In late 2008, Federal Reserve Chairman Ben Bernanke and the Federal Reserve Board took very strong measures to encourage economic growth by lowering the Federal Funds Target Rate to its lowest historical rate of between 0.00%-0.25% as a result of the economic and credit crisis.

Because economic activity remains in a slow rebound, and as the financial and real estate markets recover, the Fed Funds rates have remained at this historical low.

Since the recovery for the global economy has been a slower by many standards of measures, it is likely the Fed Funds Rate will remain low for the foreseeable future.

Unfortunately these slow rates of economic growth have made banks somewhat unwilling to extend credit to individuals and small business owners. Many small businesses depend on bank credit to make their purchases and do much of their hiring, as the revolving credit lines they have help them with payroll.

While low interest rates positively impact many areas of the economy and business we don't want to see them remain this low indefinitely. While we are increasingly seeing positive earning reports from companies, a period of sustained growth would go a long way in having interest rates rise. When interest rates rise, we will be on our way to recovery.

If you have home equity loans, variable rate lines of credit, are looking to buy a home, or finance anything, this should be a terrific time to do it.


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One man many people respect is Warren Buffett. He has a history of being in tune to the markets and the direction they are heading. Here's a short interview with his take on the economy and a healthy perspective on the markets, looking forward.

Warren Buffett on the Economy Today

It is important to take his views with a grain of salt, but when most famous investors in the world comments, we should all take note.

If you have any questions, as always, please feel free to contact me.


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Despite the fact that we are well above the bottom of the market (which was put in place in March 2009), there are still challenges that we will face in the coming months and years as investors. Here's a piece from the American Funds giving you five strategies for investing in uncertain markets.

Key Strategies for Investing in Uncertain Markets

If you have any questions about the strategies mentioned, please give me a call.

From Stephen & I, we wish you and yours a happy Independence Day.


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During the 1990s the fashionable way to invest was through growth stocks. These stocks tended to take any earnings they may or may not have earned and reinvest them back into their companies trying to grow the companies bigger and faster. Typically, growth companies with earnings did not pay any of those earnings out to shareholders in the form of dividends. They would reinvest them back into the companies for long-term growth.

The benefit to this was that a company could theoretically create more shareholder value by growing it more quickly. The only way to benefit from this change in value was to sell your holdings. The issue is that many people will need to get some economic benefit from their investments one way or another.

Conversely, companies which are generally older, more conservative, and large tend to pay out a portion of their earnings annually in the form of dividends to their shareholders. Some of us are able to reinvest our dividends enabling us to build more total shares. Other investors take their dividends as an addition to their total income.

When I first started in the business, I learned that dividends could amount to 40% or more of the total return of a common stock or mutual fund. Therefore, it was important to have holdings which paid out dividends on a regular basis. I still believe dividend paying common stocks can be an important position in anyone's portfolio.

If we have slower economic growth as the economy heals, it seems to me that dividends should again play an important part in an investor's total return. Slower growth could also mean that growth companies may find it tougher to increase their sales as quickly thereby making it tougher to increase profits and ultimately their share value.

The good news for me comes on a couple of fronts:

1. Companies are beginning to raise their dividends again. This is a sign of an improving economy. Dividends do seem to be in recovery.

2. I hold out great hope that the emerging markets of the world; i.e., China, India, South America, Eastern Europe, and eventually Africa, will show tremendous growth for several decades to come. This growth should fuel many investors ability to make money for many years ahead.

Traditionally, dividends have played an important role in an investor's success. I've no reason to believe this will be any different in the years ahead. In fact, it could be more important now than ever.

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When you decide it's time to sell your home or a rental property, getting the price right is one of the tougher decisions you'll make. If you make it too high, it may not move for months or at all. If it's too low, you may not get all your potential equity out of it. Here's a brief introduction to how you can determine Fair Market Value.

Every house sells at the right price. That price is defined as its fair market value - the price the buyer will pay and a seller will accept for the house - given that neither buyer nor seller is under duress. Duress comes from life changes, such as divorce or sudden job transfer that put either the buyers or sellers under pressure to perform quickly. If appraisers know that a sale was made under duress, they raise or lower the sale price accordingly to more accurately reflect the house's true fair market value.

Fair market value is a zillion times more powerful than plain old value. As a seller, you have an opinion about the amount your house is worth. The buyers have a separate, not necessarily equal, and probably lower, opinion of your house's value. Values are opinions, not facts.

Fair market value, conversely, is a fact. It becomes fact the moment you and the buyer agree on a mutually acceptable price. Just as it takes two to tango, it takes both you and a buyer to make fair market value. Facts are bankable.

This week's tip is an excerpt from "House Selling for Dummies" by Eric Tyson and Ray Brown, reprinted by kind permission of Ray Brown. In addition to being a frequent guest and contributor to our show, Ray has authored many books and is a syndicated real estate columnist for the San Francisco Examiner, and has hosted the weekly radio program, "Ray Brown on Real Estate," on KNBR in San Francisco for many years.

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We're hearing so much about unemployment these days; the economy has improved moderately over the past eighteen months, but we're not seeing much improvement in the employment figures.

As always, I think it best to focus on the basics rather than learn all there is to know about employment economics. Here are five simple things to know about employment in our economy.

1. Corporations generally do not hire when profits are too low, non-existent, or declining.
2. As their corporate bottom line ("profit") improves, they begin to look for more manpower hours.
3. The first place to find help is to get more hours is out of their present work force. This can generally be accomplished by maximizing efficiency (like better technology) and offering people more or longer hours.
4. Once a company has used up the potential in Item Three, they begin hiring temporary workers. This can fill a labor gap without committing money and time to permanent or long-term employees.
5. The final step is to hire full-time employees, thereby increasing payroll on a more permanent basis. This generally happens when the company has exhausted all their other employment options and feels comfortable with the idea that profits are strong enough and sustainable to take on longer term costs.

This weekly tip is one I've written and re-written a couple times over the years. I believe it's always relevant because there will always be drops in the number of people employed in our economy which correspond with a recessionary economic cycle.

If you're unemployed, it's important to understand that the employment numbers in our economy don't generally improve until an economic recovery is viewed as sustainable and companies using temporary employees find they need more permanent solutions.

At the same time, if you're an investor, it's important to understand that the economy can be well on its way to recovery or even well into recovery before unemployment improves. In fact, since the financial markets generally move ahead of the economy, it's possible for the financial markets to be significantly higher in an improving economy long before the number of those unemployed greatly improves.

The moral to the story is not to make investment decisions based on waiting for better employment numbers. By then, you may have missed the proverbial investment boat.

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Right now, mortgage interest rates are at, or near, their historic lows. The question everyone should be asking themselves is simple, should I refinance now or not?

The question of whether or not you should refinance your home comes down to a fairly simple answer. There are three basic things to consider:

• How much will it cost you to refinance your current loan?
  
• Based upon the original loan amount, how much per month will you be saving with the new loan? (This needs to be an apples-to-apples comparison. Therefore, you need to base your savings upon the original amount of your loan to have a valid comparison. Clearly, the new loan will most likely be smaller.)
  
• By dividing the loan costs by the true monthly savings, you'll see how long it will take to pay-back the costs.

Your conclusion should be based upon how long you'll keep your home, and how many years it will take you to pass the pay-back or breakeven period. If it's less than four years, I feel you should strongly consider refinancing.

Even if you've recently purchased a home or have a newly refinanced loan, it's worth the exercise of determining if you should refinance your existing mortgage.

If you have any questions, please give me a call.

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European troubles, volatility; what are the markets doing? This week's tip is a short video clip featuring two of American Funds most experienced portfolio counselors. In this three minute clip they talk about investing during a period of uncertainty. Please take a look.

Uncertain Markets Could Favor Equity Investments

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I've never believed we'd see a straight line recovery in any economic downturn. There are just too many components making things challenging in trying to climb out of the doldrums.

What's happening on the positive side of the equation to be hopeful about economically?

1. The US economy is doing better. People are beginning to purchase more goods and services.

2. Companies took huge write offs in 2009. This has led many to have a much more positive outlook and result for 2010 when it comes to sales and profits.

3. The real estate markets are slowly, but surely, climbing back out of their worst downturn since The Great Depression.

4. The job market, while carrying loads of unemployed individuals, is firming up. It may take quite a few months to get there; but, I believe it's headed in a much better direction. Always keep in mind that new hiring comes last in an economic recovery.

5. The Federal Reserve Bank revised its 2010 economic outlook today to a rate of growth between 3.2% and 3.7%. This is an upward revision from an economic outlook of 2.8% and 3.5%.

6. As I reported last week, the emerging markets of the world were not nearly as harshly affected by the credit crisis or crunch and have had good growth of late; especially China which is now concerned with inflation. (See last week's tip for more thoughts on this topic.)

7. Short term interest rates continue to be at historic lows allowing for tremendously low costs of money for those who need it.

8. We have some of the lowest mortgage rates in history. This combined with very low housing prices makes for a terrific time to purchase a home.

These are just eight of the many reasons to be optimistic about the future. Yes, there are debt worries which I believe will be handled. I recall how so many people thought the Viet Nam War would bankrupt our country. In time, inflation reduced the real costs of that war and things improved. While I do not discount the challenges the world faces, I do believe there are many tremendous opportunities to invest for decades to come. I do not, and have not, believed that a person should invest solely in any one country. There are tremendous companies all over the world and billions of new customers worldwide as well.

It seems to me that as long as we have people living on this wonderful planet of ours, they will need goods and services no matter what the economy. As the number of consumers grows, the potential profits for many companies should grow with them. In saying this much, it's my belief that there should be many strong decades ahead where investors could benefit from the growth of the world's economies as well as the many companies who should profit from it.

When things look tough, it's time to either be strong or add to your portfolios if you can. Buy low sell high is so cliché, yet it's cliché for a reason. It's a simple truth in making money.

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As long as I can remember, when there was a recession, it was the US consumer who led us, and sometimes the world, out of it. We US consumers would spend our way out of economic doldrums.

As we look towards continued recovery on a worldwide basis, it's not the US consumer leading the way. It's the Chinese, Indians, Brazilians, and other people in the emerging markets of the world.

Why is this? It turns out that their fast growing economies did not participate in the real estate boom, and subsequent bust, that many of the developed economies of the world did. As a result, their balance sheets were in far better shape than those of countries like ours and many in Europe. Their healthier balance sheets and fast growing economies have left them in a far better position to get into recovery than many of the developed countries of the world; the United States being one of them.

As you may recall, it was China who was the first country to announce a $600 billion stimulus package when it looked like things couldn't get any worse. That was a huge package for a country with an economy much smaller than ours. They were also in better economic shape than the United States. Rather than having a deficit, they have a fiscal surplus. This was put to use to stimulate their economy. It also had positive effects on many other economies around the world; ours among them.

I think the United State will have its hands full in the coming years trying to adjust to the growing emerging markets countries of the world and the cheaper labor they provide the global economy. On top of this, I believe we face significant challenges in dealing with the impending retirement of the Baby Boomers. As more of them collect Social Security and Medicare, there will be a greater stress on our economy both today and for the foreseeable future.

This is a challenging time for sure. The good news is that things appear to be improving. The tough news is we've got some tough issues to face in the years ahead. The United States has always been a strong and resilient nation. I believe we will persevere. However, I think the signs of change in the world make it ever clearer that investing globally is the way to go. There's a world of opportunity and great companies out there ready to take advantage of in a growing global economy.

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As a follow up to last weeks tip, I wanted to talk a little about general estate planning. Last week I spoke of taking the time to talk to your family about Long Term Care, it can be a difficult discussion but also a very valuable one. In addition to discussing Long Term Care, there are a few other estate planning issues that you should address as you get older.

Power of Attorney - Having a family member or friend designated to make decisions for your medical care or financial proceedings can save time and money.

Trust - Maintaining an up to date trust can save your family money in probate costs and can be fine-tuned to allocate dollars exactly as you wish.

Will - An updated will with a designated executor can make dealing with probate much easier.

Long Term Care - As previously mentioned, review your coverage and make sure it is sufficient for your needs.

If you have reviewed each of these, make sure the people who are to act on your behalf are aware of their roles. Nothing makes a family emergency more difficult than finding out that you are suddenly responsible for some major decisions for your loved one. If you have any questions, as always, please feel free to call.

This Weekly Tip was written by Stephen Hiltscher. Stephen is a member of the Cryden Team and is a licensed Life/Health Insurance Agent. If you have any questions about Long Term Care or other estate planning questions, please give Stephen & I a call.

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Long term care insurance is potentially one of the most valuable types of insurance a family can purchase. In March, I wrote a Weekly Tip about long term care costs and how they can quickly add up. Those costs and issues can truly affect an entire family in very powerful and difficult ways. Dealing with long term care is a subject that everyone should discuss and become comfortable with the decisions that are made. But talking about aging, money, health and end-of-life care are extremely trying for any family. What is the best way to make sure your loved ones are protected and everyone is involved in the decision making?

Let your family know that you care and want what is best for them. A simple statement saying, "let's talk" can get the discussion started and is often all that's needed. Start with your loved ones; get an idea what their goals are and what they expect to happen as they age. Make sure that as the discussions progress, everyone is involved.

Once the subject has been broached; there are a few topics that need to be covered. How is present health? What are your options for care? Is remaining at home going to be feasible and important to you? What are the costs of care compared to the costs of a long term care policy? Have legal issues like a will, an advance healthcare directive, and power of attorney been addressed?

Long term care and long term care insurance are topics that can be very stressful; the more you communicate and work on the subject and its answers, the less difficult they should be to deal with over time. Remember to keep the discussions moving forward and remain positive. It doesn't have to be a sad thing; this is a talk that should benefit your entire family.

I encourage you to take the steps necessary to make sure your family has the protection they need. When it comes to long term care, the discussion can be very difficult but its value to a family can be invaluable. If you have any questions, please feel free to contact me.

This Weekly Tip was written by Stephen Hiltscher. Stephen is a member of the Cryden Team and is a licensed Life/Health Insurance Agent. If you have any questions about your current policy or need any advice on a new policy, please give Stephen a call.

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We've all just finished filing or extending our 2009 tax returns. So the idea of tax planning and tax bills is fresh on our minds. I propose that this is the time to begin planning for your 2010 tax return.

All too often people wait until very late in the year or even the next year to prepare for their tax return. In my mind, this is a true mistake. My reason for this conclusion is simple. Tax planning is a year round process. There are many things you can do to work with your tax return. However, many of them you simply cannot implement on the last day of the year or after the year is over.

Here are a few examples of what I am referring to:

1. You cannot contribute to your 401k, 403b, or SIMPLE plan on the last day of the year in any meaningful way or at all. Once the year is over, you cannot contribute for the prior year; it's too late. These plans can help you put thousands of dollars away towards your retirement annually. In addition, they can save you thousands in taxes annually.

2. If you are an employer, you cannot establish a qualified retirement plan after the end of the year. Opportunities like Keogh plans, profit sharing plans, 401k plans, and defined benefit plans cannot be established once the year is over. Now is the best time to get them established. You'll have the whole year to work with them and contribute.

3. You want to pay attention to income throughout the year and expenses to best match your opportunities for tax planning. If your income is higher in 2010 than 2009, you may need more deductible expenses to help reduce your taxes. If your income is lower, you may want to push off your deductible expenses until 2011 where you may get more benefit from them.

These are just a few things you can do during the year to help reduce your taxable income and resulting income tax bill. Like financial planning, tax planning is an ongoing process. It's always wise to incorporate your tax and financial advisors to help with your process.

If things have changed in your life, make sure to do additional financial and tax planning. If you've moved, gotten a new job, lost a job, gotten divorced, or gotten married, all of these events will affect your 2010 tax return.

Finally, many expect higher income taxes in the years ahead. These potential higher income taxes are all the more reason to do solid tax planning.

In the world of money and taxation, it's always best to plan ahead.

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One of the things you can look at when talking about investing in common stocks is their yield or the dividend payout. It's interesting to compare the yield on common stocks to what kind of interest you can earn in the bank or in a money market account.

Today, people are literally loaning their money to banks for a near zero rate of return. In this case, they are getting a near zero interest rate in return for no risk. Generally, you'd like to think that you can get a higher interest rate on your bank account or money market account in return for no risk and no possible growth of your principal.

Conversely today, you can get roughly a two percent (2%) yield or higher on many dividend or blue chip stocks. In addition, common stocks offer the potential for growth of principal. As we see the economy continue to recover; and potentially followed economic growth, we should see the value of many companies' stocks rise.

The combination of a higher dividend than many people are earning in interest in their bank accounts combined with the potential to see growth of principal makes a pretty compelling case for the consideration of getting some of your money out of the bank and into a good growth and income fund.

If you're interested in talking about this more, let's take some time to meet to discuss the possibilities. If not, I think this certainly continues to make a case for long term investing in common stocks. And, if you're already invested, it I think it makes a good case for keeping your money invested.

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As we move into April, two things are apparent; spring is here and the tax deadline is fast approaching.

The last date to file individual return without an extension is Thursday, April 15, 2009; this is also the deadline to fund your Traditional or Roth IRA for Tax Year 2009 contributions.

As a reminder, individuals who were Age 49 or under at the year-end of 2009 can contribute a maximum of $5,000; individuals who were Age 50 or over at the year-end of 2009 can contribute an extra $1,000 as a “catch-up” provision for a total contribution limit of $6,000. Please consult with your tax preparer to ensure that any retirement plan contributions are fully deductible.

While the financial markets have recovered quite a bit during the past year, the economic outlook for the global economy should remain positive. Economies all around the world are still recovering from a major recession; leaving more recovery and economic growth ahead. In addition, we are nowhere near the all time highs of all the financial markets.

As always, we encourage you to make your 2009 contributions well before the April 15th deadline. If you haven’t made your contributions for 2009, please contact me as soon as possible.

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What is globalization?

It's the name for the process of increasing the connectivity and interdependence of the world's markets and businesses. This process has sped up dramatically in the last two decades as technological advances have made it easier for people to travel, communicate, and do business internationally. Two of the major recent driving forces of globalization are advances in telecommunications infrastructure and the rise of the internet.

In general, as economies become more connected to other economies, they have increased opportunity but also increased competition.

I don't think it makes sense that globalization is likely to reverse course. As we've seen, the recession we've been experiencing has been reversed by the leading actions of China, not those of the United States. I believe as the world continues to grow, we'll see more leadership in many economic areas by companies and countries all over the world.

As this occurs, we'll see two distinct things continuing to happen:

1. The number of people worldwide who are capable of purchasing a wide array of products will grow by very large numbers. Just a few years ago, there were only one billion people on our planet who lived in mature economies. That left over six billion people who were potential consumers who lived in lesser developed countries. The number of people living with a higher standard of living today is much higher than it was just ten years ago. That number is likely to grow by the tens of millions in the years ahead.

2. As a result f the growing number of mature economies and middle class people, we'll see many more companies who are doing a great deal more business worldwide. They will have a much larger potential base of customers than they do today. This should lead to greater sales and higher profits. The end result of these larger profits should be higher share prices. I believe that this much larger base of potential customers should be long term by its very nature.

In my eyes, there are tremendous opportunities for businesses and investors worldwide. It just takes being a patient investor. It takes an investor who is willing to look past short term ups and downs to what looks like a very bright future for billions of people on our planet in the years and decades ahead.

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Long term care insurance is like any insurance; you have it and hope that you never use it. As the old adage goes, "it's better to have it and not need it, than to need it and not have it". Simply put, the cost of care is high and the stakes are even higher.

In 2009 the long term care insurance company, Genworth, did a survey of the average costs of care in the state of California. Long term care insurance covers more than just nursing home care, it also provides coverage for homemaker services, home health aide services, adult day care and assisted living facilities. Each requires different skills from the providers and thus different costs for each. The median costs for San Luis Obispo County are as follows:

Homemaker Services - $22/hour

Home Health Aide Services (non-certified) - $23/hour

Home Health Aide Services (certified) - $58/hour

Assisted Living Facilities - $48,000/year

Nursing Home Care - $71,949/year

As you can see, the costs of long term care are not cheap and they should continue to rise. Considering that the average stay in a nursing home facility is 2.5 years, the costs can add up quickly. If you haven't looked into long term care insurance, please give me a call, we can customize a long term care policy to suit your needs.

This Weekly Tip was written by Stephen Hiltscher. Stephen is a member of the Cryden Team and is a licensed Life/Health Insurance Agent. If you have any questions about your current policy or need any advice on a new policy, please give Stephen a call.

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It was a year ago Tuesday (March 9, 2009) when the financial markets hit their bottoms. The feeling in almost every corner of the world was that there was no end in sight.

Bottoms and tops always feel there will be no end to the misery or the joy. Either greed sets in or fear has a grip on us telling us this is never going to end. The lessons from market tops and bottoms are pretty clear and simple in some respects.

1. Financial markets, the economy, and life itself are cyclical. You can almost guarantee that a market cycle will top and a market bottom will turn. Whenever you feel like this can't get any worse or any better, remember that the market trends will inevitably change.
2. While emotions are a powerful part of being a human being; they make for lousy indicators or signals when it comes to investment decisions.

Here is where the major financial market indexes bottomed alongside how they stood one year later:

As you can see, these are pretty large increases. Consider that the indexes are all coming off some very staggeringly deep declines. The idea that we've fully recovered isn't correct at this point. However, I believe we've recovered off the crash levels of last year. I think that means that the drop, and resulting increase, because of people's panic is over. Also keep in mind that the further you fall, the greater the percentage you need to get to fully recover. This concept is called the mathematics of loss.

With the mathematics of loss, if you fall from $150 to $100, that's a one-third or 33.33% decline. However, to fully recover back to your $150, you need an increase of $50. That's a 50% increase from $100 to $150. The rule of the mathematics of loss is that you need a larger percentage increase to cover a loss than the percentage loss itself.

The economy seems to be on the mend. The worst of the economic, banking, and financial declines seem to be behind us now. The thing to keep in mind is that this all takes time. We'll need further recovery in the economy, increased employment, and a period of growth and a healthy economy before we can say that this period of improvement is peaking or topping out. I believe this should lead to the potential of a number of better years ahead. While I have no crystal ball, the cycle we're in is only truly just beginning.

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The dilemma many investors face in retirement is how much money should they withdraw from their portfolios annually?

There are two goals that I believe they should try to meet in considering how much money they should withdraw from their portfolios every year:

1. The first goal most people try to achieve is adding enough income to their cash flow to meet their living expenses and/or other needs.

2. The second goal they should try to meet is having their portfolio's value keep up with inflation.

Both of these goals should help investors meet their income needs today and in the future.

If your portfolio's value can keep up with inflation, or exceed it, you should be able to increase your income along with the increase in the value of your investments.

I think it's important not to take out more than your planned withdrawals in years where your portfolio grows more than inflation. The reason for this is that the excess growth will help you in years where your portfolio has lost value. As we all know, investments do fluctuate over long periods of time.

I've always felt that a moderately invested portfolio can handle a withdrawal rate of up to six percent (6%) per year. In my 26 years in the financial planning business, I've had good success with people withdrawing up to 6% per year. Clearly, if you can take less, you leave yourself more room for increases in the future.

If your portfolio value is $300,000, you should be able to withdraw up to $18,000 per year, or $1,500 per month.

A moderate risk portfolio generally has investments in growth & income funds (blue chip stocks funds) and/or balanced or equity income funds (blue chip stocks and bonds). The common stocks have an inherent or intrinsic growth component to their make-up. This should help you achieve your goals of keeping up with inflation.

If your portfolio is made up of only bonds, you're ability to meet our two goals becomes almost non-existent. Bonds have no way to truly appreciate over the long term nor do most have any way to increase their income over long periods of time.

Planning for your retirement is tricky business. If you make a general rule of thumb for your portfolio to withdraw up to six percent per year from a moderately invested portfolio, you should have a reasonable chance of success throughout the years.

Please call if you have any questions or would like to discuss your retirement income needs.

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Here's a brief explanation of how a reverse mortgage works. Please consult your accountant, attorney, and myself before taking one out.

In my opinion, they aren't for most people.
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Reverse Mortgage Basics
So what exactly is a reverse mortgage, and how does it work? Well, as the name suggests, a reverse mortgage reverses the traditional mortgage process. Think back to when you bought your first home. Unless you had generous and affluent relatives, you probably had to scrape together the money for the down payment and seemingly never-ending closing costs. And then you were likely saddled with what seemed like a mountain of mortgage debt.

Every month, thereafter, you dutifully mailed to the mortgage lender a check for the monthly mortgage payment. In the early years of your mortgage, the vast majority of those monthly mortgage payments went to pay interest on your outstanding loan balance, but a small portion of each of those payments went toward principal, in other words, reducing the loan balance. (As the years roll by, the loan balance should pay down at a faster and faster rate until, eventually, your mortgage paid off.)

A reverse mortgage reverses the process. When you take out a reverse mortgage, the mortgage lender typically sends you a monthly check. Imagine that! You can spend the check in any way your heart desires. And, because the check represents a loan, the payment to you isn't taxable.

As the reverse mortgage lender gives you more payments, you accumulate an outstanding loan balance. Unlike other loan balances you may have, such as on a credit card or a business loan, you typically don't have to pay single penny back on your reverse mortgage loan until the home is sold (and then the loan and the accrued interest is paid back from the sale proceeds) or, with some reverse mortgage programs, when you move out of the property.

This week's tip is an excerpt from "House Selling for Dummies" by Eric Tyson and Ray Brown, reprinted by kind permission of Ray Brown. In addition to being a frequent guest and contributor to our show, Ray has authored many books and is a syndicated real estate columnist for the San Francisco Examiner, and has hosted the weekly radio program, "Ray Brown on Real Estate," on KNBR in San Francisco for many years.

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When the credit crisis hit full force it took a number of governing bodies to help us right the ship. The Federal Reserve Bank and the Treasury were two key agencies.

I've always said that the Federal Reserve Bank will tell us when things are getting better. Here are couple thoughts on the Federal Reserve Bank (The Fed), the economy, and the credit crisis:

1. The Fed stepped in during the heart of the credit crisis to implement a number of critical programs to reflate the economy. These programs added needed capital that was being sucked out of the system through any number of types of defaulting loans, etc. (Real estate loans are a good example of this.)

2. The Fed also stepped in to act as the banking system since the global banking system has almost completely stopped lending money; even bank to bank.

3. One sign I looked for which would likely indicate that things were beginning to stabilize was the end of the period where The Fed was considering and implementing new programs to help the economy. This moment came and went without much fanfare. Nonetheless, these not so mentioned moments can act as indicators of changes in any given economic situation.

4. The Fed has kept things as is for going on a year now. This shows me there has been stability in the economy with no further deterioration.

5. Now we are hearing talk from The Fed and Fed watchers that the agency is beginning to develop exit strategies from the programs it developed to help the economy and to ease the stresses in the banking system.

Despite all the day to day news of how the recovery is going; the thing that strikes me as a sign of better times ahead is The Fed plotting it course to unwind the programs it implemented in the heart of the credit crisis. I see this as an indication that they aren't so much worrying about more bad news and events as they are about how having all the money in the system coupled with historically low interest rates will affect our inflationary outlook. My conclusion is that this is one of the key signs we've been looking for in terms of things getting better. When The Fed starts to think about unwinding their programs, they are clearly more concerned about the economy gaining too much steam than it regressing. That's my take on things.

I've no crystal ball and don't know what the future will hold; but, I feel that The Fed looking at keeping the pace of the recovery under control is a good thing.

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Our economic business cycle is a predictable long term pattern of alternating periods of economic growth (recovery) and decline(recession), characterized by changing employment, industrial productivity, and interest rates.

Many investors get caught up in short term news and events. The trouble that can arise from this short term thinking is that they can lose track of their long term goals. This is relevant because one fundamental way we make money long term is by owning good companies benefitting from their growth through various product developments and business cycles. If investors react to short term news and events, they will likely make business decisions unrelated to their long term plans and fundamental goals. As such, those investors can lose the benefits of the long term economic cycles they have tied their goals and objectives to.

The past 12 - 16 months have presented many short term economic and investment challenges and obstacles. Those challenges and obstacles are not unrelated to the business cycles in their own ways.

As with every downturn in the economy and financial markets in the past, we've begun to rise out of the deepest part of the declines and seem to be well on our way into recovery.

In my opinion, investing is about keeping track of the basics and fundamentals. It's about staying with long term plans through both the upside of an economic cycle and the downside. As with life itself, investing and the economy are cyclical. In my opinion, if you stick to this fundamental concept, you should have a greater chance of success.

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The Dow Jones Industrial Average is the most widely use indicator of the overall condition of the stock market, a price-weighted average of 30 actively traded blue chip stocks, primarily industrials. The 30 stocks are chosen by the editors of the Wall Street Journal (which is published by Dow Jones & Company), a practice that dates back to the beginning of the century. The Dow was officially started by Charles Dow in 1896, at which time it consisted of only 11 stocks. The Dow is computed using a price-weighted indexing system, rather than the more common market cap-weighted indexing system. Simply put, the editors at WSJ add up the prices of all the stocks and then divide by the number of stocks in the index. (In actuality, the divisor is much higher today in order to account for stock splits that have occurred in the past.)

The thing about any index is that it is an indicator of the market's trends. It is nothing more or nothing less. It also can reflect the future of the economy as the financial markets tend to be forward indicators looking to where the economy and corporations are headed four to ten months out.

Good investment managers should be able to outperform the index. I believe it's good to know how the indexes are doing. I do not believe they are anything more than an indicator or the economy and the financial markets health.

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One of the side effects of low interest rates is they tend to lead people towards investments with higher returns. Those investments have the potential for higher returns. In turn, they usually have higher risks. So, as recessionary expectations retreat, pessimism fades away and optimism works its way back into people's minds. Moreover, investors re-examine opportunities for riskier investments in the context of what is usually a low interest rate period. They also become more comfortable embracing greater risks. As a result, equity markets can tend to do very well during an economic recovery.

Within equity markets, some of the best performing stocks are those that use operating leverage or debt as part of their ongoing business model, especially as these are often extremely undervalued after being beat up during the bear market. Remember, leverage works great during good times, and these firms tend to grow earning faster than companies without leverage, but they also greater real risks during weakening times. Moreover, growth stocks and small stocks tend to do well as investors embrace risk during an economic recovery.

As you know, I am a believer of broadly based professionally managed portfolios; both here in the United States and abroad. A balanced diversified portfolio generally handles the ups and downs of long term market trends pretty well.

My sense is that we should see continued growth in the economy as it shifts from recovery to growth again. It seems to me that we should see continued growth in the financial markets too as the economy grows and the profits of companies worldwide grow. As a result of this, their value should increase as well.

Finally, I believe we should see continued growth in the financial markets as people shift assets from low interest rate accounts back into the financial markets. There will be greater risks being taken. I think too many investors became frightened and moved long term money to short term accounts. These are a great deal of the assets being moved back into higher risks financial assets. People's portfolios came apart and out of balance in more than one way. This should correct itself over time.

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The American Funds are viewed as a very well respected investment company. Their investment philosophies are often mimicked, but what make American Funds different is the people behind their investments.

This Weekly Tip is a discussion with the President of the American Funds and three of their longest tenured Portfolio Counselors, their cumulative investment experience is over 90 years. Please watch the "2009 Review & 2010 Outlook", it is a very informative and gives you an inside view with the brains of the American Funds.

2009 Review & 2010 Outlook

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We've had quite a run in the financial markets since their bottom last March. The Dow Jones 30 Industrials average bottomed March 9, 2009 at 6,440.08. Since then, the Dow has reached as high as 10,767.20. This is a recovery off the bottom of roughly 67%. Making matters all the more interesting, this has all occurred in a little more than ten months.

Many people panicked and sold investments which have recovered nicely in the past ten months. While nothing is guaranteed in this life, selling in market panics almost always seems to leave the investor ridding themselves of assets on the short side of the long term equation. I wonder how many of those who sold during the market panic had the resilience to get back into investments which they sold out of? I wonder how many sold low on emotion and bought higher when getting back in? I wonder how many haven't gotten back into investments and still have money sitting in bank accounts or money market funds yielding virtually nothing?

The lessons from the crash of 2008 and 2009 are not necessarily new ones. The reasons for any crash or bear market are usually somewhat unique; as every set of circumstances doesn't pair up the same again. However, the way people handle tough markets is almost always the same. Most people will be patient seeing their holdings as long term in nature. Some will panic and sell at or near bottoms. The old adage that markets make a lousy market timer seems to prove out time and again. When emotions get in the middle of logic based financial decisions you get fear and greed. Neither tends to be a very good way to go about your business long term.

The other lesson that comes into play on occasion is an old Chinese proverb: In Crisis Comes Opportunity. When you step back to review things, it's clear that more often than not, there are opportunities to invest in sour markets. Yet, people have a tendency to do just the opposite or nothing at all. When times are tough, opportunities arise. Last year we saw a few moments like those in the first quarter. Clearly, we saw even more as the financial crisis hit at full strength in the fall and winter months.

As we sit today, I believe that the bounce of the markets' bottom is behind us. I think the gains to be made from the panic selling of 2008 and 2009 are done. I do not think we'll see the same kind of year in 2010 that we saw in 2009. I do not think we'll see huge gains in common stocks. I say this because the panic selling is long over. The oversold condition of the financial markets seems to be behind us in my opinion. Often, this is where we see big gains initially in recovery. They are the gains from the bounce off the bottom which was based on panic selling.

So if we have seen recovery in the financial markets based on their being over-sold as a result of panic, what's next?

The next step in the market recovery should be based on continued economic recovery and eventual economic growth. As we see the economy recover and jobs improve in time, we should see continued growth in the financial markets and company balance sheets.

While I never know for sure, I believe we'll continue to see improvements in the economy over time. I believe we'll see unemployment eventually begin to improve. As a result, I believe see continued positive results it the financial markets. I believe we're in for better times ahead with much of the risk of the credit crisis behind us.

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As we entered 2009, it was clear things looked anything but clear. I made some educated guesses about how 2009 would go. I'll review them below as I look at each thought from my January 7, 2009, Tip of The Week.
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January 7, 2009 - What Could 2009 Look Like?

When I look back at 2008, I'll think of it as the year that the credit markets froze, resulting in violent volatility in the stock markets worldwide and a very difficult economy.

I think we could see the following in 2009. (Clearly, I do not know what will happen, nor do I have a way to guarantee that my thinking will come to fruition.)

1. In the beginning of the year, the economy will look terrible as the numbers come out for the fourth quarter of 2008.

This was pretty clear for anyone to see. No surprises there.

2. These terrible numbers likely could continue through the first quarter; I think it's possible that they could continue through the second quarter of 2009.

This came to be true. The economy began to show some signs of bottoming in the second quarter of 2009.

3. We may see a rise in the financial markets, with the arrival of Barack Obama and a new optimism among Americans and people around the world awaiting the change in administration.

We did see the new optimism and a little rally in the financial markets. The rally didn't last as the markets didn't bottom until March 2009.

4. The huge stimulus package the Federal government is expected to enact within a month or so begins to take effect as the year progresses; this engenders more confidence in consumers and businesses, alike.

This came to be true and should continue to show benefits into 2010 as the monies as delivered to the economy through various means through all of 2010.

5. The financial stimulus already put in place by the Federal Reserve Bank and Treasury Department continues to work its way into the economy, slowly having a positive impact.

We began to see a stabilizing in the credit markets throughout the year. The three month LIBOR which I spoke about throughout the financial crisis began to normalize in the third and fourth quarters of last year.

6. The Federal Reserve Bank continues its creative approaches to stimulate the economy and credit markets.

The Federal Reserve's creative programs were pretty much in place by the end of the March 2009. Now, they are working on ways to normalize money supply and interest rates. I believe we'll see these issues come into play throughout 2010.

7. The economy could begin to settle down sometime during the third or fourth quarter of 2009.

This happened sometime in the second quarter of 2009.

8. Unemployment continues to look bad all year; remember, unemployment is a lagging indicator that can still rise as the economy and financial markets improve. (I wrote a weekly tip about this on November 12, 2008; it's on my website's archives.)

This is still happening today; though unemployment is beginning to bottom or show signs of life now.

9. The stock markets begin to rise again, based on future economic improvement, sometime in the second or third quarter of 2009. (They tend to be a forward-looking indicator of the direction of the economy.) It's not uncommon to see the financial markets begin to rebound four- to eight-months ahead of the economy itself.

This occurred as the markets bottomed in March 2009. It was a little ahead of my thinking in terms of timing. Now, we move forward based on economic improvements and growth.

10. The credit markets continue to slowly normalize throughout 2009.

This happened as I wrote.

11. The residential real estate markets find a bottom sometime mid-year; some areas of the real estate markets are already showing signs of improvement, as we begin the year.

This has happened as I've written. It's fair to say that some areas are doing better than others. Real estate is very regional. On the whole, I think the real estate market is much today than it was a year ago.

12. Huge numbers of healthy homeowners refinance their home at rates below 5%. (Be ready to act.)

This has happened and should continue to. If you haven't already, act while mortgage rates are still low.

13. Economists begin to talk about the threats of inflation, sometime near the end of 2009.

Inflation is still not yet an issue; though economists are talking about it. We may not have to deal with inflation as an issue until later this year or early next year.

14. The financial markets end the year higher than they were on December 31, 2008, with US markets leading the way out.

This did occur. We ended the year way above the market lows and above the crash levels of 2008. If the economy continues to improve, I think 2010 could be a decent year for the financial markets as well. I am not that partial to bonds as I think they could be hurt when interest rates rise.

15. Money in money-market funds, Treasury notes and bills, and bank deposits begin to find their way back into riskier investments, as the year progresses. The reason for this is that investors realize they can't meet long-term needs with a zero-interest rate.

This has occurred and should this year as well.

2009 should be a very interesting year. This is a good year to stay in touch and to be prepared to act on things like buying low and refinancing your home. It's also a good year to truly evaluate all aspects of your life financially, as there could be lifetime opportunities presented that you may want to try to take advantage of.

I would say that 2010 is going to be a much tamer year than 2009. But, it's still a good idea to stay in touch and take advantage of opportunities as they arise or as your life changes.

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