tag:blogger.com,1999:blog-12758550233548959712024-03-13T15:15:40.239-04:00Your MoneyDave Patterson and Erin Preston, a father-daughter team of Certified Financial Planner® licensees, provide thoughts and suggestions on a broad collection of personal finance topics. Information provided in this BLOG is intended to be of a general nature and may not be appropriate for all situations. Readers should consult with their own financial advisors before relying on any information contained herein.David C. Patterson and Erin Prestonhttp://www.blogger.com/profile/07430132815055647305noreply@blogger.comBlogger239125tag:blogger.com,1999:blog-1275855023354895971.post-90964134308158203322011-05-12T08:55:00.000-04:002011-05-13T16:51:15.761-04:00Our Final Blog!We regret to announce that we have decided to discontinue our blogging activity with this final note. We would like to thank all of you who have spent time reading and commenting on our blogs and especially want to thank the Oakland Press for giving us the opportunity to share our thoughts and knowledge with its readers. We would especially like to thank Glenn Gilbert, Executive Editor of the Oakland Press and Rick Kessler, Good Life Editor, for their support.<br /><br />It was a difficult decision to discontinue this effort. We have received a great deal of positive feedback during the nearly two years we have written well over two hundred articles covering all facets of personal finance. Writing two or three times a week is a bigger commitment than many might think and we have decided we can better serve our clients by focusing our efforts on other priorities.<br /> <br />We’d like to close with some investment advice we think best sums up the message we have been trying to get across these last two years:<br /><br />(1)Diversify, diversify, diversify. Broad portfolio diversification will reduce risk and increase returns. It’s one of the best things you can do to improve your investment results.<br /><br />(2)Higher returns mean higher risk – Don’t chase the latest hot investment you read about or hear about on TV. By the time you invest, it’s often too late.<br /> <br />(3)Find out how much you are paying – Make sure you understand exactly how your financial advisor is compensated. Find out what fees you’re paying for the various investments you own.<br /><br />(4)Don’t forget Taxes – Pay attention to the tax efficiency of your portfolio and don’t let taxes get in the way of making the right changes to your portfolio.<br /> <br />(5)Establish a target portfolio - Determine the amount of risk you are comfortable with and allocate your assets across bond and stock assets accordingly. At least annually, review your allocation. Sell over-allocated asset classes and buy under-allocated asset classes. This forces you to do what is prudent and takes the emotion out of investing. It requires discipline, however.<br /><br />(6)Focus on your spending – Determine what is most important to you and establish financial goals for your future. Then, align your spending with those goals and identify spending that doesn’t support what’s really important to you.<br /><br />(7)Take advantage of employer retirement plans – Make sure you are contributing enough to take advantage of any employer match.<br /><br />(8)Get professional help if you need it – Don’t be embarrassed to seek professional help if you’re unsure how to get your financial house in order. Yes, it will cost you money, but if you take care to select an advisor carefully, professional help can pay for itself many times over. We strongly suggest you consider a Certified Financial Planner® licensee.<br /><br />We could go on and on with this list, but the items above represent some of the most important advice we’ve written about in our blog. Over time, we plan to publish selected past blogs on our website www.pattersonadvisorsllc.com . We hope you will visit our website from time to time to see what we have added.<br /> <br />Thank you all again for your support and interest.David C. Patterson and Erin Prestonhttp://www.blogger.com/profile/07430132815055647305noreply@blogger.com1tag:blogger.com,1999:blog-1275855023354895971.post-17852210080961605562011-05-06T09:06:00.001-04:002011-05-06T09:13:56.486-04:00No Tree Grows to the Sky!An old Wall Street Adage, “No Tree Grows to the Sky”, seems to be good advice once again. In the last few days we’ve seen commodity prices drop rather significantly after large recent price increases.<br /><br />Silver has dropped 8 percent on Thursday alone, oil prices 8.6 percent and copper 3.3percent. As reported in Thursday’s Wall Street Journal (May 5th), silver had dropped 19 percent since the previous Friday.<br /> <br />Gold was down $34 an ounce yesterday, as well, to $1480.90 an ounce. Gold recently reached a high of more than $1540 an ounce. Gold has been on a tear for some time. <br />One can’t turn on the TV without seeing several ads to “Buy gold now”.<br /><br />We have cautioned our readers for some time about buying gold, only to continue to watch it rise higher and higher. For those who limited their allocation to a modest amount and set a target price at which to take their profits, an investment in gold likely proved to be quite good.<br /><br />Unfortunately many investors get greedy and continue to invest more and more as the price rises and peaks. Then when it drops quickly, they lose most, if not all of their gains.<br /><br />Gold may continue its rise still further. We prefer broader allocations to commodities rather than investing in one metal alone. Even then, commodity investing isn’t for the faint of heart. You need to have a long-term orientation and avoid over-allocating too much to this one asset class.<br /> <br />We wouldn’t be surprised to see more downturns in commodities in the short run. Today’s Wall Street Journal’s feature article titled “Commodity Prices Plunge” by Liam Plevin notes: “But commodities investors and analysts say that the global appetite for natural resources remains robust, which is likely to keep prices from falling dramatically for long.”<br /><br />We believe commodities should be included in most investors’ portfolios as a hedge against inflation. Commodities also have a low correlation to other more traditional asset classes. That helps reduce overall portfolio volatility and increase long-run portfolio returns. You just need to take care as to how you invest in commodities and how much you invest in them. If you are unsure of how to do so, we suggest you seek professional help.David C. Patterson and Erin Prestonhttp://www.blogger.com/profile/07430132815055647305noreply@blogger.com0tag:blogger.com,1999:blog-1275855023354895971.post-18556956776889598662011-05-01T10:58:00.000-04:002011-05-01T10:59:46.356-04:00Additional Thoughts on Retirement Withdrawal RatesOur recent blog titled “New Study Sheds Light on Retirement Withdrawal Rates” (Friday April 22, 2011) discussed a recent study published in the Journal of Financial Planning that seemed, on the surface at least, to indicate that under certain circumstances, portfolio withdrawal rates exceeding 4% annually (adjusted for inflation) may be sustainable for retirees.<br /><br />We had planned a follow-up blog with some additional thoughts. A few days ago, we received a comment from Wade Pfau, a former Oakland County resident, and now Associate Professor of Economics at the National Graduate Institute for Policy Studies (GRIPS) in Tokyo, Japan. Mr. Pfau has a stellar background, having obtained a Ph.D. in economics from Princeton University (2003). Mr. Pfau also writes a blog on Blogger.com titled “Pensions, Retirement Planning and Economics Blog”. In his blog bio, he states that his “main research interests are related to developing methods to better analyze issues related to retirement planning”.<br /><br />Mr. Pfau had posted a blog titled “Trinity Study Updates” on April 1, 2011, discussing the same study we wrote about. We will leave it to our readers to read Mr. Pfau’s entire article and point out here just a few of the points he made. Mr. Pfau’s comments included the following:<br /><br />(1) Mr. Pfau noted that the Trinity study did not consider mutual fund fees, which he noted could be anywhere from 1% to 2%, annually. Such fees could considerably impact the sustainable withdrawal rate.<br /><br />(2) He also noted that the Trinity study considered withdrawal periods of up to 30 years. For those living to age 100 or more, lower withdrawal rates will be required in order to have a high probability of one’s funds being sufficient.<br /><br />(3) Mr. Pfau noted that the Trinity study seems to indicate that higher portfolio stock percentages are needed for high success in retirement. He stated in his blog that “with U.S. data, the choice of stock allocations between 30% and 80% had very little impact on the worst-case sustainable withdrawal rates”.<br /><br />(4) He commented that the Trinity study did not take into consideration retires who wanted to leave something for their beneficiaries.<br />He also pointed out some good news that we had planned to comment on. He stated : “On the other hand, there is some good news. Retirees who diversify their portfolios with international assets and TIPS many very well find an edge to keep the 4% rule alive.”<br /><br />We would take his statement a bit further. We recommend our clients invest in eleven different asset classes, including TIPS and international assets as well as some commodity-related assets. Studies have shown that broad diversification can increase returns while lowering portfolio risk. We believe a focus on broad diversification and low fund fees (well below 1% for index funds) can do much to preserve the 4% rule and perhaps provide for a somewhat higher withdrawal rate. Further study is likely necessary to see whether our theory is justified. We appreciate Mr. Pfau’s comments and encourage our readers to read his blog in its entirety (just click on the link above).David C. Patterson and Erin Prestonhttp://www.blogger.com/profile/07430132815055647305noreply@blogger.com1tag:blogger.com,1999:blog-1275855023354895971.post-3793240894179854312011-04-27T16:13:00.001-04:002011-04-27T16:15:42.268-04:00What You Should Do NowAt the time of this writing the Dow Jones Industrial average sits at 12,636 points. That’s a far cry from its recent low of 6,547 on March 9, 2009. Most everyone’s portfolio has recovered nicely, assuming they stayed in the market.<br /><br />The economy is still struggling, although it seems that slow progress is being made. Yet, there is still much to worry about. Oil prices have risen sharply. The Middle East is still of significant concern with Libya essentially in a civil war and Syria in serious turmoil. Today, we just heard of a bombing in Saudi Arabia that is disrupting oil flow to other Middle East countries. Oil prices are putting pressure on the world economy. Global food prices are also rising sharply.<br /><br />Here in the U.S., the Federal Reserve has kept interest rates low. That’s fueled the stock market to some extent and caused the dollar to drop in value. The lower value of the dollar has contributed to our high oil prices. We expect that interest rates will begin to rise sooner rather than later. This will have a negative effect on the economy and the stock market but should be positive news for the dollar.<br /><br />So what should you be doing with your portfolio? We’re sure there are many out there who are probably thinking they should put more in the stock market. After all, it’s been rising rapidly! If anything, however, just the opposite may be appropriate.<br /><br />If your portfolio is broadly diversified and you have a target allocation for your stock holdings, you may want to consider trimming those holdings if your stock allocation significantly exceeds your target allocation and it’s been quite a while since you rebalanced your portfolio. We recommend that our clients rebalance at least annually.<br /><br />If you have never established a target portfolio and are invested in just a few asset classes, we highly recommend you get professional help to diversify more broadly. Broad diversification can increase returns and lower risk over the long run. Rebalancing by selling those asset classes that are over-allocated and buying those assets that are under-allocated helps you buy low and sell high. <br /><br />The temptation for many right now might be to buy stocks (buy high), when in reality the opposite may make more sense.David C. Patterson and Erin Prestonhttp://www.blogger.com/profile/07430132815055647305noreply@blogger.com0tag:blogger.com,1999:blog-1275855023354895971.post-26672815781697526792011-04-22T14:21:00.001-04:002011-04-22T14:22:48.731-04:00New Study Sheds Light on Retirement Withdrawal RatesThere have been many studies completed that examined what portfolio withdrawal rates are sustainable during retirement. A generally accepted rule of thumb is that you can withdraw 4 percent of your portfolio, adjusted for inflation, annually, and your funds will have a high probability of lasting for twenty-five to thirty years. The rule assumes your portfolio is invested in a roughly 60 percent stock, forty percent bond mix.<br /><br />A new study in the April 2011 Journal of Financial Planning titled “Portfolio Success Rates: Where to Draw the Line” by Philip L. Cooley, Ph.D., Carl M. Hubbard, Ph.D., and Daniel T. Walz, Ph.D., provides new insight that somewhat higher withdrawal rates may be sustainable.<br /><br />This new study uses a “rolling periods” approach to calculate end-of-period portfolio values from historical stock and bond returns from 1926 through 2009. It is considered to have some advantages over Monte Carlo simulation methodologies commonly used by financial planning practitioners.<br /><br />The study showed that withdrawal rates as high as 7 percent, adjusted for inflation, are sustainable for fifteen years with a high probability, if 100% of the portfolio was invested in large-company common stocks. Six percent withdrawal rates were also sustainable for 20 to 25 years with a high probability, with a 100 percent stock allocation.<br /><br />A 50 percent stock/50 percent bond portfolio with a 7 percent withdrawal rate had an 84 percent chance of the funds lasting for 15 years. With a 6 percent withdrawal rate the 50 percent stock/50 percent bond portfolio had an 80 percent chance of the funds lasting 20 years and with a 5 percent withdrawal, an 83 percent chance of lasting 25 years.<br /><br />The study seems to indicate that a better than 4 percent withdrawal rate can be maintained with a high probability over a 20 to 25 year period with a 50 percent equity, 50 percent bond portfolio.<br /><br />This is good news for retirees who are struggling to make their money last, particularly with worries of high inflation down the road.David C. Patterson and Erin Prestonhttp://www.blogger.com/profile/07430132815055647305noreply@blogger.com1tag:blogger.com,1999:blog-1275855023354895971.post-54624694959142818552011-04-19T09:58:00.001-04:002011-04-19T10:00:18.100-04:00Will Money Motivate Your Children?It’s not uncommon for most everyone to try to use money to motivate their children in one way or another. How much allowance to give and guidelines for its use, are of interest to most parents.<br /><br />Two recent articles in the Journal of Financial Planning shed some light on using your money as a motivator. The articles, titled “Not Your Typical Incentive Trust: The Rote and FST, Part I & II”, by Eileen Gallo, Ph.D., Jon Gallo, Ph.D., and James Grubman, Ph.D. (April 2011), discuss the use of various trusts in estate planning to try to motivate beneficiary behavior.<br /><br />The first article points out that money is often a disincentive rather than an incentive. The authors explain that a 1908 study produced what is known as the Yates-Dodson Law. According to the authors, the Yates-Dodson Law says that we are motivated by activities that are interesting and challenging and turned off by activities that we view as work. When we attach money to activities, we tend to view those activities as work and are therefore dis-incentivized to do them.<br /><br />Based on the above study, therefore, it seems that we need to be careful about our expectations to achieve certain behaviors as a result of giving our children an allowance. Allowances may help motivate our children to clean their rooms, do the dishes or take out the garbage (i.e., work). Giving money for improving your children’s grades in school may be marginally successful, since achieving good grades may be more dependent on your children’s interest in school and the degree they feel challenged. If they view school as merely “work” for which they might receive some compensation, they are less likely to be motivated to the extent required to improve their grades.<br /><br />We believe with some thought and creativity, allowances can be used to motivate activities that are not work-related. We have written previously of an approach to giving allowances that requires a child’s allowance to be used in three specific ways. One part of the allowance is designated for current, immediate gratification (fast food, a movie, toys, etc.).<br /> <br />A second part is designated to be used for longer-term goals. Longer term goals would focus of larger expenses that require good savings habits (purchase of an IPOD or expensive sports equipment, for example). Children will hopefully learn the benefit of saving for important goals and the greater satisfaction that can come from waiting for something of greater importance.<br /><br />The remaining part of the allowance would be set aside for philanthropic purposes, to teach the importance of helping others and help your children experience the satisfaction of helping those in need. <br /><br />If presented properly, children may experience a heightened sense of interest and the challenge involved with saving for important purchases or with helping others in need.<br /> <br />The bottom line – money is often not the answer to achieving the behavior you desire in your children. You often have to work hard to find ways to make things interesting and challenging in order to achieve desired results.David C. Patterson and Erin Prestonhttp://www.blogger.com/profile/07430132815055647305noreply@blogger.com0tag:blogger.com,1999:blog-1275855023354895971.post-85650545652479903892011-04-14T09:18:00.002-04:002011-04-14T18:41:34.037-04:00Notify Credit Card Companies Before TravelingWhen preparing for a trip, it’s always a good idea to notify your credit card companies as to where you’ll be traveling. Recently, my wife and I took a one week cruise and I was pleased to see that two of our credit card companies provided an easy way to enter travel details online, via the Internet. A third card company required that we call them to notify them of where we were going and when.<br /><br />Unfortunately, notifying your credit card companies does not ensure your cards won’t be blocked when you try to use them. A few years ago, we took a cruise to Costa Rica and the first time we tried to use one card, its use was blocked, even though we had notified our card company of the trip in advance. <br /><br />We suggest you take two or three cards with you, to avoid the inconvenience and possible embarrassment of one or more of them not working. It’s possible a card may work for a while and then be shut down, if someone tries to use your card fraudulently. If a card won’t work you can call the company via the 800 number on the back of the card and they may be able to resolve the problem.<br /><br />It is also suggested that you take some cash or traveler’s checks along with you to help minimize your credit card transactions. Not only will this help avoid fraudulent use of your card but it will help you avoid the added fees tacked on by the banks issuing the credit cards. Most banks now typically charge an additional 3%for credit and debit card purchases. Many fear that the fees may go even higher in the not-too-distant future. <br /><br />Capital One, as far as we know, is the only major credit card issuer that does not charge foreign transaction fees. Others companies have lowered their fees for select groups but an annual fee is typically required.<br /><br />Another reason for taking some cash is that many European countries have adopted what is called “Chip and pin” technology, which requires credit cards to have an embedded chip and personal identification number in order to work. If you don’t have one of these new types of cards, you’ll need to have some cash on hand. You should check with your card companies to see if your cards include the new technology.David C. Patterson and Erin Prestonhttp://www.blogger.com/profile/07430132815055647305noreply@blogger.com0tag:blogger.com,1999:blog-1275855023354895971.post-41101796561557943892011-04-11T10:50:00.002-04:002011-04-11T10:51:54.682-04:00Some of Our Favorite QuotesWe thought our readers might enjoy some of our favorite investment-related quotes. In most cases, they contain a bit of wisdom or a lesson to be heeded. Enjoy:<br /><br />• Rule number one: Never lose money. Rule number two: Never forget rule number one. (Warren Buffett)<br /><br />• As some perspective person once said, if all the economists of the world were laid end to end, it wouldn’t be a bad thing. (Peter Lunch, One Up on Wall Street)<br /><br />• Bulls make money. Bears make money. Pigs get slaughtered. (Wall Street Adage)<br /><br />• We will never buy anything we don’t understand. (Warren Buffett)<br /><br />• I have probably purchased fifty “hot tips” in my career, maybe even more. When I put them all together, I know I am a net loser. (Charles Schwab)<br /><br />• If investments are keeping you awake at night, sell down to the sleeping point. (Wall Street Adage)<br /><br />• No tree grows to the sky. (Wall Street Adage).<br /><br />• Money won’t make you happy….but everyone has to find out for themselves. (ZigZiglar)<br /><br />• Don’t try to buy at the bottom and sell at the top. It can’t be done except by liars. (Bernard Baruch, 1870-1965)<br /><br />Note: All quotes are from “The Quotable Investor”, The Lyons Press, Copyright 2001David C. Patterson and Erin Prestonhttp://www.blogger.com/profile/07430132815055647305noreply@blogger.com0tag:blogger.com,1999:blog-1275855023354895971.post-18417955444052498022011-04-07T21:32:00.001-04:002011-04-07T21:34:24.974-04:00Higher Returns with Lower Risk?<em>Note: We published this article in the Oakland Press back in 2007. The concepts detailed here are a key element of our client investment strategy. We updated it to reflect changes we’ve made since then. We felt a reminder about the role diversification plays in your investment strategy would be appreciated by our readers.</em><br /><br />A basic principle of investing is that the higher return an investment pays, the higher the risk of the investment. And, if you want low risk, you must expect lower returns. We all expect stocks to return more than bonds over the long run but nearly everyone knows that higher returns bring higher volatility. Fixed income investments, with their lower returns than stocks are less volatile, hence less risky. <br /><br />Whenever a client calls touting some great new investment that promises to pay 12%-14% or more, “guaranteed”, we are immediately suspicious. In every such situation we’ve experienced, there has been a significant risk associated with the investment. <br /><br />The more risk you take on, the greater the chance of losing money. Warren Buffet, considered by many to be the greatest investor of all times, abhors losing money. His Rule # 1 is “Never lose money”. His rule # 2 is “Never Forget Rule # 1.” Consider that if you lose 50% of your principle, you must achieve a 100% return to recover your losses. <br /><br />So how do you go about lowering risk and reducing the chances of losing money? And, is there a way to lower risk and increase returns at the same time, contrary to the basic principle discussed above? Fortunately, the answer is yes! It’s called diversification. Proper diversification of your portfolio can boost your portfolio’s returns and at the same time lower the risk (volatility) of the portfolio.<br /><br />Clients often come to us with a portfolio made up of a large number of stocks and mutual funds and believe that they are well diversified. Often their portfolios may contain some cash, one or two bond funds, maybe one or two international funds and a number of large domestic stock funds. More often than not, the stock mutual funds overlap, (i.e. they each invest in many of the same individual stocks). It’s not unusual for clients to have 60%-80% of their total portfolio invested in large company U.S. stocks. That’s not what we consider proper diversification. <br /><br />To be properly diversified, you need to be invested in several distinctly different asset classes. We include eleven different asset classes in our clients’ portfolios. These include cash or cash equivalents, short-term bonds, Treasury Inflation Protected Securities (TIPS), high-quality intermediate-term bonds, high yield bonds, international bonds, large domestic stocks, small domestic stocks, international stocks, commodities and real estate equities. We utilize broadly diversified no-load (no commission) mutual funds, Exchange Traded Funds (ETFs) and index funds.<br /><br />You may be wondering: “Why does diversification increase returns and lower risk?” Warren Buffett might say that it’s due in part to the fact that diversification reduces investment losses (Remember Warren’s Rule #1?). The distinctly different asset classes noted above experience different up and down cycles. Thus, real estate equities may be in their up cycle while other stocks are in their down cycle. Bonds may be doing poorly while stocks are rallying. International stocks may be up while U.S. stocks are down. The returns of these various asset classes are not strongly correlated, meaning that they move somewhat independently of each other.<br /><br />The next logical question is: How much of an effect does diversification have? Well known speaker and investment manager, Roger Gibson, in his book “Asset Allocation: Balancing Financial Risk”, Dow Jones-Irwin, Homewood, Illinois 1990, cites a study of the performance of what he describes as a “traditional portfolio” versus the performance of what he calls a “broadly diversified portfolio”. The “traditional portfolio” includes only Treasury Bills, corporate bonds and S&P 500 stocks. The “broadly diversified portfolio” includes the same asset classes as the “traditional portfolio” plus international bonds, small company stocks, international stocks and real estate equities. <br /><br />During a 10-year period ending 1988, the ‘traditional portfolio” returned 13.9% versus 15.3% for the “broadly diversified portfolio”. And, the higher return of the more diversified portfolio was accompanied by 0.8% lower risk as measured by the portfolios’ standard deviations (a statistical measurement generally equated to investment risk). Over 16 years ending 1988, the “broadly diversified portfolio” returned 12.3% versus 9.9% for the “traditional portfolio” with 0.9% lower risk. <br /><br />So, if you want to pursue Warren Buffet’s Rule # 1, make sure your portfolio is broadly diversified. You can improve your portfolio’s return and at the same time lower your risk!David C. Patterson and Erin Prestonhttp://www.blogger.com/profile/07430132815055647305noreply@blogger.com0tag:blogger.com,1999:blog-1275855023354895971.post-39557785161318306802011-04-04T17:50:00.001-04:002011-04-04T17:52:38.822-04:00Why You May Need Help with Retirement PlanningWe keep a folder of old articles and ideas for blog topics. While reviewing it recently, we came across a quiz that appeared in the Wall Street Journal way back in June of 2008 titled “Measuring Your Retirement IQ” by Glenn Ruffenach. The quiz was based on a number of different surveys. The results were not surprising.<br />Here are a few of the questions:<br /><br />(1) What percentage of the workers surveyed reported that either they or their spouses had tried to calculate how much money they would need for retirement? <strong>Answer: Just 47% </strong> <br /> <br />(2) What method did they most often say they used to determine how much money they would need for retirement? <strong>Answer: They guessed</strong><br /><br />(3) When asked how much money they would need for retirement, how much did they say they needed? <strong>Answer: Most workers said they would need less than $250,000</strong><br /><br />(4) What percentage of the workers surveyed, whose employers offered 401(k) plans, were saving the maximum amount? <strong>Answer: only 7%</strong> <br /><br />What conclusions can one draw from these results? Clearly, few workers are giving any thought to what they will need for a comfortable retirement. Most either haven’t paid any attention to it or have addressed the issue in a very casual manner.<br /><br />Those not contributing the maximum to their employer’s 401(k) plan are leaving a lot of money on the table, particularly if they are not getting the full employer match. The employer match is essentially a risk-free return. What can be better than that? Those not contributing the maximum are also missing out on the tax-free growth of contributions they are not making. <br /> <br />The average couple receiving Social Security payments, according to the article, receives just $ 2,100 a month ($25,200 a year). If you have less than $ 250,000 saved, according to a commonly used financial planning rule of thumb, you can only plan to safely withdraw 4 percent of your portfolio, adjusted for inflation, each year during retirement. Four percent of $250,000 is $10,000. That would provide a total of just over $ 35,000 a year for retirement, with moderate inflation protection. We expect that many retirees would not be comfortable with only $ 35,000in annual retirement income.<br /><br />The bottom line is that it appears that many American workers could use some professional advice to help them better prepare for their retirement. Are you one of them? If so, you need to give serious thought to getting some help.David C. Patterson and Erin Prestonhttp://www.blogger.com/profile/07430132815055647305noreply@blogger.com1tag:blogger.com,1999:blog-1275855023354895971.post-63225772417445996902011-04-01T16:28:00.000-04:002011-04-01T16:30:37.790-04:00Pay Attention to Your Healthcare BillingsHaving just turned 65 last year, I’ve had a tough time getting things straightened out between our Medicare statements and our Blue Cross supplemental coverage. I’ve always paid close attention to our insurance claims to make sure I didn’t pay a bill I wasn’t responsible for. But with two organizations involved, it requires even more attention to detail.<br /><br />Medicare covers some of the costs and then our Blue Cross coverage picks up where Medicare left off. There’s a Medicare deductible to pay attention to as well as Blue Cross deductibles and co-pays. <br /><br />Our first problem was that the doctors and hospitals weren’t all sending their bills to Medicare for processing. Then, I discovered that in some cases the bills went to Medicare but were not then forwarded to Blue Cross for processing. <br /> <br />You should never pay a doctor or hospital’s invoice without making sure that your insurance company processed the claim. If you have both Medicare and a supplemental plan, you need to make sure they both have processed the claims. Cross-reference all statements to be sure the claims have been properly reviewed. Read your policies to make sure you’re not being billed for a procedure that should have been covered. Make sure you’re not being billed for a procedure that was not provided to you.<br /><br />If you have a question, call your doctor, hospital, clinic or lab to get your questions answered. Call your insurance company if something doesn’t seem right.<br /><br />We can’t help but wonder how the elderly can ever make heads or tails of their medical bills and insurance statements. If your parents are on Medicare, we highly suggest you inquire as to whether they need some help deciphering their medical bills and statements.<br /><br />Whatever you do, don’t just assume a medical bill is right and send in your check. Take the time to read your policy, understand your coverage and check to make sure you’ve been billed properly. <br /> <br />We expect things may even get more complicated when the new healthcare plan is implemented. Now is a good time to establish good habits with respect to reviewing your healthcare billings. It may even save you some money!David C. Patterson and Erin Prestonhttp://www.blogger.com/profile/07430132815055647305noreply@blogger.com0tag:blogger.com,1999:blog-1275855023354895971.post-79290383326940213372011-03-26T09:09:00.003-04:002011-03-26T09:15:40.584-04:00Avoid These Basic Money Mistakes<em>Note: We wrote this article a couple of years ago for the Oakland Press. We believe these common mistakes need to be re-iterated, again and again. We’ve updated it to reflect some of our current thinking.</em><br /><br />If you’re a new college graduate, it’s easy to get so anxious about investing that you fail to take care of some simple basics. And it’s not just twenty-year olds that make basic mistakes. We often have clients in their forties and fifties, or even older, who have failed to address the some of the following basic pre-requisites to investing.<br /><br />First and foremost, everyone needs to establish an emergency fund. Financial planners typically recommend that an emergency fund equal to three to six months of fixed and variable expenses be maintained in liquid assets (cash or cash equivalents). This is to avoid having to liquidate investments at a possible loss as a result of an emergency. You can also afford to increase your insurance deductibles if you have more than the deductibles set aside. <br /><br />If you are single or married with only one bread-winner, we recommend at least a six month emergency fund. If your household has two solid incomes, then a three-month fund may be adequate. Lack of an emergency often leads to excessive credit card debt. <em>(Note: as a result of the recent “Great Recession”, we now favor a six month to twelve month emergency fund for two-income families.)</em><br /><br />When you do establish your emergency fund, don’t place it in a bank checking or savings account earning a paltry 1% or 2% (or lower) return. Instead, you should find a solid higher-returning money-market fund paying close to the one-year CD rate. <br /><br />Eliminating credit card debt is another basic pre-requisite before starting to invest. Interest rates of 15% and 16%, or more, are common for credit cards. It makes no sense to invest in a stock and bond portfolio paying at best a single digit return while you are paying nearly double that rate in monthly credit card interest. And, to earn a solid portfolio return requires taking on the risk of the stock market. Think along the lines that paying down credit-card debt is equivalent to earning a high-return with no risk.<br /><br />Another common mistake people make is to give investing priority over addressing the most basic everyday risks that can be minimized with adequate insurance policies. Good medical coverage, disability insurance, life insurance, home and auto insurance are a must to avoid large losses that could forever impact your ability to achieve your lifetime goals. You might also want to consider long-term care insurance and/or umbrella liability insurance. <em>(Note: long-term care providers have significantly raised rates recently and some have withdrawn from the market, altogether. Selecting a provider who will be around, “long term”, is more difficult than ever.)</em><br /><br />Often our clients have no disability insurance. Your chances of becoming disabled on a given day are actually greater than your chance of dying. A long-term disability can seriously hinder achievement of your financial goals.<br /><br />Besides credit card debt, other high-interest-rate debts should also be paid off before investing. Just as with credit-card debt, paying off other high interest-rate loans is equivalent to earning the associated loan-interest rate without taking on the risk of the stock market. <br /><br />Finally, make sure you take advantage of employer 401(k) plan-matching contributions and stock-purchase plan discounts before dedicating other funds to new investments. Then, once you’ve taken care of the basics, when you do begin investing, get some unbiased help from a financial professional who has your best interests at heart.David C. Patterson and Erin Prestonhttp://www.blogger.com/profile/07430132815055647305noreply@blogger.com0tag:blogger.com,1999:blog-1275855023354895971.post-76774106682964679472011-03-22T12:51:00.001-04:002011-03-22T12:54:02.582-04:00Want to Know More About Your Advisor?With all the financial scams going around (think Madoff), it’s more important than ever to carefully check out any financial advisor you may be considering or even the one you are currently using. We noted in our last blog that a new disclosure document will soon be available to investors, Form ADV Part 2A and 2B. See our last blog posted on Sunday, March 20th, titled “New Disclosure Document Will Help Investors”, for details.<br /><br />Another document is also available to investors, for review, called Form ADV Part I. Part I is a basic registration document that has to be filed with either the states an advisor works in or with the Securities and Exchange Commission, depending on the amount of “assets under management”, the advisor has. Previously, advisors with more than $25 million in assets under management had to register with the SEC and each state in which they had more than five clients. Now, that hurdle is $100 million in assets under management.<br /><br />The new form ADV Part 2A must be filed by March 31st. Once it is filed and approved, both parts of the ADV will be available for review by investors on the Investment Adviser Public Disclosure website (www.adviserinfo.sec.gov). If you go to this site you can then select “Investment Adviser Search” to find the adviser firm or representative you are interested in. <br /> <br />Disclosures regarding arbitration, bankruptcy filings and civil or criminal actions against the advisor are included. Details regarding the business services offered, how the adviser is compensated and any potential conflicts of interest are included.<br /><br />You can’t be too careful when it comes to seeking help with your finances. Do your homework and you'll be able to sleep better at night.David C. Patterson and Erin Prestonhttp://www.blogger.com/profile/07430132815055647305noreply@blogger.com0tag:blogger.com,1999:blog-1275855023354895971.post-76402163184259524772011-03-20T20:02:00.001-04:002011-03-20T20:05:00.012-04:00New Disclosure Document Will Help InvestorsBy the end of this month registered investment advisors will be required to begin using a new disclosure document that will help investors better evaluate and compare investment advisors.<br /><br />The new documents will replace one of two forms investment advisors have to file with the Securities and Exchange Commission (SEC). The documents are called the ADV Part I and ADV Part 2. ADV Part I is filed online, primarily for review by the SEC and the States that investment advisors operate in. The ADV Part 2 is referred to as the “brochure” and must be provided to prospective clients for their review.<br /><br />In the past, the ADV Part 2 was unavailable in an electronic format and was extremely cumbersome to change. The new version can be created in Microsoft Word and uploaded into Adobe Publisher, making copies available online via a PDF file.<br /><br />The new ADV Part 2consists of two parts, Part 2A and Part 2B. Part 2A must be written in “plain English”. The SEC has even provided investment advisors with a plain English handbook with suggestion regarding how to simplify their ADV.<br /> <br />The ADV Parts 2A and 2B provide detailed information regarding who the investment advisors are, how they do business, how they are compensated and what, if any, conflicts of interest may exist. It also includes a detailed explanation of the strategies employed by the advisor and the risks involved in those strategies.<br /><br />We found that it was quite time consuming creating the new ADV Part 2A but feel strongly that the new documents describe clearly who we are, what we do and how we are compensated. We believe our approach better supports the interests of our clients and believe that the new ADV Part 2 better makes that case to prospective clients. Investors will be able to make better decisions when hiring an advisor to help them manage their financial affairs.David C. Patterson and Erin Prestonhttp://www.blogger.com/profile/07430132815055647305noreply@blogger.com0tag:blogger.com,1999:blog-1275855023354895971.post-26084776884025654332011-03-17T14:38:00.000-04:002011-03-17T14:39:06.958-04:00It’s Not the Time to PanicWe’ve seen the market drop significantly the last two days on fears the nuclear radiation problem in Japan may worsen. It’s certainly a concern to all. On top of that we have many other things to worry about, including our economy, rising U.S. Debt, problems in the Middle East and more. <br /> <br />Nevertheless, the Japanese are resourceful, resilient people. Trouble may remain in the short-term, but long term we can expect they will rise to the occasion and come back strong. The other issues we expect will work themselves out as well. We’ll continue to see ups and downs in the market. More problems will come and go.<br /><br />There’s a lesson to learn, however, if you have been thinking about getting out of the market the last couple of days, either partially or entirely. If you have been thinking it’s time to sell, it may be an indication that you either should not be in the market at all or that you have too much invested in the market.<br /><br />Smart investors look at market downturns as opportunities to buy. They buy low and sell high. What we call “typical investors”, tend to buy high and sell low, as they let their emotions drive their investing actions. We wouldn’t be surprised to see a big jump in the market in the next few days as investors look to the long-term and see the drop in prices as an opportunity to buy low.<br /> <br />We’re not recommending everyone go out and buy stocks right now. Whether an individual investor should consider doing that depends on many factors specific to that investor. We certainly could see a further decline in market prices during the coming days and weeks.<br /><br />The point is, that if you’ve been having trouble sleeping at night because of the recent stock market gyrations, then you need to re-examine your investment strategy (assuming you have one). And, if you aren’t really sure of what you should do, you need to seek some professional help.David C. Patterson and Erin Prestonhttp://www.blogger.com/profile/07430132815055647305noreply@blogger.com0tag:blogger.com,1999:blog-1275855023354895971.post-64172716254139891872011-03-13T21:00:00.000-04:002011-03-13T21:02:01.235-04:00Words of Wisdom from Will RogersIt’s been a tough slog the last few years, economically speaking. The economy now appears to be moving in the right direction, yet many people are still hurting from the “Great Recession”. Their homes are worth less and their portfolios took a beating. Things are still not good on the “home front”, no pun intended. Home prices may still turn downward some more before hitting a bottom.<br /><br />Investors’ portfolios, on the other hand, have, in most cases, made a nice recovery, unless you got out of the market and delayed too long getting back in. Even though many have recovered much of what they lost, they feel like they’ve lost precious time preparing for their retirement and are looking for the goose that laid the golden egg.<br /> <br />Some advice from a well-known celebrity of the 1920’s and 1930’s, William Penn Adair Rogers, better known as “Will” Rogers, is worth noting. He said: “Let advertisers spend the same amount of money improving their product that they do on advertising, and they wouldn’t have to advertise it.”<br /><br />Every day, we hear commercial after commercial touting gold as the thing to buy. It may turn out that it is the best thing to buy right now. Yet the more people push something as the next best thing, the more dubious I become.<br /><br />I had a couple of people ask me about a video presentation that’s making its way around the internet. It’s very long, and presents a doom and gloom picture of the American economy. If you break out the presentation, you have to re-start from the beginning. I finally figured out how to just view a written version of it. It talks about how to get free advice on this and that and in the end only gives the “free” information if you sign up for the writer’s investment newsletter. I decided to check on his background and discovered that he had been sued by the Securities and Exchange Commission. I noted today that he is advertising on Fox news. I hope the SEC is keeping an eye on him.<br /><br />You often see advertisements for computer trading programs that will “surely help you beat the market”. If they are so good, why doesn’t the seller just concentrate on his portfolio instead of pushing his trading techniques. When everyone starts using the same trading strategy, that’s when they no longer work. So if you really had a “can’t miss” strategy, why would you sell it to anyone else?<br /><br />The whole point of this blog is to remind everyone that there’s no silver bullet out there. There’s no free lunch. If you want to get rich, you must work hard, save your money, invest wisely and be wary of those who have the magic solution to getting rich. You need to do due diligence before investing with anyone. You need to find out how they get paid, what their credentials are and take what they say with a big grain of salt.David C. Patterson and Erin Prestonhttp://www.blogger.com/profile/07430132815055647305noreply@blogger.com0tag:blogger.com,1999:blog-1275855023354895971.post-19425656887948305322011-03-09T18:15:00.000-05:002011-03-09T18:16:58.037-05:00Half Full or Half Empty?We are basically optimistic people and tend to focus on the positive rather than the negative. We’ve had an “insider” (aka family member) mention that the blogs of late have had a pretty consistent cautionary tone. That’s due in part to our desire to help our readers address the issues that make them vulnerable when economic downturns occur.<br /> <br />Today, we’d like to report on some positive signs that things are getting better. A study by Charles Schwab and Company titled “Independent Advisor Outlook Study”, conducted between January 18th and January 28th, 2011shows that independent registered investment advisors (RIAs) are now quite optimistic about the economy. Schwab conducts its study every six months and the recent study shows a marked improvement in RIA optimism.<br /><br />The survey included some 1300 RIAs with over $284 billion under management. The report stated that more than three-quarters of the RIAs surveyed (77 percent) expect the S&P 500 to rise in the next six months compared to 63 percent in the July 2010 study. According to the study, more than 50 percent classified themselves as “bulls” and less than 10 percent as “bears”.<br /><br />Below are some of the findings included in the study:<br /><br />• U.S. Treasury yields: Sixty-four percent think U.S. Treasury yields will increase in the next six months, while only eight percent think they will go down. <br /><br />• Bush tax cuts: An overwhelming majority (85%) believe the extension of the Bush tax cuts will have a favorable impact on the stock market and economy overall. <br /><br />• Quantitative easing: Fifty-five percent say the quantitative easing activities being conducted by the Federal Reserve will have a favorable impact on the stock market and economy overall. <br /><br />• Inflation: Sixty-four percent of advisors think inflation will increase over the next six months, up significantly from just 28 percent six months ago. <br /><br />• Cost basis reporting changes: Nearly half of RIAs’ clients (48%) are unaware of the impact the recent changes to cost basis reporting will have on their tax situation.<br /><br />We hope the study portends a continued improvement in the economy. We live in turbulent times, which sometimes makes it difficult to see the glass as half full versus half-empty.David C. Patterson and Erin Prestonhttp://www.blogger.com/profile/07430132815055647305noreply@blogger.com0tag:blogger.com,1999:blog-1275855023354895971.post-70999365410711041232011-03-06T16:56:00.000-05:002011-03-06T16:58:10.429-05:00Don’t Take Your Eye off The BallIn the game of golf, it’s not uncommon for friends of a new golfer to repeatedly tell them to “keep their eye on the ball” or “keep their head down” after they dribble their fairway shot fifty or sixty yards up the fairway. Repeatedly hitting the long ball requires concentration and practice. If you don’t keep your eye on the ball, the results will be unpredictable. If you don’t spend some time at the driving range or get some lessons, you’ll likely not improve.<br /><br />Success financially also requires concentration and focus on your goals. Help from a professional can be extremely beneficial. Many people fear that hiring some help will cost too much. Yet, if you hire the right advisor, the benefits can be huge. While taking the big step to get help from a financial advisor is, in many cases critical, it’s only a start. If you take your eye off the ball, you may find yourself in the rough or the sand trap with a sub-par financial future staring you in the face.<br /><br />Periodic financial reviews can be instrumental in keeping you on track. It’s not unusual for us to see financial clients stray from their original plans. You might assume that in most cases, clients spend too much and face the prospect of running out of money. While that happens often, we also see the opposite case.<br /> <br />Some conservative clients are so worried about running out of money, that they are overly frugal. They have enough money to take an occasional overseas trip, eat out more often or buy a new car but hesitate to do so out of fear their money won’t last. They need a professional advisor to tell them it’s OK to spend.<br /><br />We’ve also seen cases where we tell people they have sufficient funds, even encourage them to spend more and then later have to pull in the reins a bit as they go overboard.<br /><br />As part of our investment services annual contracts, we provide our clients with phone/email financial consulting and an annual “mini-analysis” of their choice. They can request a “quick retirement” analysis, estate plan review, insurance review or other analysis of choice during each twelve-month contract year. These reviews are essential to keeping them on track to achieve their goals.<br /><br />We are in some very dynamic times. It’s very difficult to predict the future. A one-time financial plan can be very beneficial. But things are constantly changing. To ensure ongoing success an occasional tune-up, a trip to the driving range or a quick lesson can help ensure long-term success and help you keep your eye on the ball.David C. Patterson and Erin Prestonhttp://www.blogger.com/profile/07430132815055647305noreply@blogger.com0tag:blogger.com,1999:blog-1275855023354895971.post-31440371753551402912011-03-03T09:19:00.000-05:002011-03-03T09:20:31.880-05:00Are You Managing Your 401(k) Account?Many Americans pay little attention to their 401(k) (or other similar type account such as a 403(b) or 457 account), let alone to their entire portfolio. A recent article in the Wall Street Journal titled “401(k) Advice – For a Hefty Fee”, by Karen Blumenthal (January 29, 2011), pointed out some interesting statistics regarding 401(k) accounts:<br /><br />(1) The Employee Benefit Research Institute and the Investment Company Institute (a fund-industry trade group) reported that 17% of 401(k) account holders in their twenties owned little or no stock. Young investors should generally hold more stock in their portfolios than bonds, unless they are saving for a short-term goal.<br /><br />(2) The article also reported that in those 401(k) accounts where company stock was a choice, 30 percent of those over forty years of age held more than 20 percent of their account in their company’s stock. When times are bad and a company has problems that force it to lay off employees, the company stock price is usually depressed as well. Holding too much of your company’s stock is a risky thing to do. <br /><br />(3) A Schwab study reported that 53 percent of investors found that selecting 401(k) options was more difficult than selecting health benefit options.<br /><br />Ms. Blumenthal’s article focused on new services being offered by Schwab, Fidelity, Vanguard and J.P. Morgan Chase to help investors manage their 401(k) accounts. In some cases, investors can quiz a financial planner and in other cases they can pay to have their account managed for $40 to $60 a year for every $10,000 managed (0.4% to 0.6% of the amount managed). Accounts over $100,000 pay less. Those fees are in addition to mutual fund fees. <br /><br />Ms. Blumenthal notes that in many cases the management services are provided by outside third parties who act as a fiduciary for the investor. A fiduciary is required to act in the best interests of the client. Investors need to provide other information about their situation, such as how long they plan to work, other assets they have, etc. <br /><br />One benefit of the approach is that those who sign up for these services generally tend to save more. A survey by Schwab showed that 70% of those receiving help nearly doubled their savings rate. Apparently, when one gets serious enough to pay for help they make more of an effort to save.<br /><br />This new support can make a difference in your long-term financial success. It’s not cheap, however, and still leaves the need to manage other accounts outside your 401(k) as well as your other financial affairs. Another option is to consider working with a financial planner to develop a comprehensive financial plan that addresses your total financial well-being.David C. Patterson and Erin Prestonhttp://www.blogger.com/profile/07430132815055647305noreply@blogger.com0tag:blogger.com,1999:blog-1275855023354895971.post-41084447635735293252011-03-01T10:22:00.003-05:002011-03-01T10:24:11.969-05:00Make Sure You Read the Fine PrintWe have written several articles recently about significant changes in long-term care. Due to the high costs of providing long-term care, many companies have raised premiums substantially, in some case by as much as 40 percent. Others, such as Met-Life have stopped issuing new policies. For details see our past blogs titled: “Another Blow for Long-Term Care Insurance” (November 13, 2010) and “More News on Long-Term Care” (February 15, 2011).<br /><br />A recent article in the Wall Street Journal, titled “The Latest Long-Term Care Snafu”, by Anne Tergesen, January 22, 2011 pointed out some additional issues you need to be aware of. <br /> <br />Many older, long-term care policies have provisions that can make it difficult to successfully make claims. The article points out that by taking care to read the policies in detail so that you understand the terms of the contract, you can, in many cases, avoid having a claim denied. Today’s policies generally are more liberal in their coverage than the policies written twenty years ago, according to the article.<br /><br />Some of the rules to be aware of that the author pointed out in the article are:<br /><br />(1) Some policies require a three-day hospital stay before benefits kick in. Therefore, patients with Alzheimer’s, who are physically in good shape, may not be able to receive benefits after satisfying the a 90 to 100 day waiting period. Family members may move Mom to a nursing home, pay for the first 100 days and then find out that mom can’t receive benefits because she didn’t spend three days in the hospital first. <br /><br />(2) Make sure a health-care professional certifies that the disability will last 90 days or longer. Make sure the claim is documented adequately, as well. It may pay to seek help in preparing a claim from a geriatric care manager.<br /><br />(3) Some insurers send assessors to verify disabilities. Some seniors, embarrassed by their disabilities, downplay their problems, only to have their claims denied.<br /><br />(4) Some insurers have a 90 calendar-day waiting period before benefits can start. Others have a “service-day” waiting period where only days where care was paid to a licensed provider counts. In those cases, families can’t satisfy the waiting period requirements by taking care of Mom or Dad themselves.<br /><br />(5) Some policies require that caregivers have specific licenses in order to be covered. Others require a certain number of beds in a facility (ruling out places like adult family homes).<br /><br />As you can see, it’s very important to carefully understand the fine print in any long-term care policy you or your parents have or on any policy you are considering. Clearly, with the cost pressures on insurers, the recent increases in premiums and the companies getting out of the business, you can be sure that insurers will only honor future claims that meet all contract requirements.David C. Patterson and Erin Prestonhttp://www.blogger.com/profile/07430132815055647305noreply@blogger.com1tag:blogger.com,1999:blog-1275855023354895971.post-20686623128345168902011-02-27T08:01:00.000-05:002011-02-27T08:02:34.888-05:00Words of Wisdom for the YoungAs your children and grandchildren go off to college to start their careers, perhaps the best advice you could give them would be to seek their passion. Tell them not to focus on how much money they can make. Seek out a career doing what interests them the most.<br /><br />John D. Rockefeller (1874-1960), an American oil magnate, once said: “I had no ambition to make a fortune. Mere money-making has never been my goal. I had an ambition to build.” And build he did. He founded Standard Oil Company and became the first American to be worth more than a billion dollars.<br /> <br />At a young age, Rockefeller tithed 10% of his earnings to his church. When he retired he founded a number of foundations focused on education, medicine and scientific research. He was the founder of the University of Chicago and Rockefeller University.<br /><br />Those whose careers are in line with their passions, often seem to excel beyond their expectations. Even if they don’t make a lot of money, they are rewarded with the satisfaction they get from doing what they love.<br /> <br />And, they don’t necessarily have to accumulate a huge sum of money so that they can retire at age 65. Since they love what they do, they can continue on into “semi-retirement”, supplementing their savings, Social Security and pension earnings with income from the work they enjoy.<br /><br />Surely other benefits abound from doing what you love. We have no evidence but expect that such careers are less stressful, more rewarding and likely promote better health.<br /><br />And how often do we hear of someone who retires and turns their favorite hobby into a business that becomes successful beyond their wildest imagination?<br /> <br />Sure, money is great, but it’s only one means to achieving other goals. Those goals surely include doing things you enjoy, so why not choose a career focused on your passion?David C. Patterson and Erin Prestonhttp://www.blogger.com/profile/07430132815055647305noreply@blogger.com0tag:blogger.com,1999:blog-1275855023354895971.post-10757943891176668952011-02-25T11:10:00.000-05:002011-02-25T11:12:20.572-05:00Will Inflation Soon Be Rearing Its Ugly Head?Senior citizens have been complaining that they haven’t received an increase in their Social Security checks for two years now. The good news is that it may not be too long before they will see an increase. The bad news is it may not be too long before they’ll receive an increase. Keep reading to see why it’s also bad news.<br /><br />As most people know, Social Security increases are tied to the rate of inflation. Inflation has been very low the last two years, so there haven’t been any bumps in Social Security benefits. However, many feel that the way inflation is calculated for Social Security purposes, doesn’t accurately reflect the true impact of inflation. For example, used car prices are used instead of new car prices. Rental costs are used for housing instead of actual house prices. Therefore, Social Security increases may well not be in line with the actual increase in prices.<br /><br />If inflation goes up enough in the near future, seniors may again see an increase in their Social Security Benefits. At the same time however, the cost of living may go up more than the increased benefits.<br /><br />With all the money the government has been dumping into the economy, we’ve been worried that inflation would soon begin to take off. The unrest in the Middle East has caused turmoil in the stock market and we are reading every day about rising food prices.<br /><br />Yet even with these signs of renewed inflation, there are some who are saying that inflation will be modest going forward. At the time of this writing (February 24, 2011), an article by David Wessel was published in the Wall Street Journal titled ‘Tinker Bell’ Economics Colors Inflation Predictions . The article discussed the theory that inflation is caused in part by the expectations people have about inflation. The article stated that Ben Bernanke, Federal Reserve Chairman, ”says that it’s hard to sustain inflation with so many people out of work and so many offices, stores and factories empty.” It went on to say that Mr. Bernanke sees no big rise in inflation expectations.<br /><br />We hope Mr. Bernanke is right. If not, you might want to consider including Treasury Inflation Protected Securities (TIPS) and some commodities in your portfolio.David C. Patterson and Erin Prestonhttp://www.blogger.com/profile/07430132815055647305noreply@blogger.com0tag:blogger.com,1999:blog-1275855023354895971.post-3205772297885922732011-02-23T10:01:00.000-05:002011-02-23T10:03:03.558-05:00Aim To Be a CreatorWe are hopefully coming out of one of the worst economic periods of all time. You’re feeling good. The stock market has rallied from its horrible lows. Your Social Security payments have been reduced by 2%. You’ve paid off your credit card debt and you’ve kept up on your house payments. What’s more, you didn’t get laid off during the crisis and you’ve even been working some overtime. You are confident your job is safe. After all, if you kept your job through the “Great Recession”, it must be safe. Right? Perhaps not.<br /><br />A recent article in the Wall Street Journal provides reason for many to be concerned about the long-term viability of their jobs. The article, titled “Is Your Job an Endangered Species” by Andy Kessler (Thursday February 17, 2011) says that part of the reason we aren’t seeing the unemployment rate go down is a result of technology. He states: “Technology is eating jobs – and not just obvious ones like toll takers and phone operators. Lawyers and doctors are at risk, as well.”<br /><br />That’s not to say that technology is the only reason for the lack of jobs. He notes that new regulations, payroll taxes and health-care costs make hiring people costly. However, new technology is rapidly replacing people. Among the professions with fewer jobs, Mr. Kessler noted were tellers, phone operators, stock brokers, stock traders and travel agents.<br /><br />Mr. Kessler states that there are two types of workers in our economy: creators and servers. Creators, he says, are the ones who drive productivity. They are writing software, designing chips, doing research, inventing new products. Servers, service the creators. Many servers, he says will be replaced by machines and computers. <br /><br />According to Mr. Kessler, even doctors and lawyers are at risk. Computer software that can scan legal documents and computer-aided diagnosis programs can do a lot of the work of lawyers and doctors much less expensively.<br /> <br />The bottom line is that unless you are a creator, your job may be at risk at some point down the road. You may want to give some thought to obtaining some new skills. We suggest you check out one of our past blogs titled: “Maybe It’s Time to Diversify Your Skills”, posted September 6th, 2010.<br /><br />These days, it seems that nothing is a sure thing. The more you prepare for all contingencies, the better you’ll be able to sleep at night!David C. Patterson and Erin Prestonhttp://www.blogger.com/profile/07430132815055647305noreply@blogger.com0tag:blogger.com,1999:blog-1275855023354895971.post-4901889368628800402011-02-20T20:10:00.000-05:002011-02-20T20:11:56.873-05:00Saving Enough for Retirement?One of our recent blogs discussed how you could use the “Rule of 72” to get a better feeling about how much you’ll need for retirement (See “Rule of Thumb Puts Retirement Needs in Perspective”, February 4th, 2011). <br /> <br />At the present, inflation is fairly tame, but we are seeing signs of trouble ahead. Recent articles in the newspapers and on TV talk about rising food prices. The unrest in the Middle East raises the specter of higher gasoline prices. There were already predictions of $4.00 per gallon gas prices for this summer, prior to the upheaval in Egypt. <br /><br />Our Rule of 72 shows that at 3% inflation, the cost of living will double in 24 years. If inflation is 4%, it will double in just 18 years. If you expect to live until your eighties and retire at 65, you can therefore expect to see a doubling in your cost of living during your retirement years.<br /><br />It’s not surprising then that Saturday’s Wall Street Journal included an article about how tough it’s going to be for the Baby Boomers to have enough money for a comfortable retirement. In the article, titled “Retiring Boomers Find 401(k) Plans Fall Short” (E.S. Browning, Saturday/Sunday, February 19-20, 2011), Mr. Browning states: The median household headed by a person aged 60 to 62 with a 401(k) account, has less than one-quarter of what is needed in that account to maintain its standard of living in retirement, according to data compiled by the Federal Reserve…”<br /><br />Mr. Browning went on to say that 60% of households nearing retirement age have 401(k) accounts. Those accounts he says: “represent the majority of most people’s savings”.<br /><br />If you are like the typical person nearing retirement, you don’t have a lot of time to make up the difference. You may have to work longer, save more, spend less and plan on a more austere retirement budget. If you have a hobby that you can turn into a small business, you may be able to supplement your retirement income and perhaps make up for the likely shortfall. At the same tim,e you’ll be doing something you love, so it won’t really seem like work!<br /><br />Most people, unfortunately, have no idea of what they will need to retire. If you haven’t done any planning, you should consider seeing a professional to help you make the most of what you have and the time left until retirement. One thing is quite certain. With the state of our economy and the prospect of higher prices, taxes and inflation, you need to increase your savings as much as possible to prepare for a comfortable retirement.David C. Patterson and Erin Prestonhttp://www.blogger.com/profile/07430132815055647305noreply@blogger.com0tag:blogger.com,1999:blog-1275855023354895971.post-41059427508450258162011-02-17T13:46:00.001-05:002011-02-17T13:46:53.770-05:00A More Fiscally Conservative Mortgage Market Ahead?There were a multitude of causes for the recent “Great Recession”. Many blame Wall Street and the big banks. They surely deserve some of the blame. One major contributor, however, was our Congress, seemingly bent on providing housing for low-income families. They pushed Fannie Mae and Freddie Mac to offer low-down-payment mortgages to people who really couldn’t afford the cost of a home. This helped fuel a runaway real estate market that was helped by low interest rates.<br /><br />The new regulations passed last year by Congress were touted as a key to preventing another such crisis. Yet the issue of what to do about of Fannie and Freddie was glaringly unaddressed by the legislation. Taxpayers were on the hook to pay off the billions of dollars of debt the government had guaranteed for Fannie and Freddie.<br /><br />We were delighted this last week to hear that the Obama administration was recommending that government support for Fannie and Freddie be discontinued. The administration recommended several alternatives that would take several years to complete. <br /><br />We will likely see less government backing for mortgages, higher mortgage insurance premiums, tighter underwriting rules and higher equity requirements for borrowers. Thus, it will be more difficult to buy a home and we will see fewer homeowners in the future. While that may see like a bad thing, it’s better than the alternative of another recession and housing crisis.<br /><br />We should also note that banks are already beginning to require that homeowners make larger down payments. An article by Mitra Kalita, titled “Banks Push Homebuyers to Put Down More Cash” (February 16th in the Wall Street Journal) pointed out that, as part of its recommended changes, the Obama administration has recommended a minimum 10% down payment for conventional loans. In the article, it was noted that last year the average down payment for conventional loans was actually 22%, more than double what it was three years ago.<br /><br />The good news is that these changes will help prevent an over-zealous housing market in the future. The bad news, however, is that these changes will make it more costly and difficult to obtain a mortgage and will likely slow down the housing recovery that is so important to our economy.David C. Patterson and Erin Prestonhttp://www.blogger.com/profile/07430132815055647305noreply@blogger.com0