I think the candidates for President need a lesson in economics. The candidates, along with the media, are using scare tactics to try to gain votes. All the talk is about the "greedy oil companies" and high gas prices.
I wonder if these same people paid attention to all the other commodites that went up in price over the past several years. According to Thomson Financial, the average annual return the past three years for Wheat was 46.69%, Corn 39.26%, Copper 36.76%, Gold 29.74%, Oil 29.09% and Cotton 27.87%. Not to mention what you get charged for a bottle of water these days.
These are scare tactics used to get you to believe the Oil and Gas companies are screwing consumers and if you "vote for me" you'll see relief at the pump. These prices will come down eventually...no matter who is in office. That's how commodities work!
Wednesday, April 23, 2008
Thursday, April 17, 2008
Yeah...Capitalism!
Recently, I heard an advertisement on TV from one of the Presidential front-runners. In the ad, the candidate berated insurance companies, oil companies and drug companies.
I, for one, am extremely happy we live in a free society. A society where companies can profit freely from their efforts.
The drug companies used their profit to research and develop new drugs. One of those new drugs has a 100% cure rate for the type of leukemia my sister had 18 years ago when she had a full bone marrow transplant and was given a 30% chance of survival.
The other drug, which is used typically for asthma, was given to my wife during both pregnancies and helped stop her pre-term labor. Both of my children are alive and healthy today because of those "greedy" companies. Thank God!
I, for one, am extremely happy we live in a free society. A society where companies can profit freely from their efforts.
The drug companies used their profit to research and develop new drugs. One of those new drugs has a 100% cure rate for the type of leukemia my sister had 18 years ago when she had a full bone marrow transplant and was given a 30% chance of survival.
The other drug, which is used typically for asthma, was given to my wife during both pregnancies and helped stop her pre-term labor. Both of my children are alive and healthy today because of those "greedy" companies. Thank God!
Wednesday, April 2, 2008
Is the Stock Market Cheap?
The last time I checked, there were only a few basic places to invest money. The first place is cash. This includes checking and savings accounts, certificates of deposit and money market funds. In a nutshell, you give the institution your money, they give you 2% and loan it out at 7% making a 5% "spread" on your money. This is the fee they charge you. If you need any money in the next 1-2 years this is the best place to put those dollars because you know it won't drop in value and it's safe.
The second place is in bonds. Bonds are lending instruments where an institution, goverment or corporation borrows your money and pays you interest on that money. At the end of a certain term they give you your money back...hopefully. Depending on the institution you're loaning it to is how the rate is determined. The U.S. Government has never defaulted on their bonds, so obviously you won't receive that much interest from them. If Bear Stearns wants to borrow your money right now, you may want to ask them for a little bit more interest. Bonds are for time frames of 3-7 years. If you're saving for a downpayment for a house in 5 years then this may be the best place for those dollars. But, you should be cautious because you CAN lose principal in time frames of less than three years. You should expect 3-6% over time from bonds.
The final place I can see where to invest your money is in equities or ownership of assets. This can be real estate or stocks. Investing in stocks is buying partial ownership in a business. The reason you start a business is to make money. When you start or buy into a business, all you should care about is the cash in the cash register at the end of the day after you pay all of your bills. This is the money you get to take home. These dollars should have a time horizon of at least 7+ years. You would never start a business and put time, effort and money into it and give up on it or expect to make a huge profit on less time than that, or at least you shouldn't expect it.
Well right now you have the above options. Cash is paying you 2%. Bonds, and specifically the 10 year Treasury, are paying you 3.4% and the earnings of the 500 largest U.S. corporations (the S&P 500) are paying you 7.14%. But, since we're going through a downturn in the economy and possibly a recession, we want to factor in a margin of safety and say that earnings may go down 30% in which case we will only earn 5% at the end of the day in our cash register.
So you have 2% versus 3.4% versus 5%. Where should you put your money? It's that simple.
The second place is in bonds. Bonds are lending instruments where an institution, goverment or corporation borrows your money and pays you interest on that money. At the end of a certain term they give you your money back...hopefully. Depending on the institution you're loaning it to is how the rate is determined. The U.S. Government has never defaulted on their bonds, so obviously you won't receive that much interest from them. If Bear Stearns wants to borrow your money right now, you may want to ask them for a little bit more interest. Bonds are for time frames of 3-7 years. If you're saving for a downpayment for a house in 5 years then this may be the best place for those dollars. But, you should be cautious because you CAN lose principal in time frames of less than three years. You should expect 3-6% over time from bonds.
The final place I can see where to invest your money is in equities or ownership of assets. This can be real estate or stocks. Investing in stocks is buying partial ownership in a business. The reason you start a business is to make money. When you start or buy into a business, all you should care about is the cash in the cash register at the end of the day after you pay all of your bills. This is the money you get to take home. These dollars should have a time horizon of at least 7+ years. You would never start a business and put time, effort and money into it and give up on it or expect to make a huge profit on less time than that, or at least you shouldn't expect it.
Well right now you have the above options. Cash is paying you 2%. Bonds, and specifically the 10 year Treasury, are paying you 3.4% and the earnings of the 500 largest U.S. corporations (the S&P 500) are paying you 7.14%. But, since we're going through a downturn in the economy and possibly a recession, we want to factor in a margin of safety and say that earnings may go down 30% in which case we will only earn 5% at the end of the day in our cash register.
So you have 2% versus 3.4% versus 5%. Where should you put your money? It's that simple.
Wednesday, March 26, 2008
The End of the World Delayed Once Again
I'd like to share a story of one investor. A story of a man who invested $20,000 in October of 1974. He did this as he looked at the cover of the October 1974 Time Magazine issue which had a picture of President Gerald Ford trying to fight back inflation, recession and high oil prices. The same things we're fighting right now. Also, the stock market just finished two years of being down about 45%.
And during his lifetime he watched as NYC teetered on the verge of bankruptcy. He watched Three Mile Island nuclear reactor in Pennsylvania as it relayed a cloud of radioactive gas in the air and one hundred thousand local residents fled their homes. He watched Iran seize US hostages and an oil crisis in Iran where the price of oil skyrocketed. He watched Soviets invade Afghanistan, President Ronald Reagan get shot. He saw a Cold War during which movie after movie "entertained" him with the notion the world could end any second in a global thermonuclear war. He watched the US invade Granada, bomb Libya. He witnessed the stock market crash in 1987. He watched the news on the Iran Contra scandal. He saw the World Trade Center get bombed, The US Embassy Bombed, the Oklahoma Federal Office building bombed, USS Cole attacked and thousands of lives lost during 9/11. He feared Anthrax, Bird Flu, SARS, Aids, recessions, Enron, United Airlines going bankrupt, shuttle exploding. He saw an Iraq war times two and a President impeached. He watched devastating hurricanes wipe out an area as large as Great Britain. And during this time he watched the markets go down every so often as follows: -27%, -24%, -33.5%, -21%, -19% and -49%. One on average every 5 years.
And on March 25th, 2008, he woke up. And do you know what happened? The sun came up. He drank his Starbucks or Folgers coffee by Proctor and Gamble, he shaved with his Gillette Razor, brushed his teeth and rinsed with Listerine put on his Speed Stick from Colgate, flipped on his Sony TV and watched his Time Warner cable, ESPN to be exact by Disney and ate his breakfast a Pop Tart from Kellogg. He fed his cat some Friskies from Nestle and he got on his Harley Davidson and went to work using Exxon Mobil gasoline, where for lunch he couldn't decide between 7-up from Cadbury Schweppes or a Pepsi from Pepsi co. After work he went to the golf course and used his Titelist golf ball from Fortune Brands. After golf he had a Budweiser from Anheuser Busch and a Captain and Coke from Diageo and Coke. But before he went to bed, he didn’t want to forget all the bad stuff that had been going on in the world so he popped his Xanax from Pfizer. And there, laying on the table in front of him, was his recent statement from his investments. He had never looked at it. He opened his statement and found the following:
Initial Investment $20,000 October, 1974 Current Balance $1,033,380
This is what happened when he invested in the S&P 500 and reinvested all of the dividends and capital gains. This time it's not different. An investor's behavior is what matters most. Keep the faith.
And during his lifetime he watched as NYC teetered on the verge of bankruptcy. He watched Three Mile Island nuclear reactor in Pennsylvania as it relayed a cloud of radioactive gas in the air and one hundred thousand local residents fled their homes. He watched Iran seize US hostages and an oil crisis in Iran where the price of oil skyrocketed. He watched Soviets invade Afghanistan, President Ronald Reagan get shot. He saw a Cold War during which movie after movie "entertained" him with the notion the world could end any second in a global thermonuclear war. He watched the US invade Granada, bomb Libya. He witnessed the stock market crash in 1987. He watched the news on the Iran Contra scandal. He saw the World Trade Center get bombed, The US Embassy Bombed, the Oklahoma Federal Office building bombed, USS Cole attacked and thousands of lives lost during 9/11. He feared Anthrax, Bird Flu, SARS, Aids, recessions, Enron, United Airlines going bankrupt, shuttle exploding. He saw an Iraq war times two and a President impeached. He watched devastating hurricanes wipe out an area as large as Great Britain. And during this time he watched the markets go down every so often as follows: -27%, -24%, -33.5%, -21%, -19% and -49%. One on average every 5 years.
And on March 25th, 2008, he woke up. And do you know what happened? The sun came up. He drank his Starbucks or Folgers coffee by Proctor and Gamble, he shaved with his Gillette Razor, brushed his teeth and rinsed with Listerine put on his Speed Stick from Colgate, flipped on his Sony TV and watched his Time Warner cable, ESPN to be exact by Disney and ate his breakfast a Pop Tart from Kellogg. He fed his cat some Friskies from Nestle and he got on his Harley Davidson and went to work using Exxon Mobil gasoline, where for lunch he couldn't decide between 7-up from Cadbury Schweppes or a Pepsi from Pepsi co. After work he went to the golf course and used his Titelist golf ball from Fortune Brands. After golf he had a Budweiser from Anheuser Busch and a Captain and Coke from Diageo and Coke. But before he went to bed, he didn’t want to forget all the bad stuff that had been going on in the world so he popped his Xanax from Pfizer. And there, laying on the table in front of him, was his recent statement from his investments. He had never looked at it. He opened his statement and found the following:
Initial Investment $20,000 October, 1974 Current Balance $1,033,380
This is what happened when he invested in the S&P 500 and reinvested all of the dividends and capital gains. This time it's not different. An investor's behavior is what matters most. Keep the faith.
Friday, September 28, 2007
Creating Your Plan
Now that you have your values in place you can begin to set goals. I want you to think of this creation as if you were planning a trip and using a financial advisor as a travel agent. First, you need to know where you are in order to find out the best way to get you to your destination. Do an inventory of your assets, liabilities, income and expenses to give you an idea of your net worth (which is your assets minus your liabilities) and your net income (income minus expenses). I will discuss later in more detail how to increase both of these.
Tell your financial advisor where you wish to go in terms of two variables, time and money. "I want to retire at age 62 and have $60,000/year in today's after-tax dollars as my income goal." In this example, if you had $50,000 already invested at age 30 for retirement, you would need to add about $1,100/month total to hit $4.2 million at age 62. This would give you $172,000/year after taxes which equates to $60,000 today. If that scares you , IT SHOULD!
I know there are some people out there who will say that you never need to save as much as advisers tell you, but I have never heard anyone say they "regretted" saving and they wish they had less money.
So find out what you need to do to hit all of your goals and hopefully you have enough in your cash flow to do all of them. If not, then you'll need to prioritize or sacrifice something today.
I believe having a financial plan is the largest factor in determining your success or failure financially. You know where you started from and where you need to be each and every year. People who have a financial plan tend to be more proactive. If they find they're a little short one year they generally try to make up for it and make certain they hit their mark annually. People with no plan tend to be reactive. They react to interest rates going up or down, the economy, the markets, politics, etc. Reacting has never been the best way to get ahead financially. So sit down today and begin to plot out where you are and your final destination. I'll do my best to give you some good advice to help you get there.
Tell your financial advisor where you wish to go in terms of two variables, time and money. "I want to retire at age 62 and have $60,000/year in today's after-tax dollars as my income goal." In this example, if you had $50,000 already invested at age 30 for retirement, you would need to add about $1,100/month total to hit $4.2 million at age 62. This would give you $172,000/year after taxes which equates to $60,000 today. If that scares you , IT SHOULD!
I know there are some people out there who will say that you never need to save as much as advisers tell you, but I have never heard anyone say they "regretted" saving and they wish they had less money.
So find out what you need to do to hit all of your goals and hopefully you have enough in your cash flow to do all of them. If not, then you'll need to prioritize or sacrifice something today.
I believe having a financial plan is the largest factor in determining your success or failure financially. You know where you started from and where you need to be each and every year. People who have a financial plan tend to be more proactive. If they find they're a little short one year they generally try to make up for it and make certain they hit their mark annually. People with no plan tend to be reactive. They react to interest rates going up or down, the economy, the markets, politics, etc. Reacting has never been the best way to get ahead financially. So sit down today and begin to plot out where you are and your final destination. I'll do my best to give you some good advice to help you get there.
Tuesday, September 11, 2007
Where to Begin???
David Bach's bestseller "Smart Couples Finish Rich" has a chapter on values. I'm not so sure he came up with the idea himself as there is a book for financial advisors called "Values Based Selling" by Bill Bachrach which educates financial advisors on the ways to sell by using people and their values. Either way, David's book is well done and very helpful in my opinion.
He states that in order to get ahead in life financially a couple needs to find out basically why money is important in their lives? Once they find this out they should choose goals that will fall in line with these values. I couldn't agree more.
When we sat down with our financial advisor he asked us values questions? "What's important about money to you?" The answers he was looking for need not be confused with goals. For example, money is important because I want to retire at 65 is not a value it is a goal. Things like freedom, security, peace of mind, family time, marriage, health, making a difference and independence are values.
Before my wife answered, I had this macho chauvinistic attitude that I needed to work 90 hours per week to make a ton of money to buy her things. I was dead wrong. She stated she wanted to have the freedom to have more family time, be secure, have peace of mind and she would be truly happy. She also said money was not that important to her and she didn't need "things". WOW was that an eye opener to me. Had I not known this, I would have worked and worked and worked to try to buy her thing she really didn't care about and creating a lot of tension in our marriage by not being around.
I also said I didn't need a lot of things, but really needed security and peace of mind. Also, I found I didn't want to work 90 hours per week. I WANTED to be with my family.
So we began our journey of financial planning by focusing on goals that would make us feel secure and have our peace of mind. We began by getting a large enough cash reserve to make us both feel comfortable. While many financial advisors tell you 3-6 months of your committed living expenses is acceptable, we wanted a year's expenses in cash. You know, if you have a year in cash and you lose your job, or your income drops unexpectedly you have enough flexibility to ride out pretty much anything. This made both of us feel secure and sleep better at night.
Next we began on our retirement. This was pre-child days, so we wanted to make sure we had the freedom to retire and have fun later in life. We began saving at least 20% of our gross income into my wife's retirement plan and Roth IRA's.
I could go on and on, but you see the point. First, ask yourselves, "Why is money important to you?" Security. "Why is security important to you?" Security gives us peace of mind. "Why is peace of mind important to you?" Peace of mind gives us the freedom not to worry and spend more time with our family...and there is nothing more important than that.
Think about it as a pyramid and when you get to the point where you say to yourselves, "There is nothing more important than this", you are done with the first step.
The next step is to identify some goals that fall in line with these values. Security-you may pay down debt or establish a cash reserve. Freedom-you may begin or increase your 401k plan. You get the idea.
So that's where I think everyone should begin. I hope this helped.
BY THE WAY...NEVER FORGET 9/11
He states that in order to get ahead in life financially a couple needs to find out basically why money is important in their lives? Once they find this out they should choose goals that will fall in line with these values. I couldn't agree more.
When we sat down with our financial advisor he asked us values questions? "What's important about money to you?" The answers he was looking for need not be confused with goals. For example, money is important because I want to retire at 65 is not a value it is a goal. Things like freedom, security, peace of mind, family time, marriage, health, making a difference and independence are values.
Before my wife answered, I had this macho chauvinistic attitude that I needed to work 90 hours per week to make a ton of money to buy her things. I was dead wrong. She stated she wanted to have the freedom to have more family time, be secure, have peace of mind and she would be truly happy. She also said money was not that important to her and she didn't need "things". WOW was that an eye opener to me. Had I not known this, I would have worked and worked and worked to try to buy her thing she really didn't care about and creating a lot of tension in our marriage by not being around.
I also said I didn't need a lot of things, but really needed security and peace of mind. Also, I found I didn't want to work 90 hours per week. I WANTED to be with my family.
So we began our journey of financial planning by focusing on goals that would make us feel secure and have our peace of mind. We began by getting a large enough cash reserve to make us both feel comfortable. While many financial advisors tell you 3-6 months of your committed living expenses is acceptable, we wanted a year's expenses in cash. You know, if you have a year in cash and you lose your job, or your income drops unexpectedly you have enough flexibility to ride out pretty much anything. This made both of us feel secure and sleep better at night.
Next we began on our retirement. This was pre-child days, so we wanted to make sure we had the freedom to retire and have fun later in life. We began saving at least 20% of our gross income into my wife's retirement plan and Roth IRA's.
I could go on and on, but you see the point. First, ask yourselves, "Why is money important to you?" Security. "Why is security important to you?" Security gives us peace of mind. "Why is peace of mind important to you?" Peace of mind gives us the freedom not to worry and spend more time with our family...and there is nothing more important than that.
Think about it as a pyramid and when you get to the point where you say to yourselves, "There is nothing more important than this", you are done with the first step.
The next step is to identify some goals that fall in line with these values. Security-you may pay down debt or establish a cash reserve. Freedom-you may begin or increase your 401k plan. You get the idea.
So that's where I think everyone should begin. I hope this helped.
BY THE WAY...NEVER FORGET 9/11
Wednesday, August 22, 2007
First Attempt
Hello to all. This is a first for me. I'm still not sure what I can give to people out there who may be looking for some financial advice. I guess I was looking for a win-win situation. Where someone can win is getting some good honest no cost advice from a seasoned, but still young, financial advisor. I can win by getting stuff off of my chest. It may not be ALL about finances, but life in general.
Anyway, I appreciate your patience as I learn from this and hopefully grow into this project. I'll give it my all. I would appreciate any tips you could give me and also your constructive criticism. Thanks.
Anyway, I appreciate your patience as I learn from this and hopefully grow into this project. I'll give it my all. I would appreciate any tips you could give me and also your constructive criticism. Thanks.
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