Lessons from a Fleabag Hotel. Fight the Yellow Sticky.

Richard Rosso:

We all have a place where stains originate. Time fades the imprints others leave, but the stain remains.

Originally posted on Random Thoughts of a Money Muse:

The smell of urine, semen and god knows what else (like there’s anything worse) filled my nose 3 stations before the train stopped at ground zero.

I could taste sour things way before.  The foulness overtook me. Absorbed in my clothes. I was paranoid about an air-born disease festerering in my liver.

The hollow of a play land called Coney Island-long deteriorated, burned out, rusted, ignored, graffiti ridden, was home to the Terminal Hotel.

Coney Island. Also home to the background for apocalyptic movies.

Only “The Warriors,” are not afraid of hanging around Coney Island.

The Terminal – It thrived, heaved in and out like an Amityville horror house but not as pretty. It was an evil presence that swallowed you whole. A landmark, a beacon, to the hopeless built right across from the elevated train line. There were no ghosts. Ghosts were too smart to linger.

The scary residents long or short…

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When Organs Go Wrong – 5 Ways to Get Them Right Again.

Originally posted on Random Thoughts of a Money Muse:

I stare at red life fluid in the toilet these days. Not a comforting condition.

The act of urination is a vice grip on what remains of a right kidney.

As I contemplate how I got here – One day you’re healthy, the next you’re compromised,  I begin to understand how the deepest fears, sorrows, insecurities can manifest themselves until a part inside your body breaks. An organ goes wrong.

I hold a new respect for the power of the mind to target internals for disposal.

For me  the mental triggers were (are) a relentless former employer attempting to break me financially, a broken friendship, and a breaking new business venture all hitting at once.

Lots of breaking. Broken.

An e-mail arrived.

In the early morning. The day of my surgery.

The Metaphysical Functionality of the Kidneys.

How timely.

Several eye-openers for me. Was it a coincidence that I received…

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Five Financial Sanctuaries that Place your Retirement in Jeopardy.

Featured

Originally appeared in MarketWatch’s Retirement Weekly.

In the AMC smash-hit television drama “The Walking Dead,” a group of road-hardened survivors of a zombie apocalypse seek protection from the undead (and the living who pose greater dangers than cannibalistic walking corpses.)

The fifth-season opener finds the weary characters fighting for their lives against a community of cannibals who lured them to a so-called safe zone called “Terminus.”

terminus

Handwritten signs and maps along roads and rails of rural Georgia guided the crew to a final destination, sanctuary was promised for all who arrived.

Sanctuary

On the surface, it appeared to be a dream come true. Warm smiles, comforting words, hot food.

Underneath, Terminus was nothing as promised or perceived. Victims were lured in to be placed in rail cars like cattle and eventually slaughtered.

rail car

As there is a fine line between fact and fiction, this harrowing situation got me thinking about portfolios in retirement.

 Stay with me.

Think sanctuary and think safety. A false tranquility can disarm and open the gates to great risks without your awareness. What lurks underneath your financial safe havens may eventually place your money and retirement lifestyle in jeopardy.

When making financial decisions and monitoring progress based on those decisions, you need to accept when the environment changes; make a move when safe havens turn to Terminus.

Here are five financial sanctuaries that can place a secure retirement at risk right now.

 Random Thoughts:

1). Stocks. Market sanctuaries can turn unrecognizable and hostile very fast. As the stock market reaches new highs there’s an ominous feeling of complacency among investors. It’s been over three years since the S&P 500 hit an official correction or greater than a 10% drop from a previous closing high.

Consider October’s volatility a wake-up call as early in the month, the S&P 500 was rapidly moving into correction, small-company stocks and international stocks were officially there and bond yields moved lower (100% of economists predicted that bond yields would be higher by fourth quarter 2014). October concluded much different than it started – with domestic markets headed to new highs.

Underneath the surface of stocks it looks nothing like a sanctuary – Large and mega-cap indexes have outperformed, a sign of a late-stage bull market phase, small-company stocks are recovering but underperforming, which points to risk abatement. It shouldn’t be ignored how cyclical stocks like energy, or those considered beneficiaries of economic expansion, are lagging defensive stocks (think utilities, consumer staples), currently. The outperformance in defensive sectors is usually indicative of market tops and economic peaks.

The Federal Reserve’s conclusion of quantitative easing  (bond purchase) program in October signifies a reduction of central bank liquidity that can increase volatility as investors and traders seek to figure out what the next tailwind for stocks is going to be.

The S&P 500 is 24.5% above its three-year moving average (36 months) -one of the widest dispersions from the moving average since fourth quarter 2007. Like a rubber band, over time market returns will stretch far above and below long-term moving averages. Although it’s impossible to know when the band will snap back to the moving average, historical downside going back to 2000 shows when the market does contract, the process is damaging. The worst contractions were 38% and 40% in 2002 and 2009, respectively.

Stocks are protection against inflation until they’re not and you’ve lost 5 years making back what you lost and inflation becomes the least of your problems. By then, you’ll feel trapped and look to re-pave the path of retirement. Whether it’s returning to work, reducing household expenses, cutting how much you withdraw from investment accounts – you’ll be prepared to do whatever’s necessary to preserve capital and slow the bleeding of investment assets.

Create an allocation to stocks that won’t cause you to panic when the bear market arrives (and it will). Don’t be overconfident. Remain vigilant and make sure to follow rules-based rebalancing where you trim gains on a periodic basis. The fourth quarter of the year is a good time to tax harvest – sell positions with capital losses in brokerage accounts to offset capital gains.

2). Index funds. It appears that index fund enthusiasts will stand strong and proudly absorb the blow as their stock sanctuary turns against them. Indexers believe that losses are temporary because in the long-term, stock markets always recover; paper losses aren’t real, they’re perceived as a bump along the path, par for the course. Like the befallen travelers who arrive at Terminus, they are not in touch with the reality of the situation they’re up against.

behead

A sequence of anemic returns or losses in the face of periodic withdrawals can dramatically decrease the longevity of a retirement portfolio. In other words, index funds are no protection against increased drawdown and market risks. At least fees make the losses less painful (or do they?).

The battle among “passive” indexers and “active” fund advocates is growing more heated as the fourth longest bull market in history continues.  I consider most of the discussion noise; the headlines are a distraction from the real perspective investors in retirement should maintain:

No matter what you hear out of most financial professionals, stock index funds are not passive. Every investment should be treated as active as soon as it is added to a portfolio.

Look beyond the attributes of stock index funds (and there are quite a few) like low fees, wide industry and company representation, tax efficiencies, and face the traps that will eventually put you in a position to fight or perish.

For example, index funds will experience the full brunt of a bear market attack (because generally they represent the market) which means you as the manager must decide the degree of loss you’re willing to accept. Staying invested is an action; reducing exposure to a losing index investment is an active decision. You are always in control, you always have a choice.

The preachers of passive seem willing to stand by and hope for the best. After all, you can’t control or predict the direction markets. That’s true. However, the amount of capital destruction you’re willing to absorb, is in your control. Consider the potential damage and recovery rate. Your back is against the wall. Are you ready to fight? If your portfolio suffers a 20% drawdown you’ll require 33.33% to break even.

Specific purchase and sell rules must be attached to each investment under consideration. Risk management never ensures against all portfolio losses, it minimizes the damage so you can come back and fight another day. It’s all about survival when it comes to the end of world (and your money).

Also, when you invest, depending on stock market valuations, is extremely relevant to future returns.

According to market historian and writer Doug Short, $1,000 invested at the peak of the market in the S&P 500 on March 24, 2000 would be worth $1,248 (adjusted for inflation) as of November 2, 2014, which equates to a 1.53% annualized real return.

Despite the mainstream marketing message (especially among indexers) designed to convince you that “time in the market” is a sanctuary, there have been many periods in history where you simply “ran out of time.” When adjusted for inflation, there are several 20-year periods in history where market returns have resulted in either low or negative outcomes.

Index funds have most likely outperformed your managed investments on the upside during this bull market; that doesn’t mean they’ll hold up better through market declines. And when you buy, based on market price/earnings, has a significant impact on future returns. At nearly 26 times earnings based on the cyclically-adjusted P/E ratio, “time in the market” may not be as beneficial over the next 20-years. It just may be a Terminus for your portfolio.

3). Retirement account withdrawals. The 4% withdrawal strategy is too generic to be effective yet it’s treated like a universal rule and preached in mass to new retirees seeking comfort after a long journey of employment. It’s as worn as the warped, wooden signs guiding The Walking Dead survivors to a place they perceive as refuge, but really is a trap.

Based on work by Sam Pittman Ph.D. and Rod Greenshields, CFA of Russell Investments, the first step to creating a retirement withdrawal that protects against longevity risk, is to calculate the ratio of current assets to the present value of forecasted retirement spending. This is called your current funded ratio. It’s a popular method pension administrators use to determine the fiscal health of their expected payouts for participants. Few advisers will consider this method and go straight to a withdrawal rate calculation that doesn’t account for an individual’s overall financial situation or household balance sheet.

The current-funded ratio method requires matching assets to liabilities to determine whether there’s adequate coverage over living expenses and inflation throughout retirement. A ratio of 100% or greater, especially during the first decade of retirement, is indicative of a greater chance of avoiding outliving a nest egg. If the present-value funded ratio is estimated to be less than 100% in ten years, adjustments to withdrawal rates or living expenses can be made before withdrawals occur. The ratio should be calculated every three years or after a sequence of below-average portfolio returns.

The strategy is called adaptive investing. Ask your financial partner about it to see if makes sense as part of your retirement planning process.

4). Company stock concentration at the beginning of retirement. Many retirees are hesitant to manage their net worth tied up in company stock, especially in the early years of retirement. Their human capital may have left the company and enjoyed the retirement party but the emotional attachment to the stock continues strong, and is possibly dangerous.

More than 25% of liquid net worth in company stock, leaves a retiree either “the butcher or the cattle,” a philosophy the tenured residents of Terminus believe. It’s a great tailwind to net worth and retiree psychology when an overconcentration to company stock is performing well hence the butcher. When the investment is performing poorly, a vulnerability to the retirement plan arises which becomes an emotional and financial drain to the retiree and others in the household.

A formal plan should include an exit strategy for company stock within 5 years of retirement. Work down to a 10% allocation which will satisfy your attachment need but won’t derail the early years of retirement. In addition, it can allow you greater diversification potential and liquidity to meet living expenses.

5). Your broker. Someone asked me once – “Are you a broker?” I replied – “No. I’m not here to break anything, I’m here to help.” Joking aside, you may be very comfortable with your current financial relationship; consider if you have an understanding of the motives behind your adviser’s employer. Perhaps you never gave it a thought.

 Ask this question: “What is your sales goal and how do I fit in?”

Yes, most in the financial services business are salespeople. Nothing wrong with it as long as your needs are met and full disclosures are made. However, maybe you’re looking for something more. I believe this question gets to the heart of a financial firm’s true motivation. Then ask: “How do you feel about your sales goals?” Are they perceived as fair by your financial partner? Ask another: “How much time will you spend with me, my planning needs and investment accounts?”

Get specifics. Ponder the answers, then consider: Are you a one-time sale or an ongoing relationship, or a bit of both?

In a recent podcast interview with self-help author and investor James Altucher, success coach Anthony Robbins shared candid insights from the experiences writing his new book, “MONEY Master the Game: 7 Simple Steps to Financial Freedom.” He explains how the financial system is designed to prosper the needs of shareholders, not investors.  My take: A key is to know what questions to ask and seek answers that are simple and transparent.

“There are 312 names for brokers, today,” Tony mentions. “I’m so supportive of people that are fiduciaries, people that are trained and who are legally required to look out for you. I’m looking for people who are fiduciaries and sophisticated.”

I believe disclosure of sales goals is important. Understanding if your adviser is a fiduciary and focuses on your interests first, or a broker that has his or her employer’s objectives as a primary focus, will help you find the right long-term partner or clarify a relationship you currently enjoy (or question).

The investing climate for retirees can be scarier than fleeing from flesh-eating zombies.

Even worse are times you believe you’re safe; conditions change, you fail to acknowledge the shifting environment or realize that a financial sanctuary has turned hostile.

 It’s always better to be the butcher than the cattle.

butcher or cattle

Perhaps that fiendish Terminus crew were on to something after all.

 

 

 

Are you WatFat? 5 Ways to Stop a Stuffed Wallet from Hurting (Financially & Physically).

“Put that thing away, you’re going to get us mugged, Anthony!”

If it was summer 1977 and sweltering, which means you could find Anthony and I burning hours navigating the trash, bums, and faded carnival infrastructures of Coney Island. And of course, the crinkle-cut fries at Nathan’s were a daily staple.

nathans

Anthony (he hated to be called Tony), always carried a wallet. I felt it strange for 13 year old chubby (deemed husky at the time) kids to carry wallets. I thought about it briefly but was happy to add money earned (paper route) to a dollar ball stuffed in the front pocket of my Levi’s.

Not that there was any cash in Anthony’s bulging backside pocket. His old man was going to trash this frayed leather black thing with the words “SWANK” stamped in gold letters on an inside fold, but instead tossed it to son for fun.

I don’t think Anthony Sr. knew what he started.

Not that there was cash in this wallet. It was loaded with baseball cards (I remember Rusty Staub in there), Wacky Package stickers (very popular at the time), and Partridge Family trading cards (embarrassing).

However, if you flashed a fat wallet in Coney Island you were screaming in public – “Rob me!”

capn crud  My favorite “Wacky Package” Sticker.

Somewhere along the way I channeled Anthony. It happened.

I admit: I was WatFat.

fat wallet

I suffered from the debilitating financial and physical effects of a bulgy, unsightly (fat) wallet.

It wasn’t just cash – although I am guilty of trashing ten bucks along with a bunch of ancient wallet-flap papers.

An endless explosion of receipts, photos, business cards, wrinkled cash.  It was too much.

And women? You suffer too. I’ve seen wallets extracted from purses that revival the weight of bricks.

If your wallet is unorganized, how is your money doing? Think about it.

Lighter wallet, lighter financial burden?

Random thoughts:

1). Take inventory now. Break out wallet contents; take inventory of your spending habits. Wallets bulging with store receipts, holding more than 2 credit cards, overflowing with retail reward punch cards that frequent purchases, have little cash, can be WatFat warning signs of excessive credit usage and overspending. Do a dive into the deep pockets of your debts. Add up recurring monthly debt including mortgage (principal, interest, insurance, taxes) and auto loan payments. Total gross monthly income. Calculate your household debt-to-income ratio using Bankrate’s online calculator. A ratio below 36 is considered favorable by lenders. I say it’s still too high. Work at a ratio closer to 25% which means a greater discipline to slim down spending and expenses.

2). Lighten the load. Carry less, spend less. First, ditch the empty wallet. It’s stressed and worn from carrying so much – like its owner, perhaps. Reduce WatFat with a light replacement. My favorite website for slim wallets is www.bellroy.com. Second, carry your best reward point credit card and a debit card. That’s it. With credit centralized to one card, you’ll gain discovery over spending weaknesses as you review the December credit card statement which aggregates and categorizes expenditures. Last, take the statement to an objective financial partner who can help you pinpoint areas for improvement.

3). Don’t fight the sleek. So, what should you carry? A form of identification like a driver’s license and medical insurance card. No receipts – most retailers will offer e-mail receipts; create a folder in your inbox. Still carry photos? Why? You have a smartphone for that. Cash can be neatly folded in a slim wallet. Do we even need to discuss coins? No we don’t. Carry coins in your pocket. At the end of each day, place them in a coin jar. Laughing at the coin jar? Read this – The Power of the Lowly Coin Jar. My coin jar is a 2 foot-tall 1966 plastic Batman bank. Make it fun.

4). Slim wallet, slimmer medical bills. Piriformis Syndrome or “Fat Wallet Syndrome” is the irritation of a strap-like muscle in the buttocks that may be occur when a person sits with a bulging wallet in a rear pocket for prolonged periods. Literally, it’s a pain or numbness in the butt or hip that requires medical attention. Treating my posterior like a file cabinet is not worth increased medical bills. What do you think?

5). Less wallet, better moods. People with a streamlined portable money system appear to have lighter attitudes and feel greater control over money. Through the years I’ve conducted joint “wallet-ectomies” with others who reported back an overwhelming feeling of relief. Spending had been examined, reduced and monitored successfully just from a reduction in wallet size.

Individuals tend to be less stressed by reducing clutter in their wallets and purses. Perhaps, it’s a small step to greater financial improvement and organization.

So, it’s ok to give in and confess to WatFat.

I’ve been there. The weight has obliterated many back pockets.

Fight WatFat and succeed.

Realize your household cash flow may increase in size.

And that’s weight you’ll be thankful for.

FYI – Anthony and I did get mugged. Thugs (grasping stiletto knives with growling orange tigers printed on the handles) near Spook-A-Rama horror attraction, snatched his wallet and demanded my cash ball. Guess I was stupid and revealed too much.

Shaken, we walked it off. Cops wouldn’t do anything. Flash a wallet, pay the consequences.

Eventually we found it:  Underneath the Coney Island beach boardwalk.

Tossed among the rocks, ripped apart, a gusset assault.

We accounted for almost everything.

The crooks took nothing although the Topps’ Keith Partridge trading card was missing.

Perhaps the waves took it.

Or criminals had a soft spot for David Cassidy.

It was too much to ponder for a 95 degree day.

Anthony was done with the wallet. Never looked back.

Cured of WatFat.

I bet he’s a fan of money clips now.

 

 

 

 

 

 

 

What Are Your Shackles? Understand the Ties that Bind.

Originally posted on Random Thoughts of a Money Muse:

1974: Coney Island Hospital, Brooklyn New York. 1AM.

Your father wants to see you, he’s really hurting,” the man in the white coat said.

“He’s not my father. He tried to kill me tonight.”

“Now, there’s no reason to be ashamed, he has a problem.”

“Yes, he’s an addict who has bad aim with big kitchen knives.” Bob just missed my sleeping face and there was a pillow at home with a chef’s knife still sticking out of it to prove it.  I craved to stick it in a doctor that night.

“Your mother even says you’re the son.”

“My mother is nuts, too.”

I never witnessed anyone in real life in a straitjacket before. I didn’t believe there were such things as real padded rooms either, except for what I saw on on Looney Tunes cartoons. I loved what happened on my tiny black and white TV screen because it…

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7 Smart Money Habits For College Freshmen.

Featured

As featured in Nerdwallet & CS Monitor.

There’s a lot of financial temptation surrounding college students: credit card offers, the availability of student loans, the excitement of being on your own and in control of your spending money.

college freshmen

Freshman year can be a whirlwind of activity. But make some time for one more lesson: Form smart money habits. If you give it a little thought now, you can jumpstart a successful long-term relationship with money—and not end up crushed under a mountain of student loan or credit card debt.

The positive habits you set this year will remain with you long after you’ve earned your cap and gown. I’ve coached many students on how to be savvy with their money and maximize the financial potential of the college years. Here are seven of the most successful ideas.

Random Thoughts:

1. Assume one year’s worth of student loan debt and no more. No matter what.

The average student loan is now $33,000, which makes the class of 2014 the most indebted class in history. Do what you can to stick to one year’s worth of debt, even if it means attending a community college first or working for two years before beginning classes.

It’s radical thinking for some; you may believe this suggestion too austere. But the last thing you want is to be saddled with heavy debt burdens. The college graduate unemployment rate is currently 8.5% and the underemployment rate (new grads who are jobless, hunting for employment or working part-time) stands at 16.8%, according to a report from the Economic Policy Institute.

2. Begin a social media strategy.

And I don’t mean Instagram. Using a social media outlet such as LinkedIn, where you can connect to thought leaders, managers and prospective employers, can pay off down the road when you’re job hunting. Post articles daily—three sentences of poignant commentary reflecting your thoughts and a passion to share knowledge. Set a goal of acquiring 600 LinkedIn contacts by the time you graduate.

Drunk on toilet Not a good pic for social media.

Also use your first year as an opportunity to “clean up” personal social media accounts like Facebook, which is increasingly under scrutiny by human resources departments.

3. Watch your credit.

Take out no more than one credit card to obtain and strengthen a credit score. When I was in college, credit card providers were everywhere. I signed up for two cards and needed to work a couple of jobs to pay off the debt. Don’t do it. Based on recent legislation, credit card vendors are no longer omnipresent on campuses.

There are many attractive cards available to college students. Most likely, you’ll need a co-signer, as you won’t have full-time income. There should be a limit placed on the card, anywhere from a $500 to $1,000 maximum. The lender will most likely place strict limits on your available credit without you asking for it, but inquire anyway.

4. Consider a Roth IRA.

Believe it or not, it’s not too early to begin saving for retirement; think of all the time you have to benefit from investment appreciation. It’s OK to start small; remember, you’re trying to create a lifelong savings habit. Earnings from a part-time job are perfect for funding a Roth IRA.

For 2014, the contribution limit is $5,500, and at retirement, the money is available tax-free. Also, contributions (which are made with after-tax dollars) can be withdrawn at any time before retirement, without penalty.

5. Don’t get carried away with school spirit.

In college, I needed to own every T-shirt, sweatshirt, pen, mug—you name it, all emblazoned with the school logo. I spent hundreds of dollars on stuff I didn’t need due to my out-of-control school spirit. Limit your enthusiasm to two wearable items a year.

6. Begin a budgeting behavior.

Heck, not even an actual budget; I know how busy you’re going to be. A budget mindset is enough. Be aware of your spending habits. Understand once you run out of cash, you’re out. Do not go to the credit card for relief.

And keep a conversation going with your folks. The most successful students have parents who jointly review spending with their kids on a monthly basis. It takes less than 10 minutes to discover the expenditures with the greatest impact on cash flow.

7. Study one money tip each day or week.

It’s not that difficult. Pick any financial topic. Read one article in the business section of a local newspaper daily before you hit the books. One graduate I know read about one basic investing topic weekly at www.investor.gov. She developed a great intuitive sense about stocks, bonds, money markets—enough to ask smart questions that allowed her to maximize her 401(k) savings when she landed a job.

There’s a lot to learn as a freshman; enjoying your college experience to the fullest is important.

Just keep your money in mind, and think about how the actions you take today can either set you on the path to financial success or leave you lost in the woods.

The Colors, The Times, of Your Life – Will You Remember?

Originally posted on Random Thoughts of a Money Muse:

We were free. Moving quick in a white hot breeze. 1977. When the world flew by in lime green.

Slit through a black bowel of public housing. Deep in the middle of the aged carnival colors of blueviolet, aquamarine and bisque. Coney Island. A narrow way forged between the metropolis, slick brown with rot. The summer New York heat penetrated, bounced from dead, white alley cats forming a yellow haze floating neon pungent sluggish slow in still heat. Bright orange, with a burst of unhealthy steel-gray around the edges, like a healthy pink hue that hesitantly abandoned its soul, was there too. Cats and garbage rotted just that way in July. In 1977. In Coney Island. I remember.

The odor scorched the outer part of our pink nostrils until they flared red. But we didn’t care because this moment was designed to be fleeting. The clear blue of escape from…

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