Bill T. Jones, Part 2

At the close of Lincoln's bicentennial year, Bill Moyers Journal takes a unique look at the 16th President. Moyers speaks with critically acclaimed choreographer Bill T. Jones about his creative process, his insights into Lincoln, and how dance can give us fresh perspective on America's most-studied president.

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Tax Treatment of Restricted Stock Unit (RSU) Benefits

If you work for a large company, chances are Employee Stock Option benefits (ESOPs) have been replaced with Restricted Stock Units (RSUs). There are significant differences between tax treatment of ESOPs and RSUs. In this post, we will look at how RSUs are taxed for Canadian residents. Restricted Stock Units are simply a promise to [...]

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Why Wall Street Workers Are Worse Investors Than Main Street

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Main street investors
Wall Street's big banks paid out an astounding $156 billion last year in salaries, bonuses, and benefits.

Yet while investment bankers' checking accounts were growing, their retirement savings took a massive hit.

According to a recent Bloomberg article, at the five largest Wall Street banks, employees who held their own company stock in their 401(k) accounts experienced more than $2 billion in losses in 2011. Even worse, sometimes company stock was the biggest holding in those worker portfolios.

Point Fingers All You Want

Although reading this may make you chuckle with schadenfreude, there's a lesson here that may apply to you as well.

The huge amount of money these bankers lost happened because of poor diversification. In other words, these investment bankers had too great a share of their portfolios tied up in their employers' stock.

  • Last year, Morgan Stanley (MS) employees held a whopping 24% of their retirement assets in their company's stock.
  • JPMorgan (JPM) employees held slightly less: 18%.
  • At Bank of America (BAC), company stock represented 13% of assets held.
  • Citigroup (C) and Goldman Sachs (GS) employees were less invested in their employer, with company stock in 401(k) plans representing just 8% and 2% of assets, respectively.


While this trend is startling, it's not one unique to Wall Street.

In fact, according to Callan Associates, Americans who have the option of buying employer stock in their 401(k) plan have an average of 13.4% of their retirement assets in their company's stock.

Have We All Forgotten Enron?

The decision of whether to invest in your own company's stock is difficult because you'd like for your daily work to impact the growth of your savings. You're familiar with your employer, which also breeds confidence.

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But when your income is tied to a company and your investments are also entwined, one bad quarter or year and both your job and savings could be gone.

Which is what happened to Enron employees following the company's 2001 collapse -- and Jim Carrey's character Dick Harper in the 2005 movie Fun With Dick and Jane after his company, Globodyne, suffered a similar fate.


How to Be Smarter Than Wall Street Employees

There's nothing wrong with owning your company's stock. But it should account for only a small fraction of your assets.

A safe rule of thumb is for it to comprise no more than 5% of your overall portfolio.

If your company gives you no choice but to receive a 401(k) match in the form of the company's stock (which is the case at Morgan Stanley -- explaining why their number is so high), you should immediately sell those shares and invest the proceeds in a more diverse portfolio.

That means a mix of large-cap and small-cap, domestic and foreign, growth and value stocks, which will help you ensure a comfortable retirement, and not leave your long-term financial security tied too closely to the health of the company that's responsible for your paycheck.

This article was written by Motley Fool analyst Adam J. Wiederman, who owns no shares of the companies mentioned above. Click here to read Adam's free report on the best ways to plan for a wealthy retirement. The Motley Fool owns shares of Citigroup, JPMorgan Chase, and Bank of America. Motley Fool newsletter services have recommended buying shares of Goldman Sachs.

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Source: http://www.dailyfinance.com/2012/07/19/why-wall-street-workers-are-worse-investors-than-main-street/

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UK economy expected to shrink for third quarter

The UK economy has shrunk for the third successive quarter, official figures are expected to show on Wednesday, prolonging Britain's double-dip recession and threatening to derail chances of recovery this year.

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Buffett's Gloomy View of Our Economic Future?

This morning Warren Buffet's company Berkshire Hathaway announced that it was buying Burlington Northern Santa Fe in a deal valued at $44 billion. In the announcement, Buffett called the purchase an "all-in wager on the economic future of the United States."

Is Buffett right that a bet on Burlington Northern is a bet on the economic future of the U.S.? Because if Buffett is right, we've got real problems.

Let's take a look at what Burlington Northern carries. Its major freight revenues (as of 2008) come from coal (23% of revenues); agricultural products (20%); international intermodal shipments of consumer products, which is probably mostly imports (16%); construction and building products (14%); and petroleum products (4%).

In essence, Buffett is betting that the next ten years will look a lot like the last ten: A lot of growth in imports, construction, energy and agricultural products. If he thought that innovation was going to be the driver of the next ten years--biotech, energy, and infotech--he wouldn't be buying Burlington Northern.

I'm not saying that Buffett is wrong. His skepticism about the tech sector in the late 1990s, and innovation in general, turned out to be right on the mark. Berkshire Hathaway stock over the past decade has risen by 84%, whil the S&P 500 is down by 18%.

But his "all-in wager on the economic future of the United States" paints a remarkably gloomy picture of where we are heading.

Source: http://www.businessweek.com/the_thread/economicsunbound/archives/2009/11/what_does_buffe.html

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America's economy reformed?

Just over a year after economic calamity brought promises of reform to Washington, many now say that the recession is nearing an end. But is it business as usual for Wall Street, and have future financial crises been averted? Former International Monetary Fund chief economist Simon Johnson and US Rep. Marcy Kaptur (D-OH) join Bill Moyers for a report card on the bailouts, an update on the state of the U.S. economy, and to find out whether efforts of reform have been derailed.

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Your Boss Doesn't Understand Your 401(k) Plan's Fees Either

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401k Boss work fees401(k) plans can be extremely useful tools to help you save for retirement. Lately, though, they've come under fire because of their high and often hard-to-figure-out fees and their limited investment options, which turn what should be a smart savings vehicle into one that robs employees of their investment returns.

Workers have tended to blame their employers for giving them bad investments at high costs. But a recent study from the Government Accountability Office found that when it comes to understanding the nuts and bolts of the retirement plans they offer, the bosses are just as much in the dark as workers are.

That's alarming, particularly considering that the companies that sponsor plans have a duty to their workers to look after their interests.

It's All Greek to, Well, Everyone

The GAO study found that employers have the same problems ferreting out esoteric fees that workers face.

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For instance, revenue-sharing arrangements under which mutual fund companies collect fees from fund shareholders and then divert some of the fee income to plan service providers can boost the total fees that 401(k) participants pay. Moreover, because these fees are usually charged on a percentage basis, they get larger as workers save more -- even though the services provided typically remain the same.

The study referred to one employer that actually paid record-keeping fees that were 16 times greater than it believed it was paying, because it didn't understand its revenue-sharing arrangement with its services provider. In addition, some investment options, such as variable annuities and other insurance products, come with additional expenses that add to the fee burden.

Moreover, the smaller the employer, the more likely it is you'll pay higher fees.

The GAO cited figures from BrightScope saying that plans with less than $10 million in assets pay 1.9% annually for 401(k)-related services, compared to just 1.08% for plans with more than $100 million. So if you work for a tiny company, you can expect your 401(k) choices to be more expensive.


Who Really Pays the Tab

Unfortunately, the main reason employers don't know about the fees their plans incur is that they tend not to pay them. Not only do workers pay fund management costs from their investments, but service providers often take record-keeping and administrative fees directly from plan assets as well.

In response to the GAO report, the Department of Labor is trying to educate employers about their responsibilities in providing retirement plans. In the end, though, it's up to you to make sure your employer's 401(k) plan makes sense for you. If the fees are too high, either ask for a change or choose other methods, such as IRAs, to save for retirement.

Motley Fool contributor Dan Caplinger has no one to blame but himself for his self-directed 401(k). You can follow him on Twitter here.


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Source: http://www.dailyfinance.com/2012/06/14/your-boss-doesnt-understand-your-401-k-plans-fees-either/

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Why the European Debt Crisis Is Far From Over

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The European debt crisis is back in the headlines, and the news is not good. Portugal's prime minister resigned after his austerity plan for the beleaguered nation were rejected by opposition parties in parliament, and Germany's leadership is waffling on funding the huge bailouts needed by debt-burdened countries such as Ireland and Greece, reflecting the deep ambiguity of German voters weary of bailing out their weaker neighbors. Despite the brave talk of a few months ago, it now seems all but inevitable that Portugal will also need a gigantic bailout of at least 70 billion euros, or $99 billion.

Ratings agencies have downgraded Portugal's debt, and investors have responded by pushing the yield on its bonds to more than 8%, roughly 4.5% higher than the yield on German bonds. Yields on Ireland's debt exceed 10%, reflecting the perceived risk of default or renegotiation.

With Europe at risk of stumbling as a result of its austerity measures and the costs of bailouts, investors need to rethink investments in eurozone economies and the euro itself.

Eurozone growth is already anemic: France managed a meager 0.3% gain in the fourth quarter of 2010, and 1.5% for all of 2010, while the U.S. economy expanded 3.1% in late 2010.

The bailouts are not small potatoes. The temporary rescue fund, known as the European Financial Stability Facility, is currently set at 250 billion euros ($353.6 billion) , and European Union officials want to expand it to 440 billion euros ($622.3 billion). The wealthier nations of Europe have already loaned 177 billion euros ($250.3 billion) to bail out Greece and Ireland, and the high yields on those nations bonds and credit default swaps -- insurance against default -- show that investors continue to see a high risk of default.

Spain Also at Risk

While Spain's economy expanded at a modest 0.9% pace last year, its debt situation remains precarious enough that ratings agency Moody's recently downgraded its bonds. The basic problems of Spain will be familiar to Americans: A property bubble drove residential real estate prices to unrealistic heights, and lenders made loans based on those sky-high valuations. Once home prices retreated, banks were left with large quantities of defaults on land and houses.

Analysts are now suggesting Spanish banks will need at least 50 billion euros in additional capital ($70.7 billion) to cover these mounting losses.

As if these losses weren't troubling enough, rising interest rates threaten to further undermine Spain's homeowners. The European Central Bank President Jean-Claude Trichet recently said that the ECB's key interest rate could rise from 1% as early as April. Fully 97% of Spain's home loans are variable-rate: Their payments will rise when interest rates click higher.

Despite an unemployment rate around 20% and its recent debt downgrades, mainstream analysts see Spain as an unlikely candidate for a costly bailout. But Spain is burdened with the costs of bailing out its own banks, and other analysts are not so sanguine, citing a lack of information on the quality of assets held by the banks. In other words, some fear Spanish banks are overstating the value of their real estate holdings to hide the full extent of their losses.

Structural Flaws in the European Union Papered Over

While there is plenty of chatter about bailouts, austerity measures and heavy debt loads, few analysts are speaking to the potentially fatal weakness built into the European Union and its single currency, the euro, a flaw that is now painfully obvious.

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While the European Union consolidated power over the shared currency and trade, it left control over trade deficits and budget deficits entirely in the hands of the member states. Lip service was paid to fiscal responsibility via caps on deficit spending, but in the real world, there were no meaningful controls limiting private or state credit expansion, or on sovereign borrowing and spending.

In effect, the importing nations within the union (Ireland, Greece, Portugal and to a degree, Spain and Italy) were given the solid credit ratings and expansive credit limits of their exporting cousins such as Germany, The Netherlands and France. To make a real-world analogy, it's as if a spendthrift younger brother was handed a no-limit credit card with a low interest rate, backed by a guarantee from a sober, cash-rich and credit-averse older sibling.

For awhile, it was highly profitable for the big European and international banks to expand lending to these eager new borrowers. This led to over-consumption by the importing nations and handsome profits for big Eurozone banks. And while the real estate and credit bubble lasted, the citizens of the bubble economies enjoyed the consumerist dream of borrow and spend today, and pay the debts tomorrow.

Tomorrow has arrived, but the foundation of the banks' assets -- the market value of housing -- has eroded to the point that both banks and homeowners face insolvency. The heightened risk of default, both by banks and the governments trying to bail them out, has caused interest rates in the debt-burdened countries to rise. Faced with rising costs of servicing their debts, and spending cuts to bring deficits under control, the citizens of the states such as Portugal are rebelling against austerity measures. On the other side, taxpayers and voters in fiscally sound member states such as Finland and Germany are rebelling about being saddled with the costs of bailing out their weaker neighbors.

This structural imbalance will not be easily addressed, but until it's fixed, the E.U. and the euro, are at risk of a great political and fiscal fracturing.

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Source: http://www.dailyfinance.com/2011/03/27/why-the-european-debt-crisis-is-far-from-over/

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