Parker Financial Blog

Controversial Advice

2009-05-26T06:32:00.000-07:00

What I am about to share with you is very controversial. Many will argue it is risky, foolish and unwise. People despise debt, and frankly so do I. Look at the mess we are in as a country as a result of over-borrowing and extreme leverage because we are so focused on consuming wealth instead of creating it. But I have to point out what I see as an incredible wealth-creation opportunity that exists right now.

First look at Microsoft, they have been one of the most successful business stories of all time. They have operated free of debt for years, and, in fact, they have huge cash reserves (20 billion plus). Recently, though, Microsoft issued 3.75 billion in bonds/debt. Why in the world would a cash-rich company get into debt right now? Especially, since I read in the Wall Street Journal that Microsoft does not have any immediate plans for this cash they are borrowing.

Well here is my opinion. They are borrowing to create rather than consume. They are borrowing now while the interest rates are low and are banking on the interest rates rising sometime in the future based on historical interest rate fluctuations.

If we look back historically, the federal reserve slashes the federal funds rate when the economy falls into trouble. But more specifically in 1974, after a doozy of a market crash, the federal reserve dropped the federal funds rate from 12% to less than 6% by 1976. What's crazy is what happened by 1981 when the federal funds rate jumped to more than 18%. Lets say back in 1976 a company like Microsoft borrowed billions of dollars at 6% and then in 1981 they were earning 18% on that same money. That's just crazy. Wouldn't you like to be on that side of the borrowing/arbitrage -- risk-free profit equation.

With interest rates at all time lows, there are a lot of factors at play, such as foreign countries not wanting to buy our treasuries because interest rates aren't very attractive, or that we have been printing money like mad in the last 12 months. But the bottom line is, in my opinion and many others, that at some point in the future, we are likely to go through a period of hyper-inflation and much higher interest rates. Why does this matter and how does it relate to Microsoft, and more importantly how can you benefit from the same type of thinking.

Lets look at Microsoft again. They just issued some 30 year notes at 5.25%. Lets say 3 or 4 years from now this scenario of hyper-inflation and high interest rates takes hold and interest rates jump to say 9%. Well Microsoft was smart enough to borrow at 5.25%, and now they can earn 9% on that money. That's a nice little arbitrage. The rich getting richer, and it all has to do with timing. Most people buy stocks at the wrong time and sell at the wrong time. Most people borrow to consume when they should be borrowing to create. This really is the chance of a life time on the borrowing side of the equation. You should be buying stocks when everyone is running scared, and borrowing money when consumer debt is perceived as evil.

That's what Microsoft is doing, borrowing to create. They are betting on one of two things: One, either the rate of return they can earn on the money will be greater than the rate at which they borrow; or two, they believe they can put the money to work in their company to earn a greater return. Ultimately, the opportunity to borrow money on the cheap has never been so great. Now, how can you benefit from this.

If you are someone one who has $1 in their pocket and is inclined to spend $2, then this is not the right plan for you. If you currently carry a lot of debt and can't afford an extra 6 or 7 hundred dollar a month payment, then this is not for you. Essentially, this plan is for people who, like Microsoft, have been very prudent and conservative in their finances.

This is a good plan for you if you own a home and your home is paid off or you have $100,000 in equity and you can borrow against your home at 5% on a 30 year mortgage fixed rate. Do you see a similarity to what Microsoft just did. As an individual you don't have the ability to issue bonds but you do have the opportunity to borrow. And right now borrowing against a home has never been more attractive.

You are borrowing at 5%, and if my scenario plays out in a few short years, you are going to be able to earn a rate of return much higher than 5%. And I'm not talking about investing in the stock market. I'm talking abut using safe and secure CDs.

But what happens if you borrow at 5% today and can only earn 5%, is there really any point? Well if you borrowed using a simple interest loan and put that money into a savings account that is earning a 5% compound interest, then you're actually making more money than if you had never borrowed any. "The most powerful force in the universe is compound interest," to quote Mr. Einstein.

Plus, if you can borrow at 5% now and in a year or two could earn 7, 8 or 9% wouldn't you look like a genius. This little exercise in wealth creation or creating your own arbitrage is how banks make money. Banks pay interest on deposits at say 2.5% and turn around and lend the money at 5%. In many ways what I am suggesting is safer than what banks do because banks take a risk on the borrowers ability to repay the loan. You on the other hand don't have that risk. In my opinion, this is how Microsoft is on the verge of creating huge amounts of additional wealth in the not so distant future.

Worst case scenario: I'm wrong. In a couple of years, interest rates continue to stay at zero and we are in a spiraling deflation. But who cares. You still have the $100,000, and if you can't continue to find a deposit rate of 5% or higher, then you can pay off the debt and be done with it.

Another possible benefit: the mortgage interest on your borrowed money may be tax deductible to you, which would create a bigger arbitrage on your behalf. On the downside, there will be costs to borrow the money so you have to take those into consideration as well.

But ultimately, I believe this puts the borrower in a greater place of safety. They have more liquidity, which we all know, especially in the current environment where cash is king, is very comforting. In a rising interest rate environment, you will have borrowed cheaply and then safely earned a greater rate of return.

Remember this "He who has the gold....makes the rules"

Jason Parker is the President of Parker Financial LLC, a fee based registered investment advisory firm specializing in wealth management for retirees. His office is located at 9057 Washington Ave NW #104 in old town Silverdale, WA 98383. He holds the series 65 securities license as well as being licensed to offer life and health insurance in Washington State. For more information please contact Jason at 360-337-2701 or online athttp://www.parker-financial.net/. The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. The opinions and information presented do not constitute a solicitation for the purchase or sale of any securities or insurance products. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. The publisher is not engaged in rendering legal, accounting, mortgage or other professional services. If other expert assistance is needed, the reader is advised to engage the services of a competent professional. Please consult your Financial Advisor for further information.

Bonds: What keeps me up at night.

2009-05-12T05:24:00.000-07:00

I hate to toot my own horn. But if you will recall, I warned about our economy falling off a cliff very early on. See my past blog posts. They say hindsite is 20/20, and we can all look back now at the housing bubble and think, "I should have known this was coming." Of course, we are all trying to recognize trends early so that we can position our clients before things get too ugly. When I shine up my crystal ball, here is what I see happening in the future.

If you have been to my workshops recently or listened to my radio program, you know that one of the issues we have been discussing is safety. Bonds are often touted as a safe alternative to stocks. Recent articles and evidence have suggested that bonds are safer than stocks over the long haul. However, bonds carry a substantial amount of risk, and in my humble opinion, should not be discussed as safe. If you can lose money due to market volatility, then it is not safe.

Bonds, as we all know, have several different risks: default risk, credit risk, and call risk to name a few. I am going to discuss what I believe is the most obvious risk of all right now -- interest rate and term/maturity risk. Most people know that bonds have a direct relationship with interest rates. If you buy a bond today and it is paying an interest rate of 4%, and tomorrow interest rates go up, and I can now buy a bond at 5%, I could potentially lose money if I had to liquidate my bond before maturity.

Why would anyone want to buy a 4% bond from me when they can buy a bond from the issuer at 5%. Well the answer is they won't want to buy your bond at 4% unless you discount the price. If you hold a bond today and interest rates go up, your bond would be worth less money if you had to sell you bond before maturity.

The question to ask yourself right this very second is, "Are interest rates gonig to stay flat, go down or go up in the future?" Take a look at a historical chart of the feds fund rate at the link below before answering this question. We are printing money, interest rates are at a historical all time low, and we are starting to see less demand at our treasury auctions, which are causing interest rates to rise. Right now this is all pretty subtle. Even though there is plenty of media coverage, it seems like people aren't paying attention.

In the early 1970's, the stock market crashed. The Dow Jones Industrial Average (DJIA) fell 45%. That's a doozie. Prior to the crash, the federal funds rate was at 12%. The federal funds rate is one way our government influences short term interest rates and encourages economic growth. By lowering the rate they allow for cheaper borrowing, which in turn should stimulate the economy.

Well by 1976, the federal funds rate had plunged from 12% to less than 6%. Why is this important? Well think about how people react after they lose 45% in a stock market sell off. They go to their Broker and say Mr. Broker I want more safety. So the broker follows the common wisdom that bonds are safer than stocks, and so he rebalances the client portfolio and puts more money in bonds and less in stocks.

But remember that by 1981 the federal funds rate had skyrocketed to 18%. So even though you were buying bonds for more safety in 1976, you were buying in at 6% or less. A few years later, you could buy bonds that were paying 18% or more. If you had to liquidate your 6% bond before maturity, you would have taken a great big bath. And if you didnt liquidate the bond, you saw all of your friends earning 3 times the yield. Painting the picture that bonds are not as safe as you might think.

Fast forward to 2007. The federal funds rate in 2007 was 4% before the market crashed and now it floats from 0% to 0.25%. People are going to their broker and saying I want more safety... you can see where this is going. The broker rebalances their portfolio to a stronger bond position and ... well the future has yet to happen, but folks if I were a betting man, I'd have to bet that interest rates are going to be higher in the future. Remember if interest rates go up and you hold a bond, the value of your bond is likely to go down. And you could recognize a loss if you had to liquidate that bond before maturity.

One of the primary reasons I believe interest rates are going to go up is because of the continued lack of interest in the treasury offerings. Lets face it. We need foreign nations to finance all of the spending we are doing. These countries are not very excited about buying a 30 year treasury bond that is paying 4% especially when our dollar is down the tubes and losing ground as we continue to print money. The solution will have to be higher interest rates to continue to attract capital from our foreign financiers.

So what can you do about it? If you are looking for more safety, you must use safe money alternatives. I define safe as something that is guaranteed, and you can always calculate your worst case scenario if you have to liquidate before maturity regardless of what interest rates are doing.

We can use bonds as a negatively correlated asset class to stocks to offset your portfolio for your at-risk and market sensitive investments, but bonds are not the safest place for your money to be either. And always remember to ask about the term of the bond. If you are retired and are 70 years old. Do you really want to buy a 20 year bond? And don't fool yourself about the strength of the company you are investing in. Things change. What you may perceive as a strong company today may not look to good in just a few years. Just look at Chrysler, Lehman Brothers, Enron, GM, Worldcom, Bear Stearns, Washington Mutual.

Here is the bottom line. Should you own bonds in a well diversified at-risk investment portfolio?

Answer = Yes.

Just remember that you can lose money in bonds so they should be used with caution and should be considered an at-risk investment rather than a safe one.

With my clients one of the first questions I like to ask is, "How much money do you want safe and how much do you want at-risk?" Bonds fall into the at-risk category, and we use alternative fixed income investments that provide guarantees and safety for the money our clients want safe.

PS -- Below are a few link that you should probably review if you want more insight into how I am formulating my opinions:

China urges new money reserve to replace dollar

Buffett says US Treasury bubble one for the ages

Treasurys fall on weak demand at 30 - year auction

Dollar is dirt, Treasuries are Toast, AAA is Gone:

Is this the end of the bond bull market?

Chart of the Fed Funds Rate:

Jason Parker is the President of Parker Financial LLC, a fee based registered investment advisory firm specializing in wealth management for retirees. His office is located at 9057 Washington Ave NW #104 in old town Silverdale, WA 98383. He holds the series 65 securities license as well as being licensed to offer life and health insurance in Washington State. For more information please contact Jason at 360-337-2701 or online at http://www.parker-financial.net/. The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. The opinions and information presented do not constitute a solicitation for the purchase or sale of any securities or insurance products. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. The publisher is not engaged in rendering legal, accounting, mortgage or other professional services. If other expert assistance is needed, the reader is advised to engage the services of a competent professional. Please consult your Financial Advisor for further information.

SUPERSIZE your retirement income

2009-01-30T04:30:00.001-08:00

Have you ever heard the saying "different strokes for different folks?" Well, I always remind my clients that retirement planning is never a "one size fits all" and what works wonderfully for some folks is the absolute wrong concept for others.

Lets look at a hypothetical example using an imaginary couple named Mr. & Mrs. Jones that involves using reverse mortgage. Many people initally coil away from even the idea of a reverse mortgage, but I'm going to show you how, in this example, it creatively solves their financial issues. Please be sure to read all the way through this concept to understand how it was applied to the goals of the client.

Mr. Jones is age 70 & Mrs. Jones is age 68 years old. They are in very good health and have been retired for almost 15 years. When they retired, their pension was more than enough to cover all of their living expenses. During the last 15 years, they have seen their medical costs rise substantially, their property taxes increase, and the cost of living increase, which has eaten away at their modest retirement savings. So now they are really feeling an income pinch. Mr. Jones is considering going back to work, and they have been taking steps to aggressively cut their expenses. In fact, they are driving a car that is 20 years old, they have canceled their cable television and are considering not taking all of their prescriptions to try and save a few extra dollars.

Before Mr. & Mrs. Jones retired they had paid off their home. Their home is by far their largest asset, and if they had to sell it today, they could probably sell it for $275,000. They think selling their home would free up the capital they would need to live more comfortably. So they start looking to downsize. Unfortunately, what they find is that even the smaller decent homes in nice neighborhoods are going for around $275,000; so they will only break even. They do not want to move into an apartment, in fact, they don't want to move at all. They have lived in the same home for more than 30 years; they have a lot of wonderful memories, an incredible garden and great neighbors; and they are comfortable.

When I sit with Mr. & Mrs. Jones, I ask them if they have considered using a reverse mortgage. They said yes, but they didn't like it because they have 2 children, and it was important for them to leave something to the kids. I asked if the kids would want to live in the home. They said no, the kids will probably sell it and split the proceeds. So what I uncovered was leaving a financial legacy to the children was important to them. Leaving the home was not as important. So I asked them this question. How much would you like to leave to each of your children? After a little discussion, they came up with $100,000 for each child.

Here is where financial planning magic comes in. At our second appointment, I asked them if they would be interested in a solution that would increase their income by $723 per month and also guarantee that each of their children would receive $100,000 inheritance. There was no hesitation and an emphatic YES.

For this particular couple we were able to use a reverse mortgage to generate a guaranteed income stream of $953 per month for the rest of their lives as long as they live in thier home. From that $953; we used $229.74 to buy a second to-die-guaranteed-universal life insurance contract that would pay an income-tax-free death benefit of $200,000 upon the death of the second spouse. The guaranteed death benefit was to age 110, so it is highly unlikely they would outlive the insurance contract.

So by using a reverse mortgage Mr. & Mrs. Jones get to live in their home for the rest of their lives. They are guaranteed an income stream of $953 per month and of that use $229.74 per month to pay for a life insurance policy that pays a $200,000 death benefit. When titled correctly this is an $100,000 inheritance for each of their children. Mr & Mrs. Jones now have an extra $723 per month for income, and they have established a means of gifting to each of their children.

Now as with any planning, there are advantages and disadvantages, and it's important to consider all of the different "WHAT-IFS," costs and risks. While this type of planning is certainly not appropriate for everyone, it obviously accomplished the desired goals for Mr. & Mrs. Jones.

Jason Parker is the President of Parker Financial LLC, a fee based registered investment advisory firm specializing in wealth management for retirees. His office is located at 9057 Washington Ave NW #104 in old town Silverdale, WA 98383. He holds the series 65 securities license as well as being licensed to offer life and health insurance in Washington State. For more information please contact Jason at 360-337-2701 or online at http://www.parker-financial.net/. The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. The opinions and information presented do not constitute a solicitation for the purchase or sale of any securities. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. The publisher is not engaged in rendering legal, accounting mortgage or other professional services. If other expert assistance is needed, the reader is advised to engage the services of a competent professional. Please consult your Financial Advisor for further information.

Confessions of a planner

2009-01-29T06:01:00.000-08:00

In this post:
Confessions of a Planner
Can I afford to retire
Retirement Budgeting
Retirement Cash Flow

When you hear the word confessions automatically you think... oh boy this is going to be good. Don't get too excited as my confessions are pretty GEEKY. One question I'm often asked is "How did you get started as a planner" And this is actually a long story but I will point to a couple of characteristics or some may say quirks that tend to work as an advantage in my profession.

First when I was a young boy my Dad encouraged me to start a lawn mowing business. I went around to all of my neighbors and established accounts with a few of them. Soon I found I had more work than I could handle so I hired a few of my friends in the neighborhood to help out. I started this when I was 11 years old and moved from that community when I was 12. When I was 18 and just about to start college I re-connected with a friend from that old community and found that the lawn mowing business I had started was still going strong. That first experience of owning a business, watching it grow and continue to thrive after I was gone. That was and still is an inspiration. (Thanks Dad)

I've always been a bit obsessive about finance. When I would get my crusty dollar bills after mowing a lawn I would take them home and wash them in the sink. I would lay them out on the counter and blow dry them straight. I would bring them to the bank and deposit them in my savings account. At the time that savings account was earning 10%. Ahh the good old days.

Another little confession is that I am obsessed with numbers and counting. Let me give you an example of this little counting obsession. When I am driving down the highway I count the number of tires on the vehicles driving in the opposite direction. Now this is pretty easy when you just have cars and trucks with 4 tires each but when there are a lot of motorcycles and semi trucks it can really get your brain working quickly, not to mention that I am talking on my cell phone, messing with the radio, wiping one of my kids nose, handing the chap stick to my wife and drinking a cup of coffee....Just kidding :).

One last little confession and this one works into personal finance. I love budgeting. I know this really probably sounds weird to many of you but I am the dorky guy in the check out stand at the grocery store that has to input my debits into my palm pilot and categorize the expense at the time of check out. Let me tell ya this little quirk isn't very popular in the express lane. But when tax time comes and my CPA asks me how much I spent on......Well. I just love pulling out my computer and giving her the exact number down to the penny.

One question I am often asked by prospective clients is "can I afford to retire." And of course this starts our little retirement cash flow exercise. In order to do justice to a retirement plan and be able to confidently answer the question of "DO I HAVE ENOUGH" its critical that we understand your expenses. Now I have found that most people don't want to and are not going to carry around a palm pilot and enter and categorize every transaction in their life. So I have found a free Internet tool for those who have embraced technology that can do this for you. If you would like to get a clear picture of where your money is going try using http://www.mint.com/. Mint automatically will grab transactions from your bank account and categorize them for you. To really get the full effect try to use your debit card and no cash for 90 days on purchases so you can really get this tool dialed in. After 90 days Mint.com will have some very detailed reports to help break down just how much money you are really spending every month and where that money is going. I have to say its always a shocker to see just how much of our money Central Market is getting. Now I know some of you are thinking this is just a little to big brotherish for me. And I have to admit that even for a geeky techno money manager I was a bit hesitant to trust so much of my personal info over the Internet. But I got over it and so far so good. I have been very pleased with how this budgeting tool works. This method may be a little to high tech or for some of you. Another alternative is to do it the old school way. The old school way may not be as accurate but it will get us going in the right direction. For those of you that are looking for a good old fashioned paper budget data gathering form I have included one here.

After completing the form please give me a call and give me the opportunity to crunch the numbers for you. After we understand your expenses we can start to look at pensions, social security, investment income and really start to paint a retirement cash flow picture that will keep you sleeping well at night.

Jason Parker is the President of Parker Financial LLC a fee based registered investment advisory firm specializing in wealth management for retirees. His office is located at 9057 Washington Ave NW #104 in old town Silverdale, WA 98383. He holds the series 65 securities license as well as being licensed to offer life and health insurance in Washington State. For more information please contact Jason at 360-337-2701 or online at www.parker-financial.net. The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. The opinions and information presented do not constitute a solicitation for the purchase or sale of any securities. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. The publisher is not engaged in rendering legal, accounting or other professional services. If other expert assistance is needed, the reader is advised to engage the services of a competent professional. Please consult your Financial Advisor for further information.

This is ridiculous

2008-10-30T11:20:00.000-07:00

The Problem:
Three years ago I helped many of my clients enroll in a Medicare Part D prescription drug plan. At the time to cost to enroll in the plan was $6.93 per month. Three years later that same plan is now $37.9 per month. That means the monthly cost of their plan has increased approximately 76% every year for the last three years. If we project that same 76% increase forward every year for the next 10 years your monthly Part D Prescription drug plan would cost $10,808. Now that scenario is highly unlikely but it kind of makes you scratch your head.

The Solution:
Every year beginning November 15th you are given the opportunity to switch plans. If you are fairly internet savvy you can go to http://www.medicare.gov/ and enter your medications and Medicare will help you determine which plan is going to be the most cost effective given your needs. SHIBA is also available and can be reached at 1-800-562-6900.

A helpful Tip:
Medicare supplements (Medigap) are an easy place for many people to find cost savings. If you don’t already know, Medigap plans have been standardized by the federal government. Basically this means only difference between traditional Medigap plans from different companies is the cost. For example Sterling life offers Medigap Plan F for $314 dollars per month. AARP has the exact same plan F available and it is only $150 dollars per month. That’s a savings of $1,968 per year. Can you think of anything you could do with that money that might be more fun that paying insurance premiums? In most cases here in Washington State you can switch plans without having to health qualify but there are some exceptions. Click here to see a comparison of all the different plans and costs for traditional Medigap plans available in Washington.

Something to consider:
Medicare Advantage plans have been available in Kitsap County for a couple of years now and I was hesitant to recommend them until some time had passed. Well folks I am pleased to let you know they have been met with great success and saved people thousands of dollars per person per year. Medicare Advantage plans are your Medicare benefits administered by private insurance companies. Many plans have $0 premiums and even include Part D drug coverage.

I am here to help:
As an advisor who specializes in working with retirees I am always on the lookout for ways to help my clients and these are just a few of the cost savings tips I have come upon. Medicare and all of the private insurance options associated with Medicare can be confusing. This is probably a good time to review your coverage. Please give me a call or send me an email if you would like me to help you review your options.

Sincerely yours,

Jason Parker

Jason Parker is the President of Parker Financial LLC a fee based registered investment advisory firm specializing in wealth management for retirees. His office is located at 9057 Washington Ave NW #104 in old town Silverdale, WA 98383. He holds the series 65 securities license as well as being licensed to offer life and health insurance in Washington State. For more information please contact Jason at 360-337-2701 or online at http://www.parker-financial.net/. The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. The opinions and information presented do not constitute a solicitation for the purchase or sale of any securities. Please consult with your licensed insurance agent before making any changes.

Market Turmoil & Your Retirement

2008-10-09T12:29:00.000-07:00

One of my personal hero's in the world of finance and investing is a man named Jack Bogle. Mr. Bogle if you don't know is the founder of Vanguard. He has spent much of his career as an advocate and educator for the individual investor. Over the years I have found his insight and commentary valuable. Click here if you would like to watch a short interview he recently conducted.

There is a lot of turmoil and economic uncertainty in our world today. Right now we are being given the opportunity to really question how we feel about risk. And more importantly how risk makes us feel.

If you are concerned about how this market turmoil will impact your retirement I'd like to encourage you to call me or respond to this email so that we can set up a time to go over your retirement plan.

Sincerely,

Jason Parker

Jason Parker is the President of Parker Financial LLC a fee based registered investment advisory firm specializing in wealth management. His office is located at 9057 Washington Ave NW #104 in old town Silverdale, WA 98383. He holds the series 65 securities license as well as being licensed to offer life and health insurance in Washington State. For more information please contact Jason at 360-337-2701 or online at http://www.parker-financial.net/. The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. The opinions and information presented do not constitute a solicitation for the purchase or sale of any securities.
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Bank Ratings

2008-08-14T10:26:00.000-07:00

As many of you know federal regulators seized IndyMac Bank last month in what regulators called “The second largest bank failure in US history1.” Thank goodness the FDIC exists to help protect deposits. With all of the turmoil in the financial sector some of you have asked about the financial strength of your bank. According to the FDIC website:

“The FDIC never releases its ratings on the safety and soundness of banks and thrift institutions to the public. As a service to consumers, the staff of the FDIC Library has compiled a listing of several financial institution rating services. Disclaimer: This list should not be construed as an endorsement or confirmation by the FDIC of information provided by these companies.”

I clicked on several of the different rating agency’s listed by the FDIC. The one I found easiest to navigate was offered by Bauer Financial. They offer a free rating report for banks and credit unions. Click here to check out your bank or credit union. And to keep the legal begals happy I will restate the following disclaimer. Parker Financial llc does not endorse or confirm the information provided by Bauer Financial.

When a bank fails you often hear stories about people who had money deposited that was not covered by FDIC insurance because they were over the limits. Click here to review FDIC frequently asked questions which should help clarify what is and is not not covered by FDIC.

I have a complimentary workshop coming up on August 25th and 27th. As always my clients and their friends and family are welcome to attend. One of the issues we will be discussing are ways to reduce volatility and maximize yield in these uncertain times. Click here for more information.

Hope all is well,

Jason Parker

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Jason Parker is the President of Parker Financial LLC a fee based registered investment advisory firm specializing in wealth management. His office is located at 9057 Washington Ave NW #104 in old town Silverdale, WA 98383. He holds the series 65 securities license as well as being licensed to offer life and health insurance in Washington State. For more information please contact Jason at 360-337-2701 or online at http://www.swiftpage2.com/SpeClicks.aspx?Acc=Jason.SRP&SPCED=IC080814092614&LNK=7&UId=0. The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. The opinions and information presented do not constitute a solicitation for the purchase or sale of any securities. Parker Financial llc is not endorsing or confirming the information provided by Bauer Financial.

Volatility and your time horizon

2008-07-15T15:09:00.000-07:00

Back on January 18th of this year I sent an email talking about the state of our economy and the potential risks associated with being invested in the stock market. At the time the market was down a little over 10% and now of course the market (DJIA) is down a little over 20% from its high in October 2007. We've recently seen a major bank seized by federal regulators, inflation continues to skyrocket, our dollar is slipping so fast it could be used as the poster child for a water slide amusement park, oil continues its march upward and I wouldn't dare bring up housing, the War, Baby Boomers retiring, Social Security or Medicare.

What's the good news you ask?

As one of my clients quipped recently "the good news is I am still on this side of the lawn".

On a serious note. The volatility in the stock market is nothing new and historically over a long period of time the stock market has gone up. (Click here to read a good piece about volatility from my friends as Curian Capital.) What has changed for many of you is that every year you get older your time horizon is shrinking. One of my clients recently said "at some point you realize you have more yesterdays than tomorrows". So its important that we monitor and adjust your portfolio to your time horizon. One of the biggest mistakes I see many retirees make is being overly exposed to stock market volatility when their time horizon and return expectations don't correspond with their risk tolerance.

Financial planning is complex and each persons situation is unique. I have found from my experience of working with many retirees that as folks transition through retirement they trend toward more safety and less volatility.

I'll be holding a workshop on July 28th and 30th in Silverdale and one of the topics we plan to discuss are strategies for reducing volatility. This complimentary workshop is open to the public and as always my clients, their friends and family are welcome to attend. Click here for more information.

Hope all is well,
Jason Parker

Jason Parker is the President of Parker Financial LLC a fee based registered investment advisory firm specializing in wealth management. His office is located at 9057 Washington Ave NW #104 in old town Silverdale, WA 98383. He holds the series 65 securities license as well as being licensed to offer life and health insurance in Washington State. For more information please contact Jason at 360-337-2701 or online at www.parker-financial.net. The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. The opinions and information presented do not constitute a solicitation for the purchase or sale of any securities.

Seniors are being squeezed

2008-04-11T08:47:00.000-07:00

Seniors are being squeezed
By Jason Parker

Seniors are being squeezed and I’m not talking about bear hugs from the grandkids. Higher property taxes along with inflation driving up the costs of gasoline, food, health care and insurance, coupled with a very volatile stock market, longer life expectancies and declining yield on fixed income investments and we have an especially alarming trend for folks who are retired.

Often times when people retire they shift from a strategy of accumulating assets and savings to more of a preservation, distribution and income strategy for the assets and savings they have accumulated. Certificates of Deposit (CD’s) seem to be a popular safe haven for many of these folks. While CD’s certainly offer a great deal of safety there may be a better alternative for those dollars.

After a quick visit to bankrate.com I noticed that the overnight national average yield on a 5 year CD is currently 3.24%. Assuming these are taxable dollars it would be prudent to calculate your yield after tax. So if you are in the 25% marginal tax bracket the after tax yield on your CD is only 2.43%. If we then factor in a conservative estimate of 3% for inflation you can start to see that inflation and taxes are taking a big bite out of your bottom line. Your principal is safe from market volatility but not from taxes and inflation.

One of the most common tax planning strategies is to defer income from the current year to later years. The underlying reason is that it’s better to pay taxes later rather than sooner due to the time value of money. The time value of money concept basically states that a dollar in hand today is worth more than a dollar that will be received in some future year. This concept is particularly important during inflationary times.

So what are the alternatives and how can you defer the tax on interest earned from your CD? The suggestion I am going to make may sound counterintuitive but could result in a significantly greater yield than the CD described above. One often overlooked and misunderstood savings vehicle is the tax deferred fixed rate annuity. One of the reasons tax deferred fixed rate annuities were created by insurance companies was to compete for the dollars currently invested in CD’s. These tax deferred fixed rate annuities work in much the same way as a CD works with respect to how they credit interest, but the annuities offer a few advantages not found in CD’s. First and probably the most obvious is they are tax deferred. So in other words you won’t receive a 1099 interest statement at the end of every year for the interest you earn in your Annuity, as long as the interest isn’t withdrawn from the annuity. Second the rates are currently considerably higher than the national average for CD’s. As of this morning I noticed an offering of 5.30% fixed for 5 years for deposits over $100,000. Remember these fixed rate annuities are tax deferred so the taxable equivalent needed by a CD would be 7.07%. Or in real dollars $100,000 invested in a 5 year CD at 3.24% in a 25% marginal tax bracket and assuming you are paying your taxes from the interest earned each year you would have a value of $112,755.01 at the end of 5 years. The tax deferred fixed rate annuity would have a value of $129,461.88 at the end of the same 5 year period. At the end of the 5 year annuity contract you can continue to defer your taxes out into the future by doing what is called a 1035 exchange to another fixed rate annuity and continue to defer the taxes out into the future. Unlike IRA’s you don’t have to begin taking a required minimum distributions at age 70 and a half. Unless of course you have an annuity inside your IRA then the IRA rules override the annuity rules.

Like CD’s you may pay a penalty for drawing funds out your annuity before the end of the 5 year period. Taxes can be deferred as long as you are alive and continue to 1035 exchange the contracts but when you start to take the money out of the annuity taxes will have to be paid at ordinary income tax rates. Annuities are offered by insurance companies so it’s important to know and understand the financial strength of the insurance company offering the Annuity.

If you invest in CD’s and don’t need the interest income for current living expenses, you may want to consider the benefits of a tax deferred fixed rate annuity as an alternative.

Jason Parker is the President of Parker Financial LLC a fee based registered investment advisory firm specializing in wealth management. His office is located at 9057 Washington Ave NW #104 in old town Silverdale. He holds the series 65 securities license as well as being licensed to offer life and health insurance in Washington State. For more information please contact Jason at 360-337-2701 or online at www.parker-financial.net. The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. Please consult with you financial planner and or tax professional before considering a CD or a tax deferred fixed rate annuity. Annuities unlike most CD’s are not covered by FDIC insurance.

Turbulent times

2008-04-10T12:00:00.000-07:00

Given the state of our economy and the turbulent market conditions I feel this is important. Please be sure to read it and pass it on to your friends.

When I was 3 years old I remember watching a cartoon where a rabbit was being chased by a hunter. The rabbit made his great escape by dropping a banana peel and the hunter slipped and fell giving the rabbit plenty of time to get away. Being the curious kid that I was I ran off to the kitchen and grabbed a banana and ate it as fast as I could. I walked over to the basement steps set the banana peel down and started pushing on it with my foot. Nothing happened. Being very persistent and determined I reached down turned the banana peel over pushed on it with my foot as hard as I could .......sure enough those bananas really can be slick. I fell to the basement floor and split my head open along the way. I remember my Dad picking me up and rushing me to the hospital. Several stitches and years later you can still see the scar in the middle of my forehead.

What's the point you ask? Well it sure looks to me like our economy is standing at the top of the steps with a banana under foot. If you haven't noticed the DJIA is down over 10% in the last 3 months. Heck its down almost 6% this year alone. That is only a small part of the problem, our national debt, sinking dollar, slowing economy, mortgage meltdown and the list goes on. Frankly there is more to this problem that I'd like to talk about in this email.

Many people don't know that there are savings vehicles out there that allow for market participation with no risk to principal. In other words when the market is going up you benefit, but when its going down you can not loose your initial investment. In times of great uncertainty I feel it is important to help educate investors about all of their options.

These principal protected savings vehicles come in many different flavors. Click here to watch a short movie and learn more about Market Participating CD's and notes.

If you are an investor who shares some of my concerns you may want to attend one of my free upcoming seminars. Click here for more information. Feel free to call with questions.

Hope all is well,
Jason Parker
President
Originally written on January 18 2008