Where there's a will, there's a way!

There are many lessons to be learned from watching the saga surrounding Michael Jackson's death. The news of the day now centers around his will. It seems there are a few different versions floating around. As you might expect, someone with his wealth, or source to assets, might have a lot of people wondering who he was planning to leave all his stuff to. It seems that he has left most of his remaining assets to his mother, his children, and some charities. So let the bickering and the courthouse drama begin. His father was apparently left out of his will, so were his brothers and sister. Well what does this mean to you and me? Other than the shear entertainment value nothing. Except ask yourself this question? Do you have a will? Who will get your stuff when you die? Will it have to be dragged through the courts? It is believed that as many as 70% of all Americans do not have a will. Do you want your state to decide who gets what? For many people, and definitely Michael Jackson, a trust is a better way to distribute your assets after death. A trust will avoid probate, while a will does not. Perhaps you have a will or trust but it has not been updated in some time. Call your lawyer and make an appointment to get your documents updated. It won't matter to you, but it will matter to your loved ones!

Managing your debt

Of all the news surrounding the death of Michael Jackson yesterday, this one struck me: "Michael Jackson lived like a king, but died awash in debt". As a matter of fact, he was nearly $400 million in debt! That's a lot of mullah! It seems that just like a lot of other Americans who got in over their heads with loans they should not have received, even someone as rich as Michael Jackson did the same! This just shows that it doesn't matter how much money you make or how much you are worth, you need to be working with a financial advisor to help you manage your investments and your debt. This story reminds me of an NBA player years ago, who had to move in to his parent's house when the NBA was going through a lockout, which meant that the players were not being paid their salaries until it was settled. So this guy who was making around $2 million per year, could not keep up with his bills and had to make some major changes to his lifestyle. So what does this mean for the average Joe making a living but feeling the pinch of the current economic recession? Talk to someone about your situation and get a fresh set of eyes on the problem. Someone without bias can spot areas that can be addressed for change better than you. I once helped a couple save over a hundred dollars a month by pointing out that switching cell phone carriers and getting a better plan was better than having no land line. You see, even though they thought they were saving money by not having a land line, they were paying over $200/month in cell phone charges! You have to let someone look at your whole budget to see what's really going on. It might humble yourself, but the time to get out of debt is now, not later! The lawyers and accountants are going to have a lot of fun going through Michael Jackson's financial records!

All eyes on the Fed

Today the Federal Reserve will conclude it's regular two day meeting with an announcement on their position on short term interest rates. It is expected by almost all pundits that they will not change rates from where they are now (a 0-0.25% range). Of greater interest to traders will be their policy statement on where they see the economy going in the near to mid future. There is now considerable debate between economists as to whether the US economy is heading out of the current recession and if we are possibly entering a period of higher inflation. Some suggest that the greater short term fear is deflation, not inflation. So what does it all mean for the average investor? Well, if you are an investor, what the Fed does or says today means nothing. Investors are in the market for the long haul. If you are a short term trader, then what they say could have some bearing on if you should buy or sell today. Figure out if you are a trader or an investor and act accordingly. Build your portfolio to withstand market volatility and capitalize on market corrections. It's ok to hold cash for the short term, but everyone needs a portion of their assets in the market based on their risk level, goals, and objectives. If you were out of the market these past 3 months, you missed out on a 40% gain from the lows in March! CD's cannot dig you out of the hole you are in from last year's crash. Go Ben, Go!

Inflation coming soon? Maybe not!

Working in a bank, I see people coming in all day long to buy, renew, or inquire about CD rates. Most people make a comment or two about rates being low and wish that rates would be higher. To get the best rates, they are told that they need to buy CD's with maturities over 3 years. No, they want a one year CD. Why? Because they are worried that rates are going back up soon due to inflation. Is this a good strategy? No. First of all, if you want CD's, you should build a CD ladder with 1, 2, 3, 4, and 5 year CD's. Each year when your CD matures buy the 5 year CD. That way you'll always get the better rate and you will have new money available each year. Secondly, how do you know rates are going up? Is inflation really a problem? Actually right now we are in a deflationary environment. Unemployment is rising and there is no upward pressure on wages. The economy is still struggling as well. There is really no threat of inflation in the near future. If you don't believe me, read a couple of recent articles from economists with more credentials than I have:

Why Inflation Isn't the Danger

One Man Against Inflation

So what if you aren't a CD buyer? Well, good for you! Areas to increase your holdings in would be energy, commodities, and TIPS (Treasury Inflation Protected Securities). For the average investor, the problem isn't buying the wrong investments, it's not saving enough! Don't fight the Fed!

Take a longer view

The problem a lot of people have with investing is, they focus on short term performance. This is not entirely their fault. Newspapers publish stock and mutual fund performance daily. Magazines report monthly, quarterly and annual results. While these measurements are interesting, they don't tell the full story. How did your stock, mutual fund, or ETF perform over the past 3, 5, and 10 year periods? Do they perform in good and bad markets? How do they compare with their peers? These are some good questions to ask before you buy (or sell) your investment. This brings up another problem for investors. What is your time frame for your investments? Is it just one year? Most likely not. Most people are investing for 10, 20, or 30 years. Even retirees should have some money in the market. The average 65 year old has a very good chance to live to age 85 or longer. That's 20 years! Twenty years is a long time to be in CD's earning 2-4% which barely keeps up with inflation, and when taxes are factored in, CD's barely make money at all. If you have enough money to live off the income your CD's generate then that's great, don't take the extra risk. But with risk comes reward. The trick is finding the balance!

It takes guts to be an investor

Well, this has been a tough week for stocks. After running up for 12 out of the last 14 weeks, the stock market has hit a bump in the road this week. Is this unusual? Hardly. If history has taught us anything, it's that the stock market goes up and it goes down. Over time, it tends to go up more than it goes down. There is never a straight line in either direction. Some people speculate that the recent advance was too fast and due for a correction. Others think that traders are just booking their profits over the last 3 months. Still others think that the recent announcements of regulatory changes in the industry is causing a black cloud to form over Wall Street. It's probably a mixture of all three. There are too many variables that influence the stock markets for any one theory to predict correctly. That is both the fun and frustration about investing. So what's a person to do? A few rules of thumb:

• The best time to buy is when you have the money.
• Buy on a regular basis. When the market is up you'll buy less, and when it's down you'll buy more.
• Diversify your portfolio with different asset classes. Besides stocks, you need bonds, cash, real estate, commodities, and even gold or silver.
• Rebalance or adjust your portfolio regularly. You need to have a more tactical approach these days.
• If you need help, hire a coach. Talk to a financial advisor you trust. You need a customized plan for your situation, not a cookie cutter strategy you found in a book or magazine.

Don't give up! Investing is a marathon race, not a sprint. You need to consider your time frame, goals, and objectives. What is right for someone else, may not be right for you. For most people, the biggest lesson from this past year was that you need to save more and spend less. There are positive things happening in the world, don't focus on the negative. Turn off CNBC and talk radio and think positive!

Cash in on Opportunities

As I mentioned in yesterday's post, many people are holding way more cash in their portfolios than they used to, before last year's stock market crash. The average cash holding is now around 19% of the typical portfolio. While cash is a good asset to hold for liquidity and safety, it is not a good asset for appreciation and inflation risk. Cash should be used for opportunities that present themselves in the markets. Yesterday, the Dow Jones index dropped almost 190 points. Some people are worried that the economic crisis is far from over. Others believe that the markets had advanced too quickly in the past 3 months and it was a time to sell and book profits. If you had cash on the sidelines yesterday, you could have taken advantage of some buying opportunities for the future. To be sure, you should keep funds needed for short term needs like home, car, and college tuition expenses in safe, liquid investments, like CD's and money markets. But for the longer term, stocks, bonds, and alternative investments will bring higher yields and a greater total return. Want a guaranteed return? Pay off some credit card debt!