Money Over 55

WHAT: Live Web Chat on Kiplinger.com. Chat will be hosted by three advisors from the National Association of Personal Financial Advisors (NAPFA) who will be available to take questions on  financial topics ranging from retirement planning to college planning.

WHO: NAPFA Financial Planners (NAPFA is an organziation of fee-only financial advisors. Fee-only means they do not sell insurance or investments nor do they receive commissions from the sale of any financial product.)

WHEN: Thursday May 17, 2012 from 1pm to 3pm EST (LIVE)

WHERE: Go to Jump-Start Your Financial Plan

EXTRAS: Participants may leave questions or comments any time before or during the live chat or go back afterwards to see a transcript of the chat.

Readers will also be able to ask for advice and view questions and answers through the Kiplinger and NAPFA Facebook pages or by utilizing the #JumpStartRetire hashtag on Twitter.

About Kiplinger Live Chats:
Through live Web chats, Kiplinger.com's team of experts is able to interact with readers on an individual basis, providing them with tailored, one-on-one advice. Kiplinger.com also believes its readers can benefit from other readers' questions and answers. The chat topics vary every week, with retirement and financial topics ranging from home buying to investing to social security and investing for income. Weekly live Web chats typically occur on Thursday afternoons, but times are susceptible to change.

Mistakes cost you money. All mutual funds are not alike. There is a strategy as to what type of fund to place in which account to lower your tax bill. There is research that shows which funds are likely to have the highest returns relative to their peers. Use your money more efficiently. Learn how to avoid these 5 mutual fund buying mistakes.

I got an email this past week from an attorney at the securities division of the Arizona Corporation Commission. (Each state has a securities division that oversees the sale of investments and delivery of investment advice.)

I have corresponded with this attorney before and I think Arizona is lucky to have him. Lucky because I get the impression he is the kind of guy who wants to get to the heart of a matter. Someone out there should be worried.

In this case he needed to discuss a situation in regards to a prior client of mine. I worked with this client about seven years ago.  They asked me if I did due diligence on business deals. That is not something I do. They found an advisor who did - well, they found someone who said they did.

As a matter of fact over several months, this advisor convinced them that his firm did everything and all under one roof. And when I say everything, I mean everything: taxes, legal structures for estate planning and businesses, insurance, financing, real estate deals, due diligence on private ventures.

Warning #1: You know why one firm would do everything? So that NO ONE else might ever look at what is being done and get suspicious.

The client sent me a wonderful email explaining that I had done a fabulous job but this new advisor was closer to their home and it was just a matter of convenience and simplicity, and off they went.

In 2010 I heard from them again. They wanted me to look over everything that had been done. I did. And I sent them right to an attorney.

ALL of their money was gone. Poof. That's it. Gone.

Where did it go?

Well, somehow this advisor convinced them to lend the money out on series of simple promissory notes. They were supposed to be 60-90 day loans paying 12% interest. They never got a dime back. Was it a legit deal? Was it stolen?

I know what I think happened. Hopefully the law will sort it out.

The securities attorney asked me if I'd been seeing a lot of this type of thing. I have not. He said he has.

That's scary.

And you know why he's seeing a lot of it? Because right now no one knows what to do with their money. Savings isn't paying squat, stocks just had a massive run from the 2009 bottom, traditional bonds won't fare well if/when rates rise, people are still feeling burned by real estate, and Europe is a mess.

This is when the crooks come out. In a low interest rate world, an offer of 12% interest from a well credentialed person with a well credentialed team who says they do due diligence on private business opportunities sounds, well, like just what you would be looking for, right?

I call it the hot money scam, because all too often people feel this urgent need to do something with their money, and do it quickly. They get impatient. This is bad.

I've received several calls over the last few weeks from sophisticated investors who wanted my ideas on what to do with their money right now. My bright idea right now is sit tight and be patient.

Here's the problem: when you're experiencing the hot money syndrome, you're easy prey for a good scam artist.

Folks, patience is an investment strategy, and a smart one. Before you make an investment, ask one question. Can I lose all my money? If the answer is yes, for goodness sake, do NOT put all your money into it!

Learn more:

• How to Avoid Scams
• 5 Rules to Use to Avoid Bad Investments

Inheriting money sounds great. And it is nice if you are methodical and thoughtful as to what you do with it. The key is understanding what NOT to do, learning as much as you can, making no rush decisions, and creating a plan. Learn more in Family Inheritance - Inheritance Traps and How to Avoid Them.

One of the most impactful things I have ever done is take something called the Kolbe A^TM Index. Kolbe deals with a different part of the mind than other assessment tools. There is the thinking part, the feeling part, and the doing part. Kolbe deals with the doing part: how you will go about approaching problem solving when left to approach it in your natural, instinctive way.

Kobe was so valuable for me because it helped me and my staff find an entirely new level of mutual respect for each others' working styles. Instead of getting irritated with each other, we found ourselves laughing more at our different, but equally effective ways of getting things done.

I found the Kolbe process to be so validating that last year I went through training to become a Kolbe Certified^TM Consultant for no particular reason other than I was fascinated by it.

As a consultant we are required to attend additional training every 18 months, and I spent several days last week at Kolbe's Professional Growth Seminar. It was an amazing experience.

Kolbe can shed light on your approach to things like gathering, sharing, arranging and designing information, and many financial advisors use it to understand how best to communicate information to their clients.  Up until now, I have not used it with clients in my practice, but I may rethink that.

I am now seeing the value of Kolbe in the retirement planning process, particularly as you near retirement and have big decisions to make. At this point, your creative problem solving process is likely to be fully engaged. Deciding to retire can be stressful. You and your spouse may approach this decision very differently.

One of you may need to do research and gather as much data as possible. Another may need to make checklists or lay out a step by step plan as to what you are going to do and in what order. Or one of you may just decide to go for it, trusting your gut that it will work out.

Approaching such a big decision from such different angles can be frustrating when you don't understand the other person's approach. That's where Kolbe can help.

You can take your Kolbe A^TM Index online, or look for a consultant to help you and your team or partner through the process.

Kolbe Wisdom^TM can also help you extend your working career. If you're not in a career that uses your natural talents you are working against your grain, which wears you out. When you find something that uses your talents, work doesn't feel like work. And isn't that what retirement is supposed to be? Doing something you enjoy that doesn't feel like work? Why not make money at it while you're doing it? Kolbe can help you find your groove.

If you've already taken a Kolbe A^TM Index, please, share your MO and what you've learned in the comments below. I'm a 6-5-8-2.

A man I'll call Bruce came to visit me in early 2011.  I ran an analysis for him on an hourly rate. As part of that analysis I made recommendations for his investment portfolio. A year later he came back. His portfolio was entirely in cash.

"What happened?" I asked.

"I listened to one of those radio gurus who said the market was going to crash."

It is times like these when I am glad my inside voice cannot be heard. My inside voice said:

"What? And you believed him? I gave you clear recommendations. You are a fool. You deserve to miss out on the 10-15% gains that your investments would have experienced if only you had stuck with the plan. And of course the market is going to crash. The market crashes about once every four years. But no one knows exactly when it is going to happen. It might be years before it crashes again. It might be tomorrow. That's why you build a portfolio with safety features. Imagine if car manufacturers expected you to get off the road before a crash occurred? How preposterous. They expect crashes. That's why they build in safety features."

So what are these safety features you can build into your portfolio?

• They are investment management techniques called asset allocation and diversification.
• They are investor education like understanding the frequency of bear markets, and the nature of their recoveries.
• And an important safety feature can be understanding your own human nature, and the tendency of average investors to earn below average returns.

Emotions have been on my mind lately. Why do we feel them and how do we use them to guide our decision making instead of letting them call the shots?

It's interesting the things that have the power to change the way you feel in an instant. A smile, a note from someone you love, a song.

Money too can change the way you feel, but how do you compare the joy of a pay raise to the sound of your favorite song?

And could a song ever evoke the struggle, fear and frustration of not having enough money? Perhaps a song that reminds you of a lost love could.

After wondering about these things I did what I usually do after I've wondered enough: I start typing into Google. After all, I can't be the only one wondering.

And of course I'm not, but my limited searching didn't come up with what I was hoping for.

First, this study, Emotion rules the brain's decisions, in which they say, "The brain's wiring emphatically relies on emotion over intellect in decision-making."

Are we then doomed to Neanderthal like financial decisions?

Then I came across the book Your Money & Your Brain by Jason Zweig, which I have not read. As I haven't read it yet, I'll rely on those who have. One of the reviews on Amazon states the book discusses "What is your Risk tolerance? This may entirely depend on what your mood was when the question was asked, or what was the last color you saw prior to being asked, or more importantly, how the question was asked."

This is along the lines of what I was looking for. What if research determined that if your office was green, you made better financial decisions? Or that you should only rebalance your portfolio after listening to Bach?

Perhaps research hasn't come that far quite yet. But the answers likely lie within you. What is it that restores reason to your thought process? How can you trigger this? Can you put your own fail safe into place before important decisions?

If you figure it out, let me know.

Getting a late start on your retirement planning? One option might be to find a job that offers a pension. Or you can save as much as possible and create your own pension. Learn more in How Do I Get a Pension.

The scariest part about heading into retirement is that many of the decisions you'll have to make are permanent ones. Learn more in 4 Big Retirement Decisions and What You Need to Know Before You Make Them.

The analysis I just did shows you a sure fire way of transferring your family's wealth right to an insurance company. In some cases, to the tune of $600,000. That's right, $600,000 of lost wealth because of a high-fee product.

Bet you'll never hear a financial salesperson share those kind of numbers with you. What's scary, is most of them don't even know those are the numbers!

So here's what happened. I had a client who has most of their money with me, and some of it with a friend of theirs who sells annuities. This person was proposing that they move one of their annuities into a new annuity. I call this churning annuities. Every five to seven years when the surrender charges expire, these salespeople propose a new product (new commissions for them) under the guise of better benefits. In my opinion, it is a legal scam the way these high fee products are promoted and sold.

In this case I felt compulsively obsessed to do a thorough analysis, and test this product and it's supposed benefits against a portfolio of low cost index funds.

This product was being proposed as a way for this person to leave a death benefit to their children, and have guaranteed income along the way. Knowing this person's entire financial picture, I know they already have a lot of guaranteed income in the form of pensions, and their plan shows they will leave a significant amount to their children already.

Now, inside an annuity you have the same stuff to invest in: stocks, bonds and cash, that you have outside of the annuity. So, with a 4% annual fee how is that stuff ever supposed to perform?

My conclusion is that with a product like this the end result is most likely to be a lower amount transferred to heirs. It is astounding to me that this could be sold as something that definitively helps you accomplish a goal of leaving more to your children.

Details of the analysis are at: Variable Annuity Compared to Index Funds.

(If you already own an annuity, then check out 8 Questions to Ask About Your Annuity.)

P.S. I know, I know, here comes the hate mail. Each time I write something like this it seems someone who makes their living selling such products sends me a nasty note. Honestly, I could care less. You people are unknowingly reducing the wealth of average Americans. The fine print in the product itself says that fees may exceed the benefits paid out. Yep, that sounds like a good investment to me.

Now, don't get me wrong. I don't think all annuities are bad choices. There are good annuities of all varieties that have their place in a client's financial plan. This just didn't happen to be such a situation.