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The year was 1967 and his Dad was in Vietnam. Since his birthday was September 11th, he wasn’t old enough to go into first grade with most of his buddies. Suffering from timid shyness and a distinct stutter, Michael Ham burst into tears of terror at age six, when he learned he was selected as a... More
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  • Cherry On Top Of Apple...
    Invest WiselyThe cherry on top of Apple occurred today when the mega successful Apple computer company announced it will begin to pay a quarterly dividend to its shareholders. Steve Jobs and your local financial advisor would love this news and so will your budget… if your investment planner or you were wise enough to have purchased shares. If only one had a crystal ball ten years ago during a national real estate boom; declining interest rates and a volatile stock market made owning a bigger, better home the investment du jour. Poor advice looking back now. How to make a fortune 101 has not been easy for Baby Boomers.

    But imagine if instead of your house, you purchased Apple stock in 2002. Can you fathom that you'd be worth $10 million today? And what if those shares were owned in your IRA or even better, ROTH IRA? Takes your breath away doesn't it? Noted stock jock Jon Najarian looked back at various common assets purchased the past 10 years (e.g., a house), and priced them in Apple share price terms.

    The typical American home cost $228,000 in 2002 (according to U.S. census data). With that money, you could have bought 18,704 shares of Apple at their price a decade ago of $12.19 a share. Today, that home is worth nearly $280,000, but that hypothetcial Apple purchase is worth $10 million!

    Other examples Najarian used in his Apple exercise were on energy costs and tuition. Filling your tank for a year in 2002 cost $840 on average, (according to the U.S. Energy Information Administration). "But had you taken the bus" as Najarian put it, and purchased 68 shares of Apple ($840/$12.19) instead, you would now own $36,244 worth of the iPhone/iPad maker today… a nice $35,000 profit and enough to buy new walking shoes for life.

    Paying for college for junior? Annual room and board plus tuition for a private college was $31,000 in 2002. If you'd allowed junior to pay his own way and instead bought 2,543 shares of Apple, that stock investment would now be worth $1.36 million today, according to Najarian's calculations. Tuition now costs $39,000 on average. Now that's an impressive amount and blew away all 529 college saving plans.

    "This extreme exercise is not to show people how 'dumb' they were, but rather to illustrate how people put too much into their home a decade ago and that maybe they should have diversified their wealth over more asset classes," said Najarian. "Right now we should be asking ourselves, 'What will be the most inflationary asset of the next decade? And how much money should I put toward it.' "

    Good Point Mr. Najarian and with the stock market and popular companies like Apple, Whole Foods and even Tiffany blowing the roof off their stock prices, you may need to consider protected growth investments such as annuities. Sure they carry slightly higher fees than unprotected wealth accumulation products; however, you do get 100% principal protection. In some variants, an annual increase or bonus up to 10% is available. Most annuities annual bonuses will range between 5-6% but even that's not too shabby since CD's and 10 year treasury bonds currently offer less than 2% annually.

    What was "hot" yesterday will be tomorrows "dog." And in general the stock markets have gone basically nowhere the past 10 to 12 years. Considering that short-term interest rates yield virtually zero percent, eventually they will rise and inflation will rear its head like an angry dragon. Owning long term bonds or even some "fixed annuities" may get slaughtered when that era begins. Bill Gross, the manager of the largest amount of bonds in the entire world, concurs.

    Seek information on index or some low cost, no-load variable annuities that offer inflation protection and hedges. If you have children you may also consider a super cool tax free hybrid called universal indexed life or if you want to take more risk for potentially more return, universal variable life could be your "quasi-lotto" winner for retirement.

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

    Mar 20 2:22 PM | Link | Comment!
  • Don't Make The Dumbest Investment Mistake
    Spring like weather is here and the economy and the stock market are seemingly back on track. Just since October our USA stock market has risen 22%; and the stock market is flirting around levels not seen since May 2008. This is the first time the stock market has been roaring in a long time, and guess what?

    We are going to get greedy, again. Even though we soon forget about past bad investments (Bear Stearns, General Motors, Washington Mutual and Pets.com… remember the sock puppet), fear and greed dictate most investment decisions. For many years our 401k's have effectively been 201k's but now we are basically "back to even" and again ready turbo charge our retirement plans. And while there are plenty of stupid investment bets we may make, the dumbest mistake is the easiest one of all to make.

    Putting money inside 401k's or other company sponsored retirement plan into Company Stock, is the Idiot's plan for riches.

    You'd think after Enron and FannieMae we would learn from horrendous past examples and heed sound financial advice… but sadly, no. Only four out of ten 401k's offer their company's stock as an investment option but of those plans that do, on average 1/3 of the employees equity investments are in their own companies stock. And who is there to help or guide these 401k participants, especially locally?

    The majority of these employees are baby boomers nearing retirement; so why do these "boomers" retrace poor investment steps and lack financial planning? Often it's because the big wigs in the company have tons of company stock and the workers figure if it's good enough for the CEO, then it must be good for me too. And "owning" a piece of the franchise that employs you (ESOP), "hypothetically" is a great motivator for the worker bee. This type of "rationalization" can be financially terminal. How the wealthy officers of a company invest their money has no relationship to average Joe Employee and putting more assets into the company breaks…

    Investing rule #1; diversification.

    According to Vickers Stock Research, (which follows executive company stock trades), over time, the amount of stock sold by U.S. executives outweighs the amount bought by more than two to one. Do you think they know something?

    Relying on your company to pay your salary and benefits such as health insurance is enough exposure in one asset for almost anyone; why invest more by purchasing their stock. One argument used by the employee is we "get to buy company's stock at a discount." A discount to what? Ask former employees of WorldCom, Lehman Brothers and even companies that didn't go bankrupt like Bank of America but has lost billions in share price declines, if they would buy company stock at any price, discounted or not?

    Owning equities in a long term portfolio is a great idea; but short term the risks must be mitigated not extrapolated by doubling down in your company. Imagine how much you may already depend on, and how much of your net worth is associated with your employer/company already.

    Open your eyes to how much exposure you already have with your employer. Invest all you can up to any amount the company might "match" in your 401k plan (this is literally "free" money) but look to other less risky investments or strategies for the non-matched amounts. Here is where you can benefit from a local insurance agent or investment advisor to make a difference for your budget and retirement goals.

    We still have in the USA, "real unemployment" rates in double digits (according to DOL) and National Debt above $15.3 trillion. With no resolution in sight for the "shadow home inventory" foreclosures… look into annuities, low cost index life insurance and other ways to protect your money when investing. New rules for IRA's and 401k and 403b plan rollovers change often. Seek help and advice for your financial road trip… it's totally free. Don't be fooled; social security is an annuity and for lifetime monthly income, an annuity that has "low cost" and low expenses may be ideal for you to consider.

    Not that she is the expert on such topics, but even Suzy Orman writes and expounds on the benefits of both immediate and indexed annuities. And Dave Ramsey disciples preach the benefits of having a personal budget. Knowledge and information delivered to you by a local professional advisor about safe products with lifetime income benefits and assisted care riders are answers to the questions you may have.

    And for those who understand the potential of equity or "stock" ownership long term; would likely love learning what are "variable" annuities. Many variable annuities are available with similar 100% principal protection offered by fixed or indexed annuities. It's easy to find help, just ask around or contact us. Start a conversation with a local professional, plant your seed of "knowledge" and then wait for your retirement plan garden to bloom.

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

    Additional disclosure: Michael Ham is the founder of thesalestalk.com and a registered financial advisor but offers nor solicits any investment or securites, does not recommend buying or selling, refer to your CPA for tax information.

    Feb 23 2:37 PM | Link | Comment!
  • The Death Of The Stretch, IRA.
    Please so it isn't so Joe; but if law makers get their way the outstanding estate transfer tool called the "Stretch IRA" is doomed. In the latest transportation funding bill, language is buried deep within that would kill the stretch IRA for most non-spouse inheritors.

    Yes, you read that correctly; the ability to select an option to delay taxes on inheriting your parents IRA or even the ability to "disclaim" the inheritance and pass it down the line to kids and grandkids is severely in jeopardy. If you're forgotten exactly what the Stretch is or how it works, here is a very brief refresher:

    Typically when the owner of an IRA dies, the spouse will hopefully inherit the IRA as a named beneficiary (read my previous blog about the horrors of naming the estate as beneficiary of your IRA). And as such, the spouse can either rollover the entire IRA into their own IRA and if much younger than the dead spouse, can push back paying the taxes for many more years. It is also extremely wise to name contingent beneficiaries even if the primary beneficiary is likely to want to inherit the IRA. Naming contingent beneficiaries is just a smart thing to do.

    The stretch is so valuable an option because when the children or grandchildren are able to inherit the IRA, their age and current life expectancy will push back paying the taxes for a crazy amount of time. But this is about to all change; unless you contact your Washington delegate and give them a piece of your mind; before they take a piece of your future net worth.

    Under the new proposal (you may find the actual law here) you'll read that unless the deceased IRA is converted fully to a ROTH, no more stretch, Armstrong.

    Thus, if your parents or grandparents left an IRA to you, the entire amount of the IRA would have to be received within five years of the death and 100% of the income taxes will be due and payable. This really stinks.

    Currently most IRA's are taxed when money is taken out of the IRA wrapper and at age 70 ½ the owner is forced to remove money and thus forced to pay taxes. Pushing back the requirement to take money out of the IRA wrapper is the key to having your money explode to the upside due to the phenomenal power of compounding interest.

    No good thing ever last forever and this is one that is slated to end. Contact your law makers in Washington and tell them to please keep their hands out of our cookie jar.

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

    Feb 13 7:50 PM | Link | Comment!
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