On March 12th I hosted a “Town Hall Meeting” in our offices which was also available to clients by phone and on the web.  In that webinar, I urged clients to hold the course and gave a plethora of statistics about past market crashes and the ensuing rebounds.

In my followup posting to that meeting on March 17th,  I said, “This was probably the most important teleclass we’ve ever done. Every KFG client needs to hear this information. We urge you to watch this teleclass if you have any financial or economic concerns and especially before your next review.”  How correct that information turned out to be!

Of course, this South Dakota financial planner was not a lone voice in this regard.  Many of my financial planning peers were chanting the same mantra to their clients.

As it turned out, many investors who heeded this investment advice and held the course saw positive returns in 2009 which almost equaled their negative returns of 2009.  Investors who sold equities in March of last year locked in their losses and missed one of the greatest recoveries in history.  I had more to say about that in my February 15th post, “Not A Lost Decade, But A Bumpy Ride.”

What a difference a year makes. A happy birthday it is indeed!

No, I didn’t get a tattoo, just a flu shot. The inoculation business was a little slow right then, so I had time for a conversation with the young man giving the shots. When he found out I was a financial planner he said, “I am just graduating with my nursing degree. What do I need to do to take care of myself financially?”

I didn’t shut up for 15 minutes, and he took down every point.

Here is some of what I told him, plus a few things I thought of after I had to leave to board my flight:

1. On every gross dollar you earn, pay your taxes first. Estimate your total tax liability and be sure your employer withholds enough to cover it. If you are self-employed, set up a savings account, deposit a percentage of every check, and use that money to pay your quarterly estimated taxes. Never “raid” these funds.

2. Save for the future by putting away 20% or more of every gross dollar you earn until you have six months to one year of living expenses in an emergency fund. Then begin investing in your employer’s 401(k) or a retirement plan. If you are self-employed, set up a retirement plan that will allow you to invest as much as you possibly can. My co-authored book Conscious Finance includes a chapter on how to begin investing.

3. Set up a short-term savings account for future lump sum expenses like car and home repairs, vacations, holiday giving, college tuition, and medical emergencies. Figure out how much you’ll need to save from each paycheck to fund all of them annually; then, if possible, have your employer automatically send that amount to a savings account.

4. After you’ve taken out for your taxes, long-term savings, and short-term savings you get to blow the rest any way you want. For most people, this means living on 30 to 60 cents out of every gross dollar you earn.

5. To maintain a comfortable lifestyle, spend frugally. Shop sales, clip coupons, read labels, compare, and bargain. People who build wealth usually don’t wear designer clothes, drive luxury cars, live in extravagant houses, or shop at Nieman Marcus. They typically wear jeans bought on sale, drive Fords, live in middle class neighborhoods, and shop at Walmart.

6. Pay cash for everything but your home. For convenience, you can use a debit card. Never use a credit card unless you pay it off every month. If you ever find yourself unable to pay off your card, cut it up. Pay off the balance as quickly as you can, and then don’t use a credit card for at least one year.

7. When you get a raise, a new job or a promotion, don’t change your lifestyle. Save at least half of the increased income.

8. Your career is your number one financial asset. As much as possible, find a job you love. Invest in educating yourself and keeping abreast of changes in your career field.

9. Use money as a tool, not a goal. Money will never give you meaning or make you happy, but it is a valuable tool to support your quest for meaning and happiness.

This self-disciplined approach isn’t a one-time financial inoculation to help you get rich in a hurry. Instead, it’s a long-term prescription for a pattern of sound money management that will guarantee your long-term financial health.

While I have many thoughts on this, one is the addition of a new asset class to the nine I am currently using, which is managed futures.  Even though the first managed futures fund came about in the 1970’s, this is not a well-known asset class.  Surprisingly, educational material on this alternative investment vehicle is not yet easy to locate. 

I will provide a useful primer on the asset class that will prove to be valuable to clients in this teleclass.  Join me on Thursday March 18, 2010 at 2:00pm MST for this presentation.   Click here to register.

Parents with young children and not a lot of financial resources probably have the greatest need for life insurance. It is just as important for a stay-at-home parent as it is for a wage earner. My rule of thumb if you have children is that you should have a minimum of $500,000 to $1,000,000 of life insurance.

This may seem ridiculously high, until you start crunching some numbers to figure out just how much it costs to raise a child as a single parent. Especially when you include possible expenses like maid service, daycare, orthodontia, and college tuition, $500,000 doesn’t seem like such a huge sum after all.

What makes this level of coverage affordable for young parents is term life insurance. Term insurance, as its name implies, is a policy taken out for a specific length of time, from five to 25 or 30 years. It pays your beneficiary the face amount upon your death. It is insurance only; there is no investment component or accumulated cash value associated with it. It is an expense, not an investment, just like homeowners or auto insurance.

If you are in good health, term insurance is typically inexpensive and adequate for most people. A male aged 32 who is a non-smoker with no health problems could buy a $1,000,000, 20-year policy for about $40 to $60 a month. A $500,000 policy would cost about $25 to $35 a month. The longer the term of the policy, the higher the premium.

The largest risk with a term policy is that you may become uninsurable and therefore unable to renew the policy at the end of the term. This is a legitimate concern, but it can be minimized by purchasing the longest term policy available. Typically, a 20- to 30-year term is long enough to ensure that children are raised and educated.

I recently heard from a reader who had been searching the Internet and found conflicting advice about the best type of life insurance to buy. Personal finance authors and speakers Dave Ramsey and Suze Orman strongly recommend term insurance. Other sources this reader had found said big companies and executives invested in cash value as part of their portfolios.

For most people, I’m with Dave and Suze on this one. I advise most of my clients to buy term insurance. If executives have cash value policies, it is usually because their companies are paying the premiums. Such policies, which are also called universal or variable life policies, include an investment feature, and they have much higher premiums.

While there may be some circumstances when cash value policies make sense, they are few and far between. Such policies might be appropriate as part of certain estate-planning strategies, generally for people with high net worth. They may serve to fund an irrevocable life insurance trust upon the second spouse’s death or to pay estate taxes on an illiquid estate such as a family business.

For anyone needing life insurance simply to provide for family members, however, term insurance is usually the best choice. It offers the most income replacement for the lowest cost.

The bottom line is that most people need a lot of life insurance to replace a lifetime of income, not as a way to produce income. Term insurance serves that purpose. To produce income, fully fund your retirement plan options with the money you save on premiums.

One of the best features of the conference is the ability to talk directly to the decision makers of software companies I rely on.  This makes it easy to give them suggestions on software improvements and bounce between two of them to resolve interface issues.

I won’t bore you with a complete write-up of the conference, but Russell Dunkin has a great one on his blog if you want to check it out.

Kahler says, “I’m a great advocate of not using credit cards, especially for anything consumer related. The best use of a credit card is to pay if off every month. And I recommend to people, when you hit that first month when you can’t pay it off, you cut up the card.”

Card companies now have to give 45 days notice before raising interest rates, but they can close your account or lower your credit limit at any time and for any reason without telling you.

Watch Rick’s complete interview with KEVN Black Hills FOX here.

Recent years have shown most investors that an unfavorable stock market or global financial crisis can threaten their nest eggs. A potentially greater threat, however, is less obvious. Stock-market losses won’t ever wipe out a diversified portfolio. A lawsuit could.

Most people believe they would have to do something terribly illegal to actually lose their assets. Sadly, that is not the case. Even a questionable lawsuit can result in the filing of a judgment or an unreasonable damage award from a runaway jury. In addition, a person can be found innocent of any wrongdoing and still be financially devastated by the legal expenses or business consequences of a lawsuit.

The answer is asset protection. Many people, including too many attorneys, accountants, and financial planners, don’t understand the components of good asset protection. A common belief is, “Who needs it? I’ve got liability insurance.”

However, liability insurance provides only a first thin layer of asset protection. You have no guarantees that your insurance company will:

1. Pay your claim rather than find a reason to deny it.
2. Remain solvent and scandal-free.
3. Provide sufficient coverage limits to cover any judgment entered against you.
4. Charge premiums you can afford next year, or in five years.

Obviously, prudent investors need something more than insurance to protect their assets. They need a foundational layer of protection which includes the three basic tenets of good asset protection:

1. Don’t own anything in your name.
2. Use a variety of entities, such as LLCs and trusts, to hold your assets.
3. Place the jurisdiction of the entities in a variety of states.

While these fundamental principles are simple, designing and implementing an effective asset protection plan can be complex, depending on your assets and how much protection you want.

I tell my clients that protecting your assets is a little like protecting your home. You can leave your door unlocked so you can just walk in—but then so can anyone else. You can lock the door, which means you have to remember to carry your key and it takes you a little longer to get inside. You can install a security alarm system, which means you not only have to remember your key, but learn how to use the system and memorize an access code. The more security you have, the more complicated it is to get in.

At about this point in the discussion, most people will say, “Yes, but I don’t want to bother with all that complicated asset protection stuff.” Good asset protection will demand some additional paperwork and, in most cases, initial help from attorneys or accountants. Still, the increase in complexity may be less than you might anticipate. A properly designed plan will be just complicated enough to protect your assets, but not so convoluted as to be “complication for complication’s sake.”

The good news is that taking steps to place your assets beyond the reach of a frivolous lawsuit or judgment creditors can cost less than some insurance premiums and far less than defending against a lawsuit. Even more, a properly designed asset protection plan acts as a buffer between your wealth and any claims. It will stop most frivolous lawsuits from ever being filed or create sufficient leverage from which to negotiate a reasonable settlement.

Good asset protection requires starting early, not after you are served with a multi-million-dollar lawsuit. Start today to construct a solid asset protection plan that will help you maintain the wealth you’ve worked so hard to accumulate.

He suggests a couple begin by getting a grip on their own financial panic before dumping on the kids.  That is easier said than done, as kids can tell when Mom and Dad are anxious and fighting about money easily.  Hiding it only makes things worse.

You can read the entire article here.

According to a Wall Street Journal report from December 22, 2009, since the end of 1999 stocks traded on the New York Stock Exchange have lost an average of 0.5% a year. The Depression years of the 1930s saw a 0.2% decline in stocks. That makes the last 10 years the worst calendar decade for stocks going back to the 1820s. The Journal quotes Michele Gambera, chief economist at Ibbotson Associates, as saying, “The last 10 years have been a nightmare, really poor,” for U.S. stocks.

However, smart investors know it’s folly to invest in just one or two asset classes like U.S. stocks and U.S. bonds. Your fortunes will rise or fall in direct proportion to their performance. The last 10 years would certainly have seen them fall with U.S. stocks.

What you didn’t read much of in the financial press was that not every asset class had a bad decade. Real estate investment trusts increased around 9% annually. Natural resources returned around 5%, and U.S. bonds gained about 6% a year. Pacific Rim countries’ stock markets, notably China’s, had an excellent decade.

Investors who allocated a static portion of their portfolios to each of nine asset classes and rebalanced periodically earned 4% to 8% annually over the past ten years. That is hardly a lost decade.

You might compare building a good portfolio to the inner workings of a V8 engine. The goal is to select eight investment classes that over a long period of time will produce returns of 5% to 9%. In any one year, one asset class is firing (doing well), one is in total decline (probably experiencing a negative return), and the other six are somewhere in between. This action keeps the portfolio more stable and less volatile, while producing solid returns over the long haul.

A major key to success with this strategy is, during a time of emotional rationality, to set the percentages you will invest in each asset class (the pistons). You then periodically rebalance by selling some of those asset classes that increase above their allocation and buying more of those that go below it.

Investors who followed this strategy saw their portfolios lose less than a total of 10% since the end of 2007. Investors who panicked during the market bottom in March 2009 and lightened up on stocks increased their losses to 25% to 40%.

In most normal years, the returns garnered by my clients lie within a fairly tight range. That was not the case in 2009, where I saw returns range from -8% to 36%. Their portfolio’s annual returns were directly tied to how much they reacted out of fear and sold equities near the market bottom.

Those who stayed the course saw their portfolios rise an average of 30%. Those who got scared and reduced their exposure to stocks during the first quarter of 2009 shaved 10% off their annual 2009 return for every 10% reduction in equities. For example, an investor who had 70% in stocks going into 2009 and reduced it in March to 50% probably reduced the total return from 30% to 10%. If that same investor was unfortunate enough to reduce stocks to 30%, they actually lost -10%.

The lesson I am taking from the past decade is a classic one: a diversified portfolio will never set dramatic speed records, but it will keep moving steadily forward even when investment roads are rocky.

Just as most consumers would benefit from engaging a financial planner, so would most financial planners.  Lisa Shidler of InvestmentNews explores why most planners go it alone.  You can read the article here.