Banking in Uncertain Times

These are certainly difficult times for banks. Indymac bank failed just a few months ago, Washington Mutual failed a few weeks ago and Wachovia was purchased by Citigroup. The amazing thing is that while these banks have faltered, other banks like Bank of America have purchased Merrill Lynch, one of the most recognized brokerage houses in the entire world. The headlines make many feel like "financial armageddon" is either around the corner or here. Although, this can be very disconcerting, how do you know if your money is safe?

The Federal Deposit Insurance Corporation was created in March of 1933 since thousands of banks failed after the stock market crash of 1929. The FDIC insures up to $100,000 per depositor in individual accounts, or up to $200,000 in joint accounts. It also insures up to $250,000 for individual retirement accounts invested in insured deposits. To find out more, go directly to the FDIC site.

Wishing You Wealth in all Its Greatest Forms

Alex

What Can't Money buy?

There are thousands upon thousands of books, magazines, and websites devoted to how people can get more money, invest to grow their money or how to reduce expenses so they can keep the money they have. Money can buy art, luxury automobiles, amongst a seemingly endless list of things. Although, it’s true that the more money one has, the more they can spend, travel and play. It can provide the freedom to work less and contribute more to the church, community or causes dear to your heart.

It has been said many times by wise men and less than wise men, but money is a means to an end. Money cannot buy friendship, love or knowledge. In your life you may have noticed, that it also can’t make you a better person in and of itself. The value that our life has cannot be purchased with money. The key to benefiting from money is turning it into wealth…a resource only to the extent that it helps you enjoy and live a richer, higher quality life.


Wishing You Wealth in all its Greatest Forms

Alex

401k Anxiety?

Since the company pension has become more of a myth than a reality for most employees, the 401k has stepped in to take its place. In today's volatile market, many people have seen their nest eggs shrink. These are difficult times for banks, where investment banks Bear Stearns was sold to JP Morgan Chase at bargain basement prices and Lehman brothers has filed for bankruptcy protection. Locally, we have seen Indymac bank taken over by federal regulators after its inability to redeem deposits.

Needless to say that these have been historic times and not in a good way. If you have seen the value of your 401k drop, you are not alone. What's the best way to deal with losses? You can reduce your exposure to the stock market by diversifying into bonds or by buying insured certificates of deposit. The risk you run is that when the market gets back to normal, you might miss out on the upside since stocks have outperformed bonds and cd's substantially in the past.

These are definitely trying times, but there's no need to panic if you have a long term horizon. If you have a relatively short horizon, this might be the time you sit down with your financial advisor and review your risk tolerance and confirm your retirement goals.

Wishing You Wealth in all its Greatest Forms

Alex

Is Your Retirement Projection Accurate?

If you have a financial advisor, then you may have a projection that hasn’t panned out in the last year, in fact it hasn’t done you any favors over the last ten years. As of this writing, the S&P 500 has lost money when you adjust for inflation over the last ten years. Directly off of Vanguard’s website, the Vanguard 500 Fund Investor (VFINX) has returned 2.81% annually, over the last 10 years, net of fees. This fund is a proxy for the S&P 500, the index of the largest 500 corporations. Over the last year it is down 13.12%. Most financial projections are based on retirement dollars growing at 8%. This is not an arbitrary number, but one that is based on assumption of taking out 5% annually, then an additional 3% to offset inflation.

In the current market environment, you only have two choices. Either you need to change your lifestyle and expectations of the future or reassess your financial strategy and create one that is diversified enough to hedge from market declines.

Wishing You Wealth in all its Greatest Forms

Alex