Kimmunications

Wickedly Funny YouTube Subprime Video

In general, my articles tend to be fairly serious. But, I think every once in awhile some humor is in order. As Mignon McLaughlin said, "A sense of humor is a major defense against minor troubles."

 

There is far too much doom and gloom these days. I am as aware as anybody of the number of people losing their homes, the high price of oil, the falling dollar and the volatile stock market. But I think the press drives us to unhealthy extremes of sentiment, especially when it comes to the economy and the stock market.

 

It scares me, the extent to which the press, which is largely ignorant of economics or finance, takes a stand that is so transparently intended to sensationalize rather inform, influences the day-to-day sentiment of tens of millions of otherwise bright people.

 

Let me give you an example. A day or two ago, the press started putting out headlines suggesting markets were reacting to a "fear of stagflation." All of a sudden, my inbox was flooded with emails mentioning stagflation, as if it were an invading army amassing on our border. "Should I change my portfolio given we are about to go into a period of stagflation?" Aggghhh!

 

The popularity of so-called fake news shows, like The Daily Show or The Colbert Report, (I hope) show us that Americans are pretty fed up with what passes for journalism today. Or maybe that is just me projecting how fed up I am onto everyone else. Who knows.

 

Good satire turns the words of the subject against them, and simply by reformulating them, shows us the absurdity of the original statement. In keeping with that sentiment, I offer you a spot on version of recent financial events from John Bird and John Fortune from the South Bank Show.

 

At last, British humor I can relate to! Thanks to Joe Mikus for the heads up on this one. FYI - run time is about 8 minutes.

 

 

Kim Snider Financial Communications makes no representation that the information and opinions expressed are accurate, complete or current. The opinions expressed should not be construed as financial, legal, tax, or other advice and are provided for informational purposes only. Call 866-952-0100 to request the Snider Investment Method™ Owner's Manual, which includes a description of the Snider Investment Method, investment objectives, risks, suitability and other information. Please read and consider carefully before investing. All investments are subject to risk, including possible loss of principal. Individual results may vary.

Shaped Skis and Cash Flow Investing

I have been skiing as many years as most of you have been investing - almost 40 years. I may not be the best skier on the mountain but I have always taken pride in my proficiency on skis.

 

After decades of skiing on long, stiff, straight boards, ski technology has shifted dramatically. Now everyone skis on short, supple, shaped skis. These new skis require you to ski differently than we did in the old days. In fact, everything is almost the exact opposite. To ski well on the new skis, I have to unlearn a lot of years of skiing.

 

Us old-timers learned to ski with our knees together. On the new skis you ski with your legs apart. On the old long boards, you weighted and unweighted your skis with one sliding in front of the other to turn. Now you turn both skis at the same time by applying the slightest amount of pressure with your big toe to the inside edge of the ski. Skiing the old way, your weight was all on one leg. Now you put weight on both skis. And here is the one that really screws me up - now I lean to the right to turn left and visa versa!

 

The overwhelming temptation is to stick with what I know. Why try to learn this new way of skiing? After all, I have gotten this far with the old way, right?

 

In a nutshell, it is because the new way is better. More accurately the new way is more appropriate, given my objectives, which are to be able to ski all different types of terrain with minimal energy expended and the least chance of bodily injury.

 

These were not my major concerns when I was younger. My objectives have changed and so too must my style of skiing.

 

So, here I am, in Squaw Valley, taking a few days vacation after a convention in San Francisco. I finally broke down, after several years of resistance, and took a lesson on how to ski the new way. Let me just tell you … I hate it.

 

Now I know how investors feel when they switch from the old capital appreciation model to this new-fangled way of cash flow investing. The old way was comfortable. This way I feel totally awkward. Every time the instructor tells me to lean left to turn right, my brain revolts! It feels similar to the sensation of trying to pat your head and rub your stomach at the same time. I get angry. At him? At me? I am not sure - maybe both.

 

The easy thing to do would be to go back to the old way. But I can't. I am determined to push through this initial awkward stage. No doubt about it, it's going to take awhile.

 

Some people have a natural sense of where their body is in space and can make physical adjustments quickly and easily. I have never been one of those people. I have to work at it - just like some of our investors instantly "get it" and others struggle before the light bulb finally goes off.

 

But why? Why do I have to make this change? Because in a logical moment I realized the new way was better suited to what I was trying to accomplish.

 

I am older now and no longer have the benefit of a young body - just as an older investor no longer has the benefit of time. Now I enjoy being able to cover maximum terrain with minimum effort - just as our investors want maximum results with minimal risk. The new way lets the skis do all the work instead of me - just as our way is about making your money work harder so you don't have to. And most importantly, the new way allows me to safely navigate difficult terrain because I am skiing on a more stable platform - just as our investors want/need a platform to navigate difficult markets.

 

So, in spite of the fact that I felt like an out of control beginner today, I will stick with it. I have to trust. I know, eventually, this too will feel natural. In the meantime, my logical brain will just have to drag my lizard brain along.

 

Kim Snider Financial Communications makes no representation that the information and opinions expressed are accurate, complete or current. The opinions expressed should not be construed as financial, legal, tax, or other advice and are provided for informational purposes only. Call 866-952-0100 to request the Snider Investment Method™ Owner's Manual, which includes a description of the Snider Investment Method, investment objectives, risks, suitability and other information. Please read and consider carefully before investing. All investments are subject to risk, including possible loss of principal. Individual results may vary.

Guest column: The "R" Word

I am traveling this week, so I decided to take a bit of a shortcut and run a guest column by one of my favorite writers, Nick Murray. Many people have been writing me in recent weeks about the possibility of a recession and what changes they should make to their portfolio.

We believe you never make changes to your portfolio based on what you think the market or economy will do. You only have a 50-50 chance of being right. For every economist, journalist or Chief Market Strategist who says Armageddon is coming, there is another one who says the exact opposite. Or, as the Nobel prize winning economist Paul Samuelson said, "The stock market has forecast nine of the last five recessions."

Personally, I have no opinion about whether we will go into recession or not or, if we do, how deep or long-lasting it will be. I have no control over it and I wouldn't do anything different if I knew the answer. So for me, there is no point wasting brain space on it.

Nonetheless, I thought this piece by Nick Murray might give you a different viewpoint than the one so prevalent in the press these days. Food for thought …

	The "R" Word, by Nick Murray (Originally published in Nick Murray Interactive - Vol. 8, Issue 2, February, 2008 As a measure of how utterly debased and stupid the rhetoric about the alleged imminence of a recession has been of late, nothing compares to a comment mined from an AP wire "story" that appeared in mid-January. In it, the chief market strategist for a foreign financial institution which shall be nameless – a chap who apparently has no background in economics, and/or to whom English is a second language – opined that "it's possible that the recession may only last one quarter." And you know that this is an accurate quote, because you know that neither I nor anyone else could make it up. Herewith, some rational observations about the economic phenomenon called "recession." The first, as in any rational discourse (thereby excluding all journalism on the subject), is of course a definition of the term: a method of calibrating it, which is a bit different from a method of screaming apocalyptically about it in the cadences of Chicken Little. A recession, as defined by the National Bureau of Economic Research – and therefore by anyone who has actually taken an entry-level college course in basic economics, as opposed to financial reporters who are former weather girls of either gender from a television station in Ames, Iowa – is two consecutive quarters of negative GDP growth. That is, a recession is a minimum six-month period in which the economy actually contracts. A "one-quarter recession" is therefore – like a water landing, a short-sleeve dress shirt, or a new tradition – actually an oxymoron. (A "growth recession," on the other hand, is a period of economic growth that is slower than the previous period of economic growth. Since the latter is nowhere near scary enough for use by former weather girls of either gender, journalism has adopted the term "growth recession.") The National Bureau of Economic Research will also be happy to disclose to you that there have been ten such episodes since the end of World War II. The average lasted approximately ten and a half months, and carried the economy down slightly less than two percent. (Over the last quarter century, as the economy has deepened, and our monetary tools for fighting slowdowns have improved, the time lapse between recessions has lengthened, and both their duration and depth have moderated. Indeed, since November 1982, the economy has only been in recession for 16 months out of about 300. But never mind that. It smacks too much of good news – or, as it is sometimes referred to, "truth.") A ten-month, two percent contraction on an average of every six years suggests that recessions punctuate – on average – economic expansions occupying the other 60-odd months. Forgive me, but this seems to me to be a very small price to pay for an accretion of national wealth which is ongoing, and which has produced the wealthiest society that ever existed on the earth. It is, in other words, nothing more or less than a part of the cycle, and the net effect of that cycle is the unprecedented betterment of humankind. (Why, even Americans on food stamps have 44-inch plasma TVs and are morbidly obese. Think of it: this society is so rich that even its poorest members eat too much! But I digress.) Once again: there either is or is not going to be a recession in this country. (As I write, the Chairman of the Federal Reserve is expressing to a congressional committee the Board's opinion that there is not, but what does he know?) The Fed has unequivocally declared its intention to fight such an occurrence with all the monetary weapons at its command. And both the legislative and executive branches have expressed strong interest in implementing some sort of fiscal stimulus. This is in keeping with the obvious truism that the more advance warning a recession gives you – as opposed to the last one, spawned by the sudden bursting of the tech bubble – the easier it becomes to fight it off. If there is a recession, on average the equity market – being a discounter of the future, rather than a reflector of the moment – will turn up about halfway through it, while journalism is trumpeting each new negative statistic to the skies as evidence of deepening Armageddon. Thus, the people who panicked out in fear of a looming recession will – by the time it's officially declared over – have to buy their portfolios back at higher prices than those at which they sold. With the obvious exception of the deity Himself, the stock market is the universe's ultimate ironist. And if there is a recession – and I, along with Dr. Bernanke, hereby repeat that I don't believe there will be – you may rest assured that its proximate cause will not have been oil, or subprime mortgage write-downs, or any of the usual suspects, all of which are quite adequately discounted in a 1350 S&P. It will, I'm perfectly convinced, have been journalism. I expect journalism to be alarmist, declinist, economically illiterate, repetitive, stupid and single-mindedly devoted to demonstrating that not only is the glass half-empty, but that this time it's irreparably shattered into a million pieces. But journalism's "coverage" of the economy and the markets in the last several months has been something altogether new in my 40-year career. It's made Chicken Little look like Pollyanna. And it may yet succeed in frightening the whole country into sitting down hard on its wallet. Thus, if we do have a recession, I hope journalism will have the minimal grace to report it as what it will surely be: a self-fulfilling prophecy. © 2008 Nick Murray. Reprinted with permission. Nick's lovely little book for investors, Simple Wealth, Inevitable Wealth, is available on his website www.nickmurray.com, click on "Books." We warmly recommend it.)

Kim Snider Financial Communications makes no representation that the information and opinions expressed are accurate, complete or current. The opinions expressed should not be construed as financial, legal, tax, or other advice and are provided for informational purposes only. Call 866-952-0100 to request the Snider Investment Method™ Owner's Manual, which includes a description of the Snider Investment Method, investment objectives, risks, suitability and other information. Please read and consider carefully before investing. All investments are subject to risk, including possible loss of principal. Individual results may vary. Individual performance depends on individual savings, investment time frame and market conditions. Diversification does not ensure a profit or protect against loss in a declining market.

Shane needs a loving, forever home

Warning! This has absolutely nothing to do with investing but everything to do with being a good human! I am re-posting this in hopes that someone out there might be able to provide a loving, forever home for Shane.

Dear Best Friends Member, Marquita, from Canine Compassion Rescue in Houston, Texas, contacted Best Friends about Shane, a magnificent dog who has stolen her heart. Marquita is hoping to find a loving home for this boy. Shane is a strikingly handsome American Pit Bull Terrier. He is a white, 2- to 3-year-old, neutered male with a great, big smile. This bundle of energy is a playful, gentle boy with a very sweet disposition. He passed his basic obedience course with shining colors and has proven to be extremely intelligent. Although Shane did not have a happy past, he doesn’t hold that against us humans. He is a real lover who enjoys giving sweet kisses. As with all large dogs, he would do well in a home with no small children, due to his strength, boundless energy and general goofiness. And please, no cats. Shane is fully vetted and has his obedience training down pat. This big softy's greatest wish is to have a loving person of his own who enjoys the great outdoors. He would be overjoyed to help you jog off a few of those winter pounds! He's in his prime and ready to go, go, go! Giving Shane a forever home would be wonderful Valentine’s Day present to yourself. Is your heart big enough for this sweet boy? Marquita has remained dedicated to finding a special person to offer this joyful boy the loving home that he deserves. If you or someone you know can help find a foster or forever home for Shane, or if you would like more information about him, please contact Marquita directly at 713-397-7170 or email Marquita at caninecompassion@yahoo.com. It would also be very helpful if you would post Shane’s Flyer at businesses, pet shops, veterinary clinics and other areas in your community where pet people gather. Just Click Here to view Shane’s Flyer. We just need to reach one special person with room in their heart for this sweet boy. In whatever way, large or small, you might play a part helping to find a forever home for Shane, we at Best Friends thank you, and Shane thanks you too! Together we can make a difference for the animals. Meg Meg Fiorina Animal Help Specialist Best Friends Animal Society 5001 Angel Canyon Road Kanab, UT 84741 435-644-3965 x4856 megf@bestfriends.org http://network.bestfriends.org www.bestfriends.org A Better World Through Kindness to Animals

Am I on target with target date funds?

Lately, I have been getting a lot of questions about target date funds. No wonder. Target date funds are being touted as the answer to our retirement investing conundrum. They are being proposed as the default choice in a 401(k) plan. And they are sprouting up like weeds. So should you put your money in a target date fund?

 

The short answer is ... only as a last resort. But first things first.

 

A target date fund is a mutual fund with an asset allocation tied to your target retirement date. If you think you will retire in 20 years, you would pick a 2030 target date fund, with 2030 being roughly the year you plan to retire.

 

These funds are really funds of funds. The fund manager chooses other funds, from the same fund family, in percentages that make up a reasonable asset allocation given your time until retirement. It is the fund managers job to adjust those percentages for you automatically as your retirement date approaches, becoming progressively more conservative. These funds typically hold a mix of stocks, bonds and cash and will often include an allocation to foreign equities as well.

 

It's no wonder I have been getting so many questions about target date funds lately. In 2000, there were only 23 target date funds in existence, with just about $8 billion in assets. Today, there are over 250 target date funds, with $160 billion in assets, and more being brought to market every day. But should you plunk your retirement savings in a target date fund and forget it?

 

I don't think so and here is why …

 

1. One size doesn't fit all, with any investment.

2. Target date funds are too conservative.

3. There are better ways.

 

Target date funds are being touted as one stop shopping. Just pick a retirement date, pick the fund with your retirement year in the name, and let the fund manager do the rest. But does it really make sense that the CEO of a company should have the same asset allocation as a clerk in his Accounting Department? Not likely!

 

An investor has to put together an asset allocation based on his or her long-term objectives, risk tolerance, time horizon and temperament. You choose the combination of investments that has the highest probability of satisfying each of those criteria over your anticipated time horizon. It is possible that is a single investment but often it is not.

 

My biggest gripe with target date funds is they are too conservative. Let's make some assumptions about your retirement. The first is your retirement will last thirty years. That is the joint life expectancy of a 65 year old, non-smoking couple.

 

Second is that inflation will average 3.5% over that 30 years. Forget for a moment that seniors experience inflation at a greater rate than the nation as a whole, largely because of the cost of healthcare. We'll just use the historical average.

 

Third is that you will begin withdrawing funds from your portfolio at the rate of 4% a year. And fourth, let's assume your marginal tax bracket will be 25%. Now, what is the return required over your 30 years in retirement to pay Uncle Sam, pay you, and still get enough growth in your portfolio to keep up with inflation?

 

The answer is 10%. That is (4 + 3.5) / (1-.25) or your withdrawal rate plus inflation divided by one minus your marginal tax rate. Which means we have a gap. Our current way of thinking about investments is too conservative.

 

If you model the traditional 60%/40% retirement portfolio, the expected rate of return over 30 years is only 8%. A 4% withdrawal rate may give me a high probability I won't run out of money but it almost assures that I won't be able to buy anything with the money I have left. In order to protect against conversion risk, target date funds, because they are based on asset allocation models designed for our parents and grandparents, get too conservative too fast.

 

What worked for previous generations will not work for ours. We are the first generation solely responsible for funding our own retirement. Unfortunately, no one told us that until, for many of us, it was too late. On top of that, we are living longer. Life expectancy has increased by ten years. That is both good news and bad news. That's ten more years to travel, play golf and spend quality time with our family. But it is also ten more years without a paycheck.

 

Like it or not, we have to come to grips with the idea that our investment time horizon isn't our retirement date. Our time horizon extends over our entire lifetime. Moreover, it seems plainly obvious to me our lifestyle in retirement is going to be a function the amount of our portfolio we leave in stocks. Unless you are one of the few with more than enough money, that is the only way our portfolio can keep up with inflation, taxes, and still support a reasonable lifestyle over 30 years.

 

Target date funds don't do that. They are by nature too conservative.

 

My regular readers and radio show listeners know I don't like mutual funds, as a rule. I especially don't like actively managed mutual funds because their high fees guarantee over time you will under-perform the market itself. The only time I would ever use a mutual fund is in an employer-sponsored retirement account, like a 401(k) or 403(b) and that is just because I don't have a choice.

 

Most plans are adding target date funds as an investment option. Should you choose it?

 

Only as a last resort. I believe a well-thought out asset allocation of low-cost index funds, like the one in our 401(k) course, is the much better plan. But if your plan doesn't offer low-cost index funds, or you aren't willing to spend the time and money required to learn how to maximize your 401(k), (which is minimal BTW), then target date funds are far better than just picking the funds with the best historical performance and/or allocating between stocks and bonds based on what you think the market is going to do. That is a sure fire way to waste your retirement funds.

 

Bottom line on target date funds … they aren't the panacea the fund industry would like us to think they are. Do the work. You can do better.

 

Kim Snider Financial Communications makes no representation that the information and opinions expressed are accurate, complete or current. The opinions expressed should not be construed as financial, legal, tax, or other advice and are provided for informational purposes only. Call 866-952-0100 to request the Snider Investment Method™ Owner's Manual, which includes a description of the Snider Investment Method, investment objectives, risks, suitability and other information. Please read and consider carefully before investing. All investments are subject to risk, including possible loss of principal. Individual results may vary. Individual performance depends on individual savings, investment time frame and market conditions. Diversification does not ensure a profit or protect against loss in a declining market.