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Your Retirement July 2006 Newsletter1


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Your Retirement July 2006 Newsletter1

  1. 1. <ul><li>In This Issue: </li></ul><ul><li>Our Brand New 2006 Workshop: Saving – Investing For Retirement --- A Simple Approach: You Can Do It </li></ul><ul><li>What You Should Know: What Are You Paying To Invest In Your 401(k)? </li></ul><ul><li>What’s Ahead: You And Inflation </li></ul><ul><li>Our Brand New 2006 Workshop: Saving – Investing For Retirement: Simple Portfolio #5 </li></ul><ul><li>This Month’s Question: How Can Benchmarking Can Help You --- A Case Study </li></ul><ul><li>Getting To The Nitty Gritty: Should You Invest In Bubble Bursting Mutual Funds </li></ul><ul><li>A Retirement Diary: Older Americans Vulnerable To Scam Artists </li></ul><ul><li>What’s Ahead: Best Places To Retire To </li></ul><ul><li>How Can I: Find The Nation’s Highest Money-Market And CD Yields? </li></ul><ul><li>Sandy The Smart Saver: Nephew Oliver And His Toys </li></ul><ul><li>Sandy Cartoon </li></ul><ul><li>Quick Take #1: Wall Street Employees Had A Record Year In 2005 --- How About You? </li></ul><ul><li>Quick Take #2: Start Saving-Investing Early In Your Career </li></ul><ul><li>Stock Market – Wall Street --- Investment Humor </li></ul><ul><li>Quotable Quotes </li></ul>Your Retirement Welcome to Your Retirement, our monthly web-newsletter with information that can help you with your retirement planning efforts. We provide straight-forward, easy to understand, unbiased and candid information. Feel free to use this information and to also pass it along to your friends and associates. You will find previous issues of our newsletter on our website. If you are interested in additional information that can help you, be sure to check out our web site; or contact Robert R. Julian, at ® RETIREMENT PLANNING CONSULTANTS A Guide To Your Retirement Planning - Volume III - Number 7 July 2006 Our Brand New 2006 Workshop: Saving – Investing For Retirement --- A Simple Approach: You Can Do It Mark Hebner’s new book, Index Funds: The 12 Step Program for Active Investors is a large book. The Motley Fool says “It looks like a cross between the Detroit phone book and an Abrams art history book.” Hebner spends a great deal of time citing academic research and in doing so, points out that for most people, index funds are a terrific way to invest. Why? &quot;The financial services industry has a dark secret, one that costs global investors about $2.5 trillion per year. The dark secret is that managers don't beat markets. The fact is that markets outperform managers by a substantial margin over long periods of time. This book offers overwhelming proof of this.&quot; &quot;My own journey to this unsettling truth began in 1985. It was then that I received about $6 million for the sale of a company I had co-founded. I immediately turned my newfound fortune over to a major brokerage firm with a stellar reputation and a fancy office in a towering skyscraper. How could I go wrong? Like many investors, I didn't take the time to learn how the stock market works.” “ It wasn't until 12 years later that I finally decided to figure out how my investments had performed compared to appropriate benchmarks. As I spent months combing through bookstores and surfing the Internet for information, the knot that formed in my stomach grew tighter. It turned out that my lack of understanding of how markets worked had cost me a mind-boggling amount of money. When comparing a risk-appropriate portfolio of index funds with what I actually achieved in my own portfolio over the last 20 years, I have ended up with $30 million less. I repeat, my portfolio earned $30 million less than a simple index fund portfolio.&quot;
  2. 2. -2- In our brand new 2006 Workshop: Saving – Investing For Retirement --- A Simple Approach, we look at and discuss 10 simple, lazy-low-maintenance index fund portfolios. What is the aim of this approach? It is to produce a portfolio of low-cost mutual funds investing in asset classes that are likely to outperform the S&P 500 Index and many, if not most actively managed mutual funds. You can take a look at our Simple Portfolio #5 on page 3 of this newsletter. What You Should Know : What Are You Paying To Invest In Your 401(k)? John Fuchs is one of about 44 million workers who invest in a 401(k) plan at work. One day he was checking out his account online and was surprised to see a charge of $48 that was deducted from his account. Why? He made some phone calls and sent some emails and learned that the money was paid to an outside firm that enrolls employees in his company's 401(k) plan, mails quarterly account statements and handles other administrative tasks. Fuchs knew the mutual funds he'd chosen charged fees for investing his money. He didn't know that overhead costs were also being taken out of his account. They now cost him about $500 a year. And he also discovered that because the administrative fee is a percentage of his balance, he will pay more and more as his savings grow. Fuchs figures that by the time he retires, it will have cost him more than $316,000 in direct charges and lost investment returns. &quot;I think a lot of people out there pay this fee but don't know it,&quot; said Fuchs, 38, an information technology manager for an engineering firm in Exton, Pa. &quot;To the average employee, it's totally invisible.&quot; Kathy Kristof, Walter Hamilton and Josh Friedman, Staff Writers for the Los Angeles Times, in Part One of a Three Part series of articles, detail how obscure deductions are quietly eroding the savings and investments that employees like John Fuchs are making. The sad part of this scenario is that in many cases, employers could bargain for lower charges, but don't. As the Kristof report notes, “These so called administrative fees usually don't show up on quarterly or annual statements. Brochures touting the benefits of 401(k) investing rarely mention them. Employees have to work hard to find out how much they're paying — for instance, by scouring their plan's website for a record of all activity in their accounts.” The report also states that employees like Fuchs that attempt to obtain information about fees from benefits departments or 401(k) administrators, often complain that they can't get straight answers. Because of outdated federal disclosure rules, publicly available records on fees often reveal only a fraction of the money leaking out of retirement accounts. Bud Green, a principal at Fortress Wealth Management Inc., a 401(k) consulting firm in Santa Monica, CA, states “It's very difficult for the average participant to determine what the total expenses are, how those expenses measure up, and who exactly is getting paid and how much.” Fuchs said his employer wouldn't reveal details of Benefits Sources' fee. &quot;I think it's pretty sneaky. The fees should be reported in a forthright manner, but they're not. All these companies do it. A lot of human resources people don't even know what's taken out of their own funds.“ As we noted before, John Fuchs is just one of 44 million workers who are depending on their 401(k) as the vehicle that will help them to build a nest egg to finance their retirement. It’s a pretty sad state of events when someone like John has to struggle to find out that he is paying $500 a year for the overhead charges in his account. The problem is that there are not many people like John who will or want to or can take the time to discover a huge problem that he discovered by chance. Will John’s employer, Groundwater & Environmental Services, be able to help John and his fellow employees by asking their consulting firm , Benefits Sources & Solutions to lower the administrative fees the employees are paying? You would hope so. The problem is that employer surveys from 2004 and 2005 show that many companies make no effort to reduce 401(k) costs or to disclose them and only 38% of employers will disclose 401(k) administrative fees only if an employee requests it. That is a huge “no-no.”. HR, Benefits people, please take notice. “ Appearances often are deceiving.” Aesop, 620 – 560BC Aesop’s Fables, Greek writer What’s Ahead: You And Inflation Whenever it happens, inflation will have a direct impact on your retirement. Just ask any retiree. Question: Why do you have to pay a $1 or more for a cup of coffee today? In 1960 you could pay 10 cents for a cup. Answer: Inflation, most often, coincides with an economic boom and a good job market. The more people earn, the more they're willing to pay—and compete—for goods --- like a cup of coffee. And also higher demand --- like more cups of costlier coffee. Higher demand creates more jobs. But seeking to pay more workers and afford greater quantities of materials, manufacturers must raise prices. Over time,
  3. 3. -3- In portfolio #5, we allocate 7.5% to the S&P 500 Index, 7.5% to the U.S. Micro-Cap Index, 7.5% to the U.S. Large-Value Cap Index, 7.5% to the U.S. Small-Value Cap Index, 6% to Emerging Markets, 6% to International Small-Cap Value, 6% to International Small-Cap, 6% to International Large-Cap Value, 6% to International Large-Cap and 40% to Short Term Bonds.  Over a period from January 1970 December 2005 (35 years), the result is an annualized return of 13.1%. Talk to the people in your benefits – compensation – HR office about this workshop and how it can help you and your fellow employees. Ask them to get in touch with us so that we can bring this informative program to your work place this summer or fall. We think you, the average investor, can gain a great deal from participating in this workshop. Email: [email_address] , Phone: 607-255-4405 “ When you learn how index funds work, however, you may wonder how the index fund came to be the muscle-bound brute who gets to kick sand in everybody else's hair. The consistent mantra of index funds, after all, seems wimpy: We strive for market average returns.” The Retirement Bible, Lynn O’Shaughnessy This Month’s Question: How Can Benchmarking Help You --- A Case Study It’s essential to compare the returns of your mutual funds to a benchmark to examine whether your investment strategy is working. Fund performance in absolute terms is less significant than how it performs relative to an appropriate benchmark. How does it measure up against its peers --- a group of similar funds or to an appropriate market index? It is crucial to evaluating prospective investments and to measuring success. Be sure that the fund’s indicated comparisons are valid and appropriate. Compare “apples with apples.” Compare total returns for the same time period for both funds. Use long-term performance data. Use two types of benchmarks, market indexes and peer group averages. The S&P 500 is the most widely used benchmark for measuring mutual fund performance but it is not the appropriate benchmark for the majority of funds. It is relevant only for comparison of returns of funds that invest in large-cap domestic funds. What is a large cap-domestic fund? Large-cap domestic funds invest in companies with market values greater than $10 billion that are projected to grow faster than the market. The annual average return for the S&P 500 Index for a 10-year period was 9.1% (12/31/2005). We found a total of 116 Funds in the Large- Growth category. How many of the 116 funds in the large growth category beat the S&P 500 index in that 10 year period? --- 28. prices can rise to a point at which salaries no longer keep pace with the cost of living and goods are less affordable. That's when the dollar becomes &quot;inflated&quot; and its value declines. What does all of this have to do with retirement? Let’s say that you are a very conservative investor with significant assets in money market accounts who relies heavily on fixed-income investments—bonds, fixed annuities, and pension payments. Inflation can cause a problem. As the cost of living rises, a fixed stream of income buys less and less of what you need to live comfortably. In 2005, $100 had the same purchasing power as $4.59 in 1900, $9.54 in 1925, $13.09 in 1950, $29.22 in 1975, and $93.58 in 2000. But if you own a $10,000 bond that pays 5.5% you'll get $550 per year, no matter what the dollar is worth. You'll also lose purchasing power if your retirement income fails to keep pace with inflation. While you can't control inflation's impact on your monthly retirement income, while you are working, you can help safeguard your investments with an allocation to stocks. Since 1926, equity investments have returned an average of 11% annually, while inflation has averaged a 3.1% yearly increase. Diversified portfolios—with 60% in stocks, 30% in bonds, and 10% in cash—have earned a return at least four percentage points higher than inflation over the long term. “ Inflation is when you pay fifteen dollars for the ten-dollar haircut you used to get for five dollars when you had hair.” Sam Ewing, 1920 – 2001,. American writer, humorist Our Brand New 2006 Workshop: Saving – Investing For Retirement: Simple Portfolio# 5 In the March 2006 edition of this newsletter, we featured, from Paul Merriman’s book, Live It Up without Outliving Your Money, Simple Portfolio #1. In April, we featured Portfolio #2 In our May newsletter, we featured Merriman’s Simple Portfolio #3. In June, we featured Portfolio #4. Here is Simple Portfolio 5.
  4. 4. -4- How many of the 116 funds in the large growth category lost to the S&P 500 Index in that 10 year period --- 86. The S&P 500 Index beat almost 75 percent of the Large-Growth category funds during the 10 years between 1996 – 2005. A good number of experts say that you should check your funds versus their benchmarks quarterly. They add that any fund that consistently under performs its benchmark by more than one or two percentage points, annualized, should be put on a “watch” list or sold. Some suggest that you should not dump a fund until you are dissatisfied with its relative performance for a year. “ Once benchmarks of civilization and style, these &quot;gateways&quot; to the cities were palaces of splendor and objects of civic pride. Now they are caverns of gloom.” Ada Louise Huxtable, a pioneer of contemporary architectural journalism Getting To The Nitty Gritty: Should You Invest In Bubble Bursting Mutual Funds In the late 1990s, inexperienced investors did not understand risk but the bear market of 2000 – 2002 served as a wake-up call. People who take on too much risk often wind up being speculators --- not investors. Many, many investors poured money into the top mutual funds of 1999. In that year, 173 funds returned 100% or more. The NASDAQ index gained 86%. It was the kind of market where a lot of funds took off. But in the 6 years since 1999, those funds which gained 100% or more fell on hard times. About one-fourth of them have been shut down or merged into other funds. Here are the all stars of ’99. Big returns mean big risks, as these former rockets -- the top diversified U.S. stock funds of 1999 -- demonstrated in the six years since the good times ended. Should you invest in any of them today? *Data to December 1, 2005. **Merged into Morgan Stanley Install Small Cap Growth on 8/1/01. ¹Formerly: BlackRock Micro Cap Equity A. ²Formerly: Vanwagoner Micro Cap. ³Formerly: Strong Enterprise. # Formerly: PBHG Select Equity. «Merged into Janus Enterprise on 4/17/03. -Not applicable. Thurlow Growth was launched in 1995 as a growth-and-income fund. After gaining 207% in 1999, the fund lost 56% the next year and then suffered double-digit losses in 2001, 2002 and 2004. The Kiplinger Mutual Fund Report – 2006 - states that the fund is still open but with only $80,000 in assets. Many studies have shown that those funds that have outperformed in the past are more likely to under-perform in the future. Prof. Burton Malkiel, Princeton University and author of A Random Walk Down Wall Street, states “It does not appear that one can fashion a dependable strategy of generating excess returns based on a belief that mutual fund returns are persistent.” “ There is no need to sally forth, for it remains true that those things which make us human are, curiously enough, always close at hand. Resolve then, that on this very ground, with small flags waving and tiny blasts of tiny trumpets, we have met the enemy, and not only may he be ours, he may be us. Pogo, Comic strip created by Walt Kelly 1913 - 1973 A Retirement Diary: Older Americans Vulnerable To Scam Artists Back in March, when I was spending some time in Florida, I noticed a good number of newspaper ads where retirees and soon-to-be retirees were invited to a free lunch – dinner where they could also hear a pitch on how to build their retirement nest egg. I wondered --- how many people respond to these ads? Recently, I thought about those ads when I came across a story which stated that t he U.S. Senate Special Committee on Aging held hearings on how seniors can stop investment fraud. I also read that the Securities and Exchange Commission Chairman, Christopher Cox, said the nation's top stock cop is stepping up efforts to thwart scam artists as well as educate older Americans about investments. The SEC is focusing its attention on Florida, the state with the largest percentage of Americans 65 and older --- 17% of the population was 65 and older in 2004 according to the U.S. Census Bureau. They will be examining broker-dealers and advisers and the &quot;ubiquitous marketing vehicles” that lure seniors to sales seminars -- often at fancy hotels and restaurants -- with promises of the proverbial 'free lunch” --- just like the seminars I could have attended.
  5. 5. -5- Don Saxon, commissioner of the Florida Office of Financial Regulation, says regulators will conduct a series of on-site exams of Florida brokers and advisers and the employees who conduct seminars. And if regulators find that instead of a legitimate sales seminar and a free meal --- seniors are being exposed to high-pressure pitches for unsuitable products, wild claims about projected returns and no disclosure of the actual risks of an investment, watch out. Saxon says, &quot;We'll move in hard and fast.” Robert Powell, from, has his recommendations for what seniors can and should do to protect themselves from the scammers. Don't attend any of their 'free lunches' . On one hand, free lunches are rarely anything for scammers but a chance to find the next fool and his (or her) money. &quot;The SEC's experience thus far tells us that these sales pitches are anything but 'free,'&quot; Cox said. &quot;They come with a very high cost.&quot; Saxon, meanwhile, says seniors need not automatically rule out grabbing a bite to eat courtesy of this or that broker or adviser. &quot;There is nothing wrong with a free lunch.&quot; What's wrong, however, is when the adviser or broker puts on the hard sell, making unsuitable recommendations and failing to disclose risks associated with specific investments, including equity-index annuities, verticals and life settlements. Never take the word of promoters at face value unless returns and promises can be corroborated by an independent source, such as audited financial statements. In addition, experts such as Barry Minkow, the former scam artist who testified before the Special Committee on Aging, recommend against doing business with organizations dominated by a single person who is accountable to no one. Get smart. Older (and younger) Americans don't always know whether investments are unsuitable or when risks are being disclosed. That's why the real first order of business for seniors searching for yields in some of the wrong places is --- an education. And one of the best places to start one's schooling is the SEC's new Web site for seniors. Get a second opinion . Seniors should seek out second and third opinions from trusted advisers, family and friends about investment opportunities. Their 'deals' should be closely examined. Investors should be willing to walk away from scam artists who use come-back tactics like &quot;well, I've got a lot of happy investors --- so it’s your loss.&quot; A free lunch – dinner can be a nice way to spend an afternoon – evening. But, these unscrupulous scam artists can turn it into a very expensive event than can cause serious heartburn. “ When wealth is lost, nothing is lost; when health is lost, something is lost; when character is lost, all is lost.” Billy Graham, Protestant Christian evangelist What’s Ahead: Best Places To Retire To While the characteristics that make a town the &quot;best place to retire&quot; will vary depending on who is retiring, it appears that those who want to stay near a metropolitan location will like an area that's a little quieter than most urban areas, has a low crime rate and a great mix of residents. If that is what you are looking for, the second edition of Retirement Migration in America , can help you to make a decision on where you might want to live. This report details the top towns for retirees in the country's 15 largest metro areas. Charles Longino, a professor of gerontology at Wake Forest University, in Winston-Salem, N.C., states that while retiring in or near a metropolitan area isn't what many consider an ideal retirement, “Most retirees do tend to stick relatively close to urban centers, unwilling to give up the cultural attractions, proximity to family and friends, and other conveniences that are hard to replicate in more pastoral settings.” Andrew Schiller, a geographer and founder of a web site that lets visitors compare communities nationwide, states, &quot;Sometimes you don't have to go that far outside the city to find quiet areas that are peaceful. We looked for places that had that. These places are the best overall combination of safety from crime, and peace and quiet.” What criteria did Schiller use to create his list? Using FBI and U.S. Justice Department crime statistics, Schiller's methodology ranks towns based on the number of violent crimes and property crimes per capita. Schiller created two lists. The first listed towns in the 15 biggest metro areas nationwide, regardless of housing costs.
  6. 6. -6- <ul><li>In the Boston metro area: New Castle, N.H. </li></ul><ul><li>In the New York metro area: Point Lookout, N.Y. </li></ul><ul><li>In the Philadelphia area: Newton Square, PA. </li></ul><ul><li>In the Washington-Baltimore area: Pikesville, MD </li></ul><ul><li>In the Atlanta area: Decatur, GA </li></ul><ul><li>In the Miami-Fort Lauderdale area: Palm Beach, FL </li></ul><ul><li>In the Detroit area: Farmington, MI </li></ul><ul><li>In the Chicago area: Lake Forest, IL </li></ul><ul><li>In the Dallas-Ft. Worth area: Highland Park, TX </li></ul><ul><li>In the Houston area: West University Place, TX </li></ul><ul><li>In the Minneapolis-St. Paul area: Edina, MN </li></ul><ul><li>In the Phoenix area: Fountain Hills, AZ </li></ul><ul><li>In the Seattle area: Greenbank, Wash. </li></ul><ul><li>In the San Francisco-Oakland-San Jose area: Belvedere-Tiburon, CA </li></ul><ul><li>In the Los Angeles area: Bradbury, CA </li></ul>The second list takes housing costs into account, detailing the best places that are also a good value. Still, even this second list doesn't describe cheap places, Schiller states, “These are places that are great quality at a fantastic value.&quot; &quot;Each area has hundreds or even thousands of towns that didn't make the list. The vast majority of cities and towns in those areas didn't make the list because we only picked the top choice and the best value.” How Can I: Find The Nation’s Highest Money-Market And CD Yields?: Check out To check a bank’s financial condition, add /yho/safesound/ss_home.assp. <ul><li>In the Boston metro area: Sandwich, MA </li></ul><ul><li>In the New York metro area: Southbury, CT </li></ul><ul><li>In the Philadelphia area: Jenkintown, PA </li></ul><ul><li>In the Washington-Baltimore area: Boyce, VA </li></ul><ul><li>In the Atlanta area: Monticello, GA </li></ul><ul><li>In the Miami-Fort Lauderdale area: North Palm Beach, FL </li></ul><ul><li>In the Detroit area: Rochester, MI </li></ul><ul><li>In the Chicago area: Michigan City, IN </li></ul><ul><li>In the Dallas-Ft. Worth area: Lindale, TX </li></ul><ul><li>In the Houston area: Bellaire, TX </li></ul><ul><li>In the Minneapolis-St. Paul area: Paynesville, MN </li></ul><ul><li>In the Phoenix area: Sun City, AZ </li></ul><ul><li>In the Seattle area: Greenbank, Wash. </li></ul><ul><li>In the San Francisco-Oakland-San Jose area: Martinez, CA </li></ul><ul><li>In the Los Angeles area: Yucaipa, CA </li></ul>If you don't see your favorite place on either list, consider that this methodology focuses on the biggest metro areas nationwide. Plus, it's a &quot;best of&quot; listing, Schiller said. Sandy The Smart Saver: Nephew Oliver And His Toys Hi, I’m Sandy The Smart Saver and I am here once again to give you some tips on Planning-Saving- Investing For Retirement and I am still taking a light- hearted approach and still trying to make the whole saving-investing for retirement process a “fun” event. And of course, I am still not your average squirrel I was talking the other day with Sandra Block, the “Your Money” columnist with USA Today. She was telling me about a survey done by Hewitt Associates. We discussed the fact that when you are young, say more than 30 years from retirement, investments in a 401(k) or other retirement savings plan have decades to grow and compound and even small contributions will grow dramatically. And if your employer matches part of your savings, your investments will compound even more. Sandra said “This message doesn't seem to be getting through to a lot of young workers. A Hewitt Associates survey found that only 31% of workers ages 18 to 25 who are eligible for a 401(k) participate in their company's plan.” I said, “Sandra, that sounds like my Generation Y nephew, Oliver.” Sandra said that among Generation Y workers (Oliver) who participate in a 401(k) plan, the average contribution is 5.6% of pay. Companies typically require workers to save at least 6% to earn a full company match, so a lot of young workers are leaving money on the table. I said, “Sandra, that is definitely Oliver.” Sandra then said that despite the low savings rate, nearly 90% of Generation Y workers believe they will be able to maintain their standard of living in retirement. I said, “That’s Oliver.” Sandra added “Nearly 65% of Generation Y workers (Oliver) say they expect to receive a monthly pension payment when they retire.” I said, “Sandra, there’s no pension in Oliver’s future but he spends so much time concentrating on his “Game Boy” screen, it’s like I’m talking to the fly on the wall. Oliver doesn’t understand that traditional pensions are disappearing
  7. 7. - 7 - faster than a $2.50 gallon of gas.” “And when I ask Oliver about saving for retirement, he says that he plans to build his retirement nest egg with savings he’ll put away later.” Sandra then suggested that I talk to Oliver about the Choose to Save public education program. I said, “The word ‘save’ is not in Oliver’s vocabulary.” She said “Give him this example ---Suppose you want to save $100,000. If you have 20 years, you can reach your goal by saving $3,272 a year and earning a 4% annual return. Shorten your time frame to 10 years, and you'll have to save $6,559 a year and earn 8% annually to achieve the same goal.” I said, “Sandra, the last time I talked to Oliver about saving, he told me ‘My day-to-day needs interfere with my ability to save. I’ve got a lot competing demands on my paycheck. My lifestyle purchases are an impediment to saving. I need a cartridge a week for my computer games, my iPod, my big-screen TV, my unlimited minutes cell phone contract. These are the things that I need for day-to-day living. I’ve got to keep up with the Joneses.” Sandra said, “Maybe you can suggest an automatic enrollment at work --- a program that helps workers find room in their budget to save.” I said, “Sandra, I’ve got an even better idea. I’ll get Mom (Josephine) to have a little chat with Oliver. She and Tony Soprano have a very similar approach to problem solving --- if you know what I mean.” Sandra replied, “Sounds good to me. Desperate times call for desperate measures.” “ There’s no retiring from this.” Tony Soprano, The Sopranos, New Jersey’s most notorious family Sandy Cartoon: Wife Camille: Sandy, do you know what women really like about men? Sandy: I have some ideas but why don’t you tell me? Camille: Women really prefer men who have something tender about them ----you, know ----like legal tender --- like currency explicitly determined by a government to be acceptable in the discharge of debts. Sandy: Like , somehow, I knew that was coming. Quick Take #1: Wall Street Employees Had A Record Year In 2005 --- How About You? Back in February, Fortune magazine told us that the securities firms in New York gave out $21.5 billion in end of the year bonuses for 2005. “That’s $125,500 per employee (although of course the money wasn’t distributed anywhere near evenly).” Fortune adds that the last time things were this good was back at the close of the internet boom in 2000. Back then, at least, us investors also had a chance “to share in the fun.” However, last year, if you recall, our S&P 500 index fund had a total return of around 5%. And “wage and salary growth for most Americans lagged inflation.” Fortune asks the question: “How Wall Street firms are able to get away with such behavior. If the big investment banks are earning unwarranted profits that pay for all of those huge bonuses, won’t competitors arise? Won’t customers demand a better deal?” The question I want to ask Fortune is ---- Who can I complain to and where can I get a better deal? “ Greed captures the essence of the evolutionary spirit.” Gordon Gekko in the movie Wall Street, 1987 Quick Take #2: Start Saving-Investing Early In Your Career Why? Do the math. If you start with $10,000 in savings at age 25; add $4,000 a year, or 8% of a $50,000 salary; and earn 8% a year, you'll have $1,470,369 at age 67. But, if you delay and start with $10,000 at age 55 and add $20,000 a year, or 20% of a $100,000 salary, and garner the same return, you'll have $404,724 at age 67 --- a trifling difference of only about $1 million. The difference, of course, is investing for 42 years versus 12 years. Moral: The sooner you start setting aside money for retirement, the bigger your nest egg will be--- the bigger the amount you can withdraw from your nest egg. If you have a nest egg of $1,400,000 and you withdraw 4% a year, you can take out $56,000 a year or $4,666 a month. However, if your nest egg total is $404,000, and you withdraw 4% a year, you can take out $16,160 a year or $1346 a month. A simple lesson in math: Saving plus investing early in your career equals:-- nice retirement. Not saving plus not investing early in your career equals:---- no retirement. “ I make this really impassioned pitch for getting your bride-to-be a really nice synthetic diamond ring - and a $4,000 Roth IRA with the saving - because the ring is indistinguishable from a real one, and one Roth IRA contribution could be worth a quarter million tax-free dollars.” Andrew Tobias, American financial journalist, author and columnist.
  8. 8. - 8 - This newsletter intends to present factual up-to-date, researched information on the topics presented. We cannot make any representation regarding the accuracy of the content or its applicability to your situation. Before any action is taken based upon this information, it is essential that you obtain competent, individual advice from an attorney, accountant, tax adviser or other professional adviser. Information throughout this newsletter, whether stock quotes, charts, articles, or any other statements regarding market or other financial information, is obtained from sources which we, and our suppliers believe reliable, but we do not warrant or guarantee the timeliness or accuracy of this information. No party assumes liability for any loss or damage resulting from errors or omissions based on or use of this material. <ul><li>Quotable Quotes </li></ul><ul><li>“ There are three ways of losing money: Racing is the quickest, women the most pleasant, and farming the most certain.&quot; Lord Amherst 1773 – 1857, Governor General of India </li></ul><ul><li>“ Each time that an investor trades a stock and replaces it with another stock, he believes that the stock he buys will outperform the one he sells by enough to at least cover the trading costs. If you are not at least covering your trading costs on average, then you are better off not trading. Based on the trades of 10,000 investors at a large discount trading firm, I looked at the performance of stocks after these kinds of trades took place. On average, the stocks that these investors bought went on to under perform the stocks that they sold by about 3% over the next year. This is before taking out commissions. On average, these people did not do very well in picking stocks.” Prof Terry Odean, professor of finance at the Haas School of Business at the University of California, Berkeley </li></ul><ul><li>Give me a lever long enough and a funcrum on which to place it, and I shall move the world.” Archimedes 211 BC, mathematician and inventor of ancient Greece </li></ul><ul><li>“ The only reason I made a commercial for American Express was to pay for my American Express bill.” Sir Peter Alexander Ustinov 1921 – 2004, Academy Award winning British actor, writer and dramatist </li></ul><ul><li>“ Anyone can carry his burden, however hard, until nightfall.  Anyone can do his work, however hard, for one day.  Anyone can live sweetly, patiently, lovingly, purely, till the sun goes down.  And this is all life really means.” Robert Louis Stevenson 1850 – 1894, Scottish novelist and poet </li></ul><ul><li>“ Pouring your retirement savings into real estate instead of stocks may have seemed smart when home prices were soaring in the double digits. But historically, real estate appreciates at a lower rate than stocks - -- 5 to 6% a year, not much more than the rate of inflation.” Money magazine, February, 2006 </li></ul>Stock Market – Wall Street - Investment Humor A stockbroker is a person who says to his client: I've reviewed your portfolio, and if we manage your stocks properly, there should be plenty of money for both of us For additional information or if you have any questions, contact, Robert R. Julian, Retirement Planning Consultants, 313 Blackstone Avenue, Ithaca, New York 14850, (607) 255-4405, email: Visit our website at Retirement Planning Consultants provides a number of resources designed to help individuals make informed decisions on planning – saving – investing for retirement. We offer unbiased and easy-to-understand information from an impartial outside source. We’ve been doing that for almost 30 years. Our “Planning – Saving – Investing For Retirement” workshops have helped thousands of individuals.