March 2011 - NorthStar Capital Advisors

Managing Your Money Through the Ages

THIS IS A MUST READ! The New York Times and NPR have mapped out a lifetime of spending, with links to stories on topics from paying for college to withdrawing money in retirement:

Paying for financial advice: It makes a lot of sense to pay for help as the stakes get higher. But only if it’s the right kind of help.
The different kinds of assistance: brokers vs. advisers
Establishing a trusting relationship with an adviser
Ask your financial adviser to sign a fiduciary pledge
There are many more excellent articles

Managing Your Money Through the Ageshttp://www.nytimes.comAn interactive checklist to help navigate ways to prepare and secure your financial future at each stage of life.

Weekly Market Review ~ Friday, March 25, 2011

On Monday, the Dow broke and closed above the 12000 mark once again, as the market has seemingly put Japan and Middle East woes behind it. A slightly down day on Tuesday broke a three day winning streak, but the lack of volume and selling conviction was viewed as a good sign by some. On Wednesday, a disappointing record-low February new-home sales report failed to quench buyer enthusiasm, as the market shook off the report and finished with a moderate gain. On Thursday, stocks logged their fifth winning session out of the last six, with another moderate gain on good earnings, upgrades, and a positive statement by Dell. The market finished off the week on Friday up modestly after a revision of the fourth quarter 2010 GDP up to an annual rate of 3.1%.

It was a great week all-around for stocks.

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Getting a Better Deal in Your 401(k) Plan

Companies that manage 401(k) plans have been siphoning off billions of dollars through hidden fees and conflicts of interest:

“I think 401(k) fees will eventually become like property taxes. Most people can tell you within $20 what they are paying in property taxes, and they fight any move to increase them. When people know what they are paying in 401(k) fees, they will become more vocal about trying to minimize that cost.”
“The day that plan participants can see they are paying 3 to 5 percent in fees will change everything”
“Some [401(k)] participants used to scream bloody murder because they didn’t know what they were paying; the twist is now they scream bloody murder because they think it’s too much”

Learn more in Laura Rowley’s article on Yahoo Finance:

Getting a Better Deal in Your 401(k) Planhttp://finance.yahoo.comWill workers finally get a better deal from their 401(k) plans? More than two years ago I reported on how companies that manage 401(k) plans were siphoning off billions of dollars through hidden fees and conflicts of interest. Since that time, a trifecta of legal, regulatory and market…

Harvard Isn’t Worth It Beyond Mom’s Party Chatter

Saving for our children’s college funds is one of our largest investment goals. But be wary of some of the common misconceptions about the college cost analysis:

Parents often go for the big name university, under the misinformation that the returns will offset the higher costs.
Top university affiliation is NOT always and forever more valuable.
Math or science graduates earn more than students majoring in the humanities.
Not all debt accumulated for college is always a good investment.

Learn more in Amity Shlaes’s article in Bloomberg:

Harvard Isn’t Worth It Beyond Mom’s Party Chatterhttp://bloomberg.comTheir insanity is captured in Andrew Ferguson’s new book, “Crazy U: One Dad’s Crash Course in Getting His Kid Into College” (Simon & Schuster). He describes the vanity of a desperate mother at a cocktail party who is dying to announce her daughter’s perfect SAT scores:

SunTrust faces suit over operation of 401(k)

SunTrust, the Atlanta banking giant, is being sued for allegely favoring investment plans operated by SunTrust or its subsidiaries that performed poorly and charged higher fees than plans offered by an independent investment companies
The suit alleges that under the Employee Retirement Income Security Act of 1974, the defendants had a duty to choose investment options for the benefit of employees, not SunTrust.
The suit alleges some of the SunTrust-controlled investment funds charged fees several times higher than comparable funds operated by a prominent third-party investment company.
The suit says SunTrust’s 401(k) plan controls more than $2 billion, and the company could have negotiated better fees with outside firms.
Company officials removed funds not tied to SunTrust on the grounds of poor performance, but the suit says the company didn’t remove SunTrust-affiliated offerings for poor returns.

Read more in J. Scott Trubey’s article in The Atlanta Journal-Constitution:

SunTrust faces suit over operation of 401(k) | ajc.comhttp://www.ajc.com/business/suntrust-faces-suit-over-877525.htmlA SunTrust Banks retiree sued his former employer this week, accusing the company of enriching itself on high fees it charged employees who took part in certain company 401(k) plan investments from 2002 to 2010.

Weekly Market Review ~ Friday, March 18, 2011

Considering the severity of the earthquake/tsunami damage done to Japan on Friday, the downward movement of US stocks on Monday was remarkable, with the Dow shedding only about half a percent. Economists do not expect the fallout from the disaster to significantly affect world markets. On Tuesday, the markets were down heavily in the morning but recovered to finish only about a percent down, as investors gambled that the huge sell-off of the Nikkei Stock Exchange was overblown. On Wednesday, the downturn accelerated as fears of a nuclear disaster in Japan increased. The NASDAQ fell into negative territory for the year. On Thursday, stocks bounced back over a percent, as new claims for unemployment dropped once again. The major indexes rose again on Friday on news of a cease-fire in Libya, with no additional bad news out of Japan.

With all the uncertainty brought on by events in Japan, the downturn this week could have been worse.

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Why Do We Have Trouble with Financial Decisions?

The U.S. is in a retirement crisis and our behavior is a key driver. Why do we tend to make poor choices? Academic research is beginning to help us better understand why.

People are financially illiterate since they lack understanding of
simple economic concepts and cannot carry out computations such as computing compound interest, which could cause them to make suboptimal financial decisions.
Impatience or present-bias might explain suboptimal financial decisions. That is, some people persistently choose immediate gratification instead of taking advantage of larger long-term payoffs

This is according to a study published by Dr. Justine Hastings, Dr. Olivia Mitchell, and the Michigan Retirement Research Center at the University of Michigan:
How Financial Literacy and Impatience Shape Retirement Wealth and Investment Behaviors (download here).

University of Michigan Retirement Center

When Your Advisor Can’t Be Trusted

Why is it so difficult to expect that people selling us investment products will put our interests first?
Is the person who gives you advice on your portfolio and retirement account a “registered investment adviser” or a “broker-dealer”?
Ask those giving you investment advice, sales pitches or specific retirement-plan suggestions if they are acting under a fiduciary standard of care.
Insist that advisers offering specific investments inform you of any conflicts of interest related to their recommendations and disclose any commissions, referral fees or other compensation they would receive from selling you a financial product.
Don’t be afraid to be impolite—always ask what an investment will cost, both in commissions and in built-in expenses such as fund expenses.

Read Karen Blumenthal’s article from the Wall Street Journal and be an informed investor:

Getting Going: Should You Trust Your Financial Adviser? - WSJ.com

Getting Going: Should You Trust Your Financial Adviser? http://online.wsj.comRegistered investment advisor or broker-dealer? The distinction is lost on most investors even though the two operate under very different standards.

Weekly Market Review ~ Friday, March 11, 2011

On Monday, a downgrade of Intel coupled with continued concern over rising oil prices sent stocks down nearly a percent. The Dow experienced yet another 100+ point day, this time in the positive direction on Tuesday after Bank of America announced it hopes to increase dividends and buy back shares of its stock. Wednesday marked the two year anniversary of the low point in the recent bear market, with the major indexes changing very little. The S&P 500 has nearly doubled from its March 2009 low. On Thursday, the Dow dipped below 12,000 as it shed nearly 2% on continued Middle East/North Africa fears. The magnitude 8.9 earthquake in Japan on Friday was not perceived to be a threat to the recovering world economy, as stocks made moderate gains.

Increased volatility marked this week’s trading, with all the major indexes taking a hit.

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New York Stock Exchange

E*Trade Settles with North Carolina Investors

North Carolina is the first state to reach a settlement with E*Trade over the misrepresentation of auction-rate securities as safe investments suitable for short-term cash management purposes.

The NC investigation found that E*Trade salesmen had not been properly trained by the company to sell the products and had failed to consistently disclose the risk that, if the auctions failed, clients would not be able to sell their auction rate securities and could be stuck with illiquid investments.

E*Trade to pay $25,000 settlement - CharlotteObserver.com

E*Trade to pay $25,000 settlement http://www.charlotteobserver.comE*Trade Securities will pay a $25,000 civil penalty under a settlement reached with the state over auction rate securities it sold to North Carolina investors.