What Do Low Interest
Rates Mean to You? - July 22, 2010
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.
Apprvd.BBDP
Warren Buffett on the
Economy Today - July 8, 2010
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.
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.
Apprvd.BBDP
Key Strategies for Investing
in Uncertain Markets - July 2, 2010
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.
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.
Apprvd.BBDP
Dividends in Recovery
- June 24, 2010
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.
Apprvd.BBDP
Determining Fair Market
Value - June 18, 2010
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.
Apprvd.BBDP
Steps to a More Fully
Employed Economy - June 10, 2010
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.
Apprvd.BBDP
Is It Time to Refinance
Now? - June 3, 2010
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.
Apprvd.BBDP
Uncertain Markets Could
Favor Equity Investments - May 26, 2010
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.
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.
Apprvd.BBDP
You'll Never Guess Whose
Leading Us Out of Recession? - May 12, 2010
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.
Apprvd.BBDP
Take the Time to Prepare
- May 7, 2010
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.
Apprvd.BBDP
A Family Talk About
Long Term Care - April 29, 2010
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.
Apprvd.BBDP
Tax Planning for 2010
- April 21, 2010
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.
Apprvd.BBDP
Why Invest In Stocks
Now? - April 7, 2010
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.
Apprvd.BBDP
The Tax Deadline Approaches
- March 31, 2010
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 havent made
your contributions for 2009, please contact me as soon as
possible.
Apprvd.BBDP
Why Invest Globally?
- March 24, 2010
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.
Apprvd.BBDP
Do You Know the Cost
of Long Term Care? - March 18, 2010
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.
Apprvd.BBDP
An Anniversary We Can
Begin to Celebrate - March 11, 2010
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:
Index
March 9, 2009
March 9, 2010
Percent Change
Dow Jones 30 Industrial
6,547.05
10,564.38
+61.14%
NASDAQ
1,268.64
2,340.68
+84.50%
S&P 500
676.53
1,140.45
+68.57%
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.
Apprvd.BBDP
How Much Should You
Withdraw from Your Portfolio Annually? -
March 3, 2010
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.
Apprvd.BBDP
Is a Reverse Mortgage
Right for You? - February 24, 2010
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.
_____________________________________________________________________________
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.
Apprvd.BBDP
It's Getting Better
All the Time?
Is the Federal Reserve Telling Us Something? - February 18,
2010
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.
Apprvd.BBDP
What is a Business Cycle
and Where Are We Now? - February 11, 2010
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.
Apprvd.BBDP
Understanding the Dow
Jones Industrial Average - February 4, 2010
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.
Apprvd.BBDP
Investing During an
Economic Recovery - January 27, 2010
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.
Apprvd.BBDP
2009 Review & 2010
Outlook - January 20, 2010
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.
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.
Apprvd.BBDP
How Did 2009 Turn Out
Compared to My Prognosis? Let's Take a Look - January 8, 2010
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.
_____________________________________________________________________________
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.