White House Financial & Settlement Solutions, LLC

We wanted to communicate our Firm's views on financial market activity making headlines recently, namely the situation in Europe and the J.P. Morgan trading loss. Please keep in mind that there will always be significant issues that affect the financial markets. Some will be more significant than others, however, if we have a long term view and a diversified portfolio these events present no more than opportunities to us. If we do not have a long term view (i.e., greater than five years) then our portfolio should not be invested in anything that will be significantly affected by such short term events. Remember, just because European governments are having issues right now does not mean that all European companies are poor investments, and the smart money managers we use are using this as a buying opportunity. Regarding the J.P. Morgan trading loss. This is a prime example why we do not advocate putting more than a very very small fraction of any portfolio in individual sec...

A client recently asked us if individual investors can do what is called short selling.  Our answer to him was that yes, individual investors can definitely execute short sale trades.  The basic definition of a short sale is when an investor sells a security that they do not own (typically stocks) borrowing the security from someone else (typically through or from their financial institution).  Investors who execute short sales are betting that the value or price of the security they are selling is going to decrease.  If the price does decrease they can exit the trade by buying back the security in the market and giving it back to the original owner to pay off their "loan" at a lower price and keeping the difference as their profit. If, however, the price of the security goes up instead of down, and the investor does not own the security they are shorting their downside and hence risk is unlimited because the price can theoretically go to infinity!  The invest...

There are so many complex issues and constant change in our business of financial planning and investment management, that we often forget some of the basic questions that many people have, such as what a Stock, Bond or Mutual Fund is? I will attempt to answer these questions at a very basic level below. A share of stock is, at its most basic level, the representation of ownership of a corporation that is a claim on the corporation's earnings and assets. There are several different types of stock shares. Common Stock usually entitles the shareholder to vote in the election of directors and other matters taken up at shareholder meetings or by proxy. Preferred stock generally does not confer voting rights but it has a prior claim on assets and earnings -- dividends, which are the distribution of company earnings to shareholders, must be paid on preferred stock before any can be paid on common stock. In addition, a corporation can authorize additional classes of stock, each with...

Individual Retirement Accounts (IRA) come in two types, Roth and Traditional, and there are several basic differences between them.  The biggest difference between these two types of IRAs deals with how the distributions are taxed.  Traditional IRAs allow the IRA holder to take a current tax year deduction for the amount which they contributed to the IRA up to an annual limit.  When the IRA holder takes a distribution out of the IRA during retirement, however, each dollar of the distribution is taxed as income in the year it is withdrawn.  Thus any investment earnings in the traditional IRA are taxed deferred until withdrawn. Earnings in a Roth IRA, however, are tax free when withdrawn, but do not provide a current tax year deduction.  For those covered by an employer sponsored retirement plan traditional IRAs have income limits pertaining to the amount that the account holder may deduct on their taxes; however, anyone can make a nondeductible contribu...

We are regularly asked if an Annuity is a good or bad thing for clients, and like most answers in our business and in life, the answer is, “It really depends!” At its most basic level, an annuity is a life insurance product designed to pay some level of income to the annuitant.  The investor gives the annuity product life insurance company a certain amount of money, called the premium, and the life insurer agrees to pay the annuitant a certain amount.  These amounts can be monthly, quarterly, annually for life, for a certain minimum period or both.   This is an example of a fixed annuity.  There are also indexed and variable annuities where the value is tied to some kind of stock or bond investments. There are literally thousands of different annuity products with thousands of variations.  As with any financial product, whether the product is appropriate for a particular client depends on exactly what the client’s needs, sophistication, financial si...

We are often asked what people should consider when looking to hire a financial planner or advisor.  The most important criteria is whether you feel comfortable with that person and are able to share with them very personal and sensitive information.  If you cannot share this kind of information with your financial advisor, the value that they add will be very limited. They should have earned the Certified Financial Planner designation and have been doing financial planning full time for at least five years.  It is very important that your advisor is a great listener and able to explain very complex issues at the clients’ level.  They should be independent from any entity that sells financial products, such as banks, brokerage houses, or insurance companies.  However, they should be overseen and regularly audited by an independent entity to ensure they are compliant with all rules and regulations. The way that they are compensated should be flexibl...

This week we completed an analysis for a husband and wife who were referred to us by one of our best clients.  After checking with our references, they hired us to help them manage their retirement portfolio, but more importantly to help them determine if the husband could afford to retire.  The wife was retired and wanted her husband to retire from the University of Michigan where he had worked for almost thirty years.  They wanted to spend more time each year traveling and living outside the U.S.  The bulk of their retirement assets were in the University of Michigan Fidelity and TIAA-CREF retirement plans.  They were very diligent about saving for retirement and budgeting, however, they did not have confidence that they could achieve their income and travel goals if he retired, or at least not for very long.  This is a very common client concern we see over and over again.  Luckily, our analysis opened their eyes to several factors they did not co...