Rick Kahler's Financial Awakenings

Our quarterly workshop featured Paul Thorstenson, CPA, giving us, well, what he really thinks!  In this informative and enjoyable 30 minute interview, Paul will give you the ‘scoop’ on everything from new tax code changes, why you need to convert your traditional IRA to a Roth IRA, his outlook on future tax rates, and what’s wrong with Washington DC and how he would fix it!  All KFG clients would benefit by watching his interview with Rick. 

This interview is a KFG exclusive. To watch it, go to the website at www.kahlerfinancial.com, click on KFG Clients Only and use your password.

Today, supposedly on remarks made by Alan Greenspan today in Hong Kong that a recession is probable,  the Dow Jones dropped 546 points in intra day trading to close down 416 points.  This was the largest drop in the Dow in 43 months, which represented a 3.5% decline.  Stock markets around the world followed the dive in U.S. stocks with similar drops.

While a drop like this is definitely unusual, it is not unprecedented.  While it was the 7th largest drop in market history, in 2003 there were several days the S&P 500 and the NASDAQ experienced similar moves of over 3% and in  2002 seven percent of all business days saw moves 3% or more on the S&P 500. 

In a message sent today by Leuthold Funds, they state that today’s drop, "does not mark the end of the cyclical bull market."   Regardless, markets rise and markets fall, and trying to time them is difficult, if not impossible.   Leuthold says that the drop does not imply an end to the bull market  nor a beginning of a recession.  They anticipate markets to stabilize this week with a significant recovery next week.  Further, Leuthold says they won’t be reducing their equity exposure and probably will increase them.

As for KFG client portfolios, our "average" client is 40% to 70% in equities.  Most other asset classes were up slightly to down about 1%, so the overall impact of the one day stock market drop may be a 1% to 2% drop in the total portfolio.  While we never like to see a decline, they are inevitable.

KFG will not be making any asset allocation changes to portfolios because of this market move. We’ve had five really good years of above average returns.  At some point in time a reversion to the mean is to be expected.

KFG clients are in for a treat on April 19th, at 4 PM MST, when author, speaker, and attorney Jeff Condon will be our guest for our monthly tele-class. Jeff is the co-author of Beyond the Grave: The Right Way and the Wrong Way of Leaving Money to your Children (and Others) (2001, Harper Collins).

Byond the Grave is the only book in America I know of that focuses on the “human side” of family inheritance planning. The Wall Street Journal called Byond the Grave the best book in America on estate and inheritance planning. The book has sold over 100,000 copies.

During our teleclass, Jeff will address:

• Why treating children equally is often unequal
• Protecting your surviving spouse’s control of the family money
• Will your instructions be followed, or will your heirs have a “better idea?”
• Unintended disasters your best laid plans may cause

Mr. Condon has appeared on numerous radio and television programs and has conducted more than 400 seminars on living trusts and family inheritance planning. His seminars are typically sponsored by businesses, banks, insurance companies, charities, civic organizations, trust companies, and professional associations.

Be sure to register today for this exciting opportunity to hear and interact with Jeff Condon.

“The best things in life are free.” “Money can’t buy happiness.”

Both of these beliefs about money contain a great deal of truth. They also contain an equivalent amount of inaccuracy.

I often have clients do an exercise which effortlessly uncovers the things they value most in their lives. Typically, they list such things as family, friends, spirituality, health, and job satisfaction far ahead of wealth or possessions. Often, wealth and possessions are not even on the list.

While it may be true that the phrase “having money” is rarely on the list, in today’s world, none of those all-important intangible values can be fully separated from money. Let’s look at a few of them.

Family and friends. Certainly, spending time with people you care about doesn’t require spending money directly. You can take your kids to the park or hang out in the back yard instead of going to the mall. You can get together with friends for a walk or an evening of dominoes instead of meeting at a restaurant or going to a movie.

What all those activities do require, though, is time. Time that you don’t have to spend working to pay your bills. Time that isn’t spoiled by worry about where the next rent payment is coming from. Benjamin Franklin is credited with observing that “time is money.” Ben was pretty smart.

Sometimes, too, being committed to your family does require money. How many couples do you know who would like to have one spouse stay home to take care of young children? Yet how many of those families feel unable to do so because it’s so hard to manage on one income?

Spirituality. For some people, this may include involvement in an organized religion—which, of course, takes time. It also means sharing in the expense of the building, the leader’s salary, and the services that are part of that religion’s ministry. For others, spirituality may mean making time and finding private space for an individual practice of prayer or meditation.

Health. You don’t have to spend a lot of money in order to eat well and exercise. In fact, a healthful diet will probably save you money. You can walk or do yoga at home instead of going to the gym or taking classes. Yet money is an important factor in maintaining good health. You aren’t taking care of your health if you can’t afford to go to the dentist, or if you put off seeing the doctor about a possible problem because you have no health insurance. In addition, your health can certainly suffer if you live in constant anxiety and fear about money.

Job satisfaction. Much of the work I do is designed to help people discover what they really want in life, then take the necessary action to achieve it. Over the years I’ve known many people who felt stuck in jobs they didn’t like. It’s much harder to move out of such a situation if you have no financial margin. Creating a fulfilling career might require changing jobs, taking the risk of starting your own business, or going back to school. If you’re just getting by from paycheck to paycheck, you’ll find it harder to do any of those things.

No, money in and of itself won’t buy happiness. Poverty won’t buy happiness, either. Managing your money wisely can give you a foundation of security. Then you are much more capable of achieving your dreams and making time for the people and activities that matter to you. Then you are able to fully enjoy those “best things” in life that are free.

In a recent column I listed some common sources of sudden wealth, including inheritance and life insurance. Several of my clients have inherited substantial sums or received large life insurance payments upon the death of a spouse. A common reaction among these heirs is guilt. There’s a sense that it’s not right to profit by the death of a loved one or enjoy living securely as a result. As one of my newly-widowed clients put it, “It feels as if taking the money is saying it was okay that he died.”

Well-meaning friends and advisors may remind widows or widowers that the life insurance is there to provide for them and their spouses would want them to be taken care of. That may be perfectly true, but it doesn’t do much to relieve the feelings of grief and guilt.

Such painful emotions may lead people to spend inheritances recklessly. The unconscious motivation is a need to get rid of the money in order to get rid of the difficult feeling. This is one reason advisors like Susan Bradley tell inheritors that the first thing they should do is “nothing.”

There is also another strategy that can help put inheritances and life insurance receipts into perspective. This is, first, to emphasize that the purpose of life insurance is to replace income. An insurance payment may seem like a huge sum. Yet it is likely to be relatively small compared to what the deceased spouse may have earned over even a five-year period or the amount of income it will generate. The same can be true of an inheritance.

As an example, suppose Marian was widowed at age 50 when her husband, also age 50, died suddenly of a heart attack. Her inheritance consisted of a business valued at $500,000 (which she sold), a life insurance policy in the amount of $250,000, an unmortgaged house worth $150,000, and savings of $100,000. Suddenly Marian had a net worth of a million dollars. It was enough to secure her future as well as provide income to supplement her $30,000 annual salary.

From her perspective, she was “rich” because her husband had died. Appreciating or even using the money felt wrong to her.

It was helpful for Marian to consider some numbers. At the time of her husband’s death, he was receiving a salary of $150,000 a year—a total of $750,000 over five years or $1,500,000 over ten years. His thriving business was increasing in value by about 15% per year. It would have been worth close to a million dollars in another five years, and over two million after ten years. The couple lived modestly, and they had planned to invest at least $50,000 a year toward retirement. This amount, added to their existing $100,000 in savings, would have totaled perhaps $400,000 after five years and perhaps $785,000 after ten years. After ten years, Marian and her husband could reasonably have expected to have a net worth of at least three million dollars.

Instead, her inheritance of one million dollars represented everything she would ever receive monetarily from her husband. Invested, it gave her an income of approximately $159,000 over five years and $344,000 over ten years—about one-fifth of what her husband’s earnings would have been. In addition, taking out the income meant she maintained her net worth but didn’t substantially increase it.

In reality, the death of Marian’s husband left her poorer, not richer. The inheritance seemed like such wealth only because she received it in a lump sum instead of over a period of years. Seeing this comparison helped Marian change her perspective so she could accept and use her inheritance with more peace of mind.

KFG and my work in integrated financial planning was recently featured in the online newsletter AdvisorMax. This is an online subscription newsletter for financial planners. The article, “Understanding your Client’s Money ‘Issues,’” was written by Amy Braunschweiger, who discussed the importance of understanding and working with clients’ money scripts. Slowly but surely, integrated financial planning is moving into the mainstream of the financial planning profession. It’s exciting to be a part of this transition. 

To view the article:  Click Here

“We can’t go on together, with suspicious minds.” Elvis recorded this song by Mark James, with its reprimand to a jealous sweetheart, in 1969. If he were writing it today, James might need to revise the lyrics. Maybe they should be, “We can do business together, with suspicious minds.”

I’m really not that much of a cynic, at least about sweethearts. I certainly do endorse suspicion in other areas, though, especially when it comes to identity theft. This is something we read about and hear about, but that we assume won’t happen to us. It recently did happen, however, to one of my clients.

It started when he received his new Discover card in the mail. The problem was, he hadn’t ordered a Discover card. I’ve also received such cards in the past and have chosen to cut them up and throw them away. This is not the right response; it’s exactly what the scammer is hoping you will do.

Fortunately for my client, he didn’t just toss the card. He called Discover Card to inquire. Discover told him that he indeed had applied for the card on line. When they asked him to confirm his birthday and his mother’s maiden name, the information didn’t match their records. Someone else had applied for the card in his name.

He learned that several months earlier a company he did business with had had its computer system hacked. The names, mailing addresses and Social Security numbers of about 50,000 people were compromised. The hackers used that information to apply for new credit cards.

From there, the scam works like this: The hackers hope the victim throws away the card. Several weeks later, they call the card company to report that they didn’t receive the card, probably because they have recently moved. They have the replacement card sent to their “new” address. When it arrives, they’re off to Rodeo Drive or to the Internet on a major shopping spree.

According to my wisely suspicious client, the worst part of this experience was all the time he had to spend on the phone to get it taken care of.

If something similar happens to you, here are some steps you can take:

1. First of all, act immediately. Be suspicious. In this situation, over-reacting can be your friend.

2. Call the credit card company. Close the suspect account, and also enlist the company’s help in fighting the fraud.

3. File a report with your local police.

4. Contact one of the three credit reporting companies and put a fraud alert on your account. These are Equifax (800-525-6285, www.equifax.com), Experian (888-397-3742, www.experian.com), and TransUnion (800-680-7289, www.transunion.com). You only have to contact one company, which is then required to contact the others.

You can obtain a temporary, 90-day fraud alert, which is appropriate if you think you might be vulnerable to identity theft because your wallet has been stolen or your information hacked from a website. If you are a victim of identity theft, you can obtain a seven-year fraud alert.

5. Contact the Federal Trade Commission at www.ftc.gov/bcp/edu/microsites/idtheft//. This site has detailed information on how to protect yourself against identity theft, including useful brochures you can download or request by mail. There is also material on what to do if you think your identifying information has been stolen. It includes instructions and forms for reporting fraud and filing fraud alerts.

The bottom line here is, “Don’t listen to Elvis on this one.” Certainly, you want trust and openness in your relationships. When it comes to protecting yourself against identity theft, however, a suspicious mind is an asset. Develop one.

What can possibly come from a leaderless group of CFP’s, coaches, and therapists who meet at remote locations around the world once a year, without a set agenda?  If you ask any of the 55 who attended this year’s retreat in Estes Park, CO, the answer is "magic."

Certainly, the Nazrudin conference is the number one educational event on my calendar. The topics, facilitators, and presenters for the two-day event come from the group, which represents some of the most progressive and successful people in the world of integral finance. All the topics are then voted on and those receiving very little interest are dropped from the program or combined with another similar topic. The result is a program that is never lacking expediency or interest.

While I always come away renewed and teeming with new ideas, I can say this year I was really glad just to "come away" from Estes Park. The wind blew at a steady 40 MPH with surface temps under 10 degrees and wind chills of minus 40 or thereabouts. Walking between buildings was not fun. Several evening events saw the participants turning in early, as some public rooms just could not produce enough heat to offset the howling cold wind whipping about outside.

Next year the Nazrudin conference is at a beach in sunny Australia.  I can hardly wait! 

Yep, you read it right. It’s time to throw away your budget and all the torrid thoughts, beliefs and dysfunctional financial behaviors that go along with it! Join Deb Jensen, a bookkeeping and spending plan specialist, and me for an informative tele-class on how you can make money your servant, rather than your master. 

One KFG client, who’s thrown her “budget” away and mastered the principles of this philosophy, told me recently, “Now I am telling my money what it’s going to do, rather than it telling me what it did!” 

You will learn why many beliefs about “budgeting” didn’t work, how to create a “spending plan,” and how you can finally take control of your finances.

The tele-class will be on February 22nd at 4 PM MST / 6 PM EST.  Click here to register.

How much do chicken pox cost? Try $530.67 per pock.

That’s what it could have cost me when both the kids came down with chicken pox just before our family’s planned European cruise over Thanksgiving. Even though both cases were mild (only 15 pox between the two kids), we cancelled the trip. The experience reminded me why I always buy trip insurance when booking a cruise.

Most cruise lines require full payment about 90 to 120 days prior to sailing. Much, if not all, of that is typically non-refundable after that point if you cancel for any reason. Most trip insurance will reimburse you for non-refundable deposits, such as cruise costs, airfares, and tour deposits, up to the amount you select for trip cancellation or interruption for a number of situations. In addition, trip insurance will cover the costs of medical and dental expenses, emergency medical evacuation costs, delayed baggage expenses, lost luggage, and travel delays.

The insurance offered by the cruise lines is quite expensive for the coverage provided, so I typically purchase trip insurance from a third party vendor. I shop for travel insurance with an on-line broker, found at www.insuremytrip.com. I’ve used this site to compare travel insurance companies for about a year. They offer a wide array of travel insurance policies. In a search I did recently for an upcoming cruise this summer, they gave me a choice of 22 companies offering package policies, five business policies, 10 travel medical policies, three multi-trip medical policies, 13 medical evacuation policies, and nine flight accident policies.

Insure My Trip also provides the A.M. Best rating, which gives you an idea of the financial strength of the company. I typically purchase a package policy, choosing a company that is A- or better.

Last year, I purchased a travel insurance policy called Travel Guard from AIG, a huge insurer. On that trip, the airlines lost our luggage for three days, forcing us to buy necessities. We had $100 per person delayed baggage coverage, which AIG paid without a hitch.

This year, I switched to a policy called Travelex, offered by Old Republic. They offered considerably more coverage than the Travel Guard policy for about the same price. For example, their delayed baggage coverage is $200 per person per day, up to a maximum of $600. I also purchased $2,000 per person of cancellation coverage, or a total of $8,000 for the family. The premium was $270, which included a $5 handling fee to Insure My Trip.

As it turned out, the coverage I chose was right on the money. Our last-minute cancellation meant we lost $7,960 in non-refundable deposits—an amount equal to $530.67 for each of the 15 chicken pox.

Of course, the big moment with any insurance company is when you submit a claim. Outside of the obvious concern that the company may deny the claim for some unexpected or unanticipated reason found in the small print, there is also the question of whether they will delay payment or only pay a portion of the claim. Old Republic’s process was relatively simple and quick. They did want more information on a $35 dollar deposit we lost with a shore excursion company. Once that was received, they issued a check. It took about six weeks for us to receive a check for the full amount of our claim.

Assuming their rates stay competitive, I will certainly do business with Old Republic again. True, we should be done with chicken pox. That just leaves ear infections, strep throat, broken arms, sprained ankles, etc., etc. I think I’ll keep on buying trip insurance.