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Posts Tagged ‘Road Map’

“Sometimes all it takes to change your life massively for the better is a small action and a small success, “ says David Bach, a noted author on money matters. 

  1. Consolidate Your Accounts:  Don’t wait for spring cleaning to roll around.  Make it easier on yourself by combining old 401(k) or IRA balances from your various old jobs.  This can help cut down on the amount of paper you receive and improve the chances you’ll have a coordinated investment plan. And it’s just one more way to have a more ‘green’ holiday.
  2. Pay Yourself First: While there always seems like there’s more month at the end of your paycheck, you can only get ahead by making a point of putting aside money in savings.  It doesn’t matter if it’s just $5 or 5% of each paycheck as long as it’s consistent.  Start somewhere and try to build up to your target of at least 5% of your net cash flow. Direct the money into a separate money market account that you can’t access easily from an ATM or debit card.
  3. Get to Know Where Your Money Goes:  For most people cash flow is not the problem. It’s cash retention that is a challenge. There always seems to be too much flow away from you.  Set up a system to keep track of where your money is spent.  Whether you decide to use a notebook or financial accounting software like Quicken or an online service like Mint.com, this is a first step to getting the information you need to decide what your spending priorities should be. 
  4. Cut Expenses:  Armed with the information from your tracking, now consider ways to lower expenses.  Do you really need a daily Mucho Grande from your favorite coffee place?  At $5 a day, your habit could help pay for your annual vacation or pay down your credit card or mortgage debt. Do you really use all those movie channels?  Can you wear a sweater and lower the thermostat?  Do you really need to be in the mall? Cut down on impulse shopping by creating and sticking to a master list of groceries and household goods.
  5. Reduce Temptation: Consider saving the bulk of any bonus checks or raises.  By automatically diverting this money, you’ll be able to add to your emergency stash, have cash to pay down debt or even invest. See #2 above.
  6. Reevaluate Your Risk Tolerance:  One of the most useful services that financial planners can offer is helping you really articulate your goals and establish your tolerance for investing risk.  After the bumpy ride of the past 18 months, most folks realize that they may not have had a handle on this.
  7. Avoid the Casino Mentality: It is an understatement that investing in the market can be risky but now is not the time to try to play catch up by “doubling down” or chasing the hottest investments ideas.  Remember the story of the tortoise and hare.  Sometimes the race doesn’t go to the swiftest but the most consistent.  So diversify your eggs into different baskets and watch those baskets.  For help in choosing the right mix of investments and a style that will help you sleep better at night, consider meeting with a CERTIFIED FINANCIAL PLANNER ™ professional.
  8. Rebalance Your Investments:  Over time, accounts that have been consistently rebalanced tend to have higher balances.  So plan to rebalance at least annually or even quarterly.  But first you need to have targets in mind so that you can unemotionally prune back your winners while adding to the laggards.
  9. Add to Your Retirement:  If you haven’t taken advantage of your employer’s sponsored retirement plan, start now.  If your employer doesn’t offer a plan or you’re self-employed, start your own.  Resolve to set aside at least the amount that will get you the maximum company match.   Ideally, you should know your “NUMBER” for living in retirement the way you want.  Consulting with a CERTIFIED FINANCIAL PLANNER ™ professional can help you here.
  10. Get Planning Advice to Map Your Route to Your Goals:  Maybe you’ve winged it and thought your home and 401(k) were your tickets to a secure retirement.  Odds are that your planning is not filling the bill.  Sit down with a CERTIFIED FINANCIAL PLANNER ™ professional to discuss your whole picture and map out the action steps that will help keep you on track for financial success.
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The market’s are jumpy to say the least right now.  As I post this the market has ended four days down in a row after finishing August up 3.5% and up 45% since March. 

Despite signs of ‘green shoots’ and glimmers of positive economic activity, the US stock markets have ended the summer rally with a selloff of over 2% (on the DJIA Index).  Fears of a stock market correction or a “W”-shaped recovery loom large after several months of impressive gains.

Manufacturing activity in the US and Europe are mostly up.  Large money-center banks have been paying back the US Treasury for the money borrowed as part of their bailout.  US auto manufacturers are rehiring.

Yet fears that the mighty economic engine of China may slow coupled with worries about the commercial real estate sector in the US have lead investors to take cover.

What’s an investor to do?  Buy and Hold. Or is buy and hold dead as some commentators say?  What about diversification which really seemed to not protect anyone from the steep dive in all markets and all asset classes?

I personally believe that it’s important to follow the time-tested wisdom of grandma:  Don’t put all your eggs in one basket.

But diversifying doesn’t mean “set it and forget it” either which is typical among investors.

To all things there is a season.  And farmers planting crops and fisherman at sea all know that there are cycles in nature.  (El Nino, anyone?)

So why wouldn’t you expect there to be cycles in markets as well?

Considering that stock and bond markets reflect the collective expectations and emotions of millions of investors, it’s an easy leap to expect markets to be governed by cycles in the cumulative raw emotions as well as considered opinions of its many participants.

Example: Right now small-cap stocks have paid off big time this year.  According to the WSJ, stocks in the S&P Small Cap 600 index have leaped over 66% and midcap stocks are up nearly 62%, far outpacing the S&P 500 large cap index which gained “only” 51%.

What a typical investor will do upon hearing such performance will be to move money into this hot sector of the market. And of course that has been exactly what investors have done as more than $7.5 Billion of all fund flows have been to small-cap mutual funds versus outflows of $18.5 Billion from large-cap funds. What’s that saying about “when fool’s rush in?” 

This being said, there are ways to combine investment approaches.

Instead of “buy and hold” it’s time to consider “sit on it and rotate.” 

Ideally, we all want to a perfect investment that always goes up and never goes down.  But a look at one of those “periodic table” of investment returns shows, rarely does the same sector that was a top performer one year do a repeat the following year.

There is a way to get off the wild roller coaster ride between “gloom and doom” and “irrational exuberance.”

This is what I refer to as a “skill-weighted” portfolio.  Essentially, this approach combines various investments in different assets with different investment approaches to help reduce the roller coaster ride.

Even a nesting hen that is sitting on its eggs will rotate positions every once in a while.  And through this approach, too, an investor will maintain a watchful eye on his portfolio being positioned for opportunities by rotating between and among investments, sectors and trends.

Think of a house: a foundation, a frame and then all the visually appealing touches.

In this approach, an investor will have a core foundation comprised of index type investments (mutual funds or Exchange Traded Funds) with a frame consisting of actively managed mutual funds and topped off with a trend-following program for stocks and/or other Exchange Traded Funds to accent the portfolio.  The combination of all these elements will provide balance which helps reduce overall volatility while still positioning for opportunities.

Consider this:  If an investor owns and holds onto an index, he’ll get 100% of the upside … and 100% of the downside.  If an investor owns all actively managed mutual funds, more than 80% do not beat their benchmark.  And those who “market time” need to be right two times:  when they sell and then when they buy.

Not all approaches work all the time but by combining them (rotating between them) an investor may have a better opportunity to preserve, protect and ultimately profit.

What should matter most to any investor is not beating an individual benchmark but getting where they want to go with as few bumps as possible.

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Market news got you down?  Not sure you want to go to the mailbox? Afraid your 401k has turned into a 201k? Afraid you’ll have to start searching for spare change in your couch to pay for college tuition?

Times are scary. And it is in times like these that all of our preconceived notions and assumptions get tested.

And they have been sorely tested these past 15 months or so.  Who is one left to believe or in what to believe?

This is why it is important to get back to basics and retake control over those things one truly can control.

It is in this spirit that I am launching a weekly series of teleconference calls starting next Wednesday (March 11).

During these trying times it may be easy to give up and say that there is nothing one can do.

But that would be wrong.  There is plenty you can do to get back on track.

First thing is to take control over those things you can control.

And to do this I will outline a Road Map and review the basic Rules of the Road.

 

Aimed at getting people back on course and in control of their finances, the Financial Focus Road Maps series will explore a variety of topics that may be impacting your personal bottom line.  Investing is only one part of a successful financial plan.  Yes, we will address investing strategies for volatile markets but we will also get back to basics. This series will also focus on issues like estate planning for newly married couples, elder care finances, maximizing cash flow to pay off debt, paying for college without busting what’s left of your retirement nest egg, evaluating employer-sponsored benefits, choosing insurance and understanding mortgage options in the new financial order.

 Financial Focus – Navigating through Volatile Times” will be the inaugural topic of this free recurring series starting Wednesday (3/11/09) from 7 PM to 8 PM. In this program, I will highlight the low- or no-cost strategies you can implement RIGHT NOW to protect what you have and map your fresh start.  

Please join me. 

This is a FREE series but space is limited to the first 95 participants.

You can register at http://events.linkedin.com/Financial-Focus-Road-Map-Series/pub/41788 or by calling me directly at 978-388-0020 or steve@focus-capital.com.

Future topics will include:

·         Breaking Up is Hard to Do – Financial Planning for Divorce and Beyond

·         The Special K Diet – Options for Nursing Your 401k Back to Health

·         IRA Triage – Making Your Retirement Money Last When the Market Won’t Cooperate

·         Catching a Falling Knife – How to Position a Portfolio to Preserve and Prosper in Tough Markets

·         The Sandwich Generation – Taking Over Family Finances for Aging Parents

·         Campus Treasure Hunting – Paying for College Without Going Broke

·         The Banker’s Secret – How to Live Debt Free and Gain Financial Freedom

In this format I will present each topic, sometimes introduce a guest speaker and then open the lines up for comments, questions and further discussion. Participants will also receive a link to download supporting educational materials and resources related to the evening’s topic.

Participate from the comfort of your own home or wherever else you are with a cell phone.

To participate in the live discussion, please call (712) 432-0800 and use the participant access code: 802437# approximately two minutes before the start of each teleconference.  There are no costs for using the conference line but you will be responsible for your own toll charges to connect.

Recordings of the program and resource materials will be available for free download at Steve’s blog, www.moneylinkpro.wordpress.com or www.stevestanganelli.com.

For more information, contact me directly at 978-388-0020 or 978-621-8268 (cell) or steve@focus-capital.com .

Financial Success Begins with Focus.

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