The Future is Your Decision

From our July 2011 Creating Confidence Newsletter.

Last Tuesday the 12^th, I spent the morning at the Vistage All City meeting. Our speaker was Brian Beaulieu, a respected economist from the Institute for Trend Research. Brian’s talk, The Future is Your Decision, offered perspectives for CEOs and individual investors based on his trend research.

I found his information useful and have summarized his thoughts below.

Overview

There are 3 mega-trends to be considered when making decisions about your businesses or when investing:

1. Demographics, the World and the US have increasing population. More people = economic growth
2. Inflation, not hyperinflation, but easily 4.5% to 6%
3. Taxes are going up

2011 and 2012 will be periods of modest growth, with continued high unemployment. At the same time, it will be increasingly difficult to fill certain knowledge based positions because our workforce is a) immobile due to being unable to sell their existing homes and b) inadequately trained for the type of jobs available.

2013 and 2014 will likely be a modest recessionary period like the early 1990’s but not as deep as 2008.

Commodity prices are on a temporary rest. 2012 will see increasing commodity prices on items such gold, copper, oil and agricultural products.

The US represents 26% of the world economy. While we are the largest economy in the world, our share of the pie is growing smaller and opportunities exist in emerging economies for investment and doing business. Think Brazil, Australia, and India.

There will be ongoing weakness of the US dollar.

Housing will no longer be in recession but will not be in recovery. Over the next 5 years people will rent and not buy.

Interest rates will remain low and may creep up in 2012 and 2013. A 2014 recession may provide a temporary restraint on rates. Currently we have the lowest rates we will see in our lifetime. Borrow long term, taking advantage of fixed rates now and repay with cheaper inflated dollars.

Remember that normal today is tomorrow’s abnormal.

For Businesses

Look for customers in these growth segments:

• Exporters
• Alternative Energy
• Health care
• Professional services such as law and accounting
• Higher education
• Overseas in India, Brazil, Canada and Australia

Inflation will hit the labor market in 2012. You will need a strategy to employ a mobile workforce. Training programs are more critical than ever, given that you may not be able to find the skill you want in the workforce.

This is a good time to buy other businesses. If you have not positioned your business for sale, you likely do not have time to do so before the next recession. The next good selling season will be 2017 and 2018. Position now to be ready.

Do not let the pain of the past color your vision for the future. Find a sector of your business that is entrepreneurial and expand that segment.

In periods of inflation, metrics and monitoring are critical.

If you cannot raise prices, sell that business unit. Raise prices more frequently and in smaller increments. Think 1% to 1.5% per quarter instead of 4% a year.

For Individuals

The stock market will continue to be volatile thru 2011. Brian is bullish on 2012 and then expects a lackluster market. Position portfolios to take advantage of the 3 megatrends noted earlier.

Invest globally and position your portfolio to include commodities and other investments that do well in periods of rising interest rates and inflation.

Refinance your home if you have not already done so. If you are young and have equity in your home, consider borrowing the equity and investing it outside your home.

Summary

Brian closed with a quote from Dr. W Edwards Deming. “It isn’t necessary to change, survival is optional.”

That sort of says it all. If you can’t love change, at least accept it and position yourself for it. As with any of these ideas, it is best to a) run the numbers for your personal situation and b) consider the impact based on your personal goals.

As your Wealth Advocate, we are here to guide you and your business thru the coming changes. If you have questions or need our assistance, please contact me at Mackey@MackeyAdvisors.com or our team at 859-331-7755.

May prosperity be yours,

Mackey

Fixing Social Security

From our July 2011 Creating Confidence Newsletter.

These days, as Congress debates the debt ceiling issue, Social Security is suddenly front page news again. If you want to see the lighter side of the debate, click here: http://www.youtube.com/watch?v=OAnI6y-xC84&feature=related.

The first thing to understand is that there IS a solvency problem with Social Security. Alice Munnell, Director for the Center for Retirement Research at Boston College University points out that, according to the Congressional Budget Office, the Office of Management and the Budget and the Government Accountability Office, the benefits promised to future retirees exceed the scheduled taxes that are projected to be taken in. In fact, last year, Social Security began paying out more in benefits than it received in payroll taxes--years earlier than projected, due to the 2008 Great Recession.

The second thing to understand is that Social Security is not going away; too many people today and in the future depend on it for a crucial part of their retirement income. Munnell notes that Social Security accounts for 87% of non-earned income for the poorest third of households over age 65, 70% for the middle third and 37% for the highest third.

So the question becomes: how can Congress bring Social Security back into revenue balance. To help illustrate some of the trade-offs, the American Academy of Actuaries web site includes a game that allows all of us to fix Social Security--you can make your own adjustments here: http://www.actuary.org/socialsecurity/game.html and discover a variety of ways to balance the books, some more painful than others. You could, for example, move up by one year the day when people have to wait until age 67 to claim maximum benefits, and after that index the retirement age to maintain today's ratio between expected retirement years and work years. This, alone, would solve 20% of the funding problem, and some would argue that it should have been done years ago.

As an alternative, you could reduce the annual cost of living adjustments in Social Security payments by half a percentage point. This would reduce the projected deficiency by 40%. Of course, it would also erode the purchasing power of elderly people who count on Social Security for a significant part of their income.

We could reduce benefits by 5% for future retirees, which would solve 31% of the problem.

Or we could reduce the benefit formula for the top half of earners, who theoretically are less dependent on Social Security in retirement. That would solve 43% of the projected Social Security deficit. It would also mean that people who are able to fund a comfortable retirement will get much less out of the system than they put into it.

On the other side of the ledger, we could incrementally increase the revenues going into the Social Security system. For instance, if we raised the payroll tax rate from the current 6.2% to 6.7% for employees and employers, 48% of the shortfall would go away. As an alternative, we could tax Social Security benefits like we do IRA and pension benefits, which would make up 14% of the projected shortfall.

As you can see, none of these proposals, by itself, will bring Social Security back to fiscal health. If you're looking for an out-of-the-box solution to add to the mix, consider an article in the Christian Science Monitor, where former U.S. Secretary of Labor Robert Reich notes that a big (and largely undiscussed) problem with Social Security is the shifting balance of workers paying into the system to retirees collecting from it. Forty years ago, he says, there were five workers for every retiree; today, there are three. In 20 years, perhaps less, the ratio will be 2:1--that is, every two workers in America will have to pay whatever is required to support one retiree's Social Security benefits.

How would you fix this problem? Reich proposes that we allow more immigrants into the U.S.--that immigration reform

As the deficit debate goes forward, you'll hear a lot more about how to "fix" Social Security. Consider this a cheat sheet on the options that various parties will eventually put on the table. We would love to hear your thoughts on how to solve this and other issues. During our planning process we put our heads together to come up with solutions that make lives better and more successful. Let’s encourage our government to do the same. If you have a good idea, let us know!

Sources:

Alice Munnell: http://blogs.smartmoney.com/encore/2011/07/11/saving-social-security-raising-taxes-vs-cutting-benefits/?mod=wsj_share_twitter

Robert Reich: http://www.csmonitor.com/Business/Robert-Reich-s-Blog/2010/0411/Immigration-Could-it-solve-Social-Security-Medicare-woes

Banking News You can Use

From our July 2011 Creating Confidence Newsletter

Your regularly scheduled Go Green article has been interrupted for this important announcement…..

Last week I attended Vistage’s All-City Meeting. It’s a day of great presentations & great networking opportunities. One of the last speakers of the day was Mike Prescott, President of US Bank. I believe he was supposed to speak about the recession, but what I got from him was so much more valuable.

First & foremost he spoke about four cheap services that can protect your bank accounts from fraud. I honestly didn’t even know these existed, but now that I do you can bet your sweet bibby Mackey Advisors will be utilizing these services!

1. ACH Block: ACH blocks are the simplest of all the products to use. They allow companies to notify their banks that ACH debits should not be allowed on certain accounts. With a block in place, no ACH debit, even one that is authorized, will be able to get through on a given account. Everyone is advised to put blocks in place on all accounts where ACH activity is not likely to be used. Quoted Source

2. ACH Filter: An ACH filter allows organizations to give their banks a list of companies authorized to debit their accounts. The banks will then “filter” incoming debits and allow through only those that are on the list submitted earlier. This filter does not check for dollar amounts or whether the particular transaction has been authorized, only that the company doing the debiting is on the approved list. Quoted Source

3. Positive Pay: Positive pay is a service whereby the company electronically shares its check register of all written checks with the bank. The bank therefore will only pay checks listed in that register, with exactly the same specifications as listed in the register (amount, payee, serial number, etc.). This system dramatically reduces check fraud. Quoted Source

4. Reverse Positive Pay: Reverse positive pay is similar to positive pay, but the process is reversed, with the company, not the bank, maintaining the list of checks issued. When checks are presented for payment and clear through the Federal Reserve System, the Federal Reserve prepares a file of the checks' account numbers, serial numbers, and dollar amounts and sends the file to the bank. In reverse positive pay, the bank sends that file to the company, where the company compares the information to its internal records. The company lets the bank know which checks match its internal information, and the bank pays those items. The bank then researches the checks that do not match, corrects any misreads or encoding errors, and determines if any items are fraudulent. The bank pays only "true" exceptions, that is, those that can be reconciled with the company's files. Quoted Source

Secondly, he spoke about 8 questions to ask yourself when choosing a banker. I feel you should ask all of these questions about any company or person you go into business with, whether personal or professional.

1. Do I trust this person?
2. Do I like this person?
3. Does he/she understand my business?
4. Does he/she add value to my business?
5. Is this person an Advocate for me & my company?
6. How is this individual viewed within his/her company?
7. What sales method are they using? Is there transparency in the sale?
8. What is this person’s next job (e.g., promotion within current company, move to a similar company, retiring, changing career paths)?
9. (Personally added) Does this person align with my values?

Thank you Mike Prescott for handing down your worldly banking wisdom. It will not soon be forgotten.

by: Gracie Mohr

Creative Ways to Cut Costs

From our July 2011 Creating Confidence Newsletter.

1. 1. Go paperless

Choosing email over mail, and electronic file storage over printing, can save you money on paper, ink, postage and more. There are free online project management tools that can help you organize your documents and share them with your team members, making your business more efficient.

2. 2. Pay bills on the due date

When you pay late you incur fees, but when you pay early you’ve unnecessarily limited your cash flow. Pay on time, every time, and maximize cash.

3. 3. Tackle your receivables

Identify your slow-paying customers and get proactive. Offer an incentive to those who pay quickly. If you accept credit cards, you should shop around for the best price on payment processing. And send out invoices as soon as the product has been delivered or the service completed. Why wait?

4. 4. Hire a student instead

College students will work for less, or just for course credit, and you can hire them on a short-term or as-needed basis. Set one to work and you might just be getting a bargain.

5. 5. Review your insurance coverage

Are you still paying to insure assets that have been sold? Are you over-insuring on the ones you still have? How much might you save by increasing your deductibles?

6. 6. Don’t make seminars a group event

Instead of having several people attend a seminar, save money by designating one person to go, and then report back to the team on what they learned.

7. 7. Program your thermostat

You may have heard this before (thanks Grace!) but it works just as well in the office as it does at home. And while you’re at it, make sure everything is turned off when no one’s in the office.

8. 8. Make your advertising expense go further

Whatever your chosen method of advertising, make sure you include a coupon, special code or offer and encourage people to use it. That way you will know which marketing strategies are the most effective, and you can eliminate the ones that aren’t.

9. 9. Make the most of your office space

Consider cutting back on non-essentials and moving into a smaller office space. And if that isn’t feasible, you can rent out that extra desk to a local entrepreneur for some extra cash.

10. 10. Design and print your own business cards

Save money and make a statement. This would be a good project for that new intern.

11. 11. Compare profit margins

Calculate the gross profit for each product or service you sell. Then focus on the ones with the lowest margin and consider discontinuing them, allowing you to focus your efforts on your more profitable segments.

12. 12. Assess your inventory

Do you have old or obsolete inventory? See if it can be sold, or even re-worked into something useful.

For continuing assistance with cutting costs and growing your business, consult your Wealth Advocate at Mackey Advisors.

by: Laura Pratt