strategically migrate from one asset class to another.

Mastrogiovanni offers this example: In a down market, a manager of a conventional equity growth fund must consistently comply with a prospectus that requires the fund manager to maintain a portfolio of equity growth securities. The absolute return fund managers can, in a strategy similar to what hedge fund managers employ, move into any asset class, including domestic fixed income, emerging markets, REITS, and short term commercial paper, all designed to protect principal while achieving a targeted rate of return.

Absolute return funds are now being offered to investors by Eaton Vance, J. P. Morgan Chase, and Putnam Investments, with Putnam currently leading the way. Putnam CEO, Bob Reynolds, has said that: "Putnam has taken an investment concept that has worked for institutional and high net worth investors, and brought it to the retail investor." The fund company currently offers four absolute return fund choices with the clear benefit that they do not target performance based on traditional investment benchmarks, such as the S&P 500. Instead, the objective is to target a return in excess of Treasury bills, with a more conservative product targeting a 1% return over Treasury bills and a more aggressive fund targeting a return of 7% over Treasury bills. Accordingly, the absolute return funds could actually be up in a down market year.

"Absolute return funds are not only attractive core products for Boomers to hold in their portfolios during this volatile market, but viable long-term options to prepare for inevitable out-of-pocket healthcare expenses," says Mastrogiovanni. Ultimately, an absolute return strategy featuring a low correlation to equity and limited downside volatility leads to a consistent return that is critically important to pre-retirees and retirees alike. This innovative approach may provide Boomers with some peace of mind in regards to addressing rising healthcare costs in retirement.

About HealthView Services and Ron Mastrogiovanni
HealthView Services is a software firm specializing in financial planning, retirement planning, retirement income management, and health risk assessment tools and solutions. It is one of the only firms in the country that builds solutions for both the healthcare and financial services industries to address out-of-pocket health care costs that individuals will face during retirement.

Harnessing Stock Market Volatility

Why not just relax and enjoy it?

If you were to Google "Stock Market Volatility", you would find a wide range of observations, conversations, reports, analyses, recipes, critiques, predictions, alarms, and causal confusion. Books have been written; indices and measuring tools have been created; rationales and conclusions have been proffered. Yet, the volatility remains.

Statisticians, economists, regulators, politicians, and Wall Street gurus have addressed the volatility issue in one manner or another. In fact, each day's gyrations are explained, reported upon, recorded for later expert analysis, and head scratched about. The only question I continue to have about all this comical hubbub is why don't y'all just relax and enjoy it. Jon Methuen nailed it in his August 15, 2011 parody of the financial world's ridiculous obsession with "volatility". "A Reasonable Guide To Stock Market Volatility" is a must view --- but only for mature adults with a semi-sick sense of humor.

Decades ago, a nameless college Statistics professor brought me out of a semi-comatose state with an observation about statisticians, politicians, and economists. "In the real world", he said, "there are liars, damn liars, and any member of the groups just mentioned". An economist or a politician, armed with a battery of statistics, is an ominous force indeed. Well, now all the economists and statisticians have high powered computers and the ability to analyze volatility with the same degree of certainty (or is it arrogance) that they have developed with regard to individual-stock risk analysis, economic and geographical sector correlation dynamics, and future prediction in general.

But the volatility (and the uncertainty it either causes or results from, depending upon the expert you listen to) persists. Modern computers are so powerful, in fact, that economists and statisticians can now calculate the investment prospects of just about anything. So rich in statistics are these masters of probabilities, alphas, betas, correlation coefficients, and standard deviations that the financial world itself has become, mundane, boring, and easy to deal with. Right? Since they can predict the future with such a high degree of probability, and hedge against any uncertainty with yet another high degree of probability, why then is the financial world in such a chronic state of upheaval? And why-o-why does the volatility, and the uncertainty, remain?

Why the Volatility and Uncertainty Remain
I expect that you are expecting an opinion, yet another opinion, on why the volatility is as pronounced as it seems to be compared with years past. I'll do that next. But, first a sentence or two on "uncertainty" - the playing field of the NFL (National Financial League). An uncertain environment is the only "for real" certainty you will ever experience in investing. Every investment has some form of risk and uncertainty.

Volatility, on the other hand is simply a force of nature; one that you need to embrace and deal with constructively if you are to succeed as an investor. But this new force of nature, this extreme volatility that we have been experiencing recently, has been magnified by the darkest forces of the Dismal Science and the changes that it has encouraged in the way financial professionals view the makeup of the modern investment portfolio.

On the bright side, enhanced market volatility enhances the power of the equity and income security trading disciplines and strategies within the Market Cycle Investment Management (MCIM) methodology --- an approach to market reality that embraces market turbulence, and harnesses market volatility for results that leave most professionals either speechless or in denial. But, with no statistical data necessary (or available) to support the following opinion, consider this simplistic rationale for the hyper-volatility of today's stock market.

Volatility is a function of supply and demand for the common stock of a finite number of dirty, evil, greedy, polluting, congress corrupting, job creating, product and service providing, innovation and wealth developing, foundation supporting, gift giving, tax-collecting corporations to finance their growth and development. "Tax collecting" raise an eyebrow? Look at a rental car statement or your next hotel bill. Those greedy corporations collect more money for state and local governments than the income tax collectors - but that is a whole 'nother issue.

Those of us who trade common stocks in general, IGVSI stocks in particular, owe a debt of gratitude to the real volatility creators - the hundreds of thousands of derivative products that bring an entirely speculative kind of indirect supply and demand to the securities markets. Generally speaking, the fundamental, emotional, political, economic, global, environmental, and psychological forces that impact stock market prices have not changed significantly.

Short term market movements are just as non-predictable as they have ever been --- they continue to cause the uncertainty you need to deal with using proven risk minimization techniques like asset allocation diversification and trading. The key change, the new kid on the block, is the impact of derivative betting mechanisms on the finite number of shares available for trading. Every day on the New York Stock Exchange, thousands of stocks are traded, a billion shares change hands. The average share is "held" for mere minutes. On top of derivative trading in real things such as sectors, countries, companies, commodities, and industries, we have a myriad of index betting devices, short-long parlor games, option strategies, etc. What's a simple common share of Exxon to do?

Market volatility is here to stay, at least until multi-level and multi-directional derivatives are relocated to the Las Vegas markets where they belong.

Control. Transparency. Stability

Securing long-term financial well-being

By Mark E. Caner, MBA, AEP, ChFC, CLU, CFP
Mr. Caner is president, W&S Financial Group Distributors, Inc.

Three Imperatives to Expect in Your Financial Alliances
Between banks, insurers, credit unions, investment companies, savings and loan associations, mutual fund complexes, brokerage firms and the like, multitudes of financial services providers in the U.S. offer a vast array of investment products. Given so many choices, 'where to begin?' is the first question. Determining which providers to work with for your personal financial needs is quite a challenge.
Some may think it comes down to particulars such as interest rates and product features, all good places to start. As in any relationship, financial or otherwise, it's important to take a closer look. In this case it means scanning the marketplace for companies that embody certain philosophies. To inspire confidence in the management of your hard-earned money, three fundamental qualities stand out as ones a financial services provider should exemplify. Let's examine them.

Control
Maintaining the degree of control over your money and investment decisions that most closely suits you is one of your smartest moves when pursuing your financial strategies.
Investment decisions are only one element of plotting and pursuing your financial course of action. A comprehensive money management approach encompasses maintaining access and control to manage your investments over time and through risks. The world changes, we see it every day. Markets go up and down. Unanticipated events can and do occur. All this can change a person's thinking on what's right for their financial future.
Investments that are inflexible limit your ability to react to evolving needs and shifting financial conditions. Worse yet, investments with contractual provisions that divert you in a different direction from your original choices in effect remove control from your hands. Under such a scenario, you may find your initial plans reoriented in directions you never intended or anticipated.
Selecting products and choosing companies that provide you with your desired degree of control of your financial future is a foundation in maintaining your financial security. After all, if you don’t have control of your money, is it really your money?

Transparency
Many pundits and periodicals make their living loudly rendering judgment on what financial products to purchase or avoid. But for all their specific recommendations and cautions, the real answer is much broader yet quite a bit simpler.
Avoid any financial product you do not understand. Put another way, transparency is imperative for any product a client considers.
Are there financial products in the marketplace right now that ultimately will not live up to expectations - or worse? Sure. But the truth is, any product can be a potential pitfall if you don't understand how it works, how it benefits you, and conversely, how it limits you.
Before you put your money down on any financial decision, ask questions. Then ask more questions. If you don't perform your due diligence, a product that might be a dream solution to others could be a nightmare to you. And vice-versa.
That's also why it is important to work with companies that are transparent in their dealings. Companies that readily furnish you all the information you request and then some, in a clear, concise fashion. Companies that are proud to share their history, affiliations, practices and financials.
A transparent company accepts responding to such queries as a fundamental responsibility of maintaining the confidence of its customers.

Stability
In addition to control and transparency, the third imperative in any financial alliance is stability. A company will have a hard time providing customers a secure financial future unless it has one itself.
Many organizations 'talk a good game' when it comes to strength, security and stability. But are they in a position to back it up?
Financial stability can be judged by internal measures, such as the length of a company's operating history and the adequacy of its capital position. It can also be assessed by external sources, such as high industry and financial ratings.
These factors help demonstrate a company's resolve and resiliency, both now and throughout challenging economic times. They are proof points providing assurance that their contractual commitments can be depended on to provide peace of mind.

Control. Transparency. Stability.
It's been said the problem we face in today's world isn't information overload, rather the problem is filter failure. Our challenge as informed consumers is to identify what matters most.
Trust your judgment in protecting your self-interest. We believe the characteristics of control, transparency and stability provide benchmarks by which to separate a good financial services organization from a great one.
Control, transparency and stability and what they mean for you are far too personal to be judged from a company's advertising or public relations. Business practices, product designs and professional relationships are the difference-makers that become apparent as you take a deeper look at a potential partner in securing the long-term financial well-being of you and your loved ones.

Four Key Risks of Domestic Real Estate Investing

Getting a grip on the myriad 'controllable risks'

While investing in domestic real estate is simple in theory, it is rarely easy in its execution. There is much involved - from banks' stringent requirements and the glut of paperwork to overriding labor, market, and macroeconomic conditions.

Even beyond the predictable hardships associated with due process and protocols of purchasing domestic real estate, there are a myriad of 'controllable risks' that, if ignored, can threaten, undermine, and even devastate an investment at large. This is according to property investing authority and author Terica Kindred, CEO of OutEstate Investments.

Here, Kindred offers 4 key risks every domestic real estate investor must know if they want to overcome the litany of hardships associated with today's real estate investment landscape:

Price perception
Simply put: do not assume that a low price is a good deal. Beyond price, investors should focus on other key facets that determine property value - namely location. When vetting a residential real estate purchase, focus on where it is located, including what subdivision and school district it is in as well as research the overall demographics of those that live there. Find out if the residence is in a rental or multi-owner neighborhood, which is a good indicator of how neighbors will treat your property and theirs relative to curb appeal and otherwise…all, of course, factors that affect the value. Another component is what the residence in question would rent for should you need to go that route as recourse or intention. With some time and effort applied to some simple research for information that is readily available, your price perception may be readjusted to understand whether that low price is actually the good deal that it appeared.

Contracts and paperwork
It is imperative for you or a legal representative to actually read all of the language in any contract or piece of paper you sign, however copious that it may be. There can be terms that are not conducive to property investing, such as 'deed restrictions,' which actually limit the allowable percentage markup on resale. In fact, some stipulate that you cannot sell a house for 120% above what you bought it for during the time period. Rules such as these can be too restrictive for professional home 'flippers.' Deed restrictions ride with the property, so even if the ownership name changes, you can not get around it. Deed restrictions are also problematic due to a three-month waiting period to sell, which makes valuation difficult and creates a painful delay when faced with a rapidly declining market.

Deal structure
How a deal is structured directly impacts the required cash flow. Many make the mistake of calculating equity and translating that into a monthly cash flow, which can make the deal seem better than what reality delivers. Deal structure decisions should also involve property estimating property taxes and related due dates. In this case, your only source of information should be county-driven facts and figures. Whether taxes seem high, low, or in-line, call the county and check to make sure because your scenario may differ from the prior owner’s situation. For example, if the property you are going to be buying is a foreclosure and the person living in it was a senior citizen they may have had a homestead exemption whereby the county allowed a tax reduction. However, as an investor, you are going to pay top-dollar for your property taxes. Other key deal structure considerations are insurance rates, management fees, vacancy rates and repair costs, which all have their own set of intricacies that you must investigate when considering the deal structure of your potential real estate investment.

Exit strategy
In the realm of real estate investing, not having a clearly defined, pre-planned exit strategy even before purchasing a property can be a financial death knell. Knowing you will ultimately re-sell a property at the onset requires that you consider - and actually vet - all viable options and channels suited for the property at hand. While many investors choose to rehab and flip properties themselves, another highly profitable strategy to consider is simply wholesaling it to another investor on an 'as is' basis. This can reduce your financial exposure and liquidity to facilitate future investments.

The bottom line? If you properly vet each and every domestic real estate investing opportunity that may seem like a 'no brainer' at surface level, then you are more likely to increase the viability, profitability and sustainability of your domestic real estate investment portfolio.

Global real estate investing authority Terica Kindred is the Founder and CEO of OutEstate Investments, specializing in helping citizens in the U.S. and from around the world invest in the U.S. real estate market to help stimulate the American economy. Terica has started businesses on five different continents, and she is also an author, speaker, business consultant and investment strategist. Kindred will soon release her newest book, The Next Global Millionaire, offering nine secrets to becoming a successful global investor or entrepreneur.

Visit http://www.tericakindred.comwww.tericakindred.com

Opinion

Welcome to the occupation

The real enemy isn't Corporate America, but a federal government that has over-spent

by Howard Rich
Mr. Rich is the chairman of Americans for Limited Government

According to a recent Pew Research Center study, most Americans are ignoring the Occupy Wall Street movement.
"There is significantly less public interest in the current Occupy Wall Street protests than there was in the Tea Party protests in early 2009, when they were receiving comparable levels of media coverage" the Pew study found.
The study also discovered that roughly equal percentages of Democrats, Republicans and Independents are ignoring the protests - "a sharp contrast with the intense Republican interest in early Tea Party protests in 2009."
But is flipping the channel the appropriate response to these demonstrations? Or, strange as it may seem, should those of us who support constitutionally-limited government be taking a closer look at this 'liberal' movement in search of possible ideological compatriots?

Launched by Adbusters Media Foundation - a group of radical Canadian environmentalists and anti-capitalists - Occupy Wall Street was intended as a left-leaning, special interest-driven operation from the very start. That's why it was so quickly co-opted by labor leaders, Hollywood elites and liberal politicians.
But within this embrace from the 'professional left' is an overlooked acknowledgment of what's really driving these protests.
"I support the message to the establishment, whether it's Wall Street or the political establishment and the rest, that change has to happen," former House Speaker Nancy Pelosi said.

No argument here. But what does Pelosi think prompted this acknowledgement?
"I think they are angry that they don’t have jobs," Pelosi said of the protesters. "There's nothing that makes you angrier than not being able to provide for your family or understand what your prospects are for the future."

These statements are compelling indictments of Barack Obama's failure to bring 'hope and change' to America - as well as the failure of his policies to 'stimulate' the American economy. But they also expose a fundamental disconnect between the individuals who are doing the protesting and those seeking to advance a narrow agenda on their backs. In fact this disconnect is eerily similar to the one that continues to exist between the Tea Party and certain establishment Republicans whose addiction to crony capitalism and obscenely big government resulted in the GOP being routed from power in 2006 and 2008.

In both cases the real enemy isn't 'corporate America,' but rather a federal government that has spent, lent, pledged and printed trillions of dollars to prop up a select group of politically-connected corporate interests while slipping its tentacles deeper into what used to be the free market economy.
In his own meandering and marginally-informed way, Adrian Parsons, one of the Occupy DC protesters, approached this realization in a recent interview with Americans for Limited Government.
"Unfortunately the government and the Supreme Court allowed a lot of the policies that have happened to let corporate government get a raging bull capitalism that’s kind of been in place and has allowed their vote to count for more," Parsons said.

Grammatically challenged as Parson's observation may be, he's fumbling toward an important truth.
After all, it was the federal government that approved $16.1 trillion in emergency loans between Dec. 1, 2007 and July 21, 2010 - money that went to overseas banks ($3.08 trillion), Citigroup ($2.5 trillion), Morgan Stanley ($2.04 trillion), Merill Lynch ($1.9 trillion) and Bank of America ($1.3 trillion), among others. It was also the federal government that awarded a $535 million to now-defunct Solyndra - part of a colossally-failed $93 billion 'green investment' included in Barack Obama's bureaucratic bailout.

It was the federal government that bailed out Detroit, Fannie Mae and Freddie Mac - and it was the federal government that bailed out Wall Street to the tune of $700 billion (prior to 'occupying' it via the draconian Dodd-Frank legislation).
The Occupy Wall Street protesters may not recognize it yet, but they have met the enemy. It's not 'corporate greed,' but rather a government that continues to prop up private sector failure (and individual irresponsibility) at the expense of the American taxpayer.

Read more at NetRightDaily.com

Investor Sentiment Index Declines Sharply In Third Quarter of 2011

- Score slides to +10 from +18 in Q2 2011
- Concern for National debt, unemployment, and the nation's economic strength; not so much inflation
- Contributing to retirement plans still favored by strong majority

BOSTON, October 17, 2011 - John Hancock Financial recently announced the results of its quarterly measure of investors' views on a range of investment choices, life goals and economic outlook. For the third quarter of 2011, the John Hancock Investor Sentiment Index score is +10, a significant drop from the +18 score in the year's second quarter and from the +22 score of the inaugural index in Q1 2011.

The third quarter survey was conducted in mid-August on the heels of the U.S. government's debt ceiling debate and the decision by Standard & Poor's to downgrade the U.S. credit rating. Results of the survey indicate that market volatility and concerns about the impact of the national debt ceiling agreement have made many investors more averse to equities.

In contrast with previous quarters, fewer investors have a positive view of the equity markets, while an increasing share of respondents are more comfortable putting their money into fixed or liquid vehicles such as bonds or cash. Fewer than four out of ten investors surveyed feel they are in a better financial position now than they were two years ago, in the middle of the recession, while the share of investors who feel they are worse off has risen.

Despite the turmoil, investors appear to be sticking to their principles. Most have not made changes to their investment programs even in the face of increasing worries. Virtually all (95 percent) describe themselves as long-term investors, and nearly as many (89 percent) feel they are savings-oriented. A strong majority still believe that now is a good time to be contributing to defined contribution/401(k) plans (66 percent), or to IRAs (67 percent). This is, however, lower than in Q2 when the figures were 80 percent and 79 percent, respectively.

"It seems clear from our survey that investor' concerns have grown with respect to the national debt, the strength of the dollar, and the level of unemployment," said Bill Cheney, Chief Economist for John Hancock. "However, other concerns have lessened, such as worries about oil and gas prices, unrest in the Middle East, and even inflation as fewer people predict inflation rates of four percent or higher. It is interesting to note, too, that despite these concerns, it is clear that people still understand the importance of investing and planning for retirement."

Among the key findings for Q3
- Regarding stocks, just two out of every five investors think that now is a very good or good time to invest in stocks (41 percent) or stock mutual funds (38 percent), compared to Q2 (58 percent and 53 percent, respectively). Balanced mutual funds and ETFs have also lost appeal, dropping from 54 percent in Q2 to 42 percent now for balanced funds, and from 32 percent to 24 percent for ETFs.
- Seventy-three percent in Q3 say they are pessimistic about the long-term future of the American economy. Two-thirds (67 percent) are very concerned about the nation's debt (up from 61 percent in Q2), and half (48 percent) are very concerned about the strength of the dollar, up from 42 percent in Q2 2011. Concern about the level of unemployment also increased to 53 percent, compared to 44 percent in Q2.
- On the other hand, fewer express worry about oil and gas prices (41 percent, down from 62 percent), and concern over unrest in the Middle East (30 percent, down from 40 percent). Inflation worries have moderated, as significantly fewer predict inflation rates of four percent or higher (34 percent in Q1 versus 27 percent in Q3).
- About 37 percent feel they are in a better financial position now than they were two years ago, while the share of respondents who feel worse-off has increased from 19 percent in Q2 to 26 percent in Q3. The future outlook is also more negative, with 12 percent of investors predicting their financial position will worsen in coming years, versus seven percent in Q1 of 2011.
- While the number of investors bullish on real estate investments has notably declined to 50 percent, down from 57 percent in Q2, more than half believe that now is a good time to be putting money into their own homes (54 percent, consistent with Q2's 56 percent).

About the John Hancock Investor Sentiment Survey
John Hancock's Investor Sentiment Survey is a quarterly poll of investors, conducted by independent research firm Mathew Greenwald & Associates. A total of 1,005 investors were surveyed using an online research panel between August 12 and August 22, 2011. To qualify, respondents were required to participate to some extent in their household's financial decision-making process, have a household income of at least $75,000, and assets of $100,000. The data were weighted by age and education to reflect the population of Americans matching the survey's qualification requirements. In a similarly-sized random sample survey, the margin of error would be plus or minus 3.15 percentage points at the 95 percent confidence level. The John Hancock Investor Sentiment Index is based on consumer assessments of whether this is a good time or bad time to put money into six different types of investments.

About John Hancock Financial and Manulife Financial Corporation
John Hancock Financial is a unit of Manulife Financial Corporation, a leading Canadian-based financial services group serving millions of customers in 21 countries and territories worldwide. Operating as Manulife Financial in Canada and in most of Asia, and primarily as John Hancock in the United States, Manulife Financial Corporation offers clients a diverse range of financial protection products and wealth management services through its extensive network of employees, agents and distribution partners. For more than 120 years, clients have looked to Manulife for strong, reliable, trustworthy and forward-thinking solutions for their most significant financial decisions. Funds under management by Manulife Financial and its subsidiaries were Cdn$481 billion (US$498 billion) as of June 30, 2011. Manulife Financial Corporation trades as 'MFC' on the TSX, NYSE and PSE, and under '945' on the SEHK. Manulife Financial may be found on the Internet at www.manulife.com. The John Hancock unit, through its insurance companies, comprises one of the largest life insurers in the United States. John Hancock offers a broad range of financial products and services, including life insurance, fixed and variable annuities, fixed products, mutual funds, 401(k) plans, long-term care insurance, college savings, and other forms of business insurance. Additional information about John Hancock may be found at www.johnhancock.com.

The Main Street Investor Survey

Economic challenges affect investor confidence, but 7 in 10 are still upbeat about U.S. companies,

Findings Released in Conjunction with Investor Confidence Forum

Washington, DC - "Despite continued economic worries, the nation's  individual investors still have confidence in U.S. publicly-traded  companies, according to the Center for Audit Quality's (CAQ) 5th Annual Main Street Investor Survey.

Seven in 10 investors (70%) indicated that they have at least some  confidence in investing in U.S. public companies. While this represents a  decline of five percentage points from 2010, a solid majority of  American investors continue to express confidence in these companies.  The investing public's confidence in U.S. capital markets dropped as  well, but stands at a reasonably solid 61 percent (down from 68 percent  in 2010).

The CAQ has conducted this yearly survey of U.S. investors since 2007.  "We are now in a unique position to track investor sentiment over a  five-year span of time - one marked by challenging economic  circumstances," said CAQ Executive Director Cindy Fornelli. "The fact  that 70 percent of investors still have confidence investing in  publicly-traded companies indicates that investing remains a key  strategy for Americans."

The survey's other findings include:
- Confidence in capital markets outside the United States remains low;  only 43 percent of investors have confidence in markets outside our  borders. In fact, for the first time in the surveyâ€™s history, as many  investors say they are not confident in foreign markets (42%) as say  they are (43%). Investors' main reasons for low confidence in non-U.S.  markets include sovereign debt problems and economic troubles worldwide.
- Confidence in audited financial information remained steady, declining  one percentage point from 2010 (70 percent to 69 percent).
- Public company auditors, along with financial advisors and brokers and  audit committees of publicly-traded companies, top the list of entities  investors believe are looking out for investors' interests.
- The two financial concerns that keep investors up at night are not  having enough money for retirement and not being able to afford health  care if they or a family member are seriously ill or injured.

The telephone survey of 1,003 investors was conducted September  6-14, 2011 by The Glover Park Group. The margin of error is +/-3  percent. Investors were defined as those with investments valued at  $10,000 or more. The survey summary and the complete questionnaire are  available for download.

The Main Street Investor Survey findings are a central focus of The  Atlantic's Investor Confidence Forum, taking place today from 8:00 a.m. - 10:30 a.m. at the Four Seasons Hotel in Washington, D.C. Moderated by  Jim Fallows, National Correspondent for The Atlantic, and underwritten  by the CAQ, the Forum will include interviews and discussions about the  current state of investor confidence.

The webcast of the Investor Confidence Forum can be viewed here .

American Charity

How America's giving history shapes today's giving profile

by Eileen Heisman
Ms. Heisman is president and CEO of National Philanthropic Trust (NPT), one of the nation's largest provider of donor-advised funds.
Visit www.nptust.org

As an advisor, you are deeply involved in key aspects of your client's financial life. As part of this guidance, are you including your clients' philanthropy goals? If not, you may be missing one of the most universal aspects of an American family's financial life.

Your clients likely make charitable contributions - 89% of Americans households do, and on average they give 3.2% of their incomes. As their trusted financial advisor, you are in a perfect position to help them develop a strategic giving plan; one that reflects both their values and their overall financial planning priorities.

Begin with the knowledge that philanthropy is an American phenomenon, dating back to our earliest colonial days. Many aspects of our society have since changed, but it is clear that our sense of community and philanthropy has not. As an advisor, do not underestimate your clients' desire to give, even if you have not broached the subject during your financial discussions. Helping your clients develop a strategic giving plan can give you a better understanding of their overall financial planning and priorities while helping them give effectively.

Looking Back to See What's Ahead
What can the last 100 years of American philanthropy tell you and your clients about the next 100? In a nutshell: America's charitable inclination over the past century has been consistently strong while its expression has evolved with the times. Becoming familiar with trends and recent developments in the charitable sector will underscore your expertise in this important area of financial planning.

For the better part of the 20th century, philanthropists focused on spreading their charitable dollars across the U.S. The onset of the 21st Century brought a global awareness that has inspired people to support causes around the world and new technologies have provided them with new ways to give.

Going Global, Social, Sustainable
Today, global and social giving continue to increase as media and technology help bring our world into focus. High profile challenges like the Billionaire Pledge and the Clinton Global Giving Initiative not only inspire people to give, but also highlight worthy causes and nonprofits at home and abroad. The internet provides immediate access to information about charitable organizations and campaigns. Now, people can also turn social networks to find out what causes their friends are supporting and learn about issues across the globe. They respond immediately- and in astounding numbers- via the internet and smart phones in the wake of natural and other disasters. With the onset of new technology, such as donating by text message, people continue to give generously.

Education and religion still attract the majority of charitable dollars in the U.S. However, social impact programs addressing environmental and international causes are more popular and receive more funding than a generation ago. Philanthropists today are increasingly more interested in sustainable and socially responsible investments. These models seek to create a positive, measurable impact beyond the initial charitable investment.

Much as unsung philanthropic hero Julius Rosenwald, co-founder of Sears, Roebuck and Co., created challenge grants to build schools for African Americans in the early 1900s, philanthropists today are exploring other new models for effecting change. Recent innovations in giving have yielding the rising popularity of microloans, or small loans to local entrepreneurs; 'reward' philanthropy, or awards offered for creative solutions; and embedded giving, or branded products whose full or partial profits are designated for charitable purposes.

No matter how or where Americans donate their money, what has remained constant is that they do donate in great sums. Even when the economy dipped to its lowest in the recent recessionary period, American charity remained at the same 2% of the GDP as it has through the decades- and as we can expect it to continue.Your clients are part of this sustained culture of American giving.

Why Americans Give
The reasons Americans give charitably, and do so at such a consistent level, are as varied as the donors who are making the gifts. There are a few factors of which we're fairly certain, and family influence in giving is key to inspiring the next generation. I know my own parents and grandparents were the strongest influence on my philanthropic values. Many of Americaâ€™s most generous philanthropists also cite their familyâ€™s charitable history as a source for their own giving.

Family values not only guide new generations to give, but also influence the causes or institutions they will support. They also inform the types of giving vehicles they will choose. A discussion about your clients' family values and goals is always an excellent place to start when helping them develop giving strategies. The decisions they make today may well influence how their families give for generations to come.

Developing Strategic Giving Plan
The ability to create effective philanthropic strategies and to help establish a meaningful legacy is critical to the success of your relationship. Leverage your expertise to help clients develop a charitable giving plan that includes their financial, personal and philanthropic goals and that accommodates their- and even their children's- changing interests.

Establish the following key points as you guide clients through the philanthropic planning process
- Charitable giving and investment goals: define your client's goals to create both a framework on which to build a giving plan and against which to measure its success
- Giving budget- assets: determine how much cash and other assets your client would like to set aside for charitable activities
- Family involvement: Ask if your client wants to involve family or to create a legacy to help you determine the best giving vehicles
- Giving vehicle/s: help clients understand the pros and cons of cash grants, matching gifts, private foundations, donor-advised funds, and other vehicles to find the most effective one
- Disaster response giving: almost a plan within a plan, include budget, priorities and types of gifts your client would like to make in response to disaster
- Target gift recipients/organizations: identify the organizations and causes to which your client would like to contribute and remind them that selecting fewer organizations and dedicating funds on a long-term basis will create greater impact
- Success metrics: ensure clients understand the success metrics of their chosen nonprofits as the definition of success and ways to measure impact will vary from organization to organization

Helping clients develop a charitable giving plan is an opportunity for a meaningful discussion that can deepen the advisor-client relationship. The key is to partner an investor-style approach with a charitable strategy that focuses on your client's budget, priorities and measure of impact. Understanding how to sustain their giving can help ensure your clientâ€™s charitable giving legacy. If there is anything to learn from the previous 100 years of giving, itâ€™s that it will certainly continue for the next century and beyondâ€”and you and your clients will want be a part of it.

Visit http://www.networkforgood.org/donate/calculator/

Market swoon, or buying opportunity?

You don't have to just sit on gold and wait it out

This won't take long, but think about the message and act accordingly.

Never, ever, in the investment world has a major correction in the stock market not been a major buying opportunity - particularly in Investment Grade Value Stocks (IGVS).

Always, every time and without exception, the general media has predicted the end of the financial world, financial experts have pointed out the remarkable differences from the last correction, and investors everywhere have been encouraged to take their losses and sit on cash or gold until the smoke clears.

Every time, the short sighted fear mongers have been wrong. Not just most of the time mind you - absolutely all of the time. Similarly, the investing public has always been mesmerized into a take-no-further-action coma by whomever and whatever they listen to.

At the same time, every time, without exception, while the financial markets plummet out of control down the most recent "Double Black Diamond" Wall Street favorite, the few investors who practice Market Cycle Investment Management are collecting IGVSs in their cash rich shopping carts, preparing for the next "Silver Bullet" up the mountain.

Without exception, every time, like sheep being led to slaughter, most investors wait until the market rises within striking distance of old All Time Highs to hop back on the train. The higher it rumbles up the chart's "mountain" formation, the more "all in" their mentality takes them until, once again, the train races back down the mountain to the valley below.

Never, ever, in the investment world has a major rally in the stock market not been a major selling opportunity --- and, interestingly, Investment Grade Value Stocks always seem to lead the way back to the top of the next mountain. Every time except in 1999 - 2001, when there were no IGVSs on the big-rock-candy-mountain the train was climbing.

Always, every time and without exception, the general media has predicted new market highs, financial experts have freight trains full of evidence that this rally will be longer, higher, faster, and more self-sustaining than ever before. Investors everywhere are encouraged to get in the market right now for the ultimate new ride to secure their financial freedom.

And, every time, the media and the financial experts have been wrong. Not just most of the time mind you --- absolutely all of the time. Similarly, the investing public (particularly 401(k) investors) always translates their "paper wealth" into non-refundable retirement entitlements. Always and forever they are "mesmatized" (sic) into a complacent "I'm ready to retire right now with this pile of money --- my money, my entitlement." What could possibly go wrong?

At the same time, every time, without exception, while the financial markets surge out of control in the cable car up to the new summit, the few investors who practice Market Cycle Investment Management are busily reaping reasonable profits, avoiding much-too-high-priced-speculations, growing income, and conserving cash, in preparation for the next giant slalom down the mountain. Schwoosh!

The most glaring recent examples are 1987 - 1988, 2000 - 2001, and 2007 - 2008. Is 2011 - 2012 next? Does it matter? Is this really the one time in the financial history of the planet that there will not be a recovery from a stock market correction? I doubt it, seriously.

... ya follow? Time to get busy.

For more on Market Cycle Investment Management, go here.

EDHEC-Risk Institute research shows benefits of using ETFs

in a dynamic core-satellite investment approach

Appropriate implementation of the Dynamic Core-Satellite approach can boost portfolio returns

In a new study entitled Capturing the Market, Value, or Momentum Premium with Downside Risk Control: Dynamic Allocation Strategies with Exchange-Traded Funds, produced as part of the Amundi ETF research chair on Core-Satellite and ETF Investment, EDHEC-Risk Institute researchers have analysed the performance of risk-controlled dynamic asset allocation strategies and concluded that appropriate implementation of the Dynamic Core-Satellite approach can boost portfolio returns while keeping downside risk under control.

Dynamic risk budgeting methodologies such as Dynamic Core-Satellite strategies are used to provide risk-controlled exposure to different asset classes. There is extensive evidence that investment strategies based on momentum and value are attractive for portfolio managers who seek outperformance. Momentum and value are among the most robust return drivers in the cross section of expected returns. In this study, the EDHEC-Risk researchers examine how to exploit the value and momentum anomalies using a Dynamic Core-Satellite investment model.

The implementation of the portfolio strategies is enabled by exchange-traded funds, which are natural investment vehicles since they offer a broad exposure to the markets and provide the necessary liquidity to the frequent rebalancing of the Dynamic Core-Satellite model.

Momentum and value investment strategies alone could achieve higher returns but are exposed to high extreme risk because they consist of equity portfolios that are concentrated in the sectors with the highest value or momentum exposure. Combining these strategies with the DCS approach, however, dopes portfolio returns and, at the same time, keeps downside risk in check.

Exchange-traded funds on sectors rather than on stocks can be used to put these strategies into effect; ETFs also greatly facilitate the shifts, required by dynamic strategies, from core to satellite.

This study was supported by Amundi ETF as part of the Core-Satellite and ETF Investment research chair.

A copy of the study can be found here:

About EDHEC-Risk Institute
EDHEC-Risk Institute is part of EDHEC Business School, one of Europe's leading business schools and a member of the select group of academic institutions worldwide to have earned the triple crown of international accreditations (AACSB, EQUIS, Association of MBAs). Established in 2001, EDHEC-Risk Institute has become the premier European centre for financial research and its applications to the industry. In partnership with large financial institutions, its team of 66 permanent professors, engineers and support staff implements six research programmes and eleven research chairs focusing on asset allocation and risk management in the traditional and alternative investment universes. The results of the research programmes and chairs are disseminated through the three EDHEC-Risk Institute locations in London, Nice and Singapore.

EDHEC-Risk Institute validates the academic quality of its output through publications in leading scholarly journals, implements a multifaceted communications policy to inform investors and asset managers on state-of-the-art concepts and techniques, and forms business partnerships to launch innovative products. Its executive education arm helps professionals to upgrade their skills with advanced risk and investment management seminars and degree courses, including the EDHEC-Risk Institute PhD in Finance.

Visit EDHEC

About Amundi ETF
With more than 100 ETFs and $9.9 billion in assets under management at 31 July 2011, the Amundi ETF range of products covers the main asset classes (equities, fixed income, money markets, and commodities) and geographical exposures (Europe, US, emerging markets, and world). As one of the pioneers in the ETF market with its first products launched in 2001, Amundi ETF is characterised by its quality products, continuous innovation and its low cost policy. Amundi ETF is a product range managed by Amundi Investment Solutions, part of the Amundi Group. Amundi Group was awarded Best Europe Equity ETF Manager 2010 and Best Fixed Income – Cash (Money Market) ETF Manager 2011 in March 2010 and March 2011 respectively, as voted by the readers of ETF Express.

LIMRA: Since Economic Crisis

Producers Pay More Attention to Insurers' Financial Strength

Though competitive products still the number one criterion

WINDSOR, Conn., Sept. 27, 2011- A new LIMRA study finds that a more than a quarter of producers (26%) consider the financial strength of an insurer one of the two most important factors in 2011, compared to just 16 percent in 2008 and 2003 (when prior surveys were taken).

"While awareness of insurers' financial strength has increased for producers, a competitive product line remains by far the number one consideration for producers when choosing a company with which to place their traditional fixed life insurance business," said Denise Marvel, assistant research director, LIMRA Distribution Research. "Our study also took a close look at how other items affecting the day-to-day business flow influenced producers' opinions."

The study, What Producers Value: From Companies and Independent Intermediaries in 2011, examined the types of service and support provided by insurers that producers said they valued. Overall, training was the number one choice, with 32 percent of producers selecting an aspect of training as most important. Not surprisingly, more producers felt product training was the most critical; fewer chose sales training and one-on-one coaching/mentoring as most important to their success.

Technological support was second - 20 percent of producers identified a technology-based support service as most important. This included things like online access to client records, new business application status and commission reporting, as well as consolidated client statement reporting and electronic submission of new applications. The good news is that 6 in 10 producers felt carriers provided very good or excellent support in these areas.

Other areas of value to producers include point-of-sale support (17%), business development support (16%) and operational support (15%). While these individually don't represent a large portion of producers, collectively, an element within these categories are "most important" to half of all producers surveyed. The dilemma for companies becomes how to correctly allocate limited resources to meet the needs of the producers writing business with them. Companies need to consider their distributors' typical business models and develop ways to determine how that affects their support. This will help them know which programs to develop to meet producer needs.

Another factor that plays an important role in producers’ decisions to do business with companies is the relationship they have with them. LIMRA’s decade-long research in this area consistently shows that beyond satisfying producers’ business needs, companies must still work hard to attract and retain producers. In this study, about half of producers who place business with an independent intermediary, such as a BGA or IMO, said they prefer working with a local firm so they can develop a close personal relationship, allowing them to work with staff face-to-face. For almost one quarter, receiving personal attention and good communication from a local firm is the most important reason. Another 21 percent value the local support and access to knowledge afforded by frequent contact. Having additional resources, being flexible and otherwise being easy to do business with is most important to another 10 percent.

"In short, many things can bring producers and companies together," noted Marvel. "The relationships that develop can determine whether a company will get only one or two cases, or a constant flow of business. Producers value a carrier that they can proudly represent to their clients, and companies value good partners in the field who write quality business."

The Problem with Predictions

Do End of the World Prophecies Cause Real Harm?

2012 Expert Reveals How Myths Can Cause Bankruptcies And Death

As a physics professor, Dr. Christopher Keating knows the world is not going to end any time soon. But that doesn't mean the myth of the apocalypse can't cause harm.

"I hear the argument that predictions made by doomsday prophets like Harold Camping are harmless because the majority of people will ignore them. But, many people ruined themselves financially because of Camping's prediction that the rapture would occur on May 21. In the past, predictions like this have even led people to commit suicide. It's difficult to stand by and watch while people are harmed because of someone like Camping." said Keating, author of Dialogues on 2012: Why the World Will Not End (www.Dialogueson2012.com). "Science and religion have both been misused by fearmongers to promote the idea that the world will come to an end in October, in 2012 or what ever comes next. There is always the next crackpot who thinks he has all of the great answers. I wish there was a way to convince the public that these people are merely putting forth these ideas for their own self-promotion and profit. Just look at Camping. He originally predicted the rapture would occur in 1994 and people believed him. Now, even though he was wrong last time, people mindlessly followed him again!"

The next big prophecy revolves around the ancient Mayan prediction that December 21, 2012 will be the day the world ends. Keating said that date is as erroneous as Camping's flexible timetable.

"Claims about December 21, 2012 are fiction with no scientific evidence or validity," Keating said. "The world will still be here on December 22, 2012. The basis of the 2012 prediction comes from the ‘Mayan’ calendar, but that calendar is not even Mayan. It was developed more than a thousand years before the rise of the Mayan civilization and was already well-established before the Maya ever appeared on the scene."

Moreover, Keating pointed out that the Mayans weren't necessarily the most qualified people to make any kind of enlightened predictions. While the mystery of the Maya civilization's demise is intriguing, the Maya were not the advanced civilization that some are claiming.

"The Maya did not have any special powers or knowledge that would allow them to make any such prediction," Keating said. "They were not an enlightened civilization. They engaged in terrible violence, including horrific animal and human sacrifices, frequently preceded by torture. The bodies of the victims were thrown into the source of their drinking water. The common people would bury their dead under the floors of their homes. They didn't even have the wheel. How is it that this culture is supposed to have been so intelligent they were able to predict the end of the world?"

The difference between the latest Camping debacle and the 2012 predictions is that Keating believes the 2012 doomsayers are twisting science to support their wild claims.

"Camping used these bizarre numerology arguments to get his end date. 2012 people are using false arguments and bad science. As an example, recent news coverage concerning Comet Elenin has all the 2012 theorists in a tizzy," he added. "Comet Elenin is a small comet that is currently over twice as far from Earth as the Sun, but some believers in the prophecy are claiming it will be responsible for earthquakes and a shift of the Earth's axis. Basically, people just need to use a little common sense when they hear these stories about the end of the world. If people would do just a little research on their own we could quickly put the fearmongers out of business and prevent a lot of harm. It would be great if science received as much attention from the public as these false predictions."

About Dr. Christopher Keating
Dr. Christopher Keating is a professor of physics with 20 years experience conducting research in space physics with several published scientific papers. His experience as a teacher includes nearly all topics in undergraduate physics, space science and astronomy. He has also served for over 30 years in the United States Navy and Navy Reserve working principally as an analyst in naval intelligence.

The American College Expresses Concern

to Congress on Oversight Proposal

Lower and middle income investors

would be adversely impacted by a fiduciary standard for broker-dealers.

BRYN MAWR, PA - September 13, 2011 - The American College, the nation's leading educator of financial services professionals submitted written testimony today to the House Financial Services Committee's Subcommittee on Capital Markets and Government Sponsored Enterprises on new proposals governing broker-dealers and investment advisors.

"We are concerned that proposals from the Securities and Exchange Commission (SEC) to extend a fiduciary standard of care to broker-dealers will backfire and ultimately harm the consumer who has already suffered due to market volatility," said Larry Barton, Ph.D., CAP, President and CEO of The American College. "While well intentioned, the practical result of the change could be to limit the choices smaller investors have, resulting in higher costs and restricted access to valuable products and services."

The College, a non-profit educational institution devoted to the study of financial services, expressed its concerns that an insufficient analysis has been done on the costs associated with expanding the fiduciary standard to broker dealers and the subsequent impact on delivering financial products to clients. The SEC staff study failed to determine how this approach will impact investors.

A typical financial plan, written by a fee-only planner now exceeds $2,500. "How many families can afford to write an after-tax check for $2,500 just for a plan? And that's before any annuity, insurance or mutual fund is purchased," notes Barton.

The Department of Labor (DOL) is pursuing changes as well that could significantly impact consumer access to advice for IRA investments.

"The SEC and the DOL must have persuasive answers to two key questions before they act," Barton continued. "First they need to know what consumer harm is being done under the current standards of care that will be ameliorated by broader application of a fiduciary duty; and second they need to understand what will the ultimate cost will be to consumers in terms of expense, product limitations, or reduced access to advice."

In the letter submitted to the House Subcommittee The College expressed the following concern: Our fear is that the SEC's suggested standard-of-care adjustments and the related compliance complexity and costs will drive broker-dealers to target higher-income markets, focusing on clients who are the most economically viable under the new model to the exclusion of lower- and middle-income investors. The SEC should be responsible for demonstrating convincingly why this will not be the case prior to taking any action to broaden applicability of the fiduciary standard.

The College suggests that unless and until the SEC can clearly demonstrate what harm is being done under the current broker-dealer approach and fully articulate the costs of abandoning an option consumers clearly value, the fiduciary standard should not be expanded. A more productive reform, according to The College, would be to focus on the frequency and rigor of investment advisor examinations, an area of Subcommittee focus for today’s hearings. More closely harmonizing enforcement between broker-dealers and investment advisors could significantly heighten consumer protections.

The American College is the nation's largest non-profit educational institution devoted to financial services. Holding the highest level of academic accreditation, The College has served as a valued business partner to banks, brokerage firms, insurance companies and others for over 84 years. The American College's faculty represents some of the financial services industry's foremost thought leaders. For more information, visit TheAmericanCollege.edu

RIAs and Fee-Based Advisors Say Alternative Investments

and Tactical Management Key to Navigating Current Market

Survey shows clear majority of advisors focused on monitoring markets, managing client's assets and ensuring retirement readiness

New York, NY and Louisville, KY - September 7, 2011- Financial advisors continue grappling with record drops in leading indexes and unprecedented spikes in volatility, and they see the increasing use of alternative investments and tactical asset management as key to navigating the current market, according to a survey conducted recently by Jefferson National. More than 500 responses were recorded, and a significant percentage of the advisors surveyed - roughly 2 to 1- have increased their use of alternative investments, while an even greater number- roughly 3 to 1 - believe tactical management can outperform a passive approach over the long term.

"In recent weeks, we've seen the Dow and the S&P drop more than 10% off this year's peaks, and advisors are preparing for the reality of ongoing volatility," said Laurence Greenberg, president of Jefferson National. "While the fundamentals of good investing won't change - establish a goal, create a plan, follow a disciplined approach, and don't overreact- our survey indicates that in today’s turbulent market advisors are employing alternative assets to provide advantages such as increased diversification, and they are more confident in the disciplined use of Tactical Asset Management rather than relying only on traditional Buy-and-Hold.”

Detailed findings from Jefferson National's most recent survey include:

Alternatives on the Rise
In the turbulent wake of the Crash of 2008, more than two-thirds of advisors, or 68%, have increased their use of alternative investments, with 22% saying their use has 'Increased Substantially' over the past 5 years. Going forward, 67% of advisors see their allocation to alternative investments continuing to increase, with 11.1% saying it will 'Increase Substantially' over the next 5 years. Of note, nearly two-thirds of advisors, or 61.5%, also believe that alternatives will become even more important than traditional investments in the future.

There are clear trends driving advisor's use of alternative investments. When asked for what purposes they have used alternative investments in the past,'Addressing Portfolio Correlations' ranked most important, selected by 61.3% of advisors, demonstrating a growing concern for the increasingly strong correlation between leading market indexes and many traditional asset classes.

Next in importance was 'Filling Portfolio Allocations,' selected by 52% of advisors and 'Absolute Returns' selected by 48.6%, demonstrating that alternatives are now considered critical for true diversification and essential for producing a positive return regardless of the direction and fluctuations of the markets.

Another highly popular solution for achieving greater diversification is tapping into international markets. Roughly three-fourths of advisors surveyed, or 74.2%, have 10% or more of their clients' portfolios allocated to global or international securities. Likewise, roughly three-fourths, or 74.2%, have examined the use of high yielding/high dividend global equity securities in their clients' portfolios.

The survey also revealed areas of opportunity. It demonstrated a clear need for more support and ongoing education relating to alternative investments. When asked about clients' willingness to invest in alternative investments, the ranks are almost evenly divided, with 48.7% of advisors indicating that clients are willing to invest in alternatives, and 51.3% saying clients are hesitant. Digging deeper, advisors say that clients' reluctance is largely attributed to 'Lack of understanding' according to 82.2% of advisors in the survey, and 'Lack of liquidity' a distant second reported by 50.4%.

More Confidence in Tactical Solutions
Compared to a survey conducted last year by Jefferson National, a growing number of advisors are showing increasing confidence in tactical solutions. In this most recent survey, more than three-fourths of advisors, or 75.5%, believe that active portfolio managers can outperform an index over the long term. This compares with a survey from 2010, where 63% of advisors surveyed by Jefferson National were more likely to employ a tactical management strategy and 66% said clients were more confident with Tactical Asset Management strategy.

When asked how they judge a portfolio manager's skill, roughly half, or 49.5%, indicated that past performance was the preferred indicator, while 28.3% indicated that Alpha was the preferred indicator.

Monitoring Interest Rates and Inflation
Advisors are focused on monitoring the markets. When asked to share their outlook for interest rates and inflation, advisors were evenly divided. Just under half of advisors, or 49.1%, believe interest rates and inflation will remain at current levels for the foreseeable future, while 47.6% believe interest rates and inflation will rise. Only 3.3% believe that interest rates and inflation will decrease.

More than two-thirds of advisors, or 67.4%, have examined the performance of Commodities, TIPs and REITs in the context of return versus volatility over the last 5-year market cycle. Commodities are the clear solution of choice for nearly two-thirds, or 64.0% of advisors, when protecting client's portfolios against an inflationary or deflationary environment. TIPs rank second used by more than half, or55.4% of advisors, and REITS rank a close third, used by 53.7% of advisors. Meanwhile, only 16% had considered Infrastructure-Related Investments, when choosing solutions for inflationary or deflationary environments.

Ensuring Retirement Readiness
In today's tough markets, advisors say that retirement readiness remains vital. Of advisors polled in the survey, 93.6% said it is important for them to have tools and resources in their practice to assess clients' retirement readiness. A full 94% placed the highest importance on those tools that can identify specific areas where clients need additional support, such as generating more income.

About this Survey
More than 500 responses from participating advisors were collected online at www.jeffnat.com on August 23, 2011, as part of Jefferson National’s series of ongoing surveys addressing the issues that RIAs and fee-based advisors care about most.

About Jefferson National
Jefferson National is a leading innovator offering products and services for RIAs and fee-based advisors and the clients they serve. Jefferson National is acclaimed for launching Monument Advisor, the industry’s first and only flat-insurance fee variable annuity, and was recently recognized as the DMA '2010 Financial Services Company of the Year.' Utilizing a flexible technology platform, highly efficient operations, and cost-effective servicing capabilities, Jefferson National serves more than 50,000 customers nationwide. The company is domiciled in Dallas, Texas with authority in 49 states and the District of Columbia. To reach our advisor support desk, please call 1-866-WHY-FLAT (1-866-949-3528). To learn more, please visit www.jeffnat.com

Managed Closed End Funds - Solid Income Investments in Liquid Form

Eliminating all the drawbacks of conventional mutual funds

A Closed End Fund (CEF) is a publicly traded investment company that invests in a variety of securities such as stocks, bonds, preferred stocks, real estate, mortgages, oil and gas royalties, etc. The variety of sectors, classifications, and geographical representation is every bit as confusing as it is with traditional funds, but the advantages are easy to understand. Capital is raised by an Investment Company through an initial public offering (IPO) of common stock and the proceeds are invested according to the investment objectives of the fund. Like a traditional (open end) mutual fund, a Closed End Fund has a board of directors, appoints an investment advisor and employs a portfolio manager.

Unlike conventional mutual funds, CEFs do not issue and redeem shares directly with investors at net asset value. CEFs are listed on national securities exchanges, where shares of the Investment Company are purchased and sold in transactions with other investors, just like individual company stocks, and most often not at net asset value. Many Brokerage Firm Statements will list these securities as Equities or Mutual Funds, not quite in sync with the purpose or nature of the securities contained within. You should keep this in mind when you analyze the asset allocation of your portfolio and adjust accordingly.

Although the number of outstanding shares of a CEF remain relatively constant, additional shares can be created through secondary offerings, rights offerings, and/or the issuance of shares for dividend reinvestment. Existing owners always get the first shot at new shares, in proportion to their holdings, so they can choose to protect themselves from any dilution of interest. Again, vastly different from traditional mutual funds, where dilution is the very nature of the fund.

Many of the advantages of Closed End Funds are discussed below. It should be abundantly clear that this form of investment fund has eliminated nearly all of the drawbacks of conventional mutual funds. The two have very little in common. Trading Liquidity - Flexibility - Cost: Closed End Fund shares may be bought or sold at any time during the trading day, just like common stocks, and share prices will fluctuate. They are excellent start up investment vehicles for smaller accounts where diversification would otherwise be difficult to achieve. There are no penalties for leaving the CEF when the stock is sold. The only direct cost involved is the commission paid when buying or selling the shares.

Leverage IS an Advantage
Closed End Fund managements borrow money by issuing Preferred Stock in an effort to increase the productivity of the investment portfolio. As long as the short-term interest rates paid to the lenders and the dividends paid to preferred shareholders are lower than the net long-term rates earned by the portfolio, the common shareholders of the fund will earn higher rates that they would have without the leverage. Rising interest rates aren't nearly as scary as critics would like you to believe. The manager can reduce the leverage, and new investments are made at higher yields. Leverage is not a four letter word. All debt is a from of leverage and, without it, you would probably be peddling to work instead of driving that Mercedes.

Efficient Portfolio Management
Unlike open-end mutual funds, the asset base for CEFs is relatively stable. Without the pressure of constantly investing or redeeming securities based on investor demands, CEF managers are in charge of the fund and use their own experienced judgment to make investment decisions --- uninfluenced by the fear and greed of "the mob".

Fund Expenses
Due to minimal marketing expenses and typically lower turnover, CEFs have lower operating costs than traditional mutual funds. (Closed End Funds rarely advertise and don't pay distributors.) They trade like Common Stocks, with the normal variable expenses that trading involves. CEFs do not impose annual 12b-1 fees, as mutual funds do, BUT they probably do pay the fund manager too much money. Still, if my Closed End Muni Bond fund is generating 6%, in monthly installments, she's earning it!

No Minimums
Because Closed End Funds trade on secondary markets like other common stocks, there is no minimum purchase or sale requirement. Investors may purchase or sell as little as they like. And don't expect to receive a prospectus --- yet another benefit since such documents are written in unintelligible legalese anyway.

Distributions
CEFs make distributions according to a prescribed schedule, which allows investors to plan the timing of their cash flow. The actual amount of the distributions may vary with fund performance, interest rates, and general market conditions. Still, a stable monthly cash flow is easier to create with CEFs than with individual bonds, mortgages, and preferred stocks --- and they are significantly less risky. Many funds make their Capital Gains Distributions early in the year following the actual transactions. This may cause some inconvenience for accountants, but think of the potential for income increasing management strategies! [Remember, it's your accountant's job to make you happy...not vice versa.]

Investment Risk
All true investments involve similar types of risk. Closed End Funds involve the same risks as common stocks: prices do fluctuate; management skills vary from company to company; markets rise and fall; interest rates change. The rules of Investing (Quality, Diversification, and Income) and of Management (Planning, Organizing, Controlling, Decision Making) always apply. CEFs are not miracle drugs, just another means to the end of creating a more manageable, safer, and more productive portfolio. They are the income security of choice used within the Market Cycle Investment Management Methodology.

Chill economic winds ahead, advisors say

Financial advisors, normally an optimistic lot, are growing increasingly gloomy about the economy

by Dan Jamieson - posted at Investment News September 4, 2011 6:01 am ET

Negative headlines - ranging from the embarrassing debt ceiling debate and the U.S. credit rating downgrade to the wobbly economy and a volatile stock market - have taken a toll on adviser sentiment. One measure, the Rydex SGI Adviser Confidence Index, fell in August to its lowest point in the past 12 months. The monthly survey captures the mood of 150 independent registered investment advisors. Advisors are especially grim about the economy, according to the survey results. Fear of another recession helped push the 'current economic outlook' component of the index down 12 percentage points from the previous month, Rydex SGI said.

"You can flip a coin as to whether we are in another recession right now,' said Bill Ramsay, president of Financial Symmetry Inc., which manages $120 million. Gross domestic product growth in the first half was less than 1%, he noted. Mr. Ramsay thinks that it will be two to four years before the United States sees a solid recovery, which will have to be driven by a rebound in housing construction.

The latest GDP revisions indicate continued tough sledding. In late July, a sharp revision downward of first-quarter and earlier GDP data set back the recovery by three quarters, said Ward McCarthy, chief financial economist at Jefferies & Co. Inc. Add in the credit downgrade and the August market collapse, and confidence is shot, he said. "We know from history that a decline of confidence causes deceleration in economic activity," Mr. McCarthy said. "Now we're waiting to see the magnitude."

The latest Conference Board Consumer Confidence Index plummeted to 44.5, from 59.2 in July. That index is now at its lowest level since April 2009. "Gold is a proxy for consumer sentiment, and look what it's been doing," said Michael Dubis, founder of Michael A. Dubis Financial Planning LLC. Sentiment among economists isn't any better. A survey of economic forecasters by The Associated Press in August put the odds of another recession at 26%, up from 15% in June.

To top off the bad news, Pacific Investment Management Co. LLC founder Bill Gross told the Financial Times recently that Pimco's 'new normal' thesis, which predicts a prolonged slow-growth period, might have to be renamed 'new normal minus.'

Will Hepburn, founder of Hepburn Capital Management LLC, which manages $32 million, thinks that most advisers still are overly rosy with their outlooks. The United States is in a full deflationary spiral caused by a credit contraction, similar to the period from 1929 to 1948, he said. "I don't think most advisers grasp how deflation works," Mr. Hepburn said. "They dismiss its importance and the pernicious effects it has on industry and, therefore, investments."

Other advisers, though, aren't quite that negative. "I don't think it's as bad as some parties make it sound," Mr. Dubis said.

No matter where they stand on the issue, advisers are seeing clients affected by the anemic recovery. "Some clients, from doctors to small-business owners, are feeling the pinch," Mr. Dubis said. "Most of my clients have anxiety about the economy, for sure." At the same time, clients' investment expectations have come down, said Christopher Lamb, a principal of Old Mission Investment Co. LLC, which manages $340 million. "They're more comfortable with a 6% or 7% balanced portfolio" that meets their needs, rather than worry about how they do relative to the market, said Mr. Lamb, who also thinks that conditions aren't as bad as media reports make out.

Still, with a rebound rally under way, some investors "feel that this is a significant opportunity to lighten up, given what happened in 2007 and 2008," he said. "If I talk to them about raising cash, they're not fighting," Mr. Lamb said.

Email Dan Jamieson at djamieson@investmentnews.com

Where are you getting your investment energy?

The Market Cycle Investment Management Methodology (MCIM)

Steve Selengut
Mr. Selengut, a professional investment portfolio manager, is CEO of Sanco Services, St. John's, SC. He is a contributing editor for LIFE&Health Advisor and the author of 'The Brainwashing of America: The Book Wall Street does not want you to read.' You can contact him at sanserve@aol.com

Most investors, and many investment professionals, choose their securities, run their portfolios, and base their decisions on the emotional energy they pick up on the Internet, in media sound bytes, and through the product offerings of Wall Street institutional boiler rooms. They move cyclically from fear to greed and back again, most often gyrating in precisely the wrong direction, at or near precisely the wrong time.

The MCIM methodology combines risk minimization, asset allocation, equity trading, investment grade value stock investing, and base income generation in an environment whose time frame recognizes and embraces the reality of cycles. It attempts to take advantage of widespread "fear and greed" decision-making by others, by using a disciplined, patient, and common sense methodology.

This methodology embraces the cyclical nature of markets, interest rates, and economies - and the political, social, and natural events that can trigger changes in cyclical direction. Little weight is given either to the short-term movement of indices and averages, or to the idea that the calendar year is the playing field for the investment "game".

Interestingly, the cycles themselves seem to concur with the irrelevance of calendar year analysis, and it makes little sense at all to think of investing as a competitive event. What index or average comes even close in content to your unique portfolio of securities?
The MCIM methodology is not a market timing device in any sense of the word, but its disciplines will force managers to add equities to portfolios more during corrections and to take profits enthusiastically during rallies. As a natural (and planned) effect, portfolio "smart cash" levels will increase during upward cycles, and decrease as buying opportunities increase during downward cycles.

Absolutely no attempt is made to pick bottoms or tops, and strict rules apply to both buying and selling disciplines.
Managing an MCIM portfolio requires disciplined attention to rules that are designed to minimize the risks of investing. Stocks are selected from a small, easy to manage, universe of Investment Grade Value Stocks. The companies are mostly large capitalization, multi-national, profitable, dividend paying, NYSE companies.

Income securities are, for the most part, actively managed, closed-end funds, investing in corporate and government fixed income securities, income paying real estate, energy royalties, tax exempt securities, etc. Multi level, and speculation heavy funds are avoided, and most will have long term distribution histories.

No open end Mutual Funds, index derivatives, hedge funds, or futures betting mechanisms are allowed inside any MCIM portfolio.
All securities must generate some form of regular income to qualify for inclusion in portfolios, and no security is ever permitted to become too large of a holding. Diversification is a major concern on an industry, or sector, level, but global diversication is a given with IGVSI companies.

Risk Minimization, The Essence of Market Cycle Investment Management
Risk is compounded by ignorance, multiplied by gimmickry, and exacerbated by emotion. It is halved with education, ameliorated with cost-based asset allocation, and managed with disciplined: selection quality, diversification, and income rules - The QDI.
Risk minimization requires the identification of what's inside a portfolio. Risk control requires decision-making by the owner of the investment assets. Risk management requires a selection process from a universe of securities that meet a known set of qualitative standards.

The Market Cycle Investment Management methodology helps to minimize your financial risk in several ways:

It creates an intellectual "fire wall" that precludes you from investing in excessively speculative products and processes.
It focuses your decision making with clear rules for security selection, purchase price criteria, and profit-taking guidelines.
Its cost based, Working Capital Model asset allocation operating system, assures you of constantly monitoring asset allocation while increasing your base income.
It helps assure that poor diversification will not creep into your portfolio and that unproductive assets will be eliminated in a rational manner.

Read "The Brainwashing of the American Investor" for more details. Go here.

Making A Volatile Stock Market Your VBF (very best friend)

It's what most people fear, and what Wall Street wants them to fear

by Steve Selengut
Mr. Selengut, a professional investment portfolio manager, is CEO of Sanco Services, St. John's, SC. He is a contributing editor for LIFE&Health Advisor and the author of 'The Brainwashing of America: The Book Wall Street does not want you to read.' You can contact him at sanserve@aol.com

Most people never forget their first love. I'll never forget my first trading profit - but the 600 1970 dollars I pocketed on Royal Dutch Petroleum was not nearly as significant as the conceptual realization it signaled.

I was amazed that someone would pay me that much more for my stock than the newspaper said it was worth just weeks ago. What had changed? What had happened to make the stock go up, and why had it been down in the first place? Without ever needing to know the answers, I've been trading RDSA for over 40 years!

Looking at scores of similarly profitable, high quality companies in this manner, you would find that: 1) most move up and down regularly (if not predictably) with an upward long-term bias, and 2) that there is little if any similarity in the timing of the movements between the stocks themselves.
This is the "volatility" that most people fear and that Wall Street loves them to fear. It can be narrowly confined to certain sectors, or much broader, encompassing practically everything. The broader it becomes, the more likely it is to be categorized as either a rally or a correction.

Most years will feature one or two of each. This is the natural condition of things in the stock market, Mother Nature, Inc. if you will. Don't take her for granted when she gets high, and never ignore her when she feels low. Embrace her volatile moods, work with them in whatever direction they travel, and she will become your love as well.

Ironically, it is this natural volatility (caused by hundreds of variables human, economic, political, natural, etc.) that is the only real "certainty" existent in the financial markets. And, as absurd as this may sound until you experience the reality of it all, it is this one and only certainty that makes Mutual Funds in general (and Index Funds in particular) totally unsuitable as investment vehicles for anyone within seven to ten years of retirement!

How many Mutual Fund investors have retired recently with more liquid financial assets than they had 12 years ago, way back in 1999? There will always be rallies and corrections. In fact, it is worthwhile to "go back to the future" to establish a realistic long term investment strategy.

In the last forty years, there have been no less than ten 20% or greater corrections followed by rallies that brought the market to significantly higher levels. The DJIA peaked at 2700 before its record 40% crash in 1987. But at 1700, it was still 70% above the 1000 barrier that it danced around with for decades before - always a higher high, rarely a lower low.

The '87 debacle was followed by several slightly less exciting corrections, but the case was being made for the more flexible, and realistic, Market Cycle Investment Management Methodology. Modern Portfolio Theory was spawned by great minds selling future predicting snake oil; Mother Nature, Inc. is a much too complicated enterprise, even for them.

Call it foresight, or hindsight if you want to be argumentative, but a long-term view of the investment process eliminates the guesswork and points pretty clearly toward a trading mentality that keys on the natural volatility of hundreds of Investment Grade Value Stocks (Google IGVSI).

During corrections, consider these simple truths: 1) although there are more sellers than buyers, the buyers intend to make money on their purchases; 2) so long as everything is down, don't worry so much about the price of individual holdings; 3) fast and steep corrections are better than the slow attrition variety; 4) always accept even half your normal profit target while buying opportunities are plentiful; 5) don't be in a rush to fill your portfolio, and if cash dries up before it's over, you are managing the process correctly.

Most of the problems with Mutual Funds and much of the increased opportunity in individual stock trading are functions of growing non-professional equity ownership. Everyone is in the stock market these days whether they like it or not, and when the media fans the emotions of the masses, the masses create volatility that rarely under-reacts to market conditions.

Rarely will unit owners take profits, particularly if they have to pay withdrawal penalties or taxes. Even more unusual are expert advisors who encourage investors to move into the markets when prices are falling. A volatile market creates opportunities with every gyration, but you have to be willing to transact to reap the benefits. A necessary first step is to recognize that both "up" and "down" markets are forces of nature with abundant potential. The proper attitude toward the latter, will make you much more appreciative of the former.

Most investment strategies require answers to unanswerable questions, in an effort to be in the right place at the right time. Indecisiveness doesn't cut it with Mamma --- in or out too soon is not an issue with her. But wasting the opportunities she provides really ticks her off.
Successful investment strategies require an understanding of the forces of stock market nature, and disciplined rules of portfolio management. If you can transition back to individual securities, you will do better at moving toward your goals, most of the time, because the opportunities are out there --- all of the time.
So let's adopt some new rules for this investment game and learn to live with them for a few cycles: Let's buy IGVSI stocks new and old at lower prices during corrections. Let's take reasonable profits on those that go up in price, whenever they are kind enough to do so.
Let's examine our performance based on the results of these trading transactions alone and at market cycle examination points for a smiley faced change of pace. And one other thing:

Let's drink a toast to an uncertain and volatile Mother Nature, and, of course, to our first loves.

Watchdog exposes the top investor swindles, scams and traps

If it sounds too good to be true, it's probably a Ponzi

by Andrew Osterland - posted to Investment News August 25, 2011 12:48 pm ET

Investor scams are alive and well, according to the North American Securities Administrators Association Inc., which has published its annual top-10 list of investor traps.

Economic uncertainty and volatile markets are helping scam artists exploit the fear and greed of unsophisticated and often financially vulnerable investors. "There are thieves out there who think it's a mark of value and self-esteem to steal people's life savings," said NASAA president David Massey, and the list, which is based on information from NASAA's enforcement division, is intended to get the attention of the mom and pop investors who are the most common victims of these thieves.

To some extent, the scams don't change. "I think there's a standard scam script with blanks and people just fill in the blanks with whatever investment vehicles are hot," said Mr. Massey, who is North Carolina's deputy securities administrator.

The hottest products currently are distressed-real-estate schemes, energy investments, gold and precious metals, promissory notes and securitized life settlement contracts. The five scamming practices cited by the organization were affinity fraud, bogus credentials, mirror trading, private placements and investment advice offered by unlicensed agents.

In most cases, the fraudster is selling his or her expertise in buying properties, trading commodities or assessing energy projects. Many of the pitches involve the purveyor 'guaranteeing' returns with promissory notes if the project doesn't deliver as promised. With the widely covered collapse of real estate prices and the rise in energy and precious metals prices, scam artists use the news as their marketing resources. "Usually, they are no more than Ponzi schemes," said Mr. Massey.

Case in point: A Florida-based company, Gold Bullion Exchange, solicited nearly $30 million by phone from 1,400 investors to 'purchase" precious metals on margin. Investors were told if they put up a fraction of the cost, margin financing would cover the rest of the purchase price. Investigators found that no bullion was ever purchased.

A common strategy in these schemes is what regulators call affinity fraud, in which crooks solicit money from identifiable groups such as retiree communities or religious and ethnic groups - often posing as a member of the group. Such strategies accounted for 1 in 4 Ponzi schemes over the last decade, according to a national study cited by NASAA. A 73-year-old man in North Carolina raised $18.5 million from more than 100 investors he knew from church and other social circles, to invest in venture capital projects backed by promissory notes yielding between 10% and 50%. He used new money to pay off earlier investors.

Whether it's an opportunity to get in on the ground floor of a new technology, a can't-fail energy drilling project, or a 'mirror trading' scheme that offers the chance to participate in the real-time trades of a 'skilled' third party, investors can protect themselves with a little common sense, said Mr. Massey. "If it sounds too good to be true, it is too good to be true," he said.

"People have to summon up enough emotional control not to make snap decisions. Often a toll-free call to a federal or state securities regulator could have protected their life savings."

-MORE-

Opinion

An honest discussion with my portfolio

Companies are people too...

by Ron Mastrogiovanni
Mr. Mastrogiovanni is CEO of HealthView Services and one of the former founders of FundQuest where his team managed over $12 billion in assets

Markets lost another 4+% [last] week and the question is why?

I've listened to the viewpoints of politicians, market analysts, and leading economists. Today I've decided to consult my portfolio. Presidential candidate Mitt Romney recently stated that companies are people too and I concur. Companies are a community of people consisting of employees, investors and customers. Our portfolios are made up of a large number of those communities. So therefore, I will interview my portfolio.

Ron: Are you a proponent of the democratic or republican party in this ongoing budget/economic conflict?
Portfolio: I do not support either side. Our government is currently dysfunctional which is very uncomfortable thus making it impossible for me to maintain my asset value. When Washington formulates cohesive budgetary and economic development bills that can pass both houses of congress I could very well surge back to my previous 2011 high. Counter productivity in Washington is the predominant reason why markets have lost around 20% from this year's highs.

Ron: Do you think President Obama's bus tour was helpful?
Portfolio: The President just completed a campaign tour where he categorized several new program initiatives that congressional leaders subsequently claimed will not pass the House. The President also claimed/pretended to accept full responsibility for the current economic slowdown but he concurrently and genuinely believes republicans have played a major role in perpetuating the nation's economic hardship. Thus, the political battle continues and coincidentally, all our political leaders are on vacation until September.

Ron: Do you think that one of the republican presidential candidates can help stop you from hemorrhaging asset value?
Portfolio: I don't think so. Michelle Bachmann claims she can bring gasoline prices back down to $2.00 a gallon. We will only experience $2.00 a gallon gasoline prices if we fall back into a very acute recession. On the other hand, Governor Perry has condemned Ben Bernanke, first appointed by a republican, who played a crucial role in keeping the US out of a severe depression.

Ron: Why doesn't the new Super Committee increase your comfort level?
Portfolio: This whole Super Committee thing has significantly intensified my anxiety which in turn adds more downward pressure to my intrinsic value. Prior to the committee's first meeting taking place, politicians are fortifying existing political bunkers. Eric Cantor distributed a memo to his republican colleagues stressing the importance of holding their ground. Democrats have appointed committee members who appear to be polar opposites of their republican adversaries. Ron, why would you believe that this Super Committee will actually accomplish anything of significance? I think the most likely outcome will be an agreement to kick the can down the road without providing investors with any useful guidance.

Ron: What about economic issues in Europe and China?
Portfolio: They are also a burden but the US government is my number one occupation. Germany's economy has slowed down and European banks are far from out of the woods. Actually, Europeans may institute a TARP like program to bail out failing banks. Additionally China has been confronting inflationary issues and their challenge is to secure a soft economic landing.

Ron: What can I do over the next month to help you stabilize my/your asset value?
Portfolio: There are compelling bargains in the marketplace today because as markets correct, many well run firms fall in value along with the market. I suggest you begin a prudent process of adding a number of tiffany type companies to our family of holdings. Additions may consist of funds or individual securities such as technology innovator Apple and Verizon, a solid company offering a significant dividend. As you know, dividends account for approximately 40% of annual market performance. Yes, I'm likely to continue to be volatile but in a year from now you will profit from periodically feeding me cash during this critical period of time. Given expected market volatility, make those additional investments on down days and on up days cut back on more volatile sector holdings.

Ron: Thank you for your time today Ms Portfolio.

Repartee aside, I do intend to follow my portfolio's recommendations. I'll also keep an eye on the latest company earnings that include both Tiffany's and Heinz. There will also be news on housing and durable goods orders but the real market movers may be an economic growth report and Ben Bernanke's speech at the end of the week.

The Market Cycle Investment Management Methodology

The sum of all the strategies, procedures, controls, and guidelines

by Steve Selengut

Mr. Selengut, a professional investment portfolio manager, is CEO of Sanco Services, St. John's, SC. He is a contributing editor for LIFE&Health Advisor and the author of 'The Brainwashing of America: The Book Wall Street does not want you to read.' You can contact him at sanserve@aol.com

Most investors, and many investment professionals, choose their securities, run their portfolios, and base their decisions on the emotional energy they pick up on the Internet, in media sound bytes, and through the product offerings of Wall Street institutional boiler rooms. They move cyclically from fear to greed and back again, most often gyrating in precisely the wrong direction, at or near precisely the wrong time.

The MCIM methodology combines risk minimization, asset allocation, equity trading, investment grade value stock investing, and base income generation in an environment whose time frame recognizes and embraces the reality of cycles. It attempts to take advantage of widespread "fear and greed" decision-making by others, by using a disciplined, patient, and common sense methodology.
This methodology embraces the cyclical nature of markets, interest rates, and economies- and the political, social, and natural events that can trigger changes in cyclical direction. Little weight is given either to the short-term movement of indices and averages, or to the idea that the calendar year is the playing field for the investment "game".

Interestingly, the cycles themselves seem to concur with the irrelevance of calendar year analysis, and it makes little sense at all to think of investing as a competitive event. What index or average comes even close in content to your unique portfolio of securities?
The MCIM methodology is not a market timing device in any sense of the word, but its disciplines will force managers to add equities to portfolios more during corrections and to take profits enthusiastically during rallies. As a natural (and planned) effect, portfolio "smart cash" levels will increase during upward cycles, and decrease as buying opportunities increase during downward cycles.

Absolutely no attempt is made to pick bottoms or tops, and strict rules apply to both buying and selling disciplines. NOTE: these rules are covered in minute detail in "The Brainwashing of the American Investor" (click the Amazon.com purchase banner above, to the right), and won't be repeated here.
Managing an MCIM portfolio requires disciplined attention to rules that are designed to minimize the risks of investing. Stocks are selected from a small, easy to manage, universe of Investment Grade Value Stocks. The companies are mostly large capitalization, multi-national, profitable, dividend paying, NYSE companies.
Income securities are, for the most part, actively managed, closed-end funds, investing in corporate and government fixed income securities, income paying real estate, energy royalties, tax exempt securities, etc. Multi level, and speculation heavy funds are avoided, and most will have long term distribution histories.

No open end Mutual Funds, index derivatives, hedge funds, or futures betting mechanisms are allowed inside any MCIM portfolio.
All securities must generate some form of regular income to qualify for inclusion in portfolios, and no security is ever permitted to become too large of a holding. Diversification is a major concern on an industry, or sector, level, but global diversication is a given with IGVSI companies.

Risk Minimization, The Essence of Market Cycle Investment Management
Risk is compounded by ignorance, multiplied by gimmickry, and exacerbated by emotion. It is halved with education, ameliorated with cost-based asset allocation, and managed with disciplined: selection quality, diversification, and income rules- The QDI.

Risk minimization requires the identification of what's inside a portfolio. Risk control requires decision-making by the owner of the investment assets. Risk management requires a selection process from a universe of securities that meet a known set of qualitative standards.

The Market Cycle Investment Management methodology helps to minimize your financial risk in several ways:
- It creates an intellectual "fire wall" that precludes you from investing in excessively speculative products and processes.
- It focuses your decision making with clear rules for security selection, purchase price criteria, and profit-taking guidelines.
- Its cost based, Working Capital Model asset allocation operating system, assures you of constantly monitoring asset allocation while increasing your base income.
- It helps assure that poor diversification will not creep into your portfolio and that unproductive assets will be eliminated in a rational manner.

-MORE-

Part four in a four-part series

Modern Investment Thinking

Conclusion: We've Come Full Circle

by Steve Selengut
Mr. Selengut, a professional investment portfolio manager, is CEO of Sanco Services, St. John's, SC. He is a contributing editor for LIFE&Health Advisor and the author of 'The Brainwashing of America: The Book Wall Street does not want you to read.' You can contact him at sanserve@aol.com

The simple process of taking a person's risk tolerance input and creating a goal directed division between equity and income securities has been replaced by too many cross-purposed modifications than can be presented here. But the very idea that the object percentages are to be either: (a) re-balanced annually based upon changes in market value, (b) changed randomly based on the managers' assessment of the future, or (c) ignored entirely --- well, it just boggles the experienced investment managerial mind.

The purpose of an Asset Allocation formula is to direct the long-term investment plan --- the equity to income ratio is maintained decision by decision, trade by trade, throughout time. Using the Working Capital Model, there is no need for rebalancing ever, and Tactical AA (the "let's guess the future of one sector or emerging market" approach) is pure speculation. Market Cycle Investment Management is a 35 year old body of investment management thought that employs: cost based asset allocation and diversification; cyclical performance evaluation using meaningful benchmarks; standardized quality assessment, income production requirements, and manageable buy and sell disciplines. It's Asset Allocation principle's distinguish only between equity-purpose and income-purpose investments. It has succeeded for decades by embracing the market cycle, preparing for it, and by growing the income that will be needed at a distinctly discernable time in the future. No special mathematical skills or fancy footwork required.

Conclusion: The Full Circle of Investment Thought
From the unmanaged Buy and Hold strategy of generations past, it's interesting to observe the full circle we've traveled to the unmanaged multi-product portfolio of the 21st century. Somewhere in the process, both technical and fundamental analytical techniques have been steamrolled under the pavement of the new highway to --- just what, actually. We have gone from a process that valued ownership of financial assets and a discipline that encouraged personal responsibility for creating financial security to a product shopping mall environment of products based on probabilities and computer model projections of possible realities.

But in spite of the tremendous shift in financial focus (be it based on a fear of regulators or the greed of institutional fat cats), somehow, someway, the basic rules of the investment game have remained the same. A consistent approach to the mystery (technical, fundamental, or numerical voodoo) is a requirement. And, as it always has been, if you can't see and/or understand what's inside, you're probably better off looking elsewhere.

MassMutual Enhances Target Date and Lifestyle Investment Options

for Retirement Plan Services Clients

New Funds Designed to Help Participants RetireSMART

SPRINGFIELD, Mass., July 27, 2011 -MassMutual's Retirement Services Division has enhanced its investment offerings in the popular target date (lifecycle) and lifestyle (risk aware) categories to better serve retirement plan market needs. As part of the initiative, MassMutual has renamed its Select Destination (target date) and Journey (lifestyle) fund series to capture the brand focus of its overall MassMutual RetireSMART(SM) participant platform.

MassMutual has expanded its Journey series investment options, which were formerly only available as separate investment accounts ("SIAs") through a group annuity contract, with newly created RetireSMART mutual funds that employ the same investment strategy. The new RetireSMART lifestyle series is being offered for the first time as a mutual fund solution for registered plans in addition to the SIAs that have long been available for group annuity contract plans.

Portfolios within both the target date and lifestyle series utilize a "fund-of-funds" approach that combines numerous mutual funds offered by MassMutual into professionally managed strategies, which consider an investor's expected retirement date (RetireSMART target date) or an investor's comfort with risk (RetireSMART lifestyle).

The new investment offerings, implemented in June, are designed to position MassMutual's target date and lifestyle funds more competitively and make them available to more retirement investors in a wider range of plans. MassMutual's highly experienced portfolio management team for both fund groups remains unchanged.

"These enhancements give MassMutual an even more compelling and competitively priced offering in a category critical to retirement investors and to our continued strong momentum within the retirement services industry," says Eric Wietsma, senior vice president, Investment Services, MassMutual's Retirement Services Division.

"These target date and lifestyle funds embody our management approach, while the RetireSMART name serves as the overarching brand, both of which support MassMutual's dual focus on retirement plan health and solidly preparing plan participants for retirement," says Mike Eldredge, vice president, Investment Management, MassMutual's Retirement Services Division.

Retirement plan participants may access a prospectus and summary prospectus on MassMutual's participant website, http://www.retiresmart.com. For more information about MassMutual Retirement Services, please contact your retirement plan advisor or call MassMutual at 1-866-444-2601.

The year in the target date option's name refers to the approximate year an investor would plan to retire and likely would stop making new contributions to the investment option. Target date investment options are designed for participants who plan to withdraw the value of their accounts gradually after retirement. Each of these options follows its own asset allocation path ("glide path") to progressively reduce its equity exposure and become more conservative over time. Investments in these options are not guaranteed and investors may experience losses, including losses near, at, or after the target date. Additionally, there is no guarantee that the options will provide adequate income at and through retirement.

Generally target retirement date (lifecycle) investment options are designed to be held beyond the presumed retirement date to offer a continuing investment option for the investor in retirement. However, investors may choose a date other than their presumed retirement date to be more conservative or aggressive depending on their own risk tolerance.

Target date options discussed here do not reach their most conservative allocation until after their target date. Investors should consider their own personal risk tolerance, circumstances and financial situation. These options should not be selected solely on a single factor such as age or retirement date. Please consult the prospectus (if applicable) pertaining to the options to determine if their glide path is consistent with your long-term financial plan. Target retirement date investment options' stated asset allocation may be subject to change.

Part three in a four-part series

Modern Investment Thinking

Part III: A Plague O' Both Your Houses

by Steve Selengut
Mr. Selengut, a professional investment portfolio manager, is CEO of Sanco Services, St. John's, SC. He is a contributing editor for LIFE&Health Advisor and the author of 'The Brainwashing of America: The Book Wall Street does not want you to read.' You can contact him at sanserve@aol.com

In his April 20, 2010 post in Jotwell: Trusts & Estates: "Time to Rethink Prudent Investor Laws?", Jeffrey Cooper paraphrases a similarly titled article by Stewart E. Sterk. Sterk, in my opinion, supports my assessment that Modern Portfolio Theory and it's super-computer creation "The Efficient Capital Market Hypothesis" were directly, without any reasonable doubt, guilty of causing the recent global financial crisis. "By removing all "prudence" from the Prudent Man Rules that had governed 'trusteed' investments for centuries, hypothesis and theory replaced profits and interest guarantees- probabilities, standard deviations, and correlations replaced real numbers, facts, and standards of real value."

Trustees were expected and encouraged to focus on the growth of portfolio market values instead of on the income the portfolios were expected to guarantee to the trust beneficiaries. Under the UPIA (Uniform Prudent Investor Act), absolutely anything was a viable investment medium for Trust Accounts --- the result is history, a falling house of cards built on theory without substance. About six years ago, I had the opportunity to analyze the endowment portfolio of a local college. I literally could not recognize anything that was inside this eight figure portfolio. No "stand alone" identifiable stocks, bonds, government securities, Guaranteed Income Contacts- nada! Payments to scholarship beneficiaries and other recipients were routinely paid from new donations, similar to Social Security and other Ponzi Schemes. MPT doesn't just ignore all fundamental analytics while playing Frankenstein with technical analysis, it also pays no attention to the reality of market, interest rate, and economic cycles.

It goes beyond real numbers and rational thinking by creating new and refined numbers, supercharged to impress the intellectual elite while doing nothing to create dependable income streams for retirees. Simply put (whoa, scientists have no interest in making this stuff simple; it just wouldn't be sexy enough for awards and accolades by their peers in academia and the media that follow such things.) So, simply put, we take a computer full of past market price numbers for a security or group of securities and calculate forays of additional numbers. Then we measure how these manufactured numbers relate to one another during different time frames. The next step is to measure the dispersion of these results as they relate to the average and latest iterations of the actual numbers. We then measure the probability of each possible result, assign a "standard deviation" risk measurement to each result, and correlate/compare the various risk assessments. Add a cup of single malt, and a pinch of Old Bay, bring to a boil, shake a stick over it and shazaam- we "know" the risk associated with everything investment! Portfolios are constructed so that everything owned (none of which are individual securities) is negatively directionally correlated to nearly everything else, producing, eh, producing --- well I haven't quite figured that out. Simple enough? Well it sure is sexy, and painless when administered passively with Modern Portfolio Non-Management. Isn't "passive management" an oxymoron?

Houston, We Have A Problem
Even the "dinosaurous preposterous" Buy em' 'n Hold em' passive strategy of the 1900's had a better chance of success (with some minor disciplinary and managerial tinkering) than the MPNM cop-out of the new millennium. Here we are asked to accept non-management as a solution to a problem that exists only in the minds of product creators and financial institutions weary of regulators and lawsuits. It's appropriate because it's cheap and inexorably controlled by the immortal teeter-totter principle -very scientific indeed. The unquestioning professional acceptance of Modern Portfolio Management just cries out for conspiracy theory analysis. Investors (and not just small investors) can go from Great Granddad's first contribution to a UGMA account to their retirement program without ever owning a common stock or any form of individual income security. Clearly, we've moved way too far away from the classic principles of investing. But how can we criticize a government that shows no respect for a capitalistic system that has produced the highest standard of living on the planet, when we, as investors, shun the basic building blocks of capitalism ourselves? Modern investment thought clouds the distinction between the purpose of stocks and bonds as investment media just as cleverly as it tries to erase the critical difference between an investment and a speculation. It supports the calendar performance evaluation idiocy, and panders to both a misguided tax code and a regulatory environment that paints all financial professionals as charlatans and thieves. But the mortal wound to most investment programs is a heightened misunderstanding of both the purpose and the operation of Asset Allocation.

Part II in a four part series

Modern Investment Thinking:

Part II: Blinded by the Financial Facts, Jack

by Steve Selengut
Mr. Selengut, a professional investment portfolio manager, is CEO of Sanco Services, St. John's, SC. He is a contributing editor for LIFE&Health Advisor and the author of 'The Brainwashing of America: The Book Wall Street does not want you to read.' You can contact him at sanserve@aol.com

Back in the day when relatively few non-professionals even thought about investing in corporate stocks and bonds, a focus on company financial statements was the gospel of conservative (meaning safer) investment theology. Investment gurus studied Profit and Loss Statements, Balance Sheets, and endless footnotes to determine which businesses were most likely to continue to grow, prosper, increase their dividends, etc. Then, they assessed the quality of "management" before forming conclusions about the economic viability of the enterprise. The quality of the numbers being analyzed was audited by well respected financial analysts while scores of research MBAs from throughout academia studied business and economic trends within company relevant markets.

Sectors of businesses were also put under a fundamental microscope to further fine tune future stock market trends and performance expectations. "Top-down" or "bottom(s)-up", fundamentally sound companies were identified, classified, categorized, and fantasized over in much the same way as was being done by the very technicians that the fundamentalists laugh about at cocktail parties. Certainly, it was presumed, the most financially sound companies would be the most resilient in the face of whatever surprises the economy, global politics, and the weather had to offer. Companies that had "grown up" profitably would have what it takes to continue in the right direction.

Clearly, both schools of financial thought have generated libraries full of useful (and questionable) information that marauding bands of Wall Street product advertising agencies can use against one another in their glossies. Neither approach should be totally ignored; neither approach should be totally accepted; and neither approach has what it takes to do what its advocates want you to believe it can do- predict what's going to happen next. More recently, the analytical elite have reinvented themselves with fundamental analytics sub-divided by capitalization levels, sectors, countries, hemispheres, and more. The supply of data is endless- so much so we are expected to believe, that only very special Wall Street affiliated super computers can make enough sense of it all to really "know" which stocks are worthy of investment. Frankly, I think they have all traveled way off course in their pursuit of some fundamental nirvana, pretty much to the same extent as their friends in the technical arena. No matter how long the train of growing profits, or how strong the balance sheet, every business has to adjust its model to outside influences to survive long term, and so does every investment plan.

There are a few fundamental fundamentals that demand as much serious attention as the fundamental technicals mentioned above, starting with long term profitability and current financial ratios. (If you haven't looked at both, you are a speculator, not an investor; no buts, end of discussion.)

Dividend payout history provides information (indirectly) about the quality of a company's management, products, business model, financial acumen, profitability, and respect for its shareholders. Don't believe the growth company baloney; if they are not paying you a dividend, they are absolutely overpaying your senior employees.

If you are thinking: "what about start-ups, IPOs, emerging markets, commodities, etc.", don't. Those are speculations, not investments. This is not a judgment that all speculations are bad --- it's simply a warning that you must sift through the euphemistic descriptions and figure out what kind of bets you are being asked to place.

Profitability, current assets vs. current liabilities, market share, product mix, and regulatory environment are other key fundamentals that are fairly easy to get your head around --- and pay particular attention to the latter.

Very few politicians act as if they know anything about business, capitalism, markets, etc. Very few theoreticians (particularly research economists) seem to know anything about actually running anything for real: business, government, investment portfolio, whatever.

And this brings us to MPT- the fancy new scourge of the financial markets.

UBS Wealth Management:

Forty percent won't reenter market until debt-ceiling is resolved

Overnight poll of 1,000 affluent investors shows complete reversal of prior optimism about US economy ;

60% now pessimistic about outlook

Weehawken, NJ -July 28, 2011 -An overnight poll conducted Wednesday by UBS Wealth Management Americas (WMA) among 1,000 clients and investors nationwide has revealed the negative impact the continuing impasse on the US debt ceiling is having on investor sentiment- with 40% of respondents saying they are looking for the resolution of the US debt ceiling issue as a key signal before they will put money back into the markets.

The UBS WMA survey also reveals a negative trend on concern about the nation's debt. When asked what worries them in terms of potential impact on their financial goals, 65% of investors cited the size of the US debt, up from 59% in April. Also, 40% of respondents are highly worried about the country defaulting on its debt.
"Whether we're talking to and advising a corporate chief executive, a high net worth investor or a small business owner, it's clear that uncertainty over the US debt has frozen everyone in their tracks when it comes to actively participating in the market," said Robert J. McCann, UBS WMA Chief Executive Officer. "What our clients need now is someone they trust to help them navigate this uncertainty and help them understand the issues affecting this economy."
The poll also pinpoints a dramatic reversal in positive investors' outlook on the economy three months ago. A similar poll in April showed 53% of respondents to be optimistic about the short-term outlook for the US. economy, while 27% remained pessimistic. Today's survey reveals that 60% are now pessimistic about the outlook, while 21% are optimistic.
UBS WMA conducts regular polling of investor sentiment. Today's survey was conducted online by Research Now on behalf of UBS among 1,000 investors from July 27-28, 2011. Respondents have at least $250,000 in investable assets (excludes real estate and private business assets), with 50% of respondents having at least $1,000,000 in investable assets.

UBS WEALTH MANAGEMENT AMERICAS
Wealth Management Americas provides advice-based solutions through financial advisors who deliver a fully integrated set of products and services specifically designed to address the needs of ultra high net worth, high net worth and core affluent individuals and families. It includes the domestic United States business, the domestic Canadian business and the international business booked in the United States.

UBS
UBS draws on its 150-year heritage to serve private, institutional and corporate clients worldwide, as well as retail clients in Switzerland. We combine our wealth management, investment banking and asset management businesses with our Swiss operations to deliver superior financial solutions.
UBS is present in all major financial centers worldwide. It has offices in over 50 countries, with about 37% of its employees working in the Americas, 37% in Switzerland, 16% in the rest of Europe and 10% in Asia Pacific. UBS employs about 65,000 people around the world. Its shares are listed on the SIX Swiss Exchange and the New York Stock Exchange (NYSE).

Modern Investment Thinking

Part I: Technical Analysis- Blinded By The Math

by Steve Selengut
Mr. Selengut, a professional investment portfolio manager, is CEO of Sanco Services, St. John's, SC. He is a contributing editor for LIFE&Health Advisor and the author of 'The Brainwashing of America: The Book Wall Street does not want you to read.' You can contact him at sanserve@aol.com

Without too much of a stretch, it could be documented that the Investment Grade Value Stock (not just "value stocks") bubble of 1987 was caused by investor focus on company fundamentals. It would be a piece-of-cake to prove beyond any doubt at all that blind faith in technical analysis created the dot-com bubble at the turn of the 21st century.

More recently, blame for the late 2007 through early 2009 "financial crisis" could easily be nestled down at the feet of big government, misguided regulators, and maniacally creative Modern Portfolio Theory (MPT) practitioners, not to mention their ROTF-LOL institutional mentors. What's next?
Pick a day, any day, where the DJIA is up or down by more than 100 points. Take a look at the "most advanced" or "most declined' listings and note the shortage of plain vanilla common stocks. What you see is a pari-mutuel spreadsheet listing of the most popular derivative betting mechanisms, adjusted day-to-day, depending on the direction of their wagers.
With index ETFs significantly outnumbering the companies whose prices they are attempting to keep track of, isn't it even less likely than in the past that technical analytics can be useful? Aren't these numbers simply the result of demand for casino-esque sector funds and their seemingly limitless varietals?

So as you sit at your desktop, studying the charted presentations of your favorite technical indicator software, keep in mind how the "fundamental quality" of the numbers they report upon has changed. How much of the volume is the second or third level derivative result of derivative trading by speculators who couldn't care less about which candlesticks are on top of whose heads and shoulders.
Should an up-tick in a "triple-short-the-S & P 500" index be considered a positive or a negative? Can NYSE new high and new low numbers be trusted? How much of the daily volume is the backing and filling within indexed portfolios? Are support levels reality or fiction anymore, either on an overall market or an individual stock basis?
Yet, the problems that I have with technical analysis have nothing to do with the numbers themselves, most of which are fascinating and useful in lessening the need for head scratching about the past. It's the "quid pro quo" projection into the future that I think is total foolishness.

The technical analysis employed in the Market Cycle Investment Management (MCIM) methodology is essential in determining where we are within the various cycles, right now. However, absolutely nothing (either technical or fundamental), can tell us what may or may not happen in either the immediate or more distant future.
Any claim to precision; any attempt to time the market; any hope of being at the right place at the right time, most of the time, is just not a reality of investing. And there's the rub for both forms of analysis, and for "the emperor's new clothes" risk assessment techniques and "active asset allocation" processes so popular in MPT.
So long as we live in a world where there are tsunamis and Madoffs; politicians and terrorists; big corporate egos and far more dangerous big government; and imperfect intelligence (both human and artificial) --- there will be no hope of certainty. Get over it, reality is pretty cool anyway once you've accepted it.

The future is uncertain, for certain. No numbers of any variety, in any combination or with any correlation or probability, will ever achieve the alchemy needed to reliably, even consistently, change leaden reality into golden certainty.
The only certainties you really need to know about concerning financial instruments and financial markets are that their long-term cyclical price movements (and short-term volatility) are neither certain nor predictable. The trick is to plan better for the upcoming gyration with a clear and consistent set of decision-making disciplines that make sense in either direction.
But, at the same time, technical trends, levels, totals, averages, etc., can give you significant expectation creation nourishment. For my purposes, IGVSI (Investment Grade Value Stock Index)Issue Breadth numbers, a Bargain Stock Monitor, and New 52-Week Highs vs. Lows relationships provide enough information to chart the current cyclical location pretty accurately.

But these numbers are unique in one very important element- they have already been screened for fundamental quality.

Finra to investors: Watch out for these hot investments

Regulator issues alert about structured products, bank loan funds; 'significant recent inflows'

By Dan Jamieson / posted July 25, 2011 3:00 pm ET at Investment News

Finra has warned investors about chasing yield with structured products, junk bonds and floating-rate bank loan funds.
The Financial Industry Regulatory Authority Inc (FINRA). issued an investor alert about the risks found in these and other products. The alert was prompted by 'significant recent inflows' into high-yielding products, Finra said.

"Investors should always look behind an investment's yield, ensure that they understand how the investment works and carefully consider its fees and risks before investing," Gerri Walsh, vice president for investor education, said in a statement.

Structured products "can have significant drawbacks such as credit risk, market risk, lack of liquidity and high hidden costs," the alert said.

Finra warned investors to watch for structured products that are callable, promise principal protection or have returns based on changes in the yield curve. While such investments could produce attractive returns, they also might "earn no return for the entire term of the note," the alert said.

Finra also warned that the market for floating-rate loans is "largely unregulated, relatively illiquid and difficult to value."

Floating-rate bank-loan funds may be flogged as being less vulnerable to interest rate fluctuations, as well as offering inflation protection, Finra said. The underlying loans, however, are "are subject to significant credit, valuation and liquidity risk."

Many Insurers to Take Aggressive Investment Strategies

Industry executives see depressed interest rates as a key challenge,

while liquidity and preservation of principal top their investment goals

NEW YORK (BUSINESS WIRE) Nearly half (46%) of North American insurers and reinsurers said they plan on being more aggressive in their respective investment strategies over the next year, according to findings from a new survey conducted by global professional services company Towers Watson (NYSE, NASDAQ: TW), 2011 Insurer Asset Management Survey.

Additionally, insurance executives participating in the May/June online survey asserted that low interest rates (83%) represent the greatest investment challenge; and their investment goals focus primarily on liquidity and principal preservation.

While an emphasis on fixed income investments is to be expected among insurers, nearly 40% said they expect to increase their allocation relative to alternative investments and look to other high-risk, high-yield vehicles. Only nine percent of respondents said they expect to be more conservative in their investment strategies.

"It's meaningful that a substantial number of insurers expect to embrace a more aggressive investment strategy at a time when they are clearly worried about the economy and financial market volatility," said Christopher DeMeo, Towers Watson's head of investment for North America. "Finding the appropriate balance between investment performance and risk will be a key to successful implementation."

As low interest rates have battered prospective investment income while at the same time have driven up the expected cost of future liabilities, the 38 participating respondents overwhelmingly pointed to low interest rates as their greatest investment challenge.

Still, more than half of the respondents (54%) listed the risk of rapidly rising interest rates as the second biggest challenge, suggesting that fears of inflation are widespread. Financial market volatility and inflation hedging (both 37%) and credit risk (31%) were also listed as challenges.

"Interest rate concerns are a fact of life for insurers, and the current low interest rate environment has undoubtedly added to their performance pressures," said DeMeo. "It's somewhat surprising to see the degree to which the respondents seem to worry about inflation. Given the sluggish economy and sustained low interest rates, we believe that inflation risk in the near term is lower than many predict and, in fact, deflation should be considered in any planning scenario."

Asked to rank investment objectives, a plurality of respondents (28%) placed liquidity at the top of their respective lists, followed closely by principal preservation- two policyholder-related objectives that are essential for insurers who need the flexibility and wherewithal to pay claims. Total return was cited by 20%, with book income fourth at 17%. Further, 83% of the respondents said they are very satisfied with their portfolio in terms of its ability to meet liquidity objectives, and 71% were very satisfied with principal preservation.

"Given some of the losses that many insurers have realized, and some overall poor performances within the industry, many are seeing that being liquid and maintaining principal are even more critical," added DeMeo. "Financial strength is paramount."

Among other highlights of the survey:
Satisfaction levels with portfolios were roughly equivalent among respondents who outsourced and those who managed assets in house. Slightly higher percentages of respondents were satisfied with in-house management for principal preservation and total return.
When asked to list elements for investment success, asset allocation (37%) ranked first followed by adequate risk management (26%) and good governance (14%). Investment diversification (11%) was fourth followed by portfolio construction process (8%) and costs (3%).
Respondents tended to be more satisfied with their portfolio construction. They tended to be less satisfied with investment diversification. In terms of investment diversity, 71% of respondents said the most important factor is getting the best ideas into fixed income portfolios.

About the survey
Thirty-eight insurers participated in the online survey, which examines insurance asset management with a focus on the outsourcing of investment management. The majority of respondents in the online study, which was conducted in April and May 2011, had general account assets invested of more than $1 billion. Chief investment officers or equivalent formed the plurality of respondents, with the balance consisting primarily of CFOs and treasurers.

Towers Watson Investment
Towers Watson Investment is focused on creating financial value for the world’s leading institutional investors through its expertise in risk assessment, strategic asset allocation and investment manager selection. It is a division of Towers Watson's Risk and Financial Services business, has over 650 associates worldwide and assets under advisory of over $US 2.1 trillion. In the United States, investment advisory and investment consulting services are provided by Towers Watson Investment Services, Inc., a subsidiary of Towers Watson & Co. Towers Watson Investment Services, Inc., is a registered investment advisor with the Securities and Exchange Commission.

About Towers Watson
Towers Watson (NYSE, NASDAQ: TW) is a leading global professional services company that helps organizations improve performance through effective people, risk and financial management. The company offers solutions in the areas of employee benefits, talent management, rewards, and risk and capital management. Towers Watson has 14,000 associates around the world and is located on the web at www.towerswatson.com.

UBS launches two Internet IPO Exchange Traded notes

Two ETRACS Linked to the UBS Internet IPO Index Comprised of

Twenty Social Networking, Internet Software and Internet Services Stocks

New York, July 21, 2011 – UBS Investment Bank announced that today is the first day of trading on the NYSE Arca for two ETRACS Exchange Traded Notes (the Internet IPO ETNs) linked to the performance of the UBS Internet IPO Index (the Index). Investors now have the ability to gain either unleveraged or leveraged exposure to a portfolio of Internet related companies that have gone public within the last three years, all by way of two, convenient exchange traded securities.

Both Internet IPO ETNS are linked to a unique benchmark index that currently consists of twenty holdings representing the latest generation of Internet related stocks such as LinkedIn, HomeAway, Pandora Media and OpenTable. Innovative index construction allows for the addition of new Internet related companies within weeks after their IPOs, and a monthly Index rebalancing feature and 3-year age limit ensure that the companies in the Index remain up-to-date and relevant.

The ETRACs Internet IPO ETN (Ticker: EIPO) provides exposure to the performance of the Index, while the Monthly 2x Leveraged ETRACS Internet IPO ETN (Ticker: EIPL) provides a monthly compounded two times leveraged exposure to the performance of the Index.

"There's a tremendous amount of investor interest in the current generation of Internet-related companies," said Christopher Yeagley, Managing Director and US Head of Equity Structured Products. "And now investors have a convenient way to access these stocks in a transparent, low cost, exchange traded product. Moreover, as new Internet-related companies go public, investors in these ETNs will gain exposure to them within weeks after their IPOs, provided they meet certain market capitalization and other eligibility requirements."

About the Index
The UBS Internet IPO Index (NYSE ticker symbol NETIPO) is intended to measure, on a total-return basis, the performance of a subset of Internet-related companies listed on the NYSE or NASDAQ that satisfy specified market capitalization and other eligibility requirements. The Index provides exposure specifically to those Internet related companies that have been publicly traded for less than three years. Standard & Poor's Financial Services LLC serves as the calculation agent for the Index.

About ETRACS
For further information about ETRACS ETNs, go here.
Exchange Traded Access Securities, ETRACS, are exchange traded notes (ETNs), an innovative class of investment products offering access to markets and strategies that may not be readily available to investors, and offer unique diversification opportunities in a number of different sectors. ETNs offers:

- Access to asset classes with historically low correlations to more traditional asset classes

- Convenience of an exchange traded security

- Transparent exposure to a published index

ETRACS ETNs are senior unsecured notes issued by UBS AG (UBS), are traded on NYSE Arca, and can be bought and sold through a broker or financial advisor. An investment in ETRACS ETNs is subject to a number of risks, including the risk of loss of some or all of the investor's principal, and is subject to the creditworthiness of UBS. We urge you to read the more detailed explanation of risks described under 'Risk Factors' in the prospectus supplement for the ETRACS ETN.

Harvard PhD Economist Proposes Lessons For Financial Sector

As the world closes in on the three-year mark of the beginning of the global financial crisis,

one expert believes that it's not enough to rely on new regulations to prevent future disasters,

a fundamental change in mindset is required.

Rex Ghosh, a Harvard PhD economist who has worked in the financial markets for more than 20 years, currently with the International Monetary Fund, believes that the very culture of the financial sector needs to shift back to basics as the economy limps out of recession.

"The global financial crisis, marked by the bankruptcy of Lehman Brothers in September 2008, has taken an enormous economic, financial, and social toll," said Ghosh, who also authored Nineteenth Street, N.W. (www.nineteenthstreetnw.com), a novel about a fictional act of financial terrorism that causes a global financial crash. "Both in the United States and abroad, regulations, laws, and practices are being changed to help ensure that such crises do not recur. But these regulations- running to the thousands of pages- are enormously complex. It may be years before they are all adopted and absorbed into the daily lives of those in the financial sector. The real prevention rests in the notion that leaders need to work toward changing the very culture of the sector to rely on more fundamental and basic practices based in prudence and responsibility."

Ghosh would like to see the financial sector learn the following lessons:

For the Federal Reserve
Central banks such as the Fed should not only look at goods price inflation, but also at important asset prices, such as the stock market and housing sectors. It also needs to be more mindful of lending and credit booms, especially in the face of weakening credit standards. That's what paved the road to hell three years ago. We do not want to repeat that option again. Traditional monetary policy tools (like the Fed's interest rate) may need to be bolstered by counter-cyclical capital requirements (requiring banks to hold more capital in 'boom' times).
For Banks
Boring is good. Banks should get used to being a much smaller proportion of the economy, like it was before the 1990s. Bankers should also be aware of credit and counterparty risks. They need to know who they're doing business with, know to whom they are lending and not rely solely on credit ratings.
For Regulators
They need to watch the kids and the cookie jar. They should not count on banks to manage their risks prudently. They should think seriously about 'tail risk'- just because something has not happened before, such as a nation-wide decline in house prices, doesn't mean it cannot happen in the future.

"These are not incredibly difficult precepts," Ghosh added. "The short answer is that the Fed needs to broaden its view of what constitutes inflation, banks need to look past the paperwork and avoid risk, and regulators need to realize their jobs don't end with the passage of new rules. For every regulation created, there are 50 new ways created to get around it. We need to realize that the practices of the past won't go away until we match the letter of the regulations with the culture of the financial sector."

About Rex Ghosh
Born in India, Rex Ghosh has lived in Switzerland, the United Kingdom, Nigeria, Colombia, and the United States, and has traveled widely in Europe, Africa, Asia, and Latin America. Following his schooling in England, he received his A.B. in Economics from Harvard University, MSc. in Development Economics from Oxford University, and his M.A. and Ph.D. in Economics from Harvard University. He has taught at Princeton University and Georgetown University, and lectured at various universities throughout the world. He is the author of several books on international economics and numerous articles in professional journals. Ghosh's opinions stated in this article do not necessarily reflect those of any institutions with which he is affiliated.

Opinion

Rating Stupidity

Are the rating agencies assuming a near-term agreement on the debt-ceiling?

by Bill Wilson

Mr. Wilson is the President of Americans for Limited Government (ALG).

If the $14.294 trillion debt ceiling is not raised, and the U.S. misses any interest payments, credit rating agency Moody's has threatened to downgrade the nation's Triple-A credit rating. S&P has added its two cents, citing a 50 percent chance of a downgrade in the next 90 days.

This has become the loaded gun in Barack Obama's hand.

But there is more than enough revenue to make interest payments even if the debt ceiling is not raised. In 2011, the U.S. is projected to collect $2.174 trillion in taxes. Even if interest payments to Social Security and Medicare are factored in, at most the U.S. has to pay $430 billion in interest this year.

So, the risk of a default is actually zero, unless Obama is threatening not to make interest payments should the debt ceiling not be raised. That is the only true risk at the moment of default.

The true reality, however, is that the rating agencies are really assuming there is a near-term agreement on the debt ceiling. What they are saying is that the longer-term fiscal outlook of the U.S. is what merits a downgrade.

That means if the White House gets what it originally wanted, a clean vote to increase the nation's credit limit, there is still a 50 percent chance of a downgrade in S&P’s eyes. As reported by Bloomberg News, "The U.S.'s long-term rating may be lowered by one or more notches into the AA category in the next three months if S&P concludes Congress and President Barack Obama's administration haven't achieved a credible solution to the rising government debt burden and aren't likely to achieve one in the foreseeable future," according to a statement.

This news should actual strengthen the House's hand as it considers what to send to the Senate. After all, it is more than likely the $14.294 trillion debt ceiling is going to be raised. The only question is under what conditions. S&P is saying we need a long term solution to the debt crisis.

Supporters of the Cut, Cap, and Balance Act, including Americans for Limited Government, want any increase in the nation's borrowing limit to only be in exchange for hundreds of billions of immediate spending cuts, a statutory spending cap of no more than 18 percent of the Gross Domestic Product, and passage by both houses of Congress of the Balanced Budget Amendment.

The Cut, Cap, and Balance approach is by far the strongest proposal out there in the context of the disagreeable task of increasing the debt ceiling, and would give the American people a balanced budget this decade.

That would in turn position the U.S. to begin paying down the $14.5 trillion debt before it gets too large to service. Cut, Cap, and Balance is the only proposal that achieves this critical metric.

The alternative is unthinkable, where the debt is increased without any preconditions, or worse, with tax increases that will further sink the economy. Worse, it will lead to a future where the when the debt becomes so large it cannot be refinanced, default will be the only option.

Right now, the nation's total debt to service ratio, principal plus interest as compared to revenue, is already 41.7 percent. That’s a $900 billion average a year over thirty years. If Congress waits until 2021 to get the nation's fiscal house in order, when the debt will total $26 trillion and interest will have simply normalized to 5 percent, annual debt service will total $2.167 trillion on average over thirty years.

If the economy does not improve as dramatically this decade as the government has predicted, and say tax revenue only rises to $3.5 trillion by 2021, the total debt service ratio will be 61.9 percent.

By then, one will scarcely be able to find a single person who believes the debt could ever be repaid in full.

The Cut, Cap, and Balance legislation is the only plan on the table that provides the reasonable assurance that a catastrophic default might be avoided in the near future. Every other plan being considered accepts the doom that awaits us on the horizon.

Retire Social Security Debt and Save The Economy. What If?

Modern Portfolio Theory:

A methodology the Wall Street bubble machine would prefer you didn't know

What if the US Government sold the Social Security system/employees/buildings/DEBT/etc. to Insurance/Annuity industry companies for the amount of the debt plus a few billion, all in cash plus secured debt of the hundreds of companies involved in the purchase?
The money would be turned around immediately to repay the trillions in government (Social Security Trust Fund) IOUs and it would be invested in guaranteed fixed income annuities (guaranteed immediate annuities for those already receiving benefits), absolutely a guaranteed winner for a presidential candidate.

Yeah, it also should involve the eventual conversion of all public sector retirement plans to SSRIAs (Social Security Retirement Income Annuities). There would be no publicly funded retirement plans. All employed persons (from the very top down) would contribute to their own personal, portable, SSRIAs, but at about one third of current mandated payroll deductions.
Employees could choose to contribute more than the required amount, and the funds would move electronically to the assigned private sector provider. All tax payers would be eligible to create SSRIAs and there would be no matching employer contributions. SSRIAs could be an available income investment option for all private sector retirement programs, qualified and otherwise.

That's right. In one fell swoop we can reduce employee and employer taxes, increase personal disposable income, eliminate thousands of government jobs and replace them with private sector employment. It just doesn't get any easier than this.
NOTE: SSRIAs would be assigned to providers, so expenses would be minimized and covered entirely by an investment management fee. Private auditing firm employees would be rotated randomly between providers to assure that Investment Policy Statements are complied with.

But there's also a Phase II. All SSRIA benefit payments, without exception, will become 100% tax free at all levels for yet another uptick in personal disposable spending money, spending that an intelligent (and "fair") consumption tax could use to run a more streamlined and less lobbied (corrupt) government.

Another benefit of this approach would be the requirement that the insurance company "general account" investments supporting the now "for real" SSRIA trust fund are subject to "Old Fashioned Portfolio Theory," vastly different from the MPT (Modern Portfolio Theory) approach that has failed for everyone except its Wall Street conspirator-creators.
Retirement programs of any kind (Defined Benefit or Defined Contribution) should be focused on providing certain streams of monthly income to plan participants, market values just don't pay the bills. The SSRIA investment mix will focus on safety and income production instead of the probabilities of negative correlations between varying speculations creating a rise or fall in market value that is less embarrassing to the plan sponsor.
MPT is a methodology that encourages speculation. OFPT (Old Fashioned Portfolio Theory) focuses on Quality, Diversification, and a growing stream of "base income". Base income is the actual cash received from a portfolio's investments in the form of annual dividends and interest, the stuff that retirement income is made of.
It may well have been the combination of MPT, and the equally nonsensical Trustee/Investor rules of the Uniform Prudent Investor Act (UPIA) that single-handedly led to the speculative bubbles that caused the global financial crisis masacre of hundreds of thousands of "trusteed" retirement portfolios.

MPT creates wealth for Wall Street's ETF production factory. OFPT creates wealth (and dependable income) for investors and retirees. Note that OFPT is the body and soul of the Market Cycle Investment Management methodology, the methodology the Wall Street bubble machine would rather you didn't know about.
Never again should "we the people" be held hostage by a circus filled with self-serving politicians, now adding further insult to their mis-management of our retirement funding dollars in the first place. Let's elect people who will redirect our retirement funds to fundamentally safe products that have provided uninterrupted retirement security to millions of people for centuries.

Hancock Investor Sentiment Index Declines

Even Though Optimism Remains In Second Quarter of 2011

- Score declines as bonds, fixed income seen as less attractive
- Concerns about gas prices, national debt, healthcare are prevalent
- However, more Americans plan summer vacations, undeterred by gas prices, economic worries

BOSTON, July 11, 2011 -John Hancock Financial [last week] announced the results of its quarterly measure of investors views on a range of investment choices, life goals and economic outlook. For the second quarter of 2011, the John Hancock Investor Sentiment Index score is +18, a four point decline from +22 recorded in the first quarter of 2011, which was the inaugural quarter for the Index.

Majorities express concern about rising gasoline prices and healthcare costs, and just as many indicate they are concerned about the nation's balance sheet. These worries appear to be the primary reason for the lower second quarter score compared with Q1 of 2011. At the same time, investors have retained their faith in the equity market and are optimistic about their personal financial situations.

However pressing economic worries may be, they do not appear to be standing in the way of Americans' summer vacation plans. Four out of five investors in the survey (82 percent) say they plan to take a vacation this summer, notably higher than the 73 percent who reported that they took a summer vacation in 2010. Likewise, six in ten say they expect to spend the same amount of money on their vacations this year, while twenty percent say they expect to spend more. More women than men say they will spend less on this year's vacation.

"While investors continue to keep a wary eye on domestic and global economic issues, our survey suggests that investor confidence persists, although its momentum appears to have slowed somewhat in the second quarter," said Bill Cheney, Chief Economist for John Hancock.

Among John Hancock's key findings for Q2:
- Investors continue to demonstrate a reserved confidence in the stock market, as more than half of those surveyed believe that it is a good time or a very good time to be investing in equities (58 percent say this), in stock mutual funds (53 percent), and in balanced mutual funds combining stocks and fixed income instruments (54 percent). Furthermore, investors plan on investing in equities (75 percent), or in stock mutual funds (73 percent) in the 12 months ahead. These observations are consistent with first quarter findings.

- Investors are the most bullish on blue chip stocks (19 percent) in the near-term, compared with other investments. Sixteen percent think emerging markets will out-perform over the next six months. Roughly one in seven identified gold as the investment most likely to perform well. The most promising areas of the stock market, investors say, are the energy and technology sectors, along with healthcare.

- Even more so than in the first quarter of 2011, investors believe now is a bad time to be holding on to cash. In addition, very few believe it is a good time to be investing in bonds (only 23 percent think it is a good time to do so), or in fixed income mutual funds (25 percent). The more negative views toward bonds and cash are largely responsible for the decrease in the overall Index score.

- Several of the economic issues facing the U.S. are giving investors pause. Sixty-two percent describe themselves as very concerned about oil and gas prices, while 61 percent worry about the national debt, and 59 percent about the rising costs of healthcare. More than four in ten are chiefly worried about the unemployment rate.

- Meanwhile, investors' perceptions of their own financial well-being appears to be holding steady. Consistent with first quarter findings, 49 percent say they are better off today than they were two years ago, while 58 percent say they believe they will be in a better financial position in two more years.
- With most of those surveyed describing themselves as 'long-term investors,' 28 percent said their top goal was planning for retirement. However, among non-retirees, the share citing retirement savings as their main focus rises to 35 percent. Consistent with last quarter, four out of five investors believe it is a good time to allocate money to retirement accounts such as 401(k) plans or IRAs.

Summer Vacation Outlook
Gasoline prices of $4.00 per gallon or higher by July were the prediction of 75 percent of respondents. Overall, 60 percent indicated that gas prices had some impact on their summer travel plans, and women are more likely than men to say that gas prices have affected their travel plans. Among those not vacationing this summer, nearly two in ten (18 percent) say they are doing without because they cannot afford to or are afraid to spend the money on a trip. Only five percent say they cannot get the time off from work, or that they are concerned they may lose their jobs if they do go away on vacation.

IGVS Bargain Stock Monitor At Ten Month High

The '15% down' break-point allows you to keep your eye on 'Bull Pen' items

The 'Bargain Stock Monitor' is one of three market statistics used as performance expectation analyzers for portfolios that are designed and managed using the Market Cycle Investment Management (MCIM) methodology.
It is derived from the month end Investment Grade Value Stock Index (IGVSI) 'watchlist' screening program, which identifies IGVSI companies that are trading at least 15% below their 52-week highs. (This elite group of companies, incidentally, also meet the price selection criteria and standards that I outlined in my book 'The Brainwashing Of The American Investor: The Book That Wall Street Does Not Want YOU To Read.')

The '15% down' break-point allows you to keep your eye on 'Bull Pen' items. (You really need to be familiar with the selection rules to get the most from the BS Monitor (chuckle) and from the Watch List program.)
The fewer IGVSI equities at bargain prices, the stronger the stock market and the more 'smart cash' you should be accumulating in the equity asset allocation 'bucket' of your investment portfolio. As the list of bargain stocks grows (indicating market weakness), portfolio 'smart cash' should be finding its way back into undervalued securities.

The 2011 monitor documents the rally that began in March 2009. At year end 2010, barely 2% of the entire IGVSI universe were at bargain price levels, only 7 stocks. April's '6' tied for lowest-month-end-number-ever honors, and clearly showed the continuation of a bubbling out of control rally. The April 30 number demanded continued 'Buy Side' patience... as May & June have showed you why!

Finally, a buying opportunity in IGVSI equities! In spite of some serious month end bargain hunting (or, possibly, window dressing), the month end 'monitor' showed the weakest market conditions in ten months, but still not a big-deal market correction.

The number of IGVSI bargain stocks doubled in May and re-doubled in June.

Those of you who heeded earlier 'bubble' warnings (on the IGVSI website) and took your profits, should have repositioned some of your 'smart cash' over the past six weeks or so. As for me, I'm rubbing my hands together in excitement, hoping that the market weakness will continue for another few months; in the long run, corrections are a good thing.

If you did not take your profits by the April peak, one of these things happened: (a) You were greedy, and continued to ignore MCIM profit taking guidelines; (b) You didn't have profits because you failed to make new equity purchases during the last correction; (c) You didn't want to be burdened with those short-term capital gains that will surely disappear, yet again; (e) You thought that the rally would last forever.

If you locate yourself in the previous paragraph, you should still have unrealized profits that you should be taking; have you figured out yet that 'total realized return' is a much better number to focus on than the unrealized variety?
On the 'income' side of your portfolio, you should notice significant value gains after the third month of an income CEF rally- particularly in the municipal variety- there have been profit-taking opportunities there as well.

Isn't plain vanilla investing fun?

The Case Against Company Stock In 401(k)s

The risk of overbetting on underperforming stocks is particularly acute

to the security of US workers' retirement saving, highlighting the need for careful asset

diversification within employer-sponsored defined-contribution plans

by Alex Brill
Mr. Brill is a research Fellow at the American Enterprise Institute. He previously served as chief economist and policy director for the House Committee on Ways and Means. He can be reached at alex.brill@aie.org

The stock market has been on a roller coaster in recent years, and such volatility always creates winners and losers among investors, especially those who concentrate their bets on a few individual stocks instead of a broadly diversified investment portfolio. The S&P 500 plunged over 40 percent from the third quarter of 2008 through the first quarter of 2009 before fully recovering by the beginning of 2011. Regardless of the broader performance of equities, there are always underperformers. The risk of overbetting on underperforming stocks is particularly acute to the security of US workers' retirement savings. In this Outlook, I focus on asset diversification within employer-sponsored defined-contribution plans. After discussing the importance of diversification generally, I explain how overinvestment in company stock in retirement accounts poses grave risks. I conclude with potential policy safeguards that could ensure that workers' retirement accounts more effectively manage the tradeoff between risk and expected return.

Key points:
- With the future of Social Security uncertain, retirees may have to increasingly rely on 401(k) plans for retirement security.
- Many workers do not diversify their retirement accounts and invest heavily in company stock, exposing them to serious risk if companies should fail, as Enron did.
- Policymakers can increase American retirement security by restricting employers from offering company stock in tax-preferred 401(k) plans.

The increasingly dominant vehicle for private, employer-sponsored retirement savings for the last thirty years has been the defined-contribution plan. For the sake of simplicity, I will refer to all employer-sponsored defined-contribution plans as 401(k)s, as other plans such as 403(b)s or 457 plans are in the minority and do not differ significantly from 401(k)s for the purpose of this article.
Congress established and refined tax-favored 401(k)s--so called because they are defined in section 401(k) of the Internal Revenue Code--in the late 1970s and early 1980s, leading to their steady rise in popularity. In 2009, 49 million American workers were active 401(k) participants, and 401(k) assets totaled $2.8 trillion, accounting for 17 percent of all retirement assets. Other employer-provided defined-contribution plans, such as 403(b)s, accounted for approximately 8 percent of all retirement savings in 2009, while Individual Retirement Accounts totaled roughly 26 percent. The remainder of retirement assets was held in private defined-benefit plans (13 percent), government pension plans (26 percent), and annuities (9 percent).

401(k) Tax Treatment and Rules
To encourage retirement savings, particularly among moderate-income workers, employer-sponsored retirement savings plans are tax favored in the United States. Contributions to 401(k) accounts are tax deferred, meaning contributions are not considered income in the year they are made. Furthermore, the income earned and the gains realized on assets held within a 401(k) are not subject to dividend or capital-gains taxes. Interest income is also not taxed. When funds are withdrawn from a 401(k), generally at retirement, withdrawals are taxed as ordinary income. If a worker's marginal income tax rate when the contribution is made is the same as when the withdrawal occurs, the tax deferral itself does not yield a financial gain to the worker. However, if the worker's income is lower during retirement, his or her marginal tax rate may be as well, yielding an additional tax benefit.

Diversification is particularly important in retirement accounts, as assuming unnecessary risk jeopardizes essential retirement income.
The benefit of this tax-free treatment while assets are being accumulated in the account depends on how the funds are invested. For example, 401(k) funds invested in high-yield dividends or interest-bearing accounts enjoy more tax savings than an account holding low- (or non-) dividend-paying equities or zero-coupon bonds. Similarly, actively traded mutual funds with significant capital gains yield more tax benefits inside a 401(k) than a fund of equities that trades infrequently and realizes few capital gains.
Certain rules come with the tax benefits, however, namely an annual limit to 401(k) contributions and a minimum age at which workers can begin to withdraw funds without a penalty. For 2011, an employee eligible to participate in a 401(k) plan may generally contribute up to $16,500 into a 401(k) account ($22,000 for workers over 50).[4] The minimum age to begin withdrawing funds from a 401(k), without a 10 percent penalty, is 59.5. In addition, most 401(k) participants enjoy some amount of employer match for their contributions. Typical for many workers is a match of 50 percent up to the first 6 percent of income contributed. In this case, a worker contributing 4 percent of his or her income would be matched with an additional 2 percent into the 401(k) account. Employer matches do not count toward the maximum contribution.

Principles of Diversification
A basic tenet of modern portfolio theory is that for a given preference of risk, a properly diversified port-folio will maximize expected return. Because the returns of any particular asset bear some correlation to the returns of all other assets, proper diversification is prudent. It is unwise to put all your eggs in one basket, as the saying goes. The theory concludes that an investor can earn the same expected rate of return with less risk by investing in a portfolio of assets whose returns are not perfectly positively correlated.
Diversification is particularly important in retirement accounts, as assuming unnecessary risk jeopardizes essential retirement income. The favorable tax treatment and the restrictions on withdrawals before retirement are policies intended to assist workers in accumulating assets to support their consumption during their retirement years. Finance theory dictates that consistent with these goals, accounts should not assume unnecessary risk for a given level of expected return.
In addition, market volatility, as we saw when the stock market declined 39 percent in 2008, can pose risk to retirees and near-retirees if they are not properly diversified and hedged. One approach to addressing this risk has been the development of lifecycle funds that automatically transition from equity holdings into less risky bonds as a worker approaches retirement, but other diversification risks exist. In particular, many 401(k) accounts have concentrated holdings of individual investment products, often employer stock, former employer stock, or other single-issue equity products. A disproportionate concentration in any single asset will likely exacerbate the volatility within a retirement account. As the market fluctuates, so does the well-being of America's retirement security. Every year, some major publicly traded corporations experience big stock declines. If near-retirement-age employees hold large concentrations of these assets, their retirement security is jeopardized.

Company Stock in 401(k)s
One type of investment that acutely demonstrates the risk associated with poor diversification is company stock in employees' retirement accounts. For an example of the devastating consequences of this practice, we need look no further than the Enron bankruptcy in December 2001. At the end of 2000, 62 percent of Enron employees' 401(k) assets were invested in company stock.[7] Between January 2001 and January 2002, the value of Enron stock fell from over $80 per share to less than $0.70 per share,[8] decimating many employees' retirement accounts just when they lost their jobs.
This aspect of retirement security has received diminished attention in recent years, perhaps coinciding with the decline in the percentage of 401(k) accounts invested in company stock. According to data collected by the Employee Benefit Research Institute (EBRI) and the Investment Company Institute (ICI), the share of aggregate 401(k) assets invested directly in company stock declined from 19 percent in 1996 to 9 percent in 2009. However, while the share of all 401(k) assets invested in company stock has trended down in the aggregate, two concerns persist based on disaggregated EBRI/ICI data. First, some employees' retirement funds are still highly invested in their employer. In 2009, 46 percent of 401(k) participants had company stock available to them in their plans. Of those, 48 percent did not have any company stock in their 401(k)s, but 28 percent held more than 20 percent, and 5 percent held more than 80 percent. Second, company stock is still prevalent in bigger companies, in 2009, company stock was available as an investment choice for 66 percent of those in plans with more than five thousand participants. New employees are less likely to hold company stock in their 401(k) plans, but for older workers, those nearer to retirement, who remain invested in company stock, the risks associated with failure to adequately diversify are great.
Neither the decline in the percentage of 401(k) assets invested in company stock nor the trend among younger workers away from this practice should lead to complacency. International Paper, facing a liquidity constraint induced by the economic downturn, began to match employee 401(k) contributions with company stock instead of cash in 2009. The fact that any company is moving in this direction, particularly one of such size and stature, is of great concern and indicates that the lessons of Enron and similar companies have not been properly learned.
Another warning sign is the lawsuit brought by Lehman Brothers' 401(k) retirement plan and its participants against former CEO Richard Fuld and other executives after the company's bankruptcy in September 2008. The suit blames these executives for the losses on company stock in the 401(k) plan. At the end of 2007, $228.7 million of the plan's assets was invested in the Lehman Brothers Stock Fund, which had 10.6 percent of its assets in Lehman shares that became worthless after the bankruptcy. Whether Lehman executives are culpable for the losses is beside the point for the purpose of this Outlook--the primary concern is that the company's 401(k) assets were invested in company stock despite the associated risk.

Pros and Cons of Holding Company Stock in 401(k)s
The detrimental effects of company stock in 401(k)s are not a foregone conclusion. Some employers and employees praise the practice and actively engage in it. It is thus important to acknowledge the claims that are typically made in support of company stock, as well as the legitimate intent behind these claims. It is of greater importance, however, to recognize that the risks ultimately outweigh these perceived benefits.
Benefits of Holding Company Stock. From the employees' perspective, common arguments in favor of company stock in 401(k)s include the tax benefits, the advantage of having private information about the company, and the satisfaction of feeling part of a team by being both invested in and working for a company.
From the employers' perspective, they would arguably want to make matching contributions to 401(k)s in the form of company stock as well as encourage employees to invest their own 401(k) contributions in the company. Common arguments include the increased productivity that follows from employees being invested in their own company, employer tax benefits, lower fiduciary risk, protection from hostile takeover, a cheaper means of matching 401(k) contributions, and easier financial reporting. In addition, this practice seems to better align worker interests and incentives with shareholder objectives. If workers are invested in a firm, other investors may perceive it as a positive signal.
Many of these arguments are based on reasonable goals, but their rationality is questionable. The key point is that 401(k)s have one primary goal, and that is retirement security. However reasonable or unreasonable the goals are that drive 401(k) investment in company stock--and however effective or ineffective company stock is at achieving these goals--they are made irrelevant by the fact that holding company stock in a 401(k) jeopardizes retirement security, as detailed below.
Downsides of Holding Company Stock. In addition to the risks of 401(k) investments being poorly diversified, as established above, there are also other downsides to company stock in 401(k)s. The most obvious is the Enron phenomenon: for workers, investing retirement funds in the company is a 'doubling down' of their bet on that employer--if the firm goes bankrupt, the workers may lose both their jobs and their retirement savings.
Research has shown that there is inherent inefficiency in investing 401(k) assets in company stock. According to economist Lisa Meulbroek, "Because employee investors earn exactly the same returns as fully diversified investors, but are exposed to greater risk, holding company stock is inefficient for all employees, irrespective of their risk tolerance." The inefficiency lies in the "[e]xposure to greater risk without commensurately greater returns." In other words, employees are not compensated for the assumed risk, so the stock effectively has less value for an employee even though the returns are identical to a fully diversified investor's returns.
Policy Objectives
Given that some employees have 401(k)s heavily invested in company stock and given the inefficiencies of non-diversified investment, policy measures for protecting workers from this kind of risk are worth considering. 401(k)s are retirement-security products, and allowing unduly risky behavior within these tax-preferred accounts defeats that purpose. Given that diversification enhances financial stability, a worthy policy goal is to ensure adequate diversification.
Some argue that government has no business interfering with individuals' investment decisions, and they protest against attempts to set rules governing individuals' choices about retirement accounts. The type of government intervention that would limit options by requiring diversification has been called "arrogant meddling." But this complaint misses an important point: government policy created the tax carve-out for retirement savings. Tax preferences on defined-benefit and defined-contribution plans combined are the second-largest tax expenditure in the 2010-14 budget window. Government intervention in an individual's ordinary investment decisions would indeed be inappropriate. However, government can have a say in the rules overseeing retirement security when, in our current income-based tax system, retirement accounts are tax favored. Put simply, not having an efficiently diversified 401(k) is an unequivocally bad idea, and the government should not subsidize bad ideas. In addition, taxpayers themselves bear the risk: if people lose their private retirement savings, they will require greater government assistance in their advanced years.

Conclusion: Policy Options
Policies guiding 401(k) diversification would address two related issues: the risk from being overly invested in one's employer, and the risk from being too invested in any other single stock. While the policy objective is clear and straightforward--ensure adequate 401(k) plan diversification--implementing it may prove more difficult. The 401(k) accounts that pose the greatest risk are accounts heavily invested in company stock and held by older -workers. To avoid another Enron, rules would need to be established to bring current 401(k) plans into compliance with new diversification protocols. This would require mandating that employees sell company stock and buy more diversified assets. But this may result in the exact outcome the policy is attempting to avoid--forcing workers to sell company stock when it is inopportune.
One way to address this problem is to establish rules governing future 401(k) contributions and to prohibit workers from purchasing additional company stock with existing plan assets. This policy is likely more workable but would not address the most pressing risks of current and near-current retirees. Short of mandating diversification, establishing default 401(k) settings to promote investment allocations that exclude company stock (and possibly narrowly constructed mutual funds) could help steer workers toward more sensible investing.
A related option is to impose diversification requirements in 401(k) plans similar to those imposed on mutual funds themselves. While there is a clear precedent for these diversification criteria, one drawback is the difficulty for employees to rebalance their portfolios on a regular basis. These problems could be avoided if the worker's 401(k) assets were invested only in mutual funds.
Going forward, the most feasible option for addressing company stock in retirement accounts seems to be prohibiting employers from providing company stock to employees inside a 401(k) plan. It is unlikely that this would cause employers to be less generous with their plans or to cancel their plans. While a future ban on companies' matching 401(k) contributions with company stock falls short of addressing the entire problem, it is a good first step to broader reform. It could be coupled with a policy ensuring that workers are, at a minimum, aware of the risk posed by failure to adequately diversify. This could take the form of warning letters from 401(k) managers to workers who currently exceed a threshold for company stock or other individual equities, along with financial literacy efforts.
The author wishes to thank Jessica Milano for helpful comments.

Reprinted with the permission of the American Enterprise Institute for Public Policy Research, Washington, D.C.

Raymond James to pony up $300M to buy back ARS

B-D agrees to settlement with states, SEC over auction-rate securities; to pay $1.7M fine

by Bruce Kelly / posted at Investment News June 29, 2011 11:31 am ET

As part of a settlement with eight states and the Securities and Exchange Commission, Raymond James Financial Inc. will buy back $300 million in auction-rate securities from clients and pay a fine of $1.7 million. The states in charge of the settlement are Florida and Texas. Other states involved were Indiana, Missouri, New York, North Carolina, Pennsylvania and South Carolina.

Raymond James has 30 days to extend an offer to repurchase the securities, and the offer must be open for 75 days after that initial bid.
Raymond James' registered representatives and financial advisers told their customers that ARS were "cash equivalents" and "highly liquid" short-term investments that sported a higher yield than money market accounts, according to the consent order for the dispute.

Raymond James has been dealing with the ARS mess since the winter of 2008, when the market froze for billions of dollars of the securities, leaving institutional and retail clients locked into large cash positions. In August 2008, Raymond James said it was subject to investigations by regulators regarding the ARS sold be its registered reps to clients, who owned about $1.3 billion in paper at that time.
Since then, the firm has been unwinding its position, but the issue of buying back ARS has been a thorn in the side of the brokerage for some time. In March 2009, the firm's chairman and former chief executive, Tom James, said it was possible that Raymond James could sue an issuer of the securities, Pacific Investment Management Co. LLC, if it failed to buy back the securities from clients.

"These [issuing firms] are going to refinance; otherwise, as I've told them, 'We're going to sue you guys,'" Mr. James said at the time. "You don't understand. We distributed for you guys, and you haven't lived up to your obligations."

Raymond James, which neither admitted to or denied the allegations, noted that it was fined by the states, not the SEC.
"Raymond James leadership worked diligently to facilitate redemptions by the issuers of ARS," the firm said in a statement. "Client holdings at the firm were reduced from approximately $2.1 billion in February 2008 to $280 million this month."

"I am pleased we are able to resolve this issue and provide liquidity to clients who continue to hold ARS in their portfolios," said CEO Paul Reilly. The $300 million buyback seems a large sum for Raymond James to pay, considering in May the B-D noted that 'any action by a regulatory authority to compel us to repurchase the outstanding ARS held by our clients would likely be vigorously contested by us.'

What's more, rival Morgan Keegan & Co. Inc. yesterday won a major court victory stemming from its sales of ARS. A federal judge in Atlanta on Tuesday rejected SEC claims that the brokerage, a unit of Regions Financial Corp., misled investors about $2.2 billion in ARS.
In announcing the summary judgment, U.S. District Court Judge William S. Duffey Jr. said 'failure to predict the market does not amount to securities fraud.'

Hedge Fund Manager Sees China's Energy Demands

Benefiting U.S. Natural Gas Industry, Oklahoma Companies

Covenant Investors' Steve Shafer Says Emerging Markets' Purchases Could End Glut

Oklahoma City, OK- June 29, 2011- Steve Shafer, Chief Investment Officer for Covenant Financial Services, LLC (Covenant Investors), sees a bullish scenario for Oklahoma City-based energy companies Chesapeake Energy Corp (NYSE: CHK), Devon Energy Corporation (NYSE: DVN) and SandRidge Energy, Inc. (NYSE: SD), based on his recent visit to China in June.

Natural gas is a core element of China's newly-adopted Five Year Plan, and as a result, China more than doubled its imports of natural gas in 2010 over 2009. About half of the imported gas was delivered by pipeline from central Asia and the other half in the form of liquefied natural gas, or LNG. China and other emerging market countries are expected to become buyers of cheaper LNG from Canada when its new LNG export terminal is completed in British Columbia in 2015. If that happens, it could siphon off a significant source of natural gas that normally goes to the U.S., thus driving up domestic natural gas prices that have been depressed by excess supplies in the market. In 2009, Canada provided 87% of all U.S. natural gas imports, representing 12% of U.S. consumption.

"Obviously, this scenario is going to play out over years, not months, but any sustainable upward trend in prices will greatly benefit the U.S. natural gas industry and its large players based in Oklahoma," commented Shafer. "While prices have firmed up this year, there is no question that China will have a substantial effect on global natural gas prices in the not-too-distant future," he added.

Natural gas prices fell sharply in the aftermath of the recession, from a high of just over $13 per million British thermal units (BTUs) to a current $4.32. Although electric utilities, manufacturers and car makers are increasing their use of natural gas, the discovery of shale gas in the last few years created excess supply.

"Today natural gas is effectively a domestic commodity, but because of China's significant growth and consumption, it will soon become a true global commodity in a manner like crude, coal, and copper," said Shafer.

About Covenant
Covenant is a multi-strategy, multi-asset global macro investment manager focused on protecting capital while generating targeted rates of return. As a fiduciary, Covenant is dedicated to delivering desired results at a low risk with low volatility and with a high degree of liquidity. Covenant's investment management is notable for a highly active, tactical style that can be assisted but not replicated by quantitative tools. Moreover, continuous, monitoring of securities and trades ensures that every position is delivering results consistent with investor objectives. To learn more, visit www.covenantinvestors.com.

Greek Crisis: A Lesson in Spending Beyond Your Means

Troy, MI June 21, 2011- "Greek bonds are now rated junk, the lowest rating of any country, even lower than Pakistan and Ecuador, and French and Portuguese banks are under review for having Greek debt. Overall, this crisis will come to a head, because it has to (the debt is coming due). The Greeks will suffer, or…the Greeks will suffer. Then, maybe a lesson might be learned about spending beyond your means: Hello? Washington?", says Leon LaBrecque, managing partner and founder of LJPR, LLC, a firm managing over $350 million in assets.

"I'm watching the strikes and protests in Greece and the prospective rejection of austerity measures. The Greeks are upset because of draconian restrictions on their spending to balance their budget. Looks to me like the Greeks are in between the proverbial rock and a hard place," says LaBrecque.

They can accept the austerity measures, tighten the belt and pay more taxes and retire later. The Germans will bear the brunt of the bail-out costs, but the Euro zone will hold through the crisis, which will probably be repeated (replace the word 'Greece' with 'Portugal' for example).
They can reject the measures and get kicked out of the EU, and then default on their debt. This would probably really hurt the Euro, and clearly the Greeks would then have a whole new set of concerns, like a worthless currency and the inability to raise money. The holders of Greek debt would get stiffed, and their ratings would suffer.
"One wonders what would have happened had the U.S. remained 50 separate sovereign states and then tried to get together to form a common currency? Things would probably be OK while the economy was good, but I could picture states like Minnesota, Alaska or North Dakota getting aggravated at Louisiana when a hurricane hit, or if California ran up its debt too high. Families are tough enough to run, especially extended families, like the EU," says LaBrecque.

About LJPR: LJPR, LLC is an independent wealth management firm headquartered in Troy, MI. For over 20 years, LJPR has been reducing uncertainty for their clients finances by providing creative wealth management solutions in investments, taxes, financial planning and estate planning. . Leon C. LaBrecque is an attorney, CPA, CFP, and CFA (Chartered Financial analyst). Leon is CEO and chief strategist for the independent wealth management firm, LJPR. Leon has been analyzing and investing in individual Bonds, particularly Michigan municipal bonds. Leon LaBrecque’s direct e-mail is leon.labrecque@ljpr.com. The Firm’s telephone is 248-641-7400.

Opinion

Is the Fed Insolvent?

And if it was, would anyone even know publicly?

Some are calling the Federal Reserve a so-called 'bad bank'

by Robert Romano / posted at Americans for Limited Government/ Netright Daily June 15, 2011

Mr. Romano is the Senior Editor of Americans for Limited Government.

According to Euro Pacific Capital Chief Economist Michael Pento, the Fed has just $52.5 billion of capital to back its $2.7 trillion balance sheet, an equity cushion of just 2 percent.
Over $917 billion of that balance sheet is in mortgage-backed securities (MBS), the same assets whose depreciation played a central role in the financial crisis. If the value of those securities, which are linked to housing values, were to fall by just 6 percent, the Fed would be bankrupt.

That's particularly disconcerting, especially with housing in a double-dip recession. Home values are now lower than they were in April 2009, the previous bottom in the housing market. Another 6 percent of price depreciation is not out of the question.
Pento compared the Fed to investment firms like Bear Stearns that bet poorly on housing, and eventually became insolvent. "Prior to the bursting of the credit bubble, the public was shocked to learn that our biggest investment banks were levered 30 to 1. When asset values fell, those banks were quickly wiped out. But now the Fed is holding many of the same types of assets and is levered 51 to 1," he commented.

Making matters worse, Pento reports that in January, the Fed changed its accounting practices 'to ensure that it never technically runs out of capital.' Instead, it is now booking any losses as Treasury liabilities, essentially putting taxpayers on the hook for bailing out the central bank - all without any vote in Congress. Pento called it 'a system that would make Enron jealous.'
When the Fed announced the move, Bank of America-Merrill Lynch analyst Brian Smedley, a former New York Fed staffer, and colleague Priya Misra wrote in a research note, "The timing of the change is not coincidental, as politicians and market participants alike have expressed concerns since the announcement (of a second round of asset buys) about the possibility of Fed 'insolvency' in a scenario where interest rates rise significantly."

Of course, potential rising interest rates are not the only threat to the Fed's solvency. After QE2 ends this month, the Fed will be continuing its program to sell $917 billion of MBS and then using the money to purchase yet more treasuries.
With housing in decline once again, the value of its MBS are a legitimate concern if it plans to continue the program. Pento notes, if "...financial institutions were forced to pay par for the Fed's mortgage assets, Bernanke would destroy a great deal of their capital and a new breed of zombie banks would re-emerge.

So, hence the accounting trick. The Fed can still sell all the mortgage paper it wants for less than it purchased them- without any seeming consequences to its bottom line.
But who knows how bad it really is? According to the Financial Times Robin Harding, the Fed 'will never have to report negative capital on its weekly balance sheets unless it suffers catastrophic losses.' How would anyone know, then, when losses are just bad, or really, really bad?
Because if insolvency is merely a matter of accounting to the central bank, then this issue lends a lot of credence to Rep. Ron Paul's proposal to audit the Fed from top to bottom. If it is to be the steward of the dollar and our nation's economic health, and takes on trillions of dollars of risk, there has to be an independent means of seeing if it is playing by any rules at all.

Or, if it is just a bad bank.

Securities America asks reps to pledge allegiance

Loyalty letter seen by some as signal firm is close to being sold

by Bruce Kelly / posted at Investment News June 9, 2011 12:27 pm ET

Securities America Inc. this week took the unusual step of asking its 1,800 reps and advisers to sign a 'letter of support' to indicate their intention to remain at the firm, a development that some observers took to mean that a sale of the troubled broker-dealer could be imminent.

Securities America's parent company, Ameriprise Financial Inc., said in April it would look for a buyer for the firm.
The request to sign the loyalty letter comes as many of the firm's reps and advisers are shaping exit plans in case they decide to leave. The letter makes no mention of a retention bonus for the brokers, a common practice to get reps to stick with a broker-dealer after another firm buys it.

But some inside and outside the firm took the letter as a sign negotiations with a potential buyer are progressing.

"I would suspect they've got a short list" of potential buyers, said one Securities America rep, who asked not to be identified. The rep said he has no direct knowledge of specific firms with interest in buying Securities America.

The rep also said that the firm is in the process of 'rounding up' some of the highest-producing brokers and will give them access to private information about the sale of the firm in order to win their loyalty.
The three-paragraph note for reps to sign is addressed to 'To Whom It May Concern,' and states:

"We are confident in the abilities of Securities America's senior management team to navigate the company through these challenges and opportunities."

"We believe they will assist [parent company] Ameriprise in the selection of a new owner with the interests of the advisors and our clients firmly in mind."

It then concludes: "We intend to stay with Securities America to see what opportunities will come from this process."

The firm was expected to post the letter with the signatures on an internal company website. Reps could send an electronic scan of their signature or sign a blank sheet of paper and fax it to the firm.
The compensation of management in transactions such as the sale of a broker-dealer is commonly tied to the retention of brokers, experts noted. The larger the number of brokers who stick with a firm after it's acquired, the bigger the payout for management, they said.

The ultimate purchase price is also tied to broker retention in such deals, industry observers noted.
"It seems like a transparent effort to prop up the value of the franchise by presuming to show a certain level of advisers' loyalty," said Danny Sarch, an industry recruiter. "The letter can easily backfire. Once it's known the letter is out there, a prospective buyer will ask, ‘How many did you get back?' It seems a bit desperate."

Securities America has stressed that its brokers aren't leaving, despite the upheaval. In fact, the firm this month said it had recruited a team of six advisers in Bismarck, N.D., from Axa Advisors LLC. The firm already has had one high-profile defection, however. In March, one of its top-producing brokers, Sue Ricker, left to join LPL Financial, the leading broker-dealer under the umbrella of LPL Investment Holdings Inc.
In a Tuesday e-mail to advisers, chief marketing officer Janine Wertheim wrote that the idea for the loyalty letter came from advisers in the field, not management.
Securities America "can't comment on the sales process" and discuss the number of broker-dealers that have shown interest, Ms. Wertheim told InvestmentNews. The letter is a way to acknowledge the support for the firm from advisers, she said.

Securities America has been in turmoil since the Securities and Exchange Commission charged an issuer of private placements, Medical Capital Holdings Inc., with fraud in July 2009. Dozens of independent broker-dealers sold the Medical Capital notes, but Securities America was the product's biggest distributor, selling $700 million worth of the notes to clients. About half that amount is in default.

After months of bitter litigation over the failed Medical Capital private placements, the firm in April reached a potential $160 million settlement with investors in a class action. A week and a half after that, Ameriprise said it was putting the firm on the block.

Diversifying Client Portfolios

Survey reveals real opportunity via direct investment

ELLICOTT CITY, Md.--(BUSINESS WIRE)--According to a recent consumer study conducted by the Investment Program Association (IPA), 83 percent of investors ranked diversification as being absolutely to very important in their own portfolio.

The study was recently conducted online by Research Now on behalf of IPA to gauge current consumer perceptions about their readiness for portfolio diversification and awareness of Direct Investments. It surveyed U.S. adults with household income of $150,000 or more and a net worth of greater than $750,000.
The study further reveals only 40 percent of respondents claim some level of familiarity about direct investing in hard assets, pooling investor capital to directly invest in hard assets like non-listed real estate investment trusts (REITs), and oil and gas and equipment leasing programs. Yet, greater than half of the respondents say they are extremely to very interested in investments that deliver the type of qualities Direct Investments provide, generates income (46 percent) and hedges against inflation (52 percent).

"These results clearly confirm the vast opportunity for advisors to grow their own business, while also helping clients achieve true portfolio diversification," said Kevin Hogan, IPA executive director. "With more than half of investors surveyed indicating they are extremely to very interested in learning more about these products, the opportunity for advisors is vast."
The majority of Direct Investments are designed to be held, seldom traded. Working with a trusted financial advisor to allocate a portion of one's portfolio in Direct Investments, investors can realize the benefits of these medium-to long-term investments including, portfolio balance, stable income, reduced market volatility, a hedge against inflation and the potential for capital appreciation.
"It's no surprise investors' surveyed reported high levels of knowledge and familiarity with traditional products such as IRAs/401ks, stocks, bonds and mutual funds, whereas 60 percent of investors claim little to no knowledge of direct investing in hard assets," said Hogan. "We encourage advisors to use tools developed by the IPA to gain greater knowledge and understanding about the importance of allocating a percentage of their client's portfolio in Direct Investments to achieve true portfolio diversification."

The IPA is committed to educating advisors about how these products work, thus allowing more financial advisors and their clients to realize the distinct benefits of investing directly in hard assets.
The association is currently offering a complimentary FINRA-reviewed and compliance-ready Guide to Understanding Direct Investments, which provides a thorough overview of this asset class and is designed to help financial advisors inform clients about how Direct Investments can truly diversify their portfolio. Additionally, the association has made available a complimentary, introductory e-learning course for the investment community, which presents the full range of Direct Investments available, and communicates the unique benefits of diversifying an investment portfolio with this asset class. Advisors will receive two continuing education credits toward the CFP® designation for the course.

About The Investment Program Association
The Investment Program Association (IPA) was formed in 1985 to provide effective national leadership for the Direct Investment industry. For the last 25 years, the IPA has successfully championed the growth of Direct Investment products, which have increased in popularity with financial professionals and investors alike. Today, the IPA is the leading advocate for the inclusion of Direct Investments in a diversified investment portfolio. The mission of the IPA is advocating Direct Investments through education. Request your free copies of the Guide to Understanding Direct Investments, or take the free IPA e-learning course, Fundamentals of Direct Investments.Visit the IPA online for more information about becoming a member.

About Research Now
Research Now is the leading global online sampling and online data collection company. With more than six million panelists in 38 countries worldwide, Research Now enables companies to listen to and interact with real consumers and business decision makers in order to make key business decisions. Research Now offers a full suite of data collection services, including social media sampling, and operates the Valued Opinions, Panel and e-Reward Opinion Panels. The company has a multilingual staff located in 22 offices around the globe and has been recognized for four consecutive years as the industry leader in client satisfaction.
1 This survey was conducted online within the United States by Research Now on behalf of IPA from April 21 - April 22, 2011 among 519 adults ages 18 and older. This survey is not based on a probability sample and therefore no estimate of theoretical sampling error can be calculated. For complete survey methodology, including weighting variables and subgroup sample sizes, please contact Roxanne Pipitone at 847-519-9150, x2112.

Post-crisis:

Americans report fundamental changes in investment behavior,

With many rethinking participation in the stock market

and saying they are investing more conservatively, can they achieve retirement goals?

NEWARK, N.J.--(BUSINESS WIRE)--The majority of individual investors (58 %) say they've lost faith in the stock market and 44 percent say they are not likely to ever put more money into the market, according to a new survey by Prudential Financial, Inc. (NYSE:PRU). Furthermore, many respondents reported that they have invested more conservatively coming out of the financial crisis.

'Americans clearly recognize the need for new approaches to retirement planning, with almost seven in 10 saying guaranteed lifetime income products are appealing'

The study shows that investors are re-thinking their financial and retirement planning strategies in the aftermath of the crisis, and acknowledge that new approaches are needed to make up for lost ground. Nearly three in four Americans (72%) agree that they need to think differently about saving and planning for retirement, according to the study, 'The Next Chapter: Meeting Investment & Retirement Challenges,' which looked at Americans' financial behavior in the wake of the financial crisis.

When it comes to their investing strategies, 61 percent of those surveyed believe the principles of investment diversification and asset allocation have changed. Many are taking a more conservative approach to their portfolios. Today, only 37 percent of the respondents describe their portfolios as aggressive, versus 46 prior to the recession. Similarly, 40 percent say they have a conservative portfolio today compared with 33 percent pre-recession.

"These findings are consistent with what we're seeing in the marketplace," said Judy Rice, president of Prudential Investments. "Mutual fund investors are beginning to behave much more like institutional investors and are just as focused on managing risks as they are on generating good returns. As a result, they are looking to real assets and market neutral and fixed income products to protect against the threat of inflation and market volatility."

Most investors (73%) believe the investments they have today are not enough to make up for the losses they've experienced over the past few years, according to the survey. While they want and know they need growth, protection is at the forefront, with 60 percent stating they are looking for guarantees to protect their financial future.

"Americans clearly recognize the need for new approaches to retirement planning, with almost seven in 10 saying guaranteed lifetime income products are appealing,â"said Stephen Pelletier, president of Prudential Annuities. "The findings are consistent with the trend we are seeing toward many investors including annuities in their portfolios to provide a guaranteed floor for their retirement income."

While the study shows that seven out of 10 respondents say that they have taken steps to improve their financial situation, such as increasing and re-allocating investments in workplace retirement plans, the study highlights the dilemma that Americans face by pursuing a more conservative approach, that is, they may fall short on achieving their retirement goals.

"It's clear that the financial crisis has driven fundamental changes in the way Americans are saving for retirement, with millions of Americans perhaps at even greater risk of having insufficient income for a secure retirement," said Christine Marcks, president of Prudential Retirement. "One solution may be to include guaranteed income products within workplace retirement plans, which can be structured to provide downside protection as well as the opportunity for growth. Also, despite the fact that we are seeing some positive signs, such as increasing contributions to 401(k)s and other retirement savings vehicles, the lower interest rate environment and more conservative investing will require Americans to save even more if they are to achieve their retirement goals."

The survey polled 1,274 Americans in an online survey through January 5, 2011. For a full copy of the report, please visit here

Investor Uprising Publishes Free Biotech Investment Report

BioTech has been roaring forward, but not a lot of investors are aware of it

NEW YORK, June 1, 2011 -PRNewswire- Investor Uprising has released 'A Guide to Biotech Investing,' a four-page, definitive guide to the best biotech Exchange Traded Funds (ETFs) and mutual funds, which is available free to registered users of the Website.

'A Guide to Biotech Investing' analyzes the ongoing biotech bull market, identifying the leading biotech mutual funds and ETFs. It explains how individual investors can gain exposure to the biotech market to diversify their portfolios, as well as how to go about looking at a variety of biotech funds and ETFs.
'Biotech has been roaring forward, and not a lot of investors are aware of how to gain exposure to the market,' says R. Scott Raynovich, editor-in-chief, Investor Uprising. 'Biotech ETFs are a good play in an appealing investment sector with relatively low correlation to macro-economic problems.'
Some biotech funds identified in the report are up more than 100% over the last five years, with less volatility than the Nasdaq Index. This report tells you why, and how to tell the funds apart. The report explains the components of the various biotech ETFs and which should be sought for either large-cap or mid-cap investments. The report compares the leading biotech funds and ETFs with leading technology ETFs.
The mutual funds and ETFs tracked by the report include the T. Rowe Price Health Sciences Fund (PRHSX), Fidelity Select Biotechnology fund (FBIOX), BlackRock Health Sciences Ops Inv A (SHSAX), Vanguard Healthcare ETF (VHT), First Trust NYSE Arca Biotech Index (NYSE: FBT), iShares Nasdaq Biotechnology Index (Nasdaq: IBB), and the SPDR S&P Biotech ETF (NYSE: XBI).
The report is the second in a series of free ground-breaking reports published on Investor Uprising and available to registered readers for free. Readers can register for the site here.

About Investor Uprising
Investor Uprising is the individual investor's no-nonsense community for accessing business trends and investment strategies. Combining expert market commentary, fundamental analysis and on-the-ground reporting, Investor Uprising helps the reader find the best investment opportunities in global markets. Sponsored by PR Newswire and operated by UBM plc, Investor Uprising's community of contributors will reach millions of potential business readers around the world.

Investment Grade Value Stocks At Highest Levels Ever

Every rally is different, the result of various economic and/or political circumstances

by Steve Selengut
Mr. Selengut, a professional investment portfolio manager, is CEO of Sanco Services, St. John's, SC. He is a contributing editor for LIFE&Health Advisor and the author of "The Brainwashing of America: The Book Wall Street does not want you to read." You can contact him at sanserve@aol.com

The IGVSI is a barometer of a small but elite sector of the stock market called Investment Grade Value Stocks. Some IGVSs are included in all averages and indices, but even the well dressed Dow Jones Industrial Average includes several issues that are well below Investment Grade and very few boast an A+ rating. The S & P 500 contains about half the IGVSI selection universe, which tracks a portfolio of less than 400 stocks. There has never been a rally that has not proven to be a profit-taking opportunity. While everything is up in price, there is actually much more to worry about than when prices are historically low.

More money will be lost by people who buy into this rally now than will be lost by those who are holding equity-bucket "smart cash" in anticipation of the inevitable correction. Every rally is different, the result of various economic and/or political circumstances that create excessive demand for financial instruments or products. This rally is longer than many I've experienced, but the symptoms of greed-based speculation are pretty normal. Eventually, the natural urge to take profits takes over. Companies are more profitable and productive because they have cut costs and employees, not because demand is shortening supply. Fundamentals are better, but few earnings reports are accompanied by robust assessments of the future. Bargain prices in equities are totally gone, and interest rates really do have nowhere to go but up. Here's a list of things to think about or to do while Investment Grade Value Stock prices are at their highest levels ever: Don't buy a new yacht because you think your Mutual Funds and ETFs are unbreakable, they aren't.

While speculators continue to gamble, get yourself out of the casino. Keep in mind that someone (MCIM followers) is selling the individual shares that the others are buying ---- yes, even those flashy ETFs. Smart selling for profit will be followed by panic selling at ever increasing losses. Remember 2008? Were you selling or buying? There are no crystal balls, and no place for hindsight in an investment strategy. Selling too soon, for reasonable profits, is every bit as important to long-term investment success as buying too soon is during corrections. Take a look at the future. Nope, you can't tell when the correction will arrive or how long it will last. If you are selling securities now, as you certainly should be, you will be able to love the correction even more than you did the last time --- as you find yet another IGVSI treasure chest full of diamonds (in a "rough" correction). As, or if, the rally continues, pull the sell trigger more quickly, as opposed to more slowly, and establish new positions incompletely so that you can add to them safely later. There's more to "Shop at The Gap" than meets the eye, so when it hits the fan, get in there and get dirty --- but slowly, painfully so. Today, only 4.2% of the IGVSI Selection Universe is down as much as 15% and less than 2% are in buying range. This is unprecedented --- so buy less than you normally would. In looking at your income securities, cash flow is the primary concern; as long as it continues unabated, the change in market value is merely a perceptual/emotional issue. Given the interest rate picture, CEF prices are within their normal range. Note that Working Capital has risen nicely recently ---- this will continue even after the correction begins, just a normal result of embedded cash flow. Look for chances to sell your weaker performers at sub-target profits.

Identify new buying opportunities using a consistent set of rules, rally or correction. That way you will always know which of the two you are dealing with in spite of what the Wall Street propaganda mill spits out. Focus on Investment Grade Value Stocks; it's easier, generally less risky, and better for your peace of mind. Stop examining your portfolio's performance in market value terms --- it leads to fearful, often frantic, decision-making. Keep your asset allocation and investment objectives clearly in focus and try to think in terms of market and economic cycles as opposed to calendar quarters and years. The Market Cycle Investment Management (MCIM) methodology provides a calmer way of dealing with portfolio dislocations in either direction. While all equity prices are up, you really need to be on your toes, or have a reasonable profit-taking discipline.

If you think 10% is too low, you will eventually lose money in the stock market. Rallies, regardless of cause, will vary in height and duration, but both characteristics are only clearly visible in rear view mirrors. The short and steep ones are most lovable; the long and slow ones are more difficult to deal with. If you over-think the environment or over-cook the research, you'll miss the last train home from the party. Unlike many things in life, "shock market" realities need to be dealt with quickly, decisively, and with zero hindsight. Because amid all the uncertainty, there is one indisputable fact that reads equally well in either market direction: there has never, ever, been a rally or correction that has not given way to the next correction or rally.

Now get out there and sell high(er) for a change- the MCIM force is with you.

UBS Launches new options algorithms

More effective management, navigation, of the trading market

New York, May 3, 2011 -UBS Investment Bank announced today that it has launched a new suite of intuitive algorithms and tactical order types for trading US Listed Options. Its new offering will be an enhancement to the existing suite, enabling clients to more effectively manage orders and better navigate the rapidly evolving trading market.

This expanded offering builds on UBS's market expertise in US Listed Options. The bank was one of the first brokers to offer algorithmic trading strategies for options over three years ago. The offering is now being expanded to include an array of more nuanced liquidity and volume-sensitive order types. One addition is UBS Options TapNow, an urgent liquidity-seeking strategy that is a variation of the firm's award-winning cash equities algorithm, UBS Tap.
"In response to the significant increase in growth and sophistication of the market, as well as our clients' requests for more efficient ways to route their orders, we developed these new options algorithms," said Owain Self, Global Head of Algorithmic Trading for UBS. "We are excited to expand our options offering to include a diverse array of new order types that will enhance our clients' trading performance."

These algorithmic strategies and tactical order types are available on UBS's own Pinpoint execution management system, and are live and being deployed with over a dozen third party OMS and EMS platforms that already carry UBS US Listed Options algorithms.

The seven new order types include:

-Options TapNow: Seeks to minimize market impact while intelligently seeking aggressive execution up to a limit price.
- Options Premium Trigger:Allows you to place an options order that is relative to the price of the option premium, rather than the underlying security.
- Options Float: Allows you to float your order in the market pegged to the passive side of the spread.
- Options Hidden: Holds your order off the exchange until your desired price is available.
- Sweep Display: Aggressively sweeps at the market until the order is filled or no longer available, posting on multiple markets simultaneously.
- Sweep No Display: Aggressively sweeps at the market until filled or no longer available. Unmarketable orders are held back until the displayed price is in your limit.
- Sweep IOC: Executes a wave of immediate or cancel orders across multiple markets simultaneously, cancelling any residual unfilled shares.

UBS's existing suite of Direct Market Access order types and algorithms, including Options TWAP and Options Delta Adjust, will continue to be available, as well. Visit UBS.

Grantham: Bad China, good weather

will bust commodity market 'en masse'

Real estate slide in the PRC, plus mild global climate, could lead to rout, says legendary bear investor

posted at Investment News April 29, 2011 7:27 am ET

Jeremy Grantham said there is a 25 percent chance that China, the world's second-largest economy, will 'stumble' by next year over imbalances such as too much capital spending, an overheating real estate market or accelerating inflation.
China's economic growth may 'slow to considerably less' than the 9.7 percent pace reported for the first quarter, Grantham said. Inflation accelerated to 5.4 percent in March, the fastest pace since July 2008, adding more pressure on officials to tighten monetary policy.

Grantham, 72, is best known for his bearish outlook and for spotting asset bubbles early. He correctly forecast in 2000 that U.S. stocks would decline in the coming decade, and as early as July 2007 predicted that a large global bank would go bust amid credit market declines. He recommended buying U.S. stocks for a five-month period starting in early 2009 in what he called 'my very short life as a bull.'
"I find it intellectually convincing," Grantham said, referring to the idea that China's economy will slow. "Still, they have the ability to get everybody to change the game on a dime."

Incredibly Suspicious
China is seeking to slow the growth of credit after a $2.7 trillion, two-year lending boom. China's regulators on April 20 ordered lenders to strengthen credit controls for local- government financing vehicles, including halting loans or demanding early repayment in the most serious cases. The cost of insuring Chinese bank bonds against default rose more than that for lenders in Russia and India this month.
"If the housing market takes a break, you have a lot of banking losses," Grantham said in the interview. "They've made a lot of loans that look incredibly suspicious."
Grantham says his views on China's economy are less grim than those of his colleague Edward Chancellor, who since last year has said that the nation has displayed symptoms of a 'great speculative mania.' Hedge-fund manager Jim Chanos, who was among the first investors to predict Enron Corp.'s collapse, said last month that the property bubble in China is 'as big or bigger than what we saw in the West' when compared with the size of the economy.

Break the Markets
In an April 25 letter to investors, Grantham said that a decline in China's economy would hurt the commodity markets. If a Chinese decline were accompanied by better-than-expected weather globally, then 'it will very probably break the commodity markets en masse,' he wrote in the letter.
If the weather and China syndromes strike together, it will surely produce the second 'once in a lifetime' event in three years,' Grantham wrote.
Despite some short-term shocks, global demand for energy, metals and crops is outpacing supply, Grantham said, creating 'brilliant long-term prospects' for commodities.

Grantham said in January that the U.S. stock market rally is living on 'borrowed time,' driven by low interest rates and the Federal Reserve's unprecedented stimulus. The Standard & Poor's 500 is worth about 920, Grantham said in the interview, about 32 percent below where it is now. When the Fed eventually 'runs out of money,' the U.S. stock market will fall, Grantham said.
"I'm not good at timing,â"he said. "Sooner or later, it will happen," he said.

Boston-based Grantham Mayo managed more than $107 billion as of Dec. 31, according to its web site.

from Betting the Business

The Collateral Boogeyman

The delusion of 'free' credit from your friendly neighborhood derivatives dealer

by John E. Parsons & Antonio S. Mello

During the debate about financial reform, end-users were scared silly about the possibility that they might have to post collateral on their derivative positions. The horror stories that have been making the rounds are largely baseless. The common plot line in these tales runs something like this:

(1) In the OTC market as it was before reform, dealers used to sell end-users derivatives without requiring any collateral,

(2) after reform, when all trades are forced to be cleared, end-users will have to post collateral, and, finally,

(3) collateral is expensive, so that end-users will see their costs of trading go up.

Hidden in the argument is the unstated premise that in the OTC market before reform it was somehow possible to get something for nothing. An uncollateralized derivative transaction between dealer and end-user exposes the dealer to credit risk from the end-user. Dealers know this. Every deal they do with an end-user must be approved internally by a credit committee, just as does any loan. The end-user's credit is examined and the deal is scored so that the dealer can decide if it wants to accept the credit risk. The deal is also priced with the credit risk in mind. There is no line item charge such as 'credit fee in lieu of collateral', but that doesn't mean no price is paid. Profit on derivative deals are generally captured through the terms of the deal, i.e. through the bid-ask spread. So an end-user who seeks an uncollateralized derivative is getting credit and paying for that credit.

Complaints that mandatory clearing will raise end-users' costs of hedging are all premised on the fallacy that the dealer is giving the end-user a free lunch. But that is just not so. It illustrates how poorly informed many end-users are about the real costs of their trades with derivatives dealers. Bottom line, under both systems the end-user has to pay to finance the credit associated with trading derivatives. Under the old system the end-user's payment is implicit. Under the Dodd-Frank reform, the payment will have to be explicit.

Which system is more expensive to the end-user? That's a deep question we won't answer here, but that we do address in other posts. The point here is that the opponents of reform don't even begin to address the real issues that bear on which system is more expensive. Instead, they have built their opposition on a straw man that assumes end-users are somehow getting their credit for free.

We've made this argument in a presentation to the CCRO which is a private, best-practices organization of risk managers at energy end-users.

Wall Street Most Wanted: A New Blue Chip Market Indicator

The Dow, Investment Grade Value Stocks, and Alternative Investments

by Steve Selengut
Mr. Selengut, a professional investment portfolio manager, is CEO of Sanco Services, St. John's, SC. He is a contributing editor for LIFE&Health Advisor and the author of "The Brainwashing of America: The Book Wall Street does not want you to read." You can contact him at sanserve@aol.com

There are two extremely good reasons why your portfolio may not be "performing" (whatever that means) either as well as you would like or as well as your buddies say that they have been doing. But let's define our terms before digging any deeper. None of you have done as well in the equity market as investment grade value stock investors.
Most of the time, investors are content to observe the steady growth of their portfolio, as income and (unrealized) market value gains add to their ego-friendly asset base --- this while the ebb and flow of the markets remains in a relatively boring "trading range". They can see the steady progress being made toward the goals that they established for their portfolios.
Long-term-successful investment portfolios must have both reasonable goals and a plan for moving in their direction. For them, performance is a measure of this movement toward objectives and it is generally considered a long-term, personal proposition. Income securities are expected only to produce dependable income, and equities are expected to produce growth in the form of realized capital gains.

Unfortunately, Wall Street has created its own definition of performance, one that has nothing to do with the structure and design of your portfolio. Actually, it's difficult to find an investment house that has the courage to encourage the development of an individual equity portfolio.
The idea that an investment portfolio can contain any number of unrelated speculations without itself being speculative is the stuff that Wall Street's alternative investment purveyors are selling. True investment portfolios need none of this, and the numbers prove it true beyond any doubt. There is no need to fight or to counteract the market cycle, which is what alternative speculations try to do.
Easily managed, goal-directed investment portfolios should contain both equity and income producing securities --- each with their separate purposes within the portfolio, and each with their own unique reactions to the same economic, political, and market stimuli.

Portfolios based on quality, diversification, and income keep themselves pointed in the right direction by taking the greed, fear, speculation, and derivatives out of the equation.
From mid 2006 through mid 2007, IGVSI investors experienced upward-only account statements --- actually, they had experienced a seven year positive trend that had propelled their market values forward four or five times further than the major averages during the same period.
The IGVSI, a true blue-chip index, didn't fall as far as the DJIA or S & P 500, and has risen to new all time highs far sooner. IGVSI based portfolios, long-term, have done better by far than the dot-com-replacing ETFs, precious metals, and currency futures.
Alternative speculators have a creed that seems to read: "I'm going to jump in at the end of every new trend, gimmick, product, and hot number so that I won't ever miss out on anything --- and I'll never realize a profit because of the tax implications." Is that what you did in 1987, in 2000, in 2007?
No, of course you don't know that it's the end of the current run up. But it's month 26 of the rally and neither you, your mutual funds or indices, the Dow or the S & P 500 are anywhere near their levels of October 2007.

When investors start to question why their Municipal bond portfolios are trailing the gain in the Dow, or when retirees start to buy gold bullion instead of groceries, something is wrong. And it's the same ole stuff that produces the greed and fear that lead to investment-program-destroying mistakes every time!
So let's look at the performance of the Indices to gain some perspective.
The Dow is comprised of just 30 stocks, no bonds, no CEFs or ETFs, gold, currencies, or foreign companies. Those 30 stocks are not quite as special as you have been led to believe: few are A+ rated, 60% of the Dow stocks are rated A - or lower, and some are not even considered investment grade. While the Dow remains 12.3% below its 2007 high, the IGVSI surpassed its ATH in February and is at rest more than 5% above that level now.

The S & P 500 contains 165 more stocks than the IGVSI, but less than half are Investment Grade value stocks. Although it is more broad based, it is also more speculative, and has not done as well as the DJIA. Still 14.7% below the 2007 high, it would need to gain another 17.2% just to claw back to its 2007 level.
Neither the DJIA nor the S & P are yet in positive territory for the past twelve years. Still, most investors, speculators, gurus, and novices are mesmerized by these mystical illusions of portfolio analytical capability. The Dow is worshipped as the Numero Uno blue chip indicator, yet it contains stocks that don't qualify for the IGVSI. Wall Street brainwashing is an amazing thing to behold..
And then there is the abundance of greed food on the Wall Street menu, always designed to make you uncomfortable with what you own and desirous of the new stuff that's ever so tasty. Index funds propel some stocks to higher valuations while others wind up begging for attention.

This is the same spiel people, the same scenario, which propelled the no value "sector" to prominence in the late 90's. Passive index funds will crash eventually; the more speculative "multipliers" will be banned. What will survive?
Value stocks will survive. Municipal Securities will survive. REITs and CEFs will survive. When will it happen? Will you be safe(r) this time down?

Money on the sidelines

Boomers mindset on investing for retirement in today's economy

from a 2010 consumer poll from MetLife

To understand how Americans are preparing for retirement in the current market environment, MetLife conducted the 'Money on the Sidelines' poll. The poll, conducted online with 1,858 adults age 45+ from September 9-20, 2010, focuses on the products and attitudes needed to save for and generate income in retirement. The poll included 500 Baby Boomer individuals with $200,000 or more in investable assets. The study provides good understanding of why Boomers persist in keeping significant money on the sidelines. They know they are paying a high price for keeping money in liquid low risk investments, but they see themselves in a vulnerable position - with limited ability to maintain their lifestyle should they or people that depend on them incur unexpected expenses, even relatively modest ones, or should their investments lose ground.

Key Insights

Boomers are living close to the wire, with little margin for error:
    - Nearly half (49%) say they could not cut spending by more than 10% without a dramatic change in lifestyle

Boomers are keeping money on the sidelines to cover unexpected expenses and manage market risks
    - 58% of affluent investors keep a portion of retirement savings in liquid accounts in case of
    household emergencies; 31% say it's due to stock market volatility
    - Half (52%) have had at least one unexpected expense in the past year that cost them
    $2,000 or more; nearly 3 in 10 (29%) had between 2 and 5 major unexpected expenses
    - 26% are also keeping assets liquid in case they need to help a friend or family member

Boomers are using costly sources to pay for unexpected expenses:
- 45% are using assets from their emergency savings to pay for expenses
    - 32% are using liquid assets such as CDs, despite high levels of dissatisfaction with their returns - 51% are dissatisfied with the
    performance of their CDs (51%), 58% with bank savings accounts (58%) and 46% with money market accounts
   - More than 1 in 5 (22%) used a credit card or other revolving debt; 9% took out a home
    equity loan and 4% borrowed from a retirement savings plan in order to pay for these bills

Boomers want a plan they can live with:
    - 71% cited understanding their tolerance for risk as a requirement for planning for retirement
    - Other requirements included understanding various investment options (70%), and the help of a financial advisor (53%)

Download the full report (PDF)

How to play the coming bond bust

Leery of Treasurys? Agency debt and bank loan ETFs can make for good alternatives

from Investment News - posted March 21, 2011 2:18 pm ET

The Treasury bond bears are out and aboutâ€”and getting bolder. On Mar. 9, Pacific Investment Management's Bill Gross announced that his $237 billion Total Return Fund, the world's largest bond fund, had shed all U.S. government securities. Short interest in long-dated bond exchange-traded funds (ETFs) has ballooned since the start of 2011, while bank-loan ETFs that use leverage and are therefore exposed to interest rate risk have come under pressure in recent weeks. Behind these moves is a bet that interest rates will rise soon, lowering the value of existing longer-term bonds.

Some strategists have warned that demand for Treasurys by Japan, the second-largest foreign holder, will likely drop as the Japanese government marshals funds for a massive post-earthquake rebuilding effort. Jim Caron, global head of interest rate strategy at Morgan Stanley (MS), said on Mar. 17 in a Bloomberg Television interview that he believes it's more likely insurance companies will cover damages out of premiums, rather than by selling Treasurys.
The earthquake sparked a drop in Treasury prices as investors, anticipating future sales by Japan, rushed to sell. Yields are expected to rise in the second half of 2011, after the Federal Reserve's quantitative easing program has ended. Most economists don't expect the Fed to start raising rates until the end of 2011, and some believe the hikes may not begin until the second half of 2012.
Bond investors are hard-pressed to find decent yields without assuming more risk these days, with interest rates at historic lows and cash vehicles such as money market accounts paying virtually nothing. Investors are also wary that rate hikes will eventually harm the value of existing Treasury debt. This environment has stirred short interest or bets on a selloff in long- and intermediate-dated Treasurys. Year-to-date as of Mar. 9, $800.53 million had flowed into these short positions, compared to a net outflow of $19.55 million in the same period a year ago, according to data compiled by Marco Polo XTF, a New York-based ETF data provider.

All Eyes on Signs of Inflation
While bets against longer-dated Treasurys may seem premature, given the current low inflation rates and the prospect of high oil prices denting growth, a rise in inflation expectations is just as worrisome to investors, says Nicholas Colas, chief market strategist at BNY ConvergEx Group. That's why economists are paying such close attention to recent spikes in oil and food prices before they can start feeding into the core inflation number. Core inflation remains low, at a year-over-year rise of 1.1 percent in February, with gains expected to remain around 1 percent through the second quarter, despite further big headline price gains, according to Action Economics. "Inflationary expectations are well-grounded right now, but that can change if people become more accustomed to paying more for the basics of life," Colas said.
Bill Larkin, a fixed-income portfolio manager at Cabot Money Management in Salem, Mass., believes interest rates could rise by a couple of hundred basis points later this year if the Fed's support for long-dated bonds ends on schedule in June, as Federal Reserve chairman Ben Bernanke has announced. This has prompted Larkin to move a bigger portion of client assets into cash as a defense, given his view that smaller premiums to the yields on Treasurys with comparable maturities render most other debt products less attractive.
Many strategists, including Larkin, say that even if investors expect rising inflation, they can't afford to hold large cash positions for an extended period and should own bonds that offer slightly higher returns. Larkin has been buying Ginnie Mae bonds yielding 5 percent to 6 percentâ€”200 to 300 basis points above Treasurys of comparable maturity. (Ginnie Mae is the shorthand name for debt issued by the federal Government National Mortgage Assn. (GNMA), which pools mortgages purchased from banks.)

The process of buying individual U.S. agency bonds is often too complex and inconvenient for individual investors. In the search for additional return without too much extra risk, a handful of short-term government bond ETFs can be suitable, says Timothy Strauts, an ETF analyst at Morningstar (MORN). These aren't meant to be long-term holdings but can help boost income generation until higher interest rates return. The Vanguard Short-Term Bond ETF (BSV) tracks the performance of the Barclays Capital 1-5 Year Government/Credit Index and holds both government and corporate debt. The current yield is 2.2 percent and the 2010 return was 3.8 percent. Barclays' market-weighted index consisted of 70.97 percent government bonds and 29.03 percent corporates as of Mar. 16.
IShares Barclays Agency Bond
For government agency debt similar to what Larkin recommends, there's the iShares Barclays Agency Bond (AGZ), which holds Fannie Mae and Freddie Mac notes with an average maturity of 3.6 years. With an expense ratio of 0.20 percent, its current yield is 1.87 percent, lower than it was a few years ago because of the explicit U.S. government guarantee for such debt.
ETFs made up of inflation-protected Treasury securities, such as the PIMCO 1-5 Year U.S. TIPS Index ETF (STPZ), are another option. The Pimco ETF tracks the Consumer Price Index more closely than the iShares Barclays TIPS Bond ETF (TIP) does because it owns shorter-term bonds, says Strauts at Morningstar. In December, iShares launched its own Barclays 0-5 Year TIPS Bond Fund (STIP). The problem with TIPS ETFs, says Cabot's Larkin, isn't how closely they track CPI, but CPI itself, which he said underestimates real cost-of-living increases by excluding food and energy and overweighting housing. That depresses the yield and makes TIPS poor income-generating vehicles.

Larkin prefers the SPDR Deutsche Bank International Government Inflation-Protected Bond (WIP), which tracks a basket of non-U.S. government inflation measures. The countries it tracks, including the United Kingdom, France, and Mexico, tend to report higher inflation, so investors at least get "a fair and reasonable return" for lending their money, Larkin says. WIP had a return of 6.56 percent in 2010 and 17.14 percent in 2009, outperforming U.S. TIPS ETFs in both years.
Currently, the market is focused on avoiding longer-term maturities. More important is whether the difference between rates for 2-year and 10-year Treasurys is widening or narrowing, says Ira Jersey, director of the U.S. Interest Rate Strategy team at Credit Suisse (CS). On Mar. 17, those yields were 0.55 percent and 3.17 percent respectively, for a spread of 2.62 percentage points. The yield curve typically steepens with economic growth but reached a historic high of 2.91 percent a few weeks ago. "Once it becomes apparent that the Fed will be [raising rates], the curve should flatten quite dramatically," Jersey says.
There are two exchange-traded notes that investors can use to make money on the spread between the 2-year and 10-year Treasurys, depending on its direction. The iPath U.S. Treasury Steepener ETN (STPP:US) tracks the Barclays Capital U.S. Treasury 2Y/10Y Yield Curve Index and gains when the spread widens. The iPath U.S. Treasury Flattener ETN (FLAT:US) tracks the inverse of the index and gains when the spread narrows. Since the yield curve moves in cycles, owning one of these "can make a lot of sense" for anyone trying to hedge their fixed-income portfolio, Strauts says.

Big Debut: PowerShares Bank-Loan ETF
Growing expectations that interest rates will rise in the next 12 months are also driving money into short-term, nongovernment debt such as floating-rate senior bank loans, which are short-term loans made to companies that can't access the capital markets.
Invesco (IVZ), which manages more than $18 billion in this asset class, much of it in institutional portfolios, on Mar. 3 launched the first bank-loan ETF, the PowerShares Senior Loan Portfolio (BKLN). The fund tracks the Standard &Poor's 100/LSTA U.S. Leveraged Loan 100 Total Returns Index, which is made up of the largest and most liquid corporate issues within the broader S&P/LSTA Leveraged Loan Index. First-day volume was about 1.5 million shares, worth a total of $37 million, dwarfing the few thousand shares that most ETFs trade on their first day, Strauts says.
Because they're issued by junk-rated borrowers, senior bank loans carry more risk than Treasurys and investment-grade corporate debt. There's some comfort in knowing that they're fully collateralized, backed by the borrower's physical assets. That puts them at the top of a company's capital structure and places investors ahead of fixed-rate bond holders if the company files for bankruptcy.
In 2008, this market tanked on widespread fear of defaults, since so many leveraged loans were issued by private equity firms that had overpaid for the companies in leveraged buyout deals. The S&P Leveraged Loan Index has recovered nearly all of its value since then and posted a negative return in only one year, 2008, since its inception in 1997. Van Eck Global is the only other ETF provider to announce plans to launch a bank-loan ETF.
Ultimately, bond investors must choose between returns or safety. If it's safety, short-dated government bonds will do the job while not earning much. For decent returns, one needs to look toward corporate debt, whether it be in bank loans, high yield, or preferreds. Here's the silver lining: With federal deficits ballooning, the paradigm has shifted, reducing the risk of corporate debt relative to that of Uncle Sam's obligations.

Bloomberg News

5 Ways To Break Bad Money Habits

Simple tips for your clients to consider

By Bill Losey

Many of us plan thoughtfully for all kinds of  life goals. Yet many of us spend impulsively, using our money on the moment  rather than saving or investing it for the future. This last recession caused us  to take a second look at where our dollars go. If you seem to be making adequate  money and yet dollars still appear to be slipping away from you, maybe it is  time to break some budgeting and spending habits.

1. First of all, have a budget. Many people live without one â€“ and that includes many  affluent people (and the government!). This exercise is starkly simple, but  might be illuminating: make a two-column chart, with the left column listing  your monthly income and the right column detailing your expenses. Detail them as  best as you can, type and monthly amount. Include your credit card expenses.  This little exercise shows you how much you are spending on essentials and how  much of your income you are assigning to comparative frivolities. Perhaps you  will find some dollars you could reassign to planning for your financial  future.

2. Distinguish needs from desires. Do you need that  material item or merely want it? Slick marketing and advertising leaves many  consumers unable to tell the difference. They run up debts to buy what they  want, rather than what they need. How many of them understand that by borrowing,  they are actually spending away future earnings?

3. Discern the  difference between good & bad debt. Do you know the difference? A  bad debt is a debt you incur on a disposable item or a durable good that will  depreciate. It is a debt on something that has no potential to gain value. You  want to avoid as many bad debts as you can. Of course, there is also good debt, for example, a mortgage, a business loan or a student loan. These are so-called  â€œinvestment debt, that can potentially create value down the road.

4. Educate yourself. Some people are very cavalier when it  comes to spending and saving money. Others are convinced that they will never be  able to build wealth, so they spend their days addressing short-term financial  needs and give no thought to the wealth and income they will need in maturity.  In both cases, the root problem is a lack of education. Those who spend money  like water don't understand its value; those who shun financial planning and  investing don't understand its potential. People with greater degrees of  financial education tend to be more rational when it comes to financial  decisions. (Not always, but often.)

5. Set financial goals and take  them seriously. When people educate themselves about money, the ways  to potentially make it, the ways to plan to protect it, they start to see how  the financial world works and they tend to explore their own financial  potential. This exploration may lead them to meet with a financial advisor. That  conversation can inspire them to set and plan for specific objectives, and get a  relationship going- a shared commitment to wealth building.  If you  haven't had such a conversation, today is as good as any day for that to happen.

Bill Losey, CFP, CSA, is the author of Retire in a Weekend! The Baby Boomer's Guide to Making Work Optional. Go to www.BillLosey.com.

Breaking through the '4% rule of thumb'

How many financial discussion include 'mortality credits' and annuities?

by Jay DeVivo, posted 14 March 2011 at 9:12 pm

Mr. DeVivo is a principal at String Financial LLC, and publishes the blog: The Retirement Report.

Last week, The Wall Street Journal published an article by Eleanor Laise titled 'How to Cash out in Retirement'. The sub-title was 'A look at four strategies that could help make a retiree's savings last a lifetime.'
How many of those strategies for making 'savings last a lifetime' do you think involved the use of mortality credits or any annuity products? Hint: The answer is the same number of times I have been on a beach and mistaken for Matthew McConaughey.
In Ms. Laise's 1,800 word article, she reviewed:

- the 4% withdrawal rule;
- making retirement spending a function of performance; and
- bond ladders.

The fourth 'strategy' is a reminder to 'remember tax efficiency'. Good advice, though curiously the tax efficient aspects of immediate annuities were not discussed. Her only reference to annuities was a parenthetical at the end of the 6th paragraph; '[a]nnuities, of course, may still be a good retirement-income solution for some people.'
Before I illustrate that very point, allow me to make an observation:

Jay ascends soapbox

Mortality credits are a valuable, under-utilized asset class, particularly for retirees who do not have huge retirement portfolios or other sources of guaranteed income, like pensions. If The Wall Street Journal (!) does an article on strategies for helping retirees make their 'savings last a lifetime' and mortality-contingent products are not included in the article, one has to ask if the industry has done an adequate job educating the investing public (including advisors and reporters) on the virtues of morality credits.

Jay descends soapbox

The 4% rule
I will limit this post to addressing the '4% rule', since it is so frequently cited. As generally applied, the retiree begins withdrawing 4% of his or her portfolio and increases the withdrawals each year to keep up with inflation. The scenario she describes is a retiree with a $1 million nest egg (60%/40% stocks/bonds), and an income need of $40,000 per year. The author put this through the T. Rowe Price Retirement Income Calculator and determined the investor had a 10% chance of running out of money at age 97 (when I entered the author's assumptions, my results repeatedly showed an 11% chance of running out of money by age 95, I assumed retirement at 65, perhaps she used a later age). Disclosure: My wife has an IRA at T. Rowe Price.

A roughly 10% chance of running out of money by age 95 doesn't sound so bad, unless your 95 and have run out of money. For a couple retiring at 65 today, there is about a 50/50 chance that at least one of them will live to age 95. That's a lot of broke old people. To be fair, Ms. Laise, does not depict the 4% rule as the 4% solution. Indeed, she quotes economist Laurence Kotlikoff that "[t]his (rule) is a prescription for getting people into serious trouble."

The 4% rule vs. immediate, life-contingent annuities
Suppose the same 65 year-old (I like giving my hypothetical people a name, let's call him Bruce), instead purchased a life-contingent immediate annuity at age 65 to cover his $40,000 in estimated expenses at retirement. According to www.immediateannuities.com (the source for all annuity payment assumptions relied on in this post), it would cost Bruce $525,312. Let's assume Bruce is very risk averse and invests the balance in 90 day T-Bills. Here's Bruce's strategy:
For years 1-4 after retirement, Bruce draws down on that nest egg as his expenses increase beyond $40,000 due to inflation.
In year 5 after retirement, Bruce purchases another life-contingent annuity in an amount equal to his expected expenses that his current annuity payments do not cover.
Bruce repeats steps 1 and 2 until he goes he rambles on to the Thunder Road in the sky.
How does Bruce fair?
The answer of course depends on Bruce's real, risk-free return- how much does Bruce earn (if anything) in his T-Bill account after accounting for inflation.

Considering the different inflation scenarios highlights a critical limitation in the T. Rowe Price model used in the '4% rule': it assumes a flat 3% inflation annually.
I looked at the period 1928 -“ 2010 and took inflation numbers from the Bureau of Labor Statistics and T-Bill returns from the St. Louis Fed, to come out with real, risk-free returns. From there I ran 4 inflation/risk-free return scenarios:

- Average real, risk free return from 1928-2010
- Actual real, risk free return numbers from the last 35 years
-The average real, risk free returns for the worst 35-year period (from 1934 to 1968, the average annual real, risk-free rate of return: -1.24%)
-The actual real, risk free returns each year for the worst 35-year period (1934 â€“ 1968).

Here are the results:

Scenario Assets at 101st birthday

Historical average                                             $485,000
Last 35 years                                               $130,000
Average of worst 35 years (1934 â€“ 1968)   $85,000
Actual time series for worst 35 years        $0 (Bruce went broke between age 97 and 98.

For Bruce to run out of money in his 100th year, his 35 year average annual real, risk-free rate of return would have to be about -2%; substantially worse than the average for the worst 35-year time period. You will note that Bruce would go broke in Scenario 4 at age 97. That is because for the actual time series, the bad returns were frontloaded in the early years; for the 15-year period from 1934 to 1948, the average real, risk-free return the first 15 years was about -4% per year.
The point isn't that an immediate annuity ladder is the solution for all, or even most retirees. It isn't. However illustrations such as this one need to make their way into the general business press; not as a specific strategy recommendation, but as a way to help investors understand the value of mortality credits and how they might be employed, to some extent, in their retirement portfolios.

The Market Cycle Investment Management Methodology

Counter-acting 'fear & greed'

by Steve Selengut
Steve Selengut, a professional investment portfolio manager, is CEO of Sanco Serices, John's Island, SC. He s a regular contributor to LIFE&Health Advisor, and is the author of 'The Brainwashing of the American Investor: The book Wall Street does not want you to read'. You can reach him at sanserve@aol.com

Most investors, and many investment professionals, choose their securities, run their portfolios, and base their decisions on the emotional energy they pick up on the Internet, in media sound bytes, and through the product offerings of Wall Street institutional boiler rooms. They move cyclically from fear to greed and back again, most often gyrating in precisely the wrong direction, at or near precisely the wrong time.
The Market Cycle Investment Management (MCIM) methodology combines risk minimization, asset allocation, equity trading, investment grade value stock investing, and base income generation in an environment whose time frame recognizes and embraces the reality of cycles. It attempts to take advantage of widespread "fear and greed" decision-making by others, by using a disciplined, patient, and common sense methodology.
This methodology embraces the cyclical nature of markets, interest rates, and economies --- and the political, social, and natural events that can trigger changes in cyclical direction. Little weight is given either to the short-term movement of indices and averages, or to the idea that the calendar year is the playing field for the investment "game".

Interestingly, the cycles themselves seem to concur with the irrelevance of calendar year analysis, and it makes little sense at all to think of investing as a competitive event. What index or average comes even close in content to your unique portfolio of securities?
The MCIM methodology is not a market timing device in any sense of the word, but its disciplines will force managers to add equities to portfolios more during corrections and to take profits enthusiastically during rallies. As a natural (and planned) effect, portfolio "smart cash" levels will increase during upward cycles, and decrease as buying opportunities increase during downward cycles. (See the "Process" Chart)
Absolutely no attempt is made to pick bottoms or tops, and strict rules apply to both buying and selling disciplines. NOTE: these rules are covered in minute detail in "The Brainwashing of the American Investor" (click the Amazon.com purchase banner above, to the right), and won't be repeated here. (Follow the Curves)

Performance Numbers: Learn What To Expect
Managing an MCIM portfolio requires disciplined attention to rules that are designed to minimize the risks of investing. Stocks are selected from a small, easy to manage, universe of Investment Grade Value Stocks. The companies are mostly large capitalization, multi-national, profitable, dividend paying, NYSE companies.
Income securities are primarily actively managed, closed-end funds, investing in corporate and government fixed income securities, income paying real estate, energy royalties, tax exempt securities, etc. Multi level, and speculation heavy funds are avoided, and most will have long term distribution histories.

No open end Mutual Funds, Index derivatives, hedge funds, or futures betting mechanisms are allowed inside any MCIM portfolio.
All securities must generate some form of regular income to qualify for inclusion in portfolios, and no security is ever permitted to become too large of a holding. Diversification is a major concern on an industry, or sector, level, but global diversication is a given with IGVSI companies.

Risk Minimization, The Essence of Market Cycle Investment Management
Risk is compounded by ignorance, multiplied by gimmickry, and exacerbated by emotion. It is halved with education, ameliorated with cost-based asset allocation, and managed with disciplined: selection quality, diversification, and income rules--- The QDI.
Risk minimization requires the identification of what's inside a portfolio. Risk control requires decision-making by the owner of the investment assets. Risk management requires a selection process from a universe of securities that meet a known set of qualitative standards.

Market Cycle Investment Management helps to minimize your financial risk in several ways:
It creates an intellectual "fire wall" that precludes you from investing in excessively speculative products and processes.
It focuses your decision making with clear rules for security selection, purchase price criteria, and profit-taking guidelines.
Its cost based, Working Capital Model asset allocation operating system, assures you of constantly monitoring asset allocation while increasing your base income.
It helps assure that poor diversification will not creep into your portfolio and that unproductive assets will be eliminated in a rational manner.

Armed to Manage the Market

In search of the tax-efficient frontier

by Laurence Greenberg
Laurence P. Greenberg is President of Jefferson National. Purcell Advisory Services, LLC and Schreiner Capital Management, Inc offer third-party money management to advisors and their clients through the Jefferson National 'TPIA Marketplace'. For more information, please visit www.jeffnat.com or call 1-866-WHY-FLAT (866-949-3528).

When it comes to planning your client's retirement, you are taking aim at a moving target. There is increasing longevity risk, the decline of pension plans and the uncertain future of Social Security. According to the AARP Closer Look Survey conducted in June 2010, almost half (48%) of all adults surveyed said they had less than $50,000 in retirement savings, and 16 percent said they had no savings at all.

The job did not get any easier after the crash of 2008. With a 50% drop in the S&P, followed by the flash crash of 2010, the Fear Index spiked to new heights and investors are still grappling with the fallout. Advisors are seeking new solutions to manage this volatility, and many believe tactical management is key. In a Jefferson National survey of nearly 1,000 respondents, a clear majority of advisors, roughly 2 to 1, said they were more confident using a tactical strategy in today's unpredictable market.

The Tax-Efficient Frontier Can Help
There is a catch, though. Actively managed investments can generate more short-term capital gains, currently taxed at rates as high as 35%. That is where the Tax-Efficient Frontier can help. New research shows that tax deferral can potentially increase returns on tax-inefficient assets by as much as 100 bps without any subsequent increase in risk, simply by locating assets based on their tax treatment.

A textbook approach to creating the Tax-Efficient Frontier begins by locating all tax-efficient assets, such as passively managed equities, in taxable vehicles, and all tax-inefficient assets, such as REITS, fixed income, and actively managed funds, in tax-deferred vehicles. But finding sufficient sources of tax-deferral can be a major hurdle for highly compensated individuals, who can easily max-out their contributions to qualified accounts such as 401(k)s and IRAs.

While variable annuities were originally designed to provide more tax-deferral, many VAs are now saddled with steep commissions, layers of asset-based insurance fees, and limited investment options. And in recent years, the features and benefits battle has continued to escalate, creating greater complexity and rising costs.

Now new innovations make VAs valuable for tax-deferral again. With no load, lower costs and an expanded arsenal of tax-deferred funds, all the asset classes and style boxes, alternative funds, and funds for dynamic trading, you can be armed to manage a volatile market and create the Tax-Efficient Frontier.

Beyond Buy and Hold
"Markets don't always need to move up for investors to profit. With the right tactical strategy in place to reduce risk, preserve assets and capture gains, volatility can be a very generous friend," says Teri Weigel, CFP, Principal and Chief Compliance Officer, Purcell Advisory Services, LLC.

"At Purcell, we focus on Post-Modern Portfolio Theory, where semi-standard deviation has a heavier weight than standard deviation, where investor behavior is NOT rational, and where dragons are lurking in the fat tails of distributions," says Weigel. "We think black swan events are likely to happen more frequently going forward, and that means moving beyond buy and hold."

This resonates with Brian Schreiner, Vice President of Schreiner Capital Management, Inc., a fee-only RIA and money manager who serves financial professionals. "Think about your most important goals: raising your children, staying healthy, your relationships, your career. Can you name a single goal where taking a passive approach improves your chance of success?" he asks. "With a passive strategy you are just holding on to the market with all its ups and downs. Many investors simply are not willing to accept this kind of volatility, " Schreiner says. "The advisors who work with us have more confidence that a tactical strategy has greater potential to improve their returns and minimize risk, especially in this volatile market.

Tax Deferral Makes Tactical Work
At Purcell, actively-managed investment programs are developed to take advantage of market volatility. Through extensive due diligence and continuous monitoring, they identify the best tactical strategies for their line up of risk averse tactical investment choices. "Our investment programs are structured more like absolute return strategies, so that whichever direction the market moves, the opportunity for gain is there, over time."says Weigel.

But while the Purcell tactical approach has helped advisors and their clients outperform the market, they still face a big hurdle. As active managers, our capital gains are all short term and will be taxed as ordinary income unless assets are located in a tax-deferred vehicle. For her high net worth clients, who need tax-deferred vehicles beyond their qualified plans, Weigel has uncovered a new trend in the annuity industry: simple, low-cost, no-load VAs allow her clients to unlock the potential for greater performance and achieve the Tax-Efficient Frontier.
Likewise, Schreiner says his clients are attracted to the discipline of our system. The Schreiner Capital Management flagship investment strategy, Classic Sectors, has surpassed the S&P 500 Index by 22% since its inception in 1996. Most importantly, is that it has done so while taking about 40% less risk than the Index, according to Schreiner says. While his active approach will generate some short term capital gains for clients, he says If we can manage risk and preserve capital, for risk-averse investors the tax bill is secondary.

Still, there is no doubt that minimizing taxes on tactical strategies can bring greater benefit to clients and enhance their portfolio performance. That is when the Tax-Efficient Frontier comes into play. Schreiner has always found tax-deferral options limited, especially for his high net worth investors. He believes they are the ideal candidates for using a low-cost, Flat-Insurance Fee VA to achieve the Tax-Efficient Frontier. They appreciate the benefits of tax deferral and the substantial savings in fees. They do not need riders they need the tax shelter. They want their income to compound and grow.Â

Armed to Manage the Market
While a relatively new concept to many advisors, active absolute return strategies combined with the benefit of tax-free growth have been used for years by endowments such as Penn, Harvard and Yale. Now, with the advent of more liquid, low-cost, tax-deferred VAs featuring a broad selection of flexible fund choices suitable for a tactical management, more advisors and their clients can use this approach to create the Tax-Efficient Frontier.
"In this challenging environment, we are seeing three trends: a greater demand for tactical strategies, a greater focus on a holistic approach to financial advice, and a greater tax-awareness when it comes to portfolio construction," says Schreiner. "And while we cannot predict the future of taxes, it is hard to imagine how the government can provide the services and economic stimulus that it has promised without some kind of tax hike, "Weigel adds. "That makes it even more important to find flexible and efficient investment vehicles that offer the benefits of tax deferral."

Do clients understand the intricacies of The Tax-Efficient Frontier? Not always. But there are simple steps that you can take to help guide them through the asset location decision. Create a grid, where asset classes are arranged by tax efficiency and potential return based on time horizon, so clients can clearly see when and where tax-deferral can offer the greatest benefits. When it comes to tactically managed assets, research shows that it will almost always improve performance without any subsequent increase in risk, when they are located in a tax-deferred vehicle.

The basic building blocks of good investing will not change: establish a goal, create a plan, follow a disciplined approach, and do not overreact. But in today's uncertain markets, more advisors are incorporating a tactical asset management strategy into their client portfolios, instead of relying strictly on traditional buy and hold. And with that comes the need for a greater tax-awareness. Using tax-deferral with active strategies to unlock the potential for greater performance can help clients complete their long-term investing strategy and reach their goals faster. In an environment like today, where every single basis point of performance counts, tactical management combined with the Tax-Efficient Frontier means you and your clients can be armed to manage a volatile market.

Income Investing: Go Ask Alice

Make income investing an intellectual exercise --- not an emotional one

by Steve Selengut

Steve Selengut, a professional investment portfolio manager, is CEO of Sanco Serices, John's Island, SC. He s a regular contributor to LIFE&Health Advisor, and is the author of 'The Brainwashing of the American Investor: The book Wall Street does not want you to read'. You can reach him at sanserve@aol.com

Jefferson Airplane has never, ever, been mistaken for a band of financial advisors, but the White Rabbit lyrics can be incredibly instructional to the generation of investors who experienced the classic first hand --- as a description of their own college days' lifestyle. If only they had heeded the dormouse's call to "feed your head." For the sake of your retirement sanity and security, you just have to make income investing an intellectual exercise --- not an emotional one.

The Brainwashing of the American Investor has its own tale of an Alice whose "logic and proportion" had "fallen sloppy dead". Many years ago, when interest rates soared into double digits, elderly Alice was well advised to invest her stash in a portfolio of Ginnie Maes. Broadly smiling, she bragged to her friends about the federally guaranteed 13% interest she was receiving in regular monthly intervals --- much more than she needed to cover her living expenses.

But interest rates continued to move higher, and the decreasing market value of her Ginnie Maes was more than she could tolerate. "If rates continue to go up, I'll have nothing left" she cried to her White Knight financial advisor who suggested patience and understanding. The very same pill that made her income grow larger was also making her market value become smaller.
But the income kept rolling in, higher yielding unit trusts were purchased with the excess, and major redemptions were nowhere to be seen. The income kept growing, the market value kept shrinking, and Alice was seeing red from seeing red on her account statements.

So Alice went to her local bank and traded in her absolutely government guaranteed 13 per centers for some laddered, non-negotiable, 8.5% CDs. "No more erosion of my nest egg", she toasted proudly with the hookah smoking bank caterpillar who orchestrated her move to lower income levels. Within a few months, she was liquidating CDs to pay the bills that never seemed to be a problem with those terrible Ginnie Maes.
Don't let such uniformed thinking sabotage your retirement program; don't let the selfish advice of a product sharpshooter send you chasing rabbits when IRE (interest rate expectations) or other temporary market conditions shrink the market value of your income portfolio. Feed your head; feed---your---head.
Income pays the bills, and if the income level is both steady and adequate, there is no need to change investments. Market value should be used to determine when to buy more (at lower prices) and when to take profits (at higher ones). It is almost never necessary to take a loss on a high quality (government guaranteed in Alice's case) income security.

More recent experimenters in much more sophisticated potions have addressed the issue with similar results, reaching mind-numbing conclusions such as these:

1) I know the income hasn't changed throughout the debacle in the financial sector but I don't want to buy anymore of these securities until the prices go back above what I paid for them originally. Translation: I'd rather stick with my 4.5% tax-free yield than increase it by adding to my positions at lower prices.

2) Sure, I understand the relationship between IRE and the prices of income CEFs but individual bonds and Treasuries haven't suffered nearly as much. That's where we should have been. Translation: I would be much happier with a 3% than with an 8% rate of realized income.

3) I'm tired of seeing all the negative positions in my portfolio. Let's keep all the income we receive in money market until we're back in positive territory. Translation: I'd rather accept 1.5% or so, than reduce my cost basis and increase my yield by adding to my positions at lower prices.

Modern brokerage firm monthly statement "pills" were developed during the dot-com era, when Wall Street was trying to emphasize the brilliance of its speculative prescriptions by making us all feel ten feet tall, month after month after month.
But the geniuses on the institutional chessboard produced too many mushroom product varietals and the Red Queen of corrections has lopped off many of their sacred heads. The papers that were designed to make our chests burst with pride have turned on us as a haunting reminder of the reality of markets and the cycles that push them in either direction.
It should be easy to navigate a quality income portfolio through whatever circumstances, cycles, and scandals come at you, but a clear head and a clearer understanding of what to expect is required. Most brokerage firm statements make it difficult to monitor asset allocation using any methodology, including the Working Capital Model, and I don't think that it's by chance.

Confusion breeds unhappiness, and unhappiness brings about change, and the masters of the universe encourage you to fritter around from mushroom to mushroom in perpetual motion. To who's benefit?
It would be wonderful if an investor's monthly statement would organize his securities based on their class and purpose, but Wall Street doesn't want such distinctions to be made easily. It would be great if the institutions would help investors formulate reasonable expectations about what to expect from various types of securities in varying conditions, but that's not likely to happen either. It would spectacular if the media would produce information and explanation instead of news bites and sensationalism, but you guessed it --- not much chance of that.

Income investing can be easy. Have any hookah-smoking caterpillars given you the how?

Financial Tsunami:
Will it drown us in a sea of debt?

by Mike Gearhardt & Will Gates
Mike Gearhardt and Will gates are partners in The Arete Group, Inc. They can be reached at mail@aretegrpinc.com

The United States economy is drowning in a wave of excessive spending, inconsistent and irrational tax policies, growth in mandatory spending programs, government intervention into free markets, and inadequate accounting practices. The magnitude of the problem was recognized by the United States Government Accountability Office (GAO) in March 2009:
Absent policy actions aimed at reforming the key drivers of our structural deficits -- health care spending and social security -the federal government faces unsustainable growth in debt. The longer the delay, the greater the risk that the eventual changes will be disruptive and destabilizing.
Mandatory spending programs are “key drivers” of the problem, yet the dire warnings have been largely ignored. The debt numbers continue to grow with no end in sight, as evidenced by President Obama’s 2011 budget, in which the national debt is projected to be $24.4 trillion by 2019. Furthermore, sometime between 2011 and 2012, the size of the federal debt is expected to be greater than the estimated U.S. Gross Domestic Product (GDP). The time has come for fiscal responsibility.
Balancing the budget and controlling spending are necessities if we are to achieve fiscal responsibility. Our government, however, seems incapable of working within the confines of the revenue collected. Congress continues to extend and add programs that cannot be supported with the existing revenue stream.
Many contributing aspects of the current financial meltdown can be traced to legislative actions enacted by the republican and democratic administrations over four decades. The government’s intervention into free-market activities, including bailouts, mandatory spending programs, consumer incentives, and taxing strategies has resulted in an expansion of the national debt. Without change, these programs will exacerbate the financial tsunami.
Recessions are inevitably going to happen. It is noteworthy that four of the last five recessions, including the current recession, were attributable to oil to some degree. The billions of dollars spent by the government since the Department of Energy was established in 1977 have failed to reduce the nation’s dependence on foreign oil. General economic shifts, and in particular the loss of jobs, have also contributed to past and current recessions. Labor costs, pension costs, medical costs, and environmental-regulatory costs all have been partly responsible for making the United States uncompetitive in the global marketplace and sending jobs and manufacturing overseas, to the detriment of our middle class. Yet instead of maintaining and restoring manufacturing jobs, our government creates additional obstacles that manufacturers and small businesses must overcome. Like the economic consequences of our foreign-oil dependence, putting financial impediments on local manufacturing creates a ripple effect that drives companies out of business and fuels recessions.
The sub-prime lending crisis sent the recession into an accelerated decline. Although some of the blame justifiably falls on capital-market greed and bank mismanagement, Congressional mandates that had encouraged innovative financing tools and relaxed lending requirements certainly shares that blame.
Mandatory spending programs such as Social Security, Medicaid, and Medicare are just beginning to come of age, and an aging population will cause outlays to soar in coming years. As baby-boomers access these programs, participation will grow from current levels of 51 million to 77 million by 2025, which is more than a 50% increase. These programs were created decades ago and the inaccuracies of the forecasts are now a financial reality.
Increasing taxes has historically been the government’s standard economic Band-Aid. Instead of containing outlays, the government continues to tax to solve financial problems. Tax increases often have a negative effect on economic growth. Raising taxes reduces the funds available for investment, resulting in fewer jobs being created, which reduces tax revenue. This, in turn, causes the government to increase taxes again to generate the same level of revenue. The more the government takes out via taxes, the less there is for investment, and by extension, jobs.
Where will the money come from? Increasing taxes on corporations ultimately passes those costs on to the consumer in the form of price increases, which negatively impacts individuals with lower incomes. The $200,000 and over group is already paying nearly 55% of all taxes. While advocating tax increases on corporations and the wealthy makes for good press, it is a mathematical impossibility to increase revenue high enough to significantly address a $13.7 trillion national debt. That leaves the middle class, who are the group already hardest hit by the economic crisis. A tax increase for them will only stagnate the economy further by reducing their ability to spend. The deficit level has exceeded the point where tax increases alone will not solve the problem.
One needs to understand the relationship between on-budget and off-budget accounts to grasp the true magnitude of our nation’s debt. On-budget items include spending on programs like defense and education, where there is no specific dedicated tax revenue. Off-budget items such as Social Security and Medicare have specific tax collections that are identified and designated to meet future outlays of the program. Current federal government accounting practices co-mingle off-budget surpluses with on-budget spending, resulting in an erroneous depiction of both spending and the deficit. Off-budget transfers have resulted in $5 trillion of intergovernmental debt.
To keep our representatives on task, term limits should be enacted. Without constantly fixating on reelection, our leaders can focus on fiscally responsible legislation. We all need to make our votes count by becoming better informed and selecting those representatives that will work toward truly fixing the economy. By establishing and maintaining these steps, our nation has a chance at avoiding the worst financial cataclysm in our history. Back to Top

The 'Ugly' truth about 401-(k)

by Tony Walker

Tony Walker is a financial planner and author of three books, including 'Worry Free Retirement.' Visit tonywalkerfinancial.com

My granddad retired in 1978. He and his faithful wife, Hazel, dedicated 43 years of their lives to one employer - the phone company. In return for his years of service to them, the phone company rewarded Granddad with the following:

1) A lifetime pension check – Granddad called it "mailbox money";
2) Company-provided health insurance for the rest of their lives;
3) Free phone and long-distance service – you laugh, but remember, this was before unlimited cell and texting!

While all three kept Granddad and Hazel WorryFree – it was the "mailbox money" that really kept them out of the Poor House. Because with that guaranteed check each month, all they had to do was "budget" their monthly expenses around the phone company's predictable monthly check. It was truly a "WorryFree Retirement."

Apparently, what was good for Granddad wasn't good enough for my generation – the Baby Boomers. Our question: where did all those "guaranteed" pension incomes go? How come WE don't get "mailbox money"?

Because of the 401(k) plan – that's why!

While employers during Granddad's generation could afford pension plans (more specifically, they were called defined benefit plans) these guaranteed plans also cost the employers a ton of money. That's because money that would have otherwise gone to profits, research and development, and stockholders had to be "booked" and stuffed away under the corporate mattress to fulfill the promise of future mailbox money to all of their retirees. In addition, back when pension plans were created, employers never dreamed employees would stick around long past normal retirement age (age 65) to collect all of this money.

Forced to "ease" out of these expensive plans, some wise guy (around the year of 1980) came up with the idea of the 401(k) plan. The thought: we'll turn all the controls over to the employees by allowing them to team up with Wally World (Wall Street) while the employer would "match" the employees' contributions. It all sounded really cool.

Fast forward 30 years and what do we have? Instead of Granddad's guaranteed mailbox money, Americans are left with 401(k)'s and uncertainty about their future income.

In essence, the 401(k) plan took conservative, hard-working savers - who knew nothing about the products of Wally World (stocks, bonds and mutual funds) - and turned them into "speculators."

Basically, the mutual fund industry – thanks to the introduction of the 401(k) plan – went from millions to trillions!

Bottom line: Joe Lunchbox got duped!

Instead of relying on his employer to take care of his retirement, he followed the financial herd and instead made Wall Street rich. Good for them, maybe not so good for him. No wonder folks are so worried today.

So what are we supposed to do now?

As a Registered Investment Advisor, each day I sit across the table from consumers who are dazed, confused and lost as to what to do with their 401(k) money. Here's what I advise them:

Stop treating your 401(k) as the mother of all retirement plans; contribute to it only "up to" the match. If you don't get a match, I strongly encourage you to see an outside retirement specialist to decide if you should contribute any new money to the plan. There are plenty of better ideas for your money.
Forget the notion that there is some magic to the term "pre-tax." Rather, think of your 401(k) contribution as "postponing the tax," because one day, you'll have to pay-the-piper. Uncle Sam will want his money; it's called taxes and you still owe them. In fact, the longer you have the plan, the worse it usually gets!
Check with your employer to see if you can roll over any monies within the plan. You'll have to get a copy of the Plan Document to see if there is money that can be rolled out into your own self-directed IRA. In many cases, even if you're still working with the employer, you can roll out previous 401(k) contributions rolled into this plan, the employer contribution, and in some cases the after-tax portion. Best of all, if you're 59 1/2 or older, some documents let you roll out your "pre-tax" contributions as well. You might even want to spend some of it!
If you've recently quit, been fired, retired…whatever – get your money out of the 401(k) and into a self-directed IRA so you can get some different options and planning opportunities. One word of caution: if you're not yet 59 ?, there are some cases where leaving some or all of the money in the 401(k) might make sense since money coming out of the plan is not subject to the 10% tax penalty.

So, say goodbye to Granddad's retirement – stop putting all your hope, and your money, into the 401(k). As a retirement specialist who is actually in the financial trenches, I can assure you there are better options. Clarify where it is you want to go with your retirement and your money; assess where you are in relation to where you want to be; commit to finding other ideas and strategies for your money other than the 401(k); implement a new game plan that helps you use, enjoy and protect your hard-earned money; and finally, work with someone or put yourself under a plan that will allow you to easily monitor your progress.

Be Worryfree!

Target date funds from a fiduciary viewpoint

by Kent Peterson

Kent Peterson, CFA, FSA, AIF, is Director of Investment Services, Securian Retirement. He can be reached at kent.peterson@securian.com.

Plan sponsors have been quick to add target date funds to their retirement plan investment lineups in recent years. A Casey Quirk analysis shows that target date funds will account for nearly half of the assets, $2.6 trillion, invested in defined contribution plans by 2018.

While all target date funds are constructed to pose less risk as the investment horizon shortens, the absolute level of risk within each target date fund is not always apparent to plan sponsors and participants. The Pension Protection Act of 2006 can provide plan sponsors fiduciary relief when using target date funds as a Qualified Default Investment Alternative (QDIA). As fiduciaries however, plan sponsors are still obligated to act prudently. Without evidence of prudent selection and monitoring, plan sponsors may not have the fiduciary relief under the Pension Protection Act of 2006 that they think they do.

At the very least, target date funds should be held to the same standards as other investment options in a plan's investment array. In fact, a case could be made that plan sponsors should apply extra scrutiny whenever participant usage or the proportion of assets invested in any option is unusually high. A plan sponsor should be willing to act appropriately when issues are identified with any plan investment option, QDIA or otherwise. Willingness to replace problem funds is evidence of prudent monitoring and management of the plan.

To comply with the Department of Labor's QDIA guidance, plan sponsors should consider the facts and circumstances affecting their participants and select a QDIA solution that best addresses those facts and circumstances. For target date funds to be determined appropriate for the plan's participants, the plan sponsor should assess these four aspects of the funds:

target date fund risk
risk-adjusted returns and expenses of target date funds
whether the underlying funds meet the plan's standard as stated in the Investment Policy Statement
reliability and repeatability of investment results

Fiduciary focus on risk

The risk of a target date fund is ultimately determined by the percentage invested in each investment strategy, the risk of the underlying investment strategies for different asset classes, and how well these strategies interact to diversify risk. The glide path has an impact on the risk of the target date fund, but it does not determine the risk. Fiduciaries should not rely on the glide path to determine the underlying risk exposure of their target date funds.

As more target date funds achieve three years of performance, it has become easier to evaluate them. Morningstar developed a set of risk benchmarks for each target date.

Morningstar Lifetime Conservative
Morningstar Lifetime Moderate
Morningstar Lifetime Aggressive

A plan sponsor can assess the amount of risk for a target date fund by comparing the returns of the target date fund to the Morningstar benchmarks. A plan sponsor should match the risk needs of participants to the risks being taken by the target date funds. If there is no target date fund that meets the needs of all participants, the plan sponsor should evaluate other QDIA-eligible solutions.

Fiduciary focus on risk-adjusted returns and expenses

Fiduciaries should understand that investments that take on more risk often do well when the markets are on the rise. Returns should be risk-adjusted to achieve some consistency regardless of the recent market performance.

After a plan sponsor has evaluated the risk of target date funds, then the suitability of risk-adjusted returns should be assessed. To this point, target date funds have had limited success beating the Morningstar Lifetime Indices on a risk-adjusted basis.

To the extent that other investment options in a retirement plan are expected to perform well relative to their benchmark, target date funds should be held to the same standard. Any evidence to the contrary has the potential to bring the prudent monitoring of the QDIA solution into question.

Costs of target date funds can vary widely. A fiduciary does not have to choose the least expensive option but does need to determine if the expenses are reasonable for the quality of services received.

Fiduciary focus on underlying funds

Many target date funds are invested in a collection of the investment company's proprietary mutual funds. This �fund of funds� approach allows the investment company to maintain asset concentration in their proprietary investments and could appear to pose a conflict of interest to plan sponsors as they evaluate the merits of the underlying funds.

As fiduciaries, plan sponsors should hold these underlying funds to the same standards as stand-alone funds in the investment lineup. Some of the underlying funds in target date funds do not reflect a three-year track record. Of those underlying funds with at least a three year track record, it is quite common to find more than one with bottom-half performance relative to peer funds. It is also common to find underlying funds that have experienced recent portfolio manager changes, meaning the existing record is not directly attributable to the current manager.

Including guidelines in the plan's Investment Policy Statement about the underlying target date funds is a prudent action. Plan sponsors should provide evidence of a prudent fiduciary review process. If there is clear evidence that any of the underlying funds in a target date fund would not meet the standards of the plan's Investment Policy Statement, the plan sponsor should think twice about including them.

Fiduciary focus on reliability and repeatability

Target date funds have a tendency to change allocations to the underlying investment options without notice to plan sponsors. In addition, many mutual funds have portfolio manager turnover that limits the usefulness of the existing track records. If there is evidence of significant changes in the historical allocations to different mutual funds and turnover in underlying portfolio managers, plan sponsors should be cautious in putting too much reliance on historical performance.

A prudent process includes a fiduciary analysis of risk and risk-adjusted returns. If the repeatability of those results is in question, it would not be prudent to use them.

With QDIA solutions possibly attracting the bulk of many retirement plans assets, they should be held to a high fiduciary standard. When considering any QDIA, plan sponsors should consider whether:

The risk of the QDIA is appropriate for all plan participants' needs.
The expenses are reasonable and the risk-adjusted returns are held to the same high standards as other investment options in the plan.
The construction and management of the QDIA exhibits sufficient skill to merit its inclusion in the retirement plan without conflicts of interest.
The QDIA solution can be accurately assessed with repeatable and reliable historical results.

If the QDIA solution cannot meet these prudent requirements, the plan sponsor should consider other options.

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Cruise control hedging

RISK is not just a board game you played in college

by Steve Selengut

Steve Selengut has been with Professional Portfolio Management since 1979. He is the author of "The Brainwashing of the American Investor: The Book that Wall Street Does Not Want You to Read", and "A Millionaire's Secret Investment Strategy". He can be reached at 800-245-0494 or at sanserve@aol.com.

Most people enter the investment arena thinking that "risk" is a board game they played in college. Today, I would guess that the majority of investors have never owned an individual share of common stock or a Municipal Bond.

The popularity of investment products has heightened the risk for all investors and has indirectly led to many of the policy errors that threaten both capitalism and the economic fabric of America. Individual equity market prices are increasingly and inappropriately influenced by decision-making based only on the derivatives that contain them.

Few people consider the investment risk associated with public policy decisions. Product investors and derivative speculators participate in less personal markets, where it is more difficult to connect the dots between their personal financial interests and their political alignments.

So in a very real sense, investors have to deal with public policy risk every bit as much as they need to analyze the risks associated with the securities and other financial products they hold in their portfolios. It�s complicated, but it is doable.

Apart from these important peripheral considerations, the risk of loss in any equity investment is generally greater than the risk of loss in any debt related instrument. The potential reward from each type is just the opposite, and that's where all the excitement begins.

Do we risk more for the chance of a greater return, or do we risk less and try to preserve our investment capital? Keeping in mind that investment capital is a measure of cost, not of market value, and that the only real loss is a realized loss.

Typically, the older the investor, the more boring or income focused the portfolio should be, minimizing the overall level of risk. But it's difficult to actively minimize or manage your risk in the "open end" mutual fund or passively managed ETF marketplaces.

Risk minimization requires the identification of what's inside a portfolio. Risk control requires decision-making by the owner of the investment assets. Risk management requires a selection process from a universe of securities that meet a known set of qualitative standards.

Product owners assume the added "fear and greed" risk of the general population, while their fund mangers stand aside and mumble about the opportunities lost in either direction.

Without a risk sensitive menu to select from, 401(k) participants need to minimize risk by: (a) avoiding the poor diversification that may be a requirement of their plan, and (b) developing outside income portfolios with any investable income above the employer matching contribution.

The first and most important management action focused on risk minimization in any "program" is the development of an asset allocation plan. The plan separates "liquid" investment assets into two buckets (equity and income) based on cost, not market value. No portfolio should have less than 30 percent in the income bucket, no ifs, ands, or buts.

And no investment plan should be developed "tax" or "cost" first. Risk minimization comes first, and then tax minimization if possible. Finally, transaction cost minimization can be considered if you are qualified to run your program yourself.

A cost based asset allocation approach (Working Capital Model) assures growing levels of "base income" throughout the portfolio development process and, possibly, into retirement. Income growth, by the way, is the only real hedge against that other economic risk, inflation, a buying power problem that has nothing to do with the market value of the income producing assets.

Minimizing investment risk is done best through the use of disciplined sets of rules for the various operations involved in managing a portfolio. Strict rules need to be developed for security selection, three types of diversification, income production, and for profit taking.

Forget the Wall Street "I-can-fix-that" product menagerie. We're not interested in massaging our market value to take the sting out of cyclical market value changes. Our plan is to take advantage of these changes as they unwind around us over time, and when they occur unexpectedly, causing short-term disruptions and dislocations.

In the securities markets the real risk of loss can be minimized without products and futures speculations, without commodities and hedge funds, and without the agenda that most people experience throughout their investment lifetimes.

The old fashioned principles of investing: quality, diversification, and income, plus disciplined, targeted, profit taking are the only hedges an investment portfolio needs to assure long-term success. Conveniently, the QDI+PT applies equally well to both classes of investment securities.

"Q" is for quality. If you study the long-term behavior of Investment Grade Value Stocks, and high quality income CEFs, you'll discover that they hedge themselves quite effectively. Risk is wrung out of portfolios by investing only in S & P, B+ or better rated, dividend paying, and historically profitable companies and then only when their equity prices are well below their 52-week highs.

"D" is for diversification. Absolutely never allow any position in your portfolio to exceed five percent of total portfolio working capital (i.e., the total cost basis) and never start a position anywhere near maximum exposure. You want to be able to buy more at lower prices.

Similar diversification rules apply to industry exposure and global diversification through the use of the mainly world class companies in the investment grade quality categories.

"I" is for income. Own no security that does not pay regular, dependable, dividends or interest. Regular and growing dividends are a quality indicator in equities. In the income "bucket", seek out above average yields while avoiding those that seem either too high or two low.

Managed closed end funds do it best and provide easy "PT" and "buy more" opportunities. Buy established CEFs with long term "income" (not ROC) payment records.

"PT" is for profit taking. Absolutely always smile and take your profits willingly, net/net seven percent to 10 percent (dependent upon available reinvestment possibilities and security class), and never, ever, look back. Trading this same body of securities, again and again, has been shown to sustain growth of capital and income consistently in a relatively low risk environment.

Market cycle investment management with 10 time tested risk minimizers

In the recent financial crisis, a very small percentage of (I bought my house to live in) homeowners stopped paying on their mortgages. Still, the hysteria over the bursting housing bubble (i.e., lower market values) led to financial institution road-kill because of ridiculous accounting rules.

When the dot-come bubble destroyed "new economy" gladiators in a gory spectacle destined to repeat itself over time, what investment portfolios cheered unscathed from the coliseum bleachers?

If you reduce the amount of betting in your portfolio (and throw out politicians who don't have a clue about the workings of free markets) you can safely navigate even the choppiest seas that the market, interest rate, and economic cycles churn up.

The tide-like change of market values is the normal order of things, and until we embrace the cyclical nature of markets, all markets, our disappointment and disillusionment will continue. Portfolio market values will reflect where we are within the various cycles.

Interest rate sensitive securities (all bonds, government securities, preferred stocks, and relatively high dividend equities) vary inversely with interest rate expectations, most of the time.

Where we are in the interest rate cycle is fairly easy to determine, and you need to position yourself to take advantage of the higher rates that will sneak into the economic formula as the cycle moves further and further from its recent lows.

How do we prepare for higher interest rates? By designing the income bucket of the portfolio so that it refills itself with at least 30 percent of total portfolio realized income, and by owning income generating securities in a form that is easy to add to.

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Don't bet the house on the stock market

by Dr. Norman Ehrentreich

Dr. Norman Ehrentreich is the owner of Ehrentreich LDI Consulting & Research in Minneapolis. He can be reached at norman.ehrentreich@yahoo.com

In summer 2007, a financial advisor recommended to me a seemingly foolproof wealth building strategy: take out a mortgage as big as possible on my house and invest the proceeds in the stock market. "We as financial professionals," he exclaimed, "know that the stock market does better in the long run than bonds, so we are not worried if stocks lose temporarily. And together with the tax deductibility of mortgage interest, we know that we will come out ahead, no matter what happens in between." He supported his advice with a simple back of the envelope calculation of subtracting the geometric average rates of bond returns from stock returns and then correcting for the tax deductibility of mortgage interests. According to this calculation it seemed like a sure wealth building strategy.

I politely declined and kept looking for a different advisor, not because I was bothered by the potential conflict of interest here, but because I disagreed with his reasoning and naive calculation. Instead, I continued paying down my remaining mortgage as fast as I could, thinking that there were few investments that could give me a safe return of six percent, my mortgage rate at that time.

Where this advisor saw a winning strategy with few if any long-term risks, I saw pitfalls in his reasoning and the riskiness of his advice. I had just developed a liability driven investment product for defined benefit pension plans and I realized that I would have put myself in the same position as a pension plan, with potentially dire consequences for my house. Instead of regular benefit payments to current retirees, I would have faced monthly mortgage payments. I recognized that the recommended strategy contained far more risks and a bigger component of market timing than the financial advisor was willing to admit to, provided he was aware of it.

Market timing and reverse dollar cost averaging

I knew from my numerous simulations for defined benefit (DB) pension plans that the success of the advisor's strategy would not only hinge on the realized average return, but also on the specific return sequence with which these average returns were achieved. For investment problems with intra-period cash flows, a simplistic look at differences between average returns is misleading. What could have happened had I followed the advisor's proposed strategy? Let's assume that I would have taken out a 20 year mortgage, and that stocks earned, on average, eight percent over this 20 year period, two percent more than mortgage interest rates at that time. After 20 years, that information is insufficient to judge whether the strategy had worked out for me or not.

Remember what happened in 2008 and 2009? Stocks lost half their value from peak to trough. Unfortunately, my mortgage payments would not have been cut in half. Paying them from my shrunken stock portfolio would have depleted it even more since I had to sell more stocks to raise the required cash. Buying high and selling low is hardly a strategy of success. Having to make fixed payments from a volatile asset portfolio leads to what is commonly known as reverse dollar cost averaging in retirement planning. It causes irreparable damage in distribution portfolios after a drop in asset prices. And because of it, the above average returns following a drop in asset prices would have accrued to a diminished asset base, dampening the bounce back in the portfolio's value.

Eventually, my stock portfolio would have run out of money long before I finished paying off that new mortgage I had taken out. The advisor's strategy would have worked only if my mortgage payments would have always come out of my stock portfolio. Of course, tumbling stock markets also raise the probability of finding oneself without a job, affecting the ability to make further mortgage payments from current income. That adds another layer of risk that eventually could lead to foreclosure.

On the other hand, if the stock market would have surged in the early years, I would have come out even better than expected. The early above average stock return would have benefited the whole investment portfolio and the later below average returns, or even losses, would have hurt a much smaller investment portfolio. It looks like that an investor's final success is path dependent on how the average return is achieved.

If you ever hear such an investment advice again, keep in mind that it comes with a higher risk than it seems at first sight and that its success hinges on where we are in the market cycle. You should know better than our advisor that simply adding or subtracting some average return numbers from each other is woefully misleading for investment problems with regular payments over the investment horizon. But if average returns are misleading, how should we look at investment problems like this?

Beware of time weighted rates of return

To answer this question we need to be more specific. There are several methods with which average returns are calculated, and if we look at the correct average return, the puzzle disappears.

Long term returns of stock and bond indices and the return of all other asset classes that we care about are usually quoted as time weighted rates of return, and so are the returns of mutual funds. Note that these returns ignore any possible cash flows from or to investors. Mutual fund managers are required to quote these time weighted rates of return since they do not control investor induced contributions and redemptions. A time weighted rate of return judges a manager on his or her actions, and not on the actions of investors.

What matters for investors, however, are money weighted rates of return. This measure also accounts for the timing and amount of all cash flows in and out of a portfolio. Money- or asset weighted rates of return take into account the value of a portfolio when linking several period returns together. They are a more accurate measure of investor success than time weighted rates of return.

We often assume that the differences between these two return measures are negligible, but when asset prices fluctuate wildly and when intra-period cash flows are large, these differences can be substantial. While the time weighted rate of return can be nine percent, it is entirely possible that the relevant money weighted rate of return for an investor is negative.

We should always keep in mind that investment problems can be quite different from each other. When making a one time investment and watching it grow over 20 years, time and money weighted rates of return coincide. Return volatility within the 20 year period doesn't matter. Yet when making investments at regular intervals such as in a savings plan or 401(k), the two return measures diverge. Because of dollar cost averaging, the time weighted rates of return tend to be higher than the money weighted rates of return.

When entering retirement, however, the accumulation portfolio becomes a distribution portfolio, and investors face a completely different situation. They now have to make regular payments from a volatile investment portfolio which suddenly subjects them to reverse dollar cost averaging. Those distribution portfolios tend to have lower money weighted rates of return than time weighted rates of return. Most importantly, though, is that there is a risk of running out of money way before the time simple calculation with average returns suggests. Having to make mortgage payments from a stock portfolio that was funded once is a perfect example of a distribution portfolio.

So, if you are willing to take out a mortgage on your house and invest it in the stock market, keep in mind that you are at risk of losing money over your investment horizon, even if average stock returns exceed your mortgage rate.

Confused? Don't worry, you are not alone! (Or where have our pensions gone?)

If you think that this is all confusing and too complicated, you are in good company. Have you ever wondered why our pensions are disappearing? For me, the single most important factor is that many pension officials still do not understand that it is money weighted rates of returns that matter to them. They rather employ asset allocation algorithms that use expected time weighted rates of return. Historically, this has led to an excessive overweighting of stocks in the portfolios of defined benefit pension plans. Plan sponsors, consultants, and investment professionals judge the costliness of promising certain retirement benefits on expected time weighted rates of return.

But the latter systematically underestimate the true funding costs of future pension promises. Could that possibly be an explanation for the severe funding deficits of our public pensions even though they boast a 9.25 percent median investment return over the last 25 years? Even worse, pension officials often judge the relative advantageousness of past investment strategies by looking at time weighted rates of return. How will they ever learn the right lessons from their current funding predicament if they keep looking at the wrong success measure?

So, let us do ourselves a favor. Let us not bet our houses and our pensions on the stock market. Let us realize that these strategies are likely to go bad more often than we are inclined to believe. Let us base our investment decisions on a better understanding of market timing and those return measures that really matter to us.

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Managed Closed End Funds

Solid income investments in liquid form

by Steve Selengut

A Closed End Fund (CEF) is a publicly traded investment company that invests in a variety of securities such as stocks, bonds, preferred stocks, real estate, mortgages, and oil and gas royalties. The variety of sectors, classifications, and geographical representation is every bit as confusing as it is with traditional funds, but the advantages are easy to understand.

Capital is raised by an investment company through an initial public offering (IPO) of common stock and the proceeds are invested according to the investment objectives of the fund. Like a traditional (open end) mutual fund, a Closed End Fund has a board of directors, appoints an investment advisor and employs a portfolio manager.

Unlike conventional mutual funds, CEFs do not issue and redeem shares directly with investors at net asset value. CEFs are listed on national securities exchanges, where shares of the investment company are purchased and sold in transactions with other investors, just like individual company stocks, and most often not at net asset value.

Many brokerage firm statements will list these securities as equities or mutual funds, not quite in sync with the purpose or nature of the securities contained within. You should keep this in mind when you analyze the asset allocation of your portfolio and adjust accordingly.

Although the number of outstanding shares of a CEF remain relatively constant, additional shares can be created through secondary offerings, rights offerings, and/or the issuance of shares for dividend reinvestment.

Existing owners always get the first shot at new shares, in proportion to their holdings, so they can choose to protect themselves from any dilution of interest. Again, vastly different from traditional mutual funds, where dilution is the very nature of the fund.

Many of the advantages of Closed End Funds are discussed below. It should be abundantly clear that this form of investment fund has eliminated nearly all of the drawbacks of conventional mutual funds. The two have very little in common.

Trading Liquidity - Flexibility - Cost

Closed End Fund shares may be bought or sold at any time during the trading day, just like common stocks, and share prices will fluctuate. They are excellent start up investment vehicles for smaller accounts where diversification would otherwise be difficult to achieve.

There are no penalties for leaving the CEF when the stock is sold. The only direct cost involved is the commission paid when buying or selling the shares.

Leverage IS an Advantage

Closed End Fund managements borrow money by issuing preferred stock in an effort to increase the productivity of the investment portfolio.

As long as the short-term interest rates paid to the lenders and the dividends paid to preferred shareholders are lower than the net long-term rates earned by the portfolio, the common shareholders of the fund will earn higher rates that they would have without the leverage.

Rising interest rates aren't nearly as scary as critics would like you to believe. The manager can reduce the leverage, and new investments are made at higher yields. Leverage is not a four letter word. All debt is a form of leverage and, without it, you would probably be peddling to work instead of driving that Mercedes.

Efficient Portfolio Management

Unlike open-end mutual funds, the asset base for CEFs is relatively stable. Without the pressure of constantly investing or redeeming securities based on investor demands, CEF managers are in charge of the fund and use their own experienced judgment to make investment decisions, uninfluenced by the fear and greed of "the mob".

Fund Expenses

Due to minimal marketing expenses and typically lower turnover, CEFs have lower operating costs than traditional mutual funds. (Closed End Funds rarely advertise and don't pay distributors.) They trade like common stocks, with the normal variable expenses that trading involves.

CEFs do not impose annual 12b-1 fees, as mutual funds do, but they probably do pay the fund manager too much money. Still, if my Closed End Muni Bond fund is generating six percent, in monthly installments, she's earning it.

No Minimums: Because Closed End Funds trade on secondary markets like other common stocks, there is no minimum purchase or sale requirement. Investors may purchase or sell as little as they like. And don't expect to receive a prospectus, yet another benefit since such documents are written in unintelligible legalese anyway.

Distributions

CEFs make distributions according to a prescribed schedule, which allows investors to plan the timing of their cash flow. The actual amount of the distributions may vary with fund performance, interest rates, and general market conditions.

Still, a stable monthly cash flow is easier to create with CEFs than with individual bonds, mortgages, and preferred stocks, and they are significantly less risky. Many funds make their capital gains distributions early in the year following the actual transactions. This may cause some inconvenience for accountants, but think of the potential for income increasing management strategies. [Remember, it's your accountant's job to make you happy...not vice versa.]

Investment Risk

All true investments involve similar types of risk. Closed End Funds involve the same risks as common stocks: prices do fluctuate; management skills vary from company to company; markets rise and fall; interest rates change. The rules of investing (quality, diversification, and income) and of management (planning, organizing, controlling, decision making) always apply.

CEFs are not miracle drugs, just another means to the end of creating a more manageable, safer, and more productive portfolio.

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Stock market corrections...a beautiful thing

by Steve Selengut

A correction is a beautiful thing, simply the flip side of a rally, big or small. Theoretically, even technically I'm told, corrections adjust equity prices to their actual value or "support levels". In reality, it's much easier than that.

Prices go down because of speculator reactions to expectations of news, speculator reactions to actual news, and investor profit taking. The two former "becauses" are more potent than ever before because there is more self-directed money out there than ever before. And therein lies the core of correctional beauty.

Mutual fund unit holders rarely take profits but often take losses. Additionally, the new breed of index fund speculators over-react to news of any kind because that's what speculators do. Thus, if this brief little hiccup becomes considerably more serious, new investment opportunities will be abundant.

Here's a list of 10 things to think about doing, or to avoid doing, during corrections of any magnitude:

Present asset allocation should be tuned in to your objectives

Resist the urge to decrease your equity allocation because you expect a further fall in stock prices. That would be an attempt to time the market, which is (rather obviously) impossible. Asset allocation decisions should have nothing to do with stock market expectations.

Take a look at the past

There has never been a correction that has not proven to be a buying opportunity, so start collecting a diverse group of high quality, dividend paying, NYSE companies as they move lower in price, Investment Grade Value Stocks. I start shopping at 20 percent below the 52-week high water mark, the bargain bins are filling.

Don't hoard that "smart cash" you accumulated during the last rally, and don't look back and get yourself agitated because you might buy some issues too soon

There are no crystal balls, and no place for hindsight in an investment strategy. Buying too soon, in the right portfolio percentage, is nearly as important to long-term investment success as selling too soon is during rallies.

Take a look at the future

Nope, you can't tell when the rally will resume or how long it will last. If you are buying quality equities now you will be able to love the rally even more than you did the last time, as you take yet another round of profits. Smiles broaden with each new realized gain, especially when most Wall Streeters are still just scratchin' their heads.

As (or if) the correction continues, buy more slowly as opposed to more quickly, and establish new positions incompletely

Hope for a short and steep decline, but prepare for a long one, and if you are doing it properly, you'll run out of cash well before the new rally begins.

Your understanding and use of the smart cash concept has proven the wisdom of The Investor's Creed (look it up)

You should be out of cash while the market is still correcting, it gets less scary each time. As long your cash flow continues unabated, the change in market value is merely a perceptual issue.

Note that your working capital is still growing, in spite of falling prices, and examine your holdings for opportunities to average down on cost per share or to increase yield (on fixed income securities)

Examine both fundamentals and price, lean hard on your experience, and don't force the issue.

Identify new buying opportunities using a consistent set of rules, rally or correction

That way you will always know which of the two you are dealing with in spite of what the Wall Street propaganda mill spits out. Focus on Investment Grade Value Stocks; it's just easier, as well as being less risky, and better for your peace of mind. Just think where you would be today had you heeded this advice years ago.

Examine your portfolio's performance

With your asset allocation and investment objectives clearly in focus; in terms of market and interest rate cycles as opposed to calendar quarters (never do that) and years; and only with the use of the Working Capital Model (look this up also), because it is based upon your personal asset allocation. Remember, there is really no single index number to use for comparison purposes with a properly designed portfolio.

If you are lucky, you'll be able to invest in a Market Cycle Investment Management "Mirror Portfolio", check with your financial advisor.

So long as everything is down, there is nothing to worry about

Corrections (of all types) will vary in depth and duration, and both characteristics are clearly visible only in institutional grade rear view mirrors. The short and deep ones are most lovable (kind of like men, I'm told); the long and slow ones are more difficult to deal with. Short ones (those that last a few days, weeks, or months) are nearly impossible to deal with using mutual funds.

So if you over think the environment or over cook the research, you'll miss the party. Unlike many things in life, Stock Market realities need to be dealt with quickly, decisively, and with zero hindsight. Because amid all of the uncertainty, there is one indisputable fact that reads equally well in either market direction: there has never been a correction/rally that has not succumbed to the next rally/correction.

Think cycle instead of year. Smile more.

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Financial Tsunami: Will it drown us in a sea of debt?

The 'Ugly' truth about 401-(k)

Because of the 401(k) plan – that's why!

Bottom line: Joe Lunchbox got duped!

So what are we supposed to do now?

Target date funds from a fiduciary viewpoint

Fiduciary focus on risk

Fiduciary focus on risk-adjusted returns and expenses

Fiduciary focus on underlying funds

Fiduciary focus on reliability and repeatability

Cruise control hedging

RISK is not just a board game you played in college

Market cycle investment management with 10 time tested risk minimizers

Don't bet the house on the stock market

Market timing and reverse dollar cost averaging

Beware of time weighted rates of return

Confused? Don't worry, you are not alone! (Or where have our pensions gone?)

Managed Closed End Funds

Solid income investments in liquid form

Trading Liquidity - Flexibility - Cost

Leverage IS an Advantage

Efficient Portfolio Management

Fund Expenses

Distributions

Investment Risk

Stock market corrections...a beautiful thing

Present asset allocation should be tuned in to your objectives

Take a look at the past

Don't hoard that "smart cash" you accumulated during the last rally, and don't look back and get yourself agitated because you might buy some issues too soon

Take a look at the future

As (or if) the correction continues, buy more slowly as opposed to more quickly, and establish new positions incompletely

Your understanding and use of the smart cash concept has proven the wisdom of The Investor's Creed (look it up)

Note that your working capital is still growing, in spite of falling prices, and examine your holdings for opportunities to average down on cost per share or to increase yield (on fixed income securities)

Identify new buying opportunities using a consistent set of rules, rally or correction

Examine your portfolio's performance

So long as everything is down, there is nothing to worry about

Financial Tsunami:
Will it drown us in a sea of debt?