Solin - 7 steps to save your financial life now: how to defend yourself against rigged markets, Wall Street greed, and the threat of financial collapse

7 Steps to Save Your Financial Life Now

How to Defend Yourself Against Rigged Markets, Wall Street Greed, and the Threat of Financial Collapse

Daniel R. Solin

A PERIGEE BOOK

Also by Daniel R. Solin

The Smartest Investment Book Youll Ever Read

The Smartest 401(k) Book Youll Ever Read

The Smartest Retirement Book Youll Ever Read

The Smartest Portfolio Youll Ever Own

The Smartest Money Book Youll Ever Read

A PERIGEE BOOK

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7 STEPS TO SAVE YOUR FINANCIAL LIFE NOW

Copyright 2012 by Daniel R. Solin

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Perigee Special edition: January 2013

ISBN: 978-1-101-61993-3

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Contents

INTRODUCTION

My phone rings. On the other end is a concerned client. She wants to sell all her stocks and sit on the sidelines until things settle down. Only a few minutes before this call, I was speaking to a prospective client who expressed the same sentiments. He gave me the reasons for his concerns in detail. The U.S. economy stinks. The recovery is a joke. The stimulus didnt work. All we are doing is printing money. He doesnt believe the full faith and credit of the United States is a sufficient cushion against a likely default. He doesnt trust those crooks on Wall Street. Most of Europe is in freefall. Even China is feeling the brunt. The markets are rigged. Individual investors like him dont have a chance. He cant cope with these constant ups and downs in the market. He asked me to call him in six months or so when things settle down.

Its hard to argue with these sentiments. There are facts supporting all of them. However, the analysis should not stop there. Most of my clients have one overriding investment objective: they want to retire with dignity. They dont want to run out of money during their lifetime or the lifetime of their spouse or partner. They want to maintain their quality of life in retirement, taking inflation into account. They want to be able to afford competent medical care (or possibly extended care) if the need arises. Above all, they dont want to be a financial burden on family or friends.

Uncertainty creates fear, and fear creates anxiety. Anxiety can have a paralytic effect. The temptation to sit on the sidelines seems reasonable.

The financial media fan the flames of fear and anxiety. Their daily grist is often an endless parade of self-styled investment experts who peer into their crystal balls and give disturbingand often conflictingassessments of where the market is headed. Usually, these experts are associated with firms that profit from the predictions they make. For example, it is not uncommon to find a broker with a commodities firm recommending that a large portion of your assets should be placed in hard assets like gold and silver. Youve heard the pitch: Just call this toll-free number...

I regard all this activity as nothing more than noise that keeps you from focusing on information that could really help you separate hype from fact. Fortunately, a lot of objective, historical, peer-reviewed data is available. Understanding it will help you make intelligent, responsible investing decisions.

My goal is to provide you with that information. I want to empower you to take charge of your financial life so you can achieve your goals. I am using financial life in the broadest sense. You dont need to have a lot of money to invest in order to start to put your finances in order. You probably have a checking account. You have credit cards. Maybe you have student loans, automobile loans, or a mortgage. If you are employed, you may have access to a 401(k) plan. You will find information here that is valuable to you regardless of whether you are at your first job or are in the final stages of planning for retirement.

If you are at an early stage in your career, before you can consider investing for the future, here are some things you need to do:

• Pay off all credit card and other high-interest debt
• Eliminate as much other debt as you can (automobile loans, student loans)
• If you are saving to purchase a home, remember to consider all of the related costs that come with home ownership (taxes, insurance, closing costs). Most experts recommend a down payment of at least 20 percent of the cost of the home. Otherwise, you may be required to purchase private mortgage insurance, which is an additional cost built into your mortgage. In some parts of the country, house prices have fallen to levels where you may be able to put down substantially more. If you can, you should.
• If you have a mortgage, check to see if you qualify for a lower rate. In order to determine if it makes sense to refinance, you will need to calculate your break-even point to determine how long it will take you to recover the costs of refinancing. I provide a resource for you in the last section of this book,

When you have eliminated all high-interest debt, your first investment should be in your 401(k) plan, but only if your employer contributes to your savings. If so, your goal should be to