Misunderstandings and misconceptions are common in the areas of investments, taxation, law, and public policy. And it is no wonder! These subjects have become increasingly complex, as we have had decreasing personal time to deal with them. So, I presented you with a basic test.

My colleague, Roger Crombie, will probably diss me again for making it too hard, and some will totally disagree with the answers. Excellent, this is what we want - awareness, willingness to research answers and scepticism - so you will invest fully informed.

See original questions in article dated May 2, 2009 (search the archives of The Royal Gazette website, www.theroyalgazette.com, under Martha Myron)

And the answers are:

Finance

1.There is a great investment fund offer out there - a 15 percent annual return - guaranteed. Wrong - anyone guaranteeing a 15 percent return in this market has no intention of returning your money anytime soon. Always ask guaranteed with what?

2. My deposits at the bank are free - there is no fee. Wrong - there is an implied fee in the difference between the deposit rate and the lending rate. Banks never give anything away for free, neither does anyone else, somewhere, somehow, there is a moral obligation of indebtedness.

3. Which is better: the average return of the market every year for three years - it's about seven percent, or getting annual returns - 1st year a negative (20)%, 2nd year a negative (23)%, and 3rd year a positive return of 53%? Answer - getting highly volatile returns, averaged equals 10 percent, but could you live with that kind of volatility?

4. I own a high-grade corporate bond. It will pay me interest every six months until it matures. It is right - until it is wrong. If the bond is downgraded, or goes into default, interest coupon payments may be cancelled, and you'll end up owning a bond worth 40 cents on the dollar.

5. My preferred stock shares are callable next year. I know the financial services company will absolutely give me my money back then. Wrong. If the company gets into trouble and has no cash (if no backing such as government), they may not pay the dividend and they certainly won't call back the shares.

6. Inflation really does not affect me; my pay will just go up to compensate. Wrong - inflation is driven by economic issues. Excluding government, your compensation package is a function of how well you and your firm are performing and most importantly, whether the firm is profitable. No one has to give you a cost-of-living raise.

7. I own a money market fund that pays about two percent per annum. If I invest $1,000 at the end of the full year, I will have $1,020. Right.

8. It is not a problem owning stocks, I can always sell them. Wrong. Always is a nebulous word. Rule No.1 in commerce - there has to be a willing buyer and a willing seller. We are learning rapidly, that just cause you want to sell does not mean that someone wants to buy anything from you.

9. My mortgage rate was recently reduced. This means the principal amount I have to pay back has been reduced too. Wrong. The principal amount you owe stays the same, but the interest cost charged by the bank on borrowing the principal is reduced.

10. My house was valued at 400,000 for property insurance, but the replacement value is 800,000. I filed a claim for a new roofing cost of 20,000, but they only gave me 10,000. Right - you only insured your home for 50 percent of the replacement value, thus the maximum you can get is 50 percent of any claim. Check your insurance before hurricane season to save nasty surprises.

International citizen issues

11. I am a US citizen, but I married a Bermudian and now live here permanently. I do not have to file a return or report on my investments because I live outside the US. Wrong - that is not what Uncle Sam expects. US citizens are taxed on basis of their citizenship, not where they live.

12. I have two passports, one of which is a US passport, but I consider myself a Bermudian, so I use my Bermuda passport for all my trips to the US. Shades of gray - Well, you won't be happy when your immigration officer asks you why you aren't using your US passport.

13. I'm a dual citizen with the US, but I don't work anymore, I just manage my $2 million portfolio, so I don't have to file a return because I don't have a salary. Well, of course, you do not have to work - wish I had your money! Wrong - see answer No.11 above, there are reporting and filing requirements for US citizens.

14. I'm retiring. Years ago, I divorced my US spouse after 25 years of marriage. He has been married three times since then, so I don't think I can apply for any of his social security payments. Wrong - get his social security number and go to US social security webpage. You may be entitled to a pension.

15. I am Canadian, left the country like a 100 years ago. I bought a house back there about two years ago and opened a bank account in my name to hold my savings. Since I left so long ago, it is not a problem. Right or Wrong? Shades of gray, if you left, you left - better find out if you might be on the fence of being considered a resident.

16. My grandfather died in the UK and left us all some money. I live here, but my siblings live there. Someone told me that the money he left me is tax-free to me. Right - probably, but advice should be sought.

Law

17. I am a private person, I don't want anyone to know anything about me. My lawyer can never tell anyone anything about me, ever. Wrong. Attorney-client privilege is almost sacrosanct, but in the cases of public harm - where you tell your lawyer that you are going to shoot your cousin for stealing your wife, for example - that information has to be disclosed to the authorities.

18. I do not have a will; it does not matter, my sister will get everything so that she can take care of my children. Wrong - gumbmint will decide under the laws of intestacy who gets your estate, and it might not be your sister.

19. Our Bermuda will can be used anywhere that we have real estate. Right or Wrong - shades of gray, but better to have a will for the assets in that jurisdiction.

20. Our bank account is held jointly in both our names. The account reads, John Jones or Ruth Jones. We both have to sign every withdrawal cheque. Wrong - and be careful that Ruth does not clean out your account when she decides you don't have wealth-generating potential.

21. I have been getting an annuity with my pension. I don't like what's happening in the markets and intend to change it to something else. Wrong - generally, an annuity is an annuity contract. Period.

Public Policy

22. My government social services are free. Wrong, wrong - oh we love to think so, but notice how your left pocket is really full, and the right pocket has a hole in it.

23. My old age pension is indexed for inflation. Right - but not by much.

24. I don't think I can get a record of employer contributions to my social insurance? Wrong - those nice folks up at Social Insurance can help you out.

25. The house that I want to designate my Primary Resident Homestead (for the exemption from death duty) has my father's name on the deed, but I can apply for it anyway because he has willed it to me. Wrong. You wished you owned it - don't count your chickens before they hatch. Get him to apply now.

26. When I convert 100 Bermuda dollars to US dollars, I am losing about 1%. Right - that's right - Bermuda dollars cannot buy the same amount of US dollars at a bank.

Disclaimer: This article is for general information purposes only and is not to be used as specific tax advice for any individual situation. IRS CIRCULAR 230 NOTICE: Pursuant to recently enacted US Treasury Department Regulations, I am now required to advise you that, unless otherwise expressly indicated, any federal tax information (or advice) expressed above was neither written, nor intended by the author to be used and cannot be used by any taxpayer for the purpose of avoiding penalties that may be imposed under US tax law.

Martha Myron CPA CFP® (US) TEP (UK) is an Equity Partner at Patterson Partners Ltd, an independent fee-only cross border financial planning firm in Bermuda. She specialises in comprehensive financial counsel and solutions in the areas of investments, tax, retirement, and estate planning for internationally mobile people, Bermuda residents with cross border connections and US citizens (green card holders) / dual citizens. The article expresses the opinion of the author alone. Under no circumstances is the content of this article to be taken as specific individual investment advice, nor as a recommendation to buy/ sell any investment product. The Editor of The Royal Gazette has final right of approval over headlines, content, and length/brevity of article.