PMG's "Wealth Management" December 2010 Newsletter

WEALTHM A N A G E M E N T

DECEMBER 2010

How Healthy is Your Dollar?

A Collapse Ahead?

Top 10 RetirementBlunders

How to Avoid Them


60 LANDOVER PKWY, SUITE DHAWTHORN WOODS, IL 60047

[P] 847-550-6100 [E] [email protected]

HAPPY HOLIDAYS!! PMG WEALTH MANAGEMENT IS GROWING!!

The Holidays are always a busy time of year. To add to the normal chaos and year end activities, we’ve recently added an experienced advisor, Ryan Heybeck, to our office in Hawthorn Woods.

Ryan joins us after nearly six years with a well known national firm and about twenty five years of small business ownership experience. He is a lifelong Lake Zurich resident and is very involved within the community.

Needless to say, Ryan is in the process of transferring his client base over to his new home with us. Similar to when I started PMG Wealth Management three years ago; Ryan is working long hours and going through what many compare to the “Jerry Maguire Experience”. Of course it’s not as cut throat as the scene when Tom Cruise and the other sports agent “Bob Sugar” are dueling on the phone over clients, but the process of moving clients takes time and a lot of work for everyone involved. I’m glad to say Ryan has a very friendly and loyal client base. I welcome those of you who are new to receiving this newsletter to PMG Wealth Management. Also, I’d like to thank our Operations Manager, Terry Maziarka, for helping Ryan with all of the transfer paperwork. Sometime into 2011 she’ll be able to catch her breath and then Ryan will owe her big time.

As we head into a new year I wanted to include an article “The Top 10 Retirement Blunders…and How to Avoid Them”. The start of a new year is exciting and a great time to review and make new plans. As we go about those reviews and 2011 plans this article may have one or two points to consider and that help you achieve the long-term success we all strive for.

Our second article looks to answer some questions and concerns about the dollars recent action and how it relates to our current global recovery.

Happy Holidays everyone. I hope 2010 was a great year for your families and I look forward to an even better 2011.




HOW HEALTHY IS THE DOLLAR?

A favorite doomsday scenario. Have you heard about the forthcoming collapse of the dollar? Well, if you turn on your computer, your radio and even your TV, you just may. With the Federal Reserve poised to increase the money supply, the commentary on this topic is heating up again.

The scenario has variations, but the basic outline goes like this: An unexpected political or economic event leaves the dollar so weak that all confidence in it is gone. Foreign nations sell Treasuries in a panic and the Fed becomes the buyer of last resort. Traders and individual in-vestors dump dollars for whatever they can get. Interest rates leap. Next stop: hyperinflation. America’s economy suddenly resembles that of Zimbabwe in 2007 or Germany in 1922.

So is there any validity to this scenario? Could the dollar collapse?

Let’s just say that the odds are very long. While the Federal Reserve will likely ramp up quantitative easing in the near future, it is highly unlikely that the dollar will suddenly become too cheap. Why it is unlikely to happen. Foreign countries don’t want the dollar to collapse. Fundamentally, that is because some of the world’s biggestmanufacturing economies rely on a greatcustomer for their exports – the United States of America.

China and Japan currently hold 41% of America’s debt.1 In the worthless dollar scenario, they are the key dominoes that fall. But what incentive do China and Japan have to sell dollars? Their economies are tied to U.S. consumer spending. Selling dollars would not benefit them – it would drive up the prices of their exports to America, it

The strong dollar policy is long gone, but the greenback isn’t in peril just yet.




would wreck the economy of their best customer, and it would harm their own economies in turn.

The dollar is also the world’s reserve currency; it has been so since the U.S. abandoned the gold standard during the Nixon administration. While the central banks of China and Russia have argued that it should be supplanted or replaced, no challenger has knocked it off its pedestal. In spring 2010, the International Monetary Fund concluded that the dollar still accounted for 61.5% of global foreign exchange reserves, with the euro coming in a very distant second at 27.2%.2

In a way, the dollar has “collapsed” – and America is still standing. The dollar is much weaker today than it was in the 1990s, or even in the early 2000s. Its value has gradually declined and may decline further despite recent surges. In mid-October, the U.S. Dollar Index had slipped about 7% since August, and was approaching an all-time low set back in April 2008.3

America’s debt was less than $3 trillion in 1990; it has doubled since, and the federal Office of Management and Budget thinks it will hit $15 trillion by 2015.1 The federal government would certainly rather pay those debts back using a declining dollar.

Of course, analysts also talked about the pound collapsing and the euro collapsing earlier this year. All this talk – and expectations about what the Fed will do – sent many investors toward the precious metals market, where gold and silver futures hit new highs.

A little word about diversification. When you hear commentators talking about the oncoming collapse of the dollar, take it with a grain of salt. This much is true so far: a dollar decline has occurred, and the dollar could weaken further. So it might be worthwhile to consider diversifying your portfolio as a cautionary move.

©Peter Montoya, Inc.




Top 10 Retirement Blunders

1. NOT KEEPING UP WITH YOUR PENSION PLANTHE BLUNDER: Many people know they have a pensionplan, but they’re not quite sure how it works, how stable it is, or exactly how their money is invested. Others retire prior to eligibility, which can result in a substantial loss of pension benefits. And still others simply rely on past information, without taking into account how the Pension Protection Act of 2006 could affect their retirement benefits.

THE SOLUTION: Keep up with your pension plan and make sure you understand it. How much monthly income will it provide? When are you eligible to retire? Be aware of the Pension Protection Act of 2006, and how it may affect your retirement. If you’re confused, seek the professional advice of a qualified IRA advisor and a retirement income strategist.

2. NOT UNDERSTANDING YOUR 401(k) PLAN OPTIONSTHE BLUNDERS: Misusing or not properly utilizing your 401(k) plan, not being properly diversified, misallocating, not using after-tax monies correctly, and being unaware of the age 55 rule (possible tax penalty for early withdrawal). These mistakes could potentially limit or reduce your retirement savings. THE SOLUTION: Understand that it’s your job, not your employer’s, to oversee your 401(k) investments. Take the time to learn about your plan and your options. Speak with a financial advisor to be sure you’ve diversified not only your 401(k) plan, but your entire

portfolio - in a way that will yield the highest possible benefits. Above all, make sure you’re not being too cautious or taking on too much risk. The goal is to make your money work hard for you, now and in the future.

3. MISSING OUT ON THE COMPANY MATCHTHE BLUNDERS: Not taking advantage of your company’s 401(k) contribution match. This is, in essence, “free money” that’s yours for the taking. It’s as simple as that … if you don’t take it now, you won’t have it later.

THE SOLUTION: Do whatever you can to maximize your contribution. If every dollar you put in could be matched, then every dollar you DON’T put in is essentially two dollars you’ll miss out on down the road. Think about ways you could increase your contribution to gain more in matched dollars. Maybe it’s as simple as cutting back on your daily coffee budget, or canceling that gym membership you’re not using. Whatever you can do to squeeze even a few more dollars in now can really make a difference later.

4. RELYING ON FRIENDS & TRENDSTHE BLUNDER: Listening to advice that, no matter how well-intentioned, may not be beneficial or even accurate. Allowing friends, co-workers or the latest “hot” trends to influence your investment decisions can be dangerous. And what worked for someone else – five years ago or five minutes ago – may not work for you.

...and How to Avoid Them




THE SOLUTION: Take the time to learn about your options. Read, attend seminars or classes, meet with a professional. Investing on a whim could cost you dearly when it comes time to retire. Instead, do your research and invest wisely.

5. NOT CHECKING IN WITH UNCLE SAMTHE BLUNDER: Being unfamiliar with the tax laws. Many people make plans for retirement without considering how IRS rules will affect them. For example, are you assuming you’ll be in a lower tax bracket when you retire? Or did you know that you may be able to avoid the usual IRA 10% early-withdrawal penalty, according to IRS Rule 72t?

THE SOLUTION: Do some research and become familiar with the tax laws, or speak to a professional who understands them. Tax laws are a very important piece of the retirement puzzle, and you can’t afford to ignore them. 6. PLACING TOO MUCH STOCK IN YOUR COMPANYTHE BLUNDER: Owning too much of your own company’s stock, which could jeopardize your retirement funds. With the fall of companies like Enron and WorldCom, many employees lost some orall of their retirement income. Could this happen to you?

THE SOLUTION: It’s not possible to predict the future, and that’s why a diversified portfolio is generally a wise move for the cautious investor. If you have too much invested in your own company, then essentially your retirement income could rely on the performance of one stock. That’s high-risk investing. If you’d rather not assume so much risk, consider speaking to a professional who can assist you in diversifying your investments.

7. CHOOSING THE WRONG BENEFICIARYTHE BLUNDERS: Naming yourself as beneficiary causes your assets to go to an estate, rather than an individual, in the event of your death … which can cause your family to lose money. Also, rolling over IRA and 401(k) plans to your surviving spouse could be a mistake. If your spouse dies prematurely, this can result in a major tax hit and potential legal dilemmas. Additionally, many people name a special needs child as a beneficiary … but if that child inherits assets, they may be disqualified for government benefits.THE SOLUTION: Speak with a qualified advisor on how to distribute assets in the most useful way. For

special needs children, explore the option of setting up a trust in their name, rather than naming them as a beneficiary.

8. BELIEVING WHAT WORKS TODAY WILL WORK TOMORROWTHE BLUNDER: Putting money away for the future with the misconception that you will require the same amount of money tomorrow as you do today. Ignoring inflation could negatively impact your retirement plans.

THE SOLUTION: When creating a savings plan for the future, you must consider inflation. Don’t forget to consider the inflation rates for health care, too – in the last decade, health care and nursing home costs have increased at a rate dramatically outpacing inflation.

9. RETIRING WITHOUT AN INCOME STRATEGYTHE BLUNDER: Many people plan to save for retirement, but they forget to plan for the distribution and preservation of that money AFTER it has been saved. Some live on their interest, some draw income from the wrong assets.

THE SOLUTION: Be sure you have a plan to distribute retirement income effectively. While many qualified advisors can help you plan to build wealth, it’s important to speak with an income planning specialist for retirement. If you don’t know when and where to withdraw your retirement income from, you could lose some of what you’ve worked so hard to save.

10. THE UNEXAMINED RETIREMENTTHE BIGGEST BLUNDER OF ALL: Thinking that a savings account and a pension plan will get you through retirement, or thinking that because you signed up for a 401(k) years ago, you’re all set. Many people retire without planning, only to learn years later that their money is running out!

THE SOLUTION: Start planning for retirement NOW! Whether you’re five years away from retirement, or you’ve already retired … it’s never too soon, or too late, to create a plan. And there is no better way to see that you keep what you have and don’t outlive your income.

Speak to a professional advisor about your retirement today. I welcome the opportunity to help you plan for a successful retirement.

© Peter Montoya, Inc.




Upcoming Quarterly Market Outlook Luncheons

Other Tidbits…

Thank you to those who attended our luncheons in 2010. We are working on the schedule for 2011. We will keep you updated.

“And the Grinch, with his Grinch-feet ice cold in the snow, stood puzzling and puzzling, how could it be so? It came without ribbons. It came without tags. It came without packages, boxes or bags. And he puzzled and puzzled ‘till his puzzler was sore. Then the Grinch thought of something he hadn’t before. What if Christmas, he thought, doesn’t come from a store? What if Christmas, perhaps, means a little bit more.” -Dr. Seuss

A few words from our favorite Christmas book

DECEMBER 2010



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PMG's "Wealth Management" December 2010 Newsletter

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