Why 14% is Waaaay Better Than 40%

Why 14% is Waaaay Better Than 40%

This week I was planning to begin a series of columns discussing the “new” Roth Conversions that seemingly everyone in the personal finance industry is “crazy” about. Then I realized I had to clear up a distortion I have been noticing recently – especially this past week. So look for the Roth series to begin next week.

WHICH WOULD YOU PREFER YOUR INVESTMENTS TO RESEMBLE?

We all know that 2009 was a better year than 2008 when it came to investing in the stock market. But all of a sudden, certain financial advisors are now pointing investors to what their investments earned in 2009. Remember, these are the same who were not returning investors’ telephone calls when the market crashed in 2008, either because they were extremely busy, or perhaps because their voice mails were deleting the messages before they could listen to them.

I can think of two credible reasons why these advisors are trumpeting your 2009 returns:

1. To divert attention from the fact that because so many investors’ portfolios are still significantly down, they may now be questioning the validity of their advisors’ strategies.
2. These advisors are truly and completely clueless.

Personally, I’d vote for Number 1 because I cannot convince myself that any advisor could be this clueless.

Joseph’s story

In one particular case that I know of, Joseph’s investment advisor is tooting his horn and patting himself on the back because Joseph’s portfolio earned 40 percent in 2009. While I understand that plusses are good in investing, here is what’s bizarre about this advisor’s view:

In 2008 – just a year earlier – Joseph’s portfolio, which was managed by this very same genius advisor, took a 35 percent nosedive. WAIT!!!! Before you say that over the past two years, Joseph’s portfolio is then up by 5 percent (down 35 in 2008, but up 40 in 2009), let me show you something that millions are missing.

Actually, Joseph’s total return over those two years is NEGATIVE 9 percent! No, this isn’t the “new math,” but it does sound odd, so let me explain. Joseph’s portfolio was worth $100,000 at the beginning of 2008. He lost 35 percent that year, so he ended with $65,000 (his original $100,000, less 35 percent). He then gained 40 percent on the $65,000 (which totaled $26,000), meaning his ending balance was $91,000.

Now it’s clear that over those two years, Joseph’s value is still down 9 percent, compared to the $100,000 he began with in 2008. This math not only applies to Joseph’s portfolio, but it is applicable to every investment. When you lose 35 percent and then gain 40 percent, you net negative 9 percent. For Joseph – or any investor – to have broken even in 2009, his portfolio would have had to earn approximately 53.6 percent – which we all know did not happen.

I am still trying to understand Joseph’s advisor – and the scores of others just like him. In 2008, he advised Joseph to ignore the 35 percent loss, apparently because it was “just one year” and instead focus on the long term. In 2009, he is now advising Joseph to focus on the 40 percent gain and ignore the huge loss he experienced in 2008. Interesting, isn’t it? How quickly the rules change depending on whom they favor.

Marvin’s story

Marvin is one of my clients, and his results were dramatically different from Joseph’s.

In 2008, Marvin’s portfolio earned plus 6 percent, and he earned plus 14 percent in 2009. Before you conclude that 14 percent sucks compared to Joseph’s 40 percent, I’d encourage you to do the math first. Marvin also started with $100,000 at the beginning of 2008, and it increased to $106,000. Then in 2009, his $106,000 earned 14 percent, leaving him with an ending balance of $120,840.

It is EXTREMELY important that you also notice that Marvin’s investment is in a vehicle which, under US the tax code, he can access tax-free, even before he reaches age 59½; he can also transfer any remaining funds to his heirs, income-tax free!

In just two short years, Marvin has $29,840 more than Joseph (Marvin’s $120,840 versus Joseph’s $91,000). And remember that they both started with $100,000 at the beginning of 2008.

Whose investment strategy would you rather pursue?

Do you really want to pay attention to and make your investment decisions based on all the noise about returns, especially when they can be so distorted?

Can you now see how easily someone could have been led to believe that Joseph’s strategy must be better, and that he therefore must have a larger balance than Marvin, when in fact the exact opposite is true?

Perhaps you now understand why our investors are completely “crazy” about us.

Call us at (301) 949-4449 or visit our website to schedule your free, no-obligation consultation and let us explore whether you could get more bang for your bucks! Isn’t that the whole purpose of investing anyway?

Freedom of Choice: Big Banks vs. Community Banks and Smart Financial Advice vs. RISKY Advice

Freedom of Choice: Big Banks vs. Community Banks and Smart Financial Advice vs. RISKY Advice

An associate brought this ABC News report to my attention. The gist is that average, everyday folks who feel taken advantage of by some of the "Big Banks" have decided to fight back. The movement is known as "Move Your Money," and their beef is that these banks are nickel-and-diming them unnecessarily, by raising credit card rates without any merit whatsoever and hitting customers with a $30 fee for a $5 overdraft.

On the one hand, it could be argued that we live in the land of freedom where the markets are supposed to dictate pricing. So it’s our responsibility to understand what we sign up for with these banks. And we are all free to leave whenever we feel we can get a better deal elsewhere, or for whatever other reason impels us. I think there's a saying that goes something like, “One man’s meat is another man’s poison.” Isn’t that the whole idea behind the free market system?

On the other hand, though, we can also argue that if any institution in a free market system thinks it is OK to take advantage of unsuspecting clients by trying to outsmart them with hidden garbage, that institution should be heckled as hard as possible and punished by the consuming public who takes their business elsewhere. And if such a trend leads to the demise of the institution, so be it. That is also how the free market system is supposed to work.

I am pretty sure my economics professors would be incredibly proud of me right now. Seems like I did pay attention, after all! Well, whichever school of thought you subscribe to, you’re welcome here!

A Question More Worthy of Exploration

How come no one is standing up to question the conventional financial planning industry when they encourage Americans to simply dump their funds into variable investments and wait for the day when they will retire in peace with milk and honey? When in fact every time the stock market experiences a correction, tens of millions of retirees, as well as those on the brink of retirement and those just starting out and those in midstream, experience complete devastation as their life savings are diminished – in some cases to as little as 50 percent of its original value?

Is this inevitable? Of course not! Those working with financial professionals who apply common sense and reality to their investments do not lose when market dips. It seems, for now, as though the storm has subsided, but who knows when it will rear its ugly head again? Could it be just as YOU are preparing to retire?

In this free market system, some choose to pursue investment strategies that protect them against any losses when the stock market tanks; there are also those who continue to follow a strategy whereby their future retirements are completely at the mercy of the unpredictable stock market. Which movement do you belong to?

PS: You’ve seen the images and heard the horror stories. Please reach out to assist those in need in Haiti in any manner you can. While you should be extremely mindful of scammers who prey on international incidents like this to take advantage of your generosity, there are excellent organizations that work hard to ensure that your contributions actually reach those in need. If you need help finding such an organization, please let me know in the Comments Section below and I’ll get you some names.

Please note that the simplest act of kindness can go a long way. If someone you know is experiencing emotional pain, simply letting them know that you care and are praying for them might help enormously. At the end of the day, we all belong to one big family – humanity. Thank you.
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For your free, no-obligation consultation regarding how you can better plan to withstand the ups and downs of the market, please visit LaserFG.com or call us at 301-949-4449.

Financial Experts, Including Mellody Hobson, Continue Encouraging Investors to "Wait It Out." WRONG!!

Financial Experts, Including Mellody Hobson, Continue Encouraging Investors to "Wait It Out." WRONG!!

A few days ago, I was glancing through the January 2010 edition of Black Enterprise, a monthly magazine. An article authored by Mellody Hobson drew my attention because it covered something of great interest to me: people’s investments. The article is titled “Apocalypse Then: Lessons from the Crash.”

According to the bio that accompanied the article, Hobson is a big Kahuna, president of Chicago-based Ariel Investments and a regular contributor to ABC’s Good Morning America. (OK, the Kahuna part is not in the bio: that’s mine.)

Before I continue, let me reiterate that my goal with this blog is NOT to engage in personal attacks. Rather, my goal is to educate and equip you with proven, secure, common-sense tools so that you can actually break the inadvertent poverty cycle that seems to plaque the majority of retirees, many of whom continue to fall prey to financial advice and guidance that amounts to little more than myths.

Back to the article. Hobson concludes her piece with the following:

Many of you might be mentally pushing back: Sure, Mellody, but how did you know when the market would push back? I didn’t. Nobody did. With investing, the great thing is, you don’t have to know exactly when things will turn. You just have to have the time and patience to wait.

Eloquent and cute, isn’t it? And doesn’t it sound all too familiar to you? That’s because this is the message just about every so-called financial expert has been telling the scores of worried investors whose retirements have either been delayed or completely destroyed by the recent turmoil in the stock market: just have the patience to wait it out.

I Completely Agree with the First Part

Hobson is not completely wrong. In fact, she is spot on with her admission that nobody can predict the market’s exact movements. I have been writing and speaking that very message for years.

However, I Vehemently Disagree with the Second Part

Hobson loses credibility with her admonition that “just” having the time and patience to wait will solve the problem.

Follow Along with MY Explanation

We can’t predict when the market will – to borrow Hobson’s words – push back. But we can predict with 100% certainty that it will fluctuate – both up AND down. So why would you expose your serious cash, earmarked for your retirement or your kids’ college, directly to the market with no downside protection when, in fact, you don’t have to? Because there is a proven means by which you can make strong returns when the market is up and completely avoid losing any value when “the market pushes back.”

Many folks have worked hard, made sacrifices, and accumulated their retirement nest eggs over the past 25, 30, or even more years. Some of them are already in retirement, and some were planning to retire in 2008 or soon thereafter. However, due to the recent market setbacks – get this – in 2008 alone, millions of these individuals lost 20, 30, or even a greater percent of their entire life’s savings!

So, is Hobson really telling these folks to “just have the time and patience to wait”? And what exactly are they waiting for? Are they supposed to wait another 10 or 20 years before retiring? Or they are being asked to have the patience to deal with the fact that they may eventually be dead broke – if they aren’t already?

Try Common-Sense; It Always Works!

Here’s what I want to know: Do any of these gurus know that it is completely unnecessary for investors to lose even a dime of their investments’ values when the market “pushes back”? So why do they continue exposing people’s futures to what are really nothing more than unnecessary risks?

Any investor who followed the simple, proven, and common-sense strategy we teach and implement for our clients DID NOT lose even a penny during the recent stock market crash. Therefore, they do not need to have the patience and time to wait for their portfolios to rebound.

In fact, our investors actually made money at the exact same time that so many others’ retirements were delayed or destroyed, the result of which is that Hobson and all the other experts are now urging their followers to have the patience to wait it out.

My one-word answer to all the preachers of patience is, SERIOUSLY?!

My Very Real Challenge

I have been making the case for common sense for years now. In fact, I discussed this very issue in my August 3, 2009, blog post and this article on our website.

To you the investor: please, please, please stop falling for all that emotional nonsense when it comes to your money! Wake up soon so you can smell the coffee! And remember, your biological clock does not have the patience or time to wait; get sound advice today so that your nest egg can grow and reflect reality!

To Ms. Hobson and all the experts selling the patience and waiting game: please let me know where I am wrong.

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PS: We have only a few seats left for our workshop this Saturday – and, yes, I will be the speaker. Reserve your seat here or call (301) 949-4449.

Why Pay Income Taxes When You Can LEGALLY Avoid Them?

Why Pay Income Taxes When You Can LEGALLY Avoid Them?


First of all, Happy New Year! And Decade! And Century! Wow! Did you notice we are now officially living in the 21st Century? No doubt, 2009 was a challenging year for many – but with all those challenges behind us, we still have the privilege of being alive. And, things will definitely get better!

Now that the celebrations are officially over, everyone is focused on dealing with our favorite uncle – Uncle Sam – at least until April 15. Everyone, and I mean everyone, is looking for ways to minimize their taxes and pay the least amount possible. Who wouldn’t like to keep as much of their hard-earned money as possible – unless, of course, they are absolutely nuts?

Particularly dear to my heart are our retired seniors, many of whom are faced with sky rocketing health care and other expenses and could use all the income they’ve worked so hard to accumulate over the years. Yet the IRS is not, well, particularly friendly in that respect – as in, you have to pay what is due OR ELSE.

But It’s Completely Preventable

Under current tax laws, there is a means by which you can accumulate and access your money, completely tax-free! Even before you reach age 59½ By tax-free, I mean zero taxes. I know this because our clients use these vehicles, so I am 100 percent sure of the information I am imparting here. In fact, I just reviewed the IRS’s 2009 Publication 525 (Taxable and Non-Taxable Income) and this information is right on target – the law is the law!

Just so we are clear, I never engage in discussion of tax loopholes because I personally think seeking them is a big fat waste of your time. As always, I am talking about a legitimate way you can create a zero percent tax bracket, year-after-year, based on current law.

Your Chance to Discover

If you are in the greater Washington, D.C. area, I will be teaching a workshop on Saturday, January 16, at 11:30 a.m. to discuss in clear, concise language how you can achieve this very scenario. Regardless of where you are in your planning process – or even if you are already retired – you will want to attend this event! Please feel free to share this information with your family and friends as well.

By attending this seminar, you’ll also receive a complimentary copy of my latest book – yes, another one! – “Is Your 401K a Trap?”

Wouldn’t this be one of the most worthwhile ways to begin a new chapter in your financial life? Learn to KEEP your money instead of – unnecessarily – giving it to the IRS! Click here to reserve your seats now. 

P.S. Please note that seating is extremely limited and are on a first-come/first-served basis.

Again, Happy New Year!
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If you live outside the greater Washington D.C. area and are interested in the workshop but cannot attend, please call us at (301) 949-4449 or contact us via our website  for your complimentary one-on-one consultation.