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Dear ,
Welcome to the March 2012 issue of The Wealth Chronicle! |
How Smart Investors Make Money
Most people think of time as the enemy. No one ever has enough time so they are constantly trying to outsmart it. Unfortunately many investors find themselves playing a costly game of catch up against time - one they cannot possibly hope to win without taking huge risks. They are sitting on the sidelines faced with the daunting task of making up the time they'll never get back
When it comes to investing time should be thought of as a constant companion, one that is willing to work with you if you let it.
Let's look at an example
Which action do you think will earn you more money over the next 20 years?
- Investing $12,000 in a single lump sum today: or
- Investing a total of $24,000 in increments of $100 a month
Most people choose the second option because you would be investing two-times more principal. The truth is that putting away $12,000 right now most likely would be the more profitable choice. At 5% a year, the person who chooses to invest $100 a month will be ahead of the lump sum investor 20 years out. But if both investors manage to obtain $10% per year over 20 years, the tables turn and the lump sum investor ends up being 6.78% ahead over time.
One of the best investment strategies to partake in is consciously put aside as much money as you can as soon as you can - then make sure it earns a decent rate of return for as long as possible. There really is no magic to building wealth.
Here is a classic story that brings this strategy to light:
In 1626, we bought Manhattan Island from the Indians for a whopping $24 worth of beads and trinkets. History suggests the Indians got the short end of the deal. If you factor in time and interest that's not entirely the case. If the Indians had invested the amount they got for Manhattan at 7% a year, which is not unreasonable over long periods of time, they'd have $1,561,138,403.65 today which is very close to the total estimated value of all the land in Manhattan.
The message is that you don't have to start off with massive amounts of money to become wealthy. But you have got to start. You cannot worry about what might happen.
If you don't have 386 years to wait like the Indians did or think 7% a year compounded is impossibly high, no problem, how about if you have 12 years.. Had you put your money into Altria on December 31, 1999, your total return would be a healthy 1,011.07%. Divided y 12 that's roughly 84.25% a year including dividends and reinvestment.
Everyone likes to Buy Low and Sell High, but because of how emotions get involved in investing I've talked to a lot of people who have gotten burned by trying to time the market over the past four years. Below is a chart of the S&P 500 that shows where a lot of investors sold out of panic in 2009 and are starting to re-enter the market now with a little optimism.
If you want to read further about market timing the following is a good article from Investopedia that discusses the pros and cons.
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2nd Quarter Key Financial Dates and Deadlines
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The Real Inflation Rate | |
More experts are expecting what most Americans have suspected for years - the real inflation rate is much higher than the government is willing to admit. I came across an interesting article that disputes how the government accounts for inflation. Officially, the US Bureau of Labor Statistics (BLS) says the inflation rate, or Consumer Price Index (CPI) for 2011 was 3%. Early in March a non-profit group, America Institute for Economic Research (AIER) claimed that the US inflation rate for 2011 is a lot higher - around 8%. There are economists who think the number is actually even higher. Economic consultant John Williams, contends that when it comes to inflation things are even worse. He states that using the old methodology from 1980 of calculating inflation the real inflation rate is higher than 10%.
Over the years the government has made adjustments to how it calculates the CPI, trying to make it more accurate. Originally the CPI was determined by comparing the price, in two different periods, of a fixed basket of goods and services. It could be considered a cost of goods index. Over time Congress embraced the view that the CPI should reflect changes in the cost to maintain a constant standard of living. The new methodology takes into account changes in the quality of goods and substitution. Substitution is the change in purchases by consumers in response to price changes.
Why would the government want to understate the real inflation rate:
1) Political Gain: Positive economic news such as inflation that's under control, sound good in campaign speeches and can make the difference in a close election.
2) Big Savings: A lot of government entitlements, especially Social Security are linked to the CPI. Lower official numbers mean lower payouts. This has saved the debt-ridden US government billions of dollars.
3) Keeping Interest Rates Low: Fed policies like quantitative easing and holding interest rates near zero should have pushed inflation much higher. If the CPI were reported accurately, the Fed would be forced to raise interest rates, which in turn would slow the economy, bring a pullback in the stock market.
Whether the real inflation rate is 3%, 10% or somewhere in between when it comes to retirement planning failure to account for inflation can be extremely damaging. Here are some scenarios that show the real world impact of inflation. These scenarios assume that you now require $60,000 a year to live and you would like to maintain that standard of living in retirement. A 3 percent inflation rate is used which is the historic average.
- In 10 years you would need $80,635
- In 20 years you would need $120,000
- $163,914 in 34 years (If you retire at 65 and live to 99)
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Creating your Financial Team
A complete financial plan requires a proper mix of investments, insurance, tax planning and legal work. Because it is difficult, even impossible, to be competent and properly licensed in all these areas, professionals often take a team approach to financial planning. Financial advisors, accountants and attorneys each bring a unique perspective that can be beneficial to a client.
This article will provide some hints on what to look for when building your team.
Estate Planning Attorneys
- Specializes in trusts and estate planning and has a reputation for doing customized work and staying up on the latest developments
- Will put a fence around their costs and not nickel-and-dime the client
- Is timely in action and will not drag the process out
- Is honest, ethical and conservative in his or her recommendations
- Clearly delineates what the client can expect and the type of service that is offered
Financial Advisors
- Asks the right questions, listens attentively to the client's objectives and gives advice based on a written plan that describes how the plan meets the objectives
- Takes a holistic approach to financial planning; understands the big picture; addresses the entire situation and not only part of the client's financial situation
- Recommends a product mix based on the client's wishes and the client's best interest, not the planner's preferred products or the highest commission products
- Is willing to spend time educating the client about the issues, helping the client understand the plan and helping the client organize documents pertaining to the financial plan
- All fees must be transparent
CPA
- Not a "yes" man. You should have a CPA who will share an honest opinion and who is willing to say "no" to a client when appropriate
- On the other hand, you don't want to work with a CPA who says "no" to everything or tries to be the expert in all areas. They should be willing to discuss ideas with an open mind
- Proactive in planning and issue-spotting for clients, and brings in other professionals when appropriate - rather than simply reporting a client's taxes
It is important to have three key, trusted advisors working together to help create estate and financial strategies. Each key advisor has an area of experience he or she brings to the table. When your team works together they create appropriate checks and balances to significantly decrease the changes of any missteps.
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Murder Mystery weekend
This month Katie and I went along with friends Tom and Gina to the French Manor in The Poconos for Murder Mystery weekend. (http://www.thefrenchmanor.com/mystery.html). The weekend consists of three days of partaking as characters in an event where someone is murdered and then trying to sift through clues like Sherlock Holmes to figure out who amongst us was the murderer. In addition to the mystery there are lots of fine food and drink and plenty of leisure by the pool and spa.
Congratulations to Tom and Gina. Tom was one of 3 people (out of 30) who were able to solve the crime. And even though the murder was done on St. Patricks Day, the killer was not Pat O' Shea in the Pub with the Shillagh as one of our friends (Kevin) hypothesized. Gina won the award for Best Costume for her portrayal of the character Buzz Girl.
Hunger Games
This month Lionsgate released the Hunger Games and there hasn't been this big of an opening in a while for a movie. The film grossed over $130 million in the opening weekend, but ticket sales are not the only benefit from the movie. Lionsgate stock is at an all time high. The book publisher Scholastic has gotten a boost in a spike in book sales, and even Amazon is seeing an impact as the company reports that the trilogy's author Suzanne Collins is now Amazon Kindle's best-selling author. There is a loser in all of this expected success. Carl Icahn. He sold his one-third stake of Lionsgate (44 million shares_ for $7 a share back in August. Now the company is trading at double that amount meaning he lost out on about $300 million in equity value.
Yankees Fans for Kentucky
The NCAA Basketball Final Four is set with Kentucky, Louisville, Kansas, and Ohio State. If you are a Yankees fan you should be pulling for Kentucky. Across the past 62 years, Kentucky has won six national championships. 1949, 1951, 1958, 1978, 1996, and 1998. Since 1949 whenever Kentucky wins a national championship, the Yankees follow suit with a World Series title seven months later. The Yankees don't always need Kentucky's gentle push, but if you are looking for positive early harbingers to counteract Joba almost chopping his ankle off on a trampoline this is a good one.
Goldman Sachs Muppets
On March 14th, Goldman Sachs executive, resigned and sent shockwaves through Wall Street with his op-ed piece in the New York Times - http://www.nytimes.com/2012/03/14/opinion/why-i-am-leaving-goldman-sachs.html. Smith said that there was a drastic change in culture at the firm since he joined it 12 years ago, with profits now coming before the interest of clients who, he wrote are often referred to as "muppets" by people at Goldman. He says that during meetings at Goldman, "not one single minute is spent asking questions about how we can help clients," Smith wrote. "It's purely about how we can make the most possible money off of them.
In response to the op-ed Goldman Saches is going to search through its employees emails for any mentions of the word "muppet" to make sure they're not mistreating clients. I'm not sure if this is funny or sad that they would take this silly approach to enforce good conduct.
Contrarily, one of the things that I discuss with my prospects and clients is the fact that I am an independent Financial Advisor. While I have access to every type of financial product, I do not have anyone telling me to push one product over the other, nor do I have any incentive to do so. When it comes to something as important as money it is good to know that when you work with me, you are working with someone who is looking out for your best interests.
MY PLEDGE
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Please contact me if you have any questions about the articles above or about your personal or business finances.
Sincerely,
Marc Bautis
Wealth Manager
office: 201-842-7655 cell: 201-221-6895 fax: 201-754-9760
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Disclaimer:The information contained in this newsletter is for information purposes only and may not be suitable for your specific financial situation. You should consult a financial advisor before making any investment decisions relating to the information contained in this newsletter
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 | | MEET MARC | |
Marc Bautis is a Wealth Manager specializing in working with young families as well as retirees and those nearing retirement. He understands that everyone wants to not only protect their principal, but also be sure that their money lasts. He is committed and proud to deliver independent advice, always in the interest of his clients.
Marc is the creator of the Retirement Fitness Challenge™, a program designed to be sure his clients enjoy the retirement years as they have always envisioned them. Marc's program is designed to prevent outliving your money but also to minimize expenses during retirement and find the best time to start taking Social Security benefits.
Marc is a graduate of Seton Hall University. He is a Bergen County native, from Lyndhurst, where much of his extended family still resides. He currently lives in Hasbrouck Heights with his wife Katie and Old English Bulldog, Winnie.
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