A brief history of terrorism in Africa

Terrorism is not an unknown concept to Africa. The North and West region of Africa have been profoundly impacted by nationalist and religious conflicts, which have been attended by destructive acts of terrorism. Within this context, terrorist networks have long been established in the Horn (Sudan, Ethiopia, Eritrea, Djibouti, and Somalia) and along the East African coast (Kenya, Uganda, and Tanzania).

In 1973, the American US Deputy Chief of Mission, George Curits Moore, and a Belgian diplomat, Guy Eid, were assassinated by the Palestinian terrorist group Black September in Khartoum, Sudan. This was the beginning of a range of extremist acts of terrorism in the region. In 1995, the Egyptian President Hosny Mubarak was attacked by Gama’at al-Islamiyya, an Egyptian terrorist group, in Addis Ababa, Ethiopia. In 1998, al-Qaeda bombarded the US embassies in Dar Es Salaam, Tanzania, and Nairobi, Kenya, while in 2002 al-Qaeda again bombarded simultaneously an Israel-owned hotel and airliner at Mombasa, Kenya.

One of the most tragic examples of internal terrorism in Africa was the genocide in Rwanda in 1994. Hundreds of thousands innocent people of the Tutsi tribe were massacred, raped and tortured to death, by Hutu, their tribal enemies. This was an ethnic conflict which took the character of an ethnic purge and used massive terror and indiscriminating savagery towards the civilian population.

Internal and international terrorism in Africa has flourished because of abortive or weakening states in the region, which allowed financial exploitation by terrorist groups or utilization of internal conflicts to recruit natives to terrorist networks. The most prominent example of terrorist base is Khartoum, Sudan. On Sudanese soil, Muslim extremists are trained to believe in the superiority of Allah and to demand their supposedly justifiable rights by terrorist attacks around the globe.

Moreover, the incessant infuse of religious tension, economic deficiency, corruption and political instability accounted for severe forms of terrorist activity. Institutional flaws and oppressive governance have provided a societal context highly favorable to political violence and extremism from terrorist groups.

All these diverse expressions of terrorist aggression have profoundly impacted stability in Africa. The polarization of ethnic and religious identity has led to highly conflict-ridden societies, which are incompetent to develop institutional structures for non-violent coexistence in the context of religious independence and political stability. Indicative examples are Algerian terrorist groups, such as the Armed Islamic Group (GIA) and the Salafist Group for Preaching and Combat (GSPC), which over the last two decades have thoroughly destroyed much of the fundamental social foundation holding the country together. Finally, terrorism has remarkably discouraged foreign investment and tourism.

When to consult with a credit counseling agency

Credit counseling agencies are non-profit financial institutions that offer professional assistance in the fields of debt management, bankruptcy consulting, budgeting and consumer credit helping consumers to lower their debt and improve their credit score. Following the current credit crisis and economic downturn, credit counseling has become a required step for many consumers who are not able to meet their obligations and are ready to file for bankruptcy. However, before filling for bankruptcy, a credit counseling agency may help you alleviate the burden of your debt and achieve financial freedom.

Although it may look like anyone who is in debt should consult a credit counseling agency, not all consumers need to do so. If you are in debt, but able to meet your obligations and rather on time, you certainly do not need credit counseling. Even if interest rates in your credit cards are high, you can negotiate a lower interest rate directly with your credit card companies without asking for the intermediary help of a credit counseling agency.

Consumers, who need full-scale credit counseling, typically face one, if not all, of the following situations:

> They fail to meet their credit card minimum payments;

> They are always late in their regular payments;

> They are chased by creditors and collectors;

> They fail in implementing reasonable payment plans with the creditors

However, consulting a credit counseling agency is not a panacea if your accumulated debt is too high. A credit counseling agency may negotiate lower payments with credit card companies on your behalf. If a lower payment is agreed, you will pay the counseling agency every month, which will then pay the credit card company. Yet, there are limits to how much lower payments your creditors will accept and the counseling agency may not be able to lower your payments low enough to get out of debt permanently. Besides, your payments should stretch maximum over the next two to four years. If repayment schedule takes more than five years, bankruptcy is typically your best alternative.

Some important considerations

Enrolling in a debt management program (DMP) requires that you credit is not already damaged. Credit counseling agencies will be informed by your creditors about your DMP and your credit score will be affected by your DMP record. To make sure your credit score is lowered you have to do timely payments.

Many credit counseling agencies require large set-up fees and upfront payments. Moreover, they may not be accredited by the Association of Independent Consumer Credit Counseling Agencies or the National Foundation for Credit Counseling, resulting in hurting consumers and affecting their credit score irreversibly. Besides, as the agency’s fees are covered by a percentage of the payments received by the credit card company, many people viewed credit counseling as another trick of the lending industry. Although this ‘fair share’ payment system has encouraged the development of credit counseling agencies, there were cases that agencies approached and hurt consumers, who hadn’t really fallen behind on their debt, thus causing the aggravation of both consumers and credit card companies. So, a thorough research is required before signing with a credit counseling agency to avoid any of these unfavorable circumstances.

Steps to take if you want financial freedom

Financial freedom is a great prospect. Particularly, after the current economic downturn that forced many firms out of business and compelled millions of households into poverty, financial freedom is the only way to recover. However, many people do not know how to take charge of their finances, for the most part, because they don’t have a plan or definite goals. For other people, their attitude towards money has being shaped because of unfortunate investment choices. In any case, there are ways to deal with your financial issues, provided you follow several steps.

> Educate yourself about money

Knowledge is power in many fields and the same goes for money. Most people don’t understand money because they haven’t been taught what money is about. Many of us relate money to complex mathematical equations and think that taking control of our finances requires a lot of time and a great deal of knowledge. In reality, what you need to do is educate yourselves about money in terms of what money can do for you. You spend your entire life working for money and when the time comes to enjoy life, your retirement plan fails or your 401k is not enough or several financial plans have failed along the way. So, what you need to do is to educate yourselves about what time value of money is and how it can work to the best of your benefit.

> Educate yourself about broader economic conditions

Your money is always related to the money of society. Therefore, understanding what is on the horizon for the coming years is of major importance. For instance: 2010 is the first year that the baby boomers will start retiring. This generation makes up for approximately the thirty percent of the U.S. population. Why should this be of your concern? If the U.S. government fails to support baby boomers retirement, the U.S. economy and the global economy will face depression. You live in society, in a breathing economy, and therefore you have to learn how one decision that may seem irrelevant to you, actually impacts your life and your money.

> Diversify your sources of income

If you follow the lives of wealthy people on Oprah or on E! Entertainment, you have probably noticed that they diversify their sources of income. They never keep all their eggs in one basket. This is number #1 rule of investing and it should become number #1 rule for you if you want to expand your streams of income. In investing, diversification is a growth strategy that takes advantage of market opportunities in order to reduce the risk of your portfolio. By allocating investment interest over different classes of assets, diversification protects your investment from potential losses. So, if you really want to take advantage of the current bear markets that offer great investment opportunities, you may invest your money in stocks, bonds and mutual funds and choose different sectors and industries. This is the real meaning of diversification.

> Be disciplined

This is perhaps the most important step you need to take. If you focus your actions on achieving financial independence, chances are you will do it by being disciplined. Without discipline, any financial plan will fail because every little amount of money you will be saving it will be spent towards unnecessary things. We live in a world of abundance, for better or worse, and this can really take you out of course and distract you. The best thing to do to keep you within your spending limit is to create a spending budget that will allow you to keep track of your expenses and plan for your future purchases.

> Take consultation

Don’t be afraid to ask for the help of an expert. Many people fail in controlling their finances because they are not willing to admit they are in financial crisis. However, if you are in financial trouble, do consult a financial advisor and give yourself a chance to get out of misery.

Every day we make decisions about money. And these decisions have a smaller or a greater impact on the quality of our lives. Being financially independent means different things to different people. No matter what it means to you, it definitely offers you security, and the strength to take a step closer to your lifetime dreams. Financial freedom may not give you Happiness, but it gives you Choice.

Why charitable remainder trusts are attractive

In the prospect of the increasing number of baby boomers reaching retirement in 2010, more and more retirees enroll as volunteers for non-profits and charities aiming to contribute to their local communities. In this context, charitable remainder trusts are becoming increasingly attractive in the retirees’ effort to contribute to charity and save on taxes as well.

Charitable remainder trusts (CRTs) aim at reducing the taxable income of beneficiaries. In most cases, CRTs have two beneficiaries. One beneficiary is the person that donates the funds and the other beneficiary is the qualified charity or tax-exempt organization supported by the funds. In their most fundamental form, charitable remainder trusts allow the donation of assets and property into a solitary group. This is done by donating assets into the trust for a specified period of time, which, in return, disperses a percentage of income from the charitable trust to the beneficiary. After the beneficiary passes away, the remainder of the trust is transferred to the designated charity reckoned as beneficiary.

One of the most important benefits of charitable remainder trusts is that they allow the beneficiary to become the trustee and make investment decisions and/or other decisions regarding the assets. Although CRTs are irrevocable, they allow a degree of personal freedom by permitting the change of beneficiaries.

With a CRT, beneficiaries can choose the amount of income they wish to draw from the charity trust per year depending on their payout percentage and the amount of income generated by their assets. According to the IRS, the minimum net distribution of CRT should be at least 5 percent of the net fair market value of the trust’s assets on an annual basis. Some beneficiaries may distribute more than 5 percent per year, but the higher the distribution, the lower the income tax deduction. Particularly, given the unfavorable market conditions that may reduce the trust’s principal, maximum net distribution should not exceed 10 percent on an annual basis.

Another benefit is that, because the assets of CRTs are benefiting a charity, CRTs are not subject to any capital gain taxes that can range from 10 percent to 20 percent of an asset’s growth in value. This is why CRTs are widely viewed as ideal for highly appreciated with limited income potential such as stocks and real estate. To illustrate this better, we suppose that the sell price of a real estate property is $800,000, whereas the original cost of the property was $100,000. Capital gain taxes would be calculated on the $700,000 difference, which with a 15 percent rate would easily top $105,000, depending on how long the property was owned and the owner’s overall tax situation. By avoiding the capital gains tax, the full value of the assets transfers to charity trust. However, the income from trust assets is subject to federal income taxes.

Charitable remainder trusts are also use to increase retirement plans. Many beneficiaries contribute to the CRTs in the form of non-dividend paying growth stocks, variable annuities or zero-coupon bonds. As the CRT grows and the income stays in during the early years, payouts are higher in retirement. Besides, unlike IRAs and 401k plans, there are no limits on how much one can contribute to a charitable remainder trust.

Conclusively, charitable remainder funds are a great strategy to achieve both personal and financial goals. Under the right circumstances, a CRT can increase the income of the beneficiary, reduce taxes and provide significant financial support.

Pros and cons of pay day loans

Pay day loans, also known as cash advances, are small, short-term consumer loans that cover the borrower’s expenses until the next paycheck. According to ‘An analysis of Consumers’ Use of Payday Loans’ by Division of Research and Statistics, Board of Governors of the Federal Reserve System and Financial Services Research Program, pay day loans are used to cover unanticipated expenses or expenses that cannot not be deferred.

The most important advantage of pay day loans is that it is very easy to get a pay day loan online regardless if it is a small or a large amount. Consumers need to fill in an application form and qualify for specific terms and conditions such as being a US citizen, being above 18 years of age and having a regular monthly income. The terms of agreement vary from one lender to another as well as the maximum amount that the borrower can take. If the consumer qualifies the required conditions, the application form is approved and the pay day loan amount is electronically transferred in the appropriate checking or saving account.

On the other hand, although pay day loans are short-term they carry high interest rate that may range from 30 to 80 percent depending on the loan amount and on the lender. So, consumers may end up paying more interest than the market price. High interest rate makes it difficult to repay the loan because the loan amount increases daily. However, failing to repay the loan on time, typically results in large debt for the borrower in the long run.

Besides, consumers who purchase pay day loans do not have flexibility in their income. Even small expenses may ultimately cause financial problems and then, emergency situations become regular thus increasing the probability of borrowing from pay day loans more often. However, consumers who support themselves solely from their paycheck, end up being trapped in a vicious circle of debt that eventually becomes a frequent event.

According to the above mentioned study, only 2% of Americans are using pay day loans. Most of these consumers share similar characteristics: they have children at home; earn lower or middle income (between $25,000 and $50,000); are educated (high school, college or degree); have limited liquid assets; use pay day loans moderately and benefit by them. Demographics show that people of average income purchase pay day loans. However, the costs arising from late payments due to unexpected events trigger even higher costs, which can be unbearable for some consumers making them default on their debt.

All in all, pay day loans are used as short-term financing. However, frequent use may trap consumers into growing debt and potential default. On the other hand, because they offer temporary financial relief, they reduce the frequency of financial problems and they help consumers getting out of debt. To get full control over their financial issues, consumers need to be extremely careful when deciding on a pay day loan. Getting access to additional credit for unforeseen expenses requires good debt management.

How to set a budget in Excel

Excel is a very useful tool if you want to keep track of your finances and be in control of your budget. Setting up a budget in Excel is a great idea, particularly for people who are totally disorganized and spend more than what they earn simply because they don’t have a clear picture of their financial situation. Besides, Excel can be a great substitute of any complicated financial planning software you may find in the market that requires more time to learn and deal with.

Many people think that setting up an Excel budget is difficult and requires a great deal of knowledge. Especially, if you have never had a budget before, you may be feeling intimidated by the prospect of using Excel. However, things are not so complicated. If you use an Excel spreadsheet to track your income and expenses, you have to be honest and plug in real numbers so that you derive an outcome that portrays your real financial situation.

A) Expenses

Typically, a complete Excel budget should include the following categories:

• Housing

Under this title you can include mortgage or rent (include home equity loans as well); second mortgage or rent; phone; electricity; cable TV; gas; water & sewer; supplies; waste removal; maintenance/repairs; and other.

• Transportation

Under this title you can include car payments; car insurance; fuel expenses; maintenance/repairs; bus/taxi fares; licensing and other.

• Insurance

Under this title you can include home insurance; health insurance; life insurance and any other type of insurance you may have.

• Food

Under this title you can include groceries; dining out and other food-related expenses.

• Children

Under this title you can include medical expenses; clothing; school tuition; school supplies; lunch money; child care; toys/games; and other.

• Pets

Under this title you can include pet food expenses; medical expenses; grooming expenses; toys; and other.

• Personal Care

Under this title you can include medical expenses related to personal care; hair/nails; clothing; dry cleaning; health club; and other.

• Entertainment

Under this title you can include video/DVD; cds; movies; concerts; sporting events; live theater; and other.

• Loans

Under this title you can include personal loans; student loans; credit card expenses and other loans.

• Taxes

Under this title you can include federal taxes; state taxes; local taxes and other.

• Savings / Investments

Under this title you can include retirement account; investment account; college; and other.

• Gifts / Donations

Under this title you can lists all the charities you have contributed money to.

• Legal

Under this title you can include attorney expenses; alimony; payments on lien or judgment and other.

Each category has a subtotal that can be calculated as follows:

In cell A1, you plug in the title ‘Monthly Budget’.

In cell A3, you plug in the title ‘Housing’.

In cell A4, you plug in the title ‘Mortgage or rent’. In cell B4, you plug in the relevant figure.

In cell A5, you plug in the title ‘Second mortgage or rent’. In cell B5, you plug in the relevant figure.

In cell A6, you plug in the title ‘Phone’. In cell B6, you plug in the relevant figure.

You go on until you finish with all your entries that are related to the Housing category until you reach cell A15. There, you plug in the title ‘Subtotal’ and you sum up all B cells in cell B15 to calculate the subtotal of Housing category. The formula used is =SUM(B4:B14), which actually calculates the sum from cell B4 where your first entry in the Housing category is, until cell B14 where you last entry in the Housing category is. Just make sure that you plug in the formula in cell B15 to avoid circular references problems.

You do the same for all other categories and you derive 13 subtotals, as much as your categories are.

Then, to calculate the grand total of all your expenses you go to cell B88 and you add all subtotal cells. For instance, if subtotal cells are B15, B23, B28, B32, B41, B46, B53, B61, B66, B71, B76, B79, and B84, in that cell you plug in =B15+ B23+ B28+ B32+ B41+ B46+ B53+ B61+ B66+ B71+ B76+ B79+ B84, and you derive the total of your monthly expenses.

B) Income

In cell D3, you plug in the title ‘Income 1’. In cell E3, you plug in the relevant figure.

In cell D4, you plug in the title ‘Income 2’. In cell E4, you plug in the relevant figure.

In cell D5, you plug in the title ‘Extra Income’. In cell E5, you plug in the relevant figure.

In cell E6, you calculate you total monthly income by plugging in the formula =SUM(E3:E5).

C) Difference

To calculate your actual financial position, you deduct your expenses (cell B88) from your income (cell E6). In an empty cell at the bottom you plug in =E6-B88. If the difference is positive, it means that you are building wealth and you are in control of your finances. But even if the difference is negative, you have a clear picture of the areas that need improvement and better financial management.

All in all, with Excel you are less likely to make mistakes and you can keep a running total of how much money is spent per month and how much is left. These totals are automatically adjusted every time a new entry is made into the spreadsheet. By setting up a budget in Excel you can make long- and short-term projections about your financial situation and plan for major financial changes. In that way, you always get the most of your money and you, ultimately, achieve peace of mind.

Where to find free budget planner worksheets

Budget planner worksheets are very useful tools that can help you keep track of your finances. There are many websites on the Internet where you may download budget worksheets for free and be in control of your financial situation.

The best websites that offer free budget planner worksheets are:

http://office.microsoft.com/en-us/templates/TC062062791033.aspx

Microsoft offers free, downloadable templates to guide through your finances. The link above is the personal budget template that has income and expenses allocated on a monthly basis. Expenses include home, daily living, transportation, entertainment, health, vacations, dues, subscriptions, personal, financial obligations & miscellaneous payments. All are summed up at the end, and you may calculate if you are short on cash or not at the end of the template by deducting expenses from income. It is totally straightforward and easy to use; and most importantly free with the guarantee of excellence of Microsoft.

www.spreadsheet123.com

This template is a great solution for planning your monthly budget. It helps you make a comparison of your estimate vs. your actual monthly expenses and track the categories that you spend more than you should. The template can be downloaded for free and the website provides also a guide for creating a Personal Budget Spreadsheet in Excel.

http://www.docstoc.com/docs/7923811/Budget-Planner-Worksheets

DocStoc.com is a website that you can find pretty much everything and you can download it for free. The same goes for budget planner worksheets that are well-structured and contain also instructions on how to complete the form and familiarize yourself with the different categories.

http://www.betterbudgeting.com/budgetformsfree.htm

Betterbudgeting.com provides a variety of free budget forms to help you stretch your dollar and work on your debt issues. It also offers helpful guidelines for those who are not so familiar with budgeting issues. Overall, the worksheet is structured and can be easily understood and completed from anyone, even from those who had never done budgeting before.

http://www.vertex42.com/ExcelTemplates/family-budget-planner.html

In Vertex42.com you may download for free a variety of Excel spreadsheets that can help you create annual budgets and make predictions to estimate your future financial situation. You may use these budget planner spreadsheets to plan carefully for your future and know where you stand at any particular moment.

On the Internet, there are many budget planner worksheets available that can match your needs and help you mastering your finances. Putting your income and expenses on a piece of paper and confronting them on black and white helps you plan your budget on a monthly basis.

How to choose financial planning software

Financial planning software is an efficient way to build a financial plan. You may use financial planning software to plan for your children’s education or any sort of future expenses that you know in advance. For instance, if you know that you will need $60,000 in 15 years to fund their child’s education, you may use a financial planning program to build an efficient financial plan in the most efficient method. Besides, most financial planning programs provide a variety of options for allocating investment risk in terms of appropriate risk tolerance based on the risk you are willing to undertake. Particularly, if you have allocated your funds in different asset classes such cash in the bank, a stock portfolio and mutual fund investments, you need a financial tool to take control of your finances. Any changes you need to make to turn your portfolio into a profitable source of income should be built through reliable software that can help you make your financial plan successful.

Financial planning software features innovative tools that can help you cover all requirements of wealth management ranging from simple planning to in-depth financial planning. In its most fundamental form you may analyze your current financial situation by using its input features that help you assessing your wealth. In its most advanced form you may build a strategic analysis of your finances using a step-by-step process to assess your wealth and keep track of your loans, taxes, spending and other money related issues. Most financial planning software programs feature financial assessment, asset allocation, investment modeling, debt management, net worth and cash flow analysis, real estate analysis, insurance analysis, business valuation, retirement planning and tax planning.

Choosing the right financial planning software is not easy, for the most part, because there are too many options available. Microsoft Money, Quicken, TurboTax, and TaxCut are the most famous programs, but they may not be suitable for you. Therefore, it is very important to research what is available in the market before deciding on spending your money on a financial planning software program.

First of all, you should look for software that fits your basic knowledge of finance. There are simpler and more complex programs in the market that can help you keep control of your investment portfolio. However, if you are not familiar with financial software or if you don’t have time to learn about it, start with a simple, basic program. Free demos can also be of great help. You may download free trials from financial planning software companies to see if you can work with the plan before you install it on your PC. Although free demos are not fully operable like the complete installation, still you can get an idea about the program features and if it works for you.

Another consideration is deciding on the features that you want your software to have depending on what you plan to do with the program. For instance, if you plan to keep track of your business expenses or organize your retirement funds, you probably need a basic software program. In general, you should choose the programs that can provide you with the most features you want and the ease of use you need. You should find a financial planning software that can show you the current situation of your money and where it could be if you make changes.

All in all, choosing the right financial planning software depends on the business you plan to do with it. Just consider if you want to monitor your transactions, track your investment performance, access your account balances or calculate your portfolio value to decide on the right software that fits your needs.

How to construct a net worth statement

A net worth statement demonstrates the current financial situation of a business. Being a useful tool to measure the financial progress of a firm on a yearly basis, net worth calculates the difference of total assets minus total liabilities. Businesses that track their progress and see their net worth increasing from year to year are able to meet their obligations and are financially strong.

A net worth statement demonstrates also the current financial situation of a household. Tracking the financial progress from year to year, it helps people plan for their financial future before it is, possibly, too late, to take appropriate measures.

Developing a net worth statement is pretty straightforward.

The first thing to do is listing all the assets on the left-hand column of the Net Worth Worksheet that can be downloaded anywhere on the Internet.

>    Assets

In the financial terminology, assets are all items that can be converted to cash. Under this category fall:

(a)  Liquid Assets: cash on hand; cash in checking accounts; cash in saving accounts; money market accounts; Certificates of Deposit (CDs)

(b)  Long-Term Assets: stocks; bonds; mutual funds; annuities; cash value of life insurance; cash value of real estate insurance; current value of 401k or 403b accounts; current value of IRA

(c)  Property Assets: market value of home; value of household items (furniture, art, antiques, collectibles, jewelry); market value of other real estate property; market value of vehicles (cars, boats)

Not all assets have to be listed, provided that are worth at least $500 or more.

The sum of all listed assets represents total assets.

Liabilities are listed on the right-hand column of the Net Worth Worksheet.

>    Liabilities

In the financial terminology, liabilities are obligations that individuals or companies are legally obligated to settle. Under this category fall:

Mortgages; home equity loans; other real estate loans; car loans or lease; credit card balances; bank loans; student loans; 401k hardship loan; personal loans; life insurance loans; cash advances; delinquent taxes; child support; medical bills; other liabilities.

The sum of all listed liabilities represents total liabilities.

To calculate current net worth, total liabilities are subtracted from total assets. If the number is positive, assets are more than liabilities, which means that the household is building wealth. However, even if the number is negative, still constructing a net worth statement is the groundwork for having something to compare against in the future.

Some major considerations

- Net worth statement should be constructed at least once a year. In that way, the household keeps track of the yearly progress, but most importantly has adequate time to take appropriate measures and improve its financial situation.

- Estimates of assets should be conservative, particularly those concerning property values. If values do not represent the real picture of the net worth, net worth statement won’t be accurate and financial plan will fail.

Disadvantages of managed payout funds

Offering to investors regular income payouts through well-diversified portfolios managed payout funds were originally introduced in the market in the late 2007 in an effort to anticipate the problem of retirement savings and approach effectively the growing concern of failing retirement plans. By providing additional sources of income to investors that seek for regular income payouts at a relatively low-interest rate, managed payout funds list retirement income solutions that cover a broad range from traditional life-cycle funds to life annuities and custom-made withdrawal plans, using the capital to produce returns and offer a monthly stream of income to payback those returns.

To many investors, managed payout funds are directly compared to annuities, only representing a new generation of products. However, they should not be confused to annuities because, unlike annuities, they do not guarantee their returns. Following the serious consequences of the credit crunch and economic downturn that caused major fluctuations in the global markets, managed payout funds do not guarantee their income and are losing their value. However, this is not only a matter of market variability. It is mostly a matter of how these funds are designed.

Unlike traditional mutual funds, managed payout funds use their capital to produce returns. However, in a prolonged bear market, these funds cannot guarantee the payout level and moreover they use the capital that needs to be preserved to generate returns for future distributions. Financial advisors suggest that in majority, investors are not prepared for a sharp decline in their monthly payments, neither these funds can preserve principal with a distribution rate of 6% or 7%.  Instead, they suggest that a distribution rate of maximum 5% is more realistic to sustain the expected level of monthly income. Savvy investors can probably tailor a custom-made program that is responsive to the market conditions, but this is not the case for all investors.

Although they can be professionally managed, low-cost, regular income solutions, the diminished capital of managed payout funds is a serious implication. Moreover, it’s their structure that makes it impossible for these difficulties to fade out. Market instability is exposing a great risk for managed payout funds and as long as the markets remain irrational, these funds cannot remain solvent, not eating into principal. Therefore, in the event of a severe market decline in the beginning of the program, investors won’t have funds to cash out in retirement.

Payout level is a serious consideration before deciding to purchase managed payout funds. Investors should think twice because in a prolonged market downturn the fund will most likely eat up its capital to be able to generate enough returns to meet future payouts.