The Potential of W

Don’t worry.  This isn’t a political posting about our former president. 

Most people expect a recovery from this recession to come in a V shape.  The economy was at a peak, it has fallen into a valley and seems to be heading in a generally upward direction – in other words it looks like the letter V. 

We Americans tend to think about the economy in what I call “The Eternal Now”.  I don’t mean that in a positive metaphysical way of living for the moment.  I mean that we tend to think that whatever is happening now will happen forever. 

When the stock market was booming, people didn’t want to keep any money in safe cash type investments.  They wanted all their money in the stock market where it would – they assumed – always be growing.  People borrowed against the value of their home because the house would be worth more tomorrow than today and they could always just sell it if they needed to.  They paid for everything with a credit card because their income would always go up. 

Sound familiar?  And now too many of the folks who were thinking this way have no money for emergencies, had to sell stock market investments at a low to pay for necessities and can’t pay their mortgages because they lost their job. 

The economy has started a shaky move up, but some of the things that are helping it could cause it to take another sizeable dip before it’s truly recovered.  The government obviously can’t bail out everyone forever.  And the influx of government money in the economy could cause inflation, which could cause another dip in the markets and our general productivity.

So if you’re starting to get back to some of the bad habits that got us into a recession in the first place, stop.  Spend less than you make.  Build up an emergency fund in something really boring like a bank savings account.  Don’t fund your life with debt.  The recovery may look more like a W.  It may go up, then go back down, before it starts a more steady recovery.  Your job isn’t to predict the economy.  Your financial responsibility to yourself is to be prepared if things aren’t smooth in the economy.  Then you’ll be part of the solution, not part of the problem.

Top Ten Reasons to Participate in Your Company Retirement Plan

Now that tax season is over, folks are taking a look at their bigger financial picture again.  With all deference to fabulous late night talk shows, here are ten reasons to consider putting some of your hard earned wages into an account with your employer’s retirement plan.

10. The company is required to provide a variety of investment choices and access to information about those investments.

9.  You’ll save taxes on the money you put in the plan now and you’ll probably be in a lower tax bracket when you take the money out after you retire.

8.  Forced savings – if you don’t get it in your pay check now, you don’t spend it now.

7.  It keeps you from trying to time the market.  The money gets invested every month. 

6.  The balances you have in retirement accounts don’t usually count against your kids’ ability to qualify for student financial aid.

5.  Many companies contribute some money to your account if you contribute.

4.  Lots of retirement plans allow you to borrow against your account if you need to. 

3.  If you want to “buy low” in the market, this certainly seems like the time to do it!

2.  You can brag to your friends at parties about your investment portfolio.

1.  You’re putting away money for retirement.  When you’re old and grey, you’re less likely to have to go to work and ask strangers, “Do you want fries with that?”

 

 

The Solution

It’s abundantly clear that our economy is ailing.  So everyone can sit around and whine about it, criticize the people who are working toward a improving the economy, or be part of the solution.  Which action do you choose? 

 

The media seems to be divided into two camps.  Some journalists are part of the solution by keeping their audiences informed of opportunities in markets, government programs, and the private sector.  Others seem to be finding satisfaction in preaching the end of the financial world to anyone who will listen.  This latter group seems to have lost their Thesauruses.  The least they could do is find some other words for “plummet”.

 

So many people are saying that they are terrified every time they open their investment statements or listen to the news.  It’s reminiscent of the old joke about a fellow who goes to the doctor and says “Doc, it hurts when I do this.”  He then lifts his arm at a rather odd angle above his head.  The doctor replies, “Then don’t do that.”  That’s not to suggest that we shouldn’t follow the news and make sure that our investments are still of good quality. 

 

Find the media sources that give you news that you can use and that prompt you to positive action.  Be in touch with your financial advisors and confirm that they’re watching your investments and will let you know if action is needed.  And don’t just complain to your friends if you’re unhappy with the government’s approach to dealing with the economy.  Let your elected officials know your concerns.  Give them specific feedback and offer them solutions.

 

Be part of the solution. 

Employer Contributions

Everyone needs to save for the day they hope not to work any more to make ends meet.  If you are comfortable with your job security and have good savings you could get to in a pinch, investing through your company’s retirement plan is worth considering.  Staying on a consistent investment plan through a down stock market can pay off quite nicely when markets recover.  If your company offers to match part of what you contribute to the plan, that’s even better!

 

So check your employer benefits and see what’s available to you.  Some companies don’t allow employees to contribute to a retirement plan until they’ve been with the company a while.  Some allow you to contribute, but won’t match anything.  Or if they do contribute into your account, it’s based on what you invest and you have to be in the plan for awhile (sometimes up to five years) before you can have the company’s share if you leave the company. 

 

If your employer offers a plan, it’s a great benefit for you which is greatly enhanced if they offer a contribution to your account.  It’s certainly worth exploring if you can supercharging your retirement savings!

Losing Strategies in the Current Economy – And the Winning Alternatives

Lock in Losses – If you sell your stock market holdings now, while the market is down, and bury the money in your back yard, you’ve guaranteed that you’ll lose money.  The good ol’ “buy low, sell high” motto still holds.  If you start putting money back in stocks when the market goes up, you’re selling low and buying higher.  For most people, the best advice is that if you’re in the market, stay in until it recovers. 

 

Hot Tips – Get your advice from reliable sources.  The guy in the next cubicle, the woman who cuts your hair, and your brother-in-law the carpenter aren’t financial advisors.  This is a great time to buy good quality investments on sale.  But don’t assume everything is the secret next home run. 

 

Stop Saving – Even though interest rates are in the basement on savings accounts and money market funds, everyone needs savings.  So don’t stop saving just because the returns aren’t stellar. 

 

Overspend – The consumption economy is how we got here.  Look at what you need and what that budget looks like.  Then get your spending closer to that needs based budget and out of the Gotta’ Have It budget. 

 

Markets recover.  So do individuals who make smart moves in down markets. 

Dancing in the Rain

About the time that clients were receiving their monthly statements on their investment accounts, my business partner and I noticed an influx of calls and e-mails.  The general question being asked was “Am I okay?”  We work to position our clients in all aspects of their financial lives to make it through difficult financial times.  In our minds, that’s as important as taking advantage of financial opportunities – for some people it’s actually more important.  Our clients know that and generally talk-the-talk and walk-the-walk of diversifying investments, staying calm during difficult times, and making decisions based on factors other than fear or greed. 

 

But these are pretty unnerving times and even some of the most fearless individuals are beginning to have little beads of sweat popping onto their foreheads.  A friend forwarded this anonymous quote to my business partner: “Life isn’t about waiting for the storm to pass.  It’s about learning to dance in the rain.”

 

So let’s look at a few “dance moves” for current times:

-         Eliminate frivolous items from your spending.  Unless you’re spending more than you make or you’ve lost a major source of income, don’t go overboard.  Everyone needs some rewards built in to their budget. 

-         Have funds available.  Make sure you have 10% of your annual pre-tax income where you could get to it pretty quickly and another 20% or so when you could get to it over time or with some tax consequences. 

-         Don’t put the rest of your money all into the stock market.  Beyond your highly liquid money, also have some that’s in pretty boring stuff life certificates of deposit and government bonds.

-         Stick with quality.  This is a great time to get bargains on quality.  But don’t be speculative.  High quality diversified mutual funds are often better for the average consumer than individual stocks or mutual funds that concentrate on only one industry.  Professional advice on your situation is warranted.

-         Don’t be penny wise and pound foolish.  Don’t be afraid to get professional advice.  Have a pro do your taxes, consult on your investments, and advise you on your overall financial situation. 

-         Don’t scrimp on things you’ll later regret.  If you can afford some niceties that are timely, get them.  Buy holiday gifts, get professional portraits of your high school senior, take the vacation you had planned.  Don’t miss meals to do these things, but when times are good again, you don’t want to be sorry for once in a lifetime things you missed. 

-         Be patient.  It may seem that the economy fell apart over night.  It didn’t.  The poor decisions and waste that impacted the financial markets and several of our industries have been going on for awhile.  The solutions will take time to be completely formed and implemented and the results will take awhile to be fully realized. 

 

Mistakes should be learning opportunities, so we should all take note and become wiser.     

Putting Your Money Where Your Mouth Is

People who have a passion manifest it in how they live their lives.  This manifestation often comes in the form of deeds rather than words.

 

An example is Scott Staub.  I don’t really know Scott – just sat next to him on a plane.  But we chatted during our flight and got to talking about what we both do for a living.  Scott is Vice President of Fund Development for EMQ Children & Family Services.  His employer advocates for children to put them with good families and reunite them with their own families when practical.  It’s hard not to be impressed that someone derives their livelihood from such work.  When we chatted, we got to talking about kids and money.  Scott doesn’t have kids, but he’s active as an uncle as well as with the son of a single mom who’s a friend of his.  It’s clear that he’s a wonderful role model for these kids.  When a nephew turned 14 recently, Scott’s gift was a promise of money to the nephew as well as a donation to a charity of the nephew’s choosing on the nephew’s behalf.  And the nephew would receive his share of the money after he’d identified his charity and discussed it with his Uncle Scott. 

 

So here’s a man who’s part of a positive financial force through his career for many more kids than most of us parents are ever able to touch.  His work will have a huge impact on the lives of kids who desperately need it.  Outside work, the kids he has a personal relationship with can see the value of working in a profession that makes a difference in people’s lives and they get experience in how to make a difference for others in the world who need it.  In my chat with him, he wasn’t boastful about his life or critical of how other people live their lives.  He’s just doing what he feels led to do. 

 

If you were gone from this earth tomorrow and someone who didn’t know you was settling your financial affairs, what would they be able to see about what’s important to you?  Would they see someone who loved to eat out, had a great wine collection, and went on some fabulous trips?  Or would they see someone who supported those in need and made a positive difference in the world?  What would those who knew you tell others?  Would they comment on how big your house was and tell stories about the business adversaries you brought to their knees?  Or would they tell how you were the first person to motivate them to research a non-profit so you could make a donation? 

Using the Right Professional

Some divorces call for additional professionals beyond those I’ve previously listed.  You might need an appraiser if either spouse is involved in a private business, some collectibles, or another valuable asset.   An appraiser is often needed to value the family home.  You might need a vocational evaluator if one of the spouses hasn’t been in the work for a while.  And maybe there’s another special circumstance that calls for another professional. 

 

There’s a final point to remember with all professionals.  Use the right professional for each task.  Many people going through their divorce spending lots of time talking through the emotional issues of their divorce with everyone they’ve hired.  All these professionals should have compassion for your situation, but paying attorney prices to have some emotional venting isn’t a good use of your resources.  Neither is having an attorney or their legal staff to run financial reports.  All these professionals are a great help in their area of expertise – just use them accordingly. 

Working the Numbers in Divorce

The financial settlement is the major component of many divorces.  Making sure that a professional who is an expert in finances is also an expert in divorce is key.  A financial professional working on a divorce needs to be familiar with the legal landscape in divorce, tax issues that specifically relate to divorce, and the long term impact of the financial settlement in a divorce. 

Three different professions tend to gravitate toward this work. 

Investment professionals sometimes do this work as a loss leader to get investment clients after the divorce.  Be aware of this, both because of the potential for a lack of objectivity and because they might not have the training and credentials necessary to advise on divorce issues. 

Tax professionals also often enter the divorce process.  Many CPAs and Enrolled Agents have excellent grasp of the tax and legal considerations in divorce and provide a great compliment to the work the attorney does.  If tax professionals have a shortfall in divorce in general, it’s that they don’t always take the long view.  They are great at looking at the numbers now, but don’t always think in terms of the long term outcome for both spouses. 

Financial planners can also be great assistance in a divorce.  If the financial planner is a Certified Financial Planner she’s had training in looking at all aspects of a financial picture, including taxes and the long term perspective.  If this person has more a working knowledge of tax issues in divorce and understands knows the divorce arena, she could be a great addition to your divorce team. 

Getting help with the financial settlement between you and your soon-to-be ex is important.  You need to decide on alimony, dividing assets and debts, and calculate child support if you have kids.  Generally, courts aren’t amenable to re-opening divorce settlements because people didn’t make wise decisions.  Paying a financial professional to help you evaluate your settlement can one of the best investments you ever make. 

Divorce and Emotion – Working with a Therapist

Divorce can be a huge trauma.  Many mental health professionals say that divorce is one of the most devastating events people can go through.  A support system of friends and family that can help you through is important.  But sometimes, despite all their good intentions of your personal support system, they don’t support you in the way you need to be supported.  They may tell you what you want to hear.  They might encourage you to seek revenge during the divorce proceedings or hold on to your anger.  Therapy with a professional can help anyone going through divorce who wants to truly heal and go forward. 

 

If you have children, divorce is a time your kids may benefit from someone to help them work through the emotional turmoil of their parents’ divorce.  You and your co-parent will want to maintain open communication with your kids and encourage them to have a good relationship with both their parents.  Therapy can help the kids with these and other issues they might need to work through as their family situation changes.