Merry Christmas...

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

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

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

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

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

"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

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

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...

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

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.............

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

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...

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???

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

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

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.

1. 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!


2. 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 $$$.


3. 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.


4. 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.


5. 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.


6. 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.


7. 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!


8. 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.


9. 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.


10. 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?

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...

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?

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:

1. 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.
   


2. 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.
   


3. 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.
   
   
4. 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.
   
   
5. 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?

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:

1. 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).
   


2. 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.
   


3. 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

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

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?

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???

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

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

"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

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

"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

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.