Posts Tagged ‘Debt’

We’re pleased to be included in the Carnival of Personal Finance this week. Check it out!

This is not financial, legal or tax advice. Our goal is your financial success, but all investments involve risk including the possible loss of principal and results will vary. If you are interested in the Snider Investment Method, please read the Owner's Manual for a complete discussion of risks and benefits. More information can be found on our website or by calling 1-888-6SNIDER. Past performance is not indicative of future results.

Reading: Carnival of Personal Finance

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We’re pleased to be included in the Carnival of Personal Finance again this week. Check it out!

This is not financial, legal or tax advice. Our goal is your financial success, but all investments involve risk including the possible loss of principal and results will vary. If you are interested in the Snider Investment Method, please read the Owner's Manual for a complete discussion of risks and benefits. More information can be found on our website or by calling 1-888-6SNIDER. Past performance is not indicative of future results.

Reading: Carnival of Personal Finance

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Nice article from syndicated columnist Scott Burns, Timeless Truths Serve as Beacon for Investors.

I’ve been writing a newspaper column since January 1977. That’s 33 years, 29 of them for syndication. It has definitely not been the same year repeated 33 times.

But there are patterns. And there are rules. There are things that you need to do if you want to get by, let alone do well.

So think of what follows as the CliffsNotes from the last 5,000 columns.

His list of timeless truths consist of the following:

1. There is always a crisis.

2. There is no free lunch. But there are some great deals.

3. We have to take care of ourselves and those we love.

4. We must save.

5. Debt can be useful, but it’s not an honor.

6. In investing, expenses always count.

7. Simplicity works, complexity fails.

8. Human creativity and energy are abundant.

9. Success is a wonderful curse.

10. We’re changing for the better, ever so slowly.

Agree with all of these. Follow the link to the article to see Burns’ explanation of each. What timeless truths would you add? Which do you disagree with? Email me or leave me a message on my Facebook wall.

This is not financial, legal or tax advice. Our goal is your financial success, but all investments involve risk including the possible loss of principal and results will vary. If you are interested in the Snider Investment Method, please read the Owner's Manual for a complete discussion of risks and benefits. More information can be found on our website or by calling 1-888-6SNIDER. Past performance is not indicative of future results.

Reading: Timeless Truths from Scott Burns

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Wonderful graphic that blows the mind. The politicians and the press throw around trillons like it t’aint no big thing. Guess what! Download the PowerPoint and prepare to be stunned. For those of us who speak, this is an excellent example of making numbers come alive for your audience, which is what the blog post is really about. But everyone who pays taxes should understand this concept.

Via Speak to Lead

This is not financial, legal or tax advice. Our goal is your financial success, but all investments involve risk including the possible loss of principal and results will vary. If you are interested in the Snider Investment Method, please read the Owner's Manual for a complete discussion of risks and benefits. More information can be found on our website or by calling 1-888-6SNIDER. Past performance is not indicative of future results.

Reading: How much is a trillion?

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The conventional wisdom used to be: Pay off your mortgage as soon as you can. Retire with a paid for home. Some personal finance writers still believe that. I used to believe it too, but not any more.

No debt is as bad as too much debt. I used to be a zero-debt advocate, but now I think zero debt can create a diversification and liquidity problem. If I have too much of my net worth tied up in home equity, I am very sensitive to falling real estate prices, and I am going to find it very difficult to tap my equity if I need it.

The problem with home equity is that the more I need it, the harder it is to get to. What lender, for instance, is going to give me a home equity loan when I have just lost my job? What kind of bargaining power do I have in the sale of my home if a loved one is sick and needs hugely expensive out-of-pocket medical treatment?

In response to my previous posts on this topic, some have suggested that taking out a home equity line of credit (HELOC) and letting it sit there unused is the answer to freeing up the equity in your home in case you ever need it. Sunday’s New York Times shows us why that is not necessarily the solution.

Apparently, lenders across the country are freezing HELOCs across the country, even if you have a perfect credit score. In the last month, lenders have sent hundreds of thousands of letters to consumers telling them those home equity lines of credit they paid money to secure, can no longer be tapped.

Most of us think of diversification in terms of asset classes. You also have to think in terms of diversifying liquidity. On the liquidity continuum, cash is obviously most liquid. Businesses and limited partnerships are probably least liquid. In between you have a broad range.

Having an emergency fund is key. I believe in at least a six month supply of cash on hand. Next comes cash flow. Interest, dividends, option premium, rent, and royalty payments are all forms of short term liquidity. After that are items that can be readily bought and sold in efficient markets. This would include stocks, bonds, options and futures. From there, liquidity becomes murkier.

Some investments have lock-up periods in which you cannot sell them or you will pay a big penalty to sell them. Others, like real estate, can be easy to sell at times, but almost impossible to sell at others. The more complex the asset, likely the less liquid it will be.

It is helpful to consider that most companies don’t go bankrupt because they lose money, they go bankrupt because they don’t have sufficient liquidity to meet their daily obligations. Think of Bear Sterns.

The same is true of individuals. Most individuals who file for bankruptcy have jobs and assets. It is just that their cash inflows don’t properly match up to their cash outflows. When this happens, you have a liquidity problem.

Your job, as family CFO, is to structure your assets so that no matter what happens, your cash inflows match up to your cash outflows. In on other words, liquidity has to be a primary consideration.

As a general rule, I like to think of liquidity as being inverse to assets. The less resources you have, the more liquid you need to be. As your assets increase, you can afford to put more and more of them in less liquid assets.

If you haven’t already, sit down and list out your assets. Stack rank them from most liquid to least liquid. Then ask my favorite question … “What if?” Ask yourself, what if I had no income coming in for two months? Where would the money come from? What about six months? A year? Two years? What if I was permanently disabled? What if I was sued or someone in my family became ill?

Asking these questions forces you to examine your resources in terms of liquidity. If you don’t like the answers you come up with, it might be time to restructure your assets or get going on augmenting your savings.

SOURCES:

1. Morgenson, Gretchen, “You Thought You Had an Equity Line.” New York Times, April 13, 2008 http://www.nytimes.com/2008/04/13/business/13gret.html?_r=1&oref=slogin (accessed April 15, 2008,).

This is not financial, legal or tax advice. Our goal is your financial success, but all investments involve risk including the possible loss of principal and results will vary. If you are interested in the Snider Investment Method, please read the Owner's Manual for a complete discussion of risks and benefits. More information can be found on our website or by calling 1-888-6SNIDER. Past performance is not indicative of future results.

Reading: Can You Have Too Much Home Equity?

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This short paper, “Will Reverse Mortgages Rescue the Baby Boomers?”, from the Center for Retirement Research, gives a wonderful explanation of reverse mortgages and how they can be used to tap equity in your home without selling it. It also explains the limitations and the risks. The best part is, the CRR is totally unbiased. They are academics looking at the problem of creating enough cash flow to rescue a generation unprepared for retirement. We are working to get one of the authors on the radio show very soon. (http://www.bc.edu/centers/crr/issues/ib_54.pdf)

Barry Ritholtz, offers this from The Big Picture. The chart is originally from the New York Times. Lest we are tempted to forget, in the short run, markets don’t always go up. When they go down, they create long periods of dead money for the capital appreciation investors. That is why I chose to invest my money for cash flow in the short run and growth as a secondary objective over the long run.

The average Wall Street employee made close to $300,000 last year. That is about 5X what the average person in this country makes. According to the CNN Money article, top traders and investment bankers are commanding compensation in the tens of millions per year. Wall Street is making more than ever while your portfolio has made little or nothing for the last five years. (See the chart above.) Do you feel they earned what you paid them? http://money.cnn.com/2006/10/17/news/newsmakers/bc.financial.wallstreet.pay.reut/index.htm?section=money_topstories

It is impossible to continue indefinitely with your cash outflows exceeding your inflows. There is only so much home equity to be tapped and so much credit to be had. Yahoo columnist Laura Rowley has a good piece on the rising gap between income and expenses in this country. She offers five suggestions for averting the disaster that always comes eventually when you live above your means.

http://finance.yahoo.com/columnist/article/moneyhappy/11094

This is not financial, legal or tax advice. Our goal is your financial success, but all investments involve risk including the possible loss of principal and results will vary. If you are interested in the Snider Investment Method, please read the Owner's Manual for a complete discussion of risks and benefits. More information can be found on our website or by calling 1-888-6SNIDER. Past performance is not indicative of future results.

Reading: 10-25-2006 – Items of Interest to Family CFOs

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