Planning For Your Life

Wow! We keep asking ourselves, “Can it get any worse?”, and it appears that the answer to that is YES.

As I write this today at 10:00 am the Dow Jones is down over 200 points again and there doesn’t seem to be anything the government or business can do about it. The one consolation is that we will have a three day weekend for the markets with a banking holiday on Monday. It seems that progress can be made over days when the markets can’t react immediately.

I know that we will get through this as we have gotten through every other challenge our economy has faced over its history but when you are in it, it can really hurt. I know that we have all lost money and that it will take time to recover what is gone but there are a few things you can do right now to protect yourself.

First, you should already be in cash in your 401k plans. The market may fall still further and there will continue to be a lot of volatility until this credit crisis gets resolved. If you are concerned that you will miss some good days ahead know that you will also be missing some of the bad ones as well.

Next, you should look at some of the new investment vehicles out there that offer what are called “living benefits”. These plans, offered by insurance companies, guarantee a future income stream with a minimum return of 6 or 7% on your investment that you cannot outlive, even if your account value drops to zero. There are a number of good companies that offer these products and I would be happy to discuss them with you if you like.

If you are participating in plans where you are contributing on a monthly basis, do not stop. Even if you have moved the bulk of your 401k to cash your future investments should be invested in the market since you are buying shares at better and better prices. This will help when the market recovers as these shares that you bought on sale will recover faster.

Don’t pull your money out of the bank. No one has lost a dime yet and with the insured amounts lifted to $250,000 (there is even a proposal on the table to make this unlimited) your money is safe. The worst thing we could do to insure a depression would be for us to make it even harder for banks to make loans because there is less capital on deposit.

Talk to a professional about your money. I hear too many people say they don’t want to do anything for fear of doing the wrong thing. Doing nothing, however, may be the wrong thing. There are ways to protect your investments and provide future growth, so open those statements and then find out what you can do.

I know this is a scary time, but be assured that we will get through this and life will get better.

Let me know if I can help you.

Marc

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Last Sunday it happened. The Treasury Department took over Fannie Mae and Freddie Mac, the two largest mortgage holders in the world. The combined mortgage holdings of these two giants is just north of $5.4 Trillion. That is a lot of money no matter what country you live in.

The good news is that the takeover will help to stabilize the markets that have been shaky for months, wondering if these two companies would survive the mortgage meltdown that is occurring here and around the world. The bad news is that it may make it more difficult to get a loan for a home or a business in the months ahead because the plan requires both entities to sharply reduce their mortgage holdings in the future.

The moves by Treasury and Congress a few months ago was designed to allow these companies to increase their lending in both dollars and the size of loans in order to provide some liquidity to the distressed mortgage markets. With the takeover and reduction in portfolios, money will now be exiting the markets instead.

There is also danger in the banking sector as most banks still have not disclosed the extent of the losses from bad mortgage loans on their books. I did notice in the paper this morning that mortgage rates dropped yesterday on the news of the takeover and may go still lower in the future but that is hollow news if the banks and lenders are still unwilling to make loans on any terms.

You see, banks can leverage every dollar deposited by ten times. If they have $1 million in assets they can lend out $10 million. For every dollar that a bank or lender writes off the books he must reduce his leverage or increase his deposits. Right now banks are in a squeeze and you and I are caught in the middle of it.

How did we get into this mess? The blame lies in two areas, from my perspective. First, Wall Street allowed the formation and sale of all of these loans as if they were all AAA credit worthy. Second, Congress took money, lots of it, from Fannie Mae and Freddie Mac to look the other way and make excuses for their risky actions and they are still making excuses today. It is probably high time that we start holding someone responsible for this mess since we, the taxpayers, will end up paying for all of it.

So what can you do? Stay liquid, keep your credit on solid ground and educate yourself about what your public representatives are actually doing.

We will come through this because we always do. We are the United States of America and we will survive and prosper but the time for taking undue risks is over and we should stand together in making the future more stable for future generations.

To your Prosperity

Marc

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