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Can You Spend Your Way to a Merry Christmas?

Thanks to this year’s expansion of Black Friday into a full week of deals and door-busters, we are now 14 days deep into the Christmas shopping season. Families rushed through their turkey dinners and scattered from the table to shop on Thanksgiving afternoon. We had been primed since Halloween, if not before, with warm images of families drawing closer over the latest gadgets, toys, and trends. The retail industry has trained us to associate buying “stuff” with fellowship and happiness. Ironically, we sacrifice the very experiences that we seek in order to buy into that association – both literally and figuratively. With the help of terms like “Black Friday,” “Small Business Saturday,” “Cyber Monday,” and even “Cyber Week,” holiday shopping has become a series of holidays. And it’s no mystery. Our retail economy now depends on Christmas sales. Every year, the National Retail Federation predicts how much holiday sales will increase over the previous year. Merchants measure fourth quarter success based on their ability to meet growth expectations and...

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How Can You Better Protect Yourself from Identity Theft?

Lately it seems that whenever I turn on the television or listen to the radio, I notice advertisements for LifeLock or similar services designed to guard against identity theft. The topic of identity theft always grabs my attention because I have personal experience with it (two instances, in fact). An informal poll at the office revealed that ¼ of our staff has been a victim of identity theft – half of those on more than one occasion. But everyone wanted to know more about how to ward off this crime, and I thought I’d share these best practices with Meridian’s extended family, too. While you can’t completely prevent identity theft, establishing a few personal information policies will go a long way towards helping you avoid being an easy target. “Brick and Mortar” Shopping The theme when you go shopping should be “for your eyes only.”   This applies, first, to what you should leave at home, and second, to how you guard what you do keep in your wallet. Let’s...

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How Can You Avoid Investment Mistakes?

I am often asked “How can I make sure that I will have enough when I am ready to retire?” My answer: “avoid making mistakes”. The first mistake people make is that they do not save enough. You cannot invest money that you have not first saved. How much is enough? A young person starting out can save 10% and probably have enough to retire. A 25 year old saving 10% will save at least 100% of his or her income over 10 years, and twelve times their earnings at retirement time. You might have to save 20% to 30% of your income if you are age 45 and have not saved enough earlier in life. The hard part is that you probably need to spend less in order to save enough. (My trainer keeps telling me that I need to eat less if I want to lose weight. Everyone has issues….) Changing your saving habits is easier if you have a savings goal and a plan. Chasing investment...

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How Can You Make Healthier Financial Decisions in the Future?

Behavioral finance has concluded that we rarely learn from our money mistakes. Our ability to make sound financial choices requires us to remember and learn from past experiences. Yet when it comes to money, our memories are brief and flawed. In A Short History of Financial Euphoria, economist John Kenneth Galbraith observed that the “extreme brevity” of financial memory, coupled with relative ignorance of economic history, leads us to repeat the same financial mistakes time and again. As a result, tremendous wealth is forfeited. These tendencies are exacerbated by several cognitive decision-making shortcuts, or biases, documented in behavioral finance literature. Self-Confirmation Bias: We recall our investment successes much more vividly than our mistakes, yet downplay our contributions to negative investment outcomes. Saliency: The more recent and dramatic an event, the greater the perceived probability of its recurrence; regardless of the actual probability. After a recession we may ignore signals that a recovery is underway, believing that another drop is imminent. In fact, periods directly following past crises have provided...

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Rising Interest Rates

Interest Rates Have Finally Started to Go Up How could 98% of economists be so wrong? In a Wall Street Journal survey conducted in May 2013, 98% of economists predicted that the yield of the 10-year Treasury note would be higher in December 2013. This sounds like a sure thing, except when you consider that in May 2011, 98% of economists forecasted that interest rates were going to increase. Rates fell. In May 2012, 98% said rates would rise. They fell again. The Wall Street Journal recently reported that those who acted on this sure thing (betting that rates would go up) would have lost about 8% of their money between May 2012 and May 2013. How could one lose $80,000 investing $1,000,000 on a strategy that 98% of economists recommend? It is all in the math that drives bond returns. Crunching the Numbers The rule of thumb is that if interest rates increase 1 percentage point, the percent decline of a bond will equal the bond’s “duration” in...

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The Benefits of Diversification

Diversification is one on the most time-honored strategies for investors. Most everyone can see the benefit of “spreading out risks” or “not putting all your eggs in one basket”.  The traditional model for diversification has involved using three broad asset classes:  stocks, bonds and cash. These broad categories are made up of various sub-classes that change over time.  Within stocks the simple breakdown of domestic/international has expanded to include categories like small company and emerging markets.  For bonds, the investment realm has moved past treasuries and corporate bonds to new strategies focusing on high yield, foreign and convertibles. Modern Portfolio Theory, which has been used by portfolio managers for over 60 years, holds that diversification among asset classes will increase returns over time. The problem today is that bond yields have been driven so low by the Federal Reserve’s efforts to keep borrowing more affordable. We do not see interest rates increasing any time soon. When interest rates do begin to rise, the value of the bonds in your...

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