Mike Piershale on “Mike in a Minute:” Financial New Year’s resolutions

On today’s “Mike in a Minute,” Mike Piershale weighs in with financial New Year’s resolutions and explains what people should do to remain financially secure throughout 2014. Mike explains specific strategies to consider, such as paying down credit card debt and implementing more savings into a 401(k).

Weekly market commentary

To borrow a word from the legendary Gomer Pyle: G-o-l-l-y!

In 1955, just five years before The Andy Griffith Show became a big hit, William McChesney Martin, Jr., then Chairman of the Board of Governors of the Federal Reserve System, made an often-quoted speech in which he said, "The Federal Reserve, as one writer put it, after the recent increase in the discount rate, is in the position of the chaperone who has ordered the punch bowl removed just when the party was really warming up."

Last week, Fed Chairman Ben Bernanke didn't confiscate the punch. He simply modified the recipe by adding a lower proof of spirits when he announced the Fed would begin to taper its bond buying program. Starting in January, the Fed will spend $10 billion a month less on bonds (the amount will be evenly split between Treasuries and mortgage-backed securities). Taking away the punch bowl would have entailed ending all bond purchases and increasing the discount rate. The Fed has indicated it will not change the discount rate for some time.

After an initial dip on the news of impending tapering, many markets around the world moved higher. The Dow Jones Industrial Average and the Standard & Poor's 500 Indices pushed to record highs. Britain's FTSE 100, Germany's Dax, and France's CAC indices all pushed higher on Wednesday, as did Japan's Nikkei 225 Index. In the bond market, U.S. Treasury yields rose and then fell on the day of the announcement.

The beginning of the end of quantitative easing wasn't the only news that drove markets higher last week. On Friday, the U.S. Commerce Department reported that U.S. gross domestic product (GDP) - a measure of our nation's productivity - accelerated faster than originally thought during the third quarter. The reasons for the upward revision were increased consumer and business spending.

Life may have been simpler in fictional Mayberry R.F.D. - and they certainly had fewer choices as consumers - but economics and the responsibilities of the Federal Reserve weren't any less complicated.

IN THE EARLY DAYS OF BANKING IN THE WILD WEST, THERE WEREN'T too many rules about what banks could and couldn't do. According to The New York Times, in the early 1900s:

"...Commercial banks established security affiliates that floated bond issues and underwrote corporate stock issues. (In underwriting, a bank guarantees to furnish a definite sum of money by a definite date to a business or government entity in return for an issue of bonds or stock.) The expansion of commercial banks into securities underwriting was substantial until the 1929 stock market crash and the subsequent Depression."

After the crash, thousands of banks failed.

In 1933, Congress passed the Glass-Steagall Act (a.k.a. the Banking Act). The Act defined the difference between commercial and investment banking activities. Commercial banks primarily took deposits and made loans while investment banks helped companies issue stock and invested in securities. The Act prohibited commercial banks from participating in investment banking activities. It also created the Federal Deposit Insurance Corporation (FDIC) whose job was to protect commercial banks' clients' deposits up to a certain amount.

In 1999, after years of financial prosperity, Congress changed its mind and passed the Gramm-Leach-Bliley Act (GLBA) which effectively repealed the parts of Glass-Steagall that prevented commercial banks from participating in investment banking activities. Some believe the change in rules played a significant role in the global credit crisis during which commercial banks suffered billions of dollars in losses because of their investment banking activities.

In 2010, the Dodd-Frank Wall Street Reform and Consumer Protection Act was passed in response to the global credit crisis and subsequent government bailout. The 953-page Volcker Rule is part of the Act and was passed by regulators in December of this year. It establishes a set of rules that are intended to prevent FDIC-insured banks from making risky bets with customers' deposits. In particular, banks that rely on taxpayer guarantees are largely prohibited from proprietary trading and hedge fund investments. We'll know more when regulators decide how the rules will apply and who will enforce them.

George Bernard Shaw said, "We are made wise not by the recollection of our past, but by the responsibility for our future." Let's hope when it comes to U.S. banking law, he proves to be right.

Weekly Focus - Think About It.

Sources:
http://fraser.stlouisfed.org/docs/historical/martin/martin55_1019.pdf
http://blogs.barrons.com/stockstowatchtoday/2013/12/18/markets-toast-taper-news-send-dow-sp-500-to-record-highs/?mod=BOL_hp_highlight_1
http://online.barrons.com/article/SB5000142405311190439900457926371932942350.html
http://www.bbc.co.uk/news/busioness-25442514
http://blogs.barrons.com/incomeinvesting/2013/12/20/u-s-third-quarter-gdp-growth-accelerates-to-4-1/?mod=BOLBlog
http://topics.nytimes.com/top/reference/timestopics/subjects/g/glass_steagall_act_1933/
http://www.investopedia.com/articles/investing/062513/role-commercial-banks-economy.asp
http://investopedia.com/terms/g/glass/steagall_act.asp
http://www.investopedia.com/terms/g/glba.asp
http://www.investopedia.com/terms/d/dodd-frank-financial-regulatory-reform-bill.asp
http://economix.blogs.nytimes.com/2013/12/13/a-modest-volcker-rule/
http://www.brainyquote.com/quotes/authors/g/george_benard_shaw.html
http://www.brainyquote.com/quotes/topics/topic_funny.html#HPdj8ZiBwRJQmmxX.99

Mike Piershale on “Mike in a Minute:” 2014 Market Outlook

Welcome back to “Mike in a Minute!” On today’s segment, Mike Piershale explains where he thinks the market is headed in 2014, and what investors should expect over the long-term. Press play below to hear Mike’s outlook, and why he thinks investors may see rising interest rates and a domestic market correction.

USA Today coverage: Retirement savings for the self-employed

Despite the benefits that self-employment offers, a recent study found that entrepreneurs and longtime business owners are running into difficulties when it comes to retirement savings. According to TD Ameritrade’s Self-Employment and Retirement survey, 40 percent are not saving regularly for retirement.

In a recent article for USA Today, I weighed in on why retirement savings for the self-employed is underutilized, the threats facing one who does not save, and what an advisor can do to help. “Most small-business owners aren't knowledgeable about retirement, because they focus on their business at the expense of everything else,” I offered. “For the first few years, it's nip and tuck. They are human resources, the accounting department, marketing department, and IT department.” Furthermore, the self-employed often invest all their profits directly back into their business as an alternative to a company retirement plan.

The following link will take you to the full article written by reporter Rodney Brooks –
“Self-employed face a retirement crisis”

Mike Piershale on “Mike in a Minute:” Holiday budgets

With the holidays in sight, Mike Piershale outlines budgeting plans in his latest “Mike in a Minute” segment. He reminds viewers of important financial strategies that will help over the short- and long-term.

Mike Piershale on “Mike in a Minute:” Year-end financial plans

On the latest “Mike in a Minute,” Mike Piershale discusses important wealth management plans for viewers to consider before the New Year. He outlines 401(k) strategies, recommends maximizing retirement contributions, and explains the importance of creating a solid estate plan.

Mike Piershale on “Mike in a Minute:” Year-end tax plans

For today’s “Mike in a Minute” segment, Mike Piershale weighs in on year-end tax tips to consider implementing over the coming weeks. Press play below to hear the most important strategy, and how changes in income can impact your tax and financial plans.

WSJ coverage: New Year, New Financial Plans

Despite the chaos, and the joy, that the holiday season brings, it is important not to let year-end financial considerations and deadlines fall by the wayside. Critical decisions that investors must contemplate include: boosting 401(k) contributions, funding a 529 college-savings account, considering IRA distributions, and making charitable contributions and gifts. However, these are only a few of the important year-end considerations worth discussing.

In a recent article for the Wall Street Journal, I weighed in on one critical year-end financial step that investors should be aware of: booking capital losses. One can use capital losses to offset any capital gains tax-free. “If you're carrying investments at a loss—say, mutual funds that have dipped several thousand dollars in value since you purchased them—you might consider selling them by Dec. 31 to realize capital losses,” I offered. “Then use these to offset gains from other sources.” Additionally, if an investor particularly likes these mutual funds for the long-term, they can always be bought back in the new year, 31 days after the sell.

The following link will take you to the full article written by contributor Lindsay Gellman – “Financial moves you should make by New Year’s.”