Thursday, June 30, 2011

8 things to consider before retiring

Here's a great article from MSN Money that provides a general checklist of items to review before making the move. These include:

1) Work-retirement tradeoff
2) Longevity and retirement
3) International investments
4) The U.S. dollar
5) Volatility
6) Glide path
7) Higher medical expenses
8) Income spigots

Thursday, June 23, 2011

Profits rising, stocks falling

It's always nice to read some good news about the stock market and economy. Click the following link for the full Bloomberg article: "Stocks Cheapest in 26 Years as S&P 500 Falls, Profit Rises"

Monday, June 20, 2011

"What This Country Needs Is a Good 5% CPI"

Perhaps what this economy needs is a "serious dose of inflation"? Click here to read the full article from the Wall Street Journal.

Wednesday, June 15, 2011

How to save money when in debt

Dan Danford, Founder and Chief Executive Officer of Family Investment Center, takes a "back to basics" financial advice approach with this week's episode of Money Made Easy.

Danford said he is frequently approached with questions about savings from people faced with a mountain of debt or divorced dads looking for financial advice on divorce.

A common question he hears is:

"Why even bother to save at all? It seems like I’ll never be able to get ahead anyway, so why should I even try?"

Danford says that saving and spending habits have more to do with personal discipline than level of income. He explains different ways you can save, how to use the "Dan Danford eBay test", and more importantly, why you need to save money.

Wednesday, June 8, 2011

How fear can ruin your retirement

Commentary on MSN Money article
By Laura Price, Investment Advisor at Family Investment Center

Click here to read MSN's original article.

Uncertainty about the future, fear of poverty, lack of confidence in their investing abilities and distrust of the financial services industry were four of the most common feelings expressed…

A common mentality is that after years of hard work and diligent saving, retirement is the time to “live it up” and spend the money you’ve worked so hard to preserve. And while this is true to a point, the sad fact is: budgeting is still hugely important in retirement. I’m friends with a couple who bought a new RV and boat and began traveling as soon as they hit retirement. They had saved up a nice nest egg and wanted to start spending it immediately. Four years into retirement, their IRAs had been sucked dry. They never feared poverty. They never even saw it coming.

Few people are fully confident in their investing abilities. And of those few, only some are actually competent investors. The do-it-yourself model has produced undesirable results for many. But if you hire someone to help, who do you hire? A broker? An independent advisor? A friend or relative that claims to know all about investing? Then once you hire them, what’s a fair amount of compensation? Will they trade excessively? Will your portfolio receive individual attention?

You know the old saying, “No one knows what the future holds.” It’s true. And whether you’re starting your first job or already in retirement, it’s critical that we take the right steps now to protect ourselves from what may happen in the future.

One 66-year-old retiree quoted in the report said he is "having night sweats now. I'm really concerned about having enough. You never know how long you'll live and how much you'll need."

I’m only 25, but from time to time (admittedly more often than I should), I get panicky over money. My dad, bless him, is often the one I go to for sympathy, and he is always quick to remind me that “it’s only money.” Easy for us to say as we’re years from retirement, huh? But let’s be honest: no matter what our age and employment circumstances are, it’s not worth getting sick over. After all, getting sick is expensive, too! Luckily there are folks available to help in the meantime. You still need to stay informed and aware of your investments and overall financial health, but hiring the right team of professionals removes a huge burden, which will help you sleep at night.

Said one 60-year-old about his investing uncertainty: "Trying to shift stuff around at our age is scary. . . . If you make a mistake, we're in a cardboard box eating dog food. I don't have 20 years anymore."

A good investment advisor will regularly review your portfolio and, in most cases, make only gradual changes toward a more conservative portfolio over time. Drastic changes to a portfolio can have drastic consequences. For example, when the economy tanked in the late 2000s, many investors made the mistake of liquidating their portfolios when the Dow was at its lowest, worried that they would lose everything if they held tight. When the market had jumped back up enough that they felt comfortable to reenter, they obviously paid much higher prices. Though still recovering, those who rode the wave through the recession are way ahead of their counterparts who had bailed out of fear and uncertainty. Emotions are powerful things, and when it comes to investing, it can be dangerous to let emotions get the best of you.

One 63-year-old said, "If I trusted an adviser, then I'm always wary because I know that they are out to make money. . . . I don't trust them handling my money."

This is where Family Investment Center is different. We actually DO care about our clients. We’re often called “nerds” because we’re genuinely interested in economics, investments, and finance and want to share that knowledge and expertise to help people. If we weren’t helping people, it would all be a waste.

“Yes,” you say, “but you’re a business.” That’s true. But with our fee-only structure, we have direct incentive to help you grow your accounts. So when you’re paying us a small percentage of your portfolio every year, that means that when YOU make more money, WE make more money. Plain and simple.

In a world where we’re constantly bombarded with news of scams in the securities industry, it’s important to stay cautious. There are various safety mechanisms available to investors, such as third-party account statements, custodial insurance, and so on. Bernie Madoff operated outside the rules and got away with it for a while. Ponzi schemes thrive when investors don’t keep their eye on these types of things. For goodness sake, if you don’t trust your advisor, switch. You need to feel comfortable with the person you’ve hired to look after your money.

Tuesday, June 7, 2011

Lessons from the wealthy

By Dan Danford, Founder and CEO of Family Investment Center

We often hear that “the rich keep getting richer,” and that’s a common refrain in America. I usually enter this fray by noting that the “educated” keep getting richer; and that the best economic solution seems to be further education.

This is particularly true of financial education. I’ve been managing money since 1984, and I’ve noticed some important gaps in the typical family’s financial knowledge. Simply, wealthy people behave differently, and we can learn some important lessons from them:

The stock market isn’t a casino. Many middle-class people think it is. It’s true, buying a stock is risky. Buying many stocks, though, is prudent. Millionaires own stocks, but they aren’t frequent traders. When Drs. Tom Stanley and Phil Danko wrote The Millionaire Next Door (Longstreet Press, 1996), they discovered that fewer than one percent of interviewed millionaires traded stocks on a daily basis. Another one percent traded on a weekly basis. In fact, over forty percent hadn’t traded a single stock in the year prior to interview! Clearly, millionaires were investors, not gamblers.

The heart of wealth management is the idea of thoughtful diversification. This scientific basis for portfolio theory won a 1990 Nobel Prize in Economics (several, actually). In essence, risk is reduced and performance enhanced by owning a wide variety of investments. There’s a lot more to it, but that’s the basic concept.

Many so-called “safe” options collapse to genuine evaluation. Low interest rates, inflation, and taxes eat much of the gain from bank deposits or government bonds. Comfort comes at a very high price, and a bit of education about stocks and diversification can put your mind at ease.

Not all debt is bad. “Neither a borrower or lender be,” Shakespeare advised. And it’s become a sort of holy middle-class mantra. Despite that timeless advice, there are different kinds of debt, and not all debt is bad. Borrowing for consumer goods is almost always bad. Borrowing to buy a nice house in a nice neighborhood is almost always good.

Many quality advisors recommend against paying off a mortgage early, and there is solid evidence supporting this approach. Nevertheless, many middle class folks want to “pay off the house” as quickly as possible.

They think they’re doing the right thing, but money for paying down a mortgage comes from somewhere, and it’s no longer available to invest. That can be counterproductive. Our wealthy friends understand the difference between good and bad debt and they aren’t in a big hurry to pay off the mortgage.

There’s a distinction between price and value. In The Millionaire Mind (2000, Andrews-McNeel Publishing, his follow-up to The Millionaire Next Door), Dr. Tom Stanley discovered that millionaires tend to look at products on a long-term basis. They bought shoes or furniture based on the lifetime costs of ownership. Quality shoes or furniture cost more, but last much longer. Briefly, millionaires tend to focus on value instead of price.

I once worked with a fellow who proved this folly every three years. We were on the same purchase cycle with new automobiles. I’d carefully research various options, then choose my car with an eye towards resale value. He ignored this methodical approach, looking instead for the “cheapest” deal. We’d spend similar amounts when we finally reached a decision.

Three years later, I always got more money for my used car. And he never understood why. Instead, he’d launch right back into the very same pathetic cycle. Destructive buying habits are everywhere. In creating wealth, price is important, but value is more important.

Time is money. I used to be Moderator of our local church. Meetings just drove me crazy. I’d create agendas, monitor the time, and cancel unnecessary meetings. For me, a meeting is an avenue towards reaching some goal. Get together, have discussion, accomplish some objective, adjourn.

Well. It turns out that other people see church meetings in a different light. They’re social gatherings. The point of the meeting is – well, to meet. They get satisfaction from the activity, not necessarily the accomplishments.

Many people get similar satisfaction from investment chores. They drive to or telephone various banks about new rates on CDs. They study stocks, bonds, and mutual funds. They spend hours assembling, then computing annual tax information. A lot of very satisfying activity.

But, not necessarily productive activity. Who says that hours of amateur study generate better investment returns? Can a computer really replace a qualified and knowledgeable accountant? Will an extra quarter percent at the bank justify a tankful of gas or hour of time?

Do-it-yourself isn’t the best choice. “No one cares about my money as much as I do.” How many times have you heard that? It’s true, no one does care as much about your money.

But caring about your money isn’t always good enough. With rare exceptions, a good advisor knows more about your money than you do. I’ve spent a career studying financial issues and helping people manage investments. I’ve passed licensing exams and met professional credentialing standards. I have a graduate degree in business and I’ve started two successful investment companies. Modestly, I have insights and understandings my clients can’t have.

Further, caring about something isn’t always the best way to face decisions. It can be very hard to press a loved one to do a necessary, but painful, thing. We know how difficult it can be to use self-discipline – even when our own health is involved. The fact is, caring too much can be every bit as bad as caring too little.

Wealthy people hire advisors because it’s good business. It helps to have a knowledgeable, objective professional by your side. The cost is far less than the value. By definition, that’s a wise family choice. Plain and simple.

Wednesday, June 1, 2011

No apologies: we eliminate pain for our clients

By Dan Danford, Founder and CEO of Family Investment Center

You’ll hear no apologies from me.

I’m extremely proud of what we do for our clients. We bring experience, expertise, objectivity, and compassion to each client. They don’t always see (or appreciate) everything we do for them, but that’s okay. Much like physicians, we can stop it from hurting, even if our clients don’t understand all the intricacies of modern medicine.

In its simplest form, that’s precisely what we do. We stop it from hurting. Worried about retirement? I’ll show how to pay for it. Worried about sending children or grandchildren to college? I know the best ways to save and pay for education. Worried about the high costs of long-term care or medical expenses? I have some helpful ideas about those, too.

Are you sleepless because your investment portfolio is too volatile? I can minimize risks without losing solid investment performance. Bothered by a lack of diversification? We know how to fix that.

Are you concerned that you might be paying too much for investment services and/or advice? We have extensive research about fund expenses and costs, including sales loads and distribution fees. In fact, we track over 27,000 different mutual funds or share classes and a wide variety of other common investments. We absolutely know what things cost.

Truly, the most valuable service we provide is comfort; that is, the ability to quit worrying and fussing with finance and investments. As fiduciaries, we have a legal obligation to work for each client’s best interest. Decisions we reach for and with clients reduce their decision-making burden.

Sometimes people arrive at our door with a history of painful investment relationships. These people are understandably skittish about accepting our help. But the skittishness evaporates when they realize that we are working exclusively for them. Our commission-free posture puts their interest first, and it’s both unique and welcome in the marketplace.

That may seem simple, but it’s not small. People today are inundated with noise. It comes from a variety of sources and features a lot of contradictory data. Much of it comes with a distinct point of view that may or may not suit their situation. Since we work with hundreds of clients with varied ailments and circumstances, we sort through this distracting clutter.

Could folks research and implement healthy solutions by themselves? Sure. But even after considerable study, they can’t bring our experience, expertise, and knowledge of diverse situations to bear on an issue. We do things for them that they simply can’t duplicate on their own.

As advisors, part of our challenge is structural. What we do is both very simple - and at the very same time - quite complex. Clients can easily see the simple things while the subtleties often hide in distant shadows. Sometimes the most critical issues (risks, costs, performance claims) are hardest to see. Distant benefits might seem hazy.

This clouded view is enhanced by the media. Most personal finance writers support the notion that investors should “go it alone.” And I’ll concur that most people are capable of basic investment and finance decisions. But that’s similar to suggesting that I should change the oil in my cars. That’s inconvenient for me, potentially hazardous, lengthier (including trips to the car parts store and a place to recycle used oil), and – ultimately – more expensive. Pain. Pain. Pain. Pain. Why would I choose to change my own oil?

Truthfully, people I talk with simply don’t want to do it themselves. When that’s the case, the only relevant issue is how to find a competent advisor who offers both comfort and value. If we can answer those two needs, our clients and our firm will prosper. It’s a healthy, beneficial relationship for both.

And, modestly, we provide highly skilled services for an exceptionally reasonable price. Comparatively speaking, we charge very little for professional services. Attorneys? They charge hundreds of dollars per hour, and up to thirty percent of a settlement or awarded damages. Architects? They usually bill fifteen percent of a project’s total cost. Realtors®? A normal commission is six or seven percent of a property’s selling price. Our modest investment fees pale by comparison.

Professional insight adds tangible value. Specialized knowledge about IRA withdrawal strategies might save $20,000 in taxes, or add $50,000 in tax-deferred growth. Is a few hundred (or even a few thousand) dollars a fair price for that reserve of knowledge? Think how much suffering that much money might save thirty years down the road. Similar examples abound.

That’s it. We eliminate pain for a fair and reasonable price. A big part of our job is to know about products, fees, strategies, and options in the marketplace. Routine tools and skills we employ are analgesics for our client’s pain. We ease decision-making and simplify life. We’re worth every penny.