Thursday, January 22, 2009

What's your plan?

I read an article today on a popular personal finance website titled, "Getting Your Finances Ready for Obama". I had to laugh. It has become trendy to try to find market niches and stock tips based on perceived policy moves by Presidents and administrations. Of course there are long term trends that should be noted, such as market behavior by consumers, population shifts, and demographics. The Baby Boomer generation obviously did a lot for many different industries, as did the rise of personal computers and the like. But lately, the focus has turned from long term to short term. People make decisions based on the next 12 months, not the next 12 years. Saving and investing is no different. Most magazines, financial publications and websites will tell you how stocks and mutual funds did over the past 5 and 10 year periods, but people make their buying decisions based on the past 12 month or year-to-date performance. This is true not only in bear markets, but bull markets as well. I can remember talking to clients in 1999 who only wanted to buy a fund that had a return of 100% over the past year! Of course last year, you were lucky to find a fund or stock that had a positive return at all. The real problem for most people is not the stocks or funds they own, but the amount of new money they are putting in them. How much are they saving? How much are you saving? The United States has the lowest savings rate of any Industrialized nation. A rule of thumb for most people is to save 10% of your income. If you start this early on, with your first job, you should have no problems saving enough for retirement. In the last few years, the Government has tried to help out people who did not save enough early on, by creating a "catch-up" provision for people age 50 and older, so that they can put more money into their 401(k) and IRA plans than what they would normally be able to make. Now, because we are in a bad recession, many people are finding that their employers are cutting their 401(k) matching contribution. That puts more pressure to save more but it must be done. For most people, this will mean making some tough choices to cut expenses from their family budgets. They need to decide what is a real "need" and what is a "want". This is the real way to get your finances ready for Obama. Plan for your future retirement yourself by saving more and spending less. Don't let the government plan it for you, unless you want to join the food stamps crowd. Maybe Geico has it right. Look how much I saved on my auto insurance! I better call my agent...

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