General Motors to File for Chapter 11 Bankruptcy Protection

From The Hoss's Mouth

You probably know by now that General Motors is about to file for, or has already filed for, Chapter 11 bankruptcy protection, depending on when you read this. So just what does Chapter 11 bankruptcy protection mean? Does General Motors go on welfare? Many would say they already are on welfare given the large amount of bailout money they have received.

Hoss Cents free financial money magazine will try to explain in layman's terms what Chapter 11 bankruptcy protection is and how it works.



Chapter 11 bankruptcy is a form of corporate financial reorganization. It does not mean the company dissolves. It is the usual choice for large companies such as General Motors looking to reorganize their debt. Generally, companies are permitted to continue to operate while they pay off some or all of their debt.

The US Trustee appoints a creditors committee from amongst the major bondholders (creditors). This committee negotiates with the company (in this case General Motors) in hopes of producing a reorganization plan acceptable to the creditors and to the company. The plan may cancel some of the company's debt, and it may give part ownership of the reorganized company to creditors. Any proposed plan must be voted on and passed before a Chapter 11 plan is confirmed. Votes are rated according to each creditor's total claim against the debtor (General Motors).

In the case of General Motors it has been reported that the creditor's committee has reached a deal with General Motors that would give 10% of the company to the bondholders with an option to buy an additional 15% of the company's stock. In addition, the United Auto Workers union is to receive a reported 17.5% of the restructured General Motors, with an option to purchase another 2.5% stake.

When Congress enacted Chapter 11 of the bankruptcy code it was hoped that a newly restructured company would become profitable and thereby save jobs both in the bankrupt company and all associated business. In the case of General Motors there are many companies that would be adversely affected by a total collapse of General Motors. In addition, Chapter 11 provides the creditors with an opportunity to recover more of their investment than they would if the company were to dissolve and sell off all their assets.

The Hoss hopes his explanation helps you to understand the Chapter 11 bankruptcy process.

Stay on track,

The Hoss

Next Hoss Cents Free Financial Money Magazine Post: June 06, 2009
Previous Post: Does Balancing Your Portfolio Work?

Does Balancing Your Portfolio Work?

From the Hoss's Mouth

For years now many money magazines and finance gurus have recommended portfolio diversification as a means to hedge against investment losses. For the most part this has been a successful strategy. However, last year's financial meltdown included nearly everything financial. Stocks, bonds, commodities and real estate all declined in value. Nearly everyone suffered big losses including those investors who diversified their financial holdings.

Does this mean that we should deep six the idea of portfolio diversification?

Hoss Cents Free Financial Money Magazine does not think so, and still prefers a balanced portfolio versus a portfolio that puts all your eggs in one or two baskets.

Hoss Cents Free Financial Money Magazine groups investors into several categories:

• Very Conservative: 82% fixed income, 18% equities.

• Moderately conservative: 78% fixed income, 22% equities.

• Middle of the road: 60% fixed income, 40% equities.

• Moderate growth: 43% fixed income, 57% equities.

• High growth: 76% fixed income, 24% equities.

• Aggressive: 0% fixed income, 100% equities.

What type of investor are you? Hoss Cents Free Financial Money Magazine's post asset allocation provided you with a simple calculation for determining the right mix between the two major asset categories of equities and fixed income.

You can use that method to determine how conservative (or not) of an investor you are, or you can use the services of a professional financial adviser who, if they are any good, will provide you with a client profile questionnaire.

Your work is not finished yet.

Now that you have determined what asset allocation is right for you, you must also decide what percentage of your fixed income will be cash, and what percentage will be bonds.

In addition, you should diversify your equities amongst several asset categories. You should not put 100% of your equity investment in one asset type (i.e. financials).

An easy way to diversify your equities is to purchase index or exchange traded mutual funds. If you prefer to build your own equities portfolio, be sure to include the major asset categories. A word of advice: Don't buy two things that are in the same asset category, otherwise you lose the diversity.

Once you have set up your portfolio with an asset allocation that suits your investor profile it will be necessary to rebalance it from time to time.

History has shown that a balanced portfolio will provide the best returns over the long haul. Hoss Cents Free Financial Money Magazine reminds you that there is no guarantee that your portfolio will grow, even if you have a perfectly balanced portfolio.

Stay on track,

The Hoss

Next Hoss Cents Free Financial Money Magazine Post: May 31, 2009
Previous Post: Asset Allocation

Asset Allocation

From the Hoss's Mouth

Research has shown that asset allocation is the single most important investment decision an investor makes. What is asset allocation? Hoss Cents Free Financial Money Magazine's definition is as follows:

The structuring of your investment portfolio with different asset categories using stocks, bonds or cash.

There is no specific asset mix that is perfect for each investor. The wise investor knows what his/her investment objectives are, what the time horizon is for achieving those objectives, and what risk they are prepared to take (also known as risk tolerance) .

Time Horizon - Your time horizon is the length of time in months, years, or decades you have to achieve your financial objective.

Risk Tolerance – How much risk you are prepared to take to achieve your financial goal. Are you an aggressive investor prepared to purchase risky investment for greater potential returns or are you a conservative investor, one who wants to preserve your original investment?

A rule of thumb used by many financial advisers is that the total percentage of fixed income held in your portfolio should approximately equal your age. In other words, if you are 45 then 45% of your portfolio should be fixed income. If you are 20 then 20% is fixed income. This is a good tool to start you on an investment path which includes an asset allocation strategy.

Hoss Cents Free Financial Money Magazine provides a slight modification to this asset allocation rule. First, assess your risk tolerance on a scale of one to ten. One being the most conservative investor, and ten being an investor willing to take extreme risks. Now combine the two factors of age and risk tolerance in the following manner: If your risk tolerance is 5, make no adjustment to the rule of thumb. For every number higher than 5, reduce the fixed income component by 5%. For every number lower than 5, increase the fixed income percentage by 5%.

Look at some examples provided by Hoss Cents Free Financial Money Magazine :

Risk tolerance of 7 and age 45. Fixed income component would be 35%: 45 (age) minus 10% (5% for each number above 5)

Risk tolerance of 7 and age 20. Fixed income component would be 10%: 20 (age) minus 10%

Risk tolerance of 2 and age 45. Fixed income component would be 60%: 45 (age) plus 15% (5% for each number below 5)

Risk tolerance of 2 and age 20. Fixed income component would be 35%: 20 (age) plus 15%

For those of us who do not have the time or the inclination to go out and purchase individual stocks and bonds, a simpler and easier method is to buy mutual funds or exchange traded funds. They provide an excellent method of diversifying your portfolio.

The Hoss hopes he has helped you in determining an asset allocation that will enable you to reach your investment objectives. Remember, all investments have some risk and you could lose some or all of your money.

Stay on track,

The Hoss

Next Hoss Cents Free Financial Money Magazine Post: May 24, 2009
Previous Post: Moms are Priceless

Moms are Priceless

From the Hoss's Mouth

Hoss Cents Free Financial Money Magazine dedicates today's issue to all the moms who make every family a family. On this Mother's Day we should all take a look back at the tasks our mothers are performing, will perform or have performed in order that we have a happy life and then at the very least take time to say, "Thanks Mom".

What do moms do? Well, let's take a look at some of the tasks a mother has to perform:

• Accountant

• Car Pool Driver

• Carpenter

• Chief Executive Operator

• Computer Operator

• Cook

• Day Care Operator

• Event Planner

• Facilities Manager

• Financial Planner

• Gardener

• Housekeeper

• Interior Designer

• Laundromat Operator
  

• Maid

• Nurse

• Nutritionist

• Plumber

• Psychologist

• Teacher

Mom is required to do all of these jobs, not just individually, but also she often has to carry out several at the same time and frequently in a frenzied environment. She is on duty twenty four hours a day, seven days a week, twelve months a year. She knows she has no opportunity for advancement or promotion. She will not get a bonus package or any pension or buyout.
What does Mom really want? A heart felt "Thanks Mom" is really deeply appreciated.

On this Mother's Day, The Hoss requests that each of you take the time to show Mom how much you appreciate her. If my mom were still alive, I would be thanking her to her face; instead, I thank her from my heart.

Stay on track,

The Hoss

Next Hoss Cents Free Financial Money Magazine Post: May 17, 2009
Previous Post: President Obama Trims Budget by $17 Billion

President Obama Trims Budget by $17 Billion

From the Hoss's Mouth

When President Obama first took office he inherited a 1.3 billion dollar deficit. There was also a growing economic crisis that required the President to propose measures that would further increase the budget deficit. Fully recognizing that long term economic growth would require budget deficits be controlled and debt reduced, President Obama ordered a line by line review of the federal budget.

He instructed all his staff and Cabinet members to review all government programs and identify those that don't make sense, are no longer useful, or are not working. All this in order that his administration could eliminate them. In other words (The Hoss is paraphrasing here) get rid of the wasteful spending by the government. What a refreshing concept that is.

The result of that line by line review is a document called Terminations, Reductions, and Savings.

The Hoss has listed a few of the main items:

• LORAN-C ($35 million) GPS has made this long-range, radio-navigation system obsolete.

• Abandoned Mine Lands Payments ($142 million) A program that pays for mines to be cleaned up; only problem...they have already been cleaned up.

• Educational attaché, Paris, France ($632,000) A full-time representative to UNESCO in Paris, France is to be replaced by e-mail, video conferencing and travel.

• Los Alamos Neutron Science Center Refurbishment ($19 million) A 30-year-old facility that no longer plays a critical role in weapons research.

• Even Start ($66 million) Programs such as Head Start, Early Head Start, and the Early Learning Challenge Fund are simply more effective.

• Advanced Earned Income Tax Credit ($125 million) Found to have an extremely high error rate. The government accounting office (GAO) found that 80 percent of recipients did not meet at least one of its requirements.

• Rail Line Relocation Grants ($25 million) Loaded with earmarks.

The Hoss reminds you that the above are but of a few of the more than 100 terminations, reductions or savings identified in the Terminations, Reductions, and Savings document. Every one of the programs has a supporter, and they are fully aware there will be long and hard lobbies against this Budget.

President Obama promised change in Washington. This is a step in the right direction, although The Hoss wonders if President Obama will be able to convince Congress to pass his Budget. It will be very interesting to see how this all plays out in the long run and if ear marks will finally be dropped from the Budget-making process.

Stay on track,

The Hoss

Next Hoss Cents Free Financial Money Magazine Post: May 10, 2009
Previous Post: Finding The Best Mutual Fund

Finding the Best Mutual Fund

From the Hoss's Mouth

The best mutual funds are those that produce the highest total return from the date of your initial investment. That's easy for everyone to understand. However, what's not so easy is determining which mutual funds are most likely to produce the greatest return over time.

Some investors may think that if a fund returns 10% one year and loses 10% the next year they have at least broke even. Wrong. If you invested $100,000 and gained 10% the first year your total would be $110,000. Now you lose 10% the next year your balance is $110,000-10%= $99,000. You are down $1000. What about if I lost 10% the first year and gained 10% the next year? Sorry, same result. You still have only $99,000.

To further complicate the issue, for time periods of more than one year, a mutual fund's total return is annualized. When doing your research, you the discreet investor will avoid these annualized returns and concentrate on a mutual fund's year to year actual total returns. Why? Because annualized returns are not an accurate report of a mutual fund's total performance. Take a look at the following chart.

Year	Fund 1	Value	Fund 2	Value	Fund 3	Value	Fund 4	Value
1	5%	$105,000.00	5%	$105,000	0%	$100,000	-10%	$90,000
2	5%	$110,250.00	2%	$107,100	10%	$110,000	-5%	$85,500
3	5%	$115,726.50	8%	$115,660	5%	$115,500	30%	$111,150
Annualized	5%		5%		5%		5%
Return
Compound	5.25%		5.22%		5.17%		3.72%
Return

Note that each of the four mutual funds have an annualized return of 5%. Yet they do not all produce the same end result. The best result is $115,726.00; the worst $111,150.00. A very significant difference of $4,576.00.

Bottom line: The wise investor, in order to pick which mutual funds are likely to produce the best return over time must carefully research each fund and concentrate on the year to year returns. This information is available on the website of most mutual fund companies. The longer a mutual fund has been in existence the easier it is to evaluate its track record.

Stay on track,

The Hoss

Next Hoss Cents Free Financial Money Magazine Post: May 03, 2009
Previous Post: The Best Mutual Funds