The World Would Be a Better Place If There Were More Rich Women

That is the message of Kim Kiyosaki and I couldn't agree more. Kim asked me to be a guest on her PBS special, entitled Finding the Rich Woman In You. It is a fund-raiser for Channel 8 KAET in Phoenix and will air for the first time tonight, Thursday December 6 at 7:00 PM Phoenix time and again at 9:00 PM.

 

The show is an extension of Kim's book, Rich Woman, which we talked to her about, several times, on our radio show and podcasts. The TV show was aimed primarily at women because women have a special need when it comes to financial education. Some statistics from the show:

 

• 47% of women in the U.S. over the age of 50 are single - meaning most of these women have to take care of themselves financially
• After a divorce, a woman's standard of living drops an average of 73%
• In 2006, more women declared bankruptcy than graduated college
• Of the elderly living in poverty, 3 out of 4 are women - yet 80% of these women were not poor when their husbands were alive.
• The average age of a widow: 56 years old

 

That being said, the core messages we developed in the show are applicable to men and women alike and they should be familiar to any of my readers. They are:

 

• You are uniquely qualified to manage your own money. Why would you turn over your security to anyone else - whether it be a spouse or a financial expert?
• Becoming a successful investor is not difficult. Anyone can do it. It doesn't require hours and hours of work. The biggest hurdle is getting over the intimidation factor.
• Savvy investors do not view declining markets as a negative. A true investor, as opposed to a short-term speculator, is largely unaffected by market declines and more likely sees them as a buying opportunity. Who doesn't love a sale?
• Everyone is a genius in bull markets. It is the volatile or declining market where financial education really pays off and there is no better time to learn than now.
• And of course, cash flow investing makes far more sense for most people than capital appreciation investing.

 

One point we didn't talk about in the show, but that I would add, is that the difference between a successful investor and everyone else is the actions they take in times like these. Right now, a successful investor is avoiding the losses of capital that amateurs are taking, buying value, and setting themselves up to do even better when the market turns north again. Successful investors love these kind of markets. Amateurs fear them.

 

There were a million more things we could of talked about on the show. It was amazing how fast the time went. Some people even suggested we could do it as a weekly show because there was so much more ground to cover than what we got to.

 

For now, the show will only air in the Phoenix market but everyone involved is hopeful that it will be very successful - raising lots of money for KAET - and will then be picked up nationally. The goal for this show is to raise $100,000 locally for PBS. So for those of you in the Phoenix area, I would encourage you to tune in and pledge if you are so inclined to give money to a good cause. (I bet they would take your money even if you don't live in the Phoenix area.)

 

Why would you want to do that? I should mention that our 401(k) course, How To Turn Your 401(k) Into a Million Dollar Nest Egg, is included in the $125 and $365 pledge packages along with Kim's book (Kim Kiyosaki, not me - mine is still not finished!), their Cash Flow game and some other stuff. Our course alone sells for $297 on our web site and I know their Cash Flow game is $195. That is a great value in financial education in addition to supporting a good cause.

 

My involvement in the show was really a last minute thing. I understand Kim Kiyosaki and Richard Taylor have been working with PBS on this for months. They decided to add guests as a last minute idea and I got the call a couple days before Thanksgiving. We had dress rehearsal a week ago today, taped last Friday, and it goes on the air tonight!

 

The other two guests and I were, at one point, sitting in the front row of the studio audience while Kim was doing one of her stand-ups. When the cameras would stop, both Antoni, the hairstylist, and Kelli, the makeup artist, would walk over to us and fix a stray hair or add more powder to our faces. I heard one of the women behind me say to the person next to her, "Wouldn't it be fun to be fussed over like that?" Yeah … it really was!

 

I have been interviewed for TV before but I have never done an entire TV show, or seen how it is put together. I have to admit, I had a blast. And I love that it was for a good cause ... and aimed at an underserved market. Oprah, are you listening? My phone number is 214-245-5236!

 

UPDATE: (12/7/07) The show aired last night and did VERY well. It raised $60K for PBS Arizona - number one for this pledge drive! More than Wayne Dyer and 4X Suze Orman! Whoo Hoo! I am told it will re-air this Monday night, December 9th.

 

Kim Snider, Kim Snider Financial Communications 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. 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. 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 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.

Why are personal finances a taboo subject?

Why is it no big deal to admit to seeing a therapist or that your kid is a mess but not to admit you are swimming in credit card debt or don't have a clue how to pick the funds in your 401(k)? This is the question posed by a good article in the New York Times (found on financeprofessor.com - thanks Jim!)

 

Example … every year for the last eleven years, a group of women friends, including my Mother and me, have taken a four day trip up into the mountains on horseback. We call ourselves the Durango Saddlebags.

 

Most years we camp in tents and spend evenings around a campfire, eating, drinking and having a great time. This year, we have rented a ranch up in the mountains and we'll ride out each day from there.

 

Over the years, a number of games have been invented. Most years we have the Cowgirl Olympics. Last year my friends Jill and Lisa invented "Cowgirl Trivia."

 

(You would really have to know these women to appreciate where I am going with this. These are all amazing, powerful, accomplished women I ride with.)

 

So anyway, back to Cowgirl Trivia. Sample questions include things like, "Which Saddlebags have tattoos?" and "How many Saddlebags are still married to their first husband?" Some of the other questions are far more intimate but I will spare your sensibilities. Just let your imagination run wild with all the questions someone with zero inhibitions might come up with and you'll get the idea.

 

Although ... I guess no inhibitions is not quite right.

 

My friend Jill will say practically anything to anybody. But she doesn't include questions like "Which Saddlebag has come closest to declaring bankruptcy?"

 

By the way, that would probably be me but I don't know for sure. Which is exactly my point.

 

I know the most personal details about these women, their lives and their families. I know things about them, and they about me, that seem far more taboo than my credit score. And yet, I don't think one conversation around the campfire, in ten years, has ever been about money or personal finance.

 

Why is that? Why do you think money is possibly the last taboo? What would it feel like to openly discuss money matters with your friends? Do you think there is a difference between men and women's openness about money? I'd be curious. 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 Psychology of Financial Success

The hardest of the three functions of a Family CFO is managing behavior. Have you ever noticed how easy it is to know what you should do with your money but how hard it is to actually do it? That is because our relationship with money is very complex.

 

At one point in my life, I made my living as an options trader. I had three mentors who taught me how to be successful as a trader and what they taught me about trading also influences the way I invest, and how I teach others to invest. In case you are wondering about the distinction, trading and investing are not the same thing. Trading is hunting. Investing is farming.

 

One of those mentors was a psychologist who had spent much of his career working for hedge funds, specialist companies and the proprietary trading desks of the big Wall Street firms counseling their traders on how to control their behavior. This is not dissimilar to the function of a sports psychologist, or others who specialize in the psychology of performance.

 

Of course, today we have the recognized fields of behavioral finance, neuroeconomics and socionomics. But back then, if these areas of study existed, they did not have a name. Still, even today, many people don't realize there are these psychologists working up and down Wall Street and most of you are only vaguely aware of the behavioral aspects of investing.

 

One of the first things my mentor said to me when we started working together was, "What ever issues you have will play themselves out in your trading."

 

My immediate thought was, "What issues? I don't have any issues. What kind of psychobabble is this? I want to learn how to trade, not be psycho-analyzed!" It was years later that I would allow myself to see that he was right. Boy did I have issues!

 

My parents divorced when I was very young. My father had a lot of money. My mother and stepfather - not so much. I had a very contentious relationship with my father for as long as he lived. I desperately wanted his love and approval, but on my terms - not his.

 

The way my father showed love and approval was with his money. The way he showed disapproval was by withholding it. This felt conditional and controlling to me. I resented it and fought him every step of the way - eventually driving him away for good. We did not speak for the last seven years of his life.

 

Somehow, along the way, I got money and love confused. My daddy left. He must not love me. My daddy is unhappy with me. He withholds his money. Money must be love. Since my daddy doesn't love me, I must not be deserving of love. If I am not deserving of love, I must not be deserving of money since money is love.

 

I know it is pretty convoluted looking back at it now. But that is how my little kid brain interpreted it.

 

I am not bragging when I say I am reasonably smart, well-educated, ambitious, entrepreneurial and therefore have always earned a nice living, even before I graduated college. But this created a real problem for me. It meant I always had money. At some points along the way, I had a lot of money.

 

One thing I have learned is that our brain cannot tolerate inconsistency. It needs our outside world to match our inside world. Our subconscious is capable of amazing things to make it so. Looking back at my life, I can see a pattern where every time I achieved financial success, I sabotaged it. So I have this recurring pattern of lots of money, broke, lots of money, broke.

 

From the outside, it was easy to say that each time I hit a broke phase, it was someone else's doing. Some external event beyond my control wiped me out. But once I understood the issues I had around money, and why, I could clearly see that my behavior - some action I took, no matter how easily justified at the time - set me up for failure over and over again because I couldn't tolerate financial success.

 

Weird, huh?

 

So my mentor was right. And a funny thing happened. When I understood it, I could deal with it. Now I know I am deserving of both love and money. I understand they aren't the same thing. As a result, I have plenty of both. This was the big Aha! Whatever you believe you deserve is exactly what you will get.

 

So my question to you is this: If you are not as financially successful as you want to be, what issue do you have that is getting in the way? Like me, you may initially write the question off as a bunch of hocus-pocus. But I promise you, if you are not financially successful, it has nothing to do with how much money you make. I can show you many "Millionaires Next Door" who accumulated small fortunes on relatively modest earnings.

 

No. Financial success has nothing to do with how much you make and everything to do with what is going on inside your head.

 

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.

Take Care of You First, Then the Money

On March 20, I shared the story of Jane, a Snider Investment Method™ workshop graduate who ran into an unfortunate situation when her mother passed away unexpectedly. Jane wrote me today to tell me the situation had been resolved and to share what she learned:

 

I just got good news this morning.  Wachovia got Hartford to give us a new  free look period on that variable annuity so my dad is going to get  the money back plus a $2000 gain.  The man who investigated our complaint found that the first papers my dad signed were only to surrender the annuities that came due at my mothers death.  We thought that was the "investment" contract.  The variable annuity contract wasn't signed until three weeks later when the money arrived in the bridge account.  I wasn't there then and Daddy did not receive a copy of the contract.  This was well after the agent knew that we wanted to disclaim the money.  That discrepancy made the bank see our point and it acted quickly. 

 

Thanks for your advice.  I hope my problem helps others see that most things can wait awhile after someone dies.  You don't have to act right away and probably shouldn't.  AND you should get a copy of every piece of paper you sign! I had thought I was smarter than signing papers without asking specific questions but you don't know how you will act when you are shell-shocked and grieving. 

 

That is good advice. I want to thank Jane for sharing so others could learn.

 

Sometimes fortunately, and sometimes unfortunately, life is full of changes. Financial planners call these transition events and they include: marriage, retirement, career change, divorce, loss of a spouse or parent, a windfall or settlement, the sale of a business and inheritance. Almost all of these events will have both a financial and an emotional component.

 

You must take time to deal with the emotional component before dealing with the financial. I was mentored for awhile by a psychologist who worked with traders at hedge funds. He told me, "Whatever unresolved issues you have in your life will play themselves out in your trading."

 

At the time, I dismissed his statement as a bunch of psycho-babble. Probably because I had unresolved issues I couldn't face at the time! Imagine that! But years later, I was able to see that he was absolutely right. And it wasn't just in my trading, it was how I handled every aspect of my money - from the investments I chose, the house I chose to live in, the car I drove, even the people I chose to hang out with.

 

When we face a life transition, such as the death of a spouse or death of a parent, there are always going to be a tangled mess of unresolved emotions immediately following. You will probably feel hurt, grieving, angry, confused or needy. Who knows. Emotions are a complex thing. But you need to take care of those first, before making any decisions about advisors, investments, gifts or purchases.

 

Also, and this is going to sound cynical, beware of anyone who suddenly "appears" in your life after a transition event, especially one that involves a lot of money. Long lost friends and relatives who suddenly appear can only have one thing in mind - to get something from you.

 

Same thing with new relationships. We often try to fill holes in our life, especially freshly created holes, by stuffing something or someone in them. Give yourself the gift of time.

 

A good rule of thumb is six months. Try not to make any decisions about anything, for at least that long, if you can possibly help it. If that means money sits in a bank account or a money market fund for awhile, so be it. If that means you stick close to old friends and loved ones for awhile, that is probably a wise move. Decisions made within that six month window have a high likelihood they'll be bad ones.

 

Only after you take care of you, will you be in a place where you can take care of the 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.

 

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.

Why the Rich Are Headed Back to School

It is my contention that financial education is going to become a very hot topic in the next few years. It is needed at every level, from school age children to retirees, for those living on minimum wage to those who have a very high net worth. It seems, like many things, the market is developing at the top of the financial spectrum, where people can afford to pay for it.

 

According to a January 17, 2007 article in the Wall Street Journal ...

 

The wealthy are flocking back to school to learn how to be rich.

 

As investing and estate planning grow ever more complex -- with labyrinthine trusts, derivatives, hedge funds, structured products, complex philanthropic options and ever-changing tax laws -- wealthy individuals increasingly want to get a better handle on what to do with their money.

 

Often, the students are successful business owners who have recently sold out and are struggling with how to invest their windfall. In other cases, they are women who have been widowed or divorced and may not have handled tough financial decisions before. And a growing number of fortunes are passing into the hands of baby boomers, who are more apt than their parents to reach out for help in understanding how to manage their finances.

 

To that end, they are signing up for courses offered by universities and business schools, financial-services companies and independent firms that focus solely on wealth education. In addition, peer-education groups are sprouting up, allowing wealthy individuals to meet regularly and learn from each other and from guest speakers.

 

[..]

 

The classes and seminars don't teach the secrets of how to become rich; instead they focus on how to handle the money that the participants already have. As a result, they are all geared to those who anticipate having taxable estates and who can afford to invest in hedge funds, private equity and other investments generally open to accredited investors. Although none of the courses have hard and fast wealth thresholds, the University of Miami course, for instance, is targeted toward individuals whose family holdings are at least $4 million, while many students at the Wharton program have at least $25 million in family assets.

 

My company teaches wealth management to the next tier down, people who have accumulated between $500,000 and several million in investable assets, or those who expect to.

 

Some of Ms. Anderson's clients say they are frustrated with their experiences at larger private banks. "One thing that Wall Street sometimes does is deliberately talk over people's heads to make their financial consultants sound smart," she says. "Much of what is called education is actually disguised product sales."

 

The core problems are the same, whether you have $10,000 to invest or $10 million: 1) How do I formulate my investment objectives? 2) How do I decide which tactics will have the highest likelihood of meeting those objectives? 3) How do I measure my performance against those objectives? and 4) Who do I trust?

 

The fact that we all need a working knowledge of money and investing is a given. If you don't have that working knowledge yet, or it is sketchy in places, your choices for obtaining it are simple: 1) You can educate yourself - which is time consuming but doable; 2) You can pay for sensible financial education; or 3) You can do nothing and hope that your naïve choices work out.

 

The smart thing is probably a combination of the first two. Unfortunately, most people will likely continue to opt for naiveté - at least until we begin to see the consequences come home to roost for the Baby Boomers.

 

The smart ones won't wait.

 

SOURCE:

 

1. Rachel Emma Silverman, "Upper Class: Why the Rich Are Heading Back to School" Wall Street Journal 17 January 2007; p D1.

http://online.wsj.com/article/SB116899825849778371-email.html

 

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.

 

Educating the Family CFO

I talk a lot about the concept of the Family CFO. It is a fairly new concept born of the unprecedented and ever-increasing responsibility individuals face for their own economic well being. The complexity of the personal finance landscape intensifies every day with more information, more products, and frankly, more bullshit.

 

Studies indicate our financial literacy isn't keeping pace with the demands being put on us. This is especially true of women, minorities, young people and the less educated. But the problem is certainly not limited to those groups. In fact, those we would expect to score highest in financial literacy - near retirees who have presumably made a great number of financial decisions during their lifetime - don't understand basic concepts necessary to make sound financial decisions. They are in desperate need of financial education.

 

The urgency of financial literacy started to get the attention of researchers in the mid-1990s. Since then, quite a few studies have been done. In a 2004 study, early Baby Boomers aged 51 to 56 were asked the following questions:

 

1) “If the chance of getting a disease is 10 percent, how many people out of 1,000

would be expected to get the disease?”

 

2) “If 5 people all have the winning number in the lottery and the prize is 2

million dollars, how much will each of them get?”

 

Anyone who answered either of the first two questions correctly was asked a third question:

 

3) “Let’s say you have 200 dollars in a savings account. The account earns 10

percent interest per year. How much would you have in the account at the end of

two years?”

 

80% were able to correctly determine that 10% of 1000 is 100. Only half could divide 2 million by 5 to get the lottery question right. Only 18% could compute the compound return over two years in the third question.

 

I have mentioned the University of Washington study in previous posts that found very little understanding of financial instruments. Most people have no idea that bond prices fall as interest rates rise for example. Many did not know what a no-load mutual fund was, or that mutual funds do not pay a guaranteed rate of return. More than one-third did not know that stocks had returned more than bonds over the last forty years, and many did not the basic concept of diversification to spread risk.

 

This is relevant because the research has established a clear link between those that understand things like simple percentage calculations and compound interest and those who save and plan for retirement. There is a clear link between financial education and economic behavior.

 

The Council for Economic Cooperation and Development defines financial education as:

 

The process by which financial consumers/investors improve their understanding of financial products and concepts and, through information, instruction, and/or objective advice, develop the skills and confidence to become more aware of financial risks and opportunities to make informed choices, to know where to go for help, and to take other effective actions to improve their financial well-being.

 

Clearly the need for financial education is great. My question is the extent to which individuals realize they need to augment their skill set and the profound implications a small investment in education can have on their future standard of living?

 

What do you think? Leave your thoughts and comments below.

 

PROPS:

 

I found this abstract for the research paper which is the basis for this post on Barry Barnitz's very utilitarian Financial Page blog. Thanks Barry for all that you do.

 

SOURCE:

 

1. Lusardi, Annamaria and Mitchell, Olivia S., "Financial Literacy and Retirement Preparedness: Evidence and Implications for Financial Education Programs" (January 2007). Available at SSRN: http://ssrn.com/abstract=957796

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.

 

Hedging Your Biggest Risks

Our paycheck protects us against all sorts of risks. You are in a much better position to absorb unexpected bills, divorce, a lawsuit, or a 20 year bear market when you are employed and have a steady and dependable source of income. A paycheck also hedges you against inflation. Typically, your W-2 income will rise over time to account for increases in the cost of living.

 

Our biggest financial risk is not losing assets or market value. It is losing our source of income.

 

According to a paper published by the Center for Retirement Research, more than three-quarters of adults age 51 to 61 experience financial shocks over a 10-year period. They include widowhood, divorce, job layoffs, health problems, or the onset of frailty among parents or in- laws. Health problems and layoffs dominate at this age. They also find the incidence of financially disruptive events increases with age.

 

If our biggest risk is losing our paycheck and the safety net it provides, how do we hedge or insure against that risk? We build an investment portfolio that generates a steady and consistent source of cash flow. The goal has to be to generate enough inflation-indexed income to replace our W-2 income at a moments notice.

 

Investing solely for growth is not adequate to insure against these risks. Paper gains are fleeting. Assets that must be sold are too risky. And contrary to conventional wisdom, stocks are not a good hedge against inflation.

 

When do we lose our job? When the market and the economy are booming? No. The more likely scenario is we lose our job when the economy is slow, profits are being squeezed and stock prices are down.

 

I believe the job of our portfolio is 1) to protect us against financial risk; and 2) to create wealth. These two things are not mutually exclusive. If you accept my definition of wealth, which is the ability to maintain a certain standard of living indefinitely over time, then wealth is not measured by the number at the top of your statement. It is instead, measured by the inflation-indexed income your portfolio can generate.

 

It is my deeply-held belief that your focus should not be on how to grow your portfolio, although that is certainly a by-product of income re-invested. Rather, "How do I create MORE sustainable, inflation protected income?"

 

What do you think? What is your definition of wealth? Has it changed as you approach retirement? Does the ability to maintain an agreeable standard of living indefinitely without worry make sense to you as a definition of wealth? Leave your thoughts and comments below.

 

SOURCE:

 

1. Richard W. Johnson, Gordon B.T. Mermin, and Cori E. Uccello. "When the Nest Egg Cracks: Financial Consequences of Health Problems, Marital Status Changes, and Job Layoffs at Older Ages" Working Paper Center for Retirement Research at Boston College, Number 18; Released December, 2005.

http://www.bc.edu/centers/crr/papers/wp_2005-18.html

 

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.