Is this REALLY Helping??

Give a man a fish and you feed him for a day.

Teach a man to fish and you feed him for life (and his wife will hate you forever – sportfisherman's joke).

Recently on personal finance blog the author of the blog said he and his wife have agreed to sell their house to a poor family (not mentioned how "poor" is defined). This family has always wanted to live in a house but can't afford to buy one at market prices.

So how can they be buying this house?

The blogger and his wife have agreed to sell the poor family the house for $20,000 to $30,000 less than actual market value. In other words, they are willing to take a steep loss on the sale of their house just so these "poor" people can afford to buy it. Exactly how the poor family is going to get the money to buy the house even with the $20-$30k reduction in price isn't stated.

On the surface many people will have the knee-jerk reaction to say something like "Aw! How wonderful they willing to help out a poor family!" or "It's great that some people still put others ahead of money" and crap like that.

People – THINK ABOUT IT!

Even with a $20-$30k price cut who's to say they can still afford the house? Possibly barely afford it. One snag or hic-up in their plan or the economy and they are in foreclosure!

Buying the house only the first step. There's annual property tax that always goes up several percentage points every year. How will they afford that?

There are insurance costs, utility costs, and as any home owner will tell you there are always unforeseen expenses that come out of nowhere. Appliances break. Pipes break. Roofs leak. Just to name a few. How will they afford that?

And let's be realistic too. The blogger doesn't say where the "poor" family lives now but I will guess an apartment. Going to a house they will want to furnish the extra rooms. That costs. And the poor family's wife will probably want to redecorate and get new furniture for her new home (call me sexist, I don't care, but what I said is true). They'll want big TV and stereo and all the other trappings that go with living in a house instead of an apartment. In other words, more expenditures.

How will they afford it?!

While I will agree the blogger's heart is good for wanting to help, the road to Hell is paved with good intentions.

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How Much Is Your Future Worth?

There is the old saying that people (usually) don't plan to fail, they just fail to plan. I have seen this happen too many times not to accept it as nearly a Law of the Universe. I'm not talking about poor plans or bad judgment. I mean no plan at all and not really carrying.

Planning can be tough. It can be a very daunting idea. And frankly it can show a person the subjects they have no knowledge of and make them feel dumb (get over it!!).

So what do you do? Hire someone!

I'm not going to write an article about how to find a financial planner or personal advisor. There are zillions of those out there already
.
But I am going to tell you this: Good advise costs!

You can spend a lot of time and money buying books on the various subjects, perhaps taking courses and attending workshops (not a bad idea anyway to educate yourself on the subject). But not everyone has that kind of time. And usually you need the help rather quickly. Much sooner than it will take the years to read and learn the subject.

Be aware though: A good financial planner (or estate planning lawyer, CPA accountant, or other life planner/advisor) is going to command a fee for their services. You're paying for getting their education and experience. Why shouldn't someone good be compensated for it? If it was that easy you'd do it yourself!

Above all:

Don't be another Patrick!

Patrick was the 30-something man I wrote about back in August that I worked with who wouldn't even give up one night a week going out to have the money to fund an IRA. Here's a link to that blog article: http://pofile.blogspot.com/2008/08/for-crying-out-loud-learn-how-to-handle.html

After Patrick and I had spoken about his IRA and retirement pipe dream he decided he wanted professional advise for planning his retirement. A very laudable idea. I offered to help him there too. It isn't hard to open an IRA (though with Patrick's requirements it would have been but more on that another time). But he said he wanted someone with more experience. Understandable. I'm not a financial planner. A while later he said he had found a CFP planner in Manhattan and setup an appointment.

Some weeks went by and one day I asked him if he had his meeting with the planner and how it went. "Ridiculous!" he said. Yes, he had his meeting and – oh my stars in Heaven – the planner wanted to actually charge him for a financial plan. Can you imagine that? (that's sarcasm for some of my slower readers.)

Patrick said the planner wanted to charge him $1,000 for a full financial plan. I told him I thought that wasn't an unreasonable fee, especially for a Manhattan CFP (presuming the CFP is well trained and experienced). "All I need to know is where to open an IRA. I don't need a plan!".

(*DEEP SIGH*)

I tried to explain to wet-behind-the-ears Patrick that a planner needs to know your entire situation before making any suggestions. And a plan is far more than just an IRA account. There may be other things he suggests you do instead or additionally. And then make that money last after you retire. He's the expert not you!

But naïve Patrick wasn't buying it and didn't go with the plan.

How stupid!

To recap a little: Patrick when I knew him was in his mid-30's and wanted to retire early at 55, 60 the latest, and travel the world. So that means he had another 20-25 years to go until his retirement goal.

You don't think $1,000 now for a professional plan to reach that goal is worth it? That's a mere $40-$50 a year for having a road map of the rest of your financial life in place. Talk about misplaced priorities!

Ultimately Patrick did finally open a mutual fund account (don't know if it was for an IRA or not). At least he claimed to. But that's fodder for a future article.

Don't fail to plan.

Don't be a Patrick!

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Saks Sells!

Several years ago I worked with a man named Bill B. He was a mid-20's year old tobacco chewing (especially in the office!), strip-club patronizing blowhard for many other reasons. It was even rumored he was having an affair with our boss! And she was far from good looking!

But he knew how to play the name game. In this case, how to play the former employer name game.

You see, Bill would love to tell people about his days working at "Sacks" (I purposely spell it that way to help illustrate the point later – work with me).

Everyone he would meet, especially consultants and vendors, with in seconds he would say "When I worked at Sacks…", "Back when I was at Sacks…", "Over at Sacks we had this-that-whatever…" , Sacks, Sacks, Sacks! And he impressed everyone, though he himself was far from an impressive appearance with his John Candy figure, worn and cheap shirt, and cup of tobacco spit juice (just picture that in the work place!). But saying "Sacks" got him much admiration.

Why?

(here's where the spelling comes into play: )

When he spoke of "Sacks" everyone thought he meant "Sachs" as in Goldman Sachs, the high and prestigious investment banking firm. But no. He meant "Saks" as in "Saks Fifth Avenue", the high end retailer!


In truth when someone did call him on it by saying something like "Oh you were at Sachs? Did you know so-and-so in XYZ department?" or "I was at Sachs for many years, what group were you with?" etc, he would say – in a much lower tone – it was Saks Fifth Avenue.

But that happened at best 10-15% of the time. The rest of the time it was just assumed he meant Goldman Sachs. And Bill knew it. And he milked it for all he could!

Sometimes it's not what you say but what people think you're saying that matters.

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America The Great!

Yes I said it: America is a GREAT country!

It's fashionable to bash the United States these days and it's very painful to see our elected politicians smile while others piss in the face of our country yet they call it rain. Diplomacy aside, it does make you wonder.

It seems everywhere you turn for the last 10-20 years a sense of national pride in other countries is abounding. And is celebrated. But not in America. No. If you are an American and have pride in America then you're wrong. It's OK for other nationals to have pride in their country but not Americans in America.

No other nation in human history has done more for the world than America.
No other nation in history does the world turn to than America when there is a disaster, a famine, an earthquake, a big storm, a war, a plague, any crisis.

And America and Americans respond quickly. Yet we still get smacked around.

ATTENTION WORLD: STOP BIGHTING THE HAND THAT FEEDS YOU!

Next time there is a disaster, a famine, a plague, a war – go ask someone else to send you food and medicine and peacekeepers. Don't come here

Oh, I wish we had the stones to say that!

But we won't. Americans at the core are good people, which will probably be our undoing (the strain of trying to help everyone without getting anything in return is already showing on our society and economy!).

So until France, Germany, Italy, Sweden, Norway, Lithuania, Greece, Luxemburg, Brazil, Argentina, India, and so on start sending massive air and boat lifts of food and medicine to the grief-stricken far flung corners of the world, be thankful for America.

The world you enjoy would be a much different place without us – and not for the better!

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The Grasshopper and The Ant in 21st Century America

I am sure you have heard the classic story of the grasshopper and the ant.

Classic version:

The ant works hard in the withering heat all summer long, building his house and laying up supplies for the winter. The grasshopper thinks the ant is a fool and laughs and dances and plays the summer away. Come winter, the ant is warm and well fed. The grasshopper has no food or shelter, so he dies out in the cold.


MORAL OF THE STORY: Be responsible for yourself!

But it needs to be brought up to date in light of how modern day America works. Here is a version I came across recently that does this very well. I don't know who the author is.

Modern version:

The ant works hard in the withering heat all summer long, building his house and laying up supplies for the winter. The grasshopper thinks the ant is a fool and laughs and dances and plays the summer away. Come winter, the shivering grasshopper calls a press conference and demands to know why the ant should be allowed to be warm and well fed while others are cold and starving. CBS, NBC, PBS, CNN, and ABC show up to provide pictures of the shivering grasshopper next to a video of the ant in his comfortable home with a table filled with food. America is stunned by the sharp contrast. How can this be, that in a country of such wealth, this poor grasshopper is allowed to suffer so? Kermit the Frog appears on Oprah with the grasshopper, and everybody cries when they sing, "It's Not Easy Being Green." Jesse Jackson stages a demonstration in front of the ant's house where the news stations film the group singing, "We shall overcome." Jesse then has the group kneel down to pray to God for the grasshopper's sake. Nancy Pelosi & John Kerry exclaim in an interview with Larry King that the ant has gotten rich off the back of the grasshopper, and both call for an immediate tax hike on the ant to make him pay his fair share. Finally, the EEOC drafts the Economic Equity and! Anti-Grasshopper Act retroactive to the beginning of the summer. The ant is fined for failing to hire a proportionate number of green bugs and, having nothing left to pay his retroactive taxes, his home is confiscated by the government. Hillary gets her old law firm to represent the grasshopper in a defamation suit against the ant, and the case is tried before a panel of federal judges that Bill Clinton appointed from a list of single-parent welfare recipients. The ant loses the case. The story ends as we see the grasshopper finishing up the last bits of the ant's food while the government house he is in, which just happens to be the ant's old house, crumbles around him because he doesn't maintain it. The ant has disappeared in the snow. The grasshopper is found dead in a drug related incident and the house, now abandoned, is taken over by a gang of spiders who terrorize the once peaceful neighborhood.

MORAL OF THE STORY: Be careful how you vote.


Remember this in November.

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The Reality of Retirement: Myth #1 – Using IRAs and 401ks

I thought I well understood how retirement worked. Oh was I wrong!

There are soooooo many myths and outright falsehoods out there about retirement, specifically the financial aspects of retiring and of general growing older. I feel it is necessary to set the record straight on many of these aspects.

Based on all the feedback I receive (and THANK YOU for sending it!) my blog site seems to attract a number of younger people (teens, 20-somethings and 30-somethings). Retirement is probably the furthest thing from your minds. It was when I was your age. Just a word and something that "old people" did before making the ultimate contribution to the paranormal field (if you catch my meaning).

But kids today are being forced to face the realities of the grown up world sooner and soon.er Defiantly a loss of innocents. And more to the point of this series of articles, young people are being bombarded with slogans and politician's campaign sound bites about many topics including retirement that sound good but are hollow and meaningless. By the time a young person grows up and (hopefully) attains a level of understanding of these things much valuable time will have been wasted.

My goal – my hope! – for these articles is to pass on the reality of financing (paying for) retirement and how many of the popular retirement programs really work. It is my desire that the young people who are reading this article will glean some wisdom in advance from my experience dealing with retirement finances.

My qualifications for discussing this subject? Besides a financial background from college and a life time of working in the financial industry, my mother passed away in the late fall of 2006. For the last 5 years of her life I managed her day-to-day affairs, including her retirement income sources. For fifteen years prior to her retirement she had been employed by the New York City Board of Education. She had a pension, TDA (tax-deferred annuity, think 401k), her Social Security, and a small IRA that I insisted she open before she retired. This is all I had to pay her bills during her retirement. My qualification comes from my experience having to manage her post-retirement financial life.

I will dispensing that experience now.

Myth #1 – How IRAs and 401ks Withdrawals REALLY Work!

Most people think a traditional IRA or 401k (including 403b and Thrift Savings if you are a government employee) is just like a bank account, but that you can't take out the money until your retire. And you don't pay tax on the money until then too.*

(*NOTE: the ROTH IRA and new ROTH 401k have different rules. But few people are, unfortunately, using them as compared to regular/traditional IRA and 401k accounts. So this discussion does not apply to ROTH accounts.)

That part is correct. But the withdrawal aspect is not.

Unlike a bank account (or a regular mutual fund account), with an IRA or 401k you can NOT simply take out money whenever you need to. Frankly, I don't understand why and no one in the financial community has ever given me a good explanation why not. But that's the way it works.

You can instruct the IRA/401k company to send you a check periodically (monthly, quarterly or annually). In some cases you can convert the IRA/401k to an annuity and annuitize. Or just take the annual Minimum Required Distribution (MRD – something the IRS requires of all non-ROTH retirement plans). But in general you can't just call up and request a distribution.

Yes, you can call up and request one. But most companies have restrictions on how often you can request withdrawals. Typically there has to be 30 days or so between requests. Again, I can't understand why. But that's the way it is.

Also, the time to process your withdrawal request and actually get a check out to you is much longer than with a non-retirement account. Again, I can not fathom why it is but it's so.

So what does all this mean to you? If means that if you don't annuitize your account (which is often not a good idea for reasons I'll get into in another article) or take a systematic withdrawal plan you have to very carefully plan your spending and take out what you need ahead of time. You may not be able to get access to your money as often a you will need to.

If anyone knows why IRA and 401k accounts are this way please let me know!

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Food or Fuel? (The Ethics of Alternative Fuels)

Ethanol, biodiesel, etc. All from food sources. Corn, soy, sugar etc.

I think it's great that we can make fuel from these plants. More proof of American ingenuity and creativity.

But should we?

With all the talk of alternative and renewable foods there's one topic that has escaped discuss but is so critical to the issue: What are ethical and moral implications of turning human food into fuel when we are not even close to running out of oil?

As the pundits and media at large are so fond of pointing out there are millions of people (including children) in the country and the world at large who are hungry. Yet we are diverting good edible food from hungry people to make fuel while there still is plenty of petroleum in the world.

So where are the advocates for children?
Where are the advocates for the starving?
Why aren't they complaining about this?

If all the world's oil was gone, then I'd say that's a point. But it's not. Estimates run at least another 100 years supply based on what is known to exist (and more is being discovered almost every day!). Hardly a shortage crisis.

So why literally the mad rush to take food out of people's mouths to make fuel?

As a statement of American technology and industry it's wonderful.As a political and economic message to the oil countries of the world that we can get by without them I'd say the message has been sent loud and clear.

So why keep pushing it? To spread unnecessary misery?

Sometimes it seems one of the key goals of global warmers and greenies is to hurt people just because. There can be no other logical reason to taking food away from people when there is still a well known, easily obtained and still plentiful supply of petroleum in the world.

Tell Al Gore to go on a diet.

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RFP – Replacement for Gasoline

The world is a buzz with "alternate fuel" talk. I think it's great that we can make usable fuel from other products besides petroleum.

But they have downsides. Significant ones.

I'm not going to list all the pros and cons of ethanol, bio diesel, fuel cells etc etc. That's all out there on the web for anyone to find.

Instead, let's be like a real business and put together an RFP for the replacement for gasoline.
Whatever replaces gasoline must include the following attributes and abilities as minimum requirements:

Must be as easy to locate and extract (yes, oil is relatively easy to get out of the ground).
Must be as easy and safe to transport (in spite of the news oil spills and files are rare).
Must be as easy to manufacture.
Must be as safe to store.
Must provide as much energy per unit as the same amount of gasoline.
Must be as reliable as gasoline (gas works well over a wide range of temperatures and humidity's)
Must be as cheap as gasoline is (regardless of the recent rise in price gas is not all that expensive)
Must be as easy and cheap to make engines that run on it (it's easy to make a gas powered motor)
Must produce no more exhaust than gasoline does (in spite of the claims of global warmers and greenies a gas powered motor is not all that polluting compared to other fuels)

These represent the lowest level base minimums an alternate to gasoline must have to be economically viable. Going beyond these would be great too but this is the minimum.

Until such a fuel is invented any alternates come with a price that's too high!

You can't save a society by destroying it.

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Why 2012 Concerns Me (and Should Concern You!)

The year 2012 – specifically December 21, 2012 – is commonly predicted to be the end of the world. At least the end of the world as we have always know it. As I'm sure everyone reading my blog knows it's because the Mayan calendar ending on that date which a huge number of people have concluded can only mean the end of the world.

This is one of those subjects that too has been beaten to death on a great many forums and sites so I'm not going into all that here again. Do a Google search if you need to know more. All I will add to that is the Mayans did not predict the end of the world. Simply that is the date their calendar ends and we more modern people have assigned the end of the world as the meaning to its ending.

I don't agree with that interpretation at all. For all we know December 21, 2012 could be their Y2K!
In other words 2,000 years ago when the Mayans were computing their calendar they might have said "Do we really need to go out that far? In 2,000 years let someone else take over calculating the calendar. I'm going for a beer!" Could be as simple as that.

But it doesn't matter. Many people think it will be the end of the world. And that should concern everyone.

Throughout history there have been dates predicted to be the end of the world or some other worldwide catastrophic event. Often the turn of a century or millennium. History is full of well documented accounts of what people who believed these predictions did:

Give away all they owed.
Indulged in drink, drugs, and lucidious acts.
Killed others, looted, ransacked and took out what they thought was final revenge.
Committed mass suicide.

These are the things to worry about for 2012. I fear a great many people throughout the world will do the same things now.

There will be mass suicides. Maybe mass murders. Probably in the name of religion too.

People will spend every dime on a moments pleasure, then when they wake up safe and sound on December 22, 2012 they will be broke and cry for public help!

People will commit mass adultery, maybe even rape.

Crime in general will sky rocket that year as many people figure they have nothing to loose.

I hope I'm wrong. Many people predicted cataclysmic events at the turn of the 21st century and nothing happened that day. Same for the Y2K problem (which was a real problem – see my prior article http://pofile.blogspot.com/2008/07/y2k-was-not-bullshit.html).

But in my opinion (and that's the one which counts the most) December 21, 2012 will be this world's greatest obstacle to survival given the way society and culture have (unfortunately) evolved.

Duck and cover.

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Dear Wall St. – The sky is NOT falling!

When I started this blog I promised not to be one of the robotic minions of blogger all chatting about the same thing. I’m going to have to diverge slightly from that promise for this article.

Yes, the stock market is down.
Yes, the dollar is weak.
Yes, oil is soaring.
Yes, trend line this, trend line that is going downward.
Blah, blah, blah.

Someone start handing out the Kool Aid!

But sheesh! If you read the articles from the Wall Street wonks and Yahoo Finance “experts” this is the End of Days for capitalism and the American way of life. In fact, one recent article on Yahoo Finance (“25 reasons to remain cautious” by Bennet Sedacca, posted 7/2/08) states as point #24 quote “The market is technically on the verge of breaking down”.

A break down?! This isn’t 1929! And this isn’t Black Friday either. Talk about fear mongering.

I’m not going to go point for point against that article or any other. I’m not a Wall Street financier, don’t have a Harvard MBA (much to the chagrin of my college ex- girlfriend (how’s life now baby!) ) and I don’t have a CFA (though I do have a CLU and ChFC). I haven’t a clue how far this drop will go, when it will stop much less turn around, and what stocks to buy to ride this out. If I did I’d probably be playing golf with Trump right now. Well, maybe not. I don’t like golf.

But my point is markets go up, markets go down. I know this is of little comfort to anyone who just saw a 20% drop in their 401k when they are retiring in 6 months. And to those who have and are loosing their jobs you have my sympathies as I have definitely been there too.

But this is not the end of the world. The market will recover!

I recall in the late 80’s walking to a Barnes&Noble and seeing row after row of books entitled things like “The Great Stock Market Crash of the 1990’s”, “Surviving the Depression of the 90’s”, and “How To Ride Out The Next Great Depression”. Each of those books (I skimmed through several) all said the same things basically: This time it would be different. This time the way the U.S. economy and world economy is the drop will be sudden, sharp, and we won’t recover for years – if at all. Well guess what? It didn’t happen! The 1990’s were a good set of years for investing overall (no thanks to Bill-‘I never met a tax I didn’t like’-Clinton).

In fact, in my years on this planet this is now the 5th recession I’ve lived through. And in all prior recessions the pundits and Wall Street suits all said the same things: This time is different because A, B and C; This time we can’t recover because of this or that; Foreign markets will cream the U.S. economy, and so on.

Same old same-old.

Keep in mind these 3 points:

1. It’s an election year. Especially for a Presidential election the markets are always jittery. Republicans usually mean less taxes and regulation while Democrats mean more taxes and regulation. The market doesn’t really care which in the long run but not knowing which side will win people can’t make long term plans.

2. Recessions come in cycles and we are smack in the middle of a down cycle. Check your history and you’ll see.

3. The soaring price of oil (gasoline) is a shock to the American society. Our society will adjust. But there will be losers. It’s a bitter pill to swallow on top of everything else. More on that in a future article.

This triple whammy may make this recession harder. But we will recover. And those who kept their heads will be riding very high.

Remember: Money is made in down markets. You just don’t know it until the market goes up!

I’ll pass on the Kool Aid.

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