Reflections on the Obama Economy & Stimulus

A recent InvestmentNews survey finds that the majority of money managers in the US don’t think Obama’s economic recovery plan will achieve its stated goal. Frankly, I’m yet to hear any one plan which I’m jumping for joy over. In my understanding of Obama’s plan, the economy would be stimulated using a bottom-up strategy rather than the Republican favored, top-down strategy of across-the-board tax cuts. Obama believes creating jobs through state-government mandated infrastructure projects will jump start consumer spending and pull the economy out of any further immediate danger. It’s nearly impossible to know if this will work. And if it does, will it be a temporary, shot-in-the-arm stimulus which ultimately fails due to excessive debt burdens and mounting inflation? I don’t think across the board tax cuts would work any better if we’re truly aiming to stimulate the economy and get more dollars circulating. Politics will undoubtedly interfere with the Obama plan and marginal tax rates will ultimately increase to balance future budgets and service debt. I am somewhat intrigued by the idea of government assistance for past-due mortgage payments and renegotiations of mortgage rates and terms. This concept would at least chip away at the housing problems which are at the heart of the financial crisis. I also think eliminating mark-to-market accounting is crucial along with restoring the uptick rule. A real concerted effort is needed right now to mitigate the economic problems and restore some badly needed consumer confidence.

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Thoughts on Self-Directed Brokerage Options in 401k Accounts

This post is inspired by the endless string of questions I receive each month regarding “in-service” 401k rollovers. As any competent financial advisor or retirement plan sponsor will reply: in-service rollovers before a qualifying event such as reaching retirement age or separating from service are rare and scarcely permitted. The underlying logic is that employers have a fiduciary responsibility and overall moral obligation to their employees when it comes to their retirement plans. Allowing a client to invest their nest-egg in individual stocks and/or other asset classes would present the possibility of that nest egg disappearing quickly. However, because 401k performance has been so dismal over the past six months anyhow, why not give employees the flexibility they so desire? A good solution may lie in a 401k feature which many people don’t talk about: self-directed brokerage accounts commonly referred to as an SDBA feature.

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Contributing to your IRA for 2008/2009

Some of my clients have baulked at the idea of making a contribution to their traditional or Roth IRA accounts for 2008 before the April 15th deadline. The idea of pumping more money into stock and bond investments in the midst of this ‘economic storm’ is an eerie proposition for some. I’d like to remind anybody still pondering their IRA decisions for 2008 about a few things:

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Investing in 2009: Have Fundamental Rules Changed?

Twelve months ago, not many people expected 2008 to end in an economic downturn so severe that it would take many of the great 20th century financial institutions with it. Most of us had a basic understanding that a bubble was forming in the housing market, fueled by low interest rates and other pro-growth fiscal and monetary policies. However, the high level of risk within the financial sector was difficult for most investors to detect due to the inherent complexity of securitized assets. Like many things in life which seem too good to be true, people focus on the benefits without giving adequate consideration to the risks. Why rock the boat, right? Well, as the financial bubble continues to burst and scandals like Bernie Madoff’s come to light, investors are realizing that due diligence is more important than ever. This applies not only in a broad sense as a wake-up call for Wall Street and its regulators, but in our personal financial lives. 2009 is a good time to re-evaluate investment objectives, investment assumptions, and liquidity needs. In today’s column I’d like to consider whether cherished portfolio strategies such as diversification, asset rebalancing, and dollar-cost averaging should remain as fundamental to our investment philosophy as they were a decade ago. I’d also like to review some of the 2009 retirement plan contribution limits. Even if your investment choices become more conservative this year, taking advantage of tax-deferred investment accounts can be important to your longer-term financial success.

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