Holiday Book List 2010

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...

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

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?

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

"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)

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

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

"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)

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

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

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

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!"

Roth IRA Conversions 2010

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

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

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

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.