MONEY matters

Imagine being an investor at the time of the Crash of 1929 and realizing that you lost all of your savings that was invested in the stock market. Picture the images of distraught businessmen leaping out of buildings and the poverty that followed in the years of the Great Depression.

These images burn in the minds of those who lived through it and will forever be associated with the risk of investing. The risk of the market alone wasn’t what caused people to jump to their deaths, rather, it was the enhanced risk caused by leverage. People were investing beyond their means by buying on margin, and as a result lost more than they had invested; in many cases, they lost more than all of their net worth.

As a teenager playing baseball, I remember watching a few of my teammates hit home runs over and over again. I remember my coach, knowing I was not the homerun slugger type, encourage me to go for the singles and doubles instead. But being the young rebel I was then and probably still am, I aimed for the bleachers anyway.

And guess what? I kept striking out over and over again.

If greed or fear has played a role in your investing decisions, (and for most investors the answer is yes, greed and/or fear has definately come into play) then this NY Times article called How Greed and Fear Kills Returns is a must read.

Be a contrarian when managing your investments and take reporter Carl Richards advice, "It makes far more sense to ignore what the crowd is doing and base your investment decisions on what you need to reach your goals, then stick with the plan despite the fear or greed you may feel."

Having recently crossed over the 50 year young mark in one piece, (and knock on wood, no mid-life crisis to deal with thus far) my focus as a financial planner has been and will continue to be focused on retirement planning.  I’ve quickly learned that it’s one thing to be in your 30’s and even 40’s contemplating as well as advising clients on how to transition into a successful retirement, yet it’s a whole other ball game to be in your 50’s and suddenly be reflecting on my own retirement plans.  Even the word retirement has taken on new meaning for me. And who among has hasn’t received the infamous AARP welcome package only to stare at it in disbelief thinking “what, are you kidding me?”

What really concerns me about my fellow baby boomers nearing retirement is the risk they’re taking with their money. The great stock market and real estate crash of 2008 will be a memory that is not soon forgotten. One of the major fallouts from the crash, at least from my vantage point, is the undue risk people are taking with their investments in order to play the catch up game.

If you own and operate an S corporation, it’s that time of year again when you decide how much salary to draw vs. profit distribution. Be aware, too low a salary and the IRS will be very interested in talking with you.

If you need some guidance, check out this web site http://www.smbiz.com/sbfaq020.html

As we approach 2010, it’s amazing and scary to think how close the world came to another Great Depression. For my money, that was too close for comfort. Although the global economic recovery is still fragile, at least we’re recovering.  With the New Year approaching, there are a new set of indicators to pay attention to. Top on that list is China. I’m not that concerned with China holding close to a trillion dollars in reserve, since selling dollars wholesale would certainly be mutually assured destruction for the U.S and China. What concerns me is U.S unemployment staying at high levels next year and the congress looking for scapegoats.

If we allow China to become the scapegoat, and this theme starts to catch on with members of Congress, we’re going to have problems. Next year, pay close attention to the debates being held in Congress and see if any anti-China legislation starts to gain momentum. Of course, China’s currency policy is manipulative and needs to be reformed. But telling one of your largest creditors what to do, well, that just isn’t going to work. Whether we like it or not, the Chinese finance minister is our lender in chief. How we allowed our country to get so deeply in debt and become a debtor nation instead of a creditor nation is a story that will be told for generations to come. But it is what it is, and right now, China has the upper hand.

As stock markets around the world, including ours, continue to rise, investors that pulled their money out of the market last year are beginning to get restless. It’s reported there’s between $3-5 trillion dollars in cash sitting on the sidelines. If you’re someone preparing to invest in the market again, be mindful of the following:

If you live in California, you now have the right to put a “security freeze” on your credit file. A security freeze means that your file cannot be shared with potential creditors. A security freeze can help prevent identity theft. Most businesses will not open credit accounts without first checking a consumer’s credit history. If your credit files are frozen, even someone who has your name and Social Security number would probably not be able to get credit in your name.

This easy to follow ‘how to’ link includes sample letters specific to California residents as well as toll free numbers to all three credit reporting bureaus, Experian, Equifax and Trans Union.

I have an old friend that loves to gamble. His game is blackjack and he actually wins quite often. He was a math and physics whiz in college and believes he has the advantage in any casino he enters. That said, he does have one particular old habit that causes him to lose and lose big at times. If he’s on a losing streak, he’ll keep doubling down in order to make up for the losses he has incurred.

At times, I have watched him lose spectacular amounts of money with this strategy. So what does this have to do with financial planning and investing? Allow me to share with you what I see happening at the moment.