In 2010, companies have a whole new retirement plan option.

www.youtube.com/watch?v=qdmDandRL84

What is a DB(k)? Basically, a DB(k) combines a pension plan with a matching 401(k) plan. As the name implies, it is a defined benefit retirement plan with some of the features of a 401(k).

DB(k)s could become great recruiting tools. These hybrid retirement plans will be very attractive to employees looking to restore pre-bear market retirement savings levels – not to mention workers who want to retire with a pension-style income like the one Mom and Dad had. In the coming years, firms in especially competitive industries may be prompted to offer DB(k)s as perks.

Won’t it cost a lot for a company to fund one? Not necessarily. It is likely that the companies that do create them will have sizable cash reserves and profit margins. However, it isn’t as if a business is funding two retirement plans at once. In fact, any businesses that offer both defined benefit plans and 401(k) plans may unite them in this new option.¹

A DB(k) could save a business paperwork & money. These plans are exempt from “top-heavy” rules, and a company can put one in place with just one Form 5500 and one plan document. Principal Financial Group vice-president Chris Mayer, whose firm helped to develop the DB(k), told the Washington Post that the cost of providing a DB(k) will probably work out to 6-8% percent of payroll for most companies. This is certainly beneath the administrative costs of having both a 401(k) and a pension plan. Companies with 2-500 employees are eligible to have DB(k)s.^2,3,4

What do employees get? An income stream, an employer match and a really neat tool to save for retirement. In brief, the DB(k) has four compelling attributes:

• An arrangement for lifelong monthly income. The income stream won’t replace an employee’s end salary, but it certainly will help. Loyalty is rewarded: the pension income equals either a) 1% of final average pay times the number of years of service, or b) 20% of that worker’s average salary during his or her five consecutive highest-earning years.⁵
• Employees are automatically enrolled in the 401(k) portion. (They can choose to opt out.)²
• The company automatically directs 4% of a worker’s salary into his or her 401(k) account. The company also has to match 50% of that amount, which is vested upon the match. (Employees do have the choice to alter the contribution level up or down from 4%.)³
• It only takes three years for an employee to become fully vested in a DB(k) pension plan. So even if they leave the company, the money is theirs.⁴

The best of both worlds? Maybe. The DB(k) is shaping up as an intriguing 401(k) alternative, a new IRS-sanctioned way to offer valued employees something more than the usual voluntary retirement savings program. If you are saving for retirement, ask your company about it. If you own a business in a very competitive field, it may help you recruit, impress and retain the caliber of employees you really want.

What do they do? And should you have one?

www.youtube.com/watch?v=-LqDlixUWSA

What does a financial planner do? Well, that depends. Many individuals refer to themselves as “financial planners”, but not all perform true multidisciplinary financial planning. Investment, insurance and tax professionals sometimes specialize in certain areas of financial planning (such as retirement planning, estate planning, tax planning, or investment management).

In general, individuals who call themselves “financial planners” aim to help you plan for your goals and needs and improve your unique financial situation.

What doesn’t a financial planner do? A financial planner cannot make you a thriftier shopper, a better saver, or help you earn more money. Ideally, he or she will look at your financial “big picture” and help you work to enhance it via money management. Depending on their credentials, they may recommend specific investments, long-run investing strategies, insurance options, retirement planning, risk management methods and more.

Who needs a financial planner? If you have some significant assets built up (a home, a retirement fund, savings, etc.) and are wondering about how to protect and/or grow those assets, you’re probably ready for a financial planner. If you currently live paycheck to paycheck or have less than $10,000 combined in your savings and/or any retirement accounts, then you’re probably not yet in need of a financial planner. What you should do is research savings strategies and take a good look at your spending habits so you can begin to build your wealth at a faster pace.

How much does it cost? That is a tricky question to answer. The cost of hiring a financial planner can vary depending on who you hire, where they are located and what type of “fee structure” they use. A fee-only financial planner earns a flat fee, hourly or otherwise, for their services. A fee-based planner generally prefers to charge advisory fees (often .50% to 2.00% annually of the assets under management) for his or her services, rather than commissions linked to investments or product sales.

In occasional instances, charging commissions may actually be more cost-effective for you, but may not be as beneficial. A commission-based planner typically receives the total percentage of his or her income in upfront commissions and therefore some may feel they have little incentive to service you on an ongoing basis.

In most cases, your initial meeting with one of these professionals will be free of charge (be sure to ask in advance about this), and you can discuss fee schedules and compensation arrangements at that time.

How do I choose a planner? In two words … ask questions. Ask trusted friends or colleagues for referrals. Sit down with any planner you’re considering and find out how long they’ve been in business, what their credentials are, how they operate, etc. Most importantly, make sure if and when you hire a planner that your personalities will mesh. This is someone you may well be working with for the rest of your life, so you should choose someone you feel comfortable with.

What it is and how it guides your portfolio when the markets change.

www.youtube.com/watch?v=wx8xO_8m0vI

What’s an IPS? An investment policy statement, or IPS, is the foundation of a good investment strategy. It gives you an overview of the whole investment plan: the asset allocation, the objectives, the asset management approach and the ground rules for communication between you and your advisor.

A good IPS defines your time horizon, your risk tolerance, your liquidity requirements and income needs, your return requirements, and your tax concerns. It also notes any special needs and circumstances. But most of all …

Your IPS states the parameters by which you invest. You might consider yourself a value investor, a growth investor, or a conservative investor. With that preference established, your IPS defines a long-term asset allocation for you: a way to assign your invested assets to diverse asset classes in a way that suits your preferred investment style.

Think of your IPS as long-term GPS for your portfolio. The goal is to set the asset allocation in a way that can potentially give you the highest possible rate of return corresponding to an acceptable level of risk.

Your IPS keeps you from getting “off track” when it comes to investing. Over time, your financial advisor keeps an eye on your portfolio, to see that the assets inside it stay within the allocation boundaries set by your IPS. (This is why quarterly reviews are so essential.)

Periodically, your portfolio may need to be rebalanced. Here’s why. As months go by, the ups and downs of the investment markets will throw your asset allocation slightly or dramatically out of whack. As an extremely simple example, let’s say you start out with 25% of your assets in U.S. large caps, 15% in U.S. mid caps, 15% in U.S. small caps, 20% in foreign shares and 25% in bonds. Suddenly, small cap stocks have a great quarter, and thanks to the great returns, you wind up with 21% of your assets invested in small caps and only 19% in bonds. Great, right?

No. What’s actually happened is that your risk has increased along with your return. A greater percentage of your assets are now held in the comparatively risky stock market, removed from the bond market. So while the short-term gains have been great, it’s time to rebalance according to the parameters set by your IPS so that you can help reduce your risk exposure.

For tax-deferred investment accounts, this is easily done: you simply transfer assets among accounts to restore the target allocations. Future contributions occur according the IPS parameters. When it comes to taxable investment accounts, it is usually best to ramp up future contributions to the underweighted funds rather than sell portions of a fund and trigger taxes.

Remember that you are a balanced investor. Your IPS is designed to help you invest in a consistent, appropriate way, a way that matches your preferred investment style. Without an IPS, you invite impulse, emotion and a short-term focus into the picture. If you’d like to learn more about the long-term value of an IPS, talk to your personal financial advisor today.

Alternative investment ideas are attracting a surge of investors seeking diversification and reduced volatility.

www.youtube.com/watch?v=0o5C5zNnG5k

Alternatives for interesting times. The last 18-24 months have been wild ones on Wall Street, and the volatility has motivated some sophisticated investors to look into non-correlated or indirectly correlated asset classes. With the rise in oil and gas prices, high net worth investors are naturally examining the potential of alternative investment programs, especially in the energy sector.

Sunny forecast for energy firms. The world appetite for energy – especially clean energy – is surging. Analysts project that global energy needs will be 50% higher in 2030 than now, with the economies of China and India spurring 45% of the increase.¹ Therefore, some economists and Wall Street analysts have become quite bullish about the long-term outlook for energy investments.

In recent years, accredited investors seeking greater portfolio diversity have begun to direct some of their investable assets into energy programs, oil and gas equipment leases, and private REITs focusing on the energy sector. Additionally, other investors are moving assets into ETFs and mutual funds focused on energy firms.

What was once “exotic” now seems fundamental. Direct energy investments represent just a slice of the alternative investment world. Commodities, managed futures, tax credits, real estate securities, real estate exchanges, annuities, even collectibles … there are all kinds of investment vehicles apart from Wall Street. While many people historically dismissed some of them as too exotic or speculative for their portfolios, that opinion has changed as investors have become more educated about their potential.

Let’s look at these intriguing numbers. As any financial advisor wisely notes, past performance is no guarantee of future results. But just for a moment, let’s compare a couple of blue chip indices with a couple of commodity indices.

Over the last three years ending April 25, the S&P 500 returned nearly 21%, and the DJIA about 27%. Across the same 3-year period, the S&P GSCI Commodity Index went up 57%. It also posted a year-over-year gain of 22% for the 12 months ending April 25, 2008. The Dow Jones-AIG Commodity Index returned about 27% in that same 12-month stretch. Did the blue chips do this well in the last 12 months?²

Interesting options for sophisticated investors. To make some of these investments, you do need to be an “accredited investor”. That is a category of investor defined by the Securities and Exchange Commission. In general terms, the SEC defines an accredited investor as

• an organization, partnership, corporation, business, or trust with $5 million or more in assets
• an individual or couple with a net worth of $1 million or more or stable annual income of $200,000 or more ($300,000 for a couple).³

As the value of these investments can fluctuate notably, they are not usually suited for the risk-averse retiree or the middle-class investor. But if you are a high net worth investor in search of diversification, they may be for you.

To learn more about how an investment in energy or other alternatives can help you hedge rising costs or add balance to volatile stock portfolios, please speak with a qualified financial advisor familiar with these kinds of investments today.

What it is, how it works, and how to get started.

www.youtube.com/watch?v=6H_zzmqy3DA

If you are confused or unsure, you’re not alone. It’s amazing to me how many adults, many of them college grads, know practically nothing about the stock market. Many schools simply don’t offer or don’t require the classes that cover it. If you’ve been holding off on investing because you simply didn’t know enough about it … that’s probably wise. But rather than delay any longer, here’s some information to get you started:

The nuts and bolts. Basically, if you own a stock, you own a part of a company. You’ve invested in that company. If the company does well, the value of your stock tends to rises. If the company does poorly, the value of your stock tends to fall. The value of the stock, or the share price is determined by supply and demand. When more people want that stock, perhaps because it is doing well, the price goes up. When less people want that stock because they see less value in the company, the price goes down. That is the stock market in the simplest terms.

When you hear “The market.” Think of it like a flea market. Rather than travel all over town, a flea market offers you a central location where buyers and sellers can meet up. The stock market isn’t all that different. Stock markets are simply gathering places for stock owners to buy and sell stock securities.

Heard the term exchanging or trading? These are terms you hear frequently in regard to stocks, but they can be misleading … and perhaps this is one reason there is so much confusion. You’re not actually exchanging stocks, and you’re not really trading stocks. You are buying them or selling them.

How much does it cost to buy or sell a stock? Actually, there are two costs to consider … 1) The cost of the stock, and 2) the cost of the “trade”. The price of the stock varies hugely from company to company and can change from moment to moment, so that’s a question I can’t answer for you. But there’s also a fee to buy or sell a stock (or “share”). The amount of the fee depends on which stock brokerage you use. Generally these fees can range from under $10 to $20 or even up to $100 per “trade”. Keep in mind you will pay a fee when you buy your stock, and again when you sell it.

What is a brokerage? A brokerage is a conduit for the buying and selling of stocks. For example, let’s say you want to buy a stock that’s listed on the New York Stock Exchange (NYSE). Well, that stock is bought and sold on the floor of the NYSE. So, unless you are authorized to trade at the exchange and want to travel to New York, you instead enlist the services of a broker to take care of your buying and selling for you. Brokerages pay fees to become members of a stock exchange and access the “floor” of an exchange for trading. They then buy and sell stocks on behalf of their clients.

So, how do you get started? There are all kinds of ways to get started and a myriad of brokerage choices, including discretionary dealing (where the brokerage chooses stocks on your behalf), advisory dealing (where the brokerage gives you advice, but leaves the decisions up to you), and execution-only brokerages (where you will be entirely self-directed). Most brokerages have a minimum deposit you must make to get started, so you’ll want to look into that as well. If you’re serious about investing and want to do it frequently and avidly, read up on the markets and consider taking a class to educate yourself.

What is Pete Mitchell, Inc.? My company is what is called a Registered Investment Advisor, or an RIA for short, not a stock broker. Now me personally, Pete Mitchell, I am an Investment Advisor Representative of my company. Even though there are many, the principle difference between an RIA only firm and a brokerage firm (also called a Broker/Dealer) is that we do not earn a commission or charge a fee to make trades for you. We charge a fee for our investment advice.

That may not make any sense to you so let me explain.

Stock brokers typically earn a commission when they sell you a product. After you are in the product, little if any, additional commissions are paid to the broker.  This means that the stock broker does not have the same financial interest that you may have when it comes to investing.

My type of firm charges a fee based on the assets we manage.  This is a percentage of the account (typically 1-1.5%). We get paid 25% of this fee every quarter. So if your account goes down because of either what is going on in the market or some other reason, our paycheck goes down as well. So here is my question for you. Who is more likely to be concerned with what is happening with your account? The guy who got paid up front or the guy who loses when you lose and wins when you win?

It is a rhetorical question.  I think you know the answer to that.

In summary. Before you make any big decisions, though, think about enlisting the assistance of a qualified financial professional who can give you insight and perspective on the financial markets.

Investment advice is offered through Pete Mitchell, Inc. a registered investment advisor in the state of California.

This material was prepared by Peter Montoya Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information should not be construed as investment, tax or legal advice.