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!

Inflation protection

As people have watched all the bailout money go to the big banks, insurance companies, and sadly Chrysler and GM, many have correctly assumed that inflation will rear it's ugly head. The question is, when? Even thought the stock market has had it's best 14 week run since 1975, many people are still holding cash in CD's and money market accounts. Traditionally, these products are not a good hedge against inflation. Yet, with last year's stock market crash, many are understandably afraid of putting too much money back into the market. They would rather get a 1-2% return on their cash than suffer another loss like last year's. The problem is, most people are buying 6 month to one year CD's which are yielding less than 2% on average. What else can they do? Well, for one thing, try to stretch out your maturities by using a CD ladder. Instead of putting all your money in one year CD's, try keeping some there, but moving some to 2 year CD's and 3 year CD's where you will earn a higher yield. While it's true that inflation is coming, it probably won't come as soon as most people think. Spread your money out to protect yourself and earn higher rates in the meantime. Other areas to hedge against inflation for more aggressive investors would be in the following areas: Gold, Silver, TIPS, and Energy stocks or EFT's. Diversification is still the name of the game and just as you would not want to put all your money in stocks, you should also not have all your money in cash! Will Treasuries be the next bubble?

DTV arrives!

Well the countdown is finally over! Digital Television (DTV) has finally, officially arrived in America, once and for all. Uh, perhaps as many as 1 million people may be left in the dark now, or at least with "snow" on their screens, because their analog signal is gone. Today is also my birthday. Whats been nice the past 4 months, is I have received a nightly update from my local TV news channel, on how many days until my birthday! What was not so pleasant, was the daily updates from my local news on the countdown to digital TV! I first wrote about this on Nov. 17, 2008 in my blog post 92 days, when I discussed this boring countdown to the end of analog TV. On Feb 16, 2009 I wrote about it again in my blog post Digital Daze (which was picked up and published on the St. Louis Bloggers Guild website), when I lamented that the DTV countdown was given an extra 4 months so that the 6 million or so people in the US not connected to cable or satellite, could go through the converter box maze of coupons and PSA's, or try to follow a local Best Buy "associate" on how to set up their new antenna to pick up digital TV signals. Apparently, the extra 4 months has "helped" 5 million or so people get with the program. Today the FCC has beefed up their customer service "hotlines" to handle the deluge of calls they expect from the 1 million people who "chose" to ignore the warnings that have been coming to them for months and months! Will this be anything? Like what happen on Jan 1, 2000 when millions of Americans were certain their computers were going to crash, but it turned out to be a non event? We'll see. All I know is, I have been ready for this transition for years, and am happy to see the end of PSA's when I watch the 10 o'clock news. Gosh, I must be old...I still watch the news on TV.

Cash Management

I just returned from an industry conference in Omaha, Nebraska.  The major themes during the 4 days of meetings, breakout sessions, and keynote speeches were perseverance, optimism, and opportunities.  With all the turmoil and transition in the banking and financial industry over the past year and a half, there are lots of people looking for financial advice and possibly a new advisor. Also, while the stock markets have recovered some of the losses, the easy money has been made and people need to be more tactical in their approach in their portfolios.  One of the last sessions I attended was called Cash Management Strategies in a Low Interest Environment.  Basically they said that more people are sitting on cash nowadays because they are still fearful of market uncertainty and have short and midterm cash needs that cannot be at risk in the stock market.  The challenge is to find higher yielding investments that are safe.  CD rates are very low right now and most people looking for income need more than the 1 to 3% that they are finding in CD's.  Money Market rates are even worse and some folks have discovered that these investments are not as safe as previously thought.  Opportunities seem to be in the investment grade corporate bond market and with newer investment products known as Structured Notes that can give a person access to the stock market with principal protection.  The main thing is to know that there are viable solutions for everyone, but people need sound advice.  Tiger Woods did not get to where he is in the golf world by reading how to books and golf digest magazine; he has coaches help him improve his game!

Recession update

Well, if you were following me on Twitter yesterday, you knew that I was sitting in on a speech by David Joy, the chief market strategist and chairman of the Riversource Investments Capital Markets Committee. He shared his thoughts on where they see the economic recovery in the US. He said that they feel that economic recovery could begin in the second half of this year, but that the next economic expansion period will be much shorter than the past, perhaps in the 3 to 4 year range. The best areas to be in going forward are the infrastructure plays, primarily industrials, materials, energy and technology. Problem areas ahead of us are inflation, health care, and debt. He said that investors should structure their portfolios to participate in the recovery, but they should be prepared to be more tactical, adjusting portfolios more frequently than in the past. Good stuff!

Conference

I am currently attending a conference in Omaha, Nebraska. I will be hearing speeches and sitting in on many different breakout sessions on topics such as asset management, wealth management, practice management, and business growth. I will post some updates via Twitter and will write about some of the better ideas I hear later. We have not seen Warren Buffet, but I did drive by his home yesterday! Stay tuned...

The case against Twitter

As I discussed yesterday, while Twitter is gaining membership, it still lags Facebook by a long shot.  Most of the hype seems to be coming from Hollywood and perhaps a very clever ad agency that promotes any celebrity that opens up a new Twitter account.  If you scroll through the list of Suggested Users on the Twitter "Find People" page, most are celebrities.  Adding to the problem of not having an effective income model, this could indeed spell doom for Twitter.  Not surprisingly, an article out today lays out The Case Against Twitter, By The Numbers.  I think these guys might want to strike a deal with Facebook or Google while the iron is hot.  Otherwise, they could end up a statistic in the annuls of web lore.  They might want to try to book another appearance on Oprah!

Do you Twitter?

Time out for Twitter

Today's post is going to take a brief look at Twitter.  I see Twitter as becoming polarized.  People either lover or hate Twitter, there is really no middle ground.  While Facebook has become THE social networking website with the largest following, Twitter is lagging behind along with Linked-In.  The difference is Twitter and Linked-In are more focused in their appeal.  I think people are still trying to figure out if Twitter has value, and Linked-In seems to be more appealing for business users.  I'm not sure anyone cares too much that Ashton Kutcher has now surpassed the 2 million follower mark.  It seems Oprah can't catch him.  More interesting to me is that 10% of Twitter users account for 90% of Twitter activity!  I think people still like to joke about Twitter.  Will Farrell joked on Conan O'Brien the other night that he didn't Twitter, he still uses a CB!  Remember, he's Old School.  So I think Twitter needs to develop more practical uses to gather the masses who feel that Facebook is all they need.  And it would be helpful for them to be able to show that they can make money, otherwise they could find themselves to be a fad and end up as a answer to a trivia question someday in the not to distant future!  Do you Twitter?

Haute Couture

OK, so while the US economy continues to make strides to get out of our current recession and financial crisis, highlighted yesterday by the bankruptcy filing by GM, it seems our European friends in France must have things in high gear.  A new report out shows that new cars are the latest thing in haute couture, unlike here in America where it has now become trendy to own a vehicle that is 3 years of age or older!  Are the French ahead of the curve or are they foolish in their ways?  Another mystery making news today is the announcement that GM has supposedly sold Hummer to an undisclosed buyer and will continue making Hummers until the new owners take over, sometime in 2010.  Well, if I were to make a guess, I would suspect that the new owner is not French!

GM raising more questions than answers

As expected, GM will be filing for bankruptcy protection today.  They join Chrysler in becoming another Big 3 automaker taking a road no one could have predicted even 5 years ago.  With today's filing comes a lot more questions than answers as to the future of this American icon.  What will happen to all of the GM bondholders?  How will the "new" GM compete in the future?  Who will buy Hummer and what will happen to Saturn?  Who will replace GM in the Dow 30?  How will the closing of 2600 or so dealerships nationwide affect the national economy?  What has Al Koch been up to since he helped Kmart emerge out of bankruptcy?  It will be interesting to see how this all places out over the next several months and most likely years.  You know what song I haven't heard on the air in a while?  Bob Seger singing, "Like a rock"!