Archive - August 9, 2011

1
Avoid the Herds; Be An Individual Investor
2
Three Things You Need to Know About the U.S. Credit Downgrade
3
Why the U.S. Debt Downgrade is Rightly Justified
4
Buckle Up… It’s Going to Be a Bumpy Ride
5
Unrelated Business Taxable Income in an IRA

Avoid the Herds; Be An Individual Investor

Nothing like some  financial turmoil to get me writing this blog on a regular basis! Let me first comment on the credit downgrade by S&P over the weekend. S&P is one of three major credit rating agencies. Both Moody’s and Fitch reiterated their triple A rating of US debt. S&P is also the same company that rated many mortgage-backed securities AAA a few years ago and many of those securities did not do too well.

The credibility issue

I think it is fair to say that S&P has a bit of a credibility problem on its hand, so I am …

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Three Things You Need to Know About the U.S. Credit Downgrade

The Downgrade of the U.S. credit is legitimate and here's why:

People complain that the ratings agencies have no credibility because of their horrific errors with Mortgage Backed Securities. But two wrongs don’t make a right. Just because the Mortgage department of a ratings agency did something wrong does not mean that the agencies’ work on corporate or government debt is wrong. Further, a new law in 2010 has removed immunity of ratings agencies that used to protect the agencies from lawsuits, so now their work should be more reliable. Their work with corporate bonds (not mortgage securities), except for …

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Why the U.S. Debt Downgrade is Rightly Justified

S&P downgraded the US long-term debt last Friday. Stock markets have sold off world wide in response, and investors scrambled to buy the freshly downgraded US treasuries.

The stock market response is natural. The downgrade increases uncertainty, which normally causes investors to dump more volatile assets in favor less volatile ones. When the shock wears off, this process normally reverses.

The demand for treasuries makes some kind of sense. According to a friend of mine, the US is 'the best horse in the glue factory.' This is mostly due to the size of the treasury market. Large investors, for example …

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Buckle Up… It’s Going to Be a Bumpy Ride

Here we go again.

Yesterday we witnessed an extreme reaction to the S&P downgrade of the US’s credit rating (which ironically drove investors to seek safety in Treasuries). Today’s futures are all over the place. I believe the markets are demonstrating a complete lack of confidence in our government’s ability to stop playing politics and solve our problems, as well as fear over the even more severe problems in Europe. The problems of the 2008 crisis were never fixed, but rather shifted and covered up. Living through this kind of market pain is not fun, for sure. It hurts, it’s… Read More

Unrelated Business Taxable Income in an IRA

I’ve mentioned before about various types of transactions that are not allowed in your IRA, but we’ve not actually covered the topic of Unrelated Business Taxable Income (UBTI) in your IRA.  UBTI isn’t prohibited within an IRA, but it does pose problems and adds a great deal of complexity to your account.

Unrelated Business Taxable Income

So, what is UBTI anyway?  The concept of UBTI pre-dates IRAs – it was originally developed in relation to charitable organizations, trusts, and other tax-exempt entities.  The IRS developed this concept to ensure that tax-exempt organizations didn’t have a competitive advantage over taxable …

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