So far, tariffs and trade conflicts have not negatively impacted the labor market. The economy added a solid 201,000 jobs in August and with revisions to the previous two months (down 50K), employers have added an average 207,000 a month to payrolls this year, quite a feat, considering that we are in the tenth year of the expansion.
First a quick PS: If you enjoy the radio show, please check out our podcast, Better Off. It's very similar and you'll hear more personal finance calls with our listeners.
On to this week's show...
Stock investors are coming off one of the rockiest stretches in two years, leading to the inevitable question: What should I do when the market drops? The answer for long-term investors is clear: nothing. Still, when you hear about big point and percentage losses, especially as the second longest bull market on record tempts some to call the market top, it’s hard not to feel butterflies. So listen to the start of the latest show and let me calm your nerves!
Hour one also featured an interesting call from Dee in Seattle who wanted a second opinion on some advice that she and her husband recently received from their financial advisor. Given the recent market gyrations, it was a very timely call!
Bitcoin, bitcoin, bitcoin is the theme of hour two. Since the end of 2017 and now into 2018 it’s been hard to avoid the mention of the now wildly popular cryptocurrency. From Cassandra's, who warn that the meteoric rise is a bubble (hello, Jamie Dimon!) to true believers, who think Bitcoin will go to $100,000, it seems that the rest of us better brush up on what’s behind the mania.
My first Bitcoin story aired on CBS in 2011, but I certainly don’t consider myself an expert on all things crypto. Thankfully our guest today, Dan Roberts, senior writer at Yahoo Finance, is a total crypto geek and has been covering the wild ride from the beginning.
We started by discussing Dan’s recent piece about the biggest misconceptions when it comes to bitcoin. (This is a great primer for any of you who have read headlines, but are now ready to peel back the first layer of the onion.) For instance, one of the great appeals of cryptocurrencies, for better or worse, has always been that it’s not traceable. Wrong! As Dan explains, it is very much traceable. I had no idea. And it all ties back to the blockchain technology that powers digital currencies.
I also didn’t know that coinbase, the most common exchange used to buy cryptocurrencies, is FDIC insured up to a maximum of $250,000. Like brokerage accounts, the FDIC protect against the failure of the institution, not against trading losses.
Additionally, while it might sound like the Wild West, but the world of cryptocurrencies is more regulated than you would think. Dan notes that legit Bitcoin brokerages are all licensed in some manner: either with Financial Crimes Enforcement Network (FinCEN), the New York Department of Financial Services (NYDFS) and all of the exchanges now offering bitcoin futures and options are overseen by the Commodity Futures Trading Commission (CFTC).
Does that mean you should sell your stocks and plunge into cryptocurrencies? SLOW DOWN, TURBO...Consider this: on the day we taped this interview, Bitcoin tumbled nearly 20 percent, so you would be wise to listen to Dan discuss his number one fear before pulling the trigger.
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Bitcoin was all the rage at the end of 2017 and it's showing no signs of letting up in 2018, so it's appropriate that we have our first cryptocurrency BONUS call from Steve in Georgia.
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If you’ve been wondering where investor euphoria is, look no further than Bitcoin – about 13 million people around the world are cheering Bitcoin 10,000. Oh sure, US stocks are now in the second longest bull market on record (the longest was 1982-2000), but there seems to be a missing element to the current stampede: all-out excitement. Remember the late 1990s, when everyone was talking about stocks? It certainly doesn’t feel that way today. In fact, investors who call into my podcast and radio show seem to be more concerned about the downside, then the upside.
Investors will resume trading after the Thanksgiving weekend, but all eyes will be on the outcome of Cyber Monday. Last year, it was the largest online sales day in history- shoppers spent a record $3.39 billion online, edging out the Black Friday online sales. This year, Cyber Monday sales are set to grow by 16.5 percent from a year ago, according to Adobe Digital.
SCAM ALERT! The North American Securities Administrators Association (NASAA) and the Financial Industry Regulatory Authority (FINRA) have both issued annual reports identifying the top threats investors are likely to face in 2015. The lists are lengthy, but a couple of new, noteworthy threats you should guard against include: Pot Schemes: Legalization of marijuana has encouraged promoters to market and sell investments in this emerging and fast-growing industry, and securities regulators are seeing “pump and dump” scams. "Fraudsters lure investors with aggressive, optimistic, and potentially false or misleading information designed to create unwarranted demand for shares of a small, thinly traded company with little or no history of financial success (the “pump”). Once share prices and volumes peak, scammers behind the ploy sell their shares at a profit, leaving investors with worthless stock (the “dump”)." One more note: Even legitimate companies promoting a new venture in a new field are highly speculative and carry a high degree of risk for investors.
BitCoin Bites: Another area of concern is for securities offerings tied to digital currencies, where unscrupulous promoters are often illegally offering securities tied to these currencies.
Some of the old problems for investors remain in 2015. Here are just some of the issues that are on FINRA's radar screen:
Customer Comes Last: FINRA says that too many firms and their representatives are not putting customers’ interests first.
Variable Annuity Ambiguity: Regulators are focusing on sales practice issues associated with variable annuities, because many consumers purchase these contracts without fully understanding the steep fees involved.
Senior Investors: The U.S. Senate Special Committee on Aging estimates that older Americans lose $2.9 billion to fraud each year. In fact, there is so much targeting of older Americans, that the Committee launched a special fraud hotline to help deal with the "epidemic" and has held a series of investigations to spotlight the devastating impact fraud has on seniors.
Separately, FINRA examiners continue to review communications with seniors; the suitability of investment recommendations made to seniors; and the techniques used to attract senior investors. Additionally, the Consumer Financial Protection Bureau provides resources for families trying to ward off the senior scammers.
If all of these frauds has you spooked, GOOD! That means that you are ready to start asking the right questions of financial professionals. Once again, here are my favorite ten questions to ask any potential financial advisor, stock broker or insurance salesperson before you retain them:
1) Are you registered as an investment advisor? If yes, then the advisor owes you a fiduciary duty, which is a fancy way of saying that she must put your needs first. Investment professionals who aren't fiduciaries are held to a lesser standard, called “suitability,” which means that anything they sell you has to be appropriate for you, though not necessarily in your best interest.
2) How will I pay for your services? The advisor should clearly state in writing how she will be paid for the services provided. The three basic methods of payment are: fees based on an hourly or flat rate; fees based on a percentage of your portfolio value, often called "Assets Under Management" ("AUM"); and commissions paid per transaction. How often you expect to trade, and whether you want your money pro-actively managed, will help determine which model works best for you.
3) What experience do you have? Find out how long the advisor has been in practice and where. Also ask if she has any professional certifications, licenses or designations. While these are signals of credibility, they don't guarantee a successful relationship. Here’s a description of some of the more common financial planner designations:
- CFP® certification: The Certified Financial Planner Board of Standards (CFP Board) requires candidates to meet what it calls “the four Es”: Education (Education (through one of several approved methods, must demonstrate the ability to create, deliver and monitor a comprehensive financial plan, covering investment, insurance, estate, retirement, education and ethics), Examination (a 10-hour exam given over a day and a half; most recent exam pass rate was 62.6 percent), Experience (three years of full-time, relevant personal financial planning experience required) and Ethics (disclosure of any criminal, civil, governmental, or self-regulatory agency proceeding or inquiry). CFPs must adhere to the fiduciary standard.
- CPA Personal Financial Specialist (PFS): The American Institute of CPAs® offers a separate financial planning designation. In addition to already being a licensed CPA, a CPA/PFS candidate must earn a minimum of 75 hours of personal financial planning education and have two years of full-time business or teaching experience (or 3,000 hours equivalent) in personal financial planning, all within the five year period preceding the date of the PFS application. They must also pass an approved Personal Financial Planner exam.
- Membership in the Membership in the National Association of Personal Financial Advisors (NAPFA): NAPFA maintains a high bar for entry: Professionals must be RIAs and must also have either the CFP or CPA-PFS designation. Additionally, NAPFA advisers are fee-only, which means that they do not accept commissions or any additional fees from outside sources for the recommendations they make. In addition to being fee-only, NAPFA advisers must provide information on their background, experience, education and credentials, and are required to submit a financial plan to a peer review. After acceptance into NAPFA, members must fulfill continuing education requirements. The stiff requirements make NAPFA members among the tiniest percentage of registered investment advisers, with only 2,400 total current members.
4) What services do you offer? The services offered can depend on a number of factors including credentials, licenses and areas of expertise. Some offer advice on a range of topics, but do not sell financial products. Others may provide advice only in specific areas such as estate planning or tax matters.
5) What is your approach to financial planning and investing? Some advisors prefer to develop a holistic plan that brings together all of your financial goals. Others provide advice on specific areas, as needed. Make sure the advisor’s viewpoint on investing is neither too cautious nor overly aggressive for your risk tolerance. Also ask whether the planner makes investment decisions herself, or depends on others in the firm to do so. What was the advisor's performance in both good and bad markets and ask yourself whether it’s more important to you to make money in a rising market or prevent losses in a down market. A great follow up question: what were the three worst investment decisions you made over the past five years, and how did you correct them?
6) Can you provide three references? Ask for two current clients whose goals and finances match your own, as well as a professional reference, like an accountant or estate attorney.
7) Do you have a financial interest in the entity that houses my account? This is your Madoff-prevention question. When interviewing advisors not associated with large brokerage or insurance companies, ask if they use an independent, third party custodian or clearing firm (this is the entity that produces your statements), which prevents the advisor from having direct custody of your assets and adds another level of security for your account. In the Madoff example, he was the investment advisor, broker-dealer, clearing agent and custodian for all of his client accounts.
8) Is there anything in your regulatory record that I should know about? Part of your research should include conducting background checks on the professional you may hire. You can visit the Securities & Exchange Commission and FINRA websites or the State Securities website NASAA as well as the CFP Board. While some violations are non-starters (settlement of multiple customer complaints) others may be understandable (marketing materials not pre-approved; non-client or investment violations).
9) How often will we interact? What should you expect in terms of frequency of verbal, written and in-person communication? Also ask whether the advisor will remain your primary contact.
10) Do I like this person? You are about to enter into an intimate relationship that will hopefully last a long time. If you have any reservations, move on. There are plenty of qualified advisors out there, who would like to help you out.
“You always seem so happy when you are on CNET's 404!” exclaimed a friend. That’s because hanging out with Jeff Bakalar and Justin Yu is just about the most fun I can have during the workweek. In this episode, Jeff wants to know the real deal about Bitcoin, the unregulated electronic currency and then we field questions from the fabulous 404 fans about index funds; investing in silver; paying taxes for green card holders; and whether it makes sense to be a landlord.