Blog Archives - PFwise.com

What Can We Learn From 3x Leveraged ETFs' Performances

12/31/2015

Q. How did DGAZ and UGAZ - the leveraged 3x short and long of natural gas' performances so different from the underlying UNG's performance?

A. The chart below shows the year to date 3 natural gas funds' performances - the unleveraged ETF (UNG), the leveraged 3x Long (UGAZ) and Short (DGAZ).

From the chart, we could see that up to mid-September, both leveraged ETFs largely underperformed against the unleveraged ETF. However, once the natural gas' downtrend becomes consistent, DGAZ took off.

In the end, UGAZ is down more than 90%, which the holders of UGAZ should feel lucky, because in theory it could down 3 times. For DGAZ holders, it's up 250%, less than 3 times as expected, but obviously it's a great performance if you were on the right side.

The above leveraged funds' performance proved what we discussed before - leveraged ETFs are toxic for long term investors - too much risk, just imagine you were thinking natural gas should be on an upside but it turned the other way. Your potential return is not worth the high volatility and risk.

How Could Small Investors Beat Wall Street Pros? Part III

12/30/2015

In our last blogpost, we showed that time is on small investors' side. Now, we will show you that cost is actually on your side too.

As a small investor, your trading cost is just your personal computer and a chair in front of it, plus the transaction fees for each trade, which if you shop around, you can find $7.95 per trade or even $0 per trade brokerage firms. In other words, your total costs are entirely under your control.

But not for professional money managers - they need to have a posh office with fancy furniture at an expensive prime office building. They need to have receptionists along with a research team who will have to fly globally visiting companies. They have to print out nicely put together investor reports and pitch books and spend marketing dollars to attract new investors ...

In short, you can keep your costs low, and the pros can't. Are you utilizing your low cost structure fully, or are envy of the professional firms' higher cost structures?

In short, as a small investor, while you are disadvantaged against professional money managers, you do hold great advantages over them on Size, Time, and Costs! It's up to you how to play your advantage and win over those pros!

How Could Small Investors Beat Wall Street Pros? Part II

12/29/2015

In our last blogpost, we showed that small investors' small portfolio sizes is actually an advantage. Now we will discuss the second small investor advantage - time frame!

As a small investor, you are responsible for your own actions. You don't have to worry about window dressing at the end of each quarter and year, you don't have to worry about the market fluctuations and find ways to explain why you missed selling at the top or didn't buy at the bottom, you don't have to worry about irritating investors while taking a short term risk and under-perform a benchmark index.

The best of all, as a money manager of your own money, you can act as a long term investor - no money manger could have such a luxury! While you could be patient when the market is in turmoil, the money managers are losing sleep at night!

Do you still want to be that pro that manages other people's money?

Next, we will focus on the third advantage for small investors - costs!

How Could Small Investors Beat Wall Street Pros? Part I

12/28/2015

Q. I am not happy with my portfolio's performance this year. But how could a small investor like me beat the Wall Street Pros?

A. Millions of small investors each year trade stocks and bonds against professional firms and complain about the unfair games they are playing in the stock market. Many simply quit after a few rounds, which is understandable - imagine you are given an opportunity to play in the NFL - against stronger, faster, and more powerful opponents, will you take it or avoid it?

While the answer is obvious for the NFL example, the answer might actually not that straightforward for the stock market competition. As it turns out, small investors hold great advantages in the following aspects when competing against the stronger Wall Street firms.

Let's start from the first small investor advantage - size!

As a small investor, you can get in and get out of a position very quickly, without much consideration. Your buy order won't drive up the stock price, and your sell order won't depress the stock price. Your entire order could be executed quickly. You don't have to disclose your positions to anyone, you don't have to file SEC reports every time you add or reduce your current positions. No high-frequency traders try to pick off your orders, you don't have to worry about dark pools ...

But each of the above points could be a big headache for professional money managers, they need to devise ways to deal with all of them, and more!

Aren't you happy you are just a small investor?

Next blog post, we will discuss the second small investor advantage - time frame.

The Best Financial Planning Softwares

12/27/2015

Top two most popular financial planning software used by professional advisors:

MoneyGuidePro
Money Tree
eMoney (could provide online interaction with remote users)

Top five most popular portfolio management software used by professional advisors:

An Important Change Coming to Money Market Fund in 2016

12/26/2015

Q. What's the important change to money market fund in 2016?

A. Starting from Oct 14, 2016, the SEC will start several new rules for money market funds -

Cretain funds will be required to abandon their stable $1-a-share value
Certain funds could temporarily suspend redemptions
Certain funds could impose liquidity fees on investors withdrawing assets during volatile times

Implications to Investors
Such changes could have profound impacts on millions of investors and 401(k) providers.

First, money market is no longer a safe haven. You might find at times when you need money from it, the money might not be available!

Second, some employers might decide to remove money market funds from 401(k) fund choices at all, because they may find it difficult to explain why sometimes you could take money out of your money market funds and sometimes you couldn't.

Without money market fund as an option, lots of 401(k) investors might be lost at deciding where to put their cash - now they could be forced to choose among stock and bond funds, instead of trying to time the market by moving money out of stocks and/or bonds and put in money market funds for a while, before putting the money back to investment in stocks and bonds.

Third, certain types of money market funds are except from the liquidity gates and redemption fees, but they offer lower yields Investors will be facing the trade-off: safety or return? You can't have both at the same time.

Insider Trading Tracking Websites

12/25/2015

Q. What's the best way to track insider trading activities?

A. While it's public and free information, insiders' trading activities (buy or sell their companies' shares) could be found at SEC's Edgar database, it's time consuming and nearly impossible for an individual investor to sort through the 200,000 new trades made by insiders annually.

The good news is there are a few websites dedicated to tracking insiders' activities, especially stock buying activities, as Peter Lynch once said: "insiders might sell their shares for any number of reasons, but they buy them for only one: They think the price will rise."

Below is some of the best of such websites. The bad news, all of them require a subscription with different prices and levels of services:

Insider Monkey: the least expensive, but offers not many ways to play around the data
J3 Services: more expensive, but offers more ways to slice and dice the data
Sec Form 4: the most expensive, for institutional investors, but curates data in far more ways and offers up many more predefined lists
Insider Score: for institutional investors only
Insider Insights: has a free service with bare bone services

2 Websites to Check Out the Stock Charts

12/24/2015

Q. I am not a day trader, but sometimes I would like to draw stock charts, what's the best website for that?

A. There are two great websites you can check out and they are for both fundamental and technical investors:

TradingView.com
It has real time data feeds, offers a wide array of sophisticated charting and drawing tools, as well as technical, fundamental, and macroeconomic trend indicators.

You can customize your charts to focus on the tickers, topics, and commentators (over 275,000 registered users), backtesting or forwardtesting your ideas.

StockCharts.com
It is a cloud where you can store masses of charts on companies, funds, and indexes you follow - all automatically updated during the market day.

You can quickly create default templates of chart types, time frames, and trend indicator collections reflecting your trading strategies.

No Tax on RMD Payment?

12/23/2015

Q. Can I reinvest the required minimum distribution and pay no tax?

A. Unfortunately No. When you make a tax-deferred retirement contribution to a traditional 401(k) or a traditional IRA account, you have agreed that the government will collect tax sometime in the future.

RMD is the time when the government needs to collect income tax from you on all those tax-deferred contributions.

If you want to avoid RMD, you can pay tax upfront and save money in Roth IRA or Roth 401(k) accounts. For Roth 401(k) account, you need to do a tax-free rollover into a Roth IRA. No tax will be due at the time withdrawal from Roth IRA, and there is no RMD from Roth IRA too.

A Must Have for Power Smartphone Users

12/22/2015

Q. My smartphone runs out of juice quickly as I am a heavy user. What can I do?

A. If you use your smartphone and camera a lot, you may find from time to time your gadgets run out of power quickly, and it seems always happen when you don't have access to an outlet. What to do?

Get a portable power pack!

These external batteries are about the size of a deck of cards, and they can charge your phone or camera on the go - just plug the device into an available USB port on the backup battery.

When shopping for a portable power pack, the higher the milliamp number (e.g. 10,000 mAh), the more times you can charge your device, but the bigger backup battery will be.

In the holiday season, these portable power packs are usually on sale with big price discounts - as high as 75% off on Amazon.

Best Term Life For Type 2 Diabetes Applicants

12/21/2015

Q. I have Type 2 diabetes but otherwise very healthy. What's the best term life I could get?

A. For most insurers, an applicant with Type 2 diabetes would get you a Standard non-smoker Table 2/B rating.

However, if you are controlling Type II with exercise and diet, then you might qualify for Standard ns rates.

Furthermore, depending on the age of onset, more importantly your A1c readings, any complications, etc., it's even possible for you to qualify for Standard Plus class for a few carriers we represent. Note that the price differences between the different classes could be quite substantial, so it's best for you to shop around and find the best carrier.

Please contact us so we could find the best term life insurance provider for you!

Stop Social Security Benefits After Already Started?

12/20/2015

Q. I am age 63 and lost job last year, so I had to start social security benefits. Now I found another job, can I stop social security payments and wait to collect later?

A. You can suspend your collection of social security payments, even if you have started, and reclaim later so you could get higher social security benefits, on two conditions:

1. You must do this within the first year of your starting the social security payments.
2. You must payback all the benefits you have received.

5 Steps to Appeal Medicare Denial Decision

12/19/2015

Q. What's the medicare appeal process?

A. There are 4 levels of Medicare appeals process as outlined below:

First level
You have 120 days after receiving your claim denial to file for "redetermination", which takes up to 60 days to get a decision.

Second level
You ahve 180 days to file for "reconsideration", which takes up to 60 days to get a decision.

Third level
You have 60 days to file for a hearing before an administrative law judge, who should take up to 90 days to rule.

Fourth level
You have 60 days to appeal to a Medicare Appeals Council, which can take 90 days to decide.

Fifth level
You have 60 days to ask for a review by the federal district court (for claims of at least $1,460).

Special Needs Planning IV - Considerations of a Special Needs Trust

12/18/2015

In our previous blogpost, we shared the four major benefits of a special needs trust. If you are serious about establishing a special needs trust, here are some additional considerations:

This strategy will require the assistance of an attorney who specializes in special needs planning, along with your financial professional.

The individual with special needs generally should not be a designated beneficiary of any retirement accounts, life insurance, annuity contracts or brokerage accounts. These financial assets could jeopardize eligibility for government benefits.

When a special needs trust is used, the trust beneficiary cannot have direct access to assets - trust distributions should be at the trustee's sole discretion.

Life insurance may be needed on the lives of the primary caregiver AND the primary breadwinner, if not the same person.

If you want to know more about the special needs trust, please contact us as we can bring in experts to help design the best plan for your needs.

Special Needs Planning III - Benefits of a Special Needs Trust

12/17/2015

In our last blog post, we discussed how does a special needs trust work. Now we will discuss the benefits of a special needs trust.

There are four major benefits of a special needs trust.

The special needs trust is designed to coordinate with other programs, therefore ensuring the individual remains eligible for state and federal government benefits.
Through a special needs trust, the caregiver can be assured of the future financial security of his or her loved one with special needs.
Cash value from the life insurance grows tax deferred and is accessible during the life of the caregiver via loans.
Proper planning provides for the individual's continued support, quality of life, and dignity.

In our next blog post, we will share some additional considerations if you plan to establish a special needs trust.

Special Needs Planning II - How Does a Special Needs Trust Work

12/16/2015

In our previous blogpost, we introduced the concept of a special needs trust. Now we will discuss how does a special needs trust work.

Funding of the Special Needs Trust
A special needs trust is typically funded with a permanent life insurance policy on the life of the caretaker(s) of the person with special needs. The cash value in the life insurance policy accumulates on a tax-deferred basis and can be accessed by the trustee on a tax-favored basis, via policy loans.

When the Caregiver Dies
At the insured's death, the death benefit is paid to the trust and the trust coordinates the funds with government benefits to provide financial resources for the care and support of the person with special needs. The death benefit of the life insurance policy passes to the trust on an income-tax free basis.

In Summary

Parent/Caregiver - gifts premium to trust to pay life insurance policy premiums.
Special Needs Trust - pays premiums and provides funds to supplement government benefits for beneficiary.
Life Insurance Policy - pays death benefits to the trust.
Person with Special Needs - receives care from the caregiver with funds from the special needs trust.

In our next blogpost, we will discuss the benefits of the special needs trust.

Special Needs Planning I - What Is a Special Needs Trust

12/15/2015

Q. I have a son with special needs. What special needs planing I should consider?

A. If you are a parent of a child with special needs, you want to make sure your loved one is taken care of after you are gone. Establishing a special needs trust on behalf of your child and fund it with a life insurance policy may be the answer.

What is a Special Needs Trust
A special needs trust is designed to help you leave behind assets with the assurance they will be used to support an individual with special needs.

The trust is created to take care of any supplementary needs the individual may have that are not covered by government benefits. Once the basics of food, shelter, medical care, and education are met by the government, the trust can provide additional funds to enhance the quality of life of the person with special needs.

Using a special needs trust allows you to provide for a love one without jeopardizing his or her eligibility for need-based benefits.

In our next blog post, we will discuss how does a special needs trust work.

Barron's 10 Favored Small and Mid-cap Stocks for 2016

12/14/2015

Barron's published its list of 10 small and mi-cap stocks for 2016. We will list the names below, along with the stock prices at the day of announcement and potential side predicted by Barron's, we will come back in one year to check how does Barron's forecast go.

If history does repeat itself, don't put too much faith on any pundit's predictions, especially when it relates to stock prices! For example, Barron's favored 2015 stocks as a group didn't beat S&P 500 index's performance!

Oaktree Capital (OAK) $47.38 35%
FMC (FMC) $40.49 40%
Equity Commonwealth (EQC) $26.89 20%
Tribune Media (TRCO) $34.77 30%
HRG Group (HRG) $13.12 40%
Energizer HOldings (ENR) $34.03 30%
Covanta Holdings (CVA) $15.09 35%
Actuant (ATU) $22.93 40%
Kearny Financial (KRNY) $12.35 20%
Carmike Cinemas (CKEC) $21.25 40%

Perspective on Market Moves - Dec 11 2015

12/13/2015

This is a Special Alert Edition of the Saturday Summary to inform subscribers about market events as of the close of US markets on Friday, December 11th, and as a pre-cursor to the expected interest rate increase by the Federal Reserve that may happen on Wednesday, December 16th, 2015. This is not a "crash alert", rather an expectation of increasing volatlility next week.

Does a Typical Middle Class Family Need a Revocable Trust?

12/12/2015

Q. We are a typical middle-class family. We already have a will, do we need a revocable trust?

A. Both will and revocable trust might make sense to you, here are two reasons:

Incapacity
A will only become effective when you die, what if you don't die but become incapable due to an accident?

A trust that includes an incapacity clause can help your family manage your affairs if that happens.

Disbursement
If you die with only a will, your heirs will likely need to get the will approved in a probate court before any assets disbursed, this could take time and money.

With a trust, the asset could be disbursed seamlessly when you die, according to what you have laid out in the trust.

Robo Advisors With Low Investing Minimums

12/11/2015

The competition among Robo advisors are heating up, as all of them are offering lower investing minimums.

Hedgeable: no minimum
Betterment: no minimum ($100 automatic monthly deposit required to avoid $3 monthly fee)
Wisebanyan: $10
Wealthfront: $500
Personal Capital: $25,000
Vanguard Personal Advisor Services: $50,000

Crowdfunding Traps for Small Investors

12/10/2015

Q. I am thinking about investing in some of the small firms raising money at crowdfunding sites. What are the potential risks?

A. The SEC has adopted its rules to allow individual investors to fund startups, as a consequence, many crowdfunding sites are popping up. If you are thinking about investing money in those startups, other than the expected risks associated with a business, and the low liquidity risk common in private equity investment, another major risk is how legit that business is!

A Recent SEC Lawsuit
While some of the crowdfunding sites claim to do their own screening, in the end, it's individual investors' responsibility to assess the risks. Just take a look at what the SEC lawsuit against Ascenergy, a Las Vegas-based start up that appeared at multiple crowdfunding sites recently -

"Ascenergy's disclosures contain multiple, material misrepresentations about the company and the nature of the offering".

"Ascenergy falsely holds itself out as a credible energy company, and it presents the investment as a novel and extremely low-risk opportunity that will essentially guarantee investors out-sized returns. In reality, Ascenergy is, at best, offering a high-risk investment in undeveloped and unproven conventional oil and gas wells."

The Bottom Lime
There is no free lunch in the investment world. Risks and returns always go together, and don't expect you to be the person who can find that opportunity with great return and little risks.

Free Rental Application Form

12/9/2015

Q. Where to get free rental tenant application form?

A. If you are a new landlord and looking for a rental application form so you can handout to your rental property's applicants to fill up and send back to you, here is a free rental application form you can download as a PDF file.

Barron's Best 10 Stocks for 2016 And Why The Picks

12/8/2015

Barron's just released its 10 Favorite Stocks for 2016.

Below is the list and a short summary of the reason for each stock. While this could be a good starting point for investors to research stock ideas, it's not a sure-bet list. Barron's 2015 list has lost an average of 6% since publication (to early Dec 2016) while S&P 500 only lost 2% for the same period.

AMCX - a second zombie show has breathed new life into growth, other hits could lift shares.
AAPL - shares are priced as though profits will tumble, but healthy growth looks more likely.
CELG - a blockbuster cancer drug could have years of promising growth, new medicines should help.
CVS - the aging of the baby boomers bodes well for growth. A recent dip provides a good entry point.
DAL - the carrier is beating peers on reliability. As fuel hedges roll off, profits could soar.
DFS - new card issuance recently jumped, while credit metrics remain healthy, suggests 2016 profits.
EA - the game maker's titles are selling well, and customers are going digital, that helps margin.
FL - shares have stumbled after a long climb, but blowout results from key brand Nike point to growth.
GM - the only holdover from 2015, earnings have grown more resilient, shares look underpriced.
MHK - a housing recovery could gather strength in 2016. The flooring specialist offers nice growth potential.

Business Buy-Sell Agreement - Part IV. Benefits of Buy-Sell Agreements

12/7/2015

In our last blog post, we discussed funding a buy-sell agreement with life insurance. Now we will discuss the benefits of the buy-sell agreements.

Orderly transfer: a buy-sell agreement provides for the orderly transfer of your business, ensuring it is not sold to outsiders who may force liquidation of the business.
Fair price: the buyers and sellers can agree to a fair price now, rather than waiting until urgent circumstances potentially reduce the asking price.
Peace of mind: business succession planning combined with the guarantee of life insurance can provide you with peace of ind.
Stepped-up basis: surviving business owners receive a stepped-up tax basis when purchasing ownership shares from the deceased owner's estate in a cross-purchase arrangement.
Variations available: variations on the standard buy-sell arrangement, including the LLC's buy-sell, trusted buy-sell, and wait-and-see-buy-sell trusted buy-sell, and wait-and-see buy-sell, are available in certain situations.