Category Archives: Uncategorized

This is what the US Debt looks like in $100 bills!

With congress and the president continue to discuss the fiscal cliff without much progress and the US debt ceiling discussion right around the corner, I thought I would remind everyone what $1 Trillion dollars looks like. Here is a video that visualizes the US debt using physical $100 bills.
As always, call or email with your questions or comments.
Take Care,
Jerry Broussard

Freedom is Not Free – Happy Veterans Day!!

I don’t think any comment is necessary, just click the video above… 
I want to say thank you to all veterans for your sacrifice and dedication to defending our country and allow us the freedoms that we enjoy.
God Bless America !!
Jerry Broussard

Is the U.S. Going Broke? The United States Budget Problems

I have a good friend who manages money at another firm that sent the following video to me made by Hal Mason, a retired accountant. I’ve also had a couple of clients mention the video to me as well, so I thought I would share it with you and give you my views on a few things afterwords.  

I think you will agree that it is a pretty unique way to explain the financial problems we are facing in our country.  So after viewing 5 1/2 minute video, I’ll give my thoughts on a few points he makes.

The first thing that caught my eye was that the cost of entitlements and interest ALONE is greater than the total receipts of the US Government.

And that’s without paying the day to day expenses of running the government. The only positive right now is our interest cost for the debt is at extremely low levels because of low interest rates. But when (not if, but when) interest rates begin to rise our interest cost will sky rocket.

Second, there is no easy way to fix the problem without significant pain.

As you can see in the video, we are over budget even without paying the day to day expenses of running the government. Our nation must continue to function, so we must continue paying these costs.

On the other hand if we significantly cut mandatory programs, like social security, medicare, medicaid,  unemployment, etc as Mr. Mason points out there could be riots and civil unrest very similar to Greece.

If we can’t cut these programs, then the only solution left would be to raise taxes. (Now before I start getting emails, please understand I am not a proponent of raising taxes, I am only trying to think through all the alternatives) But, even if we raise taxes across the board 50% this could possibly cripple the economy and cause massive layoffs, bankruptcies, etc. I don’t think anyone knows what would happen. However, with history as a guide we should know that massive tax increases have never worked. It actually causes more harm than good.

Third, what should you do about this problem.

Unfortunately, Mr Mason doesn’t provide any real clear solutions. He suggested that we contact our politicians and demand that they start work on fixing the debt problem, which I totally agree with.

Another idea is for our politicians to begin the discussion using suggestions being promoted by www.fixthedebt.org. I am not saying they have all the answers but we have to start somewhere. The fixthedebt.org movement looks to be bi-partisan and is supported by many top CEOs of our country. Again, this is not an end all be all answer, but at least it is a start and we have to start somewhere.

Lastly, My suggestions to my blog readers…

1- Now is not the time to get to aggressive with your investments. If the US falls into another recession because of our debt issues it will pay off being more conservative and not chase high risk investments.

2- Be careful if you invest in long term bonds or hold to many government bonds. Greece has taught a hard lesson in that when a country’s debt load causes default the safety of a government bond doesn’t mean much in bankruptcy. If you hold long term bonds, such as 30 year bonds, they should be watched carefully and monitored because any rise in interest rates will cause them to temporarily loose market value fairly quickly.

3- As my grandma used to say, don’t put all your eggs in one basket. Lately, I am hearing more and more about sales agents pushing certain types of investments as the answer to the problems I discussed above. Many of these commissioned agents use scare tactics like Mr. Mason’s video to scare investors into putting all their money into investments like high commissioned annuities, suggesting that these products are the magical product to keep peoples money safe. If you feel the urge to invest in one of these products, just try to remember not to commit to much money to any single investment, even if it supposedly guaranteed.

4- Keep your investments tactical. You want your money to be available to invest without penalties or restrictions. Our country has gone through a lot over the years, but never a fiscal meltdown. So, I would not trust any strategy that is not nimble and available to be adjusted on moments notice.

So, there you go. Four simple thoughts to prepare yourself for what may happen if our elected officials don’t take the steps to fix our fiscal problems. Hopefully we will see good decisions being made regardless of political party affiliations.

As always, call or email with your questions or comments.

Take Care,

Jerry Broussard

http://www.whitehouse.gov/sites/default/files/omb/budget/fy2013/assets/tables.pdf
http://www.fixthedebt.org/

It’s like a bad movie, first QE1, then QE2 and now QE3!

For years I wondered why some Hollywood studios would make sequel after sequel of the same bad movie. Even after a flop they would make another sequel. Well, here we are in real life and the government is doing the same thing.

The Federal Reserve announced last week that they plan to expand the asset purchase program by buying an additional $40 billion in mortgage backed securities per month until further notice (that was billion with a B). QE, by the way stands for Quantitative Easing and QE3 means this is the third round of the Fed pumping money into the system.

This latest move is considered fairly aggressive considering we are only a couple of months away from a presidential election. Most everyone thought they would wait until after the election. so consider this an announcement by the government that things are worse off than we ever thought.

Unfortunately this latest round of quantitative easing will be about as effective as the first two, which did nothing to improve the economy. The only good that has come from these announcements is that the stock markets love them and have rallied each time as investors tolerance for increased risk goes up.

The Fed’s announcement of buying mortgage backed securities will keep mortgage rates low for a long time, even though they were already considered low. I don’t think that by dropping the mortgage rates another .50% will cause housing boom anytime soon.

The way I see it, is that the housing markets are improving, but the healing will take quite a long while and the government probably can’t do anything to speed up the process. After the financial crisis people started paying down debt and spending less, which in an economy like ours that depends upon the consumer to spend can be crippling. This won’t change until our employment problems are solved and there is nothing the Federal Reserve can do to change that.

As always call or email if you have any questions are comments.

Take Care,

Jerry Broussard

401(k) Fees Finally Revealed!

In the next few months most everyone with a 401(k) will received their first statement which will show how much they are paying in fees. Many have been begging for this for over a decade and I am one that believes this has long been needed. In my practice I have seen 401(k)’s with internal cost as high as 3% per year and the only way to get that to come down was disclosure.

Some have complained that it is still hard to determine what your total cost will be because the government required disclosure rule did leave a few loop holes that still make things difficult to understand. For example, I doubt that few if any would know what the heck is”revenue sharing offset”, etc. But at least we are on the right path towards full disclosure.

So what can you expect to see on your statement. Here are a few main points all disclosures should have:

  • An annual disclosure showing what each investment fund you own costs you per $1,000 you have invested. (As with mutual funds held outside your 401(k), this fee is not deducted from your balance, but it does reduce your fund’s returns)
  • Statements each quarter that will show how much money is deducted from you balance to cover your share of the plans administrative cost. (This might include record keeping fees and other administrative cost along with personalized services such as a 401(k), etc. The smaller your plan is the higher these cost)
  • A chart of historical returns of all the investments in your plan along with benchmarks, so you can compare the investment returns to their averages.
  • An lastly, they should have a glossary of investment terms.

I know the above sounds confusing, but if you have questions don’t hesitate to send me an email and I will try to help you through the calculations.

Take Care,

Jerry Broussard