Does Your College Aid Package Include a Loan?

According to Finaid.org, more than $100 billion in federal education loans and $10 billion in private student loans are originated each year. Of course, the terms of various loans can vary greatly.

• Stafford Loans are federal loans that come in two varieties: Subsidized (based on financial need) or unsubsidized. Subsidized Stafford loans have a lower interest rate than the unsubsidized loans and interest doesn’t start accruing until after graduation. Unsubsidized Stafford loans start accruing while the student is in school, but payment can be deferred until after graduation.
• PLUS Loans are designed for parents and interest rates are usually higher than other types of federal loans.
• Perkins Loans are made through the schools and interest does not begin to accrue until after graduation.

To compare various loans’ terms, you can use the Loan Comparison Calculator at Finaid.org. And remember that if your aid package includes a loan with a very high interest rate, you can decline that part of the package.

Inevitably, evaluating financing options prompts the question: How much college debt is too much college debt? Getting a sense of national averages may help you to answer that question. Using data from the 2007-2008 National Postsecondary Student Aid Study (NPSAS) conducted by the National Center for Education Statistics at the US Department of Education, Finaid.org offers the following table showing the percentage of students borrowing and the average cumulative debt per borrower (excluding Parent PLUS Loans) at graduation according to type of educational institution.

Who Doesn’t Dream of Working for the Next Google?

U.S. job growth is driven by startup companies, but if you’ve been offered the opportunity to get in on a company’s ground floor, it’s important to consider potential risks along with the rewards.

Drawing from a 2010 Kauffman Foundation study, Polly Black, Director of the Center for Innovation, Creativity and Entrepreneurship at Wake Forest University, has developed a list of five important considerations for those contemplating joining a startup:

1. Passion. Look in the mirror, advises Black. Long hours and low pay require that you have a real passion for what the small startup company is doing.
2. Financial stability. Evaluate the company’s financial backing. Is it profitable? If it hits a major roadblock, what are the plans to stay afloat?
3. Chemistry. Start ups require a lot of team work, so you need to decide if you fit in with the other employees.
4. Market need. Black says company leaders should be able to clearly articulate the market need they are meeting with their product or service in a sentence or two. If they can’t, that may indicate a lack of focus that could impede the company’s success.
5. Experience. How will your work be balanced between job responsibilities and decision decision-making? Will you be comfortable with the level of autonomy offered?

Interestingly, your evaluation of risk and reward on the employment front is not unlike the work we do to accurately identify your risk tolerance that informs the construction of your portfolio. In both cases, if you take on additional risk, you have the potential to reap greater rewards. Also, as with investing, there are different periods in your life that may be more conducive to taking on additional risks.

Pessimistic Mass Affluent Need a Plan

MFS' recently released findings from its Investing Sentiment Survey show that mass affluent investors (those with between $100,000 and $1 million in household investable assets) have pessimistic attitudes toward investing. Primary factors contributing to the negativity include the impact of 2008's financial crisis and concerns over potential reductions in Social Security. Interestingly, although many have accumulated significant assets, these investors are not optimistic about the future. In fact, 32% describe themselves as protective, 17% as pessimistic, and 16% as fearful. Only 41% describe themselves as hopeful. Other findings include:

• 44% reported reducing their discretionary spending over the last 12 months; only 14% reported an increase in discretionary purchases.
• 59% agreed with the statement: “I am more concerned than ever about being able to retire when I thought I would,” with only 16% disagreeing.
• 49% agreed with the statement: “Over the past few years, I've lowered my expectations about what life will be like in retirement.”

It seems to me that the mass affluent need a financial plan. I would point out that in the October 2010 Dow Jones Affluent Investor Study of 1,287 investors with more than $500,000 in investable assets, approximately half reported that they prefer to manage their own investment portfolios. Additionally, the study found that of those investor working with an advisor, one-third said they had not developed a retirement plan.

As our clients know, an investment policy statement (IPS), a written plan that details their goals and a plan to meet them, is integral to feeling secure. To ensure investment decisions are based on reason rather than emotions and support short- and long-term goals, an IPS specifies an investor’s time horizon, risk tolerance, and standards for a diversified, risk-appropriate portfolio he or she can live with in all markets. In addition to keeping investors grounded during times of market stress, an IPS helps them measure their progress towards their goals.

CFA to Congress: Ignore Misleading Industry Arguments and Allow SEC to Proceed with Fiduciary Rule

In January, in response to a requirement of the Dodd Frank law, the SEC delivered a report to Congress recommending that broker-dealers be subject to the same fiduciary standard of care as investment advisors. However, the SEC delayed imposing the fiduciary rule to conduct a cost benefit analysis. In advance of the SEC’s planned July meeting to address those findings, advocates for imposing a universal fiduciary duty are urging the SEC to enact the rule.

Notably, the Consumer Federation of America’s (CFA) Director of Investor Protection Barbara Roper recently wrote to U.S. House members urging them not to be swayed by misleading arguments from a small segment of the broker-dealer community. In her letter, Roper contested the view set forth mainly by brokers whose business model depends on the sale of high-cost variable annuities, that imposing a universal fiduciary standard could have “unintended consequences” for middle income investors.

Roper wrote, “The SEC has proposed a way to move forward on fiduciary duty that maximizes investor protections while minimizing industry disruption. In doing so, it has won broad support from industry and investor advocates alike. It would be tragic if opposition from a few industry members intent on maintaining the status quo were able to derail that progress. Despite the self-interested claims of certain industry members, it is the middle income investors who must make every dollar count who are most in need of these enhanced protections.”

I couldn’t agree more. I am proud that the Bernhardt Wealth Management team serves our clients as a fiduciary and look forward to the day when all investors can be confident that all financial advisors act only in their clients’ best interests.

Nebraska

I was recently reminded of this video and thought I would share it.  The song was written by Kevin Marcy and sung by The Marcy Brothers.  (Kevin was two years behind me in high school.)  The video was shot in and around my hometown of Hay Springs, Nebraska--where I spent the first 18 years of my life before I attended college.  I hope you enjoy it!