Paul Ferraresi

Most people buy homeowners insurance so they can close on their house. Few ever look at what is actually covered. They just “assume” that everything is covered. Then, when a hurricane Katrina or a San Diego fire destroys everything, the person is shocked to see quite a few of their “losses” are not insured. The person then gets angry at the insurance company. The insurance company specifically outlines what is and is not covered in the policy. Did you study the policy to see if it will meet your needs and risk tolerance?

When damage is done to their home, the claim filed, and then, finding out that many items are not covered the homeowner is angry. The typical response is: “After all the years I paid those premiums those things should have been paid”. Whoa, “should have, would have, could have”, are major thinking errors and excuses for not spending time analyzing the coverage. Tell me, when you spent $20,000 to $50,000 on a new car did you ask or check out if a sun roof was included? If not, did you get angry at the dealer and say … “Well for all the money we spent that sun roof should have been included”.

When I do financial planning for my clients we look at 10 basic things in their homeowners policy. Then, I inquire if they want me to completely analyze the policy. If yes, we proceed ahead … if no, then they are at risk. For a no cost approach to analyze your policy simply set up a meeting with your casualty agent and have them explain in detail each item covered.

Above all, remember, you must prove your loses. Yes, you must prove that you had 2 TVs, or a Plasma TV etc. Also, if you do not have replacement cost coverage the insurance company will depreciate the asset before making payment. Let’s say you bought a sofa 10 years ago for $2,000. You have a fire and the sofa is destroyed. Without replacement cost coverage you will get paid the depreciated value or “0” in this case.

I learned the “prove you owned it” lesson many years ago. When I was 19 years old, I bought my first restaurant. Yes, I kept every receipt and took detailed pictures. I kept all the records in a “fire proof” safe. The restaurant burned to the ground and everything in the safe, due to the intense heat, was destroyed. No records remained. I worked countless months trying to get duplicate records from vendors. Many vendors would not cooperate. I cannot tell you the hundreds of thousands of dollars that was lost. One simple lesson learned … Keep duplicate copies offsite.

I encourage you to have your policy analyzed. I am sure the people in San Diego are now wishing they had their policies reviewed prior to their loses.

Discipline or Regret!

Here is a website that will give you a basic checklist. It is a listing from the state of Florida. Your state may have a few different sections, but, overall it is a good template.

http:// www.floir.com/pcfr/HOChecklistRule.htm

Most parents want their children to have a healthy relationship with money. All kids should learn to handle their allowances wisely, how to balance their checkbook, how not to abuse credit cards and to be the master of money…not its slave.

A good relationship with money goes beyond being a money manager. Our kids need to grow up to be compassionate and caring. They should learn that there are more things they can do with their time, effort and money than just spending on themselves. Read the rest of this entry »

Toss $20 into the church collection basket last year and you could deduct it off your tax return. Effective 1/1/2007 you’ll have to write out a check or get a receipt if you want to deduct your weekly offering.

Remember when you gave a beat up dining room table to a thrift shop? If you gave it after 8/18/2006 then you can not claim it as a deduction unless it is worth $500 and you get a professional appraised prior to filing your 2006 return. Lower value stuff donated after 8/17/06 must be in good condition (take pictures to prove it). You can claim a deduction that isn’t in good condition if it is worth more than $500 and you get an appraisal. Given that appraisers charge $50-250 per hour you may be better off to sell the used stuff and donate the cash to a good cause.

Congress also gave the IRS authority to deny deductions for “minimal monetary value” such as socks and underwear, donated after 8/17/06 even if in good condition.

Cash contributions: You’ll need either a bank record, cancelled check, credit card statement or receipt from the charity to deduct any cash gift after 12/31/06. For amounts over $250 you must have a receipt from the charity (a cancelled check will not do).

Appreciated Personal Property: When you donate tangible personal property such as art or furniture you can deduct only the lesser of what you paid or it’s current worth, unless, the charity keeps and uses the item for related activities.

Beginning with 2006 returns penalties climb for charitable deduction puffery. If your claimed value is 50% or move above what IRS decides, then, you can be hit with a 20% penalty of your underpaid tax.

Hmmm! Who said it was more blessed to give than receive??

Although all the present economic numbers are fantastic (setting all kinds of records) it pays to look forward and plan for a possible slowdown. If things do fall off there are investment strategies you should implement. Here are some of the tried and true preconditions that classically signal a fall off in economic activity:

1. GDP (Gross Domestic Product) has dropped to 1.6% in the second quarter from 5.6% in the first quarter. We have not seen GDP growth below 2% for four or five years.
2. The two other housing downturns in the past 30 years were in the 70’s and the 80’s. The downturns last longer than most people dream and the average cycle is three to four years. This downturn began in 2005 and may last into 2008.
   This has happened before but only preceding a recession or very dramatic slowdown.
3. Flat or inverted yield curves only occur before a recession not a slowdown. All rates from three months to 2 years are above long term rates.

A great economic indicator is the activity at Wal-Mart. It reflects the low to middle income sector of the economy. There has been a dramatic reduction in spending by this end of consumers (Note: 2/3rds of GDP is at the consumer level). Another item that could really impact things is a reversal in tax policy by the new Democratic Congress. A major reason for this 3 year run in the stock market was the passage of lower capital gains and dividend tax rates. This new rate was implemented in May 2003 and the market took off starting in June 2003. Any change in this rate would have a serious negative effect.

A recent proposal by the new Congress is to raise the minimum wage. That will raise unit labor costs throughout the economy for everyone. It will have a major impact on profits (which drives your stock market returns). It will impact unemployment and hurt job creation. If you raise the price of labor, business will find a way to use less of it. As a business owner, to maintain profit margins, when a new cost comes in…you either raise prices (inflation catalyst) or cut costs (lay people off). [You do the same thing in your household when an expense goes up]

The new Congress is talking about a windfall tax on oil companies. A windfall tax on anything would be a major negative. The last time this happened was in the Carter administration, it resulted in less exploration and eventually to the dependence we now have on foreign oil. [oil companies only make 7% profit margin; Coca-Cola makes 19%; cigarette companies make 33% and alcohol companies make 65%; Why isn’t there windfall profits tax on these other companies? Hmm!]

What can you look forward to and how do you position yourself if a recession is coming?

• Inflation has pretty much peaked.
• Commodities will continue to be strong.
• The dollar will continue to weaken thus gold and silver will do well.
• The Federal Reserve will begin to drop interest rates in 2007 into 2008 by 200 basis points, thus fixed income investments will do well.
• REITS will do okay.
• Foreign emerging markets will be strong.

I am sure, like me, there have been people or events that have had a major impact on your life. You may even say that those times could have been a turning point for you. It could have been a teacher, friend, family member, or even a stranger. Read the rest of this entry »