Notes from Sandy

LA Times Money Makeover

I just completed another Money Makeover for the LA Times and it was published on Sunday, April 3. This was not a person drowning in debt, but instead was a 4^th grade teacher who owns five properties with no mortgages, and has 1.6 million in net worth by the age of 44. I would call David an extreme saver who is consumed with amassing his fortune and retiring by the age of 50 or 55. He will not join friends or family for a meal out in a restaurant. Instead, he will eat off the dollar menu at a fast food restaurant prior to dinner and then join his friends and order an iced tea. He will never go to the movies; he sees no reason to spend the money. He bought his five condos for cash and really wants to buy 10 more if prices continue to decline.  While I would like to see more balance in his spending and saving, it was refreshing to find a makeover client with no debt. He certainly is an example of being able to cut all excess out of his life to achieve his goals. I would applaud clients cutting back in some areas until all credit card debt is gone and their saving for retirement is more secure. I do however, want clients to have more balance in their life and I did say there was more to life than money.  So, instead of putting your next vacation or large purchase on a credit card, is there an area in your expenses that you can cut back on and save the money first?

“Our life is not determined by what happens to us but by how we react to what happens; not by what life brings us, but by the attitude we bring to life.  A positive attitude causes a change reaction of positive thoughts, events and outcomes.  It is a catalyst, a spark that creates extraordinary results." Anonymous

Japan

My heart aches over the horrible disaster in Japan following the earthquake and tsunami. While only 4% of Japan was affected by the damage, the area did account for 5-6% of their GDP. The radioactive water leaking into the ocean may bring a new round of problems to the area, the sea life and hinder more efforts in the area until the leaks can be stopped. While the stock market did sell off on the news, it has rebounded to higher levels than before the quake. We are closely monitoring the progress of the area and any impact it may have on our stocks or mutual fund holdings.

“Optimism is the one quality more associated with success and happiness than any other.” Brian Tracy

Summer is around the corner

Aside from my normal local triathlons and ocean swim races, I will be returning to Santa Rosa to do the Aquabike race in July. Swimming 1.2 miles and biking 56 miles through the winding vineyards and hills somehow seems normal now. I will be riding around the Palos Verdes Peninsula on the Diabetes Tour Ride for a Cure on May 1. I look forward to hearing about your vacation and summer trips when I see you.

Notes from Carol:

Inflation – the next bubble?

Over the past 85 years the average annualized inflation rate has been 3%.  The last few years have seen a lower than average inflation rate; 1.5% for 2010. Even though we are all paying more for gas and groceries, the Fed isn’t overly concerned about inflation – just yet.  But there will be increased pressure for the Fed to tighten monetary policy.  Our goal is to generate enough growth in your portfolios to stay ahead of the increases in the cost of living.  This is done by maintaining diversification in your portfolio holdings.  Stocks and equity mutual funds have a distinct advantage over other asset classes in producing long-term growth.  That said it is also very important to hold bonds in the portfolio.  Bonds offer greater return potential than cash and greater stability than stocks, which is important if you have a short-term financial goal.  Commodity exposure is also a way to counter inflation.  We use mutual funds and/or ETFs to expose your portfolio to commodities.

New ADV Part II requirements

One of the new regulations in the Dodd-Frank Wall Street Reform Act passed last year required all Registered Investment Advisors to update their brochure disclosure form (ADV part 2).  This was a 2 page general disclosure form that you were given and signed when you became clients.  The new form is required to be written in “plain English” so that the client (consumer) understands how the advisor operates and is compensated. While the way we operate has not changed, the new disclosure form is now 15 pages.  We will be sending you this via email or mail within the next 2 months.

Notes from Erin:

Earthquake Insurance

With Japan’s earthquake fresh in our minds, we should be motivated to think about the impact an earthquake could have on our individual financial situations. We often get asked if ‘earthquake insurance is worth it?’  It’s not a clear cut answer. As a general rule of thumb if you can’t afford the premiums, I would advise against stretching your budget if you have very little equity, assets, and or inexpensive belongings. However, if you are in the reverse position, earthquake insurance might make sense.  Currently, in California there are two types of insurance providers. The main difference is in the scope of the coverage offered and the size of assets an insurer has saved for possible claims. Coverage obtained through a private insurer backed by the California Earthquake Authority (CEA) offers lower cost lower coverage insurance but their ability to cover substantial claims is great. Companies not backed by the CEA tend to offer policies with less exclusions and higher coverage amounts; however you run the risk that your insurer might not be able to pay your entire claim in the event losses exceed their reserves.  It’s important when shopping for insurance to have the agent go through the entire policy with you and understand exactly what you are getting for your money. There is a wealth of information to be found on www.earthquakeauthority.com including free online quotes for earthquake coverage. We recommended, at a minimum, reviewing quotes and policies from one CEA insurer and one independent insurer.