Cheap custom homes! Fire sale prices! Won't last!

Consumers can get better prices on a custom or semi-custom home these days from a mass market homebuilder (free Yahoo link) (I found the Yahoo link since I had to search Google for the story after I couldn't find it directly on the WSJ site). The housing slump is pushing the builders to find more profitable niches.

A number of big home builders are now getting into the custom-home game -- an area that was once almost entirely the province of boutique builders. Companies such as John Laing Homes, Toll Brothers Inc. and K. Hovnanian Homes are all venturing into a field that takes more time, patience and hand-holding than production building.

The reason is simple: Custom-home building is more profitable for builders. And -- in this tough market -- it also carries less risk: Builders avoid the carrying costs of land, taxes and other monthly expenses that can come with speculative building. Because custom building caters to the upper end of the market, it's doing better than production building right now, says Steve Melman, an economist with the National Association of Home Builders. Although home building of all types is stagnating, he says that the custom share of the market tends to go up during down times, while production building peaks during boom times. In 2007, the custom share of the market was 24%. In 2005, during the peak of the boom, the custom share was 19%.

To see the difference in prices, look at one couple building a house in the Lowcountry of South Carolina. The per square foot cost from Toll Brothers was $137, while custom builders quoted between $170 and $200. The couple had to tweak an existing Toll Brothers design as opposed to a fully custom house, but the price break they got seems worth it. If you're in the market for a custom house, the big builders are worth checking out.

When will the market bottom get here?

When will the market bottom? Some ascribe to the theory it will happen when we have capitulation. A Barron's column says capitulation is coming.

Ahead of that one giant, desperate cry of uncle yet to come, the bear so far appears to be twisting investors, sector by sector, asset class by asset, until the white flag goes up. Slowly but surely, each of the major asset classes, for example, has found itself down from highs: real estate, stocks, bonds, commodities and the dollar.

Bear markets eventually get to all equity sectors, notes Mike O'Rourke, chief market strategist at broker BTIG. After housing, retail, financials -- and energy last week -- have been hit, technology might be next for a further mauling, given the poor trading action and recent disappointing news out of Apple, Google and Microsoft , he says.

The good news is the process is unfolding. The bad news is that there are plenty of stock groups not nearly as beaten-up as the ones mentioned above, and even a few that are up since the market hit a high last fall. Eventually, the bear will get to most, if not all, and investors will collectively cry "uncle!"

I hope the bottom comes this year and not next (or even 2010). I'm continuing to methodically put money into stocks. Not as much money as I used to put in since I want to hold more cash, but I still put money in so that when the bottom comes I catch it with some money invested.

Desert land as an investment

Land is being snapped up in the Southwest by companies to use for solar power projects. It's becoming a modern day gold rush, with the likes of Chevron, PG&E and Goldman Sachs involved.

Just 20 months ago only five applications for solar sites had been filed with the BLM in the California Mojave. Today 104 claims have been received for nearly a million acres of land, representing a theoretical 60 gigawatts of electricity. (The entire state of California currently consumes 33 gigawatts annually.)

The BLM is the Bureau of Land Management, in charge of the federal-land the solar developers want. 60 gigawatts would be a nice addition to the nation's power supply. I'm not sure exactly how to play a solar investment quite yet, but I'd like to get into the right one. If Goldman Sachs is in this, there is big money to be made. Examples of the increase in land prices are:

Such is the land frenzy that farmers in Arizona were paid $45 million for 1,920 acres by Spanish solar company Abengoa so that it could build a 280-megawatt power plant; the land had an assessed value of a few hundred thousand dollars. The company also plunked down $30 million for 3,000 acres in the California Mojave that had traded hands for $1.25 million nine years earlier. That prompted developer Scott Martin to put his adjacent 300-acre parcel - land he had bought only a few months earlier for $457,500 - on the market for $3 million.

For the more technically inclined, the story discusses what will be built on the land.

Most of the power production contemplated for the Mojave will rely on solar thermal technology - the common approach in large-scale generation projects - in which arrays of mirrors heat liquids to produce steam that drives electricity-generating turbines. But a secretive Hayward, Calif., startup called OptiSolar has filed claims on 105,300 acres to build nine gigawatts' worth of photovoltaic power plants, which employ solar panels similar to those found on residential rooftops. (The company also has applied for leases on 21,800 acres in Arizona and Nevada.) To put those ambitions in context, the biggest photovoltaic power plant operating today produces 15 megawatts. Says OptiSolar executive vice president Phil Rettger: "We have a proprietary technology and a business approach that we're convinced will let us deploy PV at large scale and be competitive with other forms of renewable energy."

Collective funds instead of mutual funds

Collective funds are like mutual funds, but generally only available in retirement plans (like 401(k) plans), and are increasing in popularity as investment vehicles in 401(k) plans (free WSJ Digg link). The reason that they're replacing traditional mutual funds? They're cheaper.

Just like mutual funds, collective funds pool investors' assets and invest in stocks, bonds and other securities. The chief difference: Collective funds are typically available only in retirement plans. Because they aren't sold directly to the general public, they generally aren't regulated by the Securities and Exchange Commission.

Collective funds tend to be substantially cheaper than mutual funds, largely because they don't have to comply with SEC regulations or market to retail customers. That's driving 401(k) plans to embrace these products, which are offered by big fund providers like Fidelity Investments, Vanguard Group and Charles Schwab Corp. as well as by banks and trust companies.

Only 58% of large defined-contribution plans such as 401(k)s used retail mutual funds in 2007, down from 65% in 2003, according to research and consulting firm Greenwich Associates. By contrast, 39% of such plans used collective funds last year, up from 33% two years earlier. Other common 401(k) investment options include institutional-class mutual funds sold to retirement plans and other large investors, and "separate accounts," which are custom-designed for a single retirement plan.

I checked my 401(k) and sure enough, the funds I'm invested in are collective funds, not mutual funds. In fact, my 401(k) plan offers more collective funds than mutual funds.

Collective fund drawbacks

The Journal story talks about one drawback of collective funds being that they don't have to update their performance frequently, and that their daily prices aren't reported in newspapers. My 401(k) plan publishes daily price changes of the funds on its Web site, so this hasn't been a problem.

Another drawback cited is that collective funds "can't be rolled over to an individual retirement account when the participant leaves the 401(k), so participants have to transfer their funds into other investment options if they take these assets from the plan." However, I don't see this as a big deal since I've never done a direct in-kind rollover from a 401(k) to a rollover IRA when I've left an employer. I've always liquidated the 401(k) holdings and then rolled over.

Global wealth

I was reading a column about the great returns that financial planners and advisers make for their brokerages. I know, no surprise there. What jumped out at me is how much wealth high net worth individuals now control:

Globally, the wealth of high-net-worth individuals (defined as having net assets of at least $1 million, excluding primary residences) jumped 9.4% last year, to just under $41 trillion. That's more than 30 times the market valuation brokerage firms have lost just this year. Both India and China saw at least 20% jumps in the ranks of their wealthy citizens. In Korea that figure was 19%, and in Russia it was just over 14%. In the oil-rich Persian Gulf...well, you get the drift.

Maybe these factoids are only of interest to me, but I thought I'd point it out.

College endowments are misers

Look at this graph from BusinessWeek. The average percentage of assets college endowments spent per year decreased from 5.1% in 2003 to 4.6% in 2007. It's not because the endowments are shrinking, they grew 17% last year. Click through the entire slideshow for more numbers. A couple of colleges were singled out for boosting aid.

Solar heating in the home

Wendy Bounds has a story in the Journal about her efforts to heat her home through solar power (free WSJ Digg link). The story isn't about using photovoltaics to generate electricity for heating, but rather using a solar-thermal system.

Nationally, an average-size, 4.5 kilowatt residential photovoltaic system costs $40,000 to $50,000, before any tax credits or rebates, according to the Solar Energy Industries Association. The lowest estimate I got was about $17,500 after rebates and credits, with an estimated payback period of 15 years. (A kilowatt-hour equals the energy needed to run a 100-watt bulb for 10 hours.)

But for a smaller investment, sun can be used to heat water for showers, laundry and dishwashing. At $2,000 to $8,000, these solar-thermal systems typically pay for themselves in under a decade. With extra equipment, they also can help heat homes.

The story is full of good links to find local installers and information on tax breaks the feds and states give for solar.

I did a search and found a science fair project that refers to the most efficient photovoltaic cells having 15% efficiency, and the most efficient Stirling engines having 30% efficiency. I found another site that states solar-thermal is 5 times more efficient than photovoltaics at heating water. Solar-thermal is a cheaper, more efficient option for heating water and a home, but won't necessarily provide electric power (unless you want to set up your own solar-thermal electric plant in your backyard.

New version of Fidelity Active Trader Pro

Fidelity has released a new version of its Active Trader Pro, and Barron's has provided a review. The direct link to get more information about Active Trader Pro on the Fidelity site is here. The application is only available to Fidelity customers that have traded 36 times over the past 12 months. By comparison, a tool like TD Ameritrade's Command Center is available for all TD Ameritrade customers, regardless of the TD Ameritrade's trading volume.

Commissions drop from as much as about $20 a trade to as little as $8 for active traders, and ATP itself is free to those who qualify. Transactions can include options as well as stocks and exchange-traded funds. As you trade more, ATP tosses more tools your way, all usable within the app, including Dow Jones news services (an affiliate of Barron's), Level II quotes and interactive charting. Those who trade 120 times or more over 12 months are eligible for Fidelity's back-testing tool, Wealth-Lab Pro.

Again, Fidelity's competitors offer cheaper trades, and free back-testing tools that don't have a minimum trading volume requirement.

The options-order entry screen allows you to create strategies with as many as four legs, so that you can be selling and buying calls at four different strike prices. Options traders will be able to view the greeks, which measure a particular option's potential risk and reward over time from the option's chain displays. They also can use a multi-leg pairing tool that displays bid/ask spreads. They'll also be able to find historical options charts.

Historical options charts are a big draw for me.

Overall, I didn't see anything in the review that would cause me to switch to Fidelity so I could use the tool, but for existing mass affluent customers that are active traders, the tool is worth checking out.

Life insurance calculators

SmartMoney has a fairly comprehensive life insurance needs calculator. I used several online calculators when calculating how much life insurance I needed. In the end, I found the rule of 10 times my annual salary worked as well as the more involved calculators (and was much easier to calculate).

Keep non-mortgage costs for homes in mind

A Connecticut couple is putting up their (amazing) home for sale through a sealed-bid auction. Their reason is that it is too much house for just the two of them (it's a 26,000 square foot house).

The thing in the story that stuck out at me was this:

The upkeep, more than $200,000 a year, was part of what soured the dream.

“It needs a staff — a chef and groundskeepers and gardeners,” Mrs. Cheslock said. “Trees, lawn, gardens, pool, deer-repelling. We have three different kinds of grounds teams.

Keep non-mortgage costs in mind when purchasing a house. There's also time that has to be invested in a house, whether homeowners perform maintenance themselves, or spend the time hiring someone to do it.

(Hat tip to FreeMoneyFinance for this story.)

Americans will be on their own for retiree health care coverage

That's my prediction, anyways. Americans won't be able to count on retiree health care benefits from either Medicare or private company insurance. Take a look at what General Motors just did.

But GM's announcement Tuesday that it would cease medical coverage for its salaried retirees age 65 and above signals that a new era of ever-shrinking benefits has arrived. Beginning in January, even former employees who are already in retirement will lose their benefits, which most of the company's retirees use to supplement gaps in their traditional Medicare coverage. The auto maker will boost monthly pension payouts to help offset the cuts. The company's unionized workers aren't affected by the cut to retiree health benefits.

And here's the advice from the retirement experts:

At this point, employees and retirees "have to feel lucky if they still have retiree [health-care] benefits, and have to start planning for when they won't," says Rick McGill, head of retiree medical consulting for employee-benefits firm Hewitt Associates. He says such benefits are "a dying breed."

Retirement-benefit experts have for some time been recommending that all workers -- even those close to retiring and who've "earned" full retiree benefits -- should assume that those benefits will likely be eliminated, either before or during their retirement, and start planning and saving for it.

Medicare won't be there either

I don't think Medicare will be there to pick up the slack for retirees who lose company sponsored health plans. It's an unsustainable program. Kotlikoff wrote an entire book on the problems. According to Fidelity Investments, which was referenced in the Journal article, "a 65-year-old couple's out-of-pocket health-care costs could reach $225,000 in their remaining years". Sadly, that money is going to have to come from the retiree him- or herself, not from the government. There will no longer be government sponsored health care for the elderly. It's a bum deal, for sure, but we'd better start planning for it.

State and city workers will fare no better than corporate workers

State and municipal workers counting on retiree health care benefits won't make out any better. These old Fortune articles give some good background. Let's not kid ourselves, taxpayers aren't going to fund public sector retiree benefits. They're going to be cut.

Again, this is all very sad, but unfortunately, it's reality. I hope I'm wrong about this, but this doesn't look like a problem that we can grow our way out of.

Brown bagging it

I bring my lunch to work most days. I've been doing this for a couple of years, and it looks like I'm not alone in brown bagging it. I probably save anywhere from $50 to $75 a week by making my lunch at home. (That's money I can use for a cocktail or two after work!)

It's not just the young, entry-level workers who are cutting back. In March, after price increases of 10% to 20% at his favorite midtown Manhattan eateries, Marc Haskell gave up his gourmet spinach salads and turkey wraps and began packing turkey sandwiches from home. The 47-year-old executive vice president of the Glazier Group, a restaurant and hospitality company, says he now saves around $50 a week on lunch.

Eat healthier

I remember when I was a kid my mother used to make my father lunch to take to work. This wasn't necessarily to save money (although that was a plus), but to make sure he didn't eat junk at lunch. You can eat much healthier by bringing your lunch.

Are high mutual fund minimums good?

High mutual fund minimums can be a good thing. The mass affluent segment should investigate funds with higher minimums. Here's a story that gives reasons why (free WSJ Digg link).

But there are reasons for considering paying up. Of course, by raising minimums some funds are being picky about who they let in the front door. But in some cases, they also are trying to control costs and protect shareholders. The fewer shareholders a fund has to deal with, the less it has to spend on annual reports or account maintenance. That can translate into lower annual fees. High minimums can also cool off asset inflows into a hot fund.

Once I'm invested in a good fund, I want the fund to restrict who else can invest. Basically, I want the manager to only have enough money that he or she can invest well. If the fund gets hot, and new money pours in, the manager has to start investing in worse and worse ideas that are going to lower overall returns.

Let me give a simple, canned example. Let's say I have $10,000 in a fund that owns a single stock that returns 20% a year. Therefore, leaving out fund fees for simplification, the fund returns 20% to me a year. Now the fund let's in another investor who invests $10,000. The fund manager invests the new money in a stock that returns 10% a year. Now since I own 1/2 the fund, and the new investor owns the other 1/2, I essentially have $5,000 invested in a stock that returns 20% a year, and $5,000 invested in a stock that returns 10% a year. This has put me in a worst position than when I was the sole investor in the fund.

Discouraging frequent redemptions is another feature I look for in my mutual funds. Frequent redemptions by other shareholders causes either the fund manager to keep cash on hand instead of investing it, or to sell investments to raise cash, potentially selling investments that still have room to run.

Have over $100,000 in cash but want full FDIC insurance

Here's a tip in the Journal's R.O.I. column about how to get full FDIC insurance on deposits over $100,000 (free WSJ Digg link) (the money has to be broken up across multiple accounts).

[...] you can take part in a program known as CDARS run by Promontory Interfinancial. Details are here. This allows you to deposit your money in one bank, which will then parcel it out in federally-insured $100,000 lots to various other banks. Net result: The whole thing is insured.

With CDARs, someone else is breaking up the money into less than $100,000 chunks for you. Their Web site says you can get full FDIC protection up to $50 million. And there aren't any fees. Sounds like a useful service for a mass affluent depositor.

Options trading gaining in popularity among small investors

Despite the risks, options trading is become more popular among non-professional investors (free WSJ Digg link). The numbers tell the story:

This year through June, options trading volume jumped 38% from the same period last year, to 1.7 billion contracts, according to Options Clearing Corp., which clears options transactions. While many of those trades were made by Wall Street pros, individual investors have demonstrated a growing appetite for options, which are, in essence, contracts to buy or sell a stock or other asset at a set price within a certain time period.

[...]

At optionsXpress Holdings Inc. and its younger rival TradeKing -- two brokerage firms catering to small investors -- options-trading volume climbed 21% and 150%, respectively, in the first five months of this year from the same period a year ago. A recent survey by brokerage firm OptionsHouse Inc. found that 60% of online options investors have traded the contracts for five years or less.

Are retail investors going to get burned by options? Only time will tell. The article has a couple of anecdotes about individuals that lost a small fortune trading options.

To satisfy this increase in demand, and to attract even more small investors in options, simplified options products are being rolled out:

The American Stock Exchange in May, meanwhile, launched a simpler type of option -- called a "fixed-return option" -- designed for novices. Buyers of these simplified products face only two possible outcomes at expiration: A return of $100 per contract, or nothing. Bullish investors can purchase a "finish high" option, betting that the underlying stock will be above a certain level on the expiration date, while bears can buy a "finish low" option, betting the stock will be below a certain level on that day.

Personally, I'll stick with my covered call writing. I still remember the warning a friend of mine gave me about options years ago. It only takes a few contracts expiring out of the money before you're wondering where all your cash went.

Why to avoid credit monitoring services

SmartMoney provides 4 reasons to avoid the so-called credit monitoring services.

On the surface, credit monitoring services sound like a foolproof way to insure your credit's health. But, as consumer advocates caution, these services typically aren't worth the money. "Credit monitoring is grossly overpriced," says Gail Hillebrand, senior attorney for Consumers Union, which publishes Consumer Reports. Adds John Ulzheimer, president of consumer education for financial-information web site Credit.com: "I can think of a lot of other ways to spend $150 a year."

Of course, credit bureaus argue that these services are worth every penny. "It's a good tool for managing credit, and that's what's missed in a lot of these conversations," says Steven Katz, a spokesman for TransUnion's TrueCredit.com. Rod Griffin, director of public education for Experian, says not only does their service give consumers around-the-clock access to their credit report, but they also provide invaluable debt management tools to help them improve their creditworthiness. Demitra Wilson, a spokeswoman for Equifax, noted that these services can also make a lot of sense for consumers who don't have the time to regularly check their credit report.

Of course the credit agencies' flacks say this. What should be required is for credit agencies to provide the monitoring service for free. Charging a fee so that a consumer can make sure the credit agency didn't @%@# up and put incorrect data into a credit report because of a mistake or identity theft. That's ridiculous. The burden of proof needs to be on the credit agencies and the companies that report credit data to them, not on the consumer. And I don't care about the cost of this regulation. Credit agencies are multi-billion dollar companies that have the resources to do this. The smart ones would figure out how satisfy the requirement cheaply. OK, enough ranting, let's talk about the reasons.

The story says that the services provide poor fraud protection, don't provide you with the same credit scores that lenders see, have loopholes in their identity theft insurance and (I think most importantly) individuals can monitor their own credit reports for free.

Do it yourself

As the article says, check one of your credit reports every 4 months. Use the free site annualcreditreport.com. DO NOT, DO NOT, DO NOT use another credit reporting site that purports to be free. You'll end up enrolled in some service that you get charged for, and you'll have to call up to cancel it. I try to set a schedule of checking Experian in January, Transunion in May, and Experian in September.

More frontier investing

Barron's recently ran a feature on investing in the Middle East. (See a previous post on the topic here.) The growth prospects there can't be ignored.

Oil-rich economies like Kuwait, Qatar, UAE, Bahrain, Saudi Arabia and Oman are insulated from our energy-induced slowdown. "What the Middle East markets have is Chinese levels of GDP growth, above-average return on equity of over 20% and currencies that are gradually going to de-peg from a weak U.S. dollar," says Jonathan Garner, head of emerging markets for Morgan Stanley in London. The promise of the Middle East was reinforced again recently when the NYSE Euronext paid $250 million to buy a 25% stake in Qatar's Doha bourse.

[...]

Middle East markets generally now trade at about 16 times this year's earnings, with profit-growth forecasts of over 25%-30% this year and next. The figures are skewed by Saudi Arabia, a market mostly closed to foreigners, which sells at just over 21 times earnings even though profit growth is usually lower (15% to 20% this year). Kuwait and Bahrain trade at about 11 times this year's earnings, Qatar at 16 times, UAE at 13 times and Oman at 15 times. In the first half of this year Gulf markets (ex-Saudi Arabia) rose 3.2%, beating the MSCI Emerging Market index's loss of 12.7%, according to Merrill Lynch. The disparity also highlighted how uncorrelated these markets are to much of the rest of the world.

The feature lists several individual stocks for interested investors, a mutual fund and a couple of ETFs. The ETFs are; the Claymore BNY/ Mellon Frontier Markets ETF and the SPDR S&P Emerging Middle East & Africa ETF.

Cars, cars, cars

SmartMoney's feed published numerous car stories at the end of the week. Here are a couple I picked up on.

Buying a new car, get 0% financing

I won't buy a new car. It's a waste of money because of the rapid depreciation of new cars, and I don't have the psychological need to drive a new car. For argument's sake, let's say I was going to buy a new car. I'd want 0% financing on it.

Currently, six major auto makers — including Chrysler, General Motors and Mazda — offer 0% financing, according to Edmunds.com. Most of the models that qualify, however, are gas-guzzling trucks and SUVs that dealers desperately want to clear from their lots. Try to find 0% deals on more popular European luxury models or Japanese compact cars and it will be an exercise in futility. "You won't find a single fuel-efficient vehicle [with 0% APR] unless it's struggling in terms of sales," says Wahl.

OK, I don't really want a gas guzzler, so I'd have to look high and low for a fuel sipper that is struggling in sales.

To qualify for the coveted 0% APR, you'll need a score of at least 680 and, in some cases, 700, says Terry Jackson, an automotive writer with Bankrate.com. [...]

As mentioned earlier, even if your credit score passes muster, you'll still need to afford a down payment of at least 10% in order to lock in that magical 0% rate. If your score is below 680, then forking over a 20% down payment can increase your chances of getting 0% APR, says Jesse Toprak, executive director of industry analysis at Edmunds.com.

Another piece of good advice in the story is to get pre-approved for a car loan from a bank, and then to use that pre-approval as leverage in your negotiations. It's always good to have leverage against the car salesman and to be able to walk away from their offer.

Buying a new car, cash back

There may be a choice between 0% financing and cash back. SmartMoney has this handy dandy online calculator to help in that decision.

Buying a new car, manufacturer to dealer deals

Admittedly, I'm a novice in car buying, but I hadn't heard much about manufacturer to dealer deals:

Often times, auto makers offer dealers financial incentives to sell specific models. In turn, the dealerships don't have to offer this money to the consumer. "It's the type of incentive that most dealerships won't even tell you exists," says Jackson. "The dealer can determine to pass it on to the consumer," or keep it for themselves. More often than not, dealerships will offer this incentive on a vehicle that's not selling well and that they're eager to move off the lot, rather than try to sweeten a deal on a popular car for a hesitant buyer, says Wahl.

[...]

The problem for car buyers is that manufacturer-to-dealer incentives often go unadvertised. Edmunds.com tracks and lists such deals.

Here is the direct link to the rebates and incentives page on Edmunds. I had to provide my zip code so it could look up specific deals in my area. Then I had to click through a couple pages for specific vehicles. As an example, there is $1500 in dealer cash through 9/2/2008 on the Honda Element. That's good information to have in negotiations. Edmunds.com is real blessing for car buyers.

Buying preowned

The next article that caught my eye was on buying a preowned vehicle. I'm planning to buy a certified preowned vehicle with my next car purchase.

Some certified preowned programs are much more comprehensive than others. Chrysler, for example, offers an eight-year or 80,000-mile warranty, roadside assistance and loaner car reimbursement, whereas Jaguar's warranty covers just six months or 10,000 miles and doesn't offer loaner car coverage, according to Edmunds.com. For a complete listing of programs, see Edmunds.com.

(There's another plug for Edmunds.com) Other salient points in the story: you'll pay up for a certified preowned car over a used car; and make sure the certification is a manufacturer's certification, not a dealer's certification.

Selling a used car

So what do I do when I want to unload a used car? Well, I plan on driving my cars into the ground, but for argument's sake, let's assume I want to get rid of a car before it's only useful for the scrap yard.

But here's a way to improve your odds considerably when doing it alone: Move your listing online. Millions of consumers are trolling auto web sites looking for competitively priced used vehicles. According to J.D. Power and Associates, 61% of people who buy used cars and trucks surf the Web during the shopping process. If you want to sell your car quickly and for a good price, it's time to park it on some of the most popular sites.

According to the article, the best sites are AutoTrader.com, CarsDirect.com and eBay Motors. The article also gives the tips of thoroughly cleaning the car before selling it, gathering all the car's service records and getting a vehicle history report.

Financial planner horror story

BusinessWeek's retirement issue carries a story that gives me more reasons to always be on the defensive when talking to a financial planner.

Stan Morrill was confident his nestegg would provide for him and his wife for the rest of their lives. After all, the Eastman Kodak veteran, a factory worker for 31 years, had attended the free financial seminar recommended to him by co-workers. Morrill says the host, Michael J. Kazacos, one of Morgan Stanley's top brokers, dazzled him with a plan that would let him retire at 49. Morrill just had to roll over his pension and 401(k) into a tax-deferred account managed by Kazacos. After that, he could safely withdraw $36,000 a year—plenty to cover his bills—without ever touching the $320,745 principal. "I saw no reason why I should stay and work," says Morrill, who signed on in 1998.

But he says the strategy, which assumed unusually high investment returns of up to 14%, didn't pan out. Morrill's balance now stands at just $57,559, and with little other savings, he's scrambling.

[...]

Aggressive investment brokers are focusing on that yawning gap between perception and reality. Promising early retirement, fat investment returns, and big annual cash withdrawals, they're increasingly succeeding at seducing investors to turn over their retirement accounts—and then putting them in high-fee and often inappropriate investments. "This is emerging as a big problem," says Mary L. Schapiro, CEO of the Financial Industry Regulatory Authority (FINRA), the securities industry's private oversight group, which recently launched a program to train corporate benefits managers to vet financial advisers who run in-house seminars. "The issue has intensified for the next generation of retirees—the largest we've ever seen."

Read the entire story. It's worth it.

Know when to sell

When to sell? When to sell? That's the question SmartStops hopes to answer, and it's profiled in Barron's this week.

When the market is going up, the calculation is designed to give the investor more room to generate added profits. When the market heads down, the exits are moved closer to the current stock price so as to preserve capital. The proprietary calculations are intended to avoid reacting to "market noise" or random events. That way, said Collins, the system avoids whipsaw changes or premature exit triggers of trailing stops. The company is reluctant to go into too much detail about the system beyond the fact that many of its indicators are based on technical analysis.

During the beta, we had a list of 10 stocks, including Google, Intel and IBM, we were following on SmartStops. Eight of them hit short-term exit points during the week of June 23, mostly late in the week when the market fell sharply. We got a sell signal at $21.75 on Intel, for instance, which subsequently dropped to $21.57. SmartStops members receive an e-mail alert when an exit point is reached, and can also check the Website during the trading day to see new recommendations.

OK, so they don't tell you much about what goes into their calculations for the sell price. According to the article, it works:

SmartStops executives showed us a comparison of three investing strategies for the S&P Depository Receipts (SPY) over a 10-year period. The short-term SmartStops strategy ended up with the highest profit, and unlike buy-and-hold, had the investor in the market just 57% of the time. The long-term exit strategy also out-performed a buy-and-hold approach, and was in the market 84% of the 10-year period. Collins says, "We're showing that we can improve people's returns with less risk and less exposure to the market."

The free service of the site is easy to use. After accepting the terms and conditions, you can type in a ticker symbol and it gives you the short-term and long-term sell prices (a 6 month time frame is the delineation between short- and long-term). These are the prices recommended for loss avoidance.