So the first month of 2012 is behind us. Did you set any goals for the year? How are they coming along? There were some fantastic financial articles out there last month. Here’s a tiny sample:

1.  Farnam Street posted an excerpt from a new study on Willpower & New Year’s Resolutions. Apparently, the key to keeping our resolutions is to make sure we don’t need to call on our willpower too often by minimizing temptations. That’s probably why automating your finances by paying yourself first works.

2. The World Economic Forum takes place in Davos, Switzerland each January. Umair Haque pointed out Ten Things You’re Not Allowed to Say at Davos. Enlightening.

3. Take a look at this interview with Danielle Park at Cambridge House in Vancouver. “Wise investors concerned about the real direction of the economy will learn something here!”

4. At Personal Dividends, Miranda asked Should You Care About European Financial Problems?

5. If you’re concerned about the economic challenges facing Europe and the U.S., you may want to check out this Market Watch article on Living the American Dream – in Canada.

6. Which is better: Tax Free Savings Account or Paying Down Debt? Jim Yih tackled this question at the Retire Happy Blog – and he drew some neat pictures too!

7. Has you financial advisor ever told you that “You’re young so you can afford to take more risk”? If so, you might want to head the other way according to FiGuide. That line was included in their list of The 6 Worst Pieces of Financial Advice.

8. Overheard in the workplace: “Only stupid people give to charity. I give enough with my taxes.” Wealth Informatics posted an interesting analysis of why we give and how to give smartly.

9. Forbes had a really interesting article on 5 Personality Traits That Lose You Money.

10. The Reformed Broker linked to a CBC interview with Seth Godin: It’s a Forever Recession – So Race to the Top. I’m reading Seth Godin’s Linchpin at the moment and loving it. Maybe I’ll post a review when I’m done.

I hope you enjoyed these articles as much as I did. Feel free to comment on any of them here.

Related posts:

1. 20 Cents from January 2010
2. 20 Cents from January 2011
3. 20 Cents from April 2011

I’ve been using Quicken for over a decade to manage our personal finances, so when the folks at Intuit asked me to review Quicken Home and Business 2012, I was happy to do so. I’ll have a chance for one lucky Canadian to download a free copy of Quicken Home and Business 2012 (for Canadians) at the end of this review.

Quicken Home & Business vs. Cash Manager

There are a few different versions of Quicken personal finance software available. To be clear, the Home & Business edition I’m reviewing here offers a little more than the basic Quicken Cash Manager. You can compare the two at Intuit’s website, but the main difference is that you can track investments and business transactions in Home and Business, whereas Cash Manager just allows you to track spending, saving and budgeting.

Both are very useful, depending on your unique needs. I like the Home and Business version because I can track our investments as well as our self-employment and commission employment expenses. It really makes filing our taxes a lot easier. I can just enter the expenses as we incur them and generate customized tax reports that sum it all up for me at tax time.

What Can Quicken Home & Business 2012 Do for You?

I downloaded the 2012 edition in order to update my 2008 version. The transition was pretty seamless. It did, however, allow me the opportunity to really look at how I was using the software and update some categories and reports to better reflect our current income, spending and tax situation.

Here are some of the ways Quicken Home & Business can help you stay on top of your finances:

• Categorize income and expenses so you know what’s coming in and what’s going out
• Track your net worth
• Set up a budget that tracks as many (or as few) spending categories as you like
• Track your spending and identify areas where you can cut back or save more
• Generate customizable reports for your investments, business, taxes, spending, and budgeting
• Set up savings goals for special items like a vacation, new vehicle, or Christmas expenses.
• Track your debt and set up a debt reduction plan
• Automatically enter regular bills and pay cheques
• Enter transactions and track balances for all of your bank, credit card and investment accounts (RRSPs, TFSAs, brokerage accounts, etc.)

There are tabs for Spending, Bills, Planning, Investing, Property & Debt, and Business. Each gives you a customizable, at-a-glance view of what’s happening in a particular area of your financial life. There’s also a “Home” tab that you can customize to show just about anything you’d like from any area you track.

Is Quicken for You?

Only you can decide whether your financial situation could really improve with Quicken. Like any other software program, it’s just a tool. It can’t cause you to earn more income, or curb your spending. Only you can do that.

I know some folks who just can’t be bothered entering all of their expenses and transactions into the software. To be honest, it is a lot of work – even though you can download your transactions from most financial institutions. For me, however, it’s worth it for the peace of mind I get from knowing where we stand financially and being able to spend money on things with the confidence that we can really afford them.

Wish List

While I have yet to find a personal finance software that works as well  for us as Quicken, I would consider switching if someone could address a few of the issues I have with using the product. The biggest problem for me is that I use a Mac. There is no Quicken for Mac available for Canadians. In order to use Quicken, I have to buy a separate software that allows me to run Windows simultaneously on my Mac – annoying!

Secondly, I’d like to see Quicken updated to sync with mobile devices like iPad. There are all kinds of ways that creative apps could make the software a lot more user friendly.

Win a Free Download of Quicken Home & Business 2012

In the interest of full disclosure, I did not personally receive any remuneration for writing this review. Nor did Intuit put any restrictions on what I could say. So this is just my honest opinion based on my experiences with the product.

Intuit did, however, offer a free download of Quicken Home & Business 2012 for Canadians. If you want a chance to win it, all you have to do is leave a comment on this article by 5:00 PM Eastern time on January 29, 2012. I’ll randomly draw a number based on the number of comments. I’ll notify the winner via email and send along a link for the free download. Canadians only please: this is for the Canadian version of Quicken Home & Business only. Good luck to all!

Related posts:

1. Should You Run Your Home Like a Business?
2. Financial Outlook for 2012
3. TFSA Contribution Limit for 2012

The following is a guest post by Rob Bennett.  I’m pleased to announce that Rob will be sharing his thoughts with us here in a monthly column. Thanks Rob!

Gene Mauch was the manager of the Phillies baseball team when I was a boy growing up in Philadelphia. He once said something in an interview that has stuck with me ever since.

Mauch said that, when his team was on a winning streak, his job was to pop holes in the inflated egos of his players. When players are winning, they start thinking that they are so awesome that they can never be beat. They get sloppy. They stop doing sit-ups. They stop backing up throws. They’ve got it. They’re hot. Mauch would yell at the Phillies at such times. It was his job to bring them back to earth.

His job changed when the team was on a losing streak. The same guys who were so full of themselves a week before would now be down on themselves, certain that they would never again find the groove. They so lacked confidence that they were afraid to swing the bat with authority, afraid to take chances on the basepaths, afraid to take control of a game. At these times, Mauch would not yell, no matter how many strikeouts or errors he saw. At these times, it was his job to remind his players how great they had to have been to have made the team in the first place.

I believe in the Gene Mauch rule. It’s easy to yell at people when they mess up. Easy and dumb. People are never as incompetent as they appear to be when they are making mistakes.

And its easy to cheer people on when they are turning up aces. That’s dumb too. No one needs to be reminded of how great he is when the entire world is busy telling him how great he is. People are never so awesome as they appear to be when they are hitting all line drives.

I am a critic of Buy-and-Hold. I advocate Valuation-Informed Indexing instead. Why? Valuation-Informed Indexing is rooted in a belief in the Gene Mauch rule.

Bull markets are the stock market’s equivalent to baseball winning streaks. During bull markets, the temptation is to get overly excited about stocks, to count the phony and temporary bull market gains as permanent. Gene Mauch would not approve.

Gene Mauch would be yelling at investors who took the numbers on their portfolio statements seriously in the late 1990s. Stocks were priced at three times fair value in the late 1990s. That means that stock investors should have been expecting to see a loss of two-thirds of their accumulated wealth of a lifetime as stock prices worked their way back down to fair value in the coming years. But how many investors knew that? How many of the “experts” in this field reminded them?

Gene Mauch would have reminded them. He understood that believing in your own press releases when things are going good leads to laziness and arrogance and that laziness and arrogance lead to losses, both in baseball and in investing. We didn’t need to hear financial planners telling us how smart we were to invest in stocks in the late 1990s. We needed them to bust our bubble. If Gene Mauch had been around, he would have given a few of us a kick in the bottom.

He wouldn’t be doing that today, however.

We don’t need to be brought down a few pegs today. We need to be reassured that we are not the losers that we are coming to believe we are. Mauch would be pointing out to the investors of today that, while prices remain too high today for us to realistically expect good long-term returns just yet, things are certainly moving in the right direction. Afer the next stock crash, prices will be where they need to be for stocks to represent a strong long-term value proposition. Today’s investor should be getting prepared, not depressed.

Buy-and-Holders are like the baseball managers who are thrilled with their teams as long as they are winning and are punching lockers when they experience a losing streak. Buy-and-Holders are the Billy Martins of the investing world, getting excited over the phony profits of bull markets and looking for a place to place the blame when the phoniness inevitably takes things to a bad place. Have you noticed that the same Buy-and-Holders who praised their own genius during the bull years do not accept personal blame for the losses they have seen over the past 12 years? Wins are their doing. Losses are the fault of a bad economy.

Mauch understood that winning streaks and losing streaks are rooted in the same thing — human emotion. When things are going well, we feel confident and our performance goes up a notch. When things are going poorly, we are afraid to show our faces in public and our fears cause us to underperform. You don’t want players becoming too full of themselves during winning streaks. Those that get caught up in a phenomenon that is rooted in luck will feel all the worse when lucks turns the other way. You want your players to achieve emotional balance, to know that they are good enough to win but not good enough to win without working it hard.

So it is with investing. Valuation-Informed Indexers don’t count the phony gains of bull markets as real. When stocks are priced at three times fair value, we divide the number reported on our portfolio statement by three so that we know the real and lasting value of our portfolios. We don’t want to experience panic when things turn bad. The way to avoid panic when things turn bad is not to buy into the nonsense being told when things are going good.

Gene Mauch understood that managing a baseball team is not primarily about mastering the mechanics of hitting or pitching or fielding or running. Baseball teams are comprised of human players with human emotions. The first job of a manager is to help those humans avoid the emotional ups and downs that plague teams lacking managers as smart as Mauch.

Strategies come and go in the stock field. There’s always a new craze. Today it is Buy-and-Hold, tomorrow it will be for something else.

Emotionally balanced investing is not a craze. Valuation-Informed Indexing is the only strategy I know of that never once would have let you down over the 140 years for which we have records of stock performance. Gene Mauch was a genius.

Rob Bennett argues that IBonds are cash, new and improved! His bio is here.

Related posts:

1. The First Rule of Personal Finance and Investing
2. Do You Understand the Difference Between Investing and the Business of Investing?
3. Stereotypes: Toss the Rule Book & Write Your Own

We are rapidly coming to the point where we can no longer stuff the dirty clothes and toys under the bed. There is no more room. We are going to be forced to actually deal with the mess.

~ John Mauldin, 2012: A Year of Choices

Just a few weeks into 2012, markets have been mostly positive – until Friday’s European credit rating downgrades and JP Morgan’s disappointing earnings results derailed the enthusiasm. The warm holiday glow of optimism seems to be fading and 2012 is already starting to feel a lot like 2011, with all of the queasiness that went with it. Today we take a look at some of the themes I think will dominate the financial news this year as well as some 2012 insights from folks who are a lot smarter than I am.

2012 Overview: Volatility & Whiplash

I chose bifurcation as the main theme for 2011. I think that theme will continue (along with biflation) this year. We are likely to see more pressure on consumers due to rising food and energy prices coupled with a lacklustre economy and job market. I’m going with volatility as my main theme for 2012. I think investors will continue to experience chronic whiplash this year as markets adjust to headlines on an everything’s fine vs. the financial system is going to hell in a handbasket basis.

The secular bear market that began around 2000 will continue until the deleveraging process ends and the market clears the glut of debt built up from the last secular bull market (1983 – 1999). Will that happen in 2012? I don’t know. But I’m pretty sure we’ll have another financial crisis at some point in the not-too-distant future and I’m playing it safe with our investments for now as a result.

Top Financial Themes for 2012

1. Sovereign Debt: Eurozone debt concerns dominate the headlines right now, and they do pose a potential threat to the financial markets. But let’s not forget that Japan, the U.S., and the U.K. are sporting some pretty hefty debt-to-GDP ratios as well. It’s only a matter of time before all of that comes home to roost.
2. China: Some say China’s real estate market is ready to implode thanks to excessive lending. Others say the Chinese authorities will successfully engineer a soft landing. Will China be able to support the global financial system by buying up a bunch of debt? I wish I knew the answers to these questions. Unfortunately, all I do know is that a serious glitch in the Chinese economy has the potential to further destabilize the global financial system. If markets think China is going to be OK, however, that could prove to be a calming, if not stimulative elixir for markets. As a result, I’ll be watching the Shanghai Composite Index more closely this year.
3. Global Growth Slowing: Most economies worldwide seem ready for a slowdown, with some facing imminent recessions and others, potentially depression-like conditions. Although many corporations have reported excellent profit growth since the 2008 crisis abated, a slowdown in global growth will temper or reverse those tailwinds.
4. Geopolitical & Civil Unrest: North Korea has a new, untested leader. Iran is kicking up dust over their nuclear program and the Strait of Hormuz. The Occupy movement has died down a little, but could easily resurge along with other forms of civil unrest if another financial crisis erupts. These are some of the issues that could affect markets and money in 2012.
5. U.S. Election: Raise your hand if you’re already tired of the 2012 U.S. election coverage. It would be wonderful to have some white knight take the Presidency, clean up the infantile partisan political structure, and kick out the powerful lobbyists that buy and own government policy. How many of you think that’s going to happen? It seems like we’re still stuck with a major leadership vacuum just at the time we desperately need some adult guidance. Absent our fabled white knight, I don’t see a way for the political machinery to help smooth the obligatory deleveraging process.
6. Fed Policy: Will the Fed implement QE3? If they do, the markets will likely rally wildly, but this type of policy will only prolong the inevitable debt reckoning.
7. Pension Problems: I mentioned this as a dark horse for 2011. Many pension funds are drastically underfunded thanks to record-low interest rates and lackluster equity returns. I’m not sure this will affect markets directly in 2012, but it’s not a problem that’s going away and it’s something for all of us to keep in mind as we try to plan for our own retirement. I hope to write more on this topic in 2012.

2012 Insights

I’ll just quickly share a few of the 2012 commentaries that caught my eye so far. All are worth your time:

• 2012: A Year of Choices ~ John Mauldin
• 2012 Investment Themes ~ Gary Shilling (via John Mauldin)
• Hope for 2012 ~ Danielle Park
• 15 Surprises for 2012 ~ Doug Kass
• The Right Kind of Hope ~ John Hussman

Doug Kass is the lone bull in this group. Both Mr. Mauldin and Ms. Park quoted John Hussman in their articles and I loved the quote both times, so I thought I should share it with you here in case you missed it:

Happy New Year. We enter 2012 with a great deal of hope, but our hopes are not for more bailouts, or money printing, or any of the myriad policies that investors seem to hope will save bad investments and sustain elevated valuations. Instead, our hope is that in 2012, the market will finally “clear,” in the sense that bad debt around the world will be recognized as bad and restructured; that overleveraged financials will be taken into receivership instead of forcing austerity on every corner of the global economy in order to make them flush again; that rates of return will rise enough to compensate and encourage saving – and high enough to encourage borrowers and other users of capital to allocate the funds productively. Of course, in order to restructure bad debt, someone has to accept a loss. In order for rates of return to rise, valuations must decline. In short, our hope is for events that will unchain the global economy from an irresponsible past and open the gates toward a prosperous future. Maybe that is too hopeful, but we are not entirely convinced that bailouts and “big bazookas” will be as easily procured in the year ahead as a confused public has allowed in recent years. ~ John Hussman

These are my thoughts on financial markets at the beginning of 2012. Care to share yours?

Related posts:

1. Quicken Home and Business 2012 Review
2. TFSA Contribution Limit for 2012
3. 5 Year Market Outlook: Felix Zulauf

The following is a guest post. I’ll have my 2012 outlook up on Monday. Have a great weekend! ~ 2 Cents

Looking for a credit card can be difficult because there are so many different types of cards that offer their holders different advantages. Some credit cards have rewards for making purchases from certain stores, but others will offer people cash back when they spend a set amount of money with their cards. Finding the one that is perfect for them has gotten easier because of the credit card comparison sites that have begun to make their way to the Internet.

Credit Cards for People with Excellent Credit

The comparison sites cater to different types of people and cards. For example, some people are looking for a card that will give them a 0 percent interest rate, and these comparison sites will have several examples of credit cards that offer the 0 percent introductory rate for people with excellent credit. As this will not be the only advantage being offered by these cards, everything will be listed on this site. If people would like to apply for the card, they have the opportunity to do so right from the comparison site.

Credit Cards for People with Lower Credit Scores

Comparison sites will even have a list of cards for people with bad credit. Not everyone can qualify for the 0 percent interest rate cards mentioned above, but these sites make it easy for them to seek a credit card for average and low credit scores.

Frequent Flyer Miles or Cash Back

A popular feature for credit cards is the ability to earn points to receive frequent flyer miles. These credit cards may also have a feature that offers the card holders cash back when they have spent a set amount of money. For example, some cards will give people $200 cash back after they have spent $500 in a set amount of time, such as three months. The comparison sites will also help people find several examples of these cards.

The British Love Comparison Websites

The credit card comparison website is a favorite of the people in the United Kingdom. These sites give people hundreds of choices of credit cards, and help them choose the right one by listing the interest rate, the length of time the cards will have a 0 percent interest rate and whether or not balance transfers are allowed. They can also read the reviews written by current card holders. With all of this information on comparison sites, people looking for a credit card can find the best deals.

Related posts:

1. How to Effectively Use Cash Back Credit Cards and Maximize Rewards
2. What Happened to the Euro Deal Euphoria?
3. How Do You Deal with Financial Stress?

The following is a guest post with some good advice to kick off 2012. Enjoy!

The New Year is upon us, and for many, this time of the year signifies a time of new beginnings. People strive to better themselves by creating New Year’s resolutions, many of which are focused on health. While trying to be a better person in the new year is nothing to scoff at, there are a few New Year’s resolutions that are good for you both physically and mentally, as well as financially.

Losing Weight

Obesity is one of the greatest epidemics plaguing America today, making losing weight one of the most popular New Year’s resolutions this year. However, losing weight isn’t just ideal for your health, it is also highly beneficial to your wallet. In addition to saving money with reduced eating out and grocery bills, losing weight will also save you money longterm as it will provide you with lower health insurance premiums and keep you from suffering expensive medical conditions, such as diabetes.

Going Green

Going green has been on nearly everyone’s mind in recent years, and many are choosing to live more sustainably this year. While some aspects of going green aren’t always cheap, such as new solar paneling, everyday switches, such as switching to CDLs, adding weather stripping to doors and windows, and lowering the thermostat, can actually save you money while you help the environment.

Quitting Smoking

Smoking is in no doubt an expensive habit. Regular smokers can find themselves spending upwards of $200 a month on cigarettes, and even more so in the future should they begin to suffer from one of the numerous health conditions associated with smoking. By quitting smoking, you can save over $1,200 a year alone in cigarettes, and even more down the road by avoiding high medical bills.

Finding a Better Job

There is no doubt that millions of American’s are fighting for new jobs, whether it be selling car insurance or selling real estate, but that doesn’t mean that you should skip out of hunting for a new job yourself in the new year. Finding a new job can not only provide you with a better salary, but also with health insurance and 401(k) match that can provide you with thousands of extra dollars in the future.

Skipping the Coffee Shop

Caffeine is one of the most addictive, a socially acceptable, chemicals in our culture today, and it’s not uncommon to hear someone say, “You don’t want to see me before my morning coffee” or “I really need a Diet Coke right now.” However, that being said, caffeine is also a highly detrimental and expensive habit. The morning coffee that you grab on your way to work or that soda that you get at lunch can quickly add up. So by choosing to give up caffeine in the new year, you will be sure to save yourself a couple hundred dollars.

Everyone wants to get off on the right foot in the new year, and choosing the right New Year’s resolutions is a great way to do so. Just make sure that when you choose your resolutions that they are doing more for you than just making you feel like a better person – make sure that they will also increase your monthly budget too.

Related posts:

1. A Dozen Good Reasons to Move to Canada
2. Are GICs a Good Substitute for Bonds?
3. Is This a Good Time to Invest in Banks?

Youth is when you’re allowed to stay up late on New Year’s Eve. Middle age is when you’re forced to.

~Bill Vaughn

2011 has now passed into the annals of history. How did the financial world fare? What did we learn in the process?

2011 By the Numbers

Let’s start with a short report card on the 2011 performance of a few key indices: (You can click on each index to see the chart.)

TSX: -11.1%

S&P 500: No Change

CRB Commodity Index: -8.3%

Gold: +13.9%

Oil: +6.4%

Canadian Financials (XFN): -4.4%

U.S. Financials (XLF): -17.1%

Bonds (XBB): +9.3%

Canadian Dollar: -2.1%

Shanghai Composite: -22.6%

You can see that, although commodities in general were down for the year, gold and oil still rose. Copper was down over 20%, commensurate with the “global growth is slowing” thesis.

In general, the markets painted a picture of the quintessential secular bear market in 2011. Specifically, the S&P 500 chart maps the volatile road to nowhere that characterizes secular bears. “While the $SPX finished where it started (1257), it swung about 3238 points over the course of the year to do it.” (via @TBPInvictus)

How Did 2011 Predictions Do?

In my overview of 2011 What Ifs, I noted that sentiment was largely bullish to start the year. We had experienced quite the stock market rally off the March 2009 lows and many were anticipating a strong economic recovery and continued support from central banks and governments.

Whether you were a bull or a bear to start 2011, you could probably claim some kind of victory, for the overwhelming trend of the year seemed to be increased volatility. We regularly saw multiple percentage point moves intraday in just about every global index. Precipitous downdrafts seemed to be followed by rocket rides higher with almost alarming frequency as most traders and investors developed a chronic case of headline whiplash.

Bifurcation

I picked bifurcation as my dominant theme for 2011. Based on the underlying biflation thesis I’ve carried for the past few years, I thought we would continue to see a rising cost of living coupled with slow economic and employment growth. I also thought the U.S. housing market would remain stagnant and that we would see a growing divide between the prosperity of high and low income households.

Commodities had risen a lot since the 2008 lows and we had not yet seen the full effects of those increases at the grocery store yet. If you bought groceries in 2011, you no doubt noticed that just about everything has gone up in price by a significant margin. Energy prices remained elevated as well, adding to the strain on the average to low income consumer. Many predict that these high food prices are here for an extended stay.

I also mentioned the bifurcation we’ve witnessed between wealthier and highly indebted sovereign nations. This dichotomy came to a full boil in 2011 as the European debt crisis seemed to be in the financial headlines daily and was regularly mentioned as the one issue that could send markets tumbling or soaring depending on the headline du jour.

Interestingly, the crisis in Europe is rooted in problems caused by economic bifurcation in the Eurozone. Nations with lower debt loads are trying to figure out how to get debt-laden countries to strengthen their balance sheets without taking down the European (and global) economy or asking their own taxpayers to foot the bill in the process – no small dilemma.

Occupy & Steve Jobs

The bifurcation theme is fittingly captured by the juxtaposition of two of the major financial headline-grabbers of 2011: the Occupy movement and the passing of Apple CEO Steve Jobs. The Occupy Wall Street movement grew out of a frustration with the burgeoning divide between the ultra-rich and the not-so-rich. People seemed to have had it with watching financial scandals affect their livelihood and then witnessing the instigators of these crises walk away with multimillion dollar parting gifts rather than orange jump suits and handcuffs.

Very shortly, however, an anti-Occupy meme seemed to erupt wherein the message of the movement was misinterpreted as a wealth-hating, anti-capitalist, anti-success, and (gasp!) anti-American sentiment enounced by jealous whiners. Jamie Dimon’s “stop picking on billionaires” statements were alternately met with applause and derision depending on which side of the Occupy debate you reside. For the record, I’m with The Reformed Broker.

Compare this divisive backdrop with the unanimous grief with which the passing of Steve Jobs was met. Steve Jobs was pretty rich. And yet his loss was sincerely mourned by those who profited from Apple’s zooming stock price as well as those who could barely afford their latest devices – but wanted to buy them anyway.

Although I’ve read a few less-than-flattering articles on Mr. Jobs’ aggressive pursuit of his goals, I can’t help but think that the company he founded may be one of the last bastions of true capitalism. You see, Apple actually makes stuff – really cool gadgets that people find extremely useful in their everyday lives – at home and at work. Nobody seems to mind paying a little more for them and nobody that I know ever said Steve Jobs didn’t deserve to be very wealthy.

Contrast that with the manner in which some members of the financial elite came upon their wealth. Many have derived tremendous income from the creation of derivatives like the CDOs that sunk the subprime market or the CDS that will either protect or implode the financial system, depending on whom you ask. When these things do blow up, the financial elites escape accountability and happily leave others (taxpayers) to clean up the mess. While the financial sector is a vital component of our economy, it has become too large and too powerful. It contributes too little to the real economy and siphons too much capital for itself.

Let’s hope that the capitalist vision of a company that exists for the purpose of, and derives profits from useful contributions to society did not die along with Steve Jobs. Let’s hope that the bifurcation of 2011 someday gives way to the kind of unity engendered by the accomplishments of Mr. Jobs. Real capitalism is alive and well. We just need to cultivate it a little more and get serious about pulling those weeds. These are some of the lessons I’m taking away from 2011.

What did you learn in 2011 that you’re taking with you in 2012?

Related posts:

1. Post Cards from 2010
2. Bulls vs. Bears: Q4 2011 Edition
3. How to Effectively Use Cash Back Credit Cards and Maximize Rewards

I missed posting the November 2011 edition of 20 Cents due to my short blogging sabbatical, so I’m combining some highlights from November and December here. There are a few bonus links in there too. Enjoy!

1. Let’s get things started with 3 great articles courtesy of Barry Ritholtz at The Big Picture. Barry calls out Cognitive Dissidents, says the U.S. Is a Corporate Monarchy, and highlights 29 Systemically Dangerous Global Banks. All are well worth your time.

2. Million Dollar Journey posted an excellent article on Why Cash Is King. In a volatile marketplace, cash provides a much-needed, if low-yielding, margin of safety.

3. Global investors watched Eurozone leaders make unequivocal statements followed by very equivocal retractions for most of 2011. John Hussman did his best to sort out this economic Hokey Pokey for the rest of us.

4. Charles Hugh Smith (Of Two Minds) was much more direct in his characterization of the Euro debt crisis, and what’s necessary to resolve it: Why Isn’t Anyone Talking about Writing Off 3 Trillion Euros of Bad Debt?

5. I rarely highlight another roundup in my 20 Cents post, but this one from Abnormal Returns is so chock full of worthy articles, I couldn’t resist: Wednesday Links: Healthy Capitalism.

6. Interloper is one of my favourite newcomers to the financial blogosphere in 2011. Check out the article on why the “Highest Risk Tolerance Wins” Investment Era May Be Coming to a Close. While you’re at it, stick around and browse a while. I’m sure you won’t be disappointed.

7. The Oblivious Investor made some excellent points in Asset Allocation: Maximum Tolerable Loss.

8. A friend inspired My Own Advisor to ask What Does Smarter Living Mean to You?

9. Science Daily may have some answers on cognitive dissonance for Barry Ritholtz in the study on Why People Defend Unjust, Inept, and Corrupt Systems.

10. Here’s another collection of great articles from another site I just recently discovered called Farnam Street. Check out all three:

• If You’re Busy, You’re Doing Something Wrong
• Neuroscience, Happiness, and Balancing Self vs. Social Interest
• 7 Things Highly Productive People Do

Happy New Year! I wish all of you peace and prosperity in 2012!

Feel free to comment on any of the articles that piqued your interest!

Related posts:

1. 20 Cents from June 2011
2. 20 Cents from November 2010: BJ First Anniversary Edition
3. 20 Cents from December 2010

This indecision’s bugging me …
Should I stay or should I go now?
If I go there will be trouble
An’ if I stay it will be double
So come on and let me know!

~ The Clash

OK, so quoting a vintage Clash song from the 80s gives away my Gen X affiliation – and could easily be considered a little cheesy to boot. Still, I couldn’t think of any better way to frame this article. I wrote in November that I was taking a little time off to ponder the future of Balance Junkie and work on a new business venture. Today, I’d like to outline some of the thought processes I went through over the past 6 weeks or so and offer some tentative conclusions.

So far, things are going decently with the business and we’ve accomplished a lot of the little things that were hanging over our heads. But now is the time where the rubber really needs to hit the road. We need to convert all of these plans into a consistent revenue stream.

Reasons to Stay

Here are some of the positives Balance Junkie has to offer (gleaned from reader comments and my personal reflections) as well as reasons I enjoy writing the articles:

1. Unique Content: Not a lot of personal finance blogs cover the more sophisticated economic and market topics we tackle here. In addition, I’m a little older than many of the PF bloggers out there and therefore have a different perspective and level of experience to share as a result.
2. Canadian Twist: While we cover the global events affecting your money here, we also try to keep readers up to date with topics that are uniquely Canadian like TFSAs, RRSPs, and RESPs.
3. Wide Variety of Content: We try to offer information on just about anything related to personal finance and life balance. So you’ll find articles on everything from goal-setting, saving and basic budgeting to the latest economic forecasts, investment strategies, and financial crisis du jour.
4. High Quality, Unbiased Writing: Just going by reader comments here. While I’m as biased as the next human being in many ways, I don’t have any vested interest in expressing my views as I don’t work for any kind of financial firm.
5. Win-Win: In short, helping others helps me too. I like to hear that people have found the articles here interesting or though-provoking or helpful. Writing them also helps me clarify my own thoughts and strategies as I navigate life and money. Readers often bring up some great ideas that I can implement to improve my own life balance sheet.
6. Hard to Let Go: It’s taken a great deal of time and effort to build a stable of decent articles here. I’ve met a lot of really great people in the process. It’s so hard to think about letting all of that go.

Reasons to Go

Here are a few of the factors that have me considering taking my thoughts private again:

1. Small Voice, Big Crowd: While the content here may be relatively unique by some measures, it’s not like these topics won’t be adequately covered by someone somewhere. I sometimes wonder if Balance Junkie is just adding to the cyber noise out there.
2. Big Effort, Small Payback: I didn’t start this blog to make money. While it does bring in a small incremental income thanks to advertisers, it’s nowhere near commensurate with the time and effort I put into the blog. I sometimes wonder if I might make a better contribution to my family’s finances by throwing myself into helping Mr. Cents with the business full time.
3. Is Anybody Really Listening? On the heels of the 2008 financial crisis, I wanted to get the message out there that we could be in for increased economic and financial volatility for several years to come. I’m not sure very many people grasp that and I still see the same tired old investment advice repeated ad nauseum. Worse yet, people are still following it.
4. Mission Unaccomplished: I’ve had several family members and friends occasionally say things like: “I checked out your blog. It’s really well-written, but I have no idea what you’re talking about.” I imagine that’s a reference to the more sophisticated articles on sovereign debt and other very relevant, but somewhat complex topics. It was my intention to bring these topics to the average person so that they might better navigate some of the rough waters ahead. It seems I’ve failed in that respect and that puts me in a “Why bother?” frame of mind.
5. Elusive Balance: While I try very hard to write articles that address simple financial concepts as well as some of the more complicated financial issues facing us, I find it increasingly difficult to define my audience. I recently described it to someone this way: Half of my audience loves the personal finance/life balance angle to the site and the other half prefers the more sophisticated economic and market analysis. It can be more than a little challenging to keep both interested.
6. Networking Games: Increasingly, the blogs that rank the highest on various scales are those that promote and network relentlessly. They retweet, link to, “like”, and promote as many other bloggers as they can in the hopes that those people will return the favour. While I love linking to high quality information, I can’t bring myself to promote anything for the sake of mutual back-scratching. I would rather put the time and effort into writing the best articles I can.

I’m sure many of my fellow bloggers struggle with some of these trade-offs as well. I’d like to hear from some of you if you have any thoughts or experiences to share.

Decision Time

I won’t claim to have resolved all of these issues, but I do have a plan for 2012. I’m going to keep Balance Junkie going for now. I think I can contribute to our business and still write some helpful articles here.

There will be a few changes. I probably won’t write as consistently as I used to – only if I really have something to say and the time to write it down. I’ll also have a few more guest posts.

While I was away from BJ at the end of 2011, I read a few books, so I’ll be able to post some reviews for you. The first few articles of 2012 will consist of my annual Post Cards from . . . wrap-up of the year that was and a What to Watch for the year yet to come. I hope all of you are enjoying a relaxing Christmas and New Year and I wish you the best in 2012.

As always, I look forward to your thoughts.

No related posts.

The following is a guest post. While it speaks to American consumerism, there may be some food for thought for debt-laden Canadians here too.

The economy is in shambles, and while many would like to blame the deterioration of our economy on big government and big business, a large percentage of the blame also lies in the spending habits of the American people. As a whole, we spend too much, borrow too much, and save too little.

“Look at consumption levels and control for purchasing power over the last several decades, and America is simply in a league of its own.” states Sheldon Garon, Princeton Professor and recent author of Beyond Our Means: Why America Spends While the World Saves. “The only people who come close are people in Britain, but they are about 85 percent of the level of American consumption. Germans, French and others are in the 70 percent range, Japanese even a little lower. So American’s spend like no one else.”

We’re willing to pay a couple dollars for a phone number lookup when there are other free services. We are willing to pay $5 a day for coffee when we could just make it at home and save nearly $25 a week. America is a consumerist society and even in the face of the economic downturn we are still struggling to find a balance between saving and spending.

Most entering retirement age are being forced to prolong their careers due to inadequate savings. Many recent college graduates are being forced to move back in with parents because they borrowed too much during college, and are now struggling to find a job that pay enough to cover those high monthly bills.

Consumerism is definitely in every aspect of American culture. It is advertised everywhere and can even be found being promoted in seemingly innocuous institutions such as universities and banks. Other countries provide free or low tuition rates for students while American universities promote spending tens of thousands of dollars by pulling out loans to afford prestigious universities – much like a person who overspends to purchase a nice car. Other countries provide incentives for savings and offer tax breaks to smaller savings accounts while US banks tax small savings accounts and make small banking nearly impossible for lower income households.

For many, binging on credit cards and excessive shopping are no longer an option. Because of the credit crisis, many credit card companies have made it harder to obtain cards which should help limit the amount of debt certain individuals have. But it shouldn’t be the inability to get credit that keeps American consumers from overspending.

If Americans wish to have the comfortable future they have all been raised to believe they are entitled to, they are going to have to remember what it is to work for it and save for it. Taking the time to actually decipher between needs and wants will have to become a priority, and looking at debt in such a cavalier fashion. Not everyone has an excessive mortgage, a high car payment, and thousands of dollars in credit card debt. This should not be our norm.

“If we can’t even talk about the benefits of some saving and we think that only consumer spending is good for the economy, then we’re not even getting to first base on this. We have to begin talking about the benefits of saving, and how we might restore a balance between saving and spending.”

So instead of running through that drive thru for coffee or going out to a fancy lunch or dinner, think about how much you could actually save by choosing to opt out of these luxuries. Overspending shouldn’t be a way of life, and passing rampant and uncontrolled consumerism down through younger generations is only going to continue to trouble our economy. The best financial practice is responsibility, and Americans are going to have to learn it if they wish to be prosperous without excessive debt in the future.

No related posts.

We’re not talking about mere balance here . . . A visionary company doesn’t simply balance between idealism and profitability; it seeks to be highly idealistic and highly profitable . . . a highly visionary company doesn’t want to blend yin and yang into a gray, indistinguishable circle that is neither highly yin nor highly yang; it aims to be . . . both at the same time, all the time.

~ James Collins & Jerry Porras, Built to Last

The English proverb tells us that we can’t have our cake and eat it too. I’ve often struggled to understand exactly what that means. I guess it’s supposed to imply that we can’t have it both ways. How can we preserve something of value if we continue to consume it?

Today’s quote comes from a book I’ve been reading on visionary companies: the ones that stand the test of time and continue to evolve while remaining true to a set of core principles. Principles you say? How can you have principles and profits? Aren’t they mutually exclusive? Far from it, according to the research performed by the authors.

[Side Note: The book came out in 1994, so some of the companies we might think of as visionary (Apple) are not included. Interestingly, the research shows that a charismatic, "visionary" leader (like Steve Jobs) is not only unnecessary for a company to endure, but it can actually be detrimental. A visionary company does not always have a high-profile CEO, but one that puts systems and values into place that persist far beyond his or her tenure at the helm of the company.]

How to Have Your Cake and Eat It Too

Not only is it possible to support seemingly opposite principles at the same time, it’s actually a common characteristic of the most successful corporations. According to the authors, these visionary businesses shun “the tyranny of the OR” while embracing “the genius of the AND.” They are simultaneously profitable and principled. They endorse autonomy and adherence to core values. They embrace larger, long term goals while they execute the daily details as flawlessly as humanly possible.

Can we juggle opposing values in our business and personal finances? Can we save enough for retirement and our children’s education while we enjoy a reasonably prosperous existence? Can we reap profits without compromising our ethical principles? Why not?

Usually, the answer to “Why not?” is something like “I don’t know how”, “my situation is different” or “I don’t have time.” Perhaps that’s why the list of visionary corporations is not all that long. I know that these are some of the reasons my personal finances aren’t where I’d like them to be. It’s hard. It takes, time, effort and focus, three things that seem to be in short supply these days as we become lost in the daily cacophony of media messages.

Here’s what I’m going to do to cut through the noise and achieve a more integrated balance among conflicting priorities:

Time: I’m going to cut out any activities – mental or physical – that don’t advance my goals or enrich my quality of life. While I may spend less time reading articles or interacting online, I’m also going to try to increase the amount of time I have to recharge so that I can be more effective in achieving my primary goals.

Effort: I usually do OK in this area, but I am often guilty of putting too much effort into projects with too little yield.

Focus: My attention has become divided of late among too many projects, to the extent that I feel like I’m not performing as well as I’d like at any of them. I’m narrowing my focus.

You can call these some of my larger goals for 2012, but I’m not waiting until January 1st to start. I’m starting now. Today.

Until We Meet Again

I’ve written many articles over the past 2 years on how far we’ve strayed from the principles of free market capitalism. We’ve socialized losses for large institutions and expected smaller businesses to live (and too often, die) by the strict capitalist code that says failures must fail. Cheaters have prospered. Our core values have become bifurcated, diluted, and unrecognizably grey.

I started Balance Junkie to try to help people understand that we are in the midst of a transformational period – one that will have a significant impact on our finances and perhaps our quality of life. Not wanting to see folks hurt financially as they were in the crisis of 2008, I hoped to shed some light on the fact that the neither the crisis nor the secular bear market ended with the March 9, 2009 market bottom.

I’m not sure I’ve made any measurable difference. I still see a lot of complacency and can-kicking. Many are still following the models that contributed to the crisis and listening to the same gurus and bloggers who failed to steer them around the 2008 debacle. Is it worth my time, effort and focus to continue to write about economics and personal finance?

That’s a question I hope to sort through over the fading weeks of 2011. At the same time, I’ll be turning my focus to helping Mr. Cents get a business off the ground in our region. Right now, that feels like the right place to direct my focus. Rather than simply writing about the economy and idealistic capitalism, I’m going to become a more active participant. If you’re thinking this sounds like a farewell article, you may be right – and it hasn’t been an easy one for me to compose.

I’m putting Balance Junkie on sabbatical until January. I may write something in the interim if I have the time, but I will certainly return in January with some kind of answer to my question. In the meantime, I wish all of you peace, prosperity and balance and I sincerely thank you for reading Balance Junkie over the past couple of years. My email box will remain open during the sabbatical, so please don’t hesitate to say hello.

Can we have our cake and eat it too?

Related posts:

1. Balance Is a Journey
2. The Change Imperative
3. Taking a Break Is a Great Investment

Editor’s Note: The following is a guest post by John C.K. Daly.

The good news is that on 8 November the International Energy Agency released its 2011 “World Energy Outlook.” While it will cheer nuclear advocates, overall the report makes for grim reading. Pulling no punches, the report states at the outset, “There are few signs that the urgently needed change in direction in global energy trends is underway.”

Stripped of its cautious language, the IEA report essentially noted that should present trends continue, the world’s governments through a lack of progressive initiative embracing alternative energy sources would continue to rely on ‘tried and true” fossil fuels, resulting in increased pollution, more fossil-fuel dependency and increasingly upward energy prices. For environmentalists, this is all good news, but the report contained a caveat virtually anathema to all green movements, that accordingly, governments should reconsider their reluctance to embrace nuclear power, as it does not generate greenhouse gases.

Dollars, Cents and Reliable Energy Production

Like many discussions in Western economies since 2008, when the global recession first began to draw blood, the issue of reliable energy production ultimately comes down to dollars and cents issues. The grim reality for environmentalists is that no single renewable energy resource, from wind power to solar energy through biofuels, has remotely become competitive with kilowatt hours of electrical energy generated by coal or oil-fired power plants. The debate pits those opposed to a transition to greener technologies to those considering the bottom line, despite greenhouse gas emissions.

Even worse for the environmentalists, the IEA report advocates that as a short-term solution, governments ought to reconsider nuclear power, as it produces zero CO2 emissions. Projecting into the future the report notes, “A low-nuclear future would also boost demand for fossil fuels: the increase in global coal demand is equal to twice the level of Australia’s current steam coal exports and the rise in gas demand is equivalent to two-thirds of Russia’s current natural gas exports. The net result would be to put additional upward pressure on energy prices, raise additional concerns about energy security and make it harder and more expensive to combat climate change. The consequences would be particularly severe for those countries with limited indigenous energy resources which have been planning to rely relatively heavily on nuclear power”

But while sketching out a bleak scenario should governments remain largely disengaged to the larger issues involved in energy production, the IEA report nevertheless ends on a cautiously optimistic note, with its authors concluding:

“International concern about the issue of energy access is growing. The United Nations has declared 2012 to be the ‘International Year of Sustainable Energy for All’ and the Rio+20 Summit represents an important opportunity for action. More finance, from many sources and in many forms, is needed to provide modern energy for all, with solutions matched to the particular challenges, risks and returns of each category of project. Private sector investment needs to grow the most, but this will not happen unless national governments adopt strong governance and regulatory frameworks and invest in capacity building. The public sector, including donors, needs to use its tools to leverage greater private sector investment where the commercial case would otherwise be marginal. Universal access by 2030 would increase global demand for fossil fuels and related CO2 emissions by less than 1%, a trivial amount in relation to the contribution made to human development and welfare.”

Most notable about the IEA report are two things:

1. Energy options beyond dependence on traditional fossil fuels such as coal and oil not only exist, but are available in significant amounts to make a serious contribution.
2. As Germany’s experience in weaning itself off nuclear energy is showing, the alternatives are more expensive than current power production modes.

According to the IEA’s scenarios then, the issue of global power production over the next two-three decades depends upon two major issues:

1. Cost: undoubtedly an uphill struggle for many governments seeking to meet the population’s rising energy demands, who will be loathe to endure increasing energy bills.
2. Global Warming: the impact of traditional fossil fuel-fired power plants belching vast amounts of CO2 into the atmosphere.

While even the most diehard proponents of traditional power plant electrical generation do not deny that their facilities emit significant amounts of carbon dioxide, they denigrate the concerns of environmentalists as ‘fuzzy science.” So, at the end of the day, the two fundamental issues facing the world’s nations seeking to satiate their population’s demand for reliable and inexpensive power come down to cost and scientific projections.

We’ll leave the final word to the IEA, which laid out three scenarios, ranging from best- to worst-case – “The wide difference in outcomes between these three scenarios underlines the critical role of governments to define the objectives and implement the policies necessary to shape our energy future.” Accordingly, the major question is whether global governments will have both the cash and political will “to shape our energy future” to the best possible ends.

Source: IEA-Report Calls-for Governments to Embrace Nuclear Power

By: John C.K. Daly of oilprice.com

Do you think governments will be able to adopt the policies necessary to ensure that sustainable and cost-effective sources of energy are available for future generations?

Related posts:

1. Was the U.S. Employment Report Really Catastrophic?
2. Goal Setting: My Report Card
3. When the Levee Breaks

Simplicity is the ultimate sophistication.

~Leonardo DaVinci

When the Tax Free Savings Account was introduced in Canada in 2009, it was hailed for its practicality and simplicity. Any Canadian 18 years or older can now contribute up to $5000 per year to a TFSA and have those savings grow completely tax free. While TFSA contributions are not tax deductible, you will not have to pay any tax on the money you withdraw from your TFSA.

You can put just about any type of investment in your TFSA, or choose a number of different TFSA accounts for different purposes. You could simply have a TFSA savings account, or you could open a TFSA brokerage account whereby you could include stocks, bonds, ETFs or just about any other type of investment vehicle. Whether you earn interest, dividends or capital gains on your savings, your money can be withdrawn tax free. Sounds pretty simple eh?

A Few Asterisks

While I love TFSAs as an alternate savings vehicle for Canadians, they aren’t always as simple as we’d like them to be. I guess that’s just how these things go. Life is complicated. No matter how much we’d like to simplify things, there are always details, exceptions and little asterisks to contend with. TFSA rules are no different.

There has been some confusion over what happens to your TFSA contribution room if you withdraw your gains as well as your original contributions. We addressed that here in January. The latest question peppering search engines seems to be about the TFSA contribution limit for 2012. Why the confusion? Aren’t we allowed to contribute another $5000 each year?

Inflation Indexation for TFSA Limits

In addition to any unused contribution room from other years, you are usually allowed to contribute an additional $5000 per year. You may notice that there’s sometimes a little asterisk (*) next to this figure because it is indexed for inflation in $500 increments. That means that when the inflation rate applied to that $5000 causes it to rise above $5250, the government will raise the limit to $5500.

The consensus seems to be that if the CPI (Consumer Price Index) runs around 2%, that would mean we should exceed the threshold as of 2012. While that looks likely to happen, the CRA hasn’t officially announced the 2012 TFSA limit as of initial publication of this article. I spoke to someone at CRA last week and they said that the official determination hasn’t been made yet, but that it will (obviously) be out by the end of 2011. He advised us to keep watching the CRA website for TFSA updates. (Update: The CRA has left the TFSA contribution limit at $5000 for 2012.)

With the latest Canadian CPI numbers showing inflation running over 3%, it’s hard to imagine that the TFSA limit for 2012 will not be raised to $5500, but we will find out for sure within the next couple of months. I’m sure that many Canadian financial websites will carry the news once it breaks.

For Math Geeks Only

In case you’re wondering about the details of how inflation indexation is applied to the $5000 contribution limit, I thought I might include a chart* here that shows the calculations. It’s actually very simple math. For this example, I’m using a sample annual inflation rate of 2%. *I shamelessly copied this chart from Gordon Pape’s book on Tax-Free Savings Accounts.

Given that the inflation rate is not static, I’m not sure exactly which CPI rate the government uses. They could use an annual average of the monthly inflation data. I’m also not sure whether they use the headline CPI rate or the core rate, which excludes food and energy.

If you follow the chart, you can see that the cumulative inflation factor just adds 2% to the figure from the previous year. So 2% of $5000 is $100 and that is added to the $5000 amount from 2009. For 2011, you just take 2% of $5100 (which is $102) and add it to the 2010 figure like this:

2011 Cumulative Inflation Factor = $5100 x 1.02 = $5202

Since the cumulative inflation factor will put our $5000 over the $5250 needed to round it up to the next $500 increment in 2012, it seems likely that the TFSA limit will indeed be raised for that year. Again, this example is for demonstration purposes only. I’m not sure exactly which CPI rate the CRA will use. If anyone can enlighten us on that, I’d be most grateful.

I hope this answers some of the questions floating around out there regarding the 2012 TFSA contribution limit.

Update: The CRA has left the TFSA contribution limit at $5000 for 2012.

Your comments are always welcome.

Related posts:

1. TFSA: Investment Gains, Withdrawals and Contribution Room
2. TFSA Withdrawal Rules
3. TFSA vs. RRSP Duel: Who Wins?

You don’t get harmony when everybody sings the same note.

~Doug Floyd

Every so often I like to write about what the bulls are saying versus what the bears are saying. Usually, both make a pretty good case. That doesn’t make it any easier for investors to make decisions, but it does offer them some balanced information which they can then use in any way they like. Today’s bull vs. bear debate zeroes in on a few specific factors rather than presenting a comprehensive overview.

I recently  came across two differing takes on the market heading into the end of the year. The fourth quarter is often pivotal for portfolio managers as it’s their last chance to meet or beat their benchmark. Like it or not, that’s the nature of the game and it can affect markets as investors jump on trends in an attempt to cross the December 31st finish line ahead of the competition.

The Bull

Barry Ritholtz is hardly a permabull, but he began to put more cash to work around the third week in October. He explains several reasons for his Tactical Shift in Portfolios:

1. Seasonality: November and December are typically the months of the year when the stock market performs best. They kick off the seasonally best 6 months of the year, which usually run from November to April.
2. Sentiment: Excessive bearish sentiment exhibited in extremely high short interest had many hedge fund managers poorly positioned for a snap-back rally. Short-covering can ignite and propel a rally even in the absence of strong fundamental underpinnings.
3. Market History: The type of “buying panic” by investors at the beginning of October has few historical precedents. In just 5 trading days the S&P 500 shot up 11.4%. On the relatively few occasions this has happened in the past, markets experienced healthy gains in the following weeks more often than not.

But . . . Ritholtz is careful to point out that he is still a subscriber to the secular bear market thesis. He thinks “a recession is more likely than most economists expect” and that markets will eventually head lower. For the next few quarters, however, factors like seasonality and sentiment may trump economic fundamentals.

The Bear

I recently came across an interesting article that offered a compelling technical analogy between the current market environment and the one that preceded the 2008 crash. According to Short Takes, Stocks Dropped 54% After a Similar Point in 2008. If you’re into charts, this post has a few that may help to remind us that seasonality, sentiment, and history work some of the time, but that they all go by the wayside when markets truly break.

On the other hand, the fact that the charts are setting up in a similar way to those of 2008 does not make another crash a foregone conclusion. It’s just another data point to put in your arsenal for consideration. The reality is that markets can and will move in either direction over any given period of time and the only way to navigate that kind of capriciousness is to have a rigorous risk management discipline in place.

And the Winner Is . . .

Just kidding, of course. You know there’s no winner. 2011 has been a poster child for the type of volatility we would expect to see in a secular bear market. Both bulls and bears can get repeatedly whipsawed and many investors are left with a serious case of motion sickness. Neither bulls nor bears can claim a clear victory.

In this type of market, those with a solid plan and a thorough understanding of their personal risk tolerance will thrive. They will not cling to either bullish or bearish expectations, but having a pretty good understanding of the kind of ride they’re stepping onto, take appropriate precautionary measures.

Those measures may include reducing equity exposure, setting prudent stop loss levels, or buying when valuations become attractive. Investors may choose to implement any or all of the above to manage risk. In this kind of secular bear market, it’s more important to understand the investment context and perhaps more importantly, yourself than it is to track every news headline that crosses the wire.

How are you handling the volatility of 2011? Are you more optimistic heading into year end?

(Photo Credit: Shutterstock)

Related posts:

1. Bulls vs. Bears: Who’s Right?
2. Why Do Bears Always Wear the Black Hats?
3. Carnival of Financial Planning – Edition #175

It’s time to announce the winner of the signed copy of Never Too Late by Gail Vaz-Oxlade. I chose a random number based on the number of comments. The number was actually 1, so the first commenter won the book. Congratulations Sue! I hope you enjoy the book as much as I did.

Related posts:

1. Book Winner: Consumed
2. RESP Book Winner
3. Book Winner & Financial News Roundup