2008 Financial Resolutions and How Not to Have a 1987 Portfolio

January 7, 2008

343934780 9ebced2e85 MI can not believe that it is already 2008. A new year can represent a fresh start for many. I know that many out there have made financial resolutions and I want to be a resource to help you reach that goal of financial independence. Let’s talk about some of the big areas that may need attention and I will also add in links and articles that support my thoughts.

1) Wills – I know that I sound like a broken record, but make sure you have a Will. Especially if you have children. Otherwise, your state court system will determine who should raise the kids.

2) Life Insurance – As many of you know, I do not sell insurance, so you can relax: I am not here to push products on the Money Guy show. With that said life insurance can be a tremendous asset to your family (specifically term life insurance). Life insurance should be used as a tool to replace income as well as pay down debt. If you left this planet tomorrow how would your family pay off the mortgage, send the kids to college, or pay for utilities and groceries? If you are not already independently wealthy you probably need term life insurance coverage. The good news is that it is dirt cheap. I just purchased a $250,000 20 year level term policy on my wife and it only cost $140/year (that is only $12/ a month…). I personally have close to $2 million dollars worth of coverage on my life and it is all in term insurance and I pay just a little over $1,000/year.

A good reference as to how much insurance you need is typically 10 times your annual salary. So if you make $50,000/year you should purchase a $500,000 policy. The term that the rates should remain level depends upon your current financial situation and how long you will need the coverage. If you have young children then 20 year term will provide enough time for them to become adults and hopefully move out of the house before the level premiums increase. If you want to see how cheap term insurance is then consider checking out the Michael Gasses agency’s website. Michael has a “GET A QUOTE” link on the right side of his home page that does not ask any personal information, but let’s you run term insurance quotes. Now who the heck is Michael Gasses and have I sold out? No, Michael has been a friend of my family since I was about 6 years old (I went to school with his daughter Angela and he has always been one of the few insurance agents that I truly trusted. He is also the agent that helped me with my wife’s policy).

3) Beneficiary Designations on Life Insurance and Retirement Plans – this is tremendously important. If your life has changed (children, divorce, new marriage) you need to update your beneficiary designations. It does not matter what your Will says for assets that pass via beneficiary designations (retirement plans, trusts, and life insurance). Also if you have young children you need to make sure that your will and beneficiary designations are working together because in many states a minor child is not allowed to inherit assets directly without a trust. The solution is to have your will create a trust that will handle the assets that your minor children will inherit.

4) Asset Allocation – There is a ton of bad news out there right now, and it is still not too late to evaluate the asset allocation of your investment capital. By the way, this does not mean just because times are getting tough that you should jump into cash investments (there is this cruddy thing called inflation that will make that a bad decision in the long-term).

All investors should make sure that they do not have any money that they will require for the next 3-5 years invested in volatile investments (stock, bonds, real estate, and commodities).

If you are approaching the end of your working years you need to make sure that your portfolio is positioned to weather the upcoming market volatility.

Young investors should make sure that they do not outsmart themselves and hang in there and look at the silver lining in a volatile investment market (lower purchase prices for a long-term investment portfolio).

Do not get caught investing like it was 1987. What do I mean by that? Well I just downloaded the 2007 Annual Report for The Yale University Endowment. For those not in the know, the Yale University endowment annual report is a tremendous resource for amateur investors — if only because of their tremendous success over time (average annual returns of 15.6% for the last 20 years). I always say that to really see how to become successful go see how the elite professionals are doing it (not how the guy who is trying to sell you products is doing it!)

Now back to the 1987 point. It was in 1987 that the Endowment shifted from a traditional stock, bond, and cash portfolio to a more diversified portfolio with non-traditional asset classes. This dramatic change has allowed the Endowment to grow from approximately $2 billion in ’87 to over $22 Billion in 2007. Listen to the audio of today’s show for the complete breakdown as well as an entertaining review of what was going on in the world of music and movies back in 1987.

** Blog Spotlight**

I also wanted to give you guys a link to one of our listener’s blogs. Gerry is a listener of the Money Guy Show and I share a huge concern with him…. The 403b Boondoggle

** Other Info Outside of Investing **

I came across this article a week or so ago and it concerns all of us iPod, Zune, and MP3 player users. It appears that the record industry is now going after our right to download CDs to our personal players (click here for link). Make sure you keep an eye on this issue because this is very concerning.

** Show Input **

I am hoping that 2008 is going to be a huge year for the Money Guy Show, but I need your input. We are going to be making dramatic changes over the next two months including… adding listener forums, a .PDF version of the Wealth Report instead of the snail mail version that I currently offer, and premium content. I would love to hear from my listeners to know what other helpful changes we should make with the show. Not just show topics, but what you would like to see with our website and show format. Thank you for being such an active listening audience. Without your iTunes reviews and letting others know about the Money Guy show we could not have grown as much as we have.

I probably do not say it enough… THANK YOU FOR BEING A GREAT AUDIENCE!



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