Wealth Planning and Baby Boomers

John is one of the sharpest guys I follow, so we listen to his words carefully.

Some Thoughts on Getting Older

(Source: John Mauldin)

I turn 62 on October 4 while in Geneva. I don’t feel that old, and hope I don’t look it, but the birth certificate verifies the age. I should note that my mother turned 94 last week and is still quite active. I was talking with a Rice University classmate (of ’72) and old friend, John Benzon, who has recently retired from Price Waterhouse and is trying to figure out what “Act 2” will be. I realized that when we graduated, we had barely lived 1/3 of the lives we now have.

So with that on my mind, two items hit my inbox today. The first was from Lance Roberts of Streettalk Advisors. The San Francisco Fed did a report recently that suggested that we aging Boomers will be a drag on the stock market as we sell to support our retirement (shades of Harry Dent!). From the report: 

“The baby boom generation born between 1946 and 1964 has had a large impact on the U.S. economy and will continue to do so as baby boomers gradually phase from work into retirement over the next two decades. To finance retirement, they are likely to sell off acquired assets, especially risky equities. A looming concern is that this massive sell-off might depress equity values.” 

You can read his short piece and the link to the Fed piece at http://www.streettalklive.com/ financial-blog/253-boomers- are-going-to-be-a-real-drag. html.

I am not so sure, though. I think the Boomer generation is a little different from previous generations. I remember going to my grandmother’s in my early years, when my aunts and uncles were the age I am now. Even though active – and most lived well into their 90s – they had a far more sedentary lifestyle than many Boomers do today. Boomers are more active and, whether for financial reasons or simply because they don’t want to retire (that would be me!), they are going to work longer than previous generations. In fact, the only cohort that has seen their employment rates rise is workers over the age of 55! Good for them (although tough on my young kids, who need those jobs).

Then I got this picture from Jon Sundt, the president of Altegris, a close friend, and my business partner. He is 50, at the tail end of the Boomer Generation. 

This is a wave he caught at the Mentawai Island Chain, 80 miles off the coast of Sumatra, Indonesia. He goes there every summer. They go into the middle of the Indian Ocean to find these large waves. And it is mostly Boomer surfers. (I’m not sure how much I like the guy who’s responsible for a large part of my monthly cash flow taking these risks, but that’s another story!)

Go to a gym or running trail: it is not just kids out there any more. There are lots of people my age where I work out. Some of the trainers are over 50! We all have friends who are pushing the envelope – climbing mountains, biking, etc.

And the new biotech that will come out within the next five years is going to offer cures for many of the things that kill us sooner than we simply wear out. Cancer, Alzheimer’s, sclerosis of the liver, viruses are all on the short target list. I was talking about this with Scott Burns, noted author and long-time newspaper columnist (and a long-time friend). He calls it “catastrophic success” in his next book, as living longer is a “success,” but it makes our collective pension, Social Security, and Medicare problems even worse. Maybe MUCH worse. I smiled and told him there are worse problems than living longer. I intend to be writing and traveling for a few more decades.

And as my Dad used to say (he made it to 86), “God willing and the creek don’t rise” I intend to do 62 pushups on October 4^th, which will be a personal best. I can’t do much about getting older (I will be very disappointed if I do not get a whole lot older!), but I don’t have to go quietly into that dark night. And neither do you, gentle reader. So, make sure you are around to read my musings a whole lot longer, as well. If you hang around long enough, you will even see me turn bullish! It won’t be that long, I promise. It will seem like just a few weeks from now.

And while I was having lunch with Scott, he asked me the question, “How many years of US corn production would the dollar reserves of China buy?” I mused, maybe 40. Wrong. It is only 12. And that is just corn. Not soybeans, wheat or rice or cattle, hogs or chickens. Think about that and stand back in awe at the productivity of the American farmer.

.

Saverio Manzo

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Seven Life Lessons from the Ultra Wealthy

Money won’t buy happiness, but it will pay the salaries of a large research staff to study the problem.
Bill Vaughan
Please excuse the very wealthy for feeling a bit under siege lately.

Taxes for the top 2 percent are very likely to go higher. Uncle Sam’s share of capital gains and dividend income might rise, and means-testing for Social Security and Medicare is probable. In the United States, the very rich hold most of that wealth in dollars, which are worth increasingly less. As income inequality has grown dramatically in the nation, the very wealthy are blamed for all manner of social ills.
Rather than pile on the wealthy, this week I’d like to approach the subject of money a little more philosophically. There are surprising insights to be gleaned from the experiences of the very wealthy regarding their investments and experience with wealth.

Some context: In my day job, I come into contact with very high-net-worth individuals. These include young technologists with modest portfolios to families that measure their wealth in nine and 10 figures. For the math-averse, that’s hundreds of millions to billions of dollars.

Over the years, I have had some fascinating conversations with people who have hospitals and graduate schools named after them. I’d like to share some of the things I have learned from these folks.

1. Having money is better than not having money.
Sure, this may be obvious, but let’s get it out of the way upfront. Money may not buy you happiness, but it buys many other important things. Like financial security, excellent health care, education, travel and a comfortable retirement. In a word: freedom.

2. Don’t become “cash rich” and “time poor.”
Devoting all of your waking hours to making money is a problem, especially in professions with a partnership fast track. Lawyers, doctors, bankers and accountants can get so caught up in the competitive nature of their jobs that they lose touch with their family. Any semblance of a normal personal life disappears, and a very unhealthy balance between work and home can develop.
Work is the process of exchanging your time for money. Remember: What you do with your time is far more meaningful than the goods you accumulate with your money. If you are working so much to become rich but you ignore your spouse and miss seeing your kids grow up, you are actually poorer than you realize.

3. Memories are better than material objects.
You may be surprised to learn that among the monied set, expensive cars, yachts, houses, jewelry and watches come at the end of the list.
Their priorities? Memories and accomplishments. This was especially true when it came to family. Toys matter less than good times.

The rule of diminishing returns is a harsh mistress with luxury goods. Do you really think $100,000 audio speakers sound 20 times better than a pair of $5,000 speakers? (They don’t). Is a $250,000 sports car five times faster than a $50,000? (It is not). These days, you can buy quite a lovely home for $1,000,000 (and much less in the country’s interior). Those $10,000,000 manses are not 10 times roomier. Anyone who has owned a $10,000 Rolex will tell you that a $39 Casio keeps better time.

When discussing the benefits of wealth, I have heard again and again about amazing experiences, family get-togethers, vacations, shows, sporting events, weddings and other events as these people’s most important life experiences. While these things cost money, nearly every family can afford reasonable versions of them.

4. Watch your “lifestyle leverage,” especially early in your career.
Those partnership-track careers? The dirty little secret: Those firms love to get their young employees leveraged up. They will even help you get that way, co-signing mortgages for big houses or even directly lending you the cash on favorable terms.
They encourage up-and-comers to spend extravagantly; they extend lines of credit to their rising stars. You need a big house with a jumbo mortgage; you cannot pull up to a business meeting in anything less than the best luxury car. It is part of their corporate culture.

Isn’t that nice of them?

Not really. The big banks, investment shops, law firms and accountants have learned how profitable it is to have “golden handcuffs” on their best employees. These highly-leveraged, debt-laden wage slaves will work harder, put in longer hours and stay with the firm longer than those debt-free workers.
Besides, overleveraged employees do not leave to work at a new start-up or a smaller, more family friendly competitor.
You recent graduates: Remember this when you are offered credit on generous terms. Your leverage is your detriment.

5. Having goals is incredibly important.
I have a friend who is a serial entrepreneur. He was a board member in a household-name dot-com from the 1990s. He sold his stock — too early, I warned at the time — for $30 million. (It would have been worth $90 million a few months later.)
But that didn’t matter to him — he planned to use that money for his next company, which he promptly built and sold for $250 million. He rolled that l into his third venture, which he cashed out of for a cool $1 billion. His long-term goal, and the ability to execute that vision, are what led him to incredible success.

He once said something that has stayed with me: “I am always surprised at how many people have no goals. They simply let life’s river flow them downstream.”
There is a Latin phrase associated with military actions: “Amat victoria curam.“ It translates as “Victory loves careful preparation.” You would be amazed at what you can accomplish with planning.

6. You must live in the here and now.
Goals are important, but don’t miss out on what is happening today.
This is especially true among entrepreneurs, corporate execs and Type A personalities. Do not let dreams of that mansion on a hill prevent you from enjoying the home you live in.
This is an area that can easily veer into cliche. Rather than risk that, I’ll simply remind you of what John Lennon sang in “Beautiful Boy”: “Life is what happens to you while you’re busy making other plans.”

7. It helps to be incredibly lucky.
I am struck by how many very wealthy people I know — especially tech entrepreneurs – have expressed being grateful for their good luck. Again and again, I have heard the phrase: “Being smart is good, but being lucky is better.”
Rather than leave you with the impression that success is simply a roll of the dice, I am compelled to remind you what the Roman philosopher Seneca the Younger was reputed to have said: “Luck is where preparation meets opportunity.”
I don’t know whether it’s better to be smart or lucky, but I would suggest that making the most of the opportunities takes more than just dumb luck.

By Barry Ritholtz, Published: June 18

Saverio Manzo

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The mood of the high-wealth

The economy continues to bounce back, and while wealthy investors aren’t exactly taking the bull fully by the horns, experts say they certainly appear willing to chase after it.

Top Canadian investment advisors suggest greater recent investor activity, particularly within high-risk investments, shows the market is feeling positive and optimistic.


Despite the downturn, Canada had more than 550,000 high net worth (HNW) households at the end of 2009, and 2010 has been a relatively positive year, says Investor Economics director Keith Sjögren. Total assets under management belonging to HNW individuals across the country totalled $1.68 trillion in 2007, and held at $1.7 trillion in 2009, showing that the shift from growth strategies to capital preservation strategies after the crash worked.


Sjögren observes that investors are moving into the broader market again in noticeably greater numbers. “I think high-net-worth investors remain cautiously optimistic. There has been a change—it seems as though the wealth has been recovered and so they’re willing to assume some more risk. It appears the worst is over,” he said.
Andrew Marsh, president and CEO of Richardson GMP, says the panic of 2008 has been replaced with a sense of realism and positive ambition among investors, particularly when it comes to higher-risk investments previously left abandoned.

“There’s a mood of optimism mixed with cynicism. I think high-net-worth families have gone from extremely risk averse to being more comfortable with equities as an asset class because they see some positive movement in our economy. Since 2008 we’ve really learned what risk means,” Marsh said.
He says investors appear to be more open to stretching themselves now that they’ve seen some stability and are feeling underwhelmed by safe returns.


“People reacted to the meltdown by bailing from equities and they went to fixed income products. As confidence comes back, people are starting to feel the guaranteed rates they wanted so badly three years ago are disappointing after they see the returns. As a result they’re starting to see the potential value of stocks again,” Marsh said.
Sam Sivarajan, head of private wealth management at UBS, says the first quarter of 2011 has been a good indicator that people are getting active in the market again. But many are hedging their exposure to the U.S. dollar and looking at emerging markets more closely, particularly since many of those markets—like Turkey and Indonesia—did better than the larger markets over the past 24 months.


“Generally people are tired of the low yields, tired of sitting on the sidelines in cash, especially as they’re now seeing the economic recovery. People are looking to get back into the market in a protected way. There’s an interest in investing globally and looking outside the big economies for growth and stability,” Sivarajan said.


Even as the market recovers and high-net-worth investors restart their engines, there is still a profound sense of caution among investors that cannot be understated, says Mike Newton, senior vice president of Macquarie Private Wealth Canada.
“These are low-conviction optimists, they’re optimistic but not overly so. People have very strong memories of what happened in 2008. Despite what’s happened in the last 18 to 29 months in stocks, I still think most high-net-worth investors are reluctant to take on more risk. I don’t think that with dips in the market, investors are looking at it as a buying opportunity yet,” Newton said.
He points to the shuffling and uncertainty in the U.S. economy as a prime factor in keeping investors meek, and suggests perceptions of a recent surge in investor courage could simply be a sign that traditionally high-risk investors are dusting off their boots to get back into the rodeo.


“Some people who had very concentrated portfolios really got hurt—these types of people have an appetite for risk. They were sick to their stomachs for about a year but many of them are back, and they’re even more trigger-happy now. When they have a win they take their profits earlier and when they lose they take that loss and move on quicker, too,” Newton said.


Still, the effects of the meltdown are likely to be felt for a long time and the real challenge is just beginning for high-net-worth advisors, who will have to rebuild trust with clients and should expect tougher questions and more footwork going forward, Sjögren says.


“The damage that was done was not just done to portfolios but people’s comfort levels as well, both with their comfort with the market and with their advisors. It’s getting harder to please a high-net-worth investor,” he explains.
Newton warns high-net-worth investors against feeling too comfortable with the economic rebound and instead suggests now is the right time to think about their next contingency plan.


“The most interesting thing to me is the people I met in December of 2008, whose portfolios dropped 40%. Now that we’ve had a good rally and their portfolios have recovered to where they were, they feel like they got away with something, but I don’t feel they learned anything. I think people need to develop a contingency plan for when this happens again,” Newton said.

Raf Brusilow is a freelance journalist and writer living in Toronto.

About me: I give Economic, Social and Global trend briefings from some of the world's brightest minds at my blog http://saveriomanzo.com/ and http://saveriomanzo.blogspot.com/. I also provide true and tested financial planning and wealth advice. Most recently, over the past few years, I have become socially conscious and have been attempting to practise ways in which I can live my life more environmentally friendly.   Along with some truly exceptional friends, we provide consulting and business development for small-medium sized businesses.  In addition, I truly believe in being philanthropic, giving and doing unto other as we would have them do unto us. Some of my fondest resources are from Barry Ritholtz of The Big Picture, David Rosenberg and what Warren Buffett of Berkshire Hathaway is up to behind the scenes, as an example. saverio manzo

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Smart Financial Management

If you are unable to take care of your finances and you desperately want to take control over it, you must use money management tips. Gaining the knowledge of practical money management tips not only enables you to gain peace of mind by helping you live within your means but also helps improve your monetary condition. This article provides you with information about how you can manage your money on your own in a better way.

Tips to manage money

If you want to take control over your finances, you can either manage it on your own or you may hire a credit counseling agency to provide you with professional help to manage money in a methodical way. However, if you have time to do it on your own, you can save a lot of cash by not hiring a credit counseling agency to assist you to manage it.

Thus, here are some tips you may use in order to manage your money on your own.

1 . Create a budget – Track your income and your expenses and find out if your expenditures are more than your income. Also make sure to start a spending plan and take note of your daily expenses regularly. This may be time consuming but it will help you analyze your financial situation. List your spending, both the fixed ones like house and car payments as well as the flexible ones such as the electric and phone bills. This kind of a breakdown will help you get an idea about your financial standing.

2 . Review your credit report – Get a copy of your credit report and review it thoroughly. Investigate if there are any inaccuracies in your credit report such as typing mistakes or out-dated information. Immediately take up steps to remove such erroneous information from your credit report.

3 . Automate your finances – In order to automate your financial life, you must contact your mutual fund or broker to have monthly investments routed from your bank. Make sure to do the same for all your monthly utility, phone and cable bills. This will ultimately help you stick to your budget and you will never have to pay a late fee again.

4 . Check your bank statement – Be careful to read your bank statement regularly. Though each checking statement may differ according to the specific kind of account or bank, yet there are some basic types of entries that you must take note of. Be cautious about any transactions that you think is not yours as they signify that your checking account is in trouble.

Apart from managing your present finances, you must start accumulating cash for your future. It is preferable to start saving for your future as soon as you have got your first job. This will help you attain a considerable growth in your savings over the time.

Submitted by gweston, Advisor World


About me: I give Economic, Social and Global trend briefings from some of the world's brightest minds at my blog http://saveriomanzo.com/ and http://saveriomanzo.blogspot.com/. I also provide true and tested financial planning and wealth advice. Most recently, over the past few years, I have become socially conscious and have been attempting to practise ways in which I can live my life more environmentally friendly.   Along with some truly exceptional friends, we provide consulting and business development for small-medium sized businesses.  In addition, I truly believe in being philanthropic, giving and doing unto other as we would have them do unto us. Some of my fondest resources are from Barry Ritholtz of The Big Picture, David Rosenberg and what Warren Buffett of Berkshire Hathaway is up to behind the scenes, as an example. saverio manzo

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How to close a deal like Warren Buffett

Warren Buffett might be catching a lot of flack these days, but I think if you want to know about closing big deals, he’s still the guy to watch. Why? The man knows how to talk about money when he’s dealmaking.

Buffett is famous for doing ginormous deals with as little information as a few pages of business plans and the standard financials a company would submit to a bank to qualify for a loan. What he has when he goes into any conversation is an encyclopedic knowledge of how businesses work financially. He knows “their money,” “their wallet,” and how investments and outcomes should work. Follow his lead and you will close more business.

Here are seven things I’ve learned as I’ve watched Buffett from afar:

1. Know the other guy’s money - How they make it, how they count it, how they spend it. This is obviously much easier to do for publicly traded companies. For privately held companies, the numbers are fairly easy to estimate, at least the cost of goods sold and probably the cost of sale. These numbers are critical to discussing the possibilities of working together. Too often the discussion stops at budget. When you don’t know, ask. Not the trade secrets, but at least the industry averages. This provides a basic framework for the discussion.

2. Know the other guy’s wallet - How does this sale impact any of these critical numbers? The terms of the deal should be looked at from their side of the table first, then yours.

3. Start discussing the money early - You know you are going to discuss the money later. Early in the conversation, you do not have enough information for precision. Instead, you have an understanding of the economics of the prospect’s industry, so you have enough to determine if a deal makes any sense at all. Use that economic information and industry knowledge to frame a shared understanding of the reality of the money for this opportunity.

4. Use ranges to qualify and disqualify - Understand early (and throughout the discussion) whether you and your prospect are in the same arena. By using ranges of prices, cost structures, yields, and performance you can both be sure that you are dealing in a shared reality rather than getting to the end and finding yourselves so far apart that there is permanent damage done to the relationship.

5. Speak the language of investment and outcomes - Every large sale is an investment on both parts in an outcome. When you move the conversation from price to investment and cost to outcomes you are focusing on the business impact rather than budget impact. This is the language of large sales.

6. Don’t discount early - I regularly hear fearful “deal makers” use language like, “Let’s not let money get in the way of working together.” There’s a word for this that is not used in polite company. This is the language of discounting before the scope has been clearly defined. The sales person believes that he is being clever by taking money off the table. What he has really done is to take margin off the table, his and his company’s margin. If qualifying investment and impact has been made up front, then this point does not need to be made again.

7. Don’t negotiate until it’s time - Work on the deal points one at a time. Work through the investment and outcome ideas clearly, then negotiate. True, all of these points require negotiation. However, too often the conversation turns to negotiations too early before real scope and deliverables have been defined. Which means that the whole is reduced to the little parts before the shared picture of the whole has been established.

Side Note: I watched a deal unravel recently because the players did not observe these guidelines. The sale involved the installation of a point-of-sale system into a retail chain. The details are complicated as many large deals are, but the numbers were simple:

If you calculated the investment necessary for the system, the transaction cost was going to be >5% of the transaction revenue value. That’s more than the cost of the charge card processing fee! Never going to work regardless of the reporting bells and whistles, speed to data consolidation and so on.

This violates rules 1-5. The selling team did not understand the fundamental money issues of their prospect. They had not asked, done their research or even estimated. They were focused on the features of their system and what they had heard the IT people say would be the selection criteria without working through the money issues. That always leads to disaster.

saverio manzo


About me: I give Economic, Social and Global trend briefings from some of the world's brightest minds at my blog http://saveriomanzo.com/ and http://saveriomanzo.blogspot.com/. I also provide true and tested financial planning and wealth advice. Most recently, over the past few years, I have become socially conscious and have been attempting to practise ways in which I can live my life more environmentally friendly.   Along with some truly exceptional friends, we provide consulting and business development for small-medium sized businesses.  In addition, I truly believe in being philanthropic, giving and doing unto other as we would have them do unto us. Some of my fondest resources are from Barry Ritholtz of The Big Picture, David Rosenberg and what Warren Buffett of Berkshire Hathaway is up to behind the scenes, as an example. saverio manzo

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Rich Man, Poor Man (The Power of Compounding)

by Richard RussellDow Theory Letters

Recently by Richard Russell: The Red Arrows

MAKING MONEY: The most popular piece I’ve published in 40 years of writing these Letters was entitled, “Rich Man, Poor Man.” I have had dozens of requests to run this piece again or for permission to reprint it for various business organizations.

Making money entails a lot more than predicting which way the stock or bond markets are heading or trying to figure which stock or fund will double over the next few years. For the great majority of investors, making money requires a plan, self-discipline and desire. I say, “for the great majority of people” because if you’re a Steven Spielberg or a Bill Gates you don’t have to know about the Dow or the markets or about yields or price/earnings ratios. You’re a phenomenon in your own field, and you’re going to make big money as a by-product of your talent and ability. But this kind of genius is rare.

For the average investor, you and me, we’re not geniuses so we have to have a financial plan. In view of this, I offer below a few items that we must be aware of if we are serious about making money.

Rule 1: Compounding: One of the most important lessons for living in the modern world is that to survive you’ve got to have money. But to live (survive) happily, you must have love, health (mental and physical), freedom, intellectual stimulation – and money. When I taught my kids about money, the first thing I taught them was the use of the “money bible.” What’s the money bible? Simple, it’s a volume of the compounding interest tables.

Compounding is the royal road to riches. Compounding is the safe road, the sure road, and fortunately, anybody can do it. To compound successfully you need the following: perseverance in order to keep you firmly on the savings path. You need intelligence in order to understand what you are doing and why. And you need a knowledge of the mathematics tables in order to comprehend the amazing rewards that will come to you if you faithfully follow the compounding road. And, of course, you need time, time to allow the power of compounding to work for you.

Remember, compounding only works through time.

But there are two catches in the compounding process. The first is obvious – compounding may involve sacrifice (you can’t spend it and still save it). Second, compounding is boring – b-o-r-i-n-g. Or I should say it’s boring until (after seven or eight years) the money starts to pour in. Then, believe me, compounding becomes very interesting. In fact, it becomes downright fascinating!

In order to emphasize the power of compounding, I am including this extraordinary study, courtesy of Market Logic, of Ft. Lauderdale, FL 33306. In this study we assume that investor (B) opens an IRA at age 19. For seven consecutive periods he puts $2,000 in his IRA at an average growth rate of 10% (7% interest plus growth). After seven years this fellow makes NO MORE contributions – he’s finished.

A second investor (A) makes no contributions until age 26 (this is the age when investor B was finished with his contributions). Then A continues faithfully to contribute $2,000 every year until he’s 65 (at the same theoretical 10% rate).

Now study the incredible results. B, who made his contributions earlier and who made only seven contributions, ends up with MORE money than A, who made 40 contributions but at a LATER TIME. The difference in the two is that B had seven more early years of compounding than A. Those seven early years were worth more than all of A’s 33 additional contributions.

This is a study that I suggest you show to your kids. It’s a study I’ve lived by, and I can tell you, “It works.” You can work your compounding with muni-bonds, with a good money market fund, with T-bills or say with five-year T-notes.

Rule 2: DON’T LOSE MONEY: This may sound naive, but believe me it isn’t. If you want to be wealthy, you must not lose money, or I should say must not lose BIG money. Absurd rule, silly rule? Maybe, but MOST PEOPLE LOSE MONEY in disastrous investments, gambling, rotten business deals, greed, poor timing. Yes, after almost five decades of investing and talking to investors, I can tell you that most people definitely DO lose money, lose big time – in the stock market, in options and futures, in real estate, in bad loans, in mindless gambling, and in their own business.

RULE 3: RICH MAN, POOR MAN: In the investment world the wealthy investor has one major advantage over the little guy, the stock market amateur and the neophyte trader. The advantage that the wealthy investor enjoys is that HE DOESN’T NEED THE MARKETS. I can’t begin to tell you what a difference that makes, both in one’s mental attitude and in the way one actually handles one’s money.

The wealthy investor doesn’t need the markets, because he already has all the income he needs. He has money coming in via bonds, T-bills, money market funds, stocks and real estate. In other words, the wealthy investor never feels pressured to “make money” in the market.

The wealthy investor tends to be an expert on values. When bonds are cheap and bond yields are irresistibly high, he buys bonds. When stocks are on the bargain table and stock yields are attractive, he buys stocks. When real estate is a great value, he buys real estate. When great art or fine jewelry or gold is on the “give away” table, he buys art or diamonds or gold. In other words, the wealthy investor puts his money where the great values are.

And if no outstanding values are available, the wealthy investors waits. He can afford to wait. He has money coming in daily, weekly, monthly. The wealthy investor knows what he is looking for, and he doesn’t mind waiting months or even years for his next investment (they call that patience).

But what about the little guy? This fellow always feels pressured to “make money.” And in return he’s always pressuring the market to “do something” for him. But sadly, the market isn’t interested. When the little guy isn’t buying stocks offering 1% or 2% yields, he’s off to Las Vegas or Atlantic City trying to beat the house at roulette. Or he’s spending 20 bucks a week on lottery tickets, or he’s “investing” in some crackpot scheme that his neighbor told him about (in strictest confidence, of course).

And because the little guy is trying to force the market to do something for him, he’s a guaranteed loser. The little guy doesn’t understand values so he constantly overpays. He doesn’t comprehend the power of compounding, and he doesn’t understand money. He’s never heard the adage, “He who understands interest – earns it. He who doesn’t understand interest – pays it.” The little guy is the typical American, and he’s deeply in debt.

The little guy is in hock up to his ears. As a result, he’s always sweating – sweating to make payments on his house, his refrigerator, his car or his lawn mower. He’s impatient, and he feels perpetually put upon. He tells himself that he has to make money – fast. And he dreams of those “big, juicy mega-bucks.” In the end, the little guy wastes his money in the market, or he loses his money gambling, or he dribbles it away on senseless schemes. In short, this “money-nerd” spends his life dashing up the financial down-escalator.

But here’s the ironic part of it. If, from the beginning, the little guy had adopted a strict policy of never spending more than he made, if he had taken his extra savings and compounded it in intelligent, income-producing securities, then in due time he’d have money coming in daily, weekly, monthly, just like the rich man. The little guy would have become a financial winner, instead of a pathetic loser.

RULE 4: VALUES: The only time the average investor should stray outside the basic compounding system is when a given market offers outstanding value. I judge an investment to be a great value when it offers (a) safety; (b) an attractive return; and (c) a good chance of appreciating in price. At all other times, the compounding route is safer and probably a lot more profitable, at least in the long run.

Reprinted with permission from Dow Theory Letters.

About me: I give Economic, Social and Global trend briefings from some of the world's brightest minds at my blog http://saveriomanzo.com/ and http://saveriomanzo.blogspot.com/. I also provide true and tested financial planning and wealth advice. Most recently, over the past few years, I have become socially conscious and have been attempting to practise ways in which I can live my life more environmentally friendly.   Along with some truly exceptional friends, we provide consulting and business development for small-medium sized businesses.  In addition, I truly believe in being philanthropic, giving and doing unto other as we would have them do unto us. Some of my fondest resources are from Barry Ritholtz of The Big Picture, David Rosenberg and what Warren Buffett of Berkshire Hathaway is up to behind the scenes, as an example. saverio manzo

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Your Annual Financial Check-up

Doing a little homework prior to your annual review with your adviser can keep your financial goals on track.
Even the best laid plans can go astray if you don’t monitor your progress. That’s why one of the keys to making sure that your financial dreams actually come to pass is the annual review. This is where you get to sit down with your planner to explore how realistic the current financial plan is, what’s changed over the past year, and what, if anything, is going wrong.

At this review your adviser will probably want to address whether or not there have been any significant changes—in your life or your finances—since the initial meeting. He or she will want to review any new short-term plans, such as a kitchen renovation, that could significantly impact your cash flow. Your planner will also check to make sure your spending is in line with the proposed plan. Finally, your planner may go over the legal components of your plan, such as your power of attorney documents and wills to see if they need updating, and review your insurance (life and home) to make sure you’re not over- or under-insured.

The annual meeting is a great way to make sure you’re not veering off course, but Lenore Davis, partner at Victoria-based financial planning firm Dixon, Davis & Company, says you should track your progress all year long. She suggests a financial diary in which you can make notes throughout the year about what’s working and what isn’t, or jot down items you want to bring up at the review. “Then periodically throughout the year, review what you’ve written down.”

Right before your appointment with your planner, go back through your notebook and create a list of actions you still need to take, and flag any questions or concerns you would like to address. This will give you more control over what’s addressed at the annual meeting, plus it will send a message to your adviser that you expect a bit of back-and-forth dialogue on issues that are important to you.

When you’re keeping your diary, you can make note of anything you want, but you should be sure to include the following:

• your current and future job situation (particularly early termination or a recent promotion or big raise)
• any changes to your retirement plans (such as when you hope to retire, and what you want to do during your golden years)
• any changes in marital status or family situation, including separation or divorce
• thoughts about moving (from a smaller home to a bigger home, or to a different city altogether)
• questions about purchasing additional property (such as a cottage)
• any changes to your debt (the amount, the interest rate, where it’s held)

By reviewing your major concerns and future goals, you’re more likely to maximize the benefits of hiring a planner—such as seeking advice on certain decisions, or asking his opinion on different options. It’s the primary reason why Lance Howard, founder of Lance Howard Group in London, Ont., encourages his clients to seek advice on any decision that involves a large sum of money. “My role isn’t to talk you out of spending money, but to remind you of how your current decisions will impact your future goals.”

For instance, one long-term client phoned Howard recently agonizing over a new car purchase. He didn’t know if he should accept the 0% financing option from the dealership, pay for the car outright from his portfolio, or avoid the cost of car ownership by taking a lease offer instead. “I ran a few scenarios and helped him to make a decision that fit with his long-term financial goals,” says Howard. “At the end of the day, he just wanted to know: ‘Can I afford this? Do I have options?’ I was able to answer that question, and help maximize his savings.” As Howard constantly reminds the people he works with—you’re paying for the advice, and it’s not limited to life-altering events.

In fact, while annual reviews are important, having access to your adviser’s expertise all year round is one of the biggest benefits to hiring a financial planner. “Annual reviews are in place for your adviser to report back to you, but two-way communication throughout the year is critical for a good, long-term relationship,” says Davis. She says a professional planner will welcome emails and phone calls throughout the year. “Life happens in between review meetings, so contact—both formal and casual—is critical.”

Karen Diamond, partner at Diamond Retirement Planning in Winnipeg, agrees. “I love it when people contact me before making a major decision. I consider it an asset because you’re contacting me when something is on your mind, and that’s the most relevant time to discuss significant choices.”

She adds that advisers “are not parents—we’re not going to slap you on wrist when you want to spend.” Instead, your planner will help you to figure out the impact of your decision on your current financial plan, then try to find the most sensible way to execute the decision, if that’s your wish. Consider it a sober-second opinion from a professional with your best interests at heart.

5 reasons financial plans go wrong

Give your plan a fighting chance by avoiding these common mistakes

Your financial plan can get sidetracked for a lot of reasons: a market crash, an unexpected illness, a pension that goes bust. But the following five pitfalls are preventable—avoid them and you can at least give your plan a fighting chance.

1. You don’t follow your plan
The best plan in the world won’t do you any good at all if you don’t follow it. If you find yourself ignoring your plan completely, you probably have a deeper problem. It could be that you’re simply not ready to change. Or perhaps you haven’t yet identified the right goals.
Don’t feel you have to adopt the same financial goals as everyone else. Whether it’s starting your own business, taking a year off to explore Africa, or retiring to Paris, find the goals that most inspire you, and you’ll find sticking to your plan much easier.

2. Your plan is too ambitious
The main symptom of an unrealistic plan is perpetual overspending, says Karen Diamond, partner at Diamond Retirement Planning. If you consistently go over budget—even by just 10% or 20%—that will have a big impact on your long term projections. It’s better to have a more realistic plan that you stick to than an overly ambitious plan that you can’t follow. Consider asking your adviser to draw up a new plan that requires a bit less saving.

3. You expect sky-high returns
Your adviser probably isn’t the next Warren Buffet, no matter how much you wish he were. That means you should expect market returns at best for equities, and less for fixed income. Better to plan for market returns and be pleasantly surprised if you exceed your expectations than to count on making 12% a year and find out later that you’ll never meet your goals.

4. Your priorities have changed, but not your plan
Your life is a work in progress, and you’ll experience many unexpected twists and turns along the way. Your plan should be a work in progress too. As you age and your priorities change it’s important to let your adviser know so your plan can evolve with you.

5. You’re not talking to your planner enough
Probably the most damaging—and most preventable—plan saboteur is a communication breakdown between you and your adviser. “You have to keep working on the relationship and staying in touch,” says Diamond. She suggests making a list of your top concerns and questions and connecting with your adviser regularly by email, phone, or at the annual face-to-face review. “If you have a communication breakdown, then other problems soon arise and before you know it, the plan and the partnership are derailed.”

By MoneySense staff | From MoneySense Magazine,

About me: I give Economic, Social and Global trend briefings from some of the world's brightest minds at my blog http://saveriomanzo.com/ and http://saveriomanzo.blogspot.com/. I also provide true and tested financial planning and wealth advice. Most recently, over the past few years, I have become socially conscious and have been attempting to practise ways in which I can live my life more environmentally friendly.   Along with some truly exceptional friends, we provide consulting and business development for small-medium sized businesses.  In addition, I truly believe in being philanthropic, giving and doing unto other as we would have them do unto us. Some of my fondest resources are from Barry Ritholtz of The Big Picture, David Rosenberg and what Warren Buffett of Berkshire Hathaway is up to behind the scenes, as an example. saverio manzo

http://www.everyoneweb.com/saveriomanzo/     http://saverio-manzo.jimdo.com/   http://saverio-manzo.yolasite.com/   http://saverio-manzo.webs.com/  http://saverio-manzo.weebly.com/   http://saveriomanzo.terapad.com  http://www.shareowners.org/profile/SaverioManzo  http://www.linkedin.com/pub/saverio-manzo/b/995/63  http://twitter.com/saveriomanzo   http://www.facebook.com/people/Saverio-Manzo/854720596?ref=search