Personal Finance Blog for Retirement and Investment Advice

Top 16 Investing and Savings Myths

April 7th, 2011 by Pamela Yellen and Dean Rotbart | Leave a Comment

All the statements listed below are common financial myths. Accepting any of them as fact could lead to costly financial missteps…

See how many of these common beliefs you already recognize as flawed and which ones you have yet to unmask.

As you may discover, what we’ve been taught by mainstream money experts and well-intentioned friends and family isn’t always accurate.

The Myths:

Over time, the stock market has consistently proven the best and most reliable investment vehicle for the vast majority of Americans
Investors need to accept risk and volatility in order to generate meaningful profits
Home ownership and appreciation is a reliable vehicle for protecting and growing your wealth
401(k)s make effective investment vehicles, if only because your employer matches your own contributions
Your 401(k) plan administrator must be a licensed, professionally trained and carefully screened financial expert
The fees you pay for your IRA, 401(k) and other retirement funds have only a trivial impact on your ultimate returns
You will not require as much income when you retire as you need now, especially since you’ll qualify for a lower tax bracket
It is never possible to know with any certainty the value of your retirement account at intervals down the road, because market fluctuations are unpredictable
Wise retirement planners recommend you aim to make your retirement income last to age of the average American life expectancy, currently 77.9 years
Always defer taxes as far into the future as possible, especially when you wish to accumulate a larger retirement nest egg
People of modest income can’t possibly set aside $1 million or more for their retirement
Before you can begin saving for the future, first you have to dig your way out of debt
Paying cash is the ideal method of purchasing big-ticket items, such as cars and vacations
Effective savings and investing strategies are too complex for amateurs. Only professionally trained money managers consistently succeed
If you follow the advice of mainstream financial experts and don’t stray, your nest egg will be safe and grow large over time
To receive quality, personalized attention from highly trained financial advisors, you have to already be wealthy, or close to it

Announcing the winners of the “what inspires you to save” contest!

March 31st, 2011 by Pamela Yellen | 1 Comment

Last week we held a contest about what inspires or motivates you to save money. The response was overwhelming and with many so inspiring and heartfelt entries, it was very difficult for our team to pick the six winners…

After much deliberation, five members of the Bank On Yourself team each picked their favorite entry – each of these winners will receive their choice of a $25 dining gift certificate or a personally autographed copy of my best-selling book, Bank On Yourself, for themselves or to give as a gift to someone they care about.

And together, the team picked their favorite entry and that person won a $100 American Express Gift Certificate. (All winners will soon be receiving an email letting them know how to claim their prizes.)

Read on to be inspired by the winning entries…

Enter our "what inspires you to save" contest!

March 23rd, 2011 by Pamela Yellen | 76 Comments

People are inspired to save money for different reasons. Share what inspires or motivates you to save in the comment box below and you could win one of six prizes we’ll be awarding, including five prizes of your choice of a $25 dining gift certificate or a personally autographed copy of my best-selling book, Bank On Yourself, for you or to give as a gift to someone you care about.

Post your entry in the comment box below...

Five members of the Bank On Yourself team will each pick their favorite entry for the dining certificate/autographed book prizes. And together we’ll pick the most inspiring entry and award that person a $100 American Express Gift Certificate. (Sorry – U.S. residents only.)

Just post your entry in the comment box below by Monday, March 28. The prize winners will be notified by email on Friday, April 1, and the winning entries will be featured in that day’s blog post.

Save for something that excites you!

Research shows that people are more likely to save if they are saving for something that excites them, rather than because they “should” save.

For example, my husband Larry and I have two grandchildren living a couple states away. We call or Skype them (almost like being there!) every Sunday. Last Sunday, Halle, who’s in second grade, told us her favorite subjects now are science and math. She’s learning the multiplication tables, and we spent nearly an hour quizzing her – she would happily have kept doing it for another hour, but our brains were fried!

Halle’s brother Jake loves playing basketball. He’s a head taller than his classmates, so who knows where that will lead…

Anyway, a few years ago, we started savings plans for Halle and Jake’s college educations.

Doing that just feels so motivating. And because we’re saving the money in a Bank On Yourself policy, rather than an investment account or a 529 Savings Plan, we know the money will be there when needed. And if they decide to become entrepreneurs instead of going to college, the funds can be accessed without the restrictions or penalties common to 529 and other plans.

(Compare saving for college in a Bank On Yourself policy versus a 529 Plan)

So what inspires or motivates you to save?

Just post your entry in the comment box below by Monday, March 28, and you could win one of the six prizes described above!

Should you be worried about the Dow’s plunge?

March 17th, 2011 by Pamela Yellen | 12 Comments

If, like most Americans, you have a substantial portion of your nest-egg in stocks and mutual funds, I urge you to take a few minutes to read this right now…

The U.S. stock market has lost considerable ground and volatility has returned with a vengeance. The situation is precarious in both Japan and the Middle East.

But the recent stock market plunge was virtually assured before the earthquake and tsunami hit Japan.

Here’s why…

We’re doing it again: Buying stocks after big gains in the markets.

In 2008, 2009 and most of 2010, mutual fund investors in almost every month took more money out of stock mutual funds than they added. Then, in January, someone hit a switch.

Investors decided that it was time to get back into the stock market. Keep in mind this decision came after an almost 100 percent gain from the market bottom in 2008. So in December we pulled $10.6 billion out of equity mutual funds, and in January we poured an estimated $30 billion into the market.

Do you see the problem here?”¹

The problem, as this article from The New York Times blog titled, “Are We Buying High All Over Again?” points out, is that investors are repeating past bad behavior. Just as they have done throughout history, and just as they will continue to do for the rest of time.

How Good of An Investor Are You Really? Ask Your Doctor!

March 9th, 2011 by Pamela Yellen | 2 Comments

Executive Summary: The life-long costs of neglecting your health can be staggering. Expenses include out-of-pocket medical bills as well as losses of productivity and quality of life. Too many people watch their investments more closely than they do their health. Illness brought on by lifestyle choices, such as smoking, overeating, lack of exercise and stress, accounts for as much as 70% of nationwide health care spending.

By Pamela Yellen and Dean Rotbart

In mid-December 2008, a skeletal Steve Jobs, CEO of Apple Inc., canceled his scheduled presentation at the annual Macworld conference, triggering investor fears that the company’s visionary co-founder was seriously ill. A month later, Jobs announced his first health-related leave of absence. He began a second leave this past January.

During the 30-day period when concerns about Jobs originally surfaced, the shares of Apple stock dropped 14%, or $12 billion in market value. Healthcare Costs

The shareholders of Apple weren’t worried about the potential hospital bills and other medical costs that Jobs would incur. Comparatively speaking, those expenses would be a drop in the bucket.

But Apple shareholders – confronted with the loss of Jobs’s services, perhaps for good – instantly realized the true cost of sickness must also be measured in loss of productivity, leadership and innovation, among other attributes a key executive brings to his or her company.

For tens of millions of Americans who are otherwise mindful of how and where they stake their money and retirement savings – including many successful Bank on Yourself participants – the importance of investing wisely in their physical health is a lesson they have yet to master.

That’s a huge fiscal mistake

7 Ways You Can Build Your Wealth Through Better Health

March 9th, 2011 by Pamela Yellen | 1 Comment

By Pamela Yellen and Dean Rotbart

Lose weight, buy a new car. Spend a half hour exercising at least three days a week, take a luxury cruise. Reduce your stress at work and at home, remodel your kitchen. Quit smoking, sock away a couple hundred thousand dollars for retirement.

How sweet life would be – and what a great motivation to stay or get healthy – if we all received such direct benefits from investing more effectively in our health.

The truth is, while there isn’t a cruise awaiting us at the end of every jog, the lifetime returns that better health deliver are real, sizeable and far more reliable than any money you risk on the stock market or other trendy investments.

A good, strong heart may be priceless to you and your loved ones. But there is also a financial benefit that you can count in terms of a longer and more productive work life, and fewer doctor, medicine and hospital bills. What you don’t spend or lose tending to your sick self can really be better used for life’s many pleasures – including building a secure retirement nest egg.

There are library shelves full of advice on how to get healthier. Here are seven of our favorite tips that don’t require a Herculean effort or cost a fortune. But each will immediately set you on a better path to wellness:

1. Get more sleep. Not a bad way to kick off your new healthy lifestyle. Most of us short-change our sack time to crowd in more and more activities and chores. The price we pay? High blood pressure, type 2 diabetes and impaired concentration. Try for at least 7 or 8 hours each night.

2. Got milk? If not, get some. More precisely, get some extra vitamin D, ideally 800 to 1,000 international units (IU) daily. A single glass of milk will deliver about 125 IU. You might also try cheeses, yogurt, salmon, almonds and fortified orange juice. A lack of vitamin D is linked to osteoporosis, depression and chronic fatigue, among other common symptoms.

3. Chill out. People who live stressful lives suffer more heart attacks and strokes. Beating stress needn’t be painful. Go for short walks. Take mini-vacations by listening to your favorite music on a break. Take up yoga. Throw darts.

4. Get a pet. The Centers for Disease Control and Prevention reports that pets can lower both your cholesterol and triglyceride levels. Petting your dog or brushing your cat has a calming effect on both of you. Moreover, pets increase the likelihood that you’ll get outdoors more and socialize with other pet owners – both activities that the CDC says are good for your health.

5. Lose the Salt Shaker. None of us need extra salt in our diets. We’re already showered with the sodium crystals contained in the packaged and restaurant foods we consume. Experiment with the many varieties of salt-substitutes if you otherwise find your meals too bland. The Center for Science in the Public Interest reports that high-salt diets cause 150,000 premature deaths in the U.S. each year.

6. Wash Your Hands More Often. Handshakes, stair banisters, elevator buttons, door handles and a million-and-one other objects that we come in contact with routinely are breeding grounds for germs and the infectious diseases they can bring. Carry a pocket-size container of hand sanitizer for those times when soap and water are unavailable.

7. Stop Speculating on Wall Street. Okay, so this is blatantly self-serving. But entrusting your life’s treasure to the ups-and-downs and further-downs of the stock market really can shorten your life – or at the very least, squash your enjoyment of it. Just ask anyone of the tens of millions of Americans who saw 40% to 50% of their wealth evaporate in a flash during the stock and real estate crashes of 2008 (not to mention the crash of 2000) how many years of aggravation those disasters cost them!

The cure: Substitute a Bank on Yourself plan for your mutual funds or stock portfolio and sleep better at night, afford a new pet, take a sunny vacation (and soak in some natural vitamin D), eat quality packaged foods and at restaurants that don’t need to salt their food to make it taste great, buy hand sanitizer by the case, and wave goodbye forever to your investment stress.

Improve your financial picture.

To find out how much your financial picture could improve if you added Bank On Yourself to your financial plan, request a free Analysis. If you’re wondering where you’ll find the funds to start your plan, the Bank On Yourself Professionals are masters at helping people restructure their finances and free up seed money to fund a plan that will help you reach as many of your goals as possible in the shortest time possible.

Physician heals his financial ills with Bank On Yourself

March 2nd, 2011 by Pamela Yellen | 6 Comments

After losing half of his retirement savings not once, but TWICE, during the past decade, Dr. Bryan Kuns decided, “there has to be a better way.”

A family and occupational medicine practitioner for 25 years, the doctor realized that, at age 50, he and his wife might only have one more chance to get it right. “I need some more guarantees than taking a chance and gambling again with my retirement,” Bryan realized.

A little over one year ago, he heard about Bank On Yourself. Intrigued, he began reading everything he could get his hands on about the concept. Then he requested a referral to a Bank On Yourself Professional and a Free Analysis.

It’s an answered prayer. I’m sleeping a lot better at night, now. The guarantees that this program has are what I was looking for.” –Dr. Bryan Kuns

Bryan offered to share his story with you. Whether you already use Bank On Yourself, or you’ve been considering adding it to your financial plan, you’ll learn something of value from this interview. You can listen to the interview by pressing the play button below, or you can download the entire interview as an Mp3 and listen on your own player or iPod…

You can also download a transcript of the interview here.

In this interview, you’ll discover…

[Read more…] “Physician heals his financial ills with Bank On Yourself”

Retiring Boomers’ Savings Fall Far Short

February 23rd, 2011 by Pamela Yellen | 2 Comments

“The 401k generation is beginning to retire, and it isn’t a pretty sight.”

That’s the conclusion of a recent Wall Street Journal study.¹ But the most shocking revelation is just how big the gap is between how much retirement income people will need to maintain their standard of living… and how much they’ve actually saved:

Many have less than one-quarter of what they’ll need

And how are they dealing with this challenge?

Facing shortfalls, many are postponing retirement, moving to cheaper housing, buying less-expensive food, cutting back on travel, taking bigger risks with their investments and making other sacrifices they never imagined.”¹

Like Carol Dailey, who is continuing to work at age 71 because her 401(k) took a hit in the 2008 market crash. She also cut back spending for entertainment and food, and is substituting boxed wine for the ones she used to enjoy from her favorite vineyards.

Her financial advisor is planning to help her be able to retire by shifting her assets into riskier investments that can “return 10% a year.”

Hmmm… I wonder if that’s the same financial advisor who advised her on where to invest her money prior to the 2008 market plunge?

If people could take more risk, and do it successfully, why haven’t they been doing that all along?

Isn’t that the classic definition of insanity?

How much more evidence do we need to know that 401(k)’s and “doing all the right things we were told to do financially” aren’t working?

Mission Not Impossible: You Can Teach Teens Financial Responsibility

February 9th, 2011 by Pamela Yellen | 7 Comments

Executive Summary: While teens can be hard to reach, the teenage years are the perfect time to teach kids the saving, spending, earning and investing habits they’ll require to enjoy a lifetime free of financial strain and worry.

These days, money in and money out is mostly electronic, meaning the speed at which our children must make the right or wrong financial decisions has accelerated. Launch your teens’ money management education by explaining to them why most adults fail.

Let children know that the solution can be found in the proven strategies of fiscal self-reliance that are embodied in the Bank on Yourself system and help your teens create their own vision of a secure and rewarding financial future.

There are plenty of practical steps you can take to make the entire subject matter more interesting to teens. By Pamela Yellen and Dean Rotbart

Russ Bragg has a higher financial IQ than most parents. He started out as a credit analyst for an international bank and began offering comprehensive financial planning services in 2000. He is an expert at helping clients define and then achieve financial independence.

For Bragg, you might imagine, educating his teenage son and daughter about proper money management would be a no-brainer.

If, on the other hand, you have teens of your own, you already know better

Enticed by credit card solicitations with low interest rate come-ons, Bragg’s independent-minded son was in credit counseling by the time he was 18. Bragg’s daughter, on the other hand, while still a student, applied for and received a prestige credit line that even some of Bragg’s agency clients are unable to qualify for.

“Same mother, same father, same food, same air” and two very different outcomes, observes Bragg wryly of his children’s money management styles.

Many otherwise more-than-adequate moms and dads – those who’ve mastered subject matter as sensitive as teenage smoking, drinking, and drugs – have found their skill sets sorely lacking when it comes to the topic of money.

Welcome to Survivor: Teen Money…

A sprawling multi-year marathon and obstacle course that pits a tribe of well-intentioned parents, grandparents and other adults against the strong-willed, often perplexing sensibilities of the untamed adolescent mind. The challenge? One of modern family life’s most difficult: teaching teens to handle money responsibly.

I remember writing once that as a society we are more comfortable talking about sex and those other issues than we are about money”

Money for Teens: One Savvy Author’s ‘Idiot’ Advice

February 9th, 2011 by Pamela Yellen | Leave a Comment

Nearly a decade ago, Susan Shelly wrote The Complete Idiot’s Guide to Money For Teens. The paperback was and continues to be one of the best read, most widely recommended texts on the subject.

A lot has changed for and about teens since Idiot’s was originally published in April 2001, as Shelly noted during a recent telephone interview. The changes work both for and against adolescents.

As an example, teens today can do comparison-shopping on the Internet to identify the best brands and prices – a big plus. But the Internet also enables kids to indulge in nearly instantaneous impulse buys: money enters and exits their bank accounts electronically, no wallet required.

Regardless of how teens avail themselves of today’s on-demand financial tools, the core principles of personal finance success – such as consistently saving a little now to accumulate a lot later – remain timeless.

Among Ms. Shelly’s 2011 recommendations:

Managing

To help teens be more thoughtful with their money, make sure they have financial responsibilities. Whether it is paying for their own smart phone or covering the incremental costs of adding them to your auto insurance policy, let teens learn the lessons of paying for at least some of their own consumption. Kids should know how much money they have and where it is.

Spending

Just like adults, Shelly says, some children are better savers than others. But all teens should be encouraged to avoid impulse purchases. Shelly says she would encourage any teen bent on making a significant purchase to wait a week to see if he or she will still want the item as badly. Ask teens to consider whether what they are buying is really worth it?

Earnings

A part-time job and/or the launch of their own entrepreneurial business is helpful. “I think that is very important, especially in times like these, that teens feel they are contributing to their family by being more self-sufficient,” Shelly advises. Ideally, young adults will build their earnings to the point where they no longer need or ask for an allowance.

Investing

It would be wise to assist teens in pooling enough money to manage their own small portfolio of funds to be placed in select savings and investment vehicles.

Instead of buying kids traditional birthday, graduation and special occasion presents or gift cards, parents and other relatives should consider providing cash, stocks or other savings instruments. Having their own financial portfolios will not only help teens accumulate wealth – it will give them the opportunity to learn the dos and don’ts of successful money management.