UNDERSTANDING INVESTMENT RISK; THERE IS NO SUCH THING AS A FREE LUNCH

Investment risk can be defined as the potential that actual returns will differ from those expected. Generally speaking, the greater the variation in potential gains or losses, the greater the investment risk. Therefore, low-risk investments, such as savings and money market deposit accounts, usually mean lower expected returns than high-risk investments such as commodities and financial futures.

It is important that investors understand that the risk associated with any investment is directly related to its expected return and its expected holding period. Investors should also understand the relationship between the return they can expect on an investment and the amount of risk that they must take to earn that return. In general, investors seeking higher returns must be prepared to assume higher risks or reduced liquidity. Failure to understand this risk-return tradeoff is the primary reason many investors choose the wrong investments and face catastrophic results.

A fundamental principle of investing is that most things come at an opportunity cost. If the investor uses money or other resources in a particular way, those resources cannot be used for anything else at the same time. Every investment choice must be made at some cost. For example, if an investor uses available capital to purchase a mutual fund, that capital cannot be used at the same time to purchase commodities.

There are a number of risks that an individual must weigh when selecting an investment. The most important of these risks, that widen an investment's range of possible return, are:

• Purchasing power risk – Inflation, the general rise in prices over a period of time, tends to reduce purchasing power. As prices increase, the purchasing power of fixed amounts of principal declines. In other words, if investment doesn't grow faster than the rate of inflation, the investor is losing money. Therefore, investors must seek investments that produce a rate of return that compensates for lost purchasing power.
• Interest rate risk - These are often caused by a fluctuation in the supply of, or demand for, money. Interest rates seldom remain stationary for long periods. As they rise and fall, they affect the value of fixed value investments, such as bonds.
• Liquidity risk - Liquidity risk is the possibility that the seller will not find a ready, willing and able buyer for an asset. An individual's investment strategies should include an estimate of the time period over which the assets will be held.
• Market risk - Market risk, using the price of real estate, mutual funds and other investments, may fluctuate because of economic, social or political conditions. For example, investors who are interested in purchasing stocks in multinational corporations, such as IBM or Nestle, should carefully consider the political climate in various countries in which the corporations do business. An unstable government's civil war creates volatile investment environments.

Risk Management; How to Handle Risk?

Risk is unavoidable. By doing nothing, one has chosen a strategy; one that entails risk. By doing nothing (e.g., spending everything) opportunity cost risk is elevated. By failing to put money to work, the effects of inflation are increased. For example, if a dollar buys a certain amount of food today, but buys less 10 years from now, individuals have lost realpurchasing power if they don't act. Additionally, by spending everything, one is exposed to the risks of disability, death or excess longevity.

Just as there are many ways to define risk, there are many ways to deal effectively with

it. There are three basic methods for handling risk.

1. Avoid it. For the same reason some people don't play cards for money, others avoid various risks by choice. By choosing not to purchase stocks, the risk of losing capital if the price of stocks falls is eliminated. It is, however, impossible to avoid simultaneously all forms of risk.

2. Accept it. Before any investment is made, an individual can estimate what the risk might be in relation to the potential return.

3. Minimize it. Risk can be reduced or eliminated by transferring it to another party. Insurance, for example, is a business tool for handling risk by spreading it among a sufficiently large number of similar exposures to predict the individual chance of loss. Hedging, used by commodity futures traders, is an investment strategy to offset or minimize potential damage caused by adverse price changes. Another way to minimize or offset risk is diversification, which is the inclusion of a variety of investment products in one's portfolio.

Six Simple Tips to Develop a Savings Plan

Money is part of our everyday life. Money if used wise it becomes a great servant. However, when we allow poor money management to put a yoke on us and our family, we become the servant of money, and money is a terrible master.

One of the lessons we learned from the recent recession is that we cannot trust those in power to protect our investments and savings from the shaky hands of our politicians and the federal reserve. After being indoctrinated with the consumerism philosophy as the cure for all financial ailments learning to save money becomes a challenge for most families. It is important to know how to manage money efficiently to ensure healthy savings. It is the creation of a savings program that can help us sustain the stormy weathers that are ahead of us.

Before you start looking into an investment program, start by developing a savings program. Most of us have heard of saving money "for a rainy day", but many of us never quite get around to developing a personal savings plan. In our economic model where we focus on consumerism it can be difficult to make a savings plan a priority, but the longer we wait, the less opportunity we have to accumulate a healthy financial amount.


Here are six steps you need to develop a workable savings plan:

1. Determine a savings fund adequate to meet emergencies and achieve special goals. Develop your budget from the amount of savings you need to create a cushion your family needs for the rainy days and not from expenses you currently have. 
2. Add up your total income, including any funds you receive in addition to your earnings.
3. Figure out your total fixed expenses such as rent or mortgage, insurance premiums or car payments.
4. Estimate how much you need for day to day living expenses.  
5. Keep your savings funds separate from your operating funds.  This keeps the savings funds separate from the operating funds and you can see your savings account growing every month which provides motivation.
6. Make the savings systematic, for example you can establish a fixed amount every month  of $100 or you can establish a % of your gross salary.

Remember that you will grow richer each month as you pay yourself first. Good money management is more than financial formulas. It is controlled by the current events in our lives, so it needs to be modified as situations in our lives change. Do not be discouraged if initially your savings plan does not meet your goals. You may need to review your plan and identify the areas that need to be corrected, revise your plan and go at it again. This system works regardless of your job position and/or income level.

Measure twice, cut once

Today I want to talk to you about a wise old adage “Measure twice, cut once”, a lesson my father taught me when I was a boy. Even though it is used a lot in carpentry it has applications in different aspects of our lives, including in our businesses. The literal message means that we should double-check one's measurements for accuracy before cutting a piece of wood; otherwise it may require of us to cut again, wasting time and material. Figuratively it means that lack of planning can lead to mistakes.

In today's environment we want everything fast and accurate. People do not want to take time to plan. We want to shoot first and then we see where the bullet hits. We want to open the "business" before we develop the idea. We want someone to invest in our "business" before we have finished the concept. However, to reach your goals your decisions should be based on sound data. 

The four words of the carpenter’s adage “Measure twice. Cut once” expresses a universal truth about the importance of planning before reaching the point of no return. I wonder how many in the construction industry actually follow this advice. For example, now is the time to plan for your  2012 tax year and determining what can be done to minimize your tax liability. The time to evaluate  the legal and tax consequences of a transaction is before you take the action and not after. Many  times people try to save a few hundred dollars in planning to spend a few thousands in fixing the  mistake. They spend hours later trying to justify what they did and develop schemes to cover their blunders.

In difficult economic times, many are tempted to skip due diligence and take those second measurements
to save a few minutes and a few dollars. Many take their chances, If “the cut” is correct, there are savings. However, if the cut is wrong, the amount of the loss does not compare to the effort  and expense of making it right. In other words what is being done is gambling. The risk far exceeds the reward.

Remember, it’s faster to double-check than to make a mistake.

Investors Yank Another $5.68 Billion from U.S. Equity Funds

Outflows from U.S. equity funds show no signs of letting up, according to the latest statistics from the Investment Company Institute. For the week ended Aug. 1, investors pulled an estimated $5.68 billion from funds that invest long-term in U.S. equities, more than twice the $2.13 billion they withdrew the week before. Since the beginning of the year, U.S. stock funds have lost more than $64 billion in outflows.

Bond funds took in estimated inflows of $5.07 billion, down 12% from the $5.76 billion inflow a week earlier. Of the $5.07 billion, $3.94 billion went to taxable bond funds with the remaining $1.13 billion going to municipal bond funds.

Overall, mutual funds logged a lousy week, losing an estimated $1.19 billion in outflows, a sharp reversal from the previous week's $3.50 billion inflow.

The weekly fund flow estimates are derived from data covering more than 95% of industry assets, according to ICI.  The statistics cover long-term mutual funds, those the ICI defines as investing in long-term instruments.

Five Tips For Financial Freedom

1. Establish and Control Cash Flow
The building blocks of any financial plan are liquidity (or like my wife calls it “fluidity”) and expense management. People who spend more than their income will never achieve financial independence. Your best friend is your family budget, without it you will be spending blindly which will lead you into constant shortfalls and borrowing from your savings or credit cards to cover the “unexpected shortfall”.
2. Manage and Eliminate Debt
As part of the post-recession era, families should have as their primary goal to eliminate debt. As long as our families continue enslaved by debt, we are selling our children's future to the money changers.
3. Establish an Emergency Fund
Families should have at least a three month reserve of cash for emergencies. Once you have established your 3 months of reserve, you should work towards 6 to 9 months of reserves. Emergencies come in different ways from layoffs to natural disasters to illness or death of a family member. Having this emergency fund is critical to sustain those rocky moments. For this type of funds you should avoid Mutual funds, Money market accounts and CDs. Instead go for a savings account or even cash in a safe at home, remember the key is liquidity for this fund.
4. Protect Your Assets
Another aspect we fall short in the United States is inadequate protection for our assets should a wage earner die or become disabled. Tax  planning and using retirement and savings products that offer tax protection are key. Life insurance, retirement and saving vehicles should be carefully evaluated to financial hardship should a disability or death occur.  A family trust can save thousands of dollars in probate in the event of a death as well.
5. Grow Your Wealth
Even in a down market sound investments will still produce returns that grow and protect principle. Take advantage of investment plans from reputable companies with a history of success and expertise. Avoid uncertain and extremely speculative offers. As money grows, the potential for earnings increases exponentially.

Financial freedom does not come free, it requires strong management, planning and foresight. However, with proper planning and using these basic guidelines, your journey will be more enjoyable and will yield a brighter financial future tomorrow.

Reality Check: Most Americans Don’t Have a Retirement Plan

The population may be aging, but that hasn’t gotten a lot of Americans to plan for retirement. According to a survey released by ING Retirement Research Institute, 71% of Americans lack a formal investment plan to help them reach their retirement goals.

The study, conducted by the ING Retirement Research Institute, showed that nearly half (48%) of respondents aged 25 to 69 who are employed full-time and earn at least $40,000 a year don’t feel prepared for retirement. That’s despite the fact that 75% of that same group do contribute to their workplace’s retirement plan. The study also found that only 43% of those surveyed calculated how much money they will need to continue their current lifestyle once they retire. And only 28% are working with a financial professional to help meet objectives.

Debt Slavery

Debt Slavery is nothing new. Many historical books, including the bible, will talk about debt slavery or debt bondage. Debt slavery is defined as a situation when a person provides a loan to another and uses his or her labor or services to repay the debt. The problem with debt slavery is when the value of the work, as reasonably assessed, is not applied towards the liquidation of the debt, the situation becomes one of debt bondage.

According to the Anti-Slavery Society:

Pawnage or pawn slavery is a form of servitude akin to bonded labor under which the debtor provides another human being as security or collateral for the debt. Until the debt (including interest on it) is paid off, the creditor has the use of the labor of the pawn.

The United Nations has defined debt bondage as a “modern day slavery”. The focus of the UN and other governments is towards the abuses and atrocities committed against families in under and developing countries. However, today in the United States we have debt bondage. Many people do not agree with me, but the truth is that we do. In simple terms, debt is bad because it restricts your freedom. Debt is bad even if you’re borrowing to put yourself in a better position long term, because you’re still restricted by having that debt load hanging over you and your life. One of the most frequent exhortations from Scripture is the warning against debt can be found in Proverbs, the reader is warned that the "borrower is servant to the lender." And in Paul's letter to the church at Rome, he tells them flatly: "Owe no man anything." (Romans 13:8).

We can make an argument that leveraging the acquisition of a piece of land or real estate is a good use of debt. It is possibly true, if the repayment of that loan does not enslave you into the servitutde to the financial institutions for the rest of your lives.

Many families sell their souls to companies for a job which they, in reality detest, do perform just for the pay so they can stay afloat. This is the typical debt bondage we have in our society today even in most developed countries. Therefore, we become slaves to those who pay us to perform a specific task and most times against our values. Being in control of your spending and finances liberates you, in a nutshell, it is financial freedom.


What is financial freedom?
Many families work so hard and give so much of their lives to provide a better life to their families. They want financial freedom. However, what is financial freedom? It can simply be defined as “the freedom to make choices in your life without having to worry about the day to day financial implications”. You have the freedom to chose the place where to work, regardless of the pay. When you find a career that you’re passionate about, you’ll truly enjoy what you’re doing and the money will follow.

What can be done now?
The best thing that all families of WBN can do is to develop financial plans to liberate themselves from debt. Transform their focus to own and invest. Focus on a financial plan address your debt balance and focus on debt reduction and then towards financial freedom. Trust me that you will breath better after you become financially free.

Financial Intelligence

Naturally, most if not all of us want and crave for something better. It is all part of us, if we want a bigger car, a better house, buying good things for the family. We keep hoping for more but, in order to get what you don't have, you have got to do something you have never done before.

What makes a person wealthy is not real estate, mutual funds, and businesses. Not even money makes you wealthy. What makes you wealthy is "Financial Intelligence" (information, knowledge, wisdom and know-how). Money is the hands of an unwise person, just makes a fool with a lot of money and a great target for sharks, piranhas, and vultures to devour this fool. Let me give you an example, a new top of the line tennis racket, by itself, does not make you a better tennis player; what makes you a better tennis player is training, taking tennis lessons to develop knowledge of the game.

Wealth is developed with Financial Intelligence. Financial Intelligence consists of:

1. Increasing cash-inflows - increasing your income potential by creating more value on our products and services.
2. Reducing cash-outflows - creating a budget that will allow you to live well and still be able to direct funds to investments, charity, entertainment and education.
3. Protecting your wealth - developing plans that protects your estate from taxes, uncertain events, etc.
4. Leveraging your money - knowing how to maximize your return on your money. Benjamin Franklin once said "Money makes money and the money that money makes makes more money" Learn how to put your money to work harder instead of you.
5. Improving your financial knowledge - gain an understanding of the basics of finance to be able to make better financial decisions. Never allow your financial advisors to take control of your finances. Let me explain, going back to our tennis analogy the tennis coach will be there to provide you training, advice, helping you to increase your knowledge of the game, but they do not play the game for you.

In my opinion, one of the main causes for the recent recession is due to the fact that most people lacked financial intelligence. Most people were playing a game that they did not understand the rules of the game. People were unprepared and were slaughtered, they became easy targets for scammers who sold them these "financial products" that were bound to fail from the beginning. For that reason, we have prepared a short Ebook "Increase Your Financial IQ" with the goal of helping you increase your Financial Intelligence. As a subscriber of the Wealth Building Network we will make this ebook available at no cost to you.

Why Is Financial Planning Important?

Recently I was asked this question, Why is financial planning important?. I am of the opinion that financial planning is critical to achieve your financial success. However, with the increase of distress of many families in the United States many are going by without a financial plan and many even question the importance of having one.

It is understandable that if you are currently in financial distress you may not see the point of financial planning. You may be living paycheck-to-paycheck, thus why bother with financial planning. It is understandable and if you are doing so, you are making a huge mistake. Let me tell you why; It doesn’t matter if you’re well off or work for every cent; knowing the importance of financial planning is critical for your future. In fact, it’s never too early or too late to prepare for it.

The problem I see today with the attitudes of the families that have been affected by the recent recession is that by not developing a plan of action, how will you get out of the current situation? In essence, they have accepted the current situation (living paycheck-to-paycheck) as the "new normal". The "new normal" becomes their current reality and accepted as the truth. These families become comfortable with this "new normal" to the point that it is the only way to live. They do not see any other way, therefore when other people like myself approach them with the idea of financial planning they look at me like I am from another planet. "What do you mean "financial planning"? I can hardly pay for my rent".

Financial planning is not for the rich. Great wealth has been built one dollar at a time. All it takes is financial planning; a financial road-map to get you out of the current storm. The fact that you may currently be in a financial distress situation does not mean that you belong there. Furthermore, the fact that you may be in a financial distress situation today does not define you. Accept responsibility for your past actions that lead you to the current situation and develop a financial road-map towards financial success and freedom.

If you are currently in financial distress, let me offer you some tips that may help you:

1. Put together a budget, the method does not matter (use a pencil and paper, excel worksheet, Quicken, etc.)

2. Do not overlook your insurance coverage in these difficult moments. This is not the time to be driving without car insurance. However, do not fall prey to predators insurance coverage. Assess the risks that are truly needed to be covered to protect the financial future of your family.

3. Develop a plan to reduce/eliminate your debt. With a national average of 14.6% effective annual interest rate of this debt is too expensive to bring to our families.

4. Track your monthly expenses. This is where many families fail. Most of the times families develop budgets but they do not track the actual expenses. A budget without a monitoring system is not adequate. Compare your actual expenses to your budget to be able to make the necessary corrections.

5. Watch for the small expenses. This is where a lot of the damage happens. We notice the big ticket items. Big corporations have been bankrupted $5 at a time. It does not take long until those trips to your Java Shop for the super-duper high calorie with whip cream on top coffee for $5 will become a hole in your finances. You do not notice it on a daily basis. However, when you track it and realize that you spent $1,250 a year in those daily trips to your Java shop, you may get an upset stomach.

* Tip: Use the $100 monthly and apply towards a high interest debt. For example, if Mary is spending $100 per month in her daily Java trips and she has a credit card debt of $10,000 with interest rate of 12% and she is currently making monthly payments of $300, it will take her 14 years to payoff that balance and she will pay approximately $4,000 in interest. If she applies the $100 per month extra towards her credit card debt, she will payoff her credit card in 30 months and her interest payment will be decreased to approximately $1,400.

* Opportunity: Did you know that if were to invest the $100 per month in a mutual fund that gives a 8% annual return for 10 years you would accumulate approximately $19,400?

“Money makes money. And the money that money makes makes more money.”
- Benjamin Franklin

6. Create an emergency fund. The amount depends on each family situation. In todays environment you should strive to have 9 months of living expenses in reserve. These funds should not be in high risk/volatile investments, consider placing this funds in a money market account/savings where you have access to them. Remember the idea is to have liquidity in the event of an emergency.

Simple Steps in Planning for Your Retirement

Retirement planning is an important aspect of our lives. As good stewards and responsible members of a family we must include retirement within our overall family financial planning. If you are married, you naturally should do this planning together with your spouse.

One of the areas that needs to be address in any financial planning is the behavior of the family members towards money. This most be handled with care to avoid unnecessary conflicts. In the end the family goal should be towards the preservation of wealth and being good stewards of the wealth. After all, what is the point of saving and investing really hard if your partner is a secret spendthrift running up huge debts. Ultimately they’re going to drag your finances down to their level.

You need to sit down with your loved ones and talk about what you’d like retirement to hold. Perhaps your ideas about retirement differ. Your spouse may want nothing more than to give up work while you want to work until you drop because you just love it. Whatever the scenario may be, it helps talking things through.

Here’s an action plan for how to effectively join forces with your spouse to drive for that retiring wealthy finishing post:

ߜ Establish when you both want to stop work. One of you may be younger and therefore have longer to go to build up a full state pension entitlement. If there is an age gap, perhaps the older person in the marriage can carry on working for a little while to build up a big enough cash pot to allow the younger person to retire earlier than would otherwise be the case.

ߜ Decide between you how much you need. You need money to take care of life’s basics plus cover emergencies. You may have very different ideas of how much money you both need in old age.
* Warning: Don’t underestimate your financial needs. Certain outgoings cease after your retirement but you have more free time on your hands. Filling this costs money: You may want to travel several months of the year, take up golf, dine at fancy restaurants twice a month, serve on a ministry at church or planned giving to a special church project. A retirement spent watching television all day is no fun: Plan carefully so that you’ve got enough cash to enjoy yourself.

ߜ Examine how much you’re on course to receive. Do not wait until retirement to determine how much to expect over your retirement. This may not be a pleasant surprise. Now is the time to meet with your financial advisors to estimate your retirement funds and make the necessary corrections to meet your retirement goals.

ߜ Calculate how much you need to reach your joint goals. In order to buy retirement income for you both to live on – normally through an annuity – you need a big pot of cash.

* Tip: One way to protect your retirement savings and extend it through your expected life after retirement is through the purchase of an annuity. The concept behind an annuity is very simple. You hand over your savings to an insurance company and it pays you an income until your death. The amount of income you get depends on how much money you hand over and the annuity rate when you purchase the annuity.

ߜ Agree on what you’re willing to sacrifice to reach your dreams. It stands to reason that in order to build up a big enough cash pot to enjoy a comfortable retirement you have to save, invest, and work really hard. You can’t do any of this without making sacrifices whether that is curbing your spending, paying a portion of your income into a pension or simply setting time aside to monitor your savings and investments.

ߜ Determine what you want to leave behind for loved ones. If you have children it’s likely you’d like them to benefit financially on your death. If that’s the case you want to ensure you’ve enough money to take care of your combined needs in retirement and leave a tidy legacy for your children, perhaps taking out a life insurance policy to benefit them as well.

Gold is Not an Investment

Today let's talk about a subject that seems to be touchy to some people specially those that are "investing in gold". Gold is not an investment. Now before you close the window and start sending hate mail, I suggest that you read the rest of the post. The basis of my statement is founded on the definition of an investment. An "investment” is defined as the commitment of money or capital to purchase financial instruments or other assets in order to gain profitable returns in the form of interest, income or appreciation of the value of the investment. Through this transfer of capital, in the expectation of a profit, an investor gives up capital and puts it at risk. The investor receives a return in dividends or interest as compensation because capital is at risk; investors may get back less than they invested, or they may get back nothing at all.

Gold does not qualify as an investment since it does not generate income by itself when we put our money and capital at risk to acquire it. Gold has no real intrinsic value, its value is the one assigned to it. I understand there is a market for gold, just like there is a market for real estate and stocks. Gold is raw material, it does not produce income, no dividends, no cash flow. Gold is a chunk of metal while a stock is ownership in a income generating company. The performance of a company can be tracked and projected, you cannot do so with gold. The price of gold is speculative. Commodities are regulated by offer and demand, the challenge for gold is that we do not know how much gold really exist therefore the price assigned is speculative, thus it is not an investment.

The problem I see is when people are putting assets at risk in the gold rush of 2010 thinking that they are investing. Investments are made by evaluating underlying value. Speculative bets are made by looking at the price of something and simply hoping the price goes up. Investing is about value; gambling is about price. In reality they are speculating. They are betting on how high the price of gold will go. There is no financial analysis to project the future income that gold will generate for you.

However, I do consider gold to be an important component of a financial portfolio. It can be used as hedge against inflation and a monetary collateral to sustain the value of currency. If you want hold some gold for diversification. In the unlikely event that paper currency becomes worthless some day gold and possibly silver would resume a role as a medium of exchange. Gold is money. Unlike investments, gold does not generate wealth, gold preserves wealth.

Right now, too many people are jumping on the gold bandwagon and really not asking why the price of gold is increasing. Gold’s main use has almost always been as money. However, gold’s secondary uses are growing in importance. Due to its physical characteristics, it’s a high-tech metal. So in todays technology driven society we are looking at gold beyond it main role of currency (gold is the most resistant to chemical reaction, the most ductile and the most malleable of all the elements, and it’s an exceptional electrical conductor), which in turn has increased its demand. Conclusion, increased demand drives the price of the commodity up. However, that does not change the fact that gold is raw material and by itself does not generate income. There is no certainty of the amount of gold reserves, which makes it hard (if not impossible) to determine how to properly price the commodity. Contrary to other commodities that gets consumed, gold does not get consumed therefore the more we extract the less valuable it becomes.

I would like to add a note here about real estate investing. Yes real estate is an investment. Real estate is worth what you can make from it, period. Rent it out and it brings income, live in it and it enables you to earn a living, grow food on it. The real estate debacle does not change the fact that it is an investment. The real estate bubble was caused by market distortions caused by idiots over the last ten years. But, the fact remains real estate is an investment and gold is not. Also, physical gold bullion locked in a vault, are not being invested; they are simply being stored. Therefore, while it is being stored they don’t earn interest or dividends, thus not an investment.

The reason of this posting is a warning to all of you that are considering "investing in gold". "Investing in gold" is a very dangerous game right now. Whenever the price of something rises as much, and as quickly, as gold has, we need to stop and consider the end game. As I drive through the streets of Florida, I notice the increase of guys standing on the streets waving “We Buy Gold” signs. They looked exactly like the guys I used to see all over Florida with the signs announcing open houses and selling real estate as a sure bet. The danger is how gold is being presented to the public as a sure bet investment. Due to the current conditions of the various financial markets locally and internationally, investors are looking where to place their liquidity to generate income. The problem is that there are a great amount of scammers wanting to take advantage of this opportunity to gain access to the available liquidity. Now please understand that I am not saying that you should not own gold, or that gold is a scam. What I am saying is that the people buying gold have no true way to value it, and therefore are speculating, not investing.

Finally, keep in mind that there are huge institutional players in the gold market right now. When they decide that the run is over, there won’t be time for you to run to your safe in the basement, pack up all your gold coins and bars, run to the local pawn shop and get rid of it. I do not know where the price of gold is going, but for me it doesn’t matter.

Warning Against Financial Investment Scams

Today I want to address those of us that have chosen the advisory profession as well as those who seek professional advise. The current environment has created the perfect scenario for scammers to attack a fragile niche; the retirement market. With 10,000 baby boomers turning 65 every day it is an attractive niche for them to target. According to a recent study by Metlife, elder fraud is a problem of approximately $3 billion per year. These scam artists prepare their sleek marketing materials and spoon feed these information to the untrained financial advisors, who then presents this information to their clients causing not only damages to thousands of families, it also destroys professional careers.

Due to the decline in asset values that many of the baby boomers have suffered in their retirement accounts in the past few years, they have an urgent need to catch up in their financial plans. This is understandable and provides the opportunity for predators. Also, poorly trained financial advisors feeling the need to bring new products/alternatives to their client fall victims of these well trained predators.

The problem we are encountering is that many of these non-traditional investments are unregistered products. They come in different shapes and forms, however the main goal is to create the illusion of legitimacy. Some examples of these unregistered products are:

1. unregistered limited partnerships
2. hedge funds
3. oil & gas deals
4. real estate products

Some times above products are legitimate and well founded. However, the investment decisions should always be made on a sound analysis of the investment potential. As financial advisors, extensive due diligence must be performed to ensure that the products being presented meet the risk assessment and financial plan of the clients. Financial advisors must not think that they are "too smart to fall for anything like that". Financial advisors must exercise a healthy level of skepticism. If the financial advisor starts from the premise that these guys are legitimate, it takes almost no effort for them to confirm the "legitimacy" of the products being presented. Financial advisors must start from what I call a healthy level of skepticism; start from the basis that this could be a scam, then perform due diligence and leave no rock unturned and if after looking under all the rocks the financial advisor cannot find evidence of fraud, then and only then we can feel that the deal is OK and could be presented to the appropriate clients. Furthermore, it is important that you as the client of the financial advisor be comfortable with the understanding of the products by your financial advisors. Is He/She well prepared on the subject matter? Does the company that they represent have a solid background? Has your financial advisor performed sufficient due diligence on the opportunity/product before being presented to you? Is your financial advisor keeping up with the required training? With clients still wincing from the declines of 2008, faith and trust is running low. While there are benefits to alternative investment programs, they should only be implemented after performing diligence to ensure the trust of our clients bestowed in us continues to be well deserved.

Are You Ready to Invest?

We grew up in a world in which the news about the failure of Social Security is almost as constant as the news about the failure HMOs. We all know that it is unlikely that many people who are currently contributing to social security will ever see the money we've invested into the program. Therefore, we must look for alternatives and stop our reliance on the government for a comfortable retirement that doesn't appear to be available.

This is the reason we must take matters into our own hands and investing not only for our retirements, but also for emergencies and other matters such as fix broken houses, buy new cars, or pay hefty insurance deductibles for medical care. There are many reasons we choose to invest and very few that would ever be considered the wrong reason. The question remains, because there are so many out there who are not yet investing, with so many reasons to invest, are you ready to invest? Why? Here I share with you a few situations that should consider in your financial planning:

1. If you have children and a job that doesn't offer a pension plan or matching retirement fund then it is probably a good idea to invest on your own. Even if you don't have corporate provisions for contributions you have alternatives such as Roth IRAs that will give you a tax break for investing some of your money and helping to plan for your own retirement.

2. If you have children that will some day need dental work, medical services, and/or college educations it is about time that you began those savings plans. Yet again there are tax deferred and tax fee options that are available and having this money invested ahead of time can save you so much money later on that it is worth making a few sacrifices along the way to secure the future of your children.

3. If you want your retirement to be a nice comfortable existence and not to be spent in your future daughter-in-law's closet you need to be ready today to begin investing in your future retirement. Please consider the following, life expectancies are longer than ever, and the costs of living are continuing to rise at alarming rates. If you're not ready to invest you need to figure out why and fix the problem so that you can be ready to invest and soon.

Investing in your financial future is the greatest gift you can give yourself by far. If you aren't sure where to begin or how, perhaps it's time to seek the services of a qualified financial advisor. His advice may prove invaluable and may give you a much more comfortable future than you would have ever imagined left to your own devices.