One of my Finance Instructors that I admired was Nobel Laureate Milton Friedman. He was a monetarist and built the “Chicago School” of Finance. He advised many world leaders and showed that inflation was, is now and forever will be a monetary phenomenon.
As many of you learned in your economics courses – inflation comes about as too many dollars are chasing too few goods.
The money being printed in Washington for TARP, the Stimulus Bill, and the 2009 budget is astronomical. Never in the history of the U.S. has so much money been printed (I wish I would have told everyone to invest in WD-40 to oil the printing machines. We would have all been wealthy).
None-the-less, my role as my client’s advisor is to look out into the future, note trends and have them invest ahead of the crowd. With all this money being created in Washington it will lead to a HUGE increase in inflation very soon (somewhat like a snake eating a rat, it will take a little time to go through the system).
I advised all my clients in December to increase their asset allocation position in metals, especially gold. I am not a gold bug, but, it is obvious what will take place. Last December prices for gold were at $750. It increased to $1000 recently (a 33% increase) and as of this writing is in the mid $900. Experts predict a rise to $1500+ in the next two years. Please do not follow the crowd and get into gold after the price rises (you know buy high sell low). You can, and should have long ago taken a position in gold via stocks, mutual funds or exchange traded funds. I am suggesting that you buy the physical gold. Coins are an acceptable method to do this and you must take possession. Do NOT store them at the coin company.
Remember you will never make money in gold. It is simply a hedging or insurance mechanism. That is, if gold is going up, then other asset classes are going down and vice versa. Make sure you work with a reputable coin dealer.
Watch the short video below that came from Glenn Beck’s show; it does show how dramatic money creation has been recently.
The reason for the increase in annuity products is multifaceted. Not only is a drove of baby boomers set to retire, many of them without adequate retirement assets, the current crop of boomers are retiring at a time when investment markets are producing few gains and many losses. Enter annuities, which a recent Wharton Financial Institutions Center study co-sponsored by New York Life Insurance Co. found could produce a lifelong cash stream for investors at a cost that is as much as 40% less than a traditional portfolio of stocks, bonds and cash. That means an investor at age 65 can guarantee that same income with $600,000 that a neighbor may need $1 million to produce with stocks, bonds and cash – and without the guarantee. For actual payouts read on.
Income annuities can also be critical to mitigate the risks of longevity, says the study’s co-author David F. Babbel, an insurance and risk-management professor at the Wharton School. While “on average” half the population lives until 85, half of those who make it past age 65 will live beyond the age of 85. And all of those people who live past 85 have a chance to live past 100, and they are going to need income, Babbel says. That is where sound income planning, especially the concept of income annuities with longevity features, can be so beneficial, he adds. Since they guarantee income for life, the investor sidesteps the risk of unfortunate investment decisions, poor performing markets and running out of money.
More food for thought.
Russ Prince and Lewis Schiff, authors of The Middle Class Millionaire, purport to have uncovered the rise of new class of wealth that is changing the face of America: These 8.4 million households [with $1 million to $10 million in net wealth] make up a new generation of millionaires who began to emerge from the middle class in the late twentieth century. As their wealth has grown, so have both the cost of maintaining their lifestyles and their need for products and services that make their lives run smoothly. This group is helping to bring about momentous changes throughout American society.
Tom Stanley, author of The Millionaire Next Door showed his millionaires were almost retro middle-class, even for the ‘80s. They owned and operated small business-dry cleaners, gas stations, or cement companies. They stayed married to their wives, drove non-descript station wagons into the ground, bought their clothes more often off the shelf than off the rack, and went to church. They worked hard, sent their kids to college, avoided debt, and saved their money. In a word, they were the total opposites of the 1980’s high-flying executives-overspending, conspicuously consuming individuals.
But a funny thing happened over the past 20 years. The Reagan/Bush/Clinton/Bush economic boom (undeterred by the bond and stock market corrections of ’87, the recession of ’92, or the dot.com crash of 2000), fueled by the low interest rates, low taxes, and almost non-existent inflation has, among other things, replaced Tom Stanley’s retro millionaires with a new generation of small business owners who are, if anything, more driven to attain success, far more socially liberal, and cutting-edge consumers of the first order. Prince and Schiff’s book is a study of what it takes to get into that class today.
The authors identify four characteristics that dramatically separate today’s middle-class millionaires from their less successful classmates:
Hard work. While nine out of 10 of respondents to Prince and Schiff’s survey believe that “anyone can become a millionaire if he or she works hard enough,” the average middle-class head of household works 41 hours a week while the average middle-class millionaire puts in 70 hours. The millionaire is also five times more likely to be “always available” via e-mail (76% vs. 16%), four times more likely to work nights (52% vs. 12%), and three times more likely to be in the office or store on weekends (67% vs. 21%).
Networking. Although most middle-class millionaires dislike the smarmy connotations of the term, 62% of them believe knowing many, many people is very important to achieving financial success (vs. 43%), and they are three times as likely to cite networking as a way to connect with people they can turn to for information (83% vs. 29%).
Never giving up. Nine out of 10 of all middle-class survey respondents admitted to having “made a major career or business decision that has a very bad outcome,” but middle-class millionaires averaged 3.1 such incidents vs. 1.6 for the rest of the middle-class. More importantly, the millionaires were five times more likely to follow up a bad business outcome by trying again in the same field, rather than changing fields or focusing on other projects (77% vs. 14%).
Going where the money is. Eighty percent of middle-class millionaires either own their own business or are in professional partnerships. In fact, two out of three of them (65%) consider an ownership stake to be “very important” to financial success, vs. just 28% of other folks in the middle class. That pretty much says it all.
In an effort to help clients refocus on planning, I hit upon what I thought was a brilliant idea. I asked some of my married clients to pretend they only had a few days to live and to write letters to their spouses expressing their love, their cherished memories and what they had planned for the future. I also requested they write similar letters to their children. I wanted them to see what was truly important and envisioned these letters would become treasured family heirlooms, passed down and read by future generations.
Not everyone wrote the letters so I tried again, but this time I told my clients that I wanted to record a conversation with them each year for three or four years. I wanted them to talk about themselves, their ancestors and roots, the important events in their lives, their plans and dreams for the future and for that of their spouses and children.
My plan here was to create a legacy for their future generations, and in so doing get to know my clients, their motivations and their financial perceptions better. In the process, I hoped to gain insights that would help me do a better job of planning for them and, in turn, help them better appreciate the importance and value of the planning process.
Interestingly, clients who could not find the motivation to write a letter willingly submitted to the taped conversations. During these sessions, I try to remain merely a facilitator, asking a few questions to get the conversation rolling and then receding into the background.
The response has been truly heartwarming, not to mention productive. The conversations prompt people to recall events they haven’t thought about in years. Many times, there is an emotional reaction to the recollection. People remember things they intended to say or do for their loved ones that were somehow forgotten. They frequently start to talk about something and it triggers a distant memory that had great importance but became lost in the recess of their minds. They open up and share all kinds of memories and dreams. They openly express their affection and hopes for their children.
They explain their decisions in raising their offspring and how they tried to pass on their values. They talk about the meaningful events that formed their values, the choices they made early in life, the paths they took and those they didn’t.
If you would like to learn more about our process or need assistance from us to participate in this legacy planning, then email me at paul@fgmci.com.
At times, in every day, we all come across events that make us want to quit. Events transpire around us each day of which we have NO control.
Our attitude toward these events determine the outcome. If you have a negative attitude then things will probably come out bad for you. If you have a strong positive attitude then, in most cases things come up “roses.”
I have been blessed and gifted with wonderful coaches in my sporting career and mentors in every aspect of my life. My parents instilled in me a stone wall discipline to never quit…to keep going.
I want to share a clip from a great movie “Facing The Giants.” Maybe you have seen the movie. Nonetheless I have a section that portrays the theme that your abilities are way beyond what you think they are. In everything that you do each day many people are watching you, as you are an inspirational teacher to them, and most of the time you do not even know it. So keep on… Keeping on.
For those of you that played football you will remember the “death crawl” drill (I hated it). Well it is portrayed here and I encourage you to watch it again and again. So if you are having a tough day… think about this clip and… don’t quit!