Thinking about what’s happening in the market right now. I don’t want to wade into what the Treasury’s plan means for the market. Nor do I want to analyze the consolidation occurring in the Investment Banking industry.

I’d like just to put some thoughts down on how current events may impact investment research going forward and what that means for investors.

1. Investment banks are currently the best we’ve got in terms of researching companies.  I don’t mean to say that they are always (ever?) right, but my point here is that individual investors can never get as close to a company as does a sell-side equity analyst.  As outsiders, we’re left frequently to decipher using shadow-puppetry what’s actually going on inside a company.  Certainly, there are times and certain companies where analysts are equally outside but I’m just describing, not prescribing.
2. Fewer banks mean less research.  As investment banks consolidate into retail banks (as Merrill Lynch has with Bank America, for example), it ultimately means further consolidation in research departments as it doesn’t make sense to keep both brands separate and maintain separate teams.  This means fewer stocks actually covered with research and fewer opinions on those stocks already covered.  This is bad for investors as investors have proven that they, like many professionals, have an aversion to paying for research from independent research outfits.
3. Importance of New Rules of Investing (NROI) grows: In order to compensate for the loss of research, investors are going to continue to flock towards free web resources (see my Top 5 Investment Sites) to make their own decisions.  This is a huge opportunity for those competing in the Online Finance 2.0.  In addition to expert communities and pickybacking sites, look for a flurry of new models in addition to incremental changes online with new charting technologies, blog aggregation, etc.
4. Opportunity for Investor Relations firms who “get it”: As a buy-side analyst at a hedge fund, I always felt that Investor Relations firms were missing an opportunity.  In a the Web 2.0 world, as investment banks continue to consolidate research ops and struggle with their business model, investor relations firms can really innovate here with new distribution models for disseminating information, new models for interfacing with company executives, etc.  The old road show/press release model can be improved upon by those who get it.  Firms who “get it” have an opportunity to compete against the i-banks, albeit coming at the game from a different perspective.  Maybe, as the result of all of this, we’ll see the role of the IR firm change as well.

The investment industry has seen various modes of expansion/contraction throughout its lifecycle.  I believe that this stage is natural in this evolution.  This economic contraction for the industry happens to correspond to an expansionary period in web technologies so that when these firms emerge, they may be left behind in their research.  This is a huge opportunity for other participants.

As seen on the TheMomEntrepreneur, a great site for information regarding working mothers, raising kids, and running your own business.

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Dana Oliver, a single mom raising a two year old daughter, found herself with the typical dilemma faced by many working parents – how to meet the after 5 p.m. demands of her job, particularly when daycare closed at 6 p.m. In her male-dominated brokerage industry, inflexibility was simply snubbed at.

As she struggled with work/life balance, Dana turned to her sister, a stay-at-home mom raising four kids, for answers. Her sister confirmed that babysitters were her only option because she would never leave her children in a “drop-in” center. Dana, armed with this new concept, turned to the Internet for research and discovered that drop-in centers were closing down because they were dirty, kids weren’t having fun and there was no staff/child interaction. Dana started wondering if the concept could work if she created an environment kids didn’t want to leave and gave parents peace of mind.

So, in 2003, Dana left her six-figure job with a dream to create a more balanced life-style for herself and her daughter. She moved from Houston to Dallas to manage a drop-in center and study the concept more in-depth. Soon after, she knew exactly the type of environment she wanted to create and she called it Adventure Kids Playcare.

The next step involved overcoming the skepticism of family and friends who thought she was taking a big risk by starting a business as a single mom. And, the government didn’t take her single status lightly either. They told her she couldn’t get an SBA loan because she wasn’t married and didn’t have a second income to fall back on. Banks just snubbed at her idea.

Fortunately, as a former financial advisor, Dana wasn’t shy about asking for money, and she tapped friends and family for $175,000 in loans. That, combined with her own personal savings, allowed her to open her first location in Flower Mound, Texas.

With Adventure Kids Playcare, Dana created a fun and safe environment for kids ages 6 weeks to 12 years with supervision as late as midnight on weekends. Parents can drop off their kids, with no advance notice for as many hours as needed, to enjoy up to 4,500 sq. ft. of fun, including Xbox games, a gigantic wooden boat which doubles as a jungle gym, a karaoke stage, a mini movie theatre, high-fashion dress-up clothes and much more. And on the weekends, continuously-changing theme nights like Fiesta (with piñatas, maraca- and fruit salsa-making) and Western Hoedown (with stick horse making, horse shoe playing and s’mores) keep children happy and entertained.

In 2006, Dana turned her concept into a franchise after other parents approached her with their need to find work/life balance. Today, Adventure Kids Playcare has six locations in the North Texas region and a seventh slated to open in June 2008. Adventure Kids Playcare will also be offering franchise opportunities in the Austin and Houston markets soon.

I recently met with an older couple who wanted to know if they could have a comfortable retirement without eating into their savings. They wanted to live off the interest of their savings while helping out some of their children, who were struggling financially. The parents would like to help out their children, but they aren’t sure if they are financially able to do so.

Assets

The first step that a retired couple in this situation needs to take is to review their investment portfolio. The aforementioned couple that I met with had plenty of assets, but these assets were not working efficiently for them. More than a third of their sizeable portfolio was in cash, earning less than one percent a year. This couple had quite a few large cap stocks, which were shooting off dividends, and they had some real estate, which was not rented out at this point.

In terms of income, this particular couple lived off their social security and the dividends they received from the stocks. After looking into their assets thoroughly, it emerged that if they could just get a better interest rate on their cash, they would have plenty of money left over to help out their children. And it goes without saying that they needed to rent out or sell their property rather than leaving it empty.

Welcome to Retirement

When a couple retires, they will often find that their expenses are different. It is therefore important to sit down and make a realistic new plan based on these changes. While many financial planners estimate that expenses drop by about twenty percent once a person retires, often they end up spending more. On retiring, people find themselves with more free time, and they may want to use it to travel, eat out, or for other leisure activities. In fact, the more time that a person has available increases the chances that he will spend more money. 

Income

Once the couple has worked out their possible expenses, a similar calculation of future income should be made. This should include any retirement and pension plans, income from investments, and other sources of revenue. At this point it would be a good idea to find out the exact amount that your children may need to supplement their income. It is important to get a specific number.  Leaving such sums open-ended doesn’t help either side. It is no good for the retirees because they need to know how much money they need to generate for living, and it’s bad for the children because they have no responsibility. 

Review Your Investments

Once you have an idea of how much money in total you need, take a look at your investment portfolio. Try and figure out if you can generate the income necessary to live from and help out your children. If not, any changes necessary to increase income should be made.

It may be worthwhile consulting with a financial adviser at this stage to help make your portfolio more efficient and generate the income needed to achieve your goals. An adviser may be aware of certain products available to help you squeeze out more income without eating into your principal.

With proper planning, you can enjoy your retirement and help out your children at the same time.

Aaron Katsman is President of Global Investments at Profile Investment Services.  He is a licensed financial professional both in the United States and Israel, and helps people who open investment accounts in the U.S. Securities which are offered through Portfolio Resources Group, Inc. a registered broker dealer, Member FINRA, SIPC, SIA. For more information email aaron@profile-financial.com 

Very interesting post over on grownchildren.net (what a great title, btw).  The gist of the post is the importance of having “The Chat” with your kids.  I’m squimish when it comes to discussing adolescence but for some reason, I find financial discussions to be easier.  Not so for most people.

So, it got me thinking about 3 important reasons to discuss finances with kids:

1. logistics: it happens that parents pass away without ever telling children where their assets are located.  In my job as a financial planner, I see this occur with more frequency than you’d expect.  Children spend the time post-mortem looking for and tracking down assets.  Bequeath the assets or give them away but don’t lose them.  Keep your kids in the loop.
2. ethical inheritance: use these discussions to impart your values on your children.  Let them know why you worked so hard all your life.  Explain to them how you manage the work/life conundrum.  These discussions, however awkward, mean a lot to your children, while you’re around and after.  AS Penny mentioned in the article linked to above, it’s also a great forum to explain divergence in inheritances between family members.  I remember my grandfather, OBM, showing me his mother’s will which effectively left nothing to him and all to his siblings because he had done well in business.  He understood what he mother meant by her actions and in fact, respected her for such decisions.
3. wealth transfer: how frequently we see new clients coming into money for the first time in their lives while in their late 50s and 60s.  Their parents lived to a ripe age and left money for their middle-aged children.  Frequently, as we see the baby boomers retire, this requires the children receiving inheritance to learn basic asset management skills and/or shop around for an advisor.  The sooner the children are brought into the circle of trust, the sooner and quicker they can start scaling the knowledge curve required to manage money responsibly.

Whether single or married, in today’s day and age, women need to take control of their retirement planning. Why? There are many reason but I will list a few:

• Statistically women outlive men
• While women tend to still earn less than men, they are still earning more than ever before
• Due to time out of the workforce to have children, women tend to have less money available to put into retirement plans

According to an interesting report on MoneyCentral: “Only 29% of female retirees are covered by a pension, according to the Womens Institute for a Secure Retirement (WISER), and the average payout is only $3,480 a year. Add to that today’s average Social Security payment of about $10,500 a year, and you’re living modestly at best.”

So the question is what to do? The answer, start saving and invest ASAP. It’s probably a good idea to meet with a financial advisor and create a financial plan. There you can figure out what your expenses are, and what your income is, and create a savings plan that will enable you to achieve your retirement goals. The general rule from financial advisors is that you should try and save 10% of your gross income. While that may sound impossible, the point is to save as much as possible. An advisor can also sit with you on your expenses, and together, you may be able to find ways to cut out $50-100 a month in expenses. Chances are that a few brown bag lunches and a few less trips to Starbucks, and you will be amazed at how your situation will improve.

In later posts, Bizzywomen will provide resources and other tips for learning and understanding your investments, as well as information for those of you who happen to be do-it-yourselfers.

Aaron Katsman is Managing Editor of the Israel Opportunity Investor newsletter. He is lead portfolio manager for the Israel Growth Portfolio and Managing Director of America Israel Investment Associates, LLC. For more information, go to www.israelnewsletter.com   or email aaron@profile-financial.com.

I’ve been spending a lot of time with financial planning clients recently and discussing retirement. The discussions focused less on what my clients wanted to have in the bank at the end of their plan but focused more on how to get there. I gave them my usual spiel: how important it is to diversify asset classes and geographies.

The next step is how to diversify. Modern Portfolio Theory states that with diversification comes smoother gains but how to best diversify. Depending on the theme, geography or industry, professionals frequently use mutual funds and more and more, investors are beginning to use exchange traded funds (ETFs). Like a mutual fund, through purchase you get a basket of stocks, but unlike mutual funds, ETFs are priced and traded throughout the day.

I was reading some financial literature on Yahoo Finance when I hit upon an article: Mutual Funds are for Losers. Great title (before you get to the content) and it captured my attention.

I don’t want to get personal, but I thoroughly disagree with this article. Phil Town, advisor and author, has recently published a book “Rule #1,” that amounts to: “Don’t lose money, find great companies, know their worth and acquire them at 50 percent off. Beyond that, he says the traditional advice — invest in mutual funds, diversify, buy and hold — is strictly for losers.”

Well, it may sell books but his advice is off the mark. I’m all for buying companies at a good value but what does 50% off mean? Off of what? Trying to buy companies at huge discounts to their book value doesn’t happen much these days. Instead investors have to find different ways of assessing value (see Magic Formula Investing) at more modern valuations. In this article, Town doesn’t define what “on sale” means. That’s important. How is my father supposed to know what to do with that information?

But what really struck me was the author’s contention that investors would be better served by buying a couple of good companies and just sitting on them. While I agree that to maximize the potential for hitting an investment homerun, concentrated bets are the only way to have huge returns — the problem is, for must of us (including professionals), there is only one Warren Buffett. What if my analysis isn’t correct or there is a huge credit crunch which no one — I mean no one — aptly predicted to occur to some of the US’s best banks (Merrill Lynch, Citigroup, et al.) What if Johnson and Johnson (one company Town names by name in the article) has a factory blow up in New Jersey? Or that Exxon Mobi, previously one of the world’s largest firms, is supplanted by PetroChina, the world’s first $ trillion company? Taking concentrated single-stock picks is really risky.

I’d like to posit that instead of swinging for the fences, something responsible advisors would never advise to do, most investors ARE best served by diversifying though mutual funds and ETFs. With the US dollar falling and investors wondering what to do next with their retirement dollar-denominated nest eggs, diversification is the only way to go. I don’t mind paying management fees (something Town discourages) if I get something in return. Sometimes its geographical exposure I can’t get with a passive indexed ETF. Sometimes, its active management of bond portfolios (something that ETFs don’t really capture.)

Do your homework and don’t follow every new author who publishes a book contradicting decades of financial and academic research.

[Image source: AntiGallery on flickr]

Summer is quickly approaching. Many people will start planning their summer vacations. Tremendous time and effort will go into the planning to ensure a joyous vacation for all. You will probably speak with a tour company, get recommendations from friends, gather information and research the best attractions.

Fiscal Fitness

Believe it or not there is much in common between weight loss, physical fitness, and financial well-being. Unfortunately people tend to bite off more than they can chew. The key to successfully losing weight is discipline. Cutting back on what you eat and adding exercise to your lifestyle will help you shed those unwanted pounds. It’s when we say, “I want to lose 20 pounds” without a plan how to do it, that we tend to get in trouble. Budgeting is the same. If you create an unrealistic budget, you’ll likely save less than what your budget calls for, become frustrated, and resort to your old ways.

I’m Young; I Don’t Need to Plan Now

Another common excuse used is that, “I have my whole life to save, I don’t need to start now. I’d rather buy a new car and in a few years I’ll start.” Each year that passes with no investment, will affect your retirement. Assuming you have 30-40 years until retirement, every year you forego saving or investing money today will subtract 1-5 years from your retirement. Along the same lines, I often hear people in their 50’s, when speaking about retirement planning say,” I don’t worry about retirement because I’ll just keep working.” Sounds good except what happens if you wont be able to keep working. I recently met a man in his early 50’s who has worked as a house painter his whole life. He told me it’s getting hard for him to paint for a full day because all the hard work has taken a large toll on his body. Thankfully for him, he started saving at a young age.

Rich Aunt Molly

Sadly, many people plan for retirement by dreaming that some long lost wealthy relative will die and put them in their will, and they will turn into millionaires. Such far-fetched fantasies are common. I read recently that a full 25% of Americans polled, actually thought that their plan for retirement was to win the lottery!

Time to Make a Plan

In our day-to-day lives we are always making plans. We plan what to have for dinner; we plan which parent is going to pick up which kid from school; we plan vacations. We are constantly planning. We tend to have a goal, and we initiate a plan in order to reach that goal. The same should hold true with our finances. Making a financial plan is essential to start preparing for your future. Since we are not prophets and we can’t predict the future, a solid financial plan can guide you through the uncertainties that lie ahead, and help you in achieving your retirement goals.

Just Start

The fact is that if you don’t have to be wealthy to start investing. Let’s say you start at 25 years old by investing $15,000 and in addition you manage to scrape together $2,000 a year to add to your account and everything is invested at 5.5%. If you were to continue this disciplined investment approach until retirement (65 years old) you would have over $413,000. If you were too add some risk to your investment profile in the hope of getting a higher return, your nest egg at retirement would grow even more substantially.

If you take control of your own finances and start saving early and stop delaying, you can retire without having to worry about old age unexpectedly catching up with you.