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Year 2008 Weekly Tips

Slips and Airplane Slides - August 27, 2008

This week's tip comes courtesy of a personal family experience. I hope you will all learn from it if and when something happens to you when you are flying somewhere.

You may have heard about American Airlines Flight 31 from Los Angeles to Honolulu which had to do an emergency landing back at Los Angeles International (LAX) on Tuesday, August 5th.

My entire family was on that flight; both my sons and my wife, Allyson. The takeoff was uneventful though Allyson smelled something funny in the cabin. When she asked the cabin attendant about it, she was told it was nothing. That turned out to be incorrect as the cabin became hazy and quiet smelly within another 15 minutes. We were 30 minutes out when the oxygen masks dropped for our protection and care. At forty minutes out, we were on our way back to LAX for what turned out to be an emergency landing.

Here are a few tips of you to keep in mind should you ever be in this situation:

1. Not all our oxygen masks dropped from the ceiling. If yours doesn't release, get something like a knife or metal pen and pry the box open. Once it's open, you'll need to yank harder than you'd imagine to get the oxygen flowing. Those films aren't kidding when they tell you to do that. You would think all you had to do was put the mask to your face and you're set - not so.

2. Not all airplanes are equipped to dump fuel. Ours was a Boeing 757. It was not able to dump fuel over the Pacific as we came back. So, we landed with nearly a full load of fuel, people, and luggage. The airplane's landing was very heavy and more dangerous as a result. In fact, it was taken out of service to make sure it didn't have any stress fractures as a result of the heavy landing.

3. If they tell you that you'll be exiting via the slides and you are on the tarmac or solid ground, be careful. The slides feel like they are covered in Teflon and are very fast! I mean very fast. If you are older, make sure someone is at the bottom of the slide to stop you. If no one is there, you will literally be flying off the end of the thing onto solid ground. This happened to us. I had to get my feet under me and run when I hit the ground. If I was unable to do that, I could have easily broken something or worse. The slides are dangerous! Be prepared for this as you get on them.

4. If you are strong and end up at the bottom of a slide where no one is helping people off, stay there and be a helper. You could literally save someone's life in doing so.

5. Make sure to leave everything on the airplane when you exit. The exception should be any medicine you take. I also suggest you pack the medicine(s) in a plastic bag in case you are leaving the airplane and entering the water or rainy conditions.

Our cabin attendants did their best to help. But, ultimately you need to keep a cool head. The attendants are trained but most have never been in a situation like this and some will lose their composure. Some of that happened on our airplane.

I should note that American Airlines did a good job. We were well taken care of after the flight landed. And, they made sure we were safe during the episode.

I hope no one has to go through a situation like this. Most never will. If you do, I hope the things we experienced three weeks ago will help you handle it a little better. The few seconds you may save could be invaluable

Apprvd.BBDP


Selling Your Home in a Weak Market, Pt. 3 of 3 - August 20, 2008

Nothing down

"Creative financing" was born of dire necessity in the late 1970s and early 1980s, when interest rates were pushed to all-time highs by the Federal Reserve Board trying to stifle raging inflation. When mortgage rates hit 18 percent interest, only people who weren't borrowing as much in relation to their incomes could qualify for conventional financing.

Ordinary mortals glued deals together by assuming the existing, lower-interest-rate loans on property and using seller financing to bridge any gap between their down payment plus assumed loan amount and the purchase price.

If you make a nothing-down deal with unscrupulous, deadbeat "buyers," they may live in your house rent-free for months while thumbing their noses at you as you go through the expensive, time-consuming foreclosure process. If well-intentioned, but overextended nothing-down buyers fail to make their loan payments or pay the property taxes, you'll also be forced to foreclose. Buyers who have no financial stake in a property can walk away from it whenever they please and stick you with the mess. Nothing-down deals don't have an upside; they're financial suicide for sellers. Do not, under any circumstances, get into a nothing-down deal!

You might consider helping to finance the sale of your property. But get a decent down payment from the buyers, in addition to checking them out thoroughly.


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.

Apprvd.BBDP


Selling Your Home in a Weak Market, Pt. 2 of 3 - August 15, 2008

Considering other offers usually made in weak markets

When mortgage money is cheap and plentiful, deals are straightforward and simple. Buyers make cash down payments and get loans for the balance of the purchase price. Sellers use the proceeds from their sales to buy new homes.

However, when mortgage interest rates soared over 18 percent in the early 1980s, home sales fell to levels unseen in the United States since the Great Depression. Buyers and sellers did some pretty unconventional maneuvering in order to transfer property. Desperate times sire desperate measures.

Lease-options

A lease-option is exactly what the name implies: a rental agreement to lease your house, but with an option to buy the house in the future. Lease-option offers are triggered by high mortgage rates or are made by folks who have good incomes but haven't managed to save enough cash yet to make a down payment.

Sometimes, however, a lease-option is the smart way to go. For example, suppose that high mortgage rates or a sluggish local real estate market make selling your house tough. If you don't need to sell right away and you must move soon, doing a lease-option helps you cover the house's monthly ownership expenses until mortgage rates or the local market improves enough for you to sell.

Next week: How Lease-options Work

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.

Apprvd.BBDP


Selling Your Home in a Weak Market, Pt.1 of 3 - August 6, 2008

Considering other offers usually made in weak markets

When mortgage money is cheap and plentiful, deals are straightforward and simple. Buyers make cash down payments and get loans for the balance of the purchase price. Sellers use the proceeds from their sales to buy new homes.

However, when mortgage interest rates soared over 18 percent in the early 1980s, home sales fell to levels unseen in the United States since the Great Depression. Buyers and sellers did some pretty unconventional maneuvering in order to transfer property. Desperate times sire desperate measures.

Lease-options

A lease-option is exactly what the name implies: a rental agreement to lease your house, but with an option to buy the house in the future. Lease-option offers are triggered by high mortgage rates or are made by folks who have good incomes but haven't managed to save enough cash yet to make a down payment.

Sometimes, however, a lease-option is the smart way to go. For example, suppose that high mortgage rates or a sluggish local real estate market make selling your house tough. If you don't need to sell right away and you must move soon, doing a lease-option helps you cover the house's monthly ownership expenses until mortgage rates or the local market improves enough for you to sell.

Next week: How Lease-options Work

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.

Apprvd.BBDP


It's the Season - July 30, 2008

Every quarter, we get economic results that come in several forms; we get the government results on how the economy is doing, results of how manufacturers are doing, the consumer sentiment reports, unemployment numbers, and many more.

Reports that are widely-watched are those of individual corporations. These are statements of each corporation's earnings. There is a "regular earnings season and the "pre-earnings" season. Pre-earnings season starts prior to the regular corporate reports. (This might be a more-than-obvious statement.) Pre-earnings season reports tell us which companies are not going to meet the estimates they had made earlier telling people what they thought they'd earn. These reports can either state that a company has under-performed their estimates. Sometimes they will tell us that they actually outperformed their estimated earnings.

Regular earnings season, which also happens quarterly, tells you which companies have met their earnings estimates.

During both pre-earnings and regular earnings seasons, companies will guide themselves for the future. Typically, their guidance tells of how they expect to perform going forward. This guidance can be "neutral," "positive," or "negative." All of these factors can influence the performance of an individual company's stock - or even the performance of the entire stock market.

We've been in the middle of earning season the past couple weeks. Given the choppy markets we've had the past 11 months, this earning season has been more interesting than most. If financial markets are normal and steady, earnings reports can be relatively benign events. If we're in a tough market where any news can make people either very happy or very nervous, you find earning season can simply exaggerate what the markets do on any given day.

Keep in mind that earning season happens quarterly. This means that every quarter we get a new report. If you're a long term investor, you don't think in terms of quarters. Therefore, I don't think it means too much to the long term investor. This thinking can help you keep your eye of the ball - long term success; not tied to short term movements.

Apprvd. BBDP


Got $100,000 Plus? - July 23, 2008

This week's tip is a simple basic reminder when it comes to banking and the FDIC's magic $100,000 guarantee.

We've all seen how banks can occasionally fail; certainly, you don't have to think too far back to remember the savings and loan crisis about 18 years ago.

As a result of the sub-prime problems being worked out through our financial systems, we may see a few more banks fail in the coming months as they are hit with losses.

Today's tip: Make sure your bank accounts are insured, with each account having a balance of no more than $100,000. This keeps you within the FDIC insurance levels of protection; anything above that could be at risk of loss, should your bank go out of business.

There are ways to have more than one account at a bank by using different registrations which could provide you with additional protection, as each account would have the $100,000 guarantee. Be sure to ask your banker if you are doing this correctly.

While I personally think that the vast majority of our banks are fine, I don't think it's a good idea to be too careless about how much money you keep in any single bank account. Just yesterday, I had a call from a client who had two accounts with over $100,000 in each; I told him that it's time to get those balances down.

The other note I would add to today's tip is that I think people can have too much money in "bank-type" accounts. If the money is long-term in nature, I think it could be better serving you if it were invested in long-term assets, as bank accounts are not typically considered to be long-term investments.

If you have any questions about how much you have in the bank, don't hesitate to call or write.

Apprvd. BBDP


Emotions Running Your Investment Decisions? - July 16, 2008

So often, people pay little attention to their investments, leaving them to gently move through the breezes of time and life. If you have a long-term portfolio of well managed assets, this may not be the worst thing in the world to do; of course, this is not to say that one should neglect their portfolio for years at a time.

Many people watch the financial news with an eye towards how things are going on a short-term basis. They will invest when they feel good about the financial markets, sometimes selling when they don't feel too good; they may even feel panicked by them.

The problems that can arise from this type of investing are that, when you feel good about your investments, you are often times buying near a market top. When you feel bad about your investments and sell, you are oftentimes doing so near a market bottom.

Of course, what I've just written is the inverse of the old maxim of "buying low and selling high." I have never met anyone who has become financially successful by buying high and selling low; it is pretty much a prescription for investment failure.

If you find yourself wanting to sell when markets are tough (as they have been of late), try reminding yourself that this type of thinking may be a result of your emotions speaking to you, not your common sense. Remind yourself that, sometimes it's best not to watch too closely, as it may feel frightening. There is no investment that I know of that won't have its tough times; knowing this, you may want to simply recall your original long-term plan for the investment and the money itself, then stick to it. You might also think of the individual I wrote about who never watches their investments; their lack of emotion and attention can sometimes be an attribute in markets like we're seeing today.

Footnote: When financial markets reach bear market territory, you can generally make the assumption that the amount of risk they carry is less than when they are at all-time highs.

Apprvd. BBDP


Inflation is Indeed a Work of Our Labor - July 9, 2008

Did you know that inflation is driven by more than the price of energy? In fact, the primary component of inflation is the cost of labor.

In a mid-year radio interview I did yesterday with Michael Johnston, Executive Vice President of The Capital Group/American Funds, we discussed many things, one of which was oil and inflation. He made an interesting point, which I don't think is getting enough press: simply put, the cost of labor is 80% of what drives inflation. Energy is, indeed, another factor; however, he noted that (with the improvements in energy efficiency and a slower economy) the consumption of energy is bound to go down. This fact was confirmed today in an interview with the owner of a commodities trading firm. He was in the commodities trading pits and stated that, indeed, the use of oil in the United States is declining with the high price of oil.

Michael further pointed out that out that we are not in a recession. Our economy is growing positively, albeit slower than we've seen in a while. In this environment, employers are not in full hiring mode; rather, there have been modest layoffs. This is not typically a situation where you'll see higher wages, as there is nothing to drive them higher; therefore, we could conclude that, while we have high oil prices and the things that go along with them, we are likely not in a highly inflationary environment like we saw thirty-years ago.

While we won't know exactly what is happening until we can look back on it (after all, hindsight is 20/20 in economics), this gives you a perspective that we have not heard very much, what with all the noise we're getting in the financial press, day-in and day-out.


Program note: If you'd like to hear the entire interview with Michael Johnston, it will be aired this Saturday, July 12. My show airs every Saturday on KYNS, 1340 AM, at 2:05pm.

Tip Note: My Weekly Tip will now be sent to you on Wednesdays.


Apprvd. BBDP


Celebrating Our Long Term Focus - July 3, 2008

It has always struck me that we are a nation of short-sighted people; we're always looking for the quick buck or opportunity. In reality, real investors (more often than not) think long-term; they align their perspective with that of their investments.

In other words, if you're investing in common stocks, whether through mutual funds or individual stocks, you are investing in the companies themselves. This means that you are looking to make money from the growth of their businesses, which almost always takes years and has its ups-and-downs along the way.

As we celebrate our nation's 232nd birthday; we should all take note of how long it has taken to build our country. There have been ups-and-downs along the way; much like any company or financial market experiences; in the end, we've learned from these challenges and moved forward. There is a reason that the rest of the world is emulating the United States' way of life and economics: it works and it is resilient.

Have some faith that we'll get through the current challenges the country is facing with oil and the real estate markets. I believe the future is bright, if you are patient and think long-term.

Stick to your plan. Think about things over periods of years, not over months or in a year or so. Buy when prices are lower. Buying low and selling higher really is a good way to make money. Keeping a long-term perspective is another way; lastly, investing in solid money management is the third.

Happy Fourth of July 2008!

Apprvd. BBDP


A Great Line - June 27, 2008

"We Make Money In Bear Markets."

It is a great line. One that people should consider more often.

It seems most people think about making money in good times. That's true in some respects. However, the cliché is buy low, sell high. If you think about this adage, the best way to actually benefit from it is to buy in tough times - bear markets would qualify.

Are we now in a bear market? It's tough to say exactly. Are we at a low? I think we may have hit the low for the year already. We may retest it a time or two. Or, the markets may yet go lower.

Either way, if your money managers are buying during these tough times, you should profit from them when better times return. And, with the growth of the world economy, I can't help but think we'll have better times.

Buy low, sell high. So easy to say, yet sometimes so tough to do.

Apprvd. BBDP


Putting Things Off? - June 20, 2008

Are you wondering why you haven't installed that air conditioning unit, as you sit around today in heat that's nothing less than astounding for June?

While most of us, south of the Cuesta Grade, have no real need for air conditioning 98% of the year, there are times when you wish you had it.

The reason I write about this (as I wonder why we put in an attic fan and whole house fan instead of air conditioning) is what the question reminds me of when working with my clients.

So often, people put off until tomorrow what they can do today. Here is a list of ten common financial planning items I've seen in working with my clients that are commonly put off until tomorrow:

1) Estate planning update (or the whole plan itself)
2) Inventory of your belongings for insurance purposes
3) Tax planning
4) Medical insurance
5) Long-term care insurance
6) Proper liability coverage
7) Coming in for your annual financial planning review
8) Doing your retirement planning when you have the chance - putting it off
9) Understanding how much money you spent in a month or a year
10) Getting disability insurance when you need it

If you're thinking about the air conditioning unit that you didn't get or an item on the list above that you haven't tended to, it's time to get to it. While you may not truly need the air conditioning, you may truly need to spend a little more time each year on your financial plan and awareness of it.

Apprvd. BBDP


Assets, Assets, and More assets - June 13, 2008

When you open your mutual fund statements or review your accounts, it pays to focus on the total shares you own, as opposed to your total account value. Because the total value can change a great deal from quarter-to-quarter, the total value can become a pretty meaningless number over short periods of time (such as a couple of quarters or so). To illustrate this point; think about how you felt during the period between March 2000 and October 2002; focusing on the short-term account value could have been very difficult to handle.

Successful long-term investors focus on building asset bases. The old adage that "Building wealth is based on assets, assets and more assets," refers to the accumulation of positions of value which can grow or appreciate in value over long periods of time.

Most of us have benefited from buying more shares at lower values (when the financial markets are choppy or down) through dividend and capital gains reinvestment programs and by adding to your accounts. If you focus on how many more shares you are accumulating, you'll see that there is a great benefit to buying low. Though down markets may not feel good, this is what buying low is like. The irony is that making money means being able to buy low now and sell higher in the long-term.