Wordless Wednesday

A guaranteed return

Now that the Fed has kept interest rates in the 0.00 to 0.25% range for the past 17 months, people are really not sure what to do with their money. Chairman Bernanke has stated several times that the Fed will continue to keep rates low for the foreseeable future, and this is not expected to change until problems with European economies improve and we see an improvement in the US unemployment picture. So what are investors doing now? There are a few things I am currently noticing people do with their money. CD shoppers are continuing to move money from one bank to another, based on whoever has the best rates, however, people are starting to go a little longer with their maturities to get a better rate. Most people aren't going much more than two years out due to their continued belief that someday soon, the Fed will change course and raise rates. Of course, many experts don't believe rates will go up now until late 2011 or possibly even, sometime in 2012. This poses a problem for people needing income off their CD's. Many people are getting fed up with rates in the 1-2% range and are starting to look for other options. Fixed annuity rates aren't any better than CD's and with people being more focused on the short term, this doesn't bode well for annuities. While some might look to dividend paying stocks for income, the stock market volatility has scared a lot of people away from this option for fear of losing principle. More are now looking to bonds as the safer way to go for higher yield, but concerns of default risk and price movement when and if rates do suddenly rise, are still weighing on people's minds. However, for people who need higher income, rates in the 4-6% range sure sound a lot better than 1-2%, so taking on a little more risk could be warranted for some. Lifetime income riders on variable annuities offer some interesting choices for people who are looking for a way to take income from their portfolios without the fear of outliving your principal. Take the time to be educated on these options before you say no. One last trend I am seeing more of is this, people are deciding that since they can't make anything on their money, they can just spend it, or pay down their debt. While the first option could be shortsighted, the second is gaining popularity as people realize that paying off debt is basically the same as getting a guaranteed return on your money. If you pay off a credit card charging you 8-12% in annual finance charges, you are realizing an 8-12% guaranteed return on your money. I even have had two clients who recently withdrew money from their savings to pay off their mortgages! They realized that the peace of mind that comes with being debt free is worth it's weight in gold!

Wordless Wednesday

Christine McVie of Fleetwood Mac

Don't stop thinking about tomorrow

"Don't stop, thinking about tomorrow,
Don't stop, it'll soon be here,
It'll be, better than before,
Yesterdays gone, yesterdays gone."

These lyrics, by Christine McVie of Fleetwood Mac, are not just for those who may long for the Clinton years. They are a good motive for today's investors to not give up on saving for retirement. It will be here sooner than you think, too! My recent time on Facebook has been a reminder of just how fast time can go by. I have been reconnecting with high school friends that I have not seen in over 28 years! For those of you who have given up on the stock market because of the recent volatility over the past year, my question is: what are you doing about your retirement savings? Just because your 401k has lost 10-50% of it's value and your employer is no longer matching a portion of your contributions is no reason to stop saving altogether. If anything, you may now need to save more! Social Security will only amount to perhaps 30% or less of what you will need to live on when and if you do actually retire (future blog). 401k and IRA savings plans are tax deductible, and if set up properly, are on automatic pilot. This means that you do not have to write a check to any financial institution to get your money to them. If you save automatically from your payroll or checking account, you will save more. Why? Because you are paying yourself first. When you pay yourself first, you are making sure that you are saving, instead of getting to the end of the month after the bills are (hopefully) paid, and realizing that you don't have any money left to save. So don't stop saving because you have lost money in the stock market, maybe you need to revisit your tolerance for risk. Saving for your future retirement is more important than ever, now that people are living longer and healthier lives. Oh great! Now I can't get that song out of my head!

Wordless Wednesday

Who's to blame?

I had to have a difficult conversation with a participant in my client's 401(k) plan the other day. He came to me wanting to withdraw some money from his retirement plan to help pay for some bills that he was behind on. I explained to him that he could not just decide to withdraw money from this type of an account just because he was behind on some bills. He said to me, "well it's my money isn't it?" I said, yes it was, but it was for his retirement, not an emergency savings account, and the rules of the plan do not allow for withdrawals or loans unless you have a true financial hardship. What plan administrators consider a financial hardship are things like paying for medical bills not covered by your insurance, college expenses for a family member, funeral expenses for a family member, a new home purchase, or the real biggie...to help prevent a bank from foreclosing on your home. He had none of these situations. In fact, he already had a loan out from a previous home purchase a year or two earlier. His problem, as he described it, was that he was one or two months behind in bills, including his electric bill, behind on his truck payment, and he didn't want to get in further trouble. He was in a catch-22 that more and more people are finding themselves in today. Growing financial burdens due in part by not saving for a rainy day. Now for this person, it's pouring! To be sure, some of his problems are not entirely his own. He is a mechanic and his income has gone down due to the current economic cycle we are in, because he has less work these days. He gets paid for fixing cars and when he has less customers, he makes less money. I told him that the only thing he could do was stop making contributions to his 401(k) plan until his income and debt situation improved. I'm already doing that he said. Well, you will have to find other ways to save money by cutting expenses I said. By now he was beginning to get agitated and exclaimed that nobody cares, nobody wants to help him, and it's not his fault! I told him that I was sorry for his predicament but there wasn't much I could do for him. I did feel sorry for him, but as he left the room I thought to myself, why didn't he have an emergency savings account? Why didn't he set more money aside when business was good? Why did he buy a new truck instead of a used one? How much money does he spend on non-essentials? Does he have cable TV? How much does he spend a month on his cell phone bill? How much does he spend on cigarettes? The effects of the slow economy is hitting home for many people these days and they can't just wait for the government to bail them out. People have to take responsibility for their actions and/or inactions. You really can't blame anyone but yourself for poor planning. Like one comedian likes to say, you can't fix stupid!

Wordless Wednesday

Another silver lining

Most people have heard the term "a silver lining" at least once in their lives (probably many times for most). It is usually meant to sooth people during a time of difficulty, by letting them know that there is something comforting or beneficial that can be derived or learned even when something bad happens. The phrase was first coined by John Milton in his 1634 classic poem "Comus", when he said, "Was I deceiv'd, or did a sable cloud Turn forth her silver lining on the night?". Apparently it was picked up by the local media of the day and has been passed on as a proverb ever since. Even today, people are wary about the apparent mixed messages that they seem to be getting these days from the media. On one hand we hear that we are still in the aftermath of a global recession, which is obvious from the stock market declines and global financial mess that we find ourselves in as we enter the 2nd half of 2010. On the other hand, we are told that the overall economy is improving, and job losses are fewer. The worst is behind us. It is a great time to buy stocks and just about any big ticket item, from TV's to cars, to new homes, because of the opportunities left behind from the downturn of our current economic cycle. So are we to save and conserve and hoard our resources, or are we to spend and invest and spread our wealth? The answer is, each person must make their own decision. The problem with magazine articles, newspaper columns and TV interviews with so-called "experts", is that the advice that they give does not and can not apply to everyone. Some people have had a bad year, they lost their jobs or had their hours cut; but others have seen business improve and have had record sales! The silver lining in all this is that many people are taking a serious look at how they do spend their money, and are cutting back on unnecessary expenditures. They are evaluating their needs from their wants and making adjustments. Some people are saving and investing more, most are spending less. These are both good things and healthy habits. Sometimes it takes difficult circumstances to force someone to take a hard look at their future prospects and make adjustments that are needed to ensure the possibility of your goals to be attained. Don't give up whatever you do! We have to make long term decisions in a short term world. Life is a marathon, not a sprint. Remember, the turtle won the race, not the hare.