Shifting to Savings in 2011

As we enter the last week of the year, we hope that all of you are enjoying the holiday season. This week is one of reflection and resolution for the year to come, and for many that includes a somewhat uneasy scan of the December credit card statement to see how much damage was done over the holidays.

There will be countless articles out there in the coming week with suggestions on how to trim the coming year’s budget. To add to those, we’ve compiled a few of the more unique ways to eke out a little more value from your day to day life that we’ve seen over the last few months. Heading into 2011 seemed as good a time as any to walk through a few of them . . .

End of Year Giving

• Problem: You feel charitable and enjoy giving to those causes that are important to you, but have no idea how much you gave, who you gave to and how any of it fits into your budget throughout the year.

• Solution: Be more strategic in your giving. This is not a suggestion to give less, just more efficiently. Sit down now and determine a budget for next year’s giving, divide those resources amongst those causes that are most important to you and give accordingly. Make sure to leave room for other opportunities that move you to add to your circle of giving through the year.

Coinstar

• Problem: You have a mountain of change scattered in various jugs, piggy banks and containers throughout the house. You’d like to put it to use, but who has time to sprawl out on the floor and roll up piles of change? You could go to a Coinstar, one of those little green boxes at the grocery store, but you’ve heard (correctly) that it’s one of the biggest rip-offs out there, charging somewhere in the 10% range for this convenience.

• Solution: Were there items on your Christmas list that you didn’t receive? Did you receive a new iPod and need to beef up your music collection on iTunes? Are you tired of cooking for family and friends and need a night out? Use your loose change to treat yourself. See, Coinstar machines also give you the ability to purchase gift cards at retailers from Lowe’s to Gap to Starbucks and the retailers pick up the fee on your behalf. In fact, now through the end of the year, they’ll kick in an extra $10 for every $40 in change that you process, so grab those coins and pay for that morning cup of coffee for the first few months of the year!

Auto Loans

• Problem: There are great interest rates being offered on auto loans, but you’re in the middle of paying off your current loan and have no plans to buy a new car anytime soon. Have you missed the boat on these great rates?

• Solution: With rates near historic lows, refinancing your car loan may be worth considering. The short term nature of these loans has meant that you need a substantial rate reduction to make the process worthwhile. But, with rates as low as 4.5% on used cars at small banks and credit unions in the area, relatively substantial savings are possible if you have a higher-rate loan. It’s important to note that the refinancing process on an auto loan is much easier than a typical home refinance and can often be done in one visit to the bank.

Gas

• Problem: Did I just see gas for $3.05/gallon?

• Solution: Maximize the benefits of grocery store loyalty programs or your warehouse club membership. Many of us rack up points on a weekly basis at our local grocery stores or have memberships to Costco, Sam’s Club or other warehouse clubs that give us access to discounted fuel. The problem is, when it comes time to fill up, we’re as far away from those discounts as could be. The solution is to be a little more conscientious when you fill up. Time fill ups to trips to the grocery or the warehouse club. For example, if you use a Kroger card and spend $400 in a month on groceries, you can save 40 cents per gallon. On a 25-gallon fill-up that’s $10 back in your pocket.

These may not be cure-all savings tips, but they are a good start in putting your money to work for you and maximizing your budget in 2011. Starting off the year with a plan and the right mindset can do wonders for achieving greater peace of mind.

Much like any resolution, don’t fall into the trap of trying to do too much. When we overwhelm ourselves with choices, we typically wind up doing the same thing…nothing.

From all of us at The Asset Advisory Group, have a very safe & Happy New Year!

The Asset Advisory Group
www.taaginc.com

New Index Returns Astound Wall Street

(from Dan Solin's Huffington Post blog, 12/7/2010 - click here for the original post)

It's hard to be modest about this achievement, but I am going to try.

In January, 2010, I created the Solin Random Stock Index (SRSI). For those skeptics who want to verify this claim, please see this blog I wrote at the time.

I wish I could report that my index was a complex algorithm, but it was really very simple. I just took the spelling of my last name, and punched each letter into a quote engine. I selected the first two stocks (listed on a U.S. stock exchange) that appeared for each letter. Here's the list of ten stocks that comprised the SRSI:

1. Sprint Nextel (S)
2. Sirius XM Radio (SIRI)
3. Realty Income (O)
4. Oracle (ORCL)
5. Loews (L)
6. Las Vegas Sands (LVS)
7. Intel (INTC)
8. International Business Machines (IBM)
9. Netsuite (N)
10. Nvidia (NVDA)

Now that we are coming to the end of the year, I thought this would be a good time to see how the stocks in my index have performed. I know my competitors are busy getting the performance data of their funds together so they can show how well they did. Morningstar will be analyzing this information in order to figure out which funds get the highest "star" ratings.
Investors rely on performance history. High performing funds can expect an influx of revenues. More revenues means more fees. It's a high stakes game. I want a piece of it.

So, how did the SRSI do from January, 2010 through November, 2010? Hold on to your hat. It's up an astounding 45.14%! No kidding.

The S&P 500 is only up 5.87%.

Let's put this stellar performance in perspective so you can really appreciate it. In an article published February 24, 2010, US News recommended its top mutual funds for 2010. It's methodology was impressive. It relied on "some of the brightest minds conducting investing analysis" and used ratings from Morningstar, Lipper, Zacks, TheStreet.com and Standard & Poor's.

Hard to see how you could miss if you followed these recommendations.

Let's compare some of these top funds with the SRSI. The performance data is as of October 31, 2010.

The Yackman Fund (YACKX) is up 9.07%. It was the top ranked Large Value Fund;
The FMI Large Cap Fund (FMIHX) is up 5.15% It was the top ranked Large Blend Fund;
The Parnassus Workplace fund (PARWX) was up 8.35%. It was the top ranked Large Growth Fund.

The SRSI clobbered the returns of all these top rated funds. I didn't have access to any of the "brightest minds" who do sophisticated analysis and I don't even have a subscription to any of these ratings services.

So what can I expect next? I assume invitations from the cable financial shows so that I can educate investors on how I did it. Maybe all those impressive ratings services will start to follow the SRSI. If I was set up to receive funds, I assume I would have to brace for a massive influx. I would wear "back office problems" as a badge of honor.

My real goal is to win Morningstar's Fund Manager of Year award. Bruce Berkowitz was the pick for U.S. stock-fund manager in 2009 for his stellar performance running Fairholme Fund (FAIRX). His fund has $10 billion in assets. Mr. Berkowitz is a highly regarded stock picker, holding only about 20 stocks. The SRSI holds 10 stocks, so we have the over-concentration thing in common.

Fairholme is only up 12.96%. Clearly, my stock picking skills are vastly superior. It should be no contest for 2010. I'm a shoo-in.

I'll still have time to write this blog. I really enjoy it. But I suspect that being known as a "stock picking guru" will have its perks as well.

Sorry, I have to run now. The phone is ringing. I'm hoping it's Jim Cramer. Maybe he will anoint me as "one of the great ones in this business", an accolade he is reported to have bestowed on

Lenny Dykstra, the ball player turned stock picker.

Dykstra filed for bankruptcy in July, 2009.

I'm no Lenny Dykstra.

The views set forth in this blog are the opinions of the author alone and may not represent the views of any firm or entity with whom he is affiliated. The data, information, and content on this blog are for information, education, and non-commercial purposes only. Returns from index funds do not represent the performance of any investment advisory firm. The information on this blog does not involve the rendering of personalized investment advice and is limited to the dissemination of opinions on investing. No reader should construe these opinions as an offer of advisory services. Readers who require investment advice should retain the services of a competent investment professional. The information on this blog is not an offer to buy or sell, or a solicitation of any offer to buy or sell any securities or class of securities mentioned herein. Furthermore, the information on this blog should not be construed as an offer of advisory services. Please note that the author does not recommend specific securities nor is he responsible for comments made by persons posting on this blog.

Preparing for the Unexpected

I was planning to write this week’s blog on the provisions of the most recent tax bill, but Congress isn’t cooperating. It’s interesting that a major point of contention is the estate tax. Most people were hoping to go back to the $3.5 million exemption and the 45% tax rate we had in 2009. As many of you know, when the Republicans and President Obama originally negotiated the newest tax bill, a $5 million exemption and 35% rate were included. It’s anyone’s guess when a new bill will be negotiated. We didn’t expect to get this far into 2010 without any estate tax at all. As you make your to do list for 2011, don’t let an act of Congress prevent you from preparing for the inevitable.

One aspect of estate planning covers the disposition of your property after your death but just as important is who will manage your property or oversee your healthcare if you are no longer able to during your lifetime.

The documents that should be included in your estate planning include:

Durable Power of Attorney – to give another personal person legal authority to act on your behalf to do things such as:
• use your assets to pay your everyday expenses and those of your family
• buy, sell, maintain, pay taxes on, and mortgage real estate and other property
• collect Social Security, Medicare, or other government benefits
• invest your money in stocks, bonds, and mutual funds
• handle transactions with banks and other financial institutions
• file and pay your taxes

Durable Power of Attorney for Health Care – to allow you to name someone to oversee your healthcare wishes and make any necessary medical decisions for you.
Living Will – this is your written declaration regarding life support if you are unable to speak for yourself. In most states you will specify whether or not you want to receive life-prolonging treatments at the end of life.

HIPPA Release – the Health Insurance Portability and Accountability Act of 1996 requires healthcare providers to make reasonable efforts to limit the release of protected health information. This document will allow you to name one or more persons to have access to all of your medical information. It is especially important because you want to ensure your Healthcare Power of Attorney has all of the relevant medical information if they need to make decisions on your behalf.

Once you have take the time to draw up your estate plan, it is critical to make sure it remains current. If you no longer want one of your representatives (such as your executor or healthcare proxy) to serve in this capacity, or they are no longer able to do so, make sure you update your documents. Moving to another state may also be a reason for an update. State or Federal law changes can impact your plan, so at the very least, make sure to review your documents with your estate planning attorney every five years.

Christine L. Carleton, CFP®
clcarleton@taaginc.com
http://taaginc.com/

Holiday Stuff

For those of us that celebrate and haven’t realized it yet, Christmas is about 2 ½ weeks away. Up until yesterday, I was completely in the dark on this, and I know I’m not alone. Didn’t I just carve a turkey last week? Didn’t the pool just close a few weeks before that? Maybe they changed the date this year.

Saturday, my family participated in our annual drive out to the country in search of this year’s Christmas tree. Yes, we pass several tree farms on the way and countless tree lots, but it’s something we truly enjoy every year. Some light snowfall and a great stock of trees made this year’s trip that much richer.

Sunday brought another favorite tradition, lunch with Santa Claus. For my four year old, when Santa walks in the room, time stops. Clifford, Curious George and Sid the Science Kid (think Clooney, Roberts or Hanks for the uninitiated) could appear in the flesh and she wouldn’t take her eyes off the big man for a second. She spent close to a month preparing her list and planning the precise words she’d say. When she arrived in St. Nick’s lap, she just stared and smiled. We finally had to approach her and remind her of some of the things she hopes to find under the tree.

I don’t want to make this too much of the clichéd “remember what’s important this time of year” blog, but I’m afraid that’s exactly where I’m headed. I won’t pretend this will be the year we all admit that the gifts are truly unnecessary and just another way to fill the basement, attic, or storage unit with more Stuff (it deserves a capital S these days). There’s little that can be done to stop the precious moments captured this weekend from being quickly replaced by mad dashes to various stores, outlets and kiosks all to make sure every “i” is dotted and “t” is crossed. But, much like financial planning, small incremental improvements and regular reminders about which of our goals are truly important can have a dramatic impact in shifting our focus in the long term.

In the meantime, I hope this reaches you all early enough in the season to take it to heart. Truly enjoy the experiences you have with your family, friends and others around you. Worry less about the Stuff and more about the moment. When thinking of unique gifts, give the gift of time, whether it’s dinner and a play, a sporting event or some other outing, the experiences we share with those we care about truly do make the best gifts of all. There is no whatzit, whirligig or doohickey that could possibly bring as much joy.

For my last blog of 2010, I mostly just want to wish you all a very happy holiday season and best wishes for health, happiness and balance throughout the year. We appreciate you taking the time to read the blog and hope that, at least on occasion, the topics discussed provide real value, whether financial, health related or just as a good time to reflect for you and those around you.

Chip Workman, CFP®
cworkman@taaginc.com
www.taaginc.com

Time for a Reality Check

(from Dan Solin's Huffington Post blog, 10/28/2010 - click here for the original post)

As year-end approaches, this seems like a good time for a reality check.

On October 9, 2007, the Dow Jones Industrial Average closed at its all time high of 14,164. At that level, it had gained 94% over the preceding five years. The euphoria of the bulls was palpable.

On March 9, 2009, the index reached a new twelve-year low, closing at 6,547. The bears became the talk of Wall Street. Doom was in the air.

How you dealt with your investments during this period is indicative of everything that is wrong with the securities industry and why you need to fundamentally change the way you invest.

Few brokers predicted the greatest financial crisis since the Great Depression. Almost no one predicted both the meltdown and rapid recovery of the markets. Yet more than 90% of individual investors maintain brokerage accounts and rely on the flawed advice of their "investment professionals."

What if you didn't panic and did nothing from October 9, 2007 to date? I call it the Seinfeld approach to investing. You were in a globally diversified portfolio of low cost index or passively managed funds in an asset allocation (the division of your portfolio between stocks and bonds) appropriate for your tolerance for risk and investment objectives.

As of September 30, 2010, if your allocation to stocks was 50%, your portfolio has fully recovered. Investors with with an allocation of less than 50% to stocks have positive returns. If you were among the small percent of investors for whom an allocation of 100% stocks was appropriate, your total return is down almost 20%.

Check your portfolio returns. How do those results compare? Most likely, not well if you were listening to the financial pundits and "fled to safety" when the market crashed.

Almost all clients of brokers invest in actively managed funds, where the fund manager attempts to "beat the market." The use of these funds is another reason why investors typically underperform the market. If there is one compelling reason for terminating your relationship with your broker, it's the fact that recommendations of actively managed mutual funds are the way brokers make a living.

In a recent blog, Eugene Fama and Kenneth French, two of the most distinguished Professors of Finance in the country, explained the folly of investing in actively managed funds. They concluded that, when you factor luck into the equation, they expect 97% of actively managed funds to underperform a passive alternative.

Their conclusion is consistent with other studies that have shown over 99% of active fund managers have no genuine stock picking ability.

If your personal reality check persuades you to enter the New Year with a new investing approach, don't necessarily assume you can do it yourself. Studies over a 30 year period show that even those who pursue an indexing strategy on their own fail to capture 100% of market returns. They still do far better than investors in actively managed funds, but their failure to rebalance their portfolios and the lack of discipline to stay the course when times get rough, take a heavy toll.

A competent passive advisor, who focuses on your asset allocation and recommends investments only in index funds, passively managed funds or Exchange Traded Funds, can be a wise investment.

Lessons from "The Big Short"

So much has been written about the credit crisis caused by the real estate bubble and the government’s reaction to the resulting recession that it may be difficult to even consider reading a book on the subject, but “The Big Short” by Michael Lewis is worth the time.

Most books written on the subject provide a timeline of events and try to determine who was to blame. Instead, Mr. Lewis chose to focus on the few people who saw the crisis forming and bet against Wall Street, based on the strength of their convictions. The book isn’t a ‘get rich quick’ instruction manual, but it provides a fascinating look inside Wall Street thought the eyes of a few unusual people, and several important lessons for investors in the process:

Don’t believe that something is right just because so many people are doing it.

I know, it sounds like something your mother would say. But history is crowded with examples of investment booms and busts that were caused by the pressure of the crowd. In the last 40 years we’ve experienced energy tax shelters in the 80’s, the dot-com stocks of the late 90’s and the recent real estate boom. It’s easy to recognize how ridiculous prices were AFTER the fact, but in the height of a boom it’s tough to watch your brother-in-law get rich flipping Florida condos and your friends making money overnight without feeling you’re a sucker for staying out. But the last man standing when the music stops can lose it all.

Brokerage firms are rife with conflicts of interest that damage the wealth of individual investors.

In the credit boom leading up to the bust, brokerage firms made bets on bonds for their own accounts and created new investment vehicles by pooling together low quality mortgages. Bonds the firms no longer wanted to keep for themselves were dumped onto unsuspecting investors. We need to move to a fiduciary standard in the industry where all investment firms have to act in the best interest of their clients. Investors, in the meantime, need to pay attention to how their advisor is compensated and where his loyalty lies.

It takes guts to maintain your course of action when so many people tell you you’re wrong.

I actually felt sorry for the man who made $100 million for himself and $700 million for the investors who stuck with him. Michael Burry created a hedge fund, Scion Capital, and began betting against the real estate bubble in 2003, before the rest of the world caught on. Because he was early, real estate and mortgage backed investments continued to go up in value, and his hedge fund suffered losses. In 2006, when the S&P 500 was up more than 13%, he lost 18.4% for his clients. He was physically threatened and harassed, and some of his investors organized to sue him in the fall of 2006. By June of 2007, the real estate house of cards began falling in the credit markets, and his bets paid off spectacularly. But Burry was so traumatized by all the years of harassment and doubt that he closed his fund.

If you have an investment plan in place to reach your goals, it’s emotionally difficult to stick with it when you feel the sky is falling or everyone is getting rich and you aren’t. But don’t allow CNBC’s Jim Cramer or a friend at a holiday party cause you to doubt yourself.

If you have some time over the holidays, I recommend you spend it with “The Big Short.” You might even walk away with a few more lessons of your own.

Jeannette A. Jones, CPA, CFP®
jjones@taaginc.com
http://www.taaginc.com

Running from the Bear

While walking my dogs in Symmes Park on Halloween morning I encountered a black bear. I knew the bear had been spotted in the area because signs have been posted for about two months. When the signs first went up, I did my due diligence by going to the websites for the township and Ohio Department of Natural Resources. I found out how you should react if you encounter a bear – make noise, don’t approach or feed the bear (really?) and don’t run away. I had my plan in place. In the unlikely event that I saw him for myself, I would slowly back away and change my route. Unfortunately, when staring my fuzzy black fear in the face, all of my planning went out the window and I did exactly the opposite of what you should do – I ran away as fast as I could!

As I have played this scene over in my head, I began searching for something that would have made my response different. Maybe if I wasn’t alone, and had my husband, or another person with me, I would have been able to respond more rationally. Even though I had done my research, maybe I should have created a different plan. I’ll never know…hopefully.

What does this have to do with investing? A lot, actually. My incident with the bear and my response is very similar to what investors face each day. Although you can put a plan in place by creating a portfolio based on your past tolerance for risk and discussing the best course of action when facing a bear market (now I understand where the name comes from!), your actual reaction may be far different than your plan.

With bear markets occurring about once every five years, what can you do to make sure you don’t run from the bear and endanger your goals? The first step is to ignore the media. They will typically make you feel as if you need to make a split second decision whether to flee or not- and you don’t. When staring the next bear market in the face and your inclination is to run, turn off the TV or computer, take a few deep breaths and call your advisor.

Christine L. Carleton, CFP®
clcarleton@taaginc.com
http://taaginc.com/