As a Small Business owner, does a SEP make sense?
By Ken Mahoney

A SEP is a Simplified Employee Pension retirement plan for self-employed individuals and small businesses. A SEP allows a self-employed person to contribute towards retirement or allows a small business owner to contribute towards employee retirement plans.

Eligible participants include:
• A self-employed person
• Employee of a small business who has reached the age of 21
• A self-employed person who has worked for you at least 3 of the last 5 years
• An employee of a small business who has worked for you at least 3 of the last 5 years
• A self-employed person who has received at least $450 in compensation for the year
• An employee of a small business who has received at least $450.00 in compensation for the year

Contribution maximums
Just like there are maximum contribution limitations set for IRAs, there are contribution maximums for SEPs also. Self-employed individuals or employees of a small business who are covered by a SEP can contribute 25% of their net self-employment earnings or $45,000, whichever of the two figures is lower.

Advantages of a SEP
There are several advantages for having a SEP retirement plan, which include:
• Investment earnings grow tax-deferred until distribution
• Easy to set up and operate
• You are not locked into making contributions every year
• Sole proprietors, partnerships, C and S corporations, and LLCs can establish a SEP
• Administrative costs are low

Many employers offer matching contributions to employee retirement plans. If your employer does this, try to contribute whatever the employer is willing to match—even if it is only a percentage of your contribution and not a dollar for dollar match. Essentially, this is free money to you and can significantly impact how much money you have at the time of retirement.

For example, Zoe Zoerson contributes $1,000 per year into her retirement account. Her employer matches her contributions dollar for dollar, so her employer also contributes $1,000 per year to her retirement account. Zoe is able to deduct her contribution amount from her taxes, not having to pay tax on it. Furthermore, Zoe’s $1,000 contribution and her employer’s $1,000 are invested in her account and grow as time goes by. Zoe does not have to pay income tax on the interest, dividends, capital gains, or the appreciation of her retirement account investments until she begins to withdraw the money when she turns 70½.

Matching contributions are common for 401k, 403b, and 457 plans. Sometimes the employer is only willing to make a partial match to your contributions, but you should still take advantage of this opportunity. Even if the employer contributes 50 cents for every dollar you contribute, up to the first 6 percent of your salary, it is worth it. This is free money that will compound and grow. Einstein said, “The most powerful force in the universe is compound interest.”

How to help your 401k beat volatility by Ken Mahoney

While there is no surefire formula for protecting the investments in your 401(k), there are some things you can do to help your 401(k) survive when the market is on a rollercoaster cycle.

First, keep a close eye on how the current investments in your 401(k) are performing. By paying attention to what is happening in your portfolio, you can research, diversify, and re-balance your investments to create growth - even in a volatile market.

When the market is down, as we have witnessed recently, it is an opportune time to take advantage of rebalancing and diversifying your portfolio. Rebalancing is a way of changing the allocations of the funds in your portfolio to meet your original goals. For example, if your portfolio was fifty percent stocks and fifty percent bonds but the stock market was very volatile you might rebalance your portfolio to be eighty percent bonds and twenty percent stocks. Not only will you want to consider the allocation of these types of investments you will also want to consider the allocation with in a type of investment. How well are growth versus value stocks, large cap versus midcap versus small cap stocks allocated in your portfolio? To rebalance, you will need to sell enough of the investments that are above your original goal and buy enough of the investments that are below your original goal.

While it is important to look at the investments in your portfolio, it is also important to review the investment options available. Research the track record of each investment and decide which one(s) fit your risk tolerance and investment style. Visit www.stockcharts.com to view historical stock market charts that plot the progress of the stock market for the last few decades. Overall, those who invest in the stock market see long-term growth, but that doesn’t mean you don’t have to pay attention to what is going on with your investments.

Of course all of this may have you confused if you have a 401(k) administrator who manages your account. The administrator is a fiduciary that is responsible for watching and adjusting the investment options offered to you and other 401(k) holders. You, however, can choose from the investment options offered to create your own portfolio. This is why it is important for you to pay attention to how your investments are performing, so you can make changes and adjustments when necessary.
And remember to continue to contribute to your 401(k). Because you plan to use these monies in your retirement remember each contributed dollar reduces your taxable income. And try to ensure that your contributions are in line with your investment goals.

Last but not least seek out the assistance of your plan’s administrator, your personal financial advisor or the website for your plan. Their knowledge and your own research will help you keep a handle on protecting your portfolio during both stable and unstable times.

July 2009

Ken Mahoney’s Q&A with Jim Schier, CFA Portfolio Manager, RydexSGI Mid Cap Value Fund

Ken: Why do you like Mid Cap Value versus other asset classes?

Jim: Value stocks are low expectation stocks that offer better downside risk protection. Mid-caps are generally representative of companies that are large enough to have some scale and competitive advantage yet small enough to have above average growth opportunities.

Ken: What are some opportunities that you are looking at?

Jim: While we do not comment on companies that we are currently researching or working a ticket for, recent additions have been select electric utilities that are priced at a discount to peers and have above average growth via investments in higher return Federal Energy Regulatory Commission (FERC) regulated interstate transmission projects that tie wind farms to an interstate grid. We've also

Ken: How do you pick stocks for the portfolio?

Jim: The ideal stock is priced at a discount to the market and lower than usual versus its peers or has a history of being inexpensively priced for transitory and correctable reasons. The company also would have sufficient competitive stature to have strategic attraction and staying power in their industry. The company would have the ability to earn higher return on capital in the future.

Ken: Is there an area that you are over weighing or under weighing? And why?

Jim: Historically, we have had difficulty finding companies that appear to offer the ability to earn higher return on capital in financial and consumer discretionary. Therefore, we are underweight in those sectors.

Investors should consider the investment objectives, risks, and charges and expenses of the mutual funds available under the RydexSGI Funds carefully before investing. You may obtain a prospectus that contains this and other information about the mutual funds by calling 800.820.0888. You should read the prospectus carefully before investing. Investing in mutual funds involves risk and there is no guarantee of investment results.

The opinions expressed are those of Jim Schier, not those of RydexSGI or its affiliates. This information is subject to change at any time, based on market and other conditions and should not be construed as a recommendation of any specific security or strategy.

Investments in small and/or mid-sized company securities may present additional risks such as less predictable earnings, higher volatility and less liquidity than larger, more established companies.

Rydex Distributors, Inc. distributes the Rydex funds, which are managed by Rydex Investments, and Security Distributors, Inc. distributes the Security funds, which are managed by Security Global Investors. Rydex Investments, Security Global Investors, Rydex Distributors, Inc., and Security Distributors, Inc. are subsidiaries of Security Benefit Corporation (Security Benefit). Security Global Investors (Security Global Investors, LLC and Security Investors, LLC) and Rydex Investments (PADCO Advisors, Inc. and PADCO Advisors II, Inc.) make up the investment advisory arm of Security Benefit.

The funds are distributed by Rydex Distributors, Inc. (RDI). Security Global InvestorsSM is the investment advisory arm of Security Benefit Corporation (Security Benefit). Security Global Investors consists of Security Global Investors, LLC, Security Investors, LLC and Rydex Investments. Rydex Investments is the primary business name for PADCO Advisors, Inc. and PADCO Advisors II, Inc. SGI and RDI are both affiliates and are subsidiaries of Security Benefit.

This newsletter and its contents is neither a solicitation nor an offer to buy/sell any financial product(s). Information about financial product(s) provided herein may not be suitable for all investors. Moreover, the information contained herein has been obtained from sources believed to be reliable; its accuracy and completeness cannot be guaranteed.

Which baby boomer investor are you? By Ken Mahoneyhttp://www.thesmartinvestors.com/

There is dissention in the ranks of your own generation. Obviously, not everyone is the same. So, what one baby boomer has in mind may vary greatly from another. It does seem though that boomers fall into one of five categories: empowered, wealth-builders, leisure lizards, anxious idealists, and those who feel stretched and stressed.

Empowered: These boomers are ready to take on retirement. No matter how they plan to spend their time, they are ready to make their choices, cutting back where they need to stretch their dollars, and they have a positive outlook on everything working out one way or the other.

Wealth-builders: This group of boomers is still looking to grow their wealth. Investing-whether it be financial investments or real estate-in their future to create more of an income stream is their main focus.

Leisure lizards: Leisure is the name of their game. What they define as leisure may vary greatly-reading, playing golf, or volunteering-but these boomers are looking to slow the pace on money earning activities and ramp up on fulfilling activities.

Anxious idealists: Ahhhh….the ultimate optimists. This group is suffering anxiety over the possibility of a dismal financial future, but knows somehow, someway everything will work out for the good. Their nerves are shot, but their heart is open to what the future may bring-and they think it's a prize winner.Stretched and stressed: On the other side, you have the ultimate pessimists. Their money is stretched to the breaking point and their stress levels are high. They are living day-by-day and know that their money may expire long before they do.Which baby boomer are you? Depending on how you answer, you'll find hints, tips and tricks on how to make it through your retirement years scattered throughout the book. You may even find suggestions that you never thought of before. Be open-minded. Open your mind and your heart to new outlooks on life. You never know what you may come across.IMPORTANT CONSUMER INFORMATION:

(1) This web site has been prepared solely for informational purposes. It is not an offer to buy or sell any security; nor is it a solicitation of an offer to buy or sell any security.This site and the opinions and information therein are based on sources which we believe to be dependable, but we can not guarantee the accuracy of such information.
(2) Representatives of a broker-dealer or investment adviser may only conduct business in a state if the representatives and the broker-dealer or investment adviser they represent: (a) satisfy the qualification requirements of, and are approved to do business by, the state; or (b) are excluded or exempted from the state's licenser requirements.
(3) An investor may obtain information concerning a broker-dealer, an investment advisor, or a representative of a broker-dealer or an investment advisor, including their licenser status and disciplinary history, by contacting the investor's state securities law administrator.
SECURITIES: ARE NOT FDIC-INSURED/ARE NOT BANK-GUARANTEED/MAY LOSE VALUEThis information is intended for use only by residents of CA, CT, DC, FL,, MA, MD, MN, NC, NJ, NY, OH, PA, and VA. Securities-related services may not be provided to individuals residing in any state not listed above. The financial calculator results shown represent analysis and estimates based on the assumptions you have provided, but they do not reflect all relevant elements of your personal situation. The actual effects of your financial decisions may vary significantly from these estimates--so these estimates should not be regarded as predictions, advice, or recommendations. Mahoney Asset Management does not provide legal or tax advice. Be sure to consult with your own tax and legal advisors before taking any action that would have tax consequences

Money Maturity = Financial Nirvana
By Ken Mahoney
www.thesmartinvestors.com

Many of us (even some in the field of finance) grow up thinking of money as this mysterious entity that has only to do with numbers and formulas. Some of us are even convinced that if we have enough money, we are guaranteed happiness for the rest of our lives. Others have no concept of money.

The concept of “money maturity” is a relatively new one that is meant to describe how “mature” one acts psychologically and spiritually in relation to money. The phrase has been popularized by George Kinder, a financial planner and Buddhist teacher, in his book, The Seven Stages of Money Maturity: Understanding the Spirit and Value of Money in Your Life. According to his philosophy, someone who is “immature” monetarily may spend his entire paycheck as soon as he gets it or may pinch every penny, thinking that he will go bankrupt if he spends as much as one dollar on something that is not a bare essential. Many of these detrimental practices are often a result of one’s upbringing.

In contrast, someone who is “mature” has achieved balance on both sides of the coin. He knows when it is time to save, and when he can let loose and spend some of the money he has earned. And he can even give some of it away on his own good nature without fear. According to Kinder, there are seven psychological stages of “money maturity” through which one must progress before he can be fully enlightened in a financial sense.

The first two stages are “innocence”, which is knowing nothing about money; and “pain,” the heartbreaking realization that one must work in order to earn money, which yanks one out of the “innocence” stage. These are what Kinder deems the “immature stages,” as people in both stages exhibit a myriad of behaviors that are counterproductive to their financial well-being.

However, there is hope. From there, the first stage of maturity is “knowledge,” where one learns how to save properly and is introduced to the basic concepts of investing, such as stocks, bonds, and mutual funds. The theory here is that by investing money, one helps to set a concrete goal for his/her savings so that the “angst” they have over it is lessened somewhat.

Stage Four is that of “understanding.” This stage involves recognizing how one’s emotions play a major role when it comes to all things money-related. The principle behind this stage is that when one recognizes his/her emotional connection to money, they will not allow these emotions to overtake them when making decisions related to their financial well-being, as even the most savvy of us are prone to do.
From understanding is said to stem “vigor.” This is one develops the energy to apply newfound understanding of one’s emotions in reevaluating financial goals and taking the steps to reach them.

The sixth step, “vision,” involves the application of “vigor.” Here, one uses the knowledge gained in the previous steps to use their financial savvy to help others, perhaps by starting a business intended to provide a useful service to the community at large. The final step, “aloha”, is when one uses that same savvy to help others, but for altruistic purposes. Examples may include founding a non-profit organization.

While we are not attempting to plug Kinder’s book, we do believe that this concept we have described carries a great deal of truth and merit. Many people spend countless hours worrying about money when they have a great deal of it. Conversely, many spend frivolously past the point where their expenses outweigh their net income. By taking a few minutes to learn about “money maturity,” we believe that anybody can outgrow those behaviors that may be plaguing their financial well-being.

Social Security: The Retirement Program We Love to Hate by Ken Mahoney www.thesmartinvestors.com

While it’s not perfect, Social Security can play an important role in funding your retirement. The longer you wait to begin collecting, the larger each monthly check will be. But the sooner you start, the more checks you’ll get.

Which is best for you? To decide, you need to consider such factors as whether you’ll continue working and earning past retirement age. If so, Uncle Sam will give with his right hand, and take some back with his left!

An imponderable to ponder is your state of health. In general, the break-even point … when you would have collected more by waiting until your full retirement age … comes at about age 78. If you live longer than 78 years and you collect more by waiting. On the other hand, if you live less than that, you would have been better off collecting earlier!

If you haven’t already received it, contact the Social Security Administration (800-772-1213 or www.ssa.gov) to request your “Personal Earnings and Benefit Estimate Statement.” Fill it out, return it, and in about a month you’ll get an estimate of your future benefits.



The Real Social Security

If you think about it, the idea of retirement has only existed since the mid to late 19th century. Before this time, you worked until you became too old, too ill, or you died. If you were the breadwinner for the family, those who depended on you moved in with other family members for support or ended up living in poverty. Then about 80 or 90 years ago, during the Great Depression, Social Security was created. It paid the primary worker a retirement benefit in a lump sum when they reached the age of 65. In 1940, however, the lump sum payment turned into monthly benefit checks.

While many may think of Social Security as a replacement of their working wages, this was never intended to be the case. The purpose of Social Security is to supplement savings to live in comfort for the rest of your days. At that time quality of life was much lower and life expectancy was much shorter, so this thought may not have been way off base. Now, however, things are different.

Our quality of life has gotten much better and few expect to carry out this lifestyle through our retirement years. The quality life we have attained comes with a relatively expensive price tag. And now you have to decide how you are going to pay for it.

For example, John Collins is an average 65-year-old who is planning to retire and fund his only source of retirement is his monthly Social Security benefit check. His current annual salary is $40,000 and he is taking full retirement when he reaches 65½.

The Social Security Administration website has a calculator on its website for calculating monthly benefits. Using the calculator located at www.ssa.gov/planners/calculators.htm, John’s estimated monthly benefit is approximately $1,101 per month, which is approximately 1/3 or ¼ of the salary John is brining home now.

Here is an estimate of John’s expenses. Unlike some, John has completely paid off his mortgage and does not currently have any credit card balances.
Car payment.....................250.00Power/Gas Utility..............100.00Telephone...........................40.00Insurance (home/auto) .....150.00Cable/water.........................50.00Food/Groceries..................300.00Gasoline...........................50.00

His total monthly expenses are $940, which means John has $161 left over each month for any other expenses that may come up, like health insurance. John can apply for Medicare, but this can cost him up $200 per month, which means he is out of money.
This is just one example of a fictional character. You can use the Social Security Administration calculator to approximate your own monthly benefit checks.

But using this example, you can easily see how Social Security alone may not be enough to cover everything during retirement. John, for example, will not be able to live on his Social Security check alone. While there may be some ways John can cut his expenses, more than likely, he will have to find another source of income in order to live out his retirement years in some kind of comfort

Green Shoots and Weeds: Both Are Now Growing In the Economic Garden

By Ken Mahoney

www.thesmartinvestors.com

In the past several months, a number of economists have been writing about “green shoots” (signs of any growth) in our economy. There have been indicators that the economy, while still contracting, is contracting at a slower rate.

Since World War II, recessions in this country have generally been mild and referred to as “garden variety”. The current recession does not appear to be of the garden variety type – it may be deeper and longer than anything we have seen in the last 70 years.

There has been a market rebound of sorts, or “green shoots”, but we are still faced with the unwanted “weeds” that have infiltrated the housing, commercial real estate and rising unemployment sectors. Many economists believe that unemployment will rise above 10% and when we do recover that it may be a jobless recovery.

Also among the “weeds” of concern is rising inflation. While inflation is always a threat, the current environment is one of deflation or falling prices. It is difficult to see inflation with the decline of earnings and the rise of unemployment. The risk of inflation should always be monitored but presently it does not appear to be a threat.

On the other hand and despite the economic uncertainty we are experiencing there is, as with every investment environment, always opportunity. One should consider researching the municipal bond market. Municipal bonds are issued by states, cities, and counties, to raise capital for public work projects and are generally exempt from federal and state taxes. As tax rates continue to climb to pay for government-sponsored projects, municipal bonds may be more in demand.

Also, during past market cycles, “smaller” companies (small cap) tend to outperform “larger” companies (large cap). Smaller companies tend to have more flexibility, can change quicker, tend to have lower debt ratios and are more adept at taking advantage of market opportunities than their larger counterparts.

We will have to continue to watch the relationship between government and business. The administration has been aggressive with policy, from TARP to TARF. It appears, at times, to be friendly but also over-reaching. Some of the uncertainty in May was a result of several of the banks’ efforts to return TARP money only to have been rebuffed.

A number of the government’s efforts will take awhile to filter through the economy. The Fed's decisions tend to move though the economy quicker than fiscal stimulus, so perhaps in the second half of 2009 we will continue to see more “green sprouts” take hold and fewer weeds.