What does she mean by ...

The definition of words is not usually something we give a lot of thought to. But when you really think about the meaning of certain words, or the words someone uses and the context in which they use them, it can be quite instructive.

 

Here is how I define some of the words and phrases you will hear me use frequently:

 

Customer - someone with whom you exchange money for goods and services.

 

Client - someone who is under the care and protection of another (props to Jay Abraham for this definition which I immediately made my own).

 

Capital Appreciation - the money you receive when you sell an asset.

 

Cash Flow - the money you receive as a result of owning an asset.

 

Financial Success - the ability to support a reasonable lifestyle, indefinitely into the future, without work or worry.

 

Financial Advisor - someone who looks at all the products and ideas created by others and says, "How can I sell as much of this as possible, to as many people as possible, with the minimum amount of effort."

 

Coach -  one who instructs or trains; especially one who instructs players in the fundamentals of a competitive sport and directs team strategy (From Merriam-Webster)

 

Financial Success Coach -  one who instructs or trains others in the knowledge, skills, behaviors and strategies necessary to achieve financial success.

 

Competence - the ability to do something well or effectively. (From FreeDictionary.com)

 

Expert - the ability to creatively combine existing ideas together in a new way that adds to or improves upon the existing level of knowledge or skills in a particular area.

 

Investment Method - a complete set of rules about what and when to buy and sell, which is so comprehensive that there is never a time where you do not know exactly what to do.

 

Snider Investment Method - a long-term approach to investing with the goal of exchanging the long-term 8 to 10% capital appreciation of the stock market for a more immediate 1% per month cash flow or yield.

 

The definitions of these words create obvious questions. For example, are you a customer or are you a client? Which is a better fit for your investment objective -- capital appreciation or cash flow? Do you want to work with a financial advisor or a coach? Is your advisor merely competent or an expert? Is the way you're investing today systematic or ad hoc?

 

Words are cool. When used precisely, they convey a lot of meaning. (Cool is not one of those very precise words, is it?) Can you think of any words to add to this list? If so, e-mail them to me at kim at kimsnider.com.

 

 

All investments, including the Snider Method, involve risk including possible loss of principal. Please see our Performance Discussion and Owner’s Manual - they are an important part of this discussion. In particular, the yield measurement we use is different than the total return measurement often used by other advisers. These documents will spell out the differences. Information on how an investment has done in the past does not tell you exactly how it will do in the future.

Audio: Roth IRAs - Advantages, Strategies, Upcoming Tax Law Changes

Kim talks with Sean Monohan, EA, CFP,  of  Chartered Financial Strategies about Roth IRAs

 

MP3 Download: Hi (128k) | Lo (32k)

Length: approximately 20 minutes

 

Notes:

00:52                Differences between traditional  IRA and Roth

03:41                Roth Rollover Limits

05:19                Benefits of Roth over Traditional IRA - Tax Hedging Strategies

07:09                Why the penalty is less in a Roth if you take it out before age 59 1/2

09:21                Why you need to keep good records in a Roth, even after age 59 1/2

10:38                How a Roth fits into tax strategy

11:52                "Gotchas" in converting a Traditional IRA to a Roth IRA

13:35                The mechanics of converting a traditional to a Roth - how to do it

14:55                When are taxes due on the conversion?

16:01                How does the IRS know I have converted?

16:51                Discussion of new tax law change in 2010 affecting Roth conversions

20:37                Contact information for Sean Monohan

No statement in this article should be construed as a recommendation to buy or sell a security or to provide investment or tax advice. All investments involve risk including possible loss of principal. We strongly encourage you to consult a qualified tax advisor or legal professional about your unique situation. Our goal is your financial success. Individual results may vary. Complete information can be found on our website or by calling 1-888-6SNIDER.

Media Appearance: The McCuistion Program (PBS)

The McCuistion Program - PBS (KERA-TV) aired February 22, 2009 in Dallas, TX. Kim joins other esteemed panelists including authors, mortgage specialists and economists in a lively discussion of “What Should you do to Protect Yourself in a Tough Economy?”. The panel examines who and what caused the current economic situation and offers possible solutions to stay financially sound during this unsettling period.

Sign of the Times ... Literally

I snapped this photo along SH 183 in Dallas ...

Podcast: Interview with Neil Howe, co-author of The Fourth Turning

Kim talks with Neil Howe, co-author of best-selling book, The Fourth Turning: What the Cycles of History Tell Us about America's Next Rendezvous with Destiny.

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

Length: approximately 30 minutes

Notes:

0:30     Neil Howe explains the 80 to 100 year generational cycle made up of four turnings
8:17     Neil gives the origin of the saeculum
10:17   Neil discusses the various generations that make up this saeculum (e.g. Silent, Boom, Gen X, Millennial)
12:53      Kim asks Neil if we should be afraid of the crisis period,or fourth turning, predicted by the book
18:00     Kim and Neil discuss Barack Obama and the Lincolnesque leader required for fourth turnings
21:35     What an individual should do to prepare for the fourth turning and how it will be different from anything we have known previously
26:43     Kim asks Neil if he is optimistic about our future
28:20     Neil explains why he believes the Millennials will lead us forward and out of the Fourth Turning

Resources:
Kim's Recommended Reading List
The Fourth Turning by Neil Howe and William Strauss

The role of luck in a financially secure retirement

A new type of mutual fund was introduced in late 2007 by the fund industry called managed-payout funds. The goal of these funds is to give retirees a steady stream of income. At the time, they were touted as being an easy way for investors to get regular income payouts, professional money management and relatively low fees. Early players in the managed-payout fund arena were Fidelity, Vanguard, John Hancock, and Charles Schwab.
 
These funds demonstrate something known as the “sequencing of return problem” for retirees. If a retiree experiences losses early in their retirement, principal is quickly depleted and the amount of time until the retirement portfolio runs out of money is reduced.
 
Like the new retiree, these funds are being decimated by the stock market plunge. Right out of the gate, these funds are unable to meet their obligations to retirees and are basically returning principal.
 
"The plight of managed payout funds dramatizes boldly, what can happen to investors if they experience a serious market downturn early on, when they are starting to draw down their payments in retirement," said Dan Culloton, a fund analyst at Morningstar.
 
The Sequencing of Return Problem
 
When you are in growth mode, sequence of returns doesn't matter. Regardless of whether a portfolio experiences weak or strong returns early on, the ending market value will be the same.
 
Let's look at an example:
 
Assume we have two portfolios, X and Y. Each starts with $500,000. Neither is taking withdrawals. Portfolio X experiences early losses. Portfolio Y experiences early gains. As you can see from the chart below, there is no difference in the ending value.

This is not the case once you begin taking distributions. As you can see from the chart below, Portfolio X experiences losses early on and runs out of money in less than 20 years. Portfolio Y has strong early returns and is still going strong at age 100.

Even though both averaged 6.5% return, the difference in the two outcomes is massive!

This demonstrates the tragic flaw in a traditional capital appreciation portfolio when your investment objective is income replacement. There is just too much dependence on luck. You are basically betting on a random sequence of numbers over 30 years and the consequences if your bet doesn’t pay off, are catastrophic.
 
How cash flow solves the sequencing of return problem
 
Capital appreciation is when you buy something in hopes it will go up in price. When it does, you sell it for more than you paid for it, and the profit is called capital appreciation.
 
Cash flow is money that comes to you while you still own the asset. Examples of cash flow would be rent, royalties, interest, dividends, and option premiums. The key characteristic of cash flow is that you do not have to sell the asset in order to make money.
 
Another important characteristic of cash flow investments is cash flow is typically tied to the amount invested rather than the market value. Take a bond, for example. The yield is a percentage of the face value. A $1000 bond paying 6% will pay $60 in cash flow whether the bond is worth $900 or $1100.
 
Cash flow is the blindingly obvious solution to the sequencing of returns problem, among others. Imagine your monthly expenses are $9000 a month and your portfolio generates $12,000 a month in cash flow. So long as the $12,000 is not connected to the market value of the portfolio, the sequencing of return problem goes away. Your portfolio withdrawals would be unaffected by the sequence of return.
 
Why does Wall Street continue to try to shove the same old square pegs in increasingly round holes, as evidenced by the dismal failure of the managed payout funds? As Robert Frey, an adviser in Bozeman Montana, says, "These funds are dogs." It's time for the capital appreciation model to be put out of its misery.
 
SOURCE:
 
    1. Funds Featuring Managed Payouts Off To Rocky Start. (2009, February 11). InvestmentNews. Retrieved from http://www.investmentnews.com/apps/pbcs.dll/article?AID=/20090201/REG/302019983/1030/MUTUALFUNDS.

No statement in this article should be construed as a recommendation to buy or sell a security or to provide investment advice unless specifically stated as such.  All investments involve risk including possible loss of principal.  Complete information can be found on our website or by calling 1-888-6SNIDER. Some information for this article has been gathered from external sources.  We believe they are reliable, but Kim Snider and Snider Advisors assume no responsibility for the accuracy of this information.