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Archive for August, 2006
Assessing Your Risk Factor
Aug 28th
by Eric Heckman
If you are like most Americans, you plan to retire sometime in the future. You may have a retirement account established through your employer, or be placing a portion of your savings into investment vehicles, hoping they will grow in value.
Wherever you have placed your money, the smart investor should always be aware of his or her own particular “risk factor.”
In the personal investment world, ‘risk’ is defined as any possibility of loss, usually due to market volatility.
Age is certainly a major consideration. People in their 20s and early 30s tend to be aggressive because they have plenty of time to recover from a severe loss. I call this the “Reckless Cowboy” stage. People in their late 30s and early 40s are in the “Mature Cowboy” stage and tend to strike a better balance between aggressive and conservative choices. Folks in their late 40s and 50s feel that they still want to ride the rodeo, but with a little more caution. Lastly, there are the people in their 60s and beyond. These people have reached the “I’ll still attend the rodeo, but sitting in the bleachers is looking better every day” stage.
In working with clients, I employ six typical profiles that help most people determine their risk factor and retirement goals.
1. Aggressive Profile: Fits long-term savers who want high growth and do not need current income. With 5 percent in cash and the other 95 percent in stocks, these individuals find the substantial volatility as acceptable in exchange for long-term upside potential.
2. Moderately Aggressive: With 5 percent in cash, 15 percent in bonds and 80 percent in stocks, this profile fits long-term investors who want good growth potential, don’t need immediate income and are comfortable with some risk.
3. Moderate: This profile fits long-term investors who don’t need current income, but want reasonable growth potential. With 30 percent in bonds, 10 percent in cash and 60 percent in stock, it tolerates some market fluctuations, but is less risky than just the stock market.
4. Moderately Conservative: This fits those who do need current income, but also want stability and potential growth with 45 percent in bonds, 15 percent in cash and 40 percent in stocks.
5. Conservative: Investors who want income and long-term stability in place of increasing value. It calls for 55 percent in bonds, 25 percent in cash and 20 percent in stocks.
6. Short Term: These individuals typically need current income and a high degree of stability. It suggests 40 percent in short-term instruments and 60 percent in cash. Investors with very short time horizons (one to two years), and where preservation of capital and liquidity are the primary goals, should consider 100 percent money market accounts or a combination of both money market accounts and short-term certificates of deposit.
Note that these are general descriptions. A qualified financial professional can help you determine your individual profile and find the solutions that fit your particular situation.
Accelerating Your Wealth Cycle
Aug 21st
Reprint of original article posted on Liveoutloud.com
Are you paying yourself first?
You have placed the Lifestyle Cycle on the back burner for a while, focusing your talents and energies on building a Wealth Cycle instead. A Wealth Cycle is the best reward for this seeming “sacrifice” – you’ll see! Believe me, one year from now, you will be so glad you started when you did!
When you look at your Wealth Cycle, you will want to start focusing on your asset column. Assess how the asset column is performing. There are four essential steps to make sure that the foundation of your Wealth Cycle is solid and intact:
1) Paying yourself FIRST
2) A thorough review of entity structure and tax implications
3) Clarification of the decision to be an active or a passive investor
4) Develop and commit to money rules
You have a foundation set, and now get ready to accelerate your Wealth Cycle! In accelerating, this is where you leverage your assets to generate more wealth and passive income. It is about learning and utilizing high-end investment strategies, tax benefits, and entity structuring.
What are some options for investing strategies?
- Cash and cash equivalents: savings accounts, checking accounts, money market accounts, certificates of deposit, treasury bills.
- Bonds: savings, U.S. Government, municipal, high-quality corporate, junk bonds.
- Stocks: large cap vs. small cap
- Real Estate: cash, cash flow, commercial, raw land.
- International securities
- Precious metals: gold, silver, platinum.
- Natural resources: minerals, oil and gas (my personal favorites)
- Collectables: stamps, coins, gems, artwork.
This gives you an idea of the array of options available to you for you to invest in. With a recipe of education and support, consistency, motivation, and creativity, you can leverage these options to accelerate your wealth.
It’s all learnable and doable. I know – I did it for myself!
Starting a Virtual Business
Aug 16th
by Brion Lau
Back in May, I mentioned an article I read in Business 2.0 called “5 Ways to Start a Company (Without Quitting Your Day Job”. Since then I’ve met a number of people working in Corporate America who are increasingly disenchanted working for someone else and looking for a way to do something on their own.
This morning I was listening to the radio when I heard a segment featuring an interview with author, Julian Dibbell. He was promoting his newly published book, Play Money: Or, How I Quit My Day Job and Made Millions Trading Virtual Loot
Normally, I wouldn’t write an article about this, especially if it’s the first time I’ve heard about such venture. However, this isn’t the first time I’ve heard about people trying to make money in the virtual world. The cover story on the “BusinessWeek” May issue featured the “virtual life”.
Bottom line: If you’re still thinking about a way to generate income on the side (or possibly full-time), this may be something you may want to investigate further. This business model is still in its infancy which means there are plenty of opportunities for entrepreneurs. In addition, mainstream advertisers are also increasingly taking notice and shifting more dollars to non-conventional channels such as this.
Am I exploring this opportunity? Not at this time. I don’t participate in multiplayer games or really understand the virtual world. However, for those that do or just play these games as a recreation / hobby, this might help you look at this opportunity with a new lens.
Planning for Retirement
Aug 12th
by Eric Heckman
It’s no secret now: 77 million Baby Boomers are heading into their 50s and 60s and planning for the next phase of life – retirement. Just as the Boomers have transformed every other life stage, they are now revolutionizing and re-visioning retirement as well.
According to Dr. Ken Dychtwald, the nation’s foremost expert on aging and retirement, two-thirds of people that have lived past the age of 65 in the history of the world are alive right now. Humans have long searched for that fountain of youth, but there was no breakthrough until the twentieth century. Healthcare advanced and before we knew it, we were inundated with “old” people. We have fully embarked on the longevity revolution.
We’re an aging society. The only difference now is we’re not growing old. Our parents did in the past and didn’t have to worry about what to do after retirement because they weren’t going to experience 20 or 30 years of it.
Have you ever realized that in one generation, 65 has gone from being “old” to being middle-aged? Here’s a quick history lesson for you: Otto Von Bismarck developed Europe’s first pension plan in the 1880s. He picked 65 as the age when people were “too old” to work – this age has remained a marker today to begin receiving benefits, such as Social Security. The only problem? During this time, life expectancy was only 45 years old and the average retirement was only 1.2 years.
Many wonder now, “What if I outlive my money, purpose, etc?” What to do after retirement is a question Boomers are beginning to toy with. The linear life plan many used to go by (education, work, leisure) is being replaced with something much more cyclic – education, work, leisure, work, leisure, education, etc. But there is an entire generation who might not be able to retire unless they start thinking about and planning financially for it now.
It’s up to you to determine what kind of retiree you already are or who you plan to be. The following “faces” of retirement were compiled by Dychtwald, Harris Interactive and AIG SunAmerica and appeared in Time Magazine.
1) The Ageless Explorers (27 percent) – youthful, empowered, optimistic, very happy, loves retirement freedom, high net worth, wants work to be part of lives, seeks personal growth.
2) The Comfortably Contents (19 percent) – wants to be free of obligation, living their “golden years,” wants to relax, enjoy the fruits of their labor, high net worth.
3) Live for Todays (22 percent) – adventurous, pursue active life and personal growth, financially unprepared, anxious about retirement, modest net worth, not very happy because they HAVE to work.
4) Sick and Tireds (32 percent) – inactive, unfulfilled, worried about everything, the least happy, low net worth, given up/little interest in anything, living a retirement nightmare.
As you can see, most fall in the Sick and Tireds (perhaps considered the “old” way to retire), but more are beginning to move into the Ageless Explorers face.
Preparing for retirement is taking on a whole new face so it’s never too early, or too late, to start with a strategy. It’s important for you to make sure your financial professional is planning your finances thoroughly. As you can see, you could be getting short changed if the plan lasts for only 15-20 years.
Building Your Wealth Cycle Foundation
Aug 10th
Reprint of original article posted on Liveoutloud.com
You are committed to setting aside that Lifestyle Cycle and exchange it for a more profitable, more ultimately rewarding Wealth Cycle. You won’t be disappointed! Nothing feels better than the feeling that you have some control over your financial destiny, rather than letting destiny control you.
So, what exactly do I mean when I say a “wealth cycle”?
I have defined a wealth cycle as the first step in the process of paying yourself first. When you pay yourself before you pay anything else, you are establishing a habit that gives you the ability to accumulate assets. Once you have begun to accumulate assets, you will then have the opportunity to invest in order to create passive income. Passive income is where your money is now working for you, creating more money. This is where you want to be!
By setting up your wealth plan to automatically allocate money into your asset column, you create a foundation that allows for your overall wealth plan to stay activated and funded. This foundation provides the structure from which you will build.
In regards to wealth, I believe that it is not a one-time deal, that you just set up an account and don’t worry about it for another five years. In creating the type of wealth that you dream about, you will need to play an active role, leading your wealth forward over time. Creating wealth is a personal vision that you hold, and you need to be an active participant in achieving that vision.
Your vision of wealth can never mean any more to anyone than it does to you, so plan on being there and involved for the duration.
Here is your mantra for the week: “PAY MYSELF FIRST.” One year from now, you will be so glad you did.
About Loral
Loral Langemeier, founder of Live Out Loud, is the best-selling author of, The Millionaire Maker: Act, Think, and Make Money the Way the Wealthy Do