As we’ve been discussing on the podcast, Europe is going to be an important part of the next investment year. Risk is still very high and Europe’s crisis has not resolved, so we are still cautious with any investment capital. Be patient, because we believe that opportunities are soon to come.

In domestic news, the Federal Reserve recently announced that they plan to keep interest rates low until 2014. Now, why would the Fed keep interest rates at 0% if the outlook in the U.S. is so good? We think it’s because there is still great risk in the markets – another reason why we advocate careful investing and defensive postures.

To zoom in even closer to home, we recently read an article on how well Californians are fiscally. 30% have no savings, 43% have no liquid assets – no 90-day savings. These statistics made us think about our personal finance series, which we are tackling weekly on the podcast and the blog.

Four weeks ago, we took less than an hour to calculate your net worth. Three weeks ago, we talked about taking inventory of your assets. Two weeks ago, we figured out how to understand your cash flow projections. Last week, we looked at your expenses. This week, we are making sure that we have an updated estate plan and living trust. If you missed any of these exercises, please go back and listen to those previous podcasts for more detailed information.

Thanks for watching Doug’s video update and check back next week for more podcasts, videos and blogs.

• Making a calculation of your net worth
• Taking inventory of financial assets
• Understanding your cash flow projections
• Examining your expenses
• Making sure you have an updated estate plan and living trust
• Taking stock of all insurance policies – health, life, long term care, annuities, etc.

Four weeks ago, we took less than an hour to calculate your net worth.  Three weeks ago, we talked about taking inventory of your assets. Two weeks ago, we figured out how to understand your cash flow projections. Last week, we looked at your expenses. If you missed any of these exercises, please go back and listen to those previous podcasts for more detailed information, or you can read the summaries of each exercise on our blog.

This week, we are making sure that we have an updated estate plan and living trust. About 80% of Fabian Wealth Strategies’ clients have an estate plan, will or living trust of some kind, but many haven’t looked at them in years. A living trust is what we encourage all of our clients to invest in. Without a living trust, all of your assets are frozen and subject to court order if something should happen to you. Here in California, if you have a million-dollar (gross value) estate, the minimum cost of your probate would be $47,000. Revocable living trusts can be changed at any time, but it keeps a judge from determining what happens to your assets if you are unable to do so.

But you have to make sure that all assets, all stocks, bonds, properties, etc are included in your living trust, or else those assets will end up going to probate. Remember that you can stipulate who is to be the guardian for your minor children, medical power of attorney, gifts to organizations or individuals and much more in this document. You need to pay attention to these details in order to protect those you love, and this is a very important personal finance exercise. We have a trust attorney that we recommend for our clients, so if you’re interested in having his contact information, please send us an email here.

All of these exercises are relatively easy, and you need to start the new year off right by looking at this. Again, if you need guidance on what needs to be held or bought, how this inventory works and our advice for your assets, don’t hesitate to get in touch with us at 888-300-3684.

Once you know what you have to can set clear, reachable goals. Tune in next week for more on Doug Fabian’s Monday Market Update, and the next exercise to preparing yourself for a successful investment future. (Also, if you read this blog and enjoyed it, listen to Doug’s podcast this week for even more details on these topics, and please share this information with others who might benefit from our perspective.)

One easy way to invest in corporate bond funds is through the iShares iBoxx Investment Grade Bond ETF (LQD). The exchange-traded fund (ETF) offers an investment vehicle to add income to your portfolio this year. The iShares iBoxx $ Investment Grade Corporate Bond Fund specifically seeks investment results that correspond generally to the price and yield performance, before fees and expenses, of the corporate bond market, as defined by the iBoxx $ Liquid Investment Grade Index.

LQD consists of more than 600 different bond issues and over $17 billion in assets. The one-year performance of LQD remains strong at 7.6%, with a 30-Day SEC yield of 3.69% and 12-month yield of 4.33%. As a result, LQD provides a much stronger yield than what you will find in the U.S. Treasury market.

In what basically has become a negative real interest rate environment, it is important to protect our savings, while still producing income. With a willingness to absorb a little risk, you can invest in corporate bond market to boost your income beyond what U.S. Treasuries currently offer. By holding higher-yielding, investment-grade bonds in your portfolio, you can mitigate the Fed’s policy of keeping interest rates at ultra-low levels.

Granted, we have to think about capital preservation in a “risk-on, risk-off” trading environment. This reality means that you can increase your risk prudently by using some higher-yielding debt. The extent that you use this strategy should be determined by your individual investment needs and risk tolerance. Capital preservation will continue to remain a major theme in the investment community going forward. So, at least for 2012, corporate grade debt may be worth checking out to help you shield your portfolio from negative real interest rates.

When it comes to preparing for the inevitable in life, many of us fail to act responsibly. I know it can be hard to think of ourselves as not being around any longer, but that’s no excuse to neglect this extremely important part of your financial life.

If you have any kind of significant net worth, you need a living trust. When you have a living trust, your desire for what happens to your money, your property, your insurance policies, etc., after you’re gone is in your hands. By setting up a living trust, you control the disposition of your assets by appointing a trustee to carry out your wishes.

If you don’t have a living trust, then everything you held dear in your life could literally be at the mercy of the courts. That means someone who doesn’t know you, has never met you, and has no personal interest in you or your family, will decide where your assets go after you’re no longer here. I don’t know about you, but I can’t think of anything more infuriating than having the courts determine where the products of my life’s toil will go. Yet without a living trust—and/or without a will—this may be precisely what happens.

Guardianships also are extremely important to those with children. Who’s going to take care of your progeny if you are no longer there to do so? Where will your assets go, and who will look after those assets for your children? Without a guardianship, the courts are in charge. Don’t let that happen.

A little proper planning is all it takes to make sure you are in control of your assets after you’re no longer here to do so. If you already have a living trust, will or guardianship, make sure you periodically review the trust to make account for all of the changing circumstances in your life. A divorce, a significant change in your financial situation, or the death of a spouse, are all prime reasons for you to alter your financial plans, so make sure you have those plans in place and up to date for 2012.

Next week, we’ll conclude our personal finance series for the new year with a discussion on insurance and annuities.

If you’d like to hear more about these personal finance exercises, and my take on all of the latest market action, then I invite you to sign up here for my weekly audio podcast.

We just read today that, according to the World Bank in 2007, 50% of the global economy comes from the 47 countries of the Euro Zone, which means that the continued implosion we expect is coming from the largest economic engine of recent years. Also, unemployment rates amongst 16-24 year olds average 20% in the European Union and are even higher in many individual countries of Europe. This number reminds that that there is the potential of serious civil unrest and protests as the weather warms up, which of course will not help matters.

There is one easier solution to this crisis. If Germany wrote a blank check to the rest of Europe to get this figured out, this crisis might have a softer landing than we expect. However, despite much pressure to do this, there is no evidence that such a thing will happen, and the Germans have bailed out their fellow Europeans before, so we can’t blame them for not wanting to be the back-stop again.

There is very little economic activity in Europe right now, and even austerity measures are back-firing on a rapidly stalling economy.  Just cutting spending doesn’t fix the economy, and neither does raising taxes. Watching Europe will probably be an education for those of us in the U.S. as our own debt and spending continues to rise.

We still believe that we should be very defensive with our portfolios, despite the flack we’ve received for not taking advantage of high trends. We think that there will be better opportunities later in the year and more risk to come. Things are reaching a tipping point soon and we believe that your patience will pay off in 2012.

We begin our summary with a look at the market. International markets seem to have a good first month of the year. Earnings have been pretty good, but no one is talking about better numbers moving forward, which reveals some cautiousness on the part of the business community.

Last week, there was a detailed, two-day Federal Reserve meeting, which revealed, among other things, that Ben Bernanke plans to keep interest rates low for the forseeable future (until 2014). It’s surprising to us that announcement didn’t create more of an uptick in the market.  Again, we think that this indicates that a defensive posture with your capital is wise.

We’ll get to Europe and the bad news from across the pond in tomorrow’s podcast summary (to hear it all now, click here) but there has been some bad news in the U.S. as well. The recent MF Global disaster has been a real blow to consumer confidence and is evidence of a disturbing trend of crony capitalism in this country. (For more information, read the Wall Street Journal’s excellent piece here.)

Check back tomorrow for the next installment and more news out of Europe.

Also, you can look back at previous podcasts here or read our blog summaries of the podcasts here.

Stocks are above their 200-day average right now, but we still advise cutting back on stocks and being very cautious in this Bear market. Even if stocks are up 10-15%, you don’t have any assurance that you’ll actually get these profits. Remember that the European debt crisis is going to really effect investors here in the U.S. and we are still of the opinion that caution will be rewarded as we enter this potentially dicey season.

Speaking of Europe’s issues, let’s dig into the news from Europe and try to make sense of what this crisis will mean for us as investors.

We believe that there are a lot of similarities between the U.S. housing bubble and recession of 2007-08, and what’s happening now in Europe. Many people assumed that even if the U.S. had a slight recession, the rest of the world would be OK. Unfortunately, we all learned that there is no such thing as “decoupling” in the financial markets. If Europe enters a serious recession, it will effect the U.S., China and others.

Because it appears that there’s not a way to contain Europe’s crisis, we advise holding off on stock investments for the time being. Many people are a bit complacent about Europe’s issues, but eventually they will realize how serious the problems are, and we think that we will see a sell-off and sharp decline in stock values in 2012 because of this.

Europe Made Simple

Europe’s three main problems:

1. A large number of countries in the European Union are either insolvent or approaching insolvency
2. Because of the fear of default, most European banks are seen as insolvent
3. There is a massive trade imbalance between strong countries and the peripheral countries. (meaning that countries like Italy and Greece can’t compete with a country like Germany, and they can’t get out of this jam by devaluing their currency, because they are stuck in the Euro.)

Remember that Europe is a larger economic force than the U.S., so we think it will eventually effect the global economy.

Our advice is to stay patient and take advantage of the opportunities that are sure to arise when Europe takes a nose-dive and investors panic. That is an opportunity for the smart investor, as long as you know what sectors to watch and how to take advantage in a wise way. If you would like more information on what sectors we are watching this year and our advice on how to handle the crisis in Europe, please listen to our teleconference from January 10, in which we discuss this issue in detail.

Personal finance exercises, part 4:

We believe that the most successful people are on top of the issues of the day. Being well-informed and staying well-organized will help you to succeed, so for the next few weeks we will be outlining six exercises for you to stay informed and ready to make good decisions. Those six exercises are:

• Making a calculation of your net worth
• Taking inventory of financial assets
• Understanding your cash flow projections
• Examining your expenses
• Making sure you have an updated estate plan and living trust
• Taking stock of all insurance policies – health, life, long term care, annuities, etc.

Three weeks ago, we took less than an hour to calculate your net worth.  Two weeks ago, we talked about taking inventory of your assets. Last week, we figured out how to understand your cash flow projections. If you missed any of these exercises, please go back and listen to those previous podcasts for more detailed information, or you can read the summaries of each exercise on our blog.

This week, we are taking a look at expenses. Every healthy business has a budget and realistic view of their expenses. It’s essential to look at income and expenses and take the time to monitor reality vs their budget.

I recommend taking this same kind of diligence to your personal finances. I suggest that you put together a budget that divides your spending from discretionary spending to essential spending. Many people believe that they can’t cut any expenses, which is more than likely not the case. We advise taking a hard look at your expenses and being realistic about where you can cut and where you can save. We understand that it’s often emotional to look at these things, but it’s much more profitable to look at your budget and expenses now than wait until it’s too late.

All of these exercises are relatively easy, and you need to start the new year off right by looking at this. Again, if you need guidance on what needs to be held or bought, how this inventory works and our advice for your assets, don’t hesitate to get in touch with us.

Once you know what you have to can set clear, reachable goals. Tune in next week for more on Doug Fabian’s Monday Market Update, and the next exercise to preparing yourself for a successful investment future. (Also, if you read this blog and enjoyed it, listen to Doug’s podcast this week for even more details on these topics, and please share this information with others who might benefit from our perspective.)

As we’ve stated before, these are volatile, tricky markets. We still believe that the long-term market trend is heading down even though the short-term might trend upwards. However, we think that Europe and its impending financial crisis will be a key player in any investment, whether you are prepared for it or not.

In the teleconference, I talked about the investment themes of gold and emerging markets, and both of those are showing great promise for the beginning of this year. If you’d like more information on those markets and what our predictions are for them, please listen to this podcast in its entirety and/or the teleconference.

Bonds are still performing quite well and we’re impressed with the action in the bond market. Interestingly, it seems that the bond market is telling us that the economy is weak, but the stock market is telling us that everything is OK. One of these markets obviously has to be wrong, and it will be interesting to see how this plays out this year.

European Update:

Many countries in Europe were downgraded last week, which means that these countries will have higher interest rates for any further borrowing.

Greece has been negotiating the payment of their bonds, and their refinancing negotiations fell through last week as well, which means that they’ve encountered yet another hiccup in getting their financial issues worked out. This is a negative piece of news for Europe as a whole.

Also, Germany is experiencing a slight recession and slow-down at the end of 2011, despite being the strongest economy in Europe.

As we’ve said before, we believe the problems in Europe will affect U.S. investors, so this is something that we are watching closely. If you are concerned about the impact of a European recession on your investments, please listen to the teleconference for a more complete discussion of our strategy in 2012.

Personal finance exercise, part 3:

We believe that the most successful people are on top of the issues of the day and have a plan of success. Being well-informed and staying well-organized will help you to succeed, so for the next few weeks we will be outlining six exercises for you to stay informed and ready to make good decisions. Those six exercises are:

• Making a calculation of your net worth
• Taking inventory of financial assets
• Understanding your cash flow projections
• Examining your expenses
• Making sure you have an updated estate plan and living trust
• Taking stock of all insurance policies – health, life, long term care, annuities, etc.

Two weeks ago, we took less than an hour to calculate your net worth.  Last week, we talked about taking inventory of your assets.

This week, we are figuring out how to understand your cash flow projections. Going through these inventories and personal finance exercises will help you to understand what you have and what that means. Also, this will hopefully give clarity to anyone who might have to manage these accounts in the event of a family tragedy or other emergency. It’s just a good idea to look at these things every now and then, and today we’re going to examine our income.

Income can come from a paycheck (W-2 or 1099 income), rental or royalty income, an investment, a pension or some other source. Figure out how much income comes in monthly, whether it actually appears monthly or not. See what those income sources are, and what you expect those income sources to be and produce in the coming year. Cash flow projections is one of the key issues of financial planning – if you’re not happy with your current cash flow, how can you make it better?

Instinctively, we know that cash flow can make or break your wealth management choices, but most people don’t actively try to fix problems with their cash flow. As you figure out how to achieve your cash flow and income goals, remember that we are here to help you make these decisions and work out solutions to your personal financial situation.

Tune in next week for more on Doug Fabian’s Monday Market Update, and the next exercise to preparing yourself for a successful investment future. (Also, if you read this blog and enjoyed it, listen to Doug’s podcast this week for even more details on these topics, and please share this information with others who might benefit from our perspective.)

We provide these blogs, podcasts and telecasts as part of our effort to inform and engage our friends and clients in healthy investing and rewarding financial growth. Feel free to skim through this blog for some highlights and listen to the full broadcast when you have time later – the information provided is not intended to give you be specific financial advice, but it will help you to make smart decisions with your investments.

Last week we talked a lot about Europe’s looming debt crisis, and this week we saw Europe still trying to fix their situation. Greece is in especially bad shape, and is about to go bankrupt, with austerity programs missing many of the fiscal targets they were aiming for. There is much concern that a meltdown in Greece will lead to the insolvency of European banks, and we still believe that “caution is the greater part of valor” in this instance.

One good note last week was the jobs report, which reported 200,000 jobs added on Friday – although we need 275,000 new jobs just to break even, so even that news is met with some caution.

Obviously, we continue to be a very uncertain economy, and uncertain world. Right now the trend of the market is very tenuous. We still believe that even with relatively positive news out of US, markets will go even higher, I think there’s 5% upside and 20% downside on a short term (next six months) standpoint in the stock market.

Remember last week we talked about patience in these areas, recognizing that the global economy is probably in a more serious recession than we currently feel. Be careful, as there is still plenty of risk for your hard-earned investment capital.

We want to talk today about your 401k, 403b, 457 plan, variable annuities, variable universal life – all of these are retirement products with some common traits. One of the questions we want to ask is: how do you allocate your retirement money?

The vast majority of Americans readjust their retirement allocations in January and don’t look at them for the rest of the year, so take the time to see what’s working for you and what’s not.

Look at what your personal allocations are – what are the individual accounts and how much is devoted to various allocations (stocks, bonds, etc.) What are your choices? Our first choice is cash. As Mohamed A. El-Erian said in his Wall Street Journal opinion piece this week, our investment strategy should be: “defensive, but agile enough to be offensive when opportunities emerge.”

To illustrate, you’ll notice that many large companies are dealing in what’s known as self-insurance, or sitting on large amounts of cash to insure themselves against a tenuous economy. We suggest that you take a similar approach right now – don’t be fully invested. Now is a time to be exercising some prudence, and hold cash so that if opportunity arises, as El-Erian wrote, you’re ready.

We suggest putting some of your portfolio in short-term bonds. They pay less in yield, but some interest is better than no interest. Also, if you have a Pimco total return fund option, that’s a good option, and if you’re going to have an allocation to stocks, make it very small.

Our clients have no allocations to stocks, in this uncertain economy. If these allocation decisions are difficult for you to make, or if you would like more in-depth analysis of what your options are, please call our offices so that we can take a look at your portfolio and help you with personalized options.

Now we’ll move on to the series we started last week: personal finance exercises.

We believe that the most successful people are on top of the issues of the day. Being well-informed and staying well-organized will help you to succeed, so for the next few weeks we will be outlining six exercises for you to stay informed and ready to make good decisions. Those six exercises are:

• Making a calculation of your net worth
• Taking inventory of financial assets
• Understanding your cash flow projections
• Examining your expenses
• Making sure you have an updated estate plan and living trust
• Taking stock of all insurance policies – health, life, long term care, annuities, etc.

Last week, we took less than an hour to calculate your net worth – in order to grow your net worth you have to know where you’re starting from.

This week, we’ve moved on to the second item: take inventory of your assets. Everyone knows how great it feels to clean out unnecessary clutter, and you need to do the same thing with your assets.  Look at individual positions and see where you are. List each position, look at how it performed, look at your asset allocation, look at whether it’s a good idea to sell and be defensive with our cash, or hold and then decide what to reallocate.

Don’t be afraid to make changes – remember we are being defensive with our investments, and it can be a good idea to take a small loss if something is underperforming. Look at how your mutual funds perform versus their peer group and get rid of anything that isn’t up to par.

All of these exercises are relatively easy, and you need to start the new year off right by looking at this. Again, if you need guidance on what needs to be held or bought, how this inventory works and our advice for your assets, don’t hesitate to get in touch with us.

Once you know what you have to can set clear, reachable goals. Tune in next week for more on Doug Fabian’s Monday Market Update, and the next exercise to preparing yourself for a successful investment future. (Also, if you read this blog and enjoyed it, listen to Doug’s podcast this week for even more details on these topics, and please share this information with others who might benefit from our perspective.)

As we look back at 2011 (and forward to 2012), the biggest financial news item is the crisis in Europe. After all, the U.S. is not doing that poorly, and was seen as a safe haven for investments by many in the global marketplace. In many ways, even though certain industries are looking up (biotech and healthcare are up 10% each, for example) others, like banks and big financial services firms took heavy hits in 2011. Essentially, this means that we are still in a state of capital preservation, and we will need to take the global slowdown seriously, particularly in Europe.

Europe represents a significant portion of global economic activity, but it is saddled with some serious economic issues, like debt load, not enough income through taxes to support outflow and a generally stagnant economy. Basically, if Europe was a business, it is not a good one to invest in, because it is too expensive to buy in to at this point.

One great example of this appeared in our hometown paper, the LA Times, on New Year’s Day. The front-page story opens with these vivid descriptions: “…’It’s as if someone is “holding your throat and choking you slowly.’ That’s how one analyst vividly describes the squeeze on lending in Europe these days. Scared by the euro debt crisis and a flat-lining economy, banks have been tightfisted with their money, refusing to issue many of the loans that companies desperately need to keep their operations running smoothly or to take them to the next level.”

The article continues:

“Here in Britain, Prime Minister David Cameron’s office reckons that banks have already entered a second ice age. In other parts of Europe, especially the weakest of the 17 nations that share the euro, credit has also begun freezing up, analysts say. The squeeze has sent businesses scrambling for new ways to finance their activities and fostered an alternative market that bypasses Britain’s big ‘high street’ banks in favor of lending houses and venture capitalists.”

We all know that all companies need access to capital, and when those credit lines are removed, as is happening in Europe, this is a problem for business.

Unfortunately, many of these economic problems have been coming for some time, but governments don’t tend to share bad or politically incorrect news very well. This means that we generally don’t have all the information until it’s too late, which is why Fabian Wealth Strategies is encouraging our readers and listeners to really pay attention to these news reports and other signs of distress. Even though the U.S. is still doing OK, there is bound to be blowback because of Europe’s crippling issues – we encourage you to not be impatient or underestimate the real problems.

Also, don’t feel pressured to be in the investment game daily. Like the old song says, you “need to know when to hold ‘em and when to fold ‘em”, and when we take a step back and note the many forces at work in the marketplace, we’ll be better informed and wind up with better results. Remember, patience is a virtue!

Plus, in this podcast, we are going to help you understand strategic advantage and timing of your investments – in other words, we won’t just tell you to be “patient” forever, but we’ll help you create a plan in which that patience pays off.

We believe that the most successful people are on top of the issues of the day. Being well-informed and staying well-organized will help you to succeed, so for the next few weeks we will be outlining six exercises for you to stay informed and ready to make good decisions. Those six exercises are:

• Making a calculation of your net worth
• Taking inventory of financial assets
• Understanding your cash flow projections
• Examining your expenses
• Making sure you have an updated estate plan and living trust
• Taking stock of all insurance policies – health, life, long term care, annuities, etc.

Today we’ll focus on making a calculation of your net worth, because implementing any strategy requires knowing what you have and what to do with it. You need a starting place for your financial affairs – a calculation of what you own, what you owe, and what your plans are for growing what you have.

So ask yourself these questions, to get started on this exercise:

• How much cash in the bank do I have? (not investments, just cash)
• What are your real estate holdings worth?
• What retirement plans do you have and what is each one worth?
• What’s your small business worth?
• What are your liabilities? Credit cards, loans, mortgages, etc.
• Count your two types of assets: liquid (stocks, bonds, etc.) and illiquid (real estate or other assets that are not easily converted to cash) How much do you have of each?

Once you know what you have to can set clear, reachable goals. Tune in next week for more on Doug Fabian’s Monday Market Update, and the next exercise to preparing yourself for a successful investment future. (Also, if you read this blog and enjoyed it, listen to Doug’s podcast this week for even more details on these topics, and please share this information with others who might benefit from our perspective.)