Sushi Money

 Even with a challenging economy and dynamic swings in stock prices, the market has begun to advance over the last couple of months.  While the U.S. economy teeters on the edge of recession, is it really that bad out there? That certainly depends on your individual situation, but for the most part we’re managing to get by, even with gas and commodity prices that are out of control.  Interest rates have dropped quite a bit and that’s provided some relief to homeowners with ARM loans.

But is the Fed finished cutting rates?  Many experts believe so, and that from here will be a long pause to allow the economy to work its way back into growth mode.  Maybe the Fed Has Bought Enough Anti-Recession Insurance for now.  But we’ve got to put our money to work somewhere, and for most of us that means staying invested even in difficult times.

The amount of negativity about the economy and markets have been amazing this past year, and Jason Zweig’s near-contrarian view offers some good advice for Why Acting Bearish is a Dumb Move.

“This has been one ferocious stock market. Not only has Wall Street been flirting with a bear market - conventionally defined as a 20% decline in the major indexes - but we’re now in “the second-worst eight-year period for stocks since the 1930s,” says money manager Martha Ortiz of Aronson Johnson & Ortiz in Philadelphia.”

“…a growing chorus of bears thinks that the worst is yet to come and that investors should get out of the market. After all, everyone knows stocks will keep sagging since it’s obvious the economy is sinking into recession, right?”

“Even if the economy is headed for real trouble, don’t assume that your portfolio is too. Larry Swedroe, director of research at Buckingham Asset Management, notes that the U.S. economy has experienced 11 recessions since World War II. From the first day of those economic contractions to the last, stocks still managed to deliver average gains of 7.1% vs. 5.1% for cash.”

Bottom line?  Stay invested, stay long, and focus on living positively each day.  It’s not always easy to do, but I try to tune out the economic noise, and remember what’s important at home and with family.   If there’s something I’ve learned from this almost-recession and high gas and grocery prices, it’s that we really don’t need a lot of the things we spend money on.

Cutting back spending and becoming more frugal isn’t that difficult.  I don’t know about you, but when I save money or do something more efficiently, it really makes me feel good in other areas of my life.  It helps me to focus on the important aspects of life, and the goals I have for personal growth.  I’m not tied to worries or stress about the market, and how my retirement funds are doing.  

It’s about improving the quality of our lives and experience versus the quantity of something that is always changing.  

Laura Rowley describes it very well as feeling blessed. 

“Money can certainly buy us a measure of freedom or security, but money itself is none of those things. If we think money is security, we’ll never amass enough to feel secure. If we think it’s freedom, we’ll never earn enough to be free.”

“Once we remove the emotional baggage, we can acknowledge that money is just one component to achieve our goals instead of an all-encompassing solution. If freedom is a value, we have to ask which people, qualities, and experiences have made us feel most free in the past: Where do I need to live to be around those people? What should I do for my work, and how should I spend my leisure time? How much money do I need to help me create a life with those qualities and experiences? Being as specific as possible about how to manifest these qualities in our lives will keep us from running on the hedonic treadmill.” 

“… long-term flourishing requires discipline, persistence, hard work, faith, and, most important, pursuing goals that are close to your heart and based on your personal gifts.”

When we take time to appreciate what we do have in our lives, we begin to understand more about ourselves, our relationships and where we want to go.  It’s an essential part of the process of discovery, not only for whatever personal gifts we possess, but for the direction of the journey itself.  

Is money the reason for the journey?   Not by a long shot.  But it certainly helps.  A little balance and reflection helps even more.  Growing our money, like growing our lives, takes time and staying invested.  Money provides a lot of things in life, but it can’t buy long term happiness.  Money is simply a tool to take along the journey.  Sure it’s important, but if we forget our goals and what’s important in our lives, then we really haven’t gone anywhere have we?

When is the last time you’ve had a retirement health check-up?  There’s a lot of information out there to help answer questions we have about saving and investing for retirement (or during retirement).  But if you’re like most people, some of that information is pretty confusing.  Have you considered meeting with a professional to look at where things stand?  Research data shows that more Americans are doing something to prepare for retirement than ever before, which is very good news.   But at the same time, we’re also very concerned about our future retirement.

Concerned about the troubled economy, rising health care costs and falling home values, Americans’ confidence in being able to afford a comfortable retirement fell at a record rate over the past year, sinking to its lowest level since 2001.

”This year’s results show a very dramatic reduction in the public’s confidence about having a comfortable retirement,” said Dallas Salisbury, president of the nonpartisan Employee Benefit Research Institute, which has conducted a comprehensive Retirement Confidence Survey with the research firm Mathew Greenwald and Associates for 18 years.

“In an encouraging sign, this year’s survey found that 47 percent of workers say they or their spouses have tried to calculate how much money they will need for a comfortable retirement. That figure is up considerably from the low point of 29 percent 1996 and slightly higher than 43 percent in 2007.”

“As before, the 2008 survey found that doing a retirement savings calculation - even if it’s just a rough estimate - is particularly effective at changing behavior: 44 percent of those who calculated a savings goal changed their retirement planning, and of those, 59 percent started saving or investing more.”

“Still, savings levels are modest. Almost half (49 percent) of all workers report savings and investments of less than $50,000, and 22 percent have no savings at all, the survey found.”

So we know it’s important to keep saving and investing, and putting money away for retirement.  In fact, that’s the single biggest thing we can do to improve our retirement situation- save more money on a regular basis.

One way to do that is to open your own retirement fund.  More people are doing so than ever before,  and The New York Times takes a closer look at this too in A Stalwart of Retirement Planning: The I.R.A.

So if you’ve already got a retirement plan in place, is it something you can fall back on (i.e. borrow money from) before retirement?  Yes, that’s possible.  But it’s a risky move to borrow from your retirement plan whether that’s an IRA or your 401(k).

In my view that’s the last place you ever consider borrowing money from, and if you don’t have to, then simply don’t do it because many people never pay it back:

“Nearly one-third of adults who have prematurely withdrawn funds from their retirement products said they cannot pay them back, and 45% said they either cannot pay back the funds or have not begun to do so, according to a recent Wall Street Journal Online/Harris Interactive Personal Finance.”

“Even among the highest income earners surveyed—making more than $75,000—more than one-quarter of respondents said they cannot pay back their premature withdrawals.”

“Those ages 45 to 54 are less likely to be able to pay back their premature withdrawals, and those ages 18 to 34 were more likely to be currently making payments.”

Retirement planning is about a lot of things, but most importantly it’s about having enough money to fund our needs when we are older. Sometimes those needs change- especially when our family situation changes. Keeping the retirement money straight can sometimes be a challenge, but it’s important to consider how marriage, divorce, death or job changes impact your retirement plan.

And with new laws, new financial products and a lot of people looking ahead at retirement, it’s no wonder that more of us turn to a financial professional for help.

“Over the last few decades, much of the responsibility - and risk - of on-the-job retirement investing has shifted to employees. Fewer workers have traditional defined benefit pensions. And while many employees still have defined contribution plans, such as matching 401(k) plans, they handle their own saving and investment decisions.”

“Here’s the problem: For most of us, do-it-yourself planning leads to needless mistakes and financial loss. That’s because most of us aren’t investment professionals, and we need expert help to reach our goals. This becomes painfully obvious in a rocky economy and stock market, like the one we’re experiencing now.”

“And there’s one other painful truth: Most people just don’t want to be bothered. Only 19 percent of 401(k) plan participants make a trade of any kind in their accounts in a given year, according to research from employee benefits consulting firm Hewitt Associates. That suggests more than 80 percent of us just aren’t paying attention.”

I’m certainly not about frequent trading inside a 401(k) plan per se, but the point is valid in that many people are not even thinking about the choices they have in their retirement plans, or making new choices when life situations change. 

Some of the choices in 401(k) plans are limited, and some plans have too many choices to understand easily.  But some plans do offer a more flexible target retirement option that rebalances automatically based on age.  Do you know what your options are within your 401(k) plan?  Do you know how your retirement funds are allocated?  If you’ve been at your employer for 15 years, is it time to rebalance the investments within your 401(k)? 

So by not paying attention, the article indicates that we might need to make some active choices over the years for how our money is managed within the 401(k) plan.  Can you do that yourself?  Sure, it’s possible.  But if you are counting on that 401(k) plan to be your primary income or supplement during retirement, then maybe it’s worth it to consult with a professional.  A good financial planner or investment professional can help simplify the process and validate the best choices out of the options available.  When it comes to our retirement, that’s a pretty good idea.  After all, most of us get an annual check-up with a doctor.  Why should our financial health be any different?

Is there a subtle change taking place in the direction of the markets, and maybe the economy?  I’ve noticed a few writers here and there that are looking ahead, rather than dwelling on the banking crisis and every negative event that may affect the economy.   During any overzealous expansion there’s going to be contraction.  But there’s still many who have jumped on the doom and gloom bandwagon and are still focusing on what’s “wrong” with everything.  

It’s pretty evident that we face some stark challenges right now.  Between housing, industry layoffs, lending woes, and energy and commodities prices, the American consumer is taking it on the chin.  I tend to be very supportive of our elected officials intentions, even if they don’t get very much accomplished at times.  But with escalting gas and grocery prices, I really wonder if everyone from the President on down really understands how these challenges are affecting families across the nation this year.

Certainly it’s not a typical year.  It’s an election year for the nation’s highest offices, and we’re going to continue to hear what’s “wrong” with the direction of the country for many more months.   But even with the challenges we face, I think smart money looks a little more forward than that, and plans for days of positive growth and opinion once again.

We’ve seen some forward thinking recently with strong upward moves in the markets in recent weeks.  Leading indicators have not been all bad and equity valuations in some areas have become so attractive that investors are looking for bargains and positioning funds for the years ahead.  Donald Luskin says the Recovery is Already Underway and that “the worst is over.”

“Industrial production was reported as rising 0.3% last month, when it was expected to have declined. That’s a key recession indicator — and it’s just not indicating. The high-tech component of industrial production has been especially strong, currently at all-time highs.  And then there are the markets themselves. Since the panic bottom a month ago yesterday, the S&P 500 has returned 7.1%. The best-performing sectors have been financials, energy and materials, indicating that the credit crisis is mending and that fundamental forces of growth are strong.”

“The bears hang onto every little scrap of evidence coming out of the financial and housing sectors to bolster their case that we’re already in a recession and headed for a depression. Doesn’t any of this good news count for anything?”

Laura Rowley takes a more historical look referencing economic research that sees the current economic downturn as a normal response to a financial crisis.  While she indicates we may have some time still to get through it, long term investors should stay the course:

“What does history imply for individual investors, who are more worried than ever about making it through retirement? “If you’re there for the buy-and-hold, long-term view, it’s a very different world,” says Reinhart. “These booms and busts do happen, but unless you really invested very poorly you do have the ability to ride these things out.”

Of course if you’re facing great changes in your life such as trying to pay for the mortgage, looking for a new job, or looking at retirement sooner than later, then it’s hard to sit on the side of optimism right now.   But I think it’s important to be rational and pragmatic, as opposed to letting the stress of worry and fear of the unknown influence your life.

The media doesn’t help with all the catastrophic announcements of doom and chaos, and story after story of people going through hard times.   Is it really that bad for everyone?  No.  But it is bad for some people, and we empathize and try to help where we can, while doing our best to keep our own financial lives in order.

For those of us facing retirement in the short term, keeping the financial house in order may take more effort than we thought.   Laura Bruce from Bankrate.com provides a good overview of the retirement perspective in Retiring in a Bad Economy: Are You in Trouble?   While the intro is a little alarmist, it probably increases readership.  That’s actually a good thing because this article has some excellent insight for both younger and older workers.   The article focuses on the fear and concern that many people have while seeing the banking crisis or a possible recession unfold.  What is a typical reaction for most of us?  We either use our savings to get by, increase our savings if we can, or try to put some extra cash in our retirement accounts to help support us in case we need it.

“But many people don’t have the money needed to give them that cushion; whether due to a lack of income or financial planning. Juetten, who doesn’t require people to have a certain amount of money before he’ll take them on as clients, estimates that only about one in five of the people who come to see him have done a really good job of planning for retirement.”

“First, we deal with the human side. Fear and concern are normal. The news is all around us and it’s hard to ignore. People going into retirement are the ones who are most aware of their financial situation because all of a sudden it’s right in front of them. Second, we talk about the short-term cash needs and, third, we look at the portfolio.”

“If you haven’t done a good enough job preparing for retirement, your options are fairly limited. You can work longer, live on less or work in retirement.”

And that’s a tough pill to swallow.  As we get older, we may have less time to accumulate financial assets.  One troubling statistic shows that 401(k) loans are on the rise.  If more people are borrowing from their retirement plans while working, what are they going to do when it’s time for retirement?  Do you just throw in the towel and assume you’ll keep working?   While working longer is a constructive option, it’s important not to have a deafeatist attitude because there are things we can do.  Living on less is very important, as many of us are finding out with higher gas and grocery prices.   (I don’t know about you but we’re really cutting back in some areas, and we just aren’t splurging on some of the convenience items we may have purchased in the past).

But some of the biggest lessons that financial planners and clients have learned is to save enough money during the working years to provide necessary cash flow in times of trouble.  Some view this as saving for an emergency fund to support three years of living expenses- whether before or after retirement.  Does your 401(k) count as this emergency fund?  Nope.  Those are retirement funds.  We need to save money in other accounts to serve as that emergency fund. 

As we get close to retirement we may find ourselves increasing our savings and investments to provide a stream of cash flow that can support us if desired.  Many retirees don’t use the cash flow that their portfolio could provide, investing it back in the portfolio instead.  But if something does happen to challenge your ability to make ends meet, a portfolio that generates income can be the foundation that carries the day.  Getting there financially is what it’s all about. And that’s a lesson that younger workers should really take note of.

“Younger people who have time to save for retirement have an opportunity to learn from these economic cycles and avoid the frayed nerves that so many older people are experiencing.”

A lot of us look back 10-15 years and realize we could have done a lot more to increase our financial position.  Without beating ourselves up or giving in to fear however, we can also use that knowledge to make new goals and take positive, constructive steps to improve our financial futures.   We may not win the lottery or invent the next million-dollar gizmo, but with disciplined effort, we can patiently accumulate savings and investments that will help support a sound retirement. 

And there’s another realization that many are just waking up to:   As the nation goes tumbling through the economic briar patch, we’ve got to pull ourselves up and work our way out of the tangle.  Nobody else is going to do it for us.

Sounds like the title of a newspaper with all the recession talk these days. While millions of U.S. airline travelers are stranded across the nation, the rest of us are paying the highest prices we’ve ever seen for a gallon of gas. But Carol Sottili of the Washington Post’s Travel Section shares a discussion about what travelers can do in the face of so many airline cancellations. It’s finally bad enough that some politicians are talking about airline re-regulation again. The cost of cancellations certainly hurts airlines and passengers, but with the price of fuel skyrocketing, maybe a few extra planes on the ground doesn’t hurt their business either.

What chance many of us thought for avoiding a recession here in the U.S. is now all but certain. Many experts believe we’re already in a recession and that company earnings reports are going to get worse before getting better. Others think that understanding the recession dynamics is really pretty simple. I certainly agree that it’s all about people. I also think it’s all about people’s response to economic challenge, and these days the economic challenges have continued to grow. So if the recession is here, what do we do about it? Matt Callow shows us how to profit from the global recession.

Is it really that bad out there? While some economists think the worst of the credit crunch is behind us, some folks think that a Worldwide Depression is a Real Possibility. That sounds alarmist to me, but as Ronald Reagan once said,

“A recession is when a neighbor loses his job. A depression is when you lose yours.”

He was pointing out that it can be a matter of perspective. Are we going to see a depression? I can’t imagine it, but if gas prices don’t start retreating it’s going to get a lot harder for the U.S. economy. Business week shows us that as with much in life, how bad it is out there depends on whom you ask. But it’s a wake-up call for many as recent data shows that Americans recorded the largest-ever plunge in retirement confidence in 18 years of polling.

The markets continue to wander with many investors wondering if it’s time to step back in the pool. But The Big Picture presents some interesting data and says stocks are really not cheap yet.

As to valuations: “Its hard to really say that stocks are cheap here. At best, I believe we can argue that — assuming that historically high earnings do not fade — that stocks are not terribly expensive. But that is very different than saying they are cheap.”

It’s hard to say what’s cheap or not these days while we hang on every snippet of bad news. But for a little perspective, I like Minyanville’s 35 Signs the Market Hasn’t Hit Bottom Yet.

Some excellent personal finance and investing articles out there this week.  CNN/Money’s Walter Updegrave replies to an anxious investor while discussing Investing for the Long Haul.  Can’t say it any better than that right now, and so much of investing depends upon your time horizon.

If you’re really anxious, the government has just the thing on April 7th when you can invest in all kinds of Treasury securities in amounts as little as $100.  You can do that through a broker of course, but it may cost less by going right to the source at treasurydirect.gov.

Still working on taxes?  The IRS released its list of the Top 2008 “Dirty Dozen” Tax Scams this month.  Peace of mind with taxes really helps, and it’s always nice to know what to look out for.

Even though the markets have looked pretty good over the last week, don’t expect the volatility to ease anytime soon.  MSN’s Jim Jubak takes a thorough look at the challenges impacting global market stability and some Safer Ports in the Market’s Storms.  

Of course if you want to become anxious again, he presents a hard dose of reality in Retirement Crisis: From Bad to Worse.

But there’s nothing like a little Zen Economics to help you relax, and make you wonder if you really know anything at all. 

Working with a financial professional can be very helpful.  Whether that’s a Financial Planner or simply a local broker, do some homework and make sure you’re comfortable with the relationship.  A good planner can make all the difference however, especially with a longer time horizon. 

     It looks like the wider markets fell today, clear across the board.  Let’s not talk about volatility… it’s just going to be a fact of life for a while.  And not only for stocks but also gold and commodities as well.  It’s about time for the commodities to take a hit, with so much rampant speculation in recent months.  Are the easy money days for prescious metals and commodities over?  Maybe.  There’s still lots of gold bulls out there however.  Difficult to fathom buying gold near $1000 an ounce.

     Somebody tell me, besides owning the value of the metal- what do you do with that gold?  Obviously you don’t have to hold gold bullion.  But many people do and think they’ll trade it or something if paper currency goes bonkers. Certainly lots more folks invest in precious metals mutual funds and gold stocks as well.  Over the past 5-6 years they’ve done very well. Be that as it may, for now I’ll stick with stocks and mutual funds for the majority of my long term portfolio.   But debating the merits of gold versus equities is not something I’ll wade into.  There’s a few questions I just don’t want to ask right now (or hear the answers to…).

Two lawyers were in court in a small southern town and learned a lesson about relationships and long memories. 

The prosecuting attorney called his first witness, a grandmotherly, elderly woman to the stand. He approached her and asked, “Mrs. Smith, do you know me?” She responded, “Why, yes, I do know you, Mr. Williams. I’ve known you since you were a boy, and frankly, you’ve been a big disappointment to me.  I have known you to lie, to cheat on your wife, and to manipulate people and talk about them behind their backs. It seems you think you’re a big shot when you haven’t the smarts to realize you’re just a two-bit pencil pusher. Yes, I know you.”

The lawyer was stunned by her reply. Not knowing what else to do, he fumbled with his papers and then pointed across the room and asked, “Ah, well, Mrs. Smith, do you know the defense attorney?”

She again replied, “Why yes, I do.  I’ve known Mr. Jones since he was a youngster too.  And do you know what?  He’s lazy, mean-spirited, and has a drinking problem. He doesn’t know the first thing about people, and his law practice is one of the worst in the entire state. Oh, and he cheated on his wife with several different women. One of whom was your wife. Yes, I know him.”

The defense attorney’s mouth just dropped open and he didn’t know what else to say.

The judge then called both counselors to approach the bench and, in a very quiet voice, said,
“If either of you idiots asks her if she knows me, you’ll never practice law again!”

The market is soaring today and seems to like the recent aggressive action by the Federal Reserve, and that they may drop the Fed Funds rate by a full point or more today.  I sensed a change by several commentators that instead of the Fed being behind the credit crisis the past few months, they are actually now way in front leading the charge to solve the financial problems.   Which is good.  Maybe it’s not all doom and gloom.  Although there’s still a lot of disagreement about the Fed’s course of action to solve these problems over the long term.

But Fed Chairman Ben Bernanke is well-versed in Depression era financial lessons, and did a great deal of academic research on the same.  So he has studied the causes and influences of the financial problems of the 1930’s and is working to prevent the same thing from happening now.

Apparently the banking and lending industries have just about shut down over the past weeks as everyone is afraid of  doing business with another company that may go bankrupt.  Some of those fears have eased today after Lehman Brothers (LEH) and Goldman Sachs (GS) both reported earnings that were not quite as bad as many have thought, with higher estimates going forward. 

That’s all the market really wants right now… clarity for the road ahead.  And with today’s Fed rate cut, as well as earnings announcements over the next few weeks, we may have a lot more of it.   Still going to be pretty volatile, but I honestly think we’re starting to put the worst of this behind us.

“What?!” I can hear a lot of folks saying…  because it just doesn’t seem that way right now.  There’s lots of fear and near-panic in some sectors, and with housing still down and oil and commodities through the roof a lot of folks are worried.

But this isn’t the Great Depression.   Unemployment right now is pretty strong, although that doesn’t mean anything if you’ve lost your job recently.  I wish those of you the best if you’re looking for work.  Many folks are rightly concerned about where their money is and if it’s safe.  For money you can’t afford to lose- it should be in FDIC insured bank and money market accounts.

What if you’re worried about your portfolio?  Make no bones about it, I’m a long term investor with a 10+ year horizon investing for retirement.   The LA Times has a good Q&A article that tells Investors to Take Deep Breath Amid the Storm.I just think it’s not that bad, and it’s not going to get much worse. It’s like the negative press and commentary has reached a crescendo, and just when everybody finally “buys in” to the storyline about how bad it is, the market’s going to turn. 

Somewhere there’s going to be a guy on a street corner with a sign… ‘THE WORLD’S GOING TO END!” and he’ll be standing there by himself looking around wondering where everybody went.   Back to work my friend, trying to make their lives better.

Some pros even see the markets headed higher by the end of 2008.   That’s the camp I’m sitting in.  I remember the recession of ‘90-’91 timeframe.  Many politicians and folks running for election cried that it was the worst economy in 50 years.  And then it picked right up again the following year, leading to a huge run of growth through the 1990’s.  Is it different this time? I doubt it.

We’re in an election year right?  One side is going to gnash their teeth and cry about every aspect of the economy. Lately they have good reason to unfortunately.  I sure wish some of these folks would talk about what’s good in the nation and the economy once in a while, instead of everything wrong with it.  You don’t lead by shrill complaint… you lead through inspiration.  Probably why Sen. Obama attracts a lot of folks?   But one of these days the markets will turn around with conviction (today?) when the news is not quite as bad as before.   Smart money is even buying strategically right now.

“But what about the dollar?” I hear others say.  Well, let’s just say there’s a few companies here at home that really benefit from a low dollar.  But it’s too low right now, and is part of the problem with higher oil prices.  Overall however, the dollar’s going to rebound over time- just watch and see.  I wouldn’t bet against Uncle Sam any time soon.  All the press about this or that country shunning dollars. Hogwash.  Wait until the least crisis in their own country or region- guess where the money will flock to?   Right back here…  and we’ll step up to the plate and do what we’ve always done.  We’ll help them get through it too.