Everyone makes New Year's Resolutions. I've no clue how many actually follow them. However, I suggest this year's resolution include a promise to yourself to review your personal and financial goals, your portfolio, and to take the time to review them with your financial professionals to make sure you're on track to on track to accomplish them.

Of course, my clients are always welcome to come in for consultations without additional charge. Prospective clients are always welcome to come in for a free no-obligation initial consultation.

Best wishes for a happy, healthy, and prosperous 2005 to all!

Regards,

David

Ever get an important piece of financial mail that's not on time? Late financial mail could end up being the cause of tax, insurance, investment, and loan or credit rating problems.

Not getting your important financial mail on time could lead to bills or tax payments being paid late, investment decisions not being made on time, or other missed opportunities. These are all potentially very expensive problems to face.

Here's the tip:

Keep the envelope you received that contained your letter or financial information. If you are penalized for your mail being late, you can prove that you were not given ample time. The envelope's postmark will help you prove when it was mailed and when you might have received it.

What better day to consider saving income taxes on your 2004 return than December 10, 2004? Today marks the day your first installment of your property taxes is due. It also makes for a good day to make sure you leave no stone unturned when it comes to saving income taxes for 2004. Here's a quick list of a few things you might still be able to do:

1. Call your tax preparer to check for any last minute ideas he or she may have for you.

2. Do any tax-loss selling you can to offset any potential capital gains or to take advantage of the $3,000 of ordinary income the IRS allows annually, or to potentially benefit from both.

3. Pay any additional California State income tax you may owe before the New Year. (In most cases, it will apply to your 2004 federal tax return as a deduction).

4. If you didn't pay the second installment of your property taxes today, you might consider paying by December 31st to get the deduction on this year's return, instead of waiting to use it on your 2005 return. After all, you'll be paying it in on April 10, 2005 anyway. Why not get the deduction now instead of in a year?

5. If you are self-employed, I suggest making any business expenses that you can before year-end.

6. Keogh plans have to be established prior to year-end. (This includes profit-sharing plans).

7. Charitable contributions need to be made prior to year end.

8. If it makes sense, defer any income you can.

Consider how your actions will affect your taxes for 2004 versus 2005. Sometimes it's best to take or use tax benefits in the upcoming year.

You've got three weeks left; make the most of it. Remember to consult with the appropriate experts before you act on these ideas.

Most of all, I wish you and your family a wonderful holiday season.

In the wake of the steroid problems in Major League Baseball, I was considering the possibility that some investors and investment companies believe you can get or provide super human investment results. I've never been a believer of living too close to the cutting edge (especially since living that close to the edge can lead to bleeding... or falling off a cliff).

When it comes to investments, many Americans focus on short-term results or instant gratification; unfortunately, short term results or instant gratification don't go part and parcel with long-term investing (in fact, you might say that they are generally polar opposites).

An example of this is what happened to many people in the late 1990s through early 2000. People saw the markets rising at a rate that was ever more rapid; as a result, many joined the herd looking for instant wealth. The problem was that the companies they invested in weren't growing at anywhere near the rate their stocks were, which was a recipe for disaster. On top of that, there were investment firms doing what's called "momentum trading," which was (more or less) cutting-edge investing for that environment. In my opinion, they were trading the markets and speculating. That is not what I call fundamental investing.

Note: For those of you who are clients of mine, I've used The American Funds Group for so many years because I believe that they have a system of managing money that is very fundamental in style and execution.

Sometimes, when you live on the cutting edge, you can do well and make lots of money; many times, you can bleed. I prefer the more "fundamental" approach to life and investing; it seems to be better paired with "long-term" living and investing.

What should you pay for mutual fund management? Is any fee acceptable? Well, theoretically, you'd pay any price for astronomical results. Since we all know that's just not going to happen on a guaranteed basis, fees do matter in the overall decision making process.

Annual operating expenses (the fees charged by mutual fund money managers) are the most important fees you'll pay. (In my opinion, it is not the most important thing you look at when choosing a fund; that should always be the management itself). I have always felt that you are getting a fair deal if you are paying roughly one-percent per year in annual operating expenses or less; this is not, by any means, the average annual operating cost of most mutual funds today.

The average annual cost of operating expenses in the mutual fund industry is generally between one and two percent. Given most people's expectations for lower returns in the next few years, I would suggest that (once you find a great money management firm) you try to stay at or under the one percent level of annual operating expenses. (All of my clients know that I use The American Funds Group so much because we get terrific money management along with low annual operating expenses).

Higher annual operating expenses can truly eat away at your overall returns. On that note, I hope you enjoy eating your Thanksgiving dinner.

Happy holidays to you all!

David

You still have time to make your 2004 annual gift to a relative, friend, or anyone else to reduce the size of your estate for estate planning purposes.

The current annual gifting limit is $11,000 per year, per person; therefore, a husband and wife could gift a combined $22,000 to an individual without gift-tax consequences. Gifts are not deductible to those making them; neither are they taxable as income to those receiving them.

You have until December 31, 2004 to make your gift, which can be in the form of cash, securities, real estate, or other items of value. Each type of asset gifted has differing tax consequences to the person who receives the gift. (Cash is generally the easiest and cleanest gift to make in terms of taxes, but it may not be the best gift to make in terms of estate planning). The gifts are not income to the person receiving them; however, the earnings over time from the gift are taxable to the person receiving the gifts.

As time is running out on gifting for 2004, I would suggest you make your plans now before it's too late; often, it's difficult to make a gift at the last minute. I also suggest that you consult your tax advisor and estate planning attorney before making any 2004 gifts.

Are the guardians named in your wills current?

One of the most simple but memorable things my father used to say is that, "Time sure flies." When parents do their estate plans, they should be reminded that this isn't a one time action. Over time, life and people change.

If you still have dependent minor children, I suggest you take a few minutes to think about who would be acting as their guardians should you pass on. Sometimes, the guardians you originally named in your estate plan are no longer appropriate today; they may no longer have the desire to serve as guardian, or perhaps they have moved or have become ill.

Do yourself and your children a favor: Take a few minutes to make sure the guardians named in your wills are right for today. It is an exercise you won't regret; neither will your children.

Anyone notice how well the stock markets did this week? They did so well that they had their best week in nineteen months.

Here are four reasons why I believe this to be true:

1. Terrific jobs report today. The economy produced over 337,000 jobs. This is roughly twice what economists were expecting.

2. The price of oil seems to have stabilized under $50 per barrel.

3. The election is over. The stock markets don't like uncertainty. In this case, it seems clear to me that it was more important to the markets to get the election behind us than anything else in this regard.

4. Terrorist Attacks. While there is still a threat of an attack, we did make it through both party's political conventions, the summer Olympics and the election, without incident.

While no one can predict the future, it's clear that the "unclear" is something the world's financial markets do not accept too well. With most of the above issues behind us, I look for a better environment for the financial markets to perform.

Many people hear all kinds of things about mutual fund expenses. I think it is important to know the expenses you pay for your fund; however, it's not the most important issue involved in making a mutual fund investment decision: how your money is managed is by far more important than the expense ratio you pay.

Simply put, a mutual fund expense ratio is what you are charged annually by the mutual fund company to manage and administer your investment money. These expenses generally include:

· Money management fees

· Administrative fees, such as accounting and printing

· Distribution fees – generally, these can range from a reasonable .25% (1/4 of one percent) to .75% (3/4 of one percent).

These fees, when combined, give us what generally makes up a mutual fund's total annual operating expenses.

Generally speaking, most mutual funds have annual operating expenses of one-percent to two-percent per year. In my opinion, if you can stay under one percent, and combine that with solid fundament management, you have something.

(This is part three in a short series of tips that will cover the basics of auto insurance.)

As we all know, California requires us all to carry automobile insurance. Good financial common sense requires it too. There's no point in working all your life only to see it all disappear in a law suit.

Comprehensive coverage: This covers your car if it is damaged while it is parked. In other words, your car is not involved in a moving incident. This can include everything from a tree falling on your car to a ball from a park hitting it.

Collision: This coverage takes car of your car if it's involved in a moving incident.

Sometimes owners of older vehicles will drop collision and comprehensive coverage because their cars are not worth repairing. It also will reduce the cost of the insurance on the vehicle.

If you don't belong to AAA, I have found it's a good idea to pick up towing coverage. I've also benefited from having rental car coverage in case my car is in the shop and I am without transportation for any length of time. Finally make sure you know if you have coverage on a rental car itself in case you are on a trip, or using one while your car is being repaired, and you have an accident. Generally, it's a lot cheaper than paying the rental agency's insurance rates.

Shop around for your coverage. It can save you lots of time. Keep in mind that it's important to know the financial strength of the insurance company and its claims paying record. Some companies can be cheaper than others. However, you might end up getting exactly what you pay for.

Keep in mind that with all insurance coverage you want to minimally cover your net worth. Some attorneys will advise that you cover what your net worth might be three years out as that's how long it might take to settle or litigate a case. Some people combine their homeowners and auto policies with a umbrella liability policy to protect themselves.

Asset protection comes in many sizes, shapes, and forms. With fall here and winter around the corner, here are a few thoughts about protecting your home:
· Check your drains for clogs by running water through them.
· Check your roof for leaks.
· Clear debris away from the pathways where water runs through your property so it doesn't dam up during heavy storms.
· Clear debris and braches away from your roof. In heavy weather or winds, it can clog drains or actually damage the roof by falling on it or rubbing against it.
· Have your chimney inspected for dangerous deposits that could cause blockage of smoke leaving the house or even a chimney fire.
· Make sure your heater has a safety inspection and that its air filters are clean.
· Since real estate has had such an unusually strong run, I suggest you go over your policy with your agent to make sure it still covers the current value of your home and the costs of potential repairs or replacement.

Here's a money saving tip: Reduce the length of the time you water your garden. As the days shorten and the temperatures decline, you'll need to water your garden and lawn less.

(This is part two in a short series of tips that will cover the basics of auto insurance.)

As we all know, California requires us all to carry automobile insurance. Good financial common sense requires it too. There's no point in working all your life only to see it all disappear in a law suit.

Keep in mind that with all insurance coverage you want to minimally cover your net worth. Some attorneys will advise that you cover what your net worth might be three years out as that's how long it might take to settle or litigate a case. Some people combine their homeowners and auto policies with a umbrella liability policy to protect themselves.

Medical Coverage: Pays for medical treatment for you and your passengers if you are in an automobile accident. This medical insurance coverage is not meant to be your primary medical coverage. More so, it will supplement your primary everyday medical coverage. Generally, people who do not have any medical coverage may choose to carry high limits on this coverage. If not, most people will carry minimal amounts of automobile medical coverage.

Uninsured Motorist: Pays for your damages, medical expenses, and lost wages in the event that you are hit by a motorist who is not carrying any insurance coverage. You are not required to carry Uninsured motorist coverage in California. Before you turn it down, I suggest you make sure you have adequate coverage through your auto, medical, and disability policies.

Part three of this series in two weeks.

(This is part one in a short series of tips that will cover the basics of auto insurance.)

As we all know, California requires us all to carry automobile insurance. Good financial common sense requires it, too. There's no point in working all your life only to see it all disappear in a law suit.

Keep in mind that, with all insurance coverage, you want to minimally cover your net worth. Some attorneys will advise that you cover what your net worth might be three years out, as that's how long it might take to settle or litigate a case. Some people combine their homeowners and auto policies with an umbrella liability policy to protect themselves.

Bodily injury-liability coverage (Required by California law): This coverage pays for the damage you might do to others, if the accident you're in is your fault. The minimum coverage in California is $15,000 for individuals and $30,000 per accident. If your net worth is substantially higher, this coverage will not do the trick. You should consult your insurance agent or financial planner as to a more appropriate amount of coverage.

Property damage coverage: This coverage protects pays for the damage you might do to someone else's car or property when the accident is your fault. It will pay to repair or replace it. Again, the minimum required by California law is only $5,000. Most people need much higher coverage. Imagine hitting a brand new Bentley or Austin Martin costing $200,0000 or more, $5,000 won't replace the cooling system in a car like that or even repaint it.

Part two next week.

Recently a contractor who we hired to replace a door at our home made an error that cost him over $3,000. What happened? How could he have avoided this?

We hired him to replace an old sliding glass door with an upgraded more energy efficient door. His job was pretty simple. He had to measure the door, order it, and install it.

After measuring the door, he got a quote. We discussed the details giving him the go ahead to order it. The mistake came when he did not take the time to review the order he signed. The door company somehow put the wrong size door on the order that our contractor signed. This was a special order door. When it arrived it was immediately clear it wouldn't work. The door company said, "you signed for it, we won't take it back." My contractor had agreed to this door and had one chance to correct the mistake. It was before he signed the paperwork and turned it in to the dealer. He was stuck.

Too many times in life we are rushed or too busy to review contracts we sign. In doing so, we put ourselves at undue risk. I suggest you always take the little bit of extra time to discuss questions and review the details. While he spent an extra $3,000 on a door he can only hope to use one day, it may still be a lesson that keeps him from making a much larger mistake in the future.

Counter offers are short because you use them to fine-tune the terms and conditions of offers you get from prospective buyers. If an offer contains unreasonable contingencies, use a counter offer to propose that the buyer remove them.

For example, paragraph 1 of your counter offer may say, "Buyers hereby agree to delete paragraph 40 of their purchase contract regarding Aunt Jane, the astronaut, inspecting the house when she returns from her trip to the moon." After all, who knows how long her mission may be delayed in space? What if Aunt Jane falls in love with the man in the moon and never returns? That contingency is too spacey.

Or suppose that the buyers offer $175,000 for your house and want you to close escrow 30 days after accepting their offer. Because you're asking $189,500, you think that their offering price is a smidge low. Furthermore, you need six weeks to relocate.

If everything else in the buyers' offer is fine with you, don't rewrite the entire offer. Instead, give the buyers a counter offer stating that you'll accept all their terms and conditions except that you want $185,000 for your house, and you need six weeks after the offer is accepted to close escrow.

Wham. The ball's back in the buyers' court. They review your counter offer and decide a six-week close of escrow is okay, but they won't pay more than $182,500. They zap you a counter counter offer to that effect. You sign it to ratify the offer.

This week's tip is an excerpt from "House Selling For Dummies" by Ray Brown.

A client and I were discussing his getting a new roof. It reminded me of when we last had one put on our house.

My father-in-law, Bud, asked what pound felt or tar paper we were putting on with the new roof; I replied, “15 pound”. He suggested that, by increasing that to 30 pounds, we would have a lot more protection against the elements.

His reasoning was that the felt or tar paper is the real protection when it comes to roofing; the shingles come second.

The cost to increase the weight of the felt paper to 30 pound was something in the order of $100 more. It was a small fraction of the whole roofing job.

Keep this simple tip in the back of your mind, as it may save you many hundreds of dollars in repairs years from now.

The greatest asset most Americans will ever have is their ability to earn a living. Using the income created by their abilities, Americans pay for day-to-day living, put their children through school, and invest for their short-, intermediate- and long-term needs.

If a person averaged $45,000 per year over a 45-year career, they would earn a total of $2,025,000. That is a lot of money. Earning potential of this kind needs protection, and the best way to do that is to buy disability insurance.

Disability insurance is a type of health insurance that provides periodic payments when the insured is unable to work, due to illness or injury, as verified by a medical doctor.

Simply put, many Americans do not have any disability insurance - or very little. Is it really worth risking everything you could earn over your lifetime in order to save a few insurance premium dollars?

You protect your car, home and health with insurance. There is no reason in the world not to protect your lifetime-income earning potential, as well.

My wife and I have a habit of buying fun stuff while relaxed and away on vacation. Often, this can include picking up a piece of art or a collectible for our home or the office.

Of all the collectibles experts I've interviewed over the years on my radio show, there is one theme that stands common among them: buying art and other collectibles is about having fun. They are things you should want to have in your home.

If you buy them as investments, you take the chance of not being successful. Art and collectibles lack an efficient market for buying and selling. They are also non-essential items that can be out of favor in difficult economic times.

Finally, unless you buy the really high end items, you take a greater risk of having something people might not want years down the road. There are many examples of this throughout time.

The bottom line is to collect for fun above anything else. If you happen to get lucky and someday make money on it, more power to you. Good luck, and good collecting!

Historically, common stocks have averaged a total return (appreciation and dividends combined) of roughly ten percent per year. Of that total return, dividends have always represented an important part.

During the last ten years, investors have gotten away from dividend-paying common stocks to more aggressive types of stock. If we see lower rates of appreciation over the next few years, dividends will again play an important role in total return, as part of a balanced, diversified portfolio.

The Federal Reserve Board raised short term interest rates this week by one-quarter of one percent. This is the second consecutive increase in as many months. It's right on track with what economists and investment professionals were expecting off the forty five year lows we've seen the past year or so. This continues to indicate that they feel there's more risk of increased inflation than a slowing of the economy. I agree.

Corporate profits are still trending upward nicely. Employment is still improving. Yet, the financial markets continue to struggle or move around without clear direction. As we've discussed, the economy, and the markets, do not cooperate by moving in a nice straight line upward.

I've always said, "buy when the market is down five percent or more." To date, the Dow 30 Industrials is down 8.75% from its 52 week high. The NASDAQ is off over 18% from its 52 high.

These are buying areas to me. If you have some money you can add to your account(s), it may be a good time to do so.

Well, we've got a bit of uncertainty these days. Don't we? Two clichés come to mind when thinking of uncertainty. "The markets climb a wall of uncertainty." And, "the markets don't like uncertainties." How's that for contradictions in thinking? It's the very reason to not follow short term news and try to time the market. These things come and go. All you have to do is study all the problems the world has faced over to years to realize that this is true. In the end, good companies grow their businesses, which generally result in the increased value of these companies.

Let's look at a couple of the uncertainties we're facing right now:

Terrorism: The fear of an attack is on people's minds. This is especially true given the recent increase in the terror alert. These fears should subside some when the Republican convention is over, and the Olympics are completed. Keep in mind these two events are over in a month.

Oil: The price of oil is the highest it's ever been. This reflects growth in the world (a valid reflection), the problems the Russians are having with their largest oil company Yukos, (in my opinion, a short term problem), and disruptions in the oil supply. My thinking is that these issues should resolve themselves and the price of oil should come down.

While all this is going on, the economy continues to grow with corporate profits increasing. It's interesting to note that while these positive results are being announced the market is struggling. (Studies have shown that the markets can be more volatile during an election year).

As always, watch the long term economic news while staying with your financial plan.

Got One of Those Terrific Five or Six Percent Home Mortgages? Thinking about paying it off early? I suggest you consider not doing so. Here are a few reasons to consider an alternative:

1. For most people, your mortgage interest payments are deductible. By the time you get your tax benefits, the real cost of your mortgage might be between 3% - 5%. That's my definition of cheap money.

2. Why not take the money you were going to use to pay down the loan on your home and invest it in your Traditional IRA, Roth IRA, SEP, 401k, 403b, or any other retirement plan? All but the Roth are deductible. If you follow the Roth IRA rules, the distributions you take from it are tax free.

3. Not matter where you put that money you would have used as principal, if it makes as much or more than the interest being charged on your loan, you're likely keeping it liquid and available.

4. Money used to pay off a home loan is locked up in the real estate. If you want access to it, you have to re-borrow it, sell the property, or do a reverse mortgage.

The real reason to pay off a home loan early is that you don't feel comfortable owing the money, you simply don't want any debt, or you aren't disciplined enough to invest it in another vehicle. Other than that, the loans many people got in the past two years were the best seen in decades. Why give up that money too quickly?

Like its name, the Dow Jones 30 Industrials is made up of thirty of the best-known American stocks. It's considered the grandfather of all the market indexes. As closely watched as the Dow 30 might be, few understand how it's calculated.

The Dow is not the sum of the prices of all 30 stocks in the index. Instead, each stock's contribution is weighted by its per-share price. That means that a smaller company can move the Dow more than a bigger company, if the smaller firm has few outstanding shares and a high per share price.

In example: Company A is six times bigger than company B, and more than seven times as profitable. But, the share price of company B is twice as much as company A. Company B will have twice the points in the Dow as company A.

It always helps to understand how these indexes work so you can have a better perspective when watching them and investing.

It is time for me to pronounce that the Bear Market of 2000 - 2002 is over. I believe we've been in a new bull market since October 2002. Here's a very quick view of what I think is going on now:

1. The economy continues to improve. This is evidenced in many ways. The most recent signs are the continued improvement in employment numbers. The one-quarter percent increase in the Fed Funds is another sign of growth. They are now focusing on keeping inflation in check.

2. The bond markets are in a tougher position. Rates are rising, making current bond holders vulnerable to loss of value. Minimally, the slow increases in interest rates we are likely to see should preclude any real increases in the value of bonds. Bond funds can be a way to buy a laddered bond portfolio. This should help you as a bond investor.

3. In my opinion, the stock markets are resting after the large recovery rally of 2003. The important thing now is what corporate earnings do. This signals a trend towards more normal investment patterns. The caveat here is that, if there are extraordinary events in the economy or world, the markets are likely to react (which has always been the case). I expect that after a period of resting, we'll see prices react favorably to improved economic reports and corporate earnings. I do not expect results as strong as we saw in 2003.

Keep in mind that these are my opinions of what I see happening; they are certainly not a guarantee or a prediction, and they reflect the long-term trend which I believe I see. Please call if you have any questions.

Why waste weeks or even months of your valuable time looking at a property you might want to purchase only to belatedly discover that no lending institution other than the Mafia will give you a loan? Instead of rashly rushing out to gawk at property, smart folks start the home buying process by determining whether or not lenders consider them to be creditworthy borrowers.

Getting prequalified for a mortgage isn't tough. Heck even bankrupt arsonists can get themselves prequalified. And therein lies the problem.

Loan prequalification is nothing more than a perfunctory perusal of your finances. In terms of overall effectiveness, it ranks with attempting to raise the water level of the Pacific Ocean by spitting in it (please don't try this at home).

Loan preapproval, conversely, is extremely thorough. With your permission, a lender will independently verify financial facts such as your income and expenses, your assets and liabilities, the amount of cash you have for a down payment, and your credit history. Given that you pass the lender's inspection, you'll get a letter stating that you've been preapproved for a mortgage - the next best thing to having a credit line at your disposal. You'll know how much you can borrow.

You'll also have a delightful advantage over buyers who haven't been preapproved for a loan should you find yourself in a multiple-offer situation. Because those other people never bothered to authenticate their credit-worthiness, the sellers don't know if they're serious buyers or just tire kickers. You, on the other hand, have written verification that you're a financially qualified buyer. As a result, your offer will be given the attention and respect it so richly deserves.

This week's tip is an excerpt from "Mortgages For Dummies" by Ray Brown. Ray will be my guest on my SmartMoneyTalks.com radio show on Saturday, July 17th at 10:05am on KXTY 99.7 FM.

After four years of static Fed Funds rates, the Federal Reserve Bank finally increased interest rates. This is about as much a surprise as Barry Bonds, the San Francisco Giants legendary left fielder, getting an intentional walk. In fact, you can probably expect the Federal Reserve Bank to increase interest rates more in the coming months.

As I wrote recently, this merely reflects a growing economy. You can't have super discounted interest rates forever; they were only that low to inject some life in the economy. Now that the economy is on the rise, you can expect the Federal Reserve Bank to continue its focus on keeping inflation low; hence, more increases in interest rates.

Here are a few things that will most likely change as a result of rising interest rates:

1. Adjustable rate mortgages (ARM)

2. Interest paid on money-market accounts

3. Interest paid on certificates of deposit

4. Any consumer loan with adjustable rates

5. Interest rates on homeowner's home equity loans

Keep your eyes and ears out for these increases and be aware of how they may affect you; for example, if you've got an ARM, you might want to try to lock into a fixed rate 15- or 30-year mortgage while interest rates on mortgages are so low.

The plus side to all this is an improving economy, more jobs, better consumer confidence, and improved corporate earnings.

Having lost my mother, and last parent, I know how difficult settling an estate can be for remaining family members. It's tough enough to handle the emotional losses when a parent dies; settling their estate, on top of that, can be quite a load to handle.

People spend a lifetime putting together a home, raising a family, and helping with their grandchildren. During an entire lifetime, you'll accumulate many things that will have to be sorted out at the worst possible time (that is, after you are gone).

Here's an idea which I believe makes settling the estate of your loved ones that much easier:

My mother moved to a couple of different senior communities prior to her death. Each time she moved, we all went through the family belongings and decided what we wanted to keep and what could go. The end result was that many family treasures were saved, it was a fun process for everyone, and it made my mother feel good to see us get these items while she was still alive.

When she passed on, we did not have to deal with the very difficult task of undoing my parents' lives, in an empty home, without my mother or father there.

The process of settling my parents' estate has been much easier as a result of this early work; it was easy to do, enjoyable to participate in, and gratifying for my mother, knowing that her valuables were in good hands and would be cared for after her passing.

I'm meeting with my property and casualty insurance agent today to review and discuss my current coverage. The reason for the meeting is primarily because the cost to build, or rebuild, a home today is so much higher than it was when I first moved here in 1977.

Back in 1977, the cost to build an average quality home was usually around $60 per square-foot, and the cost to build a custom home was around $100 per square-foot; today, you might spend more than $100 per square-foot to build an average quality home, while custom homes can run upwards of $200 to $250 per square-foot.

Many homeowners' property casualty insurance coverage has not been changed in years, which may leave them without enough coverage to pay any claim needed to rebuild part or all of their home or investment property.

A 2,000 square-foot custom home might cost $500,000 just to rebuild; the same home, using average construction, might cost $200,000 to rebuild. If your coverage is not adequate to meet these potential costs, the fees might end up coming out of your pocket.

I suggest that you call you me or your property casualty insurance agent today to set up an appointment to review you insurance coverage. It could be the most valuable sixty minutes you've spent in a while.

If you just refinanced your home to lower your monthly mortgage payment, why not take those dollars you are saving and put them into your retirement account pre-tax?

You could use these extra dollars you're saving on the mortgage payments to maximize your IRA contributions. An additional $83.33 per month would increase your contribution by $1,000 annually.

Before you end up spending the money you've saved when you refinanced your mortgage, put it in your IRA or retirement plan. Pay yourself first!

A while back, I wrote in this column about the "Unemployment ABC's". We reviewed the idea that the economy may be doing better than many people thought or were reporting on a daily basis. I noted that one trend being observed was an increase in the use of temporary workers, which is typically a precursor to more new jobs being created.

Today, there was a report about 308,000 new non-farm jobs being created. This was reported as the largest increase in employment in four years; additionally, the figures for new jobs for both January and February were revised upward to 159,000 and 46,000, respectively.

This bodes very well for the job market. It was reflected in the stock markets as well, with stocks going up across the board, while interest rates and gold lost ground.

The economy continues to look solid. The next news of importance (which should verify these trends) will be the next round of quarterly corporate earnings, which is due out soon.

This week's tip is a continuation of mortgage information, reprinted from "Home Buying for Dummies" by kind permission of our frequent radio guest, Ray Brown.

Teaser rate: Otherwise known as the initial interest rate, the teaser rate is the attractively low interest rate that most adjustable-rate mortgages start with. Don't be sucked into a mortgage because it has a low teaser rate. Look at the mortgage's formula (index + margin = interest rate) for a more reliable method of estimating the loan's future interest rate - the interest rate that will apply after the loan is "fully-indexed."

Settling someone's estate is an enormous amount of work. There are so many components to it that I couldn't possibly deal with more than one topic in today's writing.

When settling an estate, you'll need to assemble the value of the estate as of the date of death, which is sometimes no easy task. Clearly, the more organized the person was during their lifetime, the easier it will be to settle their estate.

One of the things you'll need to do is to get the value of the real estate.

Most attorneys, financial planners and/or accountants would advise you against using a set of comparable valuations (commonly called "comps") provided by a real estate agent; the reason for this is that they do not tend to hold up well in an IRS audit of the estate's return.

Most professionals would suggest that you get a valuation provided by a certified appraiser. You will have to pay for those appraisals, just as you do when you finance or refinance a property; however, they do tend to hold their own better in an IRS challenge.

There are different types of appraisers, and different types of expertise within them: some will specialize in residential properties, while others may focus on commercial or business properties; you may also find that there are specialists in multi-unit residential properties. Here again, it's important to choose the right person.

(We'll discuss further aspects of settling an estate in a future Weekly Tip.)

Interest rates appear to be truly headed up. What does this mean for investors who own bonds?

Bonds typically don’t do well with rising interest rates; therefore, you probably don’t want to own bonds with maturities which are considered to be long (that technically means maturing in 10 years or more). The theory is: the longer the maturity, the more the bonds will fluctuate.

One way to own bonds in a rising interest rate environment is to buy a bond mutual fund. By their very nature, mutual funds will have a diversified portfolio; therefore, you’ll have many different bonds each with a different maturity. This can be called a form of “laddering,” where the portfolio has bonds that mature over different periods of time (i.e. one year, two years, three years, etc.)

There is also something you can check on in a mutual fund, which is called the fund’s “average maturity” or “average duration”. Typically, the shorter the duration of a bond fund, the less the fluctuation in the value of the shares. In my opinion, you’d want to see most of your funds with average maturities (or average durations) of between 2 years and six years.

After twenty years of declining interest rates, this new rise could be sustained. It’s important to understand how your bonds are invested. That’s the best way to understand their value.

It took American investors over 70 years to learn what I’ve believed for almost twenty. For nearly 20 years, I have felt that The American Funds Group is one of the best managed mutual fund groups in the United States. I’ve used them almost exclusively for my clients since the mid-1980s because of their huge global research effort and their system of money management. (I’ll go into more detail on this at another time.)

During 2003, the American Funds Group took in more new investment dollars than any other mutual fund group in the nation. I believe it is due to the reasons I’ve listed above and the fact that their fundamental management style did well in a tough bear market. As a result, they were called “America’s Hottest Funds” in the May issue of Money magazine.

If you know American Funds, you’ll know they don’t really want to be the hottest mutual fund group in the country. They don’t want hot money investors who jump from one hot group to the next without much thought; that’s not what they are about. They want stable long-term investors who believe in a money management system that is designed to take years to produce results (after all, that’s what investing is about). They believe in doing what’s best for their investors, not themselves.

All of these reasons are why you don’t see American Funds advertise, seek media interviews, or promote hot funds or hot sectors. All of these ideas are great in the short-term but generally not terribly profitable in the long-term. In the end, isn’t it all about investing for the long-term as a method of meeting your financial goals?

As ironic as it might seem, it can be great not to be hot. American Funds would most likely fully agree with this.

The brouhaha in the financial markets this week was all about Alan Greenspan's testimony on the economy and interest rates. Investors were nervous when they first heard that rates may be going up. They then calmed as the week progressed as they focused again on the economy and improvements in corporate profits.

Interest rates have been hovering around 45 year lows for many months. Is there any reason to think they'd stay that low indefinitely? The obvious answer is absolutely not. The fact that short term interest rates may be increased reasonably soon is a sign of a healthier economy. It's not necessarily a bad sign.

Nearly everyone I interview on my radio show, Smart Money Talks.com, talks about the global economy growing. There's pricing pressure on commodities in many areas. In example, the price of steel is expected to more than double this year because China is growing at such a strong clip - an estimated 8%. We all know what the price of gasoline is doing. Combining this with better job growth, we have signals for the need to be more aware of potential increases in inflation. In fact, Greenspan stated that he felt the threat of deflation was past us and no longer an worry.

The moral of this story, as always, is to stay focused on the longer term trends and not get swept up in short term news. Here the long term trend is a growing global economy which is contributing to growing corporate profits. Those two factors should be good news for the stock markets. As I've written before, I don't believe it's good news for the bond markets. (See the January 9, 2004, Tip of the Week on the website under the Tip Archives for more on bonds and the financial markets).

When the economy hits the skids, unemployment rises, and the mood is somber and gloomy, the number of home purchases usually plunges. Prices tend to fall as well. This situation can signal a great time to step up and buy. Buy when homes are "on sale" and when you don't have to compete with many other buyers. Buy when you can have your pick of a larger inventory of homes for sale.

Few people feel comfortable buying an investment that has gone down in value, especially when things look bleak. (For some perverse psychological reason, though, more of us love shopping for bargains in retail stores.) Here are several signs that a soft real estate market is beginning to firm up:

· The monthly cost of owning a home approximates the monthly cost of renting a similar property. One of the beauties of a major real estate price decline is that it can bring home-ownership costs back in line with the rent costs.
· The inventory of homes listed for sale starts to fall from it's peak as home sales pick up.
· The rental market tightens (as evidenced by increasing rents and a low vacancy rate). Another good sign is that little new housing is being built.
· The job market improves. Remember that jobs fuel the demand for housing. Home prices tend to rebound when employment increases. Watch for a decrease in the unemployment rate in your region.


This week's tip is an excerpt from "Home Buying For Dummies" by Ray Brown.

So, you've survived your first medical emergency, you're grateful to be alive, you're on your way to a slow but complete recovery and your insurance has been billed. Now what?

The first thing to do is to find out what your policy covers so you can have an idea what your out-of-pocket expenses are going to be and to make sure the benefits are paid accordingly. You can get this information by reading your policy, by contacting your insurance company, or by calling your agent; I recommend the latter, if that's an option for you. In 3-4 weeks you will begin to receive an Explanation of Benefits from your insurance company telling you how the claims were processed. They will have the date of service, provider name, amount of the claim, the amount paid and what your responsibility is, if any. If you're not sure about a bill, call the provider and have them clarify what the charges are for. DO NOT ignore any bills.

Hopefully, you will have enough money to pay your share of the costs, but if you don't, contact all the providers you owe money to and explain your situation and ask if they will set up a payment plan based on what you can afford. Most providers will do so, if you ask.

Miguel Paredes
Medical Insurance Specialist
Neal Truesdale Insurance, San Luis Obispo

Just two weeks ago, I wrote in this column about the "Unemployment ABC's". We reviewed the idea that the economy may be doing better than many people thought or were reporting on a daily basis. I noted that one trend being observed was an increase in the use of temporary workers, which is typically a precursor to more new jobs being created.

Today, there was a report about 308,000 new non-farm jobs being created. This was reported as the largest increase in employment in four years; additionally, the figures for new jobs for both January and February were revised upward to 159,000 and 46,000, respectively.

This bodes very well for the job market. It was reflected in the stock markets as well, with stocks going up across the board, while interest rates and gold lost ground.

The economy continues to look solid. The next news of importance (which should verify these trends) will be the next round of quarterly corporate earnings, which is due out soon.

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.

One report that is widely-watched is the corporate earnings stated. There is a "regular earnings" season and the "pre-earnings" season. The pre-earnings season started prior to the regular corporate reports. (This might be a more-than-obvious statement.) These reports tell us which companies are not going to meet their earnings estimates. These reports can either state that a company has under-performed their estimates or outperformed their estimated earnings.

Regular earnings season, which happens every quarter, 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, the guidance of how they expect to perform going forward will 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.

Finally, there are times during the year when we are in-between the quarterly earnings seasons; when that happens, the market tends not to have much news to go on. Until we hit any news of importance to the financial markets, there isn't much to go on, leaving the markets to drift or react (which is where we are at this point in time). Don't worry, though; the earnings season happens every quarter and it is just around the corner, now.

We're hearing so much about unemployment these days; the economy is strong, 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 hours.

3. The first place to find help is to get more hours out of your present work force. This can generally be accomplished by using greater efficiency (like technology) and longer hours.

4. Once a company has used up the potential in Item Three, they can turn to temporary workers. This can fill a gap without committing to long-term employees.

5. The final step is to hire full-time employees, thereby increasing payroll. This generally happens lastly, when the company has exhausted all over options and feels comfortable with the idea that profits are strong enough and sustainable.

I saw an article in the LA Times within the past ten days discussing the demands being made on companies that provide temporary workers. Based on my studies, this bodes well for improvement in employment at some point down the road.

Financial author, Harry Dent, says people hit their peak years of spending in their mid- to late-40's. This might be when kids are in their teens or in college. It's a period when we are at (or near) our peak earning years, as well.

It is during these peak spending years that we accumulate a lot of things; at some later point in time, those things may become too much to manage or handle.

Some people tend to keep all these things they accumulate; others take it a step further by just stuffing them in the garage, to be cleared out somewhere down the road.

When you think of all this clutter, keep in mind that, at some point in time, your children will have to clean it all up. Since life does have a beginning and an end, you might want to have some fun by clearing out the things you don't want, earlier rather than later. It gives you the opportunity to give special things to your family in person. It might allow you the freedom to buy a smaller home, freeing up cash to travel or have more fun in retirement. You might enjoy making those special personal gifts to your relatives and have a cleaner garage, too.

One of the toughest things a child or family member will ever have to do it clean up someone's home when they are gone. Do yourself - and them - a favor by simplifying your life and by doing it early.

One of the key ways to determine the aggressiveness of your mutual fund's management is its turnover ratio. Mutual fund turnover ratio is the percentage of the portfolio that is bought and sold during a single year.

Low turnover (generally less than 30% or 40% annually) means you have managers who behave like investors. These managers buy common stocks and allow time for the companies to grow their business.

High turnover means that the managers are trading more than they are investing. I consider this to be a much more aggressive style with inherently higher risk. Many mutual fund portfolio managers trade 80% - 300% per year. In my opinion, the higher the turnover ratio, the less correlation there is to the actual underlying businesses of the common stocks being bought.

You can find mutual funds turnover ratio figures in many places, including the mutual fund's prospectus.

This weeks tip is from March 19, 2002.

In some situations, you may need to get a certain amount of money from the sale of your house or know before you close on a deal how much you will receive. You particularly should take the time to understand the probable proceeds of sale under the following scenarios.

You're strapped for cash because you want to buy a more expensive home. You need to know before you sell if you'll have enough money to complete your next purchase. The worst case scenario if you don't: The sale of your current house doesn't leave you enough money to buy your next one. Although you probably won't end up homeless, you may end up renting for awhile and having to make an extra move or having to scrounge around at the last minute for money.

You're trading down because you need more money for retirement. Perhaps you want to receive a certain amount of money from your house sale in order to afford a particular retirement standard of living. If you're not realistic about how much cash you'll net from the sale, you may end up wasting a great deal of time and money on a house sale that yields less cash than you need or expect.

You're relocating, in part, because of finances. If you have a choice about taking a job in some other part of the country, you may be tempted to relocate if you think that you'll be more comfortable financially. However, if you're simply assuming or guessing that you'll be better off in the new area, you may be wrong. You need to gather and review some facts before you move.

This week's tip is an excerpt from "House Selling For Dummies" by Ray Brown.

Today marks our 100th Tip of the Week. We've certainly been through quite a bit during the last 100 week period. Here's a brief list of some of the things that we've experienced:

· The worst year of the worst bear market since the 1930's: 2002

· A war in Afghanistan

· A war in Iraq

· The Enron and WorldCom debacles

· A recession

· The lowest interest and mortgage rates in 45 years

· The bottom of the bear market in October 2002

· More battles and terrorist attacks in Iraq, Afghanistan, Israel and Palestine

Here's what the markets were on February 26, 2002, and what they did during that pretty difficult period of time:

· Dow: 10,115.26 - an approximate 5.5% increase

· Nasdaq: 1,766.86 - an approximate 16.1% increase

· S & P: 1,109.38 - an approximate 3.7% increase

· 10-Year Bond: 4.91 - an approximate 21.23% decline

Long term investing is about perspective. Despite the numerous (and sometimes extreme) difficulties between February 26th of 2002 and today, there were gains and progress was made. While challenges and difficulties do exist, there are always positive things to look for on the horizon, and most difficulties do pass. As I write today, the global economy is much stronger, corporate profits are up, interest rates are still very low and inflation is under control.

No, that's not a typo; it's simply a very bad pun upon media mogul Rupert Murdoch's name.

In estate planning, there is a tool used called a Qualified Personal Residence Trust. The attorneys call it QPRT for short, the phonetic pronunciation of which 'Cue-pert' (Rupert Murdoch, get it?)

This tool allows a person (the grantor) to place their residence in a QPRT at the current value of the asset. The grantor then lives in their residence for a chosen period of time (a typical term for a QPRT might be three or five years), after which, the home belongs to the person or persons who are named as beneficiary of the trust. The grantor is able to get the future value of the asset out of their estate after they have completed the term set out in the QPRT.

There are many tax and legal issues that need to be reviewed prior to ever trying to set up a QPRT, which is quite a bit more complex than my brief explanation above. You will have to work with your whole financial team to make sure the legal, investment and tax issues are properly handled. It is also not a tool for everyone; generally those with a taxable estate or possible taxable estate are better candidates.

You may not like paying for it, but you need it. What am I talking about? Insurance.

Less than four months ago, I had emergency open-heart surgery to repair a torn aortic valve and a dissected aorta. Having survived the very thing that killed John Ritter, I've had an unwanted - but terrific - opportunity to see life differently.

Even with all of my common sense and training, I occasionally asked myself why in the world we pay for so much insurance. Clearly, we need it. There's no doubt that it's inexpensive protection against life's risks. But, by pooling our insurance assets along with other people's insurance assets, we buy protection against many of life's risks and lower our share of the costs associated with them. (This is similar to investing in mutual funds, where your assets are pooled with other people's investing dollars to give you lower risk on investment and more buying power per dollar.)

My operation was an emergency procedure. I woke the morning of October 23, 2003, knowing that I needed to go to the doctor for an important medical examination. I had no way of knowing that, 24-hours later, I would wake up in the Sierra Vista Cardiovascular Intensive Care Unit, having survived open-heart surgery.

Had I not had medical insurance coverage, my bills could have been almost $300,000; instead, they totaled about $10,000. So, the next time you wonder about the need for medical insurance, think of this story and make certain you renew your coverage.

On the tax-year 2003 Form 1099's from your mutual fund companies or brokerage firms, you may notice that some of your common stock dividends are classified as "qualified." This is a direct result of the new tax laws passed around mid-2003.

The aim of the new law was to reduce the double taxation that takes place on earned income at the corporate level. In other words, corporations make a profit and then pay taxes on that profit, after which the dividend is paid out to shareholders, who then pay ordinary income tax rates on that profit. In decades past, the ordinary income tax rate could be well over 50%.

The new law reduces the income taxes due on "qualified" dividends paid by common stocks to either five percent (5%) or fifteen percent (15%), depending upon your tax bracket. This can amount to a pretty nice income tax savings, if you have any qualified dividends being paid to you.

Further, this new break is an incentive for investors to consider adding more dividend-paying common stocks to their portfolios. Considering that these companies tend to be very large, and that dividends have played a huge role in the total return of common stocks, these new tax laws seem a "win/win" for investors. They are also motivation for companies to consider paying out new or higher dividends to their shareholders.

My final thought on this is that many common stocks have dividends that are higher than the rates of return you are getting on your certificates of deposit, savings accounts and money market accounts.

Before investing in dividend-paying common stocks for this purpose, or before filing your 2003 tax return, I suggest that you consult your financial planner (me) or your tax professional.

While I don't know when - or if - it will happen, I am certain that the financial markets will not simply continue to rise without adjustments.

Today's tip is simple. The economy and financial markets are doing well after the long bear market because the underlying fundamentals of both have steadily been improving. This doesn't mean that we won't see adjustments in these markets from time to time, nor does it mean that we'll have another long bear market when we do experience a period of adjustment or correction.

The next time you see a decline in the value of the financial markets, do yourself a favor and try to add a little to your portfolio. Those of you who did so during the tough periods of 2000-2003 have been experiencing the benefits of buying low.

If you don't add to your portfolio, do yourself a favor by trying not to panic and sell.

If you don't already have earthquake insurance, maybe you should rethink your stance on it. The recent earthquake here on the Central Coast caused many people a great deal of damage, hardship and grief.

The fact of the matter is that earthquake insurance is imperfect; it's not terribly cheap, it has a high deductible, and doesn't cover everything you would like it to.

I have always had earthquake insurance, simply because I didn't want to be in the position of having to replace my entire home if it were destroyed or damaged in a major way. For those with income property, you could be faced with having to repair or replace more than one property out of pocket, which can be very expensive and (for many) may not even be possible.

Keep in mind that the recent rise in the values of real property has increased our equity positions and net worth; frankly, you have a lot more to lose than you did just six or seven years ago.

My feeling is that people need earthquake insurance, now more than ever. Think of it as catastrophic coverage, much like many medical policies.

Remember, you might not be able to come home without it!

Here's this writer's snapshot view of the economy and investing for 2004:

1. The economy is doing nicely. Jobs may come slowly, but they are almost always the last to heal; they're called a lagging economic indicator. I believe the U.S. economy will continue to be positive, but it's possible that it will not be as strong as it was during the later half of 2004, which was unusually strong.

2. The global economy looks good as well. This should lead to increased activity at both the consumer and business levels resulting in continued corporate profits.

3. I look for continued strength in the technology industries, as companies upgrade after taking the better part of three years off. Communications are beginning to rebound, as well. Both these areas of the economy are basic to the infrastructure.

4. Watch out for bonds; in particular, watch out for long-term bonds. Interest rates have generally declined for the better part of 20 years (that's called a secular bull market in bonds). As the economy continues to improve, I look for interest rates to rise from their 45 year lows. This is likely not going to be kind to long-term bonds. It's best to be in portfolios with short- to intermediate-term bonds, which typically can have less volatility when interest rates move.

5. While 2003 showed the rebound rally I wrote about in my prior newsletters, I don't believe 2004 should be expected to achieve the same performance in terms of the stock markets. I do believe 2004 should be a good year, given the positive economic news I continue to see.

6. Since the dollar has declined, and may continue to do so for a while, I suggest you make sure that you have some exposure to foreign investments.

Check out my radio show tomorrow (Saturday, January 10, 2004) with Michael Johnston, Executive Vice President, American Funds Group. We will discuss the economy, stock markets, bond markets, and the challenges facing the mutual fund industry. The show airs at 9:05am on KKAL Radio 99.7 FM.