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We are only two weeks into the new year, but I have already received quite a few e-mails regarding investments for 2009.
I have said before, and I remain, somewhat against putting much of a 403(b) account in fixed income. This is usually because your Georgia TRS account is essentially your fixed income investment, so putting more into fixed income assets is somewhat redundant... but this year could be the exception.
After the credit markets were essentially beaten down in 2008, bonds of very high quality companies (usually called investment grade bonds) were sold down quite heavily and are still selling at a discount. If we are to believe that the U.S. economy will recover, and it will, then these bonds could enjoy some price recovery back to par along with the yield.
And that means??? Essentially, if in your 403(b) options there is an investment grade bond fund (for example - AIG/VALIC has the Vanguard Investment Grade Bond Fund), you should look to allocate some part (probably no more than 10-15%) of your account to this investment.
On the other hand, do not look at last year's return to just make your choices. Last year was a great year for government bonds, but this year could end up being a bad one for government bonds because they already are so highly priced which is only compounded by a very low yield. If you just feel like you have to buy them, do very little or just hold cash instead.
Additionally, while we do not see any inflation right now, all of the money that is being poured into the economy by the government will eventually lead to inflation. It could also be a good time to dabble in inflation protected bonds. I would not go heavy into any allocation here though either (5-10% max). In the world of finance, these types of bonds are usually called "TIPS" (Treasury Inflation Protected Securities).
As for the rest of the account, you really need to continue to research the funds that you have available. A good diversification model that would now include the investment grade and inflation protected bond funds would be excellent. Remember that if you only look at last year, you will be missing the point. Look at good and bad years, look at changes in the managers, etc.
Someone e-mailed me the other day and asked why invest until the market gets better. Simply put, you cannot time the market. The best scenario is to diversify your investments.
In 2002, the the S&P 500 lost 23.37%. At the beginning of 2003, the market continued to trend lower, and a funny thing happened, it turned around. By the end of the year, the S&P 500 had gained 26.39%.
I am not saying that 2009 will be a spectacular year and everything will be rosy, but if do your research and diversify your investments, you will at least be giving yourself a chance to participate.
As always, if you have any questions, feel free to e-mail me.
Today I would like to ask my readers and visitors to the blog's site for their financial questions and resolutions for 2009. Whether it is controlling/paying down debt, contributing more to your retirement account(s), or just learning about your financial well-being. Whatever you want, just e-mail me at rschultz@rollinsfinancial.com. I ask my clients too, and it is always interesting to hear some of the responses.
"Chance Favors Only the Prepared Mind"
I have been doing this little blog for educators for about the last 7 months, and I can honestly say that I never expected to get the number of visitors to the blog or some of the questions and responses that I have received. It is somewhat gratifying, but at the same time, it is somewhat troubling.
On one hand, it is gratifying because I am happy to know that I have helped some individuals. Whether it has been to answer a question or just reassure them that the world is not ending, I have found some joy in being able to help.
On the other hand, I am troubled because I believe that there are a number of educators that have not really understood the place where we are right now. They sometimes rush to make decisions rather than looking to history and seeing anything beyond right now.
I have seen many queries from people that have come to this site, and they have asked "How do I cash out my 403(b)?" or something similar. When I have been able to talk with these individuals, I have tried to preach the long term outlook along with the fact that keeping your retirement in a retirement account will save you untold tax problems. Sometimes this opened eyes and other times, it fell on deaf ears.
I am not trying to say by any stretch of the imagination that there is any one person that is the "know all be all person" of financial matters (the Madoff scandal opened a ton of eyes to that realization), but I do hope that everyone does find some person or group to help them with financial questions.
I will give one quick example, and then I will let everyone get back to their daily lives...
Some months ago I had an individual send me an e-mail wondering about taking a lump sum distribution or taking their pension (a spouse of an educator). The lump sum distribution being offered was roughly $100,000 versus the pension of roughly $8,000 a year. The person wanted to take the lump sum distribution to pay off their entire debt (a $5,000 auto loan was all) and then invest the rest.
I explained that the best answer would be to take the guaranteed pension, and then use the payments to pay down the debt. They could not understand the difference between the two, so I tried to explain it the best way I could.
If you take the lump sum, you have this amount of money forever, and there will not be any additional money. If you take the pension, you are guaranteed $8,000 a year for the rest of your life - which is approximately 30 years - so you would get $240,000 guaranteed. After they looked at everything, they finally agreed the pension was the best way to go.
The only thought they had was dealing with the car debt. They wanted to make one decision to pay off a high interest loan (a very good idea), and couple it with a very bad decision to take a lump sum distribution thereby causing an issue 5, 10, 15, or 20 years down the road.
Personally, I have been known to try to think things through too much, but I would rather be slow and deliberate with financial decisions. I know a hasty decision can sometimes cause you great angst later if not thought through initially.
My wish to all of you this year is to be patient and make thoughtful decisions - financially and otherwise. They will not all be right, but if you have done your research, you are much more prepared to succeed.
As the great scientist Louis Pasteur once said, "Chance favors only the prepared mind."
On Friday, December 26, 2008, the infamous Ben Stein wrote an op-ed column for the New York Times. It started with comments about the Madoff scandal, but even better is the ending. I wanted to share it with you because it hits on something all of us should think about...
They Told Me That Madoff Never Lost Money
By Ben Stein
Published: December 26, 2008
ABOUT two years ago, a little delegation from a major investment bank arrived at my home in Beverly Hills. These nice young people were from the bank’s “wealth management division.” I told them straight away that I didn’t have anywhere near enough wealth to make their trip worth their time, but they smilingly insisted that we could help each other.
They told me that if I invested a certain sum with them, they would make sure that a large chunk of it was managed by a money manager of stupendous acumen. This genius, so they said, never lost money. He did better in up markets than in down markets, but even in down markets he did well. They said he used a strategy of buying stocks and hedging with options.
I protested that a perfect hedge would not allow making any money, because money made on the one side would be lost on the other. They assured me that this genius had found a way to spot market inefficiencies and, indeed, to make money off a perfect hedge.
I thanked them for their time and promptly looked up Bernard Madoff online. Nothing I saw was even a bit convincing that he had made a breakthrough in financial theory. Besides, this large financial firm was going to charge me roughly 2 percent to put my money with Mr. Madoff’s firm. I could invest my few shekels with Warren Buffett for no management fee at all.
I checked with my investment gurus, Phil DeMuth, Raymond J. Lucia and Kevin Hanley. None of us could see how Mr. Madoff could do what his friends said he could do. I politely passed and went on my way, finding my own inventive ways to lose money on a colossal scale during these last 15 months.
My point is not that I was so smart. I am not and I was not. Mistakes are a big part of my life. My point is that, as humans, we seem unable to learn from our mistakes very well.
I have never heard of an entity that could make money in all kinds of markets consistently, year in and year out. Yet we continue to believe that there will be one. It is, like much else in finance, a myth that will not die. I have never heard of a financial manager who promised to be able to defeat the markets anytime he chose and who, in fact, was able to do so. Even Mr. Buffett says repeatedly that he will have losing years and losing stretches of years. (Wow, is he right this year.)
By the same token, I belong to a number of country and town clubs. In all of my years at them, I have never gotten an investing tip that made money. In fact, as far as I can recall, I have never gotten a tip from any source that made me money, except for my former agent’s wife mentioning Berkshire Hathaway, Mr. Buffett’s company, 30 years ago.
The same goes on a much larger scale for the debacle of subprime mortgages. In essence, it is a much larger version of the Drexel Burnham Lambert junk-bond debacle of the 1980s. Back then, investors were charmed by the idea that the lower-ranked the bond, the more money it would make. It seemed like a great idea: there’s this little corner of the market that the big boys turn up their noses at. But in this little corner, huge money is made. It’s almost like the myth that you get great bargains in poor parts of town.
In fact, the Drexel episode should have taught us to be wary, indeed, of poorly rated debt. But it didn’t. The new version of the myth was so alluring that it drew in not just billions of dollars from lenders and mortgage bond buyers, but much more in derivatives linked to the myth.
Then there was the myth of the hedge funds. One great advantage of being 64 is that I can remember the early hedge funds of the 1960s. They, too, were supposed to turn water into wine, but they fell hard in the stock market meltdown that also laid low the Nifty Fifty — another 1960’s idea that 50 carefully selected stocks could long beat the indexes.
I can still recall visiting an early hedge fund pioneer. He had a small stereo playing rock music in his office as he tried to make millions. That’s how cool he was. I don’t know where he is now and I don’t want to know.
AND there are many other myths I could talk about, myths that we believed in and that tricked us and hurt us. But I will tell you about the main myth that’s hurting investors right now. It is well expressed by my hero, Bob Dylan, who warns against being “ nothing more than something they invest in” in the immortal song, “It’s Alright Ma (I’m Only Bleeding).”
(The important information is below...)
We are more than our investments. We are more than the year-to-year or day-by-day changes in our net worth. We are what we do for charity. We are how we treat our family and friends. We are how we treat our dogs and cats. We are what we do for our community and our nation. If you had $100 million or $100,000 a year ago and now you have a lot less, you are still the same person. You are not a balance sheet, at least not one denominated in money, as was explained to me recently.
Losing and making money are not moral issues so long as you are being honest. You may have a lot less money as this year ends than you did two years ago. But you are just as good or bad a person as you were then. It is a myth that money determines who you are, and if you have gotten over that myth by now, then 2008 will have been a very good year.
Ben Stein is a lawyer, writer, actor and economist.
Source: New York Times
Happy New Year!!!
Note: This was to have posted on New Year's Day. I cannot figure out why it did not, but it is now posted. On Sunday, there will be another new post... hopefully.
On this first day of 2009, I wanted to find something completely "unfinancial" to share with everyone. We all need to take a step back every now and then and look at other things. Now, over the weekend, I will share a brillant article with you, but for today, I wish all of you a very Prosperous, Healthy, and Happy New Year!
As we all marvelled at The Ball last night, I wanted to give you some background on the "New" Times Square New Year's Eve Ball. I hope you enjoy it.
Each year, millions of eyes from all over the world are focused on the sparkling Waterford Crystal Times Square New Year's Eve Ball. At 11:59 p.m., the Ball begins its descent as millions of voices unite to count down the final seconds of the year, and celebrate the beginning of a new year full of hopes, challenges, changes and dreams.
On November 11th, 2008, The co-organizers of New Year’s Eve in Times Square (Times Square Alliance, Countdown Entertainment) unveiled a new Times Square New Year’s Eve Ball at a press conference at Hudson Scenic Studio in Yonkers, New York.
The new Times Square New Year’s Eve Ball is a 12 foot geodesic sphere, double the size of previous Balls, and weighs 11,875 pounds. Covered in 2,668 Waterford Crystals and powered by 32,256 Philips Luxeon Rebel LEDS, the new Ball is capable of creating a palette of more than 16 million vibrant colors and billions of patterns producing a spectacular kaleidoscope effect atop One Times Square.
“For one hundred years, the Times Square New Year’s Eve Ball has attracted millions of revelers to Times Square on December 31st to celebrate the beginning of the New Year” said Jeff Straus, president of Countdown Entertainment and co-organizer of Times Square New Year’s Eve. “The new Times Square New Year’s Eve Ball will be a bright sparkling jewel atop One Times Square entertaining New Yorkers and tourists from around the world not only on December 31, but throughout the year.”
“The New Year’s Eve ball is bigger, better and brighter than ever, just like Times Square itself,” said Times Square Alliance President Tim Tompkins. “And like Times Square, it’s not afraid to show off. That’s why we’re proudly putting it on display year-round so visitors to the neighborhood can enjoy a true Crossroads of the World icon.”
History of the Times Square New Year's Eve Ball
Revelers began celebrating New Year's Eve in Times Square as early as 1904, but it was in 1907 that the New Year's Eve Ball made its maiden descent from the flagpole atop One Times Square.
The first New Year's Eve Ball, made of iron and wood and adorned with one hundred 25-watt light bulbs, was 5 feet in diameter and weighed 700 pounds. It was built by a young immigrant metalworker named Jacob Starr, and for most of the twentieth century the company he founded, sign maker Artkraft Strauss, was responsible for lowering the ball.
As part of the 1907-1908 festivities, waiters in the fabled "lobster palaces" and other deluxe eateries in hotels surrounding Times Square were supplied with battery-powered top hats emblazoned with the numbers "1908" fashioned of tiny light bulbs. At the stroke of midnight, they all "flipped their lids" and the year on their foreheads lit up in conjunction with the numbers "1908" on the parapet of the Times Tower lighting up to signal the arrival of the new year.
The Ball has been lowered every year since 1907, with the exceptions of 1942 and 1943, when the ceremony was suspended due to the wartime "dimout" of lights in New York City. Nevertheless, the crowds still gathered in Times Square in those years and greeted the New Year with a minute of silence followed by the ringing of chimes from sound trucks parked at the base of the tower - a harkening-back to the earlier celebrations at Trinity Church, where crowds would gather to "ring out the old, ring in the new."
In 1920, a 400 pound ball made entirely of wrought iron replaced the original. In 1955, the iron ball was replaced with an aluminum ball weighing a mere 200 pounds. This aluminum Ball remained unchanged until the 1980s, when red light bulbs and the addition of a green stem converted the Ball into an apple for the "I Love New York" marketing campaign from 1981 until 1988. After seven years, the traditional glowing white Ball with white light bulbs and without the green stem returned to brightly light the sky above Times Square. In 1995, the Ball was upgraded with aluminum skin, rhinestones, strobes, and computer controls, but the aluminum ball was lowered for the last time in 1998.
For Times Square 2000, the millennium celebration at the Crossroads of the World, the New Year's Eve Ball was completely redesigned by Waterford Crystal. The new crystal Ball combined the latest in technology with the most traditional of materials, reminding us of our past as we gazed into the future and the beginning of a new millenium.
The New 2009 Times Square New Year's Eve Ball
WATERFORD CRYSTAL created an exclusive “Let There Be Joy” design for the crystal triangles on the new Ball. Designed and crafted by Waterford artisans in Ireland, “Let There Be Joy” features the design of an angel with arms uplifted welcoming the New Year on each of the 1,728 new crystals. The remaining 960 triangles are last year’s “Let There Be Light” design of a stylized radiating starburst.
"The new 2009 Times Square New Year's Ball represents the perfect blend of time-honored craftsmanship and state of the art technology," says Pete Cheyney, Director of Corporate Communications for Waterford Crystal. "The theme for the Waterford crystals on this year's Ball, "Let There be Joy" reflects our belief that New Year's Eve is a time when happiness and optimism for the future should be at the forefront of everyone's thoughts. We at Waterford consider the Ball to be of our Company's greatest achievements."
PHILIPS LIGHTING provided the new solid state lighting technology for the Ball, resulting in an astounding increase in impact, energy efficiency, and color capabilities. Capable of creating a palette of more than 16 million colors and billions of possible patterns, the 32,256 Philips Luxeon LEDs in this year's Ball represent more than three times the number of LEDS used last year, to deliver a brighter and more beautiful New Year's experience than ever before. And this year’s Ball is 10-20% more energy efficient than last year’s already energy-efficient Ball, consuming only the same amount of energy per hour as it would take to operate two traditional home ovens.
"At Philips Lighting, we are proud to be driving innovative and energy-efficient solutions for the world's broad range of lighting applications - from celebrated landmarks to consumers' homes -- and we're especially delighted to be the official Lighting Partner to the iconic New Year's Eve Ball in Times Square," said Philips Lighting Company Director of Corporate Communications Susan Bloom. "Now bigger in size and incorporating even more powerful and energy-efficient Philips Luxeon LEDs than last year, this year's Ball will deliver a New Year's Eve experience that will be brighter, more beautiful, and more sustainable than ever before."
FOCUS LIGHTING created a spectacular and unique lighting design that utilizes over 3,500 lighting cues to orchestrate the colorful moving patterns of light radiating from the Ball. Theatrical techniques were used to show the beauty of each facet of each individual crystal, making the sparkle visible whether viewed from 5’ away (as members of the press have seen it) or from 500’ when viewed from the streets of Times Square. It is like accenting a performer on a stage.
“We tried to create a beacon of light in the sky over Times Square,” says Paul Gregory, Principal Lighting Designer for Focus Lighting.
The companies listed below also provided essential contributions to the development of the new Times Square New Year’s Eve Ball:
E:Cue Lighting Control provided lighting control system
Hudson Scenic Studio provided structural engineering design and development
Landmark Signs assembles and operates the Ball
Lapp Group provided power and control cabling
Lighting Science Group provided the 672 LED modules and technology integration
About "Time-Balls"
The actual notion of a ball "dropping" to signal the passage of time dates back long before New Year's Eve was ever celebrated in Times Square. The first "time-ball" was installed atop England's Royal Observatory at Greenwich in 1833. This ball would drop at one o'clock every afternoon, allowing the captains of nearby ships to precisely set their chronometers (a vital navigational instrument).
Around 150 public time-balls are believed to have been installed around the world after the success at Greenwich, though few survive and still work. The tradition is carried on today in places like the United States Naval Observatory in Washington, DC, where a time-ball descends from a flagpole at noon each day - and of course, once a year in Times Square, where it marks the stroke of midnight not for a few ships' captains, but for over one billion people watching worldwide.
Source: Times Square Alliance
