Monthly Archives: March 2012

Dealing With Adversity

As I started to get up off the ground I began the usual “check and see if anything is hurt” routine. I’ve fallen off my bike dozens of times before so it’s usually no big deal.   Only problem this time was the fact that something “was” actually hurt.  I stood there looking (in disbelief) at what appeared to be a dislocated wrist.  “Maybe if I just pop it back in place everything will be okay?” is what I was thinking.  Too bad I’d later find out that it was broken.

Two weeks prior to the above escapade, I crumpled in the front end of my car when a lady decided she wanted to stop in the middle of the intersection on a green light. She had no insurance and the damage wasn’t worth me paying the deductible from mine.  A few weeks prior to that some other random challenge raised it’s ugly little head.  What’s going on in my life?  Who did I make mad? Why are all these “challenges” presenting themselves?  Why is this happening NOW, when we’re trying to grow the business?  Why, why, why?

The next time an obstacle presents itself to you, you’re probably going to consider one of these four routes:

Escape  You feel as if the challenge is too much for you so running away feels like a good option.  Only problem with this is that the obstacle isn’t really gone.  It’s just waiting for you to find it again so it can continue to apply its unwelcome pressure on your life.

Conformity  This is the “okay, you win” approach.  When faced with an obstacle you are really at a point where you are “stuck” so-to-speak.  You can’t move forward (easily) and you probably can’t go back to the way things were.  If you conform, you’re really just a notch above escaping.  What you’re saying is “a known evil is better than an unknown one.  The challenges of life are just too overwhelming.  Conformity, surrender or assimilation are the only realistic options.”

Fight  One approach is to fight whatever the challenge is.  You can do this via denial, obstinacy or just flat out refusal.  While it may appear that you are winning by not giving in, the reality is you are not making any progress or solving the situation.

Belief  Call it meditation, reflection, prayer or spirituality.  While the aforementioned will help comfort the soul and mind, they are only a part of the answer.  Wanting something to be different will typically not change the situation by itself.  Change takes more than just desire.

This brings us to the option not listed – moving forward.  Let’s face it, life is difficult.  However, our attitude is what determines whether we benefit from misfortune.  The same furnace that melts gold also hardens clay.  When faced with the heat of life you can either become hardened, callous and cynical or you can let it hammer, forge and shape you into a better and stronger person.  Case in point?  Dick and Rick Hoyt.

When I was younger I never really understood all those adages like “when the going gets tough, the tough get going.”  Yet then again, I also thought that “making ends meet” was some type of weird food process.  Anyway, the point is that all of those sayings have a point which is, you have to move forward.

I got up off the ground, drove myself to the ER and got my arm fixed.  I’ve adapted my computer to work with my left hand, which isn’t my dominant one.  I’m counting down the days to when I can start rehab.  But most importantly, I’m grateful that it’s not worse.  Be thankful for whatever situation you are dealing with because someone far worse off would give anything to be in your shoes.

Advantages of Investing With Pre-Tax Dollars

Q:  My employer offers several “pre-tax” investing options.  I have considered enrolling in one, but was curious if they are really worth all the hype people make about them?

A:   When it comes to investing, there is no such thing as “is it worth it.”  There are few things in life that will provide you with a greater benefit than investing in your financial future.  Having a sizeable and secure asset base allows for many things.  Some of these include peace of mind, reduced anxiety, freedom as well as the knowledge that you will be provided for in the future.  There is no worse feeling than having the desire to do something but not being able to because of financial limitations.  So when it comes time to retire, you don’t want to be forced to prolong the daily grind because you don’t have enough cash.

 The current tax law encourages making certain investments on a pre-tax basis.  Some of these investments include 401(k) plans, deductible IRAs and SIMPLE plans; all of which are funded through payroll withholding arrangements.  Yet many people fail to take full advantage of these investment vehicles for various reasons. 

 Investing money on a pre-tax basis has two major benefits that tend to be overlooked.  These include becoming a disciplined saver and investing a greater amount of money when compared to investing on an after-tax basis.  When individuals enroll in any of the programs named above, the amount they stipulate to be invested is automatically withheld from their paycheck.  Therefore, the participant doesn’t have to remember to make a contribution because it’s done automatically.  This is especially beneficial for those who tend to procrastinate or let money burn a hole through their pockets.  Plus, the individual tends to not miss the deducted funds because they never see the money.

Where the true benefit can be seen is in the differential between the amounts available to invest, as well as the return on investment.  Let’s say, for example, an individual contributes $11,000 of their gross wages to their company 401(k) plan through payroll deductions.  This amount will not have federal or state taxes withheld when the contributions are made.  Also, when they receive their W-2 form around January of the next year, this amount will not be included as income.  Consequently the tax liability calculated on their income tax return will be lower because the income base will be smaller.

 The employee will also benefit from their pre-tax investment with regards to growth.  Because their $11,000 was not reduced by tax withholdings, it is larger when compared to an after-tax equivalent.  This larger amount forms the base for the investment to grow or compound over time.  In turn, a larger investment base  leads to faster growth over the life of the investment and a  bigger payout when the funds are eventually withdrawn.

 In comparison, if this person had made their investment using after-tax dollars, two things would be different.  First, they would have only $7,920 to invest because the original $11,000 would have been reduced by tax withholdings (assuming the person was in the 28% tax bracket).  Because of this smaller investment base, the growth that would occur would be smaller when compared to the pre-tax base.   Second, the $7,920 could be further reduced when it came time to pay income taxes.  This would arise because the person could have to include any returns earned (like savings account interest) as part of their income base on their tax return.  The result?  The tax liability calculated could be higher, triggering increased tax payments.

 Yet despite all the good things about pre-tax investments, there is one primary downside.  No matter how hard an individual may try, they can not entirely escape paying taxes.  Although pre-tax dollars aren’t taxed when the funds go into the plan, they are taxed when they come out.  Furthermore, not even death can alleviate the tax obligation on these saving plans.  Whatever remains in the account at the time of your death will be taxed prior to distribution to your heirs.  Yet in many people’s eyes, the benefits of investing with pre-tax dollars tends to outweigh all the above.

The Importance of “Follow Through” in Business

So there you are, sitting at your desk when the phone rings.  You pick it up and guess who it is?  Your next “potential” customer!  They’re interested in doing business and want you to send them a quote.  Sounds simple enough right?  So like any customer service oriented individual does, you send them the quote and go about your day.

For most small business owners and employees there is never a shortage of tasks to handle.  For every customer who is simply prospecting, you have one who wants to purchase your product or service right now.  What typically winds up happening is that you shift your focus to the paying customer and the one who was prospecting?  Unfortunately, they usually wind up lost in the shuffle.

Now, what separates the stellar businesses from those that are merely successful is a little thing called follow through.  It’s not all that hard to implement and in the end, it can yield substantial results.  Here are some important things those in charge of your company’s sales or marketing function should keep in mind.

Single exposures don’t seal deals.  Most potential customers won’t make a decision based on one sales or marketing exposure.  Thus, follow-up contact is essential to success.  Sales companies have found that a customer needs, on average, seven exposures to a product or service before responding.

Implement a system.  The buzzword being thrown around these days is customer relationship management or CRM.  Stated simply, CRM typically involves technology to organize, automate, and synchronize business processes – principally sales activities, but also those for marketing, customer service, and technical support.  The goal is to find, attract, and win new clients, nurture and retain those the company already has, entice former clients back into the fold, and reduce the costs of marketing and client service.  While you don’t have to fork over loads of money for a fancy CRM system, you should at least have a way to 1) track who contacted you, 2) capture what was said during each contact and 3) remind you to initiate follow up contact.

Customers get busy too.  Often times business owners don’t want to follow up for fear of coming across as badgering or being a pest.  Yet, sometimes a customers lack of response is simply because they’re busy.  A friendly reminder or two, is sometimes all that is needed to prompt them to contact you and move forward.

Ask for the sale.  Too many small business people lose thousands of dollars in sales every month because of one simple mistake; they don’t ask the customer to buy!  The easiest way to do this is to ask them an involvement question that doesn’t allow them to answer “no.”  For example, you could say “Okay (name), based on what you were looking for, how do our services fit with what you had in mind?”  If they say “it fits perfectly!” you can go straight to “Okay, we just need a deposit of XX dollars.  Which credit card would you like to use…”

Don’t forget your existing customers.  Marketing expert Dan Kennedy recommends a 10-12 step MINIMUM “touch” with your clients and selected prospects every year.  During these interactions, you’re NOT selling them something … but rather giving them useful information to further your relationship.  The competition is always trying to seduce and woo them away from you.  If you fail to remind them why you’re important and valuable, you could unintentionally send the message that you aren’t, which is not what you want.  So make sure you regularly engage your current customers; it shows you value the relationship and who doesn’t like to be appreciated?

Saving For Retirement in an Uncertain Market

Q: In these uncertain times it’s a little hard to know how to manage our retirement savings.  Is there anything that we should be doing different?  If so, what do we change?

A: In August and September of 2011, there were some episodes of volatility present in the stock market; the likes of which we haven’t seen since 2008/2009.  These were, for a large part, due to three specific events:  the European debt crisis (which just doesn’t seem to want to go away), the political issues that surrounded the debt ceiling and finally the downgrade of the U.S. debt.

These bouts of volatility are often followed by a rash of media coverage.  This is often accompanied by your average investor wondering what they should do, if anything.  Some people will begin to shift their portfolios while others will simply stay the course.  Which action is correct?  To help determine the answer, let’s take a look at four topics.

Perception vs. Reality  The media often makes it appear as if during  turbulent times, investors  are entirely selling out of one area and jumping into another.  While there may be individual investors reacting and moving out of equities and into fixed income or money markets, when we look at the statistics and data, we see that the vast majority of investors stay the course.

Behavioral Finance  This field of study combines psychology and economics in an attempt to explain why and how investors act and to analyze how that behavior affects the markets.  Behavioral finance theorists point to the market phenomenon of hot stocks and bubbles to validate their position that market prices can be affected by the irrational behavior of investors.  What this means in short is, when the markets move around or act in an irrational manner (read volatile), individuals tend to respond accordingly.  This may not be the right course of action, but it happens.

Maintain A Sense Of Balance  One of the best things to do in volatile times is to maintain a balanced portfolio.  Sounds too simple right?  The reality is that it works.  According to Fran Kinniry of the Vanguard Investment Strategy Group “even from the peak of the market, a balanced investor is still positive. And when I say, “balanced,” I mean someone who has a combination of equity investments and fixed income investments.”

For those who struggle with this from an individual standpoint, let’s take a look at it from the market perspective.  Let’s say you have $1,000 that represents all of the investment money in the economy.  Then there are three pails on a set of scales, which represent the sectors that can be invested in (stocks, bonds and cash instruments).  We can put the money into any pail we choose, but the equilibrium between the others will change.  What this means is that one area will make money while another loses it.  Yet one thing will remain unchanged, the amount of money in the market.

Thus, ones best bet is to spread the money around so that when you lose a little in one area, you’ll gain it back in another (and as a whole you shouldn’t be impacted too much).  The problems arise when all of your eggs are in one basket, such as when you are nearing retirement.  If everything you have is in stocks or bonds and the market goes through a prolonged period of adjustment, you may not be able to react fast enough to save your nest egg from severe losses.  Thus, a little asset reallocation may give you that level of protection that you need.

Calculated Market Exploitation  Maintaining a balanced portfolio doesn’t mean that you ignore trends or where the money is being made.  However, what an investor should strive to do is indentify the trends, but don’t attempt to bet the house and ride a wave.  By the time an investor decides to jump into an area that is “hot” or appears to be making money, the reality is that all of the “real” money has been made.  What will remain are the speculators and more often than not, these will be the people who get burned when the market can no longer sustain the inflated prices.

A slightly more realistic approach would be to take a portion of your portfolio (that you won’t miss if things go south) and put it into a general area that encompasses the trend.  For example, gas prices don’t look to be falling anytime soon.  With that said, investing in an exchange-traded fund (ETF) that deals with energy might be a nice hedge in your portfolio.  Energy will probably always make some money and we all know that these companies tend to pay out dividends.  So while you’re not betting on a specific company or stock, you are inadvertently benefiting from investor and market trends.