Bad market got you down? Here’s a handful of ideas that could help you during what is rapidly becoming a very violent ride:

FORGET YOUR EMOTIONS. Do you have a diversified stock portfolio? Are you invested in more traditional stocks? Do you have a long time (typically ten years or more) until you need the money? If you answered “yes” to any or all the above, you may want to consider checking your emotions at the door, not panicking, riding it out and get this…. actually investing in more stock.

WHAT THE HECK ARE YOU DOING IN THE MARKET? The exact opposite of the above: do you have a poorly diversified portfolio? Are you invested in junky stuff? Do you have a short time horizon before you need the money you’ve invested? Are you deep into retirement?

If you answered “yes” to at any or all of the above, you may want to seriously consider bailing out before you ride this market down where the end result can be steep losses, an extended working life, or even worse, getting tossed out of your house. … Remember the simple rule of success: if you don’t need the return that might not happen anyway, why take the risk?

CONSIDER MARKET INDEXED LINKED CDs. How about this unique concept: invest in the stock markets and if you get hit hard, hold the position until maturity and you’ll get your money back. If that doesn’t sound good enough, how about this: the account is backed by FDIC insurance if held to maturity. In some cases, even if the market goes down, you can get your money back plus a little interest. … What’s the downside? …. If the markets go down and you want to get your money back, you’ll have to hold the position until maturity, which is typically anywhere from three to five years. Additionally, the tax treatment of these market index linked CDs can be very complex.

Other factors might not make this a suitable investment for you, but if you are worried about losing your money in the markets, you might want to check out these little known products that are sometimes referred to as “structured products,” “Growth CDs” or “Index CDs.”

INSURE YOUR INCOME. It’s amazing how many negative things I hear about Variable Annuities when their living benefits could bring you some security. Are you invested in the stock market with a period of time before you need to start drawing income from your investments? You may want to check out the new Variable Annuity benefits, commonly referred to as Living Benefits. … What does that mean? …. Although benefits fees and charges will greatly differ depending on which company you invest with, living benefits basically mean this: in the event your investments within the Variable Annuity goes down in value, you will earn a minimum amount of interest on your original investment that becomes the base in which your income is drawn from.

Conversely, in a typical investment account, if the account goes down in value and you later draw income from it, you are drawing your income from the value of your stocks. When investing in a Variable Annuity with a living benefit, your income is drawn from this benefit’s base which is typically the greater of the minimum amount of interest earned or the highest value the account once was. …. Confusing? …. Could be….. Worth the investment? ….. again, it could be….. It depends on a number of factors and a qualified, skilled and knowledgeable advisor that has your best interest at heart will likely help you determine whether or not you should consider these investments for your money. (Keep in mind that the ability to receive income from a VA is tied to the claims paying ability of the annuity company).

BUILD A LADDER. Investing in bond mutual funds? Values going down? … If they are, you might want to consider replacing the bond funds with individual bonds… Why? …. Well, here’s a trivia question - when a bond fund goes down in value, when do you get your investment back? …. The only honest answer is, “I’m really not sure.” But, when you invest in a bond ladder, you have dates of maturity when, if the bond values go down, you will get your investment back, which, for most people, is typically a very nice thing to know.

As with everything being discussed here (there are risks associated with any investment), don’t take it to heart and don’t rush out to invest in something like this unless you first speak to a qualified advisor.

PAY ATTENTION. I’m sitting on a plane right now traveling from Cancun, Mexico flying back to Los Angeles. Earlier today, the futures of the US market show there’s a likely possibility the markets will get ripped apart tomorrow due to a global sell-off, bond insurers getting downgraded and a number of other reasons.

If you are reading this, congratulations. You’re not only enduring one of my more dry, boring and conservative articles, but you are paying attention, which when it comes to their investments is something many people don’t do. So, if you are reading this, you’re doing a great job of exploring ideas of what to do during a violent market. But, don’t get lazy.

All portfolios, during good and bad markets deserve your attention. After all, this is your hard earned money we’re talking about, isn’t it?

THE MUTUAL FUND ALTERNATIVE. If the market tanks tomorrow (and, quite honestly, even if it doesn’t), you really should remember this: … imagine, we wake up tomorrow and the market is tanking. You are invested heavily in mutual funds and seeing financial Armageddon ahead, you want to cash out of the market. You call your broker to get out of the market first thing in the morning but the position can’t be sold until the end of the day.

Not good. But, if you were invested in something called Exchange-Traded Funds (an index that trades like a stock), you can get out on moment’s notice. … Diversification? … Ability to trade on moment’s notice? …. The opportunity to have better control of your investments? … That’s not a bad idea, but remember: there’s lots of reasons investments that don’t trade until the end of the day could make better sense for your portfolio, so don’t take all this to heart.

Just remember: the options do exist and it’s something you should likely explore when designing your investment portfolios.

GET SOME HELP. The financial services business is filled with stories of advisors that lost all their clients money, and in some horrible cases stole their client’s money. While there’s certainly some very bad advisors out there, any industry is filled with its share of bad apples. In the industry of financial advisors, I have to say that most people I have met are intensely honest and really do the right thing for their clients.

As such, if your veins are filled with stress and you don’t know what to do, why not take some time to interview a few advisors? The assistance and brainstorming sessions you can get could be one of the best dates you and your money have ever had.

DARE TO BE DIFFERENT. Earlier today a woman told me she was absolutely certain we were headed into the Great Depression Part II. Disappointed that she couldn’t make any money, I couldn’t help but introduce her to the concept of something called “inverse funds.” A speculative investment it is, but get this: the value of these funds go up when the market goes down. And in some cases, they go up double the percentage of a declining market.

While inverse funds are not a totally new concept, some of the funds are: several companies have started offering inverse funds in “narrow” market sectors such as financials, real estate, consumer goods, various international markets, etc., etc.. …. So, if you are like the woman above who is certain we are headed for global disaster and you want to continue speculating in the markets, don’t despair: these inverse funds might wind up bringing you the profits your money seeks. Of course, be sure to read the prospectus carefully investing in any mutual fund.

LEARN A NEW LANGUAGE. Have you read Thomas Friedman’s fantastic book, “The World is Flat?” It’s a fantastic book with one underlying concept: thanks to technology, innovation and a number of other factors, the world is no longer islands of countries, rather, an interconnected global society of economies and other things.

Although the global markets tanked yesterday and for (hopefully) a brief moment it may appear the world is on fire, chances are decent there are other countries to explore that are doing quite better than, for example, the US economy.

When exploring other parts of the world to invest in, however, I would highly suggest staying away from investing in individual companies (unless you a true wizard, picking individual companies in any market is a tough thing to do). Rather, consider using something such as an index Exchange Traded Fund to pick the country of your choice.

And one more for the road…..

START READING. Instead of watching American Idol tonight, spend a moment to read the paper…. a magazine…. Barron’s, The Wall Street Journal, or at best, a great book on investments. While there are loads of technical investment books to chose from, my guess is that most people will want to read something a bit light, easy to understand yet highly educational. While I don’t necessarily agree or endorse everything they say, I’ve read scores of them, and as for the simpler ones to suggest, a few that come immediately to mind are as follows (plagiarized from my previous blog):

• You’ve Lost It, Now What? How to Beat the Bear Market and Still Retire on Time (Jonathan Clements)
• The Millionaire Next Door (Stanley and Danko)
• 9 Steps to Financial Freedom (Suze Orman)
• The Trouble With Mutual Funds (Richard Rutner)
• Rich Dad, Poor Dad (Robert Kiyosaki)
• You Can Never Be Too Rich (by some guy named Alan Haft)

Bad market or good market, I hope the above ideas will help you out. In hopes the world isn’t being set on fire, I want to sincerely wish you all the best of success (and if I can be of personal help, visit my main site at www.alanhaft.com and drop us an email)…

What a way to welcome the year: the market is down, a recession appears to be imminent (if not here already) and worst of all, I still can’t find myself a Nintendo Wii.

As we enter the New Year, things may look a bit bleak, but a few resolutions I plan on keeping will help ensure my year is a success.

What about you? What have you resolved yourself to do? If you’re still looking for a few ideas, here’s a couple of scattered things to help get you on your way:

Reduce Those Taxes. Investing in managed mutual funds? Chances are you’re paying more tax than you should.

While I’m all for paying my share of tax, I prefer not paying more than my share, and that’s why I like to minimize the tax I pay by investing in index funds. Are you investing in managed mutual funds? If you are, there’s a decent chance your fund managers are actively trading stocks and as a result, they could be causing you all sorts of unnecessary tax.

Do you have an idea whether or not your funds are causing you excess taxes? Take a moment to do something really boring but effective: take out last year’s tax return, look on the first page, line item 8a and 9a under “Taxable Interest” and “Taxable Dividends.” If there are dollar amounts on these line items, and you aren’t using this money for income, then you are paying more tax than you should.

If this is the case, don’t take your portfolio to Jiffy Lube for a tune up, rather, take it to a knowledgeable investment or tax advisor. They should be able to give you a few ideas on how to save you some taxes such as investing in index funds or other options not mentioned here.

Rebalance Your Investments. Statistics don’t lie. When it comes to mutual funds, they tell us that last year’s winners are often next year’s losers. Did you make some nice gains last year in things such as international and emerging market stock funds? Congratulations. That’s great news. But just like a good roll at the dice table, it could be time to take some money off the table and put it into your pocket or somewhere else.

Save a Couple of Bucks. Invest a hundred dollars a month into an S&P 500 index fund and ten years later what do you get? At a hypothetical return of 8% per year, here’s what you get: very little taxes to pay along the way, diversification into the 500 largest companies in the country across several different industries, low fees and at the end of the day, around $17,000 dollars towards your retirement. … How good is that?

Review Your Risk. The markets are pretty bumpy these days (to say the least), and the experts out there are fighting each other as to whether we’ll spend the year running with the bulls or getting eaten alive by hungry bears. Are you invested heavily in stocks? Maybe it’s time to take a breather. After all, for a portion(s)of your money, a 5% rate of return in something such as a boring CD could be much more appealing at the end of the year than losing some money in the stock market.

Make That Contribution. Grandma sport you a few extra C-notes for Christmas? Consider using that money for a nice gift: tuck some of that money into an IRA by April 15^th, get a nice tax deduction and watch it (hopefully) grow tax deferred. By the time retirement rolls around, chances are pretty decent that you’ll be able to get yourself not one nice Christmas gift but more than a few.

 

Pay Off That Debt. Before making that IRA contribution or investing a few dollars, this one should be at the top of the list… Want to lock-in an attractive rate of return?

Many people can do so by paying down their credit card debt. Some cards I’ve seen charge an astronomical interest rate and by paying it down, congratulations – you just “banked” yourself this high rate of “return.”

Explore. I just recently evaluated a software program that could potentially revolutionize the way people pay off their mortgages. Although I haven’t completed my total due diligence yet, it appears this system could help you pay off your mortgage in about half the time. And get this…. paying off the mortgage in less time does not appear to require any additional out-of-pocket payments. … Fascinating? … Absolutely. … Accurate? …. It appears that way. … Care to know how to do this? … Give me some more time to complete my due diligence.

Write Something. Have a great idea? Why not share it with me and many others?… My new book came out in November and I can honestly say, it’s changed my life. Although I’ve written quite a few things before, this was my first major release and it’s done wonders for me on many different levels. Regardless of the profession you’re in — whether you are a plumber, painter, full time mom, or even out of work — writing about something you’re familiar with helps you stand out amongst the crowd.

If there’s any advice I’d give anyone about creating a much welcomed milestone in their life, it would be to write a book, or even simpler, a blog, a newspaper article, … anything at all. Chances are, there’s an audience out there for your thoughts and with a little time and dedication, there’s little doubt your work will find its audience.

Read. Care to tune up your investments? Learn a few things? There’s no better place to start than by reading a good book. Here’s couple of my personal favorites that come to mind:

• You Can Never Be Too Rich (how can I resist recommending my own book?)
• The Millionaire Next Door (fantastic read)
• The Intelligent Investor (the all-time classic book on value investing)
• You’ve Lost It, Now What? How to Beat the Bear Market and Still Retire on Time (practical advice from the Wall Street Journal columnist you shouldn’t miss)
• The Little Book That Beat The Market (a great read for a technical investor)
• The Automatic Millionaire (very simple, but very effective)
• Exchange-Traded Funds For Dummies (never heard about these ETFs? Start reading about them now!)
• Common Sense on Mutual Funds: New Imperatives for the Intelligent Investor (Classic book on understanding mutual funds)
• Blood on the Street (Where did your money go in the tech crash of 2001? Here’s a great inside view on Wall Street you won’t want to miss)
• You Buy, You Die, It Pays (Life Insurance? Check out this book for some truly creative ideas)
• The Science of Getting Rich (Ever hear of Napolean Hill’s classic “Think and Grow Rich?” If you haven’t, then you probably heard of people such as Anthony Robbins and a long list of other personal-power gurus that can all trace their roots back to Wallace Wattle’s classic book that serves as a foundation to all)

Send Cards. I don’t know about you, but it’s pretty rare when I get a card from someone these days. While my email in-box is constantly stuffed, last year, a buddy of mine did something from way back in the stone age: he sent me a “thank you” card. In our age of technology, that thing really stood out; so much so, that the other day I purchased a box of thank you notes and vowed to use at least one every month.

In Conclusion. Did I miss any good ideas? … I’m certain I did. … Drop me a line. … I’d love to hear some good ones. After all, good market or bad market - there’s nothing like a good resolution kept to ensure your year is a success.

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There’s the “12 Days of Christmas” and there’s also my twisted version, the one I refer to as the “12 Things The Holidays Teaches Us About Investing.” Check it out:

The holidays: While I’m all for the big holiday parties and lavish events, looking back at our most memorable holiday moments, I bet many would agree it’s the simple moments spent with family and friends that are typically the most rewarding.

Investment lesson learned: Learn from the holidays. Simple investments such as the S&P 500 (that typically outperforms most professional money managers) teach us that it doesn’t have to be complicated for it to be effective.

The holidays: Turn on a holiday newscast and there’s a decent chance you’ll see a story about a handful of frenzied shoppers searching all over creation to find that one last Wii. … Who scored them? That’s simple: the persistent ones who refused to give up.

Investment lesson learned: Just like the holiday shoppers who scored this year’s Elmo, it’s those who don’t give up that often find the treasure. Whether it’s a great opportunity or a creative investment with returns that would make even The Donald proud, finding the good stuff takes time, education and, of course, a willingness to never give up.

The holidays: Did you hear about the holiday shoppers going to Target at 4am? Maybe you were one of them. Understanding the value of bargains, many holiday shoppers take their time to start early, compare costs and find the deals. Doing so accomplishes one key thing: give them a better bang for their buck.

Investment lesson learned: Who thought Warren Buffet and my Aunt Harriet would be so much alike? When it comes to finding undervalued stocks, sifting through the market bins of Wall Street for discounts gives you the best chance to maximize upside while trying to reduce investment risk.

The holidays: When it comes to opening holiday gifts, there’s little worse than seeing a kid who regretfully discovers “not all pieces shown are included.”

Investment lesson learned: Learn from Little Billy gone wild. Whether it’s the presents you give or the money you invest, avoiding the surprises is a job well done. Before investing, read the fine print; that stuff is always more important than the window dressing itself.

The holidays: What holiday would be complete without Auld Lang Syne, It’s A Wonderful Life, Times Square and a hangover to boot? There’s a reason those things and more have lasted the test of time: because they do a timeless job of bringing the true meaning of the holidays into our hearts and homes.

Investment lesson learned: Whether it’s Ben Graham’s legendary “Intelligent Investor” or many other timeless principles of prudent investing, the holidays teach us that if it isn’t broken, why try and fix it?

The holidays: High School, New Year’s Eve, 1982. With my mane of hair, A Flock Of Seagulls, Jordache jeans and one beer too many, falling over Crazy Julie and landing in the hospital to get a head of stitches proved that yes, too much of one thing really can hurt you.

Investment lesson learned: The history of investing is ripe with examples of over-indulgence. Whether it was tulips, dot-coms or the current real estate mess, the holidays teach us that while too much of one thing may not give you a head of stitches, it can easily render you broke.

The holidays: While toaster ovens, dishes and socks have their place under the tree, it’s the creative gifts — the thinking out of the box — that is often remembered the most.

Investment lesson learned: Market gone bad? Selling your stock? Remember: every time you sell, there’s someone on the other side to buy. … who’s doing such a thing? Aliens from another planet? … Not quite. Those buying your stocks obviously think differently, take educated chances, get creative and could wind up reaping some great buys.

The holidays: Want to ruin your girlfriend’s gift? Have me wrap it. … To avoid such despair, here’s a better suggestion: take it over to the mall wrapping station. With precision creases, perfect bows and curly color laces, giving your girlfriend a gift with their touch makes a big difference in showing her you really do care.

Investment lesson learned: Want to ruin your investments? Don’t pay attention to fees and taxes. Neglecting those important details will accomplish one key thing: lower your returns. So, the next time you invest, take a moment to think of those nice people over at the mall. Doing so should remind you that whether it’s gift-wrap or your investments, it’s the details that count.

The holidays: Leaving town for the holiday? Whether it was pricing tickets, figuring out a route or making hotel reservations, what trip would be a success without taking the time to plan it?

Investment lesson learned: Looking forward to retirement? In markets like these, I certainly am. And just like planning a trip, not having a financial destination often leads to nothing but regret. After all, this is your life we’re talking about, remember?

The holidays: While a front row ticket to Springsteen, a Pug or a Costco-sized case of Famous Amos are all gifts I couldn’t turn down, the holidays teach us it’s the gifts we give – not the ones we receive — that bring us the most reward.

Investment lesson learned: While charitable donations and tax deductions might be all well and good, it’s a daily act of random kindness that personally turns me on the most. Want to make someone’s holiday? Try my personal favorite: pick a random table at a restaurant and pay for their meal. …Want to really blow them away? … Don’t let them know it was you who did it.

The holidays: The experts on resolutions, whoever and wherever these people may be, tell us the more resolutions you make, the less likely you are to keep them. To make them work, keep them short, simple and attainable. Otherwise, they’ll rarely be kept.

Investment lesson learned: Listen to those nutty resolution experts. Pick one or two investment ideas for the New Year, and if you can’t think of one, try this: save $100 dollars per month and invest it into a low cost, tax efficient and highly productive stock index. At a 7% hypothetical annual rate of return, in 10 years you’ll have roughly $17,000. … How good is that?

The holidays: I don’t know about you, but eleven months, three weeks, six days and a few hours into this year, I need to finally get some rest. With that, the holidays are a perfect time to take a moment to kick back, watch the Jets lose another one, eat lots of unhealthy stuff or do whatever it takes to make you happy.

Investment lesson learned: Recession? Higher oil prices? Inflation? More sub-prime mess? For one fleeting, quick and luxurious moment, take a profound breath to say, “who cares?” … After all, there’s nothing wrong with taking a moment to live this wonderful thing some call “life.”

See me discuss these tips on Fox Business Network 12.24.07

I want to wish you and your family a very happy and successful New Year.
See you next year…

Order my brand new book today and save 5% from Amazon: You Can Never Be Too Rich: Essential Investing Advice You Cannot Afford to Overlook

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If you’re like me, then during this time of year you’re likely thinking about taking some time off, eating lots of food, downing some eggnog, giving and unwrapping a bunch of cool gifts.

But before kicking back to celebrate the holidays, you may want to take a moment to consider the following end-of-the-year money matters you won’t want to miss:

If you’re like me, then not only do you pass out on the couch by nine every night, but you also don’t enjoy paying the mortgage. If that’s the case, consider ending the year with making an extra payment.

Making an extra payment will, over time, cut the amount of interest you’re paying and reduce the number of years before your house is free and clear.

If that’s not a good reason to plant a nice one on your boyfriend underneath the mistletoe, then check this out: an extra payment will also help you maximize itemized deductions for this year.

As an example of how making an extra payment an help you in the long run, suppose you bought a house for $150,000 and took out a $120,000 mortgage for 30 years at an interest rate of 9 percent — at the end of those 30 years, you would have paid over $227,500 in interest alone—in addition to your original $120,000 mortgage. Your total expense will be more than twice the original price of your house.

If making an extra payment is something you can’t do, then adding a few extra dollars each month towards your mortgage can really go a long way. For example, if you could afford an extra $100 every month, in the example above, you’ll save over $82,000 in interest—and pay off your mortgage nine years and two months earlier.

Can’t afford $100 a month? How about an additional $50? Paying an extra $50 each month will cut your payment by five years and seven months and save you $52,000. An extra $25 will shave off three years and three months, saving you $30,000. Even as little as an extra $10 a month will cut your mortgage payment by one year and save you $13,500.

Got the point? … I hope so, but just know this: the above are examples only.
Everyone’s situation will be different and if you want to better understand what making extra payments or monthly contributions will do to your mortgage, then be sure to consult a qualified advisor to help you out.

FSAs are savings accounts for health care purposes. If you know what these FSAs are and you’re currently investing in one, be sure to spend any excess balances before the end of the calendar year or they will be forfeited. One way to use up the excess: stock up on over-the-counter medicines for next year. How good is that?

Maximize itemized deductions by making donations in the form of cash, property, or appreciated stock. The latter could also help you avoid some capital gains taxes as well. Support your local charity and save some taxes? When it comes to creating some good Karma in the universe, life doesn’t get any better than that.

Are you retired? I once asked someone that and they weren’t sure. If you’re aware that you did retire, then not only is your retirement off to a promising start, but you most likely know about these things the IRS calls “Required Minimum Distributions” (RMDs).

For those that don’t know what these RMDs are, it’s something you’ll one day need to address: if you’re currently investing money into an individual retirement account (IRA), then not only does Uncle Sam give you a nice tax deduction on these contributions, but he also allows you to “defer” paying taxes on the account until later on in life… And according to the IRS, this “later on in life” thing happens when you turn 70 ½.

Once you reach this age, Uncle Sam wants you to start paying some taxes on the IRA, and he does this by requiring you to take annual withdrawals from the IRA in the form of an RMD. As for the amount of RMD you’re required to take, I would recommend speaking to the firm currently holding your account.

If you have multiple IRAs with several firms, for simplicity, make sure you take an RMD out of each one.

If you’re self-employed and need to buy deductible business-related items next year, you may want to consider buying them now in order to maximize your deductions for this year.

You can currently gift up to a total of $12,000 per year per person to as many people as you want. This $12,000 may be given to one person, or distributed to any number of individuals.

Gifting accomplishes two things:
it makes people happy and for those with significant net worth, it could lower the taxes heirs might owe when inheriting the estate.

Given current market volatility, you may not want to call your broker these days to find out how your account is doing but you may want to make contact to discuss end of the year tax strategies such as offsetting capital gains and losses.

Understanding gains and losses for the year is an important topic that can really pay off come April next year when you file your return. In discussing your gains and losses with your broker, be sure to take note of any capital gains you’ve realized this year from the sale of stocks or mutual funds. If you own mutual funds, find out if the fund will be distributing capital gains. When you (or your broker) add up the possible gains, check to see if there are any losses you can “carry forward” from prior years to help offset the gains. If there aren’t any losses to carry forward, you might want to consider selling investments that aren’t doing too well.

Taxes should never be the sole reason you buy or sell investments, but it may be possible to improve your tax and investment situations at the same time. Think of end of the year as being a decent time to “clean out the closet.”

If you haven’t already contributed this year’s maximum of $15,500 ($20,500 for those 50 and older) to your 401(k), consider increasing your contribution when receiving the year’s final paycheck. You have until December 31st to make the final contribution for the year, and if you can afford it, tucking away as much money as you possibly can into a retirement plan is obviously a good thing.

A 529 plan offers high contribution limits and significant tax benefits.
Money in the account can grow tax-deferred for years, and withdrawals are tax-free (as long as the money is used for any number of expenses relating to higher education with qualified institutions).

But some people are using these 529 plans for estate planning as well, since the money invested in a 529 plan account is considered “a gift.” These days, each person is allowed to contribute a lump sum of up to $55,000 — which is considered five years’ worth of gifting. Not bad, right?

You can make contributions to your IRA through April 15th, but why not consider getting it done now? For 2007, the IRA contribution limit is $4,000, or $4,500 if you are age 50 before the end of the year.

Don’t have an IRA? Technically speaking, you can set one up and fund it by April 15th of next year (to give yourself the tax deduction for 2007), but as far as I’m concerned, setting up an account now and funding it always gives you a better chance to avoid procrastination.

So, whether you’re hoping for a Wii, iTouch or that new Rolls Royce, hopefully addressing the tips above will help you enjoy your new toys even more knowing some of this stuff is out of the way.

Should you be too busy to read my further posts that will close out 2007, I want to most sincerely wish you and your family a very happy and safe holiday.

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Have you ever dated your financial advisor?

Most people haven’t, and judging by myself and a few other advisors I’ve seen out there, that’s perfectly understandable. But in a way, whether you like it or not, you are sort of dating the person looking after your money. After all, you most likely speak to this person quite often, see them once in a while and on occasion, might even join them for a trip to Tibet.

Most financial advisors I know out there are honest, decent and completely trustworthy. Unfortunately, however, as in any profession, there’s always a few sour apples in every bunch.

As such, forget the Iranian nuclear threat, Bin Laden at large, the sub-prime mess, the war in Iraq and the planet about to dry up like a Sun Maid raisin. When it comes to making the world a better place to live, the first place one should always start is by learning a few inside tips some financial advisors might rather you didn’t know about.

Keep in mind: in some cases, these ideas are not necessarily dishonest things, rather, they might simply relate to “industry acceptable” business practices I’m generally not a big fan of.

So, as you and your money hopefully continue a pleasurable experience dating your advisor, here’s a few inside tips to keep in mind along the way…

Is your advisor dependent or independent, and why would this matter?

Typically, a dependent advisor is one that works for a firm that also “manufactures,” promotes and distributes their own investment products, otherwise known as “proprietary investments.” For example, the advisor you’re dating might work at XYY Brokerage that “manufactures” XYZ Mutual Funds. While in some cases these proprietary funds might be perfectly fine, inexpensive and perform very well, in some cases, these proprietary investments not only under perform their peers, but they could potentially cost more in terms of fees as well.

While such a case is not a certainty by any means, if you have money at (for example) “XYZ Brokerage” and are invested in their XYZ Mutual Funds (or any other proprietary investment “manufactured” by that firm), I would highly suggest you at least take a second look at these investments in terms of their performance and fees. You’ll either be pleasantly surprised or, perhaps, want to divorce your advisor and start having you and your money date someone else.

Have you ever heard the phrase, “There’s no cost to invest in this fund?” If you have, and you invested because of what appeared to be a free lunch, then you were likely told only half the story.

When investing in funds, even funds that are deemed “no load” (no commissions), just know this: you’ll always pay a cost while your money is invested in a fund. I’ve seen (what’s known as) “internal fees” as high as 4%, and in one case, a mind-boggling 8%, which will obviously do one thing and one thing only: reduce your returns and get your money upset that so much of it is going unnecessarily down the drain.

If you’re curious to know the cost of maintaining your “no load” (or other) fund, be sure to check out www.morningstar.com, or, better yet, Lipper’s www.personalfund.com. Another great source is FINRA’s mutual fund expense analyzer that can be found at www.finra.org/investorinformation.

So, next time you hear those poetic words, “There’s no cost to invest in this fund,” make sure you get the rest of the story; otherwise, it could wind up being one bad and expensive date.

Forget boating, shrimps on the Barbie, Jimmy Buffett music, getting eaten by sharks and if you’re me, stepping on hot coals buried in the sand. When it comes to “anchoring” an account, the term typically means there are investments or ancillary services embedded in the account that could help “keep it in place.”

Let me explain this a bit further…

Keeping in mind item number one above, suppose I am invested with XYZ Brokerage and along with other mutual funds, my account contains those proprietary XYZ Mutual Funds nested somewhere inside it.

Suppose, hypothetically, that I no longer want to date my financial advisor; there’s someone else my money wants to go see Scorsese’s latest movie with. So, I go to this “someone else” who attempts to “transfer” my account from XYZ to their firm.

Typically, transferring the account to this other advisor would be easy, but with those XYZ Mutual Funds nested in the account, it’s a bit trickier. In most cases, these XYZ Mutual Funds first have to be sold off before the account can be moved (proprietary funds have to be sold because in general, the new advisor wouldn’t be allowed to sell these funds; they can only be sold by what’s known as “captive” representatives)… And what does this mean? It means you’d have to first call the advisor at XYZ Brokerage to sell them off, and this gives the advisor one last chance to try and “save” the divorce from happening (which, in some cases, might actually be a good thing given it could give you one last opinion — for better or worse — that moving the account to your new advisor is in your best interest).

Another popular “anchor” in accounts are all those extra services some brokerages offer. An extra service might include, for example, bill pay. Imagine this: you go to a new firm, you are offered bill pay services, and for convenience, wind up changing the address of all your bills to go to the brokerage account (for on line bill pay and direct debits from the brokerage account itself).

Sound convenient? Some firms hope so. In the case where your life is running through the brokerage account, you might have a harder time accepting the fact that if you move the account elsewhere you’ll have to re-do tedious things such as setting up your bill pay services. The more extra-curricular services you “take advantage of,” the less likely, some firms believe, that you’ll want to move the account.

The answer to all this is to take your time making sure the advisor is the right person for you to date. Only after you’re sure the relationship has legs would I recommend taking advantage of all those extra services.

Paying a management fee to an advisor to watch over your money? … In many cases, I have no problem with that, and, presumably, neither does your money. But when you’re paying an advisor to manage your account and the advisor has your money invested in managed mutual funds, then guess what…. You’re now paying two (or more advisors) to manage your money; the advisor you are dating, and, the advisor(s) at the fund.

As such, I would highly recommend the advisor (you’re paying a management fee to) consider using low cost investments such as index mutual funds or Exchange Traded Funds. This way, you are truly only paying one advisor, not several along the food chain that, once again, could likely result in one thing: lowering your rates of return and getting your money upset at you.

Managed money accounts can be a good thing but what happens if the relationship turns sour? What happens if your money wakes up one bad market day and says to you, “get me out of this relationship!” In the case where your money is acting up and begging for a divorce, to transfer the account to another advisor you might have to first sell all stocks and positions in the account. This could cause excessive fees, and if that’s not bad enough, taxable events as well.

Imagine: you want out of the relationship and to do so, you have to pay fees and taxes for the divorce. Such a requirement can obviously be pretty painful, and if you are entering into a relationship with a fee based advisor, although it could hopefully be the start of a beautiful friendship, just be sure to know the rules of engagement before you marry your money off to the person who’ll hopefully spend a long time watching over it.

This thing called “money” is pretty important, to say the least. Therefore, when finding someone for you and your money to dine, go to the movies or Tibet with, hopefully keeping in mind a few of the tips above will help make the relationship successful for many years to come.

(PS: thanks to my new book now out, I can finally devote more time to this blog. Stay tuned for new posts generally on a weekly basis).

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So there we were, a bunch of guys in their 40s on a Tuesday night, sitting around a corporate conference room table playing our once-a-month friendly game of Texas Hold ‘em.

On the big screen, the Sox were busy beating the Indians, the credenza was overflowing with pizza, Doritos and drinks, Attorney Steve was busy talking about landing a big one for his firm, CPA Rob was talking about his daughter’s birthday and somewhere at the far end of the table I could hear ultra-successful investment banker Brad mumbling about his wife demanding a pit-stop at Publix for a frozen chicken.

And there, sitting at the head of table was myself, concentrating on one thing and one thing only: staring down film producer Rod, wondering if he was trying to bluff me out of yet another hand. Believing a third rub of his eye was his tell, I called his “all-in” and heroically managed to beat his two-pair with a straight to the ten.

Although losing the biggest hand of the night wasn’t destined to be his fondest memory, I did manage to give him the bright side of things: technically speaking, the money he just lost could potentially be a tax write-off for him.

Surprising? To many people, it most certainly is. In fact, I find many people aren’t aware of the laws regarding the thing we all look forward to, sometimes referred to as “winning free stuff.”

So, while you may not find yourself hanging out with the Hold ‘Em gang on a Tuesday night, who knows? You may find yourself the proud owner of something for free. And in the event you do land such a thing, when it comes to taxes and other related issues, here’s a few quick things to keep in mind…

Given there’s a better chance for me to win PowerBall than for my New York Jets to win another Super Bowl, I suppose I should remind myself of what will happen if I got so lucky to win the biggest lottery in the land.

Generally, all lottery winnings are subject to federal, state and local taxes. An award under $600 dollars is often not reported, however, technically speaking, any amount you win needs to be reported as taxable income. Large winnings are reported on IRS form 5754 and other than swimming to Cuba with cash stuffed up your pants, there’s no way to avoid taxes when winning the big one.

Disappointed? Don’t be. For those that don’t appreciate lengthy swims to foreign lands, you may want to consider not playing the big one at all. …. Why? … Well, consider this: PowerBall is played twice a week and the odds of winning are roughly 120,000,000 to 1 (which is close to the odds of my Jets winning another Super Bowl). Do the math, and it doesn’t take a rocket scientist to know you have a longshot to win it (for those that caught my prior statistics error, I thank you for the heads up).

That’s not very good odds, and yet another reason why you might want to consider sticking with that nice morning run around the neighborhood instead of training for a swim to Cuba.

Have you ever won a cash prize? I once did. High school, 7-11, a scratch-off-something where I think I won somewhere around $20 dollars (and no, I don’t believe I reported that to the IRS).

When it comes to winning a cash prize, this one is fairly simple: cash prizes are taxable, and as a result, federal, state and local taxes are owed on the amount you win. Typically, anywhere from 10% to 25% of the winnings could be withheld from large amounts awarded. As for the rest, you’ll have to pay the rest come tax time.

Forget Tiger Woods. A few years back, a buddy of mine once landed a very sweet hole-in-one at a charity golf tournament. Not only did he get a peck on the check from the snack girl, but he also won a brand new Porsche.

Sound good? It sure did, until he learned Uncle Sam wanted to ride shotgun. When it comes to winning product prizes, the IRS says you’ll have to pay federal, state and local tax on fair market value, rendering the peck on the cheek from the pretty snack girl the only thing you may want to actually take home with you.

Who wouldn’t want to win money at a casino? I certainly would, and if anyone out there has had the experience of doing such a thing, toss me a note about how it feels.

When it comes to winning big money, casinos typically withhold 30-40% of the winnings. Ironically, however, the tax laws are actually different depending on the game you played to win it.

See, the casinos managed to convince congress there’s no way they can possibly keep track of everyone, especially at the lower wage tables when playing blackjack, baccarat, craps, roulette or the big wheel. As a result, generally speaking, when playing at those tables, the winnings are generally not reported to the IRS – but technically speaking, the gambler is always supposed to report any winnings as money received.

And as for comps, get this: technically speaking, those things you get for free could be deemed taxable items as well. Needless to say, I don’t know of many people that report a comped surf and turf down at the Bellagio on their tax return, but once again, technically speaking, all that free stuff could be something to report as well.

Other tidbits that come to mind include:

• Bells ringing all over creation? Congratulations on your win, but winning money at slots will be reported if the amount is over $1200.

• Pick a few winners on Keno? Well done. But any amount above $1200 will be reported as well.

• Chicago Buck or Eddie’s Revenge come in first? That’s real sweet and it may even get you a date with the best looking girl on the block, but remember: winnings down at the horse or dog track over $5,000 or 300x the wager will be reported.

• If you’re like me and typically lose more than you win, here’s an important point: generally, one can write off gambling losses against their income, but only up to the amount of their winnings.

• Excess losses cannot be carried forward to the following tax year.

• Gambling at an Indian Reservation? Have fun, bring a date, win huge, quit your job, enjoy the Elvis impersonator but remember, all the rules above still apply.

• To substantiate wins and losses, the IRS requires a journal of record that states a list of items including, (1) the date and type of your wagers; (2) the name of the gaming establishment; (3) the address or location of the gaming establishment; (4) the names of the other person(s), if any, present with you; (5) the amount(s) you won or lost; and lastly, (6), whether or not you were drinking, and if you were, the type of drink you had (just kidding).

Get a Wii for your birthday? That’s great, especially since I’ll be glad to come by and challenge you to a set of tennis. But what if it was a really nice gift? The type of gift I’m talking about is the one over $12,000. Get one of those sweet somethings and technically speaking, the person who made the gift is required to pay the tax on its fair market value (note: $12,000 is for tax year 2007 only; the amount typically changes every year).

So, the next time someone wants to buy you the New England Patriots, be sure not to tell them they’ll have to pay the tax, otherwise, you’ll likely end up with the NY Jets instead.

As far as I’m concerned, ending up with the Jets and someone having to pay the tax is lame, but it is the law. But don’t despair, there are exceptions to the rule. Gifts that are generally not taxable include tuition and medical expenses paid by someone else, gifts to your spouse, gifts to a political organization and gifts to charities.

Uncle Moe was a great guy. Not only did he buy your first Nirvana album, but he also left you a few million bucks to boot. Not bad. But while a few mill is all well and good, don’t think for a moment that the other Uncle of ours doesn’t want his cut as well.

Sad, but undeniably true, even that occasionally annoying thing called “Death” can be taxed. Specifically, the type of tax I’m referring to is often called “the death tax,” or, technically speaking, the “estate tax.”

If there’s any good news about the estate tax, it’s that few families actually incur it. Statistically, only a small percentage of people will have to deal with this, but in tax year 2007, if Uncle Moe died with over $2 million, you’ll likely have to pay estate tax on the amount inherited above that “exempted” amount.

Going into details about the estate tax is far beyond the focus of this post, but it is an important point, and if it hasn’t been addressed within your family, trust me: it’s something you should most definitely look into the different ways one can potentially reduce it.

I love winning free things. After all, who doesn’t? But whether it’s landing snake eyes, a hole-in-one or someone off-loading the New York Jets, next time Lady Luck rears her beautiful head, keeping in mind the things above could be some important points to remember.

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Where do you go for investment advice?

A financial advisor? CPA? Jim Cramer? Suze Orman? Maybe the retired guy down at the pool?

What about Yoda? Ever consider him?

As surprising it may sound, when it comes to getting good advice on investing, for a moment, forget The Wall Street Journal and everything else out there. That two-foot, nine-hundred year old creature surprisingly offers some decent advice on investing. In fact, as crazy as it sounds, the entire Star Wars series itself offers some fantastic suggestions to get us on the right path towards success. Only problem is, few people have taken the time to do something as ridiculous as I have: ponder how the classic tale can teach us a few things about making money.

Mind you, this wasn’t exactly done on purpose. A couple of nights ago, in the deep, dark hours of a California night, I found myself out on the couch flicking through channels for something to lull me to sleep. After watching the Met highlights on ESPN (total disappointment), a re-run of Mad Money, then surfing past Happy Days and Charles In Charge, I landed on Star Wars only to soon realize the classic movie and all those that followed really can teach us a few important things about prudent investing.

Here’s a few examples:

Investing: I recently took a moment to do something most normal people would never do: search through a stack of magazines to analyze the financial ads. Between Fortune, Money Magazine, Smart Money, BusinessWeek and a handful of others, the results were undeniably clear: in my brief study, when it came to ads for financial products, by a long-shot, it was the costly, managed mutual funds that advertised far more than anyone else.

What relevance does this have? … Let’s continue …

Star Wars: Imagine being Luke. You just crashed in a dark, musty swamp where a two-foot tall creature named Yoda revealed himself to be the Jedi master. If that wasn’t odd enough, a little while later the thing tells you to start lifting rocks with your mind. Having little choice but to go with it, you heroically manage to satisfy master, but when he tells you to lift an x-wing fighter with your head, that’s a different story:

LUKE:
Master, moving stones around is one thing. This is totally
different.

YODA:
No! No different! Only different in your mind. You must unlearn what you have learned.

Lesson Learned: I totally agree with Yoda. After all, who wouldn’t? The creature not only managed to live nine-hundred years, but he beat the pants off an Evil Emperor four times his size.

When it comes to learning a few things about successful investing, the first place many folks should start is not by learning complicated investment formulas that ultimately few wind up remembering, but with a willingness to do what Luke was basically forced to do: unlearn some of the things you perhaps already know.

What baggage are you reading this article with? Is it scores of ads from costly mutual funds trying to get your hard earned dollars into their pockets? You know, the ads showing happy people who all seem to be putting Bill Gates to shame? Based on the vast number of ads out there from the costly fund companies, chances are your sub-conscience is carrying a few of those fancy advertisements in your head and you may not even know it.

So, to begin with, start by listening to Yoda. Being a successful investor often means willing to unlearn some of what you know. While your mind may not wind up lifting an x-wing fighter from a dark, musty swamp, you just might be able to open a window to a few new interesting concepts about successful investing.

Here’s the first example that comes to mind…

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Investing: Some of the more interesting investment concepts can either be traditional in nature or somewhat unique. Although they’ve been around for ten years or so, a low-cost investment product such as Exchange Traded Funds are relatively new and are just starting to explode with popularity. On the more unique side of the spectrum, who would ever think something as bland, boring and unappealing as Life Insurance would provide some retirees with better returns than their stocks have ever produced? In today’s marketplace, investors selling their life insurance policies are experiencing some of the greatest profits I have ever seen. Who’s doing these things? It’s not sophisticated actuaries nor is it Noble Laureates that have figured out how to beat the system; it’s main street retirees that opened their minds to one of today’s hottest concepts, that of something called “Life Settlements.”

Star Wars: In real time it took a few months but in movie-time it took just under two hours for Luke to truly open his mind to new concepts. By fully opening his mind and entrusting The Force, he turned a targeting computer off and wound up landing one right into the Death Star’s exhaust port. … End result? Death to the Star and birth to inter-galactic celebrations across the universe that changed our movie-going lives forever.

Lesson Learned: Whether it’s the willingness to turn off a computer tracking system or explore innovative concepts such as Life Settlements, it’s those with open, educated minds that often find the success they seek.

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Investing: Who would you rather be? A sock puppet on national TV promising those that own its stock boatloads of money or a cup of coffee that costs 3 bucks? While at first being a puppet seemed like the way to go, it was just a matter of time before Starbucks double-Frapps put the Pets.com mascot to shame. As most people that experienced the .com bust can attest to, investing into hype often leads to nothing but regret.

Star Wars: Who would you rather be? A seven foot master with a deep voice, impressive ship and a mind that melts men or a skinny blue eyed farmhouse kid chugging around the galaxy in a worn out jalopy? While at first glance sporting a cool black helmet and long cape could seem like the way to go, Star Wars proved to us that in the end, staying away from the hype can wind up saving you from the dark side of things.

Lesson Learned: Save the sock puppets for your kid’s next birthday. Flashy ads, slick brochures and fast-talking salesmen isn’t what counts, it’s what’s behind the window-dressing that does. Next time you’re confronted with a hyped-up investment that seems a bit “too good to be true,” keep in mind Han Solo’s classic line, “I got a bad feeling about this.” Think smart, double-check the hype and remember: this is your hard-earned money we’re talking about.

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Investing: Some of the most successful investors I’ve ever met started out with nothing. Thinking back to these people, those with the most often started out with the least. Somehow, some way, fearless persistence, dedication and that occasionally annoying thing called “time” steadily built them their success. While diversifying your investments, reducing fees, minimizing taxes and budgeting yourself to save a few dollars every month may sound painful, dreadfully boring and slow paced, remember: when it comes to trying to get rich quick, the longer you play the game, the less chance you typically win. On the flip side, when investing smart, the longer you play the game, the greater the odds you’ll come up a success.

Star Wars: Have a good idea for a movie? George Lucas did. To follow in his footsteps, first lock yourself in a room with a legal pad and for the next year or so, do nothing but write an outline to a science fiction story. Then, over the next year or so, expand the outline into a screenplay, and once that’s done, spend the next year re-writing it. With the script finally complete, spend another year raising money to produce it. With financing in place, spend another year filming it, the year after that editing it and once that’s all finally done, take a deep breath, sit back and make a billion dollars.

Lesson Learned: Don’t think success could happen to you? That could be your first problem. Whether it’s building wealth or creating the second most successful movie ever made (behind Gone With The Wind when inflation is factored in), remember: the journey to riches rarely happens overnight. Take, for example, Henry the Electrician, a friend of mine who once made $4 dollars an hour fixing fuse boxes. Tired, worn out and wanting a better life, he one day had the guts to scrape together a few dollars, purchase an apartment on the dark side of town and rent it out. Half a lifetime later, with hundreds of apartments to his name, his personal Star Wars is now a reality, and with a little time and dedication, I’d bet anything one day yours will one day be as well.

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Investing: There’s nano-tech, bio-tech and gen-tech. Derivatives, floaters, collars, straddles and a long list of many other complex investments. While some of these might be all well and good, it’s probably best you listened to Warren Buffet who once wisely told us mere mortals to stay away from things we can’t understand.

Star Wars: There’s tall creatures, short creatures and monsters buried beneath the trash. Blubber-filled giants, underground slugs, women with thin heads and a long list of other bizarre things. While some of these might be all well and good, it’s probably best you listened to Yoda who once wisely told Anakin to stay away from things he can’t understand.

Lesson Learned: Who knew Warren Buffet and Yoda would be so alike? Until this moment, I for one never did. Whether your journey is about destroying an evil empire or building wealth, staying away from things you can’t understand is often a first rule of success.

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Investing: Want to outperform most mutual fund money managers? I do. That’s why when it comes to investing my own money, I often stick with index investing and put my money into things such as the S&P 500. Somewhat sad but irrefutably true, over time, you’ll most likely make more money investing into the simple and mindless S&P than most mutual funds. And if returns aren’t enough to inspire you, what about fees and taxes? Fees in most indicies are typically around two tenths of a percent and investing in indicies rarely causes capital gain taxes until you decide to pay them, not someone else. How good is that?

Star Wars: Legendary effects, wild robots, fantastic chases and places that few people could ever imagine made my popcorn dance, but when stripping away all that cool stuff, what do you really have? A simple and familiar storyline that follows Joseph Campell’s classic thesis that proved all timeless stories can be boiled down to the same, simple storyline that’s been re-hashed a thousand times through heroes wearing many different faces.

Lesson Learned: Forget phone books of investments many investment accounts contain. Who has the time to keep track of those things anyway? Whether it’s creating a movie few will ever forget or making money, remember: it rarely has to be complicated for it to be effective.

I had fun pondering how Star Wars can teach us a few things about our money, and in fact, there were a handful of other “lessons” I wound up editing out. But who knows? Given the examples above, next time you see Star Wars, perhaps you too will realize some of the valuable lessons the classic tale teaches us not only about money, but about life itself.

May The Force be with you.

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On a plane back from New York, someone sitting next to me noticed I was writing my next blog, and asked me what my “10 Commandments of Investing” would be. A quick conversation led me to rapidly type my thoughts. So, consider this my extremely abbreviated summary of the things you should never forget when investing and planning your future.

Please be advised: these commandments are not listed in any order of priority, so don’t think of “number one” as being the most important. At some level, they are all very important.

Drum roll, please. Here they are, my 10 Commandments of Investing:

1. Stick with the indexes
Leave the individual stock picking to gamblers and speculators. Very few people really understand how to successfully pick individual stocks, and if they do, the news that drives markets today is totally unpredictable, making individual stock picking a highly risky venture. Reams and reams of statistics prove index investing almost always outperforms the financial advisors, money managers, and stockbrokers. Stick with the indicies and you’ll likely wind up far ahead of the game. Care to speculate a bit on some individual stocks? Do it with a small portion of your money, but certainly not the bulk of it.

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2. Watch those fees
Wall Street loves investors that don’t watch their fees. For those investing in funds, check out www.personalfund.com. You might be shocked to find out the total cost your funds are charging you to own them year after year. Especially over the long haul, fees can destroy your returns.

Minimize fees as much as possible by investing in low-fee, highly diversified investments such as one of my personal favorites, Exchange-traded funds such as those offered by www.ishares.com

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3. Create a bond ladder
For income, bond funds are the favorites among many advisors. They’re simple, quick, and unfortunately, sometimes loaded with fees. Consider laddering bonds instead. Why? Mutual funds containing bonds have no maturity dates. If the value of the fund goes down, good luck trying to guess when your principal will “come back.” With a laddered bond portfolio, as long as the bonds don’t default, you have a date when your money will be returned to you.

Creating a bond ladder is not as easy as choosing a few bonds funds; it usually requires the assistance of a skilled advisor. But the next time an advisor recommends bond funds for income, be sure to suggest this as an alternative. Some advisors don’t construct ladders, and if they have little or no experience doing so, I would suggest getting an opinion with someone else before leaping into the funds.

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4. Diversify
You’ve heard it a thousand times, but it’s amazing how few people actually do it. Diversification saves lives and prevents disasters, especially when you don’t put too much money in one place. Also be certain to understand the concept of “rebalancing.”

That’s important stuff, and if you don’t understand it, go back and read a quick intro to the concept at Wikipedia. Rebalancing, together with diversification, will likely one day save your investment life.

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5. Watch your money
No one else will ever keep track of your money like you will.

Don’t get lazy and stop paying attention.

Read your statements every month and monitor your progress and returns.

This is your hard earned money we’re talking about, and don’t ever forget that.

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6. Don’t rush in
You’ve likely heard the saying “only fools rush in.” On every level, rushing into things can cause great harm. Whether it’s rushing in to get high returns, rushing out as a result of emotion, or rushing into a decision as to where to invest, before diving in pause, take a deep breath, sleep on it, and then make your decision. As a “subset” of this commandment, I would also include: Be careful when listening to others. What’s good for one person is terrible for another. The media does a great job of generalizing advice and investments, and I think that’s an awfully dangerous game to play.

Unless someone really understands your personal situation and goals, I firmly believe it’s nearly impossible to make conclusive and general statements as to “what’s good” and “what’s bad” for you. No good doctor could ever diagnose a problem without getting the answers to some basic questions. If they fail to do this, prescribing a pill can literally kill you. The same is true with investing. Only when a few key questions are answered could anyone really give prudent advice on “what’s good” or “what’s bad” for you. So the next time someone tells you to “stay away from this” or “you should invest in that” be careful. Educate yourself, assess the advantages and disadvantages of the advice you’re getting, pause, then make your decision. By doing so, chances are you’ll make the right one.

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7. Don’t take the risk if you don’t need the return
Many people would do perfectly fine getting 7-10% returns on their money, yet their portfolios are invested in things that strive for well beyond that. Especially if you’re a retiree, if you doubled or tripled your money overnight, would you go out and buy a fancy new sports car? A mansion on the hill? Few of us would. And for that reason, always ebb towards the safer side of investing as much as you possibly can.

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8. Get out if something isn’t working
The greatest investors I’ve ever known are the ones who don’t get emotional about their money. I’m not talking about the Warren Buffets of the world. I’m talking about highly successful investors I’ve met who were schoolteachers, electricians, and small business owners. Some of the best investors I’ve met are those who understand that becoming emotional about an investment often leads to disasters. Easier said than done, I know, but this one is very important: Don’t ever fall in love with an investment. It doesn’t love you as much as you love it. So if it isn’t working, cut it off before you really regret it.

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9. Understand tax consequences
I’d place this right alongside number two above. Over time, the tax ramifications of your investments can really help or hurt you. It’s been said that “It’s not what you earn, it’s what you keep.” Amen. You absolutely, positively need to understand the very basics of what happens with your taxes when you move money around, especially if you are investing in mutual funds that often create taxable events beyond your control.

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10. Keep it simple
Only one more commandment? That’s too bad. I can think of so many more favorites — start saving as early as possible, take advantage of compounding, max out your qualified plans, etc. But if I had to pick only one more point to complete this quick “off the top of my head” list, it would have to be to keep it simple.

I once met a very successful investor who did quite well for himself over many years. His entire portfolio consisted of literally three positions: a Standard & Poor’s (S&P) 500 index fund, a low-cost bond fund and a low-cost international stock fund. Other than some cash sitting on the sidelines, that’s it, and not surprisingly, he did better than most investors I’ve met with phone books of investments that re difficult, if not impossible, to keep track of. While I certainly don’t endorse keeping your entire portfolio in three positions (given that I don’t know your personal situation), I can say that keeping it simple is a universal lesson of life itself, and in the world of investing, it allows you to do one very important thing: keep track of what you have and how it’s doing. The more complicated things get, the more room there is for disaster. It really is as simple as that.

IN CONCLUSION

It’s a bit tricky narrowing down an entire investing universe to ten points. Perhaps if I was flying from Los Angeles to Florida instead of New York to Florida I’d have more time to think about this. I’m sure as soon as this is posted I’ll regret not including some other things that will come to mind. So, consider the above a random sampling of my mind that in the matter of a few minutes, conjured up the above over two small bags of Delta’s Roasted Peanuts and a Diet Coke (that just spilled all over my Sports Illustrated magazine. What a bummer).

Stay tuned for my next post on the lessons Star Wars teaches us about investing. I’m having fun with that one.

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3 little ideas that can mean big things for investors

Although there’s plenty of bad press and dark clouds over the housing market these days, it’s hard to argue that real estate will remain a foundation of many people’s wealth for a long time to come.

Building wealth with real estate can be as simple as buying a house, living in it for many years and eventually selling it for a profit. Building wealth with real estate can also be as “simple” as investing in a commercial property such as a shopping center and collecting an income from it while it presumably appreciates in value.

That said, the purpose of this article is not to address the more familiar scenarios above, rather, to summarize three often overlooked concepts that could be helpful to quite a few people:

• 1031 Exchanges
• Tenants In Common programs
• Using IRA money to buy real estate

Let’s take a closer look at each…

1031 Exchanges

In its simplest form, a 1031exchange provides a real estate investor with the opportunity to defer payment of capital gains tax when selling one property for another. By deferring taxes owed on a sale of a property, an investor basically has more money available to purchase a new property, essentially receiving a “tax free loan” from Uncle Sam on the amount of money that would have ordinarily been lost to taxes.

Although 1031 exchanges are relatively simple to implement, there are a handful of important points to understand:

• 1031 exchanges do not apply to primary residences. Only property held for investment or business purposes can qualify.

• The property being bought and sold must be of “like kind.” Generally, “like kind” simply means exchanging one investment or business property for another. Although the definitions of “like kind” is generally liberal, state laws could differ so be sure to take a closer look at the state(s) in which the property(s) are being bought and sold.

• The property being purchased must be of equal or greater value than the one being sold. In addition, the equity and/or debt of the new property must be equal to or greater than the equity and/or debt of the property being sold as well.

• For a qualified exchange to take place, one must identify the new property within 45 days and the transaction must be complete within 180 days.

• The exchange must be conducted through a Qualified Intermediary; the real estate investor cannot take possession of the proceeds from the sale nor can they maintain any control of them. If any of these important criteria are not met, the exchange does not qualify as a 1031.

• Multiple properties can be included in a 1031 exchange. For example, one can exchange several smaller properties for a single property and vice-versa.

• Cost basis is carried-forward from the property being sold to the one being purchased. The newly purchased property does not take on its own cost basis.

• Any taxable gain from depreciation recapture is deferred as well.

There are many other important issues that need to be addressed before any transaction takes place, but hopefully the above summary demonstrates that a 1031 exchange can certainly be a worthy benefit to consider before someone sells an investment property.

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Tennant In Common Programs

One of the main problems I’ve come across with 1031 exchanges has nothing to do with the process itself. Rather, a common problem I’ve seen is simply not being able to identify a property worthy of purchase after the original property is sold.

In such a case, one might consider one of the many Tenant-In-Common programs available in the country. Otherwise known as a “TICs,” “fractional-ownerships” or “co-ownerships,” these programs provide real estate investors with the opportunity to purchase a partial, or proportionate interest in an existing property instead of owning the entire property itself.

Although a 1031 exchange can take place when “rolling” the proceeds of the sold property into a TIC, some investors shy away from these programs given the lack of controlling interest. Conversely, some investors might actually prefer a TIC program given the management of the property is off-loaded to a third party, obviously at a cost.

 

That said, when a 1031 is desired and a property cannot be identified, one might consider a TIC program in order to defer paying the capital gains. (IMPORTANT NOTE: TICs are a complex procedure. Be sure to consult with a qualified CPA or tax advisor before any actions are taken).

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Using IRA money to invest in Real Estate

When it comes to building wealth with real estate, this is without a doubt one of the biggest surprises out there…. Unbeknownst to many, it is entirely legal to purchase real estate using IRA funds, but there are a handful of restrictions and important details to consider before doing so.

Technically speaking, IRAs cannot invest in things such as artwork, rugs, antiques, metals, gems, stamps, coins, beverages, stock in an S corporation, life insurance, and other tangible personal property. Other than these items, everything else is generally fair game, including real estate such as land, commercial property, residential property, real estate options and real estate loans.

Although using IRA funds to purchase real estate is generally simple to implement, there are a few restrictions and important details to consider such as:

• The custodian of the property: most IRA custodians will not allow real estate to be purchased within their accounts. Only a select few custodians in the country specialize in these types of arrangements.

• The purchase of real estate can be for investment only. Real estate such as a primary residence cannot be purchased using IRA funds.

• The IRA cannot buy real estate from a “disqualified person.” A disqualified person is defined as the IRA owner itself, a spouse, a direct descendant or ascendant (for example: a daughter, son, mother or father). To simply this important point, it is completely legal to use IRA funds to buy real estate from a stranger or parties generally outside the family bloodline.

• An investor cannot personally guarantee a loan when IRA money is being used to purchase a financed property. For those asked to personally guarantee a loan when using IRA money to purchase a property, various banks do specialize in loaning money to IRAs to help finance such a purchase. However, when financing is necessary, a simpler way to buy real estate using IRA funds might be to purchase the property in partnership with money held outside the IRA, with a third party or even as part of an LLC which is completely legal as well.

• An investor using IRA funds to purchase real estate could incur Unrelated Debt Financed Income. UDFI is the income and/or capital gains tax attributable to the financed portion of the property. UDFI must be paid by funds within the IRA and for various reasons not addressed here, taxes incurred by using IRA funds to purchase a financed property are typically greater than taxes incurred from a property purchased with funds outside an IRA.

• If at all possible, when using IRA funds to purchase real estate, it’s ideal to buy property that does not require financing. If financing is required, one should consider purchasing the property in partnership with third parties (as stated above, third parties such as money held outside the IRA or as part of an LLC). In the arrangement where no financing is required when buying the property, the major benefit is that no UDFI would likely be incurred.

Needless to say, the above covers only the general concepts of using IRA funds to purchase real estate. But when it comes to building wealth from investing in real estate, if there is one concept many investors are not aware of, hands-down, I’d say this one is it.

As with all concepts mentioned above, before taking any action, be sure to review your unique personal situation with a qualified tax advisor. After all, when it comes to investing, taxes and just about everything else, it’s the details that always count the most.

Alan Haft offers securities through Workman Securities Corp., Eden Prairie , MN . Member FINRA/SIPC. This investment is offered to Accredited Investors only. Consult your financial representative for more information about qualifying as an Accredited Investor.

Bad date last night? Don’t despair. It’s not as bad as you may think. Here’s some good news: you may not know it, but when it comes to your money, that bad date can teach you an awful lot about successful investing.

Think I’m joking? Think again. Although I was a far cry from being the King of Dating, I did have a few occasional lucky streaks in me. And looking back over those rare few times, my moderate success on the dating circuit did teach me quite a few things about prudent investing.

Here’s a few quick examples…

1) DON’T JUDGE A BOOK BY ITS COVER

Dating: The guy was over a half-hour late, his outdated shirt barely matched his Taco Bell stained pants, the rain gave him a lethal dose of bed-head and back then the busboy was making more than he was. If that wasn’t bad enough, his humor was a bit stale and the car he drove had a weird putter that attracted nothing but aliens from the evil Planet X. While at first the girl thought it was going to be a dinner date from fiery hell, little did she realize that guy was I, and I’d soon wind up being the one she’d marry.

Investing: The receptionist was sure nice, but the carpets were dull and the musty furniture remin