Monday, June 27, 2011

Unclaimed Property

During John Chiang’s recent visit, he mentioned a government website which lists California residents who may have unclaimed assets. More information can be found HERE. You can check the database HERE to see if you might be on their list.

Tuesday, June 21, 2011

ETF: Exchange Traded Fund or Every Trader’s Fantasy


Pathways Advisory Group, Inc.
Jeff Karst, Associate Planner












Newspapers, magazines, and TV are overflowing with advertisements for ETFs (exchange-traded funds). You might think that ETFs are new. Not so. The first ETF started in 1993 but the industry has grown a lot the last few years.
What is an ETF?
An ETF is a basket of securities similar to a mutual fund with many distinct differences. A mutual fund begins by collecting money from investors to buy securities. An ETF starts at a large company that already owns the securities. The securities are packaged together into an ETF. Some say that an ETF is like a stock since it trades like one but this is not true. The ETF company owns the securities and you own the ETF. This makes ETFs more of a derivative instrument. The value of the ETF is derived from the underlying securities.
Mutual funds must be purchased directly from the mutual fund company. Once the ETFs are provided to the market, they are sold on an exchange similar to a stock. They may be purchased or sold throughout the day at the market price. Mutual funds can only be purchased or sold at the end of the day once the NAV (Net Asset Value) is determined. Since the ETF price is determined by supply and demand, you rarely purchase at the NAV. This is an added risk with ETFs. Just ask the unlucky investors who sold ETF shares during the Flash Crash.
Pros for ETFs
ETFs are not actively managed and therefore have very low expense ratios (similar to an index mutual fund). Low expense ratios leave more return for the actual investor…. you. ETFs are tax efficient. The ETF never has to sell shares to accommodate liquidation like a mutual fund. There will be little if any capital gain distributions from an ETF.
Active traders love ETFs. ETF orders are exactly the same as an order for a stock. You can use stop and limit orders depending on what price you want to buy or sell at. ETFs can even be sold short (betting that the price will fall). There are even options available for ETFs. (So it’s a derivative of a derivative?....Sounds complicated.) ETFs facilitate the gambling addiction of the active trader while allowing some risk diversification.
Cons for ETFs
ETFs trade like a stock which means every time you buy and sell you pay a commission. There are some low cost brokers out there so this could be minimal. You could purchase at a premium to the NAV (paying more than its worth).
Only whole shares of ETFs can be purchased. Mutual funds allow you to purchase dollar amounts and receive fractional shares. Both ETFs and mutual funds pay dividends. With a mutual fund you can have your dividends reinvested. You simply buy more fractional shares of the mutual fund. When an ETF pays a dividend, it must pay to cash. There is no reinvestment of dividends. You would be required to place another buy order.
Some mutual fund companies have automatic investing programs. The mutual fund company can take $50 from your checking account after each payday and automatically invest for you. This is not available for ETFs. You are required to place each trade.
Conclusion
ETFs are very popular right now because they provide low cost diversification (with the ability to buy and sell throughout the day) and inexpensive access to sector investing. For the long-term investor, we feel mutual funds remain a better alternative.

Friday, June 17, 2011

John Chiang Visits Fresno State


Pathways Advisory Group, Inc.
Michelle Carter, CFP®
 











On May 25th, the local members of the Financial Planning Association, citizens of Fresno, various media outlets, and several of our clients gathered to hear the California State Controller speak at Fresno State. The session included a brief welcome from Fresno State President John Welty, followed by an hour long question and answer session with John Chiang.

He began with various statistics; the last date that California was ‘in the black’ was July 12, 2007. This means next month will mark four years we have been in deficit. The last recession began five months later, in December 2007. The major causes? I think we all know by now… real estate, construction and, of course, real estate finance.

During the recession, California watched its unemployment rate soar from 5.9% to 12.5%. At the time of John Chiang’s visit we were down to about 11.9%.

We are seven quarters out of the recession, and growth has begun to occur… somewhat. According to John Chiang, the growth has been asymmetrical. While agriculture and technology seem to be doing well, real estate and other areas are still struggling. John believes two areas will indicate recovery: commodity prices and a combination of consumer confidence, spending, and savings rates.

California is still struggling. Our credit rating is an A-. We are still in debt. Our biggest expenses (K-12 education, health care, social services and prisons) are increasing while our biggest revenue sources (personal, sales and corporate taxes) are low, relative to where we were prior to the recession. There is no state bankruptcy program meaning we need to find a solution somewhere.

The big debate is whether to cut spending or raise taxes (or both). It seemed like John treaded lightly on that topic. One issue he really touched on was making California more business friendly. He had a few ideas, but his ideal plan would be to eliminate corporate tax credits and drop the corporate tax rate. His thought was this would equal out revenue-wise, but make the state appear to be more business friendly, as people tend to pay more attention to the actual rates than to credits offered.

It was an interesting hour of conversation. Some things made sense, some made you raise an eyebrow, but all of it was thought-provoking. It would be fascinating to sit down and have dinner with the Controller, and really get insight into the craziness that is Sacramento. A big thank you to the clients who attended the event with us. We hope the experience was interesting for you as well.

Friday, June 10, 2011

Great Quotes

Pathways Advisory Group, Inc.
Dustin Smith, CFP®













Some great quotes this week about the Economy and Gold:

Economy: “I believe with 100% certainty that we as Americans are in the early stages of a crisis that will shake the very foundation of our nation” - Porter Stansberry, End of America Presentation. Never start an hour long discussion about the economy with “I believe with 100% certainty”. It doesn’t exist in Economics.

Just ask Alan Greenspan, with my favorite quote of the week: “No economist knows for sure exactly where the economy is going. We pretend…. but it aint so.” – Alan Greenspan, CNBC Interview. The interview covered a wide range of topics (employment, housing, debt levels, education and the eurozone). It was very interesting… although I suppose some of you would rather watch paint dry…

Gold: The marketing strategies for gold are priceless. David’s favorite radio gold commercial of the week: “There has never been a better time to buy gold.” Really? What about last month, last year, three years ago, five years ago and ten years ago? I can think of a few better times…

Or, my final quote of the week from Nick Murray, Investment Advisor, Author and Columnist: “There is one universal truth of which the genuine investor is unshakably certain: here on Planet Earth, price and value are inversely correlated.” Or put another way, value does not come when you buy high, it comes when you buy low. He was referring to a gold advertisement that referenced a ten year run up in gold as a reason to buy.

We live in interesting times. Have a great weekend.