On August 12^th, 2010 the S&P 500 index was at 1083.61.  That is about the same level it was at on August 12^th, 2009.  There have been 270 trading days and no upward movement for the stock market.  Staying even is definitely better than the market's performance in 2007 and 2008, but it is not helping people plan for and achieve their retirement goals.  Combined with the miserable rates of return earned from saving's accounts, CDs, and Bonds, this leaves many people looking for alternative investments to meet their needs. 

• Public Auction - Lien's are offered to prospective investors at a public auction.  Liens are auctioned off to investors similar to how a painting would be auctioned at Sotheby's.  If two investors want the same lien, whoever is willing to pay more will come away with the Tax Lien 
   
• Tax Lien Fund - The second way is a hand's off approach where you invest in a portfolio of Tax Lien's the same way you would invest in a mutual fund consisting of a portfolio of stocks.   The purchasing and managing of the tax liens is done by the fund manager.  You share, along with the other shareholders in the returns earned by the portfolio of tax liens.
  

• Liquidity Risk - Tax Liens offer limited liquidity because the return on your investment cannot be realized until either the property owner redeems the tax lien certificate or a foreclosure takes place and the property is sold. 
   
• Overhead Expenses - If you plan to invest in individual tax liens there could be significant overheard involved.  It can be expensive to travel across your state or throughout the country looking for tax liens and attending auctions and sales.   Many times you may travel to an auction and not come away with a Tax Lien Certificate.

• Other Risks - If you do decide to invest in tax liens it is important to fully understand the process.  If you purchase lien properties under the control of the FDIC or those affected by the DEA it could possibly result in the loss of your investment.  Also if the property you have a lien on goes through foreclosure it is necessary for the judge to legally grant you the property.  There is always the legal risk that for some reason the judge bypasses you and grants the property to another secured creditor.  This is rare, but has the potential to happen.

Book Review

Questions and Answers on Life Insurance: The Life Insurance Toolbook, by Anthony Steuer

The concept of Life Insurance is simple.  It is a type of insurance that pays money when someone passes away.  Unfortunately buying life insurance is not as simple.  With all of the different options available purchasing life insurance can be a confusing and sometimes stressful endeavor.  Also depending upon which option  you choose it can also be expensive with premium payments lasting into your 90's.  Questions and Answers on Life Insurance gives an unbiased view into some of the more common questions and answers regarding life insurance.  The book contains over 130 questions and answers on Life Insurance and some of the ones I found most useful include:

1.  Question 6: The $64,000 question - Should I buy Term Life Insurance or Permanent Life Insurance and Invest the Difference.  There is a Hatfield vs McCoy debate in the life insurance agency on which type of policy people should buy.  Steuer like myself believes that in most cases the best approach is a combination of the two (Term and Permanent).  Term insurance is very cheap when purchased at a young age, however it gets prohibitively expensive beyond ages 65.   Permanent Insurance offers things like Cash Values, money for retirement, or education, however Life Insurance usually does not make the best investment.

2.  Question 28: What are Dividends.  Life Insurance dividends are another controversial topic in the industry.  Most people are familiar with Stock Dividends paid by corporations.  Life Insurance dividends are unlike Stock Dividends.  LI dividends are considered a return of a portion of the premium of the policy.  The Life Insurance company uses your premium to cover the expense of insuring you.  If they keep expenses down they will return a surplus of the premium to the policyowner.  Only policies considered "participating" policies pay dividends and they charge a higher premium

3.  Question 13: What is Universal Life Insurance - Of all of the different types of Life Insurance policies, Universal Life offers the most flexibility with your policy.  The amount and timings of your premiums are flexible as are the face amount of coverage.

Five Strategies for Widows and Widowers

When someone has lost his or her spouse and is grieving, it is difficult for the one left behind to think straight when emotions are running so high.  This can lead to a bad situation becoming worse by making a common mistake that widows and widowers often make. 

 1.        Making decisions too quickly - In addition to the emotional toll of losing a loved one, widows and widowers will also face financial issues that can have a big impact on their lifestyle.  Some have sold their homes - thinking they now cannot afford the home or that the memories are too painful - and later regret making this decision.  Others have prematurely changed bank or financial account titles, which unintentionally created major tax consequences.  Hold off on making any long-term decisions for some time (6 months or more) when it is easier to think logically rather than emotionally.

2.       Relying too much on the financial advice of a caring relative instead of an expert - When it comes to financial and legal recommendations, widows and widowers need counsel from trained, skilled professionals.  Even if a friend has been in a similar situation, that does not mean they are qualified to properly assess your situation and provide guidance to make the right decisions.  They certainly mean well, but they may not be up to date on the latest rules and regulations, tax laws, and others.

3.       Overlooking survivor benefits - Most people think of Social Security when it comes to Survivor benefits, but there may also be pensions, retirement funds, or other financial accounts that have benefits for widows and widowers.  It can be hard to think about things like this while grieving, but there is a risk of losing financial benefits and even insurance protection if the proper forms are not completed in a timely manner.

4.       Not setting a Budget - It is recommended that everyone sets a budget, but it is especially important for widows or widowers.  Without it, there is more of a change of living beyond means and ending up broke.  The simplest way to do this is to make a detailed list of income and expenses.  For the first year, it probably makes sense to revisit your budget every 3-4 months and either adjust the budget or your lifestyle.  If the proper planning is done upfront you can still live the lifestyle that you choose.

5.       Not obtaining (or retaining) proper insurance - Life Insurance usually comes to the top of everyone's mind when someone passes away, but what about other policies? The surviving spouse should consider things like Health Insurance, Homeowners protection, Disability Insurance, Long Term Care Insurance to ensure they understand their coverage and that they are adequately protected.  For example if the deceased spouse was employed and covered by a company health insurance plan at the time of his death, the surviving spouse is eligible for health coverage through COBRA for up to 36 months (which is double the standard 18 month period).

• According to Fidelity early withdrawals on 401k plans are at an all time high.  At the end of the 2^nd quarter 2.2% of 401k plans had taken a hardship withdrawal, while there were over 22% of 401k plans that had outstanding loans on them.  No one will argue with the need to use funds for your 401k plan to avoid foreclosing on your house, but it is important to understand the ramifications to your retirement by liquidating your 401k account.
  

Marc Bautis is a Wealth Manager specializing in working with retirees and those nearing retirement who want to protect their principal and ensure their money lasts. He is committed and proud to deliver independent advice, always in his clients best interest.