The Latte Factor

Americans spend way too much money on stuff that we don't need. I'll sit across from my clients sometimes who make $130k a year, but I have to hold them at gunpoint to get an extra $200 saved a month.
Think about this....what do YOU spend money on that is a luxury that could be cut. Not to pick on coffee, but it is a great example...a cup of coffee at home, costs you what...25 cents. A starbucks coffee costs $5....think about it.
$5* 5 days a week= $25, * 52 weeks a year= $1,300 you are spending on coffee, but you haven't been able to save for retirement, cash reserves, a downpayment on a house etc? Plus you could have a tax savings on that $1,300 if you were putting it to an IRA.
Try to write down your latte factor and CUT IT out and save it instead. Some other examples are cigarrettes- a nasty habit you should cut for your health and your wealth! Esp my NYC friends who spend $10 every few days on a pack, now that makes me sick!
Other examples...
Your weekly pedi/mani
Your shoe addiction...I'm thinking of that great SATC episode, Carrie frets that she will really be the old lady that dies in her shoe
The $3 bagel in the morning
Wine.....try sticking to $10 a bottle, I can find lots of $10 wine that is pretty damn good
Going out for lunch everyday...try bringing your lunch
The pets....no they don't need all of those toys, they're pets!


Do it now...WHAT IS YOUR LATTE FACTOR?

What do YOU think?

Bernanke, Bush and others are urging Congress to take action to approve the $700 billion bailout...which would provide capital to financial institutions who are trying to write off all the bad debt on their balance sheets....so the question is...
Should the Govt. bail out these companies to help provide some stability to the economy by increasing liquidity and assumptively helping economic growth through increased confidence, lower mortgage rates and increased lending to buy all these houses...

OR...
Should we let capitalism work its way through the markets...the survival of the fittest, companies that were prudent with their balance sheets will aquire and survive, those that didnt will fail or be bought...

What DO YOU THINK?

Did you know...

After the terrorist attacks of 9/11 the Dow fell 14.3% from Sept 10th to Sept 21st, but 63 days later had returned 24.8%....don't time the markets, you will miss the bounce back..

After the crash of 29 from 10/11/29 to 11/13/29 the market lost 43.6%, but then 126 days later it was up 46%.....for those that could keep their money in the market, you would have recovered your losses...stay invested...
For the week of Sept Sept 15/08 to Sept 19/08...

Monday- market down over 500 points
Tuesday- market closes up 140 points
Wednesday-market drops 450 points
Thursday- market closes up 400 points
Friday- market closes up 368 points
for the week...a loss of .27%....i bet the people that sold after Monday weren't too happy, bc they actually realized the loss....

It is going to continue to be a rocky ride, so keep your seatbelts fastened...
STAY INVESTED!

5 Tips to remember in a volatile market...

1. Don't let emotions affect your financial future- ie don't make poor sell decisions bc of short term market fluctuations.
2.Diversify, diversify, diversify- ex. if you had 50% of your portfolio in Lehman, you wouldnt be doing very well right now...keep an appropriate mix of stocks, bonds and cash based on your retirement goals and time frame. Use diversified mutual funds that own hundreds of stocks in hundreds of companies, or use Exchange Traded Funds
3. Be disciplined- continue to systematically invest in the markets through dollar cost averaging ( ie every paycheck continue to contribute to your 401ks, add to Roth IRA's etc.etc.)
4.Avoid market timing- trying to get out of the market at a high and get back in when things have settled down is impossible to do.....you'll end up getting in after the bull market has already started...STAY INVESTED!!!
5. Review your financial plan- Every year you should sit down with a financial planner to review changes, update rebalancing and your investments- see what opportunities can be taken or things to avoid.

Breaking the Buck

This week on my way to work, I was driving and checking my Blackberry, probably not the safest thing to do....and there it was- an email from corporate that the Reserve fund had dropped its NAV price from $1.00 to .97cents. My heart stopped...for a sec...until I realized it was the Reserve Primary fund, not the Reserve US Govt. fund that I have my clients in....luckily I did not have one of my client's accounts in this fund. However, we've heard all these headlines over the past months...first, Bear Sterns, Fannie and Freddie, Lehman and then AIG, one of the nation's largest insurers....it is one thing to hear about these companies, but then to see the Reserve fund, the oldest, most prestigous money market manager out there, declaring that they have broken the buck....which means that the NAV( share price) which is always held at $1.00 was dropped to 97...a 3% loss in an account that is considered very safe. Why? Well money markets invest in a number of types of investments to give you the 3-5% yield they average...things like bankers acceptances notes and commercial paper...well they had about 780+ million in Lehman brothers paper. Ouch.
But don't fret too much, remember I'm talking about money market mutual funds....your money markets, checking, savings and CD's are FDIC insured...check out my blog a while back on FDIC insurance.
If you do have money in a money market mutual fund, don't panic...breaking the buck has only happened once before and no other companies besides the Reserve fund has announced any bad news. If it totally freaks you out, move it to a money market at your bank instead of your brokerage firm, but I think this might cause panic and start even more problems if everyone starts doing this...

Lehman..

Unless you live under a rock, you probably heard that Lehman Brothers, a company that has been around for 158 years, has filed Chapter 11 bankruptcy. And Oh yeah, Merrill Lynch also annouced its sale to Bank Of America.
Why did Lehman file bankruptcy.....just like an individual, it comes down to their balance sheets.
If I'm an individual that has overleveraged myself with a mortgage( prob an interest only) that is worth more than my house, have thousands of credit card debts and other loans, and nothing in savings, would you invest in me? Probably not.
Would you invest in an individual that had no debt except a modest mortgage payment, assets diversified between IRA's, stocks, and 1 years worth of living expenses? Probably.
Same things with companies- Lehman Brothers unfortunately overextended themselves- but don't look at all the bad;there are still companies out there with good balance sheets, yeah their sales may be down, but whose aren't- they can still survive- their stocks are cheap bc they've gone down with current market conditions- could be a great time to buy these companies, IF you are a long term investor and can stand a bit of risk.

Asset Allocation

Did you know that asset allocation is the most important thing when managing a portfolio?

It is however, not what makes headlines. Often you can pour through the financial press and read about what companies are good buys, what the hottest mutual funds are, or what stocks are good for a bad economy.

What does not make the headlines very often on CNBC or Bloomberg is asset allocation- which is a professional management system that was developed by a few University of Chicago professors. They studied years and years of market data and found out the following:

Your mix between all the asset classes is what drives 92% of your portfolios performance...yes, 92%!

What drives 4% is picking Stock A over Stock B, and then just like any other study there was a 4% variance.

The mix of asset classes ( meaning what percent you should have in Large Cap vs. Mid or Small Cap) is dependent on three things:

1) Your risk tolerance- are you aggressive, moderate,etc.

2) Your tax status

3) Your time frame

So, your asset allocation is going to be different then your neighbors, friends, co- workers etc. bc these 3 factors differ for everyone.

What is your asset allocation, are you using this in your portfolios?