Happy Holidays!!!
Monday, December 13, 2010
Holiday Book List 2010
Happy Holidays!!!
Friday, December 10, 2010
Changing Times...
But, with everything good, there is often a side effect. Taking cholesterol drugs is great for lowering the bad stuff in your arteries. Unfortunately, you could experience muscle pain as a result. If my cholesterol was around 210, I think I'd skip the medicine altogether and maintain a healthy lifestyle.
Skis, boots and bindings have made huge advancements over the last decade. Broken bones are almost a thing of the past. On the flip side, skiers experience more knee injuries than ever before. Hmmm... broken bone or knee problems? Tough decision.
The real estate boom of the recent past allowed all citizens to 'afford' the American Dream. Barry Ritholtz of "The Big Picture" showed a great google map(s) this week displaying the measle epidemic spreading across our country. The 'hot' spots or cluster of foreclosures shows the devastation in certain regions. We can only speculate how long it will take to fix this problem.
Today's federal deficit news is another warming shot of sorts. Our lifestyle as we know it will be changing at some future date. This week, next month or over the next decade? Not sure. But, we owe a LOT of money. If the government followed the bankruptcy laws that individuals follow, we would have filed chapter 11 a long time ago.
People don't like change, but we've been living the good life on borrowed money for decades. Now that we collectively owe more than $1 trillion... read that again... trillion dollars - it's time to scale back.
What comes next? Higher income taxes, less municipal services, older social security eligibility, higher real estate taxes? Probably all of the above. Oh yea... and less international travel. The dollar will probably continue to lose strength and make travelling abroad too expensive. Sad, but true.
Bob Dylan may have been a prophet of sorts when he stated in his classic 1964 song, "Times They are a Changing"...
And that's the final word from 'doom & gloom' central. I'll try to be more cheerful next time! Promise!!
Wednesday, October 6, 2010
Rethinking Daily Life
With this approach in mind, I'd like to examine our daily lives on a few different levels.
A recent trip to Colorado provided a wonderful time to relax & reflect. Visiting my good friend Anthony, we enjoyed the Rocky Mountain altitude, shared a few laughs and went to two football games as well. Go Buffs!
During the weekend, we discussed how his lady friend doesn't have cable tv? Yes, she has a television, but only uses it to watch movies. The more we talked, the more I realized, maybe this isn't such a bad idea! It seems a little contrarian to a certain extent. But, how many times do we simply turn on the tv for background noise or music? We're not watching anything, but filling the quiet void.
Personally, I now watch the majority of my favorite tv shows on my PC (aka: entertainment center) these days on my schedule. "Two and a Half Men" is a great example. Simply go to http://www.cbs.com/ and 'tune in'. You'll have a few spot advertisements, but it's less than you would have if you watched the regularly scheduled program.
Also, I recently noticed my daily routine of gathering morning news had changed. My favorite source is now USA Today - not the print version, but rather the online version. Great layout, content and it's free. I Fire up the PC each morning with a cup of tea and read the Money section. Life is good!
We all have daily routines. Some habits are useful and others are simply... well... habits! They may even be costly ones as well. How many days do you stop @ Starbucks during your morning commute for a mucho expensive grande latte (or something similar)?
Perhaps examining your daily habits could lead to positive changes. It may also improve your financial situation as well!
Friday, August 27, 2010
Moral Dilemma - Where Did We Go Wrong?
Everything from brokerage accounts to mortgages and from Little League to Pop Warner football are in play.
We seem to be building a nation of bad decisions. Some may call it morals, others ethics. Call it what you like, there's something wrong with this trend. People are walking away from personal commitments & responsibilities when things don't go there way.
Parents are letting their children quit their sports program in mid-season. Why? The parent and/or child didn't feel they were getting enough playing time. Correct me if I'm wrong... aren't 9 players a minimum requirement to field a baseball team. Due to injuries, vacations, family obligations, etc. every child is needed plus a few extras. There's a reason it's considered a 'team sport'. Everyone relies upon one another. Here's a novel idea: Let your child finish the entire season and then decide if they want to play next year.
In the grown up version, we can discuss mortgages. Everyone wanted to own real estate in some capacity from 2000-2007. It didn't matter if you were buying a primary residence, flipping properties or rehabbing for profit. People were blinded by dollars and real estate was the "It" investment. The herd mentality was running wild.
Unfortunately, when the music stopped, thousands of 'investors' were left holding properties they couldn't afford. When times were good and everyone was making money, nobody complained. Now that the winds of profit have turned, everyone was quick to point a finger for their financial difficulties. Very rarely did you hear, "I made a bad decision." But, rather "The bank took advantage of me." "I didn't know what I was signing." I'll be the first to admit, the banks weren't angelic in this whole process. But, let's cite the facts. They simply made money available. They didn't contact you! Further, for the individuals who borrowed money, didn't you have an attorney representing you during the entire process? I don't see how the banks are the bad guys in this scenario. When you went to closing, you had the option of signing your mortgage documents or not - with legal counsel present. What am I missing?
Our moral compass has gone astray in recent years. Personally, I tend to think it started with the dot.com era and day trading. A similar scenario unfolded with brokerage accounts and margin requirements.
I'm not sure how we get back on track, but I tend to think our economic recovery is going to have a direct correlation to our moral standards.
Tuesday, August 3, 2010
The Killer called Inflation
How can this effect your retirement savings? We all know that things will cost more, but here are a few examples assuming annual inflation of 3% per year over 20 years:
- House - Current: $200,000 Future: $364,424
- Loaf of bread - Current: $3.00 Future: $4.47
- Car - Current: $30,000 Future: $54,664
Some of these figures may not thoroughly register. But, let's look at things with a retirement angle. You have to try and keep up with the rate of inflation via your investments. Sitting in a conservative account (ie. money market fund) earning 1% per year, is a sure fire way of failing to reach your retirement plan.
You have to outpace the rate of inflation to stay ahead of the curve. A retiree living on a fixed income of $30,000 cannot sustain spikes or long term increases in inflation. Oil & gas drastically increased a few years ago and then retreated. This effected a number of people, not to mention summer vacation plans. Long term increases will permanently decrease purchasing power AND your lifestyle.
Your retirement income can decrease by 50% if inflation averages 4% over 18 years. Retiring at 60 or 62 sounds good on paper, but unless there's an ample amount of pension money, retirement savings, real estate, etc, to last another 20-30 years, you could be selling yourself short.
Longevity and healthy living is an amazing concept... don't be overly cautious with your retirement investments.
Wednesday, July 14, 2010
George M. Steinbrenner (7/4/1930 - 7/13/2010)
A Yankee doodle dandy! A winner! A tyrant! Call him what you want, George M. Steinbrenner born on July 4, 1939 was a sports legend.
He will forever be remembered as the passionate owner of the New York Yankees.
Call him a visionary. After purchasing the disenchanted franchise in the early 1970's, his unique approach to running a business (exactly what it was) encompassed a worldwide marketing campaign.
Back in the day, television rights only covered a portion of the baseball season. Former player/manager, Gene "Stick" Michael, was recently interviewed on a local sports radio program and discussed an old four (4) game series played in CA against the Oakland Athletics. Having won the two (2) games NOT televised and having lost the two which were on tv, Mr. Steinbrenner called him to let him know, he lost the wrong games!
Today, his YES Network is an industry giant and a national success. Some will even argue the signing of foreign superstar, Hadeki Matsui, made the team a worldwide franchise as Japanese fans flocked to the American game of baseball. PT Barnum had nothing on old George. He was a master at marketing.
Lastly, true to the Steinbrenner business acumen, he died in 2010. Anyone who follows financial planning and in particular estate planning laws will understand, he died in the ONLY year in which federal estate taxes are zero. He family legacy will carry on monetarily as well!
Rest in peace George M. Steinbrenner. And, thank you for the GREAT memories!!!
Monday, July 12, 2010
World Equity Markets 2010
Wednesday, June 16, 2010
Gary Coleman 1968-2010
"What you talking about Willis?"
We've all read of the passing of child tv star Gary Coleman during the last few weeks. Not only is it sad a 42 year old passed at such a young age, but he also left behind a financial puzzle.
Gary Coleman apparently had 3 wills at the time of death - one was even handwritten. Unfortunately, figuring out the actors intent will be based on 'clear and convincing' evidence. This will be challenging for a number of reasons.
Because he was estranged from his parents and divorced from his wife (who he apparently was living with once again), figuring out his true intentions is now left to the courts to decide.
Mr. Coleman is reported to have made $18 million from the sitcom "Different Strokes." How much remains is unclear.
As a Financial Advisor, I can easily say... everyone should have a will. You should also consider including a healthcare proxy and power of attorney. This will state who can act on your behalf should you not be able to make decisions for yourself.
Whether you are single, married or divorced makes little difference. We all acquire 'stuff'' during our lifetime. The older we get, the more 'stuff' we accumulate. Who gets our worldly possessions will be your choice. If all of your financial matters are in order, YOU decide who gets what. If things aren't in order, plan B kicks in... your Uncle Sam will decide for you (aka State Court).
With people changing spouses as frequently as careers these days, make sure you properly document your wishes. Couples who are remarried with children from different spouses may have children of vastly different ages & needs. Some children will require a guardian be named in lieu of being of legal age.
Start with the basics: Take inventory of what you own (ie. bank accounts, investments, home, car, life insurance, etc.). If need be, call your Financial Advisor to assist with these items. Lastly, you will have to see a lawyer as legal documents will have to be drawn.
Thursday, June 3, 2010
British Petroleum (BP)
A secondary issue pertains to energy costs & future drilling. I'll be the first to admit, it doesn't seem like BP had a back up plan for deep water drilling. As you can tell from the picture above, there are hundreds of oil rigs in the gulf coast between the Florida panhandle and Texas. This isn't new, they've been there for years. How many are deep water drilling platforms is unknown. Drilling more than 1 mile below sea level can be problematic in a number of different scenarios.
"People complain by nature." We've all heard this expression. We have to somehow find a balance between allowing oil companies to drill for oil while protecting the environment. According to the Financial Times, the Obama administration has apparently halted all dig water drilling until further notice and is seeking to prosecute BP on criminal and civil charges to the 'full extent of the law.' If laws were broken, there should be an investigation into wrong doings. No doubt. In the meantime though, isn't this more of a distraction that anything else? I'd prefer BP to focus on solving the problem and not getting a legal team in place to defend future litigation.
Should oil go back above $100 per barrel and gas prices skyrocket to $5.00 per gallon, the real complaining will start. The rhetoric of "Our government should better regulate big oil companies and the price of gasoline." Now that a drilling moratorium is in place, oil companies with platforms in US waters will see a reduction in earnings and will probably layoff idle workers until further notice. I wonder if Washington is helping these people???
In USA Today, some interesting statistics were revealed today as to the manpower and efforts taking place in the gulf of Mexico region. Here are a few statistics:
* 6.625 inches - Size of pipe leaking oil.
Thursday, May 20, 2010
US Stock Market Statistics
The equity markets have provided wonderful growth opportunities and have built tremendous amounts of wealth throughout history. This is NOT to say there isn't any risk associated with the capital markets because there is always a risk/return equation for everything in life.
If history can be used as a guide, investors should expect to see routine declines of 5-10% quite often with more more pronounced retreats every few years. Since 1900 (through 12/31/2009) there have been 374 corrections of at least 5% and 32 declines of 20% or more.
So, a lot of history made short - bull & bear markets - are actually healthy and should be considered part of the overall game plan. Don't panic. Maintain your perspective and make sure your portfolio is aligned with your long term financial goals. If the ups/downs are too much for you to take, a more conservative portfolio may be appropriate.
US Stock Market Scorecard:
***"Routine" Declines (5%+ loss) happened 374x since 1900, occur 3.4x per year and last 39 days on average.
***"Moderate" Corrections (10% + loss) have happened 121x since 1900, occur 1.1x per year and last 105 days on average.
***"Severe" Corrections (15% + loss) have happened 60x since 1900, occur 0.5x per year and last 208 days on average.
***"Bear" Markets (20% + loss) have happened 32x since 1900, occur 0.3x per year and last 372 days on average.
Wednesday, May 5, 2010
Greece: Cradle to Grave
Since joining the Economic Union in 1981 and the Economic and Monetary Union in 2001, Greece has struggled with its national budget and trade deficits.
Thursday, April 15, 2010
Financial Fitness 101
Do you see where I'm going with this one?
Asset allocation is the king of cross training when it comes to retirement planning! You can't have all your investments in one asset class and expect different results. Diversifying your portfolio to include cash/bonds/stocks/real estate/commodities is the key to long term growth and the reduction in volatility or risk.
Same thing applies to investing. Don't put all your $$$ into large US stocks and avoid the rest of the universe. The world has become one market in many regards and there are a ton of opportunities beyond our borders. Certain companies should provide a great reference point. For example, Porsche, Dannon, Nestle, Fox TV, Nintendo and Budweiser are all foreign companies.
Lastly, investing and exercising should NOT be all or nothing. Consistent investing in good/bad times is key to long term success. When thunder clouds appear, have the courage to push forward.
Friday, April 9, 2010
Instant Gratification - The "Now" Generation
After last weeks post, a good friend made a very observant comment. He stated, you rarely hear the words,
Considering the world we know live in, this makes sense to a certain extent. Gone are the days of calling your parents to let them know you arrived at your destination. "Not being near a phone" was a good excuse in the '80's. Today? Finding a pay phone is a bigger challenge. We now communicate with each other instantly via cellphones, texting or email.
1 hour photo has morphed into digital photography. 10 minute abs are now 7 minute abs. and movies can now be rented through your TV. Technology has transcended just about everything we do.
Recent statistics reveal cell phones have now penetrated 90% of the American public. Boy, that was fast! I've seen historic reports indicating TV and radio required about 50 years to reach a similar penetration level. As Bob Dylan would sing, "The Times They are a Changing."
Even dieting has joined the generational time warp. Didn't it use to take hard work to lose 5-10 pounds? Since the beginning of time, losing weight has been a knife & fork endeavor. Toss in some daily exercise and you're on your way. Earlier this week, I heard how we could 'supercharge' our diet. "Lose weight faster" they claimed. When does it end? Take a pill before bed and wake up 10 pounds lighter in the morning? Hasn't losing weight and/or toning your body always been hard work? When did it become fun?
Retirement planning is now falling into this mind set as well. Investors are getting a little edgy due to the lost decade (2000-2010). Many baby boomers are now realizing the late '90's wasn't typical as the S&P500 returned double digit returns for five consecutive years. Unfortunately, they starting relying on this type of accelerated growth and didn't feel the need to fund their retirement every year. The last 10 years has has been a wake up call for many and they are now trying to catch up.
Anything worthwhile takes discipline, courage and HARD WORK. This will never change!
Tuesday, April 6, 2010
"Stop Acting Rich..." Part 2
For starters, Stanley emphasizes some very basic points - most of which I agree. As a Financial Advisor, I'll comment on two of the more relevant:
- People are very self conscious and care how they are viewed by others.
- People don't like to compromise.
Statistics show the typical millionaire drives a Toyota or Ford. Pretty shocking to some, but not to the wealthy who drive these reliable cars. My dad use to tell me cars get you from point A to point B. That's it. And, as a bonus, give the car enough time and the value goes to zero!
The affluent tend to invest in assets that appreciate over time. Boats, cars & toys are generally NOT in this category. They're certainly fun to have, but not good investments. If you're trying to build wealth, these items are a disaster to your financial health.
We live in an instant gratification society... "I want it now." Gone are the days of saving up for a big purchase. "Consumption Nation" is an expression that has reflected the purchasing behavior of Americans for several decades. It is reported, most people now carry average credit card balances of $7,500. My radio friend Dave Ramsey is mortified by this statistic. The added expense of living beyond your means is devastating.
I'll be the first to admit, there's nothing wrong with spending money. If you've covered your financial obligations (retirement, children's college expenses, etc.), you deserve to enjoy your hard work. Live large! If you haven't, find the discipline to do the right thing for your financial future.
Monday, March 15, 2010
"Stop Acting Rich..."
In his recent book "Stop Acting Rich... and start living like a real millionaire, " author Thomas J. Stanley, Ph.D. has surpassed his own classic "The Millionaire Next Door." Both books are excellent in my opinion, but the latter adds recent economics to the scenario.
The author makes a clear distinction between being rich and acting rich. He considers the former to be individual/couples with a high net worth, or balance sheet affluent (BA). The latter are people with high current incomes or income affluent (IA). The BA's can withstand pretty much any type of financial scenario and prevail. They also have assets that appreciate over time. The IA's are only as good as their income and often do not have money set aside for future goals. They are only as good as their income.
Stanley makes a great observation early in the book:
One clearly defined theme through out the book? The typical millionaire is not who you may think and their spending habits are vastly different than what you would expect!
Here are some millionaire statistics:
- There are just over 4 million millionaire households in America.
- In 2007, about 2.2 million American seniors passed away. Collectively, the earned more than $2 trillion in income during their lifetimes, yet only 2.6% left behind estates worth more than $1 million.
- The 'glittering' wealthy (rock stars, actors, sports figures) are NOT the typical millionaire.
- Often people who dress and drive as if they are rich are not (most millionaires drive Ford & Toyota vehicles).
- Real millionaires (male) pay about $16 for a haircut at a traditional barbershop.
- Only 5.7% of millionaires paid more than $1,000 for a suite (average price was $482).
- Top 10 clothing stores for male millionaires include: Nordstrom, Macy's, Kohl's, Target, Costco, Dillard's, Brooks Brothers, Gap, WalMart & T.J. Max
- Top 10 clothing stores for women millionaires include: Ann Taylor, Nordstrom, Macy's, Target, T.J. Maxx, Talbots, Gap, Costco, Lord & Taylor & Saks Fifth Avenue.
- Most millionaires live in homes valued between $300,000 - $400,000.
- The medium priced bottle of wine served to guests = $13.09.
- One in nine millionaires wears a Timex watch (often purchased at WalMart).
- The majority of millionaires (70%) have never owned a boat or a yacht, not even a raft.
Lastly, we live in a marketing influenced society. Many products solely exist because of advertising. The author points to Vodka as a great example. The Federal government's definition of vodka is as follows:"Vodka... without distinctive character, aroma, taste of color."
How is it then we have 300 different brands of vodka??? Based on the government's definition - vodka is essentially a commodity & the lowest price should be the end objective. Ahhh... this is where marketing comes into play! "Our brand is #1." "Best in taste tests!" Or the Grey Goose perennial favorite, "Judge for Yourself!"
I'll be the first to admit, I'm not a vodka connoisseur. However, when the product doesn't have an aging process, oak barrels or anything referring to "10 years old," etc., what am I paying for? Marketing & brand recognition is the only way to differentiate the products. You can pay $65 for Grey Goose or purchase Smirnoff for $18.99. Your choice.
Wednesday, March 10, 2010
Roth IRA - Fast Facts for 2010
- Qualified withdrawals of earnings are tax free.
- Contributions can be withdrawn @ any time.
- Contributions are permitted after age 70 1/2.
Roth IRA's may be Suitable for:
- Individuals who do not qualify for Traditional IRA accounts.
- Individuals who anticipate being in a higher tax bracket @ retirement.
- Individuals who plan on leaving an inheritance (stretch IRA).
- Individuals who need the ability to withdraw contributions @ any time.
- Individuals who do not want to be mandated by IRS required minimum distribution rules (RMD). The Roth does not have to be distributed by age 70 1/2.
- Individuals who simply want to compliment their existing retirement savings with a more flexible investment vehicle.
Tax Year Contribution Limits (2010):
- Lessor of $5,000 or 100% of earned income.
- Participants age 50 and older may contribute an additional $1,000.
- Contributions are not tax deductible.
Eligibility Requirements (2010):
For individuals filing as an individual:
- Full contribution allowed for owners with Modified Adjusted Gross Income (MAGI) of less than $105,000.
- Partial, phased-out contributions for MAGI between $105,000 and $120,000.
For account owners filing jointly:
- Full contribution if MAGI is less than $167,000.
- Partial, phased-out contributions for MAGI between $167,000 and $177,000.
Distribution Requirements:
- Distributions are tax and penalty free after account owner reaches age 59 1/2 or the account has been open five years, whichever comes later.
- Early withdrawal penalties of 10% may be waived for certain qualified expenses.
Contribution Deadline (2010):
- April 15, 2011.
- Extensions may be granted for the Armed Forces. Please see the Armed Forces Tax Guide for more details @ irs.gov.
Thursday, March 4, 2010
Tax Season = Retirement Funding
If you don't fund your retirement accounts on a monthly basis, this is a great time to make a lump sum contribution to your IRA account for 2009.
Every $1,000 contribution will save an individual in a 25% tax bracket $250. So, should you be one of the unfortunate soles who will owe money this year... or simply want a bigger refund... adding to your retirement nest egg is beneficial. It helps your current tax situation AND provides for your future well being. A win/win situation! Each person can invest $5,000 and individuals 50+ can contribute a total of $6,000 ($1,000 catch up provision).
Another opportunity worth considering? Use your tax refund this year to fund your IRA account for 2010. Why wait until March/April of next year? Markets go up more than they go down (contrary to recent popular belief!) and investing @ the beginning of each year allows for more compound growth. Put time on your side!
Friday, February 19, 2010
Living The Dream
I've been posting a weekly blog now for just about a year and have covered financial topics with universal appeal.
Having just returned from skiing in Winter Park, Colorado, I can truly say, life is good! It's amazing how vacations allow you to relax, reflect and simply enjoy life.
Having essentially been born on skis, I've had the good fortunate of skiing most of my life. My travels have taken me to several continents and most of our beautiful western mountain ranges... Rockies, Wasatch, Sierra Nevadas & Grand Tetons.
The humbling nature of the mountains is something I yearn for every year. So, my annual ski pilgrimage is part of my budget. The down time is always enjoyable & holistic in nature. It allows me to cleanse my soul and refocus my energy.
Personally, I'd love to take more than one ski vacation each year. The balancing act though of living in the present and planning for the future takes priority. So, with other goals to consider; retirement planning being one... one ski vacation per year will have to suffice.
Monday, February 1, 2010
Roth IRA Conversions 2010
Thursday, January 28, 2010
Retirement Planning 101
Getting Started: How much should I be saving? How much will I need? Will socking away 5% of my pay get me the hammock on the beach? Tough to tell. Whether you are working on your business plan, personal goals or a retirement dream... everything starts with a plan! Put it in writing.
Author Stephen Covey of the popular "7 Habits of Highly Effective People", has it right when he says "Begin with the end in mind." Basically, you have to know the end objective. One of my favorite expressions comes to mind... 'Without a destination, you're probably going to get lost!' Similar to driving a car, we simply don't pull out of the driveway and figure out where we're going an hour later. Retirement planning shouldn't be any different.
Don't be too Conservative: Some investors seem to think their retirement money is sacred and should never be put at risk. This is understandable and true to a certain extent. But, everyone needs some growth to simply outpace the rate of inflation. Some amount of risk is required.
Parking your retirement dollars in a money market account is too conservative. You will not reach your goal with little or no growth. Today's money market accounts are paying around 1%. If we follow "Rule of 72" it will take 72 years to double your money (72/1)! Repeat... 72 years! A well-diversified investment of mutual funds earning 8% over time will require 9 years (72/8). Your principal will vary year-by-year, but you are outpacing the rate of inflation which historically has averaged 3.5% over the last 20 years.
Diversification: Cash/bonds/stocks/real estate/commodities should all be considered when creating a well-diversified portfolio. The low correlation between each group allows for higher returns and less volatility over time. The idea of having 5 different mutual funds does not mean you are well-diversified. If the funds have similar holdings, they will move up/down in tandem. Selecting the percentages (%) of each one for your situation depends upon your risk tolerance, investment experience and time frame.
Should you require guidance in getting started, creating/reviewing a retirement plan or reviewing your current asset allocations, contact your financial advisor.
Remember...... "Begin with the end in mind."
Tuesday, January 19, 2010
Alternative Investments
Traditional investments are generally considered to be cash, bonds & stocks. By definition then, Alternative investments are everything else. This would include; real estate, commodities (gold, oil, copper, etc.), hedge funds, private equity, wine, art, etc. However, as time evolves, several of these alternative products are now becoming more common.
There was a time when 401k, 403b and 457 plans would never offer a real estate option. Several plans now offer real estate choices in the form of mutual funds or exchange traded funds (ETF). In addition, I'm hearing of more corporations offering commodity investments as well. Considering these same companies cut or eliminated pensions plans, I guess offering you, the valued employee, good choices for your retirement is the LEAST they could do!
The simple fact remains: Mutual funds, or ETF's, represent managed money. For a small fee, you pay a Portfolio Manager to watch your investments and report to you on a quarterly basis. His full-time job is to manage a collective pool of money! If we assume a typical investment charges 1.5% for operating expenses, a $50,000 investment would dictate a $500 annual fee. You could certainly manage your own portfolio of wines, gold bullion, forest land, real estate, etc., but you are going to do a LOT of work to stay on top of your investments.
Your time and energy alone will probably require more than a $500 expense on your part. How you value your time... $$$... is another consideration. But, the shear expense of researching, attending meetings, legal expenses, etc. will probably surpass $500 each year.
Lastly, liquidity should be a vital concern. Everyone has emergencies from time-to-time and has to access money beyond their rainy day account. Cash/bonds/stocks can be liquidated the turned into cash often the same day. This cannot be said for real estate, wine, fine art, etc. Months are often required to buy & sell these assets and you have little control over the time frame. In the last couple of years, real estate is a prime example. How many of us know friends who sold a home and waited 9 months or more to complete the sale?
Monday, January 11, 2010
Market Predictions for 2010
It's amazing how everyone has an opinion and everyone is the expert. Oddly, some will be correct and many will be dead wrong. But, they will still make predictions every year!
What do I think will happen in the capital markets in 2010?
I HAVE ABSOLUTELY NO IDEA!
One thing I do know for sure though, asset allocation does work and should be a part of every one's portfolio. Conventional wisdom states cash/bonds/stocks/real estate & commodities should be included in every ones portfolio. Your allocations will vary based on goals & risk tolerance.
Similar to a baseball team, you should have someone at each position. After all, if everyone is playing first base and the ball gets hit to center field, you missed the action! This isn't to say you couldn't shift the left fielder a little towards center or move the third baseman in just in case there's a bunt.
Matter of fact, this could be a good strategy for 2010. Volatility was running wild in both 2008 and 2009. Unfortunately, the downward pressure of 2008 left people queasy. Along came 2009 with upside volatility and everyone felt better.
So, if we're back to some sort of equilibrium point in the capital markets, what comes next? Once again; I don't know, but I think quality of earnings will be a huge factor this year. Predictable, high quality earnings from large companies with a history of solid earnings & dividends should be rewarded this year. In the mutual fund world, this means large cap domestic equity funds should benefit.
International/emerging market exposure would have to be considered a good investment class as well. The weak US dollar will continue to plague our nation until the budget deficit is addressed. Unfortunately, correcting this issue will take years. I'm certain the U.S. dollar will rally from time-to-time simply based on news flow, but this will probably be short lived. Competing against currencies such as the Australian, New Zealand & Canadian dollar will prove challenging.
While our gross domestic product (GDP) struggles to show positive growth, several emerging market countries are showing GDP growth of 5%-8% per year. Some countries are simply in better financial shape than we are due to import/export balances. The US continues to import more than we export, so our trade balance is never favorable. Too many people consuming products not readily available in our country is a problem.
So, increasing your international and/or emerging market equity exposure would seem prudent. Not only should this enhance your long-term performance, it should lower your portfolio risk or volatility due to the lower correlation with US equities.