STOCKS SPLITTING: WHAT DOES IT MEAN? DLG Wealth Management Weighs In On When Stocks Split and What You Should Know

Fri, 28 Sep 2012 18:11:00 GMT

You may have heard recently about Coca Cola’s stocks splitting. But what does that really mean? Is it a good or bad thing? Why do stocks split in the first place? Let’s dive in to the matter.

April 2012 – Coca Cola announced it was going to split its stock 2 for 1. This means if you own 100 shares, you are going to have 200 now. At the time they announced the split in April, the stock was trading at $78. Therefore if you owned 100 shares you were worth $7,800. In August 2012, the stock became $39 but if you previously owned 100 shares, you now own 200 shares. You’re still worth $7800. So why split a company’s stock? Most stock splits occur when companies feel positive about their future. Companies split their stock when they feel the price is too high and is keeping investors from buying their stock. In Coca Cola’s case the stock was $78/share at the announcement and will trade around $39 at the date of split. They also may have looked at stocks that are similar to them in the S&P 500. At the time of the split announcement the average price of a stock in the S&P was $56/shr. Coke was almost 40% higher than other stocks similar to them.

Some history: In 1919 - Cocoa Cola came out in its IPO at $40/share. This is the 10th split since 1919. If you have held the stock since then and reinvested all dividends and received all the stock splits your $40 stock would be worth $10,000,000. Not a bad long term investment.

Be careful if you hear about a reverse stock split. Stock trading at $1/share and you own 100 shares. The company announces a 1:10 reverse split. You now own 10 shares at a price of $10/shr. As you can see in this example and most reverse splits they are done on low priced stocks. Investors look unfavorable on low priced stocks, sometimes called penny stocks, because of increased risk either real or perceived. Also many mutual funds and large pension funds can not invest in stocks priced less than $5/shr.

Stock splits usually are a positive but results still reflect a company’s earnings now and in the future. Stock splits should not be the only reason to invest in a particular company but it could be positive among other positives. Reverse stock splits are usually a sign of negatives, but again it should be part of your research.

Give your advisor a call when you hear about a stock split to get details about the split and the possible positives or negatives. For more on stock splits or any financial advice visit www.dlgwealthmanagement.com or call 518 348-0060.

Are You Nearing Retirement? Here Are A Few Tips To Keep In Mind

Tue, 25 Sep 2012 18:00:00 GMT

Retirees and soon-to-be retirees should be made aware of the risks associated with investing in the stock market and the risks of not. The big question is; is it smart to keep your money in the stock market after you retire?

Traditional thinking is centered on the belief that as one gets older, equity allocation should decrease and bond allocation should increase. DLG Wealth Management manages volatility risk, but also manages “inflation,” risk.

Read these facts below to get a solid grasp on being in stocks or bonds as you get closer to retirement or are in retirement:
•   In stocks, the risk is volatility. But with retirees, inflation is a major, major risk. Inflation can be more risk than volatility because we’re living longer and we need to have a portfolio that keeps up with inflation - or else ten years from now, we can’t afford what we have to live on.
•   1/3 of the time, bonds have kept up with the rate of inflation, which means 2/3 of the time they have not. Bonds are not a great investment when you need to worry about inflation.
•   DLG’s advisors work with their clients to create a portfolio that meets their goals and financial objectives with consideration to risk tolerance. DLG advisors are not locked in to cookie cutter stock and bond allocations.
•   Lately, interest rates have been artificially put down creating a “bond bubble”. This means that there are three times as much money in bonds than there are in stocks when it comes to mutual funds. However, when interest rates go up, the value of bonds go down and the interest rates are going to go up soon, we just don’t know when. When this happens, it can create some big volatility risk in your portfolio.

For all the retirees or soon-to-be retirees, take a look at your portfolio. Will you have enough to get you through retirement to live comfortable? Make sure you are well diversified. Bonds & stocks fluctuate in value. Which one will keep up with inflation?

Student Loans - Major Problems Students Have To Face

Thu, 16 Aug 2012 04:00:00 GMT

Federally backed student loans have been in the headlines for the past few months as Congress had to decide whether or not to keep interest rates from doubling this past July 1. Since then, the bill has passed, keeping interest rates of Stafford loans at 3.4 percent. But is there a bigger problem here? Managing Director of DLG Wealth Management, Andy Guzzetti, discusses the problem that the majority of students face by attending college.

There is no doubt that college is expensive and prices are on the rise. In February this country had $867 billion worth of student loans. Now, outstanding loans are around $1 trillion. In about 5 months, student loan debt in the US has increased 15 percent. As of July 1, Congress passed the bill stating that the Stafford Student Loans were not automatically going to increase to 6.8 percent and that they were going to stay at their current rate of 3.4 percent. Congress had to act quickly, making this one year bill a definite quick fix.

For those students and graduates with tremendous outstanding student loan debt, the bill passed is great for them. It lowers their monthly payments estimated over the life time of the loan and it will help them out. It boils down to this; there’s a mountain of debt in the student loan industry and something has to be done. This is debt and students and parents have to treat it like debt and look at whether it is worth it or not. Having Stafford Loans at 3.4 percent for people may have many overlook their debt because they see a low interest rate. If it were raised however, to the proposed 6.8 percent, then people would start taking a look at these loans. It would also show colleges that people are aware of these loans, the possible debt an education would incur on them and they may not be borrowing as much. This could prompt colleges to not raise their tuition costs as much as they’ve done in the like ten years.

It’s very important to be aware of all the costs of your higher education to make an informed decision. Money-saving ideas that will save you thousands for your future may be to go to a community college for a few years and maintain a part time job. Do your homework and analysis and you should be all set.

For more information on managing your finances or starting a college education savings program with an investment advisor near Albany, Utica or Saratoga NY, call (518) 348-0060 or contact us here. You can also see Andy Guzzetti every Monday morning on WXXA Fox – Albany.

There's No Secret Here. Department of Labor Makes Big Changes to 401K Plans

Tue, 07 Aug 2012 04:00:00 GMT

As of July 1, 2012, big changes were made when it comes to 401(k) retirement savings plan. Administrators of these plans must now disclose all fees associated with participant’s 401(k) plans. Typically, the problem has been that the 401(k) fee disclosures were ignored or too complex to comprehend, therefore making it difficult for participants to grasp them and realize the total cost.

The new law passed by the Department of Labor is not all-new. Fees associated with 401(k) retirement savings plan were always disclosed to participants but not altogether. Some of the fees were in a prospectus and some were in a third party administrator’s contract. Moving forward, investment companies that administer 401(k)’s will be providing new disclosures to employers that sponsor the plans. These new fee disclosures will be passed on from employers to participants with information about how much they are paying to invest in their retirement plan.

This new law is intended to make it easy for companies to make a decision on what they want to do with their plans or decide which plan sponsor to use. The second important date is August 30th when companies will need to disclose information about these fees to their participants. This is a positive change, as people should know their plans. There is a catch to this change. There is no such thing as a free lunch. If we look at an example; let’s say we have a plan that charges a percentage of assets. One plan is charging you 1% and another is charging you .5%. If you fall into the trap and go with the low-cost retirement savings plan, then you’ll need to look at the returns. What if the plan charging 1% was getting you an 8% return versus the plan charging .5% only getting you a 7% return? The plan charging 1% is the better option.

Our advisors at DLG Wealth Management suggest that people don’t fall into the trap of investing in plans that administer low cost only fees to their retirement accounts. Take some time and some research. Ask the following questions when speaking with your advisor; what is my advisor doing? What is the Manager doing? What have the results been? Who is the third party administrator? These are some of the questions to think about. It’s great to have disclosure as it’s easier for people now to see how much it’s costing them and then they can make their decisions based on that.

Managing Director of DLG Wealth Management Weighs In On Capital Region Housing

Tue, 31 Jul 2012 20:12:00 GMT

Recently, the Capital Region housing numbers for June were released, showing slow area growth. Closed sales were down 4 percent but pending sales were up 15 percent. The average sales price is up 3 percent and sellers are receiving 93.5 percent of the asking price.

What’s the reason for slow growth for the Capital Region? The Housing Market is putting a damper on recovery. Typically, the Housing market leads us out of recovery, especially with the record low interest rates. But the problem is that the banks aren’t lending. There is an overhang from all the potential litigation from investors who were sold securitized mortgage loans from banks such as CITI and Bank of America. These banks have had to take huge reserves for this possible litigation. These reserves use up much of the capital the banks could lend, thus money is tight in the Housing market.

Interested in more? You can watch this full segment at www.fox23news.com/content/mornings/default.aspx or visit our News page for other financial tips and advice.

2012 Investment Camp Was A Great Success!

Tue, 31 Jul 2012 18:51:00 GMT

DLG Wealth Management’s 2012 Summer Investment Camp was a great success! The camp began in early July and ran once a week for four weeks. This year sparked DLG’s third summer holding an Investment camp designed for High School Seniors and College Freshman.

As a wealth management firm in Saratoga County, the advisors at DLG Wealth Management understand the importance of educating students as they will soon be this country’s future. Last week, the camp wrapped up the 4-week session with discussions on Fundamental and Technical Equity Analysis, Financial Principals for Young Adults and Careers in the Financial Services Industry.

We would like to thank all of our participants from the camp this year and look forward to another camp in 2013!

The Importance of a Mid-Year Financial Checkup

Wed, 18 Jul 2012 19:10:00 GMT

As we are halfway through 2012, the financial advisors at DLG Wealth Management firm in Saratoga, NY stress the importance of having a mid-year financial check-up. The video below explains the steps to take.

Make sure you are taking care of your retirement accounts, especially for those who are 40 years or younger. Retirement and Pension Plans as we now know are going to be a thing of the past. So it’s important to make sure you are paying close attention to your retirement accounts. Make sure to check-up on them and speak with your financial advisor regarding your accounts. Doing this will keep you educated and current on your retirement plan.

For more information on retirement planning, portfolio management or for other financial advice, speak with an investment advisor at DLG Wealth Management today, located in Albany, Saratoga or Utica NY.

The Perfect Storm

Tue, 03 Jul 2012 13:41:00 GMT

Many investors are anxiously watching the development of a "perfect storm." Storm clouds are developing in Europe as Greece, Spain, & Italy are being attacked by the bond vigilantes. The last employment numbers out of the U.S. were terrible. At the end of the year, we have to make major decisions on what to do with the Bush tax cuts; should we increase the debt ceiling and do we go through with dramatic cuts to our defense department?

It’s nothing new, as we’ve seen this for the last couple of years. Recently, it seems to be evolving faster than ever before and it’s getting to a point where we have to be very careful. The EU banks have recently elected to help meet the pending bond defaults, but in reality they are “kicking the can down the road”.

During the Greece Elections, citizens went to the polls and voted for the New Democracy Party, which favors the country meeting their international debt obligations. They have formed a coalition that will address the debt crisis and meet qualifications for the EU bank bailout. How long before Greece will need another bailout if they do not tackle their debt problems?

In addition to Greece, Spain adds another warning contributing to the perfect storm. A $125 billion bailout was taken by Spain from the euro zone. This was not because they were in debt, but because their banks were in significant trouble. That is a major problem because we will have to see what those banks are going to do going forward and how they will be able to handle their issues. France, who also voted in favor of the Socialist party a few months ago, reduced the country’s retirement age from 62 to 60 for eligible workers. Reducing the retirement age could be problematic for France as it will cost them approximately $1 billion extra per year.

Furthermore, there are the issues we face here in the United States, including poor unemployment numbers in May, the economy not doing well, and recession looming. Our debt level is at $16 trillion. All of these things are coming to the surface, especially the issues about the bond vigilantes who look at the American debt and say you have to pay more for us to borrow. This could be a major problem for us. All in all, there are a lot of problems but our corporations are doing very well. Some last minute tips: don’t bail out of equities, be careful of bonds in your 401k, and stay asset allocated. If you follow these tips you’ll do OK through these tough times. As the news gets more troublesome make sure you keep to your investment plan. You will weather any storm inside or outside the United States.

For more information on investing or your portfolio, contact DLG Wealth Management near Saratoga Springs regarding your financial planning.

Third Annual Summer Investment Camp, July 2

Tue, 26 Jun 2012 19:41:00 GMT

DLG Wealth Management will be holding the third annual Summer Investment Camp for local high school seniors and college students from 5:00pm - 8:00pm, July 2, 10, 17 and 24. This four-week camp will be held at DLG’s office located at 6 Executive Park Drive in Clifton Park. The camp is designed to introduce students to the world of finance and investments in a relaxed, informal and interactive environment.

DLG Wealth Management's Summer Investment Camp will be led by Managing Director, Andy Guzzetti and senior financial advisor Manuel Choy. Other company advisers will give instruction each week on their financial specialties along with Guzzetti and Choy’s discussions. The camp will lead through real-world examples and inform students of financial terminology to prepare them for college or a possible profession in finance, business or politics.

Guzzetti is a proud supporter of the camp and understands the importance of educating students, as his previous experience includes former high school educator, football coach, college instructor and financial speaker.

“Even if the participants don’t go into the financial services industry, they need to be prepared to handle the complex world of investing” spoke Guzzetti. “It’s more important than ever to be able to manage your retirement accounts since defined benefit pension plans and social security as we know it today will not be available to today’s camp participants. We think this camp will give them a jump start.”

Enrollment in the camp is limited. Deadline to apply is Friday, June 29. Interested students may contact Andy Guzzetti at aguzzetti@dlgwm.com or Manuel Choy at mchoy@dlgwm.com. For more information, call 518-348-0060 or visit www.dlgwealthmanagement.com.

The Truth Behind Facebook's IPO

Thu, 21 Jun 2012 04:00:00 GMT

After the dust has settled, the lawyers and lawmakers have pontificated and the regulators have weighed in Facebook is trading and has bounced off its lows. Some investors are still under water and crying about the entire Facebook IPO (Initial Public Offering) process. It's stock price has tumbled, people are upset and securities law suits may be made. So what does all of this mean to individual investors?

The main point is that $16 billion was raised and no taxpayer money was needed to start the company that will create thousands of jobs, construct new buildings, enabling employees who will then build new houses and spend. But nowhere does it state that all investors are guaranteed a profit. That is how capitalism works.

THE PROCESS

Mark Zuckerberg creates an idea while a student at Harvard in 1996. He tests the idea and it seems to work. In order to keep going Zuckerberg needs cash, so like most all early ventures Zuckerberg looks to “friends & family”. We know that a gentleman named Savorin put in money, because he sold his stake at the IPO and took his money to Singapore, some say to avoid taxes. Facebook used this “friends & family” money to build the user a base and to create a better product.
Facebook likes the progress it is making but must generate more capital in order to reach the next level. Although there is still plenty of risk in the company, they convince the “evil” private equity firms to invest. There is a list of highly respected firms, to include Goldman Sacks, who invest over a $100 million in this “startup” company. Facebook uses this money to improve the product and eventually ends up with close to 900 million users. In addition to putting money into Facebook, many of the private equity firms offered advice in a number of areas.

Facebook now is in the position of needing more money to expand its business organically and/or by acquisition. They are now ready for “prime time”. They interview investment banks to run the IPO. Facebook hires Morgan Stanley to be the lead manager. Because the deal is so large, Morgan Stanley is assisted by other banks. The investment banks do what is called “due diligence” on Facebook. They write a prospectus that discloses everything that is material to the offering. They set an offering price range that will allow the shares to be sold. When the date is set the investment bank sets up “roadshows” to let investors meet management and “kick the tires.” During this time the investment bank and Facebook make a decision on what exchange to be listed. In this offering there were old investors who had invested in the early stages who wanted to sell some of their shares. This was disclosed in the prospectus.

The offering was priced at $38, which many felt was too high, but remember all shares were sold so Morgan Stanley did its job. It is the investment bank’s job to raise capital. It is not their job to allow the folks who purchased the IPO shares to get a “pop”. One of the interesting things about IPO’s is that they are judged on how much they go up in the few days after the IPO. If a stock goes up 20% on the opening should the investment bank have priced the stock 20% higher if the demand is there? Remember the job of the investment bank is to raise capital for the firm that hires them.

There were some negative signs that were in this offering... high amount of insider selling, over hype, and questions about the management, but all of this was disclosed in the prospectus. As I stated in the beginning… $16 billion was raised and no taxpayer money was needed to create a company that will create thousands of jobs, construct new buildings, enabling employees to construct new houses and spend money. Nowhere does it state that all investors are guaranteed a profit. This is how capitalism works.

For more information on portfolio management or for any of your financial planning questions, feel free to email Andy at aguzzetti@dlgwm.com or Contact Us.

Short Selling Stocks

Tue, 19 Jun 2012 20:12:00 GMT

If you can make money in the markets when a stock goes up or down, volatility is a traders best friend. Most investors are not traders, so volatility becomes a reason to worry about the markets especially when the volatility is on the downside. Many investors have abandoned equities because of increased volatility and the desire to “protect the downside”. It is imperative that all investors should have a portion of their portfolio in investments that make money when equities go down. This type of investing is called “short selling stocks.”

Short selling is betting against a stock, making money if the stock goes down in value. This is an advanced trading strategy with many unique risks and pitfalls. Many investors feel that shorting a stock is “un-American” because you are betting against our economy. However there are research analysts searching for overvalued companies that look like they have a chance of going down in value. You are not really betting against the company, as much as you are betting against the value put on the company.

There are special requirements that need to be done to “short stocks”:

1.   You need to borrow the stock. You have to call a broker and ask to borrow the stock. Some stocks are harder to borrow than others. You will also need to have a margin account which means you may have to put up some money or stocks. This may mean you are charged some interest while you wait for the stock price to fall.

2.   You sell the borrowed stock to open the position. You now have a short position as opposed to a long position. Your goal is to buy your short position back at a lower price. Your account will be “marked to market” which means, because you are on margin, if the position goes against you (stock price goes up) you may get to a point that your brokerage firm will require you to put up more equity (money or stock).

3.   When you close out your position, if the stock has gone down in value, you will make money (buy it back at lower price). If the stock price has gone up, you will lose money because you sold the stock at a lower price.

There are other ways of making money if a stock goes down in value. In the stock option market you can buy a put. A put goes up in value when the stock associated with the put goes down. There are also ETF’s (exchange traded funds) that are based on shorting a particular index, sector or commodity. This is probably the easiest way of making money on the downside. Before you invest in an ETF that shorts, make sure you understand the underlying investment.

In today’s volatile market, it is beneficial to be able to make money on the short side. See a financial professional to get you started in the right direction. There are many moving parts but if you can work with someone or can do it yourself it can help you “protect the downside”. For more information on portfolio management or for any of your financial planning questions, feel free to email Andy at aguzzetti@dlgwm.com or Contact Us.

Investing in Bonds & Portfolio Management Advice With DLG

Fri, 08 Jun 2012 15:38:00 GMT

Today many investors are very worried about the stock market. The volatility in the equity markets has made many investors draw out money from equity funds and put the money in bond funds at a record pace.

When you invest in bonds you are lending your dollar. Lending your dollar means to give your dollar to an entity that will pay you interest on your dollar for a specific length of time. The basic concept that bond investors must understand is how bonds fluctuate in value. When interest rates go up the value of bonds you hold goes down & when interest rates go down the bonds you hold go up in value. Today, interest rates are being kept at very low levels by the Federal Reserve policies. There will come a time when the Federal Reserve will not be able to hold interest down. They are sitting on a very tightly coiled spring (interest rates), when the Fed starts to release this coiled spring rates will rise very fast causing large losses in bond portfolios.

Investors should make sure portfolios are not over weighted in bonds. Not sure about your portfolio? Be sure to bring this up with your investment advisor. For more information on investing in bonds, portfolio management or for other financial advice, speak with an investment advisor at DLG Wealth Management today, located in Albany, Saratoga or Utica NY.

For more Money Monday segments, visit DLG Wealth Management's News page.

JPMorgan’s $2 Billion (Or More) Blunder

Wed, 30 May 2012 04:00:00 GMT

Managing Director, Andy Guzzetti breaks down the numbers of JPMorgan’s $2 billion loss

JPMorgan lost $2 billion dollars on its London trading desk when a derivative hedge blew up. CEO Jamie Dimon had to announce the loss before the trade was unwound, this could cause the loss to go as high as $4 billion. The pro “increase regulations” crowd, has jumped on with both feet. Instead of allowing the markets to punish JPM and its poor handling of risk, the political positioning has begun. Congressional investigation, DOJ probe into possible criminal charges and the public outcry for additional regulations all because a publicly traded U.S. company lost money. We must understand that JPM lost money on this trading desk, approx. $2 billion, the company did not lose money for the 1st quarter and will report approx. $15 billion of profit for the year. $2 billion is a lot of money but JPM is a well run company that can handle that loss and still make money for its shareholders. A very important point to make is that JPMorgan will not need a government bailout. It’s just a loss they do not want to take and one that shows they did not handle risk very well.

POLITICS
The index JPMorgan lost money on was the CDX.NA.IG.9 Index. This index is made up of 125 company’s credit default swaps. This is a very intricate investment vehicle that is used to hedge bank positions. CEO, Jamie Dimon has been an advocate of getting rid of regulations and fighting with the administration about the DODD FRANK LAW and its Volcker Rule. The Volcker Rule is a rule that would prohibit banks from using their own capital to make bets on the direction of the market. This proposed rule states that commercial banks cannot proprietary trade (they can’t trade to make money, they can trade to hedge. In other words, to hedge some of the risk in their other investments).

The 2008 financial crisis began with investment banks and insurance companies, not commercial banks. In 2008 there were hundreds of billions of mortgage related securities which were rated AAA by rating agencies that should have rated them as junk. To equate JPM loss to the 2008 crisis is crazy. Proprietary trading in the banking industry did not lead to the 2008 crisis and has never led to any other financial crisis. Let the markets punish banks for poor risk management. Additional regulation is not needed.

Exchange Traded Funds

Wed, 23 May 2012 04:00:00 GMT

What Are Exchange Traded Funds?

Andy Guzzetti, Managing Director of DLG Wealth Management firm near Saratoga Springs, NY, breaks down what you should know about Exchange Traded Funds.

Exchange Traded Funds began in 1993. They are mutual funds that trade on the NYSE or the NASDAQ. They track a specific index in stocks, bonds, commodities, etc. They can also track a sector. If you want to invest in utilities, instead of buying a group of utilities, you can buy an Exchange Traded Fund that indexes that utility.

Exchange Traded Funds are a nice way to make your bet without buying a lot of stocks. They are low cost and have minimal management fees. For more information on Exchange Traded Funds, Asset Allocation, Portfolio Management or other financial advice, contact DLG Wealth Management. Watch the entire WXXA Fox 23 News Money Monday segment about Exchange Traded Funds below:

Investing in Bonds - Be Careful

Thu, 17 May 2012 17:31:00 GMT

Investment Advisors at DLG Wealth Management Discuss the Basics of Investing in Bonds

There is no question that the volatility in the equity markets has many investors worried about the stock market and drawing out money from equity funds and putting the money in bond funds at a record pace. With the state of the market, it is important to discuss the basics of investing in Bonds and the reasons why investors should be careful about being in bonds.

BONDS

When you invest in bonds you are lending your dollar. Lending your dollar means to give your dollar to an entity that will pay you interest on your dollar for a specific length of time. What are some common ways of lending your dollar?

•   The most common way is to lend your money to a bank by opening a savings account. The bank will pay you interest on your money in return, as long as the money stays in the account.
•   Certificates of Deposits or CD’s pay a higher rate of interest because you tie up your dollar for a specific time (typically 1 month to 5yrs).
•   You can lend to the U.S Government (Treasuries). The government will pay you an interest rate depending on the maturity. The longer you go out the higher the rate of interest.
•   Corporate Bonds – let you lend your dollar to a corporation (IBM, APPLE). You will receive a fixed interest payment usually paid every 6 months for a specific amount of time. These corporate bonds usually pay higher interest rates than the bank but do have more risk. The longer the maturity is the higher the rate of interest. The higher the risk (can the corporation make its interest payments and pay the bond back at maturity) the higher the interest rate. All of the above examples of lending are taxable.
•   Municipal Bonds are issued by states, state agencies & local governments. The interest is federal tax free and can be state tax free if you lend within the state you reside.

All these lending vehicles can be done within a mutual fund that can specialize in all or certain areas listed above. By investing in a mutual fund you can diversify your lending which can lessen risk. This lending is known as “fixed income” investing.

BE CAREFUL

It is important to understand that bonds fluctuate in value. When interest rates go up, the value of bonds you hold go down. When interest rates go down, the bonds you hold go up in value. Today interest rates are being kept at very low levels by the Federal Reserve policies. There will come a time when the Fed will not be able to hold interest down. They are sitting on a very tightly coiled spring (interest rates), when the Fed starts to release this coiled spring, rates will rise very fast causing large losses in bond portfolios. Investors should make sure portfolios are not over weighted in bonds. If you have a question about your portfolio, make sure to contact your advisor. For more information, contact us.

Euro Crisis

Tue, 15 May 2012 20:32:00 GMT

Managing Director, Andy Guzzetti, discusses what effects the debt crisis could have on the U.S.

All eyes are overseas again as the looming Eurozone meltdown hits some more bumps. What does this all mean to the economy of the United States and the world for that matter?

The voters in Greece and France have sent the word “we don’t want to give up entitlements and we don’t want to cut spending”. These election results turned things upside down and made all World markets nervous. We have talked about “PIIGS” before. “PIIGS” (Portugal, Italy, Ireland, Greece and Spain) are all countries part of this Eurozone debt crisis. We can add F & C to this acronym.

•   France has been thrown into the mix; France’s President, Nicholas Sarkozy, was voted out and replaced by a Socialist who campaigned against austerity. Sarkozy, in an effort to control France’s debt problem, proposed raising the pension age from 60 to 62. Although this proposal was needed, the French electorate said no.

•   Greece, on May 6th, voted in the anti-austerity candidates as well. The top vote getter, when trying to form a new government, asked all participants to sign a document to rescind the EU bailout plan that contained austerity measures. The threat of new elections loom. Greece will run out of money in July.

•   I have added the “C” for California. We all know that California is not part of the Euro Crisis, but it is part of this debt crisis. California has announced this past weekend that they have a $16 billion debt crisis that they can’t cover and are looking for help from the U.S government to cover them. Of course their plan is to raise taxes and cut funding to education and government programs.

So what does this all mean? If Greece cannot get its political house in order and has to forfeit on its debt payments this will put pressure on the EU to let Greece go. Banks that are holding Greek debt will have to take major hits and a weak world economy gets weaker. Besides the banking industry taking a major hit, corporations will see revenues drop. The markets are anticipating a default as the S&P 500 is down 3.2% this month.

Interest rates – The bond vigilantes, those bond investors who watch these developments, will demand countries like Greece pay a higher interest rate to borrow money. Already the 10 Spanish bonds are yielding close to the 6% level. This 6% level usually means disaster for these countries who are struggling.

Gold / Dollar- During this crisis the dollar has strengthened because it is considered a safe haven. This is surprising as some analysts think gold would be the safe haven. As the dollar strengthens, because gold is dollar denominated, gold prices have plummeted. Most Americans are watching to see the outcome because the United States is not far behind. We have refused to address our debt problem, we have refused to cut spending and we have refused to cut back entitlements. Sounds like Greece and France and the “bond vigilantes” are watching.

For more information on managing your finances, or other financial advice, contact us. You can also see Andy Guzzetti every Monday morning on WXXA Fox – Albany.

Spend, Lend or Own

Tue, 01 May 2012 20:58:00 GMT

DLG Wealth Management Discusses 3 Things To Do With A Dollar

Sometimes when things seem to be too much to understand the best thing to do is go back to the basics. In the world of investments things can get quite overwhelming, so let’s slow it down and discuss the 3 things you can do with a dollar. SPEND, LEND, OR OWN. These are the only 3 things you can do with a dollar, although some would say there is a fourth - DESTROY. We will leave that to the Federal Reserve.

SPEND

If you have a dollar you can buy a hamburger, pay a bill or get a haircut. Pretty simple to understand.

LEND

The second thing you can do with a dollar is lend it. Lending your dollar means to give your dollar to an entity that will pay you interest on your dollar for a specific length of time. The common way of lending is to give your dollar to a bank (savings account) and the bank will pay you interest as long as you keep the money in the account. Investors who want a higher rate of return from the bank can look at Certificates of Deposits (CD's). CD’s pay a higher rate of interest because you tie up your dollar for a specific time (1 month to 5 years).

You can lend your dollar to the U.S Government (Treasuries). The government will pay you an interest rate depending on the maturity. The longer you go out, the higher the rate of interest.

Another place to lend your money is with Corporate Bonds. By lending your dollar to a corporation (IBM, APPLE, etc) you will receive a fixed interest payment usually paid every 6 months for a specific amount of time. These corporate bonds usually pay higher interest rates than the bank but do have more risk. The longer the maturity is the higher the rate of interest. The higher the risk (can the corporation make its interest payments and pay the bond back at maturity) the higher the interest rate. All of the above examples of lending are taxable.

You can also lend your dollar and receive a tax free interest payment. Municipal Bonds are issued by states, state agencies & local governments. The interest is federal tax free and can be state tax free if you lend within the state you reside.

All of these lending vehicles can be done within a mutual fund that can specialize in all or certain areas listed above. By investing in a mutual fund you can diversify your lending which can lessen risk. This lending is known as “fixed income” investing.

OWN

The last thing you can do with your dollar is own your dollar. You can buy a house, buy stock in a corporation, buy a business, buy collectibles or buy many other assets. Buying means you own an asset. That asset may increase or decrease in value but you own it. When you invest in a stock, you own a piece of the corporation (hoping the value goes up). Owning your dollar usually is called equity investing. As with bonds you can invest in a mutual fund to diversify your dollars owned which can lessen risk.

Seems pretty simple, right? There are only “3 things you can do with a dollar”. You can spend it, lend it or own it. It gets a little more complicated when you have to decide where you want to spend, lend or own. For more information on managing your finances or other financial advice, contact the financial advisors at DLG Wealth Management today. You can also see Andy Guzzetti every Monday morning on WXXA Fox – Albany.

Starting a Business

Thu, 26 Apr 2012 17:34:00 GMT

Have you been thinking about starting a new business? If this is the case, you need to make sure you have certain key factors planned before you take the challenge. Managing Director of DLG Wealth Management, Andy Guzzetti, explains important factors when starting your own business.

Key Factors for Success

Research shows that 75 percent of all small businesses fail within the first year of business. There are the obvious reasons; no sales, poor product, poor service, no demand, to name a few. The most common mistake made by start-up small businesses is not getting a true picture of costs and not understanding the factors that will determine demand for the product before the business opens its doors. Let’s use a real life example.

A few weeks ago I was getting ready to go on FOX 23 MORNING SHOW and the camera man, Andrew, asked me what I thought about a new business venture he was interested in. Andrew was offered the opportunity to sell novelties at local fairs. He was being offered the product at a very low cost and the profit margins seemed enormous. The next week I did a segment on the Fox Morning Show, Money Monday's, about starting your own business using Andrew’s example. Here is the breakdown.

ANDREW’S ADDITIONAL COSTS
1.   RENT - the fair organizers will charge rent
2.   SIGNAGE - Andrew will need to invest in signage
3.   LABOR - it’s a long day so Andrew will need some help
4.   PAYROLL TAXES - when you figure the cost of labor add on 20%
5.   GAS PRICES - Andrew will have to drive to the fairs
6.   INSURANCE - if you are dealing with the public you will need insurance
7.   FED/STATE TAXES - government wants their piece too

ANDREW’S PRODUCT SELLING PRICE & DEMAND

1.   COMPARISONS - what is the competition selling these items for & what is the average pricing of all items at the fair?
2.   DEMAND FACTORS -

Do the novelties attract buyers?
Andrew has to be concerned about weather…..a weekend washout can be a disaster
Fair location & demographics
Andrew has to make sure he gets good placement at the fair
The economy will play a part. Andrew probably will do better in a down economy as folks stay close to home rather than take big vacations
Gas prices…..although higher gas prices would be bad for Andrew on the cost side, higher gas prices would be better for the sales side as folks stay home and go to local fairs

As you can see, Andrew has many things to think about because at the end of the day, if your margins (selling price-cost) and the amount demanded do not make sense, then this new business is sure to fail.

For more information on managing your finances or other financial advice, contact the financial advisors at DLG Wealth Management today. You can also see Andy Guzzetti every Monday morning on WXXA Fox – Albany.

What is High Frequency Trading?

Wed, 25 Apr 2012 04:00:00 GMT

Some may or may not have heard of High Frequency Trading or HFT. To discuss what this is and what this means to the market, Managing Director of DLG Wealth Management, Andy Guzzetti, breaks it down.

WHAT IS HIGH FREQUENCY TRADING?

High Frequency Trading is the computerized trading of stocks. Computers, using sophisticated technological tools (algorithms), are trading stocks at lightning speed and can make 20,000 to 50,000 trades in just seconds. As an example of how fast these computers trade, slap your hand on your desk, in the time it took you to slap the desk, a computer can do 50,000 trades. By conducting high frequency trading, traders can buy or sell millions of shares in a short period of time. These HFT firms are looking for very small differences in the bid and ask of an equity or option. Computers do not worry about traditional analysis of companies such as earnings, profits etc. Positions are held for very short periods, from seconds to hours. Some argue that HFT provides no actual value to the market, but rather absorbs capital from slower trading platforms.

Currently, high frequency trading, accounts for 50 % of the volume in the market. On the New York Stock Exchange (NYSE), they account for 70 % of some individual stocks. This type of trading is affecting the markets and the traditional investors who are trying to save for retirement, increase their income or save for their kids’ education. These HFT programs thrive in volatile markets even as proponents will argue HFT reduces volatility.

Is high frequency trading a good thing?

FLASH TRADING
One area of concern relates to “flash trading”. Flash trading allows certain participants to see incoming orders to buy or sell securities earlier (30 milliseconds) than the general market participants in exchange for a fee. Many exchanges have opted out of these programs, but there are some exchanges that still offer the program. Many opponents of HFT site this flash trading as a program that creates a two tiered market giving a certain class of traders the ability to “front run”.

2010 FLASH CRASH
HTF has come under increased scrutiny since the practice has been linked to the “2010 FLASH CRASH” that occurred May 6, 2010. Investors lost $800 billion of net worth in 20 minutes. Investigations pointed to a program trade that was incorrectly submitted by a trader at a mutual fund company. The trade triggered HFT trading that caused the DOW to plunge to its largest intraday point loss in history. The computer programs either pulled bids and asks or widened them. In any case HFT caused the plunge or exacerbated the down fall in prices. Many market observers point to this FLASH CRASH as one of the reasons retail investors have not participated in the 1st Quarter rise in the markets. They fear this volatility and the chance for another May 6th event.

STOCK MARKET AS AN ECONOMIC INDICATOR
The stock market has always been a leading indicator to the direction of our economy. If you look at the performance of the markets in the 2012, the 1st quarter seems to be indicating a rebounding economy. Many analysts were surprised when we started to see weaker job numbers. Many investors are questioning the value of the stock market as a indicator of our economy when 50% of volume now is HFT. Computers do not discuss company earnings, company revenues or company hiring. These areas would be great indicators of the strength or weakness of the economy. The equity markets were set up to help raise capital for businesses, and allow investors the opportunity to own corporations, building their net worth. The equity markets were not set up to be a race track that rewards the faster program. This situation has to be investigated before we have another “FLASH CRASH”.

For more information on managing your finances, or other financial advice, contact DLG Wealth Management. You can also see Andy Guzzetti every Monday morning on WXXA Fox – Albany.

Last Minute Tax Tips For Investors

Fri, 13 Apr 2012 04:00:00 GMT

This year, tax season officially ends on April 17th. The deadline is creeping closer and closer, and below are some last minute tips, from the financial professionals at DLG Wealth Management, to help improve your investments.

1.   People should be taking a look at their IRAs and 401k plans. If you have IRAs in more than one place, consider consolidating them. IRAs in multiple places may be subject to be double charge. By consolidating them in one place, you will save yourself some money and it will be a lot easier for asset allocation because everything is in one place.

2.   Many people forget about the Non-Working Spousal IRA deduction or IRA. Make sure you are aware of this type of deduction, and if qualified, you can save money and put almost $5,000 or $6,000 into an IRA of the spouse who isn’t working as long as the person, who is working, has income to cover it.

3.   Play Catch-up: If you’re 50 years old or older, make sure to take advantage of catching up. Instead of putting $5,000 into an IRA, you can put $6,000 into an IRA.

4.   Always make sure you’re taking the maximum out that you can afford to put into an IRA. The more you can afford to put in, is more earned money that is tax-deferred.

5.   Start thinking about a ROTH IRA. Taxes are increasing and any money put into a Roth IRA is tax-free when the money is withdrawn. It may be a good idea to move more money into these Roth IRAs now.

6.   Remember to rebalance your portfolios. They are probably over weighted in bonds. In 2008, bonds outperformed every other asset class by a great deal. The next year they fell to last place. In 2011, bonds outperformed all other 13 asset classes. It is known that an asset class that was #1 in one year, usually does not repeat the following year. 2012 is up in the air but it is important to note that the chances are high that 2012 will not be a good year to be in bonds.

For more information on managing your finances, or other financial advice, call DLG Wealth Management today at (518) 348-0060 to speak with a financial advisor in Albany, NY or Utica, NY. You can also see Managing Director, Andy Guzzetti, every Monday morning on WXXA Fox – Albany's Money Monday segments.

Managing Director of Local Investment Advisory Firm Addresses Target Date Funds

Wed, 11 Apr 2012 16:44:00 GMT

There’s been a lot of talk about Target Date Funds. What are they and are they beneficial to a retirement plan? Managing Director of DLG Wealth Management, Andy Guzzetti discusses what these funds are, the pros and cons.

Target-date funds are a relatively new type of mutual fund that allows financial investors to set a “target date” for the life of the fund. These funds have become popular with investors and retirement planning. As people get closer to the target date or their retirement time, they take money out of stocks and put money in bonds; therefore shifting a 401(k) to a more conservative investment.

These funds are aimed at people planning for retirement and have appeal because of its convenience. Here are the pros and cons to this new type of fund:

PROS:
•   They are convenient, as investors put their investments on autopilot in one fund

•   Employers have made these their 401K default funds. These funds are better than the money market

CONS:
•   Target date funds are a “one-size-fits-all” approach, which may not be beneficial because investors are different

•   Target date funds may not keep up with inflation after you retire, especially if you live 20 or 30 years after retirement – may be too conservative

•   For people close to retirement around 2015, it may not be a good idea to have investments highly into bonds, as we believe that’s not the place to be right now

•   They could ultimately reduce opportunities for growth over time

With investments in a target date fund, people may be earning a little bit, but we feel that now in the market, it is ideal to make your own asset allocation, your own rebalancing so you will make a better return.

For more information on managing your finances, or other financial advice, visit our Contact page to speak with an investment advisor. You can also see Andy Guzzetti every Monday morning on WXXA Fox – Albany.

Miss The Saratogian's "Live Chat" with Andy Guzzetti?

Fri, 30 Mar 2012 14:42:00 GMT

Did you miss the Saratogian’s Live Chat yesterday with Andy Guzzetti? An archive of the chat can be found on the Saratogian’s website here. Yesterday’s Live Chat between Managing Director of DLG Wealth Management, Andy Guzzetti, and Saratogian readers was a discussion on rising gas prices, who is behind the rise and why. View the questions and answers of the Live Chat whenever you like. Didn’t get to ask your question? Feel free to email Andy Guzzetti at aguzzetti@dlgwm.com or visit the wealth management firm’s website for more information.

What To Do If You Won The Mega Millions

Fri, 30 Mar 2012 04:00:00 GMT

The Mega Millions for the March 30th drawing set records. As ticket prices soar the remaining hours before the drawing, Fox 23 reports what to do if you have the winning ticket. Featured on Thursday’s 5pm news segment, Andy Guzzetti from DLG Wealth Management in Albany, discusses an important element a Mega Millions winner needs to have: a financial advisor.

Whether you set up trusts, decide to gift or invest, a team of financial advisors behind you can ward off anyone who may be after your money. "You need a buffer. There are people that can come up and have the greatest ideas in the world to invest and if you aren't experienced you can just say 'my team makes those decisions, I'll get back to you’", says Andy. To watch the full report, visit Fox 23 News here.

For more information on portfolio management or for any of your financial planning questions, feel free to email Andy at aguzzetti@dlgwm.com or visit www.dlgwealthmanagement.com.

DLG Wealth Management Speaks on Traditional vs. Roth IRA's

Thu, 15 Mar 2012 04:00:00 GMT

Are you deciding whether to open a Roth IRA or Traditional IRA? Both forms of IRA are great ways to save for retirement. Find out more about IRA's, the benefits and financial planning from financial advisor, Andy Guzzetti, from DLG Wealth Management:

Every Monday morning at 7:45 a.m., don't miss the "Money Monday" segments on WXXA Fox 23 News Albany. Managing Director of DLG Wealth Management, Andy Guzzetti, gives tips on how to manage your money and protect your finances. Miss a segment? Get all the information you'll need about wealth management on DLG Wealth Management's News page.

Why Are Gas Prices So High?

Fri, 09 Mar 2012 05:00:00 GMT

Gas prices have broken the $4.00 per gallon mark in the Capital Region – but why? Managing Director from DLG Wealth Management, Andy Guzzetti, explained during a Money Monday segment on WXXA Fox News, the reason why we can’t catch a break at the pump.

The rising price of gas is a constant issue and the reason is very complex. The price of gasoline is 80% oil. So where does the price of oil come from?

NYMEX (New York Mercantile Exchange) is a futures market and this is where risk is transferred to speculators from farmers, oil riggers, etc.

Last Friday, the price per barrel of oil closed at $106.71 cents per barrel. That’s an April contract. The oil contract is 1,000 barrels, which at today’s price costs $106,710. The price of gas on average is around $3.74. In September 2011 alone, the price of gas rose 41%. When President Obama took over the White House in 2009, gas was at an average of $1.79. Gas prices have been steadily rising for the past 3 years.

So, why are the speculators saying that they think oil is going up?

They take into consideration the conflict between Israel and Iran and how that will affect the world oil supply
Another factor is President Obama’s policies. The current administration is concerned more with reducing the demand for oil rather than increasing the supply. This suggests to speculators that the U.S. policy is to have higher oil prices and needs to reduce the U.S. current consumption - which is 20 percent of World oil. On the supply side, if this administration were to say Yes to open up offshore drilling, to utilize the keystone pipeline and drill in Alaska, then the price of gas would likely decrease 50 percent in a matter of weeks.

It all comes down to supply and demand. The price of oil not only moves with the actual increase and decrease of supply and demand, but also in the anticipation of. If speculators believe the U.S. has a policy to increase supply, oil prices go down.

For more information on managing your finances or other financial advice, visit DLG Wealth Management. You can also see Andy Guzzetti every Monday morning on WXXA Fox – Albany.

Financial Advisors Offer Consultation & Lunch At Area Restaurant

Tue, 06 Mar 2012 16:57:00 GMT

DLG Wealth Management financial advisors offering consultations

Financial Planners from DLG Wealth Management, an Investment Advisory Firm, are offering a complimentary consultation and lunch for prospective investors. Consultations offered by Certified Financial Planner®, Manuel Choy, and Financial Advisor, Tonia Kelley. Advisors will offer lunch at Angelo’s Prime Bar & Grille in The Hilton Garden Inn at 30 Clifton Country Rd., Clifton Park, NY.

Manuel Choy is a Certified Financial Planner®, with MBA at DLG Wealth Management. Choy manages client portfolios, customizing each client’s portfolio based upon their goals, objectives and the risks associated with current market conditions. To discuss current or future investments, he can be reached at 518-348-0060 Ext. 258.

Tonia Kelley is a Certified Divorce Financial Analyst and Financial Advisor at DLG Wealth Management. Kelley helps her clients plan for a financially equitable divorce settlement. She provides clients with advice and information on financial issues related to divorce such as; tax consequences, selling the marital home, pension and 401K plans and forecasting settlement options. To schedule a consultation, she can be reach at 348-0060 Ext. 262.

College Debt – How to Prepare & How to Manage

Thu, 01 Mar 2012 19:50:00 GMT

DLG Wealth Management's Andy Guzzetti shares the advice every college grad needs to know

The cost of higher education is expensive. College loan debt in the U.S. is reaching new heights, leaving young graduates, co-signers (parents and grandparents) or mature adults enhancing their education, to face the hefty price tag.

Here are the Facts:

•   Student loan debt is around $867 billion nationwide.
•   Student loan debt, in 2011, surpassed the nation’s credit card debt
•   The average student loan debt is approximately $25,000 per college graduate

With the economy struggling and unemployment at 9 percent, it is very tough for new, job seeking graduates to achieve jobs earning an income necessary to pay off these loans.

Another area which has been negatively affected by this high Student Loan Debt is the Housing Market. In 2011, the 25-34 year age group bought just 27 percent of the houses, a new low in the past ten years. This has a widespread ripple effect on the entire Housing Market. These ‘Would Be’ First Time Home Buyers are already in debt which affects their ability to purchase homes put on the market by previous First Time Buyers looking to upgrade.

How can you manage your debt?

As with All Loan situations, always prepare ahead and think before you borrow. Some money-saving options to look at:

•   Get an Associate’s degree at a local community college and commute to
     save money
•   If you want a 4 year degree, go to Community college for two years then a public
     or private 4 year college to earn your Bachelor’s degree
•   Apply for Grants and Scholarships
•   Go to school part time and work part time

For college graduates, who already have the burden of student loans, make sure you have a budget in place and live within your budget. Research programs that may help eliminate some of your student loan debt, for example teaching in inner city schools.

Do not default on student loan payments or any type of credit. The best way to handle the situation if you are not going to be able to make a payment is to contact the loan administrator and make arrangements. Personal appointments are better than a phone call. Be proactive, before you get a call or letter concerning missing payments.

For more information on College Savings Plans, speak with a financial advisor at DLG Wealth Management today or call 518-348-0060.

Financial Advisors From DLG Wealth Management Weigh In On Tuesday's Dow

Thu, 23 Feb 2012 21:09:00 GMT

Managing Director of DLG Wealth Management, Andy Guzzetti, and Senior VP and Advisor, Manuel Choy, discussed the Dow hitting the 13,000 point barrier on WNYT – NBC Affiliate in Albany on Tuesday.

Guzzetti and Choy explained that investors can start to feel some confidence in the market, taking a few risks as long as they have a protection plan in place, in case the market drops.

"With the Dow hitting 13,000, we're also cautioning our investors that they need to be careful and there are investments that can potentially go up when the stock market goes down," said Choy.

Check out the full interview with DLG Wealth Management on YouTube for more on what gains their clients are seeing in their portfolios. For more information on portfolio management or other financial planning questions, contact a wealth management advisor from DLG Wealth Management today.

The Breakdown Of Our Tax System

Fri, 17 Feb 2012 05:00:00 GMT

Managing Director of DLG Wealth Management Discusses Tax Fairness 101

We are in the midst of tax season, but we are also in the midst of an election year very much focused on our country's current tax structure. With Obama’s proposed 2013 budget plan to increase tax rates for those who make $250,000 per year or more, it is important to know how the tax system works and what this will mean in sense of fairness and future of the economy. Important answers to questions we need to know when deciding on candidates to vote for include; Who’s paying what and what is the percentage? Who’s left to deal with the bulk? Is increasing taxes just?

As voters, we need to have the numbers broken down so it’s easy to understand our system. In our economy, everyone has a different situation. Some people make a very low income and can’t afford to pay taxes and then there are those who can afford it because of their higher income. In this article we discuss tax fairness 101 and put it into terms we can understand as consumers. Say we are in debt for $100,000 and we have 100 people to raise money to pay off the debt. Based on individual circumstances, it cannot be divided equally where each person pays $1,000 to the debt. So if we use the system our Government uses to collect taxes:

• The richest 10 percent in America pays 2/3 of the taxes. So for sake of this example, 10 of the 100 people will pay $67,000 or $6,700 per person on average.
• Forty percent of Americans don’t pay taxes, so in this example the 40 out of 100 people pay $0 to decrease the debt.
• The remaining 50 percent have to pay the rest, which totals $33,000 or $606 per person on average.

CHART #1 USING THE 10%/90% BREAKDOWN:
$67,000              10 PEOPLE              $6700/P AVG
$33,000              50 PEOPLE              $660/P AVG
$0                       40 PEOPLE              $0/P AVG

We can also breakdown our example using the Occupy Wall Street 99%/1% method. The breakdown looks like this.
• The richest 1% in America pay 40% of the federal income taxes. In our example that means 1 person would pay $40,000
• The same 40% of Americans will pay $0
• The remaining 59% of Americans will pay $60,000 or $1,017 each on average

CHART #2 USING THE FAMOUS OCCUPY WALL STREET 99%/1% BREAKDOWN:
$40,000                  1 PERSON           $40,000
$60,000                59 PEOPLE            $1,017/P AVG
$0                         40 PEOPLE            $0/P AVG

In this election year, voters are going to have to decide if they believe that our tax system is unfair and the wealthy must pay more or our system is fair. The numbers above paint the picture, all voters have to make their decisions. The unfair/fair rhetoric is going to be the main theme of our Presidents election campaign. It doesn’t matter how many times the terms fair or unfair are used to describe our tax system, the numbers are the numbers. These numbers should help voters be more informed and hopefully make the right decision.

Unintended Consequences That Always Hurt The Little Guy

Tue, 07 Feb 2012 05:00:00 GMT

I have been watching the talking heads crucifying Bank of America (BAC) for a $5 per month fee on debit cards. Bank of America and other large banks have been hit by a new law that puts a limit on the amount they can charge a merchant to swipe their card. Congress has told the free enterprise system how much they can charge for their services. Why, is this matter of national security? Not likely. But it is a “sound bite” for illinois senator, dick durbin and his colleagues to show they are behind the consumer and against big business making money.

But in the end the consumer suffers. The banks have a shortfall of billions of dollars and like any company, need to make up the difference somehow. Thus the consumer is hit with this $5 extra fee. I have heard no one ask how this swipe fee limit has helped the consumer at stores like Wal-mart and Walgreens. Have prices come down to reflect the windfall profits that were given to these large companies by limiting the bank swipe fees?

Again we see unintended consequences from decisions made by politicos in Washington.

Another political decision made in Washington to “protect the consumer” has had and will continue to have detrimental unintended consequences. A few years ago the powers to be in Washington decided that by changing the pricing structure of our stock exchanges from 1/16th’s & 1/8th’s to pennies, the consumer would get better pricing and the evil wall street would not be able to make money on the spreads. Again the politicos trumpeted their fighting for the consumer (great sound bite), the small investor.

But, again, in the end the small investor has and will suffer. What has emerged with this change in pricing structure? The takeover of our equity markets by HFT's (high frequency trading). This type of trading by computers now accounts for an estimated 60% of the volume on our exchanges. It could not be done without penny pricing. We now have 60% of our trades being done by computers that do not care about long term investing. Computers couldn’t care less about a company’s balance sheet. The only things that matter are the algorithms they are programmed with.

What we now have is a market with extreme volitility that has scared the small investor out of the markets. This is a disaster waiting to happen. Computers trade at lightning speed and just like what happened on May 6th, we are headed for another major “flash crash” because these computers cannot be stopped once they hit their sell points.

The small investor is looking to participate in our economy, to save for retirement and put their kids through college. In this market, they are stymied by the unintended consequences of increased volitility and potential danger of an hft trading disaster.

The answers are simple. Stop making decisions in Washington based on how they will sound to voters. It almost feels like the politicos are trying for a 360 degree slam dunk so they can be on espn highlights. They are not interested in winning the game by making decisions that are well thought out and have no unintended consequences. It is unthinkable that Congress would tell American businesses how much they can charge for a product or a service. If they are actually interested in creating jobs, put back the old pricing structures in our equity exchanges and bring back the 5000 or more folks who worked at our exchanges. We might have slower trading, but we will have trading based on what our systems were set up for, not algorithms.

For more information on how to manage and protect your finances, check out DLG Wealth Management's News page or reach out to one of our financial advisors.

Money Monday's With DLG Wealth Management

Fri, 03 Feb 2012 19:15:00 GMT

DLG Wealth Management on Venture Capital

Miss last Monday's "Money Monday" segment on Fox 23 News? Check out the segment below on what Venture Capital is and why so many criticize Republican Presidential contender Mitt Romney's involvement with Bain Capital, a venture capital group.

Every Monday morning at 7:45 a.m., don't miss the "Money Monday" segments on WXXA Fox 23 News Albany. Managing Director of DLG Wealth Management, Andy Guzzetti, gives tips on how to manage your money and protect your finances. Miss a segment? Get all the information you'll need about wealth management on DLG Wealth Management's News page.

PROTECTING THE DOWNSIDE, By Andy Guzzetti, Managing Director DLG Wealth Management

Tue, 17 Jan 2012 20:20:00 GMT

AS ADVISORS WE ARE SPENDING MORE TIME TALKING TO CLIENTS ABOUT PROTECTING ASSETS RATHER THAN GROWING ASSETS. WE HAVE TO BE PREPARED TO OFFER OUR CLIENTS THE ABILITY TO HANDLE THE POSSIBILITY OF ANOTHER 2007-2008. CLIENTS CAN’T HANDLE ANOTHER 45% MELT DOWN. THEY NEVER HEARD ABOUT “TAIL RISK” OR “BLACK SWAN”. NOW IT IS A PART OF MOST EVERY INVESTOR’S VOCABULARY.

WHAT IS ‘TAIL RISK”, ESPECIALLY “LEFT TAIL RISK”. IF YOU LOOK AT THE STATISTICAL BELL SHAPED CURVE BELOW WE ALL KNOW FROM OUR STATISTIC CLASSES THAT STATISTICALLY 95% OF ALL RESULTS FALL IN THE CURVE. MONEY MANAGERS , HEDGE FUNDS BASE MOST OF THEIR DECISIONS ON THE CURVE. THEY ARE PREPARED TO HANDLE ANY EVENT WHERE RESULTS ARE INSIDE THE CURVE. WHAT HAPPENS IF RESULTS ARE IN THOSE LITTLE TAILS AT EACH END? IF IT IS ON THE RIGHT SIDE THAT WOULD BE POSITIVE, BUT THE LEFT SIDE TAIL RISK CREATES A NEGATIVE PROBLEM. WHEN THESE EVENTS HAPPEN THE CONTAGIOUS EFFECTS TAKE OVER CAUSING MASSIVE LOSSES IN DIFFERENT AREAS. WHEN THESE OCCURRENCES HAPPEN THEY ARE USUALLY CALLED “BLACK SWAN” EVENTS. EVERYONE THOUGHT ALL SWANS WERE WHITE AND NEVER EXPECTED TO SEE A “BLACK SWAN”.

WHAT ARE SOME SOLUTIONS:

1.   VARIABLE ANNUITIES can be used to protect investors in a number of ways. Two specific ways (there are apprx 1600 versions)that variable annuities can help protect the downside are:
a.   In a deferred variable annuity, negative returns are possible, but the industry has created various options to put investors at ease, such as riders that guarantee certain levels of income upon retirement. This guarantee of a certain income level has become a very key feature, especially for the retired or close to retirement baby boomers. Thus even if there is a “black swan event” you retirement income is guaranteed. In this era of companies getting away from defined benefit plans this guarantee allows an investor to set up their own “defined benefit plan”
b.   Guaranteed minimum death benefits can also protect the downside. Most deferred variable annuities sold include the basic kind: a guarantee that, if the account value has lost value when the investor dies, heirs will get the full amount initially invested. There are many variations of the minimum death benefit, such as “stepups” which are guarantees that heirs get the highest value the account hit on one of its anniversaries. Between 2001 and 2003, variable annuity beneficiaries received $2.8 billion more than the account value when policy holders died earlier than expected, according to the Insured Retirement Institute.

2. MANAGED FUTURES can be used to protect the downside. Investors who want to be ready for a “Black Swan” event must have something in their portfolio that can make money not only on the upside but when values are falling. The values may be falling in equities, bonds or commodities and a managed futures program can make money in those falling markets, thus protecting some or all of your portfolio. The futures(commodity) markets have been built to hedge, although many investors try to speculate in these markets. The futures market is very complicated that is why we do not recommend a “do it yourself” futures portfolio. Let the professional with proven track records do it.

3. DIVERSIFICATION/ASSET ALLOCATION can be used to lessen downside risk. However in the events we are discussing especially in the last melt down nothing was safe. However diversification will protect you from being in one asset class that gets hammered.

4. FDIC CD’S/ MONEY MARKETS can be used to protect the downside, however with interest rates at record lows the returns may not even keep up with inflation. Having said that, we have all learned that cash is an asset class. Many investors forgot that fact and portfolios did not factor in cash while building diversified portfolios. Nothing wrong with having a portion of your investment assets in cash.

MANY ADVISORS HAVE SPECIFIC PROGRAMS THAT CAN HELP WITH PROTECTING THE DOWNSIDE…….COVERED CALL WRITING, MARRIED PUTS, STOP LOSS STRATEGIES TO NAME A FEW. EACH INVESTOR HAS TO DETERMINE THEIR FINANCIAL GOALS & THEIR RISK TOLERENCE AND THEN WORK WITH AN ADVISOR TO COME UP WITH A PROGRAM TO ‘HELP PROTECT THE DOWNSIDE “.

Recent News