Archive - June 2009

1
Leverage ETF’s Don’t Necessarily Mix
2
Watch Out For These Hidden 401k Fees
3
5 Tips for Raising Money Smart Kids
4
The United Kingdom Outlawed Commission Based Financial Advice
5
Leveraged ETF’s Draw FINRA Warning

Leverage ETF’s Don’t Necessarily Mix

FINRA’s warning highlights a point that I noted earlier: inverse and leveraged ETFs are designed to yield returns on a daily basis, but over longer periods of time, “their performance … can differ significantly from the performance (or inverse of the performance) of their underlying index or benchmark during the same period….” The notice demonstrated this effect using the performance of a couple of specific ETFs between December 1, 2008 and April 30, 2009.  The Russell 1000 Financial Services Index fell 53 percent during this period.  A leveraged ETF designed to give 3 times the daily return of the index …

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Watch Out For These Hidden 401k Fees

I recently came across this article in WSJ that brought out some of the more interesting reasons that the 401(k) Fee Disclosure legislation is important…  There are two bills under review, one in the House (HR 1984) and one in the Senate (S 401), which aim to improve disclosure of fees within 401(k) plans.  These two bills also address the issue of the qualities that are appropriate for folks who are providing advice to plan participants.  A brief summary of the WSJ article follows:

It should not come as a shock that there are certain costs involved in maintaining a

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5 Tips for Raising Money Smart Kids

  1. Remember that experience is better than lecturing.  When your kids are ready to learn about money, start letting them make some financial decisions.  It might be as basic as choosing between an ice cream treat and a soda, but let them decide and let them know it’s about deciding what to get, not getting everything they want.
  2. Start younger than you think you should.  Many kids in pre-school can make the ice cream vs soda decision.  Elementary school kids can have an allowance that let’s them buy some things that you used to buy for them.  In late middle school
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The United Kingdom Outlawed Commission Based Financial Advice

The Financial Times reported yesterday on a United Kingdom Financial Services Authority ruling that will eliminate commissions paid by fund managers and life insurance companies to financial advisors.

The change takes effect three years from now.  The Financial Services Authority determined that commission-driven advice was closely linked with inappropriate product sales over a period of twenty years in Britain:

“The watchdog said it would ban product providers from offering commission to secure sales and ban advisors from recommending products that automatically paid commissions.

Instead, investors will be told up front how much advice would cost and will be able

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Leveraged ETF’s Draw FINRA Warning

The Financial Industry Regulatory Authority (FINRA) recently notified brokers who sell complex Exchange-Traded Funds (ETFs) that “inverse and leveraged ETFs typically are not suitable for retail investors who plan to hold them for more than one trading session.” The warning is long overdue, as leveraged ETFs were first introduced in 2006 after three years of SEC review.

FINRA’s warning about the dangers of leveraged and inverse ETFs is extremely important. I’ve been surprised to see leveraged and inverse ETFs recommended in a number of retail consumer-oriented publications. It’s very dangerous for investors to jump into these products when they don’t …

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