Canadian Capitalist recently wrote about the issues of settling an estate where the details of the deceased was not easily findable.  This post expands on the topic by addressing how you should physically organize your affairs so that your family and/or executor can settle or administer your estate easily.  The same tips are equally applicable if a member of your family winters down south or about to embark on a long trip and you may need to get a hold of important financial information.

Keep your will and power of attorneys in one place.

If you have hired a lawyer to draft your wills and power of attorneys (a power of attorney for personal care is also known as a living will), the back page of the will typically has the contact details of the lawyer so that the executor can quickly contact them if you need a lawyer to help you settle an estate.

If you have alternate power of attorneys, one power of attorney should be  releasable to your first choice in the event the power of attorney is required. In the event the first choice has predeceased you or is no longer able to carry out their duties, a legal document known as a “direction” should be on file which directs the power of attorney to be releasable to the 2nd choice; if you have two power of attorneys issued, you have two people with power over your property or personal care.

This is an especially important point if your primary power of attorney is your spouse and you both pass away at the same time or the survivor passes away shortly thereafter. A direction is typically kept on file by your lawyer (safe-keeping of wills and power of attorneys is often an over-looked aspect of why you should hire a lawyer to draft a will; in some jurisdictions, a lost will can be interpreted as no will at all).

Here is the important point: let someone know where you have kept these documents and provide them access to it whether through a copy of the key to the safety deposit box, the combination to the safe or the contact details of the lawyer who drafted the will.

Provide a one page memo of your holdings.

As Canadian Capitalist suggested, a one page listing of all our bank accounts, insurance policies and portfolio statements would be helpful. To drill down one more level, it should not only list the account name and numbers but who to call for more information. In the case of insurance policies, it may be helpful to list the insurance broker’s name since many older policies are underwritten by a different company than who issued it given the consolidation in the industry. The account number on the insurance policy may be different so the broker should be able to provide some assistance.

One would be surprised how much unclaimed money there is in bank accounts or unclaimed insurance proceeds simply because the executor did not know an account existed or a policy was purchased.

Photocopy important underlying documents.

This tip is especially important if the deceased was born in a different jurisdiction. Photocopies of birth certificates, and citizenship cards are important if you have to claim property in other countries. The deceased may have copied account numbers wrong and the one page summary sheet becomes incorrect.

If you photocopy underlying documents and produce a one page memo of your holdings, it would help to put them in a folder which, in turn, is stored in a drawer or cabinet. In this manner, it is easy to find rather than having an executor rummage through drawers to find one item and then a set set of drawers to find the other.

Provide the password to computers

Certain accounting software now as emergency record features. However, if the executor cannot access a password protected computer, how can they use this feature? The alternative would be to save all of the above on a USB card and to provide it to your executor.

Being paid severance is bad enough since it means you have lost your job. Being taxed on it with perhaps no prospects of other employment in the near term is even worse. Are there ways to save tax on the severance you received? Are the expenses of looking for a job tax deductible? What tax deductions are available to ensure you minimize your tax?

My usual disclaimers apply to this non-exhaustive overview of both Canadian and U.S. law.  Please do seek qualified accounting advice on this matter. The point of this post is to provide enough information for anyone who received severance or is looking for a job to flag possible tax deductions which they would otherwise miss and let their accountant make the appropriate deductions if available (as a definitional term, I use the term “severance” in its normal everyday sense and not as a legal term of art).

As a general point of reference, I have previously posted on how the law on severance and how severance is calculated.

CANADA

Income during your notice period continues to be taxed in the same manner as before your notice was given.  However, certain taxpayers may have relief if they qualify under the definition of a “retiring allowance“.  In plain English, a portion of your severance can be deferred by contributing to your RRSP without the need for income tax, EI or CPP deductions being taken. In other words, before tax income can be used to contribute to your RRSP.  The amount eligible is:

• $2,000 for each year or part year of service with an employee before 1996; PLUS
• $1,500 for each year before 1989 for which no employer contributions to a pension plan or deferred plan have vested in the employee (in plain English, the employee worked for an employer without a pension plan).

The retiring allowance cannot exceed the severance amount. If you are paid a lump sum settlement, you are also not eligible for a retirement allowance.  Please note the retiring allowance is also not earned income for the purposes of RRSP contributions and it cannot be included to increase RSP contribution room for  the subsequent year. For example, assume you made $40,000 in 2009 before you were let go and contributed $4,000 to your RSP as a retiring allowance. Your contribution room for 2010 is $40,000 x 18% and NOT $44,000 x 18%.

The retiring allowance, obviously, favors older workers with long service records with an employer. Most younger employees or employees in industries that experience great mobility (for example, IT) will not qualify for the retiring allowance.

Thus, what other tax deductions are available to a terminated employee?

• Legal expenses: Legal fees paid to establish a right to collect or establish a right to employment income are deductible.
• Counselling services for re-employment: Career transition fees are non taxable benefits. Shrewd employees would ask for this benefit as part of the severance package to maximize tax advantages as well as the obvious benefits to one’s career. If you require general mental health counselling, the fees are also non-taxable and a similar strategy should be applied in negotiation a package.
• Professional Dues: If you required to pay professional dues to maintain professional status set out by law (lawyers, doctors, engineers, architects) and your employer previously paid these dues, the dues are tax deductible if you now pay these yourself.

One may also be eligible for the tuition fee credit if you return to school.

Just a note if you were issued employee stock options, as Michael James pointed out, the tax law on employee stock options can often be punitive in Canada. If you hold a lot of options, best to seek some tax advice.

UNITED STATES

Many eligible deductions which may be applicable in job loss situations are governed under the IRS’ miscellanous deductions. Generally, income made as part of severance continue to be taxed in the same manner as before notice was provided. The following are some examples of deductions available normally outside of job loss but, contextually, become more important when unemployed:

• Professional due: the general test is whether the dues are required to carry out your job
• Job hunting expenses: Provided it is in the same field (even if not successful)
• Resumes: costs associated with preparing and sending out resumes (postage, paper, photocopy) if you are looking for a new job in your current field
• career counselling

The above deductions must be reduced by 2% of your adjusted gross income if you qualify.

Travel costs to look for work or attend an interview are generally tax deductible under “travel, car, entertainment, gift and car expenses.”

Since the health care proposal is not law, health insurance premiums may also be eligible for a tax deduction if your employer once paid for these benefits and now you pay the premiums.

Educational costs can also be subject to credits and deductions.

____________________________________________________

As a general comment, there is nothing stopping an individual from earning both employment and business income in the same year. Thus, if a job transition stategy is to cease to be an employee and to become a business owner instead, the taxpayer may be eligible for a wider range of business deductions not typically available to employees and those deductions can be applied against business income earned (as you can see, the tax regime for employees is, relatively speaking, not friendly).

The above are some general ideas to help one who has been or is unemployed save some taxes. Any issues about the eligbility of a deduction or the amont of deduction one can take should be referred to a qualified accountant. Good luck.

If you want another reason why a reliance on regulatory solutions alone will not fix what’s wrong with our financial system, take the case of the U.S. Securities and Exchange Commission (SEC). In a stinging rebuke by the Government Accountability Office, a non-partisan audit arm of U.S. Congress, an audit of the SEC found  the regulatory “struggl[ing] with material weaknesses and significant deficiencies in internal control that we [GAO] have reported at various times since 2004.” Furthermore, the GAO found that SEC measures to fix internal controls issues were not sustainable; initiatives to fix the problems could not, in one case, even last more than one year.

In plain English, arguably the most famous securities regulatory in the world cannot even manage itself. More critically in a climate of regulatory reform, the GAO found that the SEC really had no follow through in its own attempts to reform itself. The reforms always start off with good intentions but whether through cultural indifference, resistance to change or no real incentive for change (regulators have no bottom line and are typically unionized environments), the GAO found that such noble beginnings are followed up with much less enthusiast effort and resources.

Practically speaking, even if you amended the SEC’s powers to be more responsive, the GAO report tends to indicate that, as a corporate culture, the SEC would not embrace the change since it appears to have a pattern of reforming for show but reverting back to the mean- a much criticized mean- over time. Now one understands how the SEC missed Madoff so many times. If it is lax in its own management, it is not exactly looking at every file with a critical eye.

As a comment that has neither positive or negative connotations, the prime motivation for any entity is self-perservation and self-perpetuation. Governments and regulators operate to ensure their own survival which may not necessarily align with the interests of the stakeholders it is mandated to serve.

In a personal finance world awash in taxpayer money, we tend to forget yesteryear’s lessons quickly. Please remember that no one but yourself is responsible for your personal finance fate and relying upon financial literarcy programs funded by government and regulatory reforms to save the average investor is a passive approach which is similar to the same passive approach that lead so many to ruin last year. Those who do not learn from history are bound to repeat it again.

Manulife Financial, one of the world’s largest insurers, surprised the investing world last week by announcing it was raising $2.5 billion dollars in a common share issuance less than a year after raising $2.5 billion of common shares. The new CEO of Manulife has long maintained that it seeks a “fortress” level balance sheet; whether this quest is to protect against another downturn or as a prelude to a large-scale acquisition strategy, the small purchase in a Chinese fund manager notwithstanding, is up for debate.

What is not up for debate is that Manulife, assuming a full uptake of its offering, now has what it seeks. Its Minimum Continuing Capital and Surplus Requirement (“MCCSR”), an insurer’s equivalent of a bank’s capital ratios, is at an estimated 256 which is well above its peers at 215 (anything over 150 is acceptable). In plain English, Manulife has more money socked away than the regulators require in case its underwriting was poor and it has to pay out too many policies. Manulife merely is following the banks who have also raised their capital ratios to higher than required levels to protect against another credit crisis.

While no doubt giving assurances to the public at large, are fortress levels of capital (which I will use as short-hand for high capital ratios and/or MCCSR) good for dividend investors with large portfolios in financial services companies?

The first issue is how a financial services company arrives at fortress levels of capital. If, devoid of any ideas, a company simply hordes earnings created by organic growth, this is not a dividend, or shareholder, friendly management strategy. But it can be addressed by a shareholder revolt to replace management with one that will return money to shareholders through dividend increases or acquisitions.

However, an average dividend investor is harmed if a company builds fortress levels of capital through multiple share issuances. The foremost issue is shareholders are being diluted: for example, Manulife has diluted its shareholder by more than 10% in less than a year. The more troublesome issue is that the proceeds of a share issuance are not being used to grow the company, thereby increasing the chances of a corresponding dividend increase, but to build up capital levels.

There is a strong argument that building up capital levels should be lauded by dividend investors.  In an unfriendly business climate, it may be prudent to simply retain what you have; increasing dividends on blind faith in the future, murky as it is these days, is a danger sign if one wants to invest in dividend growers. Certainly, recent history shows financial services companies should be more cautious in a highly-integrated and leveraged capital market environment.

I would not suggest that a company simply increase dividends dogmatically  without watching its financial risk management. In fact, it is hard to argue that creating a fortress levels of capital is bad for dividend investors if one’s choice is either to protect the dividend or to decrease it (although in Manulife’s case, it slashed the dividend and diluated the shareholders twice; they better be issuing damn good holiday cards this year).

But the larger issue may not be the downside risk protection in creating fortress levels of capital but what happens when it is no longer needed. In 1998, the Federal Reserve Bank of New York published a paper examining the trend of bank holding companies decreasin their capital levels after building them up during the late 80′s and early 90′s.

In the abstract, this trend could be seen as alarming but, at the time at least, the author found some comfort in the fact the capital ratios were decreasing because of increasing shareholder payout. Sounds good but here’s the problem. While dividends increased 5%, share repurchases (aka share buybacks) increased 70%. In fact, while dividends increased modestly, share repurchases are often the dominant form of shareholder payout in the largest 25 bank holding companies.

Share repurchases are problematic for several reasons. While the offer is typically higher than market price, it can be seen as a means to, over time, reduce the aggregate dividend paid through reducing share capital. Share repurchase programs can also be started and ended relatively quickly. In other words, it does not signal as well to the market that the company believes its future growth prospects are healthy as compared to a large dividend increase; the stickness of dividends tend to mean that once a dividend is increased, the company is committed to paying it for long periods of time.  A share repurchase is a one-trick pony which appeals more to Wall Street than buy and hold dividend investors.

Finally, as many others have often pointed out, share repurchases show the company to be poor investors- it is buying  high and selling, via issuing stocks, low. It is, in the relative scheme of things, an unimaginative way to step down from fortress levels of capital.

To use the dating analogy, it is the morning after that may scare the dividend investor more than the night before. The arguments for building fortress levels of capital in this climate for is reasonable and pursasive to most rational dividend investors. However, no one knows how dividend paying companies with fortress levels of capital will act once the fortress is disassembled to a mere trench levels of capital. Recent history  indicates that it will not be as friendly as a buy and hold dividend investor wants it to be. Unfortunately, this is a story that will not be unfolding for some time.

As to whether Manulife has become a value play, I am of the agreement that Manulife needs to be watched carefully. A new CEO who cannot seem to stay on message (if you are going to dilute the shareholders do it once), has not seemed to master investor relations and with large legacy issues is juxtaposed with market share in the critical Asian market and a strong brand domestically. As usual, conduct your due diligence and proceed accordingly.

Yes, it is not even December but I thought I would get in a holiday gift giving post before everyone started planning their holiday spending (if you have not already). My family has an easy rule when it comes to gift-giving: cash only please. I believe this policy was born out of the fact we are terrible gift-givers to one another and this policy was requested, politely but firmly, by my Mom some years ago (clearly, she did not like what we got her that year). Requesting cash certainly makes holiday gift-giving easy but what do you get your boss? Your girlfriend of 6 months?  Your assistant?

I would not take anything below as remotely definitive since context trumps all but here are some thoughts:

1. Gift giving to co-workers. Most offices with human resource departments tend to have written rules on what constitutes an appropriate holiday gift in terms of price and/or item.  This alleviates the need for setting a budget.  If your office has no rules, or it has a budget but no rules on what constitutes acceptable holiday gifts, the rule of thumb is be bland rather than unorthodox. A picture frame or plant for the office goes over much nicer than a joke gift or something really personalized (unless your co-worker is also your good friend).
2. Gift giving to the boss. Unless everyone is doing it (whether voluntarily or involuntarily) or your co-workers are pooling money, my inclination is to give nothing rather than something to your boss. There are so many opportunities for your boss to misinterpret the gift. If you buy him a bottle of wine, are you saying he’s an alcoholic? If you buy your boss a gift certificate for a spa, are you saying their combination skin is looking really bad and they need a facial? Don’t give your boss ammunition.  The other issue is if you buy a gift for the boss but everyone else does not, are you showing up your co-workers? If in doubt, ask a very senior member of the office what the etiquette is for gift-giving for the boss since this is such a political landmine.
3. Gift-giving for your new significant other. I am going to defer to the December issue of Men’s Health (I don’t want anyone to blame me for sleeping alone). It suggests setting a common spending limit and “most women say that puts the focus on the thought and not the cash.” The article suggests a $50 holiday gift if the relationship is 6 months and $100 if the relationship is a year as a general guide.
4. Assistant/superintendent/concierge. Most condos I have lived in ask us to pool money to divide among the super and cleaning staff. Considering we often do not see these people much, it is better to go unpersonalized. When we use to have paperboys, we use to give an extra big tip during December for the same reason. Gift-giving for assistants typically works the other way; generally, you should ask what they would like.

As a money saving tip,you can always buy your holiday gifts by redeeming your credit card points. The issue is that the items, if you bought them retail, are not exactly cheap and the categories are relatively narrow.

I also noticed that my Avion points can be redeemed for a gift cards to a wide variety of retailers. While the conversion rate is not great (for example, 3,000 points for a $25 Starbucks gift card), it can also be another way to buy presents for people, either giving the gift-card directly or using it to buy a variety of presents from the store that issues the gift card, without cash out of pocket.  Just remember your legal rights concerning gift cards.

Anyone care to share any holiday gift giving tips?

I have had to hire a lot recently. This is not because I have a ton of jobs that need to be filled. Instead, I am replacing employees who do not make it past probation (a future post altogether once I have some time to digest what each side did wrong) or departing employees. It is pretty much a given that finding a job is difficult and will continue to be difficult for some time.

What I have found interesting though is how many people do not find jobs because of some self-defeating job searching strategies. If you are looking for a job, I hope you can learn from the experiences of others:

1. Follow the instructions. I advertised a job on a job board asking for salary expectations. Of the first 11 resumes I got, only one actually answered the question. The potential employer thinks: “If you cannot follow instructions before you get the job, how will you follow instruction as an employee?” I understand you can low-ball yourself speaking about salary before you get the job but a simple “I would like to discuss salary expectations with you after I understand the position better and understand what value I can bring to your organization” would have been a perfectly satisfactory response and showed you can follow instructions.  Follow the process or you are merely giving an excuse to a potential employer not to even look at your resume.
2. A resume is not a list of job duties. It is a marketing document about your accomplishments. It is not particularly impressive if you were the assistant manager at the Gap and you greeted customers and supervised staff. What is more impressive to a potential employer is if you helped contribute to that Gap store being the top selling store in the region and you lead a sales staff that stayed together a long time attesting to your leadership qualities. Job searching is personalized marketing. Use action words in your resume to show your value.
3. Put something interesting about your work history or yourself in your resume. It is a conversation piece in interviews. You read enough resumes and they all seem the same. You attend enough interviews and the answers seemed canned too (so are some of the questions, he writes guiltily). Everything and everyone just blurs into one. But you end up with something slightly unorthodox- emphasis on slight- and it stands out. I ended up interviewing someone simply because they had such an interesting work history. On a separate occasion, I had a long conversation with a person on their hobby of long-distance swimming (think large bodies of water).
4. The more you can make your interview into a conversation the better. A first interview is a like a first date. It can either be punctuated by a series of awkward silences  or it can be a free flowing conversation. Everyone gets canned interview questions from the top 50 most common interview questions. Be prepared for them. The number of younger job seekers who flub even the simplest of questions was astounding; I asked someone what they liked doing outside of work and they could not answer the question other than “I like to go out.” The more you can move the question from a strict Q & A format, the better off you will be especially if you can begin to guide the conversation to highlight your strengths rather than reactive to questions given to you.
5. Be careful on the use of email on follow up. Emails lack tone, subtly and nuance. Someone who was hiring at the same time as I was asked me if a job applicant’s follow up email seemed pushy (…and, yes, please do follow up. Another deadly sin of unsuccessful job searches). As it read, it could have been interpreted that way; the applicant was trying to convey how good of a fit they were for the position but it read at times as if they were trying to brow beat the employer into hiring them. You want to stand out from other applicants for the right reason. A hand written note or a well scripted voice mail may help you better than a plain old email (which could go into spam anyways).

This is a particularly tough job market for younger workers. Nurseb911 has some great tips on how younger workers should look for a job. I would whole heatedly agree with his first tip: market yourself. Network to expand who you come in contact with and you never know what opportunities may arise. For those who have bad connotations of the concept of networking, I do not mean glad handing everyone, kissing babies and saying “let’s do lunch” to everyone you meet. I mean just expand your circle.

Finally, one last thought. If you have given up looking for a job for a while,  please volunteer at a local charity. Having volunteer for one myself, charities need money but they also need talented and energetic people who can lend a variety of skill sets.  From an employer’s viewpoint, it also shows you have a heart, have energy and you are embracing new opportunities rather than have them come to you (not to mention the networking opportunities). Best of luck.

Chasing abnormally high dividend yield is typically seen as a sign of imprudent dividend investing. Since dividend yield is ratio of annual dividend payment to share price, an abnormally high dividend yield generally indicates the share price has collapsed or the dividend paid is quite high, leading to questions about sustainability and future growth. But, on a larger macro level,  a large basket of dividend yield stocks serves as a proxy of return of capital in equities. As such, dividend yield can also be an indicator of larger economic trends.

Such as?

1. Comparing dividend yield vs. 10 year treasury yields revels market appetite for equity risk. Since 1958, the S & P  dividend yields have only exceeded 10 year treasury yields twice: once in 1958 and once in 2008. As I noted before, it seems strange that money would rush into a riskier investment (stocks) that produced less yield than a guaranteed instrument unless you believed capital appreciation would more than make up the difference of a low dividend yield vs. bond yield. You end up in this particular situation because the market is confident of capital appreciation going forward and that the risk premium in investing in equities is manageable. Conversely, decreased appetite for risk should result in a decrease in the spread between treasury yields and dividend yields (as witnessed in 2008 when the market had no risk tolerance).
2. Large gaps between treasury yields vs. dividend yields can be read as a danger sign. Large gaps between 10 year treasury yields and S & P dividend yields occurred in the early 1980′s, explained by the rise in interest rates. They occur again during the tech boom, caused by the rapid rise in stock prices. In the latter instance, as history attests, this large gap reflected an unsustainable run up in equity prices not justified by any fundamentals; the lesson being the larger the gap, the larger the danger of a correction. In the former instance, the guaranteed yield on government issued debt would impede capital to public markets.
3. In zero to low interest environments, dividend yields exceeding government bond yields tend to produce rallies… for a while. Japan has had a de facto zero interest rate environment for the better part of two decades. In 1998, 2003 and 2005, dividend yields moved higher than government bond yields triggering a market rally each times; in essence, the market said “things can’t be that bad that we are investing in essentially 0% government paper.” However, the 4th time this happened in 2007, the rally did not occur. Perhaps the issue is that you can only stimulate the economy for so long with low to zero percent interest rates before one realizes that there are real structural issues with the economy and the market rallies, short as they are, mask a more fundamental issue (a scary possibility for the American economy).
4. Dividend yield and growth is arguably the best indicator of future market returns. The esteemed William Bernstein recently wrote about  Professor Myron J. Gordon who predicts long term stock market growth through a simple formula. Over long period of time, average equity growth = dividend yield + historical dividend growth. Historic dividend growth is 4.3%. The rationale behind the formula is elegantly simple. Smart companies generally do not increase dividends unless they are profitable. Profitability increases stock price. Thus, working backwards, stock price growth is related to dividend growth. If many companies continue to hold the line on dividend increases or increase them below the historical rate, the market could be in for a rough ride.
5. Dividend yields can be a demographic indicator. There appears to be an inverse correlation between S & P dividend yields and mutual fund in-flows. As the baby-boomers begun to invest for retirement, we witnessed a focus on capital appreciation over cash in hand and a decline in dividend yields. But, as noted above, in an aging population like Japan’s, you have a flight back to safety with a reversion back to the mean despite multiple rallies. It would appear that a long march upwards for dividend yields may not be a positive development for the market as a whole.

What does this all mean? Dividend yields can be predictive of market movements ahead. Since they are proxies for equity risk, albeit an imperfect one, a snap shot of yields can give you insight into the market’s risk tolerance.

The dividend yield of the S & P 500 stood at 2.28% as of September 30 of this year. Is this too high or low? Only time will tell.

A funny thing happens during recessions. The number of people enrolled in multi-level marketing (MLM) businesses spikes even as the revenue of MLM companies (at least those publicly traded) decreases. For example, Pre Paid Legal Services, Inc., traded on the NASDAQ exchange, reported in its last quarter that membership revenue decreased 3% but associate services revenue rose 1% due to an increase in total new associate enrollment.

More specifically, I am being told that there are a number of MLM opportunities in the personal finance and self improvement/life enhancement niche (for lack of a better term) popping up with aggressive recruitment efforts underway. Certainly, with  set-up fees less than a traditional franchise and a work from home philosophy, MLM tends to appeal to those who want to make part-time income between jobs or simply want a new career opportunity. But is MLM for you?

First, let’s face facts. MLM has a terrible public relations record. As I posted in the past, MLM is not illegal as a business concept. However, the tactics used by many MLM business, most notably pyramiding, tends to give the entire industry a bad name. Whether perception or reality, the first thing you have to figure out is whether any particular MLM is actually engaging in illegal activities or not.

Pyramiding and building a sales team are very fine distinctions; large sales organizations often compensate senior sales executives an over-ride on their downline. The question often boils down to is an actual good or service being sold or are you building a sales team for the sake of building a sales team (a red flag)? If in doubt, google. FTC/Competition Bureau/SEC investigations or findings may show up and decide accordingly.

Let’s assume the business is actually legitimate, what are some things to consider?

1. You have to spend money to make money. Most MLM will charge their associates/members/representatives an enrollment fee. For example, Pre Paid Legal Services, Inc. charges new associates an average of $106 (as a note, I am not picking on or endorsing Pre Paid Legal. As a publicly traded company, they have the most readily available public information on hand and, hence, the multiple references to them). The enrollment fee may not be much. But, if you have never sold before, many MLM companies offer training tapes and instructional tools for sale. Even though you can work from home selling, every once in a while, you have to meet potentials.  This all costs money. Stripped of the negative connotations,  MLM is, in essence, like any other business. You can’t run a business without spending some money. Keep this in mind.
2. You have to be willing to sell. On a similar vein, a business that can’t or won’t sell is a business that dies.  You have to be willing to sell either to clients or sell to other people to join your sales team. Sales is hard. The best salespeople are the people who get rejected the most because they ask for the most sales. You really have to reconcile yourself to this fact (for MLM or becoming an entrepreneur in general). To address the issue head-on, the perceived ugly side of MLM is that you are “forced” to sell to friends and family. However, the first principle of any sales strategy is to sell to your hot and warm list first. Thus, I tend to believe this perceived ugly side of MLM is born of three objections: (i) the good or service is really not worth buying; (ii) a lot of people who loathe selling are joining MLM; or (iii) some MLMs are teaching terrible sales tactics. I am not sure I would have an issue with a friend who was in a MLM who sold food or some other staple at low prices (see the Tupperware parties- not typically MLM but same concept of selling to friends and family and people have little issue with them because they overcome objection (i)); I am not sure anyone appreciates being sold high-fee mutual funds, some dubious alternative medicine or some nebulous plan to reshape your life.
3. You have to be in it for the long haul. I have started enough business to know that a typical life cycle of a service-based start-up is an immediate spike in business (the hot and warm list sales), a leveling off and then comes the critical junction: you either go up or the entire thing falls apart (the overnight millionaires are so so rare in start-ups). The reason why things fall apart is that an entrepreneur typically fails to start putting prospects in the pipeline in the early stages of the leveling off stage but your costs increase (the mistakes being: (i) in the spike period, you think everything will be great and you increase your fixed expenses too fast; or (ii) you service yourself out of your own business by operating in the business too much and not selling). The same principles apply to MLM but with an additional quirk. The industry has so much bad publicity, sales cycles are typically longer than non MLM. MLMs are not get rich quick schemes.
4. Your exit strategy is? I can’t answer this question. If anyone can share how you get out of a MLM, it would be appreciated. However, as the Financial Blogger points out in the case of Primerica, your clients were never yours to begin with so you are building someone else’s brand for them.  This would appear to make exiting difficult since you can’t really sell someone else’s good will.

In the personal finance context, The Financial Blogger has long blogged on Primerica which is the most famous of all MLMs selling securities. As with everything else in life, investigate for yourself and then decide. Good luck.

To paraphrase the words of the SteadyHand blog, is this a financial crisis well wasted? Last week, ING in Canada and the UK warned of the possibility of a real estate bubble in the residential and commercial real estate market spurred by the low interest rate environment. Beside the obvious bubble and double recession concern (a theory I subscribe to), the issue with rising real estate values is that it tends to act as a negative influence on a household’s ability to save more money.

The reasons are both obvious and not so obvious.  Household savings rates were quite robust (9.6% in the 1970′s) until our paper net worth began to multiple manifold in the 1990′s with the real estate and stock market boom. From the 1990′s onward, we ceased really to save and more often than not consumed instead.

However, studies show a negative correlation between the increase in our net worth and our savings rates. This effect is most pronounced for real estate than the stock market. A 2004 study found that for each $1 increase in real estate worth, we saved 8 cents less.  While for each $1 increase in our stock portfolio, we saved 2 cents less (the link to the paper is quite buggy so I did not link it but google “Real Estate Versus Financial Wealth in Consumption” by Benjamin, Chinloy and Jud to read at your own risk).

Some of the reasoning is obvious. Purchasing a home costs a lot of money and we tend to save less money since we have to make a down payment, pay for movers and new stuff for the house. The more subtle reason is that, for most middle class households, we are restricted in tapping our stock portfolio since the majority of assets are locked into non-accessible vehicles like pensions, RSP’s, 401(k). Finally, on a more marco level, it is easier to save more money when interest rates are higher (like the 1970′s) since there can be a healthy return investing in high interest savings accounts; conversely, low interest rate environments encourage leveraging and its associated effects of increased costs of borrowing on a household budget.

From a practical perspective, one tip to save more money would be to simply to turn a blind eye to the value of your home or, more accurately, remember its only paper wealth and not cash in the bank. If you live in a region with depressed real estate valuations, do not bother looking at the price of your home. Instead, enjoy it.

For those trying to be better savers and living in healthy real estate markets, ask yourself if you really need to buy a larger home rather than wanting a larger home. A lot of people I know are rushing to buy real estate because of favorable interest rates, an external stimulus justifying a want, not because they need a larger home, an internal condition necessitating the fulfilment of a need.

From a larger contextual perspective, if the stimulus has worked too well, and a spike in house hold savings rate is only temporary because the government says its time to consume again, then we truly have short memories and we have no one but ourselves to blame if we suffer another financial stress we cannot recover from. Money in the bank smoothes over a lot of personal finance mistakes.

In 1948, Cecil Harris, a farmer, found himself trapped under his own tractor. Knowing that the end was near, he carved onto the fender of his tractor: “In case I die in this mess I leave all to the wife. Cecil Geo. Harris.” Mr. Harris later succumb to his injuries. The will was duly accepted as being legitimate and his estate distributed to Ms. Harris as per his wishes.

The case is rather famous/infamous in all introduction to wills and estates classes in law school since it addresses the topic of whether a hand-drafted will, or a holographic will, is an acceptable and binding legal instrument.

What makes holographic wills rather unique is the history and forms of wills itself. If you ever read a will, you will notice that the language is rather archaic. The reason is that the interpretation of wills language is based on centuries of common law (judge made law) and many of the archaic phrases have meanings attached to them- in other words, some judge centuries ago defined what “happy home life,” a phrase often found in describing the standard of care for a minor child, meant in specifics.

A traditional will also has a prescribed form (in writing, signed by the testator, witnessed by two people over 18 and of sound mind and who are not beneficiaries and, in some jurisdictions, an accompanying affidavit of execution by the witness). Many holographic wills have neither the language or form required of a traditionally recognized will which has made recognizing this type of will problematic.

Nonetheless, some jurisdictions do accept holographic wills BUT it must be hand-written and not typed and it does not even have to be signed in some cases; the form varies from jurisdiction to jurisdiction and you should seek advice on this matter. However, by and large, it is a completely home-made will in all forms, shapes and sizes.  The reasoning for this lack of form is that the underlying policy of accepting a holographic will is that it should be a will made in emergency situations only and accepted for this reason primarily.

For this reason, a holographic will in most jurisdictions that accept them can replace an existing will but, in some jurisdictions, CANNOT amend an existing will (an amendment to a will is known as a codicil and must have the same requirements as a traditional will to be valid).

Thus, for the raging DIYers, there are several issues. Depending on where you live, a holographic will may or may not be recognized. Even if it is recognized, it must be of a certain prescribed form (for example, California requires you to date the will; New York only recognizes a holographic will from a member of the armed forces; Alberta recognizes a holographic will but B.C. doesn’t; Ontario requires no witnesses; Quebec case law only recognizes the non typed parts etc. etc.). It is all a hodge-podge of differing laws and case law.

It is best not to take your chances and draft a holographic will unless you are truly in an emergency and do not wish to die without a will. The more prudent route is to make drafting wills part of your personal finance process either through a qualified professional or as part of a will kit.