RI Report: New Year's Resolutions for 2010

The Rogue Investor Report: Take Control of your Financial Future!

January 2010

SUPER INVESTING newsletter series
Part 1: One of the Most Important Numbers in Your Life: Your Credit Score
Part 2: Business or Investing?
Part 3: Foreclosure Fortunes in Missouri
Part 4: Are you Looking for a Sanctuary in the Current Economic Uncertainty? NEW!

7 New Year's Resolutions for 2010-Part 2 of 7

Hello Rogue Investors,

Welcome to issue number 2 of 7 New Year’s Resolutions for 2010.

My resolutions:

I will clean up and get organized.
I will review my assets and investments.
I will set aside extra money in an emergency fund.
I will review my insurance needs.
I will pay down debt using the stacking idea.
I will finish my estate planning.
I will give back with greater purpose.

Resolution Number 2: I will review my investments

Now is a great time to take your year-end retirement statements, brokerage accounts, bank statements and decide if you have the right distribution for your age and risk preference. Most financial experts agree that you cannot decide on an investment strategy until you understand your exit plan.

In other words, when do you need the money? If, for example, you are saving for a Mediterranean cruise in one year and it will cost about $10,000, then you are not going to be able to invest your money in an investment, such as a tax lien certificate. That’s because you can’t guarantee when a tax lien certificate will be redeemed and you will need your money in one year.

In fact, it is likely that you will need to keep that portion of your money in a savings or money market account.

On the other hand, if you are setting aside money for retirement and you are 35 years old and you plan on retiring at 55, then you have a full 20 years to let the power of compound interest work for you. You also open up other alternatives, such as real estate, mutual funds, stocks or tax lien certificates.

For this reason and just to be smart, you should establish a personal asset allocation plan. If you have all of your money tied up in the stock market because you have read time and time again that the average return is about 10%, then I have some sobering news for you. That is an average and again you may not be diversified enough.

Note that an average in the market may be quoted with 20, 50 or even 100 years of data. Please understand that the stock market can have long periods of being flat (no gains) or even down years with negative returns. If you have all of your money in the market and you bet on that average, you had better hope that your timing is just right because you may need your money in a year like we just had in 2008 or a down decade like the last 10 years, which had an average return of just over 1%.

On the other hand, you could be too conservative with your investments. Earning a return of 2% to 3% is just keeping par with inflation.

My point is that you should diversify, but also understand what your investments are doing.

It is a good idea to diversify for safety, but also don’t spread yourself too thin and know your exit plan based upon your needs, age and risk tolerance. I certainly would recommend a good, licensed financial planner to help you.

Now, before we are done, this is how you can monitor your progress.

Calculate a net worth statement and review it at least once a year.

Write down or set up a spreadsheet that shows all of your assets on one side and all of your liabilities on the other side. Here is an example.

**Net Worth Table**
Item	Assets	Liabilities	Net
Cash	$600	$0	$600
Jewelry	$2,500	$495	$2,005
Furniture	$3,000	$2,450	$550
Tools	$1,000	$0	$1,000
Riding Lawnmower	$2,250	$925	$1,325
Motorcycle	$500	$0	$500
Ford Explorer	$17,750	$16,950	$800
Honda Civic	$16,690	$17,250	-$560
Laptop	$1,250	$0	$1,250
Kitchenware	$3,000	$0	$3,000
Appliances	$2,500	$0	$2,500
Stereo System	$5,000	$0	$5,000
Visa Account	$0	$3,995	-$3,995
Student Loans	$0	$7,269	-$7,269
MasterCard	$0	$2,125	-$2,125
House	$200,000	$140,000	$60,000
Checking Account	$525	$0	$525
Savings Account	$2,148	$0	$2,148
Company 401(k) Plan	$9,250	$0	$9,250
Net Worth = $76,504

If you own a house and you think it is worth $200,000 more or less, that is good enough. Put it down on the left side. Of course you can use comparisons, such as Zillow.com, county assessed values or replacement cost. Just make a note on how you came up with the value. This is for you, not anyone else. Now, check out your mortgage statement and put what you owe as a liability on the opposite side. If you owe $140,000 put it down under the liability column. Also, please don’t let technology slow you down. If you want to write this down on paper, then by all means do so. You don’t have to learn Excel or QuickBooks Pro to be financially successful.

If you own rental properties or other assets, do the same for each one. For a depreciating asset, such as a car, look up a current book value on www.kbb.com. I think it is appropriate to include all of your personal property in a manner that you would report to an insurance company if all your property were lost, but at its current value not its replacement value. If you own a piece of furniture that cost $1500, but is now worth about $500, then the value is $500.

Include all of your cash, stocks (current value with date), CDs, bonds and other assets in the asset column and all of your debt, credit cards, student loans, car loans, notes, personal debt or anything you owe under the liability column.

This whole process can be sobering because you may be pulling in $100,000 per year, but your net worth could be close to zero. Even if you have a positive net worth, the goal here is to increase your net worth.

So let’s decide how much we are going to increase our net worth. Don’t tell me. Write it down somewhere and I will do the same. For example, if your net worth is $50,000 and your goal is to increase it by 20% per year, then you will need to do one of two things: (1) increase your asset side usually by saving more or securing smarter investments or (2) decrease your liability side by spending less and paying down debt. At the end of one year you will want to show a net worth of $60,000 or 20% more. In year two, you will increase your net worth by $12,000 ($72,000 total). After three years, your total net worth will be $86,400. In only five years you will have $124,416.

The point here is compound interest works whether you are investing, saving money or both.

Finally, here are some recommendations to help increase your net worth:

Take advantage of your company-sponsored retirement plan, especially if the company provides a matching percentage.
Set up a new and separate account to set aside investment money. The easiest way to accomplish this is through payroll withdrawal or by having your bank automatically debit your account.
Pay down debt by starting with just one account and steadily attacking it until it is paid off. You probably already know that credit card or revolving debt is the absolute worst type of debt; therefore, consider working on those accounts first.

In the next issue, we will talk about cash flow and creating an emergency account.

All the best,

Michael Williams
1-913-381-4520

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