Seven Promissory Note Myths and Seven Myth Busters

Myth Defined: A myth is an invented story, idea, concept, or legend that concerns some idea or hero without a basis in fact. There are numerous promissory myths. Here are the main myths.

Myth #1: The value of a promissory note is clear and obvious-it is not debatable.
Myth Buster: A promissory note can have many values. The term "value" means different things to different people. The meaning of "value" is different to when used by the Internal Revenue Service, by an art auction company, by an antique dealer, by a real estate appraiser, or by an investor.

There are at least 15 meanings to "value": Fair Value, Fair Market Value, Market Value, Book Value, Cost Value, Discounted Cash Flow Value, Quick Sale Value, Liquidation Value, Speculative Value, Intrinsic Value, Investment Value, Personal Value/Owner's Value, Insider/Family Value, Wholesale Value, and Retail Value.

Myth #2: The cash value of a $50,000 promissory note is $50,000-just like a bank CD.
Myth Buster: Promissory notes are not like cash or bank CDs. They are mere promises to repay cash, not actual cash. There is always uncertainty about debt repayment. Consequently, their value is discounted because they lack marketability, liquidity, enforceability, adequate collateral security, proper documentation, and proper interest rate.

Myth #3: Investing in a promissory note is low-risk investing-just like buying a bank CD.
Myth Buster: Every investment has some degree of risk. Because of the reasons mentioned in #2 above, notes may have a higher risk factor. To compensate the investor for this added risk, their yields are higher than safer investments. This concept is the "Risk-Return Trade-Off".

Myth #4: Doing a foreclosure to collect on a defaulted promissory note is quick, easy, and inexpensive.
Myth Buster: There are always significant cash expenses and costs related to the foreclosure and repossession of a property. Attorney fees, eviction fees, property insurance premiums, property repair costs caused by ordinary wear and tear, neglect, and vandalism, real state commissions, other selling costs, and title company closing costs are the main expenses.

Doing a foreclosure and repossession can take between four months and twenty-four months, depending on the legal jurisdiction, and individual facts. This long time-frame results in addition costs and expenses for productive time lost, collection efforts, and losing the use of money for up to twenty-four months-the opportunity costs of having cash tied-up unproductively.

Myth #5: Selling a promissory note is quick, easy, and inexpensive.
Myth Buster: Selling a note is not easy, quick, or inexpensive. There are significant expenses and costs related to selling a note. The main reason is no organized buyer-seller market place exists. A separate selling package is prepared for each note; then the package is presented to each potential buyer. None of these individual buyers is geographically centralized; they reside and do business all over the USA. It costs more time and money to sell (market) one note compared to selling a stock on the New York Stock Exchange.

Myth #6: Any licensed attorney can do a good job preparing the promissory note and supporting documents.
Myth Buster: Just because an attorney has a law license does not mean he or she is knowledgeable in all areas of the law. Being a real estate attorney does not necessarily make the attorney a promissory note specialist. Many real estate attorneys have only a shallow understanding of the note field. Experienced, capable note attorneys have usually specialized in that area of the law--the promissory note field is definitely a specialty area.

Myth #7: Experienced promissory note experts and teachers are abundant, and can teach you the business quickly, easily, and inexpensively.
Myth Buster: Many self-described note experts and teachers have not been, and are not now in the note business. They are actually in the business of selling education. They describe themselves as experienced experts to make the sale. Some have real credentials.

But, regardless of the teacher, the note business, like any other profession, cannot be learned quickly, easily and inexpensively. Like any other serious calling, it takes time, effort, and practice to perfect the necessary skills. There just is no free lunch. Every valuable skill costs time and money to acquire.

Lawrence Tepper specializes in:
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EDUCATION AND TRAINING
Law Degree /Accounting Minor University of Denver
Colorado Real Estate Broker-- Promissory Notes Specialization
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PRACTICAL EXPERIENCE
35 + years of appraisal and valuation for Attorneys, CPA's, Estates, Trusts, Administrators, and Financial-Investment Advisors.

Are Sluggish Earnings The Beginning Of The End?

I, like many investors, professional and individual alike, have been skeptically bullish on this global QE/stimulus/money printing driven market for 4 years now, and all with one hand on the sell button. Although I may have missed some of the upside by focusing on investments that pay higher than normal dividends and interest, it has been the goal to participate while taking less risk.

The world economic situation is a contradiction in and of itself. After all, the answer to a debt problem cannot possibly be more debt, right? Life would be so easy if every time we had a recession the answer was simply to print more money without consequences, but it doesn't work that way.

The problem is that it can seem like all things are rosy for an extended period, like now. There is no limit to a house of cards being built, but the taller it gets it certainly could generate a false sense of security. It can kind of give you that, "This Time Is Different" feeling Reinhart and Rogoff wrote about, and of which I discuss in Facing Goliath- How to Triumph in the Dangerous Market Ahead.

One of my favorite sayings is "The market can stay irrational for longer than you can stay solvent", and it obviously works in both directions. However, as a professional, I am constantly on the lookout for warning signs that armor is crinking.

I am not shy to say that the hair on the back of my neck (if I had any) started standing on end last week when earnings, and more importantly revenue numbers, came out for both present and future predictions and were below expectations. Nearly 2 out of 3 companies has disappointed. This, I have said, will likely be one of the major warning signs. The problem is that it can go on longer than anyone thinks it can. Is this the beginning of the end?

Naturally it's better to be safe than sorry, at least on the surface. Yet, no one wants to sit on the sidelines while the market goes up no matter what they say. Realize however, that there is no bell that rings when it's time to get out. We must keep in mind that this bull market is much older than the average and that we are certain to see some sort of spending cuts and tax increases next year which will slow down an already anemic economy,so it is time to revisit your personal exit strategy.

Timing is everything. So when do you pull the trigger? Well, at the moment the market does have a couple of things going for it. We see a sea of liquidity with no place else to go. More importantly, too many people are waiting for it to happen. If a crash occurred soon, a huge majority of investors would be right, and the market never makes the majority right!

So, even though this current correction has been ugly and other warning signs are there, I would not be surprised to see new highs after the election. After that, it may finally be time to take some risk off the table and be happy with above money market rates and inflation. I know the market historically says it generates about a 10% return, over the very long term, but for that there is simply way too much risk.

Our "Invest for need, not for greed™" approach combined with our hands-on proprietary Top-Down Tactical™ investment management strategy can help you manage risk and deliver returns. If you would like to learn more and/or get a free second opinion on your portfolio, click our Appointment Request Form on our website or call for a no-cost no-obligation consultation today at (916) 925-8900.

It's The End Of The World As We Know It, And I Feel Fine!

-Despite Investor Fears, The Market Stands Its Ground

It seems like anyone old enough to remember the 2008 crash is decidedly bearish and absolutely convinced that the next crash is just moments from impact. Of course they'll be right at some point, likely early next year. The market has a couple of things going for it, one big aspect being disbelief, and that markets never crash when everybody expects them to.

The worries for the market are almost endless with the impending doom of the fiscal cliff, poor third quarter earnings, Europe in a recession, and China and emerging markets slowing fast, but these are known. For now, the market will climb the proverbial wall of worry, with a friendly cycle or two on its side. Not to mention of course, the unprecedented government stimulus among us.

My friend John Thomas, The Mad Hedge Fund Trader did a study on the "sell in May and go away" phenomenon and points out that according to the data in the Stock Trader's Almanac, $10,000 invested at the beginning of May and sold at the end of October every year since 1950 would be showing a loss today. Amazingly, $10,000 invested on every November 1st and sold at the end of April would today be worth $702,000, giving you a compound annual return of 7.10%. In fact, since 2000, the Dow has managed a feeble return of only 4%, while the long winter/short summer strategy generated a stunning 64%.

Of the 62 years under study, the market was down in 25 May-October periods, but negative in only 13 of the November-April periods, and down only three times in the last 20 years! There have been just three times when the "good 6 months" have lost more than 10% (1969, 1973 and 2008), but with the "bad six month" time period there have been 11 losing efforts of 10% or more. With November 1st only two weeks away, this is definitely food for thought. However, be aware that typically once a trend is discovered, it usually stops working.

Another set of statistics may surprise you. Since 1987, stocks have staged a big run from the October lows to the December's high. The S&P 500, over this twenty four year period study, had an average gain of +10%, ranging from a low of 1% to a gain of 29% with the NASDAQ and Russell 2000 doing even better with a gain of almost 15% and 12% respectively.

That said, this year so far has been very different from historical averages in looking at the behavior of the S&P 500. Since 1949, the first and third quarters are weak (small gains of 0.7% and 0.6% respectively), while second and fourth quarters are the strongest with each gaining 2.1%. In 2012, it has been just the reverse: Q1 and Q3 were the big gainers, 12.0% and 5.8%, while Q2 posted a loss of-3.3%. As I said above, typically once a trend is discovered, it usually stops working.

In the bigger picture, the natural demographic trends of the largest generation in history moving past their peak spending years can only be met with slower growth and higher unemployment and deflation, which I discuss in depth in Facing Goliath - How to Triumph in the Dangerous Market Ahead. Not until the echo-boomers, the 90 million kids of the baby boomers, start spending in about 5 years will the economy fully recover and start growing again. Hallelujah for federal stimulus, while it lasts.

Social Security's Gift to Married Couples: The Spousal Benefit

One of the benefits of being married is that you can share your spouse's Social Security benefits. If you are close to retirement age, you should be aware that there are various benefits available to spouses, including divorced or surviving spouses.

Chances are you are already aware that spousal benefits are available and you're looking for answers to questions, such as:

    My wife doesn't have enough credits to qualify for Social Security; can she collect benefits based on my record?
    My husband and I have been married for 35 years but are divorcing soon; what will happen to my spousal benefits when the divorce is final?
    What happens to my widow's benefits if I remarry?
    I am collecting benefits on my ex-husband's record, what happens if he dies?
    How can we maximize our family benefits? Are there strategies that we should be aware of?

Why is Planning for Spousal Benefits Important?

With Social Security making up approximately 40% of the average American's retirement income, it's important to maximize your lifetime benefits not only for yourself, but for your spouse also.

The rules surrounding spousal benefits are very complicated. Making a wrong decision could mean a lower standard of living and could increase the chance that you will outlive your money.

Retirement Benefits for Spouses

Disclaimer: For simplicity, this article assumes that the husband is the higher earner and that the wife will receive spousal or survival benefits based on her husband's earnings. However, the spousal rules are gender neutral; if the wife is the higher earner, or if it makes sense for other reasons, the husband can certainly claim spousal benefits on his wife's earnings instead.

Wives can collect retirement benefits based on their husband's earnings history even if they have never worked. However, there are many rules and requirements that must be met, including:

    You must be married for at least one year before you can collect benefits based on your spouse's earnings history
    You must be at least age 62
    Your husband must have filed benefits on his own record (that does not necessarily mean he is collecting benefits)

If there are minor children involved the rules are a little different. Wives who are caring for a dependent child who is receiving Social Security can receive the spousal benefits no matter what age she is. However the spousal benefits will end when the child turns 18 if the spouse is under age 62.

Who is a Spouse?

This may seem like a silly question, but in today's world where you have multiple marriages in a lifetime, common-law marriages and same-sex marriages, it's a legitimate question.

"Spouse" typically means the current spouse, but divorced and widowed spouses can also receive benefits based on the worker's earning history. More about divorced and survivor benefits will follow.

Add in common law marriages and same-sex marriages and the definition of spouse gets really confusing.

Common law marriages are recognized by Social Security if they are legally entered into in a state that recognizes common law marriages and you act as if you are married. So in some cases you can be a spouse for Social Security purposes even if you are not legally married.

On the other hand, same-sex marriages are not recognized by Social Security, so a partner in a same-sex marriage will not be considered a spouse, even if you live in a state that allows same-sex marriages.

Divorced Spouse Benefits

Many people are surprised to learn that you can collect spousal benefits on an ex-spouse's earnings record. Divorced spouses can collect spousal benefits if the marriage lasted at least 10 years and if it has been at least 2 years since you have been divorced. Similar to spousal benefits, you will receive the higher of your own benefit of 50 percent of your ex-spouse's benefit.

The age requirement (must be age 62 to collect divorced spouse benefits) and reduction for early withdrawal of benefits applies just like it does for spousal benefits. However, one of the main differences between divorced benefits and spousal benefits for the current spouse is that the divorced spouse doesn't have to wait for her ex-husband to start collecting benefits before she can start collecting divorced spouse benefits.

If you are the ex-husband you may be wondering how your ex-wife collecting on your benefits affects your current wife and family. The answer is "it doesn't". The payment of benefits to an ex-spouse has no effect on the maximum family benefits for your current wife and family.

If you have been married more than once, and each marriage lasted more than 10 years, you may qualify for benefits on either ex-spouse's record. As long as you are not married at the time you apply (and you have been divorced for 2 years), you can apply for spousal benefits on any ex-spouse that you were married to for at least 10 years.

Tip: If you are considering divorce and you have been married for close to 10 years, consider delaying the divorce until after you have reached the 10 year mark to allow the lower earning spouse to qualify for spousal benefits. Benefits paid to an ex-spouse don't affect your family maximum benefits, so it helps the wife and does no harm to the husband or his new family should he remarry.

Survivor Benefits

Finally, whether you are the current or ex-wife, if your husband passes away before you do, you may qualify for survivor benefits. In general, survivor benefits are 100% of your husband's benefit; however, survivor benefits will vary depending on the number of years worked, the earnings and if the deceased worker was already retired (and at what age).

Survivor benefits can be taken as early as age 60, or even age 50 if you are disabled. A widow can choose to take survivor benefits at age 60 and then switch to her own benefits at full retirement age.

Widows will lose their survivor benefits if they remarry before age 60, however, once you have reached age 60 you can continue to collect survivor benefits even if you remarry.

Learn how to get the maximum Social Security benefits you are entitled to at Your Guide to Social Security Retirement Income, a website created to help baby boomers learn everything they need to know to make the most out of their Social Security, including when to apply, how to coordinate spousal benefits, how to minimize the taxes they pay on Social Security and much more.

Give the Gift of a Roth IRA

This past summer, my business partner's son turned 21. In addition to a beer brewing system, she also gave him a gift with an eye on his future- a Roth IRA. It got me to thinking about what a great idea that was and how other parents and grandparents can help their children and grandchildren get a head start on their retirement savings.

First, let's discuss the basics of the Roth IRA. Introduced in 1997, this Individual Retirement Account uses after-tax dollars (as opposed to pre-tax dollars that fund Traditional IRAs). Earnings accumulate tax-deferred and all withdrawals after age 59 ½ are 100% tax-free. Roths are more flexible than their Traditional counterparts in that contributions may be withdrawn without tax or penalty, thus opening the possibility of using funds for college or a house purchase. Ideally, of course, the Roth should be utilized for long-term retirement savings. Anyone with earned income may contribute to a Roth IRA. The maximum annual contribution is currently $5,000 unless you are over 50 years old, in which case you may put in up to $6,000. There are income limits with the Roth- in other words, if you make too much money, you're not eligible to contribute. For the sake of this article, I'll assume that your teenaged son or daughter is well within these limits, unless he or she is on the Mark Zuckerberg career track.

If you'd like to consider gifting money for a Roth, first you need to make sure your recipient has earned income. It doesn't matter how old he is, but there must be earned income whether it be from babysitting, a part-time job, etc. Interest earned on savings or investment accounts doesn't count, nor does money given to them. Now, there is nothing that says the Roth IRA must be funded with the actual dollars they earn. Let's face it- it's probably not realistic to think that your child will put all of their hard-earned money into an investment account that they won't use for 45 or 50 years. So, if your daughter earns $2,000 working part-time at Dunkin Donuts, she doesn't actually have to use that money for the Roth. That $2,000 simply indicates the maximum that could be contributed for that year. You may give her the $2,000 to put in to her Roth. Many people will wait until late January when their child or grandchild gets their W-2 and then make a contribution for exactly that amount. The deadline for making IRA contributions is the tax-filing deadline, typically April 15th of the following year.

An important incentive for deciding to start a Roth IRA for a teenager or young adult is quite simply the magic of compounding returns. We often tell our clients that "time in the market is more important than timing the market." Putting even small amounts of money to work for upwards of fifty years can have dramatic effects. Consider a 15 year-old who invests $1,500 a year for 3 years and averages 5% annual returns over 45 years. At age 60, that $4,500 would be about $38,000. At 8%, the effect is even more amazing- it would be worth about $132,000.

Another reason for putting money into a Roth IRA versus other savings or investment plans is that retirement plans don't affect college financial aid. If a college-bound student has money in her own name in other types of accounts, they may alter financial aid calculations.

And finally, does anyone have any doubt that tax rates are going up in the future? Whether that happens in January or years from now, it's a pretty safe bet. If your teenager can pay taxes on his (low) income today when rates are historically low and lock in tax-free gains for the rest of his life, why not do it? I can envision a future generation of 60-somethings getting ready to retire and being pretty pleased with their parents' or grandparents' decision to start a Roth IRA for them back in 2012. Even if you're not in a position to be giving your child money to fund their Roth, encourage them to add a little money from each paycheck they earn. It's okay to start small, and it instills in them the value of saving for the future even now while they're still worried about homework and the prom.

Women Over 50 - 5 Tips For Financial Independence

Financial independence is the goal of most people especially as we approach retirement. Once we can see that turning 65 is just around the corner, thoughts of financial independence seem to become more frequent. Unfortunately some of these thoughts are more than that. They are mild forms of panic attacks especially if the retirement nest egg isn't looking great.

While these concerns affect all people, women over 50, especially those who are single, becoming financially independent is important for their survival, if they are desiring a comfortable retirement. And why shouldn't they be.

Working for most of your life, retirement should be a reward for your hard work. But if the coffers are a bit empty, what can you do to fill them so that your senior years are not on struggle street.

For women over 50, here's 5 tips to help you create financial independence:

    Create More Income
    Yes it is easier to create wealth by having more income or a higher paying job. But for women over 50 it is sometimes harder to move into a higher paying job based on age and or qualifications. You could look to undertake a higher education course at Uni or TAFE but again you might face the age issue. Perhaps a partime job or home based business could provide some extra cash.

    Invest Your Surplus
    There are many courses and associations to assist women over 50 to learn how to invest their surplus income to provide for a better retirement. Look for such associations in your local area and start taking an interest in the share market, cash management funds and real estate. With time this surplus correctly invested will compound to build you a nice nest egg.

    Money Is Taxing
    Make sure you have a good accountant or tax advisor to give you good advice on the best investments offering the best tax advantages. While women over 50 need extra income to invest, it is also important to cut your expenses especially by paying lower taxes.

    Get More Out Of Your Time
    Having more time is a dream of most people. But there is only 24 hours in a day. How do you maximise your time especially with earning money. You engage the power of leverage. If you get a partime job over and above you main job' you will create more income. But you are still exchanging your time for money. And there is only one of you. What if you could 'employ' a team of people whereby you could earn a percentage of their income. As well as leveraging people you can also leverage time - more specifically time zones. Why not have your team not only where you reside but also in different states and countries. So when you are asleep, your team members in another country are working and you're earning as well. Home based businesses can offer such an opportunity.

    It Takes Two To Tango
    Going solo in life does have some advantages. But it can also have it's limitations. And creating wealth or extra money can be one of those limitations. Women over 50 and men for that matter seem to do better in all facets of life if they have a loving, supporting partner or spouse. Doing things together including making money is more enjoyable when you're not on your own. If you have someone special in your life, why not make it more permanent and create a wonderful life together; especially in retirement.

Retirement Planning - You Are Never Too Young To Think About This

If you are the type of person who wants to plan for his future, then it's quite possible that you plan ahead even while you're still young. Too many people nowadays find it hard to live their senior years because they don't have money to spend. They enjoyed their teenager years, spent money when they were earning like there were no tomorrow and just about did everything while they were young that they have nothing left to spend as old men and women. The lesson in this is that you should invest in retirement planning so as to not be a burden later on in your life.

Typically you will want to seek advice from experts. We are not all financial advisers in nature so we need to other people to help us with these tasks. It's absurd to think that by just opening a bank account like we teach our kids in their junior we can already count it as investing money. That is not how it works in the real world. You need stocks and bonds that will grow bigger and bigger, you need to buy properties that you can later on sell and generate money with. You need a lot of serious thinking before anything else and you can't do them all by yourself. Expert advices are not free but it's a must.

You don't have to look far actually, searching online will give you a lot of choices which can work to your advantage. Do not be too paranoid that financial advisers will run away with your hard earned money, as long as they have the right papers and the right licenses, they will not fail to do the job you want them done. Be sure to be attentive to what they say to you, obviously they will do most of the job themselves but knowing the things they are about to do is better than being in the dark. Knowledge so power right?

So heed investment advice from experts and ensure that your future be comfortable. With the right decisions we have early in life our granny days won't be that harsh. Sure don't forget to enjoy your current days but don't ignore the fact that you have to save for your future too. Many people in their old age have wished for that to have been so and while you're young now and you know of what to do then don't make the same mistakes they did. Make your future a stable none and don't think that "the now" is the only most important part of your life.