Monday, December 29, 2008

A Lesson Learned from Madoff

“Those with the biggest financial gains generally had their money managed by Madoff. It was an honor having him handle your fortune. He didn’t take just anybody. He turned down all kinds of people, and that made you want to give the man even more of your money. When he took your fortune, he told you that he would tell you nothing about how he achieved his returns.”-Laurence Leamer, a Palm Beach based journalist, writing in the New York Post, December 13.

Reading this reminded me of past meetings with clients -- during which a client has told us she or he wonders if we should be putting some money into a can't miss investment recommended by a brother, a friend, a son.... It's a hedge fund managed by a brilliant guy with a Midas touch, or stock in a new company started by a genius who has never failed to turn pennies into millions. It's a special version of the American Dream -- that we will invest in the next McDonalds, the next Microsoft, the next Google. It's sexy and exciting and so hard to resist.

But the truth is, picking the next megasuccess is the longest of long shots. Are there indicators that help us identify companies that will be wildly profitable? None that are a sure thing. It's like an ugly twist on the old fairy tale -- where the princess kisses a frog and he turns into her prince. In investing (and often in dating I'm told) you're likely to kiss hundreds, even thousands of frogs before you ever find a prince. Chasing after can't-miss investments is a terrific way to fritter away your money leaving yourself with little to show for it in the end.

Bernie Madoff's investors believed he was different because he didn't promise extraordinary returns. His promise was guaranteed returns of 8-9% each year. The victims convinced themselves that they were not being greedy, just seeking safe, steady returns. But anyone who has been investing in the past 10 or more years knows that there is no way to achieve a guaranteed return that high year after year. Madoff pulled it off while the market was strong, but as soon as returns dropped off he was forced to borrow from Peter to pay Paul. When the bottom dropped out of the market last fall his entire house of cards came crashing down. The cost of Madoff's crimes is truly terrible. We can measure the dollars, but we can't put a number on the loss of trust he has triggered in millions of people around the world who were not his clients but believed something like this could not happen in the American financial system.

Successful investing, like success in other areas of life is the result of keeping at it, putting money away year after year, spreading your risk as broadly as possible by using diversified, publicly traded mutual funds that hold liquid publicly traded securities. Fortunes are not built overnight and you cannot expect to get something for nothing. This is just common sense, but too often we convince ourselves that our own case is special, or a particular opportunity is a once-in-a-lifetime chance, too good to pass up.

If any good can come from this, I hope it is that people learn, once and for all, that when something sounds too good to be true, it almost certainly is not true. It's time we stopped believing in fairy tales.

Annette Simon

Copyright 2009 Garnet Group LLC

Monday, December 22, 2008

Vote for What??

(Note: Voting on this issue on ended on 12/31/2008. It did not make it past the first round.)

Does your financial advisor put your interests first? It seems like a simple question with an obvious answer. Who would work with an advisor who did NOT put the clients' interests first at all times?

If you are working with an advisor who is a representative of a brokerage firm or bank, that's what you are doing. By definition, the primary obligation of a registered representative is to the broker-dealer he/she works for, not the clients. Moreover, when recommending products, a registered representative is only required to consider whether the product is "suitable", not whether the actions he or she is recommending are in the best interest of the client.

It sounds like so much legalize, but this is the difference between a fiduciary standard and the lesser standards most people who call themselves financial advisors are held to. This softer standard contributed tremendously to the chain of irresponsible actions that came together to create the sub-prime crisis and the near collapse of our economy.

Now, the Obama administration is asking for Americans to get involved and to vote for new ideas that can help change the course of our country in the future by visiting their website, Because there are hundreds of ideas already posted on, we've made it easy for you to get started. You can vote for a fiduciary standard for all financial advisors by clicking on the link in our sidebar. This will take you to the site where you can also look for other ideas and causes you may want to support.

This is an opportunity to speak up and say that you want a financial industry that puts consumers first. With enough votes we might make a difference. If we don't speak up the future will almost certainly be more of the same.

Until the law requires all advisors to put their clients first, you can find financial advisors who annually sign a fiduciary oath by visiting
NAPFA - the National Association of Personal Financial Advisors. You can also learn more about fiduciary standards at Focus on Fiduciary. Learn what questions to ask and how to find an advisor who is truly on your side. You deserve nothing less!

Annette Simon

Copyright 2009 Garnet Group LLC

Thursday, December 18, 2008

What's an Investor to Do?

Here's a press release from our professional association, NAPFA, that provides excellent guidance for investors worried about the safety of their portfolios:

Tuesday, December 16, 2008

Life Happens

When you least expect it!

Just when you think life is stable and will run on even keel forever or at least for the foreseeable future, everything changes. For many women, the biggest life alterations involve children and spouses. When a child is ill, or leaves home the balance in the household shifts. When a spouse departs via death, separation or divorce a similar void is created. As women, we tend to respond to these changes emotionally and our first thoughts tend not be about our finances but rather about how we feel and how we can cope with these changes.

Life happened to me. A few years ago, I thought that my marriage was stable and the day my oldest child started college seemed safely far away. This summer, two things happened close together: my husband and I separated and my daughter left for a college several states away. My very busy life took an abrupt turn and changes both big and small started tumbling in. Luckily, I still had my teen-age son and my dog at home but the departure of half the household within a few weeks was noticeable. Here are some of the differences I noticed – interestingly, not all bad, and listed in random order.

- My girl-fun buddy was gone. My daughter and I were in the habit of going together to the movies, shopping, and getting our nails done. Now I was on my own.
- My son eats on a very different schedule than I do. So family dinners that had occurred almost nightly dwindled and I found myself cooking for my son and then grabbing a bowl of cereal or soup for myself at a different time.
- The house was a lot cleaner and tidier. We went from a household of very messy (2), messy (1) and slightly messy (me) people to one very messy and one much neater person (me again). Cleaning up for 2 is a lot easier than cleaning up after 4.
- I had time on my hands and nervous energy to expend. My gym – 3 blocks away – was seeing more of me and the dog was getting more walks. Soon, people were commenting that both of us – me and the dog – were looking svelte.
- Decision making as a solo pursuit. Financial and decisions about the house and kids had been made in conjunction with my husband. Now, since I am the one remaining in the house and am the main care-giver for my kids I began making decisions on my own and to suit myself.
- My net worth was cut and cut again. The separation mentally reduced my net worth by half and then the subsequent sharp market decline cut into it again. In the course of a few short months, I experienced the double whammy of separation and a major stock bust – not an experience I would wish upon anyone!
- Friends and family popped up with offers of help and support. My evenings and weekends began to fill up with activity.

Stay tuned. Over the weeks and months ahead I will be blogging about the impact on women of major life changes such as the one I am experiencing myself currently.

Veena Kutler

Friday, December 12, 2008

It's Harvest Time

The market this year has been absolutely punishing – there’s just no way around it. But there is a thin silver lining on the cloud if you have losses in your taxable investment accounts. This is a great opportunity to harvest tax losses you can use to reduce your income taxes, perhaps for years to come.

Harvesting losses refers to a two-step process:

1. Sell securities you now hold that are in a loss position (you will need to know your original cost basis to determine whether your securities are in loss territory).

2. Immediately purchase another under-valued security. We use low-cost, diversified mutual funds. By doing this, you capture the loss, which has great value for tax purposes, but you are NOT losing anything because you’re holding a basket of securities that will rise when the market recovers.

Most people have an immediate gut reaction to this idea – “I don’t want to take a loss! I’m going to wait for it to come back.” Some people grow attached to the securities they have picked. Others feel it would be wrong to sell stocks they inherited from their parents or grandparents.

Let it go!

One of the first rules of good investing is to approach it rationally, not emotionally. Securities are financial vehicles, not keepsakes or expressions of your personal style. When your portfolio is too concentrated – for example, you are holding more than 5% of a single stock or most of your investments are in a single industry or country – you are assuming excessive risk and probably receiving no extra compensation (in the form of higher returns) for doing so. By waiting for the market to recover, you will limit or lose the opportunity to harvest losses and miss the chance to diversify your portfolio and reduce your taxes for years to come. There is really no rationale for doing this.

Harvesting losses is a smart tax strategy, not an admission of defeat. Avoiding it makes no sense at all – it is passing up an opportunity to reduce the risk in your portfolio and your future taxes, an opportunity that costs you almost nothing at all (there may be incidental trading costs).

Annette Simon

Copyright 2009 Garnet Group LLC


(The lawyers insist!)

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Welcome to Our Blog!!

Welcome to our blog! Veena and I hope to provide valuable financial information for women of all ages in this space. We’ll talk about what’s happening in the world and the markets as well as the financial challenges in our own lives that might be affecting many of you as well. We want to hear from you as well so please share your questions and comments.