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About The Site
“You have two choices! You can work for your money, or you can have your money work for you!”.
For most this is easier said then done. I created this site to help others with their path to financial freedom. I hope to do this by proving useful tools, resources, and personal experiences. Click Here To Continue Reading...
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My Current Position In Fitbit Inc.
I’ve been watching Fitbit Inc (symbol: FIT) over the last couple of years. During that time I’ve bought and sold shares of Fitbit here and there. During August of 2017 I began getting more serious and started purchasing shares fairly regularly. As of January 30th, 2018 I currently own 7,630 shares of Fitbit. With 1,930 in retirement accounts and the remaining 5,700 in my personal brokerage account. I have just $40k invested in Fitbit. with their current share price of $5.22. I’m currently averaging a cost basis per a share of $6.11 (I’m down just around $6,800). I plan to add an additional $5k over the next month to put my total original investment just above $50k.
Current Financial Situation of Fitbit, Inc.
There were a few things to call about about the latest earnings report for the fiscal Q3 ending on September 30th, 2017.
Highlights From Fitbit’s Q3 FY17 Financial Report
- $659 million in cash, with current assets totaling $1.23 billion
- $564 million in current liabilities
- $392 million in revenue, with $174 million and -$27 million in gross profit and operating income respectively
- -$113 million in net income
- Operating cash flow was $5.5 million, net change in cash for Q3 FY17 was -$38 million.
There’s a few important things to call out from Fitbit’s Q3 FY17 Financial Report
- Has a very strong cash position, with operating cash flow remaining positive.
- R&D spend remained at $84 million contributing to the lower net income
The Long Term Strategy Of Fitbit
If Fitbit is able to enter into the healthcare side of things. I believe there is a lot of potential for this company. During FY18 I’ll be looking for YoY sales increases and their plan for expanding their services. I still believe that Fitbit is undervalue at it’s current price. With the market cap just under $1.3 billion, this company has a lot of room to go, if they can prove to the market their value.
401k Distribution Rules
As you read thru this article keep something in mind………the IRS has permitted tax benefits to families by way of the 401k for many years. Primarily intended to permit individuals to salt away extra cash for their own retirement, participants have responded. 401k plans now make up the largest employer-sponsored retirement account type in existence. Knowing the 401k distribution rules will help you decide the best path for you.
But, you’re reading this because it is now time to retire or it is time to tap the 401k for some much needed cash.
Whatever the reason, care must be taken to abide by the 401k distribution rules. Otherwise, Uncle Sam may become more involved in your life than you ever believed he could be.
In an attempt to simplify the concepts of 401k withdrawals, I have boiled them down to two types.
1. Early 401k withdrawals and,
2. Withdrawals made at the age 59½ or older.
Let’s start with……
Early 401k Withdrawal
An early 401k withdrawal has the likelihood of creating two taxable situations on your tax return.
In addition to paying Federal income tax on the amount withdrawn, 401k early withdrawal penalties at a rate of 10% on the distribution amount will generally be required of you as well.
Congress had enough foresight (I can’t believe I actually wrote that) in the early years to understand that if participants were going to contribute to their own 401k account, they should have some access to their money.
So Congress put in a 401k hardship rule (this hardship rule also exists for 403b plans and 457 plans). These rules make allowances for early 401k withdrawals in a limited number of situations. Here are the exceptions:
- Expenses for medical care for an immediate family member.
- Costs directly related to the purchase of a principal residence.
- Payments of directly related educational fees, including room and board, for the next 12 months of post-secondary education for the employee or an immediate family member.
- Payments necessary to prevent the eviction of the employee from his/her residence.
- Funeral expenses.
- Certain expenses relating to the repair or damage of an employee’s principal residence.
“It’s important to note that the above exceptions simply specify conditions when a participant may have access to 401k funds. They are not exceptions to penalties or tax.”
401k withdrawal penalties will not apply if distributions before age 59½ are made in any of the following circumstances:
- Payments made to the beneficiary after the death of the participant.
- Disability of the participant.
- Substantially Equal Periodic Payments after separation from service.
- Payments made to a participant after separation from service if the separation occurred during or after the calendar year in which the participant reached age 55. More on this below.
- Payments made to an alternate payee under a qualified domestic relations order.
- Distributions to a participant for medical care up to the amount allowable as a medical expense deduction.
- Distributions to correct excess contributions, match, or deferral.
Although the IRS makes provisions for early distributions, your employer’s plan does not have to allow those distributions. Many employers do not allow premature distributions because of the added administration costs incurred.
As briefly noted above, a 401k withdrawal penalty does not apply to employees who separate service from their employer in or after the year they have reached the age of 55 (for qualified public safety employees that age gets moved back to age 50!)
Let’s re-phrase this exception. The 401k distribution rules state that you can begin taking a 401k early withdrawal in the year you turn 55 or later from your current employer only. Therefore, it may make good financial sense to roll older 401k’s into your current employer before you retire.
Distributions at age 59½ or Older
If your intent is to withdraw 401k assets at retirement, 401k withdrawal laws allow for these three options. Each item assumes that you’re at least 59½ and you are no longer employed by your employer.
- Take a lump sum. Your provider will write you a check after holding out 20% of the balance. This 20% is simply a required tax deposit on the 401k distribution. As you file your taxes the following year, the withdrawal will be included in your total income via a 1099 tax form. Whether the 20% Federal tax withheld is enough or too much depends on your particular tax situation for that year.
- Do nothing. Leave your plan assets with your employer. There is no tax consequence as no money is withdrawn.
- Rollover 401k to IRA. There is no tax implication of this is done correctly.
401k withdrawal rules can be extremely complicated. Contact your financial advisor or CPA for more help.
So, what do investment bankers do exactly? The simplest explanation is that investment bankers are the world’s deal makers, usually acting as a type of broker. Basically, they match projects with money. Investment Bankers find projects, analyze them, cherry-pick the best, then structure them as investments and, lastly, find the investors (or in the case of an in-house investment banker present the project to the firm’s investment committee.) Most investment bankers will review over one hundred projects per year and eventually reject 99% of them. It’s a really difficult job. A great investment banker is literally worth more than his or her weight in gold. There are few great investment bankers… and even fewer after the 2008 financial crisis.
My Background In Investment Banking
To better understand what do investment bankers do I’m going to provide my background. I have been an investment banker for the past thirty-eight years. I started at the ripe old age of eighteen with the purchase and syndication of two apartment buildings in Northern California, then went on to start one of the first video store chains in the United States. On my first group of syndications, I tripled my investors’ money within three years. Honestly, it was luck and timing.
Somewhere along the line, I developed a reputation and I managed to pick up hundreds of clients that I helped raise money for and manage their investor relations. Some of those clients you
might recognize: IBM, AT&T, Chevron, ADP, FMC, Motorola, Lockheed Martin, Intel, State Farm, Allstate, and 19 other Fortune 500 companies. I have personally syndicated over 100 investments in my career and helped raise billions of dollars in equity for my clients.
I also worked in the entertainment industry writing, directing and executive producing motion pictures. There are 7 motion pictures based on my screenplays, two of which I also directed. I personally invested in or helped finance over 100 independent movies and I founded several successful media services companies in Southern California. Those are my credentials.
I have had my ups and downs–2008 was particularly tough–but I have survived and even prospered. Over the years, I have learned a few secrets about investing that I would like to share with you. If you are not already wealthy, I hope this information makes you become wealthy… like REALLY WEALTHY!
And if you are lucky enough to already be in the top 1%, then I hope this information helps you stay there and sleep better at night knowing your nest egg is safe.
They Usually Specialize
Investment bankers usually specialize in industry sectors such as energy, real estate, technology, consumer goods, minerals, communications, transportation, media, etc. They also specialize in the types of deals that they put together. Some work in mergers and acquisitions (M&A), while other develop IPOs. Many work in equity placement or financing. Some investment bankers specialize in financing startups and growing companies, while others only handle mature companies. Still others stay away from corporate finance and instead specialize in project financing (my personal favorite) like commercial real estate development or acquisition financing.
To answer What do investment bankers do? We need to understand more about their education. Most investment bankers start off graduating from a prestigious university, then working for a number of years at one of the big investment banks; Goldman Sachs, , Morgan Stanley, JP Morgan, Deutsche Bank, Credit Suisse, etc. Once they gain their confidence and develop their contacts many leave to launch their own firms and develop their own projects. Some end up running investment funds, while others remain independent putting deals together for sponsors in need of capital.
Investment bankers keep massive Rolodexes or databases of investor contacts. My personal database has over 8,000 investor contacts all of which have over $100 million in assets. Investment bankers are similar to sports or entertainment agent in that their power comes from who they know and who will take their call on short notice.
An investment banker must always understand current capital market conditions, so they know which projects will get funded and which are a waste of time. They must have a keen eye and are always on the lookout for quality projects and sponsors. An investment banker must know how to structure an investment deal so that it is marketable to investors, while still leaving enough meat on the bone to incentivize the performance of the investment sponsor.
Now you should be able to answer what do investment bankers do! Most successful investments over $10 million have an investment banker behind them. The new arena for investment bankers is crowdfunding. It is the ultimate free market system for raising capital and very well could change the way American business are financed. But more about that in posts to follow….
Let me start off by saying that I truly like most financial planners. After all, they are like cousins to my own field of investment banking. I also believe they can be extremely helpful, even indispensable when planning your financial future. So, please use them. However, like most tools, they are only useful when used correctly and backed up by a certain amount of knowledge. After reading this article you’ll have a better understanding about the difference between financial planner and advisor.
A Personal Story
A few years back, a relative of mine inherited a sum of money from her late great aunt. Being an investment banker, everyone in my family assumes that I know all things financial. It’s funny, but I can invest a large amount of my own money and sleep well at night knowing that I have done my homework and calculated the risks and the rewards. But when it comes to investing family money, I get all tied up in knots and really fearful of making a mistake. My bravado and self-confidence go right out the window.
So, in the case of my relative’s request for help with her inheritance, naturally I sought help. I set up appointments with several well-established financial planners in hopes of helping my relative choose one to help her invest her newly found nest egg. It was a very enlightening experience and not what I expected.
Having gone through this process like most people trying to figure out and develop their personal investment strategy and financial plan, I would like to share my insights with you.
What’s The Difference Between Financial Planner and Advisor?
First, let’s get some definitions straight. In the world of investment, there are investment advisors and there are financial planners. Most financial planners are also investment advisors, but not all investment advisors are financial planners. Both investment advisors and financial planners sell investments. However, financial planners also evaluate financial resources and situations to develop investment strategies or financial plans for their clients–all with the intent of achieving their client’s financial and life goals.
I cannot stress enough the importance of having well-defined financial and life goals. How can anyone arrive at their final destination without knowing where they are going? The guidance of a good financial planner can help you define these goals and get you on the path to success.
Salesmen in Disguise
Some investment advisors are captive–meaning that they work for a firm that only sells a certain type of investment and therefore are limited in what they may offer you. These “salesmen” may also be known as financial representatives, financial specialists, annuity specialists, life insurance specialists and a whole host of other names used to disguise the fact that they are usually paid lucrative commissions or bonuses to sell specific product or service to their clients.
Commissions and bonuses are not bad things in and of themselves. After all, we should not expect anyone to work for free. However, it is very important when choosing investments to understand the motivation of anyone offering you advice.
As you search for an investment advisor or a financial planner, you are going to hear the phrase “fiduciary responsibility”–meaning that the planner or the advisor has an ethical and, in some cases, legal responsibility to represent the best interests of their client. But hang on a minute…can an educated professional with a list of impressive acronyms following their name really be impartial and do what is right for their client when they know that selling one financial product to their client earns a higher commission than another financial product?
Call me “cynical”, but come on…it’s human nature. Even in the best case scenario of both products being relatively close in quality and price, they’re going to pick the one that pays the highest commission! And I don’t blame them. I would do it. Gandhi would do it.
Okay, maybe not Gandhi…or Mother Teresa. The point is that there is an inherent conflict of interest in the world of investment and you should be aware of it whenever you invest. It is interesting to note that there are by far more commission-based advisors than fee-based advisors.
So what’s the difference between financial planner and advisor, well, let’s get back to my story. With my relative in tow, I visited with several financial planners. During each interview I would ask the financial planner their opinion of “Vanguard Funds”. There was purpose in my question. Vanguard funds are index funds that can be purchased directly from Vanguard through their website. This means that the financial planner would not get a commission. Every single one of the financial planners that I met with suggested reasons why the Vanguard funds might not be suitable for my relative. Check out our free 401k calculator to see if you’re prepared for retirement!
Coincidence? I also asked if they would consider being paid a fee by my relative and forgoing any commissions they might receive by selling my relative a financial product. To my surprise, several of them actually got a bit irate, stating that they had a fiduciary responsibility to represent their clients fairly and that they were perfectly capable of distinguishing which financial products were best for their clients while not giving weight to their potential commission on that product. They were insulted that I would question their integrity. We left their office.
Difference Between Financial Planner and Advisor – Which Is Cheaper?
Okay, another knowledge tidbit for the uninitiated. There are two types of investment advisors, including financial planners–commission-based advisors and fee-based advisors. Both should be registered with FINRA, a self- governing organization for financial advisors whose membership in most cases is required by the Securities and Exchange Commission to work in certain parts of the investment industry.
Commission-based advisors receive commissions on the financial products that they sell. Fee-based advisors are paid a fee directly from the clients that they serve. From the outset, a commission-based advisor is going to be cheaper than the fee-based advisor. After all, the commission-based advisor doesn’t usually charge you any fees on the investments they sell you, because their fee is built into the cost of the investment. On the other hand, the fee-based advisor is charging you their fees over and above the cost of the investment. So, naturally, the fee-based advisor looks more expensive… at least in the short run.
In my experience, the better the investment, the lower the commission and visa-versa. Certain types of life insurance pay very high commissions over long periods of time. High-risk, venture capital or business startup type investments also tend to pay very high fees to the advisors that sell them. I have seen commissions as high as 10% of capital raised paid out to advisors that brought in the investors. Vanguard, the funds I mentioned earlier (and recommended by Warren Buffett), pay little to no commission to the advisors that sell them. Quality investments don’t need to pay high fees to attract investment. The product speaks for itself.
Human Nature & Investment Advice
So, now ask yourself…what would human nature dictate to a commissioned investment advisor when they could earn 1% on one investment and 10% on another investment? Which would they recommend? Would the quality of the investment even come into play? I am sure there are many investment advisors that take the long view and value their reputation for finding good investments for their clients. But I am equally sure there are investment advisors that would sell the product that makes them the most money regardless of the product’s quality. The real question is…how do you tell the difference between the good advisor and the greedy advisor?
The Difference Between Good and Greedy Advisors
The only way is to take money out of the equation. If you pay your advisor a direct fee in lieu of them receiving commissions, you eliminate the conflict of interest and you can count on their advice being fair and unbiased. It is not easy to find a good investment advisor or financial planner willing to work based on a fee, but it is well worth the effort. You can start by looking on the NAPFA website. NAPFA (National Association of Personal Financial Advisors) is an organization of fee-only financial planners. The fee charged by a fee-only financial planner will be meniscal compared to a bad investment. Investing is one of those areas in life where you really don’t want to be penny wise and pound foolish. Now you should be able to the difference between financial planner and advisor. You next step is to determine, which if any is right for you.