Archive for January, 2010

Miscommunication Can Cost Money

Published January 31, 2010 Finance , Financial advice , Israel , Money management Leave a Comment

By Douglas Goldstein, CFP®

Understanding your parents’ financial situation is a vital part of putting your own financial house in order. Before you plan your retirement dreams, you need to know whether you’ll need funds to support your parents. And, if you know that one day you will receive a sizeable inheritance, there may not be any need to scrimp now.

Stereotypically, elderly parents are reluctant to talk about their finances. However, according to a 2005 study by The Hartford, 76% of parents were comfortable talking finances with their adult children, while only 45% of boomers felt comfortable discussing these issues with their folks. So, why is there resistance?

One reason may be denial. It’s hard to admit that your parents won’t be around forever. Financial fears may come into play since it’s overwhelming to imagine supporting both children and parents. And, frequently, there’s a measure of avoidance; perhaps a sibling thinks another sibling should deal with finances.

If initiating these conversations is daunting, ask your financial adviser to join in. Recently, I joined a conversation between a woman and her father. The woman knew her parents had assets, and wanted to know approximately what she could expect one day as an inheritance. The conversation was eye-opening, since my client learned the inheritance wouldn’t be large enough to base her retirement on, as she was counting on. Upon their retirement, her parents purchased an annuity, which covers their current and future needs, but would leave very little in terms of an inheritance. Now my client has to beef up her savings plan in order to make sure she, too, can retire one day.

While dialogue is important when it comes to your – and your parents’ – fiscal situation, respect your parents’ right to keep their affairs private. If they don’t want to review the details with you, suggest they review them with a financial adviser for a “safety check.” Don’t imply that you expect an inheritance; remind them that you understand their money is theirs. Asking, “What would you like your legacy to be?” can lead to a discussion of values, wishes, goals, and also, estate plans. Keeping an open communication channel can help eliminate unpleasant surprises in the future.

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. Accounts carried by National Financial Services LLC. Member NYSE/SIPC, a Fidelity Investments company. His book Building Wealth in Israel is available in bookstores, on the web, or can be ordered at: www.profile-financial.com (02) 624-2788 or (03) 524-0942.

Keep Your Money Safe

Published January 31, 2010 Finance , Financial advice , Israel , Money management Leave a Comment

By Douglas Goldstein, CFP®

For children, keeping money safe often means nothing more than making sure their coins are in a pocket without a hole, or their piggy bank remains out of reach of their younger siblings. However, as an adult your definition of “keeping money safe” must be more sophisticated. Keeping money safe is more than knowing where it is at all times; it entails developing a strategy to safeguard both the actual funds and the money’s real value, its purchasing power.

While hiding your money underneath a mattress may protect your fortune from unwelcome intruders in your house, it won’t protect your money from the risk of loss in a fire (or other catastrophe) and inflation. Not diversifying properly and investing your money in inappropriate investments can be just as devastating as losing your money through carelessness.

Inappropriate investments
Inappropriate investments can have the same net result as having a hole in your pocket: fiscal loss. If your money isn’t diversified in suitable investment vehicles, you could be headed for potential losses. Placing money in haphazard investments without an overall plan can have disastrous results. Even if you have looked closely into one particular investment, think twice before investing your entire fortune in a single investment vehicle.

If your investments aren’t well diversified, the results can be devastating. I’ve met people whose net worth dropped by tens of thousands in a single day when they refused to diversify their investments, and their favorite stock’s value plummeted. Perhaps the single biggest indicator of financial success is the amount and style of diversification of one’s portfolio. Take a hint from Mother Nature who trained squirrels to hide their acorns in various locations scattered across the lawn in preparation for a long winter.

Does it require good fortune to amass a large fortune?
Careful planning, perseverance, patience, and periodic monitoring are all necessary components in building wealth. Don’t rely on a guardian angel or lottery winnings to fund your retirement nest egg. Keeping your savings safe requires more than a bank vault. Hard work and careful planning are the building blocks to creating and maintaining a sound fiscal future.

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 Building Wealth in Israel is available in bookstores, on the web, or can be ordered at: www.profile-financial.com (02) 624-2788 or (03) 524-0942.

Now Is the Time

Published January 17, 2010 Finance , Financial advice , Israel , Money management , aliya Leave a Comment

By Douglas Goldstein, CFP®

Get it now. And by that I don’t mean buying more stuff. I’m referring to accumulating wealth. The reason why you should do this now, and not procrastinate, is because assets accumulated when you’re young will help when you’re older. Compound interest may be the magic formula for letting your investments work for themselves. And if your savings are working for you, you may not need to work as hard or for as long.

Even more important than accumulating assets
While accumulating assets is important, perhaps it is even more important to accumulate sound financial habits – don’t spend beyond your means. You may figure the small luxury of new bath towels is something you deserve (and relatively inexpensive compared to pampering at the spa), but beyond the initial purchase price, there’s the cost of upkeep. Fluffier towels take up more space in the washing machine, which means more loads to wash, more water, more detergent, etc. It’s not only the trivial cost of daily chores that you should pay attention to, but your overall approach to spending and saving: do you make purchases because you feel you deserve something or because you need it?

Money is meant to be spent. However, there is a difference between careful spending and thoughtless spending. Before you make a purchase consider your budget and make sure it fits in with your overall financial plan. If your budget has a line for discretionary spending, you could buy the newest gadget without worrying about breaking the bank. Conversely, some people have “save, save, save” engrained on them from a young age. While this is prudent advice, depending on your situation, it may be appropriate to spend. A retiree with a sizeable savings and adequate health care insurance may be able to spend more than they’re used to. Creating a financial plan can help you determine if you should be in the saving stage or the spending stage of your life.

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 Building Wealth in Israel is available in bookstores, on the web, or can be ordered at: www.profile-financial.com (02) 624-2788 or (03) 524-0942.

What Do the Numbers Really Mean?

Published January 10, 2010 Finance , Financial advice , Israel , Money management , aliya Leave a Comment

By Douglas Goldstein, CFP®

The way risk is presented often affects the way it’s perceived. When preparing financial plans, I look at the client’s chances of success (i.e., dying with an estate worth X amount). If the chances of success are low, I look at factors that the client can control to increase his chances (i.e., increasing savings, decreasing spending, retiring later, etc.). If the plan shows high chances of success, I look at the factors that could be changed in order to improve the person’s current lifestyle without harming anticipated future success.

What is a “high” or “low” chance of success? Unfortunately, there is no magic number. People’s judgments about risk are subjective. One 50-year-old might be satisfied with hearing that he has an 80% chance of success, while another might not sleep well at night until his odds of success have increased.

Which is riskier?
If I tell someone that he has an 80% chance of meeting his retirement goals, it may sound pretty encouraging. In fact, clients are frequently happy to continue with that status quo. However, in “real” terms, 80% translates to one in five people in similar situations where the clients outlive their money. I certainly wouldn’t want to be that one!

People may not be enthusiastic about receiving 5% returns when inflation is 3%. But the same investor may be happy to get a 7% return when inflation is 5%. While both are receiving the same 2% real return, the second scenario seems like a better deal because the numbers are higher.

Don’t let numbers lie
Don’t be lured into a false sense of complacency because a statistical simulation gives you X% chance of success in your financial plan. Think about the number that you feel you need to achieve in terms odds of success. Before you accept a percentage of chance of success, ask yourself if this grade is really appropriate. Remember – even if the market fluctuates, you play a large part in determining your financial success.

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(formally NASD), SIPC, MSRB, NFA, SIFMA. Accounts carried by National Financial Services LLC. Member NYSE/SIPC, a Fidelity Investments company. His book, Building Wealth in Israel: A Guide to International Investments and Financial Planning, (with a guest chapter on taxation by Leon Harris, International Tax Partner, Ernst & Young) is available in bookstores, on the web, or can be ordered at: www.profile-financial.com (02) 624-2788 or (03) 524-0942. Building Wealth in Israel, ISBN 193268784X 308 pages

Looking Backwards, Looking Forwards

Published January 3, 2010 Finance , Financial advice , Israel , Money management Leave a Comment

By Douglas Goldstein, CFP®

Was the year 2009 a depression or a recession? Whichever it was, it’s likely that your portfolio balances shrunk. While investors are scrambling for a way to regain their losses and protect against further decline, it’s important to ask if the underlying reason for the market’s instability impacts your portfolio.

A depression is an intense, long-lasting recession. A recession is defined by at least two successive quarters of a country’s gross domestic product decreasing. A depression is a long recession that changes economic life, leaving a mark on popular culture.

The difference between recession and depression may not just be the intensity, but also the cause of the downturn. A standard recession usually follows tight monetary policy, while a depression is the result of a bursting credit bubble and shrinking credit. So, the question is, how should you adjust your personal finances if the foundations of the global economy are changing?

First of all, downsize. If you can, minimize discretionary spending and put the extra in savings. This can act as a small insurance policy in case you lose your job or inflation soars. While some analysts say consumer spending is a large force in pulling the economy out of its downturn, it’s not your responsibility to spend in an effort to affect the global economy. The recent recession/depression is resulting in consumption declining for the first time in nearly 20 years. While it’s always fun to buy something new, think twice before pulling out your credit card.

Any economic crisis is a challenge, and adversity presents opportunity. If you can streamline your operations in challenging times, you’ll be in a better position when things begin to pick up. While companies’ downsizing is distressing for the newly unemployed, when companies become more efficient this makes them more valuable when consumer confidence returns and the market responds positively. A company’s downsizing isn’t necessary an indication that you should sell its stock – it may be a wise business move.

Recessions and depression demand different governmental responses, but an individual’s response should be the same: re-evaluate your asset allocation and your spending habits.

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 Building Wealth in Israel is available in bookstores, on the web, or can be ordered at: www.profile-financial.com (02) 624-2788 or (03) 524-0942.