New Book - Coming November 2010

New Book - Coming November 2010
Help! My 401(k) Has Fallen - And Must Get Up!

Monday, July 27, 2009

Climbing The Mountain

Thanks to my 7 years old daughter, I’ve been exposed (repeatedly) to the music of Miley Cyrus (aka Hannah Montana). Although my musical tastes are more in line with 1970’s & 1980’s Classic Rock, I have to admit that Miley’s music is pretty good.

One of her best songs, “The Climb” is popular right now, and it’s a very inspiring song. Hearing “The Climb” makes me think about how saving for retirement can be much like climbing a mountain. There may be obstacles along the way, but we keep climbing, and the climb is actually the best part of the process.

There are really 2 parts to climbing a mountain, going up and then coming back down. This makes a great analogy when thinking of your retirement savings. “Going up” is building your nest egg. “Coming down” is when you are beginning to take income from the nest egg you’ve built. Both parts are just as important, aren’t they?

If you are in the “Going Up” stage, and trying to build your nest egg, having a year like 2008 can be discouraging. What if you could get at least 7% or more every year on your savings? What if you were able to get even more in years when the market does better then 7%?
How about if I also told you that if you stayed invested for 10 years, you would DOUBLE your original investment? (By the way, according to the Rule of 72, that would be an average compound return of 7.2%.)

Lets say you have an account which grows by 10% at the beginning of the year, hits its peak in June, then tails off for the rest of the year. What if I told you that the highest Quarterly Gain (in this case the end of June) would be locked in for you, in helping to build your nest egg?

The next year, the same thing would happen. The benefit base would increase by either 7% OR whatever the highest quarterly gain was.

What about “Coming Down” the mountain and taking income? How about if I told you that beginning at age 63, you would be able to take 5% from the benefit base you built and you could take 5% for life? Wouldn’t it be great to know that your pay can go up, if the account continues to grow - and your pay won’t go down?
And for those who can wait until age 75 to begin taking income, would you like to be able to take 6% FOR LIFE? Sounds pretty good so far? Wouldn’t you feel more comfortable climbing your mountain if you had a “safety net“? For more information, please contact me at You may also follow me on Twitter at

Thursday, July 23, 2009

This Time Its Different - II

Recently I posted an article, titled “This Time It’s Different”. Most people when asked about the idea of investing in the market, have responded that “They are waiting to see what happens” and yes, “This Time It’s Different because…..”

If you read my previous article, “This Time It’s Different”, I referred to a study done by Hartford on the Recession of the mid 1970’s (1973 & 1974), arguably the closest parallel to our present economic situation. The low point in the market was Sept. 30, 1974. The Dow closed at 607.87 (not a misprint) This was down more than 40% from its high in 1972, when it crossed the 1000 mark for the first time.×4124348

The stock market had gone through back-to-back negative years for the first time since the Great Depression.

We should set the stage a bit at this point. In 1972, we were still heavily involved in the Vietnam War, which was highly unpopular, and dragged on for several years. Also, in 1972, the Watergate scandal began. This resulted in the indictment and conviction of several of Nixon’s closest advisors, and ultimately in the resignation of the President himself, on August 9, 1974.

To make matters worse, the Oil Embargo was put into effect by OPEC, which refused to ship oil to the US due to their support of Israel at that time. Unemployment had reached a high of 6.7% in 1974.

So things in 1974 looked pretty bleak. I recently read a letter written by Jim Fullerton of the Capital Group to shareholders at that time(November 1974). Here are some highlights from Mr. Fullerton’s letter.

“Each economic, market, and financial crisis is different from previous ones. But in their very difference, there is commonality….. Today there are thoughtful, experienced, respected, economists, bankers, investors, and businessmen who can (tell) you why this time the economic problems are different; why this time things are going to get even worse – and hence, why this is NOT a good time to invest in common stocks, even though they may appear low…..This time is a whole new ball game.”

“In 1942 everybody knew it was a whole new ball game…..The Germans had overrun France. The British had been thrown out of Dunkirk. The Pacific Fleet had been disastrously crippled at Pearl Harbor. We had surrendered Bataan, and the British had surrendered Singapore. The U.S. was so ill-prepared for a war that……75% of our field artillery was equipped with horse-drawn, French 75mm guns.” (Mr. Fullerton served in WWII.)

“In April 1942, inflation was rampant…..On April 8, 1942, the lead article in the (Wall Street) Journal was: ‘Home Construction, Total far behind last year’s. Private Builders hardest hit.’…..Washington D.C. also considered more drastic rationing with price fixing, or still higher taxes as a means of filling the ‘inflationary gap’ between increased public buying power and the diminishing supply of consumer goods.”

“A leading stock market commentator wrote: ‘The market remains in the dark as to just what it has to discount. And as yet, the signs are still lacking that the market has reached permanently solid ground for a sustained reversal.”

“Yet on April 28, 1942, in that gloomy environment, in the midst of a war we were losing, faced with excess-profits taxes and wage and price controls, shortages of gasoline and rubber…..and with the virtual certainty…..that once the war was over, we’d face a post-war depression, the market turned around.”

“Now I’d like to close with this: ‘Some people say they want to wait for a clearer view of the future. But when the future is again clear, the present bargains will have vanished. In fact, does anyone think that today’s prices will prevail once full confidence has been restored?’ That comment was made by Dean Witter in May of 1932 – only a few weeks before the end of the worst bear market in history.”

“Have Courage! We have been here before – and we’ve survived and prospered.”

Jim Fullerton

As of today, July 23, 2009, the Dow is up nearly 200 points, crossing the 9000 mark for the first time this year. This is a gain of over 38% from its low point of 6547 on March 9, 2009. Yes, This Time It’s Different.

For more information, you may contact me at You may also follow me on Twitter at

Monday, July 20, 2009

Credit Myths

There is an old saying that if you tell a lie loud enough and long enough, then over time, the lie will become accepted as truth.

Like many of you, I had bought into the credit card myth. I believed that having a credit card was aprt of life and that you "needed" one to rent a hotel room or make other purchases.

Recently, I've discovered that one of the best ways to Improve Your Financial Health is to perform some "Plastic Surgery". There is an overwhelming feeling of freedom and relief when you take a pair of scissors to that piece of plastic in your purse or wallet.

Dave Ramsey discusses this in further detail in his Financial Peace University course.

Imagine how much simpler your life would be without credit card payments or other loan payments. Imagine being totally debt free, or at lest debt free except for your home.
How much money could you save if that were your situation?

If you had $10,000 or more in a savings account, to be used only for emergencies, would you be able to worry less about the possibility of something happening?

One of the best definitions I have heard of "Financial Security" is this:
Financial Security means being able to afford almost anything you want - AND wanting very little.

When you tell a lie or spread a myth long enough, it will eventually be accepted as truth.

Here are a few "myths" about credit which have been told to us over & over again through marketing and the media.

Myth: You need a credit card to build credit.
Truth: A credit card does not "build" credit. In mnay cases, it can even destroy credit.

There is NO positive side to credit card use. You will spend more if you use credit cards. Even by paying the bills on time, you are not beating the system! Most families don't pay on time. The average family today carries $8,000 in credit card debt according to the American Bankers' Association.

When you pay cash for a purchase, you can "feel pain" of the money leaving your hand. This is not true with credit cards. Flipping a credit card up on a counter registers nothing emotionally. If you use credit cards instead of cash you will spend 12-18% more. This is money you could have saved.

Myth: What about my credit score or FICO score? Don't I need a good score for getting a job,
getting loans.
Truth: The FICO score (Fair Issac Corporation) was created in 1958 as a way of determining the likelyhood that a person will pay their debts.

In other words, it is a debt score. It measures what debts you have and how likely you are to pay them. People with no debt over a period of several years actually have a ZERO score. Wouldn't it be better to have ZERO debt as a measurement of managing your money, than a 'score'?

Myth: Wouldn't it help to get a debt consolidation loan? That is a good way to get out of debt.
Truth: When you do a debt consolidation, you just move the debt from one place to another. 88 percent of the time people do debt consolidation, they don’t change their behavior and go right back into debt. You can't borrow your way out.

The best way to eliminate debt is by putting together a budget, and putting your debts on a sheet and knocking them out one by one, starting with the smallest balance.

Myth: 90 Days Same as Cash or 0% Financing is a good deal.
Truth: This is an advertising gimmick. Businesses are in business to make a profit.

When companies use this method, they simply build the extra right into the price. Then when you don't pay it off in 90 days, they can charge you interest on top of it at rates from 24-35%. Worse, they will backcharge the rate all the way back to the date of purchase. And they know that most of the time, people won't pay it off on time. Again, the reason for doing this is to make a profit - once when they sell the item, and again when they can charge you interest.

Please contact me for more information. You may reach me through my web site. You may also follow me on Twitter.

Thursday, July 9, 2009

How Do I Keep My IRA From Being Eroded By Taxes When I Die?

Recently, I have been reading “The Retirement Savings Time Bomb…and How To Diffuse It” by Ed Slott. Ed is a highly renowned CPA and tax advisor. He has written for the Wall Street Journal, the New York Times, and USA Today. His book focuses on strategies to keep money in your savings, and away from the IRS.

One strategy of his, which I also recommend to my high net worth clients is the use of Life Insurance for estate planning. Because Life Insurance proceeds are not taxable, it’s a great way to pass money to your beneficiaries without creating a tax burden for them.

Ed uses a great story to make his point on why insurance is important. With his permission, I have included an excerpt from his book. Ed Slott’s website is
If you’re not a baseball fan, then the name Bill Buckner probably doesn’t ring a bell. But if you follow the game, you’ll recognize it as one of the most ignominious names in the history of baseball.

Bill Buckner was the first baseman for the Boston Red Sox in the 1986 World Series when the Sox were matched against the New York Mets. It was Game 6. The Red Sox were an out away from winning a World Series for the first time in 68 years. The ball was pitched, the Mets batter swung and connected with a thunderous c-r-a-c-c-k-k, sending the ball straight to first base and the outstretched arms of Bill Buckner, who flubbed the catch before the stunned but elated crowd in New York’s Shea Stadium, letting the ball roll between his legs!

Thanks to this colossal error, the Mets were able to pull their fanny from the fire, win the game that night, and go on to win Game 7 and the World Series title. The city of Boston has never forgiven Bill Buckner. Last I heard, he’d moved to Idaho, which apparently still wasn’t far enough for Boston fans. To Boston Red Sox fans in particular, and to baseball fans in general, Bill Buckner remains but one thing: The Man Who Dropped the Ball.

Now, what if I told you the Bill Buckner was also one of the best players ever to play the game of baseball? Would you be shocked? Disbelieving? I know I was when I heard that exact statement mad in a recent show about Buckner called “Beyond the Glory” on the Fox Sports Network. Being an accountant by trade, I decided to do my own audit of Buckner’s statistics to see if the show was right.

But how would I find those statistics? Easy. I went to a local baseball card store and asked the owner if he had any Bill Buckner cards for sale. He looked at me like I’d sprouted two heads.
“Why would you want a Bill Buckner card?” he asked. “Nobody wants them. That’s why I don’t carry any. We’d never sell them.” But I persisted, and he said he’d check around the baseball card grapevine to see if he could come up with one.

I went back in a few weeks and, lo and behold, he’d managed to dig up a few old Bill Buckner cards for me. “How much?” I asked.

He said, “They’re worthless. You can have ’em for free.”

I thanked him, took the cards home, and quickly checked Bill Buckner’s statistics. Fox was right. The numbers were astounding!

Bill Buckner played 22 seasons. Only 25 players in the history of baseball have pleyed more games then he did. He’d gotten more hits than 70% of the players currently in the Baseball Hall of Fame, including such superstar names as Mickey Mantle, Ernie Banks, Reggie Jackson, Johnny Bench, and even Ted Williams. He had 500 more hit’s the Joe Di Maggio!

When Buckner played for the Chicago Cubs, he won a National League batting title. He was also an exceptional fielder. He genuinely was one of the greatest players the game of baseball has ever had. And yet he will be forever locked in the Baseball Hall of Shame for that one slip-up at the end of his career that cost the Red Sox the World Series.

As I pondered the ill-fated career of Bill Buckner, I found myself thinking, “He’s a lot like an IRA. He had such a brilliant career, accumulated so much, but in the end lost it all due to one error, and now his name is mud.”

Is that how you want your family to remember you? As the guy (or gal) who dropped the ball?
Most people don’t think about it much, but the combination of estate and income taxes can easily consume an IRA of any size. Combined, estate taxes, along with federal and state income taxes could easily exceed 90%.…..

When it comes to retirement accounts, its not enough to earn great investment returns. Yes, that is important in building the account, but even if you earn 30% per year, every year for 30 years, what good is it if, at the end of the line, up to 90% of the account’s value is lost - which can happen if the funds aren’t there to pay the combined estate and income taxes on an inherited IRA, and so the IRA itself must be used to pay those taxes.

If an IRA must be tapped to pay tax when the IRA owner dies, the result is a cycle of taxation that doesn’t stop until the beneficiaries are so punch drunk that they don’t know what’s happened to them, let alone to their IRA…..

Do something now while you are still alive and options to protect that money for your heirs still exist. Life Insurance is your retirement account’s best defense to offset the tax burden which beneficiaries may face.
For more information, please contact me at You may also follow me on Twitter at

Thursday, July 2, 2009

This Time Its Different

Last year (2008), the Dow Jones Industrial Average fell about 34% (, then dropped ANOTHER 20% in the first 2 months of 2009.

It is estimated that investors accounts have declined in value by about $10 TRILLION DOLLARS TOTAL.

Severe recessions such as this one can test the resolve of even the most experienced investors.
It is easy to say "This time its different." Many people are still feeling that way.

However, it is important to keep in mind a few points.

* Financial decisions (any financial decisions) should not be based on emotion.
* Historically, after every past recession, the market has gone on to hit new highs.
* Declines in the market & economy, even our most severe ones, have been temporary.
* Since 1926, the Dow Jones has had TWICE AS MANY positive returns as negative ones.
Despite more than 12 recessions dating back to 1926, $1.00 invested in the Dow in 1926
would have been worth $2045.00 at the end of 2008.

The late Sir John Templeton, founder of Franklin Templeton Investments liked to say, "The Four most expensive words in the English Language are 'This time it's Different.' "

The National Bureau of Economic Research
states that the United States has weathered a recession EVERY decade since the 1920's. - Page 4.

As painful as the recessions are, when we are experiencing one, they have always been short lived, about 11 months on average. It can be difficult to predict when one will end, and announcing the "end" may take a while. According to NBER, they have waited an average of 15 months before declaring an "end". This way they avoid confusion. If there is further economic turmoil, it can be linked to a new recession, rather than the old one.

While we are "waiting to see what will happen" rebounds are often quick and robust. Stocks tend to recover about 6 months before the economy does. According to Morningstar, stocks are referred to as a leading indicator. On average, stocks have returned about 25% from market lows to the "end of the recession".

Did you know that the Dow Jones has increased by nearly 30% since its low point on
March 9, 2009? Have you been "in" the whole time, or did you go to something "safe"?

3/9/2009 - 6547
7/1/2009 - 8504

"The most expensive words in the English Language are 'This time it's different'."
Sir John Templeton

If you went to cash, thinking you were being "smart", think again. Cash can actually slow your recovery, and make it much harder to get your savings back.

In a recent study, Hartford shows data from the recession of 1973-1974, which had been our most severe until the present one. The study (please contact me at for more information) shows 4 seperate scenarios, each starting with $100,000 invested in equities on Dec. 31, 1972.
(Equities are represented by the S & P 500 Index. Cash is represented by the 30 Day Treasury Bill Index.)

In the study, they wanted to see how long it would take to recover the original $100,000 for the Low Point in the Market (Sept. 30, 1974)

Investor A (stayed in Equities) - back to $100,000 in July 1976 (1.75 years)
Investor B (moved to cash for 6 months, starting 9/30/1974) (5.3 years, or Jan. 1980)
Investor C (moved to cash for 12 months, starting 9/30/1974) (also 5.3 years)
Investor D (moved to cash for 18 months, starting 9/30/1974) (6.2 years, or Nov. 1980)

Yogi Berra sometimes said, "Its deja vu all over again."

In a challenging economy such as this one, isn't this precisely when you need a financial professional working side by side with you?

For more information, please contact me at You may also follow me on Twitter at