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5 Questions to Ask Before Taking on More Debt


Debt, in the right amounts and at the right times in our lives, can be very beneficial in helping us get ahead. But if you get into a situation where you can't pay it back, it can turn out to be one of the ugliest nightmares you'll ever face.
You might think that if the lender says you're fine to borrow the money, it must be OK to proceed. But there's one gigantic problem with those income and debt ratios that are commonly used to screen us all before we borrow: They assume nothing in your life is going to change.
Taking the time to honestly answer these five questions could save you from years of misery.
  • Do I have to depend on positive economic trends continuing?
Here's what went wrong with the man I referred to at the beginning of this article: The economy was booming when he took out all his debt. He assumed this would continue. When the country went into a recession two years later, his small business revenues plummeted leaving him unable to make his loan payments.
Borrow as if the economy is going to be lousy, not as if it's going to soar. Many of us have jobs or small businesses that are highly sensitive to the health of the economy. If this is the case for you, figure out your plan B for repaying the loan if the economy doesn't do what you hope it will. Again, hope is not a good repayment plan.
  • Do I need two incomes to pay this loan back?
The biggest problem with the "two-income" plan is that it gives you and your partner little freedom to change your lives. What happens if, after you take the loan out, one of you loses your job, wants to go back to graduate school or to stay home with young children?
If you cannot make the loan payments without that second income, what will you do? Hoping for the best is not a good answer.
  • How close am I to retirement?
If you are within five to seven years of achieving financial freedom, be very wary of taking on new debt, especially sizeable long term debt like a residential or commercial mortgage. Are you really willing to trade your financial freedom and the peace of mind that comes with that for the thing you are about to buy?
I'll call out one other dangerous kind of borrowing for all of us, but especially for those who are close to retiring: investing in a high risk venture or investment. If it doesn't do well, not only can you lose your money, you'll be stuck with the debt. Learn to say "no thanks" to keep your nest egg safe. 

See full story at Market Watch
Investment Insight
4th Quarter 2011
5 Questions to Ask Before Taking on More Debt
Greek Default not Imminent
401(k) Hardship Withdrawals Require Serious Thought
China Willing to Expand Investments in Europe
Energy, Tech, Health Care to Lead Next 6 Months



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For more information on the topics in this issue, contact a HORAN advisor at 513.745.0707 or visit our website www.horanassoc.com.


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Greek Default not Imminent, Euro not Dead 


Despite market signals to the contrary, Greece is unlikely to soon default on its debt and the euro currency is not at death's door.


That said, it was a humiliating week for the government of Prime Minister Andreas Papandreou. On Sept. 14 the embattled Greek leader endured a 25-minute video conference with Angela Merkel and Nicholas Sarkozy, who informed Papandreou that if he wanted aid from the European Union he needed to roll up his sleeves and make good on promises to close a huge budget deficit.  


Buying time  


Clearly, Greece won't be able to indefinitely service its half-trillion dollar debt that far exceeds its gross domestic product. The EU and other creditors are buying time while a feasible, minimally disruptive restructuring plan is devised. Elements of a plan are beginning to come together with commercial banks acknowledging that they have to take a haircut.  


"The euro of the Germanic core would soar," he says, "while the southern euro would steadily weaken." Even Merkel acknowledges that, "failure of the euro would be the failure of the EU"  


So, how is the euro to be preserved? Outgoing European Central Bank chief Jean-Claude Trichet says an EU finance ministry is needed to streamline and discipline the disparate tax and spending mechanisms of euro zone members.  


Europe is facing a financial crisis. But there are tools remaining for fighting the fire. It's premature to plan a funeral. What is needed now is a plan and the political leadership to sell it to a skeptical European public.  


Read more about the strategy at Market Watch.

401(k) Hardship Withdrawals Require Serious Thought


The numbers show that times are still tough financially.

More workers are taking money from their 401(k) accounts early and using the hardship withdrawal rules to give them access to needed cash. The lingering high unemployment rate and slew of home foreclosures have been major factors.

Companies with retirement plans are reporting a rise in the number of workers who are withdrawing money early. Last year, 6.9 percent of 401(k) accountholders made a withdrawal, near the record high of 7.1 percent in 2009. About 20 percent of the withdrawals were for hardships.
When 401(k) accounts were developed it was agreed upon that some mechanism was needed for workers to access the money in emergencies. Without that, many workers likely would not save.

Hardship Defined


The Internal Revenue Service, which oversees collecting taxes on retirement funds, defines a hardship as an immediate and heavy financial need.

It also makes clear the worker must have exhausted other financial resources first. That includes bank loans and tapping the assets of a spouse and even minor children. Workers must also have already exhausted any other distribution and loan possibility with their employer's retirement plan.

Click here to see the whole story at CNBC.

China Willing to Expand Investments in Europe


China views Europe as a strategic partner and stands willing to expand its investments in the region, Premier Wen Jiabao said Wednesday, urging that Europe acknowledge China's status as a market economy.

"We have been concerned about the difficulties faced by the European economy for a long time, and we have repeated our willingness to extend a helping hand and increase our investment," the official Xinhua News Agency cited Wen as saying in an address to the World Economic Forum in the northeastern coastal city of Dalian.

The sovereign-debt crisis that has engulfed a handful of Europe's so-called peripheral countries must be prevented from spreading further, Wen said as he called for decisive action in preventing spillover into the global economy.

"I believe China's economy can achieve longer-term, better-quality growth. This will be our new contribution to strong, sustainable global growth," according to a summary of Wen's opening address published on the World Economic Forum's Web site. 

Click here to See full story, located at MarketWatch.

Energy, Technology, and Health Care to Lead in the Next 6 Months 


Energy, technology and health care stocks are expected to perform best over the next six months, according to Charles Schwab's most recent semi-annual study of more than 900 independent registered investment advisors.

Defensive names such consumer staples and utility companies are also among the preferred choices. Both of these sectors are currently up the most in the S&P 500 index so far this year, with gains of 5 and 8 percent, respectively.

The survey, which covers a six-month outlook for investments, client portfolios and the economy, reveals that only 37 percent of respondents feel bullish on the stock market, compared to 56 percent back in January. The majority (41 percent) are neither bullish nor bearish.

Read more about Energy, Technology and Health Care at CNBC.

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