Best Personal Financial Planning and Personal Investment Articles this Week from Personal Finance Blogs

Welcome to the June 9, 2012 Edition #240 of the Carnival of Financial Planning.

The Carnival of Financial Planning takes a long-term view of personal financial planning for individuals and families. We focus on efficient and sustainable personal financial planning practices that can lead to lifetime financial security.

This edition is arranged by subject heading, so that you can browse efficiently.

Enjoy!

The Skilled Investor, Editor

Budgeting and Economics

Miss T. presents Small Money Mistakes that Have Big Consequences posted at Prairie Eco Thrifter, saying, ” It is often the little things you do, the small actions you take, that have the biggest impact on your financial security, both in the present and in the future. Of course, this concept is true whether the little things are positive or negative.

A Blinkin presents Simple Steps To Grow Your Business posted at Funancials, saying, ” As your business starts succeeding, you should look at what the next level is. This can encompass a whole range of things, from moving out of the house and into a real shop, or even just making your existing business look more professional and function more streamlined.

Daisy presents It’s Not Necessary To Pay For Your Kid’s College Education posted at Add Vodka, saying, “This does not reduce the accomplishments of those who had their parents pay for college for them, nor is it meant to be a compare/contrast of people that pay for their own.

Janet presents Expense budgets posted at Independent Financial Planner , saying, ” Many people do not track their living expenses and do not understand the magnitude of their consumption.”

Financial Planning

Miranda presents Funding Your Small Business posted at Wallet Hub Blog, saying, “Finding money for a small business can be difficult right now, with the economy struggling, and many banks reluctant to take a chance on small businesses. If you are looking for sources of income for your small business, here’s where to start

Jason presents Things to Consider With Your Relationship and Money posted at Work Save Live, saying, ” Your Relationship and Money A lot of couples fight about money.

Crystal presents Getting Excited about FINCON12 But Nervous Too… posted at Budgeting in the Fun Stuff, saying, ” The Financial Blogger Conference 2012 is going to be awesome, but I am already nervous about speaking. This will make FINCON12 a bit more stressful for me.

Corey presents Cost of Being in Someone Else’s Wedding posted at 20s Finances, saying, “Do you have any close friends getting married soon? Have they asked you to be in their wedding? Do you know how much it will cost you to say yes? I was in a friend’s wedding in December and will be in another wedding in June. Between those two weddings and having 3 other weddings to attend in the next few months, I have weddings on the mind.

Amanda L Grossman presents 20 Ways to Spend Money On and Off Board a Cruise posted at Frugal Confessions, saying, “I am fresh off the ship of the first cruise I have ever taken.

Johnny presents Investment education  posted at Personal Finance and Planning , saying, ” 99+% of the financial information that is easily available through the media and the Internet is: self-interested and biased, superficial and non-implementable, historical in nature or just current “noise” reporting without any actionable utility, and/or poorly researched, just plain wrong or unmitigated rubbish.”

101 Centavos presents How To Painfully Save Hundreds of Dollars a Year posted at 101 Centavos, saying, ” While we’re off on vacation, I’m recycling.

Eddie presents 35 Money Lies People Tell Regularly posted at Finance Fox, saying, “Men supposedly lie six times more per day than women, and when someone tells you, be a man or a woman – Nothing is wrong, I’m OKAY -, they’re really lying to your face.

Franklin presents Passively Funds posted at Investor Strategies, saying, “On average, higher mutual fund turnover is far more likely to result in lower investment fund performance — instead of superior risk-adjusted performance.”

Luke presents Are Investors in the PIMCO Total Return Fund Missing Out? posted at Learn Bonds, saying, ” The PIMCO Total Return Fund is Underperforming PIMCO’s new BOND ETF. Are PIMCO Total Return Fund Investors missing out?

Don presents Alpha Returns posted at Wall Street Financial Engineering , saying, “For typical individual investors, without special access to information, it offers what is likely the best financial advice they will ever get: It is hard to consistently beat the market, especially after fees. A passive strategy will do better in the long run. ”

John presents Creflo Dollar, Joel Osteen and the Prosperity Gospel posted at Married with Debt, saying, ” Preachers like Creflo Dollar and Joel Osteen are leading figures in the prosperity gospel movement. What is it, and is it right?

Income

Jeremy presents Overcoming Unemployment Challenges posted at Modest Money, saying, “As many of you know I’ve been unemployed the whole time I’ve been running this blog. Now find out about the struggles I’ve had to overcome to rejoin the world of the employed.

YFS presents Rental Property #3 Numbers Analysis posted at Your Finances Simplified, saying, “As I told you guys in the last post, I’m going to give you the actual break down of my current and future rental property purchases.

Martin presents Can You REALLY Start a Business With $100? posted at Studenomics, saying, “How to start a new business without tons of capital.

Insurance and Risk

Stephen presents Do You REALLY Need Life Insurance? posted at NerdWallet, saying, ” If no one depends on your earning capacity, you most likely do not need life insurance. That’s the fundamental rule by which to make your decision.

Evan presents Trying to Understand Long Term Care Insurance posted at My Journey to Millions, saying, “While I am entirely too young to consider Long Term Care Insurance considering I don’t think many carriers sell individual policies for people under the age of 40,I have been giving it a lot of thought recently.

Lawrence presents ID theft protection posted at Best Financial Planner, saying, “As a threat to your financial security, you should take the potential for identity theft very seriously. Identity theft sometimes entails a loss of your money, but whether or not you lose money, it can take a very large amount of your time to rectify.”

Jeff Rose presents Protection For Your Home – Is Mortgage Life Insurance Worth It? posted at Life Insurance By Jeff, saying, “While your house is most likely your biggest asset, does that justify paying the extra premiums to have a mortgage life policy? Does the added cost really give you the protection you need?

Investing

Jeff Rose presents Best Short Term Investments For Your Money Right Now posted at Good Financial Cents, saying, “In such an unstable market, short term investing may be a safer alternative for investors. Short term investing allows investors to invest their money with little or no risk, while knowing their money is not going to be tied up for long periods of time.

Pinter presents No Load Bonds posted at Cheap Bond Funds, saying, “Investment research overwhelmingly shows that lower cost fixed income funds tend to yield higher bond investing returns.”

Sustainable PF presents Canadian Dividend Stocks: Brookfield Renewable posted at Sustainable Personal Finance, saying, ” Many investors are looking to Canada as a source of investing opportunity that are a little more eco-friendly than their competitors like Brookfield Renewable Energy Partners.

TSI presents Morningstar Ratings posted at The Skilled Investor , saying, ” Individual investors and their advisors appear to make investment decisions that are heavily influenced by the Morningstar Rating system. Because the stars are very widely used and often misunderstood, these are articles to help investors make more rational decisions about the stars.”

Pierre presents Teaching Your Kids To Become Great Investors posted at Intelligent Speculator, saying, ” Do you teach your kids about money?

Div Guy presents Canadian Aristocrats; They Have it Too posted at The Dividend Guy Blog, saying, “What sort of stocks are you investing in?

DL presents Global Financial Markets  posted at Nerds on Wall Street , saying, ” Stock markets are almost perfectly transparent, with full information available to all, and the best electronic clearing and settlement in history. These technologies were omitted in building the skyscraper of cards (“house of cards” seems too mild) out of collateralized debt obligations (CDOs), credit default swaps (CDSs), synthetic collateralized debt obligations (SCDOs), and the rest.”

W presents A Speculative Alternative To Investing Part 1: Goals posted at Off-Road Finance, saying, ” A long term speculative trading system for those who want to avoid conventional investing.

Managing Debt

Maria presents Four conditions under which cash loans may not be such a bad idea after all posted at The Money Principle, saying, ” Before I go on and set out the four conditions under which, I believe, cash loans may not be a bad idea let me tell you a story.

Mike presents Why Cash Back Beats Travel Rewards posted at Rewards Cards Canada, saying, ” A free vacation keeps many Canadians loyal to their travel rewards program, but for me, cash back is king. Here’s why cash back beats travel rewards

Mike presents Best Cash Back Credit Cards posted at Rewards Cards USA, saying, “If you are looking for some solid choices when it comes to cash back credit cards, here are a few of the best options for getting money back

Echo presents Home Equity Line Of Credit: Friend Or Foe? posted at Boomer & Echo, saying, ” A home equity line of credit has its advantages, but be cautious. Easy access to credit and loose repayment terms can make HELOC’s very dangerous.

Real Estate

Suba presents Our House On The Market: Month Three posted at Broke Professionals, saying, ” We’ve now had our house on the market for three long months, and I’m losing faith. We’re dropping the asking price, but I wonder whether it’s enough to get it sold.

Wayne presents Should You Hide Money From Your Spouse? posted at Young Family Finance, saying, “A recent study showed that many partners or spouses hide money from their significant other. Is it okay to hide money from your spouse?

Retirement

Hank presents Harnessing The Power Of Compound Interest posted at Money Q&A, saying, ” There is a power of compound interest that both savers and investors need to understand and harness in order to grow their wealth.

Brock presents Retirement Spreadsheet posted at IRA Account Investment, saying, “Whether or not to make investments into “traditional” tax-advantaged employer accounts and IRAs versus investing in “Roth” tax-advantaged employer accounts and personal IRAs is never a straightforward nor simple financial planning decision.”

PITR presents Reasons Why People Don’t Follow Their Dreams posted at Passive Income To Retire, saying, “Find out why people fail to realize their dreams. Why do people fail? Why do people give up on their dreams?

Knowles presents SandP 500 Funds posted at Large Cap Index Funds, saying, “The no load index fund strategy of the Schwab S & P 500 Index Fund tracks the S and P 500 stock index. This no load index fund was listed as one of the top 25 lowest cost index mutual funds in a research study.”

Savings

John presents Why You Should Think Twice Before Hitting a Toll Road in a Rental Car posted at Wallet Blog, saying, “One would think you would have to go through the Phantom Toll Booth to pay a phantom toll fee. Sadly, that is not the case, and the unsuspecting consumer is getting hit with unreasonable toll charges when driving a rental vehicle. Are these costs avoidable?

Freedom presents Savings Rates posted at Financial Freedom Plan , saying, ” Understand how your current savings rate and retirement withdrawal rate would affect all of your lifetime personal financial planning goals ”

Liana presents What to Make of the New Capital One Daily Deals Program posted at Card Hub, saying, “Move over Groupon and Living Social! Capital One is taking the stage with one of its newest programs. See what your credit card can do for you when it comes to saving money at places where you already spend!

Taxes

FMF presents The Eight Tax Rules posted at Free Money Finance, saying, ” In this article are eight rules that I recommend you follow in dealing with taxes. The first four are principles that you should adopt, and the next four are specific areas of competency that I recommend you develop.

Monroe presents Roth Conversions posted at Do-It-Yourself Finance , saying, “Key to you making a better decision about your lifetime Roth account contribution and asset conversion strategy is the need for a sophisticated financial planning software tool.”

That concludes this edition. Submit your blog article to the next edition of Carnival of Financial Planning using our carnival submission form. Past posts and future hosts can be found on our blog carnival index page.

Technorati tags: carnival of financial planning, blog carnival.

Ask yourself, “Are my investments working to meet my financial goals and needs for each stage of life?” If you can’t easily say yes, then maybe it’s time to re-evaluate or create a written investment plan.

Why you need a written investment plan

One of the first steps to creating a personalized investment portfolio is setting return objectives and risk tolerances for each stage of life.

Let me give you an example. As a young college grad, you may be fairly risk adverse and willing to target higher returns and therefore higher risk. However, as you enter retirement, your return objectives are much lower and therefore your risk is much lower.

This principle is straightforward, but many investors don’t take the time to define their financial goals, return objectives, and risk tolerances for each life stage. The danger in not setting these objectives early is that (1) you can’t know if your investments are working to achieve your goals if you have never clearly defined what your goals are and (2) you may design a portfolio that exposes you to the wrong level of risk (could be either too little or too much risk).

So how many stages of life should you plan for? 

You need to identify stages that entail unique financial requirements and goals. The average investor will have two life stages: earnings and retirement (though you many have others like semi-retirement). For each stage, you need to determine:

• The time period it will span
• Your age at the beginning
• What your life goals are
• Your financial needs to meet your goals
• And the financial instruments that are most likely to help you reach those goals

Setting portfolio objectives and structure

What’s your return objectives and portfolio structure for each life stage? This may seem like a straight forward question but truly poses many complexities.

First, identify the inflation adjusted amount of money that you need to have at the end of each life stage. For example, at the end of the earnings stage, I know that I’d like to have enough money in the bank to create an annual income of $50,000 in today’s dollars to live on each year.

The specific amount you use is up to you to determine.

There are many great calculators online to help you to figure out how much money you will need online.

• Start Farm retirement calculator
• CNN Money retirement needs calculator
• Another CNN Money retirement calculator
• Kiplinger retirement calculator

Second, for each identified life stage you need to determine the necessary rate of return on the amount of money you will be investing to reach your goals.

This si when a good handheld financial calculator comes in handy. Basically, you enter the amount of money you need at the beginning of a specific life stage (such as retirement), how many years between now and then, and your annual contributions.

The calculator will then spit out the rate of return that you need.

Remember that your rate of return is an average rate of return. For example, let’s say you need 8% each year. You can earn 0% one year and 16% the next year and that’s still 8% over the two years.

So don’t freak out if one year underperforms.

What’s your risk tolerance and benchmark indices?

Knowing how much you need to retire and the rate you need to earn will help you determine just how risk adverse or risk tolerant you need to be.

Just to be clear, risk does not mean anything negative. Risk is just the measure of a specific outcome, both good and bad.

If you need a high rate of return to achieve your financial objectives, then you have two options. First, increase the amount you are saving, which you should do anyways. And second, take on investments with higher risk.

Emotionally, many people can’t take on much risk. That means you are stuck with option #1 – invest more money. But if you can stomach it, then you should carefully evaluate higher risk investments.

Caveat – Don’t do anything stupid just because it’s promising big money.

As time passes, you will want/need to evaluate how your portfolio of investments is progressing. For that reason, select benchmark indices as a basis for comparison.

Example: If I’m investing in a bunch of large cap mutual funds, then I should compare my return to the S&P 500. But if I’m investing in small cap funds, then I should look at the S&P SmallCap 600.

This is just the start

A lot of work and research goes into creating a sound portfolio. But hopefully, this post gives you an idea of where you need to start.

If you have any questions, definitely consult a certified professional.

For everything else, follow Rabbit Funds on Twitter.

(This post was featured in the Carnival of Personal Finance hosted at Money Q&A)

Using “buckets” or multiple portfolios isn’t a new idea. I’ve seen it used for various purposes. The premise is pretty simple but proper use can be very powerful and financially rewarding. Rather than creating one portfolio that is set to mature when you reach a certain age, let’s say 65, create multiple portfolios with different target or maturation dates.

Let me explain using my wife and I as an example. Normally, a couple spends all of their working years putting money away into 401Ks and IRAs with the goal of retiring at age 65. Due to tax laws, we can’t touch the money in those retirement accounts until we reach at least age 59 1/2. So we dutifully invest money for 40 years. As youngsters, we invest aggressively because our time horizon is long and we can afford to have years with losses. But as our retirement date approaches, we move more and more money into safer investments. So our portfolio makes less money as we get closer to retirement. And yet, with the high life expectancies of today, this one portfolio will have to be sufficient enough to last us 20-30 years. But if we are only earning 3-4% each year, then we may run into trouble.

Now let’s consider using multiple buckets or portfolios. We’ll start with just a simple two bucket or portfolio approach. In this example, I expect to live 30 years after I retire at age 65.

• Portfolio 1 contains only one half of all our retirement money and is designed to be available the day we retire at age 65. So again, we slowly move money into safer investments as that day draws near. BUT, we only want this portfolio to last 15 years and then run out.
• Portfolio 2 contains the other half of our retirement money and is designed to be available when I’m 80 years old and the first portfolio runs out. Since I have an extra 15 years to invest this portfolio, I can be aggressive for much longer and earn more money before having to move to safer investments such as bonds.

So the benefit is that through using multiple portfolios, I can be more aggressive where possible and increase my potential return. Now, let’s get a bit more fancy again using my wife and I as an example.

• Portfolio 1 uses only normal, taxable accounts because I want to retire at age 50. So I need to withdraw from accounts where I don’t face tax penalties for early withdrawals. But I only need this account to last 10 years because then I can access my tax deferred (401Ks) or tax advantaged (Roth IRA) accounts.
• Portfolio 2 uses tax deferred or tax advantaged accounts and is designed to mature or be ready to use when I turn 60 and Portfolio 1 dries up. In our case, I want that account to last until we are 70.
• Portfolio 3 may use a combination of taxable and tax deferred accounts because I intend to draw every penny out of it in my 60th year in order to build our retirement home (we plan to do a lot of traveling in our 50s).
• Portfolio 4 is invested more aggressively for longer than any other account because I don’t need it until I’m 70. But then I intend to use this account until the day I die. So it has to last for 20 years.

This may seem a bit absurd or overboard, but so does coupon-ing until you try it and see the cost savings. The goal is to maximize the time that you have and the return that you can earn on your money. Don’t just make your money work for you, make it work smarter for you.

Understand, though, that this bucket approach is a numbers game. Meaning, you have to crunch a lot of numbers to determine how much money needs to be in each account on the day it is supposed to mature or be ready for use, how much money you need to put into each portfolio on a monthly or annual basis, and how much you need to be earning on average in each portfolio in order to meet your goals. So if you are not comfortable running the numbers yourself, please consult a competent financial advisor. I’m a strong advocate of hiring a professional if you need the help.

For a few ideas on selecting an advisor, you can read our post titled 5 Tips for finding a good Financial Planner.

Hopefully I’ve adequately explained the bucket approach well enough that you have at least an idea or inkling of its potential. Please feel free to ask any questions or provide suggestions to others in the comments section below.

Also, you can follow Rabbit Funds on Twitter for more investing and retirement ideas.

Over the weekend, I came across the October 2010 copy of Money magazine that apparently I had stashed away. The lead article in this issue is titled 7 Secrets to a Richer Retirement. After reading through the article, I thought it would be worth reviewing and sharing some of the valuable points.

#1 “Get a good picture of the future you”

According to research, our brains are not programmed to identify with our future selves. For that reason, we have a hard time trading rewards today for rewards in the future. That single character trait is often the biggest hurdle to preparing for retirement. Socking money away means that today’s you can’t have something. But if the future you is a stranger, then it is difficult to trade something you want so that a stranger can have something years from now.

So what you need to  do is get to know your future self. Here are two ideas from Money’s article:

1. Write down what your life will be like when you retire. Where will you live? How many kids and grandkids will you have? How will you spend your time? What car will you drive? How big is your house? Is it paid off?
2. Consider one of your grandparents of the same sex. Use him or her as a proxy for yourself. See what his or her life is like and what you potentially are facing as you age.

My Review: Self-visualization can be a powerful motivator, but don’t stop here

#2 “Try to beat the other guy”

We are all at least a little competitive. Money recommends putting that to good use and apparently some research says it helps. Basically, if we find that we are lagging behind our peers when stacked up side by side, then some primal need kicks in and we make positive change.

ING actually launched a site where you can see how you compare. Statistics show that more than 20% of the people who spend time on the site make improvements. So maybe you should check out INGCompareMe.com.

My Review: Can be helpful in helping you to get motivated, but don’t spend too much time playing online staring at what everyone else is doing

#3 “Use reminders and checklists”

One of my favorite moments in the Disney movie Up is when the dogs are easily distracted by squirrels. We humans are prone to easy distractions as well, especially since preparing for retirement can be a 40 year process. So creating reminders and checklists can help you stay focused.

One great tip from the article is to create email alerts for yourself, though be specific. For example, send yourself an alert that says, “Put $2000 in Roth IRA by June 1,” or “Add $1000 to emergency fund by Sept 1.”

My Review: One of the easiest tips to implement and it can really pay off

#4 “Think bite-size pieces, not whole enchilada”

MetLife in 2008 released a Retirement Income IQ Test that indicated that most people overestimate how long their savings will last. In fact, “experts advice retirees to start withdrawing no more than 4% of their money each year to keep from running out – but 69% of people think they can take more. (quote from Money article)”

Apparently the problem is that we are all trained to think about our retirement fund as one large lump of money when we should actually think about our retirement needs in terms of what we will need each month. Tools like T. Rowe Price’s Retirement Income Calculator can help you estimate your monthly income in retirement. Compare that number to what you you want to have and you’ll have a better idea whether or not you are on track.

My Review: I absolutely agree that you need to consider your monthly income in retirement rather than just a single pile of cash in the bank

#5 “Make friends with an annuity”

If you’ve read any of my prior posts on life insurance companies, then you know that I have some strong feelings on the topic. Though I have to admit that an annuity can make a lot of sense for some people. Basically, by trading in some of your nest egg, you can create a stream of monthly income. The danger lies in the financial security of the insurer. So be careful choosing a company if you opt for an annuity.

My Review: Determine how you will disperse your nest egg to yourself and that may include some insurance options

#6 “Take losses in stride”

Research shows that as you age you become more loss averse. Meaning, you are less likely to take risks and feel the pain of a loss much more than the joy of a gain. The problem that this can cause is that you may invest too conservatively and not have enough money to last.

To help abate your concerns and maintain a healthy portfolio, you should stay financially educated. Don’t stop learning and watching. Also, don’t put too much into stocks after you retire and keep it that way. If you aren’t overexposed to stock market fluctuations, then you are less likely to freak out if the Dow Jones has a bad day, week, or month.

My Review: Just stay informed and don’t let small losses distract you

#7 “Protect the future you”

Personally, I’m looking forward to this problem. Research shows that as you age, your brain undergoes some subtle changes that make you more optimistic. In fact, you become less aware of danger. One reason why older people are more susceptible to scam artists.

So Money recommends the following to help keep your optimism in check:

• “Stay active” – Stimulating both your brain and body can help keep your thoughts clearer
• “Simplify your finances” – Have fewer things that you can mess up
• “Be hard to find” – Don’t talk to strangers who could be scam artists
• “Arrange now for help later” – Create a durable power of attorney so that a loved one can step in if need be

My Review: Nobody wants to face the reality that you can’t take care of yourself, so take care of yourself physically and mentally so you can

For the full article, check it out on CNN Money.

I graduated with a degree in Finance (emphasis in Financial Planning) from a Top 5 undergrad business school. I’m not saying this to boast. But rather explain that my background gives me an understanding of investments and definite opinion on what I expect from a 401k plan.

After graduating, I started a career in Marketing. Why? Because that’s what all Finance majors do…right?!

Having researched my company’s 401k plan, I found myself disappointed. The options were limited to funds with high expense ratios and average to poor returns. I spoke with the manager over our retirement plan and made three specific suggestions.

1. Include at least six index funds, to include the following: Large Cap, Mid-Cap, Small Cap, International, Emerging Markets, and Bond funds.
2. Change the company match from 33% on deferrals up to 6% of compensation to 100% match on deferrals up to 2-3% of compensation.
3. Give employees the option to place deferrals or contributions into a Roth 401k or Roth IRA account while putting the company match in a traditional 401k.

Needless to say, my suggestions weren’t too well received. Over the next three years, I took every opportunity I could to mention my suggestions to the President of the company. We spoke about investments on a number of occasions and I demonstrated that I had knowledge and experience in the field.

A change in ownership

Several months ago, there was a change in ownership and as a result, we are currently creating a new retirement plan. After setting up a meeting with an investment advisor, our President invited three more people to the meeting: the Vice President, our Legal Counsel, and me (the marketing guy). During the meeting, we discussed all three of my suggestions. The best part, I didn’t even bring them up. Our President voiced all three of them without any prompting from me.

The point that I’m driving at is that you don’t have to settle for the retirement plan that your company offers. I have spent three years creating an internal drive for change. You can do the same.

How to go about making a change

I have detailed a few ideas on how to go about creating internal change. This list is by no means exhaustive and will not work in every situation. But these suggestions are meant as a starting point.

1. Know what you are taking about. Research investment types and retirement plan options. Money Crashers offers some advice on selecting mutual funds for your 401k.
2. Be prepared to make specific suggestions. No one wants to hear someone just complain. So outline exactly how you want your retirement plan to be.
3. Don’t patronize or criticize. You will get no where if you simply attack the current 401k plan. Rather, when you are presenting your ideas, present them as changes that benefit everyone, including the company.
4. Find a champion with influence. In my case, our President holds the same ideals and investment philosophies. I made sure to voice my concern to him. I also spoke with other employees and explained why change was beneficial.
5. Be patient. If the change you are trying to make is genuinely worth it, then stay at it. You will meet opposition and you may be told no a hundred times. The creators of Chicken Soup for the Soul were told no by dozens of publishing houses until one said yes.

Don’t allow yourself to be tempted by thoughts like, “My company is too big, no one will listen.” Even as an intern, I wasn’t bashful about speaking up. Having been offered a position at the end of my internship, I approached the Human Relations department and voiced concerns about the fund options in the 401k plan. This particular company employees 1000s of people. Ultimately, I turned down the position and chose the company with whom I work now.

You are responsible for your retirement and 401k

It’s paramount that you remember that ultimately, you are responsible for creating your nest egg. So take the time now to research, understand, and actively participate in creating the best retirement portfolio possible.

During my last year of college, my wife and I spent countless hours discussing how we intended to manage our finances. We spent a fair amount of time discussing our goals and what we needed to do in order to financially reach those goals. Fortunately or unfortunately, depending on how you look at it, we made some foolish investments at the same time.

Our eyes and desire to quickly reach our goals overrode all of those nagging feelings that were telling us, “This is stupid.” As a result, we created several boundaries to help guide future investment activities. Before I jump into the specific types of limits that you need, I want to briefly describe the importance of guidelines or boundaries.

Boundaries: The kite example

Think back to being a kid again and flying kites with your family and friends. If you were ever like me, then you occasionally wanted to let go of the kite’s string once it had reached the end. I believed that the tethered string was holding the kite back and not allowing it to soar higher into the sky. As you may know, if you let go of the string, then the kite may fly higher for a moment, but it inevitably always falls fast and crashes into the ground.

The string actually acted as an anchor and allowed the kite to stay its course and continue to fly. By removing the anchor, the kite is easily tossed about by the wind. Life is the same. We need boundaries in order to stay anchored and move in the right direction. Extrapolated to an investment scenario, creating written guidelines as part of an investment plan gives you an anchor which allows you to make smarter financial decisions and avoid being a reed that is tossed about in the winds of the market.

11 Essential guidelines for your investments

1. What are your liquidity needs? Different investment account types have different legal restrictions. For example, early withdrawal from a 401(k) or Roth IRA is not only a taxable event, but it carries a penalty with it. Take the time to understand when you intend to make major purchases, such as a care, additional education, or a home, and understand whether or not you will be able to access your invested money in order to meet your needs.
2. What is your investment time horizon? This guideline is closely tied to #1. Determine the date or year when you will need to access invested money. For long-term goals, instill now the mindset that those investments are long-term assets and unaccessible until that time. Writing this down helps deter the temptation to deviate from your plans.
3. What are your acceptable and unacceptable asset classes? Make a list of asset classes that you are comfortable investing in and a list of asset classes that you will not use. For example, my wife and I have as acceptable classes: bonds and cash, stocks and mutual funds, REITs, gold funds, and business holdings. Our unacceptable classes are: derivatives, collectibles, foreign currency, options, futures, or any other asset class where we have no discernible specific advantage. You may not agree with us, but have a rational reason for why you make something acceptable or unacceptable.
4. When are you willing to invest in individual assets? Individual assets are defined as stocks. As you begin investing, one bad stock can have a serious impact on your entire portfolio. So wait a while. My wife and I decided that until we have $500,000 in our portfolio, we will not invest in individual assets. And even then, we will still follow guidelines #5 and #6.
5. What percentage of your total assets can be placed in one investment? This guideline can make or break you. Even though an asset class is acceptable does not mean that you can go hog-wild. Restrict how much you will invest in any one investment as necessary. For example, our guideline states, “At no time will the Team invest more than 5% of its investable assets in any single company, stock, or individual investment except broad market mutual funds, index funds, or ETFs.”
6. What is the maximum percentage of your total assets that you will place in Company Stock? As you begin to add individual assets to your portfolio, don’t let Company Stock overwhelm your portfolio. We have all heard the horror stories about individuals who placed on their bets on the Company Stock. If your company gives you stock as part of your compensation, then great. But make sure you have a balanced portfolio.
7. What is the maximum percentage of your total assets that you will place in new investments? Carefully move into new investments. This guideline helps avoid “hot stock” tips and other tall tales heard on the back nine. Our investment plan states, “The Team will invest not more than 5% of the total portfolio amount in any new or individual asset or investment. Index funds, mutual funds and ETFs do not fall under this category unless they have portfolios with less than 50 assets.”
8. What is the maximum percentage of your total assets that you will place in unlisted investments? Unlisted investments are assets not listed on recognized stock exchanges and therefore bare additional risk. In order to limit that risk, I recommend allocating no more than 3% of your total portfolio to such investments.
9. Will you use leverage? Leverage comes in the form of short-selling or buying on margin. I’ve made and lost money using both techniques, but they add substantial risk if not properly managed. If you aren’t sure why, read 4 Reasons not to use debt to make an investment.
10. If applicable, how often will you discuss the performance of your portfolio as spouses? Keep your spouse informed about your portfolio. Or if you aren’t the one handling the finances, ask to be kept up-to-date. Even if you are inexperienced, two heads are still better than one.
11. How often will you rebalance your portfolio? Over time, certain assets will grow or fall faster than others. So you need to adjust your investment allocation to re-align it with your target allocation. So determine how often you need to that. Personally, I believe every two years is sufficient.

A sleep well investment portfolio

I like sleeping. I don’t get much of it these days. So having a portfolio that lets me sleep and doesn’t keep me up all night wondering whether or not my stocks are plummeting is important to my peace of mind and lifestyle.

Answering the above questions and then writing it down may take some time and seem mundane, but it is crucial to your success. Knowing where you are going (your goals) is not sufficient if you don’t know how you will safely arrive there (your boundaries).

Any other important guidelines that I may have missed? For more commentary and information, sign-up for our RSS Feed using your favorite reader.

Today’s article is written by Ricky at Qwoter.com. You may know Qwoter as a great source for stock news and stock spam reports. Enjoy today’s articles about creating an early retirement plan.

Discovering how to invest for retirement early in your career will help you save enough money for an affluent and well-to-do retirement. It’s important to remember though that the best method for early retirement planning and investment selection is not the same for every person. If you have the funds, exercise diligence when considering your investing options. This will help you acquire the most beneficial investments based on your short-term as well as long-term goals.

When looking for the best avenues for your money, you should first understand the significance of administering funds and assets based on your appetite for risk. In addition, consider the rules and regulations as well as the interest rates of your chosen investments. You should also keep yourself updated on the latest news and investing methods available.

Top Investment Options

1. Employer-Sponsored Retirement Plan – In reality, retirement accounts not only endow long-term investing, but they grant a wide range of tax advantages as well. When investors choose an employer-sponsored 401(k) plan, the company that they work for may opt to match the employee’s investment. The money is contributed into the account without the owner incurring taxes. Since the funds stay in the plan, you benefit from compounding interest and growth until you make a withdrawal. Though, you will have to pay taxes at that point.
2. IRA or Individual Retirement Account – If your employer does not furnish 401(k) accounts, you will want to learn how to invest for retirement through an IRA. There are different types to choose from; each made to meet specific needs. This type of retirement account offers you similar tax advantages that you enjoy from an employer-sponsored plan. A Roth Individual Retirement Account will permit you to make contributions with after-tax money. The money in the account compounds tax-free over time without additional taxes levied at the time of distribution. The traditional IRA on the other hand consents pre-tax money to be placed in the account, with taxes levied only at the time when the funds are withdrawn. Before investing into an IRA, make sure to check for the best IRA rates that are currently available to help you maximize your returns.
3. Stocks – A stock or share is a part of ownership in a company or an enterprise. When the company performs well in the market, the stock will increase in price. Note that the stock market is not the best place to house your money into, particularly if you will need access to your account almost immediately. A skilled stock broker can help you select the best types of stocks.
4. Bonds – Bonds are another good asset to place your money into. These are loans that are reimbursed by the government or business over a period of time. As an investor, you will receive interest payments, about twice a year. Bonds are also known as more secure and stable assets than stocks.

Becoming skilled at how to invest for retirement will also let you learn about investing in Certificates of Deposit (CDs), U.S. Treasury Notes, 529 investment accounts, as well as savings accounts. Before you invest in any of these, you need to set your financial objectives initially. This will ensure that you can prepare for your retirement with the right investments.

In America, Welcome to the Poorhouse, Jane White sounds a strong warning to the nation’s citizens that change is needed in order to retire with enough in the bank. White uses this book in order to promote specific political changes and bills that she is sponsoring in Congress.

While other financial planning books address what we as individuals need to do in order to retire comfortably, White approaches the issue by placing the fault and needed change at Congress’, corporations’, and wealthy tax payers’ doorstep. She firmly believes that political reform creating a USA that mirrors other nations is what we need in order to climb out of the retirement poor nation we currently live in. While I do not disagree with the need for reform, I disagree with certain tenets of White’s argument as well as the bill that she is sponsoring in Congress right now.

About the Author

From the book, “Jane White is Founder and President of Retirement Solutions, LLC, which promotes 401(k) reform and provides investment education. In 2007, at the U.S. Department of Labor’s invitation, White presented recommended 401(k) contribution rates to the ERISA Advisory Council…A Congressionally appointed delegate to the 2002 National Summit on Reitrement Savings, White first observed the 401(k) savings crisis in 1993 as associate editor of Standard & Poor’s Your Financial Future. A former syndicated personal finance columnist for Gannett News Service, White first observed the housing bubble and the risk of adjustable rate mortgages in her 1991 book, The Cost Conscious Homebuyer’s Guide. Her articles have appeared in The New York Times, Barron’s, and Employee Benefit News.”

Tenets of the Book

The book is divided into five tenets or sections.

1. 401(k) Reform
2. Mortgage Industry Reform
3. College Grants and Loans Reform
4. Credit Card and Other Borrowing Reform
5. Creating a Citizen’s Lobby

Each section aptly describes the current situation in America and how we arrived here. At the end of each section, White prescribes her solution to each problem.

The Interview

I had the opportunity to ask Ms. White several questions. I selected the most salient responses.

RabbitFunds: You advocate in your book that employers and financial institutions should be required to recommend the amount of money that consumers should be saving in order to have sufficient funds upon retirement. How do you plan to address the legal ramifications of employers, who are not licensed, acting as certified financial planners?

Jane White: Actually CFP’s know absolutely nothing about saving for retirement. Incredibly, they are not obliged to learn the ten times final pay formula from pension actuaries nor the savings rate needed to achieve it. That’s why the editor of Investment News, a publication that circulates to 65,000 financial planners, asked me to write an op-ed about it. Pretty incredible, huh? Employers would hire pension actuaries to calculate the formulas and personalize them based on individual savers’ current assets and investment time horizon.

RF: Typically, 401K or defined benefit plans are offered as a benefit above and beyond the normal salary or wage. As benefits, they are a mechanism for employers to attract superior employees as well as show additional appreciation. Why do you believe that employers should be required by law to fund an employee’s retirement?

White: There is no other country in the advanced world–that I know of–where neither the government nor the employer is obliged to provide deferred compensation. It’s called a social contract. The same thing is true with health care coverage–it’s utterly unconscionable that 15% of the U.S. population has no health care. The U.S. was able to muddle along until the 1980s because we were a “fortress economy” where everything consumed here was made here so that employers offered benefits as a way of competing for employees. So we’re not used to social contracts and if the right-wing gonzoes in Congress gets their way we won’t have any.

RF: Is not the employee responsible for funding his or her own retirement through prudent planning and living?

White: Please see above. What’s more, if it is our responsibility we should be told that. What’s unconscionable is that when employers dumped defined benefit plans and replaced them with 401(k) plans, they didn’t disclose that nobody could retire from a 401(k) plan. What’s more, all the Democrats will do is to automatically enroll people in an inadequate plan and then “automatically annuitize” an inadequate balance.

RF: If your retirement act were to pass, have you estimated the economic impact of imposing the equivalent of a 9% payroll tax on all employers with more than 10 employees? If so, what is that financial impact?

White: Not a single Australian employer went out of business as a result of having to adopt Superannuation. As I mentioned, if we are still facing recessionary times, we can do a phase-in: start with 4% and gradually raise it to 9%. On the other hand, any company that’s paying out obscene executive bonuses and executive pensions and health benefits and/or repaying TARP money less than a year after they took the loan is not facing any recessionary times.

RF: How will companies with slim margins still be profitable?

White: Here’s the deal.  A company that’s facing financial stress should address that stress by reducing the workforce, not keeping the workforce on the job and then screwing them. As I mentioned, this immoral behavior pretty much started in the 1980s when the notion of “right-sizing” took over from down sizing. Employers decided that laying off people and then training new hires was more expensive than keeping them on the job and getting rid of their benefits and taking away raises.

RF: For employers with fewer than 10 employees, you believe that a government fund or entity should pay the 9% 401K contribution. What is the estimated tax burden to taxpayers to adequately fund this initiative?

White: I’m rethinking this one. Small employers aren’t necessarily cash-strapped employers–think of medical practices or law firms or accounting firms. I’m considering instead saying that companies who have been in business for less than five years don’t have to offer the plan but they must disclose to employees that they don’t offer coverage.  I chose the five years because half of all startups go out of business within first five years of startup. So there would be no taxpayer burden.

RF: Under the 9% contribution system, does Social Security dissolve after paying out to current retirees and everyone over the age of, for example, 50?

White: Most people still need Social Security. A defined benefit plan only covers 30 to 50 percent of final pay and the goal is to replace 70% of final pay so most people except the truly wealthy will need a supplement. As I mentioned in the book, in a logical world, investors would be told that they can’t time or beat the market and the vast majority of businesses in that oxymoron known as the financial services industry would go out of business–from TD Ameritrade to Fidelity.

RF: Your book compares the % of federal budget spent on education in America to that of other nations. Using a percentage can be very misleading when we are talking about vastly different GDPs and population sizes between countries. Have you calculated a more meaningful and insightful statistic such as the $ spend per capita? And if so, how does America rank?

White: So far as I can tell the OECD is the only organization that measures spending so I have to rely on them. On the other hand, I think it’s safe to say that if you were to measure our country’s wealth by median wage or household assets: savings, home equity, etc., we would rank at the top or near the top of OECD countries. What’s more, if we were to measure the median income of say, the top 5% of the population compared to these countries we would definitely rank near the top, if not number one.

RF: You wrote, “Why should we expect our citizens to foot most or all of the bill’s cost for higher education…” I ask, why wouldn’t we? What entitles an individual to something for nothing?

White: As I point out in the book, we don’t expect people to foot the bill for elementary or secondary school, why should we do so for college? As I also pointed out, before Reagan took office, Pell Grants accounted for the bulk of college expenses, as opposed to loans.

RF: You refer to ARMs and Introductory Promo Rates on credit cards as bait and switch schemes. However, the documents that accompany both accounts contain all of the information about the pending change in the interest rate. Why is the individual not responsible for understanding something as important as a mortgage or innocent when he or she spends too much on a credit card and is then hit with high interests that were fully disclosed when the account was opened?

White: For the same reason that we’re not expected to assume that cars shouldn’t blow up on this when we buy them, thanks to Ralph Nader. You can sue a merchant if they sell you a damaged good or a doctor if he or she damages you when they operate on you. It’s the concept of assignee liability.

Read my review

For a review of the book and my analysis of Ms. White’s argument, please see REVIEW: “America, Welcome to the Poorhouse” by Jane White.

Are you aware that your investment strategy can end up with a social disorder? Do you currently need to put your investments on Ritalin? Here’s your fiscal check-up. Open wide…

Is your investment strategy ADHD?

Let’s begin the discussion with a great definition of what it means to be ADHD (from Wikipedia): “Attention-deficit hyperactivity disorder (ADHD) is a neurobehavioral developmental disorder. ADHD is primarily characterized by ‘the co-existence of attentional problems and hyperactivity, with each behavior occurring infrequently alone.’ While symptoms may appear to be innocent and merely annoying nuisances to observers, ‘if left untreated, the persistent and pervasive effects of ADHD symptoms can insidiously and severely interfere with one’s ability to get the most out of education, fulfill one’s potential in the workplace, establish and maintain interpersonal relationships, and maintain a generally positive sense of self.’ (emphasis added)”

So how can your investment strategy end up with a social disorder? Let’s evaluate each underlined section above.

1. Each behavior occurring infrequently alone – This is for those of you who don’t really have an investment strategy. You buy whatever “hot investment” your buddy tells you about while golfing. Or you sporadically contribute to your retirement accounts. In order to retire with enough money in savings, you need (1) a defined investment plan with frequent, planned contributions and then (2) you need to stick to your plan only making occasional improvements or thought out modifications.
2. Symptoms may appear to be innocent – So you like to play with part of your investments. I know individuals that find an adrenaline rush in short term investments. Have you ever calculated the amount of money you are losing to transaction fees and taxes? Have you seen the studies that show that frequent investment changes lead to lower returns? Or maybe you don’t play the market but you don’t think too much of skipping contributions to purchase something that you really don’t need. Or maybe you just don’t see a convincing reason to have a strategy. Don’t fall into these traps. Responsible adults make plans.
3. The persistent and pervasive effects of ADHD symptoms can insidiously and severely interfere with one’s ability – I’m not sure if I can say that any plainer. Though, let me give you an example. Let’s say that you decide to contribute $500 a month to your retirement accounts. However, you skip your contribution every December (have to buy all those presents). At the end of 30 years (invested at 12%), you will have $1,609,695 in the bank. If you had not skipped those contributions, then you would have $1,747,482 in the bank. A difference of $137,786 even though you only contributed $15,000 less! See my point? Having an ADHD investment strategy will insidiously and severely interfere with your ability to reach your goals!

Stop right now and think about your investing style? Do you need to put your investments on Ritalin?

Let’s read a bedtime story from Aesop.

There once was a speedy hare who bragged about how fast he could run. Tired of hearing him boast, Slow and Steady, the tortoise, challenged him to a race. All the animals in the forest gathered to watch. Hare ran down the road for a while and then paused to rest. He looked back at Slow and Steady and cried out, “How do you expect to win this race when you are walking along at your slow, slow pace?” Hare stretched himself out alongside the road and fell asleep, thinking, “There is plenty of time to relax.”

Slow and Steady walked and walked. He never, ever stopped until he came to the finish line. The animals who were watching cheered so loudly for Tortoise, they woke up Hare. Hare stretched and yawned and began to run again, but it was too late. Tortoise was over the line. The moral of the story is that “Slow and Steady won the race!”

So what does this have to do with your investment strategy? Well, Aesop is prescribing financial Ritalin. Again from Wikipedia, Ritalin “works by increasing the activity of the central nervous system. It produces such effects as increasing or maintaining alertness, combating fatigue, and improving attention. (emphasis added)” Outlined below is what I think Aesop would have us do with our investments.

1. Central nervous system – The tortoise was able to win the race because he maintained one objective in sight and had an unfailing winner’s attitude. We also need to go straight to the core. Write down what you expect your life to be like when you retire. Describe your relationships, financial status, living conditions, location, etc. That list is your one objective and you must have an unfailing winner’s attitude. The old adage, “Keep your eye on the ball,” will have more impact on your financial resolve than most any other approach.
2. Increasing or maintaining alertness – The hare decided that he wearied from his efforts and could therefore take a nap. You can’t take a financial nap! Keeping to your budget every month moves you one step closer to financial freedom. Making monthly contributions to your investment accounts moves you one step closer to retirement. In the words of Winston Churchill, “Never, never, never give up!”
3. Combating fatigue – Don’t try to run. Everything has its time and place. Establish a plan that outlines when you intend to retire, how much you need to retire, how much you need to invest monthly, and which investment vehicles and types will help you reach your goals. Then slowly but surely follow your plan. Just keep walking, don’t try to run and do everything at once. You just can’t do everything right now and don’t beat yourself up for it.
4. Improving attention – In many accounts of Aesop’s tale, the hare focuses on the fame and attention of the crowd. Conversely, the tortoise ignored the crowd and stuck to his plan. Don’t be sidetracked by the latest trends, need for huge returns, infomercials, pop star financial gurus, or anything else for that matter. Once you have a plan, stick to it.

Conclusion

Does your investment strategy need to be on Ritalin? Well, ask yourself, “Do I have a set contribution amount and schedule? Do I have a defined plan? Do I invest in hot investments? Do I day trade? Am I focused on the short term? Am I tackling too many financial goals at once that are confusing me?” Depending on how you answer those questions, you may need to start taking financial Ritalin by (1) focusing on your reasons for smart investing, (2) adhering to your plan, (3) taking one month at a time, and (4) ignoring the crowd.

P.S. I recognize the irony of me criticizing the hare and my blog is called RabbitFunds. Maybe I should have named it TortoiseFunds.

I like marketing. I market my website. I market myself to potential employers. I marketed myself to my wife and she fortunately bought. I believe marketing helps us gain knowledge of products, services, and opportunities that we might not have otherwise known about.

I believe marketers spend everyday trying to open our heads and rewire us to buy their stuff. I’m not cynical and I don’t think they are evil or bad people. However, as consumers we need to understand that they want our money and that it is Us vs. Them. My six reasons.

1) Discount pricing is a marketing ploy

I spent some time working at a major, national retailer. I’m not interested in pointing fingers, so let’s just call it Brand X. While working at Brand X, I was involved in many pricing conversations and observed the pricing process. We all know that stores use discount pricing as a means to incentivize you to buy now. I didn’t understand how deep that really runs though. For example, if a shirt or sweater costs the company $10 and they know from historical reports that consumers typically will only buy it at a price of $20, then they price it at $40. That way, they can discount it at 50% (oh my gosh! oh my gosh! oh my gosh!) and it will sell at the expected price of $20. Meaning, they don’t even expect you to pay $40! If you do buy it at $40, then you just lost. If you purchase at $20, not because you need the item but because you can’t pass up that great price, then you just lost.

2) They make us ask permission to buy from them

I’m borrowing this reason from Dave Ramsey and don’t take the credit myself. Banks, car dealerships, etc need us to buy from them in order for them to make money. And yet, we find ourselves asking them, and almost pleading at times, to take our business. They tell us that we’ve been “approved” so that we feel part of the club. “Honey, great news! The bank approved of us.” They put on a great dog and pony show to make us anxious that we might not get the “deal.” Stop and realize what is really being sold. Often, what’s being sold is enslaving amounts of debt. Liabilities, like cars, that masquerade as assets don’t make you happy. Money in the bank and peace of mind make you happy. Walk away next time someone tries to get you to say, “Please, can I have your stuff? Please, can I buy some debt?”

3) Research, research, research

Marketers spend a considerable amount of time learning their trade and then studying consumers’ behavior. Any good professional would. They track and analyze your buying and browsing behaviors, study psychology, and attempt to gain an intimate understanding of you. This is a double-edged sword. For example, Zappos.com is very customer centric. They are almost obsessively customer centric. They use an intimate knowledge of customers to better meet customers’ needs. But at the same time, these marketing departments use this knowledge to optimize the entire buying process to get you to buy. So what am I saying? Simply that marketers are constantly gaining new information about us and using that information to create extremely enticing advertisements. Just to put this effort into perspective, advertisers are expected to spend $242 BILLION on ads in 2009 alone. They have to recoup that investment and they expect to have us, the consumers, foot the bill. Don’t buy just because of the shiny ad.

4) They use fancy or technical names that confuse the issue

As the title suggests, a rowing machine is now a “1205 Precision Rower,” which sounds much cooler. Another example is the 12b-1 fee charged by some mutual fund companies. Rule 12b-1 was adopted by the Securities and Exchange Commission (SEC) in 1980 and allows fund companies to pay for sales and marketing activities by charging you a fee. This is in addition to the normal or stated expense ratio. It bothers me that fund companies charge consumers a marketing fee but don’t call it that. I understand that the name is derived from the SEC rule, but it is misleading to novice investors who are just starting out. Just call it a marketing fee so we can decide if we want to pay it.

5) “Where’s the pain?”

Another double-edged sword. A good marketer asks and answers the question, “Where’s the pain?” If a marketer can understand the problem a consumer faces, then he or she can develop a campaign or product that addresses that problem. Target pharmacy bottles are an excellent example of a marketer adding value to a product. Several years ago, Target redesigned its pharmacy bottle to make it easier to open, identify the prescription, and know to which family member the prescription belongs using color coded cap rings. The added convenience is worthwhile. On the other end of the spectrum, think about all of those late night infomercials. They offer solutions to common problems via their products. But stop and think to yourself, “Yes the Magic Bullet makes life a little easier for me, but my blender works just fine. So I don’t really need it even though it is newer, nicer, faster, etc.” In other words, they may be offering something that solves a problem, but you just may not really need the problem solved (at least not at the expense of your retirement). So next time you go to buy a product that you really don’t need, decide to put the money into your retirement account instead.

6) Illegitimate or illegal marketing schemes

I don’t want to dwell much on this topic since my purpose with this post is to address legitimate marketing efforts. However, there are a lot of marketers of ill repute out there attempting to bypass the law and cause you to lose your money. If you suspect that an offer is too good or just doesn’t seem right, please avoid it. Also, you can check sites such as Scam.com, ScamBusters.org, Snopes.com, or the Better Business Bureau to see if others have reported the offer as a scam.

Conclusion

Let me reiterate an important point – I have nothing against marketers. I know a lot of them. They have families, homes, dogs, and probably some consumer debt themselves. But buyer beware. Every institution, firm, corporation, etc must maintain a healthy revenue stream and that revenue has to come from someone. See it as a game. You are allotted X number of dollars each month to support yourself and your lifestyle. Marketers setup storefronts where you can choose to spend your dollars. At the end of the game, the person or store with the most dollars wins. The more you keep to yourself, the greater your odds are of winning.

Let me know in the comments if you agree or disagree.