Billionaire Math

The mega-money being thrown around in Washington and the financial markets needs to be better understood. Million, Billion, Trillion – after awhile of listening to the news and reading the media wires, my eyes glaze over (MEGA for short).

Just how much money is a billion, or trillion dollars? I’ll try to put this into perspective so both commoners and math whizzes can appreciate it.

First off, we’re all quite familiar I am sure of one-million. “One million dollars”, The Millionaire Next Door book recently published, the myriad of lottery games with “million” in their name has made us comfortable with the term from our youth. One million is the next number after 999,999; it's 1,000 thousand, a 1 plus 6 zeros. After that, it’s quite easy if you remember the 1,000 rule. 1,000 million = 1 billion, (9 zeros), and 1,000 billion = 1 trillion, (12 zeros), then 1,000 trillion = 1 quadrillion (1 + 15 zeros). Okay enough of this already.

Let’s break the government’s $815 billion (and growing) Economic Stimulus package down to sensible numbers per person so we can get a better grip on all this moo-lah (money) soon to come showering down from above (we wish).

With a civilian work force of about 155 million Americans, that’s $5,258 per person.
At 35 million Senior citizens, age 65 +, that’s $23,285 per person.
At 50 million Americans now drawing social security, that’s $16,300 per person.
At 4.78 million American’s on unemployment now, that’s $170,645 per person (sorry, you’ll hog the whole pie if we let you).

Lastly, all of America, about 300 million people, that’s $2,717 for every man, woman and child!The $815 billion plan would be about double the existing dollars of currency and coin in circulation, about $885 billion now.

I hope and pray that the money is well managed and spent on worthwhile projects that benefit all American’s in this difficult financial time.

Even though January was a rough month again for the financial markets, gold and silver perked up nicely. Gold bullion rose about 5% while silver rose 13%. My next blog will discuss collecting coins and precious metals and their place in your overall financial mix. I think you’ll be surpised at the results.

Until next time, ~Barry

2008, A Recap

2008 - A Recap

There can be many reasons we should be grateful and happy with 2008. Our family and our relationships, good health, a roof over our heads and food in the 'fridge. But, we are working more. The median number of leisure hours available each week dropped to 16 last year, down from 20 in 2007 and 26 in 1973 when Harris Interactive starting tracking this stat. Working hours increased from 41 in 1973, to 45 in 2007, to 46 last year. With unemployment on the rise, 7.2% nationally, maybe working more is a good thing – it means you have a job!

It's quite certain now that the financial markets will end 2008 at sizable losses (I started this post between Christmas and New Years while in Virginia). It ranks pretty poorly in the historical perspective; the worst decline in stocks since 1931 using the Dow Jones Industrial stocks average. Kinda interesting that the stock market, in the Great Depression, climbed out of the malaise in the summer of 1932. It lost 25% in '30, 43% in '31, 8% in 1932, and then blossomed 54% in 1933, flat in ’34, then up 48% in 1935. I realize that it's painful, but be patient.

I am usually not upset over bear markets; it's part of the process of cleansing and renewal that we must expect in a capitalist system. What was difficult this go-around was that the credit and housing crisis forced the bear market into the once sacrosanct areas of corporate and municipal bonds, money market funds and similar fixed income investments. Investment principal reduced values, causing runs on stocks and mutual funds, which forced selling to meet redemptions from shareholders wanting ultimate safety in government bonds and treasury bonds. There has been a disconnect between a businesses prospects and earnings power and it's share price - a most difficult scene to manage money.

In the ’32 to ’35 period, corporate and Gov’t. bonds did quite well, averaging 11% and 8% per year respectively. One big difference between the periods; inflation. Consumer prices fell about 1% per year then, while last year’s inflation rose about 6%. Prediction: the huge government bailouts and money printing will bring inflation back; remember the Gerald Ford - Jimmy Carter years? Inflation averaged 8% a year between 1973 and 1977 – that's a big headwind to overcome to keep your money ahead of inflation. Perhaps oil and commodity prices will stay low, capping inflation a bit more. Gold & silver offered little solace last year: Gold +4%, silver -25%. Together they rose 22% on average in '07.

Washington and the "asleep at the switch" regulators received their nasty wakeup call in the mortgage and lending markets, where everyone was getting fat at the feeding trough the first five years of this decade. Just like all "bubbles" the 2005 to 'to be determined' real estate meltdown caught speculators and simpletons alike in the cross hairs of amortization assassination. My thoughts are that Washington needs to assemble an army of psychiatrists to make the decisions within most areas of finance, because it's investor behavior that rules most outcomes in this latest mess. The agreements, contracts, repayment schedules, prices, etc. meant very little. They were the 'drivers', but human irrational decisions are wired into our phyche; hey now I sound like a psychiatrist !

I hope that you've spent a few minutes each month reading my financial blogs and have benefitted in some way by my outlook and specific strategies. (The archives are on the right side of this page). Among the blog posts this year ...January - Bear Market history lesson; hedging techniques. February - I outlined retirement account transfers and rollovers, advantages and disadvantages. March - Retirement account deadlines (I.R.A., etc.) and potential growth of your balances. May - Investment Do-over (How fixed index annuities can prevent market losses and grow your savings). June - Half-time report: using diversification to reduce risk of loss (Telephone Hotline Started). August - Market Update and the benefits of dollar cost averaging. September - The 7% Strategy and the results from 78 years of market history. October - Assessing the bear market and invitation to my retirement planning workshop. November - Holistic Retirement Planning: post review of retirement workshop. To re-read any topic of interest, just click on the dates on the right side of the page, and you'll be taken to the specific post.

Look for more helpful topics in 2009 involving income planning, using options, etc. Sorry for some doom and gloom on this post; but it’s my job to worry about money. I signed up for it!

Give me a call for a free portfolio review, and to assess investment options you may not have considered. Please try to have a better 2009, and count your blessings we have around us that we often take for granted.

Barry Unterbrink
Chartered Retirement Planning Counselor
(954) 719-1151

Strategy Update ... What's Yours?

Dear clients and friends:

In this difficult financial market, I’ve spoken to many investors near and far. The interesting thing about all of the musings and opinions out there, is the amount of mis-information and ill-fated strategies that I hear from folks. The differentiation between prudence, fact and opinion is a huge gapping hole. I am not denying anyone their say – the 1st amendment is still on the books last time I checked.

One popular myth: "If I own this good, quality, blue chip company, the stock price will recover so I will continue to hold it". Fact: Sure many firms are strong and cyclical whose shares do follow the general market, but many do not. We all remember the mess of 2000-2002 better dubbed the “tech wreck” where the Internet and computer stocks soared then plummeted due to excess speculation and, in hindsight, faulty business models. In just 13 months the 2000's will end, and it's not been a great decade so far for investors of most stripes either. Meanwhile, inflation is at least 25% higher so far this century.

Consider this update ...here are some household names that have experienced serious trouble this decade for stock portfolios. Their current status: Oracle - $45 in 2000, today, $17, a loss of 62%. Citigroup - $57 in 2006, today $6, a loss of 89%. Bank of America - $52 in 2007, today $15, a loss of 71%. Home Depot - $70 in 1999, today $21, a loss of 70%. SunTrust Bank, - $94 in 2007, today $28, a loss of 70%. Motorola - $26 in 2006, today $4, loss of 85%. I'll stop here.

I purposely picked on the banks, due to their implosion this past year and my friend's reference to Bank of America, a holding. Some no doubt will survive, many have not and will not. As I told my friend this week, even if you can offer up a solid story for a turnaround, whose to say your bank won’t merge with another bank at a low price. It’s happened this year – then your chance for price recovery is thwarted. Losses of 60% - 90% are tough to recover from; you need doubles, triples or more just to get back to even. That's very unlikely to happen, and if it does, can take years, during which your money could be working harder for you in other areas.

In this vein, William O’Neil, founder and publisher of Investor’s Business Daily, conducted a study of stock market leaders covering over 100 years, and found that just 12% of stocks that were big winners in the last bull market continue to lead in the subsequent bull market. The Motorola’s, Cisco’s, Dells, Citigroup’s of the world – those dogs most likely have seen their day. Sure, many can continue to employ workers and crank out their widgets or services, but they have grown (or shrunk) to the point of mediocrity – their widgets are now a commodity, or their balance sheets are wrecked beyond repair.

The stock market has just rallied for the third time over 1,000 points within this bear market in the Dow Jones Industrials since the end of August. I did not think the October 10th low would be breached, but it did, so I was wrong, and has now bounced off Dow 8,000 again. The Wall Street adage, "the market will prove you wrong by 10% of your worst case forecast" came true for a short period of time. The markets dislike uncertainty, and there’s still much out there both economically and politically.

What to do now; if you still cannot sleep well, use these stock rallies to move some funds from stocks into safer bonds or indexed annuities; lessening your level of risk. Consider bond swaps to upgrade your credits in fixed income. That should increase your income also as rates have been rising in bonds of late.

Lastly, a new BULL market will emerge from all of this, so keep watching for opportunities from your advisor or your own research – better times usually emerge when you least expect it. Bill O'Neil's book, "24 Essential Lessons for Investment Success" is a good read from whom I often borrow facts. It's $10.95 retail, but I've seen it under $9 on Amazon.com. Consider it between the leftover turkey and football games.

Have a great Thanksgiving Holiday.
Barry Unterbrink (954) 719-1151

Holistic Retirement Planning

In late October, I hosted a retirement planning workshop with about 20 interested folks here at a local hotel. We enjoyed some timely discussion and a nice buffet lunch. I thought it helpful to review a few of the topics I presented to perhaps help yourself or someone you know in these financial areas.

* Multi-Generational IRA's
If you own a retirement account (IRA, 401k, 403b, etc.) you had better make sure it's not a tax bomb waiting for your heirs. By structuring your IRA as multi-generational, you can give your heirs many options to continue to defer the growth and tax on your IRA for perhaps 30-50 years or longer beyond your death.

* Estate Protection
Do you have accounts or investments earmarked toward your family or favorite charity after you check out? Is your performance low in this environment - are these investments costing you taxes on dividends or interest? If so, you may want to consider an insurance policy that can ensure your legacy with tax free dollars.

* Nursing Home Protection
One in three of us will need some type of custodial care during our lifetimes. With assisted living and nursing homes costing 40 or 50 thousand dollars a year; learn how to protect your estate with a plan to avoid the Medicaid spend-down provisions.

There were a few more topics discussed then: lessening the tax on your social security benefits; how to check on your broker/advisor's past regulatory and criminal history right on the Internet, and lastly some "safe money" strategies to consider that I've spoke on recently in this blog. See the links to the right for past posts.

Just give me a call - I'm very sure I can solve one or more of your money concerns.
Be well until next time.

~Barry Unterbrink (954) 719-1151
Retirement Planning Counselor

Near the Maximum Point of Pain Yet?

click the link for my retirement seminar details.

http://retirementworkshop.eventbrite.com/

Is the stock market near a bottom? What strategy are you using?

The stock market fell apart again Thursday, falling another 7% or so.

First, I will admit that the 30% worse case fall that I alluded to in my August 11th post was too kind. We're now 40% off the highs registered one year ago this week. I again will forecast that the market is closer to a bottom. The signs: there is a sense of panic among investors that is reaching a point of maximum pain. I've had calls from friends outside Fla. have called me asking for advice that their broker is not providing them. They are really worried that their money may not be around. Maybe they are partially correct; but history is not on their side.

Hopefully, you have implemented a few strategies that I've taught you this year:

* diversify across various market sectors using stocks and mutual funds
* add more money (dollar cost average) into stocks from cash or bonds when prices are down
* only owning stocks and bonds in line with your risk tollerance (if not hedge your bets).

Unless you are needing the money to spend in the next 2-3 years, you should have a stake in the only asset class that historically will earn you the highest return, keeping you ahead of inflation and taxes - stocks. It's really painful now to send in that payment or to see part of your paycheck going into the 401-k plan when prices are falling, but that's always turned out to be the best course.

Re-read my past posts on the markets, and you will see that's the case - Jul. 1st, Aug. 11th and Sep. 2nd. I'll reiterate my lesson plan for you here.

1> Don't base your performance on the highest values of your monthly statement - you will be disappointed. You can rarely predict the highest price to sell; the markets are too tricky to allow that. Instead, review things every 3-4 months and set parameters on how you are going to re-allocate your monies. Say, 60% stock mutual funds, 25% bonds, and maybe 15% cash or money market funds. If stocks do well, and are now 70% of your mix, sell some and get back in balance. If stock values decline to 50% of your total, buy 10% more stock. An old, good conservative rule to follow for your allocation; take 100 minus your age, and devote that to stock-based investments. Time will make you wealthy, not your timing or gut reactions. Hope and prayer are admirable in your faith, but aren't good as investment strategies.

2> Seperate your money into various pots, based on risk and objective. Sometimes having just one account makes investing more confusing, and you may make moves that get you into trouble without realizing it. By using 3 accounts, you could allocate some money to a riskier aggressive stock or mutual fund account, and then hold bonds or fixed income in another safer account, and finally have a "safe money" flexible annuity account that you can put away savings for retirement in 10,15 or 20 years with no risk of loss. Move money from a riskier pot to more conservative pots as your "pots" grow in value.

3> Learn how to read a stock or mutual fund chart. "If you can't measure it, you can't manage it", says a saavy investor on the television. How true. Looking in the Sunday newspaper for a quotation is not enough. You need to understand supply, demand and a few other indicators that the big boys use with stock and mutual fund charts.

I am hosting a Retirement Planning Workshop on October 21st here in Fort Lauderdale. If you are nearing retirement, or know someone who is, please send them the link above to register. It's FREE. Thanks.

The 7% bet ... is it prudent now?

Investing has always been a trade-off. Making choices with your money involves weighing the potential risk and rewards to determine the best course of action to achieve your desired goal. So, in a way, investing is akin to odds-making. In America, this is called fixed odds betting; wagering where you know the odds at the time of the placement of the wager. This is fairly easy to determine in the stock market since reliable statistics and performance are readily available for past sessions going back at least to before the Great Depression, or about 1925.

I thought it timely to undertake this market study now, as the stock market has fallen about 30% since it's high last October. I'm using the 7% figure to compare stock price performance vs. a hypothetical 7% rate of return, such as a deferred index annuity. The answer sought: is it generally better to accept the market risk of stocks (gaining above in any one year, and also losing money in any year), or to bet with the a less risky 7% annual return with no risk of loss when the stock market is down for any year.

To get started, I took the annual Standard & Poor’s 500 Index and compared this with a fixed index annuity that would credit you interest annually based on the performance of the S&P 500 Index with a cap of 7%. The cap is the maximum you could earn in any year, with a floor of zero in down years. You would never have a down year with your principal. Dividends were not considered for ease of calculations.

Seven decades of data were used, starting in 1930, and ending in 2007. This covered all of my available data, and represented co-incidentally about the lifetime of an investor, 78 years.The data presents itself as follows:

1930’s Stock market lost 41%, the 7% strategy gained 31%
1940’s Stock market gained 34%, the 7% strategy gained 40%
1950’s Stock market gained 257%, the 7% strategy gained 65%
1960’s Stock market gained 53%, the 7% strategy gained 50%
1970’s Stock market gained 17%, the 7% strategy gained 49%
1980’s Stock market gained 227%, the 7% strategy gained 66%
1990’s Stock market gained 315%, the 7% strategy gained 68%
2000-2007 Stock market lost 1%, the 7% strategy gained 31%

Well, the tally is pretty easy to figure: being a long term investor in the stock market paid off more than the 7% rule, but you needed a strong stomach to stay in during all the bad markets (24 years were down years). Using the 7% maximum gain in any one year, and all down years counted as zeros, you would have beaten the buy and hold market 50%, or one-half the time – ‘30’s, ‘40’s, ‘70’s, and so far the current decade. The other 4 decades your stock portfolio would have bested the 7% strategy. Taken all together, you earned about twice the amount by following the market.

You may say, “that’s all history now, what do I do today?” My reply; if you are more than 15 years to retirement, keep ¾ of your money in the market, and ¼ in the 7% plan. If you are younger, keep less; if older, keep more in the safer plan. With the recent stock and credit market turmoil, you should look at your allocations to determine your risks. If you can't eat or sleep well, you probably need to consider changes. Call me and I can help you with that.

Diversification - Your Free Lunch

Investment diversification has been called the "Free Lunch of Investing". Rightly so, Wall Street can serve up some nasty surprises with your money, but diversifying your portfolio against risk is entirely within your control.

Jim Cramer of the "Mad Money" television program on CNBC moderates a segment of his show titled, "Am I Diversified?" In it, his viewers call in and deliver their 5 largest stocks in their portfolio. Jim then decides yes or no if they are diversified or not. I like this, because it is helpful to all the viewers, no matter what your situation, and it works for both investors and traders alike.

To get started understanding diversification, the stock market can be broken down into sectors, represented as such:
CONSUMER DURABLES
CONSUMER STAPLES
ENERGY
FINANCIALS
HEALTHCARE
INDUSTRIALS
SERVICES
RETAIL
TECHNOLOGY
UTILITIES

These are fairly broad categories, as there are about 5,000 stocks traded on the three major stock exchanges. Next, place your stock into these 10 slots to determine your diversification. Go to finance.yahoo.com, enter your stock symbol, and then click profile to view your stock's sector. If you own 10 stocks, and more than 2 are in the same sector, you probably are not properly diversified.

There are those who disagree with this lesson, stating that they may choose not to invest in certain sectors based on their research. That is okay, but that increases your portfolio risk when you stray off target. For the average investor that doesn't manage money full time, my strategy is advisable as it lessens your risk of owning too much in any one sector or industry. It does not require you to cover all the sectors; just don't place too much in any one sector - say 15% maximum. Why? If that sector performs horribly (financial stocks, for example), it won't crater your portfolio. The same holds true for mutual funds held in your retirement accounts. Do they own the same sectors of stocks in more than one fund? What is the sector breakdown between your retirement account mutual funds and your other funds and stocks? If you own mutual funds in your retirement account, the quarterly reports would contain the sectors invested in; or call the fund company and ask them. Or, call me and I'll arrange a consultation to run the numbers for you.

In reviewing portfolios of stocks and mutual funds, I continue to see diversification violations big time. Hewitt Associates' recent research showed 21% of the respondent's 401K plan balances held company stock shares, and fewer than 1 in 5 make any transfers in their investment choices in a given year. What that shows me is that they are not "watching the pot" of money very closely.

While reviewing a 401(k) statement from a prospective client I advised in 2001, I noted that 75% of her portfolio was invested in her employers stock, which happened to be a major regional bank you'll see on the corners of Fort Lauderdale. We'll, maybe she made some changes the past few years, maybe not. The bank's stock declined 20 points over 8 years, or 30%, while the general market has been up since 2001. Lastly, a close family friend also owned a banking stock which represented 40% of their portfolio back in early 2006. Long story short, even though some shares were sold along the way, the result thus far has been more than a $1 million decline. These are tough lessons to learn from.
If you are not quite sure of your financial future, seek a professionals advice. I've been managing money and risk for folks since 1982. Be careful out there.

Summer Doldrums May Spell Profits Ahead

The financial markets have improved since my last blog at the end of June.

By most measures, stock prices are higher; Dow Industrials, +4%, Nasdaq Composite, +5%, and S&P 500, +1%. Some areas groups are lower, such as utility, energy and commodity-based stocks. The same groups that outperformed prior. The range of prices, spelled volatility, has been rising, which I think indicates the start of standoff between buyers and sellers. I'm not certain of this, but if the lows of mid-July can hold, we may not get another chance to buy at ‘sale’ prices this year. If the “worst case” is a 30% bear market, then we’ve seen two-thirds of that pain already by mid-July. A run to the former Dow high of 14,200 from here would be a 20% gain, so it would be worth the wait, even if it took 2 years to get back there. Look forward, not back, and you’ll no doubt enjoy the ride with less stress.

Still not comfortable with stocks? Try to dip your toe in gradually, adding to your retirement account or mutual fund account with any idle cash or money from your tax rebate (if you got one). In a falling market, you will lose less if you spread out your investing. For example, investing equal amounts at months end from Dec. 2007 through July, 2008 would have lost you 6.5% vs. -13.7% if you lumped it all in year-end 2007. Now it's easier to be made whole again.

Financial Media Reporting Alert

I enjoy reading, especially anything financial, and turn to both on-line and hard copy newspapers and periodicals. Including Barron's, The Wall Street Journal, Investor's Business Daily, USA Today, and the local Fort Lauderdale News / Sun-Sentinel. But...let's get the facts straight, reporters, TV and radio hosts! I see more sloppy reporting and errors in the daily media with stock prices, financial calculations, interest rates, etc. In the past few months, radio hosts have scared the bejesus out of my morning commute by reporting on the prior day's crashing stock prices, only to find out that the program was a replay of a show the prior week. Or the numerous mis-prints in the local paper; gaining stocks with minuses before their prices, down and up arrows mixed up. USA Today columnist John Waggoner's Friday column reported that "A 10-year Treasury note, for example, now yields 3.93% ... your $100,000 bond investment would pay you about $393 a month". Oh yeah, John - my calculator shows $3,930 a year in interest would be $327.50 per month, about $65 per month less. (Hint, use 12 months in the year, not 10). If you're bought some Treasury bonds today, you're getting 17% less income based on his calculations. Buyer beware.

Generally, the financial-only based news sites and weekly papers are very much more accurate thant the dailies. Maybe they are less-stressed with their deadlines. Bottom line, media - when dealing with markets, finances and lots of numbers, get a good proof-reader or better calculator before you go to press to millions of your readers. Bottom line, read your financial news with a skeptical eye.

Next blog: Wall Street’s Free Lunch - Diversification

The First Half of '08

Little to Cheer About so far in 2008 - but stocks are on-SALE!

The second quarter closed out on Monday, ending the first half of 2008. I hope your life perspective was productive and energetic. The financial perspective hasn't been very pleasant,
however. In all likelihood, we are in the midst of a recession in the U.S. economy, evidenced on main street and Wall Street. The popular stock market averages, as of today, have entered a 20% correction, and a bear market is upon us. A good indicator of a diversified portfolio for many Americans' savings and investments (IRA's, 401-k's, brokerage accounts, etc.) the popular market averages have fallen hard year-to-date, even if the April to June period saw a slowdown in the damages. The Dow Industrials and S&P 500 fell 7% and 3% in the three months, and 14% and 12% respectively for the first half of 2008. Unless you were positioned in Gold, Silver, or Energy and Commodity investments, your portfolios fell in value. Bonds gained a respectible 1-3%. Financial stocks of all stripes were off 25% plus.

The financial newsmakers most always create a big buzz on such events. "We are in a bear market, a recession - the worst in eons". As alarmists, they are sure to draw in viewers to their almost 24/7 blathering. The mute button is a great feature. I'm not saying to be Mr. Sunshine and dismiss the real problems facing us: lower interest rates for savers; rising inflation (at the food counter and gas pump mainly); along with falling home prices. But let's be somewhat realistic. The U.S. economy has entered 10 recessions since WW2, two in the 1970's, two in the '80's and one each in 1990 and 2001. The market's perform very well coming out of recessions-before you feel better, stocks are ahead nicely ahead.

Don't forget about where we've been, after the 2000-2002 recession, stock prices doubled the next 5 years. Today's markets may trend lower, but if you're up 100% then down 20%, your're still ahead nicely, eh? Remember, no one rings a magic bell at the low to signal when to buy. Generally, the words always and never will get you into trouble more than not, in life and investing. Staying the course within the limits of sleeping well at night is prudent now.

So here are my lesson-points to lessen your stress, and keep your cool with your money when you open your June statements.

1> Don't base your performance on the highest values of your monthly statement - you will be disappointed. You can rarely predict the highest price to sell; the markets are too tricky to allow that. Instead, review things every 3-4 months and set parameters on how you are going to re-allocate your monies. Say, 60% stock mutual funds, 25% bonds, and maybe 15% cash or money market funds. If stocks do well, and are now 70% of your mix, sell some and get back in balance. If stock values decline to 50% of your total, buy 10% more stock. An old, good conservative rule to follow for your allocation; take 100 minus your age, and devote that to stock-based investments. Time will make you wealthy, not your timing or gut reactions. Hope and prayer are admirable in your faith, but aren't good as investment strategies.

2> Seperate your money into various pots, based on risk and objective. Sometimes having just one account makes investing more confusing, and you may make moves that get you into trouble without realizing it. By using 3 accounts, you could allocate some money to a riskier aggressive stock or mutual fund account, and then hold bonds or fixed income in another safer account, and finally have a "safe money" flexible annuity account that you can put away savings for retirement in 10,15 or 20 years with no risk of loss. Move money from a riskier pot to more conservative pots as your "pots" grow in value.

3> Learn how to read a stock or mutual fund chart. "If you can't measure it, you can't manage it", says a saavy investor this week on the television. How true. Looking in the Sunday newspaper for a quotation is not enough. You need to understand supply, demand and a few other indicators that the big boys use with stock and mutual fund charts. I use TC2000.com for my fund charts and Investors.com for my stock charts.

Concerning retirement, as I've blogged in the past, you should fund a retirement account with mostly "safe money" that you won't lose to Mr. Market if you are not a good money manager, or just have a streak of bad luck to blame. Which would you prefer to earn with your money over a 5- year period: +7%, +6%, +0%, +4%, +9% ... OR +11%, +6%, -7%, -3%, +22%? Guess what, they both end up at the same point, about a 29% gain. In the latter string, volatility and a two year loss may force you out of the market in the fourth year, missing year 5's gain of 22%.

Retirement Planning Hotline

I've started a 24/7 telephone call-in line to further inform my clients and friends between my blogs and e-mails. You can call it anytime, and listen in on a recorded topic each call. It will be mainly focused on retirement planning, income planning, and "safe money" strategies; I won't discuss individual stocks or give specific investment advice. You can call me to meet you for a no-fee consultation. If you call and leave your name, I'll send you a free 101 page book on the topic*. The first two callers get the goods.

The call in number is: (641) 715-3800, enter 22509# when prompted. Updates will be sent to you by e-mail when I have a new recording. Tell me if it was helpful to you. Have a great and safe Independence Day. *prior winners ineligible.

Taking a Mulligan With Your Retirement Investing

A Mulligan (do over) Strategy to Investing for Retirement

I couldn't but help feeling a little melancholy over Tiger Woods feeble attempt to rally back in the final round of the Master's Golf Tournament last month. I thought of the term "mulligan"; coined after a fellow so named who took to re-playing his errant shots on the course with the hope of a better score. Without Tiger's 3 bogies on Sunday, he may have caught the leader and sent the match into sudden death. His role as underdog was rare. As to investing, wouldn't it be great to re-do our investments after a bad year, wiping the slate clear to a more promising outcome in year 2? As retirement becomes a larger and more important goal of so many of us, I have a solution to accomplish such. It’s called the "annual reset", and is a feature made available inside a fixed index annuity (FIA). With a little explanation, I'm sure you will agree that it is a valuable benefit to grow your savings, while avoiding any loss of your principal along the way.

The annual reset feature allows you to earn index credits, similar to interest, on a one year time frame. Each one-year time frame is “reset” using the last value of the index. Prior interest gains in your annuity are locked in. Let’s work through an example and follow how the numbers hit the page.

Year .........Start.... Finish...... %...... Credit...........Balance
2008-09; 12,000 - 13,000 +8%, +$8,000....$108,000
2009-10; 13,000 - 11,000 -15%, +$0 ...........$108,000
2010-11; 11,000 - 13,000 +18%, +$8,640... $116,640
2011-12; 13,000 - 13,650 +5%, +$5,832... $122,472
2012-13; 13,650 - 14,333 +5%, +$6,123... $128,596

Explanation: The stock market, Dow Jones Index (DJIA) starts at 12,000 and moves to 13,000 in three years. Without the reset feature, you would gain credits of about 8%, or $8,000 after year one. In year two the market loses 15%, as the market retreated from 13,000 to 11,000. Your credit was zero, since you are guaranteed no losses in a FIA. Since year two’s close is 11,000, and you started the program at 12,000, under normal conditions, you would still be losing money at the start of year #3. But with the “no losses in down years” feature, you are up 8% after two years. Because of annual reset, you start year #3 at Dow Jones 11,000. The market does well, rising 2,000 points to 13,000, an 18% gain. Your credits are $8,000 since the cap rate is 8% in any one year period. Remember, the crediting cap is needed to protect your account in the down years. If we took this illustration out for another two years, where the market gained 5% in years 4 and 5, your account would grow to $128,600 using the reset feature. Without it, you would have $119,400. That’s quite a difference, $9,200 more money by my count.

In summary, the combination of annual reset and a guarantee of no losses in down years, make this benefit within a fixed index annuity valuable for investors worried about market risks, while trying to keep their investments growing before retirement. Now maybe I can convince the P.G.A. to apply this concept to tournament play – that would indeed be interesting to watch.