Category Archives: Financial Planning

Another Annuities “True Horror” Story

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The following comment was sent by a reader looking for help.

My mother and her husband (deceased in 2003) were scammed for over $800,000 in annuities with a major life insurance company. Luckily, the principal has not been lost, and I have been helping her to cash them in as they become due although we can do nothing about the $300,000 sold in immediate annuities. After my mother was widowed, she was conned and then neglected by her financial advisor. He is under investigation now by the a major life insurance company, and they will only admit that he took $100 in a gratuity check from her shortly after her spouse died. She wanted to reward him for driving to her home to help her “sort” out papers. I believe he took the paper work from the annuity he talked her into selling (from the major life insurance company ) and then talked her into buying another one immediately. The company will not give me info on this annuity as I was not POA at the time. The agent did admit to taking the money. What can I do legally to prevent him from selling to others? That should have been illegal, and I am trying to get proof of the cashed check to report this. Who do I report this to? I have written NASD. I do not trust anyone anymore.

Prudent Investing: The Essence of ISIS®

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            The New Year is a great time to reflect on the essence of what Camarda strives to achieve for its clients, principally through our trademarked, proprietary portfolio system, ISIS®.

            ISIS® stands for Integrated Strategic Investment System. The “integrated” part covers a lot of meanings, not the least of which is its relationship to the word “integrity.”

It is integrated in terms of its aim to address all aspects of a client’s investment needs, with regard to funds in Camarda’s care. Also integrated is the portfolio management piece with ongoing client communications, including portfolio accounting and statements, client relations though your advisor and operations staff, and Camarda’s total Client Community™. We try very hard for you to wrap it up into one easy, pleasant to use program. The “strategic” part means that Camarda is committed to a long-term strategy of how we think we can best serve your investment return desires with the least amount of risk, contrasted to “tactical” approaches which might try to bet on which sectors or securities are thought to be “hot;” we consider tactical schemes to be high risk, dangerous, and inappropriate for the prudent, long-term management of wealth, which we believe our clients want.

            In a nutshell, ISIS® is based on a Nobel Prize-winning theory which has shown that different markets, over time, tend to move in different directions.  If these markets are combined in effective ways, it is unlikely that “crashes” in some will cause material damage to the entire portfolio, and so endanger the financial security of the investor.  Even if some parts go down, it is likely that some parts will go up, and overall portfolio returns will be reasonable.  In fact, when the pieces are cleverly put together, risk can actually be reduced without sacrificing attractive target returns.

             Camarda has, we believe, been very fortunate in blending these different markets for its clients, and clearly the returns – which we are quite pleased to be able to report to you – speak for themselves.  But too often, perhaps, we may be guilty of our excitement in sharing the return’s performance with you to the point where we overlook reminding you of the other side of the Camarda coin, namely risk control, and our aim in not only growing your wealth in good times, but in protecting it in bad times.  There, also, our performance speaks for itself – you have only to look at how Camarda clients fared during the market meltdowns of 2000-2003 to appreciate the value of this other critical mission of ours.

            There, also, is the “integrated” part of ISIS® – the integrity of striving to put it all together so it truly serves you – is mission-critical to our commitment to you.  It’s been awhile since I talked about it, and I though I should tell you again. It’s not only important to shoot for more, it is vital to strive to keep what you have.

            That said, with your January statements you’ll receive a new Special Report called Camarda’s 2007 Annual Investors’ Markets Forecast [blog readers can get this by filling out an information request form at Camarda.com], which I trust you will find interesting reading.  I had fun researching and writing it for you, but I want you to know – no matter how you may feel about the accuracy of my past predictions – that we won’t be using these premonitions to alter our strategy or “bet” with your money. The integrity of the ISIS® strategic mission will remain intact.  Because, believe it or not, I could – just could – be wrong, and that’s no way to run a prudent portfolio.
            Happy and prosperous New Year to you and yours!

4th Secret of Habitually Successful Investors

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When I say safe, I mean how much risk can you reasonably tolerate and still have a high probability of investment success, which we define here as getting reasonable returns, on average, and avoiding losses. First, let me dispel the notion that one can simply ratchet up the level of risk to produce the return required, such as to produce retirement income: this is a recipe for disaster. Straying beyond the rules we’re about to get into dramatically increases the probability of losing big, and the prudent should not go there. The level of risk that can be safely taken without giving up a reasonable likelihood of success is a function of two things: your emotional risk tolerance, and your economic risk tolerance, which I call the “income load.” Emotional is simple: how much risk – in terms of volatility, like seeing prices of the things you own drop precipitously and stay low for awhile – can you (and your spouse) stand without losing control and selling at possibly the worst time, locking in losses and statistically axing the possibility of ever fully recovering? There are many types of little questionnaire “risk tolerance” tests from the investment vendors that will rate you from “conservative” to “aggressive.” Most do a good job, if you answer honestly. The bottom line is you should take no more risk than you can sleep with, or you will wind up hurting yourself. Used in conjunction with the commercial asset allocation models we talked about earlier (and most risk tests will lead to you one) you can get a decent idea of the overall mixes specific vendors feel you can tolerate emotionally. Camarda’s ISIS® uses a proprietary one we developed internally, over many years. Measuring the second factor – economic tolerance or income load – is more complex, and most of the commercial risk tolerance tools we have seen do not address it well, if at all. This is really a pity, because the “economic” part is by far the most important factor in overall risk tolerance. Basically, income load measures how soon you need to take out how much from the portfolio, to spend. The more, the sooner, the less risk you should take; the less, the later, the more risk can be safely taken. Remember, please, in all of this I refer only to the prudent, efficient risk, we talked about above, and not speculative risk. If you need all your money to buy a house in one (or even two or three) years, better put it in the bank, because you should take no risk at all: if you need “X” dollars, you can’t afford the possibility of having to weather bad markets when you might only get less than “X” when you need it. On the other hand, if you are 70 and have $1M invested but no plans or needs to ever spend it (because you have generous pensions and other accounts, say), you can take a great deal of efficient risk because, even with down markets along the way, the odds are excellent that everything will be much, much higher before anyone (like your grandkids, for graduate school) will ever need to dip into it. This is the reason that the commonly-held belief (still widely promoted by the investment vendors) that your risk tolerance should go down as you age is incorrect. It is a ham-handed rule of thumb that assumes you will need to spend more of your portfolio as you age; this assumption is by no means always true, and even where it is, a calculation of the income load and preparation of an appropriate portfolio for it is far more effective in managing wealth than “nothing but bonds after age 65.” In case you did not know it, by the way, you can lose as much in bonds as in stocks, so be informed, and careful. A simple, general rule for income load might state that: “less stocks and more bonds as your income needs increase from more than 1.5% of portfolio value, to all short/mid-term bonds & bank accounts as your income needs exceed 6%.” Again, this is simplistic, and does not address the variable cash flows (0% for 4 years, then 7% for two years until Social Security kicks in, then 3%, and don’t forget that $150K mountain house in 6 years) and risks of inflation that exist in “real life.” Unless you can somehow change your emotional risk tolerance (in which case the income load is all that matters), the most conservative factor – emotional or economic – should have the greatest influence in determining how risky (and probably profitable) a portfolio you can safely have. Camarda’s ISIS® uses a sophisticated mathematical model and computer program that we developed internally to factor in a client’s income load, and then integrates the result with our measurement of the clients emotional risk tolerance to arrive at the controlling risk tolerance and corresponding optimum asset mix. The process is another of our “trade secrets,” so I can’t get into the nuts and bolts of the math here. If you choose to take us up on our no-cost/no-obligation/no pressure offer, we will use it as part of your Confidential Financial Profile© in order to prepare an investment mix that ISIS® determines is most appropriate for you, with the overall rationale clearly explained in a customized Investment Policy Statement that we will give you, along with a copy of the prescribed asset allocation mix, to keep. Again, we are happy to do this work for you at no charge as a way of demonstrating our ISIS® process and competing for your business. Sadly, a major shortcoming of this sort of planning is a simple fact of life: things change, sometimes quickly and dramatically. This requires that your risk tolerance be reviewed and adjusted regularly. At Camarda, we address this through our scheduled quarterly updates, and with our Annual Review Profile, during which we repeat the entire process, to proactively stay on top of the changes that will no doubt occur throughout our clients’ lives. However you choose to go about this process, you should be sure to stay on top of it, too.

3rd Secret of Habitually Successful Investors

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            Make no mistake; many of those who have lost a lot of money during “bad” markets like the great crash of 2000-2003 owned a lot of different things – there were a lot of “names” on their portfolio statements – and thought they were adequately diversified.  In hindsight, it is clear they were not.  Why?  Putting too much of their wealth into too few companies or issues. But a lot of people who owned nothing but mutual funds – even many different mutual funds – also got whacked. And why is this?  Again, concentration is the culprit.

            You have probably heard the terms “asset class” and “asset allocation” before.  Asset class means a type of investment whose overall market tends to move in different cycles from other classes.  Take U.S. real estate and foreign stocks. While sometimes (due to mostly random forces) they move in the same cycle, it is reasonable to expect them not to go up and down together, since they are affected by significantly different forces.  The technical term is correlation, and the prudent investor wants little pieces of lots of markets that are poorly correlated – that move in different cycles – to reduce the odds of everything in the portfolio going down at the same time.  Those whose portfolios are predominantly invested in one or a few asset classes take a great risk of great losses if (or when) the only markets to which they are exposed crash before they get out.

            This is why many investors with lots of different investments still lost big in 2000-03:  high correlation among their portfolio components. If you owned ten funds that primarily invested in U.S. growth stocks (probably picked because their trailing performance numbers were the highest), then all ten funds got hammered when the market in which the funds swam tanked.  The diversification was an illusion, since all ten funds invested in similar enough things that they were highly correlated. Many investors never realized that the very year NASDAQ crashed; U.S. utilities were up something like 40%.  Those whose portfolios were asset-class diversified had nowhere near as painful a year. 

            Striving for portfolio efficiency – where we still want to maximize returns and minimize risk – takes us away from simple measures like the Sharpe Ratio, and into the nuts and bolts of Modern Portfolio Theory (MPT to save my fingertips).  MPT’s basic premise is that if we have enough different pieces of poorly correlated asset classes in just the right percentage combinations, then we can get a lot of the risk to cancel out without sacrificing attractive target returns. MPT requires that we focus on the performance of the overall portfolio instead of the component pieces (though we still want to pick good pieces, and our friend Dr. Sharpe and his famous ratio can really help us here).

            A MPT portfolio accepts the fact that some pieces will do poorly (relatively) in some periods, in exchange for probably having some pieces that will shine.  Investors (and their advisors) who try to guess what the next “hot sector(s)” will be so they can put all their eggs there risk getting it wrong (and most usually do), and seeing the whole portfolio go down with the chosen sectors. Spreading it around makes it a lot likelier that you will already have of piece of those sectors when their time comes to be “hot,” and gives you a much higher statistical probability of overall portfolio success.  By spreading your “bets” thinly, you’re a lot likelier to have at least a part of your “action” “hit” and at the same time less likely to lose “big” on those pieces that might otherwise be thickly “laid” on what might become poorly performing markets.

            Let’s talk about “asset classes” in a bit more detail.  Generally, the term is taken to mean different types of investments which trade in somewhat different markets in somewhat different cycles with respect to time.  In the above example, utilities were soaring at the same time NASDAQ (and other major U.S. indexes) was crashing. Different asset classes emerge for stocks of different “size” companies (large cap, mid cap, small cap, micro cap), value vs. growth styles, bonds of different maturities and qualities, investments outside of the United States in established and emerging economies, real estate, commodities, securitized real estate, private equity (investments in companies not publicly traded), hedge funds, and so on.

            MPT’s defining concept is the efficient frontier.  In a given universe of asset classes, for each level of risk there will be one and only one combination of asset classes in a unique weighting of each that produces the highest return; sort of like the Sharp Ratio in that it measures investment efficiency.  The line that connects all these “dots” from lowest risk to highest risk is called the efficient frontier.  You can find examples of the efficient frontier to look at in any basic investments textbook or at countless sites on the Internet. There are two important points I would like to make about the efficient frontier.  First, the curve tends to flatten out:  beyond a certain point, more risk does not produce any higher return.  Second, most portfolios lie under the frontier, meaning they are inefficient and do not produce the maximum return for the risk taken.  And when I say most, I mean the overwhelming majority of different asset class combinations possible.  This, I firmly believe, is why so many investors never do as well as they could.  They take far more risk than was smart – probably because no one ever thought to measure the risk relationships – and predictably suffer for it. In fact, many portfolios have returns that can be expected to produce losses if held long enough!

            So, how do you determine what kind of mix you should have for your ideal efficient portfolio?  Actually cooking up your own may involve biting off more study and math than you want to, but those interested can get mean variance optimizer software, and play around with different scenarios. I caution you that this part is as much art as science, however, and big helpings of markets knowledge (and the resultant intuition) are usually needed to pick prudent asset class universes and data time periods – and even the big-name “pros” often come up with mediocre ones at best.

            The specific methods and mixes that we at Camarda use for our ISIS® portfolios are considered trade secrets, so I can’t and won’t reveal them to you here. If you choose to talk to us, we will prescribe a specific mix (along with a customized Investment Policy Statement for your own situation) at no cost or obligation in an attempt to earn your business.  Other places to look are the profusion of asset allocation models offered from everyone from mutual fund companies, insurance companies (to sell their insurance products like annuities and variable life) and brokerage firms, to those cooked up by individual financial planners and salespeople. As mentioned, quality varies widely, and you would be wise to look at the risk/return data of the different mixes over different time periods when making your decision.  Be sure to get returns after all costs, fees, and expenses in order to make fair comparisons. Remember, quality varies quite widely from superb to abysmal.  You can get basic information on Camarda’s ISIS®, if you wish, and view the historical performance of all models – net of all costs, and based on actual client money – at camarda.com, and judge for yourself. As we often say, Camarda’s performance “truly speaks for itself.”

            Once you’ve decided on an asset class mix, there is the problem of deciding which particular investment is best suited to represent the asset class in the mix.  The Sharpe Ratio is a good barometer here, and other factors such as returns, costs, asset class fidelity, and so on should be considered.  Camarda’s ISIS® process, for example, examines fifteen factors each quarter to determine its “best” choice of fund to represent foreign equities.

            Remember, the investments world is in constant flux, and you need to revisit investment selections regularly; what was once good can quickly change, go bad, or simply be eclipsed by a better contender.  Keep constant tabs.

            Finally, be sure to check the “balance” regularly, and reset the percentages to the model when appropriate.  The current crop of “winners” will soon exceed the model percentages desired for them (since they will go up more than the others during a given period), and if you don’t reset you will wind up having more of your money than is prudent in them.  This increases risk and reduces probable return: efficiency goes down.  Resetting or “rebalancing” reminds you to sell high and buy low (since you can get more of the ones that did not do so well “cheap” when you bring them back up to their target allocations).

           

2nd Secret of Habitually Successful Investors

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Again, when I say investment success, this is what I mean: maximizing returns while minimizing risk of loss.  In a perfect world, we could make gobs of money and risk nothing.  Sadly, the world is far from perfect, and to make more than a tiny pittance after inflation and taxes are considered (as is the case for guaranteed investments like bank accounts) we need to take some risk.

            Success, in my view, means putting together a portfolio with a very high probability of producing good returns with a low probability of actually losing money. It does not mean taking outlandish risks – where devastating losses are possible or even likely – in hopes of hitting a home run and buying an island with the profits. This sort of activity is speculation – gambling – not investing, and can be likened to playing the lottery, which no one really expects to win. Most investors understand that the lottery is a losing proposition, but don’t have the information to be aware of speculative activity in their portfolios, so they can control it.  While it is true that expected return will go up with risk, it is true only to a very limited point, after which additional risk does nothing for return but predictably increases the odds of loss, to the point where loss becomes certain.

            The great bear market of 2000-2003 is a great example. Many folks lost vast sums because of uncontrolled risk they (and their advisors) never knew were there, losses from which it took them years to recover; and some may never fully recover.  People in risk-controlled portfolios like Camarda’s ISIS® came through this great cataclysm OK, in terms of not suffering devastating losses, and some even made good money along the way.  Not because they or we got “lucky,” but because they owned efficient portfolios.

            The secret is in taking no more risk than is required to produce acceptable returns. Most investors risk far too much for far too little in the way of profits, and for this reason are often disappointed. Investment efficiency is defined as getting the biggest return for the least amount of risk, and is well described by an elegant little measure called the Sharpe Ratio, named for one of the winners of the 1990 Nobel Prize in economics, awarded for Modern Portfolio Theory. It is deceptively simple, and looks like this:

                                                Sharpe Ratio = return/risk

The higher the ratio, the more return and the lower the risk, and vice versa. You want your investments – and the portfolio they build – to have a high Sharpe Ratio, meaning you want the maximum investment “bang” for the cheapest risk “buck.”  Many different units can be used to produce Sharpe Ratios, with historical return/standard deviation of return perhaps most common.  You can get these numbers from many financial data services, such as Morningstar.

            I find the Sharpe Ratio most useful as a yardstick to compare similar sorts of investments – to look for a superior large cap value fund, for instance.  Also, like most metrics used for analysis, it is very much period-dependent:  the five year numbers can look vastly different from the one-year ones.  Look for consistency across periods.  I discourage you from using the Sharp Ratio to compare dissimilar vehicles, like foreign stock funds vs. U.S. government bond funds, because the tendency of dissimilar investment types to move in different cycles – which our second secret looks to profit from – makes accurate comparisons harder.

            One can also use this ratio to evaluate individual issues like stocks and bonds, but the added uncertainties and risks associated with such issues make this far less valuable in my view.  This is because the risks associated with asset concentration – putting a lot of your money into the stocks or bonds of a limited number of companies – take you so close to the speculative realm that the Sharp Ratio is not very useful without tons of other work.  So much can change in a given company’s prospects – the economy in which it operates, government regulations, new competitors, lawsuits, management going brain-dead, and on and on – that the amount of analysis required to find and keep up with a good company in a good industry will strain the interest and ability of most DIY investors.  When one considers that you’d need at least thirty such stocks in at least ten different asset classes (as we shall see in the next secret), it should be clear that keeping on top of some 300 different issues is beyond the ability of even a small team of professional analysts. Remember, diversification is spreading your money around so well that a few things can go bad or go bust without it really hurting you; to do that, you need to own small pieces of a lot of different things. In my opinion, the only safe way to get the diversification you need is by using “pooled” vehicles like mutual funds and ETF’s (Exchange Traded Funds).  At Camarda, we continue to believe – for now, but we reevaluate it regularly – that selecting no-load mutual funds from a universe of thousands (none of whom pay us commissions or charge surrender/redemption fees) offers our ISIS® clients the best way to target the performance and diversification that we believe they both want and need.  

            Not that a great deal of money hasn’t been and can’t in the future be made by picking a few individual stocks hoped to be home runs – in fact, Camarda plans to introduce a hedge fund that looks to do just that.  But such a strategy is not efficient; it’s more of a “swing for the fences,” “go for broke,” risk is in the red zone, than prudent portfolio management, which by far is what most folks need. 

So the second secret is investment efficiency – learn to measure risk, and take no more risk than is required to target acceptable returns.  This is only one piece of the puzzle, however, so before running off to buy the Brazilian stock fund with the highest Sharpe Ratio, you need to know a little more.            

1st Secret of Habitually Successful Investors

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The First Secret: Clear Purpose

            You need to have a good idea what the money is for, and deploy it with the goal in mind.

            If your savings – or a part of them – is for a specific near-term expense, like a wedding, house or kids’ college in a year or two, you need to treat it differently than that for retirement a decade or more off.

            This does not mean you can’t dip in if life’s changes and emergencies demand it – so long as your investment selections are “liquid” (instead of locked up in something like a limited partnership or un-traded security), you should be able to cash out, even if the timing is horrible and you take a loss.

            But it does mean having a plan beyond “making a lot of money,” and allocating your various investment pots to match the uses and times for which you intend them.  And it does mean reasonably sticking to such a plan, unless emergencies or your own changed goals, make changing the plan make sense.

            It is for this reason that Camarda clients receive a detailed Investment Policy Statement for each “pot” of money under our care, and have the opportunity to update it at least annually. You should do the same, whether you do it yourself or get outside help. Later you’ll hear about our “no-cost/no-obligation/no-pressure” offer, and if you take us up on it, we’ll prepare such Investment Policy Statements – and a lot more – for you as a way of showing you what we do for our clients and trying to earn your business.

Introduction to the 7 Secrets of Habitually Successful Investors

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            Welcome!  I sincerely hope that the information in this report helps you to build and protect your investment wealth, and to enhance lifestyle and financial security for you and those you care about.  It contains the basics upon which Camarda Financial’s ISIS® portfolio management system was built…and ISIS® documented performance in both good markets and bad truly speaks for itself. ISIS® is Camarda’s own exclusive Integrated Strategic Investment System, developed by us and available only to Camarda clients. It is uniquely ours, and obtainable nowhere else.
            My objective in writing this report is to help you join the ranks of “habitually successful investors.” These folks, in my view, are those who consistently make steady progress toward their financial goals, in good times and bad, and get lots of sleep along the way. They set up and stick to investment programs that control risk – and worry – and through which they can reasonably expect to accomplish their goals of financial security.  In other words, they have the know-how to set up the game so the odds (while never guaranteed) are very much in their favor, and avoid the crazy risks of devastating losses that “ordinary”’ investors unwittingly expose themselves to all the time, over and over again.
            Some folks take the time and effort to do this for themselves, and the basics are here for you to build on if that’s what you want to do.  Others prefer to hire firms like Camarda Financial to do this for them, choosing to spend their time on other things, and perhaps expecting even better results from those with ongoing professional expertise. Later in the report you’ll learn how to take Camarda up on its free Portfolio Plan™ offer, and see exactly what our professionally-customized advice would look like for you – at no cost or obligation. You’ll also see how to get a free Portfolio Stress Test™, and how to use it to uncover danger areas in your current holdings. 
The techniques I’ll share in this report have been well-known to professionals for many decades, but for whatever reason are still needlessly mysterious to the average private investor.  So our purpose in sharing this “uncommonly-used” information with you is two-fold.  First, if you are a serious investor guarding your family’s wealth, you really need to know about it, and may not find it anywhere else. The information is so critically important that it can literally mean the difference between investment success and the unraveling of a family’s financial security; sadly, it is so frequently ignored (even amongst retail advisors) that getting the word out in a report like this has the potential to do a lot of people a lot of good. I hope you are among them.  Second, of course, Camarda is likely to get a lot of new clients out of it, as people learn about the benefits of the methods, but choose to have someone (like us) do the work instead.  
            What follows is a philosopher’s stone of sorts, but one that really works, and has been proven over a very long time.  Like most “alchemy” in the real world, it is really a collection of tools and techniques found to be effective in most situations most of the time, but only when properly applied.  Sadly, unlike the magic of fable, ours requires a bit of work to pull off.  Knowledge is power (or money in our case), but needs three elements to be valuable.  First, it must be understood before it can be applied; read the material a few times, and even do some outside study on your own.  Two, it has to be applied unemotionally, even if your guts (or your broker) are screaming that you should bet the ranch on some hot investment “special of the day.” Finally, it must be consistently maintained; things are constantly changing, and you have to stay on top of the moving pieces and adjust them accordingly.
            Don’t be discouraged; you can do this!  It requires a bit of work and dedication, it is true, but so does a good game of golf or an effective diet.  You may never hit them like Tiger Woods, but you can learn enough to play a competent game.  And even though you may ultimately choose to hire someone like Camarda because you think they can do it better with less effort and time commitment on your part, it is important to know the basics so you can hire competent help.
            So understanding these concepts is also enormously important, whether you choose to go it alone or use a financial professional.  Employing academically-established rules of finance can help you attain wealth and peace of mind.  Ignoring them – like the existence of gravity at the edge of a cliff – can ruin your life.  Even though most of these “secrets” are based on principals that institutional money managers have been successfully using for over half a century, they are still widely unknown by the vast majority of professional advisors like stockbrokers, insurance agents, and financial planners, as well as most do-it-yourselfers.  While you will usually hear a lot of buzzwords like “asset allocation” and “risk tolerance,” the unfortunate reality for most is a superficial vocabulary rather than an effective working knowledge. Since it’s your money, it is incumbent upon you to be sure the principles are at work for you. 
            One final note before moving on to the First Secret.  While things are slowly changing, it is still perfectly legal for an investment products salesperson, working for a brokerage, bank, insurance company, or themselves, to call themselves a “financial advisor,” and to offer advice that amounts to little more than selling products that pay them commissions, for which they have very limited liability to actually get right for your situation. In this arena – in which the vast majority of investors find themselves – it is obviously vital that customers understand the basics of portfolio management, as I try to explain in this report.  “Fiduciary” advisors have a legal duty to know what they are doing, and to put your interests first. Non-fiduciary advisors – again, the vast majority – do not. The best way to tell the difference is by looking at a Federal disclosure document called the “ADV.” If the advisor can not supply one, this is a strong indication that the advice is non-fiduciary.  We will get into this issue in more detail later in the report.

Our firm, Camarda Financial, is a fiduciary advisor who makes its ADV – and its actual track record with client money – readily available on request.

Stocks soar on large cap rotation – a huge 2006?

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I hate to say I told you so (almost as much as you hate hearing it) but, well, I did.  In January of this year (check my forecasts here on this blog) I predicted a resurgence in the major US stock markets, which have for awhile been outpaced by foreign equities, to be led by the largest American listed companies, which have languished these several years past.  Apparently, no longer. The DOW 30 made a new, all-time high on Tuesday, then soundly punched through it to major gains and another record on Wednesday. While the balance of 2006 has yet to unfold, I continue to be wildly optimistic amid a flurry of giddy facts:  1) Even with the new highs, we’re still about where we were way back in January of 2000, nearly seven years ago.  After inflation, we are actually down 20% in real terms. Other major indexes are still behind even before inflation, with NASDQ far behind. It is time for a major move upward.; 2)  Recent economic data  point to balanced, “Goldilocks” growth and lower interest rates on the horizon, along with lower commodities prices (looked at how gas is dropping?) prices, all great for stocks and the economy; 3) We are now looking right down the barrel of the 4th quarter, historically the best time of year for stock gains.  The drivers of points 1 and 2 could really supercharge the Q4 rally that I expect. Of course, I could be wrong, which is why we spread our clients’ investments over many different asset classes, to control risk.  But I expect that I am right, and that it will be a very merry Christmas, and a happy new 2007, indeed. Cheers!

Health insurance woes

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The New York Times reported yesterday that the average cost of employee health care rose by nearly 8% so far this year, more than twice the rate of inflation and rising far more rapidly than workers’ incomes. Both employers and their personnel are feeling the pinch, and while about 60% of companies still offer health insurance to their people, in comes at the cost of increasing rigidity in wages and salaries.  I look for the situation to worsen, with health care costs still floating above all reason, and more and more workers having to do without medical insurance from the job.

American Funds spanked with $5M fine

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American Funds, that darling of many retail brokers, was fined five million dollars by the National Association of Securities Dealers for rule violations “prohibiting mutual fund distributors from directing trading business to brokers as a reward for selling their funds.” The rule dates from 1973.  From 2001 to 2003, American’s parent paid some $98 million in commissions for trading within its mutual funds to brokers; “target commissions” were declared by American and allocated in advance to “top selling retailers” of its funds.  In exchange, the NASD claimed, American Funds “expected to have enhanced access to the broker-dealers’ sales staff, and have its funds listed as ‘preferred’ or ‘recommended’ by the retailers…’precisely what the (NASD’s) rule was intended to proscribe.’”  The gist of all this is that the brokers in question were being paid extra to push this particular vendor’s products, and that “recommendations” were clearly tainted by self-interested compensation elements.  American, of course, is by no means alone in this situation.  The lesson?  Once again, examine conflicts of interest zealously, and be especially vigilant when commissions (which include fee-based arrangements) form any part of an advisor’s compensation.