Financial Fitness 101

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

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

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:

1. People are very self conscious and care how they are viewed by others.
2. 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..."

"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

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

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

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!"