Doing nothing is the worst thing a delinquent borrower can do. And the longer the delay, the worse it gets.
US Comptroller of the Currency John Dugan says, "The record shows that the early stages of mortgage delinquency are the most crucial. The sooner borrowers reach out for help, the more options they have, and the more likely foreclosure may be avoided."
In half of all foreclosures, lenders say borrowers do not make contact with them. Yet, more than a third of those who reach out for assistance are successful in finding alternatives to foreclosure.
Homeowners experiencing financial difficulties can call 1-888-995 HOPE, a toll-free hotline staffed around the clock, seven days a week, by 85 qualified housing counselors from agencies approved by the Department of Housing and Urban Affairs.
Friday, February 6, 2009
Friday, January 30, 2009
National EITC Awareness Day
Today is the third annual National EITC Awareness Day. The EITC, also known as the Earned Income Tax Credit, is a federal tax credit available for individuals who work but did not earn a significant amount of income. If you are eligible, utilizing the EITC will reduce your taxes and result in a tax refund for you and your family.
To learn more about the EITC and whether you qualify go to http://www.eitc.irs.gov/central/abouteitc/.
Julie
To learn more about the EITC and whether you qualify go to http://www.eitc.irs.gov/central/abouteitc/.
Julie
Tuesday, January 20, 2009
IRS takes liberal stance on how homebuyer credit is allocated between unmarried purchasers
Information below provided by Cole Ehmke
Many of you bought a new home or are considering the purchase of a new home, and so you may qualify for a new tax credit. The Housing and Economic Recovery Act of 2008 authorizes a $7,500 tax credit for qualified first-time home buyers purchasing homes on or after April 9, 2008 and before July 1, 2009. The following text outlines provisions for this credit. The credit is recaptured over the next 15 years as an addback to your federal tax liability. Thus, this credit and 15 year payback is in essence a tax free loan by the government to purchase your first home.
If this fits your situation, see your friendly neighborhood tax accountant.
Notice 2009-12, 2009-6 IRB
A new notice provides guidance under Code Sec. 36(b)(1)(C) for allocating the first-time homebuyer credit between unmarried taxpayers. It allows use of any reasonable method and shows how a full credit can be obtained even where one buyer wouldn't qualify for any amount of credit under the phaseout rules.
New refundable tax credit for first time homebuyers. For qualifying purchases of principal residences in the U.S. after Apr. 8, 2008 and before July 1, 2009, eligible first-time homebuyers may claim a refundable tax credit equal to the lesser of 10% of the purchase price of a principal residence or $7,500 ($3,750 for married individuals filing separately). (Code Sec. 36)
Who is eligible. A taxpayer is considered a first-time homebuyer if he (or spouse, if married) had no present ownership interest in a principal residence in the U.S. during the 3-year period before the purchase of the home to which the credit applies. (Code Sec. 36(c)(1))
RIA observation: Because only prior ownership in a principal residence is considered, it's possible for a taxpayer who already owns a vacation home to claim the new credit, if he otherwise qualifies. For example, a taxpayer whose principal residence for at least three years has been a rental apartment in the city, and who owns a seaside home, could claim the credit for the purchase of a new principal residence if his modified AGI doesn't exceed the phaseout levels.
Special rule for 2009 purchases. Eligible first-time homebuyers who purchase a principal residence after Dec. 31, 2008, and before July 1, 2009, may elect to treat the purchase as made on Dec. 31, 2008. ( Code Sec. 36(g).
Meaning of “purchase.” A “purchase” is any acquisition, but only if (i) the taxpayer did not acquire the property from a related person, and (ii) the taxpayer's basis in the property is not determined, in whole or in part, by reference to the basis of the property in the hands of the person from whom the taxpayer acquired the property (e.g., as occurs with a gift), or determined under Code Sec. 1014(a) (relating to property acquired from a decedent). (Code Sec. 36(c)(3)) A person is treated as related to another person if the relationship would result in the disallowance of losses under Code Sec. 267 or Code Sec. 707, except that members of a family of an individual include only the individual's spouse, ancestors, and lineal descendants.
RIA observation: Thus, for example, the credit is not allowed for a home purchased by the taxpayer from his spouse, parent, grandparent, child or grandchild.
Phaseout of credit. The first-time homebuyer credit phases out for individual taxpayers with modified adjusted gross income (MAGI) between $75,000 and $95,000 ($150,000-$170,000 for joint filers) for the year of purchase. MAGI is adjusted gross income for the tax year increased by any amount excluded from gross income under Code Sec. 911 (foreign earned income and foreign housing exclusions), Code Sec. 931 (exclusion of income derived from American Samoa) or Code Sec. 933 (exclusion of income from Puerto Rico). (Code Sec. 36(b)(2)) Specifically, the amount allowable as a credit is reduced by the amount that bears the same ratio to the credit allowable as (1) the excess (if any) of: the taxpayer's modified AGI (MAGI) for the tax year, over $75,000 ($150,000 for a joint return), bears to (2) $20,000. (Code Sec. 36(b)(2)) The credit is completely phased out for a taxpayer whose MAGI is $95,000 ($170,000 for married taxpayers filing a joint return).
Recapture rules. The credit for new homebuyers is recaptured ratably over fifteen years, with no interest charge, beginning with the second tax year after the tax year in which the home is purchased. For each tax year of the 15-year recapture period, the credit is recaptured as an additional income tax amount equal to 6 2/3% of the amount of the credit. As discussed in Federal Taxes Weekly Alert 09/18/2008, this repayment obligation may be accelerated or forgiven under certain exceptions. (Code Sec. 36(f))
RIA observation: In other words, the credit for new homebuyers is the equivalent of a long-term interest-free loan from the government.
RIA observation: On Jan. 15, House Ways and Means Committee Chairman Charles B. Rangel (D-NY) issued a press release outlining the portion of the economic recovery package to be taken up by his committee. The package would include a number of tax breaks including enhancement of the homebuyer credit—for homes bought after Dec. 31, 2008, and before June 30, 2009, it would remove the repayment requirement for the credit.
Where to claim credit. For eligible purchases in 2008, a taxpayer claims the credit by attaching Form 5405, “First-Time Homebuyer Credit,” to the taxpayer's 2008 tax return. For eligible purchases in 2009, a taxpayer may elect to claim the credit for 2008 or 2009 by attaching Form 5405 to the taxpayer's original or amended 2008 tax return or 2009 tax return.
Unmarried persons. Code Sec. 36(b)(1)(C) provides that IRS may prescribe the manner in which the first-time homebuyer credit is allocated between two or more taxpayers who are not married for federal tax purposes and who purchase a principal residence. The total credit allocated between the taxpayers cannot exceed $7,500.
Any reasonable method allowed. Notice 2009-12 says that, for purposes of Code Sec. 36(b)(1)(C), if two or more taxpayers who are not married purchase a principal residence and otherwise satisfy the Code Sec. 36 requirements, the first-time homebuyer credit may be allocated between the taxpayers using any reasonable method. It goes on to say that a reasonable method is any method that does not allocate any portion of the credit to a taxpayer not eligible to claim that portion. A reasonable method includes one that allocates the credit based on (1) the taxpayers' contributions towards the purchase price of a residence as tenants in common or joint tenants, or (2) their ownership interests in a residence as tenants in common. Notice 2009-12 includes several examples of credit allocations, some of which are reproduced below. Unless otherwise indicated, each example assumes that A and B (i) purchased a principal residence on May 1, 2008, (ii) are not married to each other, (iii) do not have MAGI in excess of the MAGI threshold, and (iv) are first-time homebuyers who otherwise satisfy the Code Sec. 36 requirements.
RIA Research References: For the first-time homebuyer credit, see FTC 2d/FIN ¶ A-4271; United States Tax Reporter ¶ 364.
Source: Federal Tax Updates on Checkpoint Newsstand tab 1/16/09
Many of you bought a new home or are considering the purchase of a new home, and so you may qualify for a new tax credit. The Housing and Economic Recovery Act of 2008 authorizes a $7,500 tax credit for qualified first-time home buyers purchasing homes on or after April 9, 2008 and before July 1, 2009. The following text outlines provisions for this credit. The credit is recaptured over the next 15 years as an addback to your federal tax liability. Thus, this credit and 15 year payback is in essence a tax free loan by the government to purchase your first home.
If this fits your situation, see your friendly neighborhood tax accountant.
Notice 2009-12, 2009-6 IRB
A new notice provides guidance under Code Sec. 36(b)(1)(C) for allocating the first-time homebuyer credit between unmarried taxpayers. It allows use of any reasonable method and shows how a full credit can be obtained even where one buyer wouldn't qualify for any amount of credit under the phaseout rules.
New refundable tax credit for first time homebuyers. For qualifying purchases of principal residences in the U.S. after Apr. 8, 2008 and before July 1, 2009, eligible first-time homebuyers may claim a refundable tax credit equal to the lesser of 10% of the purchase price of a principal residence or $7,500 ($3,750 for married individuals filing separately). (Code Sec. 36)
Who is eligible. A taxpayer is considered a first-time homebuyer if he (or spouse, if married) had no present ownership interest in a principal residence in the U.S. during the 3-year period before the purchase of the home to which the credit applies. (Code Sec. 36(c)(1))
RIA observation: Because only prior ownership in a principal residence is considered, it's possible for a taxpayer who already owns a vacation home to claim the new credit, if he otherwise qualifies. For example, a taxpayer whose principal residence for at least three years has been a rental apartment in the city, and who owns a seaside home, could claim the credit for the purchase of a new principal residence if his modified AGI doesn't exceed the phaseout levels.
Special rule for 2009 purchases. Eligible first-time homebuyers who purchase a principal residence after Dec. 31, 2008, and before July 1, 2009, may elect to treat the purchase as made on Dec. 31, 2008. ( Code Sec. 36(g).
Meaning of “purchase.” A “purchase” is any acquisition, but only if (i) the taxpayer did not acquire the property from a related person, and (ii) the taxpayer's basis in the property is not determined, in whole or in part, by reference to the basis of the property in the hands of the person from whom the taxpayer acquired the property (e.g., as occurs with a gift), or determined under Code Sec. 1014(a) (relating to property acquired from a decedent). (Code Sec. 36(c)(3)) A person is treated as related to another person if the relationship would result in the disallowance of losses under Code Sec. 267 or Code Sec. 707, except that members of a family of an individual include only the individual's spouse, ancestors, and lineal descendants.
RIA observation: Thus, for example, the credit is not allowed for a home purchased by the taxpayer from his spouse, parent, grandparent, child or grandchild.
Phaseout of credit. The first-time homebuyer credit phases out for individual taxpayers with modified adjusted gross income (MAGI) between $75,000 and $95,000 ($150,000-$170,000 for joint filers) for the year of purchase. MAGI is adjusted gross income for the tax year increased by any amount excluded from gross income under Code Sec. 911 (foreign earned income and foreign housing exclusions), Code Sec. 931 (exclusion of income derived from American Samoa) or Code Sec. 933 (exclusion of income from Puerto Rico). (Code Sec. 36(b)(2)) Specifically, the amount allowable as a credit is reduced by the amount that bears the same ratio to the credit allowable as (1) the excess (if any) of: the taxpayer's modified AGI (MAGI) for the tax year, over $75,000 ($150,000 for a joint return), bears to (2) $20,000. (Code Sec. 36(b)(2)) The credit is completely phased out for a taxpayer whose MAGI is $95,000 ($170,000 for married taxpayers filing a joint return).
Recapture rules. The credit for new homebuyers is recaptured ratably over fifteen years, with no interest charge, beginning with the second tax year after the tax year in which the home is purchased. For each tax year of the 15-year recapture period, the credit is recaptured as an additional income tax amount equal to 6 2/3% of the amount of the credit. As discussed in Federal Taxes Weekly Alert 09/18/2008, this repayment obligation may be accelerated or forgiven under certain exceptions. (Code Sec. 36(f))
RIA observation: In other words, the credit for new homebuyers is the equivalent of a long-term interest-free loan from the government.
RIA observation: On Jan. 15, House Ways and Means Committee Chairman Charles B. Rangel (D-NY) issued a press release outlining the portion of the economic recovery package to be taken up by his committee. The package would include a number of tax breaks including enhancement of the homebuyer credit—for homes bought after Dec. 31, 2008, and before June 30, 2009, it would remove the repayment requirement for the credit.
Where to claim credit. For eligible purchases in 2008, a taxpayer claims the credit by attaching Form 5405, “First-Time Homebuyer Credit,” to the taxpayer's 2008 tax return. For eligible purchases in 2009, a taxpayer may elect to claim the credit for 2008 or 2009 by attaching Form 5405 to the taxpayer's original or amended 2008 tax return or 2009 tax return.
Unmarried persons. Code Sec. 36(b)(1)(C) provides that IRS may prescribe the manner in which the first-time homebuyer credit is allocated between two or more taxpayers who are not married for federal tax purposes and who purchase a principal residence. The total credit allocated between the taxpayers cannot exceed $7,500.
Any reasonable method allowed. Notice 2009-12 says that, for purposes of Code Sec. 36(b)(1)(C), if two or more taxpayers who are not married purchase a principal residence and otherwise satisfy the Code Sec. 36 requirements, the first-time homebuyer credit may be allocated between the taxpayers using any reasonable method. It goes on to say that a reasonable method is any method that does not allocate any portion of the credit to a taxpayer not eligible to claim that portion. A reasonable method includes one that allocates the credit based on (1) the taxpayers' contributions towards the purchase price of a residence as tenants in common or joint tenants, or (2) their ownership interests in a residence as tenants in common. Notice 2009-12 includes several examples of credit allocations, some of which are reproduced below. Unless otherwise indicated, each example assumes that A and B (i) purchased a principal residence on May 1, 2008, (ii) are not married to each other, (iii) do not have MAGI in excess of the MAGI threshold, and (iv) are first-time homebuyers who otherwise satisfy the Code Sec. 36 requirements.
RIA Research References: For the first-time homebuyer credit, see FTC 2d/FIN ¶ A-4271; United States Tax Reporter ¶ 364.
Source: Federal Tax Updates on Checkpoint Newsstand tab 1/16/09
Friday, January 16, 2009
Financial Fitness Quiz
For those who missed the "Making the Most of Your Money" session on Wednesday, I have posted a subset of the questions from the financial fitness quiz activity that Cole Ehmke went through. If you have the time, I encourage you to take the quiz and see how your financial fitness is compared to others. The quiz questions can be found on the right underneath the "Whats Happening" section. Just let me know if you would like to have the complete version of the quiz to get a comprehensive evaluation of your financial fitness.
Julie
Julie
Monday, December 22, 2008
Money Management in Tough Times
The gloomy forecast for the economy has many people asking questions about what actions they might take to help improve their personal or family situations. Money Management in Tough Times is a new focus for eXtension which can help. At www.extension.org/Financial_Crisis you will find resources are organized into five categories: business, families, farms & ranches, individuals, and youth. The articles and reports found in these categories are the "best of the best" resources available on finances today.
Wednesday, December 3, 2008
Tonight's Money Management Session Postponed
Due to the weather, we are postponing tonights Money Management Session until January 14th.
On January 14th Cole Ehmke from the University of Wyoming will provide valuable information on how to create a spending plan you can live with and the true cost of using credit. The information from this session will come in handy as you develop and implement your resolutions for the new year.
Be sure to mark 6:00 PM on January 14th, 2009 at the Laramie County Library on your calendar.
On January 14th Cole Ehmke from the University of Wyoming will provide valuable information on how to create a spending plan you can live with and the true cost of using credit. The information from this session will come in handy as you develop and implement your resolutions for the new year.
Be sure to mark 6:00 PM on January 14th, 2009 at the Laramie County Library on your calendar.
Friday, November 14, 2008
Be Wary of Investment Fraud
On Wednesday, Karen Wheeler the Director of the Compliance Division for the Wyoming Secretary of State's office spoke about the types of fraud and scams that are being perpetuated in Wyoming. I wish I had a transcript of all the information she provided to share with you, but unfortunately I don't. I do however, have the next best thing. AARP Wyoming has given me permission to print the following article by Karen Mockler that was printed in the February 2006 edition of The Wyoming Sage. I hope you find it as informative as I did. If you have any questions about the validity of investments you have either made or have been offered, be sure to call the Secretary of State's office at (307) 777-7370. They are more than happy to help.
By Karen Mockler
The Wyoming Secretary of State’s Web site identifies 11 types of fraud, including the case of high-tech fraud described below.
Broadcast
“Satellite Broadcasting Corporation, from Irvine, California, was selling an investment in direct TV to Wyoming citizens by phone. The promoters claimed they had agreements and support from Direct TV© and were applying to be a member of the National Rural Telecommunications Cooperative, which are real companies who provide satellite television to subscribers using a "dish antenna." Both claims were false. Upon investigation, it was discovered that the company did not have an exclusive broadcast area as claimed and the California company could not engage in the business for which it was collecting money.”
This scam was shut down by a joint state-federal action, but new scams pop up every year. One of the most common is the pyramid scheme, where money is received not by selling a real product or useful service, but by recruiting new participants. A current incarnation of the pyramid scheme is the “airplane” pyramid, in which “passengers” pay to ride, in hopes of eventually becoming “pilots.” People who start pyramid schemes are often the only ones who receive money. Ponzi schemes also use the money of new recruits to pay off earlier investors.
Metals
Gold, silver, and other precious metals have always been popular operating areas for con artists and shady dealers. The private or skeptical nature of many individuals who buy precious metal investments is a benefit to the crooks. Promoters typically claim that the precious metal they are selling is sure to go up in value due to increased demand, world conflict, or some other economic or political factor. Purchasers usually receive a receipt as evidence of ownership, but not the metal itself.
Oil
When it comes to oil wells, potential investors should be particularly cautious if they hear any claims emphasizing oil shortages, fears of anticipated OPEC actions, or blockades. Scams often stress the urgency to act now. If people do invest, they should verify with the county clerk that their ownership is actually recorded in the county land records.
In order to avoid fraud, a potential investor has to know when an offer is too good to accept. According to the Wyoming Secretary of State’s Web site, “There are usually three characteristics typical of every fraud or scam: a promise of higher than normal returns, a promise or guarantee that you can't lose money, and pressure to act quickly. If you sense any of these warning signs, lock up your checkbook! Get more information and really check out the offer before you go any further!”
The Better Business Bureau’s Web site also offers six “resolutions” for 2006 to help avoid fraud:
1) Look before you leap. “Don’t sign anything without reading and understanding what you’re doing. If you sign a contract, it is legally binding and probably cannot be broken. If the paperwork doesn’t say the same thing told to you verbally, trust only what is written. Verbal promises are very hard to prove!”
2) Listen carefully to what’s said--and not said. “Understand the terms. If you don’t, ask again. Some cons glide over pertinent facts in such a glib way that you cannot charge them for misrepresentation. They told you; you just didn’t understand.”
3) Keep private information private. Never give it to anyone who contacts you. “Too many callers tell the BBB after they have given out credit card or bank account numbers or other private information that can be used for fraud. It doesn’t do any good to shut the gate after the horse is out.”
4) Investigate before you invest. Do your homework with official agencies – not just Aunt Martha.
5) Learn financial basics like contracts, mortgages and interest payments. Recognize you’ll never get something for nothing, so don’t send money to collect “your millions.”
6) If you have a financial dispute that needs resolution, consider a mediator. Talk to the BBB to find out more.
Finally, Tom Cowan, the Secretary of State’s director of securities, offers some additional red flags for securities investors to watch out for:
1) If you call a broker and he is never there, if she doesn’t return your phone calls, if he makes a lot of chit-chat but never answers your question, beware.
While the Secretary of State’s office doesn’t give advice on investments, it can answer specific questions about a specific stockbroker. Staff can look up anyone in the United States and find their record, how long they’ve worked, or whether they’re even registered. If they’re not, Cowan says, what they’re offering an investor may not be legal.
2) “In no circumstance does a securities agent issue his own statement to the clients… those statements go out at a minimum on the company’s letterhead or a monthly statement as required by law.”
Investors can also contact the broker’s manager – most statements now have a 1-800 number, and they should feel free to call.
3) “If it’s too complicated to understand,” Cowan says, “they shouldn’t invest in it. Stock is pretty straightforward. It goes up or down in price. Plain vanilla.”
That doesn’t mean legitimate investments are without risk, he adds. You can buy a legitimate stock and still lose. But at least the game’s not rigged.
“The best advice I can give right now is if you can read about it in the Wall Street Journal or Barrons or Money Magazine, it’s probably real. If you can’t, it probably isn’t real.”
In the end, Cowan says, investors have to know themselves and their limitations.
“If I’m the average person without a lot of money, why go into a complex financial strategy? Not every person in the world is destined to buy commodities contracts. If I’m retired from civil service, I wouldn’t know about that kind of thing and what makes me think I can beat the big boys? Maybe my money is better kept in a bond or CD. What do I know about gold mining or oil and gas? But as a civil servant, I know the state of Wyoming is always issuing good quality bonds. I know the state is good for it. The state isn’t going to rip somebody off. Maybe that’s a better place for me to invest.”
Cowan says the biggest problem he sees in investments is not actually fraud but suitability – that is, the sale of investments to people which are much too risky for them, for perfectly legitimate reasons. For instance, a woman in her 70s or 80s buying long-term securities or very complex commodities simply may not live long enough to see her investment pay.
“These people aren’t sophisticated investors who’ve worked in the finance industry. They’re in over their head. They bought based simply on a purported rate of return – they see they can make 20 percent in a year, but oftentimes those people are the ones who lose their money.”
By Karen Mockler
The Wyoming Secretary of State’s Web site identifies 11 types of fraud, including the case of high-tech fraud described below.
Broadcast
“Satellite Broadcasting Corporation, from Irvine, California, was selling an investment in direct TV to Wyoming citizens by phone. The promoters claimed they had agreements and support from Direct TV© and were applying to be a member of the National Rural Telecommunications Cooperative, which are real companies who provide satellite television to subscribers using a "dish antenna." Both claims were false. Upon investigation, it was discovered that the company did not have an exclusive broadcast area as claimed and the California company could not engage in the business for which it was collecting money.”
This scam was shut down by a joint state-federal action, but new scams pop up every year. One of the most common is the pyramid scheme, where money is received not by selling a real product or useful service, but by recruiting new participants. A current incarnation of the pyramid scheme is the “airplane” pyramid, in which “passengers” pay to ride, in hopes of eventually becoming “pilots.” People who start pyramid schemes are often the only ones who receive money. Ponzi schemes also use the money of new recruits to pay off earlier investors.
Metals
Gold, silver, and other precious metals have always been popular operating areas for con artists and shady dealers. The private or skeptical nature of many individuals who buy precious metal investments is a benefit to the crooks. Promoters typically claim that the precious metal they are selling is sure to go up in value due to increased demand, world conflict, or some other economic or political factor. Purchasers usually receive a receipt as evidence of ownership, but not the metal itself.
Oil
When it comes to oil wells, potential investors should be particularly cautious if they hear any claims emphasizing oil shortages, fears of anticipated OPEC actions, or blockades. Scams often stress the urgency to act now. If people do invest, they should verify with the county clerk that their ownership is actually recorded in the county land records.
In order to avoid fraud, a potential investor has to know when an offer is too good to accept. According to the Wyoming Secretary of State’s Web site, “There are usually three characteristics typical of every fraud or scam: a promise of higher than normal returns, a promise or guarantee that you can't lose money, and pressure to act quickly. If you sense any of these warning signs, lock up your checkbook! Get more information and really check out the offer before you go any further!”
The Better Business Bureau’s Web site also offers six “resolutions” for 2006 to help avoid fraud:
1) Look before you leap. “Don’t sign anything without reading and understanding what you’re doing. If you sign a contract, it is legally binding and probably cannot be broken. If the paperwork doesn’t say the same thing told to you verbally, trust only what is written. Verbal promises are very hard to prove!”
2) Listen carefully to what’s said--and not said. “Understand the terms. If you don’t, ask again. Some cons glide over pertinent facts in such a glib way that you cannot charge them for misrepresentation. They told you; you just didn’t understand.”
3) Keep private information private. Never give it to anyone who contacts you. “Too many callers tell the BBB after they have given out credit card or bank account numbers or other private information that can be used for fraud. It doesn’t do any good to shut the gate after the horse is out.”
4) Investigate before you invest. Do your homework with official agencies – not just Aunt Martha.
5) Learn financial basics like contracts, mortgages and interest payments. Recognize you’ll never get something for nothing, so don’t send money to collect “your millions.”
6) If you have a financial dispute that needs resolution, consider a mediator. Talk to the BBB to find out more.
Finally, Tom Cowan, the Secretary of State’s director of securities, offers some additional red flags for securities investors to watch out for:
1) If you call a broker and he is never there, if she doesn’t return your phone calls, if he makes a lot of chit-chat but never answers your question, beware.
While the Secretary of State’s office doesn’t give advice on investments, it can answer specific questions about a specific stockbroker. Staff can look up anyone in the United States and find their record, how long they’ve worked, or whether they’re even registered. If they’re not, Cowan says, what they’re offering an investor may not be legal.
2) “In no circumstance does a securities agent issue his own statement to the clients… those statements go out at a minimum on the company’s letterhead or a monthly statement as required by law.”
Investors can also contact the broker’s manager – most statements now have a 1-800 number, and they should feel free to call.
3) “If it’s too complicated to understand,” Cowan says, “they shouldn’t invest in it. Stock is pretty straightforward. It goes up or down in price. Plain vanilla.”
That doesn’t mean legitimate investments are without risk, he adds. You can buy a legitimate stock and still lose. But at least the game’s not rigged.
“The best advice I can give right now is if you can read about it in the Wall Street Journal or Barrons or Money Magazine, it’s probably real. If you can’t, it probably isn’t real.”
In the end, Cowan says, investors have to know themselves and their limitations.
“If I’m the average person without a lot of money, why go into a complex financial strategy? Not every person in the world is destined to buy commodities contracts. If I’m retired from civil service, I wouldn’t know about that kind of thing and what makes me think I can beat the big boys? Maybe my money is better kept in a bond or CD. What do I know about gold mining or oil and gas? But as a civil servant, I know the state of Wyoming is always issuing good quality bonds. I know the state is good for it. The state isn’t going to rip somebody off. Maybe that’s a better place for me to invest.”
Cowan says the biggest problem he sees in investments is not actually fraud but suitability – that is, the sale of investments to people which are much too risky for them, for perfectly legitimate reasons. For instance, a woman in her 70s or 80s buying long-term securities or very complex commodities simply may not live long enough to see her investment pay.
“These people aren’t sophisticated investors who’ve worked in the finance industry. They’re in over their head. They bought based simply on a purported rate of return – they see they can make 20 percent in a year, but oftentimes those people are the ones who lose their money.”
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