Monday, March 9, 2009

Buffet on the Economy

I do not pretend to be as smart as Warren Buffet. And smart people know how to wade through the vast amounts of information and find the jewels of wisdom. For this reason, I always pay attention to Warren Buffet.

Click here to read Buffet AP article

May prosperity be yours,
Mackey McNeill
President and CEO
Mackey Advisors
www.CultivatingProsperity.com
859-331-7755
Mackey@CultivatingProsperity.com

Friday, March 6, 2009

The Scream of the Lizard

I recieved this e mail from Bob Veres (more on Bob below) and felt it was on target .. and puts yesterday's market in perspective.

I hope you enjoy it.

I don't know about you, but I'm feeling just a little beat-up at the moment, and not totally because of the stock market.

Today's returns, trickling in all day, reminded me of a time years ago when I foolishly allowed my children to talk me into accompanying them on a roller coaster ride at a theme park called Sea World. For most of the day, we had been staring at sharks that were safely housed behind thick glass, and polar bears behind even thicker glass, chilled in the penguin area and splashed while watching the killer whales throw their trainers 20 feet or more in the air.

It was a good day, and I still felt good about it as the roller coaster ominously rose into the air, but the people who built it were really clever, and after we crested and fell, nobody noticed that the dip was only about half of the distance we had climbed up, and I was breathing a sigh of relief while my children were pouting in disappointment.

Then the rollercoaster climbed again, and as we crested this secondtime, I looked down and saw that the rest of the park was inhabited by tiny creatures who were either ants or fellow humans who were dangerously far below, and I had just enough time to consider the implications of this and work up a good anticipatory fear when our car crested the top, and fell straight down and--this is the truly scary,fiendishly clever part--WE COULDN'T SEE ANY BOTTOM. The designers had created a fall where the bottom was invisible to us until we actually splashed into the water.

The park had an automatic camera which took pictures of the people in the cars on the way down, and the expression on my face closely resembled that of a heart attack victim, except for the greenish skintone. My kids looked overjoyed.

After the concerned woman from in a park uniform had helped me into a seat and asked me if I thought I needed medical attention, I remember thinking that, in retrospect, it was obvious that there WAS a bottom,and that I would survive, and that nobody had reported a large pile of blood and bones that was the remnant of others who had experienced this particular ride. So why was I so scared? Couldn't I have told myself that I would survive, that everybody else who had ever gone into this particular fee-fall had survived, and simply enjoyed the trip?

No, I couldn't--and I think that's what I'm remembering now. As soon as the roller coaster car crested the top of the tracks and I looked down,the lizard-like part of the back of my brain took over total control of my thought processes, and it screamed, against all logic and against many things I knew to be true, that I and my children were about to die,and it sent a surge of adrenalin and signals of dread into my system so strongly and thoroughly that it was a few minutes before I could standup, shakily, and go pet the sting rays.

This, of course, is what virtually all investors are feeling right now as we ride the roller coaster that is the investment markets, and whoever designed this particular free-fall was even better than the designers of that Sea World ride. I know that there is a bottom somewhere in front of me, and I know that the relentless tide of bad news will end and I know that at some point in the not-too-distant future, I will look at a graph of the markets and see a blip that started last Fall and ends somewhere, hopefully soon, and it will look as inconsequential and trivial as the October 1987 crash looks today, or the little jiggles that represent the 1930s, and I will wonder why we were all so damn worried.

And I will have forgotten--because we always forget this--that the lizard-like base of our brains sometimes decide to take control, and all our knowledge and all our intelligence is neutralized by a little lump of tissue that has no understanding at all of what's going on, no perspective, nothing except an "on" switch which, when triggered,activates a complex, instantly powerful native algorithm which screamsinto our brains and throughout our bodies that there is a saber-toothed tiger right behind us and we should be running for our lives.

This, of course, is the voice in the ears of investors all over the world today and, to some extent, for the last several months. All of us know, in the cortical part of our minds, that we signed on for a rollercoaster ride and that we will not die as a result of taking this ride down. But for most of your clients, for many investors, the game has suddenly gotten too tough, and their lizard's shout is winning the contest against your calm, reasonable, measured tones, your facts and figures, your perspective and experience.

The hell of it is that we, ourselves, design these roller coasters; they are a product of mass psychology. When the lizard's shout finally drowns out the last bit of reasonable perspective, the markets hit bottom because that is precisely when there is the maximum fear--by definition.
Then, again by definition, the markets begin to rally into what may be the next bull market or may be a sucker's rally opportunity to sell a little bit at a little less of a loss in hopes of recognizing the nextbull. The lizard's shout becomes less loud, people become hopeful, they buy back in at a higher price than they sold, the market moves upward until either the lizard screams again in panic or--the sure sign of a bull market--it starts tickling peoples' minds with a kind of panic that MAYBE THEY'LL GET IN TOO LATE as the roller coaster climbs again.


This, too, is our own creation, more tracks created by more mass psychology, aided and doubtless magnified by the echo chamber of the financial media and a thousand pundits who know no more than the lizard about where the markets will go tomorrow or next week.
I'm one of those financial media types, and also a pundit on occasion,and I can tell you that I can hear the lizard's scream echoing across the financial landscape, so loudly that it's hard to remember that stocks are on a fire sale now and they are certainly a hell of a lotless risky than the were last August, and that these rides are seldom fatal to those who stay in their seats, and they are usually at least harmful to those who panic, unhook their seatbelts and jump over the side toward the distant ant hill below.


I can hardly wait to look back on those charts and wonder what the hell we were thinking getting so panicky about a blip, and I know at that time that the lizard will be giving me a different message: that if only I'd had the sense to buy when everybody else was selling...

This too shall pass, and 99% of your brain knows it. The market belongs to the lizard now, and I am ashamed to admit that I, the pundit, the media guru, still feel that sense of panic on the way down, irrational as I know it is. I feel it so much that sometimes I can barely hear the rational part of my mind over the screaming that echoes that are calling up from a deeper part of my consciousness. I would curse the designer of this roller coaster, as I did the fiend who put that damn thing up at Sea World, but I'm afraid this time it is us, collectively, who designed our own fear machine.

And this is the moment, here and now, when the picture is taken.

Best,
Bob VeresInside Information HYPERLINK "
http://www.bobveres.com" http://www.bobveres.com

Bob Veres is a nationally recognized leader in the independent advisory community. He is the author, creator and founder of, Inside Information is a master study group whose members are the leading practitioners in the financial planning profession.

Wednesday, March 4, 2009

Get to Know: Roth IRAs

With investment losses mounting, the market does present some opportunities to make lemonade from the lemons you have been handed. There are great tax opportunities out there right now. One of these strategies might be converting your Tradtional IRA to a Roth IRA. If you have decreased income and losses, now could be the time to make those tax-exempt assets, tax-free assets. Here are some Roth IRA guidelines for 2009.

In 2009 Modified AGI limits for Roth IRA contributions increased. For 2009, your Roth IRA contribution limit is reduced (phased out) in the following situations.

· Your filing status is married filing jointly or qualifying widow(er) and your modified AGI is at east $166,000. You cannot make a Roth IRA contribution if your modified AGI is $176,000 or more.

· Your filing status is single, head of household, or married filing separately and you did not live with your spouse at any time in 2009 and your modified AGI is at least $105,000. You cannot make a Roth IRA contribution if your modified AGI is $120,000 or more.

· Your filing status is married filing separately, you lived with your spouse at any time during the year, and your modified AGI is more than -0-. You cannot make a Roth IRA contribution if your modified AGI is $10,000 or more.

Like regular IRAs, in 2009 there is no required minimum distribution for a Roth IRA. With the current market, it is a great time for many to consider a conversion from a traditional IRA to a Roth.
When you convert a traditional IRA to a Roth IRA, the conversion is treated as a rollover. You can convert amounts from a traditional IRA to a Roth IRA in any of the following three ways.

· Rollover. You can receive a distribution from a traditional IRA and roll it over (contribute it) to a Roth IRA within 60 days after the distribution.

· Trustee-to-trustee transfer. You can direct the trustee of the traditional IRA to transfer an amount from the traditional IRA to the trustee of the Roth IRA.

· Same trustee transfer. If the trustee of the traditional IRA also maintains the Roth IRA, you can direct the trustee to transfer an amount from the traditional IRA to the Roth IRA.

Conversions made with the same trustee can be made by redesignating the traditional IRA as a Roth IRA, rather than opening a new account or issuing a new contract.

Roth IRAs have the same guidelines as traditional IRAs regarding when the money can be taken penalty free (no 10% penalty). Unless you have reached age 59½, a 10% penalty will be made on any distribution except for the following circumstances:

· You are disabled.

· You are the beneficiary of a deceased IRA owner.

· You use the distribution to pay certain qualified first-time homebuyer amounts.

· The distributions are part of a series of substantially equal payments.

· You have significant unreimbursed medical expenses.

· You are paying medical insurance premiums after losing your job.

· The distributions are not more than your qualified higher education expenses.

· The distribution is due to an IRS levy of the qualified plan.

· The distribution is a qualified reservist distribution.

· The distribution is a qualified disaster recovery assistance distribution.

· The distribution is a qualified recovery assistance distribution.


Today we have to make the best of this day and age of the market. Consider what a Roth IRA might do for you.

Andy Pulsfort
Investment Advisor
Mackey Advisors
www.CultivatingProsperity.com
859-331-7755
Andy@CultivatingProsperity.com

Monday, March 2, 2009

Budgeting: More Important than Ever

With the current state of our economy, job security on shaky ground, and depressed investment accounts, now is a great time to be budgeting your money and staying on top of your finances. Even if you don't feel that you have to cut back, getting a handle on what you do spend is always important. This month, I have published a reprint from our February 2007 newsletter that I find most appropriate for the times:

Even though the days are getting longer, there is no escaping the fact that we are in the depths of winter. Although it may seem easier to curl up with a cup of tea near the fire, winter is a prime opportunity to consider our future goals while simplifying our lives.

One of the best ways to accomplish this is to create a budget. This will require an initial commitment of time, but the dividends are high and it’s cold outside anyways! What better way could you imagine spending a frigid day than planning for your future (perhaps a warm vacation next winter) and learning about your spending habits?

It’s easy to get off track without a budget. For example, when I go to the grocery without a list, who knows what I might end up with. “How exactly did Timballo di Piccioni end up in my cart?” I can’t even pronounce it let alone spell it! Making a list keeps us on track to do and buy the things that are necessary in life. Just as having a list will keep you out of the exotic food aisle at the grocery store, a budget can help you avoid missing a vacation or getting into credit card debt.

Start your budget by making a list of your expenses. Some things like the gas bill or the cable bill are easy to find in your checkbook registry or online bank statement each month. The expenses from the local grocery could potentially be broken down in a dozen different ways, but for most of us a trip to the grocery isn’t “Entertainment.” Simply label the category “Essentials” and be done with it.

When you find yourself at the end of the list after Essentials, Mortgage, Vacations, and the doggie day-spa you might realize that something is glaring. It’s that gap between your income and your expenses! Recognize that gap as an opportunity. Carefully determining where your money went will help you see where it could have taken you!

Here’s an example of how it all works. A client came to see us a few months back for our Prosperity Planning™ services. We will call her Mary. Mary needed to save more money today in order to successfully have the retirement lifestyle she desired. The dilemma Mary faced was that when things were said and done at the end of the year, everything that went into her wallet had gone back out. Unfortunately Mary could only account for about three-quarters of the dollars she had spent. By creating a budget she found the money she needed to prosper during her retirement years. Now Mary is on track and looking forward to some amazing years ahead of her.

Another way to simplify is to take an inventory of what you have but don’t really need. Let’s see, the new suit that was only worn once, an electric countertop nonstick quesadilla cooker (still in the box of course) and probably quite a few other items that were “great finds.” In the end, the lack of budgeting often leaves us a few pounds heavy and a few dollars short.

A budget creates a better understanding of your personal finances, and thus greater personal power to make the best choices for your desired lifestyle, both present and future. It is okay if you occasionally stray from your budget. Think of it as a guide rather than a law so that you can appreciate rather than resent your new responsibility.

Finally, remember that you are not alone. Budgeting can be a challenge, but it is well worth the investment of your time. All of the dollars spent due to lack of budgeting could have been put to better use. A 10%, 8%, or even only 5% return can add up to quite a healthy sum. It might mean a beach cottage or a substantial travel budget when you retire. It might even mean your child’s college tuition.

So, take some time this winter before the flowers bloom to put together a budget that will help you keep score. Weigh your options (electric countertop nonstick quesadilla cooker vs. beach house.) Understanding your personal financial health can bring you greater joy today and tomorrow. I think I’ll join you in reviewing my own budget this evening, just after I figure out how to cook my Timballo di Piccioni!

FIVE SIMPLE STEPS FOR A SUCCESSFUL BUDGET

1) Gather together your checkbook register and credit card statements from last year. Both of these are usually easily available online.

2) Evaluate your budget’s complexity. Do you need a software program like Quicken or will a simple spreadsheet or pencil and paper do the trick?

3) Create pertinent yet simple categories for your expenses. Make enough categories to monitor your spending with conscious choices, but not so many that recordkeeping gets complicated.

4) Monitor your budget no more than once a week. Over-monitoring may lead to boredom, confusion, and ultimately the demise of your budgeting system.

5) Challenge yourself to meet those budget goals you know may be tough. Consider building rewards into your process to congratulate yourself for staying on track!


Regards,

Andy Pulsfort
Investment Advisor
Mackey Advisors
www.CultivatingProsperity.com
859-331-7755
Andy@CultivatingProsperity.com