The Ten Commandments of Recruiting

There are THE Ten Commandments that we all are
familiar with, and Networking has a set as well, when
it comes to recruiting. These will help guide you and
navigate you to success when recruiting.

If you understand the message behind them, you can
increase your recruiting dramatically. They are for a
long term and a short term focus in this business, as
well as Increasing Power in your skills.

You can make copies of this if you want with copyright
notice attached…

The Ten Commandments of Recruiting

1) Thou Shalt Recruit through Your prospects eyes.

So many times when we are trying to recruit, online
or offline, we do not take the time to see what our
prospect is seeing. Your prospect is looking through
THEIR eyes, not yours, and has no clue to how you
see things…the only thing that matters to them is how
THEY see things…and the recruiters who take the time
to learn what their prospect is looking for, what is
important to them, and what isn’t, will have huge success.

Your prospect has a dream for their life, and you must
look through that ‘dream lens’ of theirs, and see what
they are looking to happen with their life, and show them
how you can help them get it.

2) Thou Shalt Focus on Relationships, not just
Distributorships.

Power Recruiters in this business understand that the
Gold in this business is a long term relationship, not a
short term distributorship. That is why most people
cannot recruit…they are focused on a paycheck,
not people…(CLUE!!!!!)

Power Recruiters also know that people are more
ATTRACTED to someone who cares about THEM
FIRST- then the business. You must
be a friend first, before you will ever get to second
base…and what makes more sense?

Recruiting for a Long term retirement producing
business, or a short term paycheck? If you focus on
your prospect and learn about THEM as a person,
not just as part of the process, you will find your
results will skyrocket. Relationships are Magnetic…

Magnetize your Distributorship with Relationship
Recruiting!

3) Thou Shalt Garner Leads Everyday.

Leads are the lifeblood to any distributorship. And
most folks play the ‘Baking game’ in recruiting. Instead
of going out and getting new leads daily, they go out
and hold onto their existing leads, and wait for them ,
like a cake in an oven, to bake and turn into HOT
leads and ones that will come into their business.

Are you a chef? or a leader? You MUST have a
methodical plan and system to create and find
leads daily, and to quit the ‘baking game’…
which in reality is the ‘faking game’…
you are faking at doing this business
by holding onto leads that you hope will turn into prospects,
even after a negative response, but never do.

The Magic is in the Multiples….and the Lotto is in the
List. Continue daily to get at least ONE lead a day to
create enough numbers to talk to that will create enough
of a paycheck to talk about.

DO NOT Forget: The FR-ee Training Webinar on Monday
nights at 10 pm est. Go to:

www.mynmti.com

And get the details how to access the webinar- IT ROCKS!

4) Thou Shalt Draw Them In.

When you recruit, you must draw your people into
your ‘world’…We have a saying at PassionFire…
‘Meet them in their world, and then lead them to
yours…’..What that means in order to attract and
draw your prospect into your presentation or conversation,
you must start in theirs……

Find out what is important to them, and they
what they want out of life…then wrap
your presentation around that. Ask lots of questions,
and paint a picture with your words with them obtaining
their dream….look them in the eyes, smile, touch their
arm, nod your head, talk their language…don’t get too
technical…and meet them first where they are in life…
and then take them to where you can lead them….

That’s Power Recruiting.

5) Thou Shalt Educate, not Regurgitate.

You must understand that Recruiting is an
education process , not just informing and
regurgitating facts. People want to learn…
that is their nature when they are looking at
doing something…but many folks ‘Dump’ all they
know on them, and suffocate them with
Information, not education.

Recruiting through an Education Focus is a
process, step by step, not a Firehose program.
And educating the prospect also is giving them
the informationt they want to learn about, not
just what you want to talk about. (CLUE!!!)

Education is a whole less intimidating way to recruit too…
all you say is…’I don’t know if this is for you or not…
worse thing that could happen is you could learn something..’

6) Thou Shalt Communicate Hope, Possibilities, and Belief.

When you recruit, you should have a presence
about you that screams Hope! Possibilities! Belief!
And that is what you create in your words….

‘How would it feel to have total freedom?’…

Imagine you obtaining that house you want for your
family..’

‘ Wouldn’t it be incredible if…’..

‘Can you feel the joy with..’…

All people are looking for more Hope in their life,
the hope that life will turn out better than it is. All
people are looking for more possibilities to increase
and improve their life. And all people are looking for
more belief that they are on the right track, and belief
they can have a more richer and fulfilled life.

You must create an environment of Hope, Possibilities,
and Belief when recruiting. That ‘oxygen’ will prove
to be Explosive..

7) Thou Shalt Know the Fortune is in the Follow Up.

It does no good to make a presentation and do all the
initial recruiting steps…if you don’t Follow Up. Get this:
Follow Up is where you get paid! The earlier steps are
just leading up to it. If you want to create a fortune,
create a system to follow up, and stick to it, and make
it duplicatable as well.

If you discovered a Gold Mine, you would want to
finish digging and finding the gold vein. it’s the same
in the follow up. There is no paycheck with out a call
back! (CLUE!!!!)

The fortune is in the Follow Up…No Follow Up, no
Check going Up!

8) Thou Shalt Not Close…But Navigate.

We teach ‘Navigators’ to get the decision for the
application…why? The last word in close…is Lose….
and if a person doesn’t close someone, they see that
as a losing situation….how about navigating them to a
decision that is right for them, and without pressure,
help them make a decision that is right for their life…

Can you be persuasive? Absolutely! but be mindful
that if this business is truly NOT for them, they may
know someone who it is for……What are Navigators?

They are simply phrases that help guide the prospect
to the finish line. They are Powerful, and deadly….

9) Thou Shalt Shake the Dust Off Your Feet.
The Greatest Teacher that ever lived told His Disciples
‘If a town doesn’t find your message in accord…shake
the dust off your feet…as a testament against that town…’.

Incredible advice! Understand these 3 things:

…Not everybody is for this business.
…There is no one blinder who can see, but won’t.
…They aren’t rejecting you, but themselves from success.

If you carry with you all the negatives that you can get in
this business, they become ‘Anchors’ on your business.
Release them and shake it off, and move forward. Look
for people who are looking for you…(CLUE!!!!!!!!!)

10) Thou Shalt Know the R.I.A.F.O.L. Rule.

What is that?

It stands for Recruiting Is A Form Of Leadership.

Period.

Why is that True?

…You are asking someone to follow your
lead into a business.
…You are asking someone to follow your
lead about a product…
…You are asking someone to follow you
into an unknown future.

And when you recruit, people are looking to
FOLLOW you, not just sign up with you..(CLUE!!!!).
They will be looking for Strength and Solidity in you
and your direction and Leaderhip.

The most Powerful recruiters in the world have a
Leadership Presence and focus about them If you
are not strong enough to follow, you will not be
magnetic enough to join.

Leadership is the secret to magnetic recruiting…
You are asking someone to follow your lead…but first,
you have to be worthy of following.

These are the Ten Commandments Network Recruiting…
use them and let them Empower your Business…

Blessings….doug Firebaugh
support@passionfire.com
PassionFire Intl © 2008/ PFI
All rights reserved

Enroll in our Training Newsletter:
http://passionfire.com/news_1.html

EVERY FAILURE IS A STEP CLOSER TO SUCCESS
Experiencing failure is inevitable on the highway to success.
Every defeat is merely an installment to victory.

People who try to do something and fail are infinitely better
than those who try to do nothing and succeed.

You won’t be judged by the number of times you fail,
but by the number of times you succeed.
And the number of times you succeed is in direct proportion
to the number of times you fail and keep trying.

Failure is nothing but education, nothing but the first step
to something better.

Experience is what you get when you don’t get what you want.

Copyright 2007 www.yourdailymotivation.com
Reproduce freely but maintain Copyright notice.

WHEN YOU STOP DREAMING YOU STOP LIVING

If you want to enlarge your life, you must first enlarge
your thought of it and yourself.

Hold the image of yourself as you long to be,
the image of what you long to attain,
the image of health, efficiency and success.

You can lift yourself by your thoughts.
Your vision will help you surmount the highest obstacles.

High achievement always takes place
in the framework of high expectation.
What you see is what you get.

You’ll become as small as your controlling desire,
or as great as your dominant aspiration.

The courage to follow your dreams is your first step
toward destiny.

You can live your dreams.

Copyright 2007 www.yourdailymotivation.com
Reproduce freely but maintain Copyright notice.

HAPPINESS IS A BYPRODUCT OF ACTIVITY

Happiness lies in the joy of achievement,
the thrill of creative effort.
The human spirit needs to accomplish,
to achieve, to triumph to be happy.

Happiness does not come from doing easy work.
It comes from the afterglow of satisfaction after
the achievement of a difficult task that demands
your best.

Your personal growth itself contains the seed of happiness.
You cannot pursue happiness by itself.

There is no happiness except in the realization that you
have accomplished something.

Happiness thrives in activity.
It’s a running river, not a stagnant pond.
Copyright 2007 www.yourdailymotivation.com
Reproduce freely but maintain Copyright notice

BELIEF MAKES EVERYTHING POSSIBLE
In order to succeed, you must first believe that you can.
The only true limit to your realization of tomorrow
will be your doubts of today.

The only thing that stands between you and what you want
from life, is the will to try it and the faith to believe that
it’s possible.

The moment you carry the conviction of belief,
in that moment your dream will become reality.

If you think you can, you can.

Copyright 2007 www.yourdailymotivation.com
Reproduce freely but maintain Copyright notice.

FREEDOM

(author unknown)

In the United States of America lies a large industrial city which is the site of one of the world’s largest slave labor camps.

Located in and around the center of this city are community settlements where the slaves live. Each morning the slaves move herd-like from their quarters into the slave labor camps.

Each one is at his or her station by 7:30 AM. Here they report to their master for the day’s duties. And here they remain chained until 5:00 PM when they’re released to go home.

The slaves have no choice as to how many hours they must labor. Sometimes they are required to work overtime until their master tells them they may leave and go home.
Each year the slaves are told when to take their vacations, for how long, and when they must return.

They have little choice as to how much money they earn as they are paid not what they are worth, but what the job is worth. They are allowed very little time for lunch and coffee breaks during the labor hours.

The slaves will remain in their chains in great fear because the master can punish them with the “firing” or “layoff” whip. It is said that even some of the older slaves who have been good and faithful have felt the sting of the whip.

Day by day, year-by-year, the slaves toil and grow older until the master decides it is time to release them to the retirement camps where they’re forced to sit idle and wait for death.

It’s a well-known fact that the old slaves who try to keep working are sometimes whipped with a “stop-their-pension” whip. I know these slave camps exist for I once was a slave.
But now I am a free man who lives among the slaves. The reason I am free is because I am in business for myself as a Network Marketer. Yes, I am truly free.

I arise in the morning at the hour called for by my schedule. I decide my own hours. I can even sleep in late while the slaves are at work. I can vacation when, where, and for how long I please. I’m free to take my coffee break and lunch when I decide. And of course, I can decide my own paycheck because I am not a slave.

I can choose to work when and where I please and with whom I please. I’m free to stay in the city for as long as I want, or to move on to greener pastures if I decide to. I’ve seen many slaves sadly pack their belongings to leave their city in search of a new master, but it is always the same.

There is, however, a ray of hope for the slave. He or she can buy their own freedom. The cost is not high, yet it seems high to those who do not have the courage to pay the price.
What is the price?

ONE MUST BE WILLING TO BE ONE’S OWN MASTER!

Live Your Freedom!

On the Path to a Housing Rebound
By Shawn Tully, CNNMoney.com
Jul 2nd, 2008
The pain that homeowners and homebuilders are feeling now is a sign that things are going to get better.
NEW YORK (Fortune) — The news that housing starts have fallen to their lowest level in 17 years sounds like one more reason to be depressed about the shrinking value of your home. In fact, it’s an almost certain sign that the path to a housing recovery is finally in sight.
If prices are going to stabilize, let alone rebound, the United States needs to produce far more first-time home buyers than new houses. That’s the only way to tame the glut of “For Sale” signs dotting front yards from the Inland Empire of California to the Gold Coast of Florida.
Builders constructed far more homes from 2002 until 2006 - the peak bubble years - than could possibly be absorbed by the normal growth in households.
As a result, the market is now swamped with one million new and existing homes for sale that aren’t occupied, and hence need to sell quickly. That’s a multiple of the figure in most downturns, and it testifies to the duration and girth of the bubble.
“For the recovery to begin, builders need to eliminate the standing inventory of finished, unoccupied new homes,” says Mike Castleman, founder of Metrostudy, which assembles sales data on four million subdivisions across the U.S.
The massive overhang of unsold inventory has remained stubbornly high. Sure, builders cut back, but sales dropped just as quickly.
Now that excess supply is finally beginning to shrink. In April, the number of new homes for sale stood at 456,000 according to the U.S. Commerce Department, still a big number, but 93,000 below the mountainous figure a year ago.

The return of the first-time buyer
The key player in any recovery scenario is the first time buyer. The housing market operates with a pronounced laddering or ripple effect. When entry-level buyers flood the market, they not only stimulate production of new homes, they purchase existing homes. Those purchases, in turn, allow the sellers to move up to bigger houses.
But when the first-timers are absent, the entire buying chain gets frozen.
Today, newbies are coming back. Why? For the first time in years, entry-level homes are affordable. Builders have slashed prices, and what they’re building tends to be far smaller than the McMansions of the boom, selling for far lower prices. KB Home’s average selling price dropped to $248,0000 in its February quarter, versus $267,000 a year earlier. In 2006, KB’s basic model in Victorville, Cal., a former boomtown east of Los Angeles, took up as much as 3,800 square feet and sold for $328,000. Today, its stripped down offering goes for $220,000, at less than half the size.
So the first time in a decade renters can carry the mortgage payments and taxes on a new house for what they’re paying a landlord. Call it the New Affordability.
Here’s how the numbers play out: Single-family housing starts are now running at fewer than 500,000 a year. The normal demand for housing, based on immigration and household formation, is around one million units.
We won’t get back to that figure for a while because so many people rushed to buy homes during the boom.
But with first timers returning, sales should rise to almost 700,000 units by the end of next year, according to Bernard Markstein, senior economist for the National Association of Home Builders. That means sales will soon exceed new production by as much as 250,000 units a year.

That margin forms the foundation of the housing revival that comes in four steps.
Step 1:
First, the return of first-time buyers will shrink the overhang of new houses for sale.
Step 2:
Second, because so few new homes are being built, first-timers will start buying existing homes from owners who want to move up but have been trapped by the dearth of buyers. Their improved fortunes, though, come with a big caveat: The prices of new homes are now lower than comparably-sized existing homes. It’s as if used cars are selling for more than new ones. That can’t last. So move-up buyers are going to have to accept less than they had hoped to get for their current homes.
They’ll get a big break as they trade up, however. Unless they bought at the height of the boom, they’ll still sell at a profit. They can then use that equity to buy bigger homes at bargain prices. During the bubble, homebuilders started pushing up home sizes to 3,500 square feet or more. It’s those behemoths that are selling for the steepest discounts today.
Step 3:
Next, housing starts should start rising, probably next year. The increase, however, will be slow and gradual. For the next two years at least, homebuilders will compete ferociously with existing home sellers for customers.
Step 4:
Eventually, the glut of existing homes will disappear as well. The excess of new-home buyers over new homes being built makes that inevitable. But the oversupply is so enormous that the healing process could take as much as three more years. Only then will prices in former bubble markets start rising again.
What could go wrong?
One event has the potential to slow or even derail the recovery: A sharp rise in interest rates. Right now, the first-timers are gorging on 6% loans guaranteed by the FHA. But rates may not stay there.
If they rise to 8% or higher because inflation rebounds, it would take a far bigger drop in prices to make new and existing homes affordable.
The New Affordability is now in place. But if rates rise, we’ll have to establish a New “New Affordability” - at even lower prices.

Considering a Roth IRA?

If you are generating income or you own anything of value, you are at the mercy of the Internal Revenue Service (IRS). Every time tax legislation is approved in Washington DC, the federal government is essentially recalibrating their ownership percentage of your wealth. Most types of earned income, dividends, interest income, and capital gains are all taxed, and those taxes just keep going up. One of the few ways to shelter income from taxation is by diverting dollars directly into certain kinds of retirement plans such as 401(k)’s and deferred comp plans. Every dollar contributed avoids taxation. Unfortunately, we are only delaying the tax hit.

With most retirement plans, all withdrawals are reported as ordinary income. There is no differentiating between principal, interest, or other earnings. If you pull $1,000 from a retirement plan, you report $1,000 as ordinary income on your tax return, and the plan administrator will withhold a certain percentage for income taxes. Sooner or later, every dollar in your retirement account will be taxed. By participating in a typical retirement plan (401k, 403b, deferred comp and others), we are choosing to delay payment of income taxes on the contributions and earnings until some future date. That’s great for me, I love putting things off. But do you ever have the nagging feeling that tax rates will almost certainly be higher in the future than they are now?

We Americans have been passionate about tax avoidance since the “Boston Tea Party” incident on December 16, 1773. The colonists were hot under the collar about paying import duties, which of course is a form of taxation. Not long after the tealeaves stained Boston Harbor, the Revolutionary War was under way. Apparently, taxation makes some people fighting mad.

One alternative to the typical retirement plan is the Roth IRA. With a Roth IRA every dollar contributed has already been subjected to income taxes (you are contributing after tax dollars). What makes the Roth interesting is the fact that your contributed amount and all future earnings and gains can be withdrawn tax-free. No matter how large the account becomes, you (and later your heirs) will have access to tax free dollars. It won’t matter if tax rates are sky high at that time.

Let’s compare the Roth IRA to the typical employer sponsored retirement savings plan.

Automatic Withholding
Having your employer automatically divert pre-tax dollars into a retirement savings plan really is a nice convenience. But automatic contributions can easily be made to a Roth as well. Your bank can process an electronic funds transfer for you on a regular schedule, and it can be just as convenient and worry free.

Contribution Limits
One weakness the Roth has is its fairly limited contribution amount. If you meet certain income requirements you can contribute a maximum of $5,000 per year ($6,000 if you are 50 or older). By contrast, most pre-tax plans (such as your deferred comp plan) allow annual contributions of three times as much. Just as a practical matter, I suspect many people (myself included) have disregarded the Roth because of the puny contribution limit, and just committed to using a deferred comp plan instead. But at this point I’m considering the possibility of using both a Roth IRA and the deferred comp plan. The idea of having access to at least some money that’s sheltered from future taxation is becoming increasingly attractive to me.

The $5,000 annual limit may not sound like much, but it actually equates to a monthly contribution amount of $416.66. That’s not a bad start at all, particularly for someone in the early stages of his or her career. Let’s say you commit to saving $400 per month for the next 15 years. Assuming a 6% rate of return, your balance will be around $116,327, and it will be free from taxation. Do a younger officer a favor, and explain how the younger you are the more advantageous a Roth IRA can be.

Particularly for younger people, Roth IRAs can be a practical way to save money. All dollars contributed can be withdrawn at any time, for any purpose, at any age, tax-free and penalty free. If you are intrigued by the Roth idea, there is no reason why you couldn’t contribute to both a Roth IRA and to an employer sponsored plan at the same time (assuming your adjusted gross income (AGI) is below the stated maximums).

One way to get larger amounts of money into a Roth is by converting balances from pre-tax accounts such as traditional IRA’s or from employer sponsored plans. An entire pre-tax account can be converted into a Roth regardless of the account’s size. Every dollar converted is reported as ordinary income. A different set of income limitations apply to conversions (more on that later).

Your Money Grows “Tax Free”
One of the biggest selling points for employer sponsored plans is tax deferral. The account is able to grow tax deferred, so the compounding process isn’t hampered by the continual loss of dollars to taxation.

Roth IRA’s also provide this same protection from ongoing taxation. But with a Roth IRA, the entire balance can eventually be withdrawn tax-free. With the typical pre-tax retirement plan, every dollar in your account will eventually be reported and taxed as income. If you aren’t careful, penalty taxes can apply as well.

“You Will Be In a Lower Tax Bracket in Retirement”
Over the years financial experts have endorsed the assumption that retirees tend to drop to a lower tax bracket once in retirement. Therefore, it is better to avoid income taxes today, and pay them later when you will be in that lower bracket.

I’m not convinced the math will always work in your favor. Let’s assume an officer was contributing to a 401k plan in the year 1980. His reportable income that year was $30,000. Now fast forward to 2008. This same officer retires and begins receiving a monthly pension benefit of $3,000. He also draws supplemental income of $1,000 per month from his deferred comp plan. His reportable income his first year of retirement is $48,000. If the retiree is drawing supplemental income of $2,000 per month reportable income will be $60,000. It is very possible that a retiree will not experience a significant reduction in income, which means no tax relief will be achieved from dropping to a lower tax bracket. Partly due to the affects of inflation between 1980 and 2008, this retiree’s reportable income could be significantly higher (in retirement) than it was during much of his career.

What if you knew ahead of time that you would be subjected to the highest income tax rates of your life during your retirement years? Would that make you mad enough to throw a fist full of tea bags into Buffalo Bayou?

With the typical pre-tax retirement plan we might be avoiding up-front income taxes of 15-20%. What if we later get slammed with a 25-30% tax rate as we take distributionst? As mentioned earlier, pre-tax accounts will forever be at the mercy of the IRS. Just how out of control will taxes be when you retire? After our federal officials bail out Wall Street (again), they will eventually be forced to rescue the Social Security, Medicare, and Medicaid programs. How is that likely to affect our tax rates?

In summary, a Roth IRA allows you pay your income taxes now at today’s rates, then enjoy tax-free growth, and later receive tax-free withdrawals. The sum of all annual contributions can be withdrawn from the Roth IRA at any time, for any purpose, tax free and penalty free. The earnings in a Roth can also be withdrawn tax free if they are left in the account until age 59 ½ (see below for more details).

The following is a brief discussion of the rules that apply to Roth IRAs. Let me know if you would like to talk about these things one-on-one.

*
Maximum annual contributions: $5,000 (people age 50 or better can contribute $6,000 per year). Contributions can continue past 70 ½.
*
To make annual contributions to a Roth IRA your income (AGI) should be below $101,000 if single and $159,000 if married filing jointly.
*
No tax deduction is available when dollars are contributed to the Roth, but all contributed dollars can later be withdrawn tax-free at any time, regardless of your age. Compare that to pre-tax plans such as the traditional IRA and 401(k) where the entire balance is off limits until age 59 ½ (with a few exceptions). Your deferred comp plans have no age restrictions.
*
Earnings must remain in the account for five years or until age 59 ½ (whichever is longer). After that the earnings can also be withdrawn tax-free. However, the earnings can be withdrawn penalty free at any age if the dollars are used for college expenses. In this case the earnings will be reported as income, but no penalty tax will be due.
*
Roths are not subject to required minimum distributions at age 70 ½.
*
Your beneficiaries will be pleasantly surprised. They too will have tax free access to the money regardless of how large the account becomes. In contrast, most retirement plan accounts can be subject to income taxes when passed along to beneficiaries. Roths are an excellent estate-planning tool.
*
You can contribute to a Roth IRA even if you are participating in an employer sponsored plan.
*
Where to open a Roth IRA: some banks, brokers, fund companies.
*
A Roth balance can be invested as you see fit: CD’s, money market funds, mutual funds, stocks, bonds…
*
Balances can be converted from a pre-tax retirement plan to a Roth IRA. The amount converted is reported as income and taxed accordingly. After the conversion the entire converted balance must remain untouched for either five years, or until age 59 ½, which ever comes first (notice: this is different from the treatment of earnings discussed above).
*
If you are age 59 ½ or better at the time the balance is converted to a Roth IRA you can withdraw the funds tax-free at any time without concern for the 5-year wait. However your future earnings will need to be off limits for five years (it can get a little convoluted).
*
Important to realize that a different set of income limitations apply to Roth conversions. You can only convert pre-tax retirement plan assets to a Roth IRA if your AGI is $100,000 or less that year. Beginning in 2010 there will no longer be an income limitation affecting your ability to convert.
*
It is preferable to pay the income tax on a conversion from an outside after tax account (not from the retirement account itself).

Be sure to contact me if you would like to talk about your financial matters.

Richard Gable, CFP
© HPOPS
rgable@hpops.org
ph. 713-869-8734

The Unpredictable Markets

A traveling salesman arrives in a small town and mesmerizes the Locals. They buy his magic elixir believing it will cure all of their ailments. It is the timeless art of deception. When a salesman is successful in making a product seem revolutionary and exciting, it’s hard not to be drawn in. Even when it sounds too good to be true we are very likely to lay our money down anyway. Then the talented salesman moves on to the next town.

Robert C. Merton shared the 1997 “Nobel Prize in Economics.” He and a select group of financial superstars developed complex mathematical models that were designed to virtually guarantee big profits in the hedge fund business. Their company, Long-Term Capital Management attracted big dollar investors from around the world. For a period of time their fund performed extremely well, providing quite a thrill for their enthusiastic investors. Someone had finally come along who was smart enough to beat the markets. They were convinced they had the perfect strategy that would generate endless returns. The longer the schemed worked, the more willing they were to take chances. But eventually (1998) the markets threw them an unanticipated curve ball, and their high stakes experiment fell apart almost overnight. Not only did their investors lose most of their money, they set off a worldwide liquidity crises. The world’s largest banks and the U.S. Federal Reserve had to bail them out.

In the business world some things just never change. Charismatic salesmen keep coming around making bold claims, and people continue to believe them. During the past few years the big banks and investment firms pursued a clever strategy of issuing mortgages to home buyers with limited resources and bad credit ratings. Financial sector stocks soared as the industry raked in the profits. To maintain a steady supply of new cash for their easy credit, they bundled the so-called sub-prime loans and sold securities to institutional investors, money market funds and others. If you were looking for a low risk fixed investment offering a better than average yield, this was a very attractive solution. For the salesmen, these products practically sold themselves. Somewhere along the way the investment bankers themselves got caught up in the excitement. Citigroup for example had nearly $100 billion in seven affiliated funds that held these types of mortgage related securities (and other receivables). Unfortunately, during the past 18 months or so the market for this kind of debt has all but dried up. Big banks have a real mess on their hands at the moment. Once again, the Federal Reserve is bailing Wall Street out of a jam in order to avoid a worldwide credit crisis.

It’s interesting to note that Citigroup and other firms didn’t actually hold these mortgage-backed securities on their own balance sheets. Instead they were treated as “off balance sheet” liabilities. Now where else have we heard that accounting term? Off balance sheet liabilities contributed to the 2001 collapse of Enron Corp.

Does any of this have a direct impact on you and I as individual investors? Yes it does affect us in a significant way. Wall Street’s credit mess has made it difficult to evaluate risk in certain investments. For example, how safe are money market funds these days? The price per share for most money market funds remains at $1.00 per share, year in and year out. They are managed to be stable, safe and predictable. Historically money market funds have been very reliable and safe, and I’m sure most still are. However, in recent months some market watchers have questioned whether or not they are as safe now as they have been in the past.

With interest rates hovering near rock bottom the past couple of years, money market funds haven’t given us much to cheer about. As you would expect, investors have been demanding something better. Always eager to please, brokers have responded by recommending ultra short-term bond funds. Most people think of these funds as pumped up money market funds that provide a slightly higher yield while still keeping the risk low. But it’s important to realize that these ultra short bond funds are not the same as money market funds. They are managed and regulated differently.

The Schwab Yield Plus Bond Fund is an ultra short bond fund. It invests in fixed income securities with maturities ranging from 4 years to less than 12 months. Their marketing material offered this investment product as a “fund that provides higher yields on your cash with only marginally higher risk” (as compared to money market funds). Investors frustrated with microscopic returns from money market funds eagerly poured their cash into this fund. Up until 2007 the Schwab Yield Plus Fund lived up to expectations by providing a decent return and minimal volatility. Then things went horribly wrong. In 2007 the fund lost 1.24%. Over the past 12 months (looking back from May 2008) Schwab Yield Plus shares have lost an estimated 28% of their value.

What went wrong? The fund invested about 9% of its assets in subprime loan securities similar to the ones held by the Citigroup affiliates mentioned earlier. Another 38% of fund assets were invested in non-subprime mortgage securities that were not guaranteed by government agencies such as Fannie Mae or Freddie Mac. During the past year foreclosures have gone through the roof and the market for mortgage-backed debt has collapsed. Since the Schwab Yield Plus Fund was overly weighted in that sector, shareholders got nailed. The fund was sold as a safe alternative to money market funds, and yet investors have lost almost a third of their value.

Not all ultra short bond funds have experienced these kinds of losses. And so far I haven’t read about any traditional money market funds that have allowed their share price to lose value. But the Schwab Yield Plus fiasco certainly has safety conscious investors on edge. The easy credit policies, the subprime mortgage blow up, and the resulting instability in the credit markets have been nerve racking for investors, to say the very least.

How can you earn a decent rate of return right now while keeping your level of risk under control? A recent article in the “Wall Street Journal Online” by Ian Salisbury, titled “Thin Yields Weigh on Investors” quotes a New Jersey financial advisor. He says his “clients have been kicking and screaming about low yields on CD’s and money market funds,” but he is advising them to wait it out because of the current uncertainties in the fixed income market (highlighted by the Schwab Yield Plus situation). In other words, if you want safety, stick with CD’s and solid money market funds for a while longer; these are frustrating times for investors.

Be sure to contact me if you would like to talk about your finances. The HPOPS Financial Planning Service is a sales free service available to all HPOPS members, free of charge.

Richard Gable, CFP
© HPOPS
rgable@hpops.org
ph. 713-869-8734

Receive a Return on Your Remodeling Investment Letter

When you purchase a new home, you want to personalize or imprint it with your own style. This usually takes the form of decorating, such as painting, wallpapering, and installing new window treatments.

You may want to remodel your new home as well as decorate it. Many home improvements may enhance your lifestyle, but they may not necessarily add resale value.

Although this may not seem important right now, it will certainly make a difference when the time comes to sell. You won’t get your money back with some improvements, yet others can help make you money.

The return on investment differs from region to region, but here are some general rules:

* Enhancing a home’s “curb appeal” will help sell it for top dollar. Painting the exterior is a relatively inexpensive way to add curb appeal.
* Remodeling the kitchen and/or baths is one of the best ways to add value.
* Adding a room or garage is an expensive improvement, but it can pay off if it is carefully designed.
* Decks and patios can add value in some parts of the country.
* Landscaping often adds appeal, but not necessarily value.

I’d be happy to stop by and discuss any improvement projects you might be considering. Please feel free to call or email me with any