08/27/2009
Comfort
I’ve never really thought about advertising beyond the parameters of the 4 Ps of marketing: product, place, promotion, and price. I was driving down the interstate one day and saw a Cracker Barrel billboard that said "Where Comfort Meets Food". All of a sudden my favorite foods at Cracker Barrel popped into my head. Lazy-Boy Furniture stores have ads that say "We Sell Comfort". Motel 6 used to advertise "A Comfortable Room at a Great Price". (And they’ll leave the light on for ‘ya) Vendors that sell mattresses relate comfort to a good night’s sleep.
Now I’m thinking that comfort sells, even if it’s not a product, place, promotion, or price. So what exactly is comfort? A great meal? Your favorite recliner? A cozy motel room without the frills and high price? Is comfort really a good night’s sleep? Maybe it’s all of these things if you relate comfort to a good feeling. Aha! Feeling comfortable somehow means you feel good about whatever the product or service is. But there’s always a price to pay for comfort and a risk associated with the downside. There’s a risk that your meal won’t be great. Your recliner might just flip you onto the floor. You could encounter noisy neighbors in the motel room next door. And your new mattress could give you a back ache. Truthfully, how often do you think about or seriously consider the risks associated with the things that give you comfort?
Let’s talk about banking and the financial services industry. The news headlines have probably made most of us feel anything but comfort in this arena. Being uncomfortable about your finances is probably worse than any terrible meal or bad night’s sleep you’ve ever had. So the question begs to be asked, what exactly is comfort in relation to banking and financial services? The easy answer is to describe what’s so Uncomfortable about the news headlines talking about our economy being in a recession, gas prices increasing, home mortgage foreclosures at an all-time high, and giants of Wall Street looking to the federal government to bail them out of financial ruin. The best answer to describe what comfort is in banking and financial services basically boils down to knowledge and trust.
Knowledge points to good information about your financial accounts that is both accurate and timely. Trust points to your belief that your financial services provider is financially sound and accessible to answer questions you have regarding personal financial matters. Given these points, you can say that feeling comfortable with your finances means that you deal with individuals who are knowledgeable in the products and services that they offer and who work for a company that recognizes that you -- the customer -- is the reason it opens its doors every day.
Covenant Bank is my bank. We will be open twelve years in December. We are locally owned (except for one shareholder in South Carolina who happened to read a newspaper article about our bank starting when he was staying overnight at a Hampton Inn in Birmingham) and operated. Our directors and employees are all locally connected. The daily decisions that are made regarding our business --our customers’ finances-- are all made locally. There’s nobody to phone in California, North Carolina, Mississippi, Louisiana, Canada, or Spain. We don’t have an international, national, or regional headquarters. Our "Main Office" is in Leeds and our first branch opened in Moody in 1999. These communities have been supportive of us and I am grateful for this fact. We have purchased property and plan to open a branch in Shelby County. We work hard to meet our customers’ expectations and we are growing in our communities.
If being comfortable with your finances really boils down to knowledge and trust, you need to meet the folks at Covenant Bank.
Trust your friendly home town bank with all of your banking and financial services needs.
08/20/2009
Long Term Stocks: Time vs Timing
Investing with an eye to the long term is particularly important with stocks. Historically, stocks have typically outperformed bonds, cash, and inflation, though past performance is no guarantee of future results. It can be challenging for years like 2008, which was the worst year for the Standard & Poor's 500 since the Depression era. Times like those can frazzle the nerves of any investor. With stocks, having an investing strategy is only half the battle; the other half is being able to stick to it.
Your own definition of "long term" is most important, and will depend on your individual financial goals and when you want to achieve them. Your strategy should take into account that the market will not go in one direction forever and it's helpful to look at various holding periods for stocks over the years. Historically, the shorter your holding period, the greater the chance of experiencing a loss. Even though the S&P 500 showed a return of -1.38% for the 10 years that ended December 31, 2008, the last negative-return 10-year period before then ended in 1939.
Trying to second-guess the market can be challenging. Research has shown that stock investors who try to time the market typically experience lower returns than investors using a buy-and-hold approach. Historically, a handful of months or days account for the bulk of both market gains and losses. Forecasting exactly which days those will be could make you a millionaire. Miss it by just a little bit and you could lose your shirt.
You need to have strategies in place that build your financial and psychological readiness to take a long-term approach to investing in stocks. Even if you're not a buy-and-hold investor, a trading discipline can help you stick to a long-term plan. Having predetermined guidelines that anticipate turbulent times can remove emotion from your decisions. Your strategy may be to sell and take profits when the market rises by a certain percentage, and to buy when the market falls by a certain percentage. Or your strategy might be to put a large percentage of your portfolio under the buy-and-hold plan, while putting the smaller percentage of your portfolio in short-term, higher risk stocks.
Market downturns are a test of how well you've diversified your assets. Diversifying your portfolio can help you manage risk by spreading it among various types of investments, some of which may be performing better than others. And don't forget to look at how far you've come since you started investing. Keeping track of where you stand relative to not only last year but to 3, 5, and 10 years ago may help you remember that the current situation won’t to last forever. If you're retired and worried about a market downturn's impact on your income, think before you react. If you sell stock during a period of falling prices, you might not get the best price and that sale might also reduce your ability to generate income in later years.
Having some cash holdings can be as financially comforting as napping in your favorite recliner. It can enhance your ability to make thoughtful decisions instead of impulsive ones. An appropriate asset allocation strategy can help you prevent having to sell stocks at an inopportune time just to meet ordinary expenses. A cash cushion coupled with a disciplined investing strategy can change your perspective on market downturns and may increase your ability to be patient.
Any investor can look good in good market conditions, but knowing how to survive in bad market conditions defines your ultimate investing success. So, build your investment strategy for the best scenario and have a back-up strategy if things fall apart. Diversify your assets to keep some performing well when others don’t. Know why you bought each investment and have a strategy that defines buy/sell/hold during various shifts in the market. And don’t forget the comfort factor of having a stash of cash.
Consult your friendly home town banker to help with all of your investment strategies.
08/13/2009
Are Annuities In Your Investing Future?
Many people are beginning to show interest in annuities as an alternative investment to CDs. Annuities are popular because they pay higher rates than CDs and earnings are tax deferred. Let’s look at how annuities work to help you determine if they fit your investment profile.
An annuity is a contract between you (annuitant) and an insurance company. You agree to pay a lump sum or a series of payments to the insurance company and it agrees to pay you an income beginning now or at a later date. The money you pay in grows tax-deferred and the earnings on the money you pay in are taxed as ordinary income when you begin receiving monthly payments. Taking monthly payments is called annuitization. You can specify a time period to receive payments, or you can receive them for the rest of your life. You and your spouse can receive payments for life, if you choose this option.
Annuities may be placed in a variety of investment instruments by the insurance company. The insurance company invests your money to accumulate enough to safely pay out the annuitization schedule given to you. While life insurance pays your family cash benefits when you die, annuities pay you a guaranteed income for as long as you live. The monthly amount you receive depends on how much you paid in, the tax-deferred term, the rate it carried, and the estimated number of payments you will receive. Mortality tables are used to determine how long you are expected to live and how long the insurance company will be making payments to you.
Many annuities are sold with no up front fees or annual fees. However, it’s important to know about early termination penalties or other charges that could be levied during the term of your investment. Some annuity contracts allow up to 10% to be withdrawn per year without penalty. Verify this before making early withdrawals.
Annuity advantages include: annuities can provide you with a guaranteed lifetime income with no contribution limitations like you have with IRAs and other plans. Annual no-penalty withdrawals may be made on a restricted basis. Annuities allow retirees to shelter investment earnings that might otherwise lead to taxation of Social Security benefits.
Always consult a trusted financial advisor when purchasing annuities. Your friendly home town bank can help you make the best choices for your investment profile.
08/13/2009
Is it time to refi?
I am often asked when would be a good time to refinance a home mortgage. A good answer to this question can change daily. There are many variables that must be considered when analyzing this situation. Let’s look at a few situations that could lead you to a refinancing decision soon.
Did you buy your home within the last two years? If so, check the market values in your area to see if your home’s value has survived the recent stagnation or decline in the real estate market. Unless you bought in a coastal area or where market values spiked the most since 2000, your home’s value probably maintained average market appreciation values. If this is the case and current mortgage rate shopping reveals you might improve your situation, go for it! Some economists predict steadily rising mortgage rates in 2007.
Did you finance your home with an exotic mortgage product? I’m specifically speaking of interest only mortgages or pay-option mortgages. If this is your situation, you need to first evaluate your home’s current market value and compare this to your mortgage loan balance. Even though your monthly payments may be low, your mortgage balance could be increasing if the minimum payments you’re making don’t cover the monthly interest due. If this is the case, the unpaid monthly interest adds to your mortgage balance, which is called negative amortization. Does this sound familiar? If so, you’re feeling the pinch of an upcoming interest rate change—definitely a payment increase—coupled with a mortgage balance that might be higher than when you purchased your home. You should check with your mortgage lender to determine your refinancing options as soon as possible. And stay away from exotic mortgage products! They help people buy houses now that they cannot afford later.
Did you finance your home with a long-term fixed rate mortgage and now find that you will be moving within the next 5 years? If so, consider a 5/1 adjustable rate mortgage (ARM). I define this as a flexible mortgage product and not an exotic mortgage product. You might possibly refinance to a lower fixed rate for the next 5 years and avoid payment increases from rising adjustable rates because you sell you’re house before then.
A final word: Commissions can influence advice. Always consult a trusted source for mortgage financing options.
Back to President's Articles
08/27/2009
Comfort
I’ve never really thought about advertising beyond the parameters of the 4 Ps of marketing: product, place, promotion, and price. I was driving down the interstate one day and saw a Cracker Barrel billboard that said "Where Comfort Meets Food". All of a sudden my favorite foods at Cracker Barrel popped into my head. Lazy-Boy Furniture stores have ads that say "We Sell Comfort". Motel 6 used to advertise "A Comfortable Room at a Great Price". (And they’ll leave the light on for ‘ya) Vendors that sell mattresses relate comfort to a good night’s sleep.
Now I’m thinking that comfort sells, even if it’s not a product, place, promotion, or price. So what exactly is comfort? A great meal? Your favorite recliner? A cozy motel room without the frills and high price? Is comfort really a good night’s sleep? Maybe it’s all of these things if you relate comfort to a good feeling. Aha! Feeling comfortable somehow means you feel good about whatever the product or service is. But there’s always a price to pay for comfort and a risk associated with the downside. There’s a risk that your meal won’t be great. Your recliner might just flip you onto the floor. You could encounter noisy neighbors in the motel room next door. And your new mattress could give you a back ache. Truthfully, how often do you think about or seriously consider the risks associated with the things that give you comfort?
Let’s talk about banking and the financial services industry. The news headlines have probably made most of us feel anything but comfort in this arena. Being uncomfortable about your finances is probably worse than any terrible meal or bad night’s sleep you’ve ever had. So the question begs to be asked, what exactly is comfort in relation to banking and financial services? The easy answer is to describe what’s so Uncomfortable about the news headlines talking about our economy being in a recession, gas prices increasing, home mortgage foreclosures at an all-time high, and giants of Wall Street looking to the federal government to bail them out of financial ruin. The best answer to describe what comfort is in banking and financial services basically boils down to knowledge and trust.
Knowledge points to good information about your financial accounts that is both accurate and timely. Trust points to your belief that your financial services provider is financially sound and accessible to answer questions you have regarding personal financial matters. Given these points, you can say that feeling comfortable with your finances means that you deal with individuals who are knowledgeable in the products and services that they offer and who work for a company that recognizes that you -- the customer -- is the reason it opens its doors every day.
Covenant Bank is my bank. We will be open twelve years in December. We are locally owned (except for one shareholder in South Carolina who happened to read a newspaper article about our bank starting when he was staying overnight at a Hampton Inn in Birmingham) and operated. Our directors and employees are all locally connected. The daily decisions that are made regarding our business --our customers’ finances-- are all made locally. There’s nobody to phone in California, North Carolina, Mississippi, Louisiana, Canada, or Spain. We don’t have an international, national, or regional headquarters. Our "Main Office" is in Leeds and our first branch opened in Moody in 1999. These communities have been supportive of us and I am grateful for this fact. We have purchased property and plan to open a branch in Shelby County. We work hard to meet our customers’ expectations and we are growing in our communities.
If being comfortable with your finances really boils down to knowledge and trust, you need to meet the folks at Covenant Bank.
Trust your friendly home town bank with all of your banking and financial services needs.
08/20/2009
Long Term Stocks: Time vs Timing
Investing with an eye to the long term is particularly important with stocks. Historically, stocks have typically outperformed bonds, cash, and inflation, though past performance is no guarantee of future results. It can be challenging for years like 2008, which was the worst year for the Standard & Poor's 500 since the Depression era. Times like those can frazzle the nerves of any investor. With stocks, having an investing strategy is only half the battle; the other half is being able to stick to it.
Your own definition of "long term" is most important, and will depend on your individual financial goals and when you want to achieve them. Your strategy should take into account that the market will not go in one direction forever and it's helpful to look at various holding periods for stocks over the years. Historically, the shorter your holding period, the greater the chance of experiencing a loss. Even though the S&P 500 showed a return of -1.38% for the 10 years that ended December 31, 2008, the last negative-return 10-year period before then ended in 1939.
Trying to second-guess the market can be challenging. Research has shown that stock investors who try to time the market typically experience lower returns than investors using a buy-and-hold approach. Historically, a handful of months or days account for the bulk of both market gains and losses. Forecasting exactly which days those will be could make you a millionaire. Miss it by just a little bit and you could lose your shirt.
You need to have strategies in place that build your financial and psychological readiness to take a long-term approach to investing in stocks. Even if you're not a buy-and-hold investor, a trading discipline can help you stick to a long-term plan. Having predetermined guidelines that anticipate turbulent times can remove emotion from your decisions. Your strategy may be to sell and take profits when the market rises by a certain percentage, and to buy when the market falls by a certain percentage. Or your strategy might be to put a large percentage of your portfolio under the buy-and-hold plan, while putting the smaller percentage of your portfolio in short-term, higher risk stocks.
Market downturns are a test of how well you've diversified your assets. Diversifying your portfolio can help you manage risk by spreading it among various types of investments, some of which may be performing better than others. And don't forget to look at how far you've come since you started investing. Keeping track of where you stand relative to not only last year but to 3, 5, and 10 years ago may help you remember that the current situation won’t to last forever. If you're retired and worried about a market downturn's impact on your income, think before you react. If you sell stock during a period of falling prices, you might not get the best price and that sale might also reduce your ability to generate income in later years.
Having some cash holdings can be as financially comforting as napping in your favorite recliner. It can enhance your ability to make thoughtful decisions instead of impulsive ones. An appropriate asset allocation strategy can help you prevent having to sell stocks at an inopportune time just to meet ordinary expenses. A cash cushion coupled with a disciplined investing strategy can change your perspective on market downturns and may increase your ability to be patient.
Any investor can look good in good market conditions, but knowing how to survive in bad market conditions defines your ultimate investing success. So, build your investment strategy for the best scenario and have a back-up strategy if things fall apart. Diversify your assets to keep some performing well when others don’t. Know why you bought each investment and have a strategy that defines buy/sell/hold during various shifts in the market. And don’t forget the comfort factor of having a stash of cash.
Consult your friendly home town banker to help with all of your investment strategies.
08/13/2009
Are Annuities In Your Investing Future?
Many people are beginning to show interest in annuities as an alternative investment to CDs. Annuities are popular because they pay higher rates than CDs and earnings are tax deferred. Let’s look at how annuities work to help you determine if they fit your investment profile.
An annuity is a contract between you (annuitant) and an insurance company. You agree to pay a lump sum or a series of payments to the insurance company and it agrees to pay you an income beginning now or at a later date. The money you pay in grows tax-deferred and the earnings on the money you pay in are taxed as ordinary income when you begin receiving monthly payments. Taking monthly payments is called annuitization. You can specify a time period to receive payments, or you can receive them for the rest of your life. You and your spouse can receive payments for life, if you choose this option.
Annuities may be placed in a variety of investment instruments by the insurance company. The insurance company invests your money to accumulate enough to safely pay out the annuitization schedule given to you. While life insurance pays your family cash benefits when you die, annuities pay you a guaranteed income for as long as you live. The monthly amount you receive depends on how much you paid in, the tax-deferred term, the rate it carried, and the estimated number of payments you will receive. Mortality tables are used to determine how long you are expected to live and how long the insurance company will be making payments to you.
Many annuities are sold with no up front fees or annual fees. However, it’s important to know about early termination penalties or other charges that could be levied during the term of your investment. Some annuity contracts allow up to 10% to be withdrawn per year without penalty. Verify this before making early withdrawals.
Annuity advantages include: annuities can provide you with a guaranteed lifetime income with no contribution limitations like you have with IRAs and other plans. Annual no-penalty withdrawals may be made on a restricted basis. Annuities allow retirees to shelter investment earnings that might otherwise lead to taxation of Social Security benefits.
Always consult a trusted financial advisor when purchasing annuities. Your friendly home town bank can help you make the best choices for your investment profile.
08/13/2009
Is it time to refi?
I am often asked when would be a good time to refinance a home mortgage. A good answer to this question can change daily. There are many variables that must be considered when analyzing this situation. Let’s look at a few situations that could lead you to a refinancing decision soon.
Did you buy your home within the last two years? If so, check the market values in your area to see if your home’s value has survived the recent stagnation or decline in the real estate market. Unless you bought in a coastal area or where market values spiked the most since 2000, your home’s value probably maintained average market appreciation values. If this is the case and current mortgage rate shopping reveals you might improve your situation, go for it! Some economists predict steadily rising mortgage rates in 2007.
Did you finance your home with an exotic mortgage product? I’m specifically speaking of interest only mortgages or pay-option mortgages. If this is your situation, you need to first evaluate your home’s current market value and compare this to your mortgage loan balance. Even though your monthly payments may be low, your mortgage balance could be increasing if the minimum payments you’re making don’t cover the monthly interest due. If this is the case, the unpaid monthly interest adds to your mortgage balance, which is called negative amortization. Does this sound familiar? If so, you’re feeling the pinch of an upcoming interest rate change—definitely a payment increase—coupled with a mortgage balance that might be higher than when you purchased your home. You should check with your mortgage lender to determine your refinancing options as soon as possible. And stay away from exotic mortgage products! They help people buy houses now that they cannot afford later.
Did you finance your home with a long-term fixed rate mortgage and now find that you will be moving within the next 5 years? If so, consider a 5/1 adjustable rate mortgage (ARM). I define this as a flexible mortgage product and not an exotic mortgage product. You might possibly refinance to a lower fixed rate for the next 5 years and avoid payment increases from rising adjustable rates because you sell you’re house before then.
A final word: Commissions can influence advice. Always consult a trusted source for mortgage financing options.
Back to President's Articles