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Investors: Be Wary of Herd Mentality
Tweet Share on Facebook June 16, 2011 CommentIt appears the Delphinian oracles have emerged from the modern day temple of Apollo—Wall Street—to share their wisdom. What is their sage advice? Sell your stocks and hunker down in a more defensive position.
The numbers are in: employment growth is down, housing prices are down, manufacturing is down, we have debt problems at home, and there are debt problems abroad. The financial pundits have come forth to offer their counsel, and like well-behaved cattle, the mooing masses have left their fair pasture and are being herded through the rancher's gate to some unknown but new destination.
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6 Tips for 401(k) Success
Tweet Share on Facebook June 15, 2011 CommentThe topic of retirement readiness has been in the news quite a bit lately, focusing attention on a serious issue staring many Baby Boomers in the face.
The 401(k) is the primary retirement accumulation product for many of us. Here are some tips for managing this asset. While following them is not a guarantee of a successful outcome, these tips will certainly help you down this path.
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How to Successfully Plan for Retirement
Tweet Share on Facebook June 15, 2011 Comment (2)Throughout the years, I have helped many people retire. Interestingly, some were significantly more prepared than others. Here are the five major differences between those that retired well and those that didn't. Use it as a checklist for your planning.
Compile your bucket list. This should be a list of all the things you could possibly want to do. It should include different categories such as things (possessions you want to buy), experiences (things that create memories), trips (places you want to visit), and ways to give back (charities you want to give time or money to). From this list, you will create some of your life's most cherished memories. Also, because you will have this list written, the items on it will more likely get accomplished.
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Don't Use Your 401(k) as a Rainy Day Fund
Tweet Share on Facebook June 14, 2011 Comment (2)Is it a good idea to borrow money from your 401(k) plan? In an emergency, yes. Otherwise, no.
Unfortunately, many people treat retirement savings as a rainy-day fund. At the end of 2010, almost 28 percent of people with 401(k)s had loans against them, according to a study from consulting firm Aon Hewitt. That's a record number and continues an upward trend.
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How Fearing Money Could Cripple Your Retirement Savings
Tweet Share on Facebook June 9, 2011 Comment (1)It seems there's a new medical condition introduced every week. Did you know there's even a condition related to the fear of money?
"Chrematophobia" is the abnormal and persistent fear of money, according to WebMD. It comes from the Greek "chrimata" (money) and "phobos" (fear). Some of its symptoms include heart palpitations, anxiety attacks, sweaty palms, and an intense desire to flee. Sufferers worry they might mismanage money or that money might live up to its reputation as "the root of all evil."
If you have it, you can blame it all on your brain. California Institute of Technology neuroscientists discovered that a fear of losing money is tied to a brain structure called the amygdala, which generates emotional reactions to money.
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How to Set and Achieve Financial Goals
Tweet Share on Facebook June 8, 2011 CommentTwo baseball players arrive at spring training. Player A declares this is the year he becomes an elite ballplayer. Player B has the same aspirations for the upcoming season, only he defines what constitutes an elite player. His goals are a .300 batting average, 30 home runs, and 100 runs batted in. He also takes stock of how he did last year when he batted .247, hit 17 home runs, and batted in 68 runs. He meets with the team's hitting coach to improve his swing and for other tips on how to be a better hitter.
Which player do you suspect achieved his goals for the season?
Most of us dream of things we'd like to do in the future or perhaps what we would like our lives to become. When it comes to the world of financial planning, these aspirations need to be translated to goals in order to determine how best to achieve them.
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The Market Is Crashing. Is Your Portfolio?
Tweet Share on Facebook June 8, 2011 Comment (2)Last week the market lost about 2.3 percent. Given this news, you should be asking: "How did my portfolio fare?"
I spoke to two investors last week about their performance. Both had different stories to tell. The first investor lost the same amount as the market, primarily because he did not have the correct mix of asset classes in his portfolio. The second investor lost money, but her portfolio was down only 0.94 percent, about 60 percent better than the market.
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How to Get Back in the Market
Tweet Share on Facebook June 7, 2011 Comment (3)Many people got scared during the bear market in 2008 and early 2009 and sold their mutual funds or stocks. Since hitting a low in March 2009, the S&P 500 Index has almost doubled. A lot of people have missed out on this stunning rebound. They're still trying to figure out the "best time" to get back in.
The problem is, timing the market doesn't work. When you decide to sell an investment, you're really deciding to make two decisions: when to sell a stock or fund, and when to get back in. You think: "I'm going to wait for the right time to get back in." But there is no right time. When prices fall, you'll think now is not the right time because prices are going down. When the market goes up, you won't want to pay more for a fund that you sold at a lower price. The anchorman on the nightly news won't announce the official end of the bear market.
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Don't Sell in May and Go Away
Tweet Share on Facebook June 3, 2011 Comment (2)"Sell in May, and go away" is a popular theory among investors that I have been hearing a lot about recently, especially in the news. The idea is that most gains in the equity markets are made between November and April.
There is some pretty interesting data that supports the theory. According to Standard & Poor's Equity Research, the return since 1945 between November 30 and April 30 has averaged 6.8 percent. That's compared to 4.1 percent average return for all 12 months.
But really, who cares?
Traders care. Investors should not.
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How to Invest When the Economy Is Weak
Tweet Share on Facebook June 2, 2011 CommentManufacturing growth crept to its slowest pace in 20 months with the index of manufacturing activity experiencing its biggest decline since 1984. Payrolls were also shockingly weak according to ADP, adding a mere 38,000 jobs in May, down from 177,000 in April.
Sadly, this is not just a U.S. problem. This month's manufacturing reports from China, Russia, Poland, Hungary, and Japan were all down with more underwhelming data expected as the month of June rolls on.
This is the moment that the anxious investor begins to panic. Last year, it was all about rising stock prices, commodity investments, and the tech boom. Now, economists are talking about extended weak growth and how we have kicked the debt can down the road and now must pay.
