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Issue 754
4/11/16
MAKING THAT 401k WORK
For many people, next to their home, their 401(k) is or will be their single largest financial asset. The employer-sponsored 401(k) is a wonderful tool for accumulating wealth. With its automatic payroll deduction, its tax deduction for contributions and its deferral of taxes on appreciation it is the ideal vehicle for assuring that money will be available in retirement -- but only if you use it effectively.
Oftentimes I find an employee will contribute to a 401(k) without any purpose and hope for the best. Others will try to micromanage their portfolio, jumping from one investment to the next, in search of the greatest return. In the end neither ends up better off, and the cost, sadly, will not be paid until retirement.
The decision to contribute to a 401(k), and the investment selection should be treated with the same care and consideration that you would make with any other investment. Is it consistent with your goals, your attitudes towards risk and what it is you want out of life?
Know Your Goal
Before you invest in a 401(k) or change your investments, make sure you know what you're trying to achieve. When I meet with a client for the first time to review their 401(k) I ask the question “what are you trying to do?” The answer invariably is to make money; oftentimes it's to make as much money as possible. When I point that if your goal truly is to make as much money as possible, zero is a very real “possible,” and then there is usually a long pause.
A better approach is to start with an end goal in mind. If you know what retirement looks like you can determine how much money it will take to support that lifestyle. From there you can determine how much of your current income you will need to set aside and what rate of return is necessary. With that information you can select investments to create a portfolio that supports your dreams. That is a plan for success.
Think Long-Term
The financial markets will go up and down. That's a fact of life. With the availability of instant information, on television, in the newspapers, at grocery store checkout lanes, on the Internet and at dinner seminars, it is easy to become trapped in short term thinking – allowing the news of the day to affect your long-term decisions.
Many in 2008 and in the early months of 2009 saw their 401(k) lose substantial value. As the markets declined too many set their goals aside and moved their investments to cash, locking in those incredible losses. Yet those who stayed with their goals not only saw their portfolios returned to their original values but also saw significant gains on the dollars they continued to invest. Think long term. For each and every one of us, whether we are accumulating or we are taking income, retirement planning is a long-term proposition.
What Else Do You Own
Far too often people will compartmentalize their investments assigning different values to different assets. Think of your 401(k) plan as part of a total retirement portfolio. No matter where your retirement dollars came from; inheritance, savings, IRAs, past employers, etc. coordinate them into a comprehensive retirement plan. For some assets it makes sense to have them in a tax-deferred account, like the 401(k), other investments offer advantages to owning them directly. Sadly, taxes can negatively affect our investment success. I am not a big fan of investing to avoid taxes; however, I am a big fan of using investment vehicles that can minimize taxation over the long-term. By taking advantage of current tax law you can greatly enhance the overall success of your retirement plan.
Seek Professional Help
Retirement planning is not for the faint of heart. When you make the decision to leave the workforce the consequences of your choice will not be known until much later in life. I would encourage you to work with a professional who understands the income needs, tax concerns, as well as the risks that make for a successful retirement. There are a lot of advisors who are offering long-term solutions for short term concerns. They will often offer one product that solves all problems. As I've said before “there ain't no such thing as a free lunch.” Make sure that the advisor you choose understands your long term needs and is able to help you develop a plan based upon your goals and dreams. And more importantly will be there for the long-term
The 401(k) is a wonderful tool for the accumulation of wealth. When used well the 401(k) can be the core element of a successful retirement plan. I cannot encourage you enough to take advantage of the investment opportunities that a 401(k) offers. To maximize those benefits, however, I would remind you to start with the plan. Before starting any journey it is always good to know where you're going.
“The plans of the diligent are sure of profit, but all rash haste leads certainly to poverty.”
Proverbs 21:5
4/11/16
MAKING THAT 401k WORK
For many people, next to their home, their 401(k) is or will be their single largest financial asset. The employer-sponsored 401(k) is a wonderful tool for accumulating wealth. With its automatic payroll deduction, its tax deduction for contributions and its deferral of taxes on appreciation it is the ideal vehicle for assuring that money will be available in retirement -- but only if you use it effectively.
Oftentimes I find an employee will contribute to a 401(k) without any purpose and hope for the best. Others will try to micromanage their portfolio, jumping from one investment to the next, in search of the greatest return. In the end neither ends up better off, and the cost, sadly, will not be paid until retirement.
The decision to contribute to a 401(k), and the investment selection should be treated with the same care and consideration that you would make with any other investment. Is it consistent with your goals, your attitudes towards risk and what it is you want out of life?
Know Your Goal
Before you invest in a 401(k) or change your investments, make sure you know what you're trying to achieve. When I meet with a client for the first time to review their 401(k) I ask the question “what are you trying to do?” The answer invariably is to make money; oftentimes it's to make as much money as possible. When I point that if your goal truly is to make as much money as possible, zero is a very real “possible,” and then there is usually a long pause.
A better approach is to start with an end goal in mind. If you know what retirement looks like you can determine how much money it will take to support that lifestyle. From there you can determine how much of your current income you will need to set aside and what rate of return is necessary. With that information you can select investments to create a portfolio that supports your dreams. That is a plan for success.
Think Long-Term
The financial markets will go up and down. That's a fact of life. With the availability of instant information, on television, in the newspapers, at grocery store checkout lanes, on the Internet and at dinner seminars, it is easy to become trapped in short term thinking – allowing the news of the day to affect your long-term decisions.
Many in 2008 and in the early months of 2009 saw their 401(k) lose substantial value. As the markets declined too many set their goals aside and moved their investments to cash, locking in those incredible losses. Yet those who stayed with their goals not only saw their portfolios returned to their original values but also saw significant gains on the dollars they continued to invest. Think long term. For each and every one of us, whether we are accumulating or we are taking income, retirement planning is a long-term proposition.
What Else Do You Own
Far too often people will compartmentalize their investments assigning different values to different assets. Think of your 401(k) plan as part of a total retirement portfolio. No matter where your retirement dollars came from; inheritance, savings, IRAs, past employers, etc. coordinate them into a comprehensive retirement plan. For some assets it makes sense to have them in a tax-deferred account, like the 401(k), other investments offer advantages to owning them directly. Sadly, taxes can negatively affect our investment success. I am not a big fan of investing to avoid taxes; however, I am a big fan of using investment vehicles that can minimize taxation over the long-term. By taking advantage of current tax law you can greatly enhance the overall success of your retirement plan.
Seek Professional Help
Retirement planning is not for the faint of heart. When you make the decision to leave the workforce the consequences of your choice will not be known until much later in life. I would encourage you to work with a professional who understands the income needs, tax concerns, as well as the risks that make for a successful retirement. There are a lot of advisors who are offering long-term solutions for short term concerns. They will often offer one product that solves all problems. As I've said before “there ain't no such thing as a free lunch.” Make sure that the advisor you choose understands your long term needs and is able to help you develop a plan based upon your goals and dreams. And more importantly will be there for the long-term
The 401(k) is a wonderful tool for the accumulation of wealth. When used well the 401(k) can be the core element of a successful retirement plan. I cannot encourage you enough to take advantage of the investment opportunities that a 401(k) offers. To maximize those benefits, however, I would remind you to start with the plan. Before starting any journey it is always good to know where you're going.
“The plans of the diligent are sure of profit, but all rash haste leads certainly to poverty.”
Proverbs 21:5
Issue 752
3/28/16
THAT TAX REFUND!
Ah, those tax refunds. What should I do?
Hopefully your taxes have been filed and if you were not required to pay more in taxes, you have your tax refund in hand or soon will. What are your plans? If you are like many, those checks are found money and will quickly slide through your fingers. However, those checks aren’t really found money they are the return of your hard earned cash – the return of your tax withholding overpayment, your interest free loan to the state and federal governments. So what’s your plan?
This year, why not put those dollars to work. Instead of viewing your refunds as a windfall, treat them as the fruit of your labor and used them accordingly. Here are a few suggestions you may want to consider.
Invest in yourself
What are your job skills looking like? Is there anything you need to brush up on? Are there any areas that need improvement? Anything new that you could bring to the table, that would make you a more valuable employee?
Use the refund to take a class, a workshop or a self-study program. Think self-improvement. You don’t have to limit yourself to work related concerns. There is a world of things to learn out there. Find something you have wanted to explore and take advantage of the opportunity.
Invest in your family
I don’t know the size of your refund, but you may want to consider doing something special with those who you love. It could be something as simple as a special dinner celebrating family or a short (or long) vacation. Use your refund to make time that, you otherwise couldn’t afford, to be with and enjoy your family. Life is short again take advantage of the opportunity.
Invest in your home
There are always things around the house that are left undone. Maybe a room that needs to be painted – maybe the whole house. You may have a faucet that’s dripping, a carpet that needs repair or a cabinet door that needs adjusting. Your refund could be used to hire the help needed to get some, if not all, of those someday projects you just have not been able to get to…finish!
Invest in your retirement
If you qualify, you have until April 15 to contribute to a traditional IRA and still be eligible to take a deduction for 2015, even if you have already filed your return. It would require filing an amended return, but that could mean more money in your pocket and more money in your retirement account.
If you have already made your 2015 IRA contribution, you could still contribute that refund and get a jump on 2016. For those who are not eligible to take advantage of the traditional IRA, there’s the Roth IRA, which offers tax-free growth and distributions. There are also a multitude of non-tax advantaged investment options available you.
Found money can be fun, however, your tax refund is not found money. It is not that twenty dollar bill you found in your suit pocket and it shouldn’t be treated as such. That refund is the return of your money. With a little bit of planning you can put it to work with purpose.
“The plans of the diligent are sure of profit, but all rash haste leads certainly to poverty.”
Proverbs 21:5
3/28/16
THAT TAX REFUND!
Ah, those tax refunds. What should I do?
Hopefully your taxes have been filed and if you were not required to pay more in taxes, you have your tax refund in hand or soon will. What are your plans? If you are like many, those checks are found money and will quickly slide through your fingers. However, those checks aren’t really found money they are the return of your hard earned cash – the return of your tax withholding overpayment, your interest free loan to the state and federal governments. So what’s your plan?
This year, why not put those dollars to work. Instead of viewing your refunds as a windfall, treat them as the fruit of your labor and used them accordingly. Here are a few suggestions you may want to consider.
Invest in yourself
What are your job skills looking like? Is there anything you need to brush up on? Are there any areas that need improvement? Anything new that you could bring to the table, that would make you a more valuable employee?
Use the refund to take a class, a workshop or a self-study program. Think self-improvement. You don’t have to limit yourself to work related concerns. There is a world of things to learn out there. Find something you have wanted to explore and take advantage of the opportunity.
Invest in your family
I don’t know the size of your refund, but you may want to consider doing something special with those who you love. It could be something as simple as a special dinner celebrating family or a short (or long) vacation. Use your refund to make time that, you otherwise couldn’t afford, to be with and enjoy your family. Life is short again take advantage of the opportunity.
Invest in your home
There are always things around the house that are left undone. Maybe a room that needs to be painted – maybe the whole house. You may have a faucet that’s dripping, a carpet that needs repair or a cabinet door that needs adjusting. Your refund could be used to hire the help needed to get some, if not all, of those someday projects you just have not been able to get to…finish!
Invest in your retirement
If you qualify, you have until April 15 to contribute to a traditional IRA and still be eligible to take a deduction for 2015, even if you have already filed your return. It would require filing an amended return, but that could mean more money in your pocket and more money in your retirement account.
If you have already made your 2015 IRA contribution, you could still contribute that refund and get a jump on 2016. For those who are not eligible to take advantage of the traditional IRA, there’s the Roth IRA, which offers tax-free growth and distributions. There are also a multitude of non-tax advantaged investment options available you.
Found money can be fun, however, your tax refund is not found money. It is not that twenty dollar bill you found in your suit pocket and it shouldn’t be treated as such. That refund is the return of your money. With a little bit of planning you can put it to work with purpose.
“The plans of the diligent are sure of profit, but all rash haste leads certainly to poverty.”
Proverbs 21:5
Issue 750
3/14/16
Charles Allmon
Last October one of the most successful investment newsletter editors, Charles Allmon, died at age 94. Few investors knew of Allmon or of his success. He didn't have the notoriety of a Warren Buffett or Carl Icahn, but for over 40 years his newsletter, Growth Stock Outlook, was among the top performing newsletters as rated by Hulbert Financial Digest. He discontinued his publication in 2008.
Here are a few of the lessons to be learned from Charles Allman's career.
Value Trumps Growth
Allmon was primarily a value investor. He advocated buying only stocks of companies that were trading at deep discounts to their net worth. Allmon would then hold those stocks until the share price appreciated to a level that reflected the company’s true value – no matter how long it took. Though he did from time to time favor faster growing companies, his strength lied in his ability to recognize and capitalize on value. Safety in investing, if there is such a thing, comes with understanding of the true value of what it is you are buying and then buy it when it's on sale.
Slow And Steady
In many years the total return of Allmon’s deep value approach to investing would fall well below the overall returns in the broader market. This was especially true with bull market peaks. However the bear markets that followed those peaks would reduce the broad market average returns to below those achieved with Allmon’s portfolio. For Allmon the joy of beating the market in up years was not worth the pain of lagging the market when the market was down. Consistency of performance is far more important than the phenomenal returns in any given year, especially when you are striving to achieve a goal like retirement.
High Risk Does Not Always Equal Stellar Returns
You can't get high returns without accepting high risk, or at least, that's what conventional wisdom would lead us to believe. However Allmon's success demonstrated that is not always true. He understood the day to day risk that the market brought with it and he was able to take advantage of short-term inconsistencies and profit from them in the long-term. Though his overall lifetime long-term returns did fall slightly below the returns of the broad market, the volatility (risk) of his portfolios were less than half, making his risk adjusted returns well above those of the market as a whole. Using any market index as a standard for your success in the long-term could prove foolhardy. A better standard, as Allmon demonstrated, are your goals and objectives -- choosing investments that best support your success.
Never Lose Money
Charles Allmon understood the power of compounding like few others. More importantly he understood the effects that negative years can have on the long-term success of a portfolio. In the 44 years that he published the Growth Stock Outlook Allmon never had a down year. That's a record that even Warren Buffet can't boast. It's a good thing to remember that you don't make your money in up years; you make your money by not giving it back in the down years.
Charles Allmon was a great investor as his lifetime of investing success clearly demonstrated. From time to time I would pick up a copy of his Growth Stock Outlook not so much for his current stock recommendations but for his commentaries. What I discovered was that Allmon was consistent. He clearly knew who he was, what it was he was looking for in an investment, the risk he was willing to take, as well as the outcome he expected. From that he rarely deviated. Because of that grounding, as opportunities presented themselves, he was prepared to take action and more importantly he did take action. That is a lesson we all should learn -- to our own selves be true.
“The plans of the diligent are sure of profit, but all rash haste leads certainly to poverty.” Proverbs 21:
3/14/16
Charles Allmon
Last October one of the most successful investment newsletter editors, Charles Allmon, died at age 94. Few investors knew of Allmon or of his success. He didn't have the notoriety of a Warren Buffett or Carl Icahn, but for over 40 years his newsletter, Growth Stock Outlook, was among the top performing newsletters as rated by Hulbert Financial Digest. He discontinued his publication in 2008.
Here are a few of the lessons to be learned from Charles Allman's career.
Value Trumps Growth
Allmon was primarily a value investor. He advocated buying only stocks of companies that were trading at deep discounts to their net worth. Allmon would then hold those stocks until the share price appreciated to a level that reflected the company’s true value – no matter how long it took. Though he did from time to time favor faster growing companies, his strength lied in his ability to recognize and capitalize on value. Safety in investing, if there is such a thing, comes with understanding of the true value of what it is you are buying and then buy it when it's on sale.
Slow And Steady
In many years the total return of Allmon’s deep value approach to investing would fall well below the overall returns in the broader market. This was especially true with bull market peaks. However the bear markets that followed those peaks would reduce the broad market average returns to below those achieved with Allmon’s portfolio. For Allmon the joy of beating the market in up years was not worth the pain of lagging the market when the market was down. Consistency of performance is far more important than the phenomenal returns in any given year, especially when you are striving to achieve a goal like retirement.
High Risk Does Not Always Equal Stellar Returns
You can't get high returns without accepting high risk, or at least, that's what conventional wisdom would lead us to believe. However Allmon's success demonstrated that is not always true. He understood the day to day risk that the market brought with it and he was able to take advantage of short-term inconsistencies and profit from them in the long-term. Though his overall lifetime long-term returns did fall slightly below the returns of the broad market, the volatility (risk) of his portfolios were less than half, making his risk adjusted returns well above those of the market as a whole. Using any market index as a standard for your success in the long-term could prove foolhardy. A better standard, as Allmon demonstrated, are your goals and objectives -- choosing investments that best support your success.
Never Lose Money
Charles Allmon understood the power of compounding like few others. More importantly he understood the effects that negative years can have on the long-term success of a portfolio. In the 44 years that he published the Growth Stock Outlook Allmon never had a down year. That's a record that even Warren Buffet can't boast. It's a good thing to remember that you don't make your money in up years; you make your money by not giving it back in the down years.
Charles Allmon was a great investor as his lifetime of investing success clearly demonstrated. From time to time I would pick up a copy of his Growth Stock Outlook not so much for his current stock recommendations but for his commentaries. What I discovered was that Allmon was consistent. He clearly knew who he was, what it was he was looking for in an investment, the risk he was willing to take, as well as the outcome he expected. From that he rarely deviated. Because of that grounding, as opportunities presented themselves, he was prepared to take action and more importantly he did take action. That is a lesson we all should learn -- to our own selves be true.
“The plans of the diligent are sure of profit, but all rash haste leads certainly to poverty.” Proverbs 21:
Issue 748
2/29/16
TAXES:
ARE YOU PAYING TOO MUCH?
Render unto Caesar what is Caesar’s…and do we as Americans render. According to the Tax Foundation, in Washington, DC, we will work from January 1st to April 24th, simply to earn enough money to pay our tax obligations, 114 days! Americans will pay $3.3 trillion in federal taxes and $1.5 trillion in state taxes, for a total tax bill of $4.8 trillion, or 31 percent of total earnings. I do not believe that even Caesar would dare to have asked so much from Rome.
Sadly the taxman must be paid, but here are a few tax credits that just might help lighten your load.
Saver’s Tax Credit
How would you like to get paid to save? The Saver’s Tax Credit does just that. If your adjusted gross income is $30,500 or less ($61,000 for married couples) you are eligible for a tax credit of up to $1,000 just for saving for your retirement. It makes no difference if you contributed to a 401(k), 403(b), traditional IRA or Roth IRA, you can claim a tax credit of between 10% to 50% of every dollar saved in a qualified retirement plan.
Earned Income Tax Credit
How would you like to get paid to work? I mean over and above your wages. For those of you who are single and have an adjusted gross income less than $14,830, or $20,330 for those married and filing jointly you could be eligible for an Earned Income Tax Credit ranging from $503 to $6,242. And the credit is refundable
The income limits for the Earned Income Tax Credit is low but there are numerous exceptions. It would be well worth your time to see if you qualify. For example a couple filing jointly with three or more children and an adjusted gross income of $53,267 would still qualify for the credit.
Child Tax Credit
How would you like to get paid for having kids? That's right there is a tax credit to help offset the high cost of raising children. For low and middle income earners there is $1,000 credit for every child you can claim as dependent under the age of 17. The credit is income based and is gradually reduced for those filing a joint return with income above $110,000 ($75,000 on single and head-of-household returns). There is also no limit to how many children you can claim, as long as they qualify.
As an added bonus, the tax credit is even refundable. If the credit exceeds your total taxes obligation, under the Additional Child Tax Credit, the IRS will write you a check for the excess. The only requirement is that you have an earned income greater than $3,000.
American Opportunity Credit
How would you like to get paid to go to school? There is a credit to help offset the tuition costs of college as well as many other related educational expenses that have been incurred throughout 2014.
The American Opportunity Credit is available for individuals who have a modified adjusted gross income below $90,000 ($180,000 for those filing jointly). For those with higher incomes the credit is still available but phases out as their income rises. The $2,500 credit, like the child tax, is refundable. However it is limited. Only 40% of the credit that exceeds your tax liability can be refunded.
Supreme Court Justice Learned Hand wrote "Anyone may arrange his affairs so that his taxes shall be as low as possible; he is not bound to choose that pattern which best pays the treasury … nobody owes any public duty to pay more than the law demands." Do your homework. There are many credits and deductions that are available to you, but you have to do the research. If you don't have the time or the inclination I encourage you to seek out help from a qualified tax professional. No one should ever pay more than the law demands.
“Pay each one his due; taxes to whom taxes are due, toll to whom toll is due, respect and honor to everyone who deserves them.” Romans 13:7
2/29/16
TAXES:
ARE YOU PAYING TOO MUCH?
Render unto Caesar what is Caesar’s…and do we as Americans render. According to the Tax Foundation, in Washington, DC, we will work from January 1st to April 24th, simply to earn enough money to pay our tax obligations, 114 days! Americans will pay $3.3 trillion in federal taxes and $1.5 trillion in state taxes, for a total tax bill of $4.8 trillion, or 31 percent of total earnings. I do not believe that even Caesar would dare to have asked so much from Rome.
Sadly the taxman must be paid, but here are a few tax credits that just might help lighten your load.
Saver’s Tax Credit
How would you like to get paid to save? The Saver’s Tax Credit does just that. If your adjusted gross income is $30,500 or less ($61,000 for married couples) you are eligible for a tax credit of up to $1,000 just for saving for your retirement. It makes no difference if you contributed to a 401(k), 403(b), traditional IRA or Roth IRA, you can claim a tax credit of between 10% to 50% of every dollar saved in a qualified retirement plan.
Earned Income Tax Credit
How would you like to get paid to work? I mean over and above your wages. For those of you who are single and have an adjusted gross income less than $14,830, or $20,330 for those married and filing jointly you could be eligible for an Earned Income Tax Credit ranging from $503 to $6,242. And the credit is refundable
The income limits for the Earned Income Tax Credit is low but there are numerous exceptions. It would be well worth your time to see if you qualify. For example a couple filing jointly with three or more children and an adjusted gross income of $53,267 would still qualify for the credit.
Child Tax Credit
How would you like to get paid for having kids? That's right there is a tax credit to help offset the high cost of raising children. For low and middle income earners there is $1,000 credit for every child you can claim as dependent under the age of 17. The credit is income based and is gradually reduced for those filing a joint return with income above $110,000 ($75,000 on single and head-of-household returns). There is also no limit to how many children you can claim, as long as they qualify.
As an added bonus, the tax credit is even refundable. If the credit exceeds your total taxes obligation, under the Additional Child Tax Credit, the IRS will write you a check for the excess. The only requirement is that you have an earned income greater than $3,000.
American Opportunity Credit
How would you like to get paid to go to school? There is a credit to help offset the tuition costs of college as well as many other related educational expenses that have been incurred throughout 2014.
The American Opportunity Credit is available for individuals who have a modified adjusted gross income below $90,000 ($180,000 for those filing jointly). For those with higher incomes the credit is still available but phases out as their income rises. The $2,500 credit, like the child tax, is refundable. However it is limited. Only 40% of the credit that exceeds your tax liability can be refunded.
Supreme Court Justice Learned Hand wrote "Anyone may arrange his affairs so that his taxes shall be as low as possible; he is not bound to choose that pattern which best pays the treasury … nobody owes any public duty to pay more than the law demands." Do your homework. There are many credits and deductions that are available to you, but you have to do the research. If you don't have the time or the inclination I encourage you to seek out help from a qualified tax professional. No one should ever pay more than the law demands.
“Pay each one his due; taxes to whom taxes are due, toll to whom toll is due, respect and honor to everyone who deserves them.” Romans 13:7
Issue 746
2/15/16
40 DAYS FOR LIFE
Throughout the Bible the number forty has been associated with change. It is often a period set aside for fasting and prayer in anticipation and preparation for events yet to come. February 10th, Ash Wednesday, marked the beginning of another forty days – 40 Days for Life. During these forty days of Lent, Christians across America will be gathering in front of Planned Parenthood to pray, to worship and to be a public witness to God’s love – to stand up for life.
It is estimated that on average 3,332 babies are killed each day by abortions performed in the United States. That’s one child’s death every 30 seconds – over 1.2 million deaths every year. In 2004 Planned Parenthood alone was responsible for over 327,000 of those abortions and received over $528,000,000 in government – read taxpayer – funding. The culture of death has become big business.
Unfortunately too many Christians, without even knowing it, are profiting from the business of abortion. They are not doing so through their checkbooks, but it is being done on their behalf, stealthily, through their investments.
I recently screened the holdings of the largest index mutual fund in America, the Vanguard 500 Index Fund. Over 73% of the assets held in that fund are of companies involved in activities and industries that most Christians would find morally objectionable, with over 33% involved in the industry of death. Either as a contributor to organizations like Planned Parenthood, or as a manufacturer of the morning after pill and contraceptives, or as a provider of abortions at for profit facilities and hospitals, or by involvement in embryonic stem cell research and experimentation, or by making abortion on demand part of their employee benefit package.
The Vanguard 500 Index Fund does not stand alone. Sadly, when I have run the same moral screens on many other mutual funds I have found their investments too put Christian shareholders in a place of moral compromise. Though the percentages change from fund to fund, companies financially involved in the abortion industries are major profit centers for the vast majority of mutual funds. So how can we manage our investments and stay true to our pro-life values?
Fortunately there are a number of mutual fund companies that have made life a core value in their portfolios excluding all companies that have any financial interest in the abortion industry. By moving Christ to the center of their investments portfolios many of these mutual fund companies have found that you can do well by doing what is right.
Through these days of Lent why not make them pro-life. Get involved. Take action. Set aside time each day to pray for the end of abortion. Take an hour out of your week and join fellow Christians in the 40 Days for Life Vigil (www.40daysforlife.com/coloradosprings). And, finally, take a look at your investments and find out where you are making your money.
“…I have set before you life and death, the blessing and the curse. Choose life, then, so that you and your descendants may live.” Dt 30:19
2/15/16
40 DAYS FOR LIFE
Throughout the Bible the number forty has been associated with change. It is often a period set aside for fasting and prayer in anticipation and preparation for events yet to come. February 10th, Ash Wednesday, marked the beginning of another forty days – 40 Days for Life. During these forty days of Lent, Christians across America will be gathering in front of Planned Parenthood to pray, to worship and to be a public witness to God’s love – to stand up for life.
It is estimated that on average 3,332 babies are killed each day by abortions performed in the United States. That’s one child’s death every 30 seconds – over 1.2 million deaths every year. In 2004 Planned Parenthood alone was responsible for over 327,000 of those abortions and received over $528,000,000 in government – read taxpayer – funding. The culture of death has become big business.
Unfortunately too many Christians, without even knowing it, are profiting from the business of abortion. They are not doing so through their checkbooks, but it is being done on their behalf, stealthily, through their investments.
I recently screened the holdings of the largest index mutual fund in America, the Vanguard 500 Index Fund. Over 73% of the assets held in that fund are of companies involved in activities and industries that most Christians would find morally objectionable, with over 33% involved in the industry of death. Either as a contributor to organizations like Planned Parenthood, or as a manufacturer of the morning after pill and contraceptives, or as a provider of abortions at for profit facilities and hospitals, or by involvement in embryonic stem cell research and experimentation, or by making abortion on demand part of their employee benefit package.
The Vanguard 500 Index Fund does not stand alone. Sadly, when I have run the same moral screens on many other mutual funds I have found their investments too put Christian shareholders in a place of moral compromise. Though the percentages change from fund to fund, companies financially involved in the abortion industries are major profit centers for the vast majority of mutual funds. So how can we manage our investments and stay true to our pro-life values?
Fortunately there are a number of mutual fund companies that have made life a core value in their portfolios excluding all companies that have any financial interest in the abortion industry. By moving Christ to the center of their investments portfolios many of these mutual fund companies have found that you can do well by doing what is right.
Through these days of Lent why not make them pro-life. Get involved. Take action. Set aside time each day to pray for the end of abortion. Take an hour out of your week and join fellow Christians in the 40 Days for Life Vigil (www.40daysforlife.com/coloradosprings). And, finally, take a look at your investments and find out where you are making your money.
“…I have set before you life and death, the blessing and the curse. Choose life, then, so that you and your descendants may live.” Dt 30:19
Issue 744
2/1/16
GETTING INVESTMENT FIT
Have you ever made the decision to get in shape? To start eating right and working out. To rebuild that fit, healthy body you once had or wish you had. Did you replace the chips with celery sticks, join a gym and maybe even bought some exercise equipment, so you could work out at home? How did that work out for you? If you were like so many, the celery sticks wilted away in the crisper, you’re still paying the monthly fee to the gym and the exercise equipment has become yet another clothes rack. So what happened? I’m not a fitness coach but I suspect that, even though we had a goal and willingness to take action, we failed to have a systematic plan, filled with short term achievable goals, and a way of recognizing success.
In investing I have found that many people handle their finances the same way. They will establish a financial goal, develop a plan and even put the plan in action. Yet, like so many things in life, the lack of immediate success and the occasional setbacks create frustration causing them to question their choices and they quickly become distracted with other opportunities.
Here are a few ideas to help you get in financial shape and investment fit.
Don’t Wait
Make the decision to get started now. Like getting fit, the object is to get off the couch and start moving. Don’t let the ifs and whens get in the way. There is always a reason to wait – once the credit cards are paid off; once school starts; once the raise comes through; once the kids are out of the house. The list is almost endless, so put time on your side (especially for long term investing), set the excuses aside and get started, even if you’re not sure where you’re headed. I can guarantee that your financial dreams will take money, so do something.
Set Achievable Goals
Your long term goal may be a successful retirement. If you’re just staring out, that number could seem almost insurmountable – maybe even hopeless. Like building a body like Arnold’s, the task can seem overwhelming. So start with the small steps. If you’ve never contributed to your 401(k), the goal may be to start with 1% of your income and work up from there. Or you could start a systematic investment plan with a mutual fund. Many funds will open an account with as little as $50.00. Set short term goals that are easily achievable. Success breeds success.
Use The Right Equipment
If your goal is to run a marathon, spending all your time on building upper body strength is probably not the best plan. The same is true with investing. Choose investments that support your goal. If you’re trying to build an emergency fund use a savings account. If your goal is a little farther out you might consider bonds or other low volatility investments. For long term goals, stay with equities. They’re a lot more volatile but over the long term they have provided strong returns. Don’t confuse short term volatility with long term success.
Stick To The Plan
Life will get in the way, but don’t let that keep you from success. You may have found that after that first day at the gym your body was sore and you wanted to quit, yet those who persevered were well rewarded. Successful investing takes time and the lack of immediate success can often be frustrating. So celebrate the successes you can. If the market is down, celebrate the fact that you are buying low. If you have to tap into your emergency fund, celebrate the fact that you had the money available to see you through. Whatever you do, don’t abandon the plan. Keep the faith. Your success may well be dependent upon it.
Hire A Coach
You don’t have to do it alone. If you’re not sure where to start or what you should be doing now, hire a coach. At the gym you can work with a trainer who can evaluate where you are now, help you establish fitness objectives and put together a workout plan. In the arena of investing a good financial planner does very much the same thing. Working with a professional can bring experiences that may reduce your learning curve. They can help you get on the right path and keep you motivated along the way.
Like a well-toned body, financial success is achievable. However it does require action. It does require commitment as well as diligence. It does require time. However, you will be better for it if you are willing to make it happen. Investment fitness also has one other benefit – it doesn’t require you to be at the gym at 4:30 in the morning. Here’s to your success.
“It is like a mustard seed which, when planted in the soil, is the smallest of all the earth’s seeds. Yet … springs up to become the largest of shrubs,” Mark 4:31-32
2/1/16
GETTING INVESTMENT FIT
Have you ever made the decision to get in shape? To start eating right and working out. To rebuild that fit, healthy body you once had or wish you had. Did you replace the chips with celery sticks, join a gym and maybe even bought some exercise equipment, so you could work out at home? How did that work out for you? If you were like so many, the celery sticks wilted away in the crisper, you’re still paying the monthly fee to the gym and the exercise equipment has become yet another clothes rack. So what happened? I’m not a fitness coach but I suspect that, even though we had a goal and willingness to take action, we failed to have a systematic plan, filled with short term achievable goals, and a way of recognizing success.
In investing I have found that many people handle their finances the same way. They will establish a financial goal, develop a plan and even put the plan in action. Yet, like so many things in life, the lack of immediate success and the occasional setbacks create frustration causing them to question their choices and they quickly become distracted with other opportunities.
Here are a few ideas to help you get in financial shape and investment fit.
Don’t Wait
Make the decision to get started now. Like getting fit, the object is to get off the couch and start moving. Don’t let the ifs and whens get in the way. There is always a reason to wait – once the credit cards are paid off; once school starts; once the raise comes through; once the kids are out of the house. The list is almost endless, so put time on your side (especially for long term investing), set the excuses aside and get started, even if you’re not sure where you’re headed. I can guarantee that your financial dreams will take money, so do something.
Set Achievable Goals
Your long term goal may be a successful retirement. If you’re just staring out, that number could seem almost insurmountable – maybe even hopeless. Like building a body like Arnold’s, the task can seem overwhelming. So start with the small steps. If you’ve never contributed to your 401(k), the goal may be to start with 1% of your income and work up from there. Or you could start a systematic investment plan with a mutual fund. Many funds will open an account with as little as $50.00. Set short term goals that are easily achievable. Success breeds success.
Use The Right Equipment
If your goal is to run a marathon, spending all your time on building upper body strength is probably not the best plan. The same is true with investing. Choose investments that support your goal. If you’re trying to build an emergency fund use a savings account. If your goal is a little farther out you might consider bonds or other low volatility investments. For long term goals, stay with equities. They’re a lot more volatile but over the long term they have provided strong returns. Don’t confuse short term volatility with long term success.
Stick To The Plan
Life will get in the way, but don’t let that keep you from success. You may have found that after that first day at the gym your body was sore and you wanted to quit, yet those who persevered were well rewarded. Successful investing takes time and the lack of immediate success can often be frustrating. So celebrate the successes you can. If the market is down, celebrate the fact that you are buying low. If you have to tap into your emergency fund, celebrate the fact that you had the money available to see you through. Whatever you do, don’t abandon the plan. Keep the faith. Your success may well be dependent upon it.
Hire A Coach
You don’t have to do it alone. If you’re not sure where to start or what you should be doing now, hire a coach. At the gym you can work with a trainer who can evaluate where you are now, help you establish fitness objectives and put together a workout plan. In the arena of investing a good financial planner does very much the same thing. Working with a professional can bring experiences that may reduce your learning curve. They can help you get on the right path and keep you motivated along the way.
Like a well-toned body, financial success is achievable. However it does require action. It does require commitment as well as diligence. It does require time. However, you will be better for it if you are willing to make it happen. Investment fitness also has one other benefit – it doesn’t require you to be at the gym at 4:30 in the morning. Here’s to your success.
“It is like a mustard seed which, when planted in the soil, is the smallest of all the earth’s seeds. Yet … springs up to become the largest of shrubs,” Mark 4:31-32
Issue 742
1/18/16
A BEAR MARKET?
To describe the equities markets of late as volatile would be an understatement. This year to date performance goes on record as the worst January start ever for the Dow Jones Industrial Average. There have been market shutdowns in China after the Shanghai Composite dropped over 7%.The price of a barrel of oil has continued to fall and briefly fell below $30.00. We’ve seen negative earnings for the last two quarters for the S & P 500 and there may be a third. The markets are full of problems and as you would expect their performance is erratic. With this much uncertainty are we entering a bear market, a market where we see a 20% or better drop in value? I don’t know. But I do know bear markets are coming. We just don't know when they’re coming, how long they will last or how severe they will be. You never really know when you're in a bear market until you are in.
Here are a few points to consider just in case the bear wakes from its long sleep.
Patience Is A Virtue
Just because the markets are doing something doesn't mean you have to. In times of volatility, like we are seeing now, it can make sense to do nothing. Many of those who sat out the recession of 2008, and chose to do nothing, are now much better off financially today than they were in 2007. Sometimes procrastination is a virtue. Before you do anything make sure that you know what it is you're trying to achieve and how your actions will support those goals in the short-term and long.
Check Your Emotions at the Door
In 2008 many fortunes were lost simply because people panicked. Too many sold their investments at the bottom, locking in their losses, because they couldn't stand the pain of seeing their investments go down. Too many of those same investors were rushing, just a few years before, to invest in the markets because they were going up and they didn't want lose out. Buying high and selling low is a sure formula for financial ruin. Don't let your emotions get in the way.
The Crowd Is Generally Wrong
Warren Buffett is quoted as saying “be fearful when others are greedy and be greedy only when others are fearful.” Those are wise words. In the world of investing I have found that too many have lost too much because they based their investment decisions on what everyone else was doing. Hold your own counsel. Make sure that you understand what you are investing in, what are the consequences of the risk you are taking and what is the likelihood of its success. If you don't have the time or the skills to do the necessary research, work with someone who does.
Stick To The Plan
Hopefully before you start investing you created a plan. It could be as simple as committing to putting away a part of your paycheck in the company 401(k). Or it could be as complicated as a retirement income plan based upon risk analysis for cash needs for you and your spouse as you age. Whatever your plan there was a reason for creating it -- stick to it. For those who committed to investing throughout 2008 and 2009, they were able to buy stocks in wonderful companies at incredibly discounted prices.
Cash Is King
There is nothing wrong with taking profits and building your cash reserves. When the bear does come there will be a buying opportunity and you will need cash to take advantage of them. Cash also provides a degree of safety and liquidity that can see you through an extended downturn in the markets. Just remember that with cash also comes risk – the risk of inflation. Dollars that you hold today will have a lower purchasing power tomorrow.
As I said before I don't know when the bear market will come and I don't believe anyone else does either. But I do know that it will come those who are prepared will be able to withstand any losses and maybe even take advantage of the opportunities. Be prepared.
“…husband all the food of the coming good years … that the land may not perish in the famine!” Genesis 40:35-36
1/18/16
A BEAR MARKET?
To describe the equities markets of late as volatile would be an understatement. This year to date performance goes on record as the worst January start ever for the Dow Jones Industrial Average. There have been market shutdowns in China after the Shanghai Composite dropped over 7%.The price of a barrel of oil has continued to fall and briefly fell below $30.00. We’ve seen negative earnings for the last two quarters for the S & P 500 and there may be a third. The markets are full of problems and as you would expect their performance is erratic. With this much uncertainty are we entering a bear market, a market where we see a 20% or better drop in value? I don’t know. But I do know bear markets are coming. We just don't know when they’re coming, how long they will last or how severe they will be. You never really know when you're in a bear market until you are in.
Here are a few points to consider just in case the bear wakes from its long sleep.
Patience Is A Virtue
Just because the markets are doing something doesn't mean you have to. In times of volatility, like we are seeing now, it can make sense to do nothing. Many of those who sat out the recession of 2008, and chose to do nothing, are now much better off financially today than they were in 2007. Sometimes procrastination is a virtue. Before you do anything make sure that you know what it is you're trying to achieve and how your actions will support those goals in the short-term and long.
Check Your Emotions at the Door
In 2008 many fortunes were lost simply because people panicked. Too many sold their investments at the bottom, locking in their losses, because they couldn't stand the pain of seeing their investments go down. Too many of those same investors were rushing, just a few years before, to invest in the markets because they were going up and they didn't want lose out. Buying high and selling low is a sure formula for financial ruin. Don't let your emotions get in the way.
The Crowd Is Generally Wrong
Warren Buffett is quoted as saying “be fearful when others are greedy and be greedy only when others are fearful.” Those are wise words. In the world of investing I have found that too many have lost too much because they based their investment decisions on what everyone else was doing. Hold your own counsel. Make sure that you understand what you are investing in, what are the consequences of the risk you are taking and what is the likelihood of its success. If you don't have the time or the skills to do the necessary research, work with someone who does.
Stick To The Plan
Hopefully before you start investing you created a plan. It could be as simple as committing to putting away a part of your paycheck in the company 401(k). Or it could be as complicated as a retirement income plan based upon risk analysis for cash needs for you and your spouse as you age. Whatever your plan there was a reason for creating it -- stick to it. For those who committed to investing throughout 2008 and 2009, they were able to buy stocks in wonderful companies at incredibly discounted prices.
Cash Is King
There is nothing wrong with taking profits and building your cash reserves. When the bear does come there will be a buying opportunity and you will need cash to take advantage of them. Cash also provides a degree of safety and liquidity that can see you through an extended downturn in the markets. Just remember that with cash also comes risk – the risk of inflation. Dollars that you hold today will have a lower purchasing power tomorrow.
As I said before I don't know when the bear market will come and I don't believe anyone else does either. But I do know that it will come those who are prepared will be able to withstand any losses and maybe even take advantage of the opportunities. Be prepared.
“…husband all the food of the coming good years … that the land may not perish in the famine!” Genesis 40:35-36
Issue 740
1/4/16
FIVE FOR THE NEW YEAR
Lose weight. Quit smoking. Get fit. Eat healthy. Volunteer. The New Year is upon us and with its promise of new beginnings comes the plethora of resolutions. It is estimated that more than half of all Americans make New Year's resolutions. Sadly, by June, nearly all of those good intentions will be abandoned. I don't believe, however, that the lack of follow-through is a reason not to seek real change. In my career as a financial planner I have seen the changes that people can make in their lives when they commit to their own financial success.
Here are a few financial resolves you may want to consider for this New Year:
Pay Yourself First
Before you pay the butcher, the baker and the candlestick maker or in our lives the banker, the grocer or cable provider pay yourself first. Make the commitment to set-aside apart of your earnings for long-term savings and investing. A good target is to save between 10 to 15% of your total income. If that doesn't work find the amount that does and commit to it. A strategy that I have found helpful for many is to start small, saving an amount that is slightly uncomfortable, and increasing it every quarter. Over time it is amazing how much money can be accumulated if you decide to pay yourself first. Remember the words of Algamish, from The Richest Man In Babylon, "a part of all I earn is mine to keep."
Make It Automatic
Take temptation out of the picture. It is nearly impossible to escape the pressure to spend and many who have committed to saving have found their good intentions as well as those savings waylaid by surrendering to temptation. One way to avoid undermining your saving’s resolution is to make your savings automatic. If you work for an employer who offers a retirement plan, like a 401(k), you can make contributions directly from your salary or wages. Most banks can establish an automatic investment from your checking account to a savings account. Many mutual fund companies offer systematic investment plans that can be started with as little as $50 per month.
By making your savings automatic you make paying yourself first another bill that needs to be paid. It also eliminates the tendency to save what's left over (if anything) after the bills are paid.
Zero Debt
Commit to no new debt in 2016, and put together a plan to eliminate all your debts (excluding your mortgage) in the next 3 to 5 years. High interest debt is one of the biggest threats to your financial success and can cost you thousands of dollars in unnecessary fees and interest charges – dollars that you could otherwise be using for savings and investing.
If you do use credit cards for the rewards, points or discounts, or to manage monthly cash flow commit to paying all credit cards in full every month. For larger items like a car or new furniture save first and pay cash. Too many make their purchase decisions based on the affordability of the monthly payment but if they look at the real cost, purchase price and interest, they may find their purchase not worth what they will end up paying.
Live Below Your Means
Well below your means. Develop the habit of spending minimally, save your money and don't showcase. I was driving recently with my daughter through an old, modest neighborhood filled with small houses. I pointed to one of the homes and told my daughter that there lived one of my wealthiest clients. She asked, “If they’re so wealthy why do they live there?” I responded, "They’re wealthy because they live there." It is amazing the amount of wealth that can be accumulated over a lifetime if you choose to spend your money on what is needed as opposed to what is wanted and save the rest.
Expand Your Knowledge
Read. Become a student of money. Take the time to learn about key financial concepts. There are many great books on money management, investing, economics, and financial history. Make the commitment to read something daily that will strengthen and expand your understanding of finance. With that said, I would encourage you to avoid the "pop" investment books that promise instant success and untold wealth. Stick to the books that address the hows and the whys. If you haven’t read it yet, pick up a copy of “The Richest Man in Babylon,” it's a great primer for success.
The New Year, resolutions made and resolutions broken. What will be your resolve? This could be the year to make meaningful financial changes in your life. Take an idea or two and commit to it, your finances will be glad you did.
“The plans of the diligent are sure of profit, but all rash haste leads certainly to poverty.” Proverbs 21:5
1/4/16
FIVE FOR THE NEW YEAR
Lose weight. Quit smoking. Get fit. Eat healthy. Volunteer. The New Year is upon us and with its promise of new beginnings comes the plethora of resolutions. It is estimated that more than half of all Americans make New Year's resolutions. Sadly, by June, nearly all of those good intentions will be abandoned. I don't believe, however, that the lack of follow-through is a reason not to seek real change. In my career as a financial planner I have seen the changes that people can make in their lives when they commit to their own financial success.
Here are a few financial resolves you may want to consider for this New Year:
Pay Yourself First
Before you pay the butcher, the baker and the candlestick maker or in our lives the banker, the grocer or cable provider pay yourself first. Make the commitment to set-aside apart of your earnings for long-term savings and investing. A good target is to save between 10 to 15% of your total income. If that doesn't work find the amount that does and commit to it. A strategy that I have found helpful for many is to start small, saving an amount that is slightly uncomfortable, and increasing it every quarter. Over time it is amazing how much money can be accumulated if you decide to pay yourself first. Remember the words of Algamish, from The Richest Man In Babylon, "a part of all I earn is mine to keep."
Make It Automatic
Take temptation out of the picture. It is nearly impossible to escape the pressure to spend and many who have committed to saving have found their good intentions as well as those savings waylaid by surrendering to temptation. One way to avoid undermining your saving’s resolution is to make your savings automatic. If you work for an employer who offers a retirement plan, like a 401(k), you can make contributions directly from your salary or wages. Most banks can establish an automatic investment from your checking account to a savings account. Many mutual fund companies offer systematic investment plans that can be started with as little as $50 per month.
By making your savings automatic you make paying yourself first another bill that needs to be paid. It also eliminates the tendency to save what's left over (if anything) after the bills are paid.
Zero Debt
Commit to no new debt in 2016, and put together a plan to eliminate all your debts (excluding your mortgage) in the next 3 to 5 years. High interest debt is one of the biggest threats to your financial success and can cost you thousands of dollars in unnecessary fees and interest charges – dollars that you could otherwise be using for savings and investing.
If you do use credit cards for the rewards, points or discounts, or to manage monthly cash flow commit to paying all credit cards in full every month. For larger items like a car or new furniture save first and pay cash. Too many make their purchase decisions based on the affordability of the monthly payment but if they look at the real cost, purchase price and interest, they may find their purchase not worth what they will end up paying.
Live Below Your Means
Well below your means. Develop the habit of spending minimally, save your money and don't showcase. I was driving recently with my daughter through an old, modest neighborhood filled with small houses. I pointed to one of the homes and told my daughter that there lived one of my wealthiest clients. She asked, “If they’re so wealthy why do they live there?” I responded, "They’re wealthy because they live there." It is amazing the amount of wealth that can be accumulated over a lifetime if you choose to spend your money on what is needed as opposed to what is wanted and save the rest.
Expand Your Knowledge
Read. Become a student of money. Take the time to learn about key financial concepts. There are many great books on money management, investing, economics, and financial history. Make the commitment to read something daily that will strengthen and expand your understanding of finance. With that said, I would encourage you to avoid the "pop" investment books that promise instant success and untold wealth. Stick to the books that address the hows and the whys. If you haven’t read it yet, pick up a copy of “The Richest Man in Babylon,” it's a great primer for success.
The New Year, resolutions made and resolutions broken. What will be your resolve? This could be the year to make meaningful financial changes in your life. Take an idea or two and commit to it, your finances will be glad you did.
“The plans of the diligent are sure of profit, but all rash haste leads certainly to poverty.” Proverbs 21:5
Issue 738
12/21/15
WISE GIVING
When it's all said and done, for investors, this year didn't leave much to write home about. Sure it had its ups and downs. The beginning of the year looked quite promising, and then the stock markets retreated. In August we saw a correction of better than -10%, followed by somewhat of a recovery that put most equity markets even on the year. Now, if the markets continue, as they have been, this will prove to be a down year. For investors with well diversified portfolios, expected returns on the year are flat, maybe even a bit negative. For those invested heavily in commodities, like oil, the returns will be substantially lower. So what's a long-term investor to do?
I was once given a piece of advice. It went something like this. If you're at a point in life where it seems like nothing is working, that the world has turned against you and that there's no longer an upside, it's time for a change. Not in what you're doing but in your attitude. Instead of focusing on where you're at find someone who is worse off than you and give them a hand.
This is the Christmas season, a time for goodwill among men. For most investors our portfolios have not been kind, but we can be– by giving. There are many who can use our help. Here are some thoughts on giving effectively.
Give With Purpose
This is the time the of year when there seems to be no shortage of those in need. From the person on the street corner, to your Alumni Association, from your Church to local and national charities, and all seem to be asking for help. So how do you give effectively? Too often, we give simply because we've been asked. We give to a need. That's good and it is helpful, but I would like to suggest a more proactive approach to giving – giving with purpose. Take the time to identify what causes are really important to you. What is it you're passionate about? How can you give with the greatest effect? Many charitable needs are monetary while others can benefit from your time and your talents.
Give Strategically
Whether you're planning on giving $10 or $10,000, do your homework. When you give to a charity you are making an investment, not just in that organization but in what you have determined is important. Hopefully, you wouldn't consider investing in a stock, bond, annuity or mutual fund without doing the research. How does the investment work? How does it strengthen your portfolio? What outcome do you expect and when?
You should be doing the same kind of research when investing in a charity. How will your donation be used? How much will go to charitable work and how much to administration? How will you know it's been used effectively? Remember these are your dollars and your contribution to a charitable organization is an investment. When you give strategically you move from being a donor to being a partner in the success of that organization.
Give With Focus
With so many in need it can be tempting to give a small amount of money to many charitable organizations. However, to make the most of your investment, you should consider concentrating your contributions to the one or two charities that best reflect your passion. Fundraising is expense, as is administrative costs and overhead. When you give a small amount to a number of charities a higher percentage of your donation will be used to cover those expenses. By focusing your contribution, more of your funds are available for those needs served by the charity.
Follow Up
Make the time to get personal with the charities you have decided to support. Make a phone call. Contact a director or board member. Get to know the organization and its people. If possible visit the charity. See what they're doing, who they’re helping and the effects that they have on people's lives. You will be inspired.
Between now and the end of the year the markets will be what they will be. Of that you have no control and for the long-term investor that's okay. But if you need to do something I would encourage you to take action, to give and give generously to those who can benefit most from our support. Have a Merry Christmas and a most prosperous new year!
“This day in David’s city a savior has been born to you, the Messiah and Lord.” Luke 2: 11
12/21/15
WISE GIVING
When it's all said and done, for investors, this year didn't leave much to write home about. Sure it had its ups and downs. The beginning of the year looked quite promising, and then the stock markets retreated. In August we saw a correction of better than -10%, followed by somewhat of a recovery that put most equity markets even on the year. Now, if the markets continue, as they have been, this will prove to be a down year. For investors with well diversified portfolios, expected returns on the year are flat, maybe even a bit negative. For those invested heavily in commodities, like oil, the returns will be substantially lower. So what's a long-term investor to do?
I was once given a piece of advice. It went something like this. If you're at a point in life where it seems like nothing is working, that the world has turned against you and that there's no longer an upside, it's time for a change. Not in what you're doing but in your attitude. Instead of focusing on where you're at find someone who is worse off than you and give them a hand.
This is the Christmas season, a time for goodwill among men. For most investors our portfolios have not been kind, but we can be– by giving. There are many who can use our help. Here are some thoughts on giving effectively.
Give With Purpose
This is the time the of year when there seems to be no shortage of those in need. From the person on the street corner, to your Alumni Association, from your Church to local and national charities, and all seem to be asking for help. So how do you give effectively? Too often, we give simply because we've been asked. We give to a need. That's good and it is helpful, but I would like to suggest a more proactive approach to giving – giving with purpose. Take the time to identify what causes are really important to you. What is it you're passionate about? How can you give with the greatest effect? Many charitable needs are monetary while others can benefit from your time and your talents.
Give Strategically
Whether you're planning on giving $10 or $10,000, do your homework. When you give to a charity you are making an investment, not just in that organization but in what you have determined is important. Hopefully, you wouldn't consider investing in a stock, bond, annuity or mutual fund without doing the research. How does the investment work? How does it strengthen your portfolio? What outcome do you expect and when?
You should be doing the same kind of research when investing in a charity. How will your donation be used? How much will go to charitable work and how much to administration? How will you know it's been used effectively? Remember these are your dollars and your contribution to a charitable organization is an investment. When you give strategically you move from being a donor to being a partner in the success of that organization.
Give With Focus
With so many in need it can be tempting to give a small amount of money to many charitable organizations. However, to make the most of your investment, you should consider concentrating your contributions to the one or two charities that best reflect your passion. Fundraising is expense, as is administrative costs and overhead. When you give a small amount to a number of charities a higher percentage of your donation will be used to cover those expenses. By focusing your contribution, more of your funds are available for those needs served by the charity.
Follow Up
Make the time to get personal with the charities you have decided to support. Make a phone call. Contact a director or board member. Get to know the organization and its people. If possible visit the charity. See what they're doing, who they’re helping and the effects that they have on people's lives. You will be inspired.
Between now and the end of the year the markets will be what they will be. Of that you have no control and for the long-term investor that's okay. But if you need to do something I would encourage you to take action, to give and give generously to those who can benefit most from our support. Have a Merry Christmas and a most prosperous new year!
“This day in David’s city a savior has been born to you, the Messiah and Lord.” Luke 2: 11
Issue 736
12/7/15
LAST CHANCE FOR TAX PLANNING
The year is quickly coming to an end and soon we will be facing the arduous task of preparing our 2015 tax returns. Some of us will procrastinate to the April deadline, others will file for extensions and still others will file at the earliest possible moment. Whichever category you fit in I would encourage you to take a little bit of time in this special season to do a preemptive strike – a trial tax return. That's right, in addition to everything else, I am suggesting you do your taxes in December. Too often taxpayers lose out on deductions, which could save them money, because they did not act before the year’s end. Here are a few items that, in my practice I find, are often overlooked.
Review Your Income
Your income is the driving force for determining your tax obligations. It's not just your W-2 income but income from all sources that will determine your tax bracket. Often if your income can be postponed until the following year you can reduce your overall tax bill. For example, if you receive annual income from an annuity it may make sense to instruct the insurance company to forgo payments until early 2016. By doing so you may very well move yourself into a lower tax bracket without creating any unnecessary hardship. If you find that a large part of the income that you are receiving is being taxed as ordinary income (i.e. interest income) you may want to consider taking advantage of investments that produce tax-free or capital gain income. However, this will not help you with your 2015 tax obligation but could reduce your taxes in 2016.
Required Minimum Distribution
IRS required distributions from qualified plans, like IRAs, 401(k)s and other pension plans, are not tax deductible, but I have found too often those who have reached 70 1/2 have failed to take the required distributions. The tax penalties for failing to doing so are quite severe. I would encourage you to review your retirement accounts to make sure that you are in compliance with the distribution requirements.
Harvesting Capital Losses
If year were to end today, like 2014, 2015 would be another flat for diversified investors. The markets are mixed – some up, some down and others even. For investors in the stock market the results have also been mixed. Unfortunately even in mixed markets success brings capital gains tax. Equity mutual funds, who have been writing off capital losses for the last few years, are again expected to be making large capital gain distributions. Even funds who have a lost for the year may be distributing capital gains. For non-qualified accounts, those distributions, whether or not you reinvest them, as well as any profits that you made from the sale of equities will be taxed. Before the year is out review your portfolio looking for investments that have not performed as you had hoped – investments that are worth less than what you paid for them. You may want to consider selling those investments at a loss and using that capital loss to offset the gains that you have made with other investments. Selling an investment at a loss may seem counterintuitive but it can save you money when the taxman calls.
Health Savings Accounts
Contributions to a Health Savings Account (HSA) are tax-deductible. Sadly, too many with high deductible health insurance plans that allow for HSAs, are not taking advantage of that deduction. By fully funding your HSA account not only will you get a deduction for 100% of your contribution you will also get tax-deferred growth on any investment you make with the money as well as tax free distributions when the funds are used for qualified medical expenses – expenses that you would otherwise pay for with after-tax dollars. For those over age 55 the maximum HSA contribution limit is $7,650.
Retirement Catch Up
Another often overlooked tax deferral opportunity is available to those who take advantage of the catch-up provisions offered through most employer-sponsored retirement plans. For those who turned 50 in 2015, as well as those of us who are over 50, the maximum contribution limit to a 401(k), 403(b) and other retirement plans is increased by $5,500. If you have savings that can see you through the end of the year you may want to discuss with your HR department the options you have available for deferring income through year-end and fully funding your retirement account. By doing so you will reduce your taxable income and as a bonus increase the assets working for you in your retirement account.
Over the next few weeks as we countdown to Christmas and the New Year the demands on our time seem limitless. With parties and shopping, cooking and cleaning, Christmas cards and presents the one thing we don't need is one more thing to do. But if you will make the time to visit with your tax professional to review your taxes you may find, at least financially, it was well worth the time.
“The plans of the diligent are sure of profit, but all rash haste leads certainly to poverty.” Proverbs 21:5
12/7/15
LAST CHANCE FOR TAX PLANNING
The year is quickly coming to an end and soon we will be facing the arduous task of preparing our 2015 tax returns. Some of us will procrastinate to the April deadline, others will file for extensions and still others will file at the earliest possible moment. Whichever category you fit in I would encourage you to take a little bit of time in this special season to do a preemptive strike – a trial tax return. That's right, in addition to everything else, I am suggesting you do your taxes in December. Too often taxpayers lose out on deductions, which could save them money, because they did not act before the year’s end. Here are a few items that, in my practice I find, are often overlooked.
Review Your Income
Your income is the driving force for determining your tax obligations. It's not just your W-2 income but income from all sources that will determine your tax bracket. Often if your income can be postponed until the following year you can reduce your overall tax bill. For example, if you receive annual income from an annuity it may make sense to instruct the insurance company to forgo payments until early 2016. By doing so you may very well move yourself into a lower tax bracket without creating any unnecessary hardship. If you find that a large part of the income that you are receiving is being taxed as ordinary income (i.e. interest income) you may want to consider taking advantage of investments that produce tax-free or capital gain income. However, this will not help you with your 2015 tax obligation but could reduce your taxes in 2016.
Required Minimum Distribution
IRS required distributions from qualified plans, like IRAs, 401(k)s and other pension plans, are not tax deductible, but I have found too often those who have reached 70 1/2 have failed to take the required distributions. The tax penalties for failing to doing so are quite severe. I would encourage you to review your retirement accounts to make sure that you are in compliance with the distribution requirements.
Harvesting Capital Losses
If year were to end today, like 2014, 2015 would be another flat for diversified investors. The markets are mixed – some up, some down and others even. For investors in the stock market the results have also been mixed. Unfortunately even in mixed markets success brings capital gains tax. Equity mutual funds, who have been writing off capital losses for the last few years, are again expected to be making large capital gain distributions. Even funds who have a lost for the year may be distributing capital gains. For non-qualified accounts, those distributions, whether or not you reinvest them, as well as any profits that you made from the sale of equities will be taxed. Before the year is out review your portfolio looking for investments that have not performed as you had hoped – investments that are worth less than what you paid for them. You may want to consider selling those investments at a loss and using that capital loss to offset the gains that you have made with other investments. Selling an investment at a loss may seem counterintuitive but it can save you money when the taxman calls.
Health Savings Accounts
Contributions to a Health Savings Account (HSA) are tax-deductible. Sadly, too many with high deductible health insurance plans that allow for HSAs, are not taking advantage of that deduction. By fully funding your HSA account not only will you get a deduction for 100% of your contribution you will also get tax-deferred growth on any investment you make with the money as well as tax free distributions when the funds are used for qualified medical expenses – expenses that you would otherwise pay for with after-tax dollars. For those over age 55 the maximum HSA contribution limit is $7,650.
Retirement Catch Up
Another often overlooked tax deferral opportunity is available to those who take advantage of the catch-up provisions offered through most employer-sponsored retirement plans. For those who turned 50 in 2015, as well as those of us who are over 50, the maximum contribution limit to a 401(k), 403(b) and other retirement plans is increased by $5,500. If you have savings that can see you through the end of the year you may want to discuss with your HR department the options you have available for deferring income through year-end and fully funding your retirement account. By doing so you will reduce your taxable income and as a bonus increase the assets working for you in your retirement account.
Over the next few weeks as we countdown to Christmas and the New Year the demands on our time seem limitless. With parties and shopping, cooking and cleaning, Christmas cards and presents the one thing we don't need is one more thing to do. But if you will make the time to visit with your tax professional to review your taxes you may find, at least financially, it was well worth the time.
“The plans of the diligent are sure of profit, but all rash haste leads certainly to poverty.” Proverbs 21:5
Issue 734
11/23/15
HAPPY FINANCIAL THANKSGIVING
Thanksgiving is upon us. The table will be set, the turkey cooked, with all of its trimmings, and the celebration of thanks will soon begin. I love Thanksgiving, how can you not – family, food and football the three F's of a holiday dedicated to the celebration of life with those closest to us. My prayer for you is that you will truly have a joyous day.
With that said, I would like to add to the three F's two more for which I give thanks. The first is faith. God has blessed us with so much. We are living in the greatest country in the greatest time in history. God has truly been generous and for that I give my thanks. The second is finances. The last handfuls of years have been arduous. In 2008 we entered the great recession; we saw the collapse of the housing market, massive declines in the stock markets and millions losing their jobs. But that too has turned around and for that I am truly thankful.
The Economy
Over the last seven years the economy has been growing; at an anemic pace, but it has been growing. On the whole corporate earnings are up, tax revenues are up, government spending, in part due to sequester, is down and interest rates remain low. All of these make for a strengthening economy.
I recently attended a conference with a number of portfolio managers and economists. The consensus was that the growth we are experiencing is sustainable. On the whole they would like to see stronger growth, but, barring the unforeseen, they believe that we are building a solid economic base. We are not out of the woods, by a long shot, but, all in all it does look good.
The Housing Market
The housing market is a major component of our economy. We are seeing an increase in home sales as well as an increase in new construction. Home values are going up and many homeowners, who found themselves after the housing bubble with mortgages exceeding their home values, are seeing a real increase in their equity. In October the median sales price for an existing home was $243,100 up 5.0% from a year ago. This acceleration in home values has been good for homeowners unfortunately it is preventing many would-be buyers from participating in the market. That compounded with the limited supply of lower-priced homes and rising mortgage rates are keeping first-time homebuyers on the sidelines. That situation, however, does seem to be correcting itself.
Employment Opportunities
Without meaningful jobs and income growth no economy can survive for long. You can only grow profits so much by cutting expenses. At some point in you have to start adding jobs and businesses are hiring. The unemployment rate is coming down The current rate as of October is slightly above 5%, the lowest it has been since 2008. Admittedly many workers are underemployed and far too many are dependent on part-time jobs. But the job market is expanding and that is good for the economy.
The Stock Market
From late 2007 to March of 2009 we saw the Dow Jones Industrial Average lose better than 50% of its value. For most stock investors that was the greatest erosion of wealth experienced in their lifetime. Unfortunately as you may recall it didn't stop there. The economy was in total shambles. But what has happened since then? In the past seven years, since those lows in the mid-6000s, we have seen the Dow rise to a high of 18,351. That is an increase of well over 200%; far exceeding the 14,164 high in October of 2007. For the investors who stayed true to their goals and took advantage of those opportunities they have been handsomely rewarded. Will we continue to see those types of returns? I don't believe so. However, if the economy continues to expand, I do not believe it would be unreasonable to see stock market values continue to grow. In the long-term those who have bet against the US economy have not performed well.
In my many years as a financial advisor I have learned that you can only do what you can do the rest is in the hands of God. Clearly you cannot control the uncontrollable and the economy is uncontrollable. So this Thanksgiving Day give thanks for the blessings we do have, recognize that on the whole our financial lives are getting better and with God's grace will continue to do so. And most importantly set aside your financial worries for the day and enjoy your family, good food, and of course football.
“Therefore I will give thanks unto thee, O Lord… and I will sing praises unto thy name.”
2 Samuel 22:50
11/23/15
HAPPY FINANCIAL THANKSGIVING
Thanksgiving is upon us. The table will be set, the turkey cooked, with all of its trimmings, and the celebration of thanks will soon begin. I love Thanksgiving, how can you not – family, food and football the three F's of a holiday dedicated to the celebration of life with those closest to us. My prayer for you is that you will truly have a joyous day.
With that said, I would like to add to the three F's two more for which I give thanks. The first is faith. God has blessed us with so much. We are living in the greatest country in the greatest time in history. God has truly been generous and for that I give my thanks. The second is finances. The last handfuls of years have been arduous. In 2008 we entered the great recession; we saw the collapse of the housing market, massive declines in the stock markets and millions losing their jobs. But that too has turned around and for that I am truly thankful.
The Economy
Over the last seven years the economy has been growing; at an anemic pace, but it has been growing. On the whole corporate earnings are up, tax revenues are up, government spending, in part due to sequester, is down and interest rates remain low. All of these make for a strengthening economy.
I recently attended a conference with a number of portfolio managers and economists. The consensus was that the growth we are experiencing is sustainable. On the whole they would like to see stronger growth, but, barring the unforeseen, they believe that we are building a solid economic base. We are not out of the woods, by a long shot, but, all in all it does look good.
The Housing Market
The housing market is a major component of our economy. We are seeing an increase in home sales as well as an increase in new construction. Home values are going up and many homeowners, who found themselves after the housing bubble with mortgages exceeding their home values, are seeing a real increase in their equity. In October the median sales price for an existing home was $243,100 up 5.0% from a year ago. This acceleration in home values has been good for homeowners unfortunately it is preventing many would-be buyers from participating in the market. That compounded with the limited supply of lower-priced homes and rising mortgage rates are keeping first-time homebuyers on the sidelines. That situation, however, does seem to be correcting itself.
Employment Opportunities
Without meaningful jobs and income growth no economy can survive for long. You can only grow profits so much by cutting expenses. At some point in you have to start adding jobs and businesses are hiring. The unemployment rate is coming down The current rate as of October is slightly above 5%, the lowest it has been since 2008. Admittedly many workers are underemployed and far too many are dependent on part-time jobs. But the job market is expanding and that is good for the economy.
The Stock Market
From late 2007 to March of 2009 we saw the Dow Jones Industrial Average lose better than 50% of its value. For most stock investors that was the greatest erosion of wealth experienced in their lifetime. Unfortunately as you may recall it didn't stop there. The economy was in total shambles. But what has happened since then? In the past seven years, since those lows in the mid-6000s, we have seen the Dow rise to a high of 18,351. That is an increase of well over 200%; far exceeding the 14,164 high in October of 2007. For the investors who stayed true to their goals and took advantage of those opportunities they have been handsomely rewarded. Will we continue to see those types of returns? I don't believe so. However, if the economy continues to expand, I do not believe it would be unreasonable to see stock market values continue to grow. In the long-term those who have bet against the US economy have not performed well.
In my many years as a financial advisor I have learned that you can only do what you can do the rest is in the hands of God. Clearly you cannot control the uncontrollable and the economy is uncontrollable. So this Thanksgiving Day give thanks for the blessings we do have, recognize that on the whole our financial lives are getting better and with God's grace will continue to do so. And most importantly set aside your financial worries for the day and enjoy your family, good food, and of course football.
“Therefore I will give thanks unto thee, O Lord… and I will sing praises unto thy name.”
2 Samuel 22:50
Issue 732
11/9/15
YOU'RE 50, NOW WHAT?
So you just turned 50, or maybe you've been in your 50s for a while, retirement may still seem a way off, but it is fast approaching. Now is a good time for evaluating your retirement health, make adjustments as you need to and do what's necessary to catch up. From here on out for every year you wait it will only get harder to make your retirement dreams real.
Here are a handful of action steps you may want to consider taking now as the retirement clock clicks down.
Visit Your Doctor
A financially successful retirement means little if you are not in good enough health to enjoy it. Make the time to visit with your doctor. Get a complete in-depth physical. Talk to your doctor about what screenings make sense for you and get them done. Find out what lifestyle changes you can make to insure that you enter retirement as physically healthy as you can.
Protect Your Income And Your Wealth
Your income not only provides for your day-to-day needs it is also the primary funding source for your retirement plans. What would happen if that income stopped because you became disabled and could no longer work? For too many the funds that they have accumulated for retirement are quickly depleted to cover daily living expenses. Make sure that you have adequate disability insurance. If your employer does not provide it, consider obtaining coverage through an individual disability policy.
Now is also a good time to look into long-term care insurance. Without it you run the risk of depleting your retirement funds in order to provide for necessary elder care including home healthcare, assisted living or nursing home services. Fifty is a good age to start investigating your options. As you get older long-term care insurance becomes more difficult to qualify for and more expensive.
Develop A Retirement Spending Plan
There are all kinds of calculators and rule of thumbs for how much money you will need in retirement. Most are a good starting point, however a better approach is to invest the time to develop a realistic spending plan that supports the lifestyle you want in retirement.
Start now to systematically eliminate credit card debt. Consider paying off your mortgage before you retire and build up your emergency fund for those unexpected expenses.
Create A Retirement Portfolio
Make sure your current investment allocation supports your retirement goals. In retirement you'll want to have investments that can support the income you will need as well as provide capital appreciation to offset the loss of purchasing power due to inflation. Many financial advisors can stress test your portfolio to help you determine how your investments might perform in different economic environments.
Catch Up
Don't forget to take advantage of the catch-up provisions available through many tax advantaged savings accounts. For 2013 those over age 50 can contribute $5,500 in addition to the $17,500 limit to a 401(k) plan and $1,000 above the $5,500 maximum for an IRA.
All of this may seem like a lot of work, and it is, but the effort that you put in today could very well be a determining factor for your success in retirement. The good news is that you still have time. Use it wisely.
“But the one who listens and does not act is like a person who built a house on ground without a foundation. When the river burst against it, it collapsed at once and was completely destroyed.”
Luke7:49
11/9/15
YOU'RE 50, NOW WHAT?
So you just turned 50, or maybe you've been in your 50s for a while, retirement may still seem a way off, but it is fast approaching. Now is a good time for evaluating your retirement health, make adjustments as you need to and do what's necessary to catch up. From here on out for every year you wait it will only get harder to make your retirement dreams real.
Here are a handful of action steps you may want to consider taking now as the retirement clock clicks down.
Visit Your Doctor
A financially successful retirement means little if you are not in good enough health to enjoy it. Make the time to visit with your doctor. Get a complete in-depth physical. Talk to your doctor about what screenings make sense for you and get them done. Find out what lifestyle changes you can make to insure that you enter retirement as physically healthy as you can.
Protect Your Income And Your Wealth
Your income not only provides for your day-to-day needs it is also the primary funding source for your retirement plans. What would happen if that income stopped because you became disabled and could no longer work? For too many the funds that they have accumulated for retirement are quickly depleted to cover daily living expenses. Make sure that you have adequate disability insurance. If your employer does not provide it, consider obtaining coverage through an individual disability policy.
Now is also a good time to look into long-term care insurance. Without it you run the risk of depleting your retirement funds in order to provide for necessary elder care including home healthcare, assisted living or nursing home services. Fifty is a good age to start investigating your options. As you get older long-term care insurance becomes more difficult to qualify for and more expensive.
Develop A Retirement Spending Plan
There are all kinds of calculators and rule of thumbs for how much money you will need in retirement. Most are a good starting point, however a better approach is to invest the time to develop a realistic spending plan that supports the lifestyle you want in retirement.
Start now to systematically eliminate credit card debt. Consider paying off your mortgage before you retire and build up your emergency fund for those unexpected expenses.
Create A Retirement Portfolio
Make sure your current investment allocation supports your retirement goals. In retirement you'll want to have investments that can support the income you will need as well as provide capital appreciation to offset the loss of purchasing power due to inflation. Many financial advisors can stress test your portfolio to help you determine how your investments might perform in different economic environments.
Catch Up
Don't forget to take advantage of the catch-up provisions available through many tax advantaged savings accounts. For 2013 those over age 50 can contribute $5,500 in addition to the $17,500 limit to a 401(k) plan and $1,000 above the $5,500 maximum for an IRA.
All of this may seem like a lot of work, and it is, but the effort that you put in today could very well be a determining factor for your success in retirement. The good news is that you still have time. Use it wisely.
“But the one who listens and does not act is like a person who built a house on ground without a foundation. When the river burst against it, it collapsed at once and was completely destroyed.”
Luke7:49
Issue 730
10/26/15
FINDING INCOME
Times are tough for the income focused investor and the situation is not likely to improve in the foreseeable future. Interest rates are low. For savings and money market accounts the rates are slightly above zero. Certificates of deposit are yielding a bit more but still well below the current rate of inflation. For those who are dependent upon the income produced by their investments it might be a good time to look at some alternatives for income.
Diversified Bond Funds
Diversified bond funds are just that –diversified. Unlike traditional bond mutual funds that limit their investment selection to a single sector of the market, i.e. US government bonds, these funds can invest in a variety of bond types, anywhere in the world. It is not uncommon to find emerging market bonds, high-yield bonds and bonds that are non-dollar-denominated in these funds. Because of that diversification, these funds can oftentimes produce a higher dividend income than traditional bond funds and tend to be less volatile when interest rates rise.
Real Estate Investment Trusts (REITs)
For the income investor REITs create an opportunity to invest in income producing real estate in a manner similar to the way bonds or stocks can be invested in through a mutual fund. REITs can invest in a variety of different property types including shopping malls, apartment buildings, medical facilities, office buildings, hotels, cell towers and even timberland. In addition to investment diversification REITs can also provide geographic diversification. For the investor seeking income, REITs often can produce a higher rate of return than most fixed interest investments and have the potential for capital appreciation.
Master Limited Partnerships (MLPs)
In much the same way that REITs create income opportunities for investors in real estate, MLPs create opportunities for income by investing in the energy infrastructure of our country. Energy infrastructure assets include crude oil, petroleum products, and natural gas pipelines, tanks, terminals, and storage facilities. Like REITs, MLPs distribute a high percentage of their after tax earnings as dividend income to their investors and have the potential for capital appreciation.
Dividend Paying Stocks
There are a number of stock mutual funds that emphasize dividend income. These funds tend to invest throughout the world in high quality companies that have a history of strong dividend growth. For the income focused investor who can accept the market fluctuations that come with owning stock there is the potential to earn not only a reasonable current income but also an income that may well increase over time. Stocks, especially those paying dividends, have historically proven to be a safe haven in times of inflation.
Unlike CDs, passbook savings and money market accounts, bonds, REITs, MLPs and dividend paying stocks come with no guarantees. There is no FDIC insurance and each brings with it its own set of risks. Is it worth it? That depends on your unique situation. I would encourage you to meet with your financial advisor, review your income goals and decide if any of these options just might make life a little bit easier.
“The plans of the diligent are sure of profit, but all rash haste leads certainly to poverty.”
Proverbs 21:5
10/26/15
FINDING INCOME
Times are tough for the income focused investor and the situation is not likely to improve in the foreseeable future. Interest rates are low. For savings and money market accounts the rates are slightly above zero. Certificates of deposit are yielding a bit more but still well below the current rate of inflation. For those who are dependent upon the income produced by their investments it might be a good time to look at some alternatives for income.
Diversified Bond Funds
Diversified bond funds are just that –diversified. Unlike traditional bond mutual funds that limit their investment selection to a single sector of the market, i.e. US government bonds, these funds can invest in a variety of bond types, anywhere in the world. It is not uncommon to find emerging market bonds, high-yield bonds and bonds that are non-dollar-denominated in these funds. Because of that diversification, these funds can oftentimes produce a higher dividend income than traditional bond funds and tend to be less volatile when interest rates rise.
Real Estate Investment Trusts (REITs)
For the income investor REITs create an opportunity to invest in income producing real estate in a manner similar to the way bonds or stocks can be invested in through a mutual fund. REITs can invest in a variety of different property types including shopping malls, apartment buildings, medical facilities, office buildings, hotels, cell towers and even timberland. In addition to investment diversification REITs can also provide geographic diversification. For the investor seeking income, REITs often can produce a higher rate of return than most fixed interest investments and have the potential for capital appreciation.
Master Limited Partnerships (MLPs)
In much the same way that REITs create income opportunities for investors in real estate, MLPs create opportunities for income by investing in the energy infrastructure of our country. Energy infrastructure assets include crude oil, petroleum products, and natural gas pipelines, tanks, terminals, and storage facilities. Like REITs, MLPs distribute a high percentage of their after tax earnings as dividend income to their investors and have the potential for capital appreciation.
Dividend Paying Stocks
There are a number of stock mutual funds that emphasize dividend income. These funds tend to invest throughout the world in high quality companies that have a history of strong dividend growth. For the income focused investor who can accept the market fluctuations that come with owning stock there is the potential to earn not only a reasonable current income but also an income that may well increase over time. Stocks, especially those paying dividends, have historically proven to be a safe haven in times of inflation.
Unlike CDs, passbook savings and money market accounts, bonds, REITs, MLPs and dividend paying stocks come with no guarantees. There is no FDIC insurance and each brings with it its own set of risks. Is it worth it? That depends on your unique situation. I would encourage you to meet with your financial advisor, review your income goals and decide if any of these options just might make life a little bit easier.
“The plans of the diligent are sure of profit, but all rash haste leads certainly to poverty.”
Proverbs 21:5
Issue 728
10/12/15
Living Below Your Means
Would you like to be financially comfortable today and enjoy a financially secure future? If you're like most the answer is “yes.” Followed very quickly with but … if I only had a better paying job, or if my investments only performed better, or if I didn't have all these bills, or, or, or. There always seems to be an excuse. And that is all they are, excuses. Financial success, for most, is in your control. It's a choice. It starts with recognizing the financial blessings we have and choosing to live not just within our means but below our means.
Here are a few thoughts you may want to consider.
Save First And Spend The Rest
Unfortunately too many get that backwards they spend what they have and if anything is left they may save a bit. Worse yet they will often spend what they do not have using debt as a tool to fill their wants. Now I am not opposed to debt but presuming on the future with an ever-increasing debt burden can lead to financial ruin. If you truly want to be financially comfortable you need to pay yourself first, setting aside a part of your income for the long-term.
You can make the saving habits automatic through payroll deductions to a 401(k) plan or systematic deductions directly from your checking account into a mutual fund. Whichever you choose, commit to it and avoid the temptation to spend it as needs arise. This is one investment that should be committed to the future.
It's Only
How often have you heard yourself say “it's only?” It's only five bucks. It was only pennies. Those pennies add up, as well as the “it's onlys,” and they add up quickly. Consider the daily latte habit. It's only $4.65, or is it? For the person who stops by their favorite bistro for a quick cup of joe on their way to work that $4.65 becomes $23.25 plus tax by the end of the week. That's $100.75 a month – $1,209 a year. For the person making $22.00 hour that equals 109.9 hours of labor. That is nearly 3 weeks of work for what, a cup of coffee.
Let's take it a little bit farther, over a 10 year period the cost of that cup of coffee becomes $12,090. What could you have done with that money? If you would have invested it at an 8% return it would've grown to $17,514.25. Over a 30 year career it would have grown to $136,959.40. Before you say “it's only” do the math.
Entertainment
Like the latte habit, entertainment can very quickly become a huge drain on your income. We have smart phones, cable or satellite TV and game consoles. We go to movies, sporting events and concerts, and we dine out regularly. In and of itself entertainment is not a bad thing in fact it's an enjoyable thing and a for the most part it is reasonably priced. Therein lies the problem. It is reasonably priced. So easy that you don't even have to think about it. Unfortunately those simple small purchases add up and can add up quickly creating havoc in your budget. Before you upgrade your phone, or go to the movies, or head to the restaurant ask yourself is this really where you want to be spending your money or are there other options that would provide you with just as much satisfaction at little or no cost. Do the math.
Give Yourself Choices
Before you make a purchase, especially a large purchase, give yourself a choice. Make sure you know your options before you reach for the check book. A client recently called me for advice regarding a new car purchase. He wanted to know if it made sense to borrow the money from his retirement plan or to make monthly payments. I told him whichever choice he made he would end up with monthly payments either to his retirement account or to a bank. I then suggested that he take a look at other options. The car he wanted came with a monthly payment of over $350 for the next seven years. That made for a total cost of nearly $30,000 not counting taxes and increased insurance premiums. I pointed out that he could buy a lot of repairs for $30,000 and that if his car was still dependable and in good working order that it might make sense to start saving $350 per month until he could afford to pay cash. If he takes that option he will find that, well before that seven year loan would have been paid off, he would have a new car paid in full at a considerably lower price. There are always options. Check them out.
If you would like to be financially comfortable today and enjoy a financially secure future then you need to take control of your finances. It starts with finding contentment with your current financial situation and recognizing the value of what you have. It involves using your income wisely, making sound spending decisions and committing an increasing portion of your income to your financial future. Financial success is achievable but only for those who are willing to change.
“…I know indeed how to live in humble circumstances; I know how to live with abundance…I have strength for everything through him who empowers me.” Philippians 4:12-13
10/12/15
Living Below Your Means
Would you like to be financially comfortable today and enjoy a financially secure future? If you're like most the answer is “yes.” Followed very quickly with but … if I only had a better paying job, or if my investments only performed better, or if I didn't have all these bills, or, or, or. There always seems to be an excuse. And that is all they are, excuses. Financial success, for most, is in your control. It's a choice. It starts with recognizing the financial blessings we have and choosing to live not just within our means but below our means.
Here are a few thoughts you may want to consider.
Save First And Spend The Rest
Unfortunately too many get that backwards they spend what they have and if anything is left they may save a bit. Worse yet they will often spend what they do not have using debt as a tool to fill their wants. Now I am not opposed to debt but presuming on the future with an ever-increasing debt burden can lead to financial ruin. If you truly want to be financially comfortable you need to pay yourself first, setting aside a part of your income for the long-term.
You can make the saving habits automatic through payroll deductions to a 401(k) plan or systematic deductions directly from your checking account into a mutual fund. Whichever you choose, commit to it and avoid the temptation to spend it as needs arise. This is one investment that should be committed to the future.
It's Only
How often have you heard yourself say “it's only?” It's only five bucks. It was only pennies. Those pennies add up, as well as the “it's onlys,” and they add up quickly. Consider the daily latte habit. It's only $4.65, or is it? For the person who stops by their favorite bistro for a quick cup of joe on their way to work that $4.65 becomes $23.25 plus tax by the end of the week. That's $100.75 a month – $1,209 a year. For the person making $22.00 hour that equals 109.9 hours of labor. That is nearly 3 weeks of work for what, a cup of coffee.
Let's take it a little bit farther, over a 10 year period the cost of that cup of coffee becomes $12,090. What could you have done with that money? If you would have invested it at an 8% return it would've grown to $17,514.25. Over a 30 year career it would have grown to $136,959.40. Before you say “it's only” do the math.
Entertainment
Like the latte habit, entertainment can very quickly become a huge drain on your income. We have smart phones, cable or satellite TV and game consoles. We go to movies, sporting events and concerts, and we dine out regularly. In and of itself entertainment is not a bad thing in fact it's an enjoyable thing and a for the most part it is reasonably priced. Therein lies the problem. It is reasonably priced. So easy that you don't even have to think about it. Unfortunately those simple small purchases add up and can add up quickly creating havoc in your budget. Before you upgrade your phone, or go to the movies, or head to the restaurant ask yourself is this really where you want to be spending your money or are there other options that would provide you with just as much satisfaction at little or no cost. Do the math.
Give Yourself Choices
Before you make a purchase, especially a large purchase, give yourself a choice. Make sure you know your options before you reach for the check book. A client recently called me for advice regarding a new car purchase. He wanted to know if it made sense to borrow the money from his retirement plan or to make monthly payments. I told him whichever choice he made he would end up with monthly payments either to his retirement account or to a bank. I then suggested that he take a look at other options. The car he wanted came with a monthly payment of over $350 for the next seven years. That made for a total cost of nearly $30,000 not counting taxes and increased insurance premiums. I pointed out that he could buy a lot of repairs for $30,000 and that if his car was still dependable and in good working order that it might make sense to start saving $350 per month until he could afford to pay cash. If he takes that option he will find that, well before that seven year loan would have been paid off, he would have a new car paid in full at a considerably lower price. There are always options. Check them out.
If you would like to be financially comfortable today and enjoy a financially secure future then you need to take control of your finances. It starts with finding contentment with your current financial situation and recognizing the value of what you have. It involves using your income wisely, making sound spending decisions and committing an increasing portion of your income to your financial future. Financial success is achievable but only for those who are willing to change.
“…I know indeed how to live in humble circumstances; I know how to live with abundance…I have strength for everything through him who empowers me.” Philippians 4:12-13
Issue 726
9/28/15
What Successful Investors Do
The corporate sponsored 401(k) retirement plan, for most workers, has become the major cornerstone for a financially successful retirement. Most companies who have in the past provided – and paid for – traditional pension benefits for their retiring workers have replaced those pension plans with the employee funded 401(k) plan.
Combined with Social Security and personal savings, the 401(k) plan makes up the financial resources you will have to draw upon in retirement. Unfortunately you have little control over the options you have with your 401(k) plan and its investment choices.
Here are a few items that just might help maximize the choices that you do have.
They Have a Sense of Gratitude
To develop consistency with your 401(k) plan you need to look for consistency. What I look for when reviewing investment choices is consistency of return and consistency of management. I want to know who the manager is, how long they have been there and how well they have performed each and every year. I want to know how they have performed compared to their benchmark, I want to know how they have performed compared with their peer group and most importantly I want to know how they have performed compared to my objectives. Just remember, past performance is not an indication for future success.
They Dream
There are numerous studies demonstrating the relationship between the reduction of risk and consistency of return in portfolios that are adequately diversified. Simply put, diversification involves spreading the risk of your portfolio over different asset classes. A well-diversified portfolio should include funds that invest in domestic equities, international equities, bonds, alternative assets (i.e. real estate) and cash.
Some 401(k) plans are now offering target date funds. These funds provide diversification that is risk weighted based on a specific target retirement date. As these funds approach that target date they tend to increase their bond and cash holdings and reduce their equity positions. These allocation changes are often made without regard to what is happening with the economy.
Regularly Review Their Plan
Many 401(k) plans are providing some form of financial advice – either web-based or with an actual advisor. For those who are not currently working with a financial advisor, plan sponsored advice can be a good starting point. Just remember that the advice provided will be plan centered and generic.
Considering that the choices you make could have a major effect on the financial success of your retirement, I would encourage you to review your 401(k) plan options with your own financial advisor. Your advisor can help you make 401(k) investment selections that are consistent with your goals and support your overall financial plan.
They Recognize What They Can’t Control
Just because your employer offers a 401(k) or, for that matter, any other employee funded retirement plan, it doesn’t mean that you have to take advantage of it. Especially, if it is just not a very good plan and the employer is not providing matching contributions.
In many cases you do have other options. Depending on your income and tax situation you may find that you are able to invest more money, increase your investment options and still maintain the same tax benefits using other retirement programs. Here again is where a good advisor can help you make sound choices consistent with your financial plan.
Next to your home, your 401(k) may well be the biggest investment you will ever make. If you are successful it will provide you with the income you will need throughout retirement. I encourage you to make the time to understand the details and expenses of your employer’s plan; to investigate the investment options; to build a portfolio that supports your goals and then religiously fund it. Your financial success, now more than ever, is dependent on you.
“The plans of the diligent are sure of profit, but all rash haste leads certainly to poverty.”
Proverbs 21:5
9/28/15
What Successful Investors Do
The corporate sponsored 401(k) retirement plan, for most workers, has become the major cornerstone for a financially successful retirement. Most companies who have in the past provided – and paid for – traditional pension benefits for their retiring workers have replaced those pension plans with the employee funded 401(k) plan.
Combined with Social Security and personal savings, the 401(k) plan makes up the financial resources you will have to draw upon in retirement. Unfortunately you have little control over the options you have with your 401(k) plan and its investment choices.
Here are a few items that just might help maximize the choices that you do have.
They Have a Sense of Gratitude
To develop consistency with your 401(k) plan you need to look for consistency. What I look for when reviewing investment choices is consistency of return and consistency of management. I want to know who the manager is, how long they have been there and how well they have performed each and every year. I want to know how they have performed compared to their benchmark, I want to know how they have performed compared with their peer group and most importantly I want to know how they have performed compared to my objectives. Just remember, past performance is not an indication for future success.
They Dream
There are numerous studies demonstrating the relationship between the reduction of risk and consistency of return in portfolios that are adequately diversified. Simply put, diversification involves spreading the risk of your portfolio over different asset classes. A well-diversified portfolio should include funds that invest in domestic equities, international equities, bonds, alternative assets (i.e. real estate) and cash.
Some 401(k) plans are now offering target date funds. These funds provide diversification that is risk weighted based on a specific target retirement date. As these funds approach that target date they tend to increase their bond and cash holdings and reduce their equity positions. These allocation changes are often made without regard to what is happening with the economy.
Regularly Review Their Plan
Many 401(k) plans are providing some form of financial advice – either web-based or with an actual advisor. For those who are not currently working with a financial advisor, plan sponsored advice can be a good starting point. Just remember that the advice provided will be plan centered and generic.
Considering that the choices you make could have a major effect on the financial success of your retirement, I would encourage you to review your 401(k) plan options with your own financial advisor. Your advisor can help you make 401(k) investment selections that are consistent with your goals and support your overall financial plan.
They Recognize What They Can’t Control
Just because your employer offers a 401(k) or, for that matter, any other employee funded retirement plan, it doesn’t mean that you have to take advantage of it. Especially, if it is just not a very good plan and the employer is not providing matching contributions.
In many cases you do have other options. Depending on your income and tax situation you may find that you are able to invest more money, increase your investment options and still maintain the same tax benefits using other retirement programs. Here again is where a good advisor can help you make sound choices consistent with your financial plan.
Next to your home, your 401(k) may well be the biggest investment you will ever make. If you are successful it will provide you with the income you will need throughout retirement. I encourage you to make the time to understand the details and expenses of your employer’s plan; to investigate the investment options; to build a portfolio that supports your goals and then religiously fund it. Your financial success, now more than ever, is dependent on you.
“The plans of the diligent are sure of profit, but all rash haste leads certainly to poverty.”
Proverbs 21:5
Issue 724
9/14/15
Stop Kidding Yourself
There never seems to be a good time to start saving and investing. At least that's what I keep hearing at seminars and workshops that I have conducted. Over and over I hear reasons, make that excuses, for not taking action now. Sadly, the common complaint that I hear from those approaching retirement is the wish that they would've started earlier. Procrastination is the biggest threat to any savings plan. It is worse than inflation, bad investments or turbulent markets. It robs a plan of its most precious asset – time. Time has a way of healing mistakes, smoothing out the bumps in the road and compounding returns. The sooner you start the better.
Here are a few of the most popular excuses and what you can do about them.
I Don't Make Enough Money
That may well be a good excuse, especially, if you're living paycheck to paycheck. However if you are living paycheck to paycheck and making it why not take part of that next raise and start saving? Those dollars are like found money, you never had them before, so why not put them to work now before they are missed.
If you are doing okay and just haven't started an investment plan consider taking a pay cut. I recommended to one client that she contribute to her 401(k) plan enough to capture her employer’s match (3%) and increase that amount by 1% every quarter. I suggested that she continue to do that until her budget felt it. She is now saving 12% of her paycheck. It is amazing what can be done if you start with small steps.
As Soon As I'm Debt Free
Excluding your mortgage, I am not a fan of taking on debt, especially consumer debt. If you are working a plan to pay down or eliminate your debt I applaud you. However paying down debt and saving for retirement are not mutually exclusive. In today's society debt has become the norm. It is a way to have and enjoy things today that you couldn't otherwise afford in return for the promise to pay in the future. Though, I don't agree with that attitude, if you can afford the payments and stay in your budget that is your choice. Debt however is not an excuse to not save. I subscribe to the commitment of paying yourself first. Before you pay for anything, even food, set aside a portion of your pay check to save and invest then enjoy the rest.
Interest Rates Are Low And The Stock Market Is Risky
Interest rates are just not low in many cases they are nonexistent and looking back over the last few days the stock market is volatile to say the least. However those are not excuses for not saving and investing. If anything they are reasons to save more. Given this low interest environment it is going to take more money invested today to achieve your long-term goals. The sooner you start the better.
There Is Plenty Of Time
No there isn't and it would be in your best interest to take advantage of the time you have left. I was meeting with the 24-year-old that just started his new career. We were talking about investing and the power of time. For him normal retirement is age 67. I told him that if he set aside $1000 and was able to grow that at a 10% return (approximately the long-term return of the S&P 500) at age 67 it would be worth $60,240. He was amazed. That’s the power of time and compounded interest. I went on to point out that if he waited just a handful of years until he was 31 that same thousand dollars would grow to only $30,912. Another seven years 15,863. To drive home the point I showed him that for his mother, at age 55, it would take $19,194 invested today to give her $60,240 at age 67. I hope he took my advice and hope that you do too.
There never seems to be a good time to start saving and investing. So why not start now and put the time that you have remaining on your side? Of course the more you can put away the better but even a small amount committed to regularly will grow over time. The point is to stop making excuses and take action now – develop a plan and commit to. Remember the words of the Chinese philosopher Lao Tzu “the journey of 1000 miles begins with the first step.” Take the first step, you will be glad you did.
“The way of the fool seems right in his own eyes, but he who listens to advice is wise.”
Proverbs 15:21
9/14/15
Stop Kidding Yourself
There never seems to be a good time to start saving and investing. At least that's what I keep hearing at seminars and workshops that I have conducted. Over and over I hear reasons, make that excuses, for not taking action now. Sadly, the common complaint that I hear from those approaching retirement is the wish that they would've started earlier. Procrastination is the biggest threat to any savings plan. It is worse than inflation, bad investments or turbulent markets. It robs a plan of its most precious asset – time. Time has a way of healing mistakes, smoothing out the bumps in the road and compounding returns. The sooner you start the better.
Here are a few of the most popular excuses and what you can do about them.
I Don't Make Enough Money
That may well be a good excuse, especially, if you're living paycheck to paycheck. However if you are living paycheck to paycheck and making it why not take part of that next raise and start saving? Those dollars are like found money, you never had them before, so why not put them to work now before they are missed.
If you are doing okay and just haven't started an investment plan consider taking a pay cut. I recommended to one client that she contribute to her 401(k) plan enough to capture her employer’s match (3%) and increase that amount by 1% every quarter. I suggested that she continue to do that until her budget felt it. She is now saving 12% of her paycheck. It is amazing what can be done if you start with small steps.
As Soon As I'm Debt Free
Excluding your mortgage, I am not a fan of taking on debt, especially consumer debt. If you are working a plan to pay down or eliminate your debt I applaud you. However paying down debt and saving for retirement are not mutually exclusive. In today's society debt has become the norm. It is a way to have and enjoy things today that you couldn't otherwise afford in return for the promise to pay in the future. Though, I don't agree with that attitude, if you can afford the payments and stay in your budget that is your choice. Debt however is not an excuse to not save. I subscribe to the commitment of paying yourself first. Before you pay for anything, even food, set aside a portion of your pay check to save and invest then enjoy the rest.
Interest Rates Are Low And The Stock Market Is Risky
Interest rates are just not low in many cases they are nonexistent and looking back over the last few days the stock market is volatile to say the least. However those are not excuses for not saving and investing. If anything they are reasons to save more. Given this low interest environment it is going to take more money invested today to achieve your long-term goals. The sooner you start the better.
There Is Plenty Of Time
No there isn't and it would be in your best interest to take advantage of the time you have left. I was meeting with the 24-year-old that just started his new career. We were talking about investing and the power of time. For him normal retirement is age 67. I told him that if he set aside $1000 and was able to grow that at a 10% return (approximately the long-term return of the S&P 500) at age 67 it would be worth $60,240. He was amazed. That’s the power of time and compounded interest. I went on to point out that if he waited just a handful of years until he was 31 that same thousand dollars would grow to only $30,912. Another seven years 15,863. To drive home the point I showed him that for his mother, at age 55, it would take $19,194 invested today to give her $60,240 at age 67. I hope he took my advice and hope that you do too.
There never seems to be a good time to start saving and investing. So why not start now and put the time that you have remaining on your side? Of course the more you can put away the better but even a small amount committed to regularly will grow over time. The point is to stop making excuses and take action now – develop a plan and commit to. Remember the words of the Chinese philosopher Lao Tzu “the journey of 1000 miles begins with the first step.” Take the first step, you will be glad you did.
“The way of the fool seems right in his own eyes, but he who listens to advice is wise.”
Proverbs 15:21
Issue 722
8/31/15
OUCH!
Ouch is right! Last Monday we saw the Dow Jones Industrial Average drop over 1000 points -- dropping well below its May’s high and creating a negative return for the year over 10%. That is correction territory. What caused it? Some are blaming the slowdown in China, others are pointing to the to the possibility of rising interest rates by the Federal Reserve while others are identifying a multitude of reasons. Whatever the reason, the markets turned down because a lot of people were selling and willing to sell at any price in order to get out. Corrections tend to feed upon themselves. With that said what is an investor to do?
Here are a few items you might want to consider before you add to the frenzy.
Put It In Perspective
Corrections (a drop in a market of over 10%) are normal. They happen regularly and they tend to be short-lived. According to Deutsch Bank, historically, on average there is a market correction every 12 months or so. However it's been nearly 3 years since we have seen a correction in this market. Corrections tend to last somewhere between a few weeks to two quarters in length with the average being 14 weeks. Though corrections are not enjoyable the market does tend to post strong returns after one.
You Can't Predict The Future
Stock market corrections are inevitable but they are not predictable. They can happen at any time and are caused by a variety of reasons. Unfortunately those reasons do not come to light until you are in the middle of a correction. There's no sense in beating yourself up because you didn't recognize the issues and failed to take some action. No more than it makes sense beating yourself up for the great investment you should've made but didn't. You can't predict the future nor can anyone else. But you can take advantage of the opportunities when they present themselves.
Think Long-Term
For those who trade short-term looking for quick profits and those who are heavily leveraged through the use of margin corrections can be a nightmare. For those who are investing for the long term a stock market correction shouldn't really be an issue. If you bought quality investments that are consistent with your goals, if you understand the intrinsic value of those investments and you know what outcome you are expecting from those investments in the long-term a correction becomes nothing more than a short-term change in stock prices and not a permanent loss of wealth.
Do Some Bargain Shopping
I have never seen anyone run screaming from a grocery store because there was a sale going on. A correction is nothing more than a sale and it creates some wonderful buying opportunities. Sadly, when the stock market has a sale, too many run away. Now is the time to consider taking advantage of the opportunities. You may want to consider adding to your current portfolio positions or purchasing other high quality investments while prices are depressed. Everyone wants to buy low – this is what it feels like.
Reevaluate What You Already Own
Now is also a good time to reassess your current holdings. Are the reasons that you made your original investment still valid? Is the investment still consistent with your goals? Is the investment performing as you expected? If you are finding that you’re consistently answering “no” to these questions, it may be time to make a change. There are very few reasons to hold onto what's not working.
We are in a stock market correction. They have happened in the past and they will continue to happen in the future. Whether they're a good thing or a bad thing, I'll leave that for you to decide. If you believe the headlines it's horrid and can only get worse. I prefer to look at it as an opportunity to strengthen my investment portfolio and those of my clients. Then again I prefer to look long-term.
“The plans of the diligent are sure of profit, but all rash haste leads certainly to poverty.” Proverbs 21:5
8/31/15
OUCH!
Ouch is right! Last Monday we saw the Dow Jones Industrial Average drop over 1000 points -- dropping well below its May’s high and creating a negative return for the year over 10%. That is correction territory. What caused it? Some are blaming the slowdown in China, others are pointing to the to the possibility of rising interest rates by the Federal Reserve while others are identifying a multitude of reasons. Whatever the reason, the markets turned down because a lot of people were selling and willing to sell at any price in order to get out. Corrections tend to feed upon themselves. With that said what is an investor to do?
Here are a few items you might want to consider before you add to the frenzy.
Put It In Perspective
Corrections (a drop in a market of over 10%) are normal. They happen regularly and they tend to be short-lived. According to Deutsch Bank, historically, on average there is a market correction every 12 months or so. However it's been nearly 3 years since we have seen a correction in this market. Corrections tend to last somewhere between a few weeks to two quarters in length with the average being 14 weeks. Though corrections are not enjoyable the market does tend to post strong returns after one.
You Can't Predict The Future
Stock market corrections are inevitable but they are not predictable. They can happen at any time and are caused by a variety of reasons. Unfortunately those reasons do not come to light until you are in the middle of a correction. There's no sense in beating yourself up because you didn't recognize the issues and failed to take some action. No more than it makes sense beating yourself up for the great investment you should've made but didn't. You can't predict the future nor can anyone else. But you can take advantage of the opportunities when they present themselves.
Think Long-Term
For those who trade short-term looking for quick profits and those who are heavily leveraged through the use of margin corrections can be a nightmare. For those who are investing for the long term a stock market correction shouldn't really be an issue. If you bought quality investments that are consistent with your goals, if you understand the intrinsic value of those investments and you know what outcome you are expecting from those investments in the long-term a correction becomes nothing more than a short-term change in stock prices and not a permanent loss of wealth.
Do Some Bargain Shopping
I have never seen anyone run screaming from a grocery store because there was a sale going on. A correction is nothing more than a sale and it creates some wonderful buying opportunities. Sadly, when the stock market has a sale, too many run away. Now is the time to consider taking advantage of the opportunities. You may want to consider adding to your current portfolio positions or purchasing other high quality investments while prices are depressed. Everyone wants to buy low – this is what it feels like.
Reevaluate What You Already Own
Now is also a good time to reassess your current holdings. Are the reasons that you made your original investment still valid? Is the investment still consistent with your goals? Is the investment performing as you expected? If you are finding that you’re consistently answering “no” to these questions, it may be time to make a change. There are very few reasons to hold onto what's not working.
We are in a stock market correction. They have happened in the past and they will continue to happen in the future. Whether they're a good thing or a bad thing, I'll leave that for you to decide. If you believe the headlines it's horrid and can only get worse. I prefer to look at it as an opportunity to strengthen my investment portfolio and those of my clients. Then again I prefer to look long-term.
“The plans of the diligent are sure of profit, but all rash haste leads certainly to poverty.” Proverbs 21:5
Issue 720
8/17/15
Choosing A Financial Planner
It seems like everyone in the financial industries today are calling themselves financial planners. Unfortunately, too many of them are not. Many who call themselves financial planners or advisers or managers are simply looking for new ways to sell their products.
If you are looking for someone to help you coordinate your finances with your goals and dreams here are five questions to help you find the advisor that's right for you.
What is it That You Do?
With stockbrokers, insurance agents, annuity salesmen and so many others referring to themselves as financial planners it's good to know exactly what your advisor does. A competent financial planner will help you identify your goals and develop a plan of action with specific steps you will need to take to achieve those goals. It is more than simply insurance or investments though they are both part of good financial plan. Financial planning is a holistic approach to your financial life based upon your values. It includes areas like money-management, tax planning, legacy planning, retirement and college funding.
The premier designation for a financial planner is the CFP®, certified financial planner. In order for a financial planner to receive the CFP® designation they must demonstrate their professionalism by submitting to the CFP® Board of Standards certification process which includes education, examination, experience and ethical requirements.
What is Your Experience?
There a no experience requirements for entry into many areas of the financial industries. You do not want to be the one providing a training ground for someone with limited experience. There's nothing wrong with trying to help someone just starting out. But if they don't succeed you may find yourselves being passed around from one advisor to the next never making real progress with your goals and losing valuable time. Look for an advisor who's been around for a number of years – someone who has dealt with the volatility of the markets and has succeeded in helping clients achieve their goals.
What are Your Competencies?
If you are working with a certified financial planner™ designee with a number of years of experience odds are they are competent. But are they competent in your life experiences? If you are a retiree and your planner specializes in young families, you may not receive the best advice for your situation. Ask your planner to describe his core clients and choose a planner whose clients are most like you. Not only will you gain from the planner’s core knowledge but also from the wisdom gained from the experiences of working with people like you.
What is Your Process?
Financial planning is a process. It involves gathering both quantitative and qualitative information, analyzing that data, creating a plan of action, determining multiple options for implementing the plan, implementation and regular reviews. The planning process is also ongoing. Over your lifetime your financial situation and goals are going to change. The planner should have the flexibility to effectively deal with those changes and continue to provide you with options. If you're advisor has one solution or one product for every situation you may want to consider getting additional advice.
How Do You Get Paid?
Financial planners are paid in one of three ways. Either they charge a fee, are paid by the companies they represent, a commission, or a combination of the two. There are pros and cons for each of these and any conflicts of interest should be disclosed.
If you're planner charges a fee it will either be an hourly rate or a percentage of your assets under management. Either way you'll know what the costs are and what you are paying. With commission-based planners your costs are included in the price of the product. To know what those expenses are costing you, you will need to ask your planner to disclose the amount of their compensation.
The financial industries are changing and they are going to continue to change. The options you have for managing your financial well-being seem almost endless, but it can be a hard road to navigate by yourself. The assistance of competent financial professional can help smooth out many of the bumps in your financial life. As you would expect I believe everyone should have a trusted financial advisor who is knowledgeable and competent. I encourage you to seek one out.
“The way of the fool seems right in his own eyes, but he who listens to advice is wise.” Proverbs 15:21
8/17/15
Choosing A Financial Planner
It seems like everyone in the financial industries today are calling themselves financial planners. Unfortunately, too many of them are not. Many who call themselves financial planners or advisers or managers are simply looking for new ways to sell their products.
If you are looking for someone to help you coordinate your finances with your goals and dreams here are five questions to help you find the advisor that's right for you.
What is it That You Do?
With stockbrokers, insurance agents, annuity salesmen and so many others referring to themselves as financial planners it's good to know exactly what your advisor does. A competent financial planner will help you identify your goals and develop a plan of action with specific steps you will need to take to achieve those goals. It is more than simply insurance or investments though they are both part of good financial plan. Financial planning is a holistic approach to your financial life based upon your values. It includes areas like money-management, tax planning, legacy planning, retirement and college funding.
The premier designation for a financial planner is the CFP®, certified financial planner. In order for a financial planner to receive the CFP® designation they must demonstrate their professionalism by submitting to the CFP® Board of Standards certification process which includes education, examination, experience and ethical requirements.
What is Your Experience?
There a no experience requirements for entry into many areas of the financial industries. You do not want to be the one providing a training ground for someone with limited experience. There's nothing wrong with trying to help someone just starting out. But if they don't succeed you may find yourselves being passed around from one advisor to the next never making real progress with your goals and losing valuable time. Look for an advisor who's been around for a number of years – someone who has dealt with the volatility of the markets and has succeeded in helping clients achieve their goals.
What are Your Competencies?
If you are working with a certified financial planner™ designee with a number of years of experience odds are they are competent. But are they competent in your life experiences? If you are a retiree and your planner specializes in young families, you may not receive the best advice for your situation. Ask your planner to describe his core clients and choose a planner whose clients are most like you. Not only will you gain from the planner’s core knowledge but also from the wisdom gained from the experiences of working with people like you.
What is Your Process?
Financial planning is a process. It involves gathering both quantitative and qualitative information, analyzing that data, creating a plan of action, determining multiple options for implementing the plan, implementation and regular reviews. The planning process is also ongoing. Over your lifetime your financial situation and goals are going to change. The planner should have the flexibility to effectively deal with those changes and continue to provide you with options. If you're advisor has one solution or one product for every situation you may want to consider getting additional advice.
How Do You Get Paid?
Financial planners are paid in one of three ways. Either they charge a fee, are paid by the companies they represent, a commission, or a combination of the two. There are pros and cons for each of these and any conflicts of interest should be disclosed.
If you're planner charges a fee it will either be an hourly rate or a percentage of your assets under management. Either way you'll know what the costs are and what you are paying. With commission-based planners your costs are included in the price of the product. To know what those expenses are costing you, you will need to ask your planner to disclose the amount of their compensation.
The financial industries are changing and they are going to continue to change. The options you have for managing your financial well-being seem almost endless, but it can be a hard road to navigate by yourself. The assistance of competent financial professional can help smooth out many of the bumps in your financial life. As you would expect I believe everyone should have a trusted financial advisor who is knowledgeable and competent. I encourage you to seek one out.
“The way of the fool seems right in his own eyes, but he who listens to advice is wise.” Proverbs 15:21
Issue 716
7/20/15
A Checkup
As we enter the second half of 2015, now would be a great time for a financial checkup. By now you should have a pretty good feel of how the year is playing out. Here are a few items that you may want to consider to make sure you’re financially on track.
Where’s The Debt
Unfortunately, for too many of us, debt is one of our biggest expenses. Too often we push our debt obligations aside, paying the minimum balance and hoping it will go away. For too many it not only is not going away, it is increasing. Where does your debt stand? Do you have a plan for paying it down? A good goal is to have all of your debt, excluding your mortgage, paid off within the next five years. Talk show host, Dave Ramsey, promotes the snowball effect, where one makes the minimum payment on all obligations and applies any extra money to the loan with the lowest balance. When that loan is paid off those payments are compounded with the minimum payment to the next largest debt creating a snowball effect. Whatever plan you use to get rid of debt stick to it; debt is cheating you out of so much life.
Is Spending On Track
Hopefully at the beginning of the year you created a spending plan. A plan that recognizes the income you will be bringing in and the decisions you have made on how to spend it. If you are like many your intentions were set aside as life got in the way. Now's a good time to brush off that plan and see how things are going. Are you on track? Has your income changed? Have expenses stayed in line? Were there any large unplanned expenses? Make the time to review your plan, make the necessary changes and get on track. A well thought out spending plan puts you in control of your money.
Saving Vs. Investing
I'm finding that many families are saving faithfully. However too many are just hoarding cash as opposed to saving and investing with purpose. Given the past turmoils that we have seen in the marketplace, that is understandable. Unfortunately stockpiling cash because of fear of risk is short term thinking and can limit your long-term success. A better approach is to save for those short-term needs and emergencies and select long-term investments that support your goals. We live in the greatest country in the greatest time in history. For the wise investor the opportunities are limitless. Sadly, no investment, including cash, comes without risk. By balancing your attitude towards risk with your long-term objectives it becomes easier to select investments that support what it is you want out of life.
The Financial Plan
A sound financial plan is critical to one's financial success. Of course you would expect me to say that, I am, after all, a financial planner. A good financial plan takes into account your current financial situation (balance sheet and spending plan), recognizes the everyday risks that you face (insurance planning), defines the investments that will need to be made to achieve your goals (portfolio management), the tax consequences of those decisions (tax planning) and includes a plan for distribution of those assets (estate planning). If you have a financial plan, review it, evaluate where you are and make the necessary changes. If you don't and you don't know where to start, I would encourage you to meet with a financial planner who can help you put together a plan based upon what it is you want out of life.
A Visit With Your Advisors
Whether you're working with a financial planner, and I hope you are, a banker, insurance agent, stockbroker or whoever, make the time to visit with them. Have them explain to you what you own, how it is meeting your needs and what changes, if any, need to be made. Make sure that they understand your goals and objectives and what success looks like for you. As you work your way through your financial checkup, seek their advice. After all, you’re paying for it – use their knowledge and experience.
“Financial success is achievable even in these volatile times if we will make the time to appreciate what it is we already have and recognize what it is we truly want out of life.” I penned those words in the early 2000's as the tech bubble exploded and the markets collapsed. I believe them now today more than ever. For those who plan and are diligent, success is very possible. Make the time for a checkup.
“Remember, where your treasure is, there your heart is also.” Matthew 6:21
7/20/15
A Checkup
As we enter the second half of 2015, now would be a great time for a financial checkup. By now you should have a pretty good feel of how the year is playing out. Here are a few items that you may want to consider to make sure you’re financially on track.
Where’s The Debt
Unfortunately, for too many of us, debt is one of our biggest expenses. Too often we push our debt obligations aside, paying the minimum balance and hoping it will go away. For too many it not only is not going away, it is increasing. Where does your debt stand? Do you have a plan for paying it down? A good goal is to have all of your debt, excluding your mortgage, paid off within the next five years. Talk show host, Dave Ramsey, promotes the snowball effect, where one makes the minimum payment on all obligations and applies any extra money to the loan with the lowest balance. When that loan is paid off those payments are compounded with the minimum payment to the next largest debt creating a snowball effect. Whatever plan you use to get rid of debt stick to it; debt is cheating you out of so much life.
Is Spending On Track
Hopefully at the beginning of the year you created a spending plan. A plan that recognizes the income you will be bringing in and the decisions you have made on how to spend it. If you are like many your intentions were set aside as life got in the way. Now's a good time to brush off that plan and see how things are going. Are you on track? Has your income changed? Have expenses stayed in line? Were there any large unplanned expenses? Make the time to review your plan, make the necessary changes and get on track. A well thought out spending plan puts you in control of your money.
Saving Vs. Investing
I'm finding that many families are saving faithfully. However too many are just hoarding cash as opposed to saving and investing with purpose. Given the past turmoils that we have seen in the marketplace, that is understandable. Unfortunately stockpiling cash because of fear of risk is short term thinking and can limit your long-term success. A better approach is to save for those short-term needs and emergencies and select long-term investments that support your goals. We live in the greatest country in the greatest time in history. For the wise investor the opportunities are limitless. Sadly, no investment, including cash, comes without risk. By balancing your attitude towards risk with your long-term objectives it becomes easier to select investments that support what it is you want out of life.
The Financial Plan
A sound financial plan is critical to one's financial success. Of course you would expect me to say that, I am, after all, a financial planner. A good financial plan takes into account your current financial situation (balance sheet and spending plan), recognizes the everyday risks that you face (insurance planning), defines the investments that will need to be made to achieve your goals (portfolio management), the tax consequences of those decisions (tax planning) and includes a plan for distribution of those assets (estate planning). If you have a financial plan, review it, evaluate where you are and make the necessary changes. If you don't and you don't know where to start, I would encourage you to meet with a financial planner who can help you put together a plan based upon what it is you want out of life.
A Visit With Your Advisors
Whether you're working with a financial planner, and I hope you are, a banker, insurance agent, stockbroker or whoever, make the time to visit with them. Have them explain to you what you own, how it is meeting your needs and what changes, if any, need to be made. Make sure that they understand your goals and objectives and what success looks like for you. As you work your way through your financial checkup, seek their advice. After all, you’re paying for it – use their knowledge and experience.
“Financial success is achievable even in these volatile times if we will make the time to appreciate what it is we already have and recognize what it is we truly want out of life.” I penned those words in the early 2000's as the tech bubble exploded and the markets collapsed. I believe them now today more than ever. For those who plan and are diligent, success is very possible. Make the time for a checkup.
“Remember, where your treasure is, there your heart is also.” Matthew 6:21
Issue 714
7/6/15
Outsmarting the Market
Would you like to be able to outsmart the market? A lot of investors think they can. I personally think you can too but only if you are willing to change your perspective and the rules. Investing isn't about beating an index or some arbitrary benchmark. It isn’t a game for bragging rights. It's about making your goals and dreams come true. If you're willing to take that attitude, the only benchmark you have to meet is the one you have established for your success, you have outsmarted the market.
Here are a few thoughts I have that you may want to consider along the way.
Short-Term Performance Is Meaningless
There will always be a hot performing investment out there -- an investment that is producing phenomenal returns and receiving a lot of press coverage. It also is an investment you probably don't own. There will also always be investments out there producing phenomenally poor returns and they too will receive a lot of press. Sadly those investments may very well end up being investments you do own. Phenomenal returns either good or bad are not in and of themselves a call for action. Short-term returns are meaningless. To understand an investment’s performance you need to review its long term returns through a variety of market cycles both up and down and its impact on your plan.
Turbulence Is To Be Expected
Markets go up and markets go down and even the best investments have stretches of poor returns. If you find yourself owning an investment that is performing poorly stop looking at the performance. Instead revisit why you bought the investment, what made it a good choice and what outcome were you trying to achieve. Often times you will find that your choice is still a good one and a market downturn may well be a chance to increase your position at a lower price. Think of a market downturn not as a loss but as the sale. And who doesn't like to buy things on sale.
Don’t Chase Results
A sure path to financial ruin is to buy high and sell low. Unfortunately too many do just that. Often when I'm examining a potential client's portfolio I can tell exactly when they made their investment purchases. They bought whatever investment was in vogue at the time and they usually paid a premium price. Too often the same investors will jump from one investment to the next hoping for greater returns. Financial success is not achieved by chasing returns it is achieved by the systematic accumulation of wealth. If you want to be successful develop a plan for investing and don't deviate – ever.
Think Long-Term
Keep your eye on the prize. The most successful investor of our time, Warren Buffett, once stated that his ideal holding time for an investment was forever. Investing is not a sprint but a marathon. Your goal is not to find the greatest, the newest or the best investment. Your objective should be to find good investments that are consistent with your goals, your needs and your attitude towards risk. The long-term can be very forgiving in the world of investing.
Know Why You Would Sell Before You Buy
…and performance is not a reason. If you use performance as the sole reason for making a change in your portfolio, it becomes easy to fall into the habit of chasing results and it is unlikely that you will be happy with what you find. Make sure you understand what it is you are buying and how it fits in your overall plan. If you know what you are expecting from an investment it is much easier to make a decision to sell that investment for the bad or the good. Not all your investment choices will work out as you planned others will have achieved their goals, either way it's time to move on. It is a lot easier to have made that decision before you are in the thick of things.
Can you outsmart the market? I don't know. But I do know that people who make the time to establish an investment plan with clearly defined objectives are generally far more successful than people who don't. If you look at investments as tools to be used to help you achieve your financial goals, as opposed to an end all in themselves, the day to day fluctuations in the market will become irrelevant. It’s all just noise. What really matters is your financial success. Are you on track?
“The plans of the diligent are sure of profit, but all rash haste leads certainly to poverty.” Proverbs 21:5
7/6/15
Outsmarting the Market
Would you like to be able to outsmart the market? A lot of investors think they can. I personally think you can too but only if you are willing to change your perspective and the rules. Investing isn't about beating an index or some arbitrary benchmark. It isn’t a game for bragging rights. It's about making your goals and dreams come true. If you're willing to take that attitude, the only benchmark you have to meet is the one you have established for your success, you have outsmarted the market.
Here are a few thoughts I have that you may want to consider along the way.
Short-Term Performance Is Meaningless
There will always be a hot performing investment out there -- an investment that is producing phenomenal returns and receiving a lot of press coverage. It also is an investment you probably don't own. There will also always be investments out there producing phenomenally poor returns and they too will receive a lot of press. Sadly those investments may very well end up being investments you do own. Phenomenal returns either good or bad are not in and of themselves a call for action. Short-term returns are meaningless. To understand an investment’s performance you need to review its long term returns through a variety of market cycles both up and down and its impact on your plan.
Turbulence Is To Be Expected
Markets go up and markets go down and even the best investments have stretches of poor returns. If you find yourself owning an investment that is performing poorly stop looking at the performance. Instead revisit why you bought the investment, what made it a good choice and what outcome were you trying to achieve. Often times you will find that your choice is still a good one and a market downturn may well be a chance to increase your position at a lower price. Think of a market downturn not as a loss but as the sale. And who doesn't like to buy things on sale.
Don’t Chase Results
A sure path to financial ruin is to buy high and sell low. Unfortunately too many do just that. Often when I'm examining a potential client's portfolio I can tell exactly when they made their investment purchases. They bought whatever investment was in vogue at the time and they usually paid a premium price. Too often the same investors will jump from one investment to the next hoping for greater returns. Financial success is not achieved by chasing returns it is achieved by the systematic accumulation of wealth. If you want to be successful develop a plan for investing and don't deviate – ever.
Think Long-Term
Keep your eye on the prize. The most successful investor of our time, Warren Buffett, once stated that his ideal holding time for an investment was forever. Investing is not a sprint but a marathon. Your goal is not to find the greatest, the newest or the best investment. Your objective should be to find good investments that are consistent with your goals, your needs and your attitude towards risk. The long-term can be very forgiving in the world of investing.
Know Why You Would Sell Before You Buy
…and performance is not a reason. If you use performance as the sole reason for making a change in your portfolio, it becomes easy to fall into the habit of chasing results and it is unlikely that you will be happy with what you find. Make sure you understand what it is you are buying and how it fits in your overall plan. If you know what you are expecting from an investment it is much easier to make a decision to sell that investment for the bad or the good. Not all your investment choices will work out as you planned others will have achieved their goals, either way it's time to move on. It is a lot easier to have made that decision before you are in the thick of things.
Can you outsmart the market? I don't know. But I do know that people who make the time to establish an investment plan with clearly defined objectives are generally far more successful than people who don't. If you look at investments as tools to be used to help you achieve your financial goals, as opposed to an end all in themselves, the day to day fluctuations in the market will become irrelevant. It’s all just noise. What really matters is your financial success. Are you on track?
“The plans of the diligent are sure of profit, but all rash haste leads certainly to poverty.” Proverbs 21:5
Issue 712
6/22/15
The Rules of Money
Quickly now, which would you rather have at the end of 31 days – a million dollars or a penny that has been doubled each and every day? If you are like most people you would have chosen the $1 million. Unfortunately, like most people you would have chosen poorly. That humble penny, doubling every day, would have grown to over $10 million -- $10,737,418.24 to be exact. Don't believe me? Do the math. One cent becomes two, two becomes four, four becomes eight, eight sixteen and on it goes until 5 million becomes 10 million. That is the power of compounded interest, a power that is often overlooked and grossly misunderstood when we talk about money.
Here are a few other rules of money that are oftentimes overlooked.
Is It A Need Or Is It A Want
How we choose to spend our money is a choice. By understanding the difference between what is really needed and what it is we want we can avoid becoming a victim of circumstance. Our financial needs are really quite simple, food, shelter and clothing. Everything else is merely a want; however, our wants can be endless. Too often I find that many have put themselves in an unnecessary position of hardship (read debt) because they failed to realize the difference between what is needed and what is wanted. By making the choice to live well within your means you can put yourself in the position of financial control. And that is a strong financial place to be.
The Endless Search For More
It is only natural to want a better life. A raise at work or a new position may well make it possible to get a nicer home or a better car. Unfortunately, for too many, it becomes far too easy to presume on the future – that those raises and promotions will continue – and establish a lifestyle based upon those assumptions. When the raises and promotions don't come they oftentimes put themselves in the position where debt is used to satisfy their expectations. Thus creating a lifestyle, based upon debt, that can lead to financial ruin. It is better to find happiness somewhere other than in our possessions.
Every Option Has Costs
By understanding the opportunity costs of our financial choices and making the time to understand those choices we can make better financial decisions. Every time we choose to spend money we are making a choice. We are giving up other opportunities in order to fulfill a current need or want. Is it better to buy new furniture or set aside the money for the kid’s college education? I don't know the answer. That is your choice. But I do know it is better to be in control of your decisions than to allow circumstances, or worse, short term wants to drive your choices.
Sunken Cost Myth
We have all been in situations where we have incurred expenses that can never be recovered. Whether it be a car that needs a new motor, an investment that only goes South or something else that seems to require an endless stream of money. The sunken cost myth is just that, a myth, a belief that somehow if we only invest more time, more money or more effort we can recover what has been promised. That is a fallacy. Don't throw good money after bad. In investing, I find too often investors will hold onto an investment and even invest more with the hopes that they will at some point at least break even. The cost unfortunately was lost opportunity and better use of resources. Make your decision to invest your time, your money, or your talents based upon the facts today and not upon your choices made yesterday.
Risk
With every financial choice comes risk, especially when we make the decision to invest. When we accept a greater risk with our investments it is reasonable to expect a potentially greater return. If you choose to invest in US government bonds you can expect a high degree of safety and a very low return on your investment. When you invest in a US corporation you have the opportunity for a much higher return, however, that return carries with it the risk of losing some or even all of your investment. I would encourage you to avoid investments that promise high guaranteed returns with little or no risk. There ain't no such thing as a free lunch.
Sadly money does not come with operating instructions. For most of us a lot of time was spent on learning how to make money. Unfortunately, throughout that education, not a lot of time was spent on how to manage money and use it effectively. Make the time to learn how to make sound financial choices. In the long-term you'll be glad you did.
“…I know indeed how to live in humble circumstances; I know how to live with abundance…I have strength for everything through him who empowers me.” Philippians4:12-13
6/22/15
The Rules of Money
Quickly now, which would you rather have at the end of 31 days – a million dollars or a penny that has been doubled each and every day? If you are like most people you would have chosen the $1 million. Unfortunately, like most people you would have chosen poorly. That humble penny, doubling every day, would have grown to over $10 million -- $10,737,418.24 to be exact. Don't believe me? Do the math. One cent becomes two, two becomes four, four becomes eight, eight sixteen and on it goes until 5 million becomes 10 million. That is the power of compounded interest, a power that is often overlooked and grossly misunderstood when we talk about money.
Here are a few other rules of money that are oftentimes overlooked.
Is It A Need Or Is It A Want
How we choose to spend our money is a choice. By understanding the difference between what is really needed and what it is we want we can avoid becoming a victim of circumstance. Our financial needs are really quite simple, food, shelter and clothing. Everything else is merely a want; however, our wants can be endless. Too often I find that many have put themselves in an unnecessary position of hardship (read debt) because they failed to realize the difference between what is needed and what is wanted. By making the choice to live well within your means you can put yourself in the position of financial control. And that is a strong financial place to be.
The Endless Search For More
It is only natural to want a better life. A raise at work or a new position may well make it possible to get a nicer home or a better car. Unfortunately, for too many, it becomes far too easy to presume on the future – that those raises and promotions will continue – and establish a lifestyle based upon those assumptions. When the raises and promotions don't come they oftentimes put themselves in the position where debt is used to satisfy their expectations. Thus creating a lifestyle, based upon debt, that can lead to financial ruin. It is better to find happiness somewhere other than in our possessions.
Every Option Has Costs
By understanding the opportunity costs of our financial choices and making the time to understand those choices we can make better financial decisions. Every time we choose to spend money we are making a choice. We are giving up other opportunities in order to fulfill a current need or want. Is it better to buy new furniture or set aside the money for the kid’s college education? I don't know the answer. That is your choice. But I do know it is better to be in control of your decisions than to allow circumstances, or worse, short term wants to drive your choices.
Sunken Cost Myth
We have all been in situations where we have incurred expenses that can never be recovered. Whether it be a car that needs a new motor, an investment that only goes South or something else that seems to require an endless stream of money. The sunken cost myth is just that, a myth, a belief that somehow if we only invest more time, more money or more effort we can recover what has been promised. That is a fallacy. Don't throw good money after bad. In investing, I find too often investors will hold onto an investment and even invest more with the hopes that they will at some point at least break even. The cost unfortunately was lost opportunity and better use of resources. Make your decision to invest your time, your money, or your talents based upon the facts today and not upon your choices made yesterday.
Risk
With every financial choice comes risk, especially when we make the decision to invest. When we accept a greater risk with our investments it is reasonable to expect a potentially greater return. If you choose to invest in US government bonds you can expect a high degree of safety and a very low return on your investment. When you invest in a US corporation you have the opportunity for a much higher return, however, that return carries with it the risk of losing some or even all of your investment. I would encourage you to avoid investments that promise high guaranteed returns with little or no risk. There ain't no such thing as a free lunch.
Sadly money does not come with operating instructions. For most of us a lot of time was spent on learning how to make money. Unfortunately, throughout that education, not a lot of time was spent on how to manage money and use it effectively. Make the time to learn how to make sound financial choices. In the long-term you'll be glad you did.
“…I know indeed how to live in humble circumstances; I know how to live with abundance…I have strength for everything through him who empowers me.” Philippians4:12-13
Issue 710
6/8/15
Graduation - A Bit of Advice
Congratulations! Making it through high school, college and for some of you graduate school wasn't easy, but you did do it. My hat is off to you and to a job well done. Now where do you go from here? Most of you will be entering the workforce. Your education has provided you with the skill sets that you will need to succeed. You will be paid well for what you do, but what will you do with the money you earn?
Here is my advice to help you put a handle on your financial life.
Pay Yourself First
Let me repeat: pay yourself first. Before you pay the rent, buy groceries or go shopping – before you spend a dime. Pay yourself first. The secret to financial success is simple: pay yourself first. Make the commitment, now, to invest a portion of your income for the long term and never touch it until you are ready to retire. A great place to start is 10% of your paycheck, though 15% would be even better.
If your employer provides a 401(k) plan, take advantage of it, if not, set up a systematic investment plan with a good equity income mutual fund company. When you make long-term investing your first bill and pay it automatically you avoid entirely the trap of spending and then trying to save what’s left.
Build An Emergency Fund
Whether it's a car repair, a veterinary bill, a friend’s destination wedding or whatever, stuff happens and it usually costs money. To avoid the financial surprises that can wreak havoc on your finances, build an emergency fund. A good target is 3 to 6 months of your household expenses. That can be a tall order but, like your long-term savings, if you commit a percentage of your wages, you will be amazed at how much you can accumulate over a short period of time.
Insure Your Earning Power
Right now your most valuable financial asset is your ability to earn an income – protect it. If you had a goose that laid golden eggs I suspect you would do everything in your power to make sure that nothing happened to the goose. Well, you are the goose and your ability to make money is the golden egg. What happens if you are no longer able to earn an income? How do the bills get paid? That's the role of disability insurance – to provide money when you can't. Oftentimes employers provide disability insurance as part of their benefit package. If that option is not available to you, I would encourage you to seek individual coverage. Protect the golden goose.
Get Out Of Debt
If you're like most graduates, in order to make it through school, you piled on the debt, in the form of student loans. If you let them, they will haunt for years to come. Develop a plan to pay off those loans as quickly as possible and stay out of debt. Debt is the single biggest detriment to your financial success. Don't take on debt and don’t cosign for the debt of anyone else. Develop the attitude that if you can't afford to pay cash you really don't need it.
Spend The Rest
I bet you didn't see that coming. Life was meant to be enjoyed. You worked hard to get to where you're at and in order to continue your success you can expect to continue to work hard. You can also expect to be compensated for that work. Once you have your financial house in order, enjoy the fruit of your labor. You have earned it.
No one knows what the future will hold. However, I can guarantee that there are surprises on the horizon – both good and bad. For those who have readied themselves, who have put their financial houses in order, they are prepared to weather the storms when they come and to take advantage of the opportunities when they present themselves. Only you can determine your financial success. Again congratulations on a job well done.
“…husband all the food of the coming good years … that the land may not perish in the famine!” Genesis 40:35-36
6/8/15
Graduation - A Bit of Advice
Congratulations! Making it through high school, college and for some of you graduate school wasn't easy, but you did do it. My hat is off to you and to a job well done. Now where do you go from here? Most of you will be entering the workforce. Your education has provided you with the skill sets that you will need to succeed. You will be paid well for what you do, but what will you do with the money you earn?
Here is my advice to help you put a handle on your financial life.
Pay Yourself First
Let me repeat: pay yourself first. Before you pay the rent, buy groceries or go shopping – before you spend a dime. Pay yourself first. The secret to financial success is simple: pay yourself first. Make the commitment, now, to invest a portion of your income for the long term and never touch it until you are ready to retire. A great place to start is 10% of your paycheck, though 15% would be even better.
If your employer provides a 401(k) plan, take advantage of it, if not, set up a systematic investment plan with a good equity income mutual fund company. When you make long-term investing your first bill and pay it automatically you avoid entirely the trap of spending and then trying to save what’s left.
Build An Emergency Fund
Whether it's a car repair, a veterinary bill, a friend’s destination wedding or whatever, stuff happens and it usually costs money. To avoid the financial surprises that can wreak havoc on your finances, build an emergency fund. A good target is 3 to 6 months of your household expenses. That can be a tall order but, like your long-term savings, if you commit a percentage of your wages, you will be amazed at how much you can accumulate over a short period of time.
Insure Your Earning Power
Right now your most valuable financial asset is your ability to earn an income – protect it. If you had a goose that laid golden eggs I suspect you would do everything in your power to make sure that nothing happened to the goose. Well, you are the goose and your ability to make money is the golden egg. What happens if you are no longer able to earn an income? How do the bills get paid? That's the role of disability insurance – to provide money when you can't. Oftentimes employers provide disability insurance as part of their benefit package. If that option is not available to you, I would encourage you to seek individual coverage. Protect the golden goose.
Get Out Of Debt
If you're like most graduates, in order to make it through school, you piled on the debt, in the form of student loans. If you let them, they will haunt for years to come. Develop a plan to pay off those loans as quickly as possible and stay out of debt. Debt is the single biggest detriment to your financial success. Don't take on debt and don’t cosign for the debt of anyone else. Develop the attitude that if you can't afford to pay cash you really don't need it.
Spend The Rest
I bet you didn't see that coming. Life was meant to be enjoyed. You worked hard to get to where you're at and in order to continue your success you can expect to continue to work hard. You can also expect to be compensated for that work. Once you have your financial house in order, enjoy the fruit of your labor. You have earned it.
No one knows what the future will hold. However, I can guarantee that there are surprises on the horizon – both good and bad. For those who have readied themselves, who have put their financial houses in order, they are prepared to weather the storms when they come and to take advantage of the opportunities when they present themselves. Only you can determine your financial success. Again congratulations on a job well done.
“…husband all the food of the coming good years … that the land may not perish in the famine!” Genesis 40:35-36
Issue 708
5/25/15
Are You Profiting from Abortion?
It is estimated that on average 35 babies are killed each week by abortions performed at the Planned Parenthood facility here in Colorado Springs. Nationwide the number of innocent lives taken exceeds 3,300 a day. That is well over a million deaths a year. Last year Planned Parenthood nationwide was responsible for over 300,000 of those abortions and received nearly $350,000,000 in government – read taxpayer – funding. The culture of death has become big business.
Unfortunately too many Christians, without even knowing it, are profiting from the business of abortion and contributing to organizations like Planned Parenthood. They are not doing so through their checkbooks, but it is being done on their behalf, stealthily, through their investments.
I recently screened the holdings of the largest index mutual fund in America, the Vanguard 500 Index Fund. I knew what I was going to find but that did not make it any the less disheartening. Over 70% of the assets held in that fund are of companies involved in activities and industries that most Christians would find morally objectionable. There were lifestyle concerns, anti-family issues, companies that produced and distributed pornography and companies tied financially to the abortion industry.
Over 28% of those companies were involved in the industry of death; either as a contributor to organizations like Planned Parenthood, or as a manufacturer of the morning after pill and contraceptives, or as a provider of abortions at for profit facilities and hospitals, or by involvement in embryonic stem cell research and experimentation, or by making abortion on demand part of their employee benefit package. All these companies have a financial stake in a culture that denies our unborn children their humanity – and so do their investors. Without even knowing it the owners of the Vanguard 500 Index Fund are supporting and profiting from abortion and are doing so in a very big way.
The Vanguard 500 Index Fund does not stand alone. Sadly, when I have run the same moral screens on many other mutual funds I have found their investments too put Christian shareholders in a place of moral compromise. Though the percentages change from fund to fund, companies financially involved in the abortion industries are major profit centers for the vast majority of mutual funds. So how can we manage our investments and stay true to our pro-life values?
Fortunately for the morally responsible investor there are a number of mutual fund companies that screen specifically for abortion and exclude all companies that have any financial interest in the industry. Fund companies like the Ave Maria Funds and the Timothy Plans have made life a core value in their portfolios. By moving Christ to the center of their investment portfolios, some mutual fund companies have found that you can do well by doing what is right. If you would like to find out more about these companies and others using moral screens, you can find links on my website at
www.chuckmahercfp.com/features_links.cfm.
“…I have set before you life and death, the blessing and the curse. Choose life, then, so that you and your descendents may live.” Deuteronomy 30:19
5/25/15
Are You Profiting from Abortion?
It is estimated that on average 35 babies are killed each week by abortions performed at the Planned Parenthood facility here in Colorado Springs. Nationwide the number of innocent lives taken exceeds 3,300 a day. That is well over a million deaths a year. Last year Planned Parenthood nationwide was responsible for over 300,000 of those abortions and received nearly $350,000,000 in government – read taxpayer – funding. The culture of death has become big business.
Unfortunately too many Christians, without even knowing it, are profiting from the business of abortion and contributing to organizations like Planned Parenthood. They are not doing so through their checkbooks, but it is being done on their behalf, stealthily, through their investments.
I recently screened the holdings of the largest index mutual fund in America, the Vanguard 500 Index Fund. I knew what I was going to find but that did not make it any the less disheartening. Over 70% of the assets held in that fund are of companies involved in activities and industries that most Christians would find morally objectionable. There were lifestyle concerns, anti-family issues, companies that produced and distributed pornography and companies tied financially to the abortion industry.
Over 28% of those companies were involved in the industry of death; either as a contributor to organizations like Planned Parenthood, or as a manufacturer of the morning after pill and contraceptives, or as a provider of abortions at for profit facilities and hospitals, or by involvement in embryonic stem cell research and experimentation, or by making abortion on demand part of their employee benefit package. All these companies have a financial stake in a culture that denies our unborn children their humanity – and so do their investors. Without even knowing it the owners of the Vanguard 500 Index Fund are supporting and profiting from abortion and are doing so in a very big way.
The Vanguard 500 Index Fund does not stand alone. Sadly, when I have run the same moral screens on many other mutual funds I have found their investments too put Christian shareholders in a place of moral compromise. Though the percentages change from fund to fund, companies financially involved in the abortion industries are major profit centers for the vast majority of mutual funds. So how can we manage our investments and stay true to our pro-life values?
Fortunately for the morally responsible investor there are a number of mutual fund companies that screen specifically for abortion and exclude all companies that have any financial interest in the industry. Fund companies like the Ave Maria Funds and the Timothy Plans have made life a core value in their portfolios. By moving Christ to the center of their investment portfolios, some mutual fund companies have found that you can do well by doing what is right. If you would like to find out more about these companies and others using moral screens, you can find links on my website at
www.chuckmahercfp.com/features_links.cfm.
“…I have set before you life and death, the blessing and the curse. Choose life, then, so that you and your descendents may live.” Deuteronomy 30:19
Issue 706
5/11/15
The Capitalist Woodstock
Once again I had the opportunity to make the pilgrimage to Omaha, Nebraska for the annual shareholders meeting of Warren Buffet’s Berkshire Hathaway. As has become a tradition, Buffett with Vice Chairman Charlie Munger, for 5 1/2 hours, answered questions on a variety of topics – everything from Clayton Homes’ mortgage challenges to how new safety regulations will effect BNSF railway and most importantly for me, their wisdom on investing.
This year was the 50th anniversary of the Bufett and Munger partnership, taking control of a small failing New England textile company, Berkshire Hathaway, and growing it into the conglomerate it has become. As you can imagine the crowds were huge, over 40,000 shareholders. There was also a magnitude of items for purchase commemorating the event. The one that caught my eye was a compilation of the last 50 annual letters to shareholders written by Warren Buffett. That is as complete a course in investing that may have ever been written. Here are a few bits of wisdom.
“If a business is attractive to buy once, it may well pay to repeat the process.”
Before you go looking for new investments or greater opportunities it may well make sense to spend the time to examine what it is you already have. What did you buy? Why did you buy it? What were you trying to achieve? And is the investment achieving that goal? If you did some research originally it may make better sense to stay with those choices then to change the course. Why work harder than you have to?
“Nothing sedates rationality like large doses of effortless money.”
Early and quick success can often be its own worst enemy. I have seen too often people confuse a rising market with investor brilliance. Investing should be for the long term anything less than that is speculation. If there is one thing that Buffett’s success demonstrates, is that buying good companies at fair prices and holding them for the long term leads to financial success.
“I’ll make more mistakes in the future – you can bet on that.”
Even the master makes mistakes. Nobody is perfect. In his 2014 letter to shareholders, Buffett wrote at length about the misfortunes surrounding the purchase of Tesco, a U.K. supermarket giant. The results of his choices led to the loss of $440 million for shareholders. That was the single largest loss from an equity sale in Berkshire's history. Mistakes will happen. The question is what did you learn from them and what will you do with that knowledge?
“Our advice: Beware of geeks bearing formulas.”
There will always be people out there who offer a new, better, and simpler way to financial freedom. They come armed with back tested models that demonstrate the successes that can be achieved. They speak the language and they know all the buzzwords. They come with the promise that financial success is assured, often with a great reduction in risk. Their models demonstrate that their theories would have worked in the past and will work now. I have found in my experiences that many of these theories do in fact work – until they don't. In the long run it is generally better to avoid the gurus, buy quality and hold tight.
“What the wise man does in the beginning, the fool does in the end.”
That's an old proverb but it is worth repeating. We saw the tech bubble at the turn-of-the-century and the housing bubble in 2008. Early in those rapidly rising markets fortunes were made, though, I suspect that greater fortunes were lost as more and more dollars were invested chasing easy money. Remember the greater fool theory. In investing the herd is generally wrong. Buffett and Munger did quite well investing in what they knew and avoiding the headline noise.
“Who has ever benefited in the past 238 years by betting against America?”
We live in the greatest time in the greatest country in the history of mankind. There has never been an engine that has released the human potential as the United States of America has. Looking back over our history there have been wonderful investment opportunities and I have no reason to believe that even greater opportunities are yet to come. Our job as investors is to learn to recognize them when we find them.
Warren Buffett and company bring to us as investors a plethora of experience and wisdom. He achieved his success by staying true to his values and understanding the markets as well as himself. If you would like to find out more, I would encourage you to review his letters to shareholders. You can find them at the Berkshire Hathaway website or you can buy the book. Anyone serious about investing will find the study of them time well spent.
“The way of the fool seems right in his own eyes, but he who listens to advice is wise.” Proverbs 12:15
5/11/15
The Capitalist Woodstock
Once again I had the opportunity to make the pilgrimage to Omaha, Nebraska for the annual shareholders meeting of Warren Buffet’s Berkshire Hathaway. As has become a tradition, Buffett with Vice Chairman Charlie Munger, for 5 1/2 hours, answered questions on a variety of topics – everything from Clayton Homes’ mortgage challenges to how new safety regulations will effect BNSF railway and most importantly for me, their wisdom on investing.
This year was the 50th anniversary of the Bufett and Munger partnership, taking control of a small failing New England textile company, Berkshire Hathaway, and growing it into the conglomerate it has become. As you can imagine the crowds were huge, over 40,000 shareholders. There was also a magnitude of items for purchase commemorating the event. The one that caught my eye was a compilation of the last 50 annual letters to shareholders written by Warren Buffett. That is as complete a course in investing that may have ever been written. Here are a few bits of wisdom.
“If a business is attractive to buy once, it may well pay to repeat the process.”
Before you go looking for new investments or greater opportunities it may well make sense to spend the time to examine what it is you already have. What did you buy? Why did you buy it? What were you trying to achieve? And is the investment achieving that goal? If you did some research originally it may make better sense to stay with those choices then to change the course. Why work harder than you have to?
“Nothing sedates rationality like large doses of effortless money.”
Early and quick success can often be its own worst enemy. I have seen too often people confuse a rising market with investor brilliance. Investing should be for the long term anything less than that is speculation. If there is one thing that Buffett’s success demonstrates, is that buying good companies at fair prices and holding them for the long term leads to financial success.
“I’ll make more mistakes in the future – you can bet on that.”
Even the master makes mistakes. Nobody is perfect. In his 2014 letter to shareholders, Buffett wrote at length about the misfortunes surrounding the purchase of Tesco, a U.K. supermarket giant. The results of his choices led to the loss of $440 million for shareholders. That was the single largest loss from an equity sale in Berkshire's history. Mistakes will happen. The question is what did you learn from them and what will you do with that knowledge?
“Our advice: Beware of geeks bearing formulas.”
There will always be people out there who offer a new, better, and simpler way to financial freedom. They come armed with back tested models that demonstrate the successes that can be achieved. They speak the language and they know all the buzzwords. They come with the promise that financial success is assured, often with a great reduction in risk. Their models demonstrate that their theories would have worked in the past and will work now. I have found in my experiences that many of these theories do in fact work – until they don't. In the long run it is generally better to avoid the gurus, buy quality and hold tight.
“What the wise man does in the beginning, the fool does in the end.”
That's an old proverb but it is worth repeating. We saw the tech bubble at the turn-of-the-century and the housing bubble in 2008. Early in those rapidly rising markets fortunes were made, though, I suspect that greater fortunes were lost as more and more dollars were invested chasing easy money. Remember the greater fool theory. In investing the herd is generally wrong. Buffett and Munger did quite well investing in what they knew and avoiding the headline noise.
“Who has ever benefited in the past 238 years by betting against America?”
We live in the greatest time in the greatest country in the history of mankind. There has never been an engine that has released the human potential as the United States of America has. Looking back over our history there have been wonderful investment opportunities and I have no reason to believe that even greater opportunities are yet to come. Our job as investors is to learn to recognize them when we find them.
Warren Buffett and company bring to us as investors a plethora of experience and wisdom. He achieved his success by staying true to his values and understanding the markets as well as himself. If you would like to find out more, I would encourage you to review his letters to shareholders. You can find them at the Berkshire Hathaway website or you can buy the book. Anyone serious about investing will find the study of them time well spent.
“The way of the fool seems right in his own eyes, but he who listens to advice is wise.” Proverbs 12:15
Issue 704
4/27/15
Are You Making Excuses?
You know the old adage it takes money to make money. That may or may not be true. However, when it comes to investing, especially in the stock market, there are a lot of people who are making money and are not investing any of it.
According to a recent study by the Bankrate.com over half of all Americans have no money invested in the stock market. The number one reason given by those who chose not to invest was lack of money. Yet, 46% of the respondents were making more than $75,000 per year.
There were many more reasons given for not investing. Though, as I read through them, they seemed to me to be more like excuses. Are you making excuses?
No Money
There are people who are suffering from financial hardships that make investing an impossibility. For the rest of us, however, investing is a choice. It's about priorities. What is it that you consider important? And what are you going to do about? If retirement is your priority then pay yourself first. That's an old song but it works. If you are only able to set aside a little bit, but investing those little bits and letting the markets over time do their work you will be amazed at what can be achieved.
When I work with clients who are trying to build their retirement portfolios I often suggest that they start small. Invest what little you can today and make it a monthly commitment. Then every few months increase it. Again just a little bit and then continue to increase it until you feel it. Then back your investments off just a touch. It's amazing how much room there is to save and invest when it's made a priority.
Don’t Know Enough
Lack of knowledge shouldn't keep you out of the stock markets. You don't need to know P/E ratios, market trends, Sharpe ratios or the difference between a put and call to succeed at investing. I'm not saying that knowledge isn’t a good thing and it does make sense to increase your financial IQ. However, making a plan and sticking to it will take you much farther than worrying about that which you do not know.
It doesn't take a lot of knowledge to get things moving. A great place to start is with a balanced mutual fund. These funds are generally made up of investments in high grade bonds and dividend paying stocks. They provide immediate diversification at an affordable price. Many balanced mutual funds even offer systematic investment plans that start for as little as $50. If you are uncomfortable making the decision yourself there are financial professionals who can help you get started. Most offer initial consultations at no cost.
Too Risky
The stock market will go up and down. There will be years when the market provides unbelievable returns and there will also be years where the markets will be down so low it would appear that they will never recover. That is normal. It is the short-term risk of investing in stocks. However for the long-term investor, someone saving for retirement, it may well be far too risky not to be invested in equities.
If you are holding investments for the long term in CDs, money market accounts or other cash investments you are taking on a long-term risk you may not be prepared for. Cash investments, especially insured cash investments, promise the return of your money – not the return of your purchasing power. For every year you hold cash, inflation will eat away at your purchasing power. Even with a long-term inflation rate of 3%, your money will lose half of its purchasing power in 24 years.
Remember the average return for the Standard & Poor's 500, with dividends reinvested, over the last 50 years has been 10.9%. That's impressive given the turmoil that we have gone through.
In his 2008 letter to shareholders Warren Buffett wrote: Though the path has not been smooth, our economic system has worked extraordinarily well over time. It has unleashed human potential as no other system has, and it will continue to do so. America’s best days lie ahead. By adding stock equities to your long-term investment portfolio you put yourself in the position to take advantage of America's best days yet ahead.
“The way of the fool seems right in his own eyes, but he who listens to advice is wise.” Proverbs 15:21
4/27/15
Are You Making Excuses?
You know the old adage it takes money to make money. That may or may not be true. However, when it comes to investing, especially in the stock market, there are a lot of people who are making money and are not investing any of it.
According to a recent study by the Bankrate.com over half of all Americans have no money invested in the stock market. The number one reason given by those who chose not to invest was lack of money. Yet, 46% of the respondents were making more than $75,000 per year.
There were many more reasons given for not investing. Though, as I read through them, they seemed to me to be more like excuses. Are you making excuses?
No Money
There are people who are suffering from financial hardships that make investing an impossibility. For the rest of us, however, investing is a choice. It's about priorities. What is it that you consider important? And what are you going to do about? If retirement is your priority then pay yourself first. That's an old song but it works. If you are only able to set aside a little bit, but investing those little bits and letting the markets over time do their work you will be amazed at what can be achieved.
When I work with clients who are trying to build their retirement portfolios I often suggest that they start small. Invest what little you can today and make it a monthly commitment. Then every few months increase it. Again just a little bit and then continue to increase it until you feel it. Then back your investments off just a touch. It's amazing how much room there is to save and invest when it's made a priority.
Don’t Know Enough
Lack of knowledge shouldn't keep you out of the stock markets. You don't need to know P/E ratios, market trends, Sharpe ratios or the difference between a put and call to succeed at investing. I'm not saying that knowledge isn’t a good thing and it does make sense to increase your financial IQ. However, making a plan and sticking to it will take you much farther than worrying about that which you do not know.
It doesn't take a lot of knowledge to get things moving. A great place to start is with a balanced mutual fund. These funds are generally made up of investments in high grade bonds and dividend paying stocks. They provide immediate diversification at an affordable price. Many balanced mutual funds even offer systematic investment plans that start for as little as $50. If you are uncomfortable making the decision yourself there are financial professionals who can help you get started. Most offer initial consultations at no cost.
Too Risky
The stock market will go up and down. There will be years when the market provides unbelievable returns and there will also be years where the markets will be down so low it would appear that they will never recover. That is normal. It is the short-term risk of investing in stocks. However for the long-term investor, someone saving for retirement, it may well be far too risky not to be invested in equities.
If you are holding investments for the long term in CDs, money market accounts or other cash investments you are taking on a long-term risk you may not be prepared for. Cash investments, especially insured cash investments, promise the return of your money – not the return of your purchasing power. For every year you hold cash, inflation will eat away at your purchasing power. Even with a long-term inflation rate of 3%, your money will lose half of its purchasing power in 24 years.
Remember the average return for the Standard & Poor's 500, with dividends reinvested, over the last 50 years has been 10.9%. That's impressive given the turmoil that we have gone through.
In his 2008 letter to shareholders Warren Buffett wrote: Though the path has not been smooth, our economic system has worked extraordinarily well over time. It has unleashed human potential as no other system has, and it will continue to do so. America’s best days lie ahead. By adding stock equities to your long-term investment portfolio you put yourself in the position to take advantage of America's best days yet ahead.
“The way of the fool seems right in his own eyes, but he who listens to advice is wise.” Proverbs 15:21
Issue 700
3/30/15
5 Investment Ideas
Tax season has ended. By now your tax returns should've been completed and filed. And if you are like millions of American taxpayers you overpaid your taxes and are expecting a refund. Have you given thought to what you will do with it? Many will be using those dollars to pay down debt, buy toys or add it to a mad money account. Some will even consider investing it. Here are my thoughts on how to put that refund to work.
Invest In Yourself
Given that your ability to earn an income is your greatest financial asset I would suggest taking a course or classes that will strengthen your jobs skills. Or you may want to consider taking a class for personal enrichment. Maybe learn a new language or take that art class you've wanted to attend. Any class you take will give you a new perspective and as a bonus exercise your brain.
Invest In Your Home
As homeowners we often let those little projects that need to be done pile up. Now is the opportunity to invest in your home and get them done. With your refund you may be able to get that room painted or update your landscaping. Improvements to your home not only can make it more livable for you but just might increase its value.
Invest In Your Kids
If you haven't done so, now is the time to set aside funds for your children’s or grandchildren's college education. By investing in a Coverdell IRA or a 529 plan you can take advantage of tax benefits that can help fund their college costs. It is estimated that those with a higher education degree will have increased their earning power by 20%.
Invest In Your Future
By investing in an individual retirement account (IRA) you can not only provide additional dollars for your retirement but you can also, if you qualify, receive a tax deduction for 2015 and have tax deferred growth until you decide to withdrawal the funds. For 2015 the maximum IRA contribution limit for those over 50 is $6,500.
Invest In Your Community
For those more philanthropic your tax refund could be used for the betterment of our community. Churches, schools, and local charities are always in need of additional funds. Giving to any of these worthy organizations comes with the satisfaction of knowing that you made a difference and that you are a part of something greater than yourself. There is also an additional benefit that comes with generous giving .By sharing your tax refund you can have that refund do double duty – doing good and an additional 2013 tax deduction.
Far too often our tax refunds are looked upon as found money and too quickly spent. With a little forethought you can put those dollars to work. I encourage you, before you cash that check, to look at how that money can make a difference. Who knows what can be had if you choose to invest.
“The plans of the diligent are sure of profit, but all rash haste leads certainly to poverty.” Proverbs 21:5
3/30/15
5 Investment Ideas
Tax season has ended. By now your tax returns should've been completed and filed. And if you are like millions of American taxpayers you overpaid your taxes and are expecting a refund. Have you given thought to what you will do with it? Many will be using those dollars to pay down debt, buy toys or add it to a mad money account. Some will even consider investing it. Here are my thoughts on how to put that refund to work.
Invest In Yourself
Given that your ability to earn an income is your greatest financial asset I would suggest taking a course or classes that will strengthen your jobs skills. Or you may want to consider taking a class for personal enrichment. Maybe learn a new language or take that art class you've wanted to attend. Any class you take will give you a new perspective and as a bonus exercise your brain.
Invest In Your Home
As homeowners we often let those little projects that need to be done pile up. Now is the opportunity to invest in your home and get them done. With your refund you may be able to get that room painted or update your landscaping. Improvements to your home not only can make it more livable for you but just might increase its value.
Invest In Your Kids
If you haven't done so, now is the time to set aside funds for your children’s or grandchildren's college education. By investing in a Coverdell IRA or a 529 plan you can take advantage of tax benefits that can help fund their college costs. It is estimated that those with a higher education degree will have increased their earning power by 20%.
Invest In Your Future
By investing in an individual retirement account (IRA) you can not only provide additional dollars for your retirement but you can also, if you qualify, receive a tax deduction for 2015 and have tax deferred growth until you decide to withdrawal the funds. For 2015 the maximum IRA contribution limit for those over 50 is $6,500.
Invest In Your Community
For those more philanthropic your tax refund could be used for the betterment of our community. Churches, schools, and local charities are always in need of additional funds. Giving to any of these worthy organizations comes with the satisfaction of knowing that you made a difference and that you are a part of something greater than yourself. There is also an additional benefit that comes with generous giving .By sharing your tax refund you can have that refund do double duty – doing good and an additional 2013 tax deduction.
Far too often our tax refunds are looked upon as found money and too quickly spent. With a little forethought you can put those dollars to work. I encourage you, before you cash that check, to look at how that money can make a difference. Who knows what can be had if you choose to invest.
“The plans of the diligent are sure of profit, but all rash haste leads certainly to poverty.” Proverbs 21:5