Given that the stock market has almost doubled since its low in March 2009, one would expect that an entirely new crop of youngsters would be clamoring to become the next generation of America's stock brokers. So far the evidence points to the opposite conclusion.

Last month The Wall Street Journal featured an article titled "Dangerous Stockbroker Shortage Threatens America." The gist of the story was that less than 25 percent of all financial advisers are under 40 years of age while 5.6 percent are under 30. The writer quoted research from a Boston-based research firm, Cerullie Associates, that claimed the average age of a financial adviser is just under 49 years old with 14 percent of them over 60.

What I fail to understand is why this supposed shortage is dangerous?

I was a stock broker once upon a time. My clients, however, were not individual investors. My customers were the large institutions with multibillions of dollars that invested worldwide and their famed fund managers who you see quoted on television or in the top-tier investment periodicals. It was a lucrative business.

In exchange for stock ideas and access I provided to company managements, my clients paid handsomely in commission dollars. I often ferried my investors to various countries and regions where I arranged private meetings between them and company officials, finance ministers and even presidents. All-in-all it was a gentleman's business. But things have changed.

Institutions discovered the Internet. Electronic trading evolved and became so cost effective that paying commissions for the services of people like me made no economic sense. Besides, what I could do, so could my clients. A phone call or email from the chief investment officer of a huge U.S. pension fund to company X could accomplish the same objective as in my efforts.

In addition, the commoditization of equities overwhelmed all other methods of investment. The sheer weight of money under institutional management forced large institutions to abandon investing in individual equities. Instead, millions every day are bought and sold in baskets of stocks representing sectors, styles, regional and country indexes. It made stock picking superfluous and brokers like me a dying breed.

The same trend that convinced me to jump ship, abandon the brokerage business and manage money has been steadily chipping away at the retail broker's business over the last decade. The advent of discount brokers, automation, passive investing and instantaneous information via the internet has evened out the playing field for individual investors. Investors are now capable of doing for themselves what brokers have traditionally charged them to do.

Today, you and I receive the same information our brokers do and we get it faster. The popularity of mutual funds and exchange traded funds as preferred investment tools have also impaired the utility of brokers and stock picking.

The big brokers realized this years ago and stopped recruiting and training new brokers. At one time, Merrill Lynch, for example, operated a huge campus in Southern New Jersey for the training of their retail brokers, complete with classrooms, dorms and cafeteria. As commissions declined and profits were squeezed, the brokers cut back on hiring and instead gave more and more accounts to the top producers. These producers are now retiring.

Remember that stock broking is a "people" business. Traditionally, you needed to trust and rely on your broker and if you couldn't, you switched. However, 2008-2009 changed that. During the financial crisis, many brokers, young and old, advised their clients to remain invested only to panic and sell out their clients at the bottom. Lawsuits followed, animosity built and trust declined across the industry. 

As an example, two individual investors were recently awarded $54 million in a securities arbitration case against Smith Barney. The case was over the sale of conservative municipal bond investments that turned out to be less than safe, losing between half and three quarters of their value during the financial crisis.

Given the performance and reputation of brokers and the financial services sector in general over the last few years, is it any wonder that the last thing the new crop of college grads wants to do is become stock brokers?

Even the name "broker" no longer exists. Thanks to millions spent in marketing, the brokerage houses have successfully confused the investing public in exactly who they are dealing with. The broker has gone the way of the ticker tape, the typewriter and the transistor radio. New names such as "wealth manager," "financial consultant" and "financial adviser" have replaced the old title and I for one am not so sure the change is for the better. 

Bill Schmick is an independent investor with Berkshire Money Management. (See "About" for more information.) None of the information presented in any of these articles is intended to be and should not be construed as an endorsement of BMM or a solicitation to become a client of BMM. The reader should not assume that any strategies, or specific investments discussed are employed, bought, sold or held by BMM. Direct your inquiries to Bill at (toll free) or e-mail him at wschmick@fairpoint.net. Visit www.afewdollarsmore.com for more of Bill's insights.

Over the last few years, the Federal Reserve has practically given money away to any entity that calls itself a bank. Individual states are also trying, but so far the banks have just been hoarding this growing pile of cash instead of loaning it out. Why?

Two reasons come to mind: Banks are afraid of taking on lending risk. Burnt by the subprime mortgage debacle, they are now overly cautious on who they lend to in an economic recovery they are not sure is here to stay. Two, interest rates are at historical lows. If rates start to rise, loans made today could turn to losses fairly quickly.

Recently, state Treasurer Steven Grossman of Massachusetts announced a plan to give banks $100 million to deposit into local community banks for the express purpose of lending to small businesses. The money is part of a statewide effort called the Small Business Banking Partnership. The announcement has been met with some resistance within the banking community. Bankers claim it's not needed because small businesses aren't interested in borrowing due to the poor economy.

That's bad news because small businesses employ the vast majority of workers in this country and pay the most taxes. They are the backbone of this country's economy. Over the last year, small business lending has become a political football since the establishment of the $1.5 billion State Small Business Credit Initiative by the Obama Administration. The plan calls for the banking community to pony up $10 in new loans for every $1 of loans by the state government. Since then, banks and their lobbyists have gone out of their way to show how much lending they are doing to small businesses.

For example, in Massachusetts, as in other states, community banks account for as much as 80 percent of small business lending and that trend has increased through the recession, according to the state's banking association. They claim the amount of lending has also almost doubled in the last six years.

What they don't mention is a lot of that recent growth was in picking up old loans that out of state and money center banks had dumped or would not renew due to the recession and heightened credit risk. A recent survey of members of the International Franchise Association contradicts some of the data coming out of the financial lending sector. The survey revealed that 39 percent of the franchisors report that more than half of their franchisees and prospects are unable to obtain needed financing, which is up 33 percent from a survey taken last year.

"There are several businessmen right here in the county who want to open franchises with me but can't get loans from local banks," says a successful fast-food chain entrepreneur in Berkshire County. "The banks sent them packing to the SBA for help."

The bankers' argument that businesses are not growing and aren't applying for new loans is disputed by the small-business owners I talk to.

"What they aren't telling you is the hoops a small-business owner has to jump through in order to get that new loan," says the head of a large excavating company in the region.

"They want collateral and a lot of it. They want you to sign your life away, and none of that matters unless you are making tons of income as well. And once I pass all their risk criteria, I get the privilege of borrowing short term from them at 8-9 percent when the prime rate is 3.25 percent."

Given that most banks are paying under 1 percent for money to loan, one would think that a 7-8 percent spread should bring in plenty of profits. That is one of the main reasons that the Federal Reserve has been keeping interest rates at historical lows for so long. So far it hasn’t worked.

And speaking of the Fed and the end of QE II in June, most everyone (including the banks), are expecting interest rates to rise in the second half of this year. Few bankers have the appetite to lend money to a small business when they expect rates to rise. And if they do, they only want to lend for a short period of time.

"That's also difficult for a small business to handle," explains the excavator, "if I have to go back to the bank in three years, I can't do long range planning. I can't even be sure I'll get a new loan and if so, at what price. It makes being a small business owner that much more uncertain."

Grossman plans to come to Pittsfield sometime in May to discuss the state's funding initiative with local bankers. I think it would be a good idea to meet with small-business owners as well. That way he would be able to hear their side of the story before leaving town.

Bill Schmick is an independent investor with Berkshire Money Management. (See "About" for more information.) None of the information presented in any of these articles is intended to be and should not be construed as an endorsement of BMM or a solicitation to become a client of BMM. The reader should not assume that any strategies, or specific investments discussed are employed, bought, sold or held by BMM. Direct your inquiries to Bill at (toll free) or e-mail him at wschmick@fairpoint.net. Visit www.afewdollarsmore.com for more of Bill's insights.

Monday's surprise announcement that the outlook for U.S. debt has been downgraded reverberated around the world. Global markets shuddered. Investors rubbed their eyes as they re-read the announcement and then hit the "sell" button. Markets declined by 1 to 2 percent. Yet, by the end of the week, stocks and bonds recovered. Was this some kind of false alarm?

First the facts: the Standard & Poor's Rating Services Inc.(S&P) has reduced the outlook for U.S. debt from "stable" to "negative." It did not change its AAA rating for U.S. federal debt nor does it plan to do so anytime in the near future. But it is potentially the first step in an actual ratings downgrade. The White House had been given advance warning last Friday. Officials tried to forestall the credit agency's actions but S&P is convinced that our high debt and deficit levels are raising the possibility that the U.S. fiscal situation could become "meaningfully weaker" if the government fails to improve the country's financial health.

A barrage of spin doctors, led by Treasury Secretary Timothy Geithner, was launched on the nation's airwaves this week in an effort to assure one and all that there is no cause for alarm. It reminded me of that scene in "The Wizard of Oz" in which Toto pulls the curtain away from the Wizard revealing his fire- breathing, smoke-making, image projection machine.

"Pay no attention to that man behind the curtain," the Wizard bellows through his loud speaker system. But like Dorothy, we Americans should ignore the Wizards advice whether in Oz, or in this case, Washington.

The change in the ratings outlook, like a warning shot across the nation's bow, says to me that unless we get our house in order, and do so quickly, there will be hell to pay.

S&P recognizes that all the grand standing going on right now between the political parties is just that. They have no intention of do anything about the deficit until after the next election. Both sides are simply jockeying for position. They are using the deficit to put their presidential candidate and party in the best position to capture the election which is still two years away.

S&P's base case assumes $4 trillion to $5 trillion in deficit reduction would need to occur over the next 10 to 12 years, but it also insists that there needs to be a concrete plan in places for deficit cutting that is actually implemented by 2013. That implies a spending decline of at least 20% of U.S. GDP and an agreement prior to the next presidential elections.

What's at stake here is another Black Swan event, in my opinion. If the politicians flub this one, and our credit rating is cut, I suspect the greenback will be worth about half of its value today. Interest rates across the board in the United States will skyrocket. That will pretty much gut any hopes of a continued economic recovery and the unemployment rate, well, you get the picture.

You might wonder, therefore, why the politicians are stalling since they know the consequences as well as you and me. Taxes, a cut in spending, this year's budget, the debt ceiling – everything appears to be a political football. Politicians blithely fiddle while Rome burns because they all know the truth behind the nation's books.

Historically, politicians and their parties have very little to do with balancing the nation's budget. The most important single variable, when it comes to reducing the deficit, balancing the budget, or actually enjoying a surplus is economic growth. The stronger and longer the period of economic growth, the faster the deficit is reduced. The problem in this recovery is that due to its nature, the U.S. recovery has been anemic and therefore revenues (taxes) aren't coming in fast enough to reduce the deficit as it has in prior economic cycles.

This time around, a combination of growth and spending cuts are called for but politicians on both sides of the aisle are notorious for kicking that particular can down the corridor. The S&P is warning them that the "the can stops here."

Bill Schmick is an independent investor with Berkshire Money Management. (See "About" for more information.) None of the information presented in any of these articles is intended to be and should not be construed as an endorsement of BMM or a solicitation to become a client of BMM. The reader should not assume that any strategies, or specific investments discussed are employed, bought, sold or held by BMM. Direct your inquiries to Bill at (toll free) or e-mail him at wschmick@fairpoint.net. Visit www.afewdollarsmore.com for more of Bill's insights.

On a daily basis, I review portfolios of stocks and mutual funds from clients and readers. What strikes me most about all these portfolios is that I rarely come across one that has done better than the market. A large part of the problem lies in their choice of investments.

When I say "the market," normally I use the S&P 500 Index as a benchmark. Sure, there are other indexes I can use, ranging from the Dow Jones Industrial Average to a basketful of regional and global indexes, but most pros use the S&P 500 as the market proxy. The truth is that it is notoriously difficult to beat the market and do so consistently.

"But what about Apple?" protests one recent client, who has owned this darling of Wall Street for several years. "It has beaten the market hands down every year."

True enough, Apple, along with a number of other individual stocks, have done better than the market for a year or two or even three, but they have not done so consistently year after year. And even though Apple has done better than the market, I have yet to see any equity portfolio with just that one investment. Normally, Apple is just one of many investments in the portfolio. When all these returns are combined, the gains of an Apple are offset by losses in other stocks.

The risk in holding individual stocks is twofold. One, if you hold comparatively few stocks and one or more blows up, your portfolio will suffer dramatically. If, on the other hand, you have a large stock portfolio it becomes difficult to follow and your performance will tend to mimic the market.

Investing in mutual funds is less risky than owning individual stocks because your risk is spread out among many more stocks; but unfortunately, in most cases, performance also declines. Statistically, the pros that manage mutual funds fail to beat the market over 80 percent of the time. If you also add the fees that these mutual funds charge investors each year their performance is even worse.

Now, just like stocks, there are mutual funds that have a fabulous track record, either because the fund manager is especially gifted, lucky or both. Think Peter Lynch, the fabled manager of Fidelity's Magellan Fund, or Bruce Berkowitz, recently named the fund manager of the decade. But finding the next Peter Lynch is as difficult as finding the next stock market double.  In the meantime, the risk of picking wrong can be monumental.

Ken Hebner, a well-known index fund manager, argues that by buying a diversified portfolio of index funds, that incorporate emerging markets, international markets as well as the U.S. market, will provide you the best results with lower risks than a portfolio of stocks. I would take that a step further.

My experience indicates that by including certain sector index funds in your portfolio (while excluding others) you could generate even greater gains than the market. For example, during the first quarter of this year, the materials, energy and small cap sectors lead the market higher. Those investors that were overweighted in these areas beat the market with much less risk than if they had held individual stocks in those sectors. In addition, the expense ratios for index funds are much cheaper than mutual funds. Bottom line, index funds offer far less risk than stocks, outperform mutual funds 80 percent of the time and are cheaper, easier and trade as frequently as stocks. What's not to like?

We all waited with bated breath until the end of last year, only to see Congress extend the Bush tax cuts for another two years. Although the legislation passed, it did create some issues that you should be aware of in filing your taxes this year.

Let's start with property taxes; something most of us have learned to despise. Until last year, if you owned a home you were able to deduct a portion of your state property taxes in the form of an enhancement or an addition to your standard deduction. The deduction was worth between $500 and $1,000 depending on whether you were married or single. This provision was not extended, but you can still claim the deduction providing you itemize your deductions. The problem with this new wrinkle is that many Americans do not have a sufficient amount of deductions to make itemizing worth doing.

Given the vast number of workers who lost their job during this last recession, if you were unemployed in 2009, the government granted an exemption in unemployment income up to $2,400 per person. That meant you only had to pay taxes on earned income above that amount. That exclusion has been eliminated as well.

So if you were unemployed at any time last year and collected unemployment compensation you owe taxes on 100 percent of that income. The problem here is that few of these jobless taxpayers withhold taxes from this income, so now they will need to come up with the cash they owe the IRS.

The first-time home buyer credit and the follow-on home buyer tax credit on primary residences provided a tax credit ($8,000 for first-time buyers and $6,000 for other buyers) but require that you keep your new residence for at least 36 months. That means if you bought and sold that new home you must repay that tax credit to the government this year.

The American Opportunity tax credit was a bit of new legislation that replaced the Hope credit that allows taxpayers earning $80,000 ($160,000) for joint filers) to claim $2,500 tax credit for tuition, fees, books, supplies and equipment required for educational studies paid in 2010. There is some confusion about this tax credit because the government already allows a deduction of up to $4,000 for the same items. You can't claim both the deduction and the credit.

People become confused between a credit and a deduction. Simply put, a deduction reduces your income while a tax credit reduces your tax bill. If you earned $60,000, for example, and took the $4,000 education deduction that would reduce your adjusted gross income to $56,000. If you were in the 20 percent tax bracket, then the tax savings for you would be ($4,000 X 20 percent) or $800. However if you selected the tax credit, your tax bill would be reduced by $2,500, a dollar-for-dollar tax savings.

Because Congress acted so late in the year, the IRS said it would need until mid-February to reprogram its systems. As a result, they advised that those who plan to itemize their deductions wait until after March 1 to file their taxes. Since most of us wait until the very last second (or longer) to file, this delay should not have a major impact on us taxpayers. In any case, the coast is clear for filing your taxes. I bet you just can't wait.

Note: You've got some extra time. Tax day is Tuesday, April 19, this year because the 15th falls on a Friday holiday in Washington and Monday falls on Patriots Day in Massachusetts.

Bill Schmick is an independent investor with Berkshire Money Management. (See "About" for more information.) None of the information presented in any of these articles is intended to be and should not be construed as an endorsement of BMM or a solicitation to become a client of BMM. The reader should not assume that any strategies, or specific investments discussed are employed, bought, sold or held by BMM. Direct your inquiries to Bill at (toll free) or e-mail him at wschmick@fairpoint.net. Visit www.afewdollarsmore.com for more of Bill's insights.