Life lessons from the passing of the King of Pop

It’s late Thursday afternoon. I’m busy finalizing today’s blogpost (yes, I usually write them a few days before I post them) – and my phone rings. On the other end is a good friend, almost gasping for air. Then, these words : “Sam, oh my God, oh my God, I’m so sad. Michael Jackson is dead.”

For those who might be wondering, yes! This is a financial blog. And you’ll agree by the time you’ve finished reading this post that there are important – financial – lessons here for everyone.

I am not qualified to discuss the King of Pop’s undoubtedly astronomical accomplishments or the brouhaha surrounding the world’s loss of a true musical genius, recipient of 13 Grammy Awards, the man behind “Thriller” – the best-selling album of all time – the biggest pop star on earth who dominated and shattered the musical charts and, in my opinion, the most famous face on Planet Earth. I’ll leave that for establishments like TMZ, MTV, CNN and the host of other entertainment news organizations – just Google Michael Jackson and you’ll find more than you could ever read.

My Take-Aways From This Historic Moment

Warning: These lessons may appear very elementary, but I recommend that you read all the way through to the end – because if I’m right, you will begin to see certain things differently. This might be a good example of that saying, “We all look, but only a few see.”

Back to the phone call with my friend on Thursday. It took me a few seconds to respond to the news. During those moments, this thought flashed across my mind: No way! It’s Michael Jackson! But at that very moment, I remembered these basic facts of life that I frequently teach my audiences:

• First, we’ll all die someday – unless, of course, you have a special arrangement or have Terminator or android parts that make you superhuman.

• Next, for the most part, we leave this earth at the most inconvenient time. Michael Jackson was preparing for a 50-show tour in London, with the first date slated for July 13^th. And he was raising three young children. But most of us feel invincible, for the most part – don’t we? Death is something that happens to other people.

• Then, whatever time we leave this planet will either be before or after we’ve retired. There is no third option.

• As the saying goes, life is short. Therefore, we must focus our energies on the important things, rather than the urgent things. In other words, there’s a distinction: not all urgent things are important.

• Above everything else, build strong family relationships, maintain high moral standards – no matter what, and give back to society in the form of your treasure, time, and talent.

• And last, but certainly not least, maintain a healthy lifestyle and avoid as much stress as possible. The only thing stress does is make you paralyzed about the very situation you’re stressed out about. Experiencing the feelings of anxiety, frustration, and indecision do not change a thing, so why stress out in the first place?

Elementary concepts? Well, maybe. But how many times have you really taken time to think about these ideas during your busy days, weeks, months, lives? Do you see how this story is related to your overall well-being? If someone-you care about depends on you financially, what would happen to them if the unthinkable should befall you? What kinds of plans do you have in place for burial, insurance, and the future?

Memories, Memories, Memories

Here are a few of Michael’s sensational music:

ABC

I’LL BE THERE

BLACK OR WHITE

HEAL THE WORLD

THRILLER

YOU ARE NOT ALONE

BEAT IT

Michael Jackson, 1958–2009. May his soul rest in peace.

Should You "Rebalance" Your Portfolio?

Before we dive into this, let me give you some perspective. Washington DC-based Employee Benefit Research Institute estimates that somewhere in the neighborhood of 50 million Americans have 401(k)s, equaling an estimated $2.5 trillion.

And the Center for Retirement Research at Boston College tells us that in the 12 months following the stock market’s peak on October 9, 2007, “the Dow Jones Industrial Average plunged 39 percent, the Standard & Poor’s 42 percent, and the broadest gauge of market activity – the Wilshire 5000 – 42 percent.” Essentially, about $2 trillion

Unless you’ve been living on Mars, you are aware that the chaos in the stock market is still raging. And, as one would expect, a lot of folks are basically freaking out. Who wouldn’t? Everyone who’s got any money left in the market is looking for some sort of solution to stop the further exhaustion of their investments.

One solution that seems to be gaining popularity is “rebalancing.” In the real sense of the word, rebalancing is the act of returning a portfolio to its original mix, when it no longer conforms. However, for the purposes of this blog, I am defining “rebalancing” as moving assets from one class to another to prevent further hemorrhaging of an account’s value – hence the quotes.

More and more 401(k) plan administrators, customer service reps, and financial advisors are proposing “rebalancing” as a way out of the current mess. But is this really a sound idea? Let me give you the whole story so you can make your own decision, as we at Laser Financial Group always allow our clients – or anyone, for that matter – to do.

First, Get an Understanding

Okay, let’s say you are Barbara, and before this whole stock market pandemonium began, your 401k – or similar plan – had a $300,000 balance. To keep it really simple, let’s assume you own 10,000 shares of Mutual Fund X, making each share worth $30.

When Barbara receives her annual statement 12 months after the chaos begins, her balance has been reduced to $200,000, without her having withdrawn a penny. This means that each share is now worth $20, but she still owns the same number of shares – 10,000. Again, we’re keeping things very simple to help you make wise choices.

Barbara, just like millions of other distraught investors, makes a few phone calls and is “advised” that the “solution” is to “rebalance” her portfolio into a money market fund until after the market recovers. Then she can once again “rebalance” it, back into Mutual Fund X or any other fund that might be “smoking hot” at the time, in order to make money. Sounds pretty awesome, right?

If Barbara were to follow that advice, this is what she would actually have done. She’d have SOLD her shares in Mutual Fund X at their current value of $20 per share and BOUGHT new shares in something else with the proceeds. In other words, she would have essentially made the $100,000 decline in the value of her account permanent.

When and if the market were to recover and the price per share of Mutual Fund X goes back up to $30 and Barbara were to decide to go back in and “make money,” as the so-called advisors suggest she should, she’d be starting with $200,000. In other words, the fund would now be back at $30 per share, but she would own only 6,666.67 shares. Although it may seem elementary, please notice that Barbara now has $200,000, not $300,000, so she no longer has 10,000 shares of fund X.

If Barbara Had a Longer Time Horizon

If you read my columns, you are by now probably aware that I do not claim to have a financial crystal ball. Neither do I posses the ability to predict the exact future movements of the stock market, although that would be awesome! But, I DO have loads of common sense. Oh, before I forget, here is one guaranteed prediction about the stock market for you: It will fluctuate.

Without claiming that past performance is any indication of the future, the fact is that the stock market has, in the past, always recovered. That being said, here are a few questions Barbara needs to ponder before she acts:

• Do I understand what I own?
• Why did I invest in the stock market in the first place?
• Do I need all of my account’s value right now?
• Do I even believe the market will recover?
• Do I have enough time to wait for the market to recover?

If Barbara Has “No” Time

To be precise, if Barbara is already retired or very close to retirement, it would be tremendously unfortunate if she found her portfolio in this predicament, because she would simply be out of luck. Unfortunately, this was precisely the case with far too many Americans who’ve been invested in the stock market as it collapsed.

What Am I Saying to Barbara?

As always echoed by Laser Financial Group, it is better to be in a position to act, rather than react to circumstances over which you have no control – like what the stock market is going to do.

None of our clients have lost even a penny during these turbulent times, and they definitely are not looking to do any “rebalancing.” I call that common sense, peace-of-mind investing. You see, financial advisors – or the people they get their financial advice from (including myself) – do NOT have the ability to predict the exact future movements of the stock market. If that were the case, we’d all probably be retired on our own islands, not advising folks like you.

I believe that Barbara and most investors are very smart. Once they receive the correct information in a clear, simple, factual manner, they can make up their own minds as to what is good for them. We have helped people just like Barbara make the good decisions that fit their particular sets of circumstances.

What the Heck Is WRONG with Selling?

I don’t know about you, but I have no tolerance for those who try to outsmart the public – just so they look good while everyone else is, in their view, branded awful. It really, REALLY gets on my nerves. I recently put out a media release questioning what – in my view – is the massively misleading information being aired on some TV shows.

Avoid Sales People?

Have you noticed that all of a sudden everyone seems to be of the singular opinion that sales people are toxic? I mean, all of a sudden, some so-called professionals seem to be advocating that by avoiding people who want to sell you something, your life will be better – as if that’s possible.

This is not really a new practice, but I have been noticing what seems to be a theme on most TV and radio shows that I happen to catch, and it appears that this mindset is becoming prevalent. Personally, I think it’s shoddy, unprofessional, immature, hypocritical, and quite frankly, unethical. Let me explain.

I recently was watching a much advertised TV program that was supposed to give folks tips on how to get through the current economic situation. It featured a high-powered financial professional – or at least that’s how the host described this individual. To my amazement, this advisor’s key advice was that people should avoid any financial person whose goal is to sell them something.

Beyond that, there’s a TD Ameritrade advertisement that suggests that dealing with financial salespersons is ill-advised.

And then a colleague of mine in the financial industry recently recommended a book to me. The author was BLASTING what he referred to – I am paraphrasing here – “financial sales books.” He went on at great length about how cruel and dishonest salespeople are.

Everyone Is Selling SOMETHING!

Before we rush to buy into all the any-sales hyperbole, I have a question for you:

Do you honestly know of anyone who is not selling something?

I may not know you personally, but I can answer that question anyway:

Probably not.

If so, they are likely either deceased, incapacitated, unemployed, or retired – hope I’m not missing anyone. Let’s face it, if you don’t sell, you’ll most assuredly wind up bankrupt, either as a business or as an individual.

Every company – regardless of the business or industry – is SELLING a product or a service. Even churches and nonprofits are selling by trying to get you to donate your valuable time, talent, or treasure. Whether you are employed as a nurse, real estate agent, pastor, teacher, TV anchorperson, talk show host, police officer, congressman or woman, financial advisor, secretary, engineer, professor – GET THIS – you are a salesperson!

Whenever companies begin to experience declines in sales, you know what happens? Ask the folks at GM, Chrysler, and anyone else who’s lost their job recently due to the recession. Likewise, any individual in any capacity that stops selling had better be prepared to see red ink on their financial statements.

What I’d like to know is how this guy with the TV special gets away with his con. And that’s what it is – a BIG con job. Whether you are:

• an expert who advises people that the way to ride out the recession successfully is to avoid salespeople all the while encouraging those same people to contact your firm – which doesn’t sell, I imagine – to get their affairs in shape;

• a financial company advocating that folks avoid salespeople but call your independent advisors – who are not selling – to set up or roll over their IRAs;

• an anti-sales author whose book is for sale on a website where people are required to leave an e-mail address so they can be solicited weekly about registering for your paid “special” training to become accredited to join their organization; or

• a CFP trying to woo clients with this headline: Avoid Financial Salespeople – Get A CFP –

if you are any of those, I hate to break it to you, but you are SELLING!

And now, the time has come for me to say “Stop the hypocrisy crap!”

The idea of every salesperson as the sleazy used car dealer is an antiquated and erroneous one. It's high time we all get used to our roles as salespeople and embrace them. If I had my way, my suggestion would be that no one patronize – or buy anything from – those who profess this ignorant idea, as well as the businesses that sponsor them. Since they are NOT SELLING anything anyway, your boycott of their products and services should not hurt them a bit, should it?

Whoa! GM Stock Has Vanished, Too?

Imagine it's June 1, 1999 and you happen to be sitting in on one of our seminars, listening to our webinar, or reading this blog and we tell you NOT to invest your serious cash directly in the stock market. The stock market is rolling and all you have to do is just pick a stock or mutual fund and you are on your way to your "dream retirement."

On that particular day General Motors (GM) and General Electric (GE) stocks close at $66 and $113, respectively. The "experts" at the time - if my memory serves me - are calling these companies Blue Chip stocks, meaning they are HUGE, very stable companies. They advise folks wishing to be wealthy to make those stocks part of their portfolios because they are not going anywhere. They're Blue Chip, remember?

After all, just 10 years prior, on June 1, 1989, GM and GE stocks were trading at $41.75 and $51.63, respectively. If you do the math, you'll find this was a 58 percent for GM and a 119 percent increase for GE. The experts claim? As long as you take their much-advised long-term view - investing for 10 years or more - these Blue Chips must be part of your portfolio.

Then, last Monday - June 1, 2009 - the unthinkable happened. GM, the largest automaker in the United States of America, a Fortune 500 company, an iconic company, filed for bankruptcy protection. In the midst of all the chaos and rumors, here are some FACTS for you, American consumers who may be affected:

Bondholders

Thousands of individuals and certain mutual funds bought $27 billion worth of GM bonds. These will end up owning stock from the reorganized GM worth - GET THIS - only a fraction (less than 50¢ on the dollar) of their original investments.

Stockowners

Those who currently own GM stocks will see their investments essentially vanish. The stock closed at 75¢ per share on June 1, 2009. As of June 2, 2009, the New York Stock Exchange no longer lists GM shares. GM will also be removed from the Dow Jones Industrial Average as of June 8, 2009.

Don't Believe the Hype

Who could have predicted that something the "experts" said could never happen would happen this easily in our lifetime?

I am not an expert, but this is the time-tested common-sense statement I always make:

Holding stocks long enough (however long that is) does not and will never
eliminate risk. These so-called experts cannot and should not be advising
investors - or even implying - that if they just hold their stock long enough,
the risk disappears and they will end up in great shape.

Ten years ago, GM stock was trading at $66; today it has essentially vanished! GE stock, on the other hand, was $113 then; today - after 10 years - it's worth $13.86. Remember, 20 years ago GM and GE were trading at $41.75 and $51.63, respectively. How about 30 years ago? GM was $59.38 and GE was $50. Forty years ago? GM was $77.87 and GE was $90.

And speaking of solid Blue Chip stocks, as the "experts" put it, here are a couple more names for you: Washington Mutual, Lehman Brothers and WorldCom.

To temper the current dismay at GM's bleak status, the company's current CEO, Fritz Henderson, has vowed that the new GM that emerges from bankruptcy will not be at risk of failure in the future. "We understand there are no second chances," he said. "We won't need one."

To that, I say, "Great!" and "Yeah right!"

Just a few months ago the nation's largest automaker's former CEO, Rick Wagoner, insisted bankruptcy was "not an option." I'm guessing you can tell that kind of talk is simply BS! It's similar to the line of crazy talk that most financial planners use to push unsuspecting investors into financial ruin.

Rethink Your Investment Strategy

The sad truth is that when you invest directly in the stock market - via stocks, mutual funds, or whatever - you are betting against an enormous uncertainty. Laser Financial Group has always maintained that retirement planning should NOT be left to chance, as the so-called experts would have you believe. Retirement is certain, and people's livelihood should be, as well. That's why we recommend and help our clients secure less volatile, more stable investments that allow them to enjoy the market's upside indirectly, without the downside risk.

Imagine where you'd be right now if your investments had NOT lost any value last year and instead, your account earned 5 percent interest! Yes, while the S&P 500 index lost more than 35 percent, your investments made gains. And imagine if, when the markets recover, your indirectly linked investment account were credited a higher interest rate - based on an index - up to a cap of 15 percent -for example. This is no dream. It's not only possible, it happens for our clients every day. Isn't this just plain old common sense?

I'll close with a well-known proverb: "Fool me once, shame on you. Fool me twice, shame on me."

Suze Orman Now Says What???

If you pay any attention to the financial gurus teaching about investing in the stock market so you can “live your dream retirement,” you should be able to recite this mantra or something like it: Invest in the stock market for the long term, and you’ll come out great. Generally, long-term is defined by these advisors as 10 or more years.

Of course, the recent turn of events has decimated the investments of millions, including those who have been investing and following these alleged experts’ advice for the long term and the “super” long term, alike.

But whose wealth has taken a more catastrophic drop? The fact is that it doesn’t matter how long you have been saving – if your investments are directly in the stock market, a 30 percent drop, for example, impacts your ENTIRE account.

Let’s assume John has been investing directly in the stock market for the past 35 years and, prior to January 2008, had accumulated $1 million. Mary, on the other hand, has been investing for only 5 years and had amassed $50,000. Their respective account values, based on the 30 percent drop in this example, would now be $700,000 and $35,000. Who is better off? Notice that even those who’ve met the long-term standard (of these “experts”) lose the exact same percentage of their account values.

One of the so-called experts who’s been preaching all this long-term nonsense is Suze Orman. UNTIL NOW, she’s been saying that you need to allow 10 years or more (preferably more) to invest in the stock market!

Apparently, she recently realized that her listeners did not really understand what she meant by that statement or strategy. Interesting that she’s only come to this realization now, after the past few years have proven how shallow, baseless, and quite frankly, impractical this advice is.

So Suze dedicated a segment of a recent show to explaining, re-explaining – or, more appropriately – redeeming herself in the eyes of her friends, readers, and viewers. Before we go any further, watch this 3-minute, 28-second video – and please listen CLOSELY, and I mean very closely. Otherwise, you will need to watch it several times ... unless, of course, you are far smarter than I am.

Let’s Just Say, Consistently

Before going any further, let me congratulate Suze on her recent honorary doctor of humane letters awarded by the University of Illinois.

Now, here are my thoughts. First, I am going to assume that you understand the meaning of the word “consistently,” particularly now that Suze Orman has explained it. I have to tell you, though, that if you understood what you just heard, your IQ is like 20,000, which makes you a super genius. Heck, I don’t understand her strategy, let alone have the vaguest clue about applying it.

I would posit that two critical hallmarks of any financial advisor worth listening to are clarity and simplicity. Based on those criteria, if I were grading Suze’s presentation, I would give her an “F” for fuzzy. But then again, maybe you understand her inscrutable explanation. Please be sure to write and let me know if you do; maybe you can help the rest of us who are still scratching our heads in confusion.

I would think a “financial guru” of Suze’s stature would have understood how critical it was to explain what “10 years consistently” meant to her friends. I reiterate my perplexity, wondering why Suze did not offer this explanation, albeit a wildly confusing one, until now, only after the stock market has eroded millions – if not trillions – of dollars from those who followed advisors like her. Does she explain it in ANY of her books?

While I cannot say so with absolute certainty, this sure sounds to me like an attempt to save face by someone who has been disingenuous, erroneously believing the average consumer is so stupid as to fail to recognize porous, revolving-door financial advice when they hear it.

Look folks, it does not matter what Suze Orman – or any other advisor like her – says, believes, or thinks. You lose money when the stock market drops, regardless of how long you’ve been investing in it. PERIOD!

For far too long, the American public has been brainwashed into thinking that in order to grow a sizable nest egg, they must accept risk, volatility, and unpredictability. That’s simply NOT TRUE. None of our clients has lost even a penny because we apply time-tested, common-sense principles.

Suze Orman claims that if you had been following her advice since 1999 – in that example – you would now have more money. My question for her is HOW MUCH MORE? Just one hypothetical slide show example – like the ones she used to confuse her viewers and try to redeem herself – would have sufficed. Does she really understand the concepts of time value of money and inflation?

Really? Given, as she claims, that money market accounts and Certificates of Deposit are consistently earning high yields. This apparently is true only on Planet Suze Orman, which, by the way, has yet to be discovered by NASA.

Ridiculous, preposterous, comical, bizarre, farcical, absurd, and wacky would not even begin to describe such an assertion. Truly, I am left speechless.

It’s fair to say that I am not in Suze Orman’s head, so I don’t know what she was thinking when she made the claims in this video. But I don’t have to be in her head to make the following assertions:

• Let’s just say that Suze Orman needs to be consistently SIMPLE!

• Let’s just say that Suze Orman needs to be consistently CLEAR!

• Let’s just say that Suze Orman needs to be consistently CONSISTENT!

My friends, doesn’t it just make sense to follow an advisor who CONSISTENTLY exhibits these qualities?