Monday, November 5, 2012
Wednesday, April 4, 2012
We are all familiar with the most popular stories from “The Tales of a Thousand and One Nights”. But what you may not know is that this expansive collection of stories has no named author or authors, no dates or places of composition and no single national tradition. In Marina Warner’s new book “Stranger Magic” she offers this guideline to the stories: “I think,” she writes, “that the reader should enrich what he is reading. He should misunderstand the text; he should change it into something else.” She believes that the reality of magic resides at two poles: one the poetic truth and the other bound in inquiry and speculation.
We as investors are guilty of wishing for, even trying to conjure magic for our investments and the portfolios in which they are nested. We attempt to make the leap from the known to the unknown, to embrace the magical thinking of a thousand different storytellers. And like this tale, there is always another story left incomplete at dawn.
So I thought today on the Financial Impact Factor Radio with Paul Petillo, Dave Kittredge and Neil Plein we’d discuss the magical thinking around the portfolio rebalance. We have watched with great amazement, our investments rebound and take on new life in 2012. Markets are up and this is one of those rare feel-good moments. Unfortunately, feeling good isn’t something you relax with when it comes to how you are invested. In fact, the maintenance these portfolios require is often counterintuitive. If your car, for instance is running and performing as it should, we are not inclined to look under the hood for potential problems. Rebalancing a portfolio however requires you to do just that: look for a problem where you might not have thought one exists. As I mentioned earlier, there are a thousand and one ways to do this. So let’s start there.
A quick glance at your statement might reveal a strong move to the upside. Why should we do anything?
How do we know when to do this and I have asked numerous guests who come on the show how do we pick our risk level, which is essential in the rebalancing?
How do we get beyond the concept of funding our losing positions and selling off our winning ones in an effort to adjust our portfolios?
Thursday, March 15, 2012
On a recent episode of Financial Impact Factor Radio, we discussed the topic of insurance. If you have never tuned into this show, I think you will find it interesting and topical. We have a wide range of guests and often discuss the very questions that concern Baby Boomers, their children and their parents. Because being a Boomer is more than just being a certain age. All of our shows on Financial Impact Factor Radio can be found here.
As a Boomer, I am always intrigued by the offers that begin showing up in my inbox/mailbox. Although they don't on the surface seem to be age related, one can't help but read between the lines. Are they talking to me? Are they worried about whether I will make it to the end? That "end" involves satisfying the largest debt any of us will ever own: our mortgage.
Last week I received a letter in the mail from the bank that holds my mortgage that would make most mortgage holders think twice. It was the offer of life insurance. My bank might think there are good reasons for offering this product that is different that many of the other types of insurance offered with these types of loans. For instance, PMI is private mortgage insurance the bank makes you buy if you are putting less than 20% down on a mortgage. The sole beneficiary in this instance is the lender, who knows that if you are going to default, this riskier loan covers their interest in the transaction. Known as PMI, its cost has begun to weigh on borrowers who find their loans underwater. Once you pass 78% mark because the value of your house compared to the amount of your initial downpayment, you can cancel the policy.
There is also mortgage insurance which for some borrowers seems like a good option as well. Essentially the lure of this product is to pay-off the mortgage in the event of your death. The insurer doesn’t pay you directly instead writing a check directly to the mortgage company or lender.
The letter I received offered a term policy that would last until I turned 80 years old, which is about 26 years from now. Like all insurance policies it plays on your fears and comes at a time when the typical term policy is about to expire if you bought insurance in your thirties, which is typically the time when most folks consider coverage. But it isn’t cheap. In fact, this sort of policy has a seven year flat rate, just a few medical questions without an exam and of course the tug-on-your-heart-strings assurance that your loved ones will be taken care of.
So today I thought we’d talk about late in life insurance coverage and whether we should consider it.
Sunday, February 26, 2012
Who are these people? The unprepared and the prepared hurtling headlong into older adulthood. They both had expectations of retiring based on what can only be considered now as unrealistic math. They set goals and they weren't met as planned. A few got it right. Remember, there's no shame in that miscalculation. Folks have been doing it for decades. But your plan is all you really care about and if it hasn't met your expectations, which in many instances were a bit lofty, you resign to work longer. This is where the facts collide.
You know all too well that simply working longer will add to the amount of retirement income you will have but only if you significantly increase your contributions. Few resign themselves to do both.
But the other half of the equation, the Boomers who do retire, are often caught in the same anxiety ridden place. They question whether they made the right choice and more importantly, whether the money they have amassed will serve their purpose, remains hanging over every plan as an unknown.
That purpose is often clouded with not only the unpredictable cost of longevity but whether they might have enough to take care of their heirs - a serious consideration among a wide swath of retired adults and those about to retire. This last consideration is entertained by women more so than men, statistics have uncovered, which is often surprising. Why? This same group of women approaching retirement has often saved less, another unfortunate statistic concerning women and retirement.
Those that do retire should consider where they retire. And while there are many suggestions as to what to do and how to go about it, but a quick survey of your current surroundings will offer a great many answers to your dilemma.
For instance, seniors or those about to become seniors often fail to inventory the services they may need. Once retired, your daily life will require things you had previously not considered. More than just the availability of medical services, more than the infrastructure of city services such as public transportation and well-lit and well-patrolled neighborhoods, your current location needs to stimulate you or at least have accessible stimulation to keep you mentally sharp and involved. This is not how many American cities were designed. Far too many cities and their suburbs require a car. And while this may be seen by many older Americans as a freedom, not being able to drive can imprison some seniors if they find where they live too far away from these activities. Only vast sums of retirement income can change that one item and few seniors, who essentially are on a fixed income, want to reach for their wallet or purse to pay to go shopping.
To pre-Boomers or those who are still working, where you live is not often what you can afford. If you live in the city, chances are you rent. If you live in the suburbs, chances are you have a mortgage. If you have a mortgage, chances are you can't afford it. That's a lot of "ifs" but they are an approaching nightmare for those about to retire.
While many of believe that the cities we live in should adjust to us and our current and future retirement needs, it probably won't happen soon. So retirees look to communities that cater to their needs. This ghetto-izing of seniors, much like Florida and Arizona is not only unappealing to many Boomers, it is not as healthy as it first appears. Sure, these senior-only communities do provide like-minded companionship, concentrated services and accommodations that cater to gradual aging, but they are often culturally void of the stimulation that all walks of life can provide. Being isolated is not the answer.
So what is? Cities are struggling with their finances and as a result are cutting back on services that once were taken for granted. We might be living longer but in far too many instances, your health may compromise that statistic or impact the quality of that longer life. And the cost of where you live - assuming your mortgage is paid off before you retire - is not getting cheaper. Add inflation into the mix and you have eliminated all but the most obvious choice: you have fewer options.
Of course, you can stay put in a house that might be too big and too costly to maintain. This will gradually eat away at your fixed income and reduce your opportunities to engage with the outside world. Now one plans on spending their day at McDonalds sipping bad coffee with fellow seniors, no matter how well-lit, no matter how inexpensive the house brew and no matter if the loitering rules don't apply. But take away any portion of that spendable income and you limit the choices.
Where is the right place? While there is no firm answer, you do have options. For instance, if family is important to you, be sure your family shares this thinking as well. The dynamic of marriage - and I am speaking of your children's marriage - can create some confusion. Deciding that you can rely on your children and their spouses for the help you might need is something you need to discuss well in advance of retiring.
At some point, one of your kids or their spouses may find you in their care. Perhaps not in the day-to-day sense or even the long-term care situation, but in the need to check-in, help with errands or assume a financial role. This needs to be discussed in advance, a discussion that should be instigated by you. This is no easy discussion.
You do need to tell your children what you expect from retirement, even if you are unsure. Answer the hard questions (can you afford to stay in your house for instance) and when the time comes, unfold your finances for them to see. Let them know where you stand and what your plan is.
Boomers will be sold a retirement that is unlike any other before them. If you live longer as the statistics suggest you will, what do you expect of your surroundings? What role does your community play in the decision? What role will your kids have? Retirement is much more than simply amassing cash. It is amassing support. And believe it or not, that is old school thinking, a throwback to the time when retired family members depended on their kids for everything. But those kids, who may not be thinking along the same lines as you need to be involved now, rather than later.
Paul Petillo is the Managing Editor of BlueCollarDollar.com/Target2025.com and a fellow Boomer
Friday, February 17, 2012
Saturday, February 4, 2012
That's good advice and there are a number of ways to do exactly that. But one you may not have considered involves investing in real estate through the use of REIT or real estate investment trust.
As Will Rogers once said: "Don't wait to buy land, they aren't making any more of it.” But we have developed it making the ground far more valuable and those who own what’s on it, in some instances richer because of it. Over the last couple of days we have focused on your immediate real estate. While your home is not an investment per se, it is often considered one. Owning a hundred homes, or a shopping center or an office tower is an investment. The roof over your head, not so much an investment as a stewardship. You pay for it, you fix it up, you might even spend your entire life in it but at some point, you pass it on to the next owners. And you care for it in that manner, improving it so it is saleable to those next in line.
On this edition of the Financial Impact Factor Radio with Paul Petillo, Dave Kittredge and Dave Ng, we have someone who has focused his career on real estate as an investment: Brad Thomas. Mr. Thomas researches and writes on a variety of real estate based fixed- income alternatives including both publicly-traded and non-traded REITs or real estate investment trusts. He has a broad background in capitalization and sustainable net lease investing. Mr. Thomas currently writes weekly articles for Seeking Alpha and Forbes where he maintains “real time” research on many of the equity REITs and retailers.
Among the topics Brad explained included the risk of owning these investments, how they are structured and the dividends they offer, how to analyze their worth and most importantly, how these investments react to various economic forces. REITs have been around for over five decades and are a widely suggested part of a diversified portfolio.
This is a must listen show for not only the curious investor but those looking to better understand the subject of REIT investments.
Listen to Financial Impact Factor Radio with your hosts:
Paul Petillo of Target2025.com/BlueCollarDollar.com and Dave Kittredge and Dave Ng of FinancialFootprint.com
The show is broadcast daily, online at 6amPST/9amEST.
Wednesday, February 1, 2012
Paul Petillo is the Managing Editor of Target2025.com/BlueCollarDollar.com and a fellow Boomer
Sunday, January 29, 2012
Thursday, January 19, 2012
Today on the Financial Impact Factor Radio with Paul Petillo, Dave Kittredge and Dave Ng we continue the discussion we began yesterday about self-directed IRAs. While having control over your retirement is important, how much risk is too much and who can handle the increased potential of loss or gain.
To listen to yesterday's show, click here.
Here are some outtakes from this conversation:
Yesterday we discussed a different corner of the retirement investment world when we talked about self-directed IRA. I suggested that “If there is one thing we all seem to be seeking and at the same time, remains as elusive it is control. Our investments often seem to want us to master its fate, as if simply involving yourself is enough.” T.S.Eliot seemed to agree although we all know he wasn’t talking about your retirement plans when he wrote: "Only those who will risk going too far can possibly find out how far it is possible to go."
Jim Hitt of AmericanIRA.com to discuss the IRA that you control. There is a lot left to be discussed it seems and little clarification is needed in advance. Jim is a third party administrator or TPA. We have had a few professionals who ply their trade as a go-between, somewhat detached from the other two parties but necessary in the legal and tax compliant execution of a retirement plan. Sometimes we need to be reminded that all retirement investments, 401(k)s, 403(b)s, IRAs in all their incarnations are essentially parts of the tax code. And I’d be willing to wager that when taxes are mentioned, there is a certain fear, perhaps caution that moves to the forefront. Self-directed IRAs are no different.
On numerous occasions, we have, in advance of a guest appearing on the show prepped the listening audience, discussed what we knew about the next day’s topic and did so in almost every instance, without the guest’s knowledge. Today, we’re going to look back.
Most of us have had out retirement plans nestled safely – and I’ll describe what I mean by safely in a moment – inside a 401(k). The way these plans are constructed give us a sense that someone else is watching over us. They choose the investments. They made the match. They suggested that they had a fiduciary responsibility to us. I asked Jim if he had just such a responsibility and he simply replied: no.
So we began the discussion there as I asked Dave and Dave if they would like to tell us what fiduciary responsibility is?
Now we all know that risk is something we need and knowing how much of a risk you can take is key in the way you execute your goals. But this is no easy task when it comes to this type of IRA. "Trust your own instinct, “ as Billy Wilder once said: “Your mistakes might as well be your own, instead of someone else's."
As Baby Boomers begin this massive wave of retirement, many are for the first time going to get their life’s retirement account to control. I was caught by one thing Mr. Hitt suggested as to the people who come to him: they come in good times and bad.
The risk of self-directing your IRA is there. Jim discussed using this money for real estate investment purposes, business opportunities and other investments such as gold, commodities, etc. And it all boils down to coordination.
The show is broadcast daily, online at 6amPST/9amEST.