Are you a Dave Ramsey fan?

I‘ve been a Dave Ramsey fan since stumbling onto his radio program in 2000. Disillusioned by the dot.com fallout that led to the evaporation of a significant portion of my 401k, I’d been searching for a guru who could lead me out of the financial straits that had frustrated my wife and me for the first fifteen years of our marriage.

Following Dave’s advice, we repaired our financial house. By 2003, I decided that I too desired to serve others in teaching personal finance. Long story short, I quit my day job, went back to school full-time, and graduated in the spring of 2005 with a BA in Finance.

Upon graduation, I was hired by a major wire house and began my career as a Financial Advisor. Company sales goals were established, and I was provided with an array of investment options to offer potential clients. These different types of investments came with varying levels of fees and commissions. I decided to use a fee platform. But, I found myself discounting the fee to what I felt was a reasonable rate. Now reasonable is probably subjective, but most people assuredly don’t understand the long term implications associated with paying higher fees and commissions, especially as they relate to compounding. And, herein lays the issue.

Understanding the intricacies of investments can be a complicated issue. Even I, with a finance degree, and additional training in investments struggle to grasp the subtle nuances of some financial products. In my opinion, “Caveat Emptor”, or rather “Let the buyer beware” shouldn’t apply to investments.

Now, as history repeats itself, we’ve experienced another bursting of a financial bubble. Folks have once again been victimized by their own spending habits, and the greed of others who had gained their trust. Aside from commissions, I agree mostly with Dave’s ideas. Perhaps the greatest tool to risk management is found not in amassing an enormous retirement nest egg, but in getting out of debt, and living life with a vision.

Managing your money during any economic season

When I don my hat as a Financial Advisor, many folks want me to give them the next hot stock tip, or provide them with some sage advice on where I think markets are headed. As I mentioned before, folks want someone to tell them everything’s going to be OK; that their desired retirement date remains intact, that they’re not going to run out of money in retirement.

The current recession serves as a grim reminder of the economic uncertainties facing our Nation, and the rest of the world. But, recessions do happen… they’re supposed to! The economy is cyclical, and is continually expanding and contracting in an effort to attain homeostasis. Intellectually we understand this, but our humanness, finds it difficult to deal with, especially when we’re in the throws of a downward cycle. During recessions, fear overrides intellect, and panic sets in. As job losses begin to hit closer to home, our fears are heightened. The events around us; deepening concerns about the economy, job loss, etc. begin wearing on our psyche. And, it appears as if everyone is in the same boat.

Notice, that I used the word “appears”. Believe-it-or-not, there are people who aren’t in panic mode, people who haven’t fed into the mass medias almost tabloid representation of the crisis at hand. Sure, some of these folks might chime in during an office discussion about the condition of their 401k, but they refuse to get caught up in the panic-driven fray. So, what’s different about these folks? They eat, drink, and sleep just the same as you and I. They live in the same neighborhoods, work the same types of jobs, and frequent the sorts of places and events as you and I.

Maybe the biggest difference is that these individuals aren’t swayed by marketing and media. They choose instead to determine for themselves the nature of their priorities. Perhaps the biggest difference is that they these folks have a plan for their lives. They know what they want, and take the necessary steps to make it happen.

Planning includes setting goals, determining the paths to achieving those goals, initiating a course of action, and making adjustments as needed. Setting goals is about establishing your priorities. Make a list of the things that are most important to you, really important! Now, number these things in order of priority. Next, review your actions to date. Determine which actions are aligned with your stated priorities (goals), and which ones are counterproductive. Now comes the tough part! Stop doing less of the things that are least productive, the things that are eroding your ability to get what it is that you really want! And, start doing more of the things that are in-line with your goals. This all sounds fairly simple on the surface, but the reality is that it can be very difficult. Why? Because we are creatures of habit, and have conditioned ourselves to think and act in certain ways. Besides, it’s easier to keep doing things the same old way, than it is to do things differently. Or, is it?

One could say that there is a pretty good argument for failing to act. And that is, that change can be scary. But, failing to act can be even more frightening, and potentially disastrous to ones well being, or quality of life. Look around you. What you see is the sum total of all your actions up to this point. Do you like what you see? For many people today, the answer is resoundingly, No! Unfortunately, many don’t even know where to begin, even after they’ve decided that change is necessary. So, they continue on with their daily routine, hoping that things will get better. Unfortunately, they usually don’t. But, really, why would they? You’ve heard of the adage about insanity. The definition of insanity is doing the same thing over and over and expecting different results. If you want to win with money, then change is not an option. It is imperative that you change, or you are doomed to fail. So, go ahead. Take the plunge, yes it can be scary, but the alternative is a whole lot scarier. For more information on managing your money, go to the “Financial Services” tab located on my website; www.longrunfinancial.com

Financial Advice

I opened my fledgling Financial Practice in the fall of 2007. As any entrepreneur will tell you, the first few years can be brutal. From trying to define my business model to best satisfy my target markets needs, to getting the word out through marketing trial and error, it’s been tough.

For many, the title of Financial Advisor or Financial Planner conjures up a vision of a salesman. And, by most accounts, this interpretation would be correct. The most successful “Financial Advisors” by industry standards are those that have amassed significant “assets under management”. For companies, assets represent revenue and commissions. The role of the broker is to bring assets to the firm. Those that bring in the most assets are touted as the best in class. Competition is fierce for these Advisors as Brokerages and Insurance Companies attempt to lure them away from the competition, enticing them with increased revenue sharing packages and huge sign on bonuses.

If you ask me, I think the broker model is flawed. With financial advice contingent on the sale of a product, clients aren’t getting the advice that they really need, advice that isn’t related to an investment or insurance product. Consequently, it’s no wonder that most folks are suspicious of brokers and insurance agents, A.K.A. Financial Advisors. Yet, even as other industries transition to a more transparent compensation structure, these financial firms cling fast to this form of compensation.

In efforts to separate myself from the public’s perception of this industry, I’ve opted for a fee based model. This means that my compensation is based on the needs of the client. A fee-only model enables me to work with anyone along the socioeconomic spectrum and additionally provides assurance that my values remain in line with those of the clients. (To date, I continue to be contacted by Financial Services firms and Insurance companies touting their compensation packages over the competitions. I have yet to receive an employment offer whose focus is on the client.) My services range from providing simple budgeting advice (charged at an hourly rate) to sophisticated portfolio management (charged on a percentage of assets). Now, the trick is overcoming the negative image created by my predecessors and which is perpetuated by many still within the industry. Until these folks clean up their acts, the going will be tough for the rest of us.

There's a change in the air, hopefully...

As 2008 draws to a close, many are fearful of what next year holds in store for us. As an observer of the recent financial crisis, I am optimistic that many of us are beginning to awaken to the poor financial decisions that got us here in the first place. As we gradually feel the hangman’s noose of our financial creditors tighten, we've started replacing ill conceived spending habits with prudent ones. This past summers grossly inflated gas prices provided an additional wake up call, as we were forced to begin making choices on how best to spend our finite incomes.

It might come as a surprise to learn that not everyone is panicked by this recession in which we find ourselves. Folk’s recessions are going to happen, so you might as well get used to them. The economy is cyclical. It expands and contracts in a constant battle to find a balance between supply and demand. Right now we are in a period of contraction. A period for which a select few have prepared. So, what does one do to prepare? You live within your means and save for a rainy day.

"Living within your means", means to stop spending money you don't have. Aside from buying a house, if you can't pay cash, you can't afford the item. If you want, or need the item, save up your money and buy it! Stop playing the credit card shuffle and begin making plans for your money. Imagine your life without payments. No mortgage, car loan, credit card bills etc. It is possible! Make a New Years Resolution to stop borrowing, begin paying down debt, and prepare for the future. For more on budgeting, check out www.longrunfinancial.com and click on the "Financial Services" tab.

Reality Check

So, it’s happened. Unprecedented in our lifetimes is the financial crisis that’s upon us. It is amazing to me that so many were caught off guard. As a steward of my client’s money, I must admit that I too have been amazed at the depth and breadth of this global event. And, it continues to spread like cancer to all corners of the globe.

For the past several years, much of the investing advice has been to allocate a larger, and larger, portion of our portfolios to other regions of the globe. The prevailing ideology has been that the overseas markets aren’t as closely linked to the US as in years past. That is, that they are capable of sustaining themselves. As it turns out though, much of the overseas growth can be attributed to the ever increasing consumption by the American Consumer. Now I’m not an economist or statistician but consider this, over the past decade thousands of jobs have been shipped over seas. The recipients of these jobs are spending their incomes on goods in their own respective countries. This increased demand for goods has in turn created additional jobs in these regions. I know this example is simplistic, but it appears to me that much of the economic growth in the developing world has been fueled by America’s hunger for cheaper goods and services. As the US has fallen into a recession, growth around the world has ground to a halt.

I was reading an article today that discussed China and how it’s been buying our Government bonds with its new found wealth. Understand folks, that when an entity sells bonds (in this case, the US Government), it is essentially borrowing money, money that must eventually be paid back. Now where do you suppose our Government gets its money? Yep, that’s right, by printing more money, and taxation. Guess who pays those taxes. Uh huh, you and me! Now I’m not going to say that China is currently doing that well, but they are now sitting on billions of dollars compliments of the American consumer. How’s that for a transfer of wealth?

Now we have a new problem. The average American Consumer is tapped out. We simply cannot sustain the standard of consumption to which we’ve grown accustomed. This can be evidenced by the unprecedented amounts of debt, and the negative savings rate of Americans. As you know, I wasn’t a fan of the Government’s $700,000,000,000 bailout. The reality is that the credit party is over. The Government has simply paid the band to play on for another hour, or so. It may keep the guests (American Consumer) happy for a little while longer. But eventually it’ll sink in, if it hasn’t already.

The credit markets meltdown

It was disheartening to see the Government pass the $700 billion bail out plan last week. Supposedly, the intention of the plan is to stabilize the credit markets and ultimately restore the American consumer's ability to get the credit that we "need" and "deserve". Immediately after the bill was passed by the Senate, and prior to it's passage in the House of Representatives, one misguided senator justified the Senate's decision by explaining that if consumers were unable to borrow money, they would be unable to purchase goods such appliances and other household items. What I'd like to know is, "What ever happened to paying cash"? Credit Cards didn't even exist prior to the 1970's, and yet many of us are so frightened by the prospects of being denied credit, that we are willing to give even more power to the Government. Yes, we might have been given a brief reprieve, but creative financing and credit extensions are not the solution to our long term problems. And, as we shift personal responsibility from the individual to the Government, we are yet another step closer to Socialism.

No Load Mutual Funds vs Load Mutual Funds ,and the on-going debate.

What are the differences between No Load Mutual Funds and a Load Mutual Funds, and which is better?

No Load Mutual Funds are mutual funds that don't carry a sales commission. They're typically found at discount brokerage firms and can be purchased directly without using the services of a broker.

Load Funds carry a sales commission and are sold by Brokers or other Financial Professionals employed at full-service brokerage firms, banks, and other institutions. These funds are typically available to individual investors in 3 share classes:
• The A share carries an up-front sales charge to purchase the fund. This charge usually falls within 4.00% and 6.00%. A person spending $1,000 to purchase A shares in a fund that has a 5% sales commission would be investing $950, after paying the sales charge. Load Funds also have a fee called a 12b-1 fee. This fee continues to pay the broker between .25% and .35% annually until the fund is sold.
• The B share has no up front charges, but carries a back-end load that diminishes over time, usually 5 or 7 years. It also has a higher 12b-1 fee imbedded in its annual cost. After the fund is held for a specified length of time, the 12b-1 fee is reduced to that of an A share. Like the A share, this fee continues to compensate the broker until the fund is sold. Since it carries no up front charges the B share looks more attractive than the A share, at first glance. But, the selling restrictions and higher 12b-1 fee makes the B share less preferable than the A share.
• The C share carries no up front sales charge, and has a level 12b-1 fee of usually 1 percent. This fund must be held for a specified period of 12 to 18 months, or the buyer is subject to a back end load. The 12b-1 fee remains at 1 percent until the fund is sold.

No Load Funds and Load Funds both have underlying administrative fees. These fees defray the operational costs of the mutual fund companies. Which type of fund to purchase depends on the individual investor. If you are a do-it yourselfer, understand or are willing to learn about investing, and are cost sensitive, then No Load Mutual Funds are the likely candidate. On the other hand, if you believe that your broker has your best interest at heart, you don't understand investing and aren't inclined to learn, then perhaps Load Funds are more suitable.

I would like to offer a few words of caution. All mutual funds, both load and no load, are basically invested in the same "stuff", i.e. stocks and bonds. The returns on the underlying investments are the same whether you own a No Load Fund, or a Load Fund. For this reason, the investor should be price sensitive and aware of what he is actually paying. Over the long run, the erosive effects of fund expenses and sales commissions can be detrimental to a comfortable retirement.