The Ricks Report – September, 4 2012

The Ricks Report

September 4, 2012

The Markets

Now that the traditional end to summer has arrived, things might heat up on Wall Street as traders return to their stations and face a host of pressing risks.

The omnipresent Mohamed El-Erian of PIMCO took to the airwaves on Bloomberg last week and laid out his list of the four major risks facing the global economy:

1. The looming fiscal cliff – in which automatic tax increases and spending cuts are set to take effect at the first of the year in the U.S.
2. The continuing sovereign debt crisis in Europe.
3. Geopolitical risk in the Middle East and elsewhere.
4. The economic slowdown and pending political transition in China.

Source: Bloomberg

One could argue that the first two on the list are within the power of western politicians to solve without causing global harm. Of course, so far, politicians have engaged in a game of “kick the pressing problems down the road.” However, sooner or later – and likely sooner rather than later – that road will end. Only time will tell if our politicians solve the problems before they hit a dead end.

The last two are trickier. Geopolitical risks are always unpredictable, particularly in the highly combustible Middle East. And, China, that’s another wildcard. The country’s economy is clearly slowing down, albeit from a very high rate compared to American standards. The upcoming once-in-a-decade political transition is also a cause for reflection as the Bo Xilai affair disrupted what party officials hoped would be a smooth political transition.

Yet, despite these four risks, the U.S. stock market is still near a post-crisis high. The fact is, there’s always something to worry about and sometimes the stock market defies expectations and keeps climbing the “wall of worry.”

Data as of 8/31/12	1-Week	Y-T-D	1-Year	3-Year	5-Year	10-Year
Standard & Poor’s 500 (Domestic Stocks)	-0.3%	11.9%	15.4%	11.3%	-0.9%	4.8%
DJ Global ex US (Foreign Stocks)	-1.0	4.1	-5.4	1.3	-6.0	6.0
10-year Treasury Note (Yield Only)	1.6	N/A	2.2	3.4	4.5	4.0
Gold (per ounce)	-1.1	4.7	-9.1	20.0	19.7	18.1
DJ-UBS Commodity Index	0.5	3.8	-11.2	5.1	-2.5	3.6
DJ Equity All REIT TR Index	0.8	17.5	20.4	23.4	3.4	11.2

Notes: S&P 500, DJ Global ex US, Gold, DJ-UBS Commodity Index returns exclude reinvested dividends (gold does not pay a dividend) and the three-, five-, and 10-year returns are annualized; the DJ Equity All REIT TR Index does include reinvested dividends and the three-, five-, and 10-year returns are annualized; and the 10-year Treasury Note is simply the yield at the close of the day on each of the historical time periods.

Sources: Yahoo! Finance, Barron’s, djindexes.com, London Bullion Market Association.  Past performance is no guarantee of future results.  Indices are unmanaged and cannot be invested into directly.  N/A means not applicable.

DOES STRONG ECONOMIC GROWTH ALWAYS LEAD TO RISING STOCK PRICES?  Typically, strong economic growth translates into rising corporate profits. Rising profits, over time, tend to lead to rising stock prices – or so one would think.

Consider China. For many years we’ve heard how China is supplanting the U.S. as a manufacturing and economic powerhouse. And, in many respects, it’s true. Between 1989 and 2012, China’s gross domestic product rose at an annual rate of 9.3 percent – dramatically above the growth rate in the U.S. – according to Trading Economics. Today, China has the world’s second largest economy and it’s projected to overtake the U.S. in just four years, according to the International Monetary Fund as reported by BusinessWeek.

So, yes, China is an economic powerhouse. But, has their economic growth translated into stock price growth?

Let’s go back about 12 years, November 10, 2000 to be exact, and see how the Chinese stock market has performed as measured by the Shanghai Stock Exchange Composite Index. The Shanghai Composite is a capitalization-weighted index that tracks the daily price performance of all A-shares and B-shares listed on the Shanghai Stock Exchange.

Back on November 10, 2000, the Shanghai index closed at 2,047, according to data from Yahoo! Finance. Now, almost 12 years later, where do you think the Shanghai index closed last week?

Shockingly, the Shanghai index closed at 2,047 – exactly the same price as it was nearly 12 years ago! This flat stock market performance occurred despite the fact that the Chinese economy grew by more than 500 percent between 2000 and 2011, according to The World Bank.

Now, before we conclude there’s no connection between economic growth and stock prices, we have to go back even further. On December 19, 1990, the Shanghai index was created with a starting value of 100. At last week’s closing price of 2,047, this means the Chinese stock market, as measured by the Shanghai index, has risen more than 1,900 percent between 1990 and 2012. On an annualized basis, that’s more than 14 percent per year – an exceptionally high return.

Okay, after all these numbers, what can we conclude? A couple things:

1. Fast economic growth in any given year does not necessarily translate into rising stock prices that year.
2. Fast economic growth eventually shows up in stock prices, although some of the growth may be “pulled forward” and “priced in” to stocks well ahead of when the growth actually occurs—as happened in China.

This lack of a linear relationship between economic growth and stock prices is one more variable we have to consider when developing portfolios.

Weekly Focus – Think About It…

“Without labor nothing prospers.”

—Sophocles, ancient Greek playwright

Best regards,

Gregory Ricks

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Mastering Your Plastic

Purchasing methods are constantly evolving and becoming increasingly convenient over time.  Consumers went from having to walk a herd of cattle to the market for trade, to lugging around a wallet of cash, to now holding all their wealth in a sliver of plastic.  Credit cards have made the world of transactions simpler and easier to navigate for consumers around the world.  Large purchases can be made without the cash up front.  Many card companies offer various reward, cash back, or points promotions for use.  Online shopping has become a breeze.

Credit cards have the ability to make any old consumer a powerful individual investor.  But, with great power comes great responsibility.  The number of people struggling with credit card debt in America is astronomical.  The invincible feeling that people get from swiping that card can often leave them devastated.  That devastation is ubiquitous in their lives, affecting their credit scores, their ability to access loans, and their financial history in general.  Credit cards are necessary and advantageous tools for most people, and, if used properly, can be a huge asset to your spending habits, but it’s important to know the facts about your card.

That shiny piece of plastic poking out of your wallet can be death trap, if you don’t know how to navigate the terrain.  There are a few things that you need to be aware of before you start swiping through the checkout lines.

1)   Interest rates are limitless- When you sign up for a credit card, you agree to a certain interest rate, hopefully a low one.  The scary fact is that in most cases that rate can be raised to whatever the credit card company likes.  There oftentimes are state laws in place limiting how high those rates can be set, but many of the largest, and most popular, credit cards are issued from federally chartered banks that don’t have to follow those state laws.  The CARD Act (the Credit Card Accountability, Responsibility and Disclosure Act) guarantees that rate for the first year of the contract, but after that, the rate is free game for any increase they like.  On the upside, the card company must notify you 45 days in advance of the increase, and the new rate only applies to charges after that change date, and not your current balance.

2)   Only domestically reliable-  Anyone taking a trip out of the country might think that carrying a credit card, as opposed to a fanny pack full of Euros, may seem like a great idea, but many card users could soon find themselves searching for the German translation of the word “denied.”  The magnetic strip found in most credit cards in the U.S. isn’t often used overseas.  EMV cards, on the other hand, are much more functional.  Those EMV cards, which are named after their developers, Europay, Mastercard and Visa, contain a microchip attached to an account instead.  You can ask your provider for an EMV version of your card for your trip that should serve you much better.

3)   Fixed rates aren’t always fixed-  Fixed rates always sound good in theory.  You know what you’re signing up for is something you can depend on continuing.  Well, the fixed rate that is here today could easily be gone tomorrow.  Credit card companies are able to change your interest rate and the calculations that go into determining that rate.  Your fixed rate could easily become variable if the credit companies so desire.  If the rate does becomes variable, the company must again give you 45 days notice before an increase, but if it becomes variable, and the rate stays the same or goes down, they don’t always have to notify you.  And, if they want to decrease your credit limit or close your card entirely they don’t have to tell you until after the deed is done.  If this does happen, the company is required to send you a copy of the credit score that caused the change.

4)   Tardiness is penalized-  This is one of the most obvious but most troublesome aspects of using credit cards.  The due date on your statement is the date that your payment must be received, and if you pass this date, you could be slammed with a fee.  But there are a few rules that protect consumers if they find themselves a little behind schedule.  Your issuing company cannot report your delinquency to the credit bureaus until your bill is late by an entire month.  This means, unless you are 30 days late, your credit score won’t be hindered.  Also, your rate can’t be raised unless you are an entire 60 days past due.  So being a few days late will cost you some money, but not your record or your rate.

Credit cards are the best thing since sliced bread for many consumers, but if you don’t know your way around the rules, you could easily find yourself swiping your life away, almost literally.  Manage your spending habits, read the fine print, and swipe within your means and you should find yourself ruling the plastic world in no time.

Photo Courtesy of: mybudget360.com

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How To Dig Yourself Out From Debt

Debt: the deep hole that seems so effortless to dig but impossible to climb out from.  With every new credit plan comes a barrage of danger for consumers already drowning in bills.  It’s a problem that millions of Americans struggle through every day and for many it seems that there is no end in sight.  The pile of debt can get so high that it’s hard to find a place to start, which is often times the most difficult step.  It’s similar to the people on those “Hoarders” shows, when every room is piled high with junk the task can seem too daunting to even begin.  Hours and hours of work hardly make a dent and progress is difficult to achieve.  But for those looking at an uphill climb out of debt, there are ways to make those first few steps easier, and more productive.

The first main process on the road to recovery is to recognize and break your bad habits.  There is no point in doing the work to get out of debt if you will simply bury yourself back into it in a year.  You need to take the time to recognize the spending behaviors that have caused the problem in the first place and work to break them.  Take a look at your budget for each month, and make more of an effort to live within it. One way to do this: stop using credit cards.  Consumers find it increasingly easy to mindlessly swipe their plastic through every register they see.  By limiting yourself to cash or debit accounts you will be more aware of your spending and unable to add to your debt problem in the process.  Once you have curbed the problem you are ready to begin your journey.

Step 1:  Map it out.  It’s important to lay out your debt in front of you so you know what you are working with.  The options for these are your choice.  Use a spreadsheet or a chart or a series of pictograms or whatever works best for you to understand your debt.  Separate each account by balance, rate, minimum payment and the number of payments you have left.  This organization allows you to plan out the rest of your steps in order to meet your goals.

Step 2: Budget a payment plan.  Once you have all of your debt in front of you, determine how much you can put toward paying off your debt each month.  The goal for this amount should be more than all of the minimum payments on your accounts combined.  This may require some stricter budgeting throughout the month.  Limit your spending wherever you can.  Pack a lunch for work instead of eating out, avoid frivolous or impulse purchases, or turn down your heat at home by a few degrees.  Small changes can give you the boost you need to start to dig yourself free.

Step 3: Focus on a few accounts at a time. The first two steps have given you a plan on how to become debt free, but step three is where the work begins. Pick two or three debts and pay off as much as you can above the minimum on those each month.  This will allow you to begin your ascent.  The selection of these few targeted debt accounts shouldn’t be random.  There is an easy order to follow when attacking these balances.  Pay the one with the lowest balance first.  This decision is wise both financially and emotionally as crossing accounts off of your list can simplify your journey and feel super satisfying at the same time.  Second, go after the debts with the highest interest rates.  Paying these down early will help you nip the problem in the bud and keep your debt balance from rising.  Your last goal is to aim for your secured debt that has just a few payments remaining.  If you pay above the minimum you can cut out the final payment or last few payments altogether, giving you a lot more freedom in your monthly budget.

The final step is simple: once you have dug yourself out, don’t fall back in.  Often times, the freedom associated with people becoming debt free leads to the same habits and behaviors that caused the debt in the first place.  If you feel the need to reward yourself, do it with a deposit into a savings account or a contribution into your retirement plan.  Keeping yourself debt free and financially stable will be the greatest gift you can grant yourself.

Photo Courtesy of: pcbs.org

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Why Women Trail Men in Retirement Planning

It’s often said that mothers naturally put others first, which, admirable as it is, becomes a problem in terms of their own financial future.  A new study by the ING Retirement Research Institute shows that women, on average, are much less prepared for retirement than men.  Not only do fewer women have formal investment plans in place, but those that do have a retirement plan have over $40,000 less than their male counterparts in those savings plans.  One of the most concerning numbers is that only 25% of all women have a formal investment plan.

There is no question that women need to do more in terms of saving for their retirement.  At ages 65 and older, the majority of women in today’s society are single, which means they need to have a plan for funding their retirement.  Before we can start to search for a solution, it’s important to pinpoint the causes.   What is holding women back?

We must start with the most obvious: women are oftentimes mothers.  Although times are changing and more women are heading out into the work world, the fact that the majority of households have women as the main caretakers for the children is a major obstacle in planning for retirement.  The study showed that women on average have $41,000 less in their retirement savings than men, with a $149,000 to $108,000 spread, but that gap gets even more significant when women have children at home.  That $41,000 disparity grows to $61,000 with those women having only $88,000 in their retirement savings accounts.  This number can be attributed to the fact that mother’s spend more of their working years as caregivers rather than breadwinners, which can lead to deficits in their earnings, savings, and Social Security.

Despite the fact that the gender wage gap is becoming smaller overtime, many women fail to capitalize on the skills that they bring to the work force.  These skills can often be a women’s greatest financial capital through her adult years.  Women often fail to see these skills, which makes them much less likely to negotiate for pay raises or benefit increases.  They also don’t take advantage of what their employers offer.  On average, only 65% of mothers are receiving their employer’s full company match while 76% of fathers are.  That is money waiting for women to reach up and grab, but 35% fail to make the stretch.

Another reason many women are unprepared is that they simply don’t feel comfortable in the financial arena.  Financial Planning is a profession that is male-dominated, which leaves many women untrusting of those advisors.  66% of all women indicated they received their financial guidance from family members or friends.  Furthermore, trends show that women often prefer to get their information from sources where they can anonymously research and make decisions, such as blogs, websites, social media sites and so on.  These can be valuable assets to their planning, if they use them.  The unfortunate truth is that only 35% of women have spent time thinking about their retirement, which is a big indicator as to their lag in savings.

One other issue that inhibits women from proper planning is their scope of the issue.  Only 28% of women have calculated what their retirement will cost.  This follows the long-standing stereotype that women avoid numbers and calculations.  Many times, when women hear about a 2% return annually on their investment, they don’t respond as enthusiastically.  If they change their vantage point to a more tangible result, such as an investment leading to their daughter avoiding student loans, they tend to be more interested in the planning.  Because of the limited and technical vantage point, many women find it easiest to simply avoid the issue altogether.

The hard truth is that women are saving less but living longer and, often times, are living their longer lives independent of men.  This lack of savings can lead to outliving their finances, the inability to afford long-term care or burdening their children, all of which are major concerns on the mind of most women.  So it may seem that despite the money spent on cards and flowers this past Mother’s Day, the most valuable gift for these women is simply a conversation about their financial plans for the future.  It doesn’t look as pretty in a vase but it certainly will bloom for much longer.

Photo courtesy of 500.co

 

 

 

 

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http://ow.ly/d89VV Tune into Winning at

http://ow.ly/d89VV Tune into Winning at Life with Gregory Ricks Hour 2! We have Robert Margetic, author of Surviving the Coming Retirement Storm and Andrew Cedor, a Certified Personal Trainer with a great health tip. Also, check out Hour 1 to hear about Facebook IPO.

 

http://gregoryricks.podomatic.com/entry/2012-08-21T10_08_45-07_00

 

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The Ricks Report – August 13, 2012

The Ricks Report

August 13, 2012

The Markets

Is the “cult of equity” dying?

Since 1912, stocks have returned on average 6.6 percent per year after inflation, according to Bill Gross, the legendary bond manager from PIMCO. Recently, Gross ruffled some feathers when he wrote that the historic 6.6 percent return “is an historical freak, a mutation likely never to be seen again as far as we mortals are concerned.” Histrionics aside, Gross makes a point that deserves elaboration.

Gross believes that, in the future, less of the country’s wealth will be captured by capital (the financial markets) and more will flow to labor (as higher wages) and government (in the form of higher taxes). For the past 30 years, he said, capital markets were the big winner, as real labor wages and corporate taxes declined as a percentage of GDP. By his analysis, that will start to reverse with the capital markets being on the losing end.

Is Gross right?

Well, his chief critic, Wharton professor Jeremy Siegel, emphatically says no. In an August 2 Bloomberg interview, Siegel made the following three rebuttals to Gross:

1. The 6.6 percent real return was similar in the 19^th century in the U.S., too, so it’s not just a 20^th century anomaly or “historical freak.”
2. Other researchers have discovered non-U.S. equity markets with similar 6 to 7 percent real return averages over the past century, further supporting the idea that the U.S. is not an anomaly.
3. Often, when the media declares “equities are dead,” that’s a sign a bull market is just around the corner – remember the infamous August 1979 BusinessWeek “The Death of Equities” cover story? Three years later, stocks took off on one of the century’s greatest secular bull markets.

So, who’s right, Gross or Siegel?

It turns out they both could be right. The key is your timeframe. Since markets fluctuate, we’ll likely see periods when the market delivers more than a 6.6 percent real return and other times when it’s less. However, simply buying and holding on for dear life hoping Gross is wrong probably isn’t the best strategy. Rather, rigorous analysis of all the investment opportunities and careful portfolio tweaking could be the solution.

Data as of 8/10/12	1-Week	Y-T-D	1-Year	3-Year	5-Year	10-Year
Standard & Poor’s 500 (Domestic Stocks)	1.1%	11.8%	25.4%	11.8%	-0.7%	4.5%
DJ Global ex US (Foreign Stocks)	2.2	4.7	0.1	2.4	-5.4	6.2
10-year Treasury Note (Yield Only)	1.7	N/A	2.1	3.8	4.8	4.2
Gold (per ounce)	1.0	2.8	-8.7	19.7	19.3	17.7
DJ-UBS Commodity Index	0.2	1.8	-7.5	3.3	-3.1	3.7
DJ Equity All REIT TR Index	-2.3	15.5	30.9	22.6	3.8	11.3

Notes: S&P 500, DJ Global ex US, Gold, DJ-UBS Commodity Index returns exclude reinvested dividends (gold does not pay a dividend) and the three-, five-, and 10-year returns are annualized; the DJ Equity All REIT TR Index does include reinvested dividends and the three-, five-, and 10-year returns are annualized; and the 10-year Treasury Note is simply the yield at the close of the day on each of the historical time periods.

Sources: Yahoo! Finance, Barron’s, djindexes.com, London Bullion Market Association.

Past performance is no guarantee of future results.  Indices are unmanaged and cannot be invested into directly.  N/A means not applicable.

COULD THE THREE WORDS “PRIME CHILDBEARING AGE” FORESHADOW the next big up move in the stock market? We’re all familiar with the “Baby Boom” generation and the massive impact they’ve had on society. But, less noticed is their offspring, dubbed the “Echo Boom.” Nearly 80 million strong, “they will be become the next dominant generation of Americans,” according to CBS News.

Today, the number of women in “prime childbearing age” is surging and is at an all-time high. While the recent recession and lingering weak economic environment caused many Echo Boomers to postpone childbirth, this could change quickly if the economy picks up speed.

If this potential pent-up demand for babies actually materializes, we could see a spike in births that helps drive consumer spending, corporate profits, and the stock market higher. This potential demographic trend is one reason to be optimistic about America’s economic future.

Weekly Focus – Think About It…

Making the decision to have a child – it is momentous. It is to decide forever to have your heart go walking around outside your body.

–Elizabeth Stone

Best regards,

Gregory Ricks

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The Road to Retirement: “Are We There Yet?”

Many people preparing for retirement feel like a kid on a road trip. “Are we there yet?” It’s the common feeling of anyone aiming for a destination.  Unfortunately, for many future retirees it can feel like they are that cartoon character chasing after the sandwich hanging from the stick at their back.  They keep running after it but they never get any closer.

Well, a new study by The Center for Retirement Research at Boston College brings both good and bad news for those perpetual chasers.  The good news: you don’t have to work forever.  The bad news: the benchmark age at which the majority of Americans will be prepared to retire at has been bumped back to 70.

It’s no secret that the longer that you work, the more financially secure you will find yourself in retirement.  The age of reaching that financial security varies with the individual based on their circumstances, but the new study shows that 85% of Americans will be financially prepared to retire by age 70.  Overall, the study found that American households fall into a variety of groups in terms of their age when they will be ready to retire.
·         23% will be ready between the ages of 66 and 68
·         17% will be ready between 69-71
·         9% will have to work until at least age 72

These numbers are determined by what are known as the National Retirement Risk Index measures.  These portray the percentage of households that find themselves at risk of being unable to keep up their current standard of living throughout their retirement.
Age 70 provides an attainable goal for many Americans who have envisioned working well into their golden years in order to reach their financial goals.  But if you have set your sights on lounging on the beaches of Boca well before that landmark age, there is hope for you yet.  The study revealed that about half of Americans will be financially secure enough to enter retirement by 65.  Many of you are sitting thinking, “How do I get to be part of that group?”  Well, there are a few things that you can do to finagle your way into the “Sixty-Five Club.”

• Cost Efficiency– It’s important to remember that the National Retirement Risk Index measures are based on maintaining your current lifestyle.  A good way to drop your target retirement age is to drop some of your expenses as you enter retirement.  Downsize to a smaller house, save on gas by driving less, buy fewer clothes… you know the drill.  This can be hard for many people who find that their retirement brings more free time, which brings more activities and adventures, which costs more money.  If you commit to being more cost efficient in your retirement, you can be more age efficient in your retirement plans.
• Increase Your Savings—This doesn’t have to be a huge, life altering increase, but small increments can make a huge difference over time.  Try to increase your savings by just one or two percent each year.  You won’t notice the change now, but you certainly will notice it later.  Ramping up your retirement contributions a little each year could have you living the good life sooner than you think!
• Become a Part-Timer—This can be a good plan both financially and socially.  Many retirees find it a shock to their system to go from working full-time for their entire adult life, to suddenly having nothing but time.  Picking up a stress-free part-time job can help you work your way into retirement while keeping you busy and engaged.  Your new job can simply be reduced hours at your current employer, or a completely new and fresh engagement somewhere else.  This part-time work can also be a huge boost to your finances, as you continue to bring in a bit of income for the first few years of your retirement.

The bottom line is that changing times have brought about changing circumstances for retirees.  With longer life expectancies and healthier adult years, it can be expected that longer careers will follow suit.  Just remember that the end is in sight, and your hard work and diligence will pay off.  Soon when you ask “Are we there yet?” the answer will be a resounding and confident, “Yes!”

Photo courtesy of freemoneywisdom.com

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How To Keep The Housing Crisis From Bursting Your Retirement Bubble

Everyone dreams of that perfect little retirement home in the relaxing tranquility of some quaint town on the shores of something beautiful.  Ahh, yes.  We can picture it now. The  feel of a cold drink in our hand and the sun beaming down on our face.  The birds are singing and the waves are lapping at the shore.   Then suddenly, “Pop!” What was that, you say. That was the sound of that dream bubble bursting for the 1.5 million older and retired Americans that have lost their homes to foreclosure along with much of the financial security that came with them.

The reality is that, for many older Americans, their dream scenario has turned into a living nightmare.  Instead of visions of beach houses or lakeside homes, many retirees find themselves clinging for dear life to the homes they have inhabited for years.  The housing crisis knows no boundaries, and it has certainly proved that by inhabiting the lives of many retired and soon-to-be retired individuals.  Unfortunately, the tidal wave of foreclosures continues to splash through the 50+ age group.

The AARP released a report outlining the foreclosure climate in the lives of older Americans and the results were a little frightening.  Over 1.5 million of them have already lost their homes.  Currently, about 600,000 people in the 50+ age group are in foreclosure, while another 625,000 are over 3 months behind on their mortgage payments.  16% of all 50+ Americans currently owe more than their homes are worth.
These numbers are not what many Americans are accustomed to.  The proportion of seriously delinquent loans held by older Americans has risen over 450 percent over the last five years.  Many of these people have gone their whole lives with nearly perfect credit, but have now hit a solid wall of debt that doesn’t seem to be budging.  Things aren’t getting any easier with age.  Among Americans 75 and older, one in every 30 homeowners are in foreclosure.  Five years ago, that proportion was just one out of every 300.  The numbers are hurtling downward at an alarmingly fast rate, and they don’t seem to be slowing.

These statistics are more than just ink on paper.  They are seriously altering the lives of many retirees, forcing some to re-enter the workforce or drastically change the budgets they had planned out years earlier.   Their retirement dreams have disappeared and they are simply trying to stay afloat.

The report showed that younger Americans are struggling as well, but the number of older Americans entering the dreaded foreclosure zone is increasing at a much faster rate.  One of the main questions is simply, “Why?”  Why are so many older Americans falling into trouble?   What’s the problem?

The problem is that many of these people set their budgets and their retirement plans before the economy, well, you know.   Most of them are living on a fixed income and quickly find themselves plowing through their retirement savings.  The income from their investments has been drastically cut, but their house payments have not.  Picture this: the faucet of their main source of income has slowed to a drizzle, but the drain of payments remains wide open.  It doesn’t take a financial expert to realize that it’s only a matter of time before the pool of funds will be completely dried up.

That can be a pretty disheartening image, but the bursting of the housing bubble doesn’t have to burst your bubble of retirement dreams, you simply might have to alter your path to get there.  Planning for these difficulties ahead of time can drastically reduce the struggles you could face.  Many people approaching retirement can analyze their investments based on earnings and interest rates of the current market and forecast their plans more accurately.  It might not be as pretty, but it’s a more realistic picture of what things will look like.

The most important thing is to not be blinded by your dreams, but use them as your vision to create a plan that works for you and your future.  With some planning and a little creativity, you could find yourself livin’ the dream in no time!

Photo courtesy of propertyqwest.com

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Tiger Woods, Trans-Fats, and your 401(k)

Recent events have caused people to turn their backs on many of the things they once loved.  Whether it’s from a revealing crash of an incident, a health conscious decision, or a movement of market and times, trends come and go.  With every new report comes a change in the tastes of the people.   But one of these things is not like the other ones.  Unlike many of the fads, the 401(k) may not be something to be written off as a thing of the past, and you should think twice before making it a thing of your past.

 
In recent years the 401(k) has taken a few knocks.  To some people the 401(k) is the ugly step sister of the pension plan, giving employers an easy way out of having to directly provide for the retirement of their employees.  Also, one of the greatest assets of the 401(k), the company match programs, has become another casualty for many companies in this recessive war we continue to fight.  In addition to that, many employees find themselves with a lack of flexibility in their plans in the slate of investment options chosen by the employers.  These options are often selected based on how the employers can best reduce their costs, resulting in high fees for their employees.  Furthermore, the 401(k) can easily become the old ball and chain, tethering an individual to a particular company in order to keep their plan in motion and avoid the hassle of a transfer.

 

 

Some companies even require employees to stay with them for a certain number of years or they risk losing the company’s match contributions.
With all those cons, you might find yourself thinking that a scandal of multiple affairs or an early heart attack don’t seem all that bad.  But it’s important to focus on the advantages of the 401(k) that are unparalleled by most retirement plans.

 

• Take advantage of the perks inside your 401(k).  Most of the time your funds are a healthy mix of actively managed funds with high fees and index funds that offer lower costs.  Those high fees could amass to hundreds of thousands of dollars by the time you retire.  The low cost alternatives can offer you a better long term option.

 

• Switching jobs can be an opportunity, not a struggle.  The money in your current 401(k) can easily be rolled over into an IRA giving you some independence and control over your funds.  This can save you money in fees with the ability to choose from a wider variety of investments.  Also, some companies allow you to transfer your current 401(k) into their existing program.  There are plenty of options for you if you are looking to escape your current job, but don’t want all your hard investing work going down the tube.

 

• Find a window to leave. If you are looking to switch jobs, look into the rules regarding the company’s match program and the term requirements of how long you have to continue with them to avoid losing their contributions.  If its five more years, it might be worth it to just cut and run, but if you are just a few months shy, you might want to stick it out.  Either way, it’s better to know where you’re at on the board than to hope and pray you’ve passed Go and can collect the $200.

 

Your relationship with your 401(k) is like a marriage.  It has its tough times, but if you focus on the good parts, and put some work into making it a cohesive partnership, you can find yourself living happily ever after, possibly in a retirement home in Orlando.  The bottom line is this: falling into a fad or trend can oftentimes lead to disappointment (we all remember the sad day when floral print satin shirts became a fashion faux pas) but make sure you put some thought into your future before you turn your back on your 401(k).

 

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