My segment on 24 Hour News 8 on 10/14/09

Guest blog by Jim Huller, President of Maximum Wealth Advisors

If Sweden Can Do It, Why Can’t We?

About the only thing being discussed these days in Washington is the bitter fight over healthcare reform, meanwhile another looming problem not getting the attention it deserves is Social Security.  This side of Hurricane Katrina, it’s easy to forget that a re-elected President Bush set out to use his “political capital” to take on reform of this destined to implode program.

Most politicians would rather not take on the “third rail” of American politics, nevertheless, if we don’t make changes soon there will be no Social Security for the millions of young people who are now paying into the system and would like to receive something in their retirement.  For a look at what could be a template for Social Security Reform in the US, I wanted to highlight what Sweden did in the 90’s to take on its similar dilemma.  While Sweden is thought of as a liberal nation, legislators on both sides came to the conclusion that private accounts were the best answer.

You might not know this, but Sweden was the first nation in the world to put a government-run retirement system into place.  The old system was a tax-financed, pay-as-you-go entitlement program, like what we have with Social Security.   Unfavorable demographics began wearing on the plan, so the choice basically came down to raising taxes/cut benefits or give workers private retirement accounts – sound familiar?

While making needed changes, Sweden has put in a safety net that guarantees a minimum amount individuals receive, a floor if you will on expected benefits.  As the transition occurs, older workers receive payments from both plans.  Workers pensions will be based on the amount of taxes they have paid into the system, giving them an incentive to work.  The end result is a plan that lowers taxes, reduces government spending, and provides for a more stable system.

Sweden has abolished the death tax and has a lower corporate tax rate than the United States.  If we want to shore up Social Security, and improve our economy shouldn’t we take a page from the Swedish playbook?  The longer we bury our heads in the sand, the worse we make it for ourselves.

Guest post by Jim Huller, president of Maximum Wealth Advisors

If you’re like a lot of people out there you have decreased your spending and accumulation of debt, while increasing the amount you have in savings.  A few years ago the national savings average dropped down to a negative percentage of income, meaning that the average person owed more than they had. Today out of necessity the average American has become more frugal, but it wasn’t that long ago that spending big was in vogue.

The mentality of “spend it if you got it”, led to those who didn’t to borrow it.  Now that the pendulum has swung back to thriftiness – the kind advocated by Green Candy.com – I turn today to the classic tale by Bastiat, with a modern twist, for the wisdom of saving.

Picture two friends, one a spendthrift (Purchasing Fanatic Pete) and the other a prudent man (Coupon Clipping Chip), each of whom will have an annual income of $50,000.  Pete has won the lottery, while Chip has inherited his money.

Pete is a big spender, and like Plies, he wants you to know it.  He believes if you don’t spend ALL of your money, you will add to unemployment.  Who knew spending could be so fun and patriotic at the same time?  Purchasing Fanatic Pete loves to go to all the clubs, where he can make it rain.  Of course, he has “his people” with him, and showers them with the latest gadgets from Circuit City and Sharper Image; he gives expensive gifts to his friends to “show some love” or “spread the wealth”.

To live large, Purchasing Fanatic Pete has to dip into his capital. But so what? If saving is a sin, dissaving must be a virtue; and in any case he is simply making up for the damage being done by the saving of his tightwad friend Coupon Clipping Chip.

Everyone knows and loves Pete.  Coupon Clipping Chip though, isn’t so well known. He rents videos from Netflix and drives a Toyota.  Whereas Pete spends all of his $50,000 (and then some), Chip lives modestly and only spends half of his $50,000, and banks the rest.  Since most people only see what’s in plain view, they assume Chip is adding less than half as much to employment as Pete and the other $25,000 is as useless as if it wasn’t there.

Of Chip’s $25,000 leftovers, his short-term savings goes into the bank, allowing the bank to lend it to businesses on short term for working capital.  With his long-term savings Chip invests his money in stocks, bonds, or real estate.  When Chip’s money is invested (directly or indirectly) it is used to buy or build capital goods—houses or office buildings or factories or ships or trucks or machines.  All of these projects puts as much money into circulation, and adds to employment, as much as Pete’s spending sprees do.

“Saving,” is another form of spending. The difference here is that the money is turned over to a corporation to spend on means to increase production, which is what leads to lasting employment. But most people don’t see this activity directly, and only notice the big tips our friend Pete hands out.

A dozen years roll by and Purchasing Fanatic Pete is bankrupt.  He returns his Hummer to GM (who also did a poor job of handling its business), but is unable to return his worthless trinkets to the stores he used to patronize – they’re gone now.  Pete muddles through town, saying “I used to be somebody”; he is viewed as a failure.  He turns to begging from Chip, and GM goes begging from the government.

Meanwhile Chip has continued his spending and savings regiment, and is not only providing more jobs than ever, (because of his income through investment has grown), but his investments have helped to provide better-paying and more productive jobs. His capital wealth and income are greater because of it.

Coupon Clipping Chip has added to the nation’s productive capacity and Purchasing Fanatic Pete has not.  Therein lies the problem with our current state of affairs: we’ve had too many Petes and not enough Chips.  Now that the party is over, what we need is a return to sensible economic policies – we need to encourage productivity and savings.  We also need to teach the next generation.

Guest Post by  Jim Huller

“The greatest thief this world ever produced is procrastination, and he is still at large.”
  ~ Henry Wheeler Shaw, 1818-1885
      Humorist

 When I’m asked what is the most common mistake in investing, I reply it is NOT INVESTING AT ALL.  Too many people save or invest nothing, all the while watching from a distance the best builder of wealth on the planet – the stock market.  Given what has happened in 2008 you might wonder if that’s still the case, and I’d say absolutely it still is.

 For the person watching from afar, the market volatility can be unnerving.  So the caveat to my first statement is that you need to start with a plan, but by all means start.  Fear of making a mistake, costly ones at that, freezes would-be investors into inactivity.   Paralyzed from a fear of failure is no reason not to try, and we all make mistakes.

 In the book There’s No Such Thing As “Business” Ethics, John C. Maxwell recounts a story about a father who was trying to teach his son the consequences of bad decisions.  Each time the boy made a poor decision, his father asked him to hammer a nail into a post.  Each day that he made good choices, he was asked to remove a nail.  In time, after much hammering and much pulling of nails, there came a day when the wood was nail-free.  That’s when the boy noticed that the post was covered with holes.

 In your everyday life you make mistakes probably daily – you’re human – it’s expected.  I can attest that if you are going to invest your money in the market you will make a lot of mistakes as well, hammering lots of holes into your post.  I would say that the old 80/20 rule applies to the success of your investments as well as seemingly everything in life.  The 80/20 rule means that out of 100% of your gains (winners), 80% of that return will come from only 20% of the investment picks you make.  That means that in reality most of your picks will not make you any money, or worse, will lose money.  That doesn’t sound good on the surface, but in the capital markets there is a chance for the winners to make up for the bad picks and then some.

 There are plenty of places to open an account, and now is the time.  Over the course of the next few weeks and months we’ll be talking about what to do once you’ve taken the first steps of opening and funding an account.  Personal finance is sorely neglected in our school systems, so check in here at Green Candy.com regularly for more help and ideas.

This is not a solicitation to buy or sell any particular security.  Never invest more than you can afford to lose in the stock market.