Russell Bailyn's Financial Planning Blog

Last week my office huddled together in the conference room to discuss the looming correction in the Dow Jones Industrial Average. A market correction is sometimes defined as a drop of at least 10%, but not more than 20% over a short period of time. The major difference between a bear market and a correction is magnitude and duration. Bear markets last much longer, and the magnitude of loss is greater. Last week, during a wild day of trading, the Dow briefly hit a level which was 10% below the high of 14,015 which we reached on July 19th. Fortunately, the market has shown a bit of strength--partially aided by some emergency policy decisions of the Federal Reserve Bank--and moved up a few hundreds points since its lowest levels. So what should you know? And what should you do?

First, you should have a basic understanding of why the markets have dropped so much so quickly. The primary reason is concern over the current quality of the credit markets. These concerns aren’t new--they’ve actually been around since about five years ago when interest rates were especially low and a large, dedicated force of mortgage brokers and loan officers helped organize thousands and thousands of these so-called “sub-prime” loans; referring to the less rigorous restrictions imposed regarding the credit scores, income levels, and current assets of the applicants.

At the same time, the evolution of financial markets, especially through hedge funds, have created avenues through which banks can sell off chunks of the default risk taken on through new loans to investors looking for some income in their portfolios. The New York Times had an article over the weekend which cleverly compared the default risk on many of these loans to a “joker in a deck of cards.” Most people don’t understand where, if it all, they are exposed to these sub-prime loans. Now would be a good time to explore some of the following ideas:

•Market volatility presents a real opportunity to understand risk and how much of it you’re taking on in both your retirement and personal portfolios. If you feel uneasy about these big swings, you may want to review your investment choices. If the volatility doesn’t bother you, you may actually consider becoming more aggressive (tactical asset allocation) now that market prices have pulled back considerably.

•This may be a good time to call your financial planner (yes, that may be me) to review your financial goals and objectives and be sure you still have a plan in place to get there.

•You might want to contact your mortgage professional, financial advisor, or anybody else that can help you fully understand your loan. If your payments are going to become “variable” at some point, you should figure out your risk exposure and double check if the mortgage you currently have is the right one for you.

Overall, my feeling is that both stocks and bonds are now priced at more attractive levels. I don’t believe we’re about to face a major recession or anything drastic like that. My view is that private equity firms and hedge funds have really created some waves in the market. The broader economy should be able to protect itself against further declines in price level. Remember, traders focus on the daily swings in stock and bond prices. Investors don’t.

As always, feel free to e-mail or call me with any comments or questions.

Russell Bailyn

Wealth Manager
Premier Financial Advisors, Inc
14 E. 60th Street, #402
New York, NY 10022
P: 212-752-4343 *31
F: 212-752-7673
rbailyn@premieradvisors.net

Securities and certain investment advisory services offered through: First Allied Securities, Inc., a registered Broker/Dealer. Member: FINRA/SIPC. Premier Financial Advisors, Inc. is a Registered Investment Advisor. First Allied Securities & Premier Financial Advisors are not affiliated entities.

Posted by Russell Bailyn at 03:51 PM | Permalink | Comments (1) | TrackBacks (0)

There was a great article in Bottom Line this month featuring MSN Money columnist M.P. Dunleavey about the actual correlation between increased wealth and increased happiness. As you might expect, the findings were not simply that you will be happier on a day-to-day basis if you have more money.

The article points out that between 1972 and 2004, the average per capita income in America has more than doubled. That means the average person has more than twice as much wealth (adjusted for inflation) today than they did 32 years ago.

First, it should be pointed out that certain purchases can improve your overall happiness. These are generally purchases which lend themselves to personal improvement. An example might be a membership at a nice gym, a budget which allows for a wide selection of foods that can improve health and perhaps, as a consequence, happiness. These are examples of when money can lend itself to happiness.

What doesn’t do much for us are the status purchases such as cars and jewelry. This stuff actually makes us feel even more competition with our neighbors, even as we climb into higher income and wealth brackets.

In a survey done in the 1960’s, economist Richard Easterlin found that, on average, people thought that owning 4.4 items emblematic of the good life (boats, fancy cars, a pool, country home, etc) would satisfy them. At the time, the average participant in the survey owned an average of 1.7 such items. Seventeen years later, participants, on average, had 3.1 of such items, but then reported they would need 5.6 of them to be satisfied. What changed?

Perhaps the aging of the participants had something to do with it. Ownership of more material things can become an item of convenience as one gets older, has children, takes on more responsibilities, etc. But, the more likely explanation is increased greed and competition.

According to Dunleavey, besides personal improvement spending, the other area which can lend itself to a happier life is spending on relationships. Studies consistently show that people who spend lots of time with other people tend to lead more fruitful lives. On the flip side, those who spend time alone tend to be more depressed. So, go take your friends out to dinner! (Well, not somewhere too fancy).

Dunleavey goes on to explain that people get a chemical rush from the feeling of buying things (in the nucleus accumbens if you must know…) which you can sometimes trick yourself into feeling. One might do so by shopping online and filling up a cart but not actually checking out with your credit card when it gets to that point. It may also be accomplished by going shopping but not buying something.

Just some food for thought. I found it interesting. The Bottom Line is an incredible publication--full of all sorts of little secrets related to personal finance, healthcare, travel, and other “secret stuff” you probably thought about but never fully explored.

Please e-mail me with any questions or comments.

Russell Bailyn
Wealth Manager
Premier Financial Advisors, Inc
14 E. 60th Street, #402
New York, NY 10022
(212)752-4343 *31
rbailyn@premieradvisors.net

Securities and certain investment advisory services offered through: First Allied Securities, Inc., a registered Broker/Dealer. Member: FINRA/SIPC. Premier Financial Advisors, Inc. is a Registered Investment Advisor. First Allied Securities & Premier Financial Advisors are not affiliated entities.

Posted by Russell Bailyn at 10:07 AM | Permalink | Comments (2) | TrackBacks (0)

Would you consider it worthwhile for major brokerage firms to focus marketing dollars and valuable time on investors in their 20’s and 30’s? Perhaps more squarely phrased: Does this demographic have any money to invest? If you simply view the past behavior of major financial firms, you’ll find them targeting mostly those aged 50+ in terms of product construction, speaking engagements, and the direction of marketing dollars. An interesting example lies in the prime advertising spaces purchased by financial firms showcasing aging professionals relaxing by the beach after a seasoned advisor helps them quantify and realize their retirement dreams. The implication here is that retirement is a hot topic among aging professionals who seemingly have big bucks. Besides the fact that they are passing what we call “accumulation phase” and quickly entering the “distribution and gifting phase,” many are also the beneficiaries of inheritances left by those passing away in their 80’s. So, why are some financial firms shifting their focus over to a younger and less profitable generation?

If you ask me, it’s not really who has the money which is changing. It’s the marketing and profitability strategies of the big financial firms which may be changing. Keep in mind that advertising doesn’t strictly reflect the needs of the market--the advertisers influence and spread messages to the market as well. Some call it manipulation, others find it enlightening. Here is, in a nutshell, the logic which probably gets bandied around at brokerage firm management meetings: If a bank can garner the trust of a young professional at age 30 through accumulation products such as checking, saving, and money market instruments, they may eventually have an easy in to offer more profitable brokerage-oriented investments such as stocks, bonds, funds, and a list of structured products which seems to grow by the day. At an even deeper level, if brokerage firm X is responsible for informing an otherwise ignorant generation about the risks they face, they may be rewarded with some business. According to Jonathan Craig, who heads the “Generation X” initiative at Charles Schwab, “It’s (20’s and 30’s) a generation that in many ways is facing challenges that their parents didn’t face. They can’t count on defined-benefit plans. They’ve entirely written off Social Security. Many of them are purchasing a first home. They face skyrocketing education costs for their kids. And, of course, like everybody these days, there are the ever-rising health care costs.”

Mr. Craig makes the important point that planning issues which exist today are in many ways different from those which existed 10, 20, or 50 years ago. But how does this equate to profitability for firms which primarily earn money through commissions on products and fees for investment advice? Some of the actions Schwab is taking include lowering account minimums, and removing minimum-balance charges and account service fees. They are also launching products such as high-yield checking accounts which will ultimately integrate with other brokerage products. This helps Schwab keep all the business in-house, rather than sharing clients with other financial firms. Somewhere in that logic and exposing the changing retirement landscape, Schwab probably hopes to pick up an IRA here and there, along with setting up some long-term college savings business. Overall, it seems like a branding issue.

Still, I remain convinced that Schwab is implementing a risky, but perhaps strategic marketing plan. I doubt they expect to instantly attract the business of dot-com millionaires and young guys who get bonuses at work. I think the idea is to keep the Schwab name on your subconscious from an earlier age and remember them in the infinite choices for financial planning and money management which once crosses in their lifetime. Whether or not they are successful in gathering assets, I hope at the very least they spread the message about saving money and being responsible during younger years.

Questions or Comments? E-mail me.

Russell Bailyn
Premier Financial Advisors, Inc
14 E. 60th Street, #402
New York, NY 10022
(212)752-4343 *31
rbailyn@premieradvisors.net

Securities and certain investment advisory services offered through: First Allied Securities, Inc., a registered Broker/Dealer. Member: FINRA/SIPC. Premier Financial Advisors, Inc. is a Registered Investment Advisor. First Allied Securities & Premier Financial Advisors are not affiliated entities.

Posted by Russell Bailyn at 12:13 PM | Permalink | Comments (1) | TrackBacks (0)