The Money, Honey: A Not So Happy New Year

By Jason V. Simons ~

As the telephone jingles away through the Holiday Season with calls from friends and relatives, everyone seems to be in great spirits wishing all the best for a Happy New Year. Then suddenly the ring tone changes as we turn the calendar to 2012. Calls begin rolling in from creditors wondering why you haven’t paid the credit card bill. Before long the phone takes a very different tone, even the ring sounds different, almost angry and somewhat annoying. It is collection companies turning your Holiday Cheer and New Year resolutions into stress and concern about how you are possibly going to deal with the bills you racked up throughout the Holiday Season.

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This is a very common theme throughout our country, with millions of people facing the same financial distress. It is difficult to face in many instances and causes tremendous stress for families especially if there is no plan for resolving the debt. The average credit card balance per household in 2012 is estimated to be in excess of $15,000 and creditors are becoming more and more aggressive in their collection tactics. You need help, and in most cases professional advice is critical to ensure that you are maximizing your efforts and eliminating the debt both quickly and efficiently.

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The first and probably most important step you can take is to pull a recent credit report. Everyone in the United States is entitled to one free credit report per year and there are several websites that will walk you right through the process. Unfortunately, most people don’t know how to read a credit report which is why meeting with a credit counselor, financial planner, or bank representative is important. If you understand what you are facing, it is much easier to develop a plan of attack. It is also imperative to realize that you did not accumulate the debt overnight so it is going to take some time to reduce or eliminate the balances. Most people want a quick fix and that simply does not exist. It takes time and dedication to do a budget or program which will help you to achieve the ultimate result of becoming debt free.

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One of the other important steps to take right away is to create a carefully thought out budget for the current year. This will not only help with past debts, but also avoid more problems in the future. Even though the Holidays just whizzed by, now is the time to start saving some money for next year. Staying within the plan can be difficult as life throws financial curve balls at all of us throughout the year, but a budget will improve your chances for success and create a much better personal money management system—and that budget can include an emergency fund too.

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Another critical thing to consider is how the financial balance within the household is impacting the family unit. All too often parents fight about money without realizing that it can tear relationships apart and create stress and anxiety for children. We assume that children don’t understand what is going on, but they know more than you think and can certainly learn from some of the issues. If children do not get an explanation directly from their parents they will often stray outside the family unit in order to gain an understanding of what is really going on. This can cause tremendous embarrassment about a very sensitive topic if kids decide to speak to the parent of a friend or even a teacher. It is best to include your own children in the discussion to be sure the family issues don’t wander out of the household.

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It is also more important than ever to begin educating children about good credit habits, the value of money, and avoiding debt. If we start at a young age to expose children to these topics they will be much more prepared to handle similar challenges later in life. Even simple lessons like getting an allowance can teach children how to manage money, save, and even gain a basic knowledge about credit. I once taught a young class how to build credit with their parents by getting double allowance and then working off the “balance due” by doing chores around the house! Simple, but effective, and even fun for kids when they are working towards something they want or helping out around the house.

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During tough economic times, people are far more aware of financial stress especially if they have poor credit and significant debt. Generally it is all over the news, and following the Holidays we are often reminded just how easy it was to overspend when the credit card bills start bombarding our mailboxes. Many people learn the hard way after years of facing high balances, soaring interest rates, and the stress associated with juggling bills. Our children are poised to learn from those mistakes, but it is important that we take the time to teach them about money management and the value of good credit early on, even as we learn from our own mistakes.

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Jason V. Simons is President of National Settlement Solutions, Inc. and author of the recently released children’s book, The Day Debt Moved In. Simons, who holds a Business Administration degree from Roger Williams University, has an extensive financial background that includes a fifteen year focus on debt settlement. Meanwhile, his new book tells a common story of family life that reminds both children and parents that, when they stick together, many obstacles can be overcome. He was inspired to write The Day Debt Moved In after witnessing the tremendous impact of financial hardship on children, and he hopes to bring recognition and awareness to this issue. Jason and his wife have two young children.

The Money, Honey: A Single Mom Christmas ~ Making ‘The Most Wonderful Time of the Year’ Manageable

By Rebecca Fisher ~

Every day I wondered if I would have enough money for gas or groceries. Every month I worried I might not be able to pay the utilities, car payment or the credit card that helped us get by when there just wasn’t enough money to go around. And every year, around the middle of November, the slow churn of anxiety began over the obligatory Christmas gifts. I knew I wouldn’t be able to give my daughter everything she hoped for, which wasn’t much when she was younger, but our holiday culture demands every last penny be spent on gifts, and when our pennies run out, there’s the plastic card that makes it all possible.

Like most parents, I cherished Christmas mornings, when my daughter would spring from her bed, waking me with the sky still dark, and behold the wonder of Santa Claus. I wanted it to be perfect, which seemed impossible on my bare budget.

To combat the anxiety and guilt over the impossible, I focused on what I could control. The following are ideas and suggestions made to me by other mothers that helped make Christmas our favorite holiday of the year without the anxiety, guilt and insurmountable debt.

1. Keep Christmas.

The best antidote to the consumerism Christmas we’re all bombarded with is Christmas itself.  Every year my family celebrates the greatest gift of all, Jesus – a gift of selfless sacrifice full of love and hope.  We read, sing and watch His story together.  The only literal gifts involved come from the magi, who offer all they have in thanksgiving and praise. When filled by that story, an iPod seems pretty petty.

But, alas, we are human, and part of our Christmas culture is the gifts. So unless I was going to cut that out entirely, I had to get creative. And I did, by sharing.

2. Share the list.

I am blessed to have a large family and wonderful friends who love my daughter and help me raise her up.  They are my village and they often ask what my daughter wants for Christmas.  This is when I pull out the list and tell them exactly what she wants.  Her grandparents often ask to buy the more expensive items.  Of course, I agree.  I have no interest in taking all of the credit.  Most of it goes to Santa anyway.

3. Communicate with the other parent.

While some ex-spouses are still busy trying to throw a wrench into every wheel of your life, some are more cooperative. With the latter, discuss what gifts your child wants, who will buy them and how they will be presented to your child. Why buy two of the same thing? Your child doesn’t need it and no one can really afford it. Work together.  It will make for a much merrier Christmas.

4. Be honest.

The older my daughter gets the more honest and realistic I can be with her when it comes to money.  While we don’t need to burden them with all of our financial woes, it’s important to teach them the limits of money. We came up with a budget and she would prioritize. Did she want one large gift or multiple small ones? She gets to decide what she really, really wants and I get to give it to her, though she still thanks Santa…out loud, sitting right next to me with a big smile.

The older my daughter gets, the more she focuses on giving gifts rather than receiving them. I watch her experience the joy of giving and making someone’s day a little brighter.  It’s a beautiful thing. Christmas became an opportunity to show her what’s really important about the day and to focus more on it myself.

About the author:

Rebecca Fisher graduated with a B.A. in English and an M.S. in Education, and teaches high school English. Her own experiences living in a mortuary in Northern California and raising her daughter on her own serve as the inspiration for the many macabre and eccentric encounters in her novel. She lives in California with her husband and two daughters.

All the Wrong Places is available on Amazon, Barnes and Noble online, and the Rebecca’s website (www.RebeccaFisherBooks.com) in both paperback and e-book format.

Photo credit: Nutdanai Apikhomboonwaroot

The Money, Honey: To Buy or Rent … Timing is Everything

By HouseSavvy ~

With home prices dropping, minimal interest rates and the cost of rental properties on the rise, now may be the time for renters to seriously consider buying a house, according to HouseSavvy, a premier real estate and relocation organization headquartered in Massachusetts.

When the housing bubble burst in 2006, the cost of buying a house was considerably higher than renting that same house in most areas. Today, the opposite is true in many states, particularly those hit hardest in the housing crash – namely Arizona, California, Florida and Nevada and right behind them, Illinois, New York and New Jersey.

Rental cost has remained on the high side in many communities within these states, making it more monetarily advantageous for renters to buy a home that has dropped in value from the highs of five years ago, to the tune of the national average of 30%. Combine the decrease in home prices, high rental costs, and historically low interest rates, and the time may be ideal for renters to consider buying.

To further underscore the advantages to buying, consider a recent study by Deutsche Bank that reported the share of income Americans are now paying to own their homes is 9.8% after-tax mortgage, taxes, and insurance payments – down from 17.2% at the housing bubble’s peak. Conversely, the study further says that in 28 out of the country’s 54 major markets, it’s now less expensive to pay a mortgage and other major housing costs than to rent the same house.

For those on the fence of buying or renting, conducting an analysis is not difficult. Start with the total cost to rent a home or apartment – “total” means not only the rent, but any related cost such as tenant’s insurance, and maintenance and/or association dues. Use that number as a starting point or base for comparison.

The next step is to determine the cost of buying comparable housing; for this a little research is necessary. Look at the houses for sale in your price range and find out the price similar homes have been selling for recently. A local Realtor can help in this regard. Once the price of the home has been determined, ask the Realtor what you can expect in the way of real estate taxes, utilities and insurance cost for a home at this price.  Lastly, talk to a local bank or mortgage broker to ascertain the availability and cost of the mortgage needed to buy the home.

Ultimately, real estate is local in nature. National, regional and municipal markets are all “macro markets” comprised of thousands of micro markets specific made up of communities, neighborhoods and price ranges, where market conditions can vary significantly from the macro markets in which they exist.  Even in distressed market areas, healthy micro markets do exist!

About HouseSavvy
HouseSavvy helps home buyers and sellers save time and money by analyzing current real estate market conditions and helping them develop a winning plan and strategy before they start the process. They call it “Start Smart with HouseSavvy.” This service is provided at no cost or obligation. Interested parties can learn more about HouseSavvy by visiting www.housesavvy.com.

The Money, Honey: Taking The Right Steps on The Long Road to Retirement

Okay, I’m going to ask you a tough question this week: Do you have a retirement account? Do you have a retirement plan? Do you know how old you’d like to be when you retire? (Okay, that’s three questions, but they’re all related, so consider them as one.)

Unfortunately, many people haven’t spent much as much time thinking about their future, including retirement from an active career, as they have about which pair of shoes to wear tomorrow. It’s as if magical thinking will fall into place and a room full of money will be available the day you put your retirement gift watch on and pack up your desk. (I have a friend who always refers to my husband’s and my “room full of money,” as if there really is a closed door in my home behind which the greenbacks are just stacked, waiting for me to come in and grab a fistful. Come to think of it, my kids think the same thing!)

But in reality money rooms are just not there. You can dream all you want, but when the time comes in 40 or 30 or 10 or 5 years to think about retirement, the reality might not be as pleasant as the dream. That’s because retirement takes planning. I know some of you are not planners; you like the concept of flying by the seat of your pants, taking one day at a time, being impulsive and spontaneous. Again, sorry to burst the bubble, but that just won’t cut it with retirement. Because the same truth applies here as to your money: in the same way no one cares more about your money than you do, no one should care more about your retirement and its planning than you.

Of course, lots of books have been written about retirement, so we’re not even going to be able to go beneath the surface here. (If you’d like, we can do some future articles on retirement planning; feel free to send questions.) Today we’re just going to give you some broad things to think about relating to retirement.

1. Think about the age at which you’d like to retire and plan from there back to the present.

If, for example, you’re 35 now, you’d like to get out of the, say, pharmaceutical business by the time you’re 60 because the travel is grueling, you have about 25 years to plan and save. Having a number translate to years is helpful to give you some boundaries and parameters.

2. Think about the amount of money you think you can live on when you retire.

People who figure these things out for a living usually give you a percentage of your full-time income as a figure for the retirement years, but I’m not going to do that here. Why not? Because I believe that figure is subject to so many variables, it’s impossible to nail it down. Instead, I want you to do some thinking, some soul-searching, some question and answer time with friends and family. Think about your lifestyle now and what you would like it to be when you’re no longer working full time. Be realistic: if you can’t live in a villa in Italy now, chances are you won’t be able to afford it when you retire.(Sorry.)
Will you stay in the same state you’re in now or move somewhere where the cost of living is cheaper? Do you want to live close to children and grandchildren because you’ll have the time to be with them more? Do some dreaming; challenge yourself and the people who actually will be involved in your retirement life.

3. Think about what’s in place right now toward your retirement plan.

Perhaps your company has a great matching tax-sheltered account and puts in whatever you put in or some kind of match. If this is the case, you’d want to continue to fund it as much as you can to the maximum allowed yearly. Maybe your inheritance from Aunt Betsy who died last month is something you can put away for retirement because, after all, you were living fine without it before. Take stock of your retirement vehicles, laying them out on a table as you would last year’s shoes. If you give care and attention to your wardrobe, shouldn’t you also give care and attention to your retirement plan?

4. Now comes the challenging part:

How can you put more money into your existent retirement accounts or how can you start a new one? Where can you cut back? How can you put aside dollars to work for you for your sunshine years? You want to really think about these questions to find solutions that work for you. It’s important and it’s a start. And a start is better than nothing.

Now go enjoy the day!

The Money, Honey: The Mommy Trap

By Susan T. Spencer ~

Jack and Jill met at work and fell in love. They both were earning mid five figure salaries and on a fast track to advance with the company. Jill married Jack. The following year Jill got pregnant and within two years they had two children. Jack agreed with Jill that she should stay at home and raise their children. Three years later Jack left Jill. Jack and Jill no longer went up the hill together—Jill became a single mother with no savings, no child support and no career and her life came tumbling down.

I call this the Jack and Jill Syndrome. More than five million divorced, single-mother families live in the United States today according to the Census Bureau’s 2010 Population Survey.  Over half of these mothers receive no child support. Although greater than three-quarters of single-mothers work, they and millions of children as well, are living at or below the poverty level. A single-mother’s money woes are actually a double whammy because she has to support herself and her children. This profoundly impacts this generation of national treasure—our children, who are among the most vulnerable.

The Jill’s of the world, regardless of whether they are educated and formerly held good jobs or are high school drop-outs, all suffer from society’s prevailing view that raising children is not a valued occupation that carries with it an economic benefit. So what’s a Jill to do?

As a lawyer who has handled matrimonial matters, (not by choice but as an accommodation to corporate clients), and prepared prenuptial agreements, it dawned on me that women could benefit from the protection afforded by a “prenup” type of  agreement signed before marriage that was devised to avert the Jack and Jill outcome.

A little background might be helpful here to put prenuptial agreements in context. Historically, marriages were arranged by families who wanted to protect their inherited property that was handed down from generation to generation to the first son. The romantic notion of marriage is a relatively contemporary phenomenon which has interjected a seemingly disparate ingredient (love) that complicates the ability to reach an agreement. It is no wonder that women try to avoid any discussion of an arrangement that involves love, children, money and property concurrently. But that is exactly what they must do if they want to preserve their wellbeing and that of their future children.

I believe a newly fashioned “family-prenup” that includes compensating stay at home mothers who raise the couple’s children and take care of the home and apportions the cost of providing for their children until they are 18, would  produce an equitable solution.  Three primary subjects need to be settled and documented to start the ball rolling:

Discuss money, property and children. Mothers need to encourage their daughters to initiate a serious discussion with their future husbands prior to the marriage and urge them to resolve all of the important money, property and child rearing issues—culminating in a signed agreement—before they walk down the aisle. This course of action is critical because once the romance fades all of a bride’s leverage evaporates.

Thrash out every “what if” about raising children. A young couple just starting out is inclined to discount the importance of talking about what if’s involving children that they may have someday in the future. This, more times than not, is a fatal mistake, evidenced by the staggering number of single-mothers who are the sole providers for their children. The future bride and groom should make a list of all the “child issues” and reach an agreement as to how the costs and household duties should be shared.

Advance the concept of “One Financial Pot” With Shared Money Management. Money matters are one of the thorniest topics for couples to discuss, but it is much easier to talk about finances when you are young, in lust, have few assets and are both working. This is the only time that this discussion has a possibility of leading to a satisfactory arrangement. After marriage, especially when you are pregnant and planning to be a stay at home mother, it’s too late! So, open up a conversation about sharing everything and putting it in a collective pot. If you are good at handling money, as many women are, suggest that you be the partner to pay all the bills. If not, work out an understanding where you share money management responsibilities.

So what happens if your intended refuses to talk about these matters? Here comes the moment of truth. Knowing what you already know about the large percentage of divorced, single-mothers who are living at or below poverty level—will you back down and leave these matters unsettled just to avoid an argument? If your answer is yes, you are likely to end up as one more Jill, who tumbled down the hill, and became a new casualty of the Jack and Jill Syndrome.

Susan T. Spencer is the author of Briefcase Essentials: Discover Your 12 Natural Talents for Achieving Success in a Male-Dominated Workplace. She is the only woman who was GM of an NFL team and an entrepreneur who successfully navigated the male-dominated world of meat processing.   www.BriefcaseEssentials.com.

The Money, Honey: Avoid Tax Time Identity Theft

By John Sileo ~

Around this time of year, tax time, people are more vulnerable to Identity Theft. There is very little that is more damaging and dangerous to your identity than losing your tax records. After all, tax records generally contain the most sensitive personally identifying information that you own, including Social Security Numbers (for you, your spouse and maybe even your kids), names, addresses, employers, net worth, etc. Because of this high concentration of sensitive data, tax time is like an all-you-can-eat buffet for identity thieves. Here are some of the dishes on which they greedily feed:

• Tax documents exposed on your desk (home and work)
• Private information that sits unprotected in your tax-preparer’s office
• Improperly mailed, emailed and digitally transmitted or filed records
• Photocopiers with hard drives that store a digital copy of your tax forms
• Copies of sensitive documents that get thrown out without being shredded
• Improperly stored and locked documents once your return is filed
• Tax-time scams that take advantage of our propensity to do whatever the IRS says (even if it’s not really the IRS asking)

Top Tips for Tax Time Identity Theft Protection Safe Preparation. Your greatest risk of identity theft during tax season comes from your tax preparer (if you use one) either because they are dishonest (less likely) or because they are careless with your sensitive documents (more likely). Just walk into a tax-preparers office on April 1 and ask yourself how easy it would be to walk off with a few client folders containing mounds of profitable identity. The devil is in the disorganization. Effective Solutions:

• Choose your preparer wisely. How well do you know the person and company preparing your taxes? Did they come personally recommended, or could they be earning cash on the side by selling your personal information. Do they have an established record and are they recommended by the Better Business Bureau?
• Interview your preparer before you turn over sensitive information. Ask them exactly how they protect your privacy (do they have a privacy policy?). Are they meeting with you in a room full of client files, or do they take you to a neutral, data-free, conference room or office? Do they leave files out on their desk for the cleaning service to access at night, or do they lock your documents in a filing cabinet or behind a secure office door? Do they protect their computers with everything listed in the next section?
• Asking professional tax preparers these questions sends them a message that you are watching! Identity thieves tend to stay away from people they know are actively monitoring for fraud. Remember, losing your identity inside of their accounting or bookkeeping business poses a tremendous legal liability to their livelihood.

Secure Computers. Last year, more than 80 million Americans filed their tax returns electronically. To prevent electronic identity theft, you must take the necessary steps to protect your computer, network and wireless connection. Additionally, your tax preparer should be working only on a secured computer, network and internet connection. Hire a professional to implement the following security measures:

• Strong alpha-numeric passwords that keep strangers out of your system
• Anti-virus and anti-spyware software configured with automatic updates
• Encrypted hard drives or folders (especially for your tax preparer)
• Automatic operating system updates and security patches
• An encrypted wireless network protection
• A firewall between your computer and the internet
• Remove all file-sharing programs from your computer (limewire, napster, etc.)

Private information should be transmitted by phone using your cell or land line (don’t use cordless phones). In addition, never email your private information to anyone unless you are totally confident that you are using encrypted email. This is a rarity, so don’t assume you have it. In a pinch, you can email password protected PDF documents, though these are relatively easy to hack. Stop Falling for IRS Scams. We have a heightened response mechanism during tax season; we don’t want to raise any red flags with the IRS, so we tend to give our personal information without much thought. We are primed to be socially engineered. Here’s how to combat the problem:

• Make your default answer, “No”. When someone asks for your Social Security Number or other identifying information, refuse until you are completely comfortable that they are legitimate. Verify their credentials by calling them back on a published number for the IRS.
• If someone promises you (by phone, fax, mail, or in person) to drastically reduce your tax bill or speed up your tax return, don’t believe them until you have done your homework (call the IRS directly if you have to). These schemes flourish when the government issues economic stimulus checks and IRS refunds.
• If anyone asks you for information in order to send you your check, they are scamming for your identity. The IRS already knows where you live (and where to send your rebate)! By the way, the IRS will NEVER email you for any reason (e.g., promising a refund, requesting information, threatening you).
• To learn more about IRS scams, visit the only legitimate IRS website, which is www.irs.gov. If you are hit by an IRS scam, contact the IRS’s Taxpayer Advocate Service at www.irs.gov/advocate.

Mail Safely. A good deal of identity theft takes place while tax documents or supporting material are being sent through the mail. If you are sending your tax return through the mail, follow these steps:

• Walk the envelope inside of the post office and hand it to an employee. Too much mail is stolen out of the blue USPS mailboxes and driveway mailboxes that we use for everything else to make them safe.
• Send your return by certified mail so that you know it has arrived safely. This sends a message to each mail carrier that they had better provide extra protection to the document they are carrying.
• Consider filing electronically so that you take mail out of the equation. Make sure that you have a well-protected computer (discussed above).

Shred and Store Safely. Any copies of tax documents that you no longer need can be shredded using a confetti shredder. Store all tax records, documents and related materials in a secure fire safe. I recommend spending the extra money to have your safe bolted into your home so that a thief can’t walk away with your entire identity portfolio. Make sure that your tax provider appropriately destroys and locks up any lingering pieces of your identity as well. Tax returns provide more of your private information in a single place than almost any other document in our lives. Don’t waste your tax refund recovering from this crime.

Read more about the author, John Sileo, at www.Sileo.com.

The Money, Honey: Using the Internet to Invest

By Rita Warren ~

In this day and age, if you’re not using the Internet to your advantage as you invest, you’re missing out on one of the greatest assets around.  The Internet enables you to gather research material and information for free, thereby saving you tons of money and making the job easier than it ever has been before.  If you’re willing to spend a few hours a week doing this kind of work, you can eliminate the need for expensive newsletters or financial advisors who, after all, are doing the very same thing you’re doing … and then charging you exorbitant fees to do so.

I’ve said this before, but it bears repeating:  you are more interested in your money than anyone else.  I have a friend whose money I have managed for going on three decades now, ever since her first husband died and left her insurance money.  Since she had never even written a check during their marriage, and since the insurance check sat in her purse for two weeks because she didn’t know what to do with it – didn’t know how to get it from the purse to the bank and into her checking account – I felt at the time, given the fact that she had two teenaged boys that she was responsible for, that the prudent thing to do as her friend was to agree to help her.  My big concern then was that some unscrupulous crook was going to come along and convince her to turn over all of her money to him and then flee to Chile, leaving her and the boys penniless.  You and I know this happens all the time, and I was determined not to let this happen to my friend.

Cut to 24 years later: my friend has remarried, both of her boys are adults and out of her home, she has a successful career as a middle school teacher… and I am still managing her money.  Every time I try to talk to her about taking over her own finances, she says to me, “Don’t die!”  Truly, if I were to die, it would throw both her and my husband into a tizzy, because they are both dependent on my financial acumen to keep them afloat.  For that reason, I keep a file on my computer desktop called “If I die,” so that my sweet husband will know what to do and where everything – all of our brokerage accounts and real estate holdings, for example – are located.  He’s pretty organized, so I’m not worried about him.  But my friend in Utah, getting ready to retire from her teaching profession, is another story.  Without me, she’s going to be a bit lost, should I expire before her.  Her husband, while a sweet man and devoted to her, is no better with financial matters than she is.  In fact, he’s a lot worse.  He’s the one through the years of their marriage that I have had to curtail from buying lots in Texas or mobile homes in Arizona, because he has no idea what has value and what doesn’t.

So I’m encouraging her, as her teaching career winds down, to do some exploration on the Internet.  Truly she hasn’t had the time to do this while she has been working.  She is one of the best teachers I’ve ever known, an opinion shared by man, winning awards statewide and even nationwide for her prowess as a teacher, and I’ve considered it a ministry to be able to manage her money and grow it and allow her to be able to flourish in that teaching role.  But now, when she will have the time and ability to pay more attention to her own finances, it’s the right thing for her to do, and my job is hopefully changing.  Now I see myself as a tutor of Internet sites, how to use websites and such to discover more and more about how to make your money work for you and grow — or at least not shrink.

So it’s a new day for her and a new day for me, and it’s coming very soon.  By this summer, she’ll be retired, and I hope she’ll be anticipating a new learning curve for herself.  Meanwhile, I’m compiling a whole list of Internet sites for her and a new world opening up for her.  If all goes well, retirement will be a new and exciting life for her and one that will prove profitable as well.

The Money, Honey: Stock Market Counterintuitiveness

By Rita Warren ~

There is something called counterintuitiveness when it comes to investing in the stock market.  Here’s how it goes:  when something that seems bad or negative happens in the world of economics or politics, or when the government makes a decision or votes on something one way or another, there is usually a backlash in the stock market that you can count on and make money on if you know how to pick stocks accordingly.

For example, this morning the big news is that Congress and the President seem to be in agreement that the Bush tax cuts will stay in effect for two more years.  Now, without going into the politics of all of this, and without parsing through why the stock market seems to like it, the reality is that the stock market as I write this is up 62 points.  Go figure.  This may put us more into deficit mode for the future, and our children and grandchildren may wind up spending their lives bailing themselves out of the mess we have dug for them, but for the present, the stock market likes what it is hearing.  So could you make money today in the market?  Yes, you could.

So even though the deficit in the U.S. government is increased by what is happening today, and even though that sounds like it should be a bad thing, for the stock market, there is something else at work: the uncertainty about the tax situation seems to be alleviated for the present, and we know that there will be no new taxes, which always comforts investors (both the lack of uncertainty and no new taxes).  So investors feel better about buying stocks, and buying stocks they are.  How long will this last?  No one knows.  But for today, or for the hour that I’m writing this, the market seems to be in an up mood.

Another counterintuitive acknowledgement: good companies can be lousy stock picks.  If you look at the field of well-known brands of buyable companies, like General Electric, the Gap, McDonalds, Coca Cola, Starbucks, you could make the assumption that because these names are so familiar they are also great stocks to buy.  Not so fast.  There often is no correlation between how good a company is doing with how well its stock is doing.  Sometimes, a stock sinks while a company soars, and sometimes vice versa.  Of course, most stock analysts will tell you to do your homework before you invest in a company’s stock: check their quarterly reports, make sure their profits are showing, their earnings are what they should be, and so on.  But keep in mind that, ultimately, this is no guarantee that the stock will continue to go up.  It helps beat the odds that the stock will appreciate if its numbers are good rather than bad, of course, but don’t let that fool you.  It’s no guarantee.  And walking into a  Starbucks that is crowded (aren’t they all?) does also not prove that the stock is going to be a winner by the end of the year.  It just means, well, that the stores are doing business.  Not bad, certainly, but not a solid indication that you’re going to double your money in the stock market by buying Starbucks stock.

So counterintuitiveness in the stock market can often pay off if you know how to play it.  Or if you know how to spell it.