Finance Help: The Importance Of Financial Planning In A Recession Market

Every person in an economy is happy when the financial markets are bullish, with high rates of economic growth. Public spending levels are high, investment levels are soaring, and the expectations about returns from investment are sky-high. Financial planning is necessary in these periods are necessary in these periods, but not so much so as in periods of recession. When recessionary forces hold sway, market economics project bearish markets and low growth levels. During these times, finance planners and proper planning is of utmost importance in order to ensure that investments are not affected too badly, and a swift recovery remains possible.

Recessionary phases come as a harsh reality check for the investment market, where expectations remain invariably optimistic during bullish conditions. These phases of economic downturn are the times when personal financial planning proves to be extremely valuable. It is common that investors (who generally predict returns as high as 20 percent during good times) become extremely pessimistic in their expectations during recession, and may indeed, drastically cut down on their investment levels.

This is where finance planning comes in handy. Financial plans, when done in a proper fashion during recession, can help investors achieve their targets, even during a market downturn. Planning should be based on expectations that are neither too optimistic (as during bullish periods), nor too bleak (as is often the case during recession). Financial planning, especially during a deflationary market, comprises of the following strategies:

a)Revision Of Investment Targets: Common investors always have certain targets in mind as they frame their finance plans. These targets are also generally accompanied by well-defined time-frames within which to achieve them. However, the ability to invest is adversely affected during a recessionary phase. In such a scenario, the initial investment plans might need to be revised and/or toned down according to the situation.

Realistic expectations are of the utmost importance in planning during deflation. When an economy experiences a downturn, individual incomes are adversely affected, reducing their ability to invest. This, in turn, results in individual debts being paid off less quickly than what might have been imagined initially. Additional payments on individual mortgages and debts are difficult to come by, and the time-frame required to achieve one's investment targets may need to be extended during recession.

b)Proper Estimation Of ?Risk-Tolerance? Levels: Based on how ready an investor is to take risks in order to gain higher returns, (s)he can be classified as ?risk-lover?, ?risk-neutral? or ?risk-averse?. Awareness regarding ?risk-tolerance? grew rapidly after 2000 (after the dot com bubble burst). During recession, individuals need to accurately asses their risk-tolerance levels, and then choose the investment plans that would suit his/her preferences.

c)Restructuring The Individual Portfolio: After a revision of investment plans, a restructuring of portfolios that are currently held is also important. Sector diversification is an effective strategy, since owning a mix of small-cap, mid-cap and large-cap stocks effectively lower one's risk, while maintaining a high rate of return attached to a portfolio,

d)Revision Of Insurance And Estate Plans: Insurance plans are generally made in order to plug the gap between desired levels of lifetime expenditures and portfolio incomes. During recessionary periods, portfolio income might go down. Consequently, one needs to expand his/her insurance plans. A thorough revision of real estate plans is also necessary.

These components of financial planning, if carried out properly, can help investors a great deal during recession. Hence, finance plans are of great importance during these periods.

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Economic Recession In America-where Do We Go From Here?

I think we can all agree the economy is getting worse. The Government does want to use the word recession but we are not all stupid we are already in one. The Government is just sitting there watching it happen with no real answer for the American people.

Let's take a look at this for a moment.

The dollar is free falling into being worthless around the world and here in the US. Inflation is skyrocketing every week it seems. Gas prices are at an all time high along with everything else and paychecks are not going up to keep up with the rising cost of living. So I guess things are not too bad if you enjoy being broke.

Basically things are going to get much worse before they start getting any better. The little stimulus package is definitely not going to work. It is a short sighted solution just to pacify the American people. Although I won?t complain I'll take the money. The federal Reserve is too busy bailing out big financial institutions. Thanks Washington that really helps. The housing market is going to take years to rebound along with the economy.

I was watching the Charlie Rose show the other day and the guest was a former Secretary of State and what he was saying was and I quote 'social Security will be bankrupt in 10 years.? I know people who work for Social Security and it is already struggling to keep up, it probably won?t even last 10 years. The system is paying out more money than it is bringing in. This is business 101 you don?t spend more than you make you go broke, no business would last. Unfortunately this is what our Government has been doing for years and we will be left with a broken down system.

So just think the cost of living is skyrocketing the social systems will be broke. Where does that leave us, in a real bad situation. I know it all sounds pessimistic but it is the truth. I think we all need to face that truth and start doing something about it. It is time to be proactive not reactive. By the time you become reactive it may be too late.

The real question now is what do you do about your financial situation? Well you can?t rely on the Government because they are to busy trying to hold on to their power and prestige which is also fading. You are now going to have to fend for yourself and take care of your own financial fitness.

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Deadbeats & Bailouts - Unintended Consequences Of Uncle Sam?s Generosity

I just got off the phone today with Josie, a collections agent in the department of a large well known credit card company. I was calling to settle an old debt of a client of mine. After discussing the options for my client we were both put on hold while she waited to get approval from her manager for our agreed arrangement.

As I am prone to do, I just started asking Josie questions about how long she had been in collections and how it was going for her right now. She said she was frustrated that her income was going down every month. She also said that she had to work twice as hard, make twice as many calls and be more aggressive than ever when trying to collect on unpaid debts. (Note: Collections agents most often get paid on commission for the money they are able to collect)

Assuming this was a result of the economy, I said ?Yeah? there are a lot of people struggling out there right now!?

Almost indignant - Josie blurted ?That is NOT it.?

?What do you mean?? I asked.

?Many of these folks are telling me that they could pay but they're waiting to see what happens with the government stimulus package.? She increased her volume as she continued? ?They wont pay because they think the government's gonna help them out!?

I was shocked at what she was telling me but I could tell by her disgruntled disposition that she was telling me the truth. I got the feeling that she was upset because these people WOULD not pay and it was making so that she herself COULD not pay her own bills.

This wasn?t my first encounter with the attitude that so irked Josie. Recently, I have seen several people who were capable of paying their mortgage payments, simply stop paying because they too felt the government would ?help them out.? They were willing to give up good credit (assuming they had it) in order to cash in on some handouts.

I tried to find the lesson in my conversation with Josie. Here's what I came up with: Perhaps natural consequences and rewards drive human behavior more than stated moral beliefs. I'm sure this is not always the case (I hope not) but it's an important idea to examine.

Why pay my debts if there is truly no consequence for not doing so? Why pay my mortgage if I have a promise that someone will keep me in my house if I quit writing checks?

The rewards issue is equally valuable. Why work hard, take risks and put myself on the line to be successful if I am punished for doing so? Why be generous with my time, talents and finances if it's decreed that I am required to do it for the good of others. Rules do not increase my compassion and drive to help others, freedom does. The satisfaction of helping another human being grows deeper when it's accompanied by the opportunity for that person to confidently go on to success. Even more when I know that his or her success will one day help someone else succeed. Now to me? THAT's a reward. That's a reason to be successful in my life.

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Fed Inevitable Rate Cut To Boost Economy And Job Market

As economic problems persist in market despite government efforts to ease crises with bailout packages another step would be necessary. Fed. might have to cut rates by 0.5 to 1 basis points to ease Wall Street desperate moves of selling stocks.

Even Alan Greenspan who ran the Fed for 8 ? years admitted that he made mistakes that may have aggravated the economy's slump.

With economy already at recession level, Fed would have to cut rates to ease economic vows as consumers have cut back sharply. 401(k) s have dropped in value and home values just keep declining. Businesses stopped hiring or slowed down on hiring as well as hard to get financing is contributing to slowdown of economy.

Thousands are losing their jobs at Merck. Thousands more are being cut at Xerox, Yahoo, Chrysler and General Motors. There are so far 27 states in recession and 15 are close.

So far 3/4 of a million jobs have been lost since the beginning of the year and at least 1.5 million to 2 million jobs will be cut. Many expect the unemployment rate, now at 6.1 percent, to hit 7.5 percent or higher by next year.

Only industries that are adding jobs are healthcare, educational services and some defense jobs. Biggest job losses come from financial services and construction.

Credit is known as stabilizer in economic times and there is none. Retail stores such as Mervyn's is going under, Sears is closing stores as well as Circuit City. With holiday shopping season retail stores usually get lift and it I will be unusual to see any retail stores going bust before holiday season is over.

With economic slump Fed policymakers are expected to lower central bank's key interest rate at the conclusion of a two-day meeting Wednesday. In turn, rates on home equity, certain Credit Cards and other floating-rate loans tied to commercial banks' prime rate should drop by a corresponding amount. Fed hopes that lowered interest rates would bring more consumers to shopping spree, thus boosting overall economy.

With lowering rates it would increase the difference the difference between the rate banks charge each other to borrow overnight and the rates they are paid on Treasury securities.

Give the recent financial crises now it is time to re-valuate your portfolio. Moderate investors, who are either closer to retirement or still have substantial time, should invest 40%-70% in stocks and 30% to 60% of their assets in fixed income.

Conservative investors, who, for instance, may already be in retirement, should have generally 20% to 40% in stocks.

Economic turmoil will continue with some time and it is necessary to spread out your investments. Fed would have to lower its rates in other to help economy; however, job slowdown might be there for a while.

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Can Bad News (really) Be Good News?

We're up to our eyeballs in The Information Age. This certainly shouldn't be news to anyone given the fact that we can't seem to get away from the 24/7 world that technology has afforded us. There is news, views, and supposition coming at us from every angle, including on-line versions of traditional media like newspapers and magazines, millions of websites, 24-hour TV news, emails, text messages, cell phones, satellite uplinks that connect us to far corners of the world, and up-to-the-minute videos on YouTube. It seems like a gross understatement to say that we're bombarded with information. It's Information Overload.

The economic turmoil that Americans find themselves embroiled in?communicated and amplified via technology into financial information overload?has set the stage for a new focus on the need for Financial Education. The Information Age (at least the Financial Information Age) has brought with it the need for individuals to make Financial Education a higher priority in their lives. I believe that in the Information Age?and in the upcoming Age of Turbulence alluded to by Former Fed Chief Alan Greenspan?education is more important than ever before?especially Financial Education.

Look at the headlines:

From the front page of USA Today (Friday, March 7, 2008)

'Home Equity Below 50% Level' ? Falling prices sap owners' 'wealth'

And from the USA Today's Money section'same day, front page --

'Record: 1 Million Homes in Foreclosure' ? Nearly 3 million behind in mortgages for 4th quarter

Look at the issues that will drive this year's election:

Healthcare coverage and costs, the economy, shoring up Social Security and Medicare as baby boomers begin to tap those programs in droves. There's more: jobs, skyrocketing oil (and gas!) prices and an ever-evolving technology revolution that is and will continue to change the way the world views jobs?and 'job security'?forever.

In a recent article I wrote for my column for Yahoo!Finance, I cited an article in the Friday, January 11, 2008, United States edition of the Financial Times. The newspaper posted one of the biggest "The End is Near" headlines I have ever seen. Unfortunately, not many people paid attention to it. Next to Federal Reserve Chairman's Ben Bernake's picture, the front-page headline read: "U.S.'s Triple-A Credit rating Under Threat." The article begins with: "?The U.S. is at risk of losing its top-notch triple-A Credit rating within a decade unless it takes radical action to curb soaring healthcare and social security spending,? Moody's, the Credit rating agency, said yesterday."

I believe one of the reasons many people did not take much notice of this doom and gloom headline is because I doubt many people know what the headline means. I doubt many people know what Moody's is or why their warning is important.

Are you one of them? Someone who doesn?t know what Moody's is? or the role it plays in the financial world?

I rest my case.

Moody's is an Investors Service that performs financial research and analysis on commercial and government entities (I pulled this directly from Moody's website. It's easier than ever today to learn things?to get definitions of words you aren?t familiar with and find resources and tools)

So? back to the quote from Moody's:

Moody's is essentially saying that the U.S. may soon become a sub-prime nation. The world markets will no longer recognize us as a financially responsible country and the U.S. will not be able to maintain its financial and economic supremacy. In other words, "The End is Near" and from Moody's perspective it's less than ten years away.

But now ? not ten years from now ? is the time for financial education. Now is the time to use The Information Age to your advantage and invest time (before you invest your money) into the financial education that will help you to understand the "headlines" that affect our day-to-day lives and understand how they do, could, or will affect you and your family.

Now is the time to learn so that when you are faced with important financial decisions you have the mental tools and toughness to understand your options. You'll know where to go to learn more if you need to, how to find qualified people to advise and assist you (true advisors? not salespeople) and then make the best choices and decisions with respect to your personal financial situation with confidence.

I believe that the word 'stress' has taken on a new meaning for many people. Today stress is related to survival?not just keeping up with the Jones?. In his book Words That Work, Frank Luntz talks about the words that are important to us ? today. Words like 'stress-free'... and ?lifestyle? and ?imagine.? True reflections on our world? Imagine a stress-free lifestyle ? and the quality of life you deserve.

I have always believed that anything is possible ? for anyone ? if they are willing to do what (or whatever?because sometimes the ?what it takes? means making sacrifices and getting off the couch or choosing different friends or believing and trusting in yourself, against all odds) it will take. The Rich Dad Company was built on the belief that you can change the way you think about money and you can take control of your financial future and the life you want and deserve.

And it all starts with ? you guessed it? financial education.

There are always challenges and obstacles on the road to success. And nothing comes without a price. In my opinion, investing some time today in Financial Education is a small price to pay if it could mean fewer sleepless nights, fewer arguments with a spouse or partner over money, and more quality time with those you love.

The headlines may shout (or imply) gloom and doom, but financially-educated investors see opportunities in adversity. Financial education will help you to see opportunities where others don?t and profit in good times ? and in bad.

I wrote my new book Rich Dad's Increase Your Financial IQ ? Get Smarter with Your Money because today becoming financially educated is more important than ever before. For you, your family, your children and your grandchildren. Now is the time for Financial Education. Now is the time to get smarter with your money. And today is a great day to start.

Copyright 2008 ? The Rich Dad Company

Robert T. Kiyosaki, author of Rich Dad Poor Dad -- USA Today's #1 Money Book for two years running and the international runaway best seller -- is an investor, entrepreneur and educator whose perspectives on money and investing fly in the face of conventional wisdom. He has, virtually single-handedly, challenged and changed the way tens of millions, around the world, think about money.

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Mortgage Rates Defy Expectations

The 30 year rate fell from 5.07 to 5.06 this week. This is the 3rd week in a row where interest rates have either fallen or stayed flat.

The 15 year rate stayed flat at 4.39. The 5 and 1 year arms were mixed with the 5 year arm falling slightly from 4.03 to 4.00 and the 1 year arm rose from 4.22 to 4.25. Below are rates from the weeks from Apr 01, 2010 to Apr 29, 2010 and rates from October 15th (6 months ago).

Apr 29, 2010
30-fixed 5.06 15-fixed 4.39 5 ARM 4.00 1 ARM 4.25

Apr 22, 2010
30-fixed 5.07 15-fixed 4.39 5 ARM 4.03 1 ARM 4.22

Apr 15, 2010
30-fixed 5.07 15-fixed 4.40 5 ARM 4.08 1 ARM 4.13

Apr 08, 2010
30-fixed 5.21 15-fixed 4.52 5 ARM 4.25 1 ARM 4.14

Apr 01, 2010
30-fixed 5.08 15-fixed 4.39 5 ARM 4.10 1 ARM 4.05

Oct 15, 2009
30-fixed 4.92 15-fixed 4.37 5 ARM 4.38 1 ARM 4.60

So the market has made me a liar. I thought we were going to see some volatility in interest rates over the month of April. Instead rates have stayed remarkably flat. Besides the week of April 8th mortgage rates stayed between 5.06 and 5.08. At 5.06 we are also near 4.93 which is the lowest mortgage rate seen thus far in 2010. This is kind of surprising since we have been expecting to see rates increase over the last month.

So rates are one thing but it's also informative to see actual mortgage payments. We took today's rates and using our mortgage calculator we determined the rate for a 200k mortgage. We also did the same thing with rates from April, 15 2010 and rates from October, 15 2009.

Apr 29
30-year $1080.98
15-year $1518.76
5-year ARM $954.83
1-year ARM $983.87

Apr 15
30-year $1082.21
15-year $1519.78
5-year ARM $964.07
1-year ARM $969.88

Oct 15
30-year $1063.88
15-year $1516.73
5-year ARM $999.16
1-year ARM $1025.28

So as we can a mortgage payment today is pretty similar to what we saw 2 weeks ago. In fact mortgage payments only decreased by 11/100 of one percent.

So what is going to happen moving forward? It's hard to tell. The predications that the government not putting resources into buying mortgage backed securities could steal lead to more up and down fluctuations in mortgage rates but we have certainly not seen that this month.

Overall I think that rates are either going to stay roughly flat or rise drastically. There is simply not that much room for them to fall. Rates are currently 5.06. The lowest they have even been is 4.71 (which we saw in 2009) and the highest was above 15 percent. So what is our advice? Basically if you are planning on getting a loan I would do it sooner rather than later. Also I would lean for a 30 year rate instead of an arm because we expect rates to be higher in 1 to 5 years than they are today.

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