It’s Saturday evening and I’ve got a date with my wife. It’s time to get ready and what happens next remains a mystery to most men. The artful expression of a female brush painting her face is only exceeded by the millions of color and stylish variations she orchestrates with her clothing.

Not to belittle the importance of accessorizing, but when she completes the process of adorning her mortal temple, the inevitable and greatly feared question flows from her lips like silk from a spindle: “How do I look?”

Ladies! Are you aware that one out of five men are technically colorblind and the majority of the remaining four couldn’t match colors and styles if the only way we could watch the World Series depended on it?

Therefore, I find it most interesting that women, after years of empirical evidence to the contrary, continue to baffle all reason and logic by asking such an important question to an unqualified entity who usually looks at you with eyes that rarely see clothing.

The idea of asking the ‘unqualified’ for help seems to be part of our national pastime. How have politicians made things better? How about financial planners or economists? How has throwing more money at anything the government touches produced better results?

In his acceptance speech as the first Nobel Prize winning economist, F.A. Hayek said:

“Economist are at this moment called upon to say to how extricate the free world from the serious threat of accelerating inflation, which, it must be admitted, has been brought about”…by economists. “As a profession we have made a mess of things.”

Ironic isn’t it. The very people who promulgated the mortgage meltdown, the huge national debt, and failed social programs by the hundreds are re-elected every year to solve the problems that they created.

Political job security is the art of screwing up the country so badly that you’re the only one who can articulate what happened. So you get re-elected and mess it up some more.

The author Joshua Cooper Ramo in his recently released book “The Age of the Unthinkable” said, “And if you insert ‘foreign policy experts’ or ‘financial gurus’ for ‘economists’ in Hayek’s remarks, well, you have a sad, disturbing summary of the state of our world at the moment.”

During talks with the Chinese premier Zhou Enlai, Henry Kissinger (Harvard Business Professor and National Security Advisor) commented that the university models of political theory are largely useless in reality.

Confidence in financial experts, economists, and politicians has proven empirically to be misplaced. So where do we turn for help?

Keep in mind I’m not playing the role of a troll. A troll is a critic that doesn’t create or solve. A couch potato who lives in an echo chamber, ignored by everyone except fellow critics.

I’m not qualified to mess up in the field of economics, politics, or financial planning, but I do have an opinion on how to improve your home life and your relationship with money.

Therefore, I offer my view of the financial solution to everyday Americans. To my knowledge, none of these areas are being taught or promoted by our experts.

1. Master your spending
2. Master your savings
3. Master your communication skills

Short, simple, and sweet. Empirically proven to work every time with no risk to your principle (moral and/or financial.)

Fixed Indexed Annuity

What does it mean to index?

• When your money is indexed in an annuity with a life insurance company, the insurance company guarantees your balance will never go down.
• It means your money is not in the stock market so if you get a return on your money it’s because an index like the S&P moved upwards.
• Both the upward and downward movement is capped. On the down side the lowest it can go is zero and on the upside each contract is different, but caps typically range in high single digits.

Just before the big downward movement in the stock market I chatted with two different people about their retirement money. The first person I spoke with was Ralph. He had a handsome sum of money to invest and wanted my opinion.

After explaining the difference between investing and savings, and how an indexed annuity works, Ralph reasoned that he would keep his money in the stock market until a downturn and then pull it out. Ralph wanted to invest his money.

The other person I chatted with was Gertie who had most of her money in a 401(k) account fully invested in stocks. She wanted a little more security and a reasonable rate of return. She couldn’t afford to lose any of her principle.

When do you want your money, I asked. Oh, I won’t need it for some time, perhaps seven or eight years. Gertie chose to save her money and protect it.

Gertie rolled her money into an indexed annuity just before the big crash hit. One year after the rollover, Gertie visited my office for her annual review.

Her first question as she sat down was “How much did you make me last year?”

I smiled at her, grabbed a scrap piece of paper and wrote a big 0. Looked into her eyes, smiled and asked, “How’s that make you feel?” “Great, and thank you.”

We spent the remaining time talking about her trips visiting the grandchildren, her health, and other things important to her.

What we didn’t discuss is the thirty percent drop she would have incurred had she not protected her money.

20/20 hindsight is awesome when you get it right. I wonder how Ralph did with his timing?  It’s never too late to protect your money.

There are only three things you can do with money

1. Spend it (a cash flow system)
2. Save it (protected money)
3. Invest it (potential money)

The majority of effort in our society is placed on investing.  But is this the best strategy? Let’s look at how the financial planning industry represents their returns.

The common mantra is to put your money into the stock market and leave it there. Why? Because it always comes back and the average for one hundred years is over seven percent, or so the saying goes.

In fact, the Dow Jones Industrial Average (DJIA) for the past 100 years is 7.26%.

Let’s see if that fairly represents the situation. If you were to put $1,000 into the DJIA in 1909 what would it look like in 2008, 100 years later?

You can check this with online calculators or your own financial calculator. Take $1,000 as your present value (PV), 7.26% as your interest rate (INT), 100 years as your term, and solve for future value (FV) compounded annually.

The value of your account in 2008 is $1,106,061. (If you got $1,391,484 you compounded monthly.)

However, had you actually invested $1,000 in the DOW in 1909, your account balance would be $142,954. What happened? That’s $963,107 less than it should be. Let me illustrate:

Let’s say you invest $10,000 with Sue, your Financial Advisor and she earns your account a 10 percent return. You made $1,000 and your new balance is $11,000. Easy math.

Year two your account drops 10 percent. How much did you lose? If you said $1,100 you’re right and your new balance is $9,900. That’s $100 less than you started. So what is Sue’s average rate of return for your account?

Year 1 = 10%                        Year 2 = (10%)            Average = 0%

How do you feel about those numbers? Is the average an accurate representation of what happened to your account balance?

Something seems out of whack here and that’s because your ending balance is lower than your beginning balance. Yet she represents your average rate of return as 0 percent, when it is actually less than 0 percent.

You see there is a difference between average rate of return and actual or compound rate of return. The DJIAs actual rate of return for the past 100 years is 5.09%.

Assuming a 15 percent tax bracket, your actual return is 4.61 percent. Since nobody works for free, let’s add in a 1.5 percent management fee (much less than average) and the DJIAs rate of return is 3.51 percent.

In other words, if you could have put your money into an account that averaged 3.51 percent or higher and was tax favored, you would have out produced the DJIA since 1909.

The longer the recession grinds on, the more people realize the marvel of indexed annuities. Imagine all of your money intact today, never losing sleep over it, and having complete control over the entire amount.

Is there a bad time to purchase a Fixed Indexed Annuity (FIA)?

[A] On August 21, 1987 the S&P hit an all time high of 355. By December 4^th [D] it had fallen 37 percent to 224. Traders were jumping out of windows on Wall Street. (Not really, at least I didn’t see any. This is a metaphor indicating they were having a bad day.)

Had you picked up a FIA on August 21, 1987 (you couldn’t by the way, because they didn’t exist) you would not have lost a penny.

From December 4, 1987 until March 24, 2000 [D – B] traders were jumping from street level into their 2^nd and 3^rd story offices. (Not really, at least I didn’t see any. This is my way of saying they were having a great decade.)

Between March 24, 2000 and October 4, 2002 [B – E] the S&P declined 48 percent. In other words, investors who lost money would need a 100 percent return just to break even. Between terrorists and the tech bubble bursting, traders couldn’t figure out which way to jump through their window.

Indexed annuity savers would view zero as a hero as far as rates of return are concerned. They didn’t lose a dime in their annuity savings account.

On October 12, 2007, the S&P hit another peak of 1,500, only to drop 43 percent again [C – F].

Fixed Indexed Annuities is one of the reasons a good spending plan coupled with the right savings vehicles, remove the need to ever put your money at risk by investing.

The argument for or against gold is neutral from my point of view. The most important element of my opinion is a function of sequencing.

Gold is an investment and it appears to be a good investment, but then so did many things 2 years ago. Real Estate seemed like a great investment for decades. The important aspect isn’t whether its good or not, but whether its a risk you can afford.