Monday, April 28, 2014

Personal observations on a high-tech world

In the late 1970s, just before we were married, my wife and I purchased our first home. At that point in my life, I didn’t have a lot of household items to bring to the marriage. In fact, I didn’t even own a single piece of furniture.

To the best of my recollection, my entire contribution to the new home all fit into my small car. One trip across town was all I needed to move. You could say the house was vintage. It had a built-in milk chute and a large, gas-gravity furnace that used to burn coal. With its large, octopus-like arms reaching out in all directions, it dominated the basement.

Upstairs, the thermostat was very simplistic. If you wanted more heat, you turned the knob to the right; if you wanted less, you turned it to the left. Our television had a rabbit-ear antenna for controlling the reception and we changed channels manually, not remotely. The VCR? Well, we were still saving to buy one.

As our family grew, so did the houses and the technology within them. Today, with all the boys grown up and on their own, we decided to move again. With just the two of us, it just made sense to get smaller and simpler. Well, the new place is definitely smaller, but I’d hardly call it simpler.

I remember when telephones were just for talking. Today, they’re essentially mini computers. I’m still amazed that I can control the volume on my television with my phone. And instead of having speakers and audio equipment around the house, we have a remarkable device called a sound bar. It not only provides incredible sound on the television, it can also play all the music on my wife’s phone.

Our high-efficiency furnace takes up only a small portion of the basement compared to the old octopus. My new thermostat looks like something from NASA. It tells the outdoor temperature, the indoor temperature and humidity and even gives a seven-day forecast. And, of course, I can control it with my phone.

Throughout my lifetime, technological advances have amazed me. To an extent, they’ve also confused me. That’s why I had “technicians” tutor me on how to use the television, sound system and thermostat. Yes, it was a little embarrassing to have to contact a technician in order to adjust the household humidity.

Now, when I buy a new computer or software program, I educate myself. In today’s high-tech world, almost everyone needs some sort of help or self-education to understand these incredible new products. I believe the days of just selling a product like a television without tech service and ongoing education are numbered. People are making careers out of servicing high-tech equipment and educating the users.

The world is certainly more complex, but the benefits are well worth the time to learn how to operate a television, furnace or, for that matter, any other household item.

It’s easy to overlook how fast technology is changing our personal lives. I noticed how it improved things at the office and in the financial world. But my recent move really made me aware how much it has changed our day-to-day living at home. We’ve come a long way from milkman delivery and newspapers on the porch.

Monday, April 21, 2014

There’s more to a purchase than the price

We just experienced a winter that most of us thought would never end. Many of us kept looking at the calendar, wondering how in the world the Tigers would ever play their scheduled home opener in such wild, winter-like weather. Then suddenly, like magic, on the day of the opener, it actually felt like spring. And the Tigers pulled off a win with a walk-off hit.

Once again, evidence of spring is everywhere in southeast Michigan. Hammers are pounding at construction sites; orange barrels are lining the roads; and people are coming out of hibernation and into shops and restaurants and onto bike trails.

It’s good to see the activity and the optimism returning to our area. I believe it’s truly warranted, but in spite of the optimism, I want to share some words of caution.

Baseball has a designated hitter. In the investment arena, I have often shared with my clients that I’m their designated worrier. When things are going well with investments, as they have the last two years, I worry that the trend will soon end.

When we go through difficult investment periods and tough economic times, I worry about getting everyone through the turbulence.

In baseball, a designated hitter is successful if he gets on base three out of 10 at bats. But, as an investment adviser, if you’re only successful one-third of the time, you’d be seeking another career.

I recently stumbled across the 15th annual automotive study by A.T. Kearney. The study pointed out that over 41 percent of Americans are in need of non-prime financing options. That’s an increase of 15 million from the 2008-09 economic downturn.

What this means is that a large number of people shopping for a new car or new home are considered to be high-risk borrowers. Generally, this translates into a higher borrowing rate, which often leads to a higher payment or an extended payment period.

As you house hunt or shop for a new car, be sure to keep the math in mind, especially if you previously had some credit issues. For example, consider what might happen when you walk into a car dealership.

To keep the monthly payments low, the dealership might recommend that you take a 60-month loan instead of a 48-month loan. It might sound good at the time, but what happens three years into the loan when you owe more money on the car than it’s worth? Suddenly you’re upside down on the loan.

The same caution is in order when shopping for a home. Just think back to all the people that got into financial trouble when the rate on their adjustable rate home loan increased. Suddenly they were looking at an unaffordable house payment.

I’m not trying to be a spreader of doom and gloom. Rather, I just want to make sure my readers arm themselves with financial awareness. That means you have to look beyond the showroom price and calculate the entire cost of what you’re considering to buy. That includes taxes, borrowing costs and ancillary costs such as insurance.

It’s vital that you only purchase big-ticket items with the confidence you can survive a difficult economic cycle. Spring is finally here. Don’t let the bright sunshine blind your financial eyes.

Monday, April 14, 2014

Help your grandchildren invest in education

It was wonderful to see both Michigan State University and the University of Michigan basketball teams reach the Elite Eight. Although neither was crowned the NCAA champion, I thought both were teams we could be proud of.

Both have coaches that are great leaders and teachers, and it certainly appeared that all the players were classy student athletes. So much so that I feel compelled to talk about education.

I believe the best investment young persons can make is in themselves. Improving one’s knowledge and marketability in a competitive world is essential not only for getting ahead, but also for financial survival.

I recently came across some information from the financial firm John Hancock that I thought was worth sharing. According to “The College Board, Trends in College Pricing 2013,” four years of public, in-state college costs an average of $75,000. That’s a lot, and based on experience, I believe, it’s a bit low.

The John Hancock study also determined the source of the money that funded college expenses. Student income and savings covered just 11 percent of the tab, while parent income and savings covered 27 percent. Grants, scholarships, friends and relatives accounted for another 35 percent.

So, what was the source of the remaining 27 percent? Unfortunately, it was borrowed. Parent borrowing accounted for 9 percent and student borrowing an unbelievable 18 percent.

We’ve all read about students graduating with horrendous debt on their shoulders. A whopping 26 percent of graduates leave college with debt burdens ranging from $25, 000 to $100,000.

That’s why I want to remind all the parents and grandparents out there that there’s something you can do. You can save for your grandchildren’s education. And if you’re wondering how you can go about it, I’d like to make a suggestion.

I believe one of the best ways to help provide for a grandchild’s education is with a 529 college savings account. Simply stated, a 529 plan is a tax-advantaged investment vehicle established to encourage saving for the higher education of a designated individual.

Funds grow tax-free as they accumulate, and if the multitude of government guidelines is followed, the dollars earmarked for education are withdrawn tax-free. There are numerous ways the dollars can be invested, and as with any investment, there is an element of risk.

A small drawback is that 5.6 percent of the funds in a 529 plan count against the federal formula for determining the amount of financial aid available to the designee.

I say small because the grandparents can negate that factor. That’s because if the account holder of a 529 program is a grandparent of the student, the assets in the 529 plan are not counted against the amount of financial aid.

In other words, grandma or grandpa control the assets and it does not harm the grandchild’s ability to qualify for financial aid. What’s more, if little Johnny or Jenny doesn’t attend college, or chooses to party against your wishes during spring break, you are not obligated to pay their tuition.

The best-case scenario is that you’ve helped a loved one compete in a competitive world. And the worst case is that the investment comes back to you. With some tax liability, of course. The bottom line is that you are in control.