What will do you when your investment nest egg is empty?

The 2009 recession has delivered a heavy blow to investors. Before you think about reinvesting, first decide how much money you are willing to risk. You might be able to save $2,500 a year, but are you prepared to risk all of it on a single investment?

To anyone who is new to investing, or to seasoned professionals, I strongly suggest you consider the principle of diversification. This simply is the art of investing portions of your money in different things so that, if one of them goes south and bottoms out, you will not lose the entire portfolio of wealth. This is also a good way to reduce your risk.

However, you must also give careful thought to how widely you wish to diversify what proportion of your funds you want to dedicate to various investments. The real reason this should be a concern is that if you divide your money into smaller amounts, you reduce the number of investment alternatives available for each portion of your portfolio.

For example, let’s say you set a limit of $1,000 for any particular investment, you restrict your choice of bonds, CDs, stocks worth $10 a share or less. And yes, since stocks are usually traded in round lots of 100 shares, gold coins, and a couple of other instruments are available for consideration.

Another example — you increase your investment to $5,000, you can also consider small real estate properties, such as rental houses and duplexes, and stocks up to $50 a share. With a $10,000 limit per investment, you can include on your list of possibilities small commercial real estate properties, such as small apartment buildings, T-Bills, and stocks worth $100 a share or less.

The good thing is the larger amount you are willing to commit to any one investment, the broader the range of choices open to you. But, keep in mind too that the greater amount you commit as an investor, the more your whole financial standing will be affected by the success or failure of the ventures into which you have place your money.

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Our political system is screwed at every angle and cannot be defended by American people at any angle. Too many bad habits have turned into rotten decision making. If America wants to reverse the recession, then leave government out of it.

If America wants to regain making money a wonderful habit, there’s certain rules everyone must follow before that habit takes root. Good investment decisions and superior money management practices must be ingrained into your daily living!

Everyone must take control of their personal finances and learn various money management concepts. Each U.S. citizen must learn negative spending habits and quickly discover how to reverse them. All Americans must form a systematic plan of action that can produce important financial benefits in a relatively short period of time.

Financial security and wealth do NOT result from luck!

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For many years marketers were in control and advertised their products and services in order to sell as much as possible of what they produced. However, there has been a seismic shift this year and it is now the consumer that calls the shots. This change in the center of control has substantial implications for marketing as traditional marketing practices have been established around the marketer in the controlling role.

At the same time, we have been witnessing an increase in the disenfranchised consumer in developed markets. This shows that marketers now have to take into account a consumer who is knowledgeable about marketing, and in many cases, cynical. They seem to de-construct marketing messages, or in more extreme cases, set up pressure groups to air their views on specific marketers or marketing practices.

The move away from mass marketing towards one-to-one and niche marketing also plays a key role. Consumers will increasingly expect marketers to deliver what they are looking for, and not a product or service that is simply designed to appeal to as many potential buyers as possible. They are looking to direct a dialogue with a marketer, not receive a monologue.

The consumer in control is one of the most important forces of change impacting on marketing today as it is changing so many of the practices and processes that are established. Through the loop has been analyzing some of the implications of this as part of its Knowledge Development Program.

This need for having greater control results from a number of factors. The over riding factor is the rise in uncertainty in life. This has occurred for a number of reasons, some of which are closer to individual consumers and some of which are more intense, but make a clear impression.

Major economic events can impact on consumer uncertainty and lead to buying decisions being postponed or canceled. It is too early to be sure of the long-term impact of the financial meltdown. However, research has shown that short-term uncertainty may not necessarily dampen longer term underlying optimism.

Closer to home, there is frequently less stability in consumers’ lives today. Changing working practices have meant that there is a job no longer guaranteed for life as we currently see it. Work may not provide the security required for consumers and their families. Furthermore, they may find that their journeys to and from the workplace are taking longer due to traffic congestion, or extensive travel miles.

Some companies have been looking to down shift, opting out of the normal working environment for a different type of life. Others will look to change how they work within traditional employment. Employers and employees have to work together to find ways to bring a level of personnel control back into the workplace.

Time and pressure is increasing. A reduction in working hours was supposed to lead to greater leisure time. Have working hours actually been reduced? In addition, there are an increasing number of activities that make demands on precious leisure time. Consequently, there appears to be less time to relax and take things easy. This adds to the level of stress experienced and a perceived loss of control.

On a smaller level, the personal information that is being collected from consumers whenever they use a credit card, visit a Web site, or telephone a call center leads to a degree of uncertainty about how that information will be used by the company. Consumers will look for confirmation about what is collected, how it is stored and how it is likely to be used. They want to retain control of their own personal data.

The current economy is also changing social patterns, which includes the fact that more women are working in increasingly senior roles. This leads to a shift in how household roles and childcare are allocated between parents. This means that there is an opportunity to help consumers maintain control over their home lives.

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You would think spending $3 Million for a 30 second ad would bolster spending sprees from the 100 million viewers. But in today’s financial slump, a prime time Television program like the Super Bowl has difficulty persuading the marketplace to purchase their products or services.

When we look deep into their marketing plan we typically find objectives and strategies that may seem appropriate during seasonal demands. unfortunately, this is where most plans begin to lose steam and become weak.

Objectives are often written for failure. Not on purpose, but due to the lack of understanding of how to develop, implement, measure and modify the objectives and strategies as the marketplace changes or new information is found. The most common error when writing objectives is that of vagueness ? making broad statements that cannot be measured.

After all, if you are not able to measure if you met the objective, how do you know if you arrived where you want to be? What indications are there to know if your plan was solid and the strategies and tactics implemented were correct?

The answer is you do not know unless you are able to measure the results. Simply stating that you want quality Super Bowl ads to improve or sales revenue to grow does not give you the ability to measure the results of the investments in your business.

How do you know if quality improved after many survey results? How long do you continue with the same strategy to improve quality? Is it improving fast enough? All of these questions can be answered by creating specific, measurable, achievable, realistic and time-based objectives.

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Finding additional funds can change your financial position permanently for the better. But, without changing spending habits first you will never begin to uncover money that you can take advantage of for future investment opportunities.

Before I continue on with the insurance buried treasure, the first thing you must do is to reduce any existing debt. You may often achieve a higher return by reducing debt than by committing funds to new investments.

The interest rates are quite high on funds borrowed through charge accounts, credit cards, or consumer finance companies. It is seldom less than 15 percent and often 20 percent or more. You will want to reduce or eliminate these debts before committing to investments with lower expected yields.

The general practice is simple: Pay down or eliminate existing debt whenever the interest cost saved is above the prospective gain on the alternative. If the prospective returns are only slightly above the cost of the debt, you may still prefer to reduce the debt. The interest saved is a certain gain, the prospective return is not!

Look Deep Into Your Insurance

Whole life insurance policies and a few others allow you to build up a sizable cash value that you can put money into for efficient use. The insurance company will lend most of the cash value to you at an attractive interest rate. You can then invest that money, earning a much higher return than any interest the insurance lender charges.

Currently, the U.S. tax law states that the interest expense on a loan from your life insurance policy may be considered consumer interest and not deductible. If you can’t borrow the cash value on your life insurance policy, take another hard look at the policy. Eliminate unneeded coverage to reduce your premiums, and use the savings for other investments. But, it’s the same story as with bankers: Insurance agents will not tell you that you need less coverage. This initiative must be yours.

To do this, simply increase deductible limits for auto and home loans $250 – $1,000. The higher premiums you pay every year that has a low deductible is not worth the few extra hundred dollars you would get with your claim in the unlikely event of damage or loss of property. What’s amazing to know, people don’t even make a claim for less than a large damage loss, because they fear their premiums will increase.

You can make an even larger savings by raising the deductible on your health insurance plan. This is of course unless your employer pays for your coverage. The so called “first dollar” coverage is the most expensive health insurance you can buy, and the price tag for having the insurer pay for routine doctor visits and occasional prescriptions may be greater than it’s worth. A policy with a $250 or $1,000 deductible generally will cost hundreds of dollars a year or less.

If your vehicle is over five years old, take the maximum deductibles on comprehensive and collision coverages. You may also want to eliminate these coverages altogether if the repair/reimbursement will be relatively low due to the vehicle’s age. Some insurance companies allow you to insure against the damage to your vehicle with a few dollars premium that applies only if you don’t carry regular collision coverage and the damage is proven to be the fault of the other driver.

To go even deeper, discuss your policies with your insurance agent to be sure you are receiving all discounts to which you are entitled. Make sure any changes in status since you bought your coverage are reflected in your policies. Some of the things for which auto owners can get premium discounts include:

a) Having two or more cars on the same policy.
b) Having student drivers in the family take driver’s ed class.
c) Installing a security system.
d) Having a driving record free of accidents or violations.
e) Living in low risk – low accident area.

Homeowners can benefit on their insurance, which include:

a) Being non-smokers.
b) Having smoke detectors.
c) Living near a fire station.
d) Having a home security system
e) Living above the ground floor.
f) Often by using same insurance company for car and home.

Depending on your insurance company, these factors can make you eligible for premiums lower than those that you started with. If they don’t, then consider changing companies and find one that will listen and work with you. You may also want to compare larger reputable companies. This may allow you to save hundreds of dollars each year on auto, life, and homeowner policies. After all, you are entitled to the full value of what you pay for.

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The patterns of any particular investment will detail the relative risks and rewards undertaken with each investment. Risks can be defined as “the chance or possibility of injury, damage or loss.” Risk focuses on the future and our ability to forecast that future. In turn, the ability to predict the future is largely dependent on what you’ve learned from the past. The best you can do is to study the record and draw on experience – your own and that of others.

On the surface, the relationship between risk and return  seems straight forward. In general, you will find that risk and return move in the same direction. In other words, if you accept a higher risk, it is possible to achieve higher returns. High-risk investments invariably promise a high
return.

But equally important, where it is possible to win big, you can lose big. And the odds are always with the “house” (the provider of the risk-return). If all it took to create instant wealth was as suming high risks, then you could assure yourself of millionaire status simply by attending the race track every day and betting all your money on the long shots!

Avoiding Risky Investments

No other advice on investing is complete without a few important warnings. The investment industry has its share of unscrupulous people who, at best, will mismanage your investment, and at worst, steal you blind.

They’ll come at you with Ponzi schemes, pyramid deals, real estate that’s never been any good and never will, and telephone offers or email offers of stock or funds or oil leases or gems or precious metals, etc., that offer large and easy returns with no risk.

These salespeople play on a universal desire to “get something for nothing” and to “get rich quick.” Most of us are not immune to a good pitch. However, by just taking the simple precaution of thoroughly investigating an investment offer yourself or through a trusted accountant, lawyer, financial adviser, etc., you’ll greatly minimize the risk. The best caveat to bear in mind is: “if it sounds too good to be true, it probably is.”

Watch out for the Ponzi and Pyramid.

In their eagerness to make a lot of money quickly, many people and millions of dollars every year are sucked into Ponzi schemes and pyramid deals. In the former, expect to lose your money, and in the latter there’s a very high probability that you’re wasting time and money.

In the 1920s Charles Ponzi invented a simple, alluring investment fraud that’s still practiced today. In its simplest form, a swift-talking promoter will ask you to give them, say $5,000 to invest in a spectacular, usually secret, investment to which the promoter has access. They promise a spectacular return of, say 20 percent in three months.

At the end of the three months, they offer to deliver $6,000 (your investment plus your return) but suggests that you let it all “ride” for an even better return in another three months to six months. What you don’t know is that there is no investment. The promoter is simply gathering as much as they can from as many suckers as they can convince. Then they have to pay Peter, it comes from Paul. Eventually, the promoter disappears with the bulk of the investment money.

A Pyramid scheme is an illegal type of multilevel sales except usually there is no product sold. You are asked to pay ($500, $1,000, $10,000 etc.) to become part of the pyramid. The amount of your payment to the promoter determines your position level in the pyramid and “allows” you to promote the pyramid to others. The more people you bring into the pyramid, the higher you rise and the closer you get to the big payoff.

Financial Risk

For most investors, financial risk is the most immediate one. It centers on the simple question, “If I put my money into this investment, will I at least get my money back?”

Your best protection against financial risk is to explore any investment to the point where you understand the factors that risk and/or secure your principle. When you buy a common stock, for example, the financial risk is tied to the credit and operating histories of the company issuing the stock.

So you analyze the firm’s financial capacity (ability to generate income). A firm that can’t pay its debts or has a low financial capacity and a comparatively high financial risk. A company with earnings high enough to pay fixed costs many times over is thought to pose a lower financial risk.

Generally, such vehicles as certificates of deposit, commercial short-term paper, federal savings bonds and Treasury securities are considered of low financial risk. Whenever you evaluate the risk inherent in a given investment, ask yourself:

1. What kind of risk is involved?

2. What is the extent of this risk?

3. Is the potential return worth this risk?

By first learning a set of criteria with which you can evaluate an investment, and then considering those objectives in light of your personal factors, you’ve begun acting like an investor.

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In order to survive in today’s economic climate, it is essential to surround yourself with smart people, and practice sound business management at all times.

The most important, is to know the direction in which you’re heading and document your progress on a daily basis in that very direction. Be aware of what your competitors are doing and practice good money management at all times. All this will prepare you to recognize potential problems before they arise.

Amother very good business practice, but few business owners do, is to methodically build a credit rating with your local bank. Particularly, when you have a good cash flow, you should borrow $100 to $1,000 from your bank every 90 days or so.

Simply borrow the money, and place it in an interest bearing account, and then pay it all back at least a month before it’s due. By doing this, you will increase the borrowing power of your signature, and strengthen your ability to obtain needed financing on short notice. This is a kind of business leverage that will be of great value to you if or whenever your cash position becomes less favorable during a recession period.

Whatever business you’re in, by now you have found that most of your customers have the money to pay at least some of what they owe you immediately. To keep your cash flow current and the number of accounts receivable in your files to a minimum, you should implement all types of communication (phone, fax, email, direct mail letter) and ask for some kind of explanation why they’re falling behind.

If you develop such a habit as part of your operating procedure, you’ll find your invoices will magically be drawn to the front of their piles of bills to pay. While maintaining a courteous attitude, don’t be hesitant, or too lenient when it comes to collecting money.

Your business documents should reflect your way of thinking, and should be maintained to generate information according to your policies. It will be wise to hire an outside accounting firm to figure your return on your investment, as well as the turnover on your accounts receivable and inventory.

Such an audit or survey should focus in depth on any or every item within your financial statement that merits special attention. This way, you’ll probably uncover any potential financial problems before they become readily apparent, and certainly before they could get out of hand.

In conclusion, if you can manage the money first, the rest will follow! While you may think you cannot afford it, be sure that you don’t short change your self on professional services. This would apply especially during a time of emergency.

Anytime you commit yourself and move ahead without completely investigating all the angles, and preparing yourself for all the contingencies that may arise, you’re skating on thin ice. Regardless of the costs involved, it always pays off in the long run to seek out the advice of experienced professionals before embarking on a plan that could ruin you and your business – forever.

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There are two important factors to consider when you are determining how long to hold on to a particular investment. Make sure your investment still meets your investment objectives and continues to perform as well as or better than comparable investments. Evaluating your investments once or twice a year will help make that determination.

To evaluate your investments, you’ll have to determine whether a particular investment is still appropriate for your age, risk tolerance and financial goals. For example, perhaps you have been investing for retirement and now have the opportunity to retire at age 55 instead of 65.

If a large part of your current investment portfolio is in a growth company stock fund, you would want to consider moving at least part of that investment to a less volatile investment, like a money market fund. Your investment goal has changed, and you will need access to your investment
dollars sooner rather than later. You certainly don’t want to risk losing the opportunity to retire early because of a sudden downturn in the markets currently in place.

A common mistake among investors is to hold on to an investment because it has fallen in value, hoping to earn your losses back before moving on. A good rule of thumb is that if you aren’t willing to buy more of that investment at the lower value, it may be time to sell it. Just because the markets have historically gone up over time doesn’t mean that the funds you are invested in will go back up in value.

Aside from your changes in your financial goals, a good time to re-evaluate an investment is when changes occur in the management of a fund. You generally have no way of predicting what effect new management may have on the value of the securities. The additional risk or a change in investment objective, if any, may lead you to reconsider holding on to your investment.

For assets outside of your retirement plan, you may want to speak with a tax professional about the tax impact of the sale. You may decide to sell an investment that has really performed poorly to offset gains in a given tax year. In contrast, you may want to hold on to an investment because selling it now may result in short-term capital gains treatment, whereas holding it for longer than a year will allow you to qualify for more favorable long-term capital gains treatment.

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