Kimmunications

Time to Tackle Some Widespread Myths

I was going through my magazines the other day, and one little graphic jumped out at me. It showed the results of a survey of working 56-65 year-olds who were asked about their retirement plans. What it told me was that there are still a lot of misconceptions out there on how to plan, save and invest for the future.

The mainstream press doesn't do much to shatter these myths. So I'm going to go point-by-point through the survey results, and I hope I'll be able to set many people straight.

Finding: 43% of those surveyed believe they'll be able to withdraw 10% or more of retirement savings each year without exhausting their capital.

Reality: The widely accepted "safe" withdrawal rate is more like 4%-5% per year from a well-diversified portfolio of stocks and bonds, according to several studies. As with most of investing, the term "safe withdrawal rate" comes with a disclaimer: 4%-5% is merely a figure based on historical data that provides a high probability you won't outlive your money.

How can that number be so low if the stock market, on average, returns 10.4% a year? It's because the 4%-5% figure takes into account the fluctuations of the stock market as well as inflation -- an often overlooked piece of the retirement income puzzle.  First, the "safe" withdrawal rate assumes you aren't 100% invested in stocks; you have at least some assets in bonds and cash, which carry lower returns. Second, the average market return is an oversimplification of how the market really works. If the S&P 500 is up 10% one year and down 10% the next, the "average" return is 0, but you would end up with less money. Third, you have to take into account inflation. If you assume that the historical rate of inflation is 3.5% per year, your portfolio's returns have to grow that much just to keep up, and your withdrawals have to increase at the same rate so you don't lose purchasing power.

This is why I say that you have to target double-digit returns with your investments.* To be able to withdraw 4% a year, keep up with inflation (3.5%) and pay your taxes (assuming a 25% bracket), you'll need to aim for at least 10% a year -- more if you want to withdraw more, if inflation is higher than 3.5%, or you're in a higher tax bracket. I wrote an article on bonds a while back that explained the math behind this statement.

Remember, this is a target of at least 10% so you can potentially withdraw 4% a year. Most retirement portfolios aren't set up to target double-digit returns, which means withdrawing 10% is well beyond a pipe dream for most people.

Finding: 49% of those surveyed believe their income needs will drop by half after they retire.

Reality: I meet with retired clients all the time to go over their financial situations. Rarely do I see cases where their spending has declined in retirement. In fact, the opposite is true more often than not -- they typically spend more!

That's just from personal experience, but academics are finding similar results. Researchers at the University of Michigan found that in the aggregate, pre-retirement spending and post-retirement spending are about the same. Other studies suggest that spending initially goes up in retirement and doesn't begin to decline below pre-retirement levels until the retiree gets much older.

Although your job-related expenses may decrease and you may have paid off your mortgage, you have to take into account other expenses such as travel and healthcare. The cost of healthcare, and the cost of healthcare insurance, is rising at twice the rate of inflation.

Finding: 38% of those surveyed believe that long-term care is covered either by health insurance, Medicare or disability insurance.

Reality: Medicare covers few long-term care services, and people must meet strict income and asset requirements to qualify for Medicaid. Health insurance and disability insurance generally doesn't cover the cost of long-term care. And those costs can be huge.

A private room in a nursing home today costs about $70,000 a year.  Since 1990, the price has been increasing at an average of 5.8% a year. If you have enough millions in the bank to cover these kinds of costs, you probably don't need long-term care insurance. For everyone else, it's a different story.

Finding: 60% of those surveyed believe that at age 65 they will have a 25% chance or less of living beyond age 85.

Reality: The odds are more like 50%, and the expected joint life expectancy of a healthy 65-year-old couple is 30 years. That means there's a good chance that one member of the couple will live to age 95. Which brings us to the next point…

Finding: 56% of those surveyed say the greatest financial risk for retirees is longevity risk.

Reality: I'm glad to see they got this one right. But it tells me that a large number of people aren't connecting the dots: They think they can withdraw 10% or more per year and have much lower expenses, but they're still worried about outliving their money. They don't seem to realize how one affects the other.

But you aren't like that now, are you? You now know that to successfully make it through your golden years, you need to save prodigiously and invest wisely. And you need to plan. If you feel you're already on the right path, then congratulations! If not, it may not be too late. Email me or give me a call at 214-245-5236, and perhaps we can work together to get you back on track.

SOURCES:
1. "Taking a pass on financial reality," Investment News, 30 June, 2008.
2. Bengen, William P. "Determining Withdrawal Rates Using Historical Data," FPA Journal, [accessed 21 July 2008].
3.  Cooley, Philip L., Carl M. Hubbard and Daniel T. Walz. "Retirement Savings: Choosing a Withdrawal Rate That is Sustainable," AAII Journal, February 1998, Volume XX, No. 2, [accessed 21 July 2008].
4. Easterling, Ed. "Waiting For Average," Crestmont Research, [accessed 21 July 2008]
5. Hurd, Michael D. and Susann Rohwedder. "Changes in Consumption and Activities at Retirement," Michigan Retirement Research Center Research Brief, July 2005, [accessed 22 July 2008].
6. "Facts on Health Care Costs" (National Coalition on Health Care, 2007) [accessed 22 July 2008]
7. "The Importance of Personal Financial Protection" (American Society of Pension Professionals & Actuaries, 2006),[accessed 22 July 2008]

*Double-digit returns is an objective, not a guarantee

---

Kim Snider is the President and Founder of Snider Advisors, an investment adviser registered with the SEC, focused on teaching individual investors a sensible, long-term investment approach focused on maximizing cash flow. For more information on Snider Advisors or the Snider Investment Method, please visit snideradvisors.com. Her book, How to Be the Family CFO: Four Simple Steps To Put Your Financial House in Order, will be in bookstores October 1, 2008.

Snider Advisors 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 888-6SNIDER 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, including the Snider Investment Method™ are subject to risk, including possible loss of principal.

The Marvelous Miss Mary

I was on the phone the other day with the nicest lady. Her name was Mary. She had called in to my radio program the previous Saturday. I had given her my number and told her to call me so I could give her the name of a good, fee-only financial planner because that was what she really needed.

 

Mary had worked hard her entire life. Her job wasn't glamorous. It didn't pay anywhere near the top of the pay scale, but you can tell she did it with pride. She started putting money in her employer's retirement plan back in the 1980s, when they first came out, and she had been contributing religiously ever since.

 

Her house is paid for and she has saved a hundred thousand dollars or so outside her 401(k). She will also get a small pension and Social Security. She is getting ready to retire at the end of the year. She told me she has always read as much as she could about personal finance. She wanted a financial planner who could help her, not tell her what to do. (You go girl!)

 

We chatted about mutual funds. Some of her friends, she said, were afraid of the stock market because they didn't want to lose money. But she understood, from watching her 401(k) all those years, that sometimes it goes up and sometimes it goes down, but over the time she has had it, it has gone up a lot! You just have to leave it be.

 

Unlike most of her generation, she understood intuitively that she had to focus on not outliving her money rather than the fear of losing it. She knew she had to keep investing in the stock market for her nest egg to keep up with inflation. She is the exception, not the rule in this regard.

 

Mary listens to me on the radio all the time, she says. The idea of that makes my heart skip a beat and brings a smile to the corners of my lips. I love the idea that I might have helped her in my own small way.

 

She brought up the Snider Investment Method™. She never graduated from high school, she told me, and she doesn't know how to use a computer - yet. She is thinking about taking some courses now she is retired.

 

"I just wish I was smart enough to do your Snider Method!"

 

"Miss Mary", I said, "I can tell you one thing for sure. After what you have told me today, what is holding you back is not lack of smarts. When it comes to your money, you have accomplished what only 20% of people ever do - financial success. If you ever set your mind to learning the computer well enough, I am CERTAIN you could do the Snider Method. Look what you have already learned on your own!"

 

As you can probably tell, I thought Miss Mary was just marvelous! I could have talked to her all day. It just goes to show, investing and personal finance is mostly common sense … and they don't teach you that in school or hand it out with your promotions!

 

What Miss Mary teaches us is anybody can be a good investor and a good steward of their money.

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. All investments are subject to risk, including possible loss of principal. 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.

Podcast for 5/29/07: Interview with Jay Zagorsky

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Kim interviews Jay Zagorsky, a researcher at The Ohio State University, about his research finding no correlation between intelligence and building wealth.

MP3 Download: Hi (128k) | Lo (24k)

Length: 10:58

Notes:
2:26  Jay Zagorsky explains where the data for his research came from. The Ohio State Center of Human Resource Research runs a longitudinal survey -- they track people from the time they're teenagers until they die. This group started in 1979.
4:10  Zagorsky says there's a strong relationship between intelligence and income, but not between intelligence and net worth. There was a non-linear relationship between financial difficulty and intelligence.
5:55  People who were least in financial difficulty had an I.Q. of about 115 -- slightly higher than average.
6:26  Zagorsky says this research finds that anyone can rule the financial world; I.Q. has no impact.
6:55  Zagorsky describes the difference between this study and others. This study looked particularly at Baby Boomers, while others haven't.
8:15  Intelligence didn't seem to have an impact in any particular areas of financial distress. In other words, there was no evidence linking higher IQ's to, say, missing credit card payments.
8:42  This research didn't account for various risk factors or people's desire for gratification. I need to have it now vs. I'm willing to defer my satisfaction until the future.
9:33  Zagorsky says he wants to examine the drive to become wealthy and the ability to delay gratification.

Resources:
Ohio State - Center for Human Resource Research

 

Kim Snider, Kim Snider Financial Communications, Chronim Investments and/or Snider Advisors make 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.

 

BusinessWeek Stories

The folks at BusinessWeek are looking for people who fit two story ideas. Details and contact information is below. Please contact the writers directly if you think you are a fit.

 

I have two requests for reporting help—one from me, and one from my colleague Anne Tergesen. Feel free to forward this anyone you know who may fit our needs.

 

First: I’m working on a story about early retirement, and I’m looking to interview people who are obsessed with retiring early. Obsessed may be someone, say, who has given up premium toilet paper to save money. Or someone, say, who found all of her kids college scholarships, and used money earmarked for college to buy a retirement home. These are made-up examples, of course, but you get the drift.

 

I prefer to be contacted by email with a short explanation of your (or your friend’s) early retirement obsession! I will do my best to respond to everyone who is in touch in a timely fashion, but this list contains more than 1,400 contacts, so I apologize in advance if it takes me a few weeks to sort through the avalanche of leads and replies you (hopefully) send my way.

 

My email is: lauren_young@businessweek.com

 

Second: My colleague Anne Tergesen is writing an article about some of the interesting or unusual ways in which people have decided to divide up personal property.

 

Please note: This is NOT financial assets such as stocks, bonds or real estate, but the objects of sentimental value heirs fight over just as often—for example, grandma’s antiques or grandpa’s ancestral Civil War sword.

 

Anne says: “I’m looking for people who are willing to share their methods and stories of dividing items everyone wants in a way that preserves the peace. The decision about how to divide the items may have occurred before the owner’s death or after and it could have been initiated by either the owners or heirs—I’m not picky! If you’re willing to share your story with me, please let me know. I prefer to be contacted by email – and a short explanation of your situation would be helpful. Thank you!”

 

Please contact her directly: anne_tergesen@businessweek.com

 

Kim Snider, Kim Snider Financial Communications, Chronim Investments and/or Snider Advisors make 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.

 

.2(S) + .8(M) = FS

There are two formulas that I apply to financial success. One is E + S + I = FS and the other is .2(S) + .8(M) = FS. For those of you who don't like math, I can picture your eyes starting to glaze over now, but stick with me. I am not about to get all nerdy on you.

 

The first is a formulaic expression of something you have heard me say many times before. Financial success comes from thinking like an entrepreneur (E), saving prodigiously (S), and investing wisely (I). Hence, E + S + I = FS. This basic formula for financial success is the subject of my first book, which I have finally started to make headway on after three years of swearing I was going to get it done!

 

The second refers to my belief that financial success is only 20% skill-set (S) and 80% mindset (M). That is true at the broad level and it applies to each of the three areas of financial success mentioned above.

 

When I say think like an entrepreneur, you don't have to have years of management experience to benefit from that perspective. You just need to be educated on some basic management tools, like personal financial statements. That is the easy part. Anyone can learn those. The hard part is the mind set side of the equation.

 

The traits of successful entrepreneurs are the same traits you should bring to your personal finances in order to be successful. Those are 1) commitment and determination; 2) creativity, self-reliance and the ability to adapt; and 3) believing in yourself and that you are worthy of financial success.

 

Saving money doesn't take all that much knowledge. I think it is fair to say anyone can do it. With proper financial literacy education, like that provided by Money Camp, even kids can grasp the concept of saving for what you want and different wallets for spending, saving and charitable contributions.

 

Having the discipline to save is another matter altogether. It has been said, "The reason most people fail instead of succeed is they trade what they want most for what they want at that moment."

 

I know in my own life, if left to my unconscious, I tend to be a spender rather than a saver. I didn't really become a saver until I met my husband, who is a natural saver. But once I started doing it, I realized I got a lot of satisfaction from seeing my net worth grow. Who knew the number on the bottom of personal balance sheet could bring more deep and lasting satisfaction than some gee-gaw I bought?

 

Don’t get me wrong. I still like nice things. But now whether I spend or save is a very conscious decision rather than an unconscious one.

 

Finally, you have investing. No where is my 80%/20% formula more pronounced than here. When it comes to skill set, it helps to understand that many of the most powerful concepts in investing are the simplest ones. It does not take complex investment strategies to build wealth through investing. In fact, the opposite is true. The more time you spend on it, and the more complicated your investment schemes, the less likely you are to get your desired result.

 

For years now, women who have just completed the Snider Investment Method™ workshop come up to me with incredulous voices and say, "I can do this!" In my mind I think, "Well, duh!"

 

Often they will say something like, "My husband has always taken care of our money", or "I am an artist. I didn't think I would understand investing", or "I didn't know anything about investing when I walked in and I was sure I would be totally lost."

 

(By the way - I am pretty sure there are men who think the same thing but I just don't think they are as willing to admit it to me!)

 

Anyone can learn to invest. It has nothing to do with whether you are an artist or an engineer. In fact, academic research says it has nothing to do with how smart you are.

 

Jay Zagorsky, a researcher from Ohio State University has studied the relationship between IQ and wealth. "Smarter people tend to get paid more on the job, but there's no relationship between intelligence and net worth when holding other factors constant," says Zagorsky, whose report was published in the journal, Intelligence.

 

(Just as another aside, we have scheduled an interview with Jay Zagorsky. So listen for my interview with him in the coming weeks on my radio show, Saturdays at noon CT on 1080 AM KRLD in the Dallas Fort Worth area and in our Financial Success Coaching podcast available from iTunes, Odeo and right here on the Kimmunications blog.)

 

So what does account for your ability to build net worth through investing? It is your ability to control your emotional responses to meaningless, short term price movements. It is your ability to avoid extreme states of fear or greed. It is your ability to do the right thing every single day even though it often feels wrong.

 

In short, investing is almost totally a mind game. That is why hedge funds hire psychologists to work with their traders in the same way professional sports team hire sports psychologists to work with athletes. I know because one of them was one of my mentors. Investing is 20% skill and 80% in your head. That is one of the very first things he said to me when we started working together and I know it is as true as the sky is blue.

 

That is why the way I invest my own money is a system that tells me what to do in every single circumstance. It leaves nothing to my discretion because I worked it all out based on probabilities beforehand. Then I follow it religiously to take the game out of my head and make it all about knowledge. That is a game I can win and in my opinion the only way you can win it.

 

So follow my convoluted algebra here. If E + S + I = FS and .2(S) + .8(M) = FS then E + S + I = .2(S) + .8(M). In other words, in order to achieve financial success, you must be educated on the nuts and bolts. That is important. But more important is your mental approach to money.

 

If that is true, then doesn't it also follow that the people you need to surround yourself with are not just salesmen who make their living by selling you annuities and mutual funds, but rather a mentor who will help you with both sides of the equation?

 

Kim Snider, Kim Snider Financial Communications, Chronim Investments and/or Snider Advisors make 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.

Are You Navigating or Just Drifting?

I've been reading a management book titled "Mastering the Rockefeller Habits" by Verne Harnish. The central premise is how to create alignment in an organization. Alignment can best be understood as everyone and everything working together toward a defined objective.

 

I am attracted to the Rockefeller Habits because Harnish has created a step-by-step system for managing a small but rapidly growing business, much like the Snider Investment Method™ is a complete system for managing your investments. Like the Snider Method, there are steps to be followed, one after the other and always in the same sequence. Also like the Snider Method, there are worksheets to keep up with all the data and metrics to track performance.

 

As I was reading, I quickly realized that my company is suffering from a lack of alignment. We have 20 people all doing stuff every day - stuff that "feels" important, or at the very least urgent. But a lot of it has nothing to do with meeting our most important goals. We are all rowing very hard but all to a different cadence. We are moving, but not in a straight line and not with the efficiency we could be.

 

I also realized that I am much more successful at achieving goals in my personal life than in my business life. Maybe it's because there are fewer people to get onboard. In my personal life, it's just Jim and me. The dogs don't put up much resistance - or provide much input for that matter!

 

Our dream is to build a polo farm in Aiken, SC. Everything we have done for the last few years has been about making that a reality.

 

First, we had a vision that we were absolutely 100% committed to. Next, we had to ensure we had enough money put away to support us for the rest of our lives - not lavishly, but at least comfortably. In other words, take care of retirement savings first, then the dream.

 

Then we had to figure out what it would take to make the dream a reality. The first thing we realized is we needed to build the company into one that was not so dependent on Jim and I on a daily basis. In others words, we had to build a business. We are working on that.

 

It also meant quantifying the dollars involved. How much would it take to build our dream? Yikes! Polo farms don't come cheaply, at least not the one I see in my dreams. So we did that too.

 

Then we started working towards those goals. Everything else has taken a back seat because that is what we decided was most important. When we wanted to take a vacation, we measured it against the dream. "For the cost of a trip to Sun Valley, we could buy an acre of land." or "Is that worth a polo pony?" Sometimes we would say yes. Most of the time we decide it isn't worth it.

 

Our actions are generally in alignment with our goals. As a result, we have bought the land and hope to start moving dirt some time next year.

 

I have always believed that our lives, especially our financial lives, are just micro businesses, to which business principles apply. That is why I always stress the concept of the Family CFO. I believe it is a useful metaphor.

 

I realize now that my personal life is better aligned with my personal goals than my business is with its business goals. We aren't as focused, in the business, as I would like us to be. That is my fault as the CEO and I have determined to fix that.

 

But what can you learn from my experience? Well, here is my question - are YOUR actions aligned with YOUR goals or are you allowing YOURSELF to drift day-to-day without getting any closer to your dreams? And if you are drifting, what do you need to do to take hold of the helm and start creating an intentional course? If you'd like to share, your thoughts and comments are welcome below.

 

Kim Snider, Kim Snider Financial Communications, Chronim Investments and/or Snider Advisors make 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.

Do You Deserve Financial Success?

I saw an article in MarketWatch the other day that made me sad. Apparently, 50% of Americans believe a secure retirement is an impossible dream. It makes me sad because self-defeating beliefs like this become self-fulfilling prophecies. There is absolutely no reason this has to be true.

 

Financial success requires three things: save prodigiously, invest wisely, and act like an entrepreneur. These things are simple. They are doable. But they are obviously not easy or we would all be millionaires.

 

In The Millionaire Next Door, Drs. Thomas Stanley and William Danko tackle the question of quantifying how wealthy you should be. They use a formula I have find quite useful. Multiply your age times your realized pretax annual household income from all sources except inheritances. Divide by ten. This, less any inherited wealth, is what your net worth should be.

 

If your net worth is more than twice this number, you are a PAW - a prodigious accumulator of wealth. If it is less than 50% of this number, you are a UAW - an under-accumulator of wealth. In between and you are average - an AAW.

 

At the age of 28, I was wealthy, by any measure. I didn't inherit it. But it was a stroke of luck. The company I worked for went public and my stock options were suddenly worth a lot of money.

 

By age 30, I was dead broke. I didn't have a penny to my name and I was in debt up to my eyeballs. All my cool toys were re-possessed. I sold my beautiful Uptown condo at a terrible loss just to stay out of foreclosure. My credit was wrecked and I had no job.

 

Today I am 43 - I'll turn 44 in May. I am again wealthy - by any measure. This time it wasn't a stroke of luck. It was damn hard work. And let me tell you something. It is far more gratifying than the first time.

 

There are many lessons to be learned in how and why I lost all that money the first go around. I'll save that for another day. I prefer to focus on how I got from the there to here - and to ask you a question? What can you learn from my experience?

 

One of the most useful exercises for me has been finding people who had what I wanted, figuring out what they were doing that got them the result I was after and then doing the same thing. That is why I found the Millionaire Next Door to be so helpful. It gave me a shortcut. I didn't have to talk with all these people, the author's already had.

 

Financial success starts with a simple principle. If you earn $100 and spend $110 you will always be poor - it doesn't matter how much money you earn. If you earn $100 and spend $90, you will always have money - it doesn't matter how little you earn. If you want to be financially successful, you must spend less than you earn.

 

Once you have put away enough to cover emergencies start investing your savings. The key to investing wisely is knowledge. I believe a financial education is one of the best investments you can possibly make.

 

Investing is simply a trade-off between risk and reward. You cannot have one without the other. That law is as fundamental as gravity - it cannot be suspended. The investor who manages that trade-off well will do well. If you don't, you won't. Too much risk or too little can be equally detrimental to achieving financial success. Your job is to always maintain a happy medium.

 

Risk is connected with financial success in many ways. For example, two-thirds of high net worth (HNW) individuals are entrepreneurs even though the self-employed only make up 20% of the workers in America. That makes sense given that profit is the reward for risk. The entrepreneur takes the risk to start and sustain a business and therefore makes more, when successful, than the person who works for someone else and has less risk. But he or she also stands to lose more if the business fails, which it often does.

 

So it is not surprising that HNW individuals are predominantly entrepreneurs. I am an entrepreneur. Not because I set out to make a lot of money but because I have a passion that burns deep inside my core - to make a profound difference in the financial lives of others by teaching them what I had to learn the hard way.

 

But the good news is that you don't have to be an entrepreneur to be financially successful - you just have to act like one. Most successful entrepreneurs I know have three traits you need to be financially successful: 1) commitment and determination; 2) creativity, self-reliance and ability to adapt; and 3) believing in yourself.

 

People sometimes ask me how I went from broke, to not, in thirteen years. I tell them I decided to. That is the truth. Without commitment and determination, you probably won't get there, because financial success requires making hard choices - usually involving giving up what you want now for the opportunity to have something better down the road. That is hard.

 

It is also hard not to get caught up in what everyone else is doing or to not keep doing the same thing over and over and expecting a different result. When the traditional Wall Street offering didn't meet my objectives, I created my own. If what you're doing isn't working, change what you're doing. Otherwise, you shouldn't be surprised when you keep getting what you've always gotten.

 

50% of Americans don't believe they can create a secure retirement. Sadly, they are right. Because if you don't believe you will, then you most assuredly won't.

 

Why do so many people doubt their ability to achieve financial success? Is it because they are afraid to try? Is it because too many people have told them they can't do it? Is it because we are a gluttonous, consumer goods oriented society where no one knows the value of delayed gratification any more? Maybe.

 

I saw an old beater car driving down Stemmons Freeway yesterday with a big screen plasma TV tied in the trunk. The driver was pretty obviously on the lowest rungs of the economic ladder. Yet there he was with his big screen, which by the looks of it, was worth more than the car!

 

But maybe, just maybe, it is because we do not believe we are deserving of financial success. One thing I know for sure, anything I believe I am unworthy of - love, money, respect, friendship - will elude me until I can say with certainty, "I deserve this!". Do you deserve financial success?

 

	TAKEAWAYS:   1. To be financially successful you must: save prodigiously, invest wisely, and act like an entrepreneur.   2. If you don't believe you are capable of financial success, figure out why.

 

So now you know what I think. How about you? What do you think? Feel free to leave your thoughts and comments below.

 

Kim Snider, Kim Snider Financial Communications, Chronim Investments and/or Snider Advisors make 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.

The Road to Financial Success Is Well Marked

Do you ever look at people who are more financially successful than you are and wonder how they got there? There are only three ways to become rich: inherit it, marry it, or earn it.

 

Most of us aren't heirs to a fortune and unless your parents are in the minority, they are going to need all they have just to live out their power years. Some may be fortunate enough to marry into wealth but I certainly wouldn't recommend it as a wealth-building strategy. It reminds me of the line in Pretty Woman, "Meet the Olson sisters. They have made marrying well an art form."

 

So that leaves earning it. The good news is the road to financial success is well-travelled and those who have gone before you have left it pretty well marked. The only thing required from you is the discipline to make it happen. Here's how:

 

Forget about appearances. I bet you know someone who makes a lot of money, lives in a fancy house, drives fancy cars, and lives paycheck to paycheck. I know a lot of people like that. But I bet you also know someone who lives in an average house, drives the same paid-for car for ten years, and has a net worth of several million dollars. Thomas Stanley and William Danko call these people "The Millionaire Next Door." If you haven't read the book, get it.

 

Don't buy things you cannot afford. My grandmother is 88 years old. She was ten years old, living on a farm in East Texas in 1929 when the stock market crashed. She grew up, like so many of her generation, believing that you didn't buy something you couldn't pay cash for. When you have the discipline to save for the things you want, it gives you the time to decide if they are really important. If they are, they'll mean more for having saved to buy them.

 

Kick your bad habits. Do you smoke, drink, gamble or live on junk food? Our bad habits rob us in many ways. Let's take the difference between eating breakfast at home or grabbing a McDonalds on your way to work each morning. My breakfast every morning is a bowl of oatmeal and Crystal Light. I am guessing that meal probably costs me about $0.75. Compare that to $3.00 for an Egg McMuffin, hash browns and a soda (I don't drink coffee). Do that five days a week, 52 weeks a year, that's almost $600 a year. $600 compounded at 10% for twenty years is $4000. Do that every year for ten years and you have cost yourself a years worth of living expenses. That doesn't take into consideration the extra cost of insurance and healthcare if you are a high risk.

 

I am not suggesting you have to live in abject poverty or deny yourself a splurge once in awhile. I like a Whataburger as much as anyone. But you have to admit bad habits are expensive. If financial success is a priority for you, then kicking bad habits is one way to get there.

 

Visualize your goals. There is a tendency to become what you imagine yourself as being. So how do you attain your goals in life? By having a goal and knowing what it is! I, for example, have had a goal for almost ten years of owning a polo farm in Aiken, SC. Not a day has gone by that I didn't picture in my mind what the house would look like, how the barns and pastures would be laid out, and me playing polo on my own field. Today, that goal is a reality.

 

It is not enough to say I have a goal. The trick is to imagine exactly what that looks like, in excruciating detail, and hold that thought doggedly in your mind. The one thing we know is that our minds can't stand to have the inside not match the outside. If you are persistent with the visualization, and you have full faith in you ability to achieve your goal, your mind will, over time, make your outside world congruent with your inside world. I don't know why it works that way. I only know that it does.

 

Manage risk. Shit happens. Make sure you have six months of living expenses in a bank account. Insure any risk you cannot afford and update your insurance as your situation changes. The paradox is, the more at risk we are, the more likely we are to skip this step. When money is tight, it is easy to raid the emergency fund or cancel the insurance policy and hope lightening doesn't strike. But Murphy's law says that is just when it will and if it does, the financial setback may be too drastic for you to ever recover from.

 

Abolish get rich quick fantasies. Wealth is built one dollar at a time. I like the quote by Theodore Roosevelt. He said, "The things that will destroy America are prosperity-at-any-price, peace-at-any-price, safety-first instead of duty-first, the love of soft living, and the get-rich-quick theory of life."

 

Manage your own money. Imagine a broker has two mutual funds he can sell you. One is a low cost index fund that will match the market's performance exactly but pays him no commission. The other will under-perform the market two-thirds of the time but will pay him all sorts of money. Which do you think he is going to recommend? The only person who has no conflict of interest when it comes to taking care of your money is you. That makes you uniquely qualified to manage your own financial affairs.

 

Stop chasing the herd. The person who chases the latest hot idea, whether it is internet stocks, real estate, or commodities, is condemned to repeatedly buy high and sell low. The key to wealth is to buy when everyone else is irrationally selling and sell when others are irrationally buying.

 

Think of your money as a tool. Your money is no different than a carpenter's hammer or a truck driver's truck. It is a tool. Every day you put its little coveralls on, hand it its lunch pail and send it off to work. If, at the end of the day, it doesn't come back with four buddies in tow, your money isn't working hard enough. You need to find it a different job.

 

Be the Family CFO. You are your family’s chief financial officer and it is arguably the most important job you will ever hold. The CFO of a company is responsible for that company’s financial health. You are responsible for the financial health of your family. What separates the good CFO’s from the bad is knowledge. A good CFO works to be as educated about financial matters as possible. The more you know, the better you’re able to distinguish between a great investment opportunity and a cleverly disguised sales pitch.

 

	TAKEAWAYS:   1. There are only three ways to become wealthy: inherit it, marry it, or earn it. The last one is the most reliable.   2. Get started today. Tackle the items on this list one at a time. Make a plan for implementing these ideas. Let us know how you are doing.

 

Care to share? Which of these needs to be your highest priority? Leave your thoughts and comments below.

 

Kim Snider, Kim Snider Financial Communications, Chronim Investments and/or Snider Advisors make 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.

February 2007 Family CFO Briefing

Investing

 

You gotta love this. In the same vein as the monkey's throwing darts and Rusty, the Longhorn steer that picks stocks by pooping on the stock pages: A subscription web site that provides its subscribers with stock picks for as much as $100 a month invites, in January, 10 Playboy models to participate in an investing contest. When results are tallied toward the end of the year, 40 percent of the bunnies deliver better returns than the S&P 500, compared with just 29 percent of actively managed mutual funds.

 

Investing for Retirement

 

Millions of American women face declining living standards in retirement. Like men, they'll feel the sting of cutbacks on corporate pensions. But women suffer more than men from the high rate of divorce, which can deprive them of savings and income when they need it most. Many also lose benefits and income when they leave work to care for children and they live longer than men. (Los Angeles Times, free registration required)

 

Some brokerage firms make more money on money market spreads than they do on commissions. Most money market sweeps are paying less than 2% in brokerage accounts while money market fund rates are averaging 4.75%. By reinvesting client funds on the open market, brokerage firms are pocketing the difference and making a tidy 2% to 2.5% profit on your money. (Wall Street Journal, subscription required)

 

The Employee Benefit Research Institute (EBRI) reports "IRA Assets Hit Record $3.67 Trillion" fueled by IRA rollovers. Total IRA assets are larger than those in either traditional pension or 401(k) type plans.

 

Another EBRI report, issued in February, reports that 401(k) type plans have become the dominant form of employer sponsored retirement plan. There has been a significant increase in the percentage of family heads with a defined contribution plan (typically a 401(k)-type plan). In 2004, almost 26 percent of family heads who participated in an employment-based retirement plan had a defined benefit (pension) plan only, while 56 percent had a defined contribution (401(k)-type) plan only, while the remaining 18 percent had both a defined benefit and defined contribution plan. This was a significant change from 1992, when 42.3 percent had a defined benefit plan only and 40.8 per-cent had a defined contribution plan only.

 

Big corporations announced 15% more layoffs in January than in December, but the total was down 39% from this time a year ago, according to an unscientific tally of job-cut announcements released Thursday by outplacement firm Challenger Gray & Christmas. (MarketWatch)

 

Congress and government regulators are planning an array of moves to strengthen oversight of 401(k) accounts, which have become the linchpin of retirement savings for millions of Americans but are often burdened by hidden fees that chip away at their value. (Baltimore Sun)

 

MSN Money lists five common blunders people make in their 401(k) plans. (WARNING: shameless self-promotion coming up.) Our new web-based program, How To Turn Your 401(k) Into A Million-Dollar Nest Egg goes much farther than pointing them out. It will tell you step-by-step how to properly manage the many different aspects of your plan so that it can someday provide enough income for you to live comfortably in retirement. Our unique paint-by-numbers approach will tell you exactly which funds available in your plan are the most likely to deliver the best results. It will show you how much to invest and where. We are very proud of this new product because we believe it will help a lot of people who are clueless when it comes to what to do with their 401(k). Stop by our web site for a free preview. (Now back to your regularly scheduled programming.)

 

Housing, Real Estate and Mortgages

 

If you are making accelerated mortgage payments and not contributing the maximum to tax-deferred retirement plans, you are making a big mistake according to a recent paper titled "The Tradeoff Between Mortgage Prepayment and Tax-Deferred Retirement Savings," published by the Federal Reserve Bank of Chicago.

 

In Dallas County, foreclosure postings are up 24 percent. In Tarrant County, they are up 17 percent. Denton County came up 15 percent and in Collin County they are up 61 percent over this time last year. Dallas and Fort Worth are in the top ten in the nation for foreclosures. Dallas ranks number 5 and Fort Worth is number 7. (CBS 11 local coverage)

 

Debt and Savings

 

• Only 17% stick to their New Year’s resolutions!
• 38% said that losing weight was #1 priority for 2007 followed by spending more time with loved ones
• 24% consider getting out of debt their second most important priority for 2007
• 31% answered that they currently have credit card debt of MORE than $8500 while 40% said they have less than $1000
• 60% said that they could live as they do now for less than 3 months or less if they lost their job tomorrow - while 31% said they could live longer than 6 months
• Nearly ½ of all surveyed don’t know their credit score!  (48%)
• 56% consider ‘viewing their online bank balance’ managing their personal finances
• Nearly ½ of all surveyed do NOT have an emergency fund stashed away (49%)

 

(Note: I don't have a link for this one. The information comes from a press release sent to me by Quicken's PR firm looking for interview opportunities. The firm must not have done a very good job because a Google search turns up zilch. Sorry! I'd give you a link if I could find you one!)

 

I found these statements, without attribution, when I was doing research for a project. Since sources weren’t cited, I can't vouch for their validity but they certainly ring true. Judge for yourself:

 

• Americans currently owe nearly $9 trillion in debt -- accumulating nearly 40% of it in the past five years.
• Over the past four years, Americans have borrowed more against their homes than they've invested.
• Forty percent of new-car buyers still owe money on their trade-in.

 

The previous rings especially true given the following: People once again spent everything they made and then some last year, pushing the personal savings rate to the lowest level since the Great Depression more than seven decades ago.

 

And finally, how's this for perspective? New research into the world's personal wealth finds assets of just $2,200 per adult placed a household in the top half of the world's wealthiest. $61,000 puts you in the top 10% and if you have more than $500,000, the United Nations Study says you are among the richest 1% in the world! Here is the terrifying number. Half the world - nearly 3 billion people - live on less than $2 a day. (MSN Money)

 

Kim Snider, Kim Snider Financial Communications, Chronim Investments and/or Snider Advisors make 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.

Forced Retirement

While 67% of workers say they expect to work for pay after age 65, a new survey indicates that, in reality, the opposite is happening. Sun Life Financial released a survey in which 22% of respondents said they had to retire earlier than they expected—an average of seven years earlier.

 

Layoffs and corporate downsizing were most often the reason for early retirement. Other reasons for leaving work included illness, injury and family obligations. These numbers jibe with similar numbers produced by the Employee Benefits Research Institute.

 

“It appears that unanticipated, forced retirement is occurring at an alarming rate, leaving the impacted retirees unprepared,” says Mary Fay, vice president and general manager of annuities at Sun Life Assurance Co. of Canada (U.S.)

 

[…]

 

Sixty-nine percent of respondents said their retirement plans have been impacted to a great extent or somewhat by leaving work early, forcing them to reduce expenses and change their lifestyles.

 

That is not surprising given only 70% of workers are saving for retirement and among those who are, 52% have savings and investments totaling less than $50,000!

 

I think the majority of Americans are delusional when it comes to the issue of saving and investing for retirement. Others think stories of the impending retirement income crisis are over-blown fear-mongering. What do you think and why? Leave your thoughts and comments below.

 

 

SOURCES:

 

1. "One In Five Americans Are Forced To Retire Early, Survey Finds"; Financial Advisor; Jan 2007; p 26.

http://www.fa-mag.com/issues.php?id_content=2&idIssue=117&show=fronline

 

2. Employee Benefits Research Institute and Matthew Greenwald & Associates, Inc. "Will More Of Us Be Working Forever?: The 2006 Retirement Confidence Survey" EBRI Issue Brief Number 292; April, 2006.

http://www.ebri.com/pdf/EBRI_IB_04-2006_1.pdf

 

Kim Snider, Kim Snider Financial Communications, Chronim Investments and/or Snider Advisors make 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.

 

Are you unhappy with your job?

According to the Hudson Employment Index, 28% of workers in the Dallas Fort Worth area, where I live, are unhappy with their job - more than one in four. And yet, what is our antidote for insufficient retirement savings? I'll just work longer.

 

The Retirement Confidence Survey done by EBRI in 2006 finds 67 of workers expect to work past age 65. Really? Even though one in four hate their job now and only 27 percent of people over 65 work today? Sounds like a classic case of putting off until tomorrow what I don't want to do today - save.

 

A comfortable retirement, at whatever age, requires you to do only three things:

 

1. Plan and budget carefully so you can save for tomorrow

2. Manage your retirement funds very wisely - don't be greedy, fearful or dumb

3. Turn those funds into a source of low-risk, reliable income

 

If you ask some people their financial objective, they'll say growth, or income. Some will say to be able to retire at 62. Others will say to have a million dollars by age 65.

 

My personal financial objective, for a very long time now, has been financial freedom. I define that as having enough portfolio income to sustain my lifestyle indefinitely out into the future. I want work to be a choice, not a necessity.

 

I don't express that goal in terms of a number. I express it in terms of an income. If it takes $10,000 a month for me to live the way I want to, then I need an after-tax portfolio income of at least $10,000 a month. I also need that $10,000 a month to grow by at least 3% a year to keep up with inflation. Whether my portfolio is worth $500,000 or $3 million is irrelevant. It is the portfolio it can generate that I care about.

 

I think the entire notion of a growth investor is outdated. The primary investment goal for almost every American under the age of 65 has become income replacement, whether they think of it in those terms or now. Given the Hudson Survey, I'd say it is full income replacement as soon as possible. Failure to meet that goal is a life sentence of work.

 

If you go to one of these retirement calculators on the web, they will tell you how much you need in order to retire. What is the magic number? But to say I need a portfolio of $X to retire, which is our old way of thinking about income replacement, is bassackwards. I don't intend to spend my entire portfolio on the day I retire. I intend to live off of it for 30 years.

 

If that is true, the goal of an investor has to be to maximize income, not to maximize the portfolio value. What do you think? Agree? Disagree? Leave your thoughts and comments below.

 

SOURCES:

 

1. "National Employment Index," Hudson, Dec 2006

http://www.hudson-index.com/node.asp?SID=4394

 

2. "2006 Retirement Confidence Survey," Employee Research Benefits Institute, Apr 2006

http://www.ebri.org/publications/ib/index.cfm?fa=ibDisp&content_id=3630>

 

Kim Snider, Kim Snider Financial Communications, Chronim Investments and/or Snider Advisors make 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.

 

Runaway Consumerism

As if we needed confirmation that we have gotten our priorities totally screwed up:

 

58% of parents spent more on restaurants and takeout last year than they set aside for college, according to Alliance Bernstein. 49% spent more on vacations and 38% on fancy consumer electronics like plasma TVs. You can bet they aren't saving adequately for retirement either.

 

When a choice has to be made between saving for retirement and putting your kids through college, you absolutely have to let the kids fend for themselves. They have a lifetime of earnings to pay back the loans and get ahead. You, on the other hand, will be at the end of your earning phase and will have very few options. Retirement has to come first.

 

But … this data says we are just intoxicated by consumerism at the expense of our future, and our kids future. When do we wake up and smell the coffee?

 

SOURCE:

 

1. Jennifer Harper. "Parents give college costs short shrift" Washington Times; 18 Oct 2006.

http://www.washingtontimes.com/national/20061017-115527-6275r.htm

 

Kim Snider, Kim Snider Financial Communications, Chronim Investments and/or Snider Advisors make 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.

 

Should You Pay Off Your Mortgage Early?

If you are making accelerated mortgage payments and not contributing the maximum to tax-deferred retirement plans, you may be making a big mistake, according to a recent paper titled "The Tradeoff Between Mortgage Prepayment and Tax-Deferred Retirement Savings," published by the Federal Reserve Bank of Chicago.