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Friday Financial Five – October 5th, 2012

Friday, October 05, 2012


Goodbye to Bobby V . . .

Spain and the ECB bailout

The rain in Spain may stay mainly in the plain, but the country’s economy is in pain as insecurities gain. Mario Draghi, President of the European Central Bank (ECB), is waiting for Spain to accept conditions of a bailout. They’ve made it clear they’re willing to do what it takes to avoid the breakup of the euro zone. Economic indicators remain weak and a recession is imminent, if not already occurring, so Spain has little choice but to accept the conditions. The recent improvement of the global bond market indicates investors expect this to happen as well.

A plea to local area athletes

Seniors are not the only group preyed upon when it comes to money. The recent ESPN 30 for 30 series documentary, “Broke”, detailed in heartbreaking fashion the dangers of financial illiteracy for the “instant millionaire” athletes of our professional sports leagues. The athletes wove painstaking tales of losing millions of dollars to unscrupulous agents and advisors, horrible business decisions (38 Studios was featured), or plain ignorance. The Rhode Island area produces a fair share of these talented individuals. All should keep in mind that sports careers are finite and financial preparation needs to start on day one.

Prepare before buying a car

Buying a car is usually not an experience people look forward to, but you have all the tools to prepare before the visit to the dealership. Go online (www.kbb.com) to get a general idea of how much the car you want will cost and go to a bank/credit union to get approved for that amount. Don't let the dealership know you're using outside financing until you've agreed on a price for the car. If you’re really brave, go in ready to "make them an offer" for their car, including what you’ll take for your trade-in. Remember, you're in charge and always have the option of walking off the lot. Finally, the dealership will encourage using their in-house financing, but this only makes sense if they match the deal you can get with your bank.

401k in-service withdrawals

There’s a component to retirement plans that most people are unaware of. Many large companies will allow employees to take out “in-service” withdrawals and roll them over to an IRA once they reach a certain age. This could allow more flexibility in investments, a reduction in expenses, a possible Roth conversion or expanded income options as spouses approach retirement.

Investment Spotlight: TIPS and IBonds

Inflation continues to chug along at around 2 percent, but it remains a concern with the continued influx of “printed money”. If you’re interested in protecting bond positions from inflation, TIPS (Treasury Inflation-Protected Securities) offer a small interest rate plus an inflation adjustment. Despite the paltry current rate, TIPS have actually outperformed equities over the last decade. I bonds also accrue interest based on inflation, but you defer the taxes until you redeem the bond. The conventional wisdom, therefore, is to allocate TIPS to your IRA, while holding I bonds in taxable accounts.

Dan Forbes is a regular contributor on financial issues. He is a CFP Board Ambassador. He leads the firm Forbes Financial Planning, Inc in Providence, RI and can be reached at dforbes@forbesplanning.com


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