Over the past 14 months, drastic market falls have caused many investors to lose significant portions of their savings. The U.S. market has fallen by more than 40%, while international markets are down by 60% or more in many cases. 

In this scenario, one of the questions that I am most frequently asked is, “How do I make my money back?” My answer to this question is simple - don’t try to make your money back. If you try, chances are that you are going to take unnecessary risks and end up losing even more money. For this reason, the best advice may not be something that many investors want to hear. It is probably better to forget about the past and concentrate on the future. While the markets are getting hammered, stocks are selling at a discount. Although no one can predict when the market will hit bottom, buying at a 40% off discount is something that rarely happens.

Asset Allocation

Creating your asset allocation, or the mix of stocks, bonds and cash in your portfolio, is the single most important task that an investor has to face. Many studies have shown that the proportion of stocks, bonds and cash held in a portfolio has a greater effect on its returns and volatility than the individual investments that are chosen.

That is why after assessing one’s investment goals, it’s of the utmost importance to create an allocation that can help you achieve the aforementioned goals. Once you have fixed your asset allocation, you can start considering what to buy. “Be greedy when others are fearful,” is one of investor extraordinaire Warren Buffet’s favorite sayings. Many economists believe that the United States is in the midst of a recession. While this does not sound good, there may be a silver lining for investors. Though you need to always remember that past performance is no guarantee of future returns, consider this: According to a report in Smart Money, “Stocks tend to rebound before the economy does. Over the past nine recessions, the S&P 500 has gained an average 13% during the second half of the downturns and another 13% the year after they ended. Even during the Great Depression, the S&P rose 33% from the market’s trough to the end of the recession. And while it’s folly to try to predict a bottom, with the market down 40% from its 2007 high, it may not be far away.”

Buy Low/Sell High

During more stable times, clients ask me which stocks I think may have big upside potential. Usually, they are looking for small companies that have the potential to move up rapidly. I like to refer to this as “being a hero.” These clients expect me to wade through loads of information to pick out a company that no one has ever heard of. (Whether that is realistic or not is for another column!) In today’s climate, however, there is no need to be a hero. It is not necessary to speculate on risky companies. It is enough to look at large companies that continue to pay or even raise their dividends as a place to start. These are usually companies that make products that we all use in our day-to-day lives. For example, come what may, consumers are still going to use shampoo, toothpaste, soap, and other necessities.  Obviously there is no guarantee that your money will be doubled within the next week. But if you have a long-term investment horizon and you can withstand continued volatility, then investing in stocks now will have the potential to reward you in the future and help you rebuild some of the wealth that you have lost.

With the current market volatility, it is worthwhile speaking with your financial adviser to make sure that your portfolio is well designed with your financial goals in mind. Then, if your financial plan allows for it, have a talk about trying to take advantage of a once-in-a-lifetime opportunity.

Not that I enjoy saying bad things about my hometown of Seattle, Wa. but when it comes to politics, most residents of the city are just plain nuts. It’s no wonder that the largest city in a state that was once dubbed, ” the 47 states and the Soviet of Washington,” is so far off to left that even great news, can be spun into catastrophe. That’s exactly what happened in yesterday’s Seattle-PI. In a very telling headline the question is asked, “The Money Squeeze: Is cheaper gas bad news?”

Huh?

What a stupid question. Of course it’s good news, if consumers can save 30% of their gas bill, can you explain to me why that’s bad?  I know it’s bad for environmentalists, and all those who drink the Al Gore Kool-Aid. After all it just goes to show that crude-oil is king, and alternative energy sources like  wind, solar, fully pumped tires, are all prohibitively expensive and fall by the wayside as crude prices fall. What happened to the whole alternative energy craze?  Funny what $65/barrel oil can do!

According to the PI article: ” When prices at the pump surged this summer, maintenance technician Taylor Morgan decided to change the way he got to the downtown Seattle office building where he works. He started taking a bus from his South Seattle home a couple of days a week. And he told his wife that the bimonthly trips to see family in British Columbia had to be cut to once or twice a year. On Friday, Morgan said he was happy to be driving his Honda Accord to work every day again. He stood pumping gasoline at a 15th Avenue West Chevron station, where the price for regular had dropped to $2.99 per gallon.

“Things are getting back to normal,” he said. “But with the crazy price changes, you can’t really be sure. It’s really confusing.”

Morgan and other baffled consumers are far from alone. With markets exceptionally volatile, even the region’s top economists can’t say whether gas prices will continue to fall or rocket again.”

Excuse me. What’s confusing about gas prices dropping rapidly? Why is it an issue if economists can’t predict the future? I don’t hear anyone crying over the fact that 6 months ago most ‘economists’ where predicting $5 per gallon. Nice call!

Heck, maybe just maybe the cheaper oil will mean salvation for the near bankrupt US car industry. Instead of another government bailout, maybe cheaper prices at the pump will help jump-start new sales.

Please see our Disclaimer HERE.

Aaron Katsman is Managing Editor of the Israel Opportunity Investor newsletter. He is lead portfolio manager for the Israel Growth Portfolio and Managing Director of America Israel Investment Associates, LLC. For more information, go to www.israelnewsletter.com or call 1-888-327-6179, or email aaron@profile-financial.com.

Reprinted with permission from Israelnewsletter.com

So we now have the much anticipated Barack Obama economic plan with the centerpiece being wealth redistribution. Taking from the rich and giving to the poor, or maybe we could say it’s not allowing one to become rich and making people stay poor. Haven’t we tried this before and seen disastrous results. Throw in a little capital gains tax and we have a recipe for a continued economic slowdown.

My last post about how investors are spooked about the prospect of an Obama victory sure seems even more plausible after hearing about his proposal. Taxing capital gains, increasing taxes for the so-called rich, and giving tax credits to those who don’t even pay taxes to begin with sounds like a rehash of European economic policy for the last few decades and look at their situation.

While the tax raise is troublesome enough, the most scandalous part of his plan is to raise death taxes across the board to 45%. What a scam. We are about to enter into the biggest generational wealth transfer in the history of the world and Obama wants to take 45% of it? Where is the outcry? Why should the government see a penny of inheritance money? Hasn’t it already been taxed multiple times? Everyone speaks about how Obama is all about justice; well where is the justice in taxing already taxed money?

If he gets elected this plan will come back and bite the very same people he is trying to help. Inheritance as well as letting workers keep more money of what the earn is the way to increase individual prosperity. If you were to confiscate all the joint net worth of both Bill Gates and Warren Buffett, and you would distribute it evenly among all Americans how much would they end up getting? A couple of bucks at best. What kind of difference will that make to anyone.

This plan is outrageous, and will do nothing to help grow the economy. But heck, Barack, if you are in the giving mood, how about sharing some of the millions you made on your book?

Please see our Disclaimer HERE.

Aaron Katsman is Managing Editor of the Israel Opportunity Investor newsletter. He is lead portfolio manager for the Israel Growth Portfolio and Managing Director of America Israel Investment Associates, LLC. For more information, go to www.israelnewsletter.com or call 1-888-327-6179, or email aaron@profile-financial.com.

Reprinted with permission from Israelnewsletter.com

Many reasons have been thrown around to the continued rout in global stocks. After all with 24/7 media, they need to have something to talk about. Bank failures, plugged up credit markets, as well as a general panic among investors are just some of the reasons given for the market slide. But what about the fact that Wall-Street may be on edge regarding a potential Obama presidency. Could it be that investors are worried that a Democratic president and Democratic controlled congress is a recipe for disaster?

Much has been made over the years about gridlock in Washington. Many of us believe that gridlock is good because nothing ends up getting done in Washington, which means that nothing can get screwed up. With a potential Democratic sweep, investors may be fretting about increased spending, increased taxes and increased intrusion into the lives of each and every one of us. After all the Obama policy of hope and change is innocent enough, but if it’s backed up by Nancy Pelosi et al. running with a majority in both houses, things could interesting.

Here is a chicken/egg one for you. Common wisdom has Obama surging ( I guess this is one surge he supports!) due to the current economic crisis. But could the market crash be a result of Obama’s poll surge, and the fact that investors are scared of a Democratic sweep?

Please see our Disclaimer HERE.

Aaron Katsman is Managing Editor of the Israel Opportunity Investor newsletter. He is lead portfolio manager for the Israel Growth Portfolio and Managing Director of America Israel Investment Associates, LLC. For more information, go to www.israelnewsletter.com or call 1-888-327-6179, or email aaron@profile-financial.com.

When you become a mother, you want to spend all your time with your precious newborn. Being the guiding force in your baby’s life is the most important thing! That’s why work at home moms are so happy with their jobs – working at home allows you to spend plenty of time with your children while still contributing to the household income.

Often mothers are expected or encouraged to go back to work as soon as the baby is old enough to be left with a babysitter or daycare. Some companies only allow six weeks of maternity leave, and that means you have, at the most, six weeks with your newborn child. Many mothers are rebelling against that old expectation and are working at home instead.

Being a work at home mom means you have more time for your family. If your child gets sick, you don’t have to take time off work and juggle appointments to take them to the doctor – you are home already, so you can do whatever your chosen business is, all the while holding your sick child close to you. If you need to make a run to the doctor, no problem! You set your own hours when you work at home, so you can shuffle your schedule to keep your child the priority.

Setting your own schedule can be a wonderful thing, as long as you’re organized enough to make it work! Being a work at home mom is not as easy as others might think it is. You have to be your own secretary, manager and accountant. You are handling not only the duties of a full-time parent, but also those of a full-time business owner. That’s a heavy load to carry!

But it’s worth it when you take a break from the work you love and look down to see your lovely little child smiling up at you, happy and content in the knowledge that you are there for them, all the time, no matter what. That’s a feeling that makes all the hard work seem easy, and makes you thankful that you took the steps to become a work at home mom.

Denise Bergeron

The goal of SingleMomFinancialHelp.com is to help women change the world through information and education. We are creating a support structure through which all women of the world can educate one another about where they have been, where they are right now and where they are going. With help from our site and the information and articles we distribute women will be more educated in finance, business, home matters, relationships, career and higher education.

When a new client who had recently received an inheritance opened up an account with me, he transferred this new portfolio from a well-known brokerage firm. After the transfer was completed, we sat down to review his current holdings and adjust the portfolio. Some of the client’s stocks were showing large losses. However, he explained that since he had received them as an inheritance, he felt awkward about selling them. He felt attached to them and didn’t think they should be sold. He then said that as he realized that such attachments were not beneficial to investment, he was going to wait for them to move back up to the price for which his recently deceased father had bought them. Then, he would sell them.

This is a very common scenario. Children often refuse to make changes to a portfolio that they have received as an inheritance. Very often, this is due to sentimental reasons. In other cases, investors stick with a losing position for years in the hope that it will return to the original price they paid for it. However, this is not the best approach to investing.

We All Make Mistakes

Sometimes you may have a little extra money at your disposal, and you decide to invest it. Maybe a friend gave you a handy stock tip, or you read about a company that sounded like an interesting prospect. After doing some research, you decide to invest in this company because it seems like an obvious winner.  But when you receive your first statement, you see that the stock has dropped. So you decide to follow the policy of being patient. As time goes by, you keep checking, but the stock keeps dropping. Eventually, you become living proof of the old adage that patience is a virtue. The stock market may be moving up, but you are stuck with a loser.

In fact, chances are that if the stock starts dropping by 10, 15 or 30 percent, there could be problems with the company, and it may potentially pay to sell. However, many of us find it psychologically difficult to admit that we have picked the wrong stock. It’s hard for us to say that we made a mistake.

Opportunity Cost

Very often, the longer you hold onto an under-performer, the more money it costs. The reason for this is that the investor could have put his funds into something that actually made money. Therefore, stubbornly holding onto a losing stock will only cause financial harm to the investor. In economics, this situation is referred to as opportunity cost. Opportunity cost is defined as the cost of an alternative that must be forgone in order to pursue a certain action, or the benefits that could be received from taking an alternative action.

Profit from Losses

Never think that all is lost. Some good can actually be derived from losing stock positions. When the position is sold, the investor realizes the loss, which may have certain tax advantages. The loss can be used to offset other gains, thus lowering the tax bill. In fact, although they may not realize it, for many investors tax-loss selling may be the most important way to reduce their tax bill. If done correctly, receiving the appropriate advice before making any trades, it can save the investor money and help diversify the portfolio in various ways.  

Working with licensed and experienced financial advisers can help you evaluate objectively whether you are holding bad positions. It is then worthwhile working with an accountant to create a tax-efficient portfolio. Many professional investors live by the credo that you should ride your winners and dump your losers. The reason is simple. There may be a reason why the stock is performing poorly, namely, that the company is not executing their business up to its potential. This indicates that is probably a good place for you, the investor, to avoid putting your hard-earned money.

There is a good chance that the relative that left the money for you as an inheritance would like you to gain from it. Speak with your financial adviser to see if your newly inherited portfolio matches your investment goals and needs and whether it is invested in an efficient manner.

Aaron Katsman is President of Global Investments at Profile Investment Services.  He is a licensed financial professional both in the United States and Israel, and helps people who open investment accounts in the U.S. Securities are offered through Portfolio Resources Group, Inc. a registered broker dealer, Member FINRA, SIPC, SIA. For more information, go to www.profile-financial.com  or email aaron@profile-financial.com 

I spent a lot of time over the last day or two watching cable news and the feeling I got was that it’s over. Close up the shop because the US economy is about to enter a recession or even a depression. Even congressmen were using the dreaded ‘D” word, irresponsibly I may add. But is it really time to throw in the towel and declare the end of America as we know it? Is this just a ploy by the media to scare Americans into voting for a Messiah, who will then save the country from itself?

There is no question that the economy has some problems, namely a credit crunch, but Sec. Paulson’s plan will help relieve the crunch and open up credit flow. If you examine the economic data, we aren’t even close to the average recession. The amount of job loss pales in comparison to average job loss in recessionary times. the amount of banks that close is negligible compared to the hundreds that close during recessions. And I could go on and on. So why isn’t ‘main-street’ getting this information? Anyone notice that the usage of ‘main-street’ has taken on a life of its own?

What’s scary is the Democratic plan to save humanity. Capping salaries of private company CEO’s is not only illegal, but will scare them off from trying to purchase ‘toxic’ assets. Larry Kudlow had a brilliant point on the matter. He said, “And then there’s the ownership question. Some Democrats want Uncle Sam to take an ownership position in all the selling and purchasing banks. This is nuts. In America, this is nothing but property confiscation. It also will sharply curb buyers of the distressed assets.
You think Henry Kravis or Steve Schwarzman are gonna take a salary cap and lose an ownership share of the private-equity funds they themselves created and built? They shouldn’t and they won’t. And these funds are crucial to the new process. The only banks that will sell in this over-regulatory environment are the absolute, near-bankruptcy turkeys.”

Right on! He goes on to say that in the case of Fannie and Freddie and other companies bailed out by the government that in those cases you can feel free to pay the CEO along the lines of a high salary bureaucrat, but not the CEO of private company.

I think everyone needs to take a deep breath and get a bit of perspective. Things aren’t as bad as they are being made out to be. Pass Paulson’s plan, and allow the market to work the problems. My gut feeling is that if we do that, we are going to be in fro a bigtime economic boom.

Please see our Disclaimer HERE.

Aaron Katsman is Managing Editor of the Israel Opportunity Investor newsletter. He is lead portfolio manager for the Israel Growth Portfolio and Managing Director of America Israel Investment Associates, LLC. For more information, go to www.israelnewsletter.com or call 1-888-327-6179, or email aaron@profile-financial.com.

Although we often hear about the “wonders” of compound interest, many people don’t know what it actually means and they miss out on its benefits.

Two quotes are attributed to Albert Einstein regarding compound interest. Einstein apparently referred to compound interest as “the greatest mathematical discovery of all time,” and on another occasion he claimed that it was the “eighth wonder of the world.” Although we don’t know if these quotes are accurate, there is definitely something magical about compound interest.

What is it?
Compound interest is the ability of an asset to generate earnings, which are then reinvested in order to generate their own income. In other words, the term “compounding” refers to generating earnings from previous earnings. The magic of compound interest transforms your hard-earned money into a very efficient tool for building long-term capital. For compounding to really work, however, it is necessary to reinvest all earnings over time. When an investor gives more time to his investments, he is more likely to optimize the income potential of the original sum.

Example
If an investor had $5,000 in an account that paid 5% annually in simple interest for five years, he would earn $250 a year. This would generate a total of $1,250 in interest. In this case, the interest rate and the yield are the same — 5% per year.
However, the same $5,000 investment paying 5% in compound interest could earn more. In this situation, if the money is reinvested and compounded annually for five years, it would produce a total of $1,381.41 in interest. This is because when the investor earns interest on his interest, the yield — an average of 5.52% per year — is higher than the actual interest rate at which he initially invested. This difference of 0.52% a year may seem insignificant, but we should also consider that the investor did not need to work to receive this money. Moreover, this half a percent could make a significant difference over a longer period, such as 20 or 30 years.
The Earlier the Better
When an investor starts investing at a younger age, he will benefit far more from compounding. To understand this further, let’s take the case of two investors named Tzivia and Moshe Aryeh, who are both the same age. When Tzivia was 25, she invested $15,000 at an interest rate of 5.5%, which was compounded annually. By the time Tzivia reached 50, she had $57,200 in her bank account.

Moshe Aryeh, on the other hand, did not start investing until he reached the age of 35. At that time, he invested $15,000 at the same interest rate of 5.5% compounded annually. By the time Moshe Aryeh reached 50, he had just $33,487 in his bank account.

What happened? Both Tzivia and Moshe Aryeh are 50 years old, and both invested the same amount of money ($15,000) at the same rate of interest (5.5%). However, Tzivia had $23,713 ($57,200 - $33,487) more in her savings account than Moshe Aryeh, even though he invested the same amount of money! By giving her investment more time to grow, Tzivia earned a total of $42,200 in interest while Moshe Aryeh earned only $18,487.

Annual Contributions
The above example clearly demonstrates the positive benefits of compound interest. Taking it a step further, imagine that Tzivia, who invested $15,000 at the age of 25, also adds an extra $2,000 a year to her account, where everything is invested at a rate of 5.5%. If she were to continue this disciplined investment approach until retirement (at the age of 65) she would end up with over $413,000. And if Tzivia were to add some risk to her investment profile in the hope of getting an even higher return, her nest egg at retirement could grow even more substantially.
The Cost of Waiting
As mentioned earlier, the two essential aspects for compounding to work are reinvesting the earnings and time. Each year that goes by without any investment will therefore affect your retirement. If you have 30-40 years until retirement, every year that you forego saving or investing money today may subtract between 1-5 years from your retirement.

Just Start
You don’t have to be wealthy to start investing. If you start saving early and make disciplined contributions, compounding may mean that you, too, can retire with a very large nest egg.
 

Aaron Katsman is President of Global Investments at Profile Investment Services.  He is a licensed financial professional both in the U.S. and Israel, and helps people who open investment accounts in the U.S. Securities which are offered through Portfolio Resources Group, Inc. a registered broker dealer, Member FINRA, SIPC, MSRB, SIFMA. For more information email aaron@profile-financial.com

For the past nine months or more, most business news reports will tell you that the global stock markets are down again. However, although the media tend to play this up, it is in fact nothing unusual. Generally, though past performance is no guarantee of future returns, markets have a few good years, followed by a less-than-stellar year or two. For example, in the current market cycle, there were four or five good years, and now the markets have dropped. That’s precisely why investors in the stock market need a long-term horizon, as well as to be able to withstand all of the market ups and downs. Below are three investing tips that may help investors remain sane during market downturns:

Diversify
To understand this concept more easily, we first need to define the meaning of diversification. Diversification is an investment technique that uses many varied investments within a single portfolio. The idea behind it is that a portfolio of different kinds of investments may, on average, yield higher returns and pose a lower risk than a single investment. Diversification tries to smooth out volatility in a portfolio caused by market, interest rate, currency and geopolitical risks. In laymen’s terms, don’t put all your eggs in one basket. It’s important to remember that diversification does not assure against a loss.

If you include bonds or FDIC-insured Certificates of Deposit (CDs) in your stock portfolio, it may take away some of the volatility of the portfolio, allowing for potentially, more stable returns over the long run.

Don’t Panic
Keep you eyes glued to your long-term goals. It’s important to remember that markets go up and down, and if you made a financial plan, it would have taken this type of market volatility into account. The worst thing you can do as an investor is panic and sell everything and then wait for the market to recover. The market tends to recover very quickly. Large market gains often come about in quick and unpredictable spurts, and missing just a few days of strong market returns can substantially erode long-term performance. Remember the famous investing principle of buying low and selling high. Investors who panic often end up selling low.

Rebalance
The third principle is for investors to update or rebalance their investment portfolios.  Rebalancing is necessary for two main reasons. First of all, it keeps your asset allocation in line with your risk level and, secondly, it keeps your portfolio in line with both your short- and long-term goals and needs.

Let’s use the following example: When you first decide to invest, you decide that an allocation of 70% stocks and 30% bonds seems right for your $100,000 portfolio. We can also assume that over the course of the past few years, the stock market moved up strongly, and bonds barely moved up at all.

Based on the assumption that all gains and dividends were reinvested, and you didn’t deposit or withdraw any money, you would find that the stock portion of the portfolio would be worth a lot more than the initial $70,000. On the other hand, your bond holdings would be worth little more than the $30,000 invested in them.

However, while it is true that over the last few years your portfolio in this case would have grown, it would unfortunately have also become riskier. The reason for this is because the portfolio would move from being a 70% stock and 30% bond allocation to an allocation of 80% stocks and 20% bonds.

In this situation, if you don’t rebalance and you have a riskier portfolio, when the market starts to drop, this could lead to a greater loss.  It is a good idea to implement these three tips, as they are a possible means to help you weather the storm of volatile markets.
Past performance is not a reliable indicator of future results. The S&P 500 index measures large-cap stocks and US stock market performance of leading companies in leading industries. An investor can not invest directly in an index.

Aaron Katsman is President of Global Investments at Profile Investment Services. He is a licensed financial professional both in the United States and Israel, and helps people who open investment accounts in the U.S. Securities are offered through Portfolio Resources Group, Inc. a registered broker dealer, Member FINRA, SIPC, SIA. For more information, email aaron@profile-financial.com