You are Your Largest Asset

Published July 5, 2009 Finance , Financial advice , Israel , Money management Leave a Comment

By Douglas Goldstein, CFP®

Most people’s largest asset isn’t their house or their bank account. Their most valuable asset is themselves and, more specifically, their ability to generate a reliable income. What would happen if you suddenly became disabled and couldn’t continue in your regular employment? Not only would you be out of cash in the short term, but chances are you wouldn’t be able to continue your savings program, putting your long-term fiscal future at risk, too.

That’s where disability insurance comes in. All parents realize that life insurance protects their children if they aren’t here to provide for them physically. Indeed, life insurance is often a necessity when you have minor children. But disability insurance is equally important, since a disabled breadwinner is costly. A lack of comprehensive disability insurance is frequently the biggest gap in a family’s financial planning program.

A common objection to disability insurance is that paying premiums is a waste of money, since chances are the policy will never be needed. But statistically, people between 35-64 years old are more likely to get injured than to die. Not only are disabled people frequently unable to work, but their medical bills and assorted needs can end up costing large sums. Those monthly disability payments then become a critical source of income.

Even if you have an emergency fund, it’s unlikely that it would be able to cover medical costs and your family’s basic budget for an extended period of time. Disability insurance helps protect your hard-earned savings by providing benefits proportionate to pre-disability earnings. Speak with your insurance agent about getting a disability policy. And if you already have a policy, review it to make sure that anticipated payments are in line with your salary.

Douglas Goldstein, CFP®, is the director of Profile Investment Services. He is a licensed financial professional both in the U.S. and Israel. He offers securities through Portfolio Resources Group, Inc., Member FINRA, SIPC, MSRB, SIFMA and NFA. Accounts carried by National Financial Services LLC. Member NYSE/SIPC, a Fidelity Investments company. His book is available in bookstores, on the web, or can be ordered at: www.profile-financial.com (02) 624-2788 or (03) 524-0942.

The Mystery of the Vanishing Purchasing Power

Published June 28, 2009 Finance , Financial advice , Money management , Uncategorized Leave a Comment

By Douglas Goldstein, CFP®

I was giving my son some money to buy a few groceries and he asked for a bit more “just in case the price changed.” While we are no longer living in the days of hyper-inflation, he was astute beyond his years because he realized that prices are steadily increasing and he didn’t want to come up short at the cash register.

While reports minimizing the impact of inflation are readily found, it is important to remember that numbers can be twisted to reflect any reality. Even if inflation per se is relatively low, little can be said to dispute the fact that bread and other basic products cost more today than they did last year. The loss of purchasing power is especially perilous for retirees and other people living on fixed income. This is because as time passes and their purchasing power diminishes, it becomes more difficult for them to maintain the same standard of living.

While social security and bituach leumi have periodic adjustments for cost of living and inflation, these modifications are typically small and come months after prices have risen and/or inflation has hit. While it may be fair to say a general rule of thumb for working folks is that their expenditures should not surpass their income, for people on fixed income it may be better to keep expenses a bit below income.

Living within your means
People living on fixed income should focus on their own spending. While it may be fun to compare your expenses to the “average person,” remember that the average is reached by mixing the high and low extremes. Instead of focusing on other people, look at your own spending, and make sure that you aren’t spending too much too quickly.

In order to determine whether you can continue with your current spending patterns, develop a financial plan. By projecting your spending and income sources (including salaries, pension and investment revenues), a financial plan can help you know whether you can continue with your current lifestyle or are en route to outliving your resources. For more information, go to the financial planning tab at www.profile-financial.com.

Douglas Goldstein, CFP®, is the director of Profile Investment Services. He is a licensed financial professional both in the U.S. and Israel. He offers securities through Portfolio Resources Group, Inc., Member FINRA, SIPC, MSRB, NFA, SIFMA. Accounts carried by National Financial Services LLC. Member NYSE/SIPC, a Fidelity Investments company. His book is available in bookstores, on the web, or can be ordered at: www.profile-financial.com (02) 624-2788 or (03) 524-0942.

Become Part of the Solution

Published June 28, 2009 Finance , Financial advice , Money management , aliya Leave a Comment

By Douglas Goldstein, CFP®

An economic crisis is the ideal time to teach children about the value of money. Instead of complaining about your fiscal difficulties, think positively and brainstorm on what you can do to save money and/or redirect your spending.

Consider having a family money meeting to discuss issues such as kids’ allowances and how much will be spent on birthday gifts. Instead of making children feel deprived, such conversations help them feel as if they are part of the solution. Frequently, if presented with the facts in a calm manner, children will astonish their parents with a desire to help: they may volunteer to do the gardening instead of a gardener or make pizza instead of ordering take-out. One family I know gave their children a choice: they could either continue with their weekly household help, or the children could take over the cleaning, and then with the money saved, the family could take a modest vacation. Which do you think they chose? While there was occasional grumbling, the family benefited from teamwork and the motivation of working toward a goal. Remember, when you speak with your family about finances, be careful to give the facts, and reassure them that you will take care of them.

Keep things in perspective
No matter how hard the current economic crisis may be affecting you, realize that others are in a worse position. (After all, you had NIS 15 to spend on today’s paper!) Even if things look bleak, count your blessings. While money is a necessity, remember the really important things: your health and your family. If you need some perspective, volunteer in a soup kitchen or other charitable organization.

If you’re depressed about your finances, take charge of the situation. Write down your expenses, create a budget, and establish a financial plan. Taking concrete steps can show you how small savings add up to put you in a better place.

While fixing the global economy is beyond your control, it’s within your power to focus on what resources you have to best meet your family’s needs.

Douglas Goldstein, CFP®, is the director of Profile Investment Services. He is a licensed financial professional both in the U.S. and Israel. He offers securities through Portfolio Resources Group, Inc., Member FINRA, SIPC, MSRB, SIFMA, NFA. Accounts carried by National Financial Services LLC. Member NYSE/SIPC, a Fidelity Investments company. His book is available in bookstores, on the web, or can be ordered at: www.profile-financial.com (02) 624-2788 or (03) 524-0942.

Why Women Are Better Investors Than Men

Published June 14, 2009 Finance , Financial advice , Israel , Money management , aliya , women and finance Leave a Comment

By Douglas Goldstein, CFP®

Imagine a man driving around in circles, too reluctant to admit his confusion and ask for directions. This stereotype may apply to the financial field as well. By and large, male investors tend to make more aggressive decisions, take on greater risk, and act more independently.

A recent article in The Wall Street Journal noted that women’s risk-adjusted returns outperformed men’s by an average of one percentage point annually. This is remarkable because women tend to trade less frequently than men and hold more conservative portfolios.

While there are certainly exceptions, studies show that typically, women participate in less extreme behavior. They tend to wear seatbelts more than men, floss more frequently, and run yellow traffic lights less often. This tendency towards safety may extend towards their outlook in investing as well. By not assuming high levels of risk, women may limit their losses in down markets.

The Challenges
While women tend to work for fewer years and earn less money, they live longer than men, and therefore have unique financial planning concerns. Stretching income and retirement pensions is not just a matter of careful shopping, but is directly related to vigilant investing and implementing a financial plan.

For decades, the disclaimer on the bottom of financial documents read, “past performance does not guarantee future results.” Those words may ring even louder in today’s global recession. While traditionally stocks have been the asset class that outperformed all others, it may be difficult to continue (or increase) investing in the market when you might be suffering from the sting of real losses. And, while the relative safety of fixed-income investments such as bonds might be enticing, the security they offer may not be enough to keep ahead of inflation and retain your purchasing power throughout retirement.

If you are a woman, or you care about a woman, forget about the political correctness of “gender neutral” while considering investment needs. A unisex investment portfolio might not be the best possible fit. By recognizing the challenges women face in investing, it is possible to overcome them.

Douglas Goldstein, CFP®, is the director of Profile Investment Services. He is a licensed financial professional both in the U.S. and Israel. He offers securities through Portfolio Resources Group, Inc., Member FINRA, SIPC, MSRB, NFA, SIFMA. Accounts carried by National Financial Services LLC. Member NYSE/SIPC, a Fidelity Investments

Understand What You Have

Published June 7, 2009 Finance , Financial advice , Money management , aliya Leave a Comment

By Douglas Goldstein, CFP®

When I prepare financial plans for clients, I direct them to their insurance agent to gather information about their various pension plans and insurance policies. Insurance is an important part of any financial plan, both for protecting your current assets and for providing retirement income. Frequently, clients find this an eye-opening assignment as they complete an easy-to-understand chart for each of their different policies (the free chart can be downloaded at the “Financial Planning” tab of www.profile-financial.com). If you have various policies from different jobs along your career path, it’s important to make sure that they all work together.

For instance, parents of young children might want a greater percentage of their bituach minahalim plan to go toward life insurance, while those with grown children might not need such a large policy, and wish to increase the savings component of their plan.

Does your pension plan have a spousal benefit? Though this perk might lower your monthly payouts, if your spouse has genes for a long life, over time it might mean greater income for your family. If you consider that one of the biggest causes of widow poverty is caused by the loss of the pension when the spouse passes, procuring a spousal rider on your pension policy may be a tremendous boon to a surviving spouse.

Do you have supplementary insurance to your kupat cholim? Being able to choose your specialist and the type of care you want can be costly. If you require further assistance than your health plan is willing to provide, owning a policy can more than pay for itself.

Is your disability policy up to date? When your salary increased, did you follow through with your insurance agent to make sure that your disability coverage increased proportionately? Often, independent workers (atzmai’im) have coverage that does not match their income. If you are in this category, check every year with your insurance agent to make sure that your policy is in line with your needs. Most workers are statistically more likely to become disabled than to die, so having proper disability insurance is at least as important as life insurance.

Understanding all of your investments, including insurance, is the first step of financial planning.

Will You Be There When Opportunity Comes Knocking?

Published May 31, 2009 Finance , Financial advice , Israel , Money management , aliya Leave a Comment

By Douglas Goldstein, CFP®

If you don’t follow the stock market on a daily basis, you might be more relaxed than the day traders who follow every tick. However, you might have also missed seeing the greatest six-week rally in the market since 1938. But who cares? For most people, the point of investing in shares is not timing the market in the short term; the aim of the stock investor (as opposed to trader) is to buy quality companies and hold onto them for the long term.

Since no one, including pundits, can predict stock prices, you need to have a way to decide whether to buy now, and if so, how much money to dedicate to stocks. For example, a client called me a few months ago to sell out his stock portfolio. He wanted to move the money from the equity mutual funds (invested in stocks) to CDs (certificates of deposit in banks that are insured). When I asked him if his investment time frame had changed, he said, “No, I just want to be out of the market now until things get better.”

A short time later, after a 20% upswing in the market, he called again, wanting to buy back into the market. I reminded him of our previous conversation where I had told him that it’s nearly impossible to time the market. “What you’re doing,” I explained, “is selling low and buying high. That’s a surefire formula for failure.” He understood the logic, but was wrapped up in the emotions of the market swings. He looked at the newspapers every day and, depending on the news report or op-ed pieces, he would make changes in his account.

Though the hows and whys of investing are a personal decision, the best way to decide whether you should own stocks is to confirm that you are a long-term investor with the tolerance level to handle the inevitable market swings. See how bear markets (down markets) sometime lead to new opportunities at the “education” tab of www.profile-financial.com.

Douglas Goldstein, CFP®, is the director of Profile Investment Services. He is a licensed financial professional both in the U.S. and Israel. He offers securities through Portfolio Resources Group, Inc., Member FINRA, SIPC, MSRB, NFA, SIFMA. Accounts carried by National Financial Services LLC. Member NYSE/SIPC, a Fidelity Investments company. His book is available in bookstores, on the web, or can be ordered at: www.profile-financial.com (02) 624-2788 or (03) 524-0942.

Myth: Parents Must Pay for Their Children’s Weddings

Published May 17, 2009 Finance , Financial advice , Israel , Money management Leave a Comment

By Douglas Goldstein, CFP®

“If I don’t pay for two-thirds of an apartment, my daughter won’t get a good shidduch,” a client told me. Another client said, “We have to match whatever funds the other parents are contributing.” A different couple complained, “We’ll have to sell our house in order to raise the money to marry off our children.”

While I frequently hear complaints about the cost of marriage, I’ve never found the people on the other side of the coin. I haven’t been told, “If my son’s fiancé doesn’t fork up $100,000, I’m canceling the wedding.” Nor have I heard, “It’s true that my daughter has found a fabulous young man, but if his parents won’t pay enough, the deal’s off.” Therefore, it’s critical to understand the financial myths surrounding weddings.

I recently met a haredi Rabbi, the father of eight girls, who subsists on a rosh yeshiva’s salary. When marrying off one of his daughters, the other side asked how much money he would contribute. When he told them the modest sum he was capable of, they asked for more. The Rabbi told them, “When your son gets married, you can look for three things in his bride: a fine woman, a good family, and money. I hope you can be satisfied with two out of three.” A few years later, the two fathers met again, and the Rabbi was told, “With my next son, I looked harder for money, and it turned out to be a disaster.”

If you are reading this article, then you’re probably not part of a community where marriage is a business deal, consummated with the purchase of an apartment. As such, you need to determine how much you can and want to afford in helping your children. As your children begin dating, let them know what the wedding and marriage budget is so that there are no surprises. And please, please don’t perpetuate the myth that parents must bankrupt themselves in order to marry off their kids. If you have your own money/marriage stories, please email them to doug@profile-financial.com.

Which Are Better: Bonds or Bond Funds?

Published May 17, 2009 Finance , Financial advice , Money management Leave a Comment

By Douglas Goldstein, CFP®

If you want an investment that pays current income, diversifies your portfolio, and gives you a chance to take advantage of the recent drop in the market, consider buying bonds. As with any investment, bonds have certain risks; however, if they are appropriate for you, bonds and/or bond funds can add value to your portfolio in turbulent times.

One question people ask when looking to expand into the bond (“fixed income”) market is whether they should buy individual bonds or purchase a mutual fund that invests in bonds (a “bond fund”). Though not a complete list, here are some of the pros and cons to review with your financial adviser:

Return of principal
Individual bonds are designed to repay your principal at maturity (or when the bond is called). This means that on a specific date, presuming the issuer doesn’t default, you will get back a fixed amount of money. If you know you’ll have expenses, for example, you can time your purchase of bonds to mature in time for you to pay these future bills. On the other hand, bond funds don’t have a fixed end date when an issuer promises to pay you back your principal; so, while you may get regular dividend income as long as you hold the fund, your principal is at risk.

Income payments
Normally, bonds pay fixed interest payments semiannually (except zero-coupon bonds, which pay back money only at maturity). With bond funds, the (normally) monthly dividends may vary in amount, so you can’t be sure of how much you’ll receive every month. One benefit of receiving the monthly payments from bond funds is that you can have them automatically reinvested, allowing for compound interest to work for you. (Interest from regular bonds cannot be automatically re-deposited in the same bond. In this case, you would need to save them up over time and then purchase another bond.)

Default risk
Even though bonds are generally considered conservative investments, they sometimes default. If you own a bond that defaults, you could potentially lose your entire investment. Often, when bonds default, they do recover, but do not necessarily pay back all the money to the bond holders. Though bond funds may hold bonds that default, the risk of default is mitigated by the diversification inside the fund.

Who’s In Control – You or the Stock Market?

Published May 11, 2009 Finance , Financial advice , Israel , Money management , aliya Leave a Comment

By Douglas Goldstein, CFP (R)

While the markets have a life of their own, that doesn’t mean every aspect of financial planning is out of your control. The two most important parts of investing – making a plan and sticking with it – are within your control.

News about the volatile dollar and the sinking stock market can be debilitating. Try to focus on what you have control over: asset allocation, scheduled savings and taking maximum advantage of tax-free saving programs. If you initially had a reason for investing in various funds/stocks, as long as the fundamentals haven’t strayed from your original reason, hold tight and wait for better times. Though past performance is no guarantee of future returns, those people who have held on have often done well with their investments.

Remember, your total return is mainly based on asset allocation, not individual investments. In other words, the kinds of investment you choose (what percent you put in stocks, bonds, and cash) may be a more important choice than the specific investments themselves (whether you chose stock A or stock B). In today’s global economy, there are many opportunities for diversification, and common wisdom holds that you shouldn’t put all your eggs in one basket.

If you’re saving a fixed sum of money on a regular basis, sometimes you’ll buy stocks high and sometimes low. This strategy of dollar-cost averaging (regularly buying regardless of the particular price) can help mitigate against severe market fluctuations.

Taking advantage of tax-free saving programs lets your hard-earned money work for the future. Letting your funds grow tax-free enables compound interest to work harder.

When the markets take a spin, your spirits don’t necessarily need to dive, too. If you are a long-term investor with a properly balanced portfolio, you should be able to weather surprises. And, if you don’t have the time to regain potential losses, consider rebalancing your portfolio to minimize your exposure to risk. As an investor, you should be the one in control of your portfolio, not the market.

How Bonds Can Improve Your Portfolio

Published May 3, 2009 Financial advice Leave a Comment

By Douglas Goldstein, CFP®

Would you like to own an investment that is stable, pays regular interest payments, and is designed to return principal on a predetermined date? If so, speak to your financial adviser about buying bonds. Though bond rates are lower than they have been in the past and entail certain risks, bonds may be able to play an important role in your account. Here’s why….

Do bonds return principal?

When you buy a bond, what you are really doing is loaning money to a company or government. A treasury bond, for example, is a loan that you make to the U.S. government. As long as Uncle Sam is still around, you should get your entire principal back at the maturity date … with interest, too. Keep in mind, though, that if you buy a bond from a less solid country or from a company, their guarantee might not be worth the paper it’s written on. If the bond’s underlying company/country defaults, you might not get your money back.

Lower volatility

Because bonds have some level of principal protection (presuming they don’t default), their prices tend not to be as volatile as stocks. Though changes in the prevailing interest rates and problems with the bond issuers can and do affect their prices, people often use bonds as a relatively stable anchor for their portfolios. For a more in-depth review of bonds, Building Wealth in Israel has a whole chapter dedicated to the topic.

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