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The Dark Side of Student Loans
Issue #528, June 25, 2018

The Cost of Out-sourcing Convenience
Issue #527, June 18, 2018

Social Security: 66 or 70?
Issue #526, June 11, 2018

Student Loans: There’s (Unfortunately) a Lot More!
Issue #525, June 04, 2018

Co-signing a Note
Issue #524A, May 31, 2018

The Knight Frank Luxury Index and Collectables
Issue #524, May 28, 2018

The Importance of Diversification: The Myth of Diversification
Issue #523, May 21, 2018

How to Save Thousands on Your Food Bill
Issue #522, May 14, 2018

MoviePass and Other Things
Issue #521A, May 10, 2018

Degree Inflation, Long Training Periods, and “Certification”  Part III
Issue #521, May 07, 2018

Degree Inflation, Long Training Periods, and Certification” Part II of III
Issue #520, April 30, 2018

Follow-up on Several Things
Issue #519A, April 25, 2018

Degree Inflation, Long Training Periods, and “Certification”: Part I of II
Issue #519, April 23, 2018

The Kids Birthday Party Hustle
Issue #518A, April 18, 2018

A Pension Question: Part II of II
Issue #518, April 16, 2018

A Physician is an Executive
Issue #517A, April 11, 2018

A Pension Question: Part I of II
Issue #517, April 09, 2018

Is the Correction Over?
Issue #516A, April 05, 2018

Used Car Dealers, Student Loans, the Chinese, and Uncle George’s Rule
Issue #516, April 02, 2018

Starter Homes
Issue #515, March 26, 2018

Redecorating: Beware!
Issue #514, March 19, 2018

NASDAQ Closes at Record High
Issue #513, March 12, 2018

A 40% Chance
Issue #512, March 05, 2018

Several Things
Issue #511, February 27, 2018

Human Capital, Education and Wealth
Issue #510, February 19, 2018

Another Stock Market Update
Issue #509A, February 18, 2018

Some Thoughts on Savings
Issue #509, February 12, 2018

A Stock Market Upfate
Issue #508S, February 10, 2018

Who Can You Trust? Part II of II
Issue #508, February 05, 2018

The Christmas Decoration Pre-worn Jeans Hustle
Issue #Interim Bulletin #507A, February 03, 2018

2018 Outlook for Financial Markets
Issue #507, January 29, 2018

Who Can You Trust? Part I of II
Issue #506, January 22, 2018

Life Insurance Settlements
Issue #505, January 15, 2018

Commodities and Buying the Breakout
Issue #504, January 08, 2018

Buffett Wins His Bet
Issue #503A, January 04, 2018

Practice Real Estate and Free Agency
Issue #503, January 01, 2018

Outlook for 2018: Part III: Stocks and Bonds
Issue #502, December 25, 2017

My Outlook for 2018: Part Ii: Precious Metals
Issue #501A, December 21, 2017

Outlook for 2018: Hard Assets: Part I of III
Issue #501, December 18, 2017

More Thoughts on Bitcoin
Issue #500A, December 14, 2017

Fees and Good Relations with Bankers
Issue #500, December 11, 2017

Salvator Mundi
Issue #499A, December 07, 2017

Should You Rent or Own a Home?
Issue #499, December 04, 2017

A Gift Subscription
Issue #Interim Bulletin #498A, December 02, 2017

Stocks vs Real Estate: Asset Allocation: Part II of II
Issue #498, November 27, 2017

When Good Enough is Fine
Issue #497A, November 22, 2017

Stocks vs Real Estate: Asset Allocation. Part I of II
Issue #497, November 20, 2017

The Saudi Arrests and the Perils of Foreign Investing
Issue #496, November 13, 2017

Gambling and Las Vegas
Issue #495, November 06, 2017

Some Tips on Auto Insurance
Issue #494, October 31, 2017

Bitcoin and the Digital (Crypto) Currencies
Issue #493, October 23, 2017

The Coming Bear Market: Part II How to Prepare
Issue #492, October 16, 2017

Some Observations on Cemeteries
Issue #Interim Bulletin #491A, October 12, 2017

The Coming Bear Market: Part I: The Myth of Buy and Hold Forever
Issue #491, October 09, 2017

The Market makes New Highs
Issue #490, October 02, 2017

The Importance of a New High
Issue #489, September 25, 2017

A Little Insurance: Wealth, War and Wisdom
Issue #488, September 18, 2017

Some Observations
Issue #487, September 11, 2017

How to be Successful in Your Career
Issue #486A, September 07, 2017

How NOT to Buy a Home
Issue #486, September 04, 2017

This Week in the Market
Issue #485, August 28, 2017

Is the “Trump Bump” Running Out of Gas?
Issue #484, August 21, 2017

Gold is on the Move
Issue #483, August 14, 2017

The Importance of Estimation
Issue #482, August 07, 2017

Buying Art and Collecting: Part II of II
Issue #481, July 31, 2017

Buying Art and Collecting in General, Part I of II
Issue #480, July 24, 2017

Physicians need to be More Forceful: Follow-up
Issue #479, July 17, 2017

Physicians need to be More Forceful
Issue #478, July 10, 2017

Your First “Real” Investment
Issue #477, July 03, 2017

Leasing a Watch: Don’t
Issue #476, June 26, 2017

The Importance of Your Children having a Job
Issue #475, June 16, 2017

The Problem with Medical Student Debt is—the Med Schools
Issue #474, June 12, 2017

Critters and Varmints in your Home and Yard
Issue #473A, June 07, 2017

Leveraged ETFs
Issue #472, May 29, 2017

Leasing a Vehicle: Don’t!
Issue #471, May 22, 2017

Issue #470, May 15, 2017

More on Buying Jewelry
Issue #469, May 08, 2017

Buying Jewelry: Gold, Diamonds and Pearls
Issue #468, April 30, 2017

Thomas Sowell: Part III of III
Issue #467, April 24, 2017

Thomas Sowell: Pat II of III
Issue #466, April 17, 2017

Live Close to Where You Work
Issue #465, April 10, 2017

Medtronic in Hospital Management
Issue #Interim Bulletin #464A, April 07, 2017

Thomas Sowell: Part I of II
Issue #464, April 03, 2017

A Political Contribution a an Investment: Part II of II
Issue #463, March 27, 2017

A Political Contribution as an Investment: Part I of II
Issue #462, March 20, 2017

Buffett Selling Vacation Home
Issue #461, March 13, 2017

Advanced Placement (AP) ourses
Issue #460, March 06, 2017

The Importance of a Credit History
Issue #459A, March 02, 2017

A Credit Card Scam
Issue #459, February 27, 2017

The Electronic Health Reord
Issue #458, February 20, 2017

Issue #457, February 13, 2017

Platinum and Palladium
Issue #456, February 06, 2017

Economic Outlook for 2017: Part II of II
Issue #455A, February 02, 2017

Economic Outlook for 2017: Part I of II
Issue #455, January 30, 2017

A Story From Vegas
Issue #454A, January 25, 2017

Land Donation Deals and the IRS
Issue #454, January 23, 2017

The Theory of Gambler’s Ruin
Issue #453, January 16, 2017

Student Loans: But Wait, There’s More!
Issue #452, January 13, 2017

A Second Home
Issue #Interim Bulletin #451A, January 04, 2017

The Consumer Confidence Index
Issue #451, January 02, 2017


By Robert M. Doroghazi, M.D., F.A.C.C.

When a CD isn’t a CD

Issue #435, September 12, 2016

    Everyone understands a CD. It’s about the most straight-forward, simple investment vehicle available. You deposit your money, and at the end of the pre-specified period of time you’ll get your money back plus interest (see below). There is no charge to open a CD, and no charge to redeem it, although there may be a penalty if you wish to withdraw the money (bust the CD) early. They are safe: at institutions that participate in the FDIC/FSLIC, your deposits are insured up to $250K. It really is “money in the bank”.
    There was a front-page article in the Wall Street Journal on Wednesday, 9/7, describing “Market-Linked or Structured CDs”. The only ones who profit from these are the bankers that created the product and the selling agent. The buyer, the investor, like you, gets hosed. Here’s why.
    1) There is a commission. For a traditional CD, every penny is invested. Just as there is never a reason to buy a mutual fund with a load (commission), there is never a reason to buy a CD with a load. It’s like whole life insurance vs. term, or an annuity: the agent pushes them because they make a larger commission. Such a product is in their best interests, not yours. In my opinion, if a banker or investment advisor or agent recommends one of these to you, I would find a new banker or investment advisor.
    2) These are complicated. I continually emphasize the importance of KISS: Keep it Simple. If you don’t understand something, or as Peter Lynch says, if you can’t illustrate it with a crayon, it is to be avoided. The name of one of the “CDs” is “GS (Goldman Sachs) Momentum Builder Multi-Asset 5 ER Index-Linked Certificate of Deposit Due 2021 (RMD comment: what does that mean?). Goldman Sachs says the product is clearly explained in the accompanying 266 page document, which feature calculus, hypothetical back-tested data and flow charts. For comparison, the New Testament in my Revised Standard Version (A.D. 1952) of the Bible is 224 pages.
    3) Returns often under-perform that of traditional CDs. The Journal analyzed 147 market-linked CDs issued since 2010 by Bank of the West (partner of BNP Paribas). 62% produced returns lower than a traditional 5-year CD, while almost one-quarter have yet to pay any return.
    4) How are returns calculated? Most are based on an “adjusted” version of the basket of securities actual return. The potential upside is usually capped at an amount smaller than the potential downside that can be captured. For the Barclays CDs, the adjusted performance was 28% lower than the actual performance of the underlying stocks. Investors in the CDs also forfeit the dividends they would have received had they owned the stocks. RMD comment: dividends provided 62% of the gains realized by stocks in the 20th century. Dividends are important.
    RMD recommendation: Market-linked or Structured CDs are a hustle. They aren’t for widows and orphans. In fact, they’re not for anyone. If you want a CD, buy a CD. If you want to invest in the stock market, buy a no-load product based on the S&P 500, such as the ETFs SPY or VOO, or the Vanguard S&P 500 Index mutual fund. If your financial advisor or banker recommends one of these products, you know they are not acting in your best interests: move your accounts and get another banker. If you already have one of these products, you may need to contact your state securities regulators to assist you in getting your money back.   
    The interest on a CD can be straight or compounded. If a $10K CD pays a straight interest rate of 5% (those were the days) and is posted only once at the end of the year, you have $10K + $500 = $10,500.
    Say the interest is posted and compounded quarterly.
    1st quarter: $10,000 x 1.25% = $10,125.
    2nd quarter: $10,125 x 1.25% = $10,251.50
    3rd quarter: $10,251.50 x 1.25% = $10,380
    1 year: $10,380 x 1.25% = $10,509
    RMD comment: Obviously, the more often the interest is posted and compounded, the better for you. It is attention to detail like this that separates those who can accumulate wealth from those who just struggle along.
    South Korean shipper Hanjin declared bankruptcy. About $14B worth of merchandise is stranded in their ships at sea: no port will unload the ships because they aren’t sure they will be paid for their work.
    In 1981, a grain elevator in the Southeast Missouri town of Puxico went bankrupt. The soybeans of farmer Wayne Cryts were considered an asset of the elevator, and were to be liquidated to satisfy creditors. Cryts and fellow farmers defied Federal Marshalls and FBI agents to unload their 30,000 bushels of beans, worth more than a quarter million dollars. Cryts spent some time in jail.
    RMD comment: stick with me, because there is a very important point here. I use the above examples to make an analogy: What about the contents of your safe deposit box if the bank goes under? Are they yours or the banks? The answer is clear. When you open a safe deposit box, you sign a rental agreement: the assets in the box are clearly yours, not the bank’s. This is in comparison to a CD, where you have loaned money to the bank.   
    Rick Santelli is my favorite on CNBC. He asked the question: why would a large institution buy a bond with a negative yield: where they knew they would lose money?
    Central banks around the world, the BOJ (Bank of Japan), the ECB (European Central Bank), the Bank of England and our Federal Reserve have bought up so many government and other securities that there are almost no sovereigns left to buy. Our Fed owns more than $4T. Institutions buy government bonds with negative yields because they know they can resell (flip) them to a central bank for a profit.
    RMD comment: This is bizarre: it will not end well. Santelli calls it “Central Bankers Gone Wild”. There was a piece on 321Gold this week noting that the Central Banks of Switzerland and Norway have augmented their holdings of physical gold by purchased a basket of gold mining stocks.
    I am physically upset to my stomach about the upcoming election. To quote my hero Thomas Sowell: whoever wins, it will be a catastrophe. But there in one issue that I am taking quite personally. The socialists buy the votes of the poor by expanding welfare, Medicaid, Food Stamps, and Disability Insurance. At the same time, the elites note in a dismissive, derogatory way that many of Donald Trump’s supporters are non-college educated.
    Below are the hard-working, non-college educated people in my family.
    Grandma and Grandpa Doroghazi           Grade School
    Grandpa Kish and Grandpa Nagy           Grade School
    Grandma Nagy                               8th Grade
    Parents John and Irene Doroghazi           High School
    Uncle George and Aunt Cel Doroghazi     High School
    Uncle Steve and Aunt Helen Doroghazi     High School
    Uncle Dave and Aunt Audrey Nagy         High School
    Uncle Steve Elonka (Gma Nagy’s brother)  8th grade
      (wrote more than 40 books on boilers
      and heating systems for McGraw-Hill)

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