The last few weeks I’ve met with clients and prospective clients who are very afraid of where our country is headed due to the climbing Federal deficit, the fall in interest rates, and the decline of the dollar vs. other currencies. Some have purchased gold or silver as a hedge against the anticipated fall of US stocks. I understand their concerns, and they are not unfounded.
One of the benefits of getting older is the perspective it provides, especially when it comes to investing and people. (Others might say I’m just getting crotchety, but I digress.) Looking back over the last 23 years, I‘ve heard “This time is different” a few times before.
In 1988, when I started The Asset Advisory Group, people were shell-shocked from Black Monday: October 19, 1987, when they saw the Dow Jones Industrial average fall over 22% in one day. As I worked with worried people to adjust their financial plans for retirement, they told me things would never be the same, because investors would not put their money in the stock market again and it would stay depressed as a result. “This time was different.” Those who invested in bonds and CDs based on their feelings missed the Dow’s climb from 1,739 on October 1987 to 3,975 on February 1994 – a 129% increase over less than seven years.
The fall of 1999 I spent talking with investors who were upset with our philosophy of portfolio diversification. After nearly four years of watching every dot.com provide high double digit returns, they were tired of being diversified in value stocks, real estate, and small US companies. Technology stocks were making a killing, and investing in any other type of company seemed foolish. Emotions in some meetings ran high, because people felt I was keeping them from making the returns their friends and neighbors were telling them about. I would be a rich woman if I had a dollar for every person who told me we were “in a new paradigm of investing”, or “This time is different.” The tech bubble burst in 2000, and it was real estate and small cap value stocks that kept our clients’ portfolios positive in 2000 and 2001.
In 2008 people were shaken again when we experienced a global stock meltdown that was touched off by the credit crisis in August 2007. The bad news dragged on through March of 2009, and comparisons to the Great Depression were made daily. “This time was different.” People were scared, angry and some wanted to move all their investments to cash and get back in when they felt better about the market. I felt a great sense failure when I could not convince one of my long-time clients not to sell out. But clients that kept the faith in the long-term resiliency of the global markets allowed us to rebalance their portfolios – we sold out of bonds and bought into stocks at depressed prices. These investors were rewarded with significant gains as the equity markets roared back in 2009 and 2010, and they recovered their portfolio highs of 2007.
Now investors are afraid of our country’s budget deficit and the status of our currency; gold and silver are being sold as the investor’s solution. “This time is different. “
I agree we have tough decisions to make in this country to get us back on track, but I don’t believe we need to hoard precious metals to protect us. We need to have a personal financial plan in place and execute it with conviction, so no matter what we experience we can survive it successfully. Each financial crisis we experience will be somewhat different, and even though history doesn’t repeat itself, it sure does rhyme. Take it from a crotchety old investor.
Jeannette A. Jones, CPA, CFP®
jjones@taaginc.com
http://www.taaginc.com/
Wednesday, April 27, 2011
Tuesday, April 19, 2011
Confronting Your Personal Debt Ceiling
(from Carl Richard's New York Times' Bucks blog, 4/18/2011 - click here for the original post. Carl is a certified financial planner in Park City, Utah. His sketches are archived on the Bucks blog and on his personal Web site, www.BehaviorGap.com.)
We’ve all made financial commitments like mortgages, rent payments, college tuition and utility bills. When you combine those commitments, you end up with the foundation for a budget. But what happens when those commitments exceed your income?
After we become accustomed to a certain lifestyle, it can be difficult to make adjustments when the amount of money coming in decreases. But unlike the federal government, real people don’t have the option to take a vote and raise their personal debt ceiling. In the real world, increasing your personal debt ceiling only works for so long. At that point, there are only two options:
1. Earn more
2. Spend less
Simple math, tough choices.
Yet again we have another example of how painful it can be when the cold, hard facts of arithmetic smash against the complex, emotional issues of money. The math is simple: if you spend more than you earn, at some point things will have to change.
But once we move beyond the math, things start to get fuzzy fast. Most of us can relate to that sick feeling of comparing what we owe to the amount of money sitting in the bank and knowing it isn’t enough, or the pain of telling children that we simply can’t afford to do something that was incredibly important to them or the awkward discussion with a spouse about which extra expense we have to cut to make ends meet. These conversations aren’t easy, but they have to happen if we want things to change. At some point we can’t continue to kick the can down the road.
To add to the frustration, these decisions are intensely personal. We all want easy answers from some personal finance guru who will tell us what to do. We want a prescription, but this discussion doesn’t work that way.
Sure, there are books that will provide a framework, and learning from others (including Elmo) that have been through this can be helpful. But in the end, your situation is absolutely unique. It will require you to come up with a plan that works for you. Often what one family defines as a need another will view as a luxury, and neither one of them is wrong. In the end, they will both need to satisfy the equation on the napkin: their income must be greater than or equal to their expenses.
At some point in your life, you’ve done the math and realized that your financial commitments were out of whack with your income. How did you fix your problem? If you have children, how are you helping them understand the need for financial balance?
After we become accustomed to a certain lifestyle, it can be difficult to make adjustments when the amount of money coming in decreases. But unlike the federal government, real people don’t have the option to take a vote and raise their personal debt ceiling. In the real world, increasing your personal debt ceiling only works for so long. At that point, there are only two options:
1. Earn more
2. Spend less
Simple math, tough choices.
Yet again we have another example of how painful it can be when the cold, hard facts of arithmetic smash against the complex, emotional issues of money. The math is simple: if you spend more than you earn, at some point things will have to change.
But once we move beyond the math, things start to get fuzzy fast. Most of us can relate to that sick feeling of comparing what we owe to the amount of money sitting in the bank and knowing it isn’t enough, or the pain of telling children that we simply can’t afford to do something that was incredibly important to them or the awkward discussion with a spouse about which extra expense we have to cut to make ends meet. These conversations aren’t easy, but they have to happen if we want things to change. At some point we can’t continue to kick the can down the road.
To add to the frustration, these decisions are intensely personal. We all want easy answers from some personal finance guru who will tell us what to do. We want a prescription, but this discussion doesn’t work that way.
Sure, there are books that will provide a framework, and learning from others (including Elmo) that have been through this can be helpful. But in the end, your situation is absolutely unique. It will require you to come up with a plan that works for you. Often what one family defines as a need another will view as a luxury, and neither one of them is wrong. In the end, they will both need to satisfy the equation on the napkin: their income must be greater than or equal to their expenses.
At some point in your life, you’ve done the math and realized that your financial commitments were out of whack with your income. How did you fix your problem? If you have children, how are you helping them understand the need for financial balance?
Wednesday, April 13, 2011
Small Tasks, Big Impact
We’ve had a slew of things come across our desks recently that are little things that can be done that can go a long way in protecting our assets & our families in various ways. We wanted to share those briefly with you in this week’s blog.
Next of Kin Registry
For our readers who reside in the State of Ohio, the BMV has created a next-of-kin registry to help expedite emergency notification. The registry is a database of emergency contacts for anyone with a valid driver’s license or state identification card. It enables law enforcement, paramedics and other agencies to find a victim's relatives or emergency contact immediately.
All you need to do to register is click here, fill in the information requested and then list the names of those you would want to be contacted in an emergency. It takes just minutes and could save valuable time in letting someone know of any emergency or making crucial medical decisions at a critical time.
At this time, with nearly 8 million registered motorists in the state, only 150,000 have registered for this service. For your sake and the sake of your family and friends, take a few minutes and go sign up today.
Social Security Statements
For those of you who really look forward to getting that green and white social security statement in the mail each year, I have some bad news for you. The Social Security Administration announced last week that they will no longer be sending them out. The good news? This move will save $30 million this year and $60 million in 2012. Provided you’ve been in the workforce for 10 years, you can still generate a report using the retirement estimator available on the Social Security Administration’s website or by simply clicking here.
Another Reason to Check that Credit
Many of you have likely received some sort of e-mail from an organization you’ve done business with or read in the news about the massive security breach at Epsilon, a Texas online marketing company that sends out more than 40 billion e-mails per year on behalf of their clients. According to a SecurityWeek article, the data belonged to a long list of companies that included Best Buy, Brookstone, Capital One, Citi, Home Shopping Network, JPMorgan Chase, Kroger, LL Bean, Marriott Rewards, Ritz-Carlton Rewards, TiVo & US Bank.
The information compromised is believed to be limited to names and e-mail addresses only, but do what you can to be vigilant with any suspicious looking e-mails you may receive in the near future. Also, be sure to visit AnnualCreditReport.com, the government sanctioned website where you can pull a credit report from each of the three major bureaus free of charge one time per year.
One More from the BMV
It was brought to our attention recently by an estate-planning attorney we work with that the Ohio Bureau of Motor Vehicles does not accept powers of attorney from outside sources. They only accept their own, which can be found here. Arriving and waiting in line to re-title a vehicle on another’s behalf can be a tedious process to begin with, finding out the POA form you have with you isn’t valid might be enough to send anyone over the edge. If the need arises to use this form, simply fill it out without a date and keep in a secure location.
We hope these are helpful as we’re always on the lookout to help find ways, both big and small, to have a positive impact on your financial and emotional security. If you have any quick tips or questions, please feel free to comment below.
Have a great week,
Chip Workman, CFP®
cworkman@taaginc.com
http://www.taaginc.com/
Next of Kin Registry
For our readers who reside in the State of Ohio, the BMV has created a next-of-kin registry to help expedite emergency notification. The registry is a database of emergency contacts for anyone with a valid driver’s license or state identification card. It enables law enforcement, paramedics and other agencies to find a victim's relatives or emergency contact immediately.
All you need to do to register is click here, fill in the information requested and then list the names of those you would want to be contacted in an emergency. It takes just minutes and could save valuable time in letting someone know of any emergency or making crucial medical decisions at a critical time.
At this time, with nearly 8 million registered motorists in the state, only 150,000 have registered for this service. For your sake and the sake of your family and friends, take a few minutes and go sign up today.
Social Security Statements
For those of you who really look forward to getting that green and white social security statement in the mail each year, I have some bad news for you. The Social Security Administration announced last week that they will no longer be sending them out. The good news? This move will save $30 million this year and $60 million in 2012. Provided you’ve been in the workforce for 10 years, you can still generate a report using the retirement estimator available on the Social Security Administration’s website or by simply clicking here.
Another Reason to Check that Credit
Many of you have likely received some sort of e-mail from an organization you’ve done business with or read in the news about the massive security breach at Epsilon, a Texas online marketing company that sends out more than 40 billion e-mails per year on behalf of their clients. According to a SecurityWeek article, the data belonged to a long list of companies that included Best Buy, Brookstone, Capital One, Citi, Home Shopping Network, JPMorgan Chase, Kroger, LL Bean, Marriott Rewards, Ritz-Carlton Rewards, TiVo & US Bank.
The information compromised is believed to be limited to names and e-mail addresses only, but do what you can to be vigilant with any suspicious looking e-mails you may receive in the near future. Also, be sure to visit AnnualCreditReport.com, the government sanctioned website where you can pull a credit report from each of the three major bureaus free of charge one time per year.
One More from the BMV
It was brought to our attention recently by an estate-planning attorney we work with that the Ohio Bureau of Motor Vehicles does not accept powers of attorney from outside sources. They only accept their own, which can be found here. Arriving and waiting in line to re-title a vehicle on another’s behalf can be a tedious process to begin with, finding out the POA form you have with you isn’t valid might be enough to send anyone over the edge. If the need arises to use this form, simply fill it out without a date and keep in a secure location.
We hope these are helpful as we’re always on the lookout to help find ways, both big and small, to have a positive impact on your financial and emotional security. If you have any quick tips or questions, please feel free to comment below.
Have a great week,
Chip Workman, CFP®
cworkman@taaginc.com
http://www.taaginc.com/
Wednesday, April 6, 2011
Resetting Expectations
With interest rates remaining near historic lows, many clients have been refinancing their mortgages over the past few months. A lot has changed since they took out their loan or last refinanced, and not just with interest rates. I’ve heard from more than one person who is surprised to find out that you need a credit score of 780 or higher to snag the best rates as well as 20% equity in your home.
A few things to keep in mind when you start shopping for the best rate:
A few things to keep in mind when you start shopping for the best rate:
- Check http://www.annualcreditreport.com/ for a free credit report from each of the three nationwide consumer credit reporting companies. You will receive a detailed listing of all of your lines of credit, open and closed. You now have the ability to check your score for free at http://www.creditkarma.com/, a new web site from TransUnion. This site also give you a credit report card to compare your credit score in each category to the national averages and run scenarios such as how taking out additional credit or closing a line may impact your score. If you do find errors on your report, make sure they are corrected prior to applying for a loan.
- If you have retired since applying for your last loan or refinanced prior to the housing meltdown, the information needed to prove your monthly income may have changed. If you are living off of your investment assets, your advisor can prepare a letter for your lender stating how your income is structured. Many times, it is helpful if we talk to a loan officer or underwriter directly to help them understand the monthly “paycheck” you receive from your portfolio and how that may differ from the income reported on your tax return.
- Don’t automatically refinance with your current lender. A good place to shop for local rates is http://www.bankrate.com/. We have found that many of the smaller banks or credit unions offer competitive rates, lower closing costs and more intuitive underwriting. Feel free to call us for the names of local lenders you can trust and to assist you in comparing offers .
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