Averages…..Why Advisors Have Had to Change the “Look-Back” Period!

Thanks to Dan Thompson for this post

As a “recovering and reformed” financial planner I was interested in what he had to say.
I remember back in the mid eighties when we did some research on mutual funds we would go back 3-5 years and we could show some pretty descent double digit averages. Then we could put together an analysis showing the client a very nice return over the past 3-5 years.
As the economy progressed into the nineties it was easy to show 3, 5 and even 10 years of descent growth. There were a few glitches along the way, Black Monday in 1987, the 1994 recession, and a stalled economy here and there, but for the most part showing clients 5 years of reasonable return was easy to do.
Then came the turn of the century. As you know the Y-2k scare had many investors tucking away their capital in fear of losing all their money, not from a drop off in the economy as much as from a computer error. Then the dreaded day of September 11th attack in 2001.
Not long after 2001 many advisors found that they needed to go back 10 years to show any kind of return enticing enough for an investor to risk his/her capital. In the eighties and nineties it wasn’t hard to show 9-12% over 3 to 5 years, but after 9/11 you had to look back for 10 years to find that same reasonable risk reward ratios.
Fast forward through the downturn in the markets and the economy since 2007 and here we are now. Listening to this financial advisor on the radio shocked me. He was trying to peddle the same old information about diversification and asset allocation and how over time your money does just fine in the stock market. However, something had dramatically changed. Where we use to have to look back 10 years to show a descent average rate of return to prove this out, this financial advisor was telling investors that they need to look back 35 YEARS now! Come on, 35 years? Who can wait 35 years for their portfolio to perform? It’s crazy.
The average American doesn’t start saving for retirement until they are in their mid to late forties. Which means from age 45 to age 80 this “average” investor is suppose to let this portfolio go without worrying. Is that possible? Could you do that? I know I couldn’t.
Whereas the eighties and nineties provided ample opportunity to achieve a reasonable rate of return in a 3, 5 or even 10 year time frame, it appears that a 35 year time frame is what an investor needs to look at in order to be satisfied with the return. That is unacceptable to me, but it’s the world we live in, and it’s why I have elected to steer away from risk and stick with those strategies that work over time and put you in control.
Dan
becomingyourownbank.com

America Rebuilds

I recently saw a TV ad from Principal Financial Group directing viewers toward their new website www.americarebuilds.com. Immediately I thought of my previous blog post entitled ‘why ever worry about getting back on track’ .

The website has a heading that reads “inspiration, advice and tools to help get your financial future back on track.”  It is fairly obvious that the vast majority of Americans have simply followed the advice of the buzz-word-filled financial planners out there and found themselves so far behind their financial goals that catching up to where they were seems impossible.

I am hoping that the recent turn of events has caused people to think a little harder about exactly where they are putting their money and who they are trusting to invest it.  I am hoping that more Americans will take control of their financial future instead of leaving it in the hands of their so-called ‘expert advisors.’   If you are reading this and have not taken a few minutes to educate yourself about the power of becoming your own bank, please take about 5 minutes to watch this video .

Hopefully this video will help you start thinking differently about finances and wealth management, and understand one of the best ways to simply SAVE YOUR MONEY!

‘the chalk man’ — I couldn’t resist!

I’m sure you have heard about or seen some of these images, if not enjoy as this artistic magician tricks your eyes!

INCREDIBLE!!!

Why ever worry about ‘getting back on track?’

I recently saw a commercial where a company was claiming to help clients get their retirement plans ‘back on track.’ That got me thinking…how long will it take the average person to make up for the losses they suffered during the near market crash? And also, wouldn’t it be nice if something as important as your retirement funds were not subject to the roller coaster ride of the market?

There has to be a shift in thinking, traditional financial planning just isn’t working anymore! Watch this short video where a certified financial planner tells how 40 and 50 year olds can protect their retirement: Video

My favorite part of the video:

Certified Financial Planner: “make sure you’re investing in your 40′s and 50′s, especially in this market, everything is cheap right?”

Anchor: “Yeah except if your retirement plan has tanked lately.”

CFP: “Well that’s the key of being in  your 40′s, you’ve got time.  I mean you’re not going to retire for 20, 30 years right?”

She continues on to say that if you are worried about the economy,  “make sure you’re still investing in your 401k.”

WHAT?!?!?  So let me get this straight, I am upset that 20, 30, sometimes up to 50% of my retirement funds are gone and to make sure I “protect my retirement” I should keep throwing money into the very vehicle that has lost all that money?!?

As I stated before there has to be a shift in thinking, traditional financial planners are still using buzz words like asset allocation, diversification, risk tolerance, and for some reason are still advising their clients to put their money at risk in hopes of high returns.

Why worry about having to get your financial plan ‘back on track?’

If you could save for retirement in an efficient, risk free, and tax advantaged way would you?  Would you rather have constant, predictable growth, or a risky roller coaster ride with an unknown outcome?

While those advised in the traditional manner are postponing retirement and waiting for their investments to make up for lost money, you could be enjoying steady returns and have more control over your financial future.

The key is to stop losing money!

A Trillion Dollars

Most of us are hearing about the government spending a Trillion Dollars, or at least you’ve heard of Mark Titus’ quest for the trillion, but to the average American it’s just a word.

Some of you may have seen these graphics floating around the internet lately, but if you haven’t you need to take a visual look at a Trillion dollars.

First off a Trillion is a 1 with 12 zeros, it looks like this: $1,000,000,000,000. Okay, so it’s a big number, but let’s put it into perspective.

Before we get to what a trillion dollars looks like visually, here are a couple of interesting statistics:

• 1. If the printing presses ran from 8-5 every working day, 5 days a week, it would take 72 years to print 1 trillion dollar bills.

• 2. Stacked on top of one another a trillion dollar bills would be 70,000 MILES high.

• 3. If you could have spent 1 million dollars per day since the birth of Christ (2009 years ago) you would still need another 740 years to spend a Trillion dollars.

• 4. One million seconds ago was 10 or 11 days ago — One billion seconds ago was during the Nixon administration One trillion seconds ago was 30,000 years BC…..wow!

• 5. To count out One Trillion ($1,000,000,000,000) dollars nonstop without sleeping or eating it would take Thirty-Nine Thousand (39,000) years.

• 6. If your annual salary or wage is $50,000 it would take you 20 million years to earn a trillion dollars.

• 7. We could wrap the earth about 4700 times with a trillion one-dollar bills laid end to end around the globe.

• 8. Assuming there was a roll of 1 trillion – $1 dollar bills, it would take a military jet flying at the speed of sound, reeling out dollar bills behind it, 14 years before it reeled out one trillion dollar bills.

So there’s a little “Trillion Dollar Trivia” for you!

Okay, now let’s look at a Trillion dollars visually.

Here we have a man standing next to 1,000,000 (1 million bucks!) You could put a million in your backpack and have lots of fun!

Notice how small it is compared to an average man.

Next we have $100 million dollars. This can be neatly stacked on a pallet about 4 feet high.

Now we have $1 Billion dollars. This is 10 pallets of $100 million each. This used to be a lot of money…..but to congress a billion dollars falls out of Uncle Sam’s pockets like change.

Although a billion would be a lot of fun to spend……how does it look compared to 1 trillion?

HERE IS 1 TRILLION DOLLARS!

Look at this……what we have here is 10,000 pallets (double stacked so they are about 8 feet high) and each pallet has 100 million dollars on it.

Can you see the little man now in the bottom left corner?

So maybe now we can get a glimpse of the burden government is putting on us in terms of long term debt for this “stimulus” package. Anyone want to run a credit check on the borrower? Oh I forgot, most of the borrowers aren’t even born yet!

*Thanks to Dan Thompson for this post*

“Too good to be true”

I have always enjoyed the holiday season for many reasons, the main one being the chance to be surrounded by family and friends.  The question that seems to be the staple coming from those that I haven’t seen very often throughout the year is “what are you up to?”  I love taking this opportunity to tell whoever is asking that I’m helping people establish personal banking systems so they can effectively create wealth without putting their money at risk.

As I explained this idea of becoming your own banker to a family friend I wasn’t surprised when he became very skeptical about the idea of never losing money.  His words were “sometimes the things you hear about that claim to never lose money are too good to be true.”  This is one of the mind traps that must be overcome when understanding the banking concept.  For years and years financial gurus and advisers have made us believe that there is no possible way to get rewarded without placing your money at risk, and that anything claiming otherwise is a scam.

I urge you to take a look at this brief video that explains the basics of becoming your own banker.  After you understand how being on the right side of the banking equation plays a huge role in your financial future leave a comment or head over to my site at www.thebankingconcept.com to contact me and I’ll explain more about the myth behind the statement ‘no risk, no reward.’

A bucket with holes

IS YOUR FINANCIAL PLAN A BUCKET WITH HOLES?

So imagine you want to build up some wealth over you lifetime (I think most of us do).  The bucket represents your plan to achieve that goal.  The water represents your pool of money.  And the holes in the bucket represent the money that is flowing into your pool and then right back out either unknowingly or unnecessarily.  The main culprits causing holes in your plan are

• Debt
• Interest
• taxes
• opportunity cost

Here is a startling fact: The average American spends around 30 cents of every dollar earned on interest alone.

To fill your bucket you can choose from one of two options:

1. Add water to it at a faster rate than it is flowing out the holes AKA seek out risky investments with the hope of cashing in on a high rate of return.
2. Simply plug the holes and watch your bucket overflow.

Instead of frantically chasing high yield investments that put your money at high risk work on controlling the controllable!

When you implement the banking concept and become your own bank you put yourself in control of your financial future.  Instead of paying 30 cents of every dollar to someone else, pay it to yourself and watch as you actually make money doing something you would have done anyway…making purchases.  Instead of paying cash for major purchases, and losing the opportunity for that cash to grow, finance them through YOUR bank and keep your money working for you forever!  These are only a couple of examples of the infinite possibilities behind becoming your own bank.

So…how do you want to fill your bucket?

401k alternative (what the experts are saying)

What is the best alternative to a 401k?  Thousands of employees are losing their employers match on their 401k plan and on top of that retirement nest eggs are being cut in half due to the recent downturn in the economy.  Some folks who planned on retiring this year have had to put off that luxury for several more years while their funds play catch up.

So what kind of advice is out there?  Well you can go to yahoo answers for some non-expert advice.  Most of the responses (in fact all of them) advise the desperate individual to get an IRA or a Roth IRA.

for more advice you could go to “the finance buff” and he’ll explain, in more confusing terms, the same thing you found on yahoo answers.

You could check with an expert by the name of Suze Orman and she’ll simply tell you to “hang in there!”  here is quote from her site –>”Yes, I know how hard it is to do nothing when you see your 401(k) falling 20% or more, but sticking with your long-term strategy will allow you to have a financially secure retirement.”

You could even go to Dave Ramsey–what kind of advice do you think he’ll give you?  “If you receive a match in your (401k, 403b, TSP), invest here first up to the match.  Then, fully fund a Roth IRA for you (and your spouse, if married).  Then, come back to the (401k, 403b, TSP).”

So as you can see there is a common thread here; if you don’t use a 401k, the next best option (according to the above experts) is an IRA or Roth IRA.

However even before considering a 401k, IRA, Roth IRA or 403b you have to honestly answer the following question:  Who do you want to control your money? What I mean by this is simple, all of the above plans are government created tax loopholes, and as we all know that which the government creates, the government controls.  Don’t believe me?  Lets look at the restrictions placed on these government sponsored plans:

rules and regulations regarding government sponsored retirement plans

• Total contributions may not exceed 100% of the employee’s compensation.
• Total contributions may not exceed $49,000 in 2009 and 2010.
• the total contribution that an employee can make on a pre-tax basis is limited to $16,500 in 2009 and remained at that level in 2010.
• withdrawals from a retirement account may be subject to an additional tax of 10% if the distribution is made before you reach age 59.5 years old.
• (with the exception of a Roth IRA) Required Minimum Distributions (RMDs) are minimum amounts that a retirement plan account owner must withdraw annually starting with the year that he or she reaches 70 ½ years of age, and they face stiff penalties for failure to take RMDs.

Well if you ask me I would say there is at least some form of control being exercised when the government limits the amount of money I can save, tell me when I can and cannot access my money, and penalize me for not abiding by their rules.

SO…WHAT IS THE REAL ALTERNATIVE?

The answer may surprise you.

watch the short video explaining the 200-year-old vehicle that, if understood correctly, lets you be in complete control of your money and your retirement!

CLICK HERE TO WATCH

The Power of Interest

If you were offered a 28 day job that would pay you one penny for your first day of work—then double that each day there after. Would you accept that job?

Probably not—right?

It might surprise you to learn that on the 28th day, you would earn $1,342,177.28!

That’s the power of compound interest! And it’s why Albert Einstein called it the most powerful force on earth. However, it can work both for you and against you.

Banks and financial institutions try to make this work against you—and for them! And, considering that over 95% of people will retire dependent on others, I think they are doing a pretty good job of it.

In fact, J. Reuben Clark depicted the negative power of interest quite well when he said:

“Interest never sleeps nor sickens nor dies; it never goes to the hospital; it works on Sundays and holidays; it never takes a vacation; it never visits nor travels; it takes no pleasure; it is never laid off work nor discharged from employment; it never works on reduced hours. . . . Once in debt, interest is your companion every minute of the day and night; you cannot shun it or slip away from it; you cannot dismiss it; it yields neither to entreaties, demands, or orders; and whenever you get in its way or cross its course or fail to meet its demands, it crushes you.”

So, which side of Compound Interest do you want to be on?

By “Becoming Your Own Banker”, you put the power of compound interest on your side.

“change” at the university level

Many people all over the country have adopted the president’s motto of “change” or “change we can believe in.”  I am by no means opposed to mixing things up here and there, but some of the ways this whole “change” idea has trickled down from Washington are nowhere close to change that I can believe in.  A recent article in the Boise State University student newspaper, The Arbiter, had the president of the university, Bob Kustra, spouting some interesting redistribution of wealth ideas.  Here is the link to the article through the university newspaper’s website—>robin hood.

To quote Mr. Kustra, “What do we do?  We take from those who can afford it and redistribute to those who need it. We do it quietly as public institutions and without fanfare.” (emphasis added)  This quote alone is wrong on so many levels I can’t imagine such a high profile individual making such a statement.

Kustra went on to say, “If we increase tuition by double digits, it must be returned to need-based students.”  I’m wondering how Mr. Kustra could possibly justify simply taking from the ‘haves’ and giving to the ‘have-nots.’

I think we need to understand the breadth of the damage that is being caused by adopting this philosophy.  On the surface it seems like we are punishing those students that can pay full tuition and rewarding those that cannot, but as the following quote from Howard W. Hunter states we are creating a lose – lose situation, “Both have lost their freedom. Those who “have,” lost their freedom to give voluntarily of their own free will and in the way they desire. Those who “have not,” lost their freedom because they did not earn what they received. They got “something for nothing,” and they will neither appreciate the gift nor the giver of the gift.”

We can only hope that this is not the kind of  ‘change’ we can expect to see on a national level!