Archive for June, 2009

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.