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European Debt Crisis and Inflation

December 8, 2010 | Filed Under Uncategorized | Comments Off

News media and the general public have been closely watching the European debt problems, especially those countries in crisis like Greece and now Ireland. However, the debt crisis, banking problems and currency valuation issues are not the only concerns. There are serious worries about inflation that could spread to global concerns, if the economies in specific Asian countries continue to keep interest rates inappropriately low. The following countries have these inflation rates, according to the Wall Street Journal:

India 8.6%
China 4.4%
S. Korea 4.1%
Thailand 2.8%
Philippines 2.8%
Indonesia 5.8%
Malaysia 2.0%
Singapore 3.5%
Australia 2.8%

By comparison, the United States has an inflation rate of 1.2% for 2010. The US government went so far as to declare the reason that there is no increase in Social Security payments in 2010, for the first time since 1975, is because the index upon which increased payments are based had a negative inflation factor. Will the low interest rates controlled by the Federal Reserve Bank in the US, also cause similar inflation as what these other countries are experiencing? Couple inappropriately low long term interest rates with the massive printing of currency in our country and imagine where the inflation will be next year at this time.

14 Steps You Can Take to Prevent Identity Theft

November 5, 2010 | Filed Under Uncategorized | Comments Off
By: Etienne A. Gibbs

The Fair and Accurate Credit Transaction Act, known commonly as FACTA, was put into law in the United States to help to protect consumers from identity theft and to help in its prevention. FACTA ensures that all citizens are treated fairly when they apply for a mortgage or other form of credit and it entitles them to a free annual credit report to verify its accuracy.

Becoming a major epidemic, Identity Theft occurs when a criminal uses another person’s personal information to take on that person’s identity. Identity theft includes the misuse of a Social Security number, credit cards, mail fraud, scam, schemes, frauds, or any other form of misuse or abuse of a victim’s identity.

There is no guarantee that you will never be a victim; however, there are steps you can take to minimize your risk. Here is a list of 14 steps you can take to prevent or at least minimize its occurrence:

1. Manage your personal information cautiously and with a new awareness that identity theft can occur anytime anywhere and when you least expect it.

2. Ask about security procedures in your workplace, doctor’s office, or other business or organization that routinely collects relevant and personal identifying information as part of doing business or providing a service. Find out who has access to your personal information and verify that it is handled securely. Inquire about their disposal procedures and if your information will be shared with anyone else (namely third parties such as mailing list companies, marketing and survey companies, etc.).

3. Instead of giving your Social Security Number, inquire if you can use other types of identification. Use your Social Security Number with caution and only when absolutely necessary.

“Your Chances of becoming victimized by some form of identity theft is one in ten,” according to the Federal Trade Commission.

4. If you find that you have been victimized, immediately file a complaint with the Federal Trade Commission. The FTC maintains a database of identity theft cases used by law enforcement agencies for investigations. Filing a complaint helps the FTC learn more about identity theft and the problems victims are having. This knowledge helps them to assist you better.

5. Carry only the identification and the number of credit and debit cards that you will actually use. Leave extra cards in a safe place at home, in a safety deposit box, or any other secured location.

6. Avoid giving out personal information on the phone, through the mail, or on the internet unless you are absolutely sure you know and can trust with whom you are communicating. Caution: Before you share personal information, be sure you are dealing with a legitimate business or organization. (If you are unsure about an online communication, check the organization’s website by typing its URL in the address line. Most large companies post alerts on their sites when they are aware of a scam when their name is used improperly.)

Identity thieves usually pose as representatives of banks, lotteries, sweepstakes, internet service providers, or some other officially-sounding-entity. They will use any means possible to try to get you to reveal your valuable information.

7. Call the Customer Service Department of companies or organizations with whom you do business using the number listed on your account statement or in the telephone book.

8. Do not place passwords on your credit card, bank, or telephone accounts.

9. When choosing a password, avoid using obvious information like your mother’s maiden name, your birth date, a series of consecutive numbers, or the last four digits of your Social Security Number or your phone number.

10. Pay attention to your billing cycles. A missing bill could mean an identity thief has gotten their hands on it.

“9.9 million people were victims of identity theft in 2002″, according to the Federal Trade Commission. Don’t wait until it happens to you.

11. Be wary of promotional scams or phony offers to get you to give them your personal information such as lottery and sweepstakes’ that you have never entered and ones asking for an “administration” fee.

12. If your job requires you to suit up in special clothing at work, never leave your purse or wallet in your personal clothes. Always keep them in a safe and secured place.

13. When reordering checks, pick them up at the bank instead of having them sent to your mailbox.

14. Obtain a current credit report by contacting any of these major credit bureaus:

Equifax: P.O. Box 740241 Atlanta, GA 30374-0241
For Fraud Alerts, call: 800-525-6285

Experian: P.O. Box 2002 Allen TX 75013
For Fraud Alerts, call: 888-EXPERIAN (397-3742)

Trans Union: P.O. Box 1000, Chester, PA 19022
For Fraud Alerts, call: 800-680-7289

Think you’re not at risk? Unfortunately, you are. View “Protecting Your Identity” blog at to learn more about what you can do to protect yours.

Author Bio
Known as The Master Blog Builder, Etienne A. Gibbs, MSW, is in the business of helping small business owners and non-profit organizations improve their customer relationship marketing. Often he comes across cases that are red flags calling identity thieves to come in.

5 Green Home Improvements That Really Pay Off

October 28, 2010 | Filed Under Uncategorized | Comments Off
By Money Crashers -Heather LevinWed Oct 27, 4:59 pm ET

You don’t need a $30,000 array of solar panels or a rooftop wind turbine to go green and save money on your utility bills. In fact, sometimes the smallest changes can make the biggest impact on your home.

During a recession, home improvements that can help make your apartment energy efficient and therefore save money, are always more popular and economical than a kitchen remodel or pool addition. After all, small do-it-yourself improvements that immediately start paying you back become much more appealing when times are tight.

So among the many home improvement ideas out there, which are the cheapest and greenest that will pay off the most? Let’s take a look at some of the best money-saving options, most of which are affordable, DIY Projects

1. Seal Leaks

According to the National Resources Defense Council, the average American home has enough leaks to equal a 3 foot by 3 foot hole in the wall. That’s a lot of expensive air escaping every minute! The good news is that there are some inexpensive ways to seal leaks around your home to make it more energy efficient.

Caulk and spray foam usually costs less than $5 a container, and using it to seal cracks can save up to 20 percent on your monthly heating bill. Focus on windows and doors first. Also, it’s easiest to seal leaks on a cold, blustery day because you can use your hand to easily feel the drafts.

2. Add Insulation

Properly insulating your attic can save 10 percent to 30 percent off your monthly heating bill. How much insulation do you really need? This handy map put out by Energy Star shows you the R-values you’ll need, based on your specific location. Costs of insulating an attic vary widely, depending on what type of insulation you choose.

If you decide on blown cellulose, you’re going to spend around $175 to do it yourself or $630 if you pay a contractor (for an 800 square foot attic). For a cheaper alternative, consider using batt insulation, which is fairly easy and can usually be done for less than $100.

3. Install a Programmable Thermostat

The U.S. Department of Energy says most homeowners can save at least 10% on their monthly heating bill simply by turning down the thermostat 10-15 degrees for 8 hours a day. This is easy to do when you’re at work, and a programmable thermostat will bump the heat back up right before you get home. An average programmable thermostat costs around $70.

4. Seal Heating Ducts

Most homes lose 20 percent of their heat through leaks and poorly sealed connections in heating ductwork. Have you ever turned your heat on full blast only to feel like your house still isn’t warming up? If so, then you might have some leaky ductwork.

You can easily seal exposed ducts in your attic, basement, crawlspace, and garage with duct sealant (also called duct mastic). Taking the time to seal your ducts can pay off big-time in the long run.

5. Change Your Furnace’s Air Filter

Many people leave their furnace’s air filter in all winter long. But when filters become clogged with dirt and dust, your furnace has to expend more energy to force the air through. This, in turn, raises your electric bill.

Consumer Reports recommends changing your furnace filter once a month during the winter months. And some experts say that this can improve your furnace’s efficiency by up to 20 percent, even without some of the other methods you can utilize for energy efficient heating as well.

Last Word

Improving your home’s energy efficiency doesn’t have to cost a fortune. And since more people are starting to choose to stay in their homes instead of selling, these small improvements can make a big difference in your budget over the long run.

Do you have any additional home improvement tips

Heather Levin blogs about “saving money and going green” on The Greenest Dollar and is also a top contributor for the Money Crashers.

20 Ways to Stay Motivated During Your Job Search

October 23, 2010 | Filed Under Uncategorized | Comments Off

The longer you look for a job, the tougher it becomes. Who could blame you for feeling despondent, discouraged, depressed—even bitter? Some days you may not even feel like getting out of bed.

Unfortunately, not only is depression, well, depressing, it also makes it harder to get out there and look. And the less you get out and look, the less likely a job offer will come your way. Even worse, prospective employers tend to be turned off by negativity. It’s the most dastardly kind of Catch-22.

What all this means is that a major part of anyone’s job hunt is staying motivated. We all have our ways of keeping on keeping on, but here are some time-tested suggestions to prevent your search from getting you down:

1. Join a job-search group. It’s a reason to get out of the house and a venue to vent. You may even get some great feedback on your presentation, resume, cover letter, etc.

2. Socialize with employed friends. It’s a reminder that jobs do exist. Besides, these are the folks most likely to know about available positions and upcoming openings.

3. Limit your exposure to the news. Yes, you do need to know what’s going on in the world, but you don’t need to wallow in the latest dismal job-market reports.

4. Invigorate yourself through hobbies or sports. These can be activities you already love or, better yet, something new and exciting.

[See 21 Secrets to Getting the Job.]

5. Avoid “glass-is-half-empty” folks. Everyone knows people like this. Minimize your exposure to them as much as you can.

6. Hang out with people who make you feel good about yourself. Find and stick with friends and family who respect you, who like you for who you are, and who are positive and upbeat.

7. Expand your network every single day. The growth of your professional network is a better way to measure progress than how many interviews you have each week.

8. Expose yourself to media that inspire you. Choose books, blogs, magazines, movies, and TV that uplift you and make you feel the world is a wonderful place.

9. Read biographies of successful people. It can help enormously to realize that every successful person encountered failures and setbacks along the way. Every single one.

10. Try new (to you) job-search techniques. Go for an informational interview or switch your resume from chronological to functional. A different approach may breathe new life into your hunt.

11. Get a mentor. If you have a mentor, get a second one. You’re allowed to have as many as you want or need. Mentors offer perspective, advice, and encouragement.

[See 25 Qualities Job Interviewers Look For.]

12. Ask a friend to be your “negativity cop.” This is the person who will let you know when you’re projecting negativity.

13. Find someone to report your progress to. This can be a friend or job-search group or mentor. You’ll be more likely to keep on task if you are accountable to someone.

14. Spend time with a child. If not yours, someone else’s. Children are great big-picture people. They often have a way of reminding us what’s important in life.

15. Get some exercise. Exercise produces those wonderful little pepper-uppers, endorphins. It’s a cheap, and legal, high.

16. Eat healthy. Cook good meals from scratch. It’s not only better for your body and mind, it’s cheaper, too.

17. Set a challenging goal. Whether it’s to run a marathon or clean out the garage, a challenge successfully met boosts your mood. You will project more confidence as a result.

[For more workplace advice, visit U.S. News Careers.]

18. Learn something new. It can be related to your work or something for fun. Learning new things stretches your brain and brightens your outlook.

19. Help others. Volunteering is always an amazing upper. And who knows, you might make some great new contacts.

20. Designate one day a week when you won’t think about your job hunt. Take a break. Clear your head. Rest. Relax. Reenergize.

Karen Burns is the author of the illustrated career advice book The Amazing Adventures of Working Girl: Real-Life Career Advice You Can Actually Use, recently released by Running Press.

Tips on Following Up After You Send a Resume

October 10, 2010 | Filed Under Uncategorized | Comments Off

By Lindsay Olson

Posted: October 7, 2010

One of the most frequent questions I get from job seekers is about follow-up timing after submitting a resume. Who do I contact and how long should I wait?

The answer depends on how you were introduced to the company. If you respond to a job posting

online, it’s important to remember that some ads generate hundreds of responses a day. Many companies have tools to automate processing your application into their applicant tracking systems. A real person may not be looking at the responses sent and many times, the hiring manager isn’t even involved at this stage.

The best way to make sure your resume gains the attention it deserves is to tweak it to fit the job description. It sounds like obvious advice, but job seekers often don’t do it. Integrate the keywords that a recruiter might use to find a qualified candidate in their database. Your goal is to make sure your resume will be found and put on the short-list. If you have done this and haven’t heard back, give it a week and follow-up.

The best-case scenario is when you know someone within the company. An internal recommendation almost always holds more weight (as long as you are qualified). If your contact presents your resume to the hiring manager or the HR department directly, your chances getting an interview improve immensely. Ask your contact to let you know when your resume has been received, and follow-up directly with the hiring contact in a day or two by phone or E-mail.

In both cases, your follow-up should be concise, polite, and reiterate your interest in the position. Highlight how your qualifications make you a good fit. Be specific and don′t assume that the company will recognize your name or for which position you applied.

A few key points about following up:

  • Don’t re-send the same resume and cover letter multiple times for the same position. Sending the same E-mail over and over lessens your chance of getting an interview because it seems desperate and disorganized. Make it obvious that you are following up on a specific position for your application sent on a specific dates.
  • Keep a positive tone in your follow-up message. A job search can be frustrating, especially when you feel that you are qualified and don’t receive a response. A negative or an accusatory tone will kill your chance of getting a response as well as any future opportunities with the company.
  • It would be wonderful to hear back from every employer, but it’s not realistic. If you have followed up three times and have not heard back, it’s time to move on. Don’t take it personally.

Lindsay Olson is a founding partner and recruiter with Paradigm Staffing, a national search firm that specializes in placing public relations and communications professionals.

US News &Report -Older Unemployed Remain Out of Work Longer

October 2, 2010 | Filed Under Uncategorized | Comments Off

An article written by Emily Brandon in US News & World Report takes a look at how the older unemployed are being affected by the economy.
“Things have been very tough for older job-seekers.  Duration of  unemployment for persons aged 55 and older has soared since the start of  the recession….”
Read the full article at

Bankruptcies Rise, Reversing A Trend

September 22, 2010 | Filed Under Uncategorized | Comments Off


There was a recent article in the Wall Street Journal reporting  personal bankruptcy filings are on the rise from last year. According to the author, Sara Murray, more Americans filed for bankruptcy protection in July, approximately 908,000 year to date.  This number of filings for bankruptcy is up from 802,000 last year at the same point in time.   Filings topped 1.4 million last year even though the bankruptcy laws changed in 2005 to make it more difficult for consumers to liquidate their debt rather than reorganize it under the federal bankruptcy laws.  One has to wonder at the efficacy of the 2005 law change in light of these increased filings.

A Chapter 7 is a liquidation whereas a Chapter 13 is a reorganization that involves a debt repayment plan.  The results of a recent study show the suburbs of Atlanta having particularly high filing rates.  Of the 10 U.S. counties with the highest filing rates, six were in Georgia; however, filings in other Southern states have begun to decline.

Investing in the Stock Market for the Individual Investor

September 3, 2010 | Filed Under Uncategorized | Comments Off

By: Harry Hooper


Over the past few years the stock market has made substantial declines. Some short-term investors have lost a good bit of money. Many new stock market investors look at this and become very skeptical about getting in now.

If you are considering investing in the stock market it is very important that you understand how the markets work. All of the financial and market data that the newcomer is bombarded with can leave them confused and overwhelmed.

The stock market is an everyday term used to describe a place where stock in companies is bought and sold. Companies issues stock to finance new equipment, buy other companies, expand their business, introduce new products and services, etc. The investors who buy this stock now own a share of the company. If the company does well the price of their stock increases. If the company does not do well the stock price decreases. If the price that you sell your stock for is more than you paid for it, you have made money.

When you buy stock in a company you share in the profits and losses of the company until you sell your stock or the company goes out of business. Studies have shown that long-term stock ownership has been one of the best investment strategies for most people.

People buy stocks on a tip from a friend, a phone call from a broker, or a recommendation from a TV analyst. They buy during a strong market. When the market later begins to decline they panic and sell for a loss. This is the typical horror story we hear from people who have no investment strategy.

Before committing your hard earned money to the stock market it will behoove you to consider the risks and benefits of doing so. You must have an investment strategy. This strategy will define what and when to buy and when you will sell it.

History of the Stock Market

Over two hundred years ago private banks began to sell stock to raise money to expand. This was a new way to invest and a way for the rich to get richer. In 1792 twenty-four large merchants agreed to form a market known as the New York Stock Exchange (NYSE). They agreed to meet daily on Wall Street and buy and sell stocks.

By the mid-1800s the United States was experiencing rapid growth. Companies began to sell stock to raise money for the expansion necessary to meet the growing demand for their products and services. The people who bought this stock became part owners of the company and shared in the profits or loss of the company.

A new form of investing began to emerge when investors realized that they could sell their stock to others. This is where speculation began to influence an investor’s decision to buy or sell and led the way to large fluctuations in stock prices.

Originally investing in the stock market was confined to the very wealthy. Now stock ownership has found it’s way to all sectors of our society.

What is a Stock?

A stock certificate is a piece of paper declaring that you own a piece of the company. Companies sell stock to finance expansion, hire people, advertise, etc. In general, the sale of stock help companies grow. The people who buy the stock share in the profits or losses of the company.

Trading of stock is generally driven by short-term speculation about the company operations, products, services, etc. It is this speculation that influences an investor’s decision to buy or sell and what prices are attractive.

The company raises money through the primary market. This is the Initial Public Offering (IPO). Thereafter the stock is traded in the secondary market (what we call the stock market) when individual investors or traders buy and sell the shares to each other. The company is not involved in any profit or loss from this secondary market.

Technology and the Internet have made the stock market available to the mainstream public. Computers have made investing in the stock market very easy. Market and company news is available almost anywhere in the world. The Internet has brought a vast new group of investors into the stock market and this group continues to grow each year.

Bull Market – Bear Market

Anyone who has been following the stock market or watching TV news is probably familiar with the terms Bull Market and Bear Market. What do they mean?

A bull market is defined by steadily rising prices. The economy is thriving and companies are generally making a profit. Most investors feel that this trend will continue for some time. By contrast a bear market is one where prices are dropping. The economy is probably in a decline and many companies are experiencing difficulties. Now the investors are pessimistic about the future profitability of the stock market. Since investors’ attitudes tend to drive their willingness to buy or sell these trends normally perpetuate themselves until significant outside events intervene to cause a reversal of opinion.

In a bull market the investor hopes to buy early and hold the stock until it has reached it’s high. Obviously predicting the low and high is impossible. Since most investors are “bullish” they make more money in the rising bull market. They are willing to invest more money as the stock is rising and realize more profit.

Investing in a bear market incurs the greatest possibility of losses because the trend in downward and there is no end in sight. An investment strategy in this case might be short selling. Short selling is selling a stock that you don’t own. You can make arrangements with your broker to do this. You will in effect be borrowing shares from your broker to sell in the hope of buying them back later when the price has dropped. You will profit from the difference in the two prices. Another strategy for a bear market would be buying defensive stocks. These are stocks like utility companies that are not affected by the market downturn or companies that sell their products during all economic conditions.


Traditionally investors bought and sold stock through large brokerage houses. They made a phone call to their broker who relayed their order to the exchange floor. These brokers also offered their services as stock advisors to people who knew very little about the market. These people relied on their broker to guide them and paid a hefty price in commissions and fees as a result. The advent of the Internet has led to a new class of brokerage houses. These firms provide on-line accounts where you may log in and buy and sell stocks from anywhere you can get an Internet connection. They usually don’t offer any market advice and only provide order execution. The Internet investor can find some good deals as the members of this new breed of electronic brokerage houses compete for your business!

Blue Chip Stocks

Large well-established firms who have demonstrated good profitability and growth, dividend payout, and quality products and services are called blue chip stocks. They are usually the leaders of their industry, have been around for a long time, and are considered to be among the safest investments. Blue chip stocks are included in the Dow Jones Industrial Average, an index composed of thirty companies who are leaders in their industry groups. They are very popular among individual and institutional investors. Blue chip stocks attract investors who are interested in consistent dividends and growth as well as stability. They are rarely subject to the price volatility of other stocks and their share prices will normally be higher than other categories of stock. The downside of blue chips is that due to their stability they won’t appreciate as rapidly as compared to smaller up-and-coming stocks.

Penny Stocks

Penny Stocks are very low priced stocks and are very risky. They are usually issued by companies without a long-term record of stability or profitability.

The appeal of penny stock is their low price. Though the odds are against it, if the company can get into a growth trend the share price can jump very rapidly. They are usually favored by the speculative investor.

Income Stocks

Income Stocks are stock that normally pay higher than average dividends. They are well-established companies like utilities or telephone companies. Income stocks are popular with the investor who wants to own the stock for a long time and collect the dividends and who is not so interested in a gain in share price.

Value Stocks

Sometimes a company’s earnings and growth potential indicate that its share price should be higher than it is currently trading at. These stocks are said to be Value Stocks. For the most part, the market and investors have ignored them. The investor who buys a value stock hopes that the market will soon realize what a bargain it is and begin to buy. This would drive up the share price.

Defensive Stocks

Defensive Stocks are issued by companies in industries that have demonstrated good performance in bad markets. Food and utility companies are defensive stocks.

Market Timing

One of the most well-known market quotes is: “Buy Low – Sell High”. To be consistently successful in the stock market one needs strategy, discipline, knowledge, and tools. We need to understand our strategy and stick with it. This will prevent us from being distracted by emotion, panic, or greed.

One of the most prominent investing strategies used by “investment pros” is Market Timing. This is the attempt to predict future prices from past market performance. Forecasting stock prices has been a problem for as long as people have been trading stocks. The time to buy or sell a stock is based on a number of economic indicators derived from company analysis, stock charts, and various complex mathematical and computer based algorithms.

One example of market timing signals are those available from


There are numerous risks involved in investing in the stock market. Knowing that these risks exist should be one of the things an investor is constantly aware of. The money you invest in the stock market is not guaranteed. For instance, you might buy a stock expecting a certain dividend or rate of share price increase. If the company experiences financial problems it may not live up to your dividend or price growth expectations. If the company goes out of business you will probably lose everything you invested in it. Due to the uncertainty of the outcome, you bear a certain amount of risk when you purchase a stock.

Stocks differ in the amount of risks they present. For instance, Internet stocks have demonstrated themselves to be much more risky than utility stocks.

One risk is the stocks reaction to news items about the company. Depending on how the investors interpret the new item, they may be influenced to buy or sell the stock. If enough of these investors begin to buy or sell at the same time it will cause the price to rise or fall.

One effective strategy to cope with risk is diversification. This means spreading out your investments over several stocks in different market sectors. Remember the saying: “Don’t put all your eggs in the same basket”.

As investors we need to find our “Risk Tolerance”. Risk tolerance is our emotional and financial ability to ride out a decline in the market without panicking and selling at a loss. When we define that point we make sure not to extend our investments beyond it.


The same forces that bring risk into investing in the stock market also make possible the large gains many investors enjoy. It’s true that the fluctuations in the market make for losses as well as gains but if you have a proven strategy and stick with it over the long term you will be a winner!

The Internet has make investing in the stock market a possibility for almost everybody. The wealth of online information, articles, and stock quotes gives the average person the same abilities that were once available to only stock brokers. No longer does the investor need to contact a broker for this information or to place orders to buy or sell. We now have almost instant access to our accounts and the ability to place on-line orders in seconds. This new freedom has ushered in new masses of hopeful investors. Still this is not a random process of buying and selling stock. We need a strategy for selecting a suitable stock as well as timing to buy and sell in order to make a profit.

Day Trading

Day Trading is the attempt to buy and sell stock over a very short period of time. The day trader hopes to cash in on the short-term fluctuations in a stock’s price. It would not be unusual for the day trader to buy and sell the same stock in a matter of a few minutes or to buy and sell the same stock several times a day.

Day traders sit in front of computer monitors all day looking for short-term movement in a stock. They then attempt to get in on the movement before it reverses. The real day trader does not hold a stock overnight due to the risk of some event or news item triggering the stock to reverse direction. It takes intense concentration to monitor the minute-by-minute movement of several stocks.

Day trading involves a great deal of risk because of the uncertainty of the market behavior over the short term. The slightest economic or political news can cause a stock to fluctuate wildly and result in unexpected losses.

There are a few people who make respectable gains day trading. The people who probably make the most are the self proclaimed “experts” who sell the books or operate the web sites that cater to the day trader. Because of the profits to be made from sales to people who want to get rich quick, they make it seem as attractive as possible. The truth is that in the long run more people lose than gain by day trading. This does not translate into a very good investment.

Author Bio

Harry Hooper has over 30 years experience in portfolio management. He is the senior stock tracker for

How To Dissect Mutual Fund Returns

July 29, 2010 | Filed Under Uncategorized | Comments Off
By: Sam Subramanian
On January 1, 2006, a leading financial daily reported the trailing 1-year and 5-year returns of Fidelity Contrafund (Nasdaq: FCNTX), a no-load mutual fund, as 16.23% and 6.21% respectively. While the financial daily’s return information is useful, there is more to mutual fund returns.
    Is the performance of the fund superior or inferior?
    How tax-efficient is the fund in delivering these returns?
    Are the returns of the fund commensurate with the risk the fund manager has taken to achieve them?

Savvy investors will seek answers to such questions when evaluating mutual fund returns. Before getting into the nitty-gritty of mutual fund returns, it is good to understand what the data reported in the financial daily really mean.

Total Return
Fidelity Contra’s reported 16.23% 1-year return is the fund’s total return for the December 31, 2004 to December 31, 2005 period. In practical terms, $10,000 invested in the fund on December 31, 2004 is worth $11,623 on December 31, 2005. The total return includes more than the increase (or decrease) in the fund’s share price. It also assumes reinvestment of all dividends as well as short- and long-term capital gain distributions into the fund at the price at which each distribution is made.

Compound Annual Return
The reported 6.21% 5-year return is the fund’s compound annual return (also called the average annual return). The compound annual return is a calculated number that describes the rate at which the investment has grown assuming uniform year-over-year growth during the 5-year period.

A $10,000 investment in the Contrafund on December 31, 2000 has grown to $13,515.34 on December 31, 2005. The ending value of $13,515.34 = $10,000[(1 + 0.0621)^5] where 6.21% is the compound annual return. The investment in the fund grew at an implied annual growth rate of 6.21% over the 5-year period.

While total return and compound annual return are useful, they do not tell how a particular mutual fund has performed compared to its peers. They also do not provide information on the return actually earned by investors after accounting for taxes. Finally, they do not offer insight on how well the fund manager has managed risk while achieving the returns.

Relative Return
Relative return
compares the performance of a mutual fund against its peers. It is the difference between the total return of the fund and the total return of an appropriate benchmark over the same period.

Fidelity Contra is a large-cap growth fund that primarily invests in U.S.-based companies. It is therefore appropriate to compare its performance with that of an average large-cap growth fund. It is also relevant to benchmark the fund against the Standard & Poor’s (S&P) 500 index, comprising of large U.S.-based companies.

While Fidelity Contra has a compound annual return of 6.21% for the 5-year period ending December 31, 2005, Morningstar reports the average large-cap growth fund has an average annual loss of 8.48% over the same period. The S&P 500 index has an average annual return of 0.54% over the same period. Fidelity Contra has outperformed with a relative return of 14.69% over the average large-cap growth fund and with a relative return of 5.67% over an S&P 500 index fund.

After-Tax Return
Unlike assets held in qualified accounts such as 401k plans or individual retirement accounts (IRA), assets held in regular individual or joint accounts are not tax-deferred. For such non-qualified accounts, after-tax return is the return realized after accounting for taxes.

Short-term capital gains and short-term capital gain distributions from a mutual fund are currently taxed at the same rate as earned income. Dividends, long-term capital gain distributions and long-term capital gains realized from the sale of fund shares are currently taxed at a lower rate.

Fidelity states the compound annual return for Fidelity Contra before taxes is 6.21% for the 5-year period ending on December 31, 2005. When all distributions are taxed at the respective maximum possible federal income-tax rate, the after-tax return dips to 6.10%. The after-tax return drops further to 5.33% after accounting for the long-term capital gain tax due on sale of the fund shares.

Risk-Adjusted Return
Some fund managers take more risk than others. It is important to assess a fund’s return in light of the amount of risk the fund manager takes to deliver that return.

Risk-Adjusted Return is commonly measured using the Sharpe Ratio. The ratio is calculated using the formula (mutual fund return – risk free return)/standard deviation of mutual fund return. The higher the Sharpe ratio, the better is the fund’s return per unit risk.

Based on returns for the 3-year period ending on November 30, 2005, Morningstar reports Fidelity Contra’s Sharpe ratio as 1.74. The fund’s Sharpe Ratio may be compared with those of similar funds to determine how the fund’s risk-adjusted return compares with those of its peers.

Beyond Mutual Funds
Return concepts such as relative return, after-tax return, and risk-adjusted return may also be used for evaluating separately-managed accounts, hedge funds and investment newsletter model portfolios.

The AlphaProfit Sector Investors’ Newsletter, for example, tracks the total return and compounded annual return of its Core and Focus model portfolios. To provide Subscribers with a more complete picture of model portfolio returns, this newsletter also tracks the relative and risk-adjusted returns of the model portfolios. The newsletter’s model portfolios are constructed and repositioned with a view to maximizing after-tax returns.

While total return and compound annual return are useful, they do not provide a complete picture of a mutual fund’s performance. Metrics such as relative return and after-tax return offer insights on the fund’s relative performance and tax-efficiency. Risk-adjusted returns enable investors to assess how a fund’s returns stack up when risk is factored in.

Notes: This report is for information purposes only. Nothing herein should be construed as an offer to buy or sell securities or to give individual investment advice. This report does not have regard to the specific investment objectives, financial situation, and particular needs of any specific person who may receive this report. The information contained in this report is obtained from various sources believed to be accurate and is provided without warranties of any kind. AlphaProfit Investments, LLC does not represent that this information, including any third party information, is accurate or complete and it should not be relied upon as such. AlphaProfit Investments, LLC is not responsible for any errors or omissions herein. Opinions expressed herein reflect the opinion of AlphaProfit Investments, LLC and are subject to change without notice. AlphaProfit Investments, LLC disclaims any liability for any direct or incidental loss incurred by applying any of the information in this report. The third-party trademarks or service marks appearing within this report are the property of their respective owners. All other trademarks appearing herein are the property of AlphaProfit Investments, LLC. Owners and employees of AlphaProfit Investments, LLC for their own accounts invest in the Fidelity Mutual Funds included in the AlphaProfit Core and Focus model portfolios. AlphaProfit Investments, LLC neither is associated with nor receives any compensation from Fidelity Investments or other mutual fund companies mentioned in this report. Past performance is neither an indication of nor a guarantee for future results.

Author Bio
Sam Subramanian, Ph.D, MBA is Managing Principal of AlphaProfit Investments, LLC. He edits the AlphaProfit Sector Investors’ NewsletterTM. The investment newsletter is ranked #1 by Hulbert Financial Digest. As of December 31, 2005, the investment newsletter’s model portfolios have gained up to 87.8% since start of publication on September 30, 2003. The Dow Jones Wilshire 5000 index has gained 34.6% during the same period. To learn more about the newsletter, visit

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May 11, 2010 | Filed Under Uncategorized | Comments Off

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