Tips On Managing Your Portfolio


We previously talked about how to get higher returns by investing in a peer to peer platform (P2P) instead of a traditional saving product offered by the banks.
 

However P2P is now a very mature industry. Gone are the days when there were just two to three peer-to-peer lending platforms. What started from Zopa has evolved into a whole industry of alternative finance.
 

There are many options in P2P, each doing business in a slightly different way. Some platforms only offer loans for personal finance, while others deal exclusively in businesses loans and loans for real estate development. You have quite a choice when deciding what to invest in.
 

If you are a mature investor, the question facing you is not where and how to invest, but rather how to build and manage an effective portfolio.
 

  1.  Understand your risk profile

  2. Risk is an inherent part of any business. An effective portfolio is one that gives you the returns you need. And to understand what you need, you need to understand your risk profile. Are you risk averse or you are willing to take high risk for extremely high returns, or are you somewhere in between the two extremes?
     

    There are platforms which give out loans to people with low credit scores and bad histories. These are usually low quality loans, meaning unsecured loans. However you may get as much as 17% per annum from these loans. On the opposite end of the spectrum are platforms which will give you a guaranteed return, but percentages start from a bare minimum of 3%.
     

    To make your portfolio truly effective you will need to find a balance. Find out what you can afford to lose and the bare minimum return you need to achieve.
     

    Also if you research effectively you will find platforms that pay a good return while having security features like provision funds or secured loans in place (loans given against security).

     

  3.  Diversify

  4. No matter what you invest in, diversification is extremely essential. The age old saying, “Do not put all your eggs in one basket” holds very true when building an effective investment portfolio.
     

    Diversification works two ways when talking about investments in a peer to peer lending platform. First you should invest the bulk of your investment in one P2P platform. The second is a bit more complicated. Many P2P platforms automatically distribute your investment over a large number of loans, but in some platforms you yourself choose which loans to invest in.
     

    When you are manually selecting loans to invest in you have to take care of two things. Do not invest the bulk of your investment in one single loan and when spreading the investment over different loans, ensure that they are “different types of loans”. For example, some platforms like Landbay offer secured loans for buy-to-let mortgages. Others like Zopa are peer to peer lending platforms for personal loans. In times of recessions, the demand for personal loans may go down and there is a good chance people with funds may choose to invest in property.

     

  5.  Research

  6. The sage of Omaha is what he is because he does not trust his gut, instead he undertakes effective research.
     

    Let me give you an example of effective research. A few years back, Saving Stream was launched. Saving Stream is a pretty good platform giving a fixed return of 12% per annum. However back then a few investors online researched it so well they found out that its online banner ads had used a stock photo of a person and under that photo was a review by an investor singing praises of Saving Stream. It turned out the stock photo was a blunder but the review was real. Saving Stream finally got a good developer for their website and is doing great now. The point of the story is that those researchers went through everything before investing their money. That is how thorough you should be if you want good returns.




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Cybersecurity on Deck; Palo Alto Earnings Out This Week


Cybersecurity continues to grow as a concern for individuals, businesses and government entities as the world increasingly performs daily activities electronically. A host of companies have formed to deal with cybersecurity, and if you play your cards right, you may find one, or more that make for solid investment choices for your needs.

Services provided by cybersecurity companies include providing protections to companies’ networks through the use of firewalls, providing cloud storage protections, and preventing e-mail viruses. Most appealing is their ability to stop hackers.

While several of these companies are thriving due to the services they provide, many are suffering from the various costs of doing business. If you want to invest in the space, pay attention to the risks that each of them possess.

The problems range from skyrocketing stock options for employees, to declines in customer demands. These problems can cause the revenues of companies that operate in the space to fluctuate. In fact, many see cybersecurity as being one of the most volatile spaces within the tech sector.

Considering the needs for their services and products, cybersecurity companies are making plenty of money. Furthermore, there is plenty of money to be made. According to Markets and Markets, the global cyber security market size is estimated to grow from $106.3 billion in 2015 to $170.2 billion by 2020, at a Compound Annual Growth Rate (CAGR) of 9.8%.

Of the companies that provide cybersecurity services, Palo Alto (NYSE:PANW) is one that has managed to give investors the most fits. For the past seven quarters, its sales have grown by at least 50%. On that same note, its earnings per share are not doing so well. They are negative $2.29. Of some of its competitors like Barracuda Networks (NYSE:CUDA) and Fortinet (NASDAQ:FTNT), Palo Alto’s EPS is the worst. For example, Barracuda’s EPS is negative $0.08 and Fortinet’s EPS is $.02.

The street expects Palo Alto to report earnings of $339.4 million for the third quarter of 2016 and $.41 in EPS. That would be an impressive increase of 45% and 78%, respective over the same period in 2015. It reports on Thursday.

Observers point out that this is likely the first quarter in at least two years where any sort of slowdown has been detected in Palo Alto’s demand.

Like most observers of Palo Alto, I would not make it a short-term play. Go long, and be ready to weather the ups and downs from its fluctuating revenues and expense pressures.

A good short-term play is Barracuda. Its stock is up more than 4% over the past month, reflecting growing interest in the stock. Zacks points out that Barracuda’s consensus estimate trend has also increased, from $.04 cents per share 30 days ago to $.09 cents per share as of Friday. That’s an impressive increase of 55.6%.

Fortinet has been singled out as a winner in the space by Barron’s due to the company’s ability to help its clients manage their existing technology, and offer protection on multiple fronts. Barron’s noted that Fortinet is up 37% since it recommended them nearly three years ago in a report looking at the industry.

There is an ETF that contains several security software companies whose performance also reflects the fact that the security sector is starting to show signs of slowing. The slowing is based on the guidance that was provided for the second quarter of 2016, as well as full year guidance by cybersecurity companies. The ETF is called the PureFunds ISE Cyber Security or HACK, and the fund is down more than 30% since last year.

Given the demand for their services, cybersecurity companies stand to make billions in the coming years. The key for them is to be able to handle the expenses of providing their services without damaging their top and bottom lines.




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Newspaper Industry is Not Dying; Just Not Investable?


The newspaper industry has experienced steep declines in sales over the past few decades, causing them to be less attractive in the eyes of investors.

Many newspapers have merged, or have been acquired, while others have simply gone out of business. I took a look at a few of the larger companies, and came away with mixed feelings. While their efforts to improve are positive, their financials still are worrisome.

Let’s take a look at some of the happenings in the industry right now.

 

 · Gannett

 

First up is Gannett (NYSE: GCI), the publishing company that owns USA TODAY. Look no further than the buying binge that it’s been on to see that it is well capitalized as a force in the industry.

Gannett has completed several impressive acquisitions of newspapers throughout the country. They include buying Journal Media Group, which owned the Knoxville News Sentinel, The Commercial Appeal in Memphis, and 13 other newspapers in Tennessee.

Now Gannett has set its sights on Tribune Publishing Company (NYSE: TPUB), which owns the Chicago Tribune, the Los Angles Times and the Orlando Sentinel. Gannett is facing a problem in acquiring Tribune Publishing, however – Tribune Publishing has declined several offers.

The latest offer is $15 per share, which represents a 99% premium to the $7.52 closing price of Tribune’s common stock on April 22, the last trading day before Gannett publicly announced its initial offer for Tribune Publishing. That values Tribune Publishing at roughly $864 million.

On Friday, Gannett sent Tribune shareholders a letter asking them to send a “clear and coordinated message” to their Board that “they expect superior and certain value for their shares and that the Tribune Board should substantively engage immediately with Gannett regarding Gannett’s offer to acquire Tribune for $15.00 per share in cash.

Tribune shareholders will meet on June 2.

When Gannett reported its first quarter revenues for 2016, operating revenues for the quarter were $659.4 million compared to $717.4 million in the prior year, a decrease of $58 million or 8.1%.

It was able to boost digital-only subscriptions by 37%. The company is also enjoying revenue from diversified businesses. That it has acquired and that includes Cars.com and CareerBuilder.com

As far as guidance, the company said it expected full year revenue trends to improve over 2015 driven largely by growth in digital. Advertising revenues were expected to decline in the 5% to 7% range and circulation revenues were expected to decline in the 2% to 4% range.

So while I think Gannett is among the strongest in the business considering its ability to make acquisitions, it will be important to pay attention to how these efforts affect its top and bottom lines.

 

 · Tribune Publishing

 

On Friday, Tribune Publishing said that Gannett’s statements are misleading. On that same note, Tribune says it is studying the $15 per share offer.

Tribune Publishing boasted $398.2 million of revenue during Q1 2016, which was flat compared to $398.3 million of revenue generated during Q1 2015.

It did suffer from a slip in advertising revenues, which were down 4.4% to $215 million. Circulation revenues of $122 million were up 11.4% in the quarter compared to the prior-year quarter and increased 1.7% from last year. Total digital revenues for Q1 2016 were $55 million, which was an increase of 15% from the prior-year quarter.

Tribune CEO Justin Dearborn said the first quarter results were driven by good momentum in digital and increased circulation revenue offset by a decline in advertising revenue.

To deliver value to shareholders, Dearborn noted that the company was at the “very early stages” of executing its plan to transform the company by increasing monetization of its “important” brands, capitalizing on the global potential of the LA Times, and significantly accelerating the conversion of content to revenue through an enhanced digital strategy.

However, of note is that the company’s second largest shareholder, Oaktree Capital, disagrees with that strategy. The company’s vice chairman, John Frank, noted in a letter, that the turnaround plan is risky and far behind those of competitors in the media business. Saying that the turnaround plan could destroy shareholder value, Oaktree wants Tribune to accept Gannett’s offer.

 

 · News Corporation

 
News Corporation (NASDAQ: NWSA), which owns The Wall Street Journal, also suffered from a decline in advertising revenues.

It reported its Q3 2016 earnings for the quarter ending March 31 on May 5. Its revenues were $1.9 billion compared to $2 billion for the same period in 2015.
I’d keep an eye on News Corp. because I think its diversification of revenue streams will help mitigate the effects of lower advertising revenue. At the forefront for it is are efforts to improve and expand its digital properties.

 

 · In conclusion

 

Companies that own newspapers, but that also have diversified products, should be viewed more favorably than those that simply own newspapers. Depending solely on the revenues from newspapers (that are more likely to be used to line bird cages) is a recipe for more disaster for publishing companies. If you sample the newspapers that have gone by the wayside, you’ll likely find that they relied heavily on subscriptions and ad revenue.

Relying on subscriptions is very dangerous considering consumers are cancelling them in droves as they can find their news online. Take the dust up over Facebook this week from critics saying the social media site was blocking conservative news. Newspapers don’t have to be a dying breed. Their owners just have to find other revenue streams, such as those from digital products, and even other businesses, to deliver the best in shareholder value.




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Charter Eyeing MVNO Launch After Time Warner Buyout Closes


Charter Communications (NASDAQ: CHTR) this week officially closed its deal in acquiring Time Warner Cable and Bright House. The natural thought is on how this deal will affect the cable industry. However, there is another benefit that Charter considered in buying Time Warner and it is called an MVNO, and it could be just as profitable than the cable business.

Companies in the wireless space know that investors in their stock are curiously interested about MVNOs and how companies will maximize their use of it. Considering how crowded the wireless space is, anything that a company does to make their services more attractive will add to their bottom lines. That is why investors are looking at MVNOs, or at least they should be.

 

 · MVNO defined

 
An MVNO (Mobile Virtual Network Operator) is a mobile service that operates without its own licensed spectrum, and it may not have the infrastructure to provide mobile service to its customers, according to Webopedia. So basically MVNOs do not own the network on which they provide voice and data traffic. MVNOs lease wireless capacity from pre-existing mobile service providers and establish their own brand names that are different from the providers.

Think Virgin Mobile, which uses Sprint (NASDAQ: S) as its underlying carrier. Virgin Mobile is the MVNO.

Back in 2011, Verizon (NYSE: VZ) saw that there were players in the market that had a high-quality radio spectrum called AWS-1, which is used for data, voice, video and messaging. Those companies included Bright House Networks, Comcast (NASDAQ: CMCSA), Cox and Time Warner. The companies teamed up and Verizon entered into an agreement to purchase their spectrum.

It is clear that Charter, and any other player in the wireless space that’s worth their salt, understands the value of spectrum. According to FierceWireless, Charter’s CEO Tom Rutledge said at a conference this week that his company can now potentially offer a nationwide wireless service because its Time Warner acquisition gives it access to the same Verizon MVNO agreement as Comcast.
 

 · Comcast working on MVNO

 

Now that we’ve gotten all of the technical stuff out of the way when it comes and spectrum’s importance, let’s take a closer look at how getting it can help these companies take more market share in one of the most competitive industries around.
All eyes are on Comcast right now as it is expected to introduce its own mobile service, perhaps by the end of the year.

In some circles, Comcast is the industry darling in terms of launching an MVNO service right now because it can largely fulfill the main thing that investors want – capital efficiency. It is estimated to have more than 13 million WiFi hotspots. Other contenders may have considerable costs to incur in developing that many WiFi hotspots to compete with Comcast.

 

 · And then there’s Charter

 
One of the things I found interesting about Charter’s $66 billion acquisition of Time Warner and Bright House is how it positioned it to be able to make its move into the wireless market…right alongside Comcast. While the company has not outright said it will enter the space, documents from the Federal Communications Commission about the acquisition, which were released May 10, tell another story:

“The applicants contend that the transaction would enable New Charter to be a new entrant in the mobile wireless market by offering mobile products through increased WiFi deployment, the deployment of licensed spectrum or a mobile virtual network operator (MVNO) arrangement – and likely through some combination of these.”

As an investor, I would definitely keep an eye on Charter as another player in this growing, and potentially area of wireless offerings. If it does enter the arena, it could effectively compete with Comcast. This is especially the case since the acquisition gives it a considerable number of Wi-Fi hotspots.

At the meeting that I noted above that FierceWireless covered, Rutledge said this.
“In my view, we’re already a wireless company,” adding that a good amount of data is already transmitted wirelessly by customers to Charter’s network.
 

 · Others to watch

 

The market had anticipated last year that Apple (NASDAQ: AAPL) would launch its own MVNO, but it denied it then and seems to still have no intentions of launching one. Google (NASDAQ: GOOGL) has launched an MVNO service. It leases network capacity Sprint (NYSE: S) and T-Mobile (NASDAQ: TMUS).




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Protect Your Nest Eggs With a Bond Ladder


On Wednesday, Federal Reserve Chair Janet Yellen said that interest rates could be raised next month depending on a wide range of factors that can show whether or not the nation’s economy is improving.

In the meantime, investors continue to look for the best ways to spend their money, especially people who are tucking away money for their retirements. While stocks are the most popular investment, especially when it comes to making fast money, if you have patience to watch your nest egg grow, consider bonds.

For this article, I’ll go over bond ladders. I’ll discuss the details of putting them together as an investment strategy. But of course, as with all strategies, check with your financial advisor about whether this is best for you. Stock investments can be tricky, but bond ladders can be particularly tricky, especially for novice investors.
 

 · What’s in a name?

 

Yellen’s announcement gave a better, sooner indication idea of when interest rates may rise, but it is clear that there is a lot of uncertainty surrounding the future of interest rates and the outlook for bonds. That’s one reason to consider a bond ladder.

As noted by Charles Schwab, “investors often build bond ladders to help generate predictable cash flow and help reduce some of the volatility resulting from rising or falling interest rates.”

Bond ladder portfolios contain bonds with different maturities bonds and coupon payments. They can be reinvested according to the “rungs” that make up the ladder. For example, bonds that are reinvested in the longest rung of the ladder offer higher yields than those bonds that are reinvested in the shorter rungs.

For example, if you had $50,000 to invest in bonds, you could use the bond ladder like this: Buy five different bonds each with a face value of $10,000. In the bond ladder approach, each bond would have a different maturity. One bond may mature in five years, and another may mature in 10 years, but each bond would represent a different rung on the ladder.
Here are some tips to build your bond ladder
 

 · Dealing with falling interest rates

 

As you know, when interest rates rise, bond prices fall, and when they fall, bond prices rise. So you may wonder how this could affect a bond ladder. In this case, you wouldn’t make as much income as before with the same amount invested.

A bond ladder gives you a framework in which to balance the reinvestment opportunities of short-term bonds with the potentially higher yields that longer-term bonds typically offer, says Richard Carter, Fidelity vice president of fixed income products and services.

And consider this. By using the bond ladder approach and staggering the maturity dates, you won’t be locked into one particular bond for a long duration. A problem that can arise when you lock yourself into a bond for a long duration you can’t protect yourself from interest rate risk, notes Investopedia.

 

 · Here are some tips to build your bond ladder

 
Try to include only callable bonds
Avoid the highest-yielding bonds; at any given credit rating
Include high credit bonds; avoid junk bonds
Build your ladder with high-credit-quality bonds




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Posted by TwillyD May 18, 2016
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What’s Old is New Again; Nokia Hopes So


Remember when the hottest cellphones in the market were made by Nokia (NYSE: NOK). We watched it go by way of so many others in the wake of the iPhone made by Apple (NASDAQ:APPL) and devices powered by Android from Google (NASDAQ: GOOG).
(Google is now Alphabet and its ticker is GOOGL)

Well, you may be seeing Nokia devices back in the market, thanks to an agreement announced on Wednesday. Through a strategic brand and intellectual property licensing agreement, HMD global will be allowed to create a new generation of Nokia-branded mobile phones and tablets.

HMD global is a newly founded company based in Finland that is charged with providing the focus Nokia needs to start making devices again. Under the agreement, Microsoft (NASDAQ: MSFT) is selling the low end phone unit for $350 million. In 2014, Nokia was acquired by Microsoft for $7.2 billion. It took just a year for Microsoft to write Nokia off of its books, costing it to take a $7.6 billion charge.

The change is expected to be complete this year. HMD intends to invest more than $500 million over the next three years to support the global marketing of Nokia-branded mobile phones and tablets, funded via its investors and profits from the acquired feature phone business. Nokia will receive royalty payments from HMD for sales of Nokia-branded mobile products, covering both brand and intellectual property rights.

Nokia will need this help. While it dominated the smartphone market in the 1990s, it began to lose steam with the introduction of the iPhone and Android devices.

However, its troubles ran deeper than that, especially with rolling out products that consumers were not attracted to. Also, it failed recognize the importance of software, such as apps that run phones. It also didn’t accurately estimate how dominant smartphones would eventually become. While smartphones with apps were growing in demand, Nokia seemed to want to stick to developing phones with touchscreens, which were all the rage, was best. We see where that got the company.

Nokia was only cleared to enter the smartphone business at the beginning of the year. At that time, it answered rumors that it would deliver a smartphone this year through a brand-licensing model. It noted that the right path back to mobile phones was to allow that partner to manufacture and provide customer support for a product.

The question now becomes whether this deal will pay off for Nokia. Of course it boils down to whether HMD can actually pull off devices consumers will like? Consumers are so enamored with the mobile device leaders, it may be difficult.

For its latest quarter, Q1, Nokia reported an 8% year-on-year net sales decrease.
In reporting those earnings, it was that while the revenue decline was disappointing, the shortfall was largely driven by Mobile Networks, where the challenging environment is not a surprise. The company noted in its Q4 2015 earnings release that it expected some market headwinds in 2016 in the wireless sector.

After the announcement on yesterday, during intraday trading, Microsoft’s stock was up about .5%, while Nokia’s stock was up roughly 3.52%.




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Regenerative Medicine Company Faces NASDAQ Delisting


After being given roughly a month to show that it had gotten its financials in order, Osiris Therapeutics (NASDAQ: OSIR) has failed and faces a real chance of being delisted.

On Monday, the company provided an update regarding the status of its compliance with the Listing Rules of the NASDAQ.

In March, Osiris received a notification from NASDAQ indicating that, as a result of the company not timely filing with the Securities and Exchange Commission (SEC) its Annual Report on Form 10-K for the year ended December 2015 Osiris had failed to comply with the periodic filing requirements.

On May 12, the company received an anticipated letter from NASDAQ noting that it had still filed its quarterly report for the quarter ended March 31.

Osiris has submitted to the NASDAQ listing qualifications staff a plan to regain compliance with NASDAQ’s continued listing requirements. The NASDAQ staff has discretion to grant up to 180 calendar days. That would put the maximum date at Sept. 12, 2016.

The question is whether Osiris work to complete its previously announced accounting reviews, restatements of prior period financial statements, transition to a new independent registered public accounting firm and 2015 audit will be enough to put it in a position to bring its SEC filings up to date.

Founded in 1992, the medical device company managed to carve out market share and a strong reputation for its research, development, manufacturing, marketing and distribution of several regenerative medicine products. Those products, Grafix, which are cryopreserved placental membranes that are used to treat hard-to-treat acute and chronic wounds. Grafix and its two other products, Cartiform and Bio4, have helped it grow its revenues; and they helped it go public in 2006. Back then Osiris’ stock opened for its first public trade around $10. It peaked at $23 last year, and now it is trading just under $6 and faces delisting.

Then there was some bad publicity that the company faced that raised some eyebrows surrounding its hiring of Todd Clawson, who was the head of the company’s national sales department. Prior to going to Osiris, he worked at Advance Bio Healing. Federal prosecutors are now looking at him over his work while at Advance Bio due to allegations that he gave doctors several perks in exchange for them doing business with Advance Bio.

There has been no evidence presented that Clawson did anything corrupt while at Osiris. Clawson was credited with the company’s sales jumping substantially when he was hired. Sales went to $60 million in 2014 from $24 million in 2013.

So as we wait for the final outcome for Osiris and its NASDAQ possible delisting, I advise to stay away from this stock.




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The DOL Fiduciary Rule is Here; Now What for Advisors and Insurers


If you invest in variable or fixed annuities, you will see some changes in the commission costs soon. That’s due to the Department of Labor’s new fiduciary rule that will begin taking effect over the coming months.

The investment advisors who sell the products and the insurance companies that employ them are all on alert about how much of an effect, or difference will make.
 

 · The need for the rule

 The thought behind the rule is that many advisors have promoted products with high commissions knowing full well that the product may not be needed by the client. This has especially been the case for annuity products, which are notorious for being complex for the average client. The rule is hoped to discourage advisors from pushing these high commissioned, products, and promote products that will best suit their client’s news, not just supply the advisor with high commissions.

That’s great for the client, but for advisors, it may lead to less money for them, and less money for the companies they work for. The chief of enforcement for Finra, the securities industry watchdog, has noted that variable annuities are complex and expensive products that are routinely pitched to vulnerable investors as a key component of their retirement planning.

Over the past few years, Finra has stepped in when clients were charged on an annual basis for holdings that would have been free of the trade costs.

For example, in 2005, Finra fined Morgan Stanley a reported $1.5 million and ordered it to pay $4.6 million in restitution to clients to make up for inadequately supervising its fee-based brokerage business.

Two years later Finra fined Wachovia Securities $2 million for a similar violation. Baird, SunTrust and Raymond James were also dinged by Finra for poor oversight of their clients’ fee accounts. So there was a need for the rule. Annuities are offered as variable or fixed in a client’s retirement account.

Generally, variable annuities charge explicit fees, while fixed annuities tend to embed their costs in the interest rate or income payout amount, according to Fidelity Investments. Under the new rule, advisors are expected to scale back their offerings of variable annuities, which can have high upfront commissions.

Annuity providers are expected to find ways to deliver products that meet both client needs and the new DOL standards. Some advisers are thinking about changing their account minimums, presenting new investment solutions to their clients, or transitioning appropriate clients from brokerage to advisory under the rule.
 

 · Choices for Advisors

 
What is clear is that if you provide advice pertaining to retirement savings, qualified plans, IRAs or IRA rollovers, this issue will affect you, and you will likely need help.

According to a study called “The Economics of Change,” the majority of advisers surveyed currently recommend annuity products in retirement accounts — nearly two-thirds use variable annuities, and two-thirds also claimed to use fixed annuities — products that, due to cost and complexity, will be thrown into flux in the coming years.

While researching the choices advisors have under the rule, I found the following from Think Advisor.

They can serve as a fiduciary under the Employee Retirement Income Security Act (ERISA) without conflicts. While serving as an ERISA fiduciary is the more restrictive of the two options, it is also the clearest as to what is allowed and what is not. I predict that many advisors will take this more conservative route.

The advisor can serve as an ERISA fiduciary with conflicts under the Best Interests Contract Exemption (BICE).

The contract exemption, while allowing advisors to make relatively minimal changes to their existing business model, comes with many uncertainties. Questions such as what is “reasonable” compensation, what fees must be disclosed and how, and what other forms of payment must be disclosed will be debated by every financial institution. I suspect many of the answers to these questions will not be known until the lawsuits are filed after the next bear market.
 

 · The Insurers

 
Among the affected companies are MetLife (NYSE:MET), AIG (NYSE: AIG) and Prudential Financial (NYSE: PRU).

In December 2015, those companies were among those in the annuity industry that authored an opinion editorial, claiming the DOL’s proposed rule would have a “potentially devastating impact” on Americans’ access to annuity products, particularly for low and middle-income earners.

The sum includes a $20 million fine and $5 million to be paid to customers for “negligent” misrepresentation and omissions, according to Finra. It has among those who have been increasing scrutiny of variable annuities, which can combine securities investments with guaranteed income, an arrangement that may generate attractive fees for insurers.
 

 · In Conclusion

 
Now, variable annuities and fixed indexed annuities have lost their coveted exemption. Advisors and insurers are now subject to the requirements of BICE. Compliance risks come into play, which means litigation could come into play. That should be considered if you decide to invest in a distributor of annuities.




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Posted by Martin May 17, 2016
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Rolling in the money puts to repair a trade


Repair manYou know it. You sell a put option and the trade goes busted next day. If you have never experienced this, then you are still going to. That I can guarantee.

In the past, I tried to predict the market/stock direction so I could be on the right side of the trade.

Today, I laugh at such effort. It’s futile and you will never be right. At most, you may get 50% chance to be right. But that 50% is nothing to spend an effort for.

TD Ameritrade has on its website a tool called “Predict Wall Street”. If you decide to play it, you will find out that the community is 40% right (sometimes even 55%). My score of predicting stock movement is 50%.

I can flip the coin and get the same result.

So, don’t bother predicting stocks or the market.

Rather, learn techniques which help you when you are wrong.

When you sell a naked put and the trade heads south you have two ways how to react:
 

1) You are still bullish on the original trade and you consider the price drop just temporary.
2) You doubt your first assessment (you are probably no longer bullish) and want to improve your odds right away.
 

Next, I try to describe several situations which may happen and how I would react to them based on the above mentioned classifications.
 

Continue reading >>>

 




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Posted by Barney Whistance May 12, 2016
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Investing for higher returns in peer to peer lending platforms


People who are new to investing often prefer to invest in one of the savings products offered by banks, but investing in a bank is never a profitable exercise. Interest rates are at an all-time low – plus banks never have been one to share their “fortunes”.
These days anybody who is into investing must have heard of Peer to Peer (P2P) lending. It has gained a lot of popularity in recent years.
Peer to Peer lending is not something new. P2P started in 2005 with the launch of Zopa, the first peer to peer lending service. Though Peer to Peer lending was the signal of the financial revolution, it was the 2008 recession and the ensuing “credit shortage” that showed the chinks in the bank’s armours and pushed peer to peer lending into the limelight.
At its inception, peer to peer lending was quite simple. The P2P platforms were simply a place for borrowers who were looking to refinance existing high-cost debt facilities and on the other hand were people who wanted to earn higher interest on their savings.
Peer to peer lending has now grown into a worldwide industry. The size and number of lending platforms have rapidly grown. P2P platforms have now evolved and do not just offer loans for consumer lending. Peer to peer lending platforms is giving banks a run for their money by offering tailored products for home financing, students loans, franchise financing and loans to SMEs to name a few.
 

What are the risks of investing in peer to peer lending platforms?

 
No business is without risks and the same holds true for banks and peer to peer lending. The 2008 crash made it very clear that even giants can fall, however having said that, it is important to remember that reducing risk to acceptable levels is one of the prime objectives of any successful business.
So is peer-to-peer lending a risky business? Should you invest your savings in peer-to-peer lending?
There are many platforms for investing in Peer-to-peer lending. Each platform has its own way of conducting business and therefore a different approach to managing and mitigating risk.
Let us delve into greater detail of how risk is managed with examples.
 

Zopa

 
Zopa lends money for personal loans to “reliable investors”. Zopa checks all of its investors by checking their credit histories, personal income and Zopa also has a requirement, making it mandatory that the borrower should have had a UK address for a minimum of three years. This is the first stage in risk minimization. Lend money to people who are very likely to pay back.
The second stage of risk minimization is figuring out how to minimize the impact of a bad debt.
Firstly, any investment made is divided into microloans and only a maximum of 2% of investment is lent to one single borrower. This ensures that a bad debt will not wipe out a major chunk of investment.
Secondly, what happens if a major default does occur? Firstly it is Zopa’s responsibility to chase down bad debts. The bad debts are assigned to “Safeguard trust”. First priority is to chase down bad debts. If the debts are truly irrecoverable then Safeguard maintains a fund to cover bad debts. The fund is generated by contributions from members. Currently, Zopa’s fund has a 10% buffer meaning the fund has 10% more money than what Zopa expects to pay out.
Investing in Zopa is quite low risk. Their actual bad debts have always stayed lower than their predicted percentages. And it is not that the predictions have a buffer built in them. For 2015, Zopa estimated 2.88% of the loan value to go into default, however, the actual percentage was only 1.01%.
 

Rebuilding Society

 
Rebuilding Society is at the other end of the spectrum from Zopa. Rebuilding society lends out to businesses. Rebuilding society does not have a provision fund. However, to cover risk it has two operational policies in place. They are:
 

  • All loans are to be backed by securities. Businesses applying for loans under $50,000 have to give a personal guarantee. Loans at $50,000 or above are secured against assets.
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  • You cannot provide more than $2,000 to one business.



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