What I wish I knew about money before I graduated from dental school
Ross
Monday, December 14, 2009
Midwestern Dental School Presentation
Here's a link to the presentation I did recently at the Midwestern University Dental School in Phoenix Arizona. The presentation was titled "what I wish I knew about money before I graduated from Dental school" You'll need to enter your name and email address to access the recording. Enjoy!
What I wish I knew about money before I graduated from dental school
What I wish I knew about money before I graduated from dental school
Where to get the highest interest on your savings in 2010
Have you looked at the interest your bank is paying you on your cash balances lately? It's never been lower in your lifetime. It just doesn't make much sense in this economy to have a bunch of cash sitting around doing nothing. There are ways to get higher interest on your cash, but most require you to "lock-up" your dough for some period of time to get the higher rate. When I talk to folks, the biggest hesitation in doing this is giving up access to their money in case they need it.
If you want the highest return on your money without exposing it to the risk of investing in the stock market, there is an option that i'll bet you've never considered...Whole life insurance. That's right, the insurance companies are still paying pretty good interest on the money you put into a policy. Most are paying around 4% and if it's a mutual insurance company, you'll also get a dividend each year, which is your share of the profits earned by the company. Only mutual companies distribute dividends to the policyholders. Public companies pay their dividends to the shareholders. There is a big difference, so make sure you get the right kind of company when you purchase your policy.
Considering that an insurance policy has a contractually guaranteed interest rate, these are returns you can count on in even the most dire financial circumstances, like the economic meltdown of last fall. Good old whole life insurance has survived all 13 of the recessions since the great depression and policyholders have never lost a penny of principal. That's a great track record that should allow you to sleep at night knowing your money is in safe hands.
LIke I said at the start, the primary concern of most people I talk to is giving up access to their money for a higher interest rate. That's not a concern with whole life insurance as you can borrow against your policy to get your money if you need it. Because the balance you're getting interest on doesn't go down by the amount you borrow, you're still earning interest on all your cash that will offset much of the interest you're being charged on the amount you withdraw as a loan. Many people use this approach to "borrow from themselves" to buy their cars, pay off high interest credit cards, and even send their kids to college. When you pay the money you borrow back with interest (just like you would if you got the loan from a financial institution) you'll be saving yourself a ton in interest expense and be building your retirement nest egg at the same time.
Considering that most people pay about a third of every dollar they make in interest to some financial institution, reversing that flow of interest back to you is one of the most power ways to accelerate your retirement savings and rapidly increase the size of your nest egg.
So you can get a higher interest rate and still have access to your money. You win both ways. But that's not all the benefits of this alternative savings vehicle.
Because it's an insurance policy, you'll also have a death benefit that will go "tax free" to your beneficiaries in the event of your unexpected death. What bank provides that benefit for a savings account?
So if you're looking for the best place to get a great interest rate on your cash and a few other great benefits, consider whole life insurance. I'd love to show you how to use this powerful vehicle to guarantee a tax free retirement. This is not your grandfathers insurance policy and it pays to have someone who knows how to structure this properly to help you get it right the first time. I can help you set this up to maximize the cash value and death benefit to levels few people know how to get. Drop me a note if you'd like a free analysis.
If you want the highest return on your money without exposing it to the risk of investing in the stock market, there is an option that i'll bet you've never considered...Whole life insurance. That's right, the insurance companies are still paying pretty good interest on the money you put into a policy. Most are paying around 4% and if it's a mutual insurance company, you'll also get a dividend each year, which is your share of the profits earned by the company. Only mutual companies distribute dividends to the policyholders. Public companies pay their dividends to the shareholders. There is a big difference, so make sure you get the right kind of company when you purchase your policy.
Considering that an insurance policy has a contractually guaranteed interest rate, these are returns you can count on in even the most dire financial circumstances, like the economic meltdown of last fall. Good old whole life insurance has survived all 13 of the recessions since the great depression and policyholders have never lost a penny of principal. That's a great track record that should allow you to sleep at night knowing your money is in safe hands.
LIke I said at the start, the primary concern of most people I talk to is giving up access to their money for a higher interest rate. That's not a concern with whole life insurance as you can borrow against your policy to get your money if you need it. Because the balance you're getting interest on doesn't go down by the amount you borrow, you're still earning interest on all your cash that will offset much of the interest you're being charged on the amount you withdraw as a loan. Many people use this approach to "borrow from themselves" to buy their cars, pay off high interest credit cards, and even send their kids to college. When you pay the money you borrow back with interest (just like you would if you got the loan from a financial institution) you'll be saving yourself a ton in interest expense and be building your retirement nest egg at the same time.
Considering that most people pay about a third of every dollar they make in interest to some financial institution, reversing that flow of interest back to you is one of the most power ways to accelerate your retirement savings and rapidly increase the size of your nest egg.
So you can get a higher interest rate and still have access to your money. You win both ways. But that's not all the benefits of this alternative savings vehicle.
Because it's an insurance policy, you'll also have a death benefit that will go "tax free" to your beneficiaries in the event of your unexpected death. What bank provides that benefit for a savings account?
So if you're looking for the best place to get a great interest rate on your cash and a few other great benefits, consider whole life insurance. I'd love to show you how to use this powerful vehicle to guarantee a tax free retirement. This is not your grandfathers insurance policy and it pays to have someone who knows how to structure this properly to help you get it right the first time. I can help you set this up to maximize the cash value and death benefit to levels few people know how to get. Drop me a note if you'd like a free analysis.
Thursday, November 19, 2009
The Decade of NOTHING – Why your 401k won’t get you the retirement you’re expecting
The past decade has thrown a monkey wrench in the gears of traditional investing and financial planning. Regardless of where you get your investment advice, the pitch for the past generation or two has gone something like this:
1. Save part of what you make
2. Avoid debt
3. Buy Term Life Insurance and invest the difference
4. Max out your 401k contribution
5. Invest in a well-diversified portfolio of stocks and bonds
What the “experts” said is, “if you follow this plan over your working years, you’ll enjoy a comfortable retirement.” Ask anyone who planned to retire anytime over the past 10 years who followed this traditional plan and they will tell you it didn’t work!
The assumptions we’re asked to accept when we accept this advice is where the problem begins. I’ve had a few financial plans created for me over the years and they all start off with the advisor making an assumption on the annual returns I should expect over my lifetime of retirement saving and investing. That “assumed” return has ranged from 5-25% depending on the credibility of the advisor.
Never once in these presentations did they ever mention how the overall plan would be impacted if the “real return” of my portfolio in any given year was ZERO or even negative, let alone what the impact would be for a decade of ZEROor negative growth. But now we know…
The fact is that most retirement plans see the greatest growth in the few years right before retirement. If you took any 10 year period and set the return in your plan to zero, your nest egg wouldn’t just fall a little bit short of your projected retirement goal, you wouldn’t even come close. If that decade of nothing occurred in the 10 years just prior to you hitting retirement age, you’re doomed. That’s exactly the situation a large percentage of hard-working baby boomers are faced with right now. IT SUCKS!
Too bad you can’t wind back the clock and get a “do-over” on your planning and investing. Unfortunately, you only get one shot at this, so you need to get it right the first time. It’s almost impossible to play catch-up in order to make up for a shortfall when you near retirement age.
So what’s the solution? Did anything work over the past decde? What can a person do to avoid this terrible situation in the future?
There are dozens of strategies that will make you tons of money when stocks fall. They’ve been around since as long as investing, but they are only used by a few very sophisticated investors, and rarely would you be able to employ one of these bearish strategies in a qualified retirement account, like a 401k or and IRA.
Even if you did know a few bearish strategies, most investors are not sophisticated enough or simply don’t pay close enough attention to the market trends to recognize when to employ these strategies. It’s too easy to just “diversify and ride out the rough spots.” At least that’s what those that get paid to dispense advice and sell you those types of investments would like you to believe.
In reality, there is one approach that worked perfectly over the past decade, just like it worked perfectly during the bear market of 2000-2003 and even the Great Depression. In fact it’s worked perfectly during the last 13 recessions. When it comes to winning percentages, this approach is undefeated. This approach utilizes a product that’s been around for over 100 years and the companies that offer it are some of the most successful and stable companies in the world.
So what is this amazing wealth-building strategy?
Old-fashioned permanent life Insurance. (My personal preference being the dividend-paying Whole Life variety)
Before you hit the escape button and write me off as a lunatic, check out the facts.
Unlike your 401k or IRA, an insurance contract has the following features and benefits:
1. A Tax-Free death benefit that will pass to your heirs in the event of an untimely death (that’s only benefit of life insurance that most people know of)
2. A contractually guaranteed rate of return on the cash value of the policy, typically in the 4-5% range these days(Do your mutual funds offer guaranteed returns? What are you earning on those CD’s these days?)
3. Annual dividends on top of the guaranteed return that have been paid by some companies for over 100 years
4. Strict Government regulation that requires the company that issues your policy to hold cash reserves to back up their promises to you (If you think the FDIC can back up everyone’s deposits at the local bank, I’ve got some swampland in Florida I’d like to talk to you about)
5. Access to your money anytime you need it, even if it’s before age 59 ½ without penalty or tax consequence.
Tax-deferred growth on all gains within your policy (this is about the only benefit in this list that most qualified plans can match)
6. Lawsuit and judgement-proof (in our sue-happy world, your money is safe here)
Those who have permanent life insurance didn’t lose a penny of principal in the recent economic crisis, just like those who had these policies during the Great Depression didn’t lose any principal. In a time when safety and security are on the minds of all investors, those are some pretty impressive statistics.
So if I’m right, why isn’t everyone rushing to their local insurance agent to take out a policy? Honestly, it’s mostly ignorance. Unlike any qualified retirement plan, a knowledgeable agent can give you an illustration for your policy that you can literally bank on. Try getting that from your financial advisor or broker.
Insurance isn’t as exciting as trying to pick the next great growth stock in the market, but it works for nearly every single person who uses it and sticks to the plan. If you expect more of the same from the market over the balance of your working years, you owe it to yourself to consider a permanent life insurance policy as part of your financial foundation.
I’m just about finished with a new book outlining a powerful strategy that incorporates these concepts. If your retirement dreams have been shattered or you simply don’t know who to trust, Stay tuned!
1. Save part of what you make
2. Avoid debt
3. Buy Term Life Insurance and invest the difference
4. Max out your 401k contribution
5. Invest in a well-diversified portfolio of stocks and bonds
What the “experts” said is, “if you follow this plan over your working years, you’ll enjoy a comfortable retirement.” Ask anyone who planned to retire anytime over the past 10 years who followed this traditional plan and they will tell you it didn’t work!
The assumptions we’re asked to accept when we accept this advice is where the problem begins. I’ve had a few financial plans created for me over the years and they all start off with the advisor making an assumption on the annual returns I should expect over my lifetime of retirement saving and investing. That “assumed” return has ranged from 5-25% depending on the credibility of the advisor.
Never once in these presentations did they ever mention how the overall plan would be impacted if the “real return” of my portfolio in any given year was ZERO or even negative, let alone what the impact would be for a decade of ZEROor negative growth. But now we know…
The fact is that most retirement plans see the greatest growth in the few years right before retirement. If you took any 10 year period and set the return in your plan to zero, your nest egg wouldn’t just fall a little bit short of your projected retirement goal, you wouldn’t even come close. If that decade of nothing occurred in the 10 years just prior to you hitting retirement age, you’re doomed. That’s exactly the situation a large percentage of hard-working baby boomers are faced with right now. IT SUCKS!
Too bad you can’t wind back the clock and get a “do-over” on your planning and investing. Unfortunately, you only get one shot at this, so you need to get it right the first time. It’s almost impossible to play catch-up in order to make up for a shortfall when you near retirement age.
So what’s the solution? Did anything work over the past decde? What can a person do to avoid this terrible situation in the future?
There are dozens of strategies that will make you tons of money when stocks fall. They’ve been around since as long as investing, but they are only used by a few very sophisticated investors, and rarely would you be able to employ one of these bearish strategies in a qualified retirement account, like a 401k or and IRA.
Even if you did know a few bearish strategies, most investors are not sophisticated enough or simply don’t pay close enough attention to the market trends to recognize when to employ these strategies. It’s too easy to just “diversify and ride out the rough spots.” At least that’s what those that get paid to dispense advice and sell you those types of investments would like you to believe.
In reality, there is one approach that worked perfectly over the past decade, just like it worked perfectly during the bear market of 2000-2003 and even the Great Depression. In fact it’s worked perfectly during the last 13 recessions. When it comes to winning percentages, this approach is undefeated. This approach utilizes a product that’s been around for over 100 years and the companies that offer it are some of the most successful and stable companies in the world.
So what is this amazing wealth-building strategy?
Old-fashioned permanent life Insurance. (My personal preference being the dividend-paying Whole Life variety)
Before you hit the escape button and write me off as a lunatic, check out the facts.
Unlike your 401k or IRA, an insurance contract has the following features and benefits:
1. A Tax-Free death benefit that will pass to your heirs in the event of an untimely death (that’s only benefit of life insurance that most people know of)
2. A contractually guaranteed rate of return on the cash value of the policy, typically in the 4-5% range these days(Do your mutual funds offer guaranteed returns? What are you earning on those CD’s these days?)
3. Annual dividends on top of the guaranteed return that have been paid by some companies for over 100 years
4. Strict Government regulation that requires the company that issues your policy to hold cash reserves to back up their promises to you (If you think the FDIC can back up everyone’s deposits at the local bank, I’ve got some swampland in Florida I’d like to talk to you about)
5. Access to your money anytime you need it, even if it’s before age 59 ½ without penalty or tax consequence.
Tax-deferred growth on all gains within your policy (this is about the only benefit in this list that most qualified plans can match)
6. Lawsuit and judgement-proof (in our sue-happy world, your money is safe here)
Those who have permanent life insurance didn’t lose a penny of principal in the recent economic crisis, just like those who had these policies during the Great Depression didn’t lose any principal. In a time when safety and security are on the minds of all investors, those are some pretty impressive statistics.
So if I’m right, why isn’t everyone rushing to their local insurance agent to take out a policy? Honestly, it’s mostly ignorance. Unlike any qualified retirement plan, a knowledgeable agent can give you an illustration for your policy that you can literally bank on. Try getting that from your financial advisor or broker.
Insurance isn’t as exciting as trying to pick the next great growth stock in the market, but it works for nearly every single person who uses it and sticks to the plan. If you expect more of the same from the market over the balance of your working years, you owe it to yourself to consider a permanent life insurance policy as part of your financial foundation.
I’m just about finished with a new book outlining a powerful strategy that incorporates these concepts. If your retirement dreams have been shattered or you simply don’t know who to trust, Stay tuned!
Wednesday, August 5, 2009
The impact of Oil on the econmic recovery
As I read all the reports about the glut of oil sitting in storage facilities around the world, it's hard to understand why the price of oil continues to climb past $70. I guess it's time to throw all conventional wisdom out the window or just conceed that the oil market is no longer driven primarily by supply and demand, but by some other force. Speculation?
When I hear the stories about commodities traders paying for full oil tankers to sit offshore in hopes of delivering the goods when the price of oil is higher, I get concerned. When you consider the impact the price of oil, and more specifically gasoline, has on everyone's personal budget, it's a bit unnerving to imagine how quickly the economic recovery can stall if the price of a tank of gas continues to escalate.
While speculators provide needed liquidity to the commodities markets, I'm of the opinion that they have become a much more influential participant in these markets than anyone could have ever imagined. The wild swings in energy markets has caught the attention of regulators as they consider how to curb the influence of non-market participants (speculators) in the energy markets in hopes of smoothing out the peaks and valleys. One of the biggest proponents of that are the airlines who are getting killed every time oil takes off to new highs. It's hard to manage an airline when one of your largest expenses (fuel)can fluctuate by 10% or more every 30 days.
A real economic recovery must have an increase in jobs and disposable income to be lasting. The gains in the market over the past few months have been built through cost cutting, not growth. Unless the growth follows shortly, the recent rally will have no foundation to serve as a base for a higher trading range.
Enjoy the rally! Hope you make a ton, but watch out for the wall on the horizon in the form of higher energy prices and the impact they have on each of our personal budgets. It's nice to see the market go up, but I'm not back to feeling rich again. We've still got a ways to go before you can call an end to the economic crisis.
When I hear the stories about commodities traders paying for full oil tankers to sit offshore in hopes of delivering the goods when the price of oil is higher, I get concerned. When you consider the impact the price of oil, and more specifically gasoline, has on everyone's personal budget, it's a bit unnerving to imagine how quickly the economic recovery can stall if the price of a tank of gas continues to escalate.
While speculators provide needed liquidity to the commodities markets, I'm of the opinion that they have become a much more influential participant in these markets than anyone could have ever imagined. The wild swings in energy markets has caught the attention of regulators as they consider how to curb the influence of non-market participants (speculators) in the energy markets in hopes of smoothing out the peaks and valleys. One of the biggest proponents of that are the airlines who are getting killed every time oil takes off to new highs. It's hard to manage an airline when one of your largest expenses (fuel)can fluctuate by 10% or more every 30 days.
A real economic recovery must have an increase in jobs and disposable income to be lasting. The gains in the market over the past few months have been built through cost cutting, not growth. Unless the growth follows shortly, the recent rally will have no foundation to serve as a base for a higher trading range.
Enjoy the rally! Hope you make a ton, but watch out for the wall on the horizon in the form of higher energy prices and the impact they have on each of our personal budgets. It's nice to see the market go up, but I'm not back to feeling rich again. We've still got a ways to go before you can call an end to the economic crisis.
Monday, June 8, 2009
Have we reached the bottom yet?
That's the question that's on most investor's minds these days. It's not hard to see that things are a bit better in the housing and credit markets and fewer people are losing jobs if you believe the latest round of data. I think it really comes down to whether you believe "less bad" news equals "good" news. I don't.
This entire three month rally in the markets has been built on the assumption that less bad equals good news. The fact remains that the economy is still in the dumper and jobs are being lost by the hundreds of thousands each week. These jobs are not being replaced by the stimulus spending or business growth. That means that more and more people don't have money to spend on anything but necessities, and many don't even have money for that.
While I don't expect a return to the depths of despair witnessed in October and September, I do expect there will be tough times ahead and many will be caught off guard having fallen prey to the notion that less bad is good.
So the real question is how can you make money on your personal investments in this market. We've experienced an almost unprecedented period of high volatility over the past year and especially over the past six months. Volatility is returning to more normal levels with the VIX dropping under 30 for the first time in months.
In this environment, I favor strategies that create income from selling options. The most conservative of those strategies would be selling covered calls on the stocks you own. I would suggest giving a little upside room to reach the strike prices of your covered calls to benefit if the market rally continues, but don't go too far out or you'll lose the protection the premium income will provide in the event of a sell off.
With oil spiking over the past few weeks, we're back into a position of having to worry about higher energy costs impacting the potential for recovery. It doesn't seem to be big news yet with oil now nearing $70 per barrel, but when it starts to push $80 in a few weeks, it will once again dominate the headlines as we all brace for gas prices at or above $3 per gallon.
If you want to be able to survive the peaks and valleys of the market in the years to come, I suggest you learn to trade options. Not many people have been able to make money in the past 12 months on their investments, but the majority who have traded options to do it.
I'll be teaching a small group of investors the strategies that are working now in a special personal mentoring program that begins in August. You'll get four months of instruction from me and my team of personal coaches. I think it's the best way to learn how to protect yourself and prosper in these tough economic times.
Call me office at 1-888-300-1892 and get the details.
Also, if you're struggling with debt check out my new book at rossjardine.com. If you'll pay the shipping, I'll send you a copy for free. Learn my seven steps for getting out of debt and building real wealth.
Happy investing.
This entire three month rally in the markets has been built on the assumption that less bad equals good news. The fact remains that the economy is still in the dumper and jobs are being lost by the hundreds of thousands each week. These jobs are not being replaced by the stimulus spending or business growth. That means that more and more people don't have money to spend on anything but necessities, and many don't even have money for that.
While I don't expect a return to the depths of despair witnessed in October and September, I do expect there will be tough times ahead and many will be caught off guard having fallen prey to the notion that less bad is good.
So the real question is how can you make money on your personal investments in this market. We've experienced an almost unprecedented period of high volatility over the past year and especially over the past six months. Volatility is returning to more normal levels with the VIX dropping under 30 for the first time in months.
In this environment, I favor strategies that create income from selling options. The most conservative of those strategies would be selling covered calls on the stocks you own. I would suggest giving a little upside room to reach the strike prices of your covered calls to benefit if the market rally continues, but don't go too far out or you'll lose the protection the premium income will provide in the event of a sell off.
With oil spiking over the past few weeks, we're back into a position of having to worry about higher energy costs impacting the potential for recovery. It doesn't seem to be big news yet with oil now nearing $70 per barrel, but when it starts to push $80 in a few weeks, it will once again dominate the headlines as we all brace for gas prices at or above $3 per gallon.
If you want to be able to survive the peaks and valleys of the market in the years to come, I suggest you learn to trade options. Not many people have been able to make money in the past 12 months on their investments, but the majority who have traded options to do it.
I'll be teaching a small group of investors the strategies that are working now in a special personal mentoring program that begins in August. You'll get four months of instruction from me and my team of personal coaches. I think it's the best way to learn how to protect yourself and prosper in these tough economic times.
Call me office at 1-888-300-1892 and get the details.
Also, if you're struggling with debt check out my new book at rossjardine.com. If you'll pay the shipping, I'll send you a copy for free. Learn my seven steps for getting out of debt and building real wealth.
Happy investing.
Thursday, February 12, 2009
The Solution to the Economic Crisis - Who do you trust, Government or Business?
I watched in amazement the past couple days as the leaders in our Goverment put the beat-down on a group of bank executives in Washington DC. If you missed it, check out youtube for the highlight reel. I wouldn't call it political drama, I would call it political comedy.
After watching our elected officials do their best to embarrass, demean and ridicule this group of executives all I could think of was, "who elected these people and how can they possibly stay in office after this pathetic performance?" The come across as a bunch of blow hard with little real knowledge or experience in these complex financial issues. There's an old saying that goes something like this, "Better to be thought a fool than to open your mouth and remove all doubt."
Before anyone thinks I've lost all sanity, let me first say that nearly all these executives have made poor decisions that contributed to and helped create the economic mess we're in. They are clearly the most out-of-favor group of business leaders in the entire world right now and the primary target of the populist crowd who blames them for all their personal financial challenges. For anyone in government to do any more to help these men and their companies would likely be political suicide.
But step back for a moment and put your anger on the shelf and consider that these same elected officials are the "executives" of the largest enterprise in the free world, the US Government. The very things they are attacking these men and their companies for they are guilty of themselves by several orders of magnitude.
Where is all the outcry and criticism of our Government for spending far beyond their means and leveraging the future generations of Americans with a burden of debt equally as troublesome as any created by the mortgage or banking industries? This is like the pot calling the kettle black. It's the pinnicle of hypocrisy!
If our Government officials could simply grasp the concept of "living within our means," just like we all must do in our personal households, we likely would have had the resources to stimulate the economy from a rainy-day fund rather than spending over a Trillion dollars of money we don't have. The criticism should cut both ways, but the populist crowd is giving Government a pass on this, or still thinking it's George Bush's fault. Government was broke long before George Bush came along and he just helped get the problems out in the open a lot faster. Government is unable to make the tough decisions and sacrifices needed to turn this crisis around, because they are too sensitive to the minority groups that will be impacted by those sacrifices. They can't make tough decisions.
Every responsible exectuvie at a real business is making the tough decisions of cutting back, laying off and restructuring to keep their businesses viable in the face of the worst economic environment in decades. They don't pass the buck, the make the tough decisions. Sure lives are impacted and dreams are crushed, but these tough choices were necessary to keep the business afloat. The executives in the business world rarely ascend to those key authority positions without first demonstrating they have the education, knowledge, and leadership skills needed to make the tough decisions required of a senior executive. That's simply not the case when it comes to Government.
I've done a fair bit of investing in real estate over the years and I remember talking to a man who had a great deal of experience working with cities and municipalities on development issues like zoning and density and the like. Those are complex issues that take specialize knowledge, training and experience. I watched him deal with city councils and managers that had zero education or experience in development and land planning but who held total decision-making authority over decisions that involved hundreds of millions of dollars of taxpayer money and resources. They were more likey to be be swayed on a critical issue by the opinion of their next door neighbor than a skilled expert from that field.
Just think, even a small rural city may have an annual budget in the tens of millions of dollars, but the people of the city entrust the management of those precious resources to a group of lay people who are elected in a popularity contest. Even a small city budget dwarfs the budgets of many very well-known public companies. Can you ever imagine having a group of lay people making the decisions on how to run IBM, Microsoft or General Motors. (some of you cynics may say that might not be such a bad idea considering how those companies have been run lately)
The point is that we have a group of poweful elected officials that lack the expertise and skill to deal with the serious and very complex issues facing our country, and we're all stake-holders. Given the rank state of national and state politics, it's no surprise to me that the most qualified people have zero interest in running for elected office. Who would want to go through the political gauntlet to get a low paying job with millions of ignorant people taking pot shots at your every decision. Power in Government is granted by seniority rather than qualifications.
It's pretty easy for Maxine Waters to beat down those bank executives and rant and rave like she did on C-span this week, but if you let a person like her make those tough and complex decisions instead, do you really think we'd be better off? Not a chance! To protect her status and authority, she would never even venture to offer a solution that would make sense, but she can take all the pot shots she wants without fear of losing power. Why doesn't the same standard apply to her and every other elected official on the decisions they make as a member of Congress?
The more government gets involved in business, the worst things are going to get. If you can't run a business profitably, it's going to fail. That's capitalism. If government wants to regulate business more than they already do, it's going to add more cost and reduce profits even more, meaning more business will fail and fewer entrepreneurs will even consider starting a business, which means fewer jobs for the populists and more challenges for the country.
There are plenty of strong, well-managed businesses out there that could instantly create new good-paying jobs that will last a long time if we gave them a little bailout money to prime the pump. Having witnessed the inefficiency and ineptness of government many times in the past, I'd rather gamble my financial future (and that of my next couple of generations) on them rather than the buffoons who run our Government.
Just so you don't think I'm just a chronic complainer without any constructive input, let me suggest a good starting point to get real change in Government. I would immediately institute term limits for all elected officials. Eight years is all you can serve in office no matter what position you're in. We do it for the President, why isn't it equally good for the House and Senate. There's enough blame for all the woes in America for everyone to take some. Until we can get past putting so much energy into pointing the fingers of blame and redirect it into creating bipartisan long-term solutions to the very complex problems facing our world, nothing is going to change, and it's likely going to get a whole lot worse.
After watching our elected officials do their best to embarrass, demean and ridicule this group of executives all I could think of was, "who elected these people and how can they possibly stay in office after this pathetic performance?" The come across as a bunch of blow hard with little real knowledge or experience in these complex financial issues. There's an old saying that goes something like this, "Better to be thought a fool than to open your mouth and remove all doubt."
Before anyone thinks I've lost all sanity, let me first say that nearly all these executives have made poor decisions that contributed to and helped create the economic mess we're in. They are clearly the most out-of-favor group of business leaders in the entire world right now and the primary target of the populist crowd who blames them for all their personal financial challenges. For anyone in government to do any more to help these men and their companies would likely be political suicide.
But step back for a moment and put your anger on the shelf and consider that these same elected officials are the "executives" of the largest enterprise in the free world, the US Government. The very things they are attacking these men and their companies for they are guilty of themselves by several orders of magnitude.
Where is all the outcry and criticism of our Government for spending far beyond their means and leveraging the future generations of Americans with a burden of debt equally as troublesome as any created by the mortgage or banking industries? This is like the pot calling the kettle black. It's the pinnicle of hypocrisy!
If our Government officials could simply grasp the concept of "living within our means," just like we all must do in our personal households, we likely would have had the resources to stimulate the economy from a rainy-day fund rather than spending over a Trillion dollars of money we don't have. The criticism should cut both ways, but the populist crowd is giving Government a pass on this, or still thinking it's George Bush's fault. Government was broke long before George Bush came along and he just helped get the problems out in the open a lot faster. Government is unable to make the tough decisions and sacrifices needed to turn this crisis around, because they are too sensitive to the minority groups that will be impacted by those sacrifices. They can't make tough decisions.
Every responsible exectuvie at a real business is making the tough decisions of cutting back, laying off and restructuring to keep their businesses viable in the face of the worst economic environment in decades. They don't pass the buck, the make the tough decisions. Sure lives are impacted and dreams are crushed, but these tough choices were necessary to keep the business afloat. The executives in the business world rarely ascend to those key authority positions without first demonstrating they have the education, knowledge, and leadership skills needed to make the tough decisions required of a senior executive. That's simply not the case when it comes to Government.
I've done a fair bit of investing in real estate over the years and I remember talking to a man who had a great deal of experience working with cities and municipalities on development issues like zoning and density and the like. Those are complex issues that take specialize knowledge, training and experience. I watched him deal with city councils and managers that had zero education or experience in development and land planning but who held total decision-making authority over decisions that involved hundreds of millions of dollars of taxpayer money and resources. They were more likey to be be swayed on a critical issue by the opinion of their next door neighbor than a skilled expert from that field.
Just think, even a small rural city may have an annual budget in the tens of millions of dollars, but the people of the city entrust the management of those precious resources to a group of lay people who are elected in a popularity contest. Even a small city budget dwarfs the budgets of many very well-known public companies. Can you ever imagine having a group of lay people making the decisions on how to run IBM, Microsoft or General Motors. (some of you cynics may say that might not be such a bad idea considering how those companies have been run lately)
The point is that we have a group of poweful elected officials that lack the expertise and skill to deal with the serious and very complex issues facing our country, and we're all stake-holders. Given the rank state of national and state politics, it's no surprise to me that the most qualified people have zero interest in running for elected office. Who would want to go through the political gauntlet to get a low paying job with millions of ignorant people taking pot shots at your every decision. Power in Government is granted by seniority rather than qualifications.
It's pretty easy for Maxine Waters to beat down those bank executives and rant and rave like she did on C-span this week, but if you let a person like her make those tough and complex decisions instead, do you really think we'd be better off? Not a chance! To protect her status and authority, she would never even venture to offer a solution that would make sense, but she can take all the pot shots she wants without fear of losing power. Why doesn't the same standard apply to her and every other elected official on the decisions they make as a member of Congress?
The more government gets involved in business, the worst things are going to get. If you can't run a business profitably, it's going to fail. That's capitalism. If government wants to regulate business more than they already do, it's going to add more cost and reduce profits even more, meaning more business will fail and fewer entrepreneurs will even consider starting a business, which means fewer jobs for the populists and more challenges for the country.
There are plenty of strong, well-managed businesses out there that could instantly create new good-paying jobs that will last a long time if we gave them a little bailout money to prime the pump. Having witnessed the inefficiency and ineptness of government many times in the past, I'd rather gamble my financial future (and that of my next couple of generations) on them rather than the buffoons who run our Government.
Just so you don't think I'm just a chronic complainer without any constructive input, let me suggest a good starting point to get real change in Government. I would immediately institute term limits for all elected officials. Eight years is all you can serve in office no matter what position you're in. We do it for the President, why isn't it equally good for the House and Senate. There's enough blame for all the woes in America for everyone to take some. Until we can get past putting so much energy into pointing the fingers of blame and redirect it into creating bipartisan long-term solutions to the very complex problems facing our world, nothing is going to change, and it's likely going to get a whole lot worse.
Tuesday, February 10, 2009
How to play an emotion driven market
Over the past year I've seen the same scenario play out about half a dozen times. I want to make sure you see what I consider to be one of the best money-making opportunities available in the current market. You've probably heard the old cliche, 'buy the rumor and sell the news." Well it's just as true (maybe more) today than ever before.
Fear is the strongest of the emotions we feel as investors. For most investors, fear is paralyzing. When stocks drop they freeze up and do nothing. This often leads to the catastrophic losses that many investors have experienced this past year. Doing nothing when the market is being driven by fear is the worst possible thing you could do. When things are tough, you can't ignore them because they are likely going to get worse, and in the case of this year, a lot worse.
What few investors realize is that stocks don't always have to go up to make money. I would say less than 5% of investors have ever made a profit on an investment that dropped in value, like almost every stock has in the past 12 months. What they don't understand is that movement is all it takes to create opportunity and it doesn't matter which direction the movement is in. Let's face it, 2008 and 2009 so far have provided lots of movement in both directions with the biggest moves to the downside.
If you look back over the past year and identify the big news stories that affected the market and the economy, you'll notice a common theme. Every market has a catalyst. In the late 90's it was the dot com boom. From 2003-2008 it was the real estate boom. Today, the catalyst for the market is the government. Like it or not, the biggest mover of the market right now is the government, and more specifically the news of any new programs they are coming up with to turn the economy around.
Think about it, the market is starving for any sort of positive news on the economy and jobs, so when the latest plan is starting to brew in Washington, investors get all excited and start buying back into the market to be in position to benefit when the plan is approved. That's the rumor part of the equation.
When the plan is finally revealed, the market tanks as everyone once again realizes that the latest plan isn't going to fix anything quickly and may not fix anything at all. Want a few examples...
How about the first bailout package, the one known as the TARP program. We were told that we needed this plan or a number of major banks were going to go under. There was enough proof in the form of WaMu and Wachovia to make us all believers. As the details of this huge plan were leaked to the press and discussed each night by the Government big shots, there was a swell of optimism that it would fix the problem. The market took off. When the bill came up for the first vote, the market raced higher in anticipation of approval. I was speaking at an investment conference in Spain that week and got on a plane to fly home the day the first vote was scheduled to take place. The news that came out at the end of the day prior was that the plan was going to pass easily. The market raced higher right up to the closing bell.
When I landed in Minneapolis after an entire day of flying, the market was now closed and when I saw a ticker tape in the airport with a steady stream of big name companies that were down for 10% or more that day, I figured something major had happened. When I finally reached a TV in the airport lounge, I saw that the vote had failed. The market immedately responded to the reality of the situation with one of it's worst day's in history, losing almost 1000 points on the Dow in a single session. Buy the rumor, sell the news. That's what it looks like my friends.
How about the election. I don't think anyone was surprised by the outcome of the Presidential election this past November, but in the weeks and days before the election the market took off in anticipation of the expected change in Washington. When the final votes were all counted nobody was surprised by the result, but the market plunged for nearly two weeks after that to it's lowest point of the year. The money was made on the upside the two weeks prior to the election and anyone foolish enough to think the pre-election rally would continue, lost it all and more the next two weeks.
We've seen the same scenario play out for the auto bailout, the inauguration and now with the massive economic bailout plan. The market rallied over the past week in anticipation of the stimulus bill only to have a huge sell off once we find out the details of the bill.
So how can you use this information to make money? Just look for the next plan to come out of Washington and determine the companies most likely to benefit from the plan. You can almost count on them rising from the first day the plan is mentioned and see them tank once again after the plan is approved or fails.
With the anticipation of each new bailout plan, the volatility skyrockets, so if you're an option trader, look to take advantage of that situation by selling spreads that are "out of the way" of the market. Put spreads as the plan is being developed and call spreads after the release. It's been as predictable as anything I've ever seen in 20 years of investing.
Buy the rumor and sell the news. Some things never change.
Fear is the strongest of the emotions we feel as investors. For most investors, fear is paralyzing. When stocks drop they freeze up and do nothing. This often leads to the catastrophic losses that many investors have experienced this past year. Doing nothing when the market is being driven by fear is the worst possible thing you could do. When things are tough, you can't ignore them because they are likely going to get worse, and in the case of this year, a lot worse.
What few investors realize is that stocks don't always have to go up to make money. I would say less than 5% of investors have ever made a profit on an investment that dropped in value, like almost every stock has in the past 12 months. What they don't understand is that movement is all it takes to create opportunity and it doesn't matter which direction the movement is in. Let's face it, 2008 and 2009 so far have provided lots of movement in both directions with the biggest moves to the downside.
If you look back over the past year and identify the big news stories that affected the market and the economy, you'll notice a common theme. Every market has a catalyst. In the late 90's it was the dot com boom. From 2003-2008 it was the real estate boom. Today, the catalyst for the market is the government. Like it or not, the biggest mover of the market right now is the government, and more specifically the news of any new programs they are coming up with to turn the economy around.
Think about it, the market is starving for any sort of positive news on the economy and jobs, so when the latest plan is starting to brew in Washington, investors get all excited and start buying back into the market to be in position to benefit when the plan is approved. That's the rumor part of the equation.
When the plan is finally revealed, the market tanks as everyone once again realizes that the latest plan isn't going to fix anything quickly and may not fix anything at all. Want a few examples...
How about the first bailout package, the one known as the TARP program. We were told that we needed this plan or a number of major banks were going to go under. There was enough proof in the form of WaMu and Wachovia to make us all believers. As the details of this huge plan were leaked to the press and discussed each night by the Government big shots, there was a swell of optimism that it would fix the problem. The market took off. When the bill came up for the first vote, the market raced higher in anticipation of approval. I was speaking at an investment conference in Spain that week and got on a plane to fly home the day the first vote was scheduled to take place. The news that came out at the end of the day prior was that the plan was going to pass easily. The market raced higher right up to the closing bell.
When I landed in Minneapolis after an entire day of flying, the market was now closed and when I saw a ticker tape in the airport with a steady stream of big name companies that were down for 10% or more that day, I figured something major had happened. When I finally reached a TV in the airport lounge, I saw that the vote had failed. The market immedately responded to the reality of the situation with one of it's worst day's in history, losing almost 1000 points on the Dow in a single session. Buy the rumor, sell the news. That's what it looks like my friends.
How about the election. I don't think anyone was surprised by the outcome of the Presidential election this past November, but in the weeks and days before the election the market took off in anticipation of the expected change in Washington. When the final votes were all counted nobody was surprised by the result, but the market plunged for nearly two weeks after that to it's lowest point of the year. The money was made on the upside the two weeks prior to the election and anyone foolish enough to think the pre-election rally would continue, lost it all and more the next two weeks.
We've seen the same scenario play out for the auto bailout, the inauguration and now with the massive economic bailout plan. The market rallied over the past week in anticipation of the stimulus bill only to have a huge sell off once we find out the details of the bill.
So how can you use this information to make money? Just look for the next plan to come out of Washington and determine the companies most likely to benefit from the plan. You can almost count on them rising from the first day the plan is mentioned and see them tank once again after the plan is approved or fails.
With the anticipation of each new bailout plan, the volatility skyrockets, so if you're an option trader, look to take advantage of that situation by selling spreads that are "out of the way" of the market. Put spreads as the plan is being developed and call spreads after the release. It's been as predictable as anything I've ever seen in 20 years of investing.
Buy the rumor and sell the news. Some things never change.
Friday, February 6, 2009
You MUST learn to trade options if you want to survive and prosper in 2009
Millions of people around the world have seen their retirement dreams crushed as a result of the bear market. Most of those people trusted a broker or financial advisor to help them build a diversified portfolio that would help them weather any market condition and still see their money grow over time. They did everything right, following the textbook of the traditional investment community.
Those people are now looking back at the past 10-12 years and seeing that they have made nothing! That's right, nothing. Call it the decade of nothing. I don't care how well diversified you were over the past 10 years, if you owned stocks and did nothing, you've lost 10 years of potential compounding of your investments. Most people I talk to would have done better had they stuck their money in long-term CD's or even their passbook savings account at the local bank.
Now as they near retirement, they are coming to grips with the fact that they don't have enough money in their nest egg to send to work to generate the income they need to sustain the current lifestyle they live now in retirement. Retirement just got pushed way back for most, or eliminated altogether.
Buy and hold works if you've got enough years to make up for the bad ones you're most certainly going to experience over your lifetime of investing, but if the bad years come right before you're ready to retire, you're hosed.
It's my opinion that 95% of investors fall into this category. They ALWAYS lose money when the market is flat or down. Very few investors make money when stocks are not going up. Which group are you in? What are you going to do about it? Doing nothing may be the biggest mistake of all.
It's also my opinion that the majority of investors in the 5% group that actually made some money in the past year used options to protect themselves and profit when stocks were flat and down. The biggest weakness most investors have, and ALL traditioinal brokers and financial advisors have, is that they are afraid to sell anything. So they hold on to everything and watch it decline substatially and deal with the anxiety and stress that comes with watching your life savings go up in smoke.
There are two things that every investor needs to do immediately if they want to survive and prosper in 2009 and beyond. Things are tough right now and I expect them to get much worse before they get better.
First, you've got to stop losing money when the market tanks. If you've ever had a catstrophic investment, one that lost 40, 50, 60, 80 or even 100% of it's value, I've got three words for you, "Shame on you!" Make it your New Years resolution to never have a catastrophic investment again. It's simple to do, just use stop loss orders and make sure you put in them the moment you make any new investment. My rule is never lose more than 10% of the money I put into any new stock investment and 50% of any new option investment.
Use automated orders to eliminate emotions and stick to your stop loss levels. NEVER lower a stop loss. If you get stopped out of an investment and it begins to come back, just buy it back. Commissions are cheap, staying on the wrong side of a stock or the market is expensive.
The second thing is learn a few strategies that actually can make a profit if a stock is flat or down. Other than shorting stock, the majority of these strategies involve the use of options. The benefits of options trading has never been more apparent.
You can use options to create a limited risk and unlimited reward trade on virtually any stock. Using this basic strategy, you can create trades to profit in both rising and falling markets. Millions of investors are discovering the power and benefit of options trading as evidenced by the explosion of option trading volumes in recent years. There is a reason options trading is exploding, because they can give you an edge to profit in any type of market conditions.
Options are given a bad name by many as being too risky, but in reality there are a number of option strategies that are less risky than owning a stock or mutual fund. Those false rumor are simply used by financial professionals who don't understand options and don't want to accept the liabilty of having their customers trade an instrument they don't understand.
Most investors I meet have NEVER made money on a stock that dropped in value after they invested in it. They simply don't know a single strategy that will make money in a falling market, so they are resigned to hoping their losses are small, rather than planning to eliminate their losses and potentially replace them with profits. That's like taking off for a drive in your car and only being able to turn left. That may work in the world of Nascar, but that won't get you to your destination in real life. The secret to making money in a bear market or even a flat market is knowledge. If you don't take the time to learn how to use options to protect yourself and profit when stocks are not going up, you'll continue to lose every time the market drops.
I've spent the past 12 years of my life teaching investors around the world how to use options to profit in any market condition. Last year I published a book titled, "Build Wealth in any Market" that outlines the specific strategies and tools you need to stop losing money and start making money when the market tanks. You can get a copy at www.traderslibrary.com for the best price online.
There is nothing more heartbreaking and devastating than losing money we worked so hard for. So stop it! Learn to trade options today and give yourself a chance to get into that 5% group that actually makes money when stocks are flat or down. Every day you wait is literally costing you money. A little investment in education will pay a lifetime of returns in the form or fewer catastrophic losses and more profits when stocks drop.
Visit my website at www.rossjardine.com to get my latest books and courses on money and investing. Make an investment in education in 2009 and I promise you'll enjoy the returns over the rest of your investing life.
Those people are now looking back at the past 10-12 years and seeing that they have made nothing! That's right, nothing. Call it the decade of nothing. I don't care how well diversified you were over the past 10 years, if you owned stocks and did nothing, you've lost 10 years of potential compounding of your investments. Most people I talk to would have done better had they stuck their money in long-term CD's or even their passbook savings account at the local bank.
Now as they near retirement, they are coming to grips with the fact that they don't have enough money in their nest egg to send to work to generate the income they need to sustain the current lifestyle they live now in retirement. Retirement just got pushed way back for most, or eliminated altogether.
Buy and hold works if you've got enough years to make up for the bad ones you're most certainly going to experience over your lifetime of investing, but if the bad years come right before you're ready to retire, you're hosed.
It's my opinion that 95% of investors fall into this category. They ALWAYS lose money when the market is flat or down. Very few investors make money when stocks are not going up. Which group are you in? What are you going to do about it? Doing nothing may be the biggest mistake of all.
It's also my opinion that the majority of investors in the 5% group that actually made some money in the past year used options to protect themselves and profit when stocks were flat and down. The biggest weakness most investors have, and ALL traditioinal brokers and financial advisors have, is that they are afraid to sell anything. So they hold on to everything and watch it decline substatially and deal with the anxiety and stress that comes with watching your life savings go up in smoke.
There are two things that every investor needs to do immediately if they want to survive and prosper in 2009 and beyond. Things are tough right now and I expect them to get much worse before they get better.
First, you've got to stop losing money when the market tanks. If you've ever had a catstrophic investment, one that lost 40, 50, 60, 80 or even 100% of it's value, I've got three words for you, "Shame on you!" Make it your New Years resolution to never have a catastrophic investment again. It's simple to do, just use stop loss orders and make sure you put in them the moment you make any new investment. My rule is never lose more than 10% of the money I put into any new stock investment and 50% of any new option investment.
Use automated orders to eliminate emotions and stick to your stop loss levels. NEVER lower a stop loss. If you get stopped out of an investment and it begins to come back, just buy it back. Commissions are cheap, staying on the wrong side of a stock or the market is expensive.
The second thing is learn a few strategies that actually can make a profit if a stock is flat or down. Other than shorting stock, the majority of these strategies involve the use of options. The benefits of options trading has never been more apparent.
You can use options to create a limited risk and unlimited reward trade on virtually any stock. Using this basic strategy, you can create trades to profit in both rising and falling markets. Millions of investors are discovering the power and benefit of options trading as evidenced by the explosion of option trading volumes in recent years. There is a reason options trading is exploding, because they can give you an edge to profit in any type of market conditions.
Options are given a bad name by many as being too risky, but in reality there are a number of option strategies that are less risky than owning a stock or mutual fund. Those false rumor are simply used by financial professionals who don't understand options and don't want to accept the liabilty of having their customers trade an instrument they don't understand.
Most investors I meet have NEVER made money on a stock that dropped in value after they invested in it. They simply don't know a single strategy that will make money in a falling market, so they are resigned to hoping their losses are small, rather than planning to eliminate their losses and potentially replace them with profits. That's like taking off for a drive in your car and only being able to turn left. That may work in the world of Nascar, but that won't get you to your destination in real life. The secret to making money in a bear market or even a flat market is knowledge. If you don't take the time to learn how to use options to protect yourself and profit when stocks are not going up, you'll continue to lose every time the market drops.
I've spent the past 12 years of my life teaching investors around the world how to use options to profit in any market condition. Last year I published a book titled, "Build Wealth in any Market" that outlines the specific strategies and tools you need to stop losing money and start making money when the market tanks. You can get a copy at www.traderslibrary.com for the best price online.
There is nothing more heartbreaking and devastating than losing money we worked so hard for. So stop it! Learn to trade options today and give yourself a chance to get into that 5% group that actually makes money when stocks are flat or down. Every day you wait is literally costing you money. A little investment in education will pay a lifetime of returns in the form or fewer catastrophic losses and more profits when stocks drop.
Visit my website at www.rossjardine.com to get my latest books and courses on money and investing. Make an investment in education in 2009 and I promise you'll enjoy the returns over the rest of your investing life.
Tuesday, January 27, 2009
Bailouts, Stimulus Packages and reality
With all the talk about bailouts in Washington and on main street I thought I'd throw out my two bits on the subject. Governments around the world have reacted to the economic crisis by pledging trillions of dollars in corporate aid to shore up the banking and credit markets. Their collective actions are unprecedented in world history. A great deal of this money has already been spent and much more is on the way as soon as details of President Obama's stimulus package are negotiated and the bill is passed.
From where I sit (the cheap seats) it appears that all this money has done little to restore the confidence in the banking and credit systems that are so crucial to our economic prosperity. If people don't trust these systems and start spending money more like they have in the past, there is no amount of money that can make these problems go away. Consumer are the only sure solution, but they won't spend if they lack confidence. Fix the confidence problem, and you'll solve the economic ones along with it.
The wealth that drove the economy higher for the better part of the past 5-6 years was created from easy access to credit. This easy credit helped push property values artificially higher, along with many other goods. Now that the easy money well has gone dry there are far fewer dollars chasing a glut of overpriced real estate and we're seeing the natural correction in prices. The prices of the past couple of years weren't justified and so we've got a painful correction to endure. This correction is impacting people at every level of the economic food chain from the wealthiest to the poorest.
Businesses are seeing the slowdown in spending and trying to stay one step ahead of the correction by laying off thousands of workers to keep their businesses healthy, or at least stable. The dramatic loss of jobs is adding momentum to the slowdown as there are fewer people with money to spend. It's a vicious cycle that seems to be picking up steam rather than reaching the bottom of the hill.
The real crisis we're facing is more a crisis of confidence than a banking or credit crisis. Banks don't want to lend until they know the asset they accept as collateral isn't going to continue to drop in value. People don't want to spend for major purchases, like homes and cars, until they know the prices are at the rock bottom. If we have to keep waiting, the prices are just going to keep falling and the consumers are going to keep holding on to their precious dollars to make things even worse. There are lots of tremendous bargains in the stock market and the real estate markets, but that's not enough to motivate fearful consumer to part with their precious dollars.
So will all the bailout money really help us find a bottom in the economy and financial markets? I hope so, but I'm not too optimistic. Government has never been able to do anything efficiently and I don't think that's about to change. The people who are being targeted for the stimulus package are not those that will use that money to create jobs to help the economy grow, but rather people who will spend that money on basic needs to stabilize their financial lives. Remember those $600 checks that went out over a year ago to stimulate the economy. All that's left from that round of bailout money is the debt that it created for the next generation of American families. Giving away money will never solve the problem. Never has - Never will!
Unfortunately the people who can do the most good to turn things around, business owners and corporations, are about as out of favor as any group of people could be right now. Everyone hates the executives who took the million dollar pay package and flew on the private planes and they want to make them pay. It's a political impossibility to think that these villains will get any love in the upcoming stimulus package. It's simply not going to happen. So fewer businesses are going to be started and fewer existing businesses are going to expand. Government simply can't fill that void. Unfortunately punishing businesses (deserving as they may be) isn't going to help grow the economy or create any new jobs.
The stimulus money will only stabilize things for the short-term and it won't create nearly as many long-term jobs as the politicians want us to believe. Once that fact is exposed, we'll be right back on the slippery slope with one major difference, we won't have more billions or trillions to throw at the problem to fix it.
Let's face it, we have just lived through a period of unbridled excess and we're going to have to pay a heavy price to get things back in line. We collectively broke the first rule of finance, "live within your means."
Gone are the days when a home was your "best" investment. From now on, where you chose to live is a lifestyle choice. The myth that saving a portion of all you earn in a 401k or IRA and investing in a well-diversified portfolio of stocks will get you to a secure retirement has been exposed. Until we as a country come to grips with the fact that we simply can't afford all the government programs our politicians have created to reward their loyal constituencies, we're not going to really fix the problem.
If you want to survive and prosper in these tough economic times, you must take action now. You can't trust anyone to do this for you. It's simply too important to trust someone else to do for you.
I've created a blue print to help you in the form of my new book, The Golden Rules: 7 Steps to a Debt-Free Wealthy Life. It's available on my website at rossjardine.com for half off the cover price (Just $10) for a limited time. Get your copy today and get on the path to a debt-free wealthy life.
From where I sit (the cheap seats) it appears that all this money has done little to restore the confidence in the banking and credit systems that are so crucial to our economic prosperity. If people don't trust these systems and start spending money more like they have in the past, there is no amount of money that can make these problems go away. Consumer are the only sure solution, but they won't spend if they lack confidence. Fix the confidence problem, and you'll solve the economic ones along with it.
The wealth that drove the economy higher for the better part of the past 5-6 years was created from easy access to credit. This easy credit helped push property values artificially higher, along with many other goods. Now that the easy money well has gone dry there are far fewer dollars chasing a glut of overpriced real estate and we're seeing the natural correction in prices. The prices of the past couple of years weren't justified and so we've got a painful correction to endure. This correction is impacting people at every level of the economic food chain from the wealthiest to the poorest.
Businesses are seeing the slowdown in spending and trying to stay one step ahead of the correction by laying off thousands of workers to keep their businesses healthy, or at least stable. The dramatic loss of jobs is adding momentum to the slowdown as there are fewer people with money to spend. It's a vicious cycle that seems to be picking up steam rather than reaching the bottom of the hill.
The real crisis we're facing is more a crisis of confidence than a banking or credit crisis. Banks don't want to lend until they know the asset they accept as collateral isn't going to continue to drop in value. People don't want to spend for major purchases, like homes and cars, until they know the prices are at the rock bottom. If we have to keep waiting, the prices are just going to keep falling and the consumers are going to keep holding on to their precious dollars to make things even worse. There are lots of tremendous bargains in the stock market and the real estate markets, but that's not enough to motivate fearful consumer to part with their precious dollars.
So will all the bailout money really help us find a bottom in the economy and financial markets? I hope so, but I'm not too optimistic. Government has never been able to do anything efficiently and I don't think that's about to change. The people who are being targeted for the stimulus package are not those that will use that money to create jobs to help the economy grow, but rather people who will spend that money on basic needs to stabilize their financial lives. Remember those $600 checks that went out over a year ago to stimulate the economy. All that's left from that round of bailout money is the debt that it created for the next generation of American families. Giving away money will never solve the problem. Never has - Never will!
Unfortunately the people who can do the most good to turn things around, business owners and corporations, are about as out of favor as any group of people could be right now. Everyone hates the executives who took the million dollar pay package and flew on the private planes and they want to make them pay. It's a political impossibility to think that these villains will get any love in the upcoming stimulus package. It's simply not going to happen. So fewer businesses are going to be started and fewer existing businesses are going to expand. Government simply can't fill that void. Unfortunately punishing businesses (deserving as they may be) isn't going to help grow the economy or create any new jobs.
The stimulus money will only stabilize things for the short-term and it won't create nearly as many long-term jobs as the politicians want us to believe. Once that fact is exposed, we'll be right back on the slippery slope with one major difference, we won't have more billions or trillions to throw at the problem to fix it.
Let's face it, we have just lived through a period of unbridled excess and we're going to have to pay a heavy price to get things back in line. We collectively broke the first rule of finance, "live within your means."
Gone are the days when a home was your "best" investment. From now on, where you chose to live is a lifestyle choice. The myth that saving a portion of all you earn in a 401k or IRA and investing in a well-diversified portfolio of stocks will get you to a secure retirement has been exposed. Until we as a country come to grips with the fact that we simply can't afford all the government programs our politicians have created to reward their loyal constituencies, we're not going to really fix the problem.
If you want to survive and prosper in these tough economic times, you must take action now. You can't trust anyone to do this for you. It's simply too important to trust someone else to do for you.
I've created a blue print to help you in the form of my new book, The Golden Rules: 7 Steps to a Debt-Free Wealthy Life. It's available on my website at rossjardine.com for half off the cover price (Just $10) for a limited time. Get your copy today and get on the path to a debt-free wealthy life.
Tuesday, January 6, 2009
The 3 Fatal Flaws to avoid in 2009
2008 will be a year to forget for most investors I know. With the major market indexes plunging by 40% or more, many investors lost their shirt. I saw a story on the news today recognizing the leading money managers of the year and found it interesting that these managers were winning awards even though their performance in 2008 resulted in their clients losing money. I don't know about you, but I don't find much consolation in "not losing as much" as the major market indexes. A loss is still a loss.
The only investors who made money in 2008 were those that used bearish strategies, like shorting stock and any number of option strategies. This year, more than any in my investing lifetime (0ver 20 years) separated the winners and losers based on strategy. If you don't know any bearish strategies or when to apply them, you lost money in 2008.
So the big question I hear most investors asking now is, "is the worst behind us, or is 2009 going to be more of the same?" Given the unprecedented steps taken by governments around the globe, I wouldn't rule out a quick recovery in the market, but I wouldn't bet on it either. If all the money and credit being pumped into the world economy doesn't do the trick, what tools are left to stop the next meltdown? Not many.
So here's what I think every investor needs to look at if they want to survive and prosper in 2009. I call them the three fatal flaws. Time for a little honest self-evaluation.
Fatal Flaw #1 - No Plan.
Most investors simply have no plan. Ask them to describe their trading or investing plan and they may describe a strategy or two they use, but most simply can't provide specifics in such things and portfolio and trade management, risk tolerance, profit objectives and other very important things.
So to start 2009 off right, you need to create a plan, and it should be written. Your plan needs to specifically define your goals, objectives, strategies, tolerance for risk, profit and loss targets and decision making process. The more mechanical you can become in your decisions, the less emotion will influence them. The hardest part of creating your trading plan is to keep it focused. If it takes you several pages to define these things you're likely not focused enough. Keep it simple applies here.
Fatal Flaw #2 - No protection
If you learned one lesson in 2008, I hope it's that you need to have a plan for when things go wrong. The strength of your emotions will make it nearly impossible to make a wise decision in the heat of the battle (when the market is tanking) if you've not clearly defined those things in advance.
The conventional wisdom of the investment community has always said that if you're well diversified, you can ride out anything. If you believe that, chances are you've made nothing over the past decade, even though we've had two incredible bull markets followed by two painful bear markets. I don't believe buy and hold is the answer anymore. I'm not advocating day trading either, but to survive the volatility we've seen over the past decade, you need to be "actively involved" in your investments. A simple stop loss on each new trade is a good start. The low cost of trading makes it easy to get back in if you get stopped out before you wanted to, but if you set a stop loss point with each new trade you place in 2009, you'll eliminate completely the catastrophic losses that most investors experienced in 2008 for the rest of your investing life.
Think about this. If you took the total amount you lost on your worst trade this year and figured out what percentage of your overall returns you could have saved by eliminating that one loss, you'd likely see a simple way to do 1-2-3% better every year going forward by simply eliminating one catastrophic loss. A stop loss can do that.
Fatal Flaw #3 - No strategies
There's many strategies that will profit in virtually any market condition. The problem is that most investors only know the ones that work when the market is going up. If you've never made money on a stock that fell in value, you've got a great lesson to learn. As you start 2009, you'd be wise to expand your strategy base to include a few bearish strategies. Get a book, attend a seminar or webinar, or hire a personal coach to teach you, but please make an investment in education to expand your strategy base.
I'd specifically suggest learning to use options as they offer investors a simple way to play directional moves up or down in the market with limited risk and unlimited potential. You can also use options to hedge your stock positions against the unexpected. They are not as complicated as many make them out to be.
If you are a victim of any of my 3 fatal flaws, now is the time to take action. I tell people that if they don't what they are doing, it's never a good time to invest, but if they know what they are doing, there is always opportunity in the stock market. Now that interest rates are nearly zero, you're going to need to invest if you want to reach your retirement goals. Your goal should be to learn to make money no matter what the market is doing. It's possible.
Best of luck in all your investments.
Ross
The only investors who made money in 2008 were those that used bearish strategies, like shorting stock and any number of option strategies. This year, more than any in my investing lifetime (0ver 20 years) separated the winners and losers based on strategy. If you don't know any bearish strategies or when to apply them, you lost money in 2008.
So the big question I hear most investors asking now is, "is the worst behind us, or is 2009 going to be more of the same?" Given the unprecedented steps taken by governments around the globe, I wouldn't rule out a quick recovery in the market, but I wouldn't bet on it either. If all the money and credit being pumped into the world economy doesn't do the trick, what tools are left to stop the next meltdown? Not many.
So here's what I think every investor needs to look at if they want to survive and prosper in 2009. I call them the three fatal flaws. Time for a little honest self-evaluation.
Fatal Flaw #1 - No Plan.
Most investors simply have no plan. Ask them to describe their trading or investing plan and they may describe a strategy or two they use, but most simply can't provide specifics in such things and portfolio and trade management, risk tolerance, profit objectives and other very important things.
So to start 2009 off right, you need to create a plan, and it should be written. Your plan needs to specifically define your goals, objectives, strategies, tolerance for risk, profit and loss targets and decision making process. The more mechanical you can become in your decisions, the less emotion will influence them. The hardest part of creating your trading plan is to keep it focused. If it takes you several pages to define these things you're likely not focused enough. Keep it simple applies here.
Fatal Flaw #2 - No protection
If you learned one lesson in 2008, I hope it's that you need to have a plan for when things go wrong. The strength of your emotions will make it nearly impossible to make a wise decision in the heat of the battle (when the market is tanking) if you've not clearly defined those things in advance.
The conventional wisdom of the investment community has always said that if you're well diversified, you can ride out anything. If you believe that, chances are you've made nothing over the past decade, even though we've had two incredible bull markets followed by two painful bear markets. I don't believe buy and hold is the answer anymore. I'm not advocating day trading either, but to survive the volatility we've seen over the past decade, you need to be "actively involved" in your investments. A simple stop loss on each new trade is a good start. The low cost of trading makes it easy to get back in if you get stopped out before you wanted to, but if you set a stop loss point with each new trade you place in 2009, you'll eliminate completely the catastrophic losses that most investors experienced in 2008 for the rest of your investing life.
Think about this. If you took the total amount you lost on your worst trade this year and figured out what percentage of your overall returns you could have saved by eliminating that one loss, you'd likely see a simple way to do 1-2-3% better every year going forward by simply eliminating one catastrophic loss. A stop loss can do that.
Fatal Flaw #3 - No strategies
There's many strategies that will profit in virtually any market condition. The problem is that most investors only know the ones that work when the market is going up. If you've never made money on a stock that fell in value, you've got a great lesson to learn. As you start 2009, you'd be wise to expand your strategy base to include a few bearish strategies. Get a book, attend a seminar or webinar, or hire a personal coach to teach you, but please make an investment in education to expand your strategy base.
I'd specifically suggest learning to use options as they offer investors a simple way to play directional moves up or down in the market with limited risk and unlimited potential. You can also use options to hedge your stock positions against the unexpected. They are not as complicated as many make them out to be.
If you are a victim of any of my 3 fatal flaws, now is the time to take action. I tell people that if they don't what they are doing, it's never a good time to invest, but if they know what they are doing, there is always opportunity in the stock market. Now that interest rates are nearly zero, you're going to need to invest if you want to reach your retirement goals. Your goal should be to learn to make money no matter what the market is doing. It's possible.
Best of luck in all your investments.
Ross
Subscribe to:
Posts (Atom)
