Happy Fourth of July!
We'll be back on Monday or Tuesday. Have a great weekend.
July 04, 2009
July 03, 2009
Is There Opportunity for You?
Look at some of the highly rated outstanding bonds. You’ll find some amazing yields you certainly won’t find in CDs and other investments. Even though their prices have plunged, some municipals late last year were offering long-term, tax-free yields of five percent and above, which translate into the equivalent of nearly seven percent for taxpayers in the 28 percent bracket and nearly eight percent for someone in the top 35 percent bracket when the tax exemption is considered.
That’s a very nice return relative to U.S. Treasuries, considered the safest investments of all.
But before you buy, here are some things to know and steps to follow.
Are munis right for you? The first call you make shouldn’t be to a broker. Most brokers will charge both the spread (the difference between the price the broker buys the bond for and the market price) and another hidden fee of up to $30 (or more) for a long term bond. That’s way too expensive. Find an investment advisor professional who can buy the municipal bond for you for the amount of the spread, and no additional fees.
Further, an investment advisor can take a look at your entire taxable investment portfolio to help you understand the taxable versus the non-taxable yield. And remember, there’s no point in putting tax-exempt munis into tax-exempt accounts like IRAs or 401(k)s; it’s actually against the rules. As an aside, this same principal applies to tax-deferred annuities, yet, every stock broker and insurance agent in town loves to have people buy tax-deferred annuities for their IRAs. Talk about ripping off the clients!
Also, be sure to determine whether the bonds you’re buying are highly rated or not. Look out for insured bonds. Insured bonds may have higher ratings due to the insurance. The insurance suggests the bond is actually a weaker investment and one you should think twice about before purchasing. A bit contrarian, I know.
As always, please visit our website www.weslingfinancial.com or email us at info@weslingfinancial.com for further info and to discuss your personal situation.
July 02, 2009
Who Is Buying Municiapal Bonds Today?
Certainly not hedge funds, issuers of structured notes and municipal bond mutual funds. They are trying to keep up with redemptions from tapped-out investors. Right now, the best source of demand for munis is individuals, who can account for only so much business. As you may have noticed in the news, consumer demand for almost everything is way down. But in the absence of other buyers, that’s potentially good news for you.
Keep in mind that during the Great Depression, some 4,800 municipal bond issuers defaulted. This was a tiny loss of only 0.5% of the total interest and principal of state and local debt during the period 1929-1937.
Even though muni bonds can be backed by your local jurisdiction’s taxing power, not all muni bonds have that backing. Municipal bonds, like all securities have a buyer-beware component and a risk component that cannot be ignored.
As always, please visit our website www.weslingfinancial.com or email us at info@weslingfinancial.com for further info and to discuss your personal situation.
July 01, 2009
Municipal Bonds, What Are They Anyway?
Municipal bonds have long been a safe haven for higher-income investors looking for safety and greater tax efficiency. The credit squeeze put the municipal bond market through its paces like other competing markets this year, but it may be time to take a second look at both municipal bonds and muni bond funds.
Let’s start with a definition of what a municipal bond is. A municipal bond, or muni, is a bond issued by a local government or their agencies to raise funds for a host of reasons tied to keeping the government going. The potential issuers may include cities, counties, redevelopment agencies, water and sewer projects, school districts, publicly owned airports, seaports and other transportation entities. They pay for everything from immediate government expenses to new roads and various public projects. Municipal bonds come in two flavors: general obligation bonds and revenue bonds. General obligation bonds are intended to raise immediate capital to cover government expenses; revenue bonds are the ones that fund infrastructure projects.
As an incentive for investors to buy these bonds, interest income is often exempt from federal income tax as well as the income tax of the state in which they are issued. Mutual funds that invest in municipal bonds also offer the same tax treatment.
This year has held lots of excitement for muni investors and those who were hoping to be. The credit crunch sucker-punched funding sources for public projects as well as private investments. Many municipalities ended up dropping certain projects because investors weren’t there to buy the paper and other sources of financing had dried up as well.
As always, please visit our website www.weslingfinancial.com or email us at info@weslingfinancial.com for further info and to discuss your personal situation.
June 30, 2009
No-doc loans? Forget About It!
If you are self-employed or otherwise don’t have a lot of verifiable income, you may have the most trouble getting a loan. While two years ago banks and other lenders might have bent over backwards to lend to people with unverifiable income, that gravy train is off the tracks. If you do get a loan, you’ll pay far more for it than you would have before the credit markets dried up.
These types of loans were a significant part of both the unjustified run-up in real estate prices and the subsequent blow up. Whether it was the lenders, the real estate agents, the buyers, or some combination, the use of the no-doc loan was a disaster waiting to happen. And happen, it did in late 2007. We're still trying to pick up the pieces.
One of the shovels being used to pick up after all this mess is the shovel of stricter lending standards. The no-doc loan is no more and good riddance!
As always, please visit our website www.weslingfinancial.com or email us at info@weslingfinancial.com for further info and to discuss your personal situation.
June 29, 2009
Don't Close That Account
Closing accounts even those that have had zero balances for years can be a bad idea. Lenders want to see a long record of responsible credit management, and longtime accounts that you haven't touched in years may actually help your score because it shows you have some restraint.
In the world of credit scores, the length of time you’ve had credit accounts for 15% of your total score. So, as you grow older and keep credit cards, even with $0 balance, your credit score will rise, all other things being equal.
As always, please visit our website www.weslingfinancial.com or email us at info@weslingfinancial.com for further info and to discuss your personal situation.
June 26, 2009
Pay More Than the Minimum, and Pay On Time!
If you’ve been late with payments or have stuck only to paying the minimums, it’s time to give that up now. Here’s what you do. To avoid late payments, note the due dates when the bills arrive and then set a date for payment five to seven days ahead so you’ll definitely be able to mail your payment on time. To put more toward the balance, finally do a budget. Yes, create a “spending plan” that spends less than you earn! Yikes! This will help you identify the non-essential spending you’ve been doing so you can pay your outstanding credit balances faster.
One point to be very careful on, if you continue to use the credit card, you must, MUST payoff those new charges in full every month. It might be easier not to use the card at all once you’ve decided and made the commitment to pay it off. Either of these steps may be difficult to accomplish on your own. Enlist a friend or colleague, even your therapist to help with these critical steps.
As always, please visit our website www.weslingfinancial.com or email us at info@weslingfinancial.com for further info and to discuss your personal situation.
June 25, 2009
Get Thy Credit Report. Free!
You have the right to get all three of your credit reports from Experian, TransUnion and Equifax once a year for free. You can do so by ordering them at www.annualcreditreport.com. Don't order all three of them at the same time, though. Schedule requests for these reports 4 months apart. You can easily set this up in your electronic calendar. By spreading out the dates you receive each of your credit reports, you'll get a continuous view of how your credit picture looks because the three bureaus feed each other the latest information. It's a good way to clean up errors and keep a steady watch for identity theft.
What about all of those singing pirate advertising free credit reports? They will demand a credit card number from you, which means at some point those reports won’t be free. The web site www.annualcreditreport.com is the government-sponsored website, and the best place to get reports truly free of charge.
Only the credit reports are free. Your credit score is not free. The three firms mentioned above usually charge less than $10 to receive your score. We strongly suggest you purchase these scores since each is different. That's right, you actually have three credit scores.
Credit scores have several components. Payment history is 35% of your score. This measures the timeliness of your payments. The amounts owed comprises 30% of your score. The credit scoring companies are looking to see if you have used more than 50% of available credit on each line of credit you're responsible for. How long you've been using credit makes up 15% of your score. Basically, the older you are the higher this portion of your score is. Finally, new credit and types of credit each account for 10% of your credit score. Each company uses their own proprietary approach, resulting in the different scores mentioned earlier.
As always, please visit our website www.weslingfinancial.com or email us at info@weslingfinancial.com for further info and to discuss your personal situation.
June 24, 2009
Pay Down Your Balances! But How?
Of course, this is easier said than done. Some general rules include paying down those credit cards with the highest interest rates, first. Or, pay off a very small balance so you have a quick hit (doesn't that feel good!). If there are ancillary benefits, such as tax deductible home mortgage interest, then that's debt you may want to pay off last. Oh yes, don't forget the deductibility of some student loan interest.
In every case it makes sense to have a spending plan (we called this a budget in the good old days) so you don't go broke paying off credit cards.
Next year, Fair Isaac Corp., the company that created the FICO score, will be adjusting the way it computes its credit scores. One of the top changes will be a greater negative weight on credit utilization. Credit utilization measures how close you get to the borrowing limit of each of your accounts. The company says for optimal scoring, each account’s outstanding credit should be no more than 50 percent of the credit line and hopefully less.
As always, please visit our website www.weslingfinancial.com or email us at info@weslingfinancial.com for further info and to discuss your personal situation.
June 23, 2009
Borrowing in 2009, The Next Bubble?
Not if you start taking steps today to control expenses and the use of credit. If you’re planning to buy a home or a car in 2009, the process is going to be a lot tougher without an excellent credit score and a significant down payment. So that means you’re going to have to work harder, and possibly wait a little longer, to make those key purchases.
What’s a good credit score? According to credit scoring giant Fair Isaac Corp., the best FICO score range as of late 2008 stood at 760-850, according to reports; that minimum is roughly 20 points higher than it would have been a year ago.
Barring any major federal action to loosen up these markets on the consumer level, these factors make it particularly important to make sure there are no skeletons in your credit closet. The president’s regulatory reform proposal may actually make consumer credit more difficult to come by.
The Federal Reserve Board’s statistics show that outstanding consumer credit has increased from a bit more than $2 trillion in 2003 to $2.5 trillion by the end of the second quarter of 2008, representing a 25 percent increase over five years. These high levels of debt, combined with a global credit crunch, have tightened up lending to all but the best customers–and they’re having trouble too.
Whether your credit is great or needs some help, there are issues we’ll be examining over the next few days to help in both your planning and your purchasing.
As always, please visit our website www.weslingfinancial.com or email us at info@weslingfinancial.com for further info and to discuss your personal situation.
