HONEST FINANCIAL ADVICE

Real Inflation

2011-04-26T14:19:00.000-04:00

Information Overload

2011-03-31T08:57:00.004-04:00

In the day & age of "24/7" news flow, a good plan can get clouded by bad media. With slogans of "We report it first" and "Breaking News," everyone wants to glamorize current events and sell advertising space. If this strategy was such a great idea, Al Gore would have been President by winning Florida a few years ago!

Unfortunately, all of this can be hazardous to your wealth!

Don't get caught up in the story de jour. News will ebb & flow on a daily basis. Stocks will have good/bad quarters. And, Wall Street will continue to climb the proverbial 'wall of worry'.

De-clutter your life and reduce news flow via television, radio and newspapers. Anything pertinent to your health/wealth/daily activities will be heard during your morning commute on the radio or discussed around the water cooler.

For many of us, this may be a tough this to change. We're creatures of pattern and tend to fill our day with repetition. However, if you could survive a few days of change, I think you'll find your day is more relaxing and peaceful.

Change can be a good thing!!!

Ages & Life Stages

2011-02-02T16:47:00.004-05:00

Retirement planning has always centered around age. A 40 year old would often invest "100 minus their age" in equities. This rule of thumb for investing is still practiced today, but is certainly evolving. (In our example, 100-40 = 60% in stocks. The remaining allocation can be disbursed amongst bonds, real estate and alternative investments.)

This is all being challenged as American demographics are changing. Gone are the days where people married in the 20's, bought houses in their 30's (don't forget the white picket fence!) and had 2.1 kids. Recent reports indicate marriages have decreased 3.2% since 2000. Fathers 50+ are more common place. And, the biggest increase (%) in demographic age groups is the 100+ seniors... aka 'Centurion's'.

Just last week, we learned of the passing of 114 year young Eunice Sanborn. She was considered to be the world's oldest person by Guinness Records! No worries... triathlete and Sister Madonna Buder appears to be on her way to 100 and breaking a few records along the way (see above)!

What does this mean for retirement planning? Well, a number of things have changed. I've often penned my thoughts on limited availability of pensions. Individuals now have to provide for their own retirement. Living longer may require you to work longer. If Social Security keeps increasing the age for maximum benefit payments, there's a reason! And, being more aggressive in your investments may be required. Maybe "110 minus your age" should become the norm?

For many Americans already behind in retirement planning, a peddle-to-the-metal approach is often viewed as appropriate. Financial Advisors... like myself... are sometimes deemed to have a direct connection to Wall Street and thus will recognize when to push and when to sit in cash. Unfortunately, a short review of Financial Planning 101 will reveal this type of strategy never works. It involves market timing AND requires flawless executing on when to exit the capital markets and when to get back in. Getting both correct has probably has the same odds of winning Powerball. Basically, they're not in your favor!

A better approach today may be asset Asset Allocation Models or Target Return Funds. Both are tied into your risk tolerance and prospective retirement date. For example, a 2020 fund will offer a diversified portfolio and become more conservative as you approach your date. However, as previously mentioned, this may now be adjustment based on your lifestyle, time frame, career and current savings. A more aggressive investor may choose a 2040 portfolio simply because they plan on working longer, have longevity in their family and simply want to be more growth oriented.

Everyone is different when it comes to investing. Don't get painted into a box, but rather seek the advice of a Financial professional to determine your ideal retirement portfolio.

The Silent Inflation

2011-01-27T14:17:00.003-05:00

Inflation is hazardous to your wealth! Our government is doing it's best to avoid a deflationary scenario - and for good reason - but, the inflation NOT being acknowledged is going to be problematic at some point.

The consumer price index (CPI) continues to lead us astray. If we consider the source, we should question the #'s. The government providing the data is akin to the 'fox in the hen house.' Report the actual # and they are forced to increase both social security and short term borrowing rates. With an exploding budget deficit, I'm confident real #'s won't be reported anytime soon.

The United Nations reported this week food prices are up dramatically from a year earlier. And, they are causing riots in certain parts of the world. Commodity prices increased 30% last year and continue to move higher in early 2011.

Many of us don't remember the 1970's, but history often repeats itself. If we go back in time, we can see the biggest asset winner during the '70's was commodities. Inflationary pressures hurt stocks & bonds, but oil, natural gas, gold, silver, wheat, cotton, etc. all skyrocketed in value during the decade. You can argue we are now in a similar situation.

The reported #'s from Washington continue to hover around 2% per year. This is both misleading and inaccurate. We often hear, 'if we discount food and energy' from the reported CPI due to volatility... if both categories came back to earth in due time, this may be acceptable. However, it's not very likely - nor realistic.

Last week, Sherman Williams announced paint increases of 8%. Kimberly Clark announced a 5% increase on certain paper products and McDonald's announced they will have to pass along higher food prices to consumers in the near future.

The American consumer is certainly capable of handling some price increases. The difficulty arises when prices rise faster than salaries. Many companies are opting to reduce product size and charge the same price. A back door kind of inflation... less stuff, same price. This is why your favorite coffee cake snack is now the size of a quarter!

Financial Resolutions 2011

2011-01-05T08:33:00.005-05:00

Yup, we've been here before! Turn the calendar and everything changes. There's something magical about adding '11 to the date. We all resolve to lose weight, eat better and exercise more. For many of us, we'll follow through on these resolutions. For others, it's simply a thought that fades in a few weeks.

Let's try something new this year... financial resolutions! They're not painful. They don't make you sweat. And, they may actually improve your financial well being over time!

Let's get started:

1. Get your budget in order and STICK to it. As the 'credit card nation', we're good at buying things we can't afford. Unless you can pay off your monthly credit card bills in full with income - hold off on your purchase. As my friend's dad always says... "Make do."

2. Get your FREE credit report and make sure it's accurate. Almost 2/3 of Americans don't check their credit. Don't be one of them. Go to AnnualCreditScore.com and print your free copy.

3. Increase retirement savings! The days of a pension are over for most people. Whether you have a 401k plan or an IRA account, increase your investments this year. Time & growth are your biggest assets.

4. Get some exercise! Not for the reasons you think though. Healthier individuals have lower medical bills and are more productive @ work. Several studies have confirmed this fact. So, get moving! Walk, bike, run, ski, rollerblade, etc.... or go to the gym!!!

Happy New Year!!!

Holiday Book List 2010

2010-12-13T08:53:00.003-05:00

Each year, I get a few requests for book recommendations. Sometimes it's with a current theme in mind. Other times, it's simply a good book to read to better understand the financial markets.

Let's face it... with a dwindling supply of companies offering pensions these days, understanding your investments is a key component to your retirement. I'm flattered many people don't want to put the time, effort and energy into learning, so I will always have a job. Thank you! However, I do encourage everyone to learn about the capital markets. What was that commercial from years ago, "An educated consumer is our best customer!" I couldn't agree more.

So that being said, this year, I'm simply going to revert back to my holiday book list from 2009 and add a few more selections. As always, they are business AND non-business.

New additions for 2010 would include:

1. Coming Back Strong - Unleashing the Hidden Power of Adversity - Drew Brees

2. S*it My Dad Says - Justin Halpern

3. Decision Points - George W. Bush

Happy Holidays!!!

Changing Times...

2010-12-10T15:47:00.007-05:00

Evolution is a funny thing. It's generally considered good. Indoor plumbing, baseboard heat, automobile and of course the internet are a few great examples. If it wasn't for the latter, I wouldn't be sharing my thoughts with you @ the moment.

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!!

Rethinking Daily Life

2010-10-06T08:57:00.009-04:00

Andy Rooney of 60 Minutes has a great approach to his journalism. It's simple, pure and direct. Everyday items are looked at with his unique perspective.

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!

Moral Dilemma - Where Did We Go Wrong?

2010-08-27T09:03:00.006-04:00

What happened to personal responsibility?

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.

The Killer called Inflation

2010-08-03T11:20:00.006-04:00

"Inflation is as frightening as a robber and as dangerous as a hit man."

Ronald Reagan - 40th President of the United States

Good retirement planning can be crushed by the unknown... inflation. Recent years have shown benign, if not deflationary figures. However, since 1980, inflation has averaged about 3% per year.

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.

George M. Steinbrenner (7/4/1930 - 7/13/2010)

2010-07-14T16:51:00.007-04:00

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!!!

World Equity Markets 2010

2010-07-12T08:43:00.004-04:00

Here are some statistics for world equity markets through July 12, 2010.

(Indexes are based on local currencies. Due to holidays and time zone zones differentials, the most recent close is not necessarily that of July 12, 2010).

Amsterdam (AEX) -3.25%

Athens (General) -30.44%

Bombay (Sensitive) +2.11%

Buenos Aires (Merval) -1.35%

Caracas (General) +19.05%

Copenhagen (OMX20) +20.76%

EuroSTOXX 50 (SXSE) -9.57%

Jakarta (Composite) +16.16%

London (FT-SE-100) -5.17%

Madrid (IBEX35) -15.18%

Moscow RTS -5.50%

Paris CAC -9.70%

Santiago (Selective) +16.74%

Shanghai (Composite) -24.60%

Stockholm (OMXS) +6.90%

Sydney (ASX200) -9.74%

Tokyo (Nikkei 225) -9.11%

Toronto (TSX) - 1.50%

Wellington (NZSE-50) -6.95%

Zurich (Swiss) -5.12%

Gary Coleman 1968-2010

2010-06-16T17:43:00.008-04:00

"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.

British Petroleum (BP)

2010-06-03T11:20:00.005-04:00

Okay, let's jump right into the uncharted waters (sorry for the pun) and discuss British Petroleum (BP). This is center stage these days and let's face it... there are numerous issues at hand.

The environment is number one. The delicate balance between the ecosystem and the gulf coast region may be forever changed. Wild life, shorelines, jobs and all derivative related issues will be effected (ie. recreational activities, gas prices, etc.) for years to come.

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.

* 20,000+ - Number of government & private workers cleaning up coastline(s).

* 1,900+ - Vessels, aircraft, etc. involved in containment and cleanup of oil.

* 13.8 million - Gallons of oil/water recovered.

* 120+ - Controlled burns to reduce/eliminate oil from water.

* 993,000 - Gallons of chemicals used to treat contamination.

We may have a long road ahead of us. I just hope BP and our government have the manpower and financial resources to complete the job. BP may simply run out of money and at some point be forced into bankruptcy (they've allegedly already spent $1 billion on cleanup efforts). I hope this doesn't happen, but depending on the magnitude of what's to come, it's certainly possible.

US Stock Market Statistics

2010-05-20T15:24:00.004-04:00

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.

Greece: Cradle to Grave

2010-05-05T09:23:00.007-04:00

The Hellenic Republic, also known as Greece, has fallen to new lows in economic reality. The largely socialist country credited for starting the Olympics is now realizing entitlement programs and the 'better of the nation' mentality - doesn't work monetarily.

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.

Without detailing current events - economic bailout, strikes, protests, etc. - the bigger picture may pertain to it's survival in the Euro zone and the Euro single currency.

Let's admit the obvious, having partners in any business endeavor is difficult. Greece is currently 1 of 16 nations comprising the European single currency ("Euro"). Making its debut in 1999, Greece qualified to join the Euro in 2000. Although they only represent about 4% of Euro zone GDP, their financial woes are now having repercussions throughout Europe & the world.

German Chancellor, Angela Merkel, has been a vocal critic of a Greek bailout package. Only recently has she agreed to an aid package with strict Euro guidelines going forward. Merkel has been calling for the EU treaties to be re-opened to rewrite the rules.

"The Germans are really on their own there" said a European Diplomat.

I may be on my own in making this prediction: The Euro will disappear in the future. It may not be in our lifetime, but significant changes are inevitable. It is far too difficult having one partner with political, economic and cultural differences, yet alone 16 nations. Over time, we'll come to admire countries like England and Switzerland for their stubborn pride in not relinquishing the Pound Sterling and Swiss Franc in 1999.

Financial Fitness 101

2010-04-15T14:43:00.007-04:00

We all know the drill. Go to the gym several times per week, do the same exercises and make little or no progress. How many of us have been in this situation? This is why cross training is so important. Different exercises give you better results.

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.

Many of you have heard my baseball analogy in the past. For those of you, I apologize if I'm repeating myself. If we knew where the batter was going to hit the ball, we put everyone in that position. Loading up on 9 players in left field sounds good if you're dealing with a pull hitter. But, should the ball go to any other position, you have a problem. You missed the action.

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.

Instant Gratification - The "Now" Generation

2010-04-09T12:22:00.012-04:00

After last weeks post, a good friend made a very observant comment. He stated, you rarely hear the words,

"This will take hard work, but will be worth it in the end."

He makes an excellent point. The "Now" generation, as I often call it, thrives on instant gratification. Hard work is perceived on a much shorter time horizon and results are expected sooner rather than later.

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!

"Stop Acting Rich..." Part 2

2010-04-06T15:15:00.007-04:00

A couple of weeks ago, I posted a blog on the excellent book, "Stop Acting Rich... and Start Living Like a Real Millionaire" by Thomas J. Stanley. Now that a few weeks have passed, a little more reflection is in order.

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.

I'm fond of saying, "Perception is reality." Driving around in a fancy sports car doesn't make you rich. However, today's younger generation(s) will see this as a sign of affluence. "He must be rich... look @ that car!" Unfortunately, a great deal of these people fall into the category of "Big hat, no cattle." The author is quick to point out the individual may not have $100 to his/her name, but they look good!

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.

"Stop Acting Rich..."

2010-03-15T12:28:00.010-04:00

"I spent a lot of my money on booze, birds and fast cars;

the rest I just squandered"

George Best

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:

"Proprietors of small businesses, the segment I estimate to contain the largest number of millionaires, are ranked fifth or third from the bottom on a seven-point scale of status characteristics. On the other hand, one can be very upper middle class and have a level of net worth nowhere near seven figures... It is my belief that the number of households in America that are interested in looking wealthy is far greater than the number that are interested in being wealthy."

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.

Roth IRA - Fast Facts for 2010

2010-03-10T08:00:00.004-05:00

Many Financial Advisors will agree, the Roth IRA may be the single best retirement vehicle available to the individual investor. Here are the facts:

Key Features:

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.

Tax Season = Retirement Funding

2010-03-04T10:07:00.004-05:00

Every year @ this time, individuals scramble to get their taxes filed before the April 15th deadline. A large percentage of you will get refunds while many self-employed individuals may owe a few dollars.

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).

Should you be lucky enough to qualify for the Roth IRA... there are income restrictions... this may be the best option of all. You won't get to lower your income taxes for 2009, but the tax free growth is a huge gift. Our country's current budget deficit isn't going anyway anytime soon and the likelihood of higher taxes in the future is inevitable. Everyone should have a Roth IRA as part of their retirement nest egg.

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!

Call your Accountant and/or Certified Financial Planner (CFP) to learn more.

Living The Dream

2010-02-19T15:56:00.009-05:00

I've been posting a weekly blog now for just about a year and have covered financial topics with universal appeal.

This week, I'll try something a little different. I'll briefly discuss myself! Believe it or not, I do follow my own financial advice!

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.

To my friends Anthony & Sal who have shared many a journey with me, until next year... "The Dream Lives on!"

Roth IRA Conversions 2010

2010-02-01T16:11:00.005-05:00

The income limitations and filing status requirements for Roth IRA conversions are eliminated in 2010. This is great news for many investors. However, before converting your Traditional IRA account, make sure the option is right for you!

Because there is no 'one size fits all' analysis, everyone should consider their personal goals, financial situation and tax bracket.

Here are a few reasons to consider a conversion:

* Long time frame before needing the money.

* Able to pay the tax with funds outside the IRA.

* Expect to be in a higher tax bracket in the future.

*Want to have both tax-free and tax-deferred funds for retirement needs.

*Don't need the funds to live on and want to leave you beneficiaries an income-tax free inheritance.

Reasons NOT to consider conversion:

* You will need the funds now or in the future for your own retirement.

* Have no outside assets to pay the conversion tax.

*Expect to be in the same or lower tax bracket in the future.

*If charity is beneficiary, they will receive the money tax-free anyway.

*Adverse to paying taxes sooner than later.

* You don't mind if your heirs pay your taxes.

After personally analyzing several situations, there are some ideal scenarios for converting for IRA account(s).

1. Individuals who feel they will not need the money in their lifetime should seriously consider converting for estate planning purposes. Their legacy will provide tax free income benefits to their beneficiaries.

2. Individuals under the age of 35. A growth oriented portfolio after conversion is pretty much required to recoup both income taxes paid at conversion and allow for future tax free growth. Younger investors have longer time horizons and more risk tolerance to allow time to work for them.

Before doing anything, consult with your Financial Advisor to see if a Roth IRA conversion is right for you!

Retirement Planning 101

2010-01-28T11:02:00.004-05:00

As most of my business is centered around retirement planning, I feel obligated to post more on this topic than any other subject. We live in an era where company pensions have been replaced by 401k plans. While this is great from a company perspective, it puts the burden on you to save for your future AND make smart investment decisions.

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."

Alternative Investments

2010-01-19T14:05:00.009-05:00

The market volatility of 2008 & 2009 have investors questioning their asset allocation. What should go into my retirement plan to enhance long-term returns and yet reduce volatility?

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!

Many investors weave Robert Frost's "The Road Not Taken" into literal meaning. Going off the beaten path is their road to riches. This may be true in some cases. But, it takes a LOT of work. Let me repeat that last part.... a LOT of work!

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?

Alternative investments have a place in everybody's portfolio. How they get into the asset mix is your choice.

Market Predictions for 2010

2010-01-11T16:19:00.006-05:00

As another year begins, all the market pundits are actively making their predictions for 2010. "International is the place to be... "stick with gold"... "buy tech"... "municipal bonds are attractive due to higher taxes on the horizon."

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.

Merry Christmas...

2009-12-24T15:25:00.002-05:00

In the old days, it was not called the Holiday Season; the Christians called it 'Christmas' and went to church; the Jews called it 'Hanukkah' and went to synagogue; the atheists went to parties and drank. People passing each other on the street would say 'Merry Christmas!' or 'Happy Hanukkah!' or (to the atheists) 'Look out for the wall!'

~Dave Barry ~ "Christmas Shopping: A Survivor's Guide"

Tiger Woods - Prenuptial Agreement

2009-12-09T09:38:00.007-05:00

Everything is negotiable. Even prenuptial agreements.

This week, Investment News reported that Tiger Woods wife, Elin Nordegren, was renegotiating her multi-million dollar prenuptial agreement. According to published reports, the current arrangement requires the couple to be married for at least 10 years before Ms. Nordegren could collect $20 million.

The updated version appears to have a $5 million immediate payment. And, there could be an additional $55 million added to the overall agreement.

Perhaps I'm a little naive. I understand the benefits of prenuptial agreements for estate planning purposes. However, a young, vibrant, couple shouldn't be addressing financial matters as it pertains to their marriage. There are bigger issues to address.

Yes, I understand individuals of this magnitude have to protect their brand name and earnings potential. The brand name has already been tarnished, so perhaps just the future earnings from golf events are at stake.

Renegotiating terms of a marriage is a bad omen. Their two children may be the glue that makes them stay together - if possible. If there weren't children involved, I'd venture a guess this marriage would be over. Tiger would move on and do his thing. And, as reported by the New York Daily News, Elin would probably retreat to her recently purchased estate in Sweden.

Holiday Book List 2009

2009-12-02T08:51:00.011-05:00

Okay, so it's not the Oprah Book Club, but I cover different topics anyway! So without further delay, here are my favorite finance books and then some for 2009. Some new, some old, and in no particular order!

Where Men Win Glory: The Odyssey of Pat Tillman- Jon Krakauer

The bestselling author of Into the Wild, Into Thin Air, and Under the Banner of Heaven delivers a stunning, eloquent account of a remarkable young man’s haunting journey. Like the men whose epic stories Jon Krakauer has told in his previous bestsellers, Pat Tillman was an irrepressible individualist and iconoclast. In May 2002, Tillman walked away from his $3.6 million NFL contract to enlist in the United States Army. He was deeply troubled by 9/11, and he felt a strong moral obligation to join the fight against al-Qaeda and the Taliban. Two years later, he died on a desolate hillside in southeastern Afghanistan.

Zen In The Markets - Edward Allen Toppel

A veteran trader takes a Zen approach to the stock market, applying fundamental principles of Zen Buddhism in place of traditional economic thought and encouraging investors to put egos aside and listen to the marketplace in a tested method for success.

Market Wizards: Interviews with Top Traders - Jack Schwager

How do the world’s top traders make millions of dollars in the markets – sometimes in a matter of only weeks or even days? That’s precisely the question Jack Schwager was trying to answer when he interviewed 17 superstar money-makers including Richard Dennis, Paul Tudor Jones, Ed Seykota, Marty Schwartz, Tom Baldwin and others. After reading this best-selling book, you’ll know what ingredients enable these top traders to consistently work their financial magic in the markets while so many others walk away losers. One of the top-selling trading books of all-time!

The Greatest Trade Ever - Gregory Zuckerman

“How Paulson and a handful of contrarian investors pulled off this once-in-a-lifetime coup is the subject of The Greatest Trade Ever ... a fascinating and believable counter-narrative to the growing pile of books recounting the disastrous mistakes made by many of the supposedly smartest minds on Wall Street. It is also a surprisingly dramatic work...In The Greatest Trade Ever, Zuckerman skillfully shows how Paulson and a few cohorts anticipated a disaster and figured out a way to profit.”--BusinessWeek

Rich Dad, Poor Dad - Robert Kiyosaki

Anyone stuck in the rat-race of living paycheck to paycheck, enslaved by the house mortgage and bills, will appreciate this breath of fresh air. Learn about the methods that have created more than a few millionaires. This is the first abridged miniature edition of Rich Dad Poor Dad. The full-length edition has sold millions as a New York Times bestseller. As proven by the runaway success of The Secret and like titles, changing one’s thinking to influence one’s fortune sells big, and forms the basis of rich dad’s advice. Learn to think like a rich dad and let your money work for you!

Who Moved My Cheese - Spencer Johnson & Kenneth Blanchard

Change can be a blessing or a curse, depending on your perspective. The message of Who Moved My Cheese? is that all can come to see it as a blessing, if they understand the nature of cheese and the role it plays in their lives.

Who Moved My Cheese? is a parable that takes place in a maze. Four beings live in that maze: Sniff and Scurry are mice--nonanalytical and nonjudgmental, they just want cheese and are willing to do whatever it takes to get it. Hem and Haw are "littlepeople," mouse-size humans who have an entirely different relationship with cheese. It's not just sustenance to them; it's their self-image. Their lives and belief systems are built around the cheese they've found. Most of us reading the story will see the cheese as something related to our livelihoods--our jobs, our career paths, the industries we work in--although it can stand for anything, from health to relationships.

The point of the story is that we have to be alert to changes in the cheese, and be prepared to go running off in search of new sources of cheese when the cheese we have runs out.

How Charts Can Help You In the Stock Market - William Jiler

As classic and timeless as Graham & Dodd's Security Analysis, William Jiler's How Charts Can Help You in the Stock Market is the must-have primer on technical analysis.

First published in 1962, it was the first book to explain how all investors can use charting to more profitably time both their buys and sells and is globally renowned to this day for helping traders and investors use the tools of technical analysis to increase their profits.
Featuring a new Foreword by the investing experts at Standard & Poor's, this special reprint edition will be an excellent resource for beginners as well as a vital reference for experienced technicians. Technical traders will look to it for:
*Tips for removing the mystery from the use of technical analysis
*Easy-to-understand definitions of technical analysis topics
*Examples and explanations of essential configurations, patterns, and formations

Andy Rooney: 60 Years of Wisdom and Wit - Andy Rooney

Chairs. Neat people. Ugliness. War. Over six decades of intrepid reporting and elegant essays, Andy Rooney has proven a shrewd cultural analyst—unafraid to question the sometimes ridiculous, often surprising facts of our lives. Rooney’s great gift is telling it straight, without a hint of sugar coating, but with more than a grain of truth and humor. His take on America? “It’s just amazing how long this country has been going to hell without ever having got there.” On food? “There’s more dependable mediocrity than there used to be.”

Andy Rooney: 60 Years of Wisdom and Wit brings together the best of more than a half-century of work (including long-out-of-print pieces from his early years) in an unforgettable celebration of one of America’s funniest men. Like Mark Twain, Finley Peter Dunne (Mister Dooley) and Will Rogers, Andy Rooney is a classic chronicler of America, a writer for the ages.

Cyber Monday 2009

2009-11-30T08:41:00.003-05:00

I'm not exactly sure how Cyber Monday came about, but I could venture a guess. Since the Internet boom of the late '90's, the world wide web became main stream America. Retailers simply figured out another way of selling their goods.

We now refer to the savvy companies as 'bricks & clicks' type businesses. Come to think of it, doesn't every company have a website and a store front? Everyone from Target to Sports Authority to Home Depot to WalMart fits the bill. Perhaps the only TRUE online company is Amazon.com. They have a wonderful online presence, a wide variety of merchandise and no traditional bricks & mortar stores.

Retailers are a crafty lot. I'm sure Cyber Monday was a marketing idea that caught on. Someone should get rewarded for their efforts. However, it kind of seems like a Hallmark holiday to me. Plenty of advertisement and conversation, but no significant meaning.

What do I know though? In due time, today may become a national holiday. Stranger things have happened.

SmartPhones... Convenient & Expensive

2009-11-23T13:58:00.007-05:00

Technology is a wonderful thing. We have DVR's to record our favorite shows. We have satellite radio to allow us to hear high quality broadcasts. And, we now have Smartphone- iPhone, Blackberry, Palm & Droid - which allow us to communicate with anyone, anytime and virtually anywhere.

As a Financial Planner, I must admit though, this may not be as great a thing as people think. Yes, the new phones are convenience and offer flexibility. We can talk while we drive (some would argue this is NOT a good thing). Check emails sitting on the beach. And, even use the phone to listen to music, watch movies or get directions (GPS).

All this convenience comes at a price! My late father would surely say, "How did I manage all these years without a smart phone?" Not only do you have to buy a phone. The monthly service fee is the killer. When I last checked, a Blackberry with Verizon service started at $89.99 per month or $1,080 per year before taxes. Ouch! It's bad enough my cable provider charges me just about $1,000 per year. I like annuities that pay me, not cost me!

You can then get killer applications.... or apps... as they are known. They make it even easier to spend money. Starbucks, Gap, Avis, Pizza Hut and eBay all offer customized programs to... dare I say it... increase their bottom line.

Unfortunately, an increase in their sales is generally a decrease in your savings.

Smartphones are a wonderful innovation. They are compact, can increase work productivity and offer the 'cool' factor for some. But, don't kid yourselves... they can be expensive.

Stock Market Volatility 2008-2009

2009-11-20T16:11:00.008-05:00

"It was the best of times, it was the worst of times..."

Charles Dickens

I wonder if Charles Dickens knew how appropriate his quote from 'Tale of Two Cities" would be in describing the stock market volatility of 2008-2009. Last year concluded with the S&P500 losing 22% in Q4. It then continued it's losing ways in Q1 of 2009 and dropped another 11%.

The S&P500 has only experienced two consecutive double digit quarterly decreases in 38 of the past 200 quarters... or just 19% of the time. So, for the lucky soles who managed to pick the end of 2008 as a good starting point, they quickly found themselves down 30+ percent in six (6) short months.

Fortunately, the tide turned in mid-2009 and the S&P500 gained 16% in Q2. It then managed to follow this up with another 16% gain in Q3.

Is this volatility unprecedented? Pretty much. It came close in 1983, but the fact remains in the past 50 years the market has not experienced four (4) consecutive quarters with double digit changes.

Challenging Conventional Asset Allocation

2009-11-16T10:35:00.007-05:00

We are creatures of habit. We tend to do things that are familiar. We eat at the same restaurants. Shop @ the same stores. Drink the same brand of coffee. Have similar daily routines. And, watch the same TV shows.

Investing tends to be the same. We'll invest more domestically than in foreign markets. Is this a smart economic decision or once again a 'familiarity' issue? You can argue your case either way.

However, you can make a pretty good argument for not following the heard. For instance, if you lived in China, Norway, India or Brazil would the local Certified Financial Planner (CFP) recommend you invest 60%-70% of your money in US stocks? I doubt it. The simple answer may simply be invest where the best opportunities lie within your risk tolerance.

Most asset allocation models will have an emphasis on large US based companies. They'll state the benefits of diversification, quality of earnings (GAAP Standards), transparency and multi-national appeal.

MFS Investment Services has a nifty online calculator for determining your asset allocation(see the left margin for calculators and planners). Even if you test conservative, they recommend a 35% exposure to US stocks. If you are aggressive, you can have an 80% exposure. No model has foreign exposure greater than 20%.

I think it's time to challenge conventional wisdom. This may sound contrarian. But, think about it. When is the last time you saw a 401k plan offering a REIT option? How about a commodity fund? Or, maybe even a gold fund? It simply doesn't happen. Yes, things have evolved whereby some plans offer REIT's these days. But, most plans continue to offer the same asset allocations they did 10 years ago.

Times are changing and portfolio management is evolving. Thinking outside the conventional box could lead to greater returns over the long haul with less risk.

Smart Year End Tax Planning

2009-11-11T13:37:00.006-05:00

Year end tax planning makes financial sense. There are several things that can be done every year to save money. All they require is a little planning and execution.

Many accountants have told me over the years, clients will come to them in January or February and ask how to reduce their tax bill. Simple answer: Review your tax situation BEFORE December 31st!

Here are 3 strategies worth considering for 2009:

AMERICAN OPPORTUNITY CREDIT
The IRS has effectively expanded the Hope Credit to assist more families with tuition expenses. Four years of post secondary education are now allowed (formerly two years) offering a maximum tax credit of $2,500 per student.

The full credit is available to individuals whose modified adjusted gross income is $80,000 or less, or $160,000 or less for married couples filing a joint return. The credit is phased out for taxpayers with incomes above these levels. These income limits are higher than under the existing Hope and Lifetime Learning Credits.

RETIREMENT SAVINGS
Have you recently started a new job? If so and you are eligible for your companies 401k plan, you can fund an entire years amount of contributions the next several weeks. Granted, most people will need the money if they were previously unemployed. But, you can front load the contributions up to $16,500 or $22,000 if you are over 50.

CHARITABLE GIVING
This appears to be the last year for taxpayers over the age of 70 1/2 to make donations directly from an IRA account. This is a wonderful opportunity for individuals to donate appreciated assets @ fair market value and not pay income taxes on the distribution.

As the Financial Planning Association is fond of saying, "Planning Pays Off!"

It's All about the Losing Years...

2009-11-03T09:17:00.005-05:00

If 2008 taught us anything at all, it's numbers don't lie and losing money is never fun. The uphill battle to regain losses is always challenging. Losing 30% requires a 43% gain to get back to even. So while 2009 is have been fabulous in it's own right, a 20% gain has not made many investors whole as of yet. It's certainly a great start, but only a step in the right direction.

Hedge funds, college endowments and basically, absolute return portfolios, may have the right idea. Their #1 rule: Don't lose money. Rule #2: Don't forget rule #1! They try very hard to minimize risk and manage the downside. In a good period of time, we can all make money. It's the bad periods that concern them.

Having recently read "How Harvard & Yale Beat the Market" by Matthew Tuttle, I was truly impressed how both Universities manage endowment money and how successful they have been over the years. Some of their investments are not available to the average investor, but how they construct a portfolio to minimize risk certainly can be duplicated. Non-correlated assets with Portfolio Managers that add alpha is the key.

"A manager who limited losses last year goes a huge way to helping investors accumulate wealth over time and meet their long term goals" say Don Phillips of Morningstar Inc. "It's the kind of victory that often goes unnoticed."

The typical mutual fund will have a fair amount of volatility as it moves with the general direction of the market. An absolute return portfolio will try to minimize volatility and seek positive year returns year-after-year.

Let's compare two hypothetical investments of $100,000 and use a 5 year time frame. If Fund A (a typical growth mutual fund) has annualized returns of -4%, +12%, +8%, -12% and +14% and Fund B (absolute return product) has returns of +6%, +8%, +6%, +6% and +4%, who has better annualized returns?

Fund A = 3.6% annualized returns with an ending balance of $116,493.

Fund B = 6% annualized returns with an ending balance of $133,775.

While Fund B never has double digit growth in any one year, it manages to avoid losses and increase overall returns through good risk management.

Secular Bear Markets

2009-10-28T16:07:00.006-04:00

My dad was fond of quoting George Bernard Shaw, 'youth is wasted on the young'. Citing the obvious was sometimes his forte, but doing so with an experienced eye was his talent.

When it comes to investing, youth is not always an asset. How many of today's investors remember the oil embargo of 1974-1975? Or, Black Monday from October 19, 1987? Having some perspective to draw from is a wonderful resource.

The secular bear market we are now experiencing started in March of 2000. It's now 9 years old and going strong. It's nothing new. But, it is frustrating though. At some point, we will eclipse the 12,000-14,000 level on the Dow Jones Industrial Average (DJIA) from 2007.

Older investors may recall the 1966-1982 period of time. The Dow struggled to get over 1,000 and required 16 years to do so. We may be in a similar situation.

This is not to say there are not investment opportunities along the way. Plenty as a matter of fact. During the 16 years from 1965-1982, there were 6 up and 7 down cycles ranging from +75% bull rallies and -45% bear raids. The difficult part of course is to gage when one starts and ends.

It should be noted: Commodities were the best performing asset class from 1970-1979 and gold increased +1,600%.

Time seems to heal all wounds and one day we will surpass 14,000 on the Dow.

The More Things Change.............

2009-10-22T16:28:00.006-04:00

The media is a great source of entertainment. Let's simply call this piece, 'the more things change, the more they remain the same'.

"For better of worse then the U.S. economy probably has to regard the death of equities as a near permanent condition. The old attitude of buying stocks as a cornerstone for one's life savings and retirement has simply disappeared."

Business Week, "The Death of Equities, " August 13, 1979

The Demise of the US Dollar

2009-10-15T09:32:00.005-04:00

The US dollar, as we know it, is dead. There.... I said it. The currency will never disappear, but the 'greenback' will no longer be considered the premier currency in the world. It may maintain its status as the world reserve currency for the foreseeable future. But, this will probably change at some point. China and other countries are already buying more gold and other currencies instead of the US dollar.

The current administrations ability to spend money is driving the dollar into oblivion. Yes, the currency will bounce back from time-to-time. And, we'll hear rhetoric about how 'a weak dollar helps exporters'. But, truth be told, a weak dollar is inflationary... pure & simple.

Oil is settled in dollars and as the dollar falls, a barrel of oil continues to rise. The media will lead you to believe this is due to an economic recovery. This may have some validity. The bigger story though is a weak dollar = higher oil prices = inflation.

Our government informs us inflation is about 2% per year. Does anyone really believe this? The last time I checked bread, milk, fruit & vegetables, prices have almost doubled in the last few years. Even something as simple as a can of tuna fish went from $0.99 to $1.29 (+30%).

Admitting there is high inflation would require the government to raise social security payments. With the current financial state of the system in question, what's the likelihood of the government fessing up to the real rate of inflation? It's like the fox guarding the hen house. It's not going to happen.

A balanced budget is key to monetary policy. With a deficit growing larger by the minute, there is no way the dollar can maintain any resemblance of stability. It's the NZ Kiwi, Australian Dollar, Swiss Franc and to a smaller extent Euro & gold that is gaining in popularity.

The economic power shift is taking place. Throughout history, it was the manufacturing nations that rose to greatness. Spain, France, UK, United States and now China represent the changing of the guard. The key to all of the greatness... manufacturing. Making products at competitive prices is the key to success. Now that the US is a service oriented economy, we no longer have the edge.

We will continue to be a great nation. A symbol of freedom. However, as an economic force, we have handed off the baton.

Financial Musings...

2009-09-29T16:24:00.009-04:00

As the dollar continues to fall and the US budget deficit soars, here are some random thoughts on the US economy, our government, capital markets and traditional financial planning concepts:

The world economic powers by century: 1800's = England; 1900's = USA; 2000's = ? (I'd bet on China).
Why do people tend to invest in their own backyard? Most growth models still recommend an 80/20 split between US and foreign investments. If we lived in Norway, would they recommend 20% Norway, 80% USA?
If individuals are supposed to balance household budgets or risk going bankrupt, shouldn't the US government be held to the same standards?
Why are foreign investments considered riskier than American?
When did "Made In the USA" became a relic?
If 'buy what you know' is a good thing, wouldn't everyone own Sony, Dannon, Toyota, Nokia, Fox Media, Cadbury, etc. (all foreign companies).
Is the US dollar a more stable currency than the Euro, Australian dollar or Swiss Franc?
If individuals were heading west today to stake a claim, pan for gold, etc., would they be as successful as as yesteryear with today's government imposed regulations?
Is inflation in the USA really 2%?
Is the "No Tax Without Representation" slogan coming back into vogue?
Whatever happened to "Less government is good government"?
In terms of age, if "40 is the new 20, " what is the 'new' retirement age?
Is the USA still a capitalistic society?
When did political parties become so divided?
What would happen if the US dollar collapsed?
With reduced levels of corporate debt (aka leverage), what type of returns can be expected for cash, bond & stock investments going forward... 2%, 4%, 6%?
How important is social security in your retirement plan?
Is gold a good investment?

Is the Recession Over???

2009-09-21T09:42:00.003-04:00

Let's jump right into it... what exactly is a recession? By definition, a recession is a slowdown in economic activity. In recent years, some economists have dubbed this as a slowdown in the 'velocity of money'.

Here's a quick example: If it use to take 30 days for money to change hands between the customer/painter/paint supplier... it now takes 45-60 days. Albeit a simple example. This is a slowdown in economic activity or exchange of money.

Now the $10 million dollar question. Is the recession over? It appears to be. Economic data is improving and some Economists, such as Brian Westbury of First Trust Advisers, actually think the economy is stronger than people think.

Retail sales jumped a solid 2.7% in August. This is the largest increase since January 2006. Expectations were for an increase of 2.0%. The "cash-for-clunkers" program added steam to motor vehicle and parts sales, which increased 10.6%, the largest increase since right after 9/11.

Excluding autos, sales advanced 1.1%, above the consensus of +0.4%. But July's retail sales were downwardly revised to -0.2% from -0.1%. Gas station sales rose 5.1%, boosted by higher prices at the pump. Excluding autos and gas stations, sales rebounded 0.6%, its largest gain since February.

Recessions are often tied into your personal situation. So, while #'s are improving, if your household income is still suffering due to less overtime, higher taxes, etc., it's hard to feel elated about an economy that is slowly improving.

Take heart... recessions aren't permanent.

Trading vs Investing

2009-09-17T10:46:00.006-04:00

The volatility of 2008 has many individuals asking is trading rather than investing more appropriate in this market environment? This question has surfaced in the past and is always associated with market volatility & human emotions.

We would all love to have the unique ability to time the markets. Buy low & sell high. It sounds simple enough. This would maximize profits and minimize losses. We all get a hunch now & then and feel we know when to head for the exit signs. We are then faced with a two fold endeavor. Getting the first part right is half the battle. When to get back into the market becomes problematic.

Many individuals bailed in the latter part of 2008. They locked in the losses for the year and remain sitting on the sidelines in 2009. Yes, they avoided the Q1 declines of this year, but most are still waiting for the 'right' time to get back into the game. The S&P500 has now risen 50% since the March lows and 18% since January 1st. Sometimes the angst of not losing money gets trumped by missing a great opportunity.

Most investors should stay fully invested. It may be difficult at times. We're all human and the 24 hour news media provokes emotions. Allocations can be altered to rebalance investments or better align objectives. Liquidating and going to cash is not only extreme in nature, but almost always fatal to your financial plan.

Actively managed mutual funds and privately managed portfolios have full-time Portfolio Managers. Their sole job is manage our money. Let them do their job! They will position the portfolio(s) to maximize objectives and make changes where appropriate. These are not static portfolios that sit tight through good/bad times. Mutual fund activity can be verified through turnover ratios. Simply put, this figure reflects account turnover. Thus, a portfolio with a 40% turnover ratio means 4 of 10 stocks were sold during the calendar year. Value funds tend to have less turnover than growth oriented funds. To see your mutual fund account activity, go to morningstar.com.

It may sound logical to trade your investment account, but prudent investors know that market timing is an extremely difficult game to win. Simply staying invested within your risk tolerance is the key to long term success. Should you feel the urge to trade stocks, use discretionary funds and open a discount brokerage account (i.e. TD Ameritrade).

Top 10 Retirement Planning Mistakes

2009-09-04T10:50:00.003-04:00

It is never too early to start planning your retirement. The IRS allows several convenient ways to provide for your retirement with tax incentives. Most of us have a retirement plan (401k, SEP/IRA, Roth IRA, etc.), but don't always utilize it to it's full potential. Here are the top 10 mistakes that slow down your progress.

Not taking advantage of time - The earlier you start, the better. Time works wonders in a tax deferred or tax free account. Too many people make the mistake of waiting to start a retirement plan. Put time on your side. Once again, the earlier, the better!

Non investing on a regular basis - Many people start to invest and then stop along the way. Investing on a regular basis - monthly or annually - is the key to success. Contributions + long term growth = more $$$.

Not taking full advantage of tax-free retirement vehicles - If you can afford to fund your account to the max, go ahead and do so. In a 401k plan it allows you to deduct more money for tax purposes. In the big picture, it gets more money working for you on a tax-deferred basis.

Not creating a retirement plan - As you're approaching retirement, you need a game plan. Figure out how much $$$ you are going to need on a monthly or yearly basis AND the sources of this income. Look at all of your financial sources.... pensions, social security, IRA's, etc. Some people should consider annuity products if there is a risk of running out of money. A lifetime income benefit may provide peace of mind.

Poor asset allocation - It's amazing how many individuals leave their money in a money market fund because it's 'safe'. This may sound like a logical strategy, but unless you have $2 million dollars in your money market account, you're not going to get to the finishing line. Growth is to the key to outpacing inflation, maintaining purchasing power and building wealth.

Forgetting about your 401k plan - Although most employees take advantage of their company plan, there are a ton of people who don't participate. Most firms have some type of company match and not participating in such a plan is giving away free money. Learn all you can about your company plan and be sure to participate.

Cashing out or borrowing against your retirement accounts - This has been an all too common theme in recent years. The weakened economy has forced people to borrow or cash out retirement plans. This is the kiss of death! This is why emergency funds are a vital part of the financial planning process. IRA's and the like are NOT intended for for short term needs (hence the stiff IRS penalties). Leave them alone and let them grow!

Not considering a Roth IRA account - The government deficit is becoming a huge problem. Tax free growth provided by a Roth IRA could be worth its weight in gold should personal income tax brackets escalate. Should you qualify for a Roth IRA, they should be used as part of your retirement plan.

Relying too heavily on social security - The whole intent of social security is to compliment your other sources of retirement income. The system is financially challenged and the financial impact of social security is diminishing.

Don't rely too much on company stock - MCI Worldcom, Enron, Washington Mutual, etc. Need I say more? While it seems loyal to own your company stock, never have more than a 20% exposure to an individual stock.

The Retirement Dilemna: Mortgage or Not?

2009-08-18T13:30:00.010-04:00

The real estate roller coaster has caused a bit of a dilemma for many individuals approaching retirement. Namely - should I pay off the mortgage before retiring?

Tough question. Let's look @ some recent government statistics before tackling this one

18% of Americans age 65-74 had mortgages in 1992.

32% of Americans age 65-74 had mortgages in 2004.

43 % of Americans age 65-74 had mortgages in 2007.

Average housing debt in 1992 = $24,000.

Average housing debt in 2007 = $69,000.

This is very disheartening. Not only are more Americans taking on debt at older ages, they are borrowing more money as well. As a Financial Advisor, I value the concept, "less debt = less stress."

As you approach retirement, you should strive to reduce monthly expenses. Some retirees may increase their lifestyle(s) through years good planning and disciplined spending. Others will try to do more with less. Curbing expenses is a great place to start. Eliminating your mortgage is probably the single biggest expense in a household.

Some of this discomfort is the result of a turbulent housing market. Individuals who purchased new homes in recent years not only paid higher prices, but borrowed more money as the statistics indicate. These home owners may now find their properties under water (mortgage is higher than the appraised value).

If you had a sizable down payment at the time of your purchase, refinancing may be an option. Rates are currently very low and a fixed rate is a great consideration should it allow you to lower your monthly obligation. However, banks are once again very careful in lending money and the days of easy loans are gone.

Paying off mortgage balances with non-qualified money is a good idea. If you are sitting on CD's, savings account and/or money market accounts, utilizing these funds to pay off existing mortgages makes sense. It is only when clients ask to use retirement assets do I wince. Using retirement funds creates a tax liability and will reduce your income stream in retirement. This may seem like a good idea, but the economics of such a move don't make financial sense.

Tightening your budget or adding extra income to the mix is a better alternative for paying down your mortgage. "Some individuals will simply have to work longer to get themselves in a better financial position to retire, " says Financial Advisor/Accountant Glover Davis of Bronx, NY. "Being realistic about your financial situation is very important."

The NEW Retirement...

2009-08-05T10:51:00.010-04:00

As my friend Colleen use to say to her young daughter each morning, "It's a brand new day." Waking her child with a warm and a loving spirit put both of them in a good state of mind. Each day truly is a new adventure - especially for the young.

When it comes to retirement planning, I wish I could call clients and simply say the same thing. Unfortunately, it won't have the same effect. Even if I had my best smiling voice in overdrive, it won't erase the frustrations investors experienced in 2008. Unless you are truly young, retirement planning is going to take some extra work and/or compromise after last year.

Over the last three (3) decades, Corporate America has changed the rules. Common to our parents and perhaps, grandparents, pensions were a reliable source of retirement income. Not only were they guaranteed for life, companies like GE, Verizon & Wyeth were considered pillars of stability. Couple this with social security and you were all set.

This is no longer the case. I believe recent statistics show only 25% of corporations now offering a pension plan and the numbers are getting smaller every year. With people living longer than ever before, the longevity costs to a corporation are staggering. Some would argue this led to the demise of General Motors as we know it. Thus, corporations are shifting the burden of retirement planning to the individual via 401k or 403b plans.

Once you are near retirement age, there are only three (3) sources of guaranteed income: Pensions, social security and annuities. All of them have inherent risk. But, at present, they're the only vehicles that guarantee lifetime income.

Many investors are now converting 401k plans or IRA accounts to annuities to create their own pension plan. A $500,000 IRA converted to an annuity could provide a 5% income stream. Thus, you are guaranteed at least $25,000 per year for life - this alleviates the fear of running out of money. This annual figure could go up should your underlying account value increase, but the income stream is guaranteed regardless of your account value.

These products aren't for everyone and do come with certain restrictions.

Is it Time for a Roth IRA Conversion?

2009-07-29T11:15:00.006-04:00

When it comes to retirement planning, conventional wisdom has always dictated deferring income until you retire. A lower tax bracket will probably prevail once retired. The bigger question now... does this rule still apply?

Our national debt is expected to surpass $10 trillion this year. A staggering figure! This has many people speculating... me included... that current tax rates are unsustainable. At some point, the IOU's issues all over the world via our US Treasury Department will have to be repaid.

It's great to think this will occur through current income tax collections, estate taxes, capital gains, etc. Unfortunately, I think the math is faulted. Higher taxes will probably be coming in the near future. Further, while the Obama Administration feels higher net income people could foot the bill, the income threshold is already starting to come down. At some point, it will probably be spread across all income levels. I don't think he will have a choice.

If you believe tax rates are going to increase, there are several reasons to consider a Roth IRA conversion:

Investors are not required to do a full conversion. Converting some funds to a Roth IRA gives the investor a hedge against future tax increases.

Investors will pay less in taxes for conversions today than they would have several years ago when their IRA account values may have been higher.

For long-term investors converting during the current bear market, all the gains i the next bull market will grow income-tax free for life.
The Tax Income Prevention and Reconciliation Act of 2005 eliminates the $100,000 income restriction for conversions in 2010 and half the income can be recognized in 2011 with the balance in 2012.
The Pension Protection Act of 2005 says that employer plans can now be converted directly to a Roth IRA and retirement or separation of service is considered a triggering event. If a 401k plan offers in-service withdrawals, those distributions can be converted to a Roth IRA. Plus, beneficiaries of an inherited employer plan can now convert those funds directly to a Roth IRA. (Note: $100,000 income limit still applicable for 2009)

When to refinance?

2009-07-20T15:01:00.007-04:00

How did the mortgage process get so complicated? Products have become so confusing in recent years, it's hard to understand how they actually work. With products like, negative amortization, 7/1 ARM, interest only, reverse mortgage, etc. It's hard to know what you're getting yourself into and what changes will occur at a future date.

Fortunately, it doesn't have to be this difficult! Mortgage rates are near historic lows and good old fashioned fixed mortgage (15 or 30 years) will answer a lot of prayers for first time home buyers and/or individuals looking to refinance.

When it comes to refinancing, there are a number of reasons to do so:

Lower Your Monthly Payment - This is the most common reason for getting a new mortgage. Reducing your interest rate and thus your monthly payment(s) makes good economic sense. Most people will follow the "2%" rule of thumb, but this doesn't always apply. The bigger the mortgage, the less of a change you need to make it worth your while. A big mortgage will change the numbers. For example, a 750,000 mortgage (30 year fixed @ 6%) requires a monthly payment of $4,497. Simply reducing the rate to 5.5% lowers your payment to $4,258 (a savings of $339 per month or $2,863 per year).

Consolidate Debt - Bundling debt into one payment can make sense for some people. Should you carry credit card debt that is not paid in full each month, the interest rate could be significantly higher than that of a mortgage. Some rates are now in the 20% range. I'll be the first to admit putting your HDTV on a mortgage turns a short term purchase into a 30 year commitment. The amount of money you will pay for your television will be significantly higher. But, if monthly cash flow is a concern, this could be a way of reducing monthly expenses. Any savings could be applied to the principal on your mortgage.

Borrow Home Equity - Owning a home is expensive. Sometimes refinancing and using some of your equity allows you to upgrade a kitchen or a bathroom. It would be ideal to pay cash for this renovation, but coming up with $10,000- $50,000 isn't an option. Some parents also use their home to finance kids college or a purchase of a new car. As a Financial Advisor, I recommend against this as college and cars should be separate goals with different time frames. However, using your home to finance these items is becoming more common. Also, the interest can be tax deductible.

Madoff - The Simple Math

2009-07-01T09:29:00.006-04:00

150 - Jail sentence issued to Bernard Madoff on June 29, 2009

1,341 - Number of Madoff customers according to company records.

12 - Recommended prison term in years recommended by Madoff attorney.

109 - Number of nights Madoff spent in jail since pleading guilty in March.

$13 Billion - Estimated net losses suffered by Madoff clients since 1995.

$1.225 Billion - Amount recovered by bankruptcy trustee for Madoff victims.

$188 Million - Cash advances promised to Madoff investors as of June 23.

$973 Million - Losses deemed not covered by Securities Investor Protection Corp. (SIPC).

61727-054 Bernard Madoff federal prison inmate number.

Michael Jackson - The Legend and Financial Disaster

2009-06-29T08:02:00.005-04:00

He truly was a one of a kind. With the passing of Michael Jackson, we now reflect back on the true extent of his talents. Nobody will deny, he may have been the best entertainer of our generation. He will be remembered right along side Elvis Presley and The Beatles.

His financial affairs were a different story. He couldn't budget and didn't seem to have an interest in doing so. His larger than life lifestyle was out of control and resulted in a tumultuous balance sheet. Last minute loans from hedge funds (allegedly at 16%) averted a foreclosure of his Neverlands mansion in California a few years ago. And, his scheduled comeback tour was an ill fated attempt to get out of debt. He was scheduled to perform 50 shows in London and hoped to net $100m. Unfortunately, he owed somewhere around $500m at the time of his death.

If we go back to financial planning 101, it's pretty simple. Spend less than you're making and you'll be in good shape. He must have missed this class. A basic income statement would have been appropriate. Total expenses were running way ahead of income and changes should have been made.

As for estate planning? This should be interesting. Having three children with two different women, I wonder if Michal Jackson had a will? Who will become the guardian of his children? Only time and legal wranglings will tell.

Retirement Planning - Is $1 Million Enough?

2009-06-25T14:54:00.008-04:00

Trying to accumulate $1,000,000 use to be a retirement goal for many Americans. It represented both a sizable amount of money and put you into an elite group. You were now considered a "Millionaire."

Unfortunately, times have changed and the the new question is now: "Is $1 million still enough today?"

Well, to steal a cliche... It depends! Inflation over the years has eroded buying power and everyone has different goals and expectations of what his/her retirement will look like. For some, it will simply be relaxing and going trout fishing. Fortunately for this person, fishing isn't too taxing on the budget. For others, Royal Caribbean easily rolls off the tongue and cruising the world is the dream. This individual will require a whole different budget.

Our parents generation use to rely upon years of company loyalty and thus a pension check. Toss in social security as an income supplement and you were all set. Today's generation of workers are facing a different set of variables. For starters, most people no longer stay with one company their entire career. And, even if the do, it no longer guarantees them a pension.

Tomorrows retiree's will have to rely upon several sources of income to replace their salary. You will have to carefully evaluate your retirement plan and how much annual income you will need to suit your lifestyle. Unfortunately, reality dictates most people spend more time planning dinner than retirement, so for many this will require putting pen to paper.

Let's look @ an example: A couple with a household income of $52,000 will probably seek to replace 75-100% of their income. Assuming the mortgage is paid off and the kids are out of college, doing with less and maintaining your existing lifestyle is feasible. In simple math; less expenses = less required income.

Household income of $52,000 per year equates to roughly $4,000 per month. Assuming no pension, social security and other sources of income will have to suffice. Should social security provide $1,500 per month (simply an estimate), another $2,500 will be required to fill the void. Retirement plans (401k, Traditional IRA, Roth IRA, etc.), annuities (variable and/or fixed), rental income and/or part-part employment are the obvious choices.

The problem comes into play with higher income levels. An individual wishing to maintain a current lifestyle of $120,000 per year will find a different set of challenges. Once again, we'll assume no pension. His/her retirement income will have to be derived from social security and other various sources. Most people in this tax bracket will max out and receive social security benefits just over $2,000 per month (assuming a retirement of 67 years of age). If $10,000 is the magic number per month and social security provides just $2,000 per month, an $8,000 shortfall exists. Where does the remaining income come from???

As a Financial Advisor, I've always said, "I don't care how much you make, tell me how much you can save." For many, these words will be the difference in having an enjoyable retirement and not.

What is a Mutual Fund and Can I Lose All of MY Money???

2009-06-17T15:13:00.008-04:00

There are two questions I am frequently asked when it comes to investing. The first is a general question while the second pertains more to the recent economy and stock market turmoil.

Q: What exactly is a mutual fund?

A: A mutual fund is a professionally managed pool of money. Thousands of investors mail money to a fund company and the collective amount is overseen by a Portfolio Manager. There job is to follow the mutual fund(s) stated objective and purchase stocks, bonds, money market instruments and/or other securities instruments to create a diversified portfolio.

Q: Can I lose all of my money?

A: A mutual fund portfolio consists of hundreds of stocks. To go out of business, a fund would have to witness each and every company in their portfolio file bankruptcy. Should your portfolio own 200 stocks such as Proctor & Gamble, IBM, Verizon, Disney and Exxon Mobile, these companies along with the other 95 holdings would have to go out of business in order for you to lose all of your money.

The best example may pertain to Massachussets Investors Trust Fund (MITTX). Considered to be "America's First Mutual Fund", this equity offering has been in existence since 1924. Not only has it survived the Great Depression, 15 recessions and 6 major wars, it has never missed a dividend payment in it's 85 year history. Through 3/31/09, the fund sports an annualized return of 8.56%. A $1,000 investment in 1924 would now be worth $1,076,307.

Life's Lessons - Plain Vanilla

2009-06-11T14:28:00.004-04:00

Life teaches us many lessons. As a child, I remember my father treating all my friends to ice cream when the Good Humor man came through our neighborhood. After waving down the truck, my dad would order the same flavor ice cream cones. One week it was vanilla and the next chocolate. His reasoning was simple. Everyone received a cone and nobody squabbled over who got what flavor. As he use to say, "keep it simple."

The mortgage business should be so easy. Since 2000, the types of mortgages offered to the general public became a potpourri of financial bliss - or mess. Borrower's didn't understand loan specifics. And, who can blame them with product names such as; interest only, negative amortization, option ARM and 2/28 to name a few. Yes, you can blame the lenders for steering people into ill advised products. But, personal responsibility should always be the bottom line. If you don't understand something, ask more questions, but don't sign on the dotted line until you feel comfortable.

Stevie Wonder could have seen this financial mess coming. Many borrower's were simply blinded by greed and the right to own a property at any cost. This seemed to be accompanied by little or no money down purchases. What's wrong with the plain vanilla mortgage(s) of our parents generation? Fixed mortgages for 15 or 30 years work great! They're simple to understand and have no future rate increases. You can go to bed each night knowing exactly what your mortgage payment will be for the next 15 or 30 years.

With mortgage rates hovering around historic lows, most properties are now more affordable than they've been in several years. If you can't afford to purchase a home with a fixed rate mortgage, you probably don't have enough of a down payment. Most banks are once again requiring a down payment of 20-25%. This size investment increases the likelihood that you will not walk away from a property when times get tough.

Owning your own home is a wonderful concept, but 'keep it simple'.

Quotes on Success

2009-06-05T14:10:00.009-04:00

"Character is the real foundation of all worthwhile success." John Hays Hammond

"The secret of success is the consistency to pursue." Harry E. Banks

"Happiness consists more in small conveniences or pleasures that occur every day, than in great pieces of good fortune that happen but seldom to a man in the course of his life." Benjamin Franklin

"An uninspiring person believes according to what he achieves. An aspiring person achieves according to what he believes." Sri Chinmoy

"The man or woman who treasures his friends is usually solid golf himself." Marjorie Holmes

"Most barriers to your success are man-made. And most often, you're the man who made them." Frank Tyger

"A handful of patience is worth more than a bushel of brains." Dutch Proverb

"Success is counted sweetest by those who ne're succeed." Emily Dickenson

"The gratification of wealth is not found in mere possession or in lavish expenditure, but in its wise application." Miguel De Cervantes

"Invest in yourself if you have confidence in yourself." William Feather

"Blow your own horn loud. If you succeed, people will forgive your noise; if you fail, they'll forget it." William Feather

"A quick and sound judgment, good common sense, kind feeling, and an instinctive perception of character, in these are the elements of what is called tact, which has so much to do with acceptability and success in life." Charles Simmons

"On the whole, it is patience which makes the final difference between those who succeed or fail in all things. All the greatest people have it in an infinite degree, and among the less, the patient weak ones always conquer the impatient strong." John Ruskin

"Some men see things as they are and ask, 'Why?' I dream things that never were and ask "Why not?' " Robert F. Kennedy

"Success is a journey, not a destination." H. Tom Collard

The International Arena

2009-05-22T08:44:00.009-04:00

Despite what you might as a result of 2008, asset allocation does work. There will be periods of time when you can question the benefits of being diversified amongst different asset classes. But, over time it has proven to work effectively in lowering portfolio risk and increasing returns.

One asset class that should be included in every portfolio is International investing. This can cover stocks & bonds of companies in developed and emerging countries. The former refers to countries such as England, Italy, Spain & France while the latter includes nations such as China, Argentina, India, Korea, etc.

Foreign exposure can be obtained through mutual fund investments in either Global or International funds. Global pertains to investing anywhere in the world - including the USA. International refers to anything outside the USA.

As capitalism, transportation and technology have advanced, many new economic opportunities have arisen and confirmed the concept of Global Village. The world truly is a smaller place. A decade ago, we didn't think of the "BRIC" nations as viable investments choices. Today, Brazil, Russia, India & China are virtually household names in the investment community and are available through various venues. Many Economists feel China will be the economic powerhouse of the next 100 years. Some would argue, it's already happening.

Mutual funds have been a staple for many investors. However, technology has opened the door to other investment alternatives in recent years. One such product is the exchange traded fund or ETF for short. ETF's are similar to mutual funds in many regards. They represent a basket of stocks (or bonds) in a region, country or sector. The key difference is they are traded on various exchanges and thus can be bought or sold during the day. Mutual funds can only be purchased at the end of each day.

To learn more about ETF's, check out iShares and Poweshares. They are both industry pioneers and offer numerous products.

The Magic of Compound Interest

2009-05-13T13:24:00.010-04:00

"The most powerful force in the universe is compound interest."
Albert Einstein

Sometimes you have to step back and look at the big picture. Granted, if you're referring to the stock market, this isn't an easy task. The 24/7 news world we live in forces people to analyze, scrutinize and criticize things on a minute-by-minute basis. Several things though are best left for longer time horizons.

Often considered to be the 9th wonder of the world, compound interest is a magical concept. As defined, compound interest is the interest computed on the sum of an original principal and accrued interest. Very simply, it's the money you make on an investment over time!

For our purpose, we'll use the "Rule of 72" to illustrate. If an individual invests $10,000 and gets an annual return of 5% per year, it will take 14.4 years to double his/her money (72/annual return = amount of years required to double investment). Should the investment be more growth oriented and annualize at 8% per year, your time frame is reduced to 9 years. If we shoot for the stars and get 12% year over several years, you will require a mere 6 years to see your $10,000 investment grow to $20,000.

This concept works at any age, but the younger you are, the better. Recent college graduates make a good case study. They have a plethora of time and ample opportunity. Coming up with any type of lump sum is unlikely, but they can rely upon dollar-cost-averaging. Mutual funds will allow new investors to get started for as little as $100 per month. This may not sound like much, but let's take a closer look.

You can be a millionaire! Recent grads can rely upon employment income to come up with $100 per month. If he/she invests $100 per month at 10% per year for 44 years - a total of $42,800 - they will witness the magic of compound interest and watch their account value grow to $1,000,000 by the age of 65! Should their investment do a little better and make 12% per year on average, they will reach the million dollar mark at the age of 60!

The concept is very simple. The difficult part pertains to discipline. Having the courage & fortitude to stick with something for many years is challenging. There will be turbulent stock markets and investment gurus telling you when to sell & buy. As we should know by now, "It's time in the market, not timing the market" that prevails in the end.

Riding the Stock Market Roller Coaster

2009-05-05T15:49:00.009-04:00

As the global economy continues to weaken due to lower corporate profits, higher unemployment and tight credit markets, the volatility in the stock market(s) should remain with us through 2009.

Last year was the most volatile market in the last two decades. There were 71 trading days in which the S&P500 moved up or down by more than 2%. Remarkably, 28 of those days experienced extreme volatility of 4% or more. By comparison, 2002 had six such days and 1987 experienced seven days. In the 4th quarter of 2008, three days had gains or losses of 9%. This has only happened twice since 1978!

So, volatility (or risk) is here to stay. At least for the foreseeable future as capital markets deleverage and re-evaluate the proper prices for stocks and bonds.

This can be unnerving... even paralyzing at times. But, volatility is a two way street. It can take stocks lower, but can also take stocks significantly higher. Positive annualized gains can often be contributed to a select few days in which markets soared. This is why most gurus and publications will preach 'stay the course'.

Asset Allocation: It is often said there are no free lunches. This is true in the financial world as well. But, there is one huge exception - Asset Allocation. While it doesn't work in every market environment (2008 to be exact), it has proven to work over time. A mixture of non-correlated assets... stocks/bonds/real estate/commodities... will diversify a portfolio and reduce account fluctuations.

Buy Low: Warren Buffet has often said, "Buy when people are fearful and sell when they're greedy." Great advice. However, the average investor will tend to do the opposite. Fear takes over and they make 'emotional' - as opposed to 'practical' - decisions.

A good example of why you should buy instead of sell during troubled times is evidenced in this March/April time frame. The Dow Jones Industrial Average (DJIA) seems to have bottomed in March at 6,500. While it's nearly impossible to predict the bottom in any market, there has been a significant recovery in the last two months. The DJIA is now 8,400 or 29% higher. Individuals who panicked and sold in March are certainly disappointed they didn't have staying power in hindsight. People who had the courage to follow Warren Buffet's advice have been well rewarded.

Rebalance: Portfolios should be rebalanced every now and then. Most experts would agree, once a year is appropriate. Many life cycle funds and asset allocation models have this feature built into the product. They automatically shift assets back to their original targets. If you started with a 60%/40% mixture of stocks and bonds, the account will automatically rebalance should the allocation change to say 70%/30% due to an increasing stock market.

Contrary to popular belief during turbulent times, 'rebalance' doesn't mean going from fully invested to a money market account. This all or nothing approach may seem logical at times, but often results in under performance over time. As fear sets in, this may seem like a logical decision. But, as I outlined above, investors who had the courage to add to their accounts when the DJIA was at 6,500 have outperformed any other asset class in that time frame - including money market accounts.

Emergency Funds

2009-04-22T15:33:00.006-04:00

In last weeks commentary, I discussed "6 Ways to Ruin Your Retirement Plans." In hindsight, I left out one very important item.

Let's call it #7: Emergency Funds (aka 'Rainy Day Money').

We all know about Murphy's Law. Something that can go wrong, will go wrong - sooner or later. Unfortunately, it often comes at a price. If you're fortunate enough to experience a lower end repair, cash flow will cover the expense. However, big ticket items require a different strategy.

Don't get caught in this financial dilemma.

Having emergency funds of 3-6 months of expenses is a cardinal rule when it comes to financial planning. Couples working in different industries can use 3 months as a target it's fairly unlikely they will be unemployed simultaneously. Individuals should shoot for 6 months as they are the solely responsible for household bills.

Since 2008, I've noticed a sea change in client behavior. Individuals and couples have apparently depleted emergency funds for everything from vacations to washing machines. While we could debate what constitutes an emergency? The bigger issue should be getting an emergency fund back in place. Granted, it takes time and discipline to build back up your rainy day account. But, sooner or later, another storm is going to come!

What happens in the meantime? Couples are turning to retirement money for emergencies. The somewhat convenient process of taking premature IRA distributions is becoming a ready source of cash. Unfortunately, it comes at a HUGE expense.

Premature distributions - before the age of 59 1/2 - are taxed and penalized by the Internal Revenue Service (IRS). For example should an individual request $10,000 distribution from their IRA account, the IRS will impose a 10% ($1,000) early withdrawal penalty AND consider the full $10,000 as ordinary income when you file your 1040 tax return at year end. Assuming you are in a 30% tax bracket, this equates to a $4,000 (40%) tax bill at the end of the year.

Let's step back a minute and analyze this from an economic point of view. Everything in life is a compromise, or at least a trade-off. Financial decisions are no different. Would you borrow money at a 40% interest rate AND jeopardize your own retirement? When put this way, I believe most of us would answer 'No'. It's simply too expensive.

So, why do we tap into retirement money when financially pinched? Probably convenience. But, you would be better served to borrow money from a bank or even get a credit card advance should emergency funds not be available. Both come at a significant cost reduction AND don't effect your retirement assets.

At the end of the day, we all strive to make smart financial decisions. Don't let a short term need derail your retirement plans. Make sure you have an emergency fund (aka 'Rainy Day Money').

6 Ways to Ruin Your Retirement Plans

2009-04-16T10:59:00.003-04:00

Longevity is the single greatest advancement in the last 100+ years. Due to medical technology, we are all living longer than ever before. If 60 is the new 40 and 50 the new 30, we have many years of healthy living ahead of us! Should you have the option of retiring at 60 or 65, you could live 30+ years in retirement. For many, this will last longer than your career(s).

Your retirement nest egg is going to be more important than ever. Here are 6 common mistakes to avoid:

Save Little or Nothing - Most people spend more than they make. This is a fact. How do you think the average consumer has $7,000 in unpaid credit card balances? We live under the banner 'consumption nation' and spending is the American way. However, if you want to retire one day, curbing your spending habits and saving more money is going to be imperative. Try and save 10% of your of your annual pay. This may not happen all at once. So, try starting with 4% and gradually increase your savings as you adjust your budget.

Invest too Conservatively - We all know people who invest in money market accounts via their 401k plans or IRA accounts. This is akin to travelling cross country and buying a bicycle for the trip. Yes, you will eventually get to your destination, but boy is it going to take a long time! If you have 10-20 years before retirement, you need growth in your portfolio - a plane, car or motorcycle is a better mode of transportation! If nothing else, you have to outpace the rate of inflation just to maintain your purchasing power. With historic inflation rates averaging 4% per year, today's money market account and CD rates of 2%-3% fail to keep pace.

Ignore Tax Benefits - Tax deferred or tax free growth is a blessing in disguise. Because of compound interest, money will grow faster inside a qualified retirement plan (401k, Traditional IRA, Roth IRA, etc.) than outside. Also, because income tax brackets will probably be increasing in the very near future, do not underestimate the benefits of tax FREE growth offered through a Roth IRA.

Overestimate Portfolio Growth - The days of annual growth ranging from 10%-12% per year are gone. Yes, we may have some bounce back years after 2008. But, because business models are changing (less borrowing, leverage, etc.), companies will grow at slower rates going forward. Keep your expectations realistic.

Ignorant about Investments - When it comes to your investments, ignorance isn't bliss! Owning several mutual funds doesn't guarantee diversification. As a Certified Financial Planner, I've always encouraged clients to learn more about their investments & portfolios. "The more you understand, the easier my job" has been my mantra for over a decade. Having a general understanding of your investments is a must.

Set it & Forget it - Monitoring your portfolio is critically important. This doesn't mean you should check the daily changes, but a quarterly review is certainly warranted. If your mutual fund built it's reputation on a certain portfolio manager calling the shots, make sure the individual is still at the helm. Also, check to see if the fund objectives are still the same. It's easy to say I own the "ABC Fund", but that's the same as saying I own the #8 car in the NASCAR race. If Dale Earnhardt, Jr. is still the driver, you're in great shape. However, if the up & coming college kid is in the driver's seat, it may be time for a change.

Stock Market Historical Facts

2009-04-09T10:35:00.011-04:00

Today, a few historical facts on the United States stock exchanges.

The New Amsterdam Stock exchange started in 1602.

The first form of the stock market in New York started in 1792 with just 24 stock brokers meeting in the Tontine Coffee House on the corner of Wall and Water Streets.

The New York Stock Exchange (NYSE) didn’t start until 1817 when the brokers created the New York Stock & Exchange Board. They rented out 40 Wall Street and chartered a constitution to govern trading practices. There were 24 brokers involved.

The New York Stock Exchange had its first day on which a million shares were exchanged on December 15th, 1886.

Brokers joined the New York Stock Exchange by purchasing seats up until December 31, 2005, when the system switched to annual trading licenses. Before the switch, the highest amount paid for a seat was $4 million on December 1, 2005.

The first female member of the New York Stock Exchange was Muriel Sibert who joined in 1967.

Joseph L. Searles III was the first African American member to join the stock exchange. He joined in 1970.

After October 10th, 1953, there has never been a day on the NYSE where less than a million shares have been traded.

The NYSE’s largest volume day on record is February 27, 2007. Over 4 billion shares were traded on that day.

When there is a 30 percent drop in the market, the NYSE closes down trading for the rest of the day.

The Dow Jones Industrial average began in 1896 by the Dow Jones & Company to track the success of the market on any given day.
There are thirty different companies listed on the Dow Jones Industrial average and the included companies change from time to time.

The NASDAQ stock exchange began in 1971 with a focus on trading OTC stocks. The name is an acronym for National Association of Securities Dealers Automated Quotation.

In 1998, the NASDAQ merged with the American Stock Exchange to create NASDAQ-AMEX. Despite the merger, both exchanges are still held separately.

In 1987, the Dow Jones dropped 22.6 percent. In September of 2008, the Dow Jones dropped by 7 percent.

Three of the five largest losses by percentage in Stock Market history took place in 1929.

The largest loss happened in 1987 and a day in 1899 rounds out the top five list.

The largest single day drop in the Dow Jones average history was on September 29, 2008 when the index fell 777.68 points.

October 13, 2008 was the largest single gain in the Dow Jones average. The index rose 936.42 points.

Yes...Financial Planning can be Boring (but it doesn't have to be)!

2009-03-30T14:24:00.010-04:00

Yes, financial planning can be boring! There... I said it. Although I happen to enjoy the topic and can discuss it for hours, most people find the issues both confusing and once again - boring.

We live in a world of instant gratification. Sad, but true. So, planning for anything several years into the future is going to be a challenge for most people. It is often said, individuals will spend more time planning a vacation then planning for their retirement. Unfortunately, the reality is one will last about a week and the other for 30 years!

It doesn't have to be this way. Planning starts with the first step - as in life. A fairly new concept in the planning world pertains to "Lifestyle Planning". Matching your personal beliefs & goals with your lifestyle. Finding enjoyment in each and every day through yourself and your surroundings is a key component. This reminds me of the old adage, "Wherever you go, there your are." Happiness & fulfillment start with you!

We often turn to financial publications for guidance. However, sometimes it's easier to get inspiration from a non-finance book. Both fiction and non-fiction books will have real life correlations. Sometimes a simple thought gets us to visualize our future goals.

As I read the book "This I Believe - The Personal Philosophies of Remarkable Men and Women" edited by Jay Allison and Dan Gediman, I am drawn to the individual stories and philosophies. The editors challenged the general public to write a few hundred words expressing the core principals that guide their life - their personal credo some would say (some writers are famous, others are not).

Here are a few excerpts:

If I have one operating philosophy about life, it is this: 'Be cool to the pizza delivery dude; it's good luck.'" - Sarah Adams
"I believe in the pursuit of happiness. Not it's attainment, nor its final definition, but its pursuit." - Andrew Sullivan
"I believe that what we often call survival skills is simply creativity at work." - Frank X. Walker
"I've always been an optimist, and I suppose that is rooted in my belief that the power of creativity and intelligence can make the world a better place." - Bill Gates

What's your "This I Believe" statement? Basically, what's important in your life? Use this as a starting point for your financial future. Education, family, love, career, sense of self, integrity & honesty are all good character traits. Remember, the first step is the hardest. You have to crawl before you walk and walk before you run. But, it all starts with the first step.

"The Millionaire Next Door"

2009-03-25T09:05:00.004-04:00

"These people cannot be millionaires! They don't look like millionaires, they don't dress like millionaires, they don't eat like millionaires, they don't act like millionaires - the don't even have millionaire names. Where are the millionaires who look like millionaires?" Bank Trust Manager

Most people have it all wrong when it comes to how you become wealthy in America. The classic book, "The Millionaire Next Door" by Thomas J. Stanley and William D. Danko outlines the common denominators of America's wealthy. For many, it's hard to believe it is seldom inheritance, advanced degrees or even intelligence that builds wealth, but rather hard work, diligent savings and the ability to live below your means.

The seven common denominators amongst the wealthy include:

They live well below their means.

The allocate their time, energy, and money efficiently, in ways conducive to building wealth.

The believe that financial independence is more important than displaying high social status.

Their parents did not provide economic outpatient care.

Their children are economically self-sufficient.

They are proficient in targeting market opportunities.

They chose the right occupation.

Who is the typical American millionaire? Here are some facts:

I am a 57 year old Male, married with 3 children. About 70 percent of us earn 80 percent or more of our household's income.

About one in five of us is retired. About two-thirds of us who are working are self-employed. Interestingly, self-employed people make up less than 20% of the workers in America, but account for two-thirds of the millionaires. Also, three out of four of us who are self-employed consider ourselves to be entrepreneurs. Most of the others are self-employed professionals, such as doctors and accountants.

Many of the types of business we are in could be classified as dull-normal. We are welding contractors, auctioneers, rice farmers, owners of mobile-home parks, pest controllers, coin and stamp dealers and paving contractors.

About half of our wives do not work outside the home. The number one occupation for those wives who do work is teacher.

Most of us us (97%) are homeowners. We live in homes currently valued at an average of $320,000. About half of us have occupied the same home for more than twenty years. Thus, we have enjoyed significant increases in the value of our homes.

We live below our means. We wear inexpensive suits and rive American-made cars. Only a minority of us drive the current-model-year automobile. Only a minority ever lease our motor vehicles.

As a group, we believe that education is extremely important for ourselves, our children, and our grandchildren. We spend heavily for the educations of our offspring.

We are fastidious investors. On average, we invest nearly 20 percent of our household realized income each year. Most of us invest at least 15 percent. Seventy-nine percent of us have at least one account with a brokerage company. But, we make our own decisions.

We hold nearly 20 percent of our household's wealth in transaction securities such as publicly traded stocks and mutual funds. But we rarely sell our equity investments. We hold even more in our pension plans. On average, 21 percent of our household's wealth is in our private businesses.

Most of us have never felt at a disadvantage because we did not receive any inheritance. About 80 percent of us are first-generation affluent.

AIG - Enough is Enough

2009-03-17T10:44:00.013-04:00

I'm a capitalist at heart - always have been, always will be. However, I must admit this AIG news about bonuses being paid to senior management is disturbing.

Most executives have contracts and thus should get paid as per their agreement(s). Plain and simple. Major league baseball players receive their agreed up upon salaries whether they have a good year or not. However, they certainly don't get paid the incentive related compensation for not reaching certain goals (i.e. RBIs, home runs, playoffs, MVP, etc.). But, bonuses, incentives, stock options, etc. should be issued as a reward for a job well done. If AIG wasn't bailed out by the U.S. Government, the company would be bankrupt.

What's with the bonuses at AIG? The company didn't reach the playoffs. They're lucky the US Government bailed them out. The only losers in this whole scenario is the shareholder and the taxpayer. Something is drastically wrong with this scenario. The Board of Directors should have taken a stand and simply put their foot down and said any bonuses and/or incentive packages for 2008 will not be issued. End of story. No questions asked.

President Obama and NY Attorney General Andrew Cuomo are exploring 'legal avenues' as to how to rescind the bonus money. "The whole concept of a performance bonus is oxymoronic when it comes to AIG," Cuomo said. "It's adding insult to injury. Enough is enough."

In Washington, President Obama has similar sentiments. "This is a corporation that finds itself in financial distress due to recklessness and greed. Under these circumstances, it's hard to understand how derivative traders at AIG warranted any bonuses, much less $165 million in extra pay, " Obama said.

"How do they justify this outrage to the taxpayers who are keeping the company afloat?" he demanded.

To put things in perspective, here's some stock market history on AIG. The stock traded as high as $70 in 2007. As of March 16, 2009, the stock is trading at $0.83. So, some quick math reveals a 99% decrease in that time frame. Once again, how does this type of performance warrant bonuses?

American capitalism is alive and well; however, AIG is not one of the shining stars.

Bernard Madoff: The Final Hours

2009-03-11T10:50:00.007-04:00

Bernard Madoff could be facing his final hours of freedom. The disgraced money manager who is responsible for the multi-billion dollar ponzi scheme is apparently going to plead guilty today in a Manhattan District Court to 11 felony counts, including securities fraud & perjury. This could result in a 150 year jail sentence.

Wearing a bullet pro0f vest, Madoff appeared in court yesterday for the first time in two months. He conveniently waited for several hours in a conference room to avoid confronting angry investors while appearing before District Court Judge, Denny Chin, for what was to be considered a routine hearing.

Chin, will rule on the guilty plea Thursday and decide if Madoff should remain free on bail pending sentencing in a few months.

At least 25 Madoff investors have asked to speak Thursday under provisions allowing victims of crime to appear at a plea hearing. "There is no plea bargain here. Those victims who objected to a plea bargain no longer have a reason to object," Chin said.

This entire process is both fascinating and astounding.

Fascinating for the fact Madoff pulled off the largest securities fraud case in the history of the United States. Some will continue to argue he couldn't have done this alone. Time will tell if anyone else was involved and to what degree.

This case is also astounding for the simple fact Madoff remains under house arrest! Are you kidding me? How can someone accused (and now guilty) of stealing more than $50 billion dollars not be in jail? This could change tomorrow. But, there seems to be a double standard between blue & white collar criminals. I don't get it. The negative repercussions will be felt throughout the financial services industry for a long, long time. Regaining investor trust & confidence is no easy task.

Warren Buffet 2008 Letter to Shareholders

2009-03-03T11:28:00.003-05:00

Well, once again the "Sage of Omaha" has spoken in his 2008 letter to shareholders. Always educational and insightful, Mr. Buffet cuts through the technical commentary to update shareholders on company developments and annual performance.

Here are the highlights (in my opinion) from his 2008 letter:

As the year progressed, a series of life-threatening problems within many of the world’s great financial institutions was unveiled. This led to a dysfunctional credit market that in important respects soon turned non-functional. The watchword throughout the country became the creed I saw on restaurant walls when I was young: “In God we trust; all others pay cash.”

By the fourth quarter, the credit crisis, coupled with tumbling home and stock prices, had produced aparalyzing fear that engulfed the country. A free fall in business activity ensued, accelerating at a pace that I have never before witnessed. The U.S. – and much of the world – became trapped in a vicious negative-feedback cycle. Fear led to business contraction, and that in turn led to even greater fear.

This debilitating spiral has spurred our government to take massive action. In poker terms, the Treasury and the Fed have gone “all in.” Economic medicine that was previously meted out by the cupful has recently been dispensed by the barrel. These once-unthinkable dosages will almost certainly bring on unwelcome aftereffects. Their precise nature is anyone’s guess, though one likely consequence is an onslaught of inflation. Moreover, major industries have become dependent on Federal assistance, and they will be followed by cities and states bearing mind-boggling requests. Weaning these entities from the public teat will be a political challenge. They won’t leave willingly.

Whatever the downsides may be, strong and immediate action by government was essential last year if the financial system was to avoid a total breakdown. Had one occurred, the consequences for every area of our economy would have been cataclysmic. Like it or not, the inhabitants of Wall Street, Main Street and the various Side Streets of America were all in the same boat.

Amid this bad news, however, never forget that our country has faced far worse travails in the past. In the 20th Century alone, we dealt with two great wars (one of which we initially appeared to be losing); a dozen or so panics and recessions; virulent inflation that led to a 211⁄2% prime rate in 1980; and the Great Depression of the 1930s, when unemployment ranged between 15% and 25% for many years. America has had no shortage of challenges.

Without fail, however, we’ve overcome them. In the face of those obstacles – and many others – the real standard of living for Americans improved nearly seven-fold during the 1900s, while the Dow Jones Industrials rose from 66 to 11,497. Compare the record of this period with the dozens of centuries during which humans secured only tiny gains, if any, in how they lived. Though the path has not been smooth, our economic system has worked extraordinarily well over time. It has unleashed human potential as no other system has, and it will continue to do so. America’s best days lie ahead.

Take a look again at the 44-year table on page 2. In 75% of those years, the S&P stocks recorded a gain. I would guess that a roughly similar percentage of years will be positive in the next 44. But neither Charlie Munger, my partner in running Berkshire, nor I can predict the winning and losing years in advance. (In our usual opinionated view, we don’t think anyone else can either.) We’re certain, for example, that the economy will be in shambles throughout 2009 – and, for that matter, probably well beyond – but that conclusion does not tell us whether the stock market will rise or fall.

In good years and bad, Charlie and I simply focus on four goals:

(1) maintaining Berkshire’s Gibraltar-like financial position, which features huge amounts of excess liquidity, near-term obligations that are modest, and dozens of sources of earnings and cash;

(2) widening the “moats” around our operating businesses that give them durable competitive advantages;

(3) acquiring and developing new and varied streams of earnings;

(4) expanding and nurturing the cadre of outstanding operating managers who, over the years, have delivered Berkshire exceptional results.

Thank you Mr. Buffet.... well said!

Suspend Mark-to-Market Accounting

2009-02-24T08:33:00.004-05:00

As our government continues to print & spend trillions of dollars to resuscitate the ailing US economy, their time & energy would be better served by simply suspending or modifying mark-to-market accounting.

What is mark-to-market accounting? It is an accounting methodology of assigning a value to a position held in a financial instrument based on the current market price for the instrument or similar instruments. For example, the final value of a futures contract that expires in 9 months will not be known until it expires. If it is marked to market, for accounting purposes it is assigned the value that it would currently fetch in the open market.

This definition seems very logical, but in my opinion does NOT apply to all assets. For example, if you had to sell your home on a Tuesday and didn't receive any offers, you would have to mark down the value of the asset the next day due to lack of offers the previous day. Some assets are simply not as liquid as others and should be priced in a different manner. How they should be priced is open to debate.

A brief look at history: Mark-to-market accounting existed during the Great Depression and many economists feel was the culprit for many bank failures at the time. Franklin Roosevelt suspended it in 1938 and the rule didn't exist until again until FASB 157 brought it back in 2007 (largely due to the Enron debacle and 'off balance sheet' assets). How is it we had no panics or depressions for 70 years and now we're dealing with a financial crisis?

First Trust Economist Brian Westbury succinctly described the benefits of suspending mark-to-market accounting. He states, 'both time & growth are absolutely essential when fixing financial problems. Time to work things out and growth to make working those things out easier. Mark-to-market accounting takes both of these away."

The Power of the Roth IRA

2009-02-19T08:48:00.006-05:00

As Washington continues to print and spend billions of dollars, two things are certain in the future:

1)Inflationary pressures will increase at some point. You can't flood the market with new dollars and not expect a buying frenzy to occur at some point. Supply and demand will change and higher prices will unfold.

2) The Roth IRA is going to be the retirement vehicle of choice (some investors will also turn to the Roth 401K plan as well). The plethora of money currently being spent by Congress is borrowed from future generations and sooner or later will have to be repaid. Budget cuts & economic reform may recoup a small portion of what is owed, but the vast majority of repayment will come from higher tax rates.

As an investment with 'after tax' dollars, the growth of a Roth IRA is tax free. Not tax deferred, but rather tax FREE. Don't confuse the two. Most retirement plans (401k, 403B, Traditional IRA's and SEP/IRA's), use pretax dollars and offer tax reductions upfront. However, when funds are distributed, the government will tax the proceeds at that time. Depending on future income tax brackets, this could be expensive.

The old school of thought was simple: Defer your income until you retire and then take distributions at a lower marginal tax rate. This will afford less taxes are paid upfront AND less taxes will be paid in retirement as your household income decreases.

This sounds great in theory, but I think the game has changed with the current economic situation. Borrowed dollars are going to dictate higher taxes across the board (tax brackets, capital gains, dividends, etc.). It may not happen this year or next, but higher rates are coming from the current administration. This is where the true value of the Roth IRA will come into play.

Let's look at an example: Pat and Rose both save aggressively for retirement. After investing for a number of years, they both accumulate a cool $1 million. Pat uses her 401k plan to amass this money and Rose uses a Roth IRA account. Once retired, Pat elects to take a one time lump sum distribution of $1 million to travel the world and play tennis. If tax brackets remain where they are today (probably unlikely), Pat will owe about $360,000 (36%) in income taxes and pocket the remaining $640,000. Rose on the other hand elects to cash in her Roth IRA and move to Aruba to look at Dive-Dive trees all day. In her case, she walks away with a cool $1 million as NO income taxes are due.

The power of the Roth IRA is undeniable.

"Rule of 72"

2009-02-10T10:00:00.004-05:00

When it comes to investing & savings, the "Rule of 72" is the gold standard. It simply states how long it will take for your money to double at a given rate of interest. The true benefit of this concept is derived from retirement accounts (i.e. Traditional & Roth IRA, 401k, 403B) as opposed to everyday or non-qualified accounts.

Let's look at a few examples:

What the above fails to indicate is with higher returns comes higher volatility (aka 'risk'). Growth mutual funds can have wild fluctuations while CD's offer stability. However, the lower the volatility, the lower your annual returns.

For example, if you start with $10,000 and desire a $20,000 ending balance in 10 years, you're going to have to strive for a 7.2% annualized return. Simply choosing a 2% CD will not get you to your goal. Balancing risk & reward is key.

Recent years have many raising an eyebrow as to the validity of this concept. 2008 was a dismal year for the stock market and essentially erased 5 years of gains. However, averages do play out over time and things will eventually revert back to the mean. If your time horizon is long enough you should see the "Rule of 72" work in your favor.

Bernie Madoff Client List Revealed

2009-02-06T09:05:00.005-05:00

The first official client list of Bernard Madoff, LLC, was released yesterday by a Manhattan Bankruptcy Court filing. The 162 document contains over 13,500 celebrity names, trusts and average Joe's.

The list includes many of the names already revealed in prior news releases, but fails to recognize the thousands of other entities, pensions and charities who were invested with the firm via feeder funds. These often include 'fund of funds' type investments.

Many of these victims, not on the list, were derived via feeder funds such as Chais Investments, Ascot Partners and Fairfield Greenich. All fell prey to the Madoff Ponzi scheme.

Some duplication of client names does exist. It is not known why this occurred, but the complexity of the investment web is certainly confusing. A few new names that surfaced include CNN's Larry King and a trust account of Jeffrey Katzenberg.

Here's the complete client list in .pdf format.

Best Financial Websites

2009-02-01T09:00:00.000-05:00

Financial news & commentary is only a click away. From Internet sites to domestic & international newspapers, magazines and trade journals, you can find virtually anything online these days.

In the Internet only world, Yahoo!Finance , Marketwatch.com, AOL Finance and MSNMoney are the 800 pound gorillas and dominate the space. General market commentary, such as stock, bond, mutual fund and option quotes are available. For mutual fund commentary, Morningstar.com is still the leader for insight & commentary.

If you're looking for daily news items, look no further than the Wall Street Journal, Financial Times or USA Today. Feature magazine articles on financial planning and money matters can be found in the pages of Smartmoney, CNNMoney, Kiplinger's, Forbes, Fortune and the elder statesman... The Economist.

For the technicians & fundamentalists amongst us, stock charts can be found at BigCharts, Clearstation and of course, StockCharts. And, for the fundys in the crowd, Motley Fool, TheStreet.com and Ragingbull shouldn't be missed.

Finally, in the miscellaneous category, here are a few more worth noting:

Bloomberg for news, tv & radio feeds.

Bankrate.com offers a host of online content.

Financial calculators are always useful.

A few financial blogs to note: The Icahn Report, 24/7 WallStreet, Kirk Report & Carl Futia

Stock markets - Nasdaq, NYSE Euronext , and CBOT

ETF Information: iShares and Proshares

Tax Savings Tips & Strategies for 2008

2009-01-20T10:00:00.001-05:00

Accountant and Financial Advisor Glover Davis is back as a guest journalist with timely tax planning tips & strategies for the 2008 tax filing year.

In my on-going effort to bring to your attention useful tax-saving information that will enable you to take full advantage of all deductions/credits which can help you increase your income tax refund or at least to minimize the amount of any balance you might owe; I present the following tax law changes/reminders that are applicable to the 2008 income tax filing season:

***Homeowners who had mortgage debt forgiveness/cancellation due to a foreclosure or restructuring of the mortgage on your principal residence during calendar year 2008 (and receive Form 1099-A from their mortgage lender), can have the cancelled debt excluded from gross income by having Form 982 prepared and filing it with your 2008 income tax return. Previously the amount of the cancelled debt was included in your gross and taxable income and would increase your income tax burden when you could afford it the least! This law was enacted late in 2008 and is available to you for the 2008 income tax season!

***A surviving spouse, who sells his/her principal residence within 2 (two) years of January 1, 2007 – after the death of his/her spouse, will qualify for a $500,000.00 capital gains exclusion rather than $250,000.00 as was the law previous to the 2008 income tax year!
· A First-time Home buyer Credit is available for primary residences purchased after April 8, 2008 and prior to July 1, 2009. To obtain this credit, you must file Schedule 5405 with your 2008 form 1040.

***A First-time Home buyer is anyone who did not own a principal residence during the 3-year period plus 1 day ending on the date that you purchased your new home or residence. Therefore, individuals, couples and etc. who owned a home at least 3 (three) years plus 1 day prior to – and who sold that previous primary residence at least 3 (three) years plus 1 day prior to purchasing a new principal residence during 2008 – will be considered a “First-time Home buyer” and is eligible for the credit on his/her/their 2008 income tax return! This is a very significant ruling and can yield real income tax savings for you!

Look for additional income tax tips and strategies during the income tax filing season!

For more information, please contact us at daverosefinancial@yahoo.com

Apple iPod classic 120 GB Black (6th Generation)

Steve Jobs Takes Medical Leave of Absence

2009-01-14T17:48:00.006-05:00

After months of speculation about the health of Apple CEO Steve Jobs, today it was announced that he would take a medical leave of absence until the end of June. In the meantime, current COO, Tim Cook, will be acting boss of day-to-day operations.

Earlier today, Jobs sent the following email to all company personnel:

Team,

I am sure all of you saw my letter last week sharing something very personal with the Apple community. Unfortunately, the curiosity over my personal health continues to be a distraction not only for me and my family, but everyone else at Apple as well. In addition, during the past week I have learned that my health-related issues are more complex than I originally thought.

In order to take myself out of the limelight and focus on my health, and to allow everyone at Apple to focus on delivering extraordinary products, I have decided to take a medical leave of absence until the end of June.

I have asked Tim Cook to be responsible for Apple's day to day operations, and I know he and the rest of the executive management team will do a great job. As CEO, I plan to remain involved in major strategic decisions while I am out. Our board of directors fully supports this plan.

I look forward to seeing all of you this summer.

Steve

Apple iPod classic 120 GB Black (6th Generation)

January Effect

2009-01-13T16:04:00.014-05:00

Every year we hear discussion about the so called 'January Effect'. Simply applying the results of the S&P500 in the first month of each year to foreshadow the remainder of the year. The thought is 'as goes January, so goes the year'.

This would make sense as economic policy is often discussed and released early in the new year. Changes to agendas, new directions and more recently - economic stimulus packages - are released to both the press and American public.

Market psychology is also a key component. If 'perception is reality', this pattern may be self-fulfilling to a certain degree. In 2008, investors could have taken shelter after a January haircut of 6.1% led to an annual decrease of 38%.

Since 1972, this barometer has been correct 92% of the time. Pretty remarkable. In post Presidential election years, it has been right 12 of 14 times - an 86% accuracy rating. So, while the expression may have some naysayers, it does seem to have statistical validity.

A more abbreviated version of this phenomena has emerged in recent years and pertains to the first five trading days of the S&P500. This may seem somewhat abbreviated, but the statistics are compelling as well. The last 35 up years for the first five trading days were followed by annual gains in 30 years with annualized returns of 13.7%. This translates to an 85.7% accuracy rating. The five exceptions were 1994 and four years related to war activity.

As the month of January isn't complete, we do not have a figure to look at as of yet. Through January 12, 2009 though, the S&P500 has decreased 3.5%. The first five days trading statistic though was positive 0.7%.

Statistics courtesy of Stock Trader's Almanac

Apple iPod classic 120 GB Black (6th Generation)

Bernie Madoff - Still Free on Bail

2009-01-12T14:56:00.006-05:00

Today, a judge allowed former hedge fund manager Bernard Madoff to remain free on bail after prosecutors attempted to argue he violated the conditions of his bail by mailing more than $1 million of jewelry to family and friends during the holidays.

Simply amazing. Steal several billion dollars and you're not considered a flight risk or a threat to the general public? Post bail and you can live in the comfort of your own multi-million dollar penthouse in NYC while you await your day in court.

For more detailed information, here is the transcript from the judge's bail hearing.

IRA Contributions 2008 & 2009

2009-01-10T12:39:00.007-05:00

History has shown us the benefits of funding Individual Retirement Accounts (IRA) on an annual basis. In a world where corporate pensions are becoming a thing of the past, it is our responsibility to put money aside for future needs.

The creation of social security in 1935 has evolved into the de facto retirement plan for many Americans. The intent of the original social security act though was not to be the sole source of retirement funds, but rather a compliment to other sources of income. It was to replace a portion of your salary. This is exactly how the system works today. The bigger question should be - what other sources of income will I need to compliment my retirement?

Opening and/or funding an IRA is one way to enhance your retirement plan. Contributing to your account every year as well should be mandatory. If we set aside the emotional issues resulting from 2008, capital markets go up more than down.

Since 1952, the S&P500 has increased 35 out of 56 years (63%). If we were talking baseball, American capitalism would be in the hall of fame!

Another factor rarely discussed when talking about IRA accounts pertains to when is the ideal time to fund your account? Sometimes investors think they can time the market. Sometimes cash isn't readily available. For most though, it's simply a matter of habit. They tend to make contributions for the previous year when they file their 1040 income tax return.

Let's take things a step further: What happens if you fund your account on January 1 every year for the CURRENT year as opposed to April 15 for the PREVIOUS year? Does the extra 1 year of compounding each year make much of a difference? You bet! Let's take a look.

For our example, let's assume the S&P500 has an annual return of 8% per year. Since we are not going to fund a retirement account for 56 years, we'll assume a 25 year investment period. Funding your IRA with today's $5,000 limit at the beginning of each year (January 1) would yield an ending balance of $394,772. Should you file at the end of each year instead, your account balance would be $365,529. This represents a significant difference... $29,242! By simply funding your IRA at the beginning of each year and putting time on your side (remember the S&P500 historically has increased 63% of the time since 1952) makes a significant difference.

Some investors will prefer dollar-cost-averaging as monthly investments are easier on their budget. This is logical and makes good financial sense. Others choose to make lump sum investments once per year. It is these individuals who should note the benefit of making contributions in January for the current year - every year. Put time on your side and reap the rewards!

Unemployment Claims... January 3, 2009

2009-01-08T09:16:00.022-05:00

Today, the Labor Department reported unemployment claims for the week ended January 3 unexpectedly decreased by 24,000 to a seasonally adjusted 467,000. The four week moving average of initial claims also fell by 27,000 to 525,750.

The bigger picture though pertains to continuing claims which unexpectedly increased by 101,000 to 4.61 million. This figure is higher than analysts expected and is at the highest level since November 1982.

This simply confirms that unemployed workers are having a difficult time finding new jobs.

This dip in new claims will probably be temporary as several prominent Corporations continue to layoff workers to curtail operating expenses. This week Alcoa announced a plan in which 13,000 employees would be released.

Reducing payroll expenses is surely one way of reducing overall expenses. However, corporations have to be careful in how expenses are cut. Recessions are temporary and hiring good staff may become difficult should the latter part of 2009 show signs of improvement.

The Year In Review - 2008

2009-01-04T08:21:00.011-05:00

Last year was such a dismal year, simply turning the calendar to January 2009 seems like a major accomplishment. If nothing else, it allows us to look forward and start anew.

As measured by the U.S. stock market, 2008 was the worst showing since 1931. The Dow Jones Industrial Average (DJIA) decreased 33.8% while the tech laden Nasdaq Composite Index was off 40.5% for year year. Just about every asset class (U.S. stocks, foreign stocks, bonds, real estate and commodities) had negative returns for the year. The only bright spots were money market funds and short-term bond funds which finished the year up 2%-5%.

The greatest calamity turned pleasantry in 2008 pertained to oil & gas prices. Who would have ever thought oil would decrease for the year after escalating to $147 per barrel? It managed to increase and decrease over 100% in 2008. How bizarre. I wonder how many pundits are going to say they called this and got it right (I'm sure someone will step up and take credit at some point).

There are a number of theories as to why this happened. I'm not sure anybody will really ever know for sure. The bottom line: Current prices are somewhat of a stimulus package in and of itself as families are now saving a fair amount of money on energy costs as year-over-year prices for oil & gasoline have decreased.

What can we expect in 2009? Nobody knows. In my predictions for 2009, I reference how some things are facts and others opinions (aka - guesses). Nobody knows for certain what will happen in the future and if they do, run for the hills! Or, take a contrarian approach, and do the opposite.

Equity investments have proven to be a winning formula for over 100 years. Although frustrating and painful at times, set backs are a normal part of the investment process. The capital markets will ebb & flow like ocean tides. While we'd all prefer the setbacks to be mild in nature, some storms are worse than others and 2008 would certainly fall into this category. Hopefully, the storm is now nearing completion and a rainbow is forming on the horizon. Brighter days will prevail.

Bernie Madoff - What Really Happened?

2008-12-30T11:50:00.008-05:00

The Bernard Madoff ponzi scheme and continuous news flow will be headline news throughout 2009. The complicated world of hedge funds coupled with his fraudulent activities will make for a fiasco of legal wranglings, shareholder lawsuits and speculation for quite some time.

But, what really happened?

This question may never be answered in our lifetimes. One thing that may provide clarity still remains to be discovered. How many people were involved in hiding the facts?

It's difficult to believe one person could shelter such an elaborate scheme from investors (retail & institutional) and various regulators. You can't simply fault the SEC and SIPC either. They're more reactive than proactive at best. We would all like to think they are the gate keepers, but this simply isn't true.

In many regards, this situation all boils down to 'greed & fear'. Everyone is a capitalist on the way up and a socialist on the way down. Investors have to take some form of responsibility for their actions and not simply blame the SEC.

Personally, I think Mr. Madoff was running a bona fide hedge fund for a number of years. In hindsight, you could argue his performance over the last 10 years was too consistent to be true - which we now acknowledge. But, I think he was running a genuine business none-the-less.

It's easy to make money in an up market. From 2003 to 2007, the indexes all made money. A quick look at the Vanguard 500 Index Adm Fund (courtesy of Morningstar) shows total returns of 29%, 11%, 5%, 15% and 6%, respectively. A passive investment strategy would have yielded positive returns.

I think the bear market of 2008 was the unravelling of Bernard L. Madoff, LLC. A dismal year coupled with shareholder redemption's is a bad combination for any money manager. Liquidating both winning/losing positions to meet redemption's is problematic at best. Toss in the fact you could be highly leveraged in a hedge fund and things become tenuous. With no new investors in site, Madoff was left naked when the tide went out.

He may have been enhancing investor returns with new client money. But, the bull market from 2003-2008 helped him to cover his tracks. Let's face it, shareholders who were taking annual redemption's for living expenses received real dollars. How much of this was bona fide gains & dividends is certainly questionable. But, real money was received and spent. The remaining principal (if any) is now the big question.

Predictions for 2009

2008-12-26T09:20:00.009-05:00

The coming year should be full or surprises and disappointments. This never changes. Some things will catch us off guard and others will pleasantly surprise us. So it is with no fanfare, I present my predictions and/or expectations for 2009 (financial & non-financial).

A new President will be ushered into the White House in January.

Apple will continue it's tech dominance and gain computer market share.

"Marley & Me" will be a blockbuster film in 2009 (although it starts 12.25.08).

Big pharmaceutical companies will be in favor due to large dividend yields.

To prevent social security insolvency, the government announces people born after 1960 will be eligible for full retirement benefits at the age of 70 (currently 67).

Roger Clemens will formerly announce his retirement from baseball (although he didn't play at all in the 2008 season).

Thousands of NEW children will start college.

New SEC Chairman (or Chairwomen) Mary Schapiro reinstates the uptick rule.

CNBC Mad Money host Jim Cramer will have his show cancelled (or completely revamped).

Congressman Barney Frank of Massachusetts is forced to resign as Chairman of the Finance Committee due to his lack of oversight and the defacto bankruptcy of Fannie Mae (I'll be the first to admit, this may be more wishful thinking on my part).

The New York Yankees will open their season on April 16 against the Cleveland Indians at a new stadium in the Bronx, NY.

High quality corporate bonds will offer better risk adjusted returns than stocks.

Despite the recent press on Bernie Madoff, the demise of Hedge Funds is greatly overstated and they continue to attract high net worth money.

Individuals will continue to fund 401K and IRA accounts.

John Grisham will release 3 new books.

Alternative asset classes will start to attract new money again (i.e. real estate, commodities).

NFL legend, Brett Favre, retires after playing one season with the New York Jets.

Adults with young children will buy life insurance.

Two large mutual fund companies will merge.

Ford will sell more vehicles than any other US car manufacturer.

John Daly will officially retire from golf and become a Hooter's employee.

Oil finishes the year at $70 per barrel as the US dollar weakens against foreign currencies.

County Tyrone repeats as All Ireland Gaelic Football Champions.

After enhancing their bullpen in the off season, the New York Mets make it back to the post season, but fall short of winning the World Series.

Municipal bonds become attractive total return investments as President Obama continues to talk about raising taxes (income, capital gains & dividends).

As you can tell, some things are mentioned with a little sarcasm. Nobody can accurately predict what's going to happen in 2009. We do now that some things are constant and everything else is perpetual motion. Several websites (CNN & Bloomberg to name two) have predictions for the capital markets next year. Are they correct? Who knows! Their guess is as good as yours. The only guarantee we do have for 2009.... a lot of things will change and some things won't. Such is life.

Bernie Madoff - The Access International Hedge Fund Connection

2008-12-23T15:03:00.015-05:00

The New York Times reported this afternoon that a Bernie L. Madoff client has committed suicide. This is truly tragic. Unfortunately, I fear this may not be the last of these reports. Many of Mr. Madoff's clients seemed to have most, if not all, of their wealth invested in his company. In a previous blog, I referenced affinity fraud and the lack of due diligence that often occurs. This may be a similar issue.

Rene-Thierry Magon de la Villehuchet (65), a founder of the hedge fund Access International Advisors, was found dead Tuesday in his office on Madison Avenue with injuries to his arms & wrists.

His fund had invested as much as $1.4 billion (a sizable amount compared to other client accounts) with Mr. Madoff. Apparently, he tried to recover some of his European investor's money in recent weeks, but to no avail.

When the news of Madoff's ponzi scheme first broke, Access International sent a note to investors stating the arrest was "a shocking development." Today's announcement is truly shocking in its own right.

Unconventional Tax Savings Tips & Strategies 2008

2008-12-23T09:36:00.008-05:00

Today's commentary comes courtesy of Glover Davis. He is New York based Tax Accountant & Financial Advisor with 25 years of experience.

If you believe, as I do, that income tax rates for you may be higher in the future; here are a couple of tax saving strategies that you may want to consider and implement. Most of this is extremely time-sensitive so you will need to act before December 31, 2008 to realize the full benefits:

Harvest your capital gains on securities (mutual funds, stocks, bonds & etc.) that you may have held for a number of years by selling them on or before December 31, 2008. Even though you will pay income taxes on the capital gains now – you probably will pay a lower income tax rate for 2008 than you will in 2009 and thereafter since it would appear that income tax rates on capital gains are going to move higher. The difference between paying taxes at the current rate of 15% rather than a future rate of say 25% or 28% is substantial and would result in tremendous savings on your income tax bill.
Harvest your tax losses in January 2009, rather than in December 2008 for the same reasons. If you use your harvested losses to offset future gains when the capital gains tax rate is higher, you maximize your tax savings since every dollar you reduce your capital gains taxes by produces a greater income tax saving for you.

These are unconventional tax savings tips but they are absolutely valid since the numbers have been run to prove it. You may want to examine some numbers yourself to test these positions. Most other tax professionals advocate the opposite simply because they think in the conventional sense; that is why these are unconventional tips & strategies!

It is a great time for funding your ROTH IRA rather than adding to your 401(K) or funding your tax-deductible IRA and the reasoning is simple: When the time comes for you to start taking distributions from your traditional/rollover IRA or 401(K), you have no way of knowing whether your income tax rates on the distribution will be lower than the rate of saving that you are realizing while making the taxable saving/funding of these tax-deferred plans. If your actual tax rate is likely to be higher than it is today; then the ROTH will prove to be the better tax strategy. All distributions from your ROTH IRA, once you meet the qualifications – minimum age and or time in the ROTH IRA – you will be taking distributions “tax free” which is extremely beneficial in periods of rising income tax rates. Couple that with, the idea of investing these ROTH contributions a little more aggressively now or as soon as possible while security prices are extremely low and you should receive a substantial economic benefit down the road. You can then coordinate your retirement distribution dollar amounts between your taxable traditional IRA/401(K) and your tax-free ROTH IRA plans by electing to take a portion from both plans. This will yield additional tax savings while meeting your annual retirement income requirements.

Look for additional income tax tips and strategies during the income tax filing season.

Glover Davis - Tax Accountant & Financial Advisor

Holiday Book List 2008

2008-12-22T13:45:00.001-05:00

The upcoming holiday season is always a good time to reflect on the things we often take for granted - family, friends and good health. It is also a time to relax and start thinking about your New Year's Resolution(s). For some, this may include enhancing or learning a new skill. Reading a good book could be the easiest way to get started. If finance is on your agenda... here are a few books to get you started.

So, whether you are in the giving or receiving mode this holiday season, here are a few books to consider (some old, some new). Remember, if the book is for personal use, you may want to check your local library first. If gift giving is the objective, there are many choices to consider. In no particular order, here are a few of my favorites:

How to Avoid a Bernie Madoff Scenario

2008-12-20T20:00:00.008-05:00

Many questions will be answered in due time as to how high net worth investors, corporations and endowments were duped by Bernie Madoff. How did his ponzi scheme last for so long without being detected? Were investors naive, or was his firm simply that good at scamming the public? Nobody knows at this point. However, most people feel a $50 billion fraud could not have been pulled off by one person.

Although it's too late to help these investors, there are certain safeguards everyone can take to avoid a future situation. Some are simply based on good old common sense and others require due diligence.

Keep it Simple - Investing doesn't have to be complicated. Equity markets go up more than down over time. Fancy hedging techniques often aren't needed to make money. Long term objectives and an understanding of your risk tolerance is a great starting point. Simple everyday mutual funds or exchange traded funds that you can look up in the newspaper will suffice. You certainly don't need the 'exclusivity' of hedge funds to make money.

Work with a Certified Financial Planner (CFP) - In several States, you can hang a shingle on your door that says 'Financial Advisor'. You don't have to have any accreditation's and do not need a license. This is downright scary. Unfortunately, the defacto financial capital, New York, is one of these States. Do yourself a favor - start with an accredited individual. The Certified Financial Planner (CFP) designation is the gold standard in the industry. Individuals go through a rigorous program (often several years) just to complete the prerequisites to sit for the Board of Standards national examination. These individuals are dedicated to both putting their clients needs first and improving the financial planning profession.

Is your Financial Adviser Registered - Individuals managing over $25 million on a fee basis will have to register with the Securities and Exchange Commission (SEC). Under this amount, they are required to register in their state. A state-by-state list of regulators can be found at National American Securities Administration Association (NASAA). Most Advisers with a sizable client base will be registered with the SEC and the website is a great source of information for registrations and legal filings. Any filed complaints on an Advisor will appear here. It can also be found on the FINRA website as well. Years ago, several former NFL players (Simeon Rice, Eric Dickerson & Shannon Sharpe) were duped out of more than $10 million by a slick Chicago Financial Advisor by the name of Donald Lukens (now doing jail time). If any one of these investors would have taken the extra step to contact the SEC to verify registration status, they would have avoided this financial mess. A quick SEC scan for Lukens would have revealed the advisor was a fraud. There were no Advisers registered by that name.

Hot Money - Be leery of firms reporting amazingly steady returns. If Warren Buffet can lose money on occasion, so can you. Nobody can show remarkably consistent steady returns year after year (as Madoff did) in good & bad markets. Portfolio Managers are human and believe it or not, make mistakes. This falls into the common sense category, 'If it's too good to be true', ... you know the rest.

Quality of Quarterly Statements - Who's preparing your quarterly statements? If it's coming directly from the Advisor, this is a red flag. Everyone knows the hedge fund world is largely unregulated. The last thing you need is questionable financial statement showing up in your mailbox. Mutual funds, or wire houses (ie. Merrill Lynch, etc.) will generate their own statements and avoid this conflict of interest.
Diversify Your Accounts - We all know about asset allocation. This takes it a step further. When you start accumulating assets of greater than $500,000, consider using more than one investment account. Spread the wealth. This doesn't necessarily mean use more than one Financial Advisor, but simply have your money invested with two different firms. Not only should it further diversify your holdings, it should add an additional layer of comfort knowing your assets are invested under roofs.
Be Aware of Affinity Fraud - This may be a new one to most. Affinity fraud simply refers to homogeneous groups of people. Scams often occur when an individual claims to be of a similar background and thus has a following within this circle. This could be be ethnic, religious, elderly related or professional. Bernie Madoff had a religious following and somehow developed the nickname the 'Jewish Bond'. I'll be the first to admit, there is nothing wrong with a homogeneous group. It's often a source of comfort. However, due your homework. Don't assume what's good for one is good for another.

This Bernie Madoff debacle is troubling. One bad apple is casting a shadow of doubt over an industry already wrestling with a trust issue. Many wonderful, long standing firms, and portfolio managers will struggle to raise money and retain clients because of this incident. Hopefully, the more main stream investments... mutual funds & ETF's... will continue to attract money - as they should. Transparency is a wonderful thing.

Ponzi Scheme - Bernie Madoff

2008-12-19T08:47:00.013-05:00

In my original post on Bernie Madoff, I simply referenced his arrest and made some general commentary about his alleged money management firm. Today, let's take a closer look at what exactly a ponzi scheme is considered.

According to Wikipedia, A Ponzi scheme is a fraudulent investment operation that involves paying abnormally high returns to investors out of the money paid in by subsequent investors, rather than from the profit from any real business. It is named after Charles Ponzi. The term "Ponzi scheme" is used primarily in the United States, while other English-speaking countries do not distinguish in colloquial speech between this scheme and other forms of pyramid scheme.

The scheme usually offers abnormally high short-term returns in order to entice new investors (Madoff seemed to consistently show annualized returns of 8%-12%). The perpetuation of the high returns that a Ponzi scheme advertises (and pays) requires an ever-increasing flow of money from investors in order to keep the scheme going.

The system is destined to collapse because there are little or no underlying earnings from the money received by the promoter. However, the scheme is often interrupted by legal authorities before it collapses, because a Ponzi scheme is suspected and/or because the promoter is selling unregistered securities. As more investors become involved, the likelihood of the scheme coming to the attention of authorities increases.

The scheme is named after Charles Ponzi, who became notorious for using the technique after emigrating from Italy to the United States in 1903. Ponzi was not the first to invent such a scheme, but his operation took in so much money that it was the first to become known throughout the United States. His original scheme was in theory based on arbitraging international reply coupons for postage stamps, but soon diverted later investors' money to support payments to earlier investors and Ponzi's personal wealth. Today's schemes are often considerably more sophisticated than Ponzi's, although the underlying formula is quite similar and the principle behind every Ponzi scheme is to exploit investor naïveté. However, it has been shown that entering a Ponzi scheme can be rational even at the last round of the scheme if a government will likely bail out those participating in the Ponzi scheme.

I think the 'Madoff Scheme' (as it now should be called) came crashing down after running into the current bear market. It's easy to generate decent returns in a bull market (makes me think of the expression 'don't confuse brains with a bull market'). Any shortfalls in investment returns were simply supplemented with new investor money. However, when new money became hard to obtain and the bear market cut into the portfolio principal, the house of Madoff came crashing down. There was simply not enough money to return to meet shareholder redemption's. How it lasted this long defies logic.

The Big Three - Flailing or Bailing?

2008-12-15T14:36:00.023-05:00

Well, it should come as no surprise, 'The Big Three' automakers are in dire straits. Working with outdated business models and unrealistic labor costs, Ford, General Motors and Chrysler are fighting for their collective lives.

Once a prominent industry in American capitalism, the auto industry seems to have lost its way. The litany of arguments as to why are endless. But, it all boils down to competition and cost structure.

The North American Peace Treaty et al allows corporations to compete in a more competitive manner. The evolution of barriers to trade has morphed itself into the 'global village' concept. One world = one market.

Did US automakers miss this memo? The various trade treaties, tariffs, etc. were passed to help keep down labor costs and make for a more consumer friendly & affordable products. American ingenuity and sales should be in the forefront for the world to see. Ideally, lower costs should lead to more competitive pricing and hence, sales. However, this doesn't appear to be the case.

The UAW continues to have a strangle hold on management. Yes, they have given concessions over the years and aren't the powerful regime of yesteryear. But, several key items still persist.

One of the biggest taboo topics pertains to job banks. This UAW menagerie from 1980's allows workers to retain a salary, as opposed to being laid off. The original intention allowed for employees to be 'retooled' and implemented at a later date. But, retaining almost all of their salary during 'unemployment' simply increases manufacturing costs.

Another embedded cost pertains to legacy costs. The cost of each retired worker adds to the unit cost of each vehicle. With retired workers living longer, this expense can only increase and not decrease. I'm all in favor of retirement pensions, benefits, etc., but you have to draw the line at some point.

What exactly are lifestyle drugs? Viagra is costing General Motors $17 million dollars a year. Naturally, the cost is added to each and every car, truck & SUV. The blue wonder drug is considered a covered benefit for both retired and salaried employees.

Apparently GM recently raised the copay for erectile dysfunction drugs to $18 under a new UAW agreement. But, the fact still remains... health care costs add about $1,500 to the price of each vehicle. GM provides coverage for roughly 1.1 million employees, retirees and dependants and continues to be the largest purchaser of Viagra.

Let's cut to the chase: American automotive ingenuity still remains top shelf. The Ford Mustang and Chevrolet Corvette are two prime examples. Having an entire industry file bankruptcy would be chaotic to the already ailing US economy. However, something has to be done to make all three manufacturers more competitive in the global market. With all due respect to Ford who seems to stand head and shoulders above the other two, everyone has to become more competitive to survive.

And let's be clear... executive management can curb their compensation packages as well. This is a three way street!

Graph courtesy of Cato Institute.

Bernie Madoff Scandal

2008-12-12T08:34:00.014-05:00

On Thursday, December 11, 2008, former Nasdaq market Chairman Bernie Madoff was arrested by the FBI on fraud charges. The Securities and Exchange Commission called these charges 'stunning' and 'epic' in proportion. Accused of running a ponzi scheme with client money, Madoff, 70, apparently rang up losses approaching $50 billion.

This continues to show why the hedge fund world needs more regulation. The good news - if there is one - is the so called firm of Bernard L. Madoff Investment Securities LLC catered to the affluent. Twenty five (25) individuals with assets totaling $17.1 billion (although actual number of clients seems to be growing by the day).

As this story unfolds, wealthy investor names are being revealed. Some of the more prominent figures include New York Mets owner Fred Wilpon, GMAC Chairman J. Ezra Merkin and former Philadelphia Eagles owner Norman Braman.

What ever happened to due diligence? Individual investors are responsible for making their own financial decisions in the end. Which firm do I invest with? Vanguard? How about Fidelity? Or wait... maybe I'll use a private money manager with little or no experience... Bernard Madoff and get the name brand cache at the same time.

Madoff is best known for being a market maker. His firm simply cleared trades. A legitimate business. However, as technology emerged and profit margins shrunk, he parlayed his name into a new business model - Money Manager.

Defense attorney Dan Horwitz called his client "a person of integrity".

On behalf of his former clients and the general investment community, I think it's safe to say, "you're a thief".

If convicted, it could cost the 70 year old Madoff 20 years in jail and $5 million in fines. How about simply confiscating everything he owns and return whatever there is to his former clients?

Economic Challenges: The Frugal Lifestyle

2008-12-09T16:15:00.010-05:00

Tightwad, cheap, thrifty and frugal seem to be interchangeable words. Before we get into it though, let's take a closer look at a few definitions. Being tight or cheap often pertains to having the money and simply not wanting to part with it. This is akin to the joke, 'Every time you take a quarter out of your pocket, George Washington squints from the light.' You get the point.

On the other hand, a quick look in Webster's dictionary defines frugal as: economical in use or expenditure; prudently saving or sparing; not wasteful. So, don't be confused... there is a BIG difference in the two.

Being frugal can be a good thing. It's become a lifestyle for many and seems to have origins rooted in the Great Depression. Parents pass down traits to their children and several generations later, we have frugal living as a lifestyle choice and no longer a necessity. Many books have been written on the topic which tout increasing your quality of life by simply not being wasteful. Two of the more popular titles are "The Ultimate Cheapskate's Road map To True Riches" by Jeff Yeager and "America's Cheapest Family Gets You Right On The Money" by Steve & Annette Economides.

We're all creatures of habit and changing our routines is more mental than physical. Change doesn't have to come all at once though. Start small. Simple items such as using your banks ATM machine as opposed to mall kiosks will save you $2-3 per transaction. Clipping coupons and mailing in rebate forms is pretty straight forward. It will require a little of your time. But, the rewards add up.

Unfortunately, it is during difficult economic times that we become more expense conscious. This is something we should be doing everyday - not just in good & bad times. Have a rainy day fund (i.e. emergency fund), don't spend money if you don't have it, save for an upcoming purchase and know where each paycheck is spent.

Good financial planning starts with smart money decisions.

Unemployment - The Good, The Bad & The Silver Lining?

2008-12-05T12:16:00.007-05:00

Well, we anticipated a lousy unemployment number this morning and we got it. The new figures, released by the Labor Department, showed the employment market deteriorating faster than expected as we lost 533,000 non-farm positions. As a result, the unemployment rate increased from 6.5% to 6.7%. The number may seem alarming to some, but not to Mike Darda, Chief Economist of MKM Partners who made an appearance on CNBC's Fast Money yesterday. He expected the number to surpass 500,000 and was spot on. Kudos to Mike.

All is not lost though. Remember, bad news isn't permanent. Things will get better at some point. As a leading indicator, the capital markets will look ahead and price equities accordingly. Yes, you can make the argument things weren't expected to be this bad and maybe there is some more pain ahead. But, you can also make the case that a 40% decrease in the US Equity markets in 2008 has indeed factored in the current turmoil. Capital markets will show signs of life long before the economy turns.

As a Financial Advisor, I often walk a fine line between being proactive with clients in both a factual and informative manner. Being truthful is the best medicine and thus being forthright is always the 'high road'. Allowing clients emotions to enter the picture though can be complicated and cloud decision making process. Rational as opposed to emotional decisions should always prevail.

The monumental structural changes to our economy do have a silver lining though. In many regards, we're reverting back to how business should have been conducted in recent years. Toss in some common sense as well and we have the following:

Don't borrow what you can't afford.
Spending and saving should have boundaries (i.e. live within your means).
New leadership has emerged in Washington.
World leaders are working together.
Valuations are getting very attractive (bonds/stocks/real estate & commodities).

Thus, all is not lost and some good will come from this debacle. When bad news gets a positive reaction from the stock market, we'll know good things are coming. Some of these silver linings are started to take hold and will shape a brighter future.

Let's Put Things In "Technical" Perspective

2008-12-03T17:19:00.011-05:00

Charts represent price movement and market psychology. They're simply a snapshot of where we've been a guide as to where we may be heading. The emotional response and volatility to news flow in recent weeks is certainly reflected in the charts below.

First, let's take a look at the S&P500 on a weekly basis. The sell off starting in October was characterized by high volume with several days of dramatic volatility. The candlestick format will reveal where the market opened and closed for the week. Hollow or clear candlesticks represent weeks in which the market closed higher than it opened. On the other hand, closed or dark candlesticks reveal weeks in which the market closed below the opening (click charts to see enlarged version).

One thing that catches my attention is the disparity or difference between the S&P500 and the 50-day moving average. The dramatic sell off on above average volume reflects an oversold condition (OS). Over the last few years, the S&P500 tended to drift above & below the moving average and touch the line periodically - a reversion to the mean. Present pricing would seem to indicate an OS rally is in the cards.

A closer look at Apple (AAPL) on a daily basis indicates a floor or base may be developing at the $90 area. Having retreated from the $200 nose bleed section of the stock world, the stock seems to be finding some love once again after decreasing 55%. Barring a miserable holiday season (although the Apple stores are off to a good start), the stock looks to have enough buying power to move above the $100 level and thus its 50-day moving average.

Finally, Prologis (PLD) may offer some attractive bottom fishing. The staggering volume as of late is typical of a sea change. Weak hands give up and new buyers come in. The company is certainly not immune to the real estate cycle and does carry a significant amount of debt. Current prices appear to have factored in all of this information. If the firm continues to stabilize at current price levels, it could move back to the 50-day moving average.

Charts courtesy of Worden Bros. www.worden.com

Time Bandit

2008-11-22T15:02:00.000-05:00

Little did we know, the US equity markets would return to 2002 levels last week. Although the markets staged a late day rally on Friday, the Dow finished the week down another 5%. This brings the yearly performance to -41%.

Six years of progress has essentially evaporated in a few short months due to our nations credit consumption mentality (individuals and corporations). Thus, confidence in government leadership and corporate America is extremely low.

All is not lost though. A recent quote from Economist Allen Meltzer puts things in perspective:

"Capitalism without failure is like religion without sin - it just doesn't work!"

Let's look at a few statistics courtesy of Ned Davis Research pertaining to market declines in the Dow Jones Industrial Average from 1900 through 2007.

"Moderate" Corrections (10%+ loss) have occurred 117x since 1900.

"Bear" markets (20%+ loss) have occurred 31x since 1900.

The average duration for both of these markets is 106 days and 367 days, respectively.

The average duration is 1.1x per year and 0.3x per year respectively.

So, where do we stand now? The current market decline started in October 2007 when the Dow was trading at 14,000. The average bear market duration of 367 days has now been surpassed. Nobody knows when the tide will turn. But, we do know bear markets have occurred before and unfortunately, they are part of the investment process. There has never been an event we didn't survive and the capital markets at some point will turn in anticipation of the economic recovery.

Shelter From the Storm

2008-11-15T11:24:00.000-05:00

Taking shelter from a storm can be advisable. However, the type of shelter you take can make a big difference. Running from a thunderstorm to stand under a lone tree isn't always a good idea. Not only is the tree prone to lightning strikes, but you become somewhat stranded. When do you make the next move to a better location?

The stock market is posing a similar dilemma these these days. Market declines & daily volatility is causing individuals to question their asset allocation and investment strategy. The Dow Jones Industrial average has decreased from 12,000 to 8,500 in a few short months. This translates to losses in real dollars on quarterly financial statements and heightens anxiety levels.

Before going into battle, military leaders will make 'what if' decisions before the potential event ever occurs. This allows for clear & concise thinking ahead of time. Making decisions when your pinned down by enemy fire can be troublesome.

Your investment plans should be the same. Good financial planning starts on day one. Knowing your risk tolerance, time frames and investment objectives should be clearly stated. This allows for good asset allocation and implementation of an all weather portfolio. This doesn't mean your portfolio won't lose value during challenging periods, but the key ingredients to future success are in place.

Changes to your portfolio should be made during the review process. Should life altering events take place (i.e. loss of a spouse, divorce, marriage, etc.), changes are often warranted. So, while it may be raining at the moment, have faith that clearer skies will eventually prevail.

Financial Crisis - Historical Perspective

2008-11-12T11:33:00.000-05:00

The current financial events in the news are all well documented. In the era of 24/7 news coverage, we can all get our fill of bad news instantaneously. The events taking place in 2008 are unprecedented.... or are they? Every financial event is unique to its time & place. And, there is no doubt this time around there is a simultaneous nature to what is going on. However, many of these same issues have occurred throughout history. So, on one hand, the issues are new - especially to investors who started a mere 10 years ago - but, to old timers, this is more of the same. Let's have a look:

Franklin National Bank Collapse (1974)
Chrysler Near Bankruptcy (1979)
Continental Illinois Bank Collapse (1984)
Drexel Burnham Lambert Failure (1986)
Market Crash of 1987 (22% decline)
Orange County (CA) Bankruptcy (1994)
Barings Bank Collapse (1995)
Long Term Capital Demise (1998)
September 11, 2001

The list is rather extensive, but these are only a few examples. What's old is new again? Perhaps. Let's change a few names and see what changes: Washington Mutual, General Motors, Bear Stearns and Osprey Capital. Any difference? Nope. Been there, done that.

Capital markets have proven time and time again to be very resilient & efficient. The recovery times will always vary. But, companies with clean balance sheets (i.e. no debt) and positive cash flows will always be rewarded. Investor emotions can sway short term valuations, but fundamentals always dictate in the end. There is still a lot of uncertainty in the market place, but have faith, bad news isn't permanent. Once calmer minds prevail and emotions subside, investors (individual and corporate) will return to making rational financial decisions.

Financial Planning 101

2008-11-10T19:46:00.000-05:00

Let's Get Started - The purpose of this blog is to educate, inform & help you make smarter financial decisions. The industry can be a confusing array of products & services. Everything from investments to insurance products can appear to be a sea of propaganda. However, it doesn't have to be this way. With an equal dose of time & patience, you can learn all the basics about financial planning and then some.

As a Certified Financial Planner (CFP), I've had the privilege of helping hundreds of people make informed decisions over the last 12 years. My work has included everything from budgeting to retirement planning. I've even managed to get my name in print a few times... TheStreet.com, Gannett News and the Chicago Tribune to name a few.

Each week, I'll post a new topic for discussion. Please feel free to ask questions or propose future subject matter as well.

The more informed you are, the better your decision process... the truth shall set you free.

Please note: My blog is NOT to sell financial products in anyway. It is simply a journalistic way to help individuals & families make better financial decisions.