Merry Christmas

A Merry Christmas has little to do with the gifts purchased for friends and family. Those really hot gifts feel great to give and are really fun to receive, but they are empty if not attched to general caring and affection.

Remember to let those people who are important to you know that you care about them while giving that gift.

If this is a financially tight year for you and your family it is perfectly okay to let people know that you are scaling back this year. Likely they will be relieved because they, too, would like to spend less also.

All the best to you and yours.

Fuzzy Slippers

I closed my office this week for Thanksgiving but still had a couple of clients I really wanted to meet and tie up a couple of loose ends. I dressed semi-casual including a pair of mules (slip-on shoes) that are fuzzy on the inside.

While talking with my client and moving about my office I was stricken with panic.

Have you ever had that dream where you are at school or somewhere important with a lot of people and you realize you are wearing your pajamas?

I was stricken with the fear that I had actually worn my fuzzy house slippers to work and it wasn't until I stopped, looked down, and started to breathe again that I realized I was wearing real shoes. Had I looked down and found the fuzzy slippers I would not have been shocked.

You Don't Know What You Don't Know

Financial advisors-in-a-box drive me nuts. I've had serious conversations with seemingly rational, intelligent people who will stand on their soapbox and defend to the death the advice they received from their advisor-in-a-box.

I've read the books by these "advisors" so I could know and understand what their followers are being sucked into. The flavor of Kool-aid they are drinking this week. So many times I've held back laughter at the ideas they sprinkle all over their readers as if every person reading their words is identical in situation, goals, and ability.

The most fun is watching their respective television shows and hearing them give advice, without a license, to the desperate poor in our country. Their target audience are those who have a large amount of debt, have been irresponsible in their past, and/or are in complete denial about what they should or should not own. Even more entertaining is when I run into someone who is definitely NOT in their target market, meet none of their criteria as an audience, and these people still follow their incomplete and nonsensical advice.

Just prior to writing this entry I was doing a little internet surfing and listening to one of their do-it-yourself shows and heard the best advice ever to their single, 30-something viewer. "Save $1,000 each month, that's $12,000, into a Roth IRA and then save as much as you can with a match into your 401(k)." Woooow. Really? Wouldn't that be great? The IRS allows $5,000 max in 2008 and 2009 unless you are over 50, then you can tack on another thou for a grand total of $6,000. Not to mention there are income limitations and not everyone can contribute to a Roth IRA. Many normal people wouldn't have a clue, thus proving my point that they have no idea what they are talking about.

I heard another television advisor answering questions about life insurance products and the question was one that I understood clearly, but judging by the words and direction of this person's answer she didn't possess the knowledge and understanding of the product to even know that there was a question.

Yet, you are out there in the world and here I sit. Criminal. Absolutely criminal.

What's The Difference?

Many times I hear people speak of financial advisors, brokers, insurance agents, or financial planners as if they all mean the same thing. No soapbox here, but there are very important differences and all differences are first tied to licenses and then to the company supporting them.

First and most important to know is that no one works for free. "They don't charge me for that" is not accurate no matter where you go and no matter what you are referring to. There is always a fee, a charge, or a cost to not paying a fee. Also bear in mind that fees do not guarantee competence.

Financial Advisor is a very broad and over-used term. Basically if you are looking for someone to help you fit all of your financial pieces together by calculating important goals like retirement, education expenses, major purchases, life insurance needs vs. life insurance as an estate plan then you should expect to pay a licensed professional to perform these tasks. These calculations should be reviewed and recalculated regularly so you recognize important changes, short-comings, and success in achieving those goals.

If you know what you're doing or you really don't care if you reach any goals, but you want someone to throw some money into an account and invest it for you then you will pay for that also, but you will pay through your invested assets in one form or another. If I'm keeping this blog simple then detailing various ways you pay for these things would just be too long. Just know that you do pay and it's okay to pay within reason.

A client recently returned to my practice after spending two years at another firm. They initially left because the other firm offered to take their assets and do their financial planning "for free." I didn't say anything at the time knowing that they had to learn on their own. Two years later they called me asking if I would take them back. They realized that what they received from the other firm was similar to a plan, but there was no planning at all. They were just used for their assets and ignored for a year and a half. Of course I took them back and we updated their goals and the analysis of their goals and made minor changes to their strategies and we go skipping off into the sunset.

When someone does extensive analysis and planning they have to be licensed to provide this service and also must be licensed to charge a fee. Because I believe so strongly in what I do, I have to believe that if someone can charge a fee for advice, but they do not ... they don't have confidence in what they're doing or their firm doesn't support providing advice. If they offer to do things "for free" then it is very likely that they aren't licensed to do either.

It all depends on your level of investment and planning knowledge as to whom you should work with.

Free Credit Reports

www.annualcreditreport.com

This is the only site where you can get your annual credit reports from all 3 agencies without signing up for a service. I would suggest that you only check one of the 3 reports every 4 months. They run on a 12 month year i.e. May to May rather than once in 2008, once in 2009 etc.

So check Experian in January, Transunion in May, and Equifax in September, etc. They will email you when you are able to view a new report after 11 months have passed. This is a good way to monitor the reports throughout the year and begin protecting yourself against identity theft.

Children: Little Miss Butterfly Stickers

Several years ago I began working with a couple who had a toddler whom they brought to the office for every meeting. She sat quietly as we worked through the intricacies of their financial analysis, we talked openly about the hopes they had for their daughter and we discussed the many ways and options they had to save for her education.

Potty training was also happening during this time, so we took a couple of breaks to make sure her bathroom agenda was addressed. Then she sat with her pigtails and yellow flowered dress holding butterfly stickers. She held them much the same way I held the pad of paper I was writing on. I noticed that she would mimic my movements ever so slightly as I continued with my conversation with her parents.

I always have a conversation with the children who come into my office whether they wanted one or not and this evening was no different. She rammed her little head into her father's side and protested my direct communication with her.

After the meeting was over, everyone was gone and I needed my own potty break. I believe I was already potty trained at this time. I walked into the bathroom and on the walls about 2 to 3 feet high, the paper holder, the bottom of the sink, and the floor there were glittery butterfly stickers. Since I had a few seconds to think about the redecorating that had occurred in my bathroom I realized something very important.

This little girl doesn't really care who I am or what I am doing with her parents, but she and her parents were depending on me to give them direction and advice so that Miss Butterfly Stickers could go to college and become a happy and productive woman. It was one of many important moments that I've had. So, if you are in a public restroom out in the world and see a butterfly sticker that looks like it could have been there about five years ... it just could be hers.

Funny: I Think I Want to Quit Work

While doing my version of editing of this piece, I realized I may need to rename my blog "Making Cents - Confessions of a Financial Advisor." If I could get paid for sarcasm I'd be building an empire for the Scott family. I am not perfect, but many times common sense certainly does not prevail in many of my conversations.

I was talking with someone recently who was detailing their day-to-day lives, getting updates and such. This couple is going through a major change in income levels and employers and half of this couple is taking classes for a position that will greatly reduce their income. Yes, I said reduce ... purposely reducing their income.

Now I am not one to dash the hopes and dreams of another and I encourage everyone to follow their dreams - especially if those dreams can help to make their lives financially stable. I don't know how to recognize the next "Dog Whisperer" or the future new version of a Google CEO. I see hope in people and their possibilities for prosperity and I recognize it in their eyes. ...or not.

This half of the couple was confirming to me how far behind they were on their goals and how badly they want to come in and check their goals and status when I thought I heard the words "I want to quit work and stay home." They were referring to words spoken by their other half. Many of our conversations are based on how desperate they are to break their cycle, get ahead, have healthy retirement savings, and be comfortable. But now I'm hearing a sad plea for help in bringing their other half back into reality. Their reality.

The professional in me always believes I can bring an unrealistic client back into reality through careful conversation and common sense. The person in me with common sense wants to say WTF are they thinking? Didn't you listen to President Clinton when he said he smoked pot but didn't inhale? Stop your bitching and crying around and put your big people panties on and work. Work, pay your bills, contribute to retirement, and pay ME for my good advice that's going to keep you from eating cat food and rice when you're 70.

Stop crying about how it's someone else's responsibility to make sure you have a comfortable existence. Stop sucking all the air out of the room and draining everyone's energy. This is a supreme example of someone who wants to shirk their own responsibilities and make them the responsibility of another.

I didn't, I don't and so the day continues. The 30 other phone calls were normal and productive with normal and productive people. I have the best clients - without question. Then there's always that one ...

The Markets - Has this happened before?

• Since 1950 we have a 10% correction every two years on average. That means the markets will drop 10% about every 2 years.
• Since 1950 we have a 20% or more "bear" market every six years on average. That means the markets will drop 20% or more about every 6 years for varied reasons.
• 100% of the time - our markets recover.

When someone becomes nervous over a market drop and they move their money to bonds or cash while the market is down - they only lock in the fact that their account is down. When we begin the "recovery" period and they are still in cash and bonds, their accounts WILL NOT recover because they are sitting on the sidewalk waving at me as I/we pass them by rather than riding in the market car to a destination. (just to help you remember)

Often someone will boast that they "got out before it got bad" and will "get back in when it gets good." The meat of portfolio recovery often happens while they are still on the sidelines.You're not sitting at a blackjack table trying to figure out when to take your winnings. This is investing - investing is like a marriage. You have good times, bad times, bear market infidelity (haha) and rebalancing of priorities.

If you have access to a Roth 401(k) or a Roth IRA - you need to make sure you are maximizing your contributions. If you qualify to contribute to a Roth IRA or your employer offers a Roth 401(k) you are putting money into your account now and when you retire you pay ZERO tax. You can afford to pay the tax now because you are employed. When you are retired either by choice or by force (health) you need every penny in your account to be income tax free.

If your income prohibits you from contributing to a Roth IRA, then you still have great cause to contribute to your Traditional 401(k). As long as you are contributing to something you benefit every single day the markets are down because your newly invested money has great opportunity for growth.

Starting Fresh

I had previous blogs posted on this site and decided to delete them as they had nothing much to do with my subject matter.

I will be posting here as well as on facebook.