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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A major investment objective that investors aim for is always capital growth. With the current state of the economy, this is the most popular, but also the most difficult goal among investors today. A capital gain is achieved whenever the original item is resold above its purchase price. Profit is always the purpose of a growth investment where regular income is a secondary consideration from growth stocks, commodities, or raw land.

With a growth stock or raw land, the investor receives low or no yield, but the possibility of an increase in value. One such example could be a company show definite signs that its earnings are on the upswing, but management has decided to reinvest most of them in new equipment instead of paying increased dividends to shareholders. The results are good growth prospects and very low yield. Sound familiar?

Another example you could look at, let’s say you buy some undeveloped land on the out-skirts of a fast expanding metropolitan area. The yield will be zero, because you’re collecting no rent, but the prospects for growth will soon be promising. The only thing is when you sell the land for a profit or develop it as income property you will receive a capital gain, but at a lower value due to the current economic downturn.

If you are willing to forgo present income for the sake of possible increase in the value of your funds in the years to come, then I strongly suggest a growth investment. The difference between income and capital gain is very obvious during a recession or depression. Income is normally received regularly, while capital gains are much more uncertain and can be realized only when you sell. The difference in time pattern of return is critical to your objectives as an investor. If you rely on a definite amount of return, you will need this for your present consumption. Capital gains, however, are for acquiring wealth for future consumption.

The safety/income/growth (capital gain) choice is not a 1 out of 3 decision. Selection is a matter of emphasis. Many securities offer you a combination of two needs, playing down the third. It may be necessary for you to choose a mixture of investments.

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Whatever amount of money that you want to keep intact for a specific purpose, safety of principle will be increasingly vital during the economic downturn. You may want to save your home mortgage, protect your children’s education, or establish a special emergency fund in the event of illness.

The investments you make for this purpose has a low yield. This means the percentage of profit on the principle will grow in value relatively slowly. In reality, it is next to impossible to lose the principle with government securities, CDs and strong corporate bonds in insured institutions.

But, while those securities with a fixed interest return with a constant number of dollars, the purchasing power of those investments, when liquidated, decreases in times of inflation. The results are, as prices go up, dollars buy less, and less! In many instances, this creates increased interest rates which may counteract inflation. Whether you are lending your money to others, or you actually own all or part in an investment, make sure you put safety of principle and income return at the top of your list. In fact, make it top priority.

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Individual Retirement Accounts (IRAs) began to see a big change in 1987 with new tax laws. You or your spouse may be entitled to deduct from your taxable income, all, some, or none of the contributions to your IRA, depending on the type you select, your adjusted gross income and whether you or your spouse is eligible for an employer sponsored retirement plan.

The thing is, even if you don’t get any deduction from your income for your IRA deposits, it may still pay to keep making contributions (if you can afford it) to your IRA account. The taxes on any IRA interest or dividends receive special tax
protection.

For example, let’s say you have a high yield IRA that earns 10 percent annual interest. You and your spouse will receive 100 percent tax deferred income on the $4,000 contribution, or $400 per year without compounding.

If you leave the $400 in the account, then next year you can earn 10 percent on your new principle of $4,400 – not figuring compound interest. This interest buildup increases the size of your IRA until you are ready to withdraw funds from it. Taxes may be due immediately, but if you are retired, you will most likely be able to pay a lower tax rate.

The real eye opener, is that you may have more money available from your IRA than you think. Let’s say you and your spouse are currently working, and each of you opt for electronic deposit of your salary and you elect to have your bank electronically transfer $166.66 per month to your IRA account. You both soon realize that you each have accumulated

$1,999.92 toward your IRA by the end of the year. The theory is that if you never SEE the money, you never spend it!

However, you may find yourself near the year’s end without having set aside the needed sum ($4,000 for both of you). If this occurs, you might choose to borrow the money. This kind of strategy can actually work out well for you.

Another example, let’s say you take out a home equity loan. Your bank charges 10 percent interest, and you pay off the loan plus interest ($4,400) in one year, with monthly installments of approximately $367. You choose the standard IRA rather than the Roth IRA for this strategy. The $4,000 deduction for a standard IRA will reduce your taxes by $1,120 if you are in the 28 percent marginal tax bracket, and the interest on the home equity loan may be deductible under certain conditions.

Let’s also assume you earn 12 percent interest on the IRA. In the first year, you pay back the $4,400 on the loan. The $4,000 in your IRA earns $480 over the year for a difference of $80 a year in your favor. If you can manage to follow this strategy for five years, here’s what your numbers will look like:

You will have spent $2,000 (5 x $400) in interest on the loans. Your IRA will have earned you $2,400 (5 x $480) in interest, plus you will have accumulated $20,000 (5 x $4,000) toward your retirement.

During this time, you received a $1,120 tax reduction (from your $4,000 IRA deduction) every year for a total of $5,600 and possibly a deduction for the $400 interest on the loan. This mainly depends that your total mortgage (if any) interest does not exceed  the interest on the purchase price of the home, or any improvements you’ve made. For a 28 percent tax bracket, this amounts to $112 a year, or $560 for five years.

Now you’ve earned $2,400 in your IRA and received a possible $6,160 worth of tax breaks. If you compare the $2,000 interest you paid on the equity loans, you can see that IRAs are not just a tax strategy, but it’s a well thought out investment.

The current state of the economy probably won’t give you a base for an IRA investment strategy for tax reform, but taxes will always be one of the many factors to consider when planning for future investments. Due to different investment options with varying risks and returns, give this some thought as how close you are to retirement, and the amount of risk you’re willing to take.

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Most small businesses are more flexible organizationally than ever before. They have set aside their cultural and organizational differences to predominantly better equip their company with quick decision making, where risk taking is encouraged and failure is merely an education.

A company with conventional free advertising methods usually find it a generally unsatisfying experience. They utilize every part of their imagination and energy to be a guest on radio and television talk shows. They produce and distribute advertising circulars on all the free bulletin boards at coin operated laundries, grocery stores, and beauty or barber shops.

What they eventually find, is that increasing complexity in their company has resulted in inflexibility and slow decision making processes. The more routine free advertising methods have a tendency towards internal conflict and stratification, as well as a leadership that would tend to emphasize capital investment as a solution to all problems.

Consumers have acquired organizational habits that are not well aligned to the needs of a tough economy, therefore, they discover undesirable traits or behaviors found in many organizations. They have become smart consumers in the movement towards centralized control. This characterizes a typical consumer goods business, and will carry with it limited coordination among departments and divisions resulting in a weakened sense of market trends and increased dissatisfaction.

Free Advertising must embrace the initial contact and emphasize that your product or service would be of interest to the listeners or viewers of the program, perhaps even saving them time or money. This also must carry an increased willingness to seek appropriate alliances and partnerships that will provide convergence to the integrated business model required to overcome these mismatches in our current economic culture and outlook.

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There are a variety of reasons and excuses behind poor sales lead management because the $10 to $2000 companies spend to generate each business to business inquiry largely go to waste. I call them Barriers To Sales success. Here are six of the most common which plague businesses today.

1. SENIOR MANAGEMENT DOES NOT CARE

Paid to lead the organization in the big picture issues of market strategy, quality and customer satisfaction, senior managers are tempted to dismiss operational fundamentals and assume all is well. They are not aware of the tactical need for complete lead follow up, rapid inquiry fulfillment, accurate qualification practices or actual measurement of communications and sales performance.

2. SALES PEOPLE REMAIN UNINFORMED

Unless they understand the potential value of qualified leads, salespeople (an independent minded breed) think they do not need help. Sales managers who fail to insist on follow up imply that leads are at best an option for slow days. Marketing departments that fail to qualify leads in advance will most likely contribute to the problem, giving leads a poor reputation.

3. POOR COORDINATION HOBBLES MARKETING AND SALES

Marketing and marketing communications people frequently have little idea of the quotas salespeople must meet, the timing of their sales contests, their need for seasonal boosts in lead volume, the products needing extra lead support and the geographical balance need to apportion leads sensibly among sales territories. Meanwhile, the sales force does not understand why lead follow up reports are essential if marketing is to fine tune its advertising, mail and other promotion tools.

4. THE COMPANY MISMANAGES ITS PROSPECT LIST

Inquiries become orphans in a netherworld between marketing and sales. As a result, the company sends wrong information to inquirers, sends it late and does not tailor it to inquirers’ specific interests. Marketing collects limited and uninformative data and updates them frequently. Marketing rarely compares separate databases – one for orders and one for inquiries, for example – and even more rarely merges them into a marketing information system.

5. MANAGEMENT DOES NOT HOLD SALESPEOPLE ACCOUNTABLE

Sales management does not insist on follow up and new prospect status reporting, even though it fusses and gripes over detailed expenses and call reporting.

6. MANAGEMENT DOES NOT HOLD MARKETING PEOPLE ACCOUNTABLE

Chief marketing officers do not hold subordinates accountable for lead handling performance. They do not insist on program return on investment reports, for example, evidence that inquiry generation ties in with company sales goals or analyses of inquiry source productivity.

All six barriers are the product of poor communications, inattention, lack of knowledge, human frailties and the sublime dysfunctionalities that lurk within all organizations. None is the result of weak strategies, poorly designed products, sloppy manufacturing, competitive pressures, government regulations or inadequate capital the classic management issues that pre-occupy most companies in the world today.

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It’s just not enough to work hard for your money. In order to grow more wealthy than you are now, you must start making your money work harder at your bank.

Start from where you are now and eliminate any kind of service charges. Read over your bank statement to see how much you are being charged, and for what specific services. Talk to other banks and compare what they charge for the same services.

You may find your bank may offer you a better deal. For example, you opened your checking account with $500 flat fee service charge of $5 per month. Now, its a few years later and your balance may have risen so that you now qualify for free checking or debit cards. Your bank will NOT automatically change your plan as long as it can keep collecting your $5 over, and over. One phone call or a visit to your bank could save you $60 a year.

Never let your money accumulate in a noninterest bearing account, such as some checking accounts. Instead, ask your bank for a checking account that pays interest as long as you maintain a minimum balance.

Set up a money market account, in addition to a checking account. These out pay regular savings accounts with an interest rate tied to movement with the prime rate. You can then write a monthly check to your regular checking account to pay for bills.

Once you have chosen the highest interest account, make regular deposits into it. Put your paycheck and any other receipts into this account. Transfer to the lower paying checking account only the amount needed to cover regular expenses. A realistic goal is to hold on for savings to at least 10 percent of all the money deposited to your money market account.

Consistent deposits are the key. For example, let’s say it’s January 1 and you’ve made a decision to start investing next year at this time. You have set your mind to save $1,000 (plus interest) especially for that purpose. If you’re not used to parting with $1,000 in cash all at once, you may have difficulty meeting your regular expenses.

You can reach your goal by December if you put $85 per month ($85 x 12 = $1,020) into the highest interest money market account, compounded monthly. But, you then start thinking about giving up $85 each month. So, you don’t deposit the $85 for the entire 12 months. In December, you get more at ease and put $1,000 into your money market account. Sounds great right?

You have the investment money you promised yourself and you haven’t lost a penny, or have you? December is the twelfth month of your savings year. Due to the way interest is truly computed for example, your $1,000 will earn one month’s worth or 5.5 percent, or $4.58 (1/12 x .055 x $1,000).

Compare this with regular $85 deposits, January through December, earning 5.5 percent in that same money market account. If you desposit $85 per month, you get a total of about $26 in interest. This may not seem like a lot of money, but look at what $26 really is: almost one third of one month’s $85 deposit. Money that you don’t have to earn for your money market account.

Look for other investment alternatives in the accounts department. Checking accounts are fully liquid, however, they are designed to hold only small amounts of money. If you have the minimum required, and you can get along with less liquidity, put a larger sum of money into a six month or one year CD or short term government securities – term accounts. These overlooked vehicles pay rates higher than regular savings or checking accounts and offer almost immediate liquidity.

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