LISTEN TO RICK’S WEEKLY COLUMN:Download financial_infidelity_part_iii.mp3

In the last two columns, we’ve focused on financial infidelity and secret spending. This week, let’s look at the good news. Couples can recover from financial infidelity and learn to change the behaviors behind it. In the Healing Money Issues workshops I co-facilitate through Onsite Workshops, we’ve seen some incredible transformations.

Here are some of the ways couples can work toward a healthier financial partnership:

1. Each person needs to do his or her own financial recovery work. Before you can deal with money issues in a relationship, it’s essential to become aware of and accept responsibility for your own destructive money behavior. One way to begin that work is to identify your own money scripts, or unconscious beliefs about money. (For more information on money scripts and ways to begin changing them, go to www.klontzkahler.com or  www.consciousfinance.com.)

2. Face the possibility that addictions or compulsive behaviors might be part of the secret spending. A gambling addiction is one common reason for taking joint money and lying about spending. Alcoholism and drug abuse can also eat away at family finances and be responsible for financial infidelity. To quote one of my clients, who used to be married to an alcoholic, “Alcoholism isn’t just an emotionally destructive disease. It’s also an expensive one.”

Spending itself can also be an addiction. I’ve worked with people who described getting the same “highs” from spending that addicts get from drugs or alcohol. Sometimes the secret spender simply isn’t able to stop without professional help and long-term support.

3. Commit to honesty and full disclosure in the relationship. Both partners must be willing to change in order to begin healing from the financial infidelity. A crucial first step is a commitment to stop keeping secrets from each other.

4. Both partners agree to take responsibility for the family finances. This means working together to create a realistic spending plan, to continue following that plan, and to solve any problems such as excessive debt. It doesn’t matter who actually writes the checks and pays the bills, but it’s important that both partners commit to learning the basics of money management. It’s also important for both to accept joint responsibility for managing their money.

5. Each partner needs to have some money that is his or her own to spend. Working as partners and committing to financial fidelity doesn’t mean turning into auditors who police every penny the other spends. Quite the opposite is true. It’s important for the joint spending plan to include separate allowances for the partners to spend however they wish. This amount can be large or small, depending on the available resources, but it’s important that it be equal.

6. Work to understand your own style and comfort zone as a couple. Many couples pool all their income and manage all their money jointly. Others are more comfortable keeping some of their finances separate. Neither approach is necessarily right or wrong. It is important, though, to be honest and open about your finances even if you manage them somewhat separately.

7. Get the help you need. Learning money management skills may require taking a class or buying (and reading!) books on personal finance. It may be helpful to get advice from a financial planner or work with a therapist trained in money issues. This is especially true for couples who need to heal from and change a long-time pattern of distrust and dishonesty.

8. Accept the reality that change takes time and effort. Learning healthier money behavior as a couple won’t happen overnight, but it can and will happen if both partners are willing to change. The result—a stronger and more comfortable partnership—is well worth the effort.

CLICK HERE TO LISTEN TO RICK’S WEEKLY COLUMN: Download financial_infidelity_part_ii.mp3

Financial infidelity in a relationship is not usually a behavior that suddenly appears out of nowhere. It often develops over time, and it often grows out of or is part of other problems in the relationship. Like other types of infidelity, it leaves evidence for the partner to find.

These are some of the situations in a relationship that might foster secret spending and financial infidelity.

· Not talking about money. In order for a couple to work together financially, they have to be able to talk about priorities, goals, and difficulties. They have to be able to discuss financial needs. They need to know one another’s income, liabilities, and net worth. Otherwise they won’t have the resources and information to create and maintain a joint spending plan.

· One partner choosing to stay ignorant about family finances. This might include signing joint tax returns without looking at them, refusing to have anything to do with balancing checkbooks, letting the other partner take full responsibility for paying bills, or choosing not to learn about finances. One partner’s ignorance or non-involvement certainly doesn’t justify cheating or lying by the other partner. Still, such passive behavior is an abdication of responsibility. It is refusing to be involved as an equal partner in the financial aspect of the relationship.

·  One partner being a financial bully. If one person tries to control the finances completely or put unreasonable limits on spending, the other partner may feel powerless and see little choice but to hide spending and keep money secrets.

· A relationship where one partner is the “parent” and the other is the “child” when it comes to spending. A couple can slip into this pattern particularly easily if one is more responsible about money than the other or if one earns or has significantly more money than the other. If one spouse feels it necessary to monitor the other’s spending, or one has to ask the other for permission to spend joint funds, they aren’t equals when it comes to money. This inequality can foster resentment and lead to secret spending on either side.

· Closing your eyes to inconsistencies in credit card bills or bank accounts. Financial infidelity leaves traces. Secret spending has to come from somewhere, and it has to go somewhere. Unexplained cash withdrawals, large credit card balances, or grocery bills that seem unrealistically high are all examples of possible signs that a spouse is spending money in secret.

· Choosing not to notice the number of new clothes, electronic gadgets, or household items that mysteriously appear and seem excessive for the family budget. Even if your spouse shops at Wal-Mart rather than Neiman Marcus, bringing home bags and bags of stuff from every shopping trip means that serious money is being spent. The partner who doesn’t seem to pay any attention to all those new possessions might be truly clueless—or might be carefully not asking difficult questions that could lead to a painful confrontation about money.

· Unresolved conflict in a relationship. In a painful relationship, one partner might use spending in an attempt to “get even” with the other. Spending might also be a way to try to feel better or as a distraction from the conflict.

Financial infidelity isn’t necessarily “the problem” in itself. It often is tangled up with other difficulties in the relationship, and it almost always will exacerbate those problems. Even though it is very damaging, it is something a couple can face and can heal from.

Next week we’ll discuss some of the ways a couple can recover from or avoid financial infidelity.

Mark your calendars for Thursday, May 18th, at 4 PM MST, for our next tele-class on why so many of our portfolios contain a natural resource sector.

About seven years ago I embarked on a research project which led me to conclude that unleveraged commodities belonged in a diversified portfolio.  At that time I began making commodities a normal part of many KFG portfolios. 

Since then, more and more investment advisors are reaching the same conclusion.  This suggests that the strategy is about to become mainstream. 

Roger Gibson, president of Gibson Capital Management, gets the credit for originally pioneering the idea.  His research shows that when commodities are added to a portfolio with any combination of U.S. stocks, foreign stocks, or real estate securities, that portfolio will beat, on a risk-reward basis, any combination of those asset classes without commodities.   

Why is this true?  It isn’t because commodities have the highest return of those asset classes.  It is because they are negatively correlated with about every other asset class.  When everything else is falling, commodities are often rising.  This dynamic brings up the total return of the portfolio while decreasing the volatility.  The technical investment term for this is “having your cake and eating it too.” In about every scenario I’ve constructed, a porfolio with commodity exposure produces a higher return with lower overall volatility (or risk).

So, with such compelling evidence, why don’t all investors have commodities in their portfolios?  The problem is that most investors have no idea this correlation exists.  Heck, most investment advisors don’t, either.  If they do, most lack the internal fortitude to recommend commodities as an asset class to clients.

Join me on May 18th to learn more about how we use this exciting asset class in your portfolio to increase returns and lower risk.  Click here to go to our website and register for this tele-class.

CLICK HERE TO LISTEN TO RICK’S WEEKLY COLUMN: Download financial_infidelity_part_i.mp3

Do you keep secrets from your partner about your money behavior?  If so, you may be guilty of financial infidelity.

You may have never even considered such a term, or you may find the very thought offensive. For most of us, the word “infidelity,” used in the context of a marriage or other significant relationship, means sexual infidelity. Yet many people who wouldn’t dream of betraying their partners by having an illicit affair may be committing financial infidelity.

This issue is a common one in the financial coaching and counseling my partners and I do through the Klontz Kahler Institute. We have found that being financially unfaithful to a partner has the potential to be just as damaging to the relationship as being sexually unfaithful.

The following behaviors may constitute examples of financial infidelity:

1. Spending a significant amount from joint funds without first discussing the purchase with your partner. The fact that the lawn tractor is “for both of you” or the suit was on sale and “too good a bargain to pass up” doesn’t justify making a unilateral decision.

2. Maintaining a secret stash of cash. This might involve literally hiding cash or keeping a separate checking account, savings account, or investment that you hide from your partner.

3. Lying to your partner about the cost of things you purchase. Whether this qualifies as financial infidelity has nothing to do with the amounts involved. Saying the new shoes you bought were on sale when you paid full price for them is just as much a betrayal as lying about the price of a vacation home or a boat. The betrayal is in the dishonesty, not the dollar amount.

4. Hiding income or assets from your partner. This might include lying about how much you earn, hiding bonuses, being dishonest about your net worth, or accepting secret gifts from parents or other relatives.

5. Overspending and hiding the things you buy from your partner. An all too common example of this is a wife who buys clothes, takes the tags off, and hides the clothes in the closet for a time so she can say later, “No, this isn’t new.”

6. Spending money on or giving money to children or other relatives without telling your partner. Allowing kids to manipulate you or play one parent against the other is a common aspect of this behavior. Not only is it damaging to the relationship, but it also teaches the children inappropriate or destructive financial habits.

7. Going to parents or other family members for emergency loans or gifts without discussing the need with your spouse. Going “over the head” of your partner in this way is disrespectful and damaging to the relationship. It implies that your partner isn’t good enough to support the family or that you and your partner aren’t capable of solving your own financial problems.

8. Risking joint resources for investments or business purposes without your spouse’s knowledge or agreement. An example of this might be taking out a second mortgage on your house in order to buy equipment for your business.

Not all money secrets add up to financial infidelity. Partners shouldn’t need to account to each other for every penny they spend. And saving on the sly for your spouse’s birthday gift is a lot different from lying about the cost of that new computer gadget you just had to have. Secrets cross the line into infidelity when they are for the purpose of protecting yourself from the consequences of your financial behavior.

In next week’s column, we’ll take a look at some of the mistakes partners make and some of the habits in a relationship that can foster financial infidelity.

Recently, Oppenheimer’s Real Asset fund announced it was doing a hard close to its fund. As KFG clients know, Oppenheimer is one of only two funds that invest directly in commodities. The other is PIMCO’s Real Return fund. Commodities is an important asset class in many of our portfolios, so I was concerned that PIMCO may follow Oppenheimer’s lead and close its commodity fund, as well.

The highlights of a conversation that I had with PIMCO this week are summarized in the following  Q&A article that can be found on PIMCO’s website.  Below, I’ve republished an interview with Mr. Greer, the manager of the fund, along with his comments on the most recent information on PIMCO’s compliance with IRS rulings handed down last year.

Mr. Greer is PIMCO’s Real Return product manager. He joined PIMCO in 2002, previously having been associated with JPMorgan Chase and Daiwa Securities as a developer and product manager of commodity indexes. Mr. Greer has over twenty-two years of investment experience with real return products, including not only commodities, but also real estate and inflation-linked bonds. He has written about these subjects in several investment journals and publications, and most recently published The Handbook of Inflation Hedging Investments in 2005. He holds a bachelor’s degree in math and economics from Southern Methodist University and an MBA from the Stanford University Graduate School of Business.

Last December, the IRS issued a ruling that relates to funds that track a commodity index. In effect, it compels funds that use swaps on commodity indexes to restructure to alternative vehicles by June 30, 2006, in order to avoid later negative tax consequences. In the interview below, Bob Greer, PIMCO’s product manager for the PIMCO CommodityRealReturn Strategy Fund, discusses how the Fund is transitioning now to comply with the IRS ruling.

Q: What changes are happening within the CommodityRealReturn Strategy Fund (CRRSF) and why?

Greer:  Since its inception in 2002, the CRRSF has used derivative contracts known as commodity index swaps. These allow the Fund to get very efficient exposure to the Dow Jones-AIG Commodity Index. Under PIMCOS’s strategy, the swaps have been collateralized largely with Treasury Inflation Protection Securities (TIPS). These two legs make up PIMCO’s classic double real® strategy. Last December, the IRS ruled that, beginning July 1, 2006, income generated by these swaps would not be considered qualifying income under the tax rules for mutual funds. To continue to qualify, the Fund is pursuing various alternatives to obtain commodity index exposure. The main thrust of these efforts involves transitioning the Fund to use commodity-linked structured notes.  PIMCO believes that these notes produce qualifying income in the context of existing laws and regulations.  PIMCO will continue to maintain double real® exposure while implementing this change. In addition, while the Fund’s portfolio manager continues to focus on generating alpha, PIMCO’s in-house and outside experts are using the transition period to explore other alternatives, including alternative investments and structures, and regulatory or legislative relief.

Q: Will changes in the way the Fund obtains commodity index exposure change any key characteristics of the Fund?

Greer: No.  Although the Fund will gain exposure in a different manner, the Fund will continue to pursue the double real® strategy. PIMCO is always looking for the most efficient way to provide double real® exposure for the Fund, and we believe that notes are currently the best choice for maintaining the strategy. Meanwhile, TIPS, which have returns linked directly to the U.S. consumer price index and are issued by the U.S. Treasury, will continue to be used the same way as they have in the past.

Q: Is the transition from swaps to notes affecting the Fund’s performance?

Greer: The notes are a slightly more expensive way of getting commodity index exposure. Although the Fund underperformed relative to broad commodity indexes in the first quarter, this was not caused by the transition to notes but instead by the underperformance of TIPS. TIPS struggled in the first quarter, as the hawkish rate rhetoric, and deeds, of the Bernanke-led Fed caused real interest rates to rise and TIPS prices to drop.

Q: How much of the Fund’s commodity index exposure is now obtained by investing in notes?

Greer: As of Friday, April 7, 2006, the Fund had over $5.400 billion of commodity index exposure from notes issued in varying amounts by 10 different issuers. PIMCO continues to seek to expand the number of available issuers meeting the Fund’s credit quality standards.  PIMCO is also pursuing other options to gain commodity index exposure in the most efficient way, including seeking legislative and regulatory relief that would permit greater use of commodity index swaps.

Q: Is there any negative implication to the fact that the Fund still holds commodity index swaps?

Greer: No. Until June 30, 2006, the income from the Fund’s investments in commodity index swaps will be fully treated as qualifying income. PIMCO believes that it will be able to manage the Fund after June 30, 2006, in compliance with the IRS Ruling using various alternative investments or structures, including the use of alternative investments such as notes.

Q: Do you plan to close the Fund to new investors?

Greer:   No.

Beginning: May 4th, 2006  
When: Thursdays 5:00 p.m.(MT)

Finally, an affordable and practical way for you to learn to be your money’s master instead of its servant.

Here is your chance to experience and apply Integrated Financial Planning to your life with Laura Longville, interior financial coach and her special guest, nationally known financial planner and author, Rick Kahler.

They will share with you the breakthrough approach that was recently featured in Wynonna Judd’s new book, Coming Home To Myself, using the same methods which The Wall Street Journal hailed as "an innovative effort that combines experiential coaching with nuts-and-bolts financial planning."

In this 8-week group coaching session, Laura and Rick will use the same tools, techniques, and exercises they have used successfully with their clients.  We will show you how to recognize ways unconscious Money Scripts may keep you trapped; how to deal with the relationship between your net worth and your self-worth; how to discover your authentic goals and values; how to permanently change self-destructive money behaviors; and how to have a complete financial plan that will give you the peace and serenity you so desperately desire.

You will get some of Rick and Laura’s:

• Professional advice personalized to your own situation that won’t cost thousands?
• Tips on how to spend less, save more, and spend more on what nurtures you?
• Ways you and your partner can stop fighting about money and work as a team?
• Personalized investment advice from a pro that has managed billions?
• Concrete steps that can, “once and for all,” change destructive behaviors around money?

Regular tuition is $597, today’s reduced tuition is $197.

Join Rick and Laura as they lead you through the seven principles of integrated financial planning. Each session will feature personalized insight and wisdom from Rick and Laura on how you can be sure each principle is fully functioning to enrich and empower your life.

To register, contact Laura Longville at 605.342.0478 or lauralongville@inatm.com

CLICK HERE TO LISTEN TO RICK’S COLUMN: Download happines_and_money.mp3

A Wall Street Journal article on March 18, 2006, highlighted the work of several researchers, all attempting to quantify what produces happiness. It was of interest to me, since I view financial planning as helping clients use their resources to bring greater peace and joy into their lives. Here were some of the findings:

The primary happiness indicator of senior citizens is not their income, but their level of physical activity. Not even the security of a big retirement account will make you happy if you aren’t healthy enough to do things you enjoy. Edward McCauley, a kinesiology professor at the University of Illinois, found that "sedentary seniors get happier after embarking on exercise programs: five years later, self-esteem and confidence remained higher." The more often grandma visits the gym, the happier she is going to be.

You are more likely to be happy if you are a Republican, earn over $100,000 a year, and attend religious services. This was the finding of a survey of 3,015 Americans completed by Paul Taylor of the Pew Research Center. Don’t look for the DNC to cite this in the upcoming elections.

But maybe this isn’t the real story. A survey reported in Time magazine in January 2005 found there is no significant increase in happiness for those Americans earning over $50,000. This would seem to contradict Mr. Taylor’s findings. However, the Time survey said nothing about the participants’ political or religious affiliations. Maybe the real story here is that it takes an extra $50,000 a year for a religious Republican to be as happy as a non-religious Independent or Democrat who earns $50,000.

Dreaming about what you want to buy is far more satisfying than owning it. Internalizing this principle could save everyone a lot of money. Brian Knutson, professor of psychology and neuroscience at Stanford University, studied the differences in oxygen flow in the brain as subjects first anticipated receiving something and when they actually owned it. He found that people get more happiness from the anticipation of a purchase than the actual ownership of the item. Don’t look for the retail sector to embrace this principle any time soon.

If you have a bad marriage, are single, or are not having a lot of sex, you need to earn an extra $100,000 a year to be as happy as someone who is in a great marriage. David Blanchflower, a Dartmouth College economics professor, surveyed thousands of people in 35 different countries in a quest to put a dollar value on a good relationship. He found a solid relationship was worth $100,000. Interestingly, the couple who has sex once a month needs to be earning $50,000 more a year to equal the happiness level of those couples having sex once a week. Blanchflower is working with divorce lawyers who are interested in using his research in attempting to quantify "loss of happiness" and "loss of sex" damages in a failed marriage. That is something to watch!

Based on these studies, and the finding from our research on happiness and money done at the Klontz-Kahler Institute, the best financial plan would provide for the following factors:

· An annual income of $50,000

· A healthy, monogamous relationship with couple vacations, retreats, counseling, etc.

· A weekly support group of some type: church attendance, 12-Step group, etc.

· Daily meditation or prayer

· High level of physical activity

· Less focus on procuring items and more focus on renting, borrowing, and buying pre-owned.

If your financial plan doesn’t have these items in it, maybe it’s time to take a serious look at what really will bring you happiness.

My father and I are attending our 12th NCAA Final Four.  It’s obviously become a tradition for us, and one we enjoy.  Outside of the games (which have been blowouts this year) and discovering the best places to dine, I really enjoy buying and selling tickets.

The secondary ticket market is challenging, to say the least.  It certainly is not as efficient at the stock market, or as convenient.  Most of the action takes place on the streets around the stadium, with brokers and fans bargaining around the clock.  Prices rise and fall depending on what teams win and how far the schools are from the Final Four location.

This year, no big name colleges ended up in the final four, which sent ticket prices plummeting  after the final four teams were decided.  Prices of good upper tier tickets fell from $1,000 a seat to $500.  By game time, I had bought those same seats for $200.  Lower tier seats, which normally sell for $1,500 per seat, were going for $400 at game time.

It was a great Final Four to be a fan……….not such a good one to be a broker!