Beware the Wealth Killers (from Ken and Daria Dolan)

Dolans.com
Beware These 9 Wealth Killers
by Ken Dolan October 22, 2008 10:13 AM
Posted in: Family & Money

These are scary times, indeed. Even the talking heads on TV tell us that we're in uncharted territory. And based on our 20+ years of experience in the financial business, this is one of the few times that we actually agree with them!

Between economic (and natural) catastrophes...banking disasters...more and more scams…and bad news upon more bad news, it's no wonder that people are tempted to stuff their cash under their mattress!

Yes, it's been a tough year to grow your money. But to make matters even worse, there are also serious threats that can eat away at your hard-earned dollars.

As they say, "Forewarned is forearmed." If you know what threats are out there, you can take steps now to protect your money.

To that end, we've pulled together these top 9 threats to guard against AND what you must do about them. Read on...

Money Threat #1: Inflation.
Dare we say the dreaded "I" word? (May as well since we're in the thick of inflation now!)

Inflation affects more than just the cost of the products you buy – it can also affect the price of your loans since inflation generally pushes interest rates up…not to mention that it can negatively influence your investments because many companies grow more slowly during inflationary times.

Sit tight. Prices will eventually drop again – they always do. In the meantime, cut corners where you can. Save more. You should also start a "rainy day" fund, if you don't have one already. You can quickly calculate how much you need to set aside for emergencies here. (/calculators/How_Much_Do_I_Need_For_Emergencies.html)



Money Threat #2: Stock market losses.
In the midst of the banking crisis and the tumbling real estate and mortgage markets, woe is Wall Street. This turmoil in the stock market affects your retirement, your savings and your financial health as a whole.

Whatever you do, don't spend one more day invested in stocks if you're uncomfortable doing so. Rule #1 in our 10 Simple Rules of Investing (/invest_wisely/dolans_10_rules_of_investing.html) is to "Know thy sleep quotient." In a nutshell, that means reduce your risk if you're staying awake at night worrying about your investments.

Remember: There are always safer places to put your money. Just don't lose your shirt in THESE investments.

Money Threat #3: Bank problems
Many of us who never worried about the safety of our assets in a bank are now very concerned…with good reason. This whole financial crisis is FAR from over.

You can never be too cautious, so first check the safety of your bank through Veribanc (http://www.veribanc.com/ConsumerReports.php) (800/44-BANKS). They provide ratings on all U.S. federally-insured financial institutions. Another source is Weiss Ratings (http://www.weissratings.com/) , which includes a free list of the strongest- and weakest-rated banks in the nation. (You should also be aware of our 5 Warning Signs Your Bank Could Be In Trouble. (/banking/bank-failure-warning-signs.html) )

Also, make sure that your bank is FDIC insured. But don't be hasty – you need to know specifically what's covered and what's not. Find out in How to Protect Your Bank Deposits (/banking/fdic-insurance.html)

Money Threat #4: Weak dollar.
You may think that our weak dollar only affects us if we travel overseas. Not true.

It actually poses a lot of problems for our personal wealth as well. Since we don't manufacture much in the U.S. anymore, a lot of the products we purchase – from cars and wines to toys and clothes – are imported from foreign markets. A weak dollar makes them more expensive.

Also, since we're so dependent on foreign oil, a weak dollar keeps fuel costs high AND, as interest rates remain low, we don't earn as much on investments like CDs and bonds.

One solution, if you can stand the volatility and risk, is to consider a small investment in gold. (Click here for 4 ways to profit from a weak dollar. (/invest_wisely/investing_with_a_weak_dollar.html) )

Money Threat #5: The Presidential election.
We're not about to tell you who to vote for, but you need to know how Wall Street reacts when it comes to electing our highest public official.

Typically, if a Democrat is winning in the weeks leading up to an election, the stock market goes crazy and sells off in advance. It then usually rallies sometime after the new president takes his oath.

On the other hand, if a Republican is winning, the market usually rallies beforehand, then typically sells off not long after he takes office.

No matter what happens, if you plan to stay in the market (and we think it's treacherous to be there at the moment), be prepared for some short-term losses at the very least.

[Money Threat #6: Fluctuating energy prices.
Sure, gas prices are dropping...but for how long? (As long as we're importing oil, the risk of skyrocketing prices will always be there!)

Higher energy prices affect more than just the prices at the pump. They often lead to higher prices not only for essential goods such as food, but for just about anything that needs to be transported by truck or air.

They have a profound impact on your everyday products, not to mention the economy at large. And historically speaking, recessions often follow oil price surges.

What to do? The key is conservation. Slow down the demand. Carpool to work or take public transportation (or work from home a few days a week if your company allows it). You can find four other ways to save gas here (/save_more/gallery/high-gas-prices.html) .

Money Threat #7: Excessive household debt.
In The Millionaire Next Door, authors Thomas Stanley and William Danko noted that most self-made millionaires save or invest 15 to 20 percent of their income. The other side of the coin is that average Americans spend 18% of their disposable income paying off their debts. What a nightmare!

The obvious lesson learned is you'll never become a millionaire when you have a desk full of loans and credit card bills to pay each month. Find out how to become completely debt-free in 10 simple steps. (/debt_management/gallery/living-debt-free.html)

Money Threat #8: Being under-insured.
It's estimated that two out of three homes nationwide are under-insured. That's a scary statistic – especially in light of all of the natural disasters over the last few months.

Here's another frightening fact: Many homeowners with older insurance policies don't know that since the late 1990s they've had to specifically request a "guaranteed replacement" policy. Meaning if they don't, their policy may set pay-out limits that may not be enough to cover the cost to repair or rebuild their home. In the unlikely event of a disaster, the potential financial loss is staggering.

Eliminate your risk. Check your homeowner's policy. Then get our checklist to be sure you're prepared, just in case: What to Do When Disaster Strikes (/family_money/gallery/what-to-do-when-disaster-strikes.html) .

Money Threat #9: Money scams
If you receive an offer in the mail (or from a telemarketer) that sounds too good to be true, either look at it more closely…or, even better, pitch it.

One piece of mail you're much better off ignoring is a letter promising "mortgage rescue assistance." It has 'scam' written all over it. Remember, you do not and should not pay money to ANYONE to stay out of foreclosure. If you need help, consult a real estate attorney or call HOPE NOW at 1-800-995-HOPE

And…if you have a child applying to colleges this year, beware the scholarship scams, which "guarantee" a scholarship for a $50 to $1,500 fee. Ha!

Don't forget to forward this information to a friend who may need it!



Copyright © 2011 Dolans.com. All Rights Reserved.

Permanent FDIC Insurance

Basic FDIC Insurance Coverage Permanently Increased to $250,000 Per Depositor
Date: 7/21/2010 Source: FDIC
Author: Andrew Gray (202) 898-7192

On July 21, 2010, President Barack Obama signed the Dodd-Frank Wall Street Reform and Consumer Protection Act, which, in part, permanently raises the current standard maximum deposit insurance amount to $250,000. The standard maximum insurance amount of $100,000 had been temporarily raised to $250,000 until December 31, 2013. The FDIC insurance coverage limit applies per depositor, per insured depository institution for each account ownership category.

The temporary increase from $100,000 to $250,000 was effective from October 3, 2008, through December 31, 2010. On May 20, 2009, the temporary increase was extended through December 31, 2013.

"With this permanent increase of deposit insurance coverage to $250,000, depositors with CDs above $100,000 but below $250,000 will no longer have to worry about losing coverage on those CDs maturing beyond 2013. We strongly encourage all bank depositors who have questions about their insurance coverage to go to our Web site at www.fdic.gov and use our Electronic Deposit Insurance Estimator (EDIE) or call our toll-free number at 1-877-ASK-FDIC. Insured deposits provide the comfort and peace of mind to depositors that their money is 100 percent safe – provided they keep their deposit balances within the insurance limits," said FDIC Chairman Sheila C. Bair.

To help consumers, bankers and others understand how the new law affects deposit insurance coverage and to help consumers verify whether their deposit accounts are fully protected, the FDIC provides the following resources:

Information on deposit insurance on the FDIC Web site: Updated brochures on deposit insurance coverage (including the basic guide, Deposit Insurance Summary, and the more comprehensive guide, Your Insured Deposits) and a new version of the "Electronic Deposit Insurance Estimator" (EDIE), an interactive service that allows consumers to quickly and easily check whether their accounts are fully protected, are now available on the FDIC's Web site (www.fdic.gov).
A toll-free consumer assistance line: Help and information about deposit insurance and other matters of interest to bank customers are available at 1-877-ASK-FDIC (1-877-275-3342) Monday through Friday from 8:00 a.m. to 8:00 p.m., Eastern Time. For the hearing-impaired, the number is 1-800-925-4618.
# # #

Congress created the Federal Deposit Insurance Corporation in 1933 to restore public confidence in the nation's banking system. The FDIC insured deposits at the nation's 7,932 banks and savings associations and it promotes the safety and soundness of these institutions by identifying, monitoring the addressing risks to which they are exposed.

The FDIC receives no federal tax dollars – insured financial institutions fund its operations. FDIC press releases and other information are available on the Internet at www.fdic.gov, by subscription electronically (go to www.fdic.gov/about/subscriptions/index.html) and may also be obtained through the FDIC's Public Information Center (877-275-3342 or 703-562-2200). PR-161-2010

How Healthy are the US Banks? (Zacks)

Analyst Interviews: U.S. Banks Stock Update

By Zacks Investment Research on May 19, 2010

Although a major recovery in the asset markets has been witnessed in recent quarters, the outlook for the U.S. banking industry still remains in question due to several negatives, including asset-quality troubles, drawbacks of new regulations and the continuation of both residential and commercial real estate loan defaults.

After enduring extraordinary shocks in 2008, the U.S. banks entered an exceptional state of turmoil in 2009. Starting as a credit issue in the subprime segment of the mortgage market, the situation affected about the entire financial services industry, in all corners of the globe. In other words, the financial crisis ultimately morphed into a massive economic crisis, which has had major ramifications across the whole world.

Although the banking industry is dealing with liquidity and confidence challenges in 2010, it is now comparatively stable, with financial support from the U.S. government. The government had taken several steps, including programs offering capital injections and debt guarantees, to stabilize the financial system.

We believe that the worst of the credit crisis is now behind us. After more than a year of initiating the $700 billion Troubled Asset Relief Program (TARP), a lot has improved with respect to the economic crisis.

But the banking system is not yet out of the woods, as there are persistent problems that need to be addressed by the government before shifting the strategy to growth. We believe that the U.S. economy will regain its growth momentum once these issues are resolved.

While the bigger banks benefited greatly from the various programs launched by the government, many smaller banks are still in a very weak financial state, and the Federal Deposit Insurance Corporation’s (FDIC) list of problem banks continues to grow.

Bank Failures Continue

Despite the government’s strong efforts, we continue to see bank failures. Tumbling home prices, soaring loan defaults and a high unemployment rate continue to take their toll on small banks. As the industry tolerates bad loans made during the credit explosion, the trouble in the banking system goes even deeper, increasing the possibility of more bank failures.

Furthermore, government efforts have not succeeded in restoring the lending activity at the banks. Lower lending will continue to hurt margins and the overall economy, though the low interest rate environment should be beneficial to banks with a liability-sensitive balance sheet.

Out of the $247 billion given to the banks, more than half has come back from the healthy banks who have repaid their TARP funds in full. Banks have also paid about $11 billion in interest and dividends. Also, taxpayers have received decent returns on many of its financial-sector investments. Repayments under the TARP have generated a 17% annualized return from stock-warrant repurchases and $12 billion in dividend payments from dozens of banks.

Many of the major banks that have already repaid the bailout money include JPMorgan Chase (JPM: 39.56 +0.54 +1.38%), Goldman Sachs (GS: 138.90 +1.54 +1.12%), Morgan Stanley (MS: 26.98 +0.25 +0.94%), BB&T (BBT: 32.44 -0.10 -0.31%), US Bancorp (USB: 24.37 +0.01 +0.04%), Bank of America (BAC: 16.2894 +0.3394 +2.13%), Wells Fargo (WFC: 30.17 -0.42 -1.37%) and Citigroup (C: 3.82 +0.09 +2.41%).

Following the U.S. Treasury’s appeal to the world banking system to maintain stronger capital and liquidity standards by the end of 2010 to prevent a re-run of the global financial crisis, 15 large banks that control the majority of derivative trading worldwide have committed themselves to maintaining greater transparency in the $600 trillion market, which needs stricter oversight in the interest of the global financial system.

Moreover, in mid-January 2010, the Obama Administration proposed a tax on about 50 of the nation’s largest financial firms in order to recover the losses incurred by the government on its $700 billion bailout program. On approval of Congress, the tax, which the White House calls a “financial crisis responsibility fee,” would force the banks to reportedly pay the federal government about $90 billion over 10 years.

Targeting banks to recover the shortfall in bailout money can be considered justified, as they are the major beneficiaries of the taxpayers’ largesse. Most of the bailout loan was provided to financial institutions, as they form the backbone of the economy and were the primary victims of the crisis.

If the economic recovery tails off, high-risk loan defaults could re-emerge. About $500 billion in commercial real estate loans would be due annually over the next few years.

Above all, there are lingering concerns related to the banking industry as well as the economy. Continued asset-quality troubles are expected to force many banks to record substantial additional provisions at least through the end of 2010. This will be a drag on the profitability of many banks for extended periods, which will further stretch their capital levels.

While the economy is in a recovery phase, a lot remains to be done. The Treasury continues to hold huge direct investments in institutions like American International Group (AIG: 37.4205 -0.3595 -0.95%), Fannie Mae (FNM: 0.9394 -0.0406 -4.14%) and Freddie Mac (FRE: 1.265 -0.085 -6.30%).

Additionally, rating agency Standard & Poor’s said in March 2010 that it is maintaining its negative outlook for the U.S. banking industry based on FDIC’s industry financial performance data as of the end of 2009. The agency expects credit losses in the loan books of banks to be on the upside. Further, the agency warned that the pressure on ratings has not yet fully eased.

In conclusion, we expect loan losses on commercial real estate portfolio to remain high for banks that hold large amounts of high-risk loans. Also, as a result of a rise in charge-offs, the levels of reserve coverage have fallen over the past quarters and the banks will have to make higher provisions at least in the near term, affecting their profitability. We think that the financial crisis is far from over, and it will be awhile before we can write the end to this crisis story.

OPPORTUNITIES

The Treasury’s requirement of focusing on banking institutions towards higher-quality capital will help banks absorb big losses. Though this would somewhat limit the profitability of banks, a proper implementation would bring stability to the overall sector and hopefully address bank failures.

Specific banks that we like with a Zacks #1 Rank (Strong Buy) include Central Valley Community Bancorp (CVCY: 6.21 -0.09 -1.43%), Financial Institutions Inc. (FISI: 17.57 -0.08 -0.45%), S&T Bancorp Inc. (STBA: 22.56 -0.07 -0.31%), Bank of the Ozarks, Inc. (OZRK: 37.16 +0.25 +0.68%), First Community Bancshares, Inc. (NASDAQ:FCBC), Republic Bancorp Inc. (NASDAQ:RBCAA) and Old National Bancorp. (NYSE:ONB).

There are currently a number of stocks in the U.S. banking universe with a Zacks #2 Rank (Buy) including Mainsource Financial Group (NASDAQ:MSFG), Bancorp Rhode Island, Inc. (NASDAQ:BARI), MBT Financial Corp. (NASDAQ:MBTF), Mercantile Bank Corp. (NASDAQ:MBWM), MidWest One Financial Group, Inc. (NASDAQ:MOFG), Tower Financial Corporation (NASDAQ:TOFC), BancFirst Corporation (NASDAQ:BANF), Southwest Bancorp Inc. (NASDAQ:OKSB), Viewpoint Financial Group (NASDAQ:VPFG), Center Financial Corporation (NASDAQ:CLFC), North Valley Bancorp (NASDAQ:NOVB), Summit State Bank (NASDAQ:SSBI), Washington Banking Co. (NASDAQ:WBCO), Washington Trust Bancorp Inc. (NASDAQ:WASH), Lakeland Bancorp Inc. (NASDAQ:LBAI), Fidelity Southern Corporation (NASDAQ:LION) and Cardinal Financial Corp. (NASDAQ:CFNL).

We favor Commerce Bancshares Inc. (NASDAQ:CBSH) in this space since this company is one of the few names that did not report losses even during the current financial crisis. We believe that Commerce is one of the best-capitalized banks in the industry and will generate positive earnings throughout the credit cycle. While the bank had a decent growth in deposits in the most recent quarter, trends in its credit metrics were negative.

WEAKNESSES

The financial system is going through massive de-leveraging, and banks in particular have lowered leverage. The implication for banks is that the profitability metrics (like returns on equity and return on assets) will be lower than in recent years.

Furthermore, the current crisis has dramatically accelerated the consolidation trend in the industry. As a result, failure of a large financial institution will be a major concern in the upcoming quarters as weaker entities are being absorbed by the larger ones.

We think banks with high exposure to housing and Commercial Real Estate loans, like Wilmington Trust Corporation (NYSE:WL), KeyCorp (NYSE:KEY) and Zions Bancorp (NASDAQ:ZION), will remain under pressure.

Also, there are currently a number of stocks with a Zacks #5 Rank (Strong Sell) including Nara Bancorp Inc. (NASDAQ:NARA), Sierra Bancorp (NASDAQ:BSRR), Bryn Mawr Bank Corp. (NASDAQ:BMTC), Horizon Bancorp (NASDAQ:HBNC), Hudson Valley Holding Corp. (HUVL), Legacy Bancorp Inc. (NASDAQ:LEGC), VIST Financial Corp. (NASDAQ:VIST), Metrocorp Bancshares Inc. (NASDAQ:MCBI), Firstbank Corporation (NASDAQ:FBMI) and First Financial Bancorp (NASDAQ:FFBC).

FDIC Deposit Insurance Extended through 2013

FDIC Deposit Insurance Coverage
Final Rule FIL-53-2009
September 9, 2009


Summary: On September 9, 2009, the FDIC Board of Directors approved a rule to finalize: (1) the deposit insurance coverage regulations to reflect the extension of the temporary increase in the standard maximum deposit insurance amount (SMDIA) to $250,000 through December 31, 2013, and (2) the 2008 interim rules regarding revocable trust accounts and mortgage servicing accounts.

Contact:
FDIC Call Center at 1-877-275-3342

Free Financial Education Podcasts from FDIC

FDIC Introduces a Portable Audio (MP3) Version of the Money Smart Financial Education Curriculum
FOR IMMEDIATE RELEASE
June 4, 2009


The Federal Deposit Insurance Corporation (FDIC) has released the Money Smart Podcast Network, the portable audio (MP3) version of the award-winning Money Smart financial education. The new version of Money Smart is suitable for use with virtually all MP3 players so that consumers of all ages can learn to make informed and prudent financial decisions while "on the go."
"Innovations and new product offerings make financial education even more important than ever. Just as products innovate, delivery channels for financial education must innovate, said FDIC Chairman Shelia C. Bair. "The new audio version of Money Smart is a tool for consumers to learn on their own, and it is also a tool for educators seeking an innovative way to supplement traditional classroom instruction."
With verbal descriptions and topic based scenarios, the audio version of Money Smart utilizes detailed dialogue to convey basic critical financial information. These segments are grouped into four general categories. The release of the Money Smart Podcast Network is part of the FDIC's ongoing effort to integrate the unbanked and underbanked into the financial mainstream.
The Money Smart Podcast Network was released at the University of the District of Columbia (UDC). UDC is a Historically Black College and University and the only urban public land grant institution in the nation. UDC's Cooperative Extension Service already delivers the instructor-led version of Money Smart to low-and moderate-income Washington, DC residents, and will be the FDIC's first partner in distributing the MP3 version of Money Smart to consumers. According to Jackie Boynton, Vice President of Marketing, Communications, and Alumni Relations at UDC, "We are pleased to be the first partner of this extremely important financial initiative and are looking forward to continuing to partner with the FDIC on other initiatives such as this one."
The portable audio version of Money Smart is available free of charge, easily reproduced, and has no copyright restrictions. For more information, or to order copies, visit: www.fdic.gov/moneysmart.
The Money Smart curriculum brings proven results in how those who complete the curriculum manage their finances. Over two million consumers have had the opportunity to learn how to better manage their finances and more effectively use mainstream banking services through the Money Smart curriculum.

FDIC Warns on Foreclosure Scams, Extends Extra Protection

Buyer Beware: Tips from the FDIC on How to Protect Against Foreclosure Frauds, Easy Money Schemes and Other Costly Deals
Other topics in the latest FDIC Consumer News include the extension of $250,000 deposit insurance, more about mortgage modification programs, and shopping for a CD

Many people concerned about their mortgage, their job or their finances may be especially vulnerable to scams and other costly “fixes” for their problems. The Federal Deposit Insurance Corporation today issued a variety of tips to help consumers be on guard financially in the current economy, in areas ranging from foreclosure rescue and loan modification scams to deceptive offers of FDIC-insured certificates of deposit (CDs). The advice was published in the Spring 2009 issue of FDIC Consumer News, the agency’s quarterly newsletter for consumers, which can be read or printed online at
www.fdic.gov/consumers/consumer/news/cnspr09.
Other timely articles describe the extension of the temporary federal deposit insurance limit of $250,000 per depositor through December 31, 2013, more details about the Obama Administration’s program for lowering monthly mortgage payments through refinancing opportunities and loan modifications; various tips on shopping for a CD; and an FDIC legal opinion clarifying the deposit insurance coverage of a pre-paid card if the bank holding the money for the card fails.

FDIC info on the new higher deposit insurance coverage

Multiple Certificates of Deposit (CDs), each with a different bank, can be held within your brokerage account. Each CD is covered by its own separate FDIC guarantee ($250,000 for each).