Buying Real Estate in Today’s Market:

by Steve Dietrich, president, FRG, and a guest lecturer at the Anderson Graduate School of Business, UCLA.

Is Real Estate too High to Buy?
Perhaps the question most frequently asked of us in the real estate industry is, "What is happening to home prices; should I buy now?" In many areas, price increases over the past few years have exceeded 10-20%. In a number of areas increases of more than 30% have occurred. While the recent widespread surge in home prices has been spectacular, there is no reason to believe that this sector has repealed the fundamental laws of economics.

Home prices reflect the instant dynamic equilibrium point between supply and demand in particular neighborhoods, cities, and regions. The demand for homes comes from population and jobs or wealth. On a national or regional scale, raw demographic data indicates an almost insatiable demand for housing. However, in the absence of accumulated wealth, housing affordability depends on income, interest rates, and savings. The key to understanding the recent increase in consumer home buying power is knowing that it has come not from growth in personal income and traditional savings, but rather from falling interest rates and equity from the increase in home values.

The historically low interest rates of the past few years have contributed significantly to the surge in home prices. In addition, the increasing popularity of variable rate mortgages has further increased the buying power of home purchasers. Data Quick Real Estate shows a very significant increase in the use of adjustable rate mortgages in the California market, especially in those areas with the highest prices and the greatest price increases. By November of 2003, approximately 65% of the homebuyers in the San Francisco Bay Area were using adjustable rate mortgages, while in the central valley, mountain, and rural areas of the state, the percentage was less than 40%. One possible interpretation of this data is that in the areas experiencing the greatest price increases, buyers are forced to use adjustable rate mortgages in order to qualify for homes. Any increase in interest rates affects the loan amounts available to both adjustable rate and fixed rate borrowers; however, the most significant reduction may be in the loans available to variable rate borrowers. This would indicate that some of California's highest priced communities are the most susceptible to the impact of any change in interest rates.

The huge amount of treasury debt held by offshore investors is a threat to the government's ability to manage domestic interest rates as a part of economic policy. In addition, efforts to maintain control over inflation are likely to result in increased interest rates. Thus, there is a significant probability that rising interest rates will take a real bite out of the purchasing power of the typical home purchaser.

Further threatening the continuation of price increases is the relatively low level of growth in personal income. If interest rates rise without a corresponding increase in personal income, the purchasing power of potential buyers will decrease, with significant impacts on both demand and prices.

While home prices of closed escrows remain at record highs in most California communities, some very significant changes have occurred over the past few months. In July 2004, the number of homes sold declined in 4 out of 6 Southern California counties and by more than 10% in 2 of the 7. Discussions with brokers have indicated that in many markets the number of prospective buyers has decreased significantly. Although prices remain strong in many areas, it is doubtful that this will continue if buyer interest declines.

In a classic economic model, a decline in unit sales would logically cause most producers to begin looking at a curtailment of production. However, home production in highly regulated areas is a multi-year process in which huge investments are made prior to the commencement of construction. Therefore, in the face of an impending slowdown, there may be a strong incentive for builders to actually increase production in the hope of selling before anticipated price reductions or extended sales periods occur.

Buyer Checklist
In many respects, the classic recommendations concerning home purchasing, especially for young professionals and female entrepreneurs re-entering the market, remain unchanged:

1. Consider Lifestyle FirstÑPerhaps the single most important step (and the most frequently omitted) in the purchasing process is a clear identification of both financial and personal goals and resources. For most individuals or families, their home purchase is the largest single item purchase. It may define, to a significant extent, the buyer's lifestyle, opportunities, and relationships. Resources, flexibility, personal skills and desires, risk profile, schools, commute times, space requirements, and expected holding period are all key considerations. A careful goal definition thus goes far beyond just looking at the real estate involved.
2. Do the ResearchÑEmploy the full range of your business and management skills. I am amazed at the number of MBA's who would not let their company select a new copier without a spreadsheet analysis and yet who venture into the home buying market armed only with confidence, lust, and a hot latte.
3. Risk/Reward of Your InvestmentÑUnderstand that real estate is generally illiquid in the absence of an overheated market such as we have today. Homes, like virtually all other forms of real estate, exist at a fixed location and, once constructed, provide a 40-60 year supply of "product," useable only at that location. Years ago when the mills left New England, and more recently when the high tech industry abandoned Colorado Springs, the homes built to support the industries remained and the market suffered.
4. Location, location, location!ÑThe economic and social future of the communities in which you are interested is important. In the absence of rapid price increases, the fundamental drivers of future value will be more important - area economics and demographics, quality of life, schools, and safety. Many of the larger cities will be stressed by an increasing demand for services without a corresponding increase in revenues.
5. SellingÑOne of the most important factors in successful real estate investing is preserving the ability to sell at a time of your choosing. Your long-term profit may be dependent upon your ability to select the time at which you sell the home rather than being driven to sell for financial or family requirements.
6. Be sure you can afford it!ÑWhat are the financial resources which you want to allocate to your home and what home price will these support under various financing alternatives? What is the best form of financing for your individual situation?
7. Picking the interest rateÑVariable rate or interest-only loans are popular with many real estate professionals. These generally allow the buyer to purchase a more expensive home, frequently with a smaller down payment. However, they do subject the buyer who does not intend to sell in a few years to an increased risk of future interest rate increases. A 15 or 30 year fixed rate loan may be more appropriate for some buyers. While the payments on a 15 -year loan will be greater, the interest rate will be about .50% less. Assuming a sale in 5 years, the IRR on the additional payments is about 12%, not a bad rate of return on what is hopefully a very low risk investment.
8. Market Slow DownÑOverall, this is a time for caution, a return to fundamentals, and perhaps a more conservative approach to home buying. It appears that the market has fully adjusted to lowered interest rates and that sustained price increases in the future are likely to be more dependent on job and income growth.

Steve Dietrich (sdietric@ucla.edu) is the president of FRG, a Southern California based real estate consulting and development firm, and a Guest Lecturer at the Anderson Graduate School of Business at UCLA, where he teaches a course in Entrepreneurial Real Estate Development.

FUNd Your Dream:

By Natalie Pace, CEO, NataliePace.com.

Where the Money Trees Grow and Why You Should Stop Chasing Venture Capital NOW. Success Secrets of CEOs features an exclusive Q&A with Beth Polish, founding CFO, iVillage, and Patty DeDominic, President Emeritus, NAWBO.

"Don't use credit to dig yourself out of a hole. You use borrowed money to move you from place A to B or C." Patti DeDominic

Patty DeDominic, Founder, CEO and Chairman of PDQ Services, Inc. Chairman, SCORE Foundation

I've spoken to many dot com crash and burn cases and the most common theme sounded is not that the Internet was not all it was cracked up to be. Most founders and executives warn that they were hyper-focused on chasing venture capital that never materialized. The Women's Executive Network secured two million in corporate sponsorships, but had to close up shop when the follow-on venture capital never came in. Co-founder Beth Fehmel now believes that her team wasted too much time chasing venture capital. Though Beth still loves the basis of the business plan and swears that her co-founder keeps the spark alive of one day reviving the business, Beth has gone back to her day job, as a respected executive, drawing a reliable income with benefits.

California is full of entrepreneurs who have returned to their day-jobÑmen and women who could have been contenders, rejoining the ranks of executives working to realize someone else's dream. And it is not just a result of the "irrational exuberance" of the Roaring 90s. According to the Small Business Administration, one-third of new businesses will close within two years, and one-half will be gone within four years. What's the biggest reason businesses don't make it? You guessed it. They run out of money before the revenue kicks in.

So, if you're interested in starting your own business or expanding it out of your garage, the first thing you need to address is getting enough money to get you to cash positive. In theory at least, by following the road map to the money tree, you can skirt the graveyard of other's mistakes and become part of the successful half of our nation's entrepreneurs!

Where do the money trees grow?

Beth Polish. Photo credit: Philip Chase

If you trust the numbers, and smart entrepreneurs do their research, you wouldn't spend ANY time sending out

your Executive Summary to countless VC firms, unless you were Marc Andreessen (who invented the Web browser) or a Nobel-prize winning doctor working on the next miracle drug AND you had a personal relationship with one of the decision-makers there.

Unfortunately, another commonly held fantasy is that the government is an avid supporter of entrepreneursÑparticularly minority-owned businesses. It turns out that government money, through the SBA and other programs, also accounts for only 2% of the seed money for new businesses.

So, if start-ups aren't getting venture capital or government funding, where does the cash come to open the doors? Just how does a great idea get launched and who takes the risk? You guessed it. Entrepreneurs tap their own resources to get the business off the blueprint and on the ground.

Where New Businesses Get Their Startup Capital
From Inc. Magazine 10/03 by Beth PolishÉ

Funding At a Glance:

1. 53% of all business raise money through personal savings.
2. 10% of all companies use "Friends and Family." You'll need agreements to memorialize the exchange. This is a critical moment. You have other people you are responsible for.
3. 7% of businesses get bank loans and mortgages to finance the growth of company
4. 6% of entrepreneurs use personal credit cards.
5. 4% take angel financing. Angels are people who don't invest money professionally, but they are professional in how they invest their money. Major angel networks have grown up in Los Angeles, San Francisco, Chicago and other U.S. cities. Angels can help businesses. They know a lot. Be careful and meticulous with recordkeeping, however. They understand financial statements.
6. 2% of all businesses secure venture capital funding. Entrepreneurs always want venture capital, but very few companies fit venture capital requirements. Most are beating their heads against a wall! Even if you do fit the requirements, it is like the film industry: 2,000 scripts are submitted, 200 are optioned. 10-20 films get made. Focusing here is not the best place to start off.

Now that you know where the money tree grows, you need to know when the fruit is ripe for picking! There are many tips for keeping your new business flush with funds, some surprisingly simple (but KEY), and others that are downright racy. For more information on how to launch and succeed with your DREAM business, NataliePace.com turns to two veteran, successful executives, Beth Polish, founding CFO, iVillage and Patty DeDominic, President Emeritus, NAWBO.

NataliePace.com: What are some tips you can give someone who is thinking of leaving the security of their own job and venturing into the speculative world of entrepreneurialism?

Patty DeDominic: Your values are very important. Your banker or financial partner is in fact your partner. You need to be in partnership with people whose values you can live with. I started out working for free. Sweat equity. When the business is started with the blood of your soul and someone wants to buy a part of it for nothing, you say, "Go away!" They say, "55% for a million." You say, "Forget it!" I started one business from scratch and borrowed office space. We did $350,000 in the 2^nd year, and $400,0000 in the 3^rd year. Today, in gross sales, we're doing multi millions a year from a variety of enterprises. I have no debt today. However, I still have a $3 million dollar line of credit.

Where did you get the startup capital?

Patty DeDominic: In 1981, the interest rate to take out a $50,000 mortgage on my house was 17%. I was happy to take that mortgage at that percent. I had the choice of take the money and grow or don't pay the money and don't grow. I also borrowed $50,000 from my father. That was a very important loan that I took. He gave me the retirement money that he and my mom had saved.

You must have really believed in the viability of the business, if you drained your dad's nest egg. Was it all smooth sailing from there or did you have to raise additional funds?

Patty DeDominic: 1982 was another scary time in business. Different banks have different tolerances for entrepreneurs. Some of them want you and some of them don't. It's not about looking for a bank that wants to help you. That's about as naïve as looking for a competitor who wants to help you. Banks want to bet on winning entrepreneurs. It's important to be able to design a plan that shows them that they will have the opportunity to make money with you. That's what clearly changed me from struggling to succeeding--realizing that it is a partnership. If the bank can benefit from me, and I can benefit from me, they'll like me.

Beth Polish: In figuring it out, it's important to know why you want to raise the money in the first place. I've been working with this woman who has been struggling to a nice level. She's not appropriate for debt financing, and is more appropriate for equity financing. In pushing her, I said, "Why do you want it?" She said, "I'm really tired. If I had the money, I could hire an assistant." We've all been there. You're working 24/7. None of the things she would use the money for would have increased the value of the company. This was time for her to double down personally.

Many entrepreneurs wait until they desperately NEED money before looking into loans and other debt options. When is the right time to push for a larger line of credit?

Patty DeDominic: It took fifteen years to get a million dollar line of credit. It took five weeks to double that credit. It was right after Orange County filed bankruptcy. If Los Angeles filed for bankruptcy--one of my major clients--I would be in trouble. I went to the bank. They said, "No problem. You have the line of credit in place." It's not about me; it's about the plan. If you have a good plan, and there is character and decent credit behind it, the people executing the plan will be there. You get the money. If all the executors have bad credit, then you're suspect. I've seen people with crappy credit get loans, if they have a good plan.

How do you know if you should launch your business with loans or bring in equity partners (partners who take a piece of your company for their investment)?

Beth Polish: A bank loans you money on the interest they charge and any other fees that they tack on--and they do tack on fees! In making decisions to invest in you, they say, "What is the likelihood that you will pay back the loan on time." They need to like you and believe in you. They get paid back during the course of the loan.

Debt financers will evaluate you on the five Cs.

1. Character. Do you have a good credit history? Have you borrowed money before and repaid it? Have you ever run a business similar to the one you are running?
2. Cash Flow. Do you have the cash flow to make your payments?
3. Capital. Do you have more assets than liabilities, as a cushion if your orders don't come in on time? What happens if your customers pay Net 60 instead of Net 30?
4. Conditions of the economy at large and the industry you are operating in. If your industry has deep economic fluctuations, they value that in.
5. Collateral. Tangible assets that would be sold or possessed that could help them make up the payments that you haven't made yet.

Lenders will evaluate you very closely on all five of these points. In many respects, they are not concerned with what your business is. What is important is, "Will they get the payments paid back, with interest, plus all of the fees paid on time?"

And equity partners?

Beth Polish: Equity partners make money when they sell the investment that they made in you. They don't get a penny until they liquidate that investment. They have to evaluate whether they will be able to sell their investment in you at all (i.e., will their be a market for your company's equity in the future), how many years it will take to be able to do so, and what their overall rate of return will be in their investment in you and your company. They get nothing along the way, except heartache. Equity investors are active, and they have a lot of control over your business, as a result of that.

Equity partners will want to know:

1. Do you have a product that is a "must have" or is it a "nice to have." They want to know that customers will pay for what you are offering. To do that, they'll talk to your customers.
2. What's the cost to obtain the sales you are projecting? Is your marketing campaign going to cost $5 million, instead of $500,000?
3. You and the management team. They are backing you and your team. It's not just you. It's the people you have assembled to partner and execute your plan. They will do background checks. If you are doing all of that, do you have advisors who are helping you?
4. Size of market. Is the business a billion dollar market? Will they see 20, 30 or 40 % return on investment? They want high growth, a large market and people, at the end of the day, who will want to buy their investment from them.

Is there any advantage or disadvantage of bringing in equity partners as opposed to just securing the money through a bank?

Beth Polish: A bank or lender is a partner only while you are borrowing money. If you haven't enjoyed your lender, you can fire your banker and find another. If you have an equity investor, family, friend, spouse, angel, etc., they are your partners until they sell their shares. You can't fire them. You might be able to marginalize them, but you can't fire them. Equity investors will have a say in how you run your business. Lenders won't have much of a say, and as long as you live within certain rules, they'll stay off your back.

Beth's mantra is, "DROOM^TM -- Don't run out of money!" How do you avoid that? When is the right time to borrow?

Beth Polish: It takes at least 3 to 6 months to raise financing so don't wait until you're almost out to begin the process.

Patty DeDominic: There is no one answer to that. When I took out the $50,000 mortgage, I had a business partner that I needed to get away from. We had two very different philosophies. He had funny things he wanted to do with the Internal Revenue Service. I don't do that. I'm concerned about being transparent. I do business with government. You have to be naked. I didn't want to have trouble with the IRS, or worry about "Who do you pay this week--payroll taxes or rent." You pay both. When you sense that there is a strategic opportunity to jump to the next level, that is a creative use of capital. It's just a lot of people understand about financing a new car or financing their house, but they don't get that you can finance your business, too. Why is it that we wouldn't hesitate about signing a mortgage, but we hesitate before signing a bank loan? Would you buy a car or a house for all cash? Don't use credit to dig yourself out of a hole. You use borrowed money to move you from place A to B or C. You can even out seasonal or annual opportunities when your cash flow needs are fairly stable.

How do you know if you have surrounded yourself with the right team?

Patty DeDominic: Your Certified Public Accountant should refer you to banks and to other people. Shop around, if your CPA isn't giving you useful advice every quarter.

Beth Polish: Same goes for your lawyer.

Patty DeDominic: Your insurance person also has a lot of financial savvy. A great hire nowadays is someone with a financial degree, as a controller.

Beth Polish' credentials include: iVillage, Goldman Sachs Ventures, Anthony Robbins' Dreamlife, Inc., Critical Junctures Group, Harvard MBA, BA Anthropology.

Patty DeDominic is the Founder/CEO, PDQ Careers Group & Companies, the largest privately held staffing and service firm in (the U.S.). She is the past chairman of the Los Angeles Chamber of Commerce, Chairman Emeritus NAWBO and has received many special recognitions over 20 years..

LAUNCHING YOUR DREAM BUSINESS:

A Ten Point Checklist.

What you need to start your own business and some resources to help you.

1. Business Plan. Even if you aren't going to borrow money or bring in equity partners, you should have a business plan. Would you build a house without a blueprint? Try: Count-Me-In.org. SpringboardEnterprises.com, or SCORE.ORG, which is part of SBA.gov.
2. Elevator Pitch. Come up with a two-minute, cohesive, coherent, catchy pitch. You have to practice and work really hard to explain what you are doing and why someone should get involved with you.
3. Terminology. You need to know the terminology, and to surround yourself with partners who are very experienced in launching successful ventures. Patty DeDominic used to say, "Yeah, I have two MBAs. Meet Beth Polish (Harvard MBA) and Jane Dough (Columbia MBA)." Sign up for classes. Do workshops. Buy books. Contact the Small Business Administration (sba.gov), SCORE (Score.org) and/or NAWBO (Nawbo.org) for help.
4. Advisors: Form an advisory board or council. Use their contacts. You can borrow their social capital to raise capital. You'd be amazed of the number of people who would be willing to do that for you. You won't know until you ask. Get used to hearing "No" once in a while.
5. Keep your operations Lean and MeanÉ Patti DeDominic borrowed office space. Silicon Valley entrepreneurs are notorious for giving equity to their core team. Get your staff invested in the company, and they'll stick with you during the leaner months of your start-up. This is not the Roaring 1990s. Keeping costs down, while you work for cash positive, counts.
6. Loans. Secure loans before you need them. Get liquidity and build up reserves before the unforeseen occurs. The best time to get more money or to increase your line of credit is when you DON'T need the moneyÉ
7. Build a Social Network. Don't just hand out cards at breakfast meetings. Start socializing and having lunches with business people whom you can build meaningful and lasting business relationships. Attend important conferences and forums that interest you and/or pertain to your businessÉ Join NAWBO and a networking association more closely aligned to your business.
8. Web Site. Make sure that you can secure a dot COM domain if you are a for-profit business and a dot ORG if you are non-profit. Period. If the site is already taken, keep thinking of a better name or catch phrase.
9. Credit Issues: If you are ready to expand or launch, have been in business less than three years and/or you have credit issues, try CharoCorp.com for a lender that takes on more risk (for a higher interest rate).
10. Avoid Chasing Your Tail: Don't bang your head against the banker or the venture capitalist if they're not going to give you the money. Many entrepreneurs rue the amount of time they wasted chasing money in the wrong places.

LIVING WEALTHY.

Your chance to have four seasoned financial consultants give you a personal money makeover. In this issue, a stay-at-home mom navigates her way through one of the most difficult emotional and financial changes of her life—divorce.

The Living Wealthy financial consultants: Carista Luminare-Rosen, Ph.D., Educational Director of Inner Securities and Holistic Wealth Consultant, Stu Zimmerman, Chairman & CEO, Inner Securities, Gregory Wendt, CFPÒ Money Manager and Certified Financial PlannerÒ and Judith Green, Mortgage and Real Estate Financial Advisor.

Profile of this month's LIVING WEALTHY Candidate:
Jennifer Doe (not her real name).

Name- Jennifer Doe
Age - 34
Married- Divorcing
Children - 2 Children, ages 5 and 8
Profession - Housewife with B.A. degree

Annual Income - $150,000 ( Husband's income)

Net Worth - $420,000

Asset Allocation - $120,000 in stock in husband's employer's company; $300,000 in house equity
House details - Bought eight years ago for $195,000; now worth a little over $600,000; owe a $240,000 first mortgage and a $60,000 second mortgage
One Year Life Goal - To have the divorce peacefully resolved
Five Year Life Goal - To complete graduate school and be remarried
Ten Year Life Goal - To have enough money to send kids to college and have a thriving career
Deepest Heart's Desires - Not to be so anxious about money and my kids future .
Greatest Fear/Insecurity about Money - I will always be struggling

Jennifer seeks help, in her own words:
"I've been a stay-at-home mom since my first child was born eight years ago. My youngest is starting kindergarten this fall. With both my  children in school, I had planned to start classes this fall at the university nearby to finish my master's degree in counseling. However, my marriage has been in trouble for at least two years, and this summer my husband moved out and filed for divorce.

Both our lawyers say we have to split all our assets and sell the house to settle the finances. If the kids and I have to move, they'll lose their friends and I'll lose my support system and the fact that the university is only a ten-minute walk from our home. We weren't wealthy, but my husband's software sales career supported us well. I know he has some stock from his company and a modest retirement, and we have owned our home for six years. This divorce is tearing me up, and my husband is very hostile. I've been trying to go along with the lawyers' recommendations to keep peace, but I don't feel right about this. Is there a better way for us to split up without disrupting everything, financially as well as emotionally?"

CARISTA'S RESPONSE:
Dear Jennifer,

Thank you for being so vulnerable in sharing your story with us. It sounds like you are feeling a lot of confusion and pain, which is a natural part of the healing cycle.  It becomes even more emotionally challenging for families with children, where not only custody issues frequently create greater conflict, but also the impact of the family splitting up can be very overwhelming for everyone involved. Although these feelings can leave you feeling lonely and afraid, very few people realize that about half of all new marriages will end in divorce and "nearly half of children will witness the break-up of a parent's marriage" (The Abolition of Marriage, Gallagher).

Thus, you are not alone and there is significant social support and resources for you to navigate through this life crisis. There will be a time when you will have greater resolution than you do now, and it is important to give yourself time to explore and resolve your insecurities. Consider searching on the Internet for ideas and resources, and maybe explore some chat rooms to find some wisdom from those who are seeking and finding help as well. You can Google.com any subject on divorce, but here are some websites to consider: www.makinglemonade.com is great for single parent networking and divorce related themes. Www.co-abode.com is for those who are seeking to share resources ranging from finances, to babysitting, to emotional support and housing.

I suggest including a mediator or marriage/divorce counselor to include in your support team. In describing your husband's hostility, this emotional tendency can often become inflamed when working through custody and legal issues. When compassion and generosity are not available between the couple or lawyers, conflicts in communication increase and negotiations often become unnecessarily contentious. As we all know, this expands the time and effort your lawyers spend on your case. For them, it improves their income. For you, it depletes yours.

Even if your husband does not want to do any emotional counseling, you can give yourself this gift which will nurture and empower you to take care of your true needs during this difficult phase of life for you. Your children may benefit from some counseling as well, if they are showing signs of distress. Understanding that funds are limited, an investment in your emotional security will be the best foundation to clarify and strengthen your financial security. A seasoned counselor can help reduce the legal fees if a couple is able to minimize the emotional conflicts before or during the time they pursue legal counsel. Individual or couples counseling are usually much cheaper than legal fees.

You may find your university offers free counseling services to you, or consult your local yellow pages for local or state funded agencies that offer support services for single mothers and those in major life challenges similar to yourself.

Divorce is a BIG DEAL, especially with children involved. Here are several other perspectives to consider:

1.. Do you trust that your lawyer has the compassion and wisdom for your best interests and those of your children? You can always find a new one that makes you feel secure and safe. Make sure your lawyer feels like an emotional as well as a legal ally and is comfortable with hostile spouses who often choose hostile lawyers. Do you want your lawyer to be a dolphin or shark in their temperament with you as well as towards your husband?

2. What and who do you need besides legal support to feel you can survive and thrive during this life challenge? Be specific. Talk to people who have been through it, join a divorce group, get therapy, surf the web for information. You will find divorcees are a big international club!

3. What is your heart telling you that your kids need from you during this big change in their lives?  Are they getting enough love and support for how this is affecting them? Again, reach out to your professional community for guidance.

4. Have you considered that by releasing an unhealthy marriage, this could be a new phase of life that is beyond what you dreamt was possible to experience in a relationship? There are lots of wonderful and mature men out there who have been through the divorce cycle (or not) and are ripe for love. There can be an even healthier life after the death of a marriage. Nature never fails to show us how spring always follows winter, but you can't skip a season. The same with the emotional cycle of grief. This is the time to nurture yourself and trust that life is with you and wants the best for you and your children.

Carista Luminare-Rosen, Ph.D., Director of Education, Inner Securities, Inc. She can be reached at Carista@Innersecurities.com or visit the website www.innersecurities.com.

STU'S RESPONSE
Jennifer, divorce is a huge life event, akin to death. It is most understandable that you feel like you are in crisis mode. The Chinese use two characters to define "crisis:" one represents "danger," the other "opportunity." Clearly, both danger and opportunity are present in your life right now.

There is a real danger that you and the kids become so filled with anger or self-pity that you will not be able to appreciate what you do have. Carista has shared with you that you may need to explore your insecurities, which can be very healing. However, to avoid reactions out of fear that don't serve you, focus on the opportunity you do have to appreciate what exists right now and to proactively create a new life for yourself and your children.

So, Jennifer, amidst all the turmoil in your life, what are you grateful for right now? To fulfill your deepest heart's desire to not be so anxious about money and the kids' future, you must be present, not in the future. The future hasn't happened yet. Nothing is guaranteed about the futureÉ except that your thoughts, decisions and actions right now will affect your future.

Take heart. First of all, you are deeply loved and loving. You have the opportunity right now to choose the thoughts that are most aligned to your virtues at this critical point in your life. Write down your greatest personal attributes, (e.g., compassion, honesty, integrity, self-love) and take a few minutes each day to breathe new life into them. As you inhale, focus on one virtue and strengthen it within you by breathing into your heart. One the exhale let it all go, including all the pain and struggle from your divorce. You will notice that over time, you will be more peaceful, more natural state in which more supportive and affirming thoughts arise.

Your husband can't take anything away from you as person that is your true nature, no matter how hostile he is. You can choose to source your inner strength, to be a role model for your kids and to bond with them in a profound way throughout your family challenge. Embrace the new possibilities as an adventure that can open untold sources of love and money for you. Be true to what creates more love in your life. Many blessings to you.

Stu Zimmerman, Chairman & CEO, Inner Securities. Stu can be reached at Stu@innersecurities.com or visit the website www.innersecurities.com

JUDITH'S RESPONSE:
Dear Jennifer,

Your attorneys are taking the most common view of your financial circumstances and looking at selling--liquidating--everything, and then splitting the proceeds down the middle. Although that is one legitimate approach, it doesn't take into account issues such as transaction costs (sale of your current home, cost of buying something new) and the likely losses you will face if you sell your house and your husband's stock under the time pressure to sell and settle, regardless of current market conditions.

You and your husband bought your house eight years ago, and have seen appreciation raise your house value from $195,000 to nearly $600,000. While this appreciation is a marital asset, the house is also home to you and your children, a logistical asset because it is so convenient to the university and the children's schools, and a potentially appreciating asset for you if you can hold onto it.

Few people realize this, but several major mortgage banks have set up guidelines that help people in your circumstances use refinancing as an alternative to selling the house. You may think that refinance costs might be expensive, but consider that a typical listing contract allows for a 6% real estate commission, to be split between the listing agent and the buyers' agent. On a $600,000 house, that means that the net proceeds after a sale are reduced by $36,000, and if you cut the price to sell quickly, the proceeds will be even less. We can easily estimate that the apparent $600,000 value of your house is reduced to $550,000 or less to you, if we factor in cost of sale. Once you subtract your current mortgage and home equity line, which total about $250,000, that leaves net equity of $300,000, which the lawyers would have you and your husband divide (minus the cost of additional lawyer fees to arrange all this).

Your husband has a little more than $110,000 in stock from his employer--if he has to sell that under pressure, he will also get less than the potential value.

Then, there's the issue of where you and the children, and your husband, will live in new housing. If you and your husband each purchase new property, you will face the out-of-pocket expense of down payments and closing costs, which will also include the same 6% (or more) transaction costs to the realtors who help you. Additionally, can you qualify to buy a satisfactory new house with no recent job history, and no recent reportable income? Your house has grown nearly $400,000 in value in the past eight years from your original purchase price--a simplistic calculation suggests that the house has contributed about $50,000 each year.

Find yourself a compassionate and creative mortgage broker and discuss these issues. If you have managed to preserve your good credit score, you might qualify for a new mortgage under guidelines that don't require you to prove income. And, if you will examine some of the more innovative new loan products, you might find a mortgage that will give you a payment based on a rate as low as 1.5% (and sometimes lower!). Let's assume that you can qualify for a loan of 75% of the $600,000 value, which is $450,000, or about $100,000 less than the real proceeds from a sale. That new loan of $450,000 works out to a monthly payment of $1552 per month, based on a payment rate of 1.5%, which is less than your current payment of nearly $2000 a month between your original first mortgage and your home equity line. (For comparison, a 30-year-fixed mortgage at 6% is $2685 per month on the same $450,000--a tough stretch for a student single-mom to cover.) In your locality, a three-bedroom town home is likely to rent for that much or more, but as a renter you will lose out on any of that $50,000 per year appreciation, and you won't get the mortgage interest deduction which helps cut your income tax obligation. (This loan seems unusual, but remember that the goal here is not about paying off the house, but rather letting the family stay in the house for a monthly payment that can be met for the foreseeable future.)

The net proceeds from this refinance should give you close to $200,000 to help settle a property division with your husband, without requiring that he sell his stock for less than optimal value. So the math works out to $100,000 of your husband's stock, $100,000 of present equity in the house which you can argue that you could keep as you stay in the house (after factoring out the true transaction costs), and the close to $200,000 of refinance proceeds which you, your husband, and the lawyers can choose to split as it makes sense.

Since the new mortgage payment will be similar to a reasonable cost for appropriate rental housing, your husband's alimony and child support contribution should help cover it, and leave you with the additional benefits of continuing home ownership.

Fortunately you have already set your sights on a different, positive future for yourself. This approach lets you stay in place, avoid moving costs, keep the children in their familiar environment, stay close to the university that will support development of your new career, and avoid some of the expensive costs of trying to qualify for a completely different new house.

This refinance also allows you to take your husband's name off the title on your shared property, and separate your credit. You should also look at any other credit cards or loans that you and your husband share and make a point of paying off those obligations and establishing new loans and cards separately. This is an important issue that is often overlooked, but the best time to handle this is now. You don't want to find yourself several years down the line with your credit still intertwined with your ex-husband.

My best to you.

Judith

Judith Green, a mortgage and real estate financial advisor, specializes in problem solving for clients with more complex or non-traditional lending and credit issues. She can be reached for comments or to request a consultation at createmoney123@netzero.com.

GREG'S RESPONSE
Jennifer,

Judith has offered some excellent suggestions that make it clear that you may not need to sell your the home. I would agree that since your husband is leaving you in the home, then it would only make sense that you keep the house as the primary asset from the divorce, and your husband keep his securities and other assets.  

You will need to explore these different financing options and present them to your attorney, as your attorney may just not be aware of the choices available to you. You may also want to get a second opinion with another divorce attorney, who may be more creative in exploring the different financial pathways available in the marketplace.

As you begin moving on with your life and pursuing your goal of being a counselor, you need to factor in the financial side of the equation. You should evaluate your goals and plans for the next five to ten years and attempt to quantify the costs versus the financial resources available to you. Basically you need to get a handle how much your dreams are going to cost and the resources available to cover those expenses. At this stage, since you are focusing on getting through this divorce and getting back into the work force, you need a financial plan or financial "road-map" of the next five to ten years of your life.

You should try and determine the resources available to you: the amount of money that your husband may be paying you in spousal and child support, and how much could be derived from the refinance of your home. After you do that, prepare a budget of your current and projected living expenses, as well as the potential costs of attending school.

If it at first appears that you are not able to cover the costs with the money from the refinance and support from your husband, you should evaluate whether or not to consider financial aid. I suggest visiting the university and speaking with admission counselors about the options available to you for financial aid or student loans. You may be able to get some student loans to cover some of the expenses for your Master's degree. You may also be able to find some work at the university related to your course of study to help cover expenses, while at the same time gaining skills.

Another very important factor in this process is to determine the amount of future income you can expect to earn as a counselor.  As you prepare your budget and financial plan, you will need to be realistic about how you will make ends meet after you have finished school.

As you can see, there are many different factors to consider.  After you have gathered the information and thought about the issues in front of you, a financial planner can definitely help you to fine-tune your plan and help you to sort through all of the different courses of action. Through the process, a financial planner can help you to determine the best course of action for your unique situation.  

Get through this period. Take advantage of this time to re-tool and prepare yourself for a whole new life ahead of you.

Gregory Wendt, CFP®
www.gregwendt.com <http://www.gregwendt.com>
Premier Financial Management, LLC
Investment Portfolio Management, Comprehensive Financial Planning, Socially and Environmentally Responsible Investing

If you want to be considered as a candidate for this Living Wealthy column, go to www.innersecurities.com and click on "LIVING WEALTHY."  Fill out the "Living Wealthy Profile" and "IS Quiz" and return to wealth@innersecurities.com.

For more information on the Living Wealthy team , visit www.innersecurities.com or call 707-425-2360.

What Bad Hair Days and Inflation Have in Common:

by Natalie Pace, CEO, NataliePace.com

All the twisting, teasing, tearing and gnashing of teeth won't change a bad hair day, just as it won't bring gas prices back to the good old days. Bad hair days and inflation simply do not cooperate. They refuse to be ignored. They color every moment of your life with worry, self-consciousness and downright anger. Why me? Other people's lives seem just fine. Am I the only one dealing with this?

Natalie Wynne Pace Founder & Ceo, NataliePace.com "spreading wealth by sharing wisdom"

The one difference is that the bad hair day might be all over tomorrow. Inflation, on the other hand, is here for a while, and could get worse, if you believe David Littman, the chief economist at Comerica Bank. Speaking on Kudlow and Cramer as far back as December 2003, he warned, "In 2005 we're going to have a serious problem with inflation and rising interest rates. I'm not worried about it in 2004, but I'm critically worried about it in 2005 and 2006." That was well before oil hit $50 a barrel on 9.27.04. With China consuming oil products like there's no tomorrow and oil producing nations running at full capacity, nobody is predicting a return to $28 a barrel, and many are warning that $60 isn't out of the question, with $80 a real possibility in the event of a successful terrorist attack. "There is no supply anywhere that is going to fix the demand that we have right now," one oil executive admitted, speaking on CNBC on September 30, 2004.

Gas is more expensive. Interest rates are rising. It's hard to imagine a company or an individual who will not have their wallet squeezed as a result.

SoÉ is there anything you can do? Turns out, there is plenty you can do to calm the effects, especially now, before the situation really gets out of hand.

1. It's here, so deal with it. Don't keep running the status quo (keeping your same level of spending) on the misguided hope that oil prices and interest rates might go down or that inflation isn't as big of a deal as reported. The Feds have been giving away money for free for years to keep the consumer spending and the economy running. There's a lot of pressure to raise interest rates, meaning that your out of pocket expenses, especially concerning debt, are likely to go up. High oil prices affect many industries, especially automakers, utilities, retail (think trucking), transportation, airlines, and moreÉ
2. Get a haircut. Trim back on your expenses and spending NOW. Don't bank on a raise or increased rise in the value of your home to keep adding more fuel to your bank account. With most companies still working to trim debt, increase productivity and suffering under huge pension liabilities, it's a risky bet that a cost of living raise is in the cards. It is far more likely that your pension plan and benefits package will get a haircut themselves. The statistics are sobering. 1/3 of the U.S. Baby Boomer population begins retiring in just three yearsÑ2008.
3. Gel helps. Make sure that you've got enough liquidity (cash) to get through the next year of increased expenses, and lock in a fixed interest rate NOW to smooth out the payments on your home mortgage. Don't overlook your credit cards. Pay off your credit card debt or transfer the debt into a fixed line of credit (if possible).
4. Hair Nets. They Look Crazy, but They Tame Out of Control Hair. Do a serious assessment of whether or not you can afford your home if interest rates rise by 3%. If this increase in your monthly nut may crack it, you may need to look into a more severe strategy, like downsizing to a home you can afford. Remember that cash is king, and allows people to buy on opportunities. With all the hoopla over real estate, if you sell your place now and downsize to something you can truly afford in an environment of rising interest rates, your friends will ridicule you. They'll tell you that you are crazy and remind you just how much real estate has gone up in the last few years. However, the easiest way to lose money on any investment is to be FORCED to sell at the wrong time, which could happen if you are overextended when interest rates start to rise.

A little forethought and preparation now should ensure that you'll be looking good, no matter what inflationary headwinds develop down the road.

Stock Report Card: Airlines in Crisis

by Natalie Pace, CEO, NataliePace.com.

With Delta On the Ropes, United in bankruptcy and US Airways pending liquidation, will Jet Blue and Southwest’s share prices soar?

Three of the top six U.S. network airlines are in serious trouble, and all of them lost money in the first quarter of this year. Things are so dire that insiders are predicting US Airways may be forced to liquidate. "The chances of [US Airways] going out of business are higher now than during the previous bankruptcy because creditors have found ways to place claims on the carrier's cash to lower their risk," Raymond Neidl, an airline analyst at Blaylock and Partners LP, is quoted by the Washington Post, as saying.

The executive exodus at Delta Airlines gives a clear signal of what the top honchos there think about the future of that airline. In less than a year, Delta has lost its CEO, COO, CFO, Chief Customer Service Officer, and on October 1st, the President of Song, John Selvaggio resigned.

In the past, Congress has come to the rescue, with loan guarantees that have allowed airlines to keep paying bills, while they negotiate with banks, unions and other partners to cut costs and return to profitability. Since the turnaround plans have failed so far, however, Congress' attitude and strategy has decidedly shifted. This time, Congress is not coming to the rescue, according to the Chairman of the House Aviation Sub-Committee. Speaking on CNBC, Congressman John Mica said, "There is no stomach on Capitol Hill for funding losing operationsÉ If the airlines don't change, the major carriers that are left, they will go by the wayside. If [labor is] not competitive with the market you [have got to] get competitive." Congressman Mica specifically named the low-fare carriers as the airlines of the future.

One of the biggest problems with profitability at the established airlines is labor costs. Dave Siegel, the former President and CEO of US Airways, spelled out the challenge at a speech for the Potomac Officer's Club last February, saying, "Before our reorganization, our CASM (Cost per Available Seat Mile) was north of 12 cents per mile. Now it is about 10 cents. That's a pretty good improvement. The problem is that the airlines that are making moneyÑlike Southwest and Jet BlueÑhave CASMs in the 6 cent rangeÉMore than half of [that four cent difference] is labor costsÉ. Our employees are victims of the difficult reality that employees at other companies are willing to work more hours for less pay, less benefits and better work rules." Just how disparate are the wages between network and low-cost carriers? Reportedly reservation clerks at Delta make $22 per hour, while Jet Blue pays its people just $9 per hour for the same job.

As you can see from their positive earnings in a sea of red balance sheets, clearly Jet Blue and Southwest are the healthiest carriers in this very diseased sector, but will fuel costs wipe out their profits as well and negatively impact share price? Margins for even the low-fare carriers are slim. The Air Transportation Association's Statement for the Record on June 3, 2004 reports, "The U. S. airline industry remains in a precarious economic condition. From 2001 through 2003 it suffered a net loss of $23.2 billion, plus an additional $1.6 billion in the first quarter of 2004, with full year 2004 losses expected to exceed $3 billionÉ..Even for those few low cost carriers who have managed to eke out a profit, margins are slim."

Jet Blue and Southwest also have new competition. Virgin is launching a new low-cost carrier. United has Ted. Delta has Song. Dave Siegel sees a future with a "swarm of low-cost carriers battling it out in high-density markets." With the airline crash and burn stories that have littered this sector for decades, it's hard to make a case for a long-term hold of any one airline. Southwest has been one of the few airlines to show consistent growth over time, but one trip on Southwest after being spoiled by Jet Blue's new planes with their big, leather seats and DirecTV at every seat, and it's easy to see which airline has the product edge today.

Not surprisingly, most of Jet Blue's numbers look better than Southwest as well. In August, JetBlue continued to dominate with the highest load factor (89.3%), the highest earnings per share (.77 per share) and one of the lowest price to earnings ratio, at 27.20. JetBlue's share price has also shown a great willingness to pop, whereas Southwest has traded consistently within an eight-dollar range for years. JetBlue's 52 week-high was $47.14, over double the October 1, 2004 price of $21.65. The question is, "Can JetBlue show that kind of bump again?" With Congressmen and analysts touting JetBlue and Southwest as models of what successful airlines should follow, investor interest in those companies should heat up. While the network carriers continue to falter, Jet Blue cames out the clear winner of investor interest again and again over the past two years, since their IPO. There's little reason to believe that cannot occur again this year or into the first quarter of 2005.

Bottom line: NataliePace.com believes JetBlue at $21 to be a real bargain. The entire sector will show reduced earnings as a result of drastically increased fuel prices. However, with the bad news concentrated on network airlines, many of which are belly-up, more and more investors will flock to the profitable airlinesÑJet Blue, in our opinion, over Southwest.

View the Airlines Stock Report Card hereÉ

Additional Airline Stats and Facts:

1. Among airlines, Southwest Airlines carried 7.1 million domestic passengers in April, the most of any airline. (Bureau of Transportation Statistics, www.bts.gov). Average load factor was up 4.1%, to 76.3%. Jet Blue's load factor is running at 89.3%.
2. On 9.2.04, the U.S. Department of Transportation reported that United led the seven major U.S. airlines* in on-time performance for the month of July, for the second month in a row. (source: United press release)
3. "At the beginning of the year, the industry held out hope for a return to some degree of stability, if not profitability. Yet, new costs beyond our control wiped out recent efforts to cut costs and achieve new efficiencies. Record high oil prices and the nation's on-going war on terrorism, including sustained uncertainty in Iraq, have presented new barriers to improving the industry's economic health." Air Transportation Association's Statement for the Record, June 3, 2004
4. "Our employees agreed to significant wage reductions that deliver $2.5 billion in annual savings. This is their investment in United's future. That translates in some cases to a reduction in pay of as much as 40 percent." Glenn F. Tilton, United Airlines CEO
5. "Plenty of others have made money off of the existence of the commercial aviation businessÑplaintiff's lawyers, aircraft manufacturers and suppliers, bankruptcy attorneys, hotels and other travel industry partners, regulatory attorneys, airport concessionaires, labor lawyers, not to mention the legal profession. But all in all our success rate is pretty patheticÉ" Dave Siegel, former US Airways CEO, speaking to the Potomac Officer's Club on 2.25.04.
6. "Critics scoffed at our dream of creating a successful low-fare airline based in New York City. They said we'd never find quality employees, that no one would want to fly domestically from JFK, and that we'd never be able to offer both low fares and a product that includes new planes, leather seats and live satellite TV with DIRECTV® programming. Twenty-two million customers later, we're proud to be proving the critics wrong." David Neeleman , Jet Blue CEO
7. US Airways is bankrupt for the second time. United is still in Chapter 11. Delta's chief executive, Gerald Grinstein, is quoted by the Associated Press as saying, "Bankruptcy is a real possibility. We're working hard and fast to avoid it." It's been an executive exodus at Delta this year, with the CEO, COO, CFO, Chief Customer Service Officer and the President of Song all leaving for greener corporate pastures.
8. Northwest Airlines Corp. chief executive Richard Anderson resigned on October 1^st, in order to take an Executive Vice President spot at United Health Group Inc.
9. Continental is the only network airline to eek out a profit last year. This year, with rising fuel costs, Continental is back in the red.
10. There is little case to be made for investing in any of the six major network carriers, outside of shorting! Do not buy shares in bankrupt airlines. Common shareholders are wiped out, typically receiving ZILCH for their investment, when the company exits Chapter 11.

Greenspan on Inflation and Social Security, and other Notable Quotes.

Inflation
"After moderating earlier this year partly in response to the substantial rise in energy prices, output growth appears to have regained some traction, and labor market conditions have improved modestly. Despite the rise in energy prices, inflation and inflation expectations have eased in recent months."

Federal Reserve Board Statement on 9.21.04, after raising its target for the federal funds rate by 25 basis points to 1-3/4 percent. To read the full statement, go to:

http://www.federalreserve.gov/boarddocs/press/monetary/2004/20040921/default.htm

Social Security
"I cannot say with any degree of confidence that we have not made commitments which we cannot deliver, until we are in a position where we can say we know the resources will be available to meet the needs of retirees and workersÉ who will be requiring a rising standard of livingÉ"

Federal Reserve Board Chairman Alan Greenspan speaking before the House Budget Committee on 9.8.04, on Social Security and the $7.3 Trillion U.S. national debt, on which we pay $1 Billion interest /day

Real Estate - Mortgage Fraud
The FBI has received more than 12,100 reports alleging mortgage fraud, vs. about 4,200 in 2001, according to an Associated Press report. The FBI is investigating 533 of these claims, compared with 102 in 2001.

Insider Trading

Top 10 Largest Purchases In September 2004 (per MoneyCentral.msn.com)

Top 10 Largest Sales In September 2004 (per MoneyCentral.msn.com)

(Most insider sales at Google were associated with the Dutch Auction. Insiders selling at $85 price: Sergey Brin, $40.89M, Dr. Eric Schmidt, $31.36 M, Time Warner, $121.35 M. YAHOO sold $242.99 Million AFTER public trading began for a great premium on the auction price, at $104.87.)

Check for Insider Trading activity.

Stocks on Sale!!

by Natalie Pace, CEO, NataliePace.com

Create Your Own Mutual Fund with NataliePace.com Stock Picks.

In March of 2004, speaking on Cavuto on Business, I warned, "This will be a choppy year. A day-trader's paradise. I recommend that people reposition their portfolios and pull some profits off the table."

In January 2004, the NataliePace.com articles focused on and encouraged on profit taking. Since then, NASDAQ has been down as much as -12%. Both the Dow Jones Industrials and NASDAQ are still off at -4% and -6% respectively. In July of 2003, I agreed with Louis Navallier that the election year would burn through summer and post strong gains. After three years of steady drastic declines in the stock market and dismal Octobers (think 9.11.01 and the market lows of 10.22.02), the fall of 2003 turned out to be stellar, with gains of 50% (NASDAQ), 24% (S&P500) and 22% (DOW Jones) posted for the year. So what should the rest of 2004 look like? Will the annual Santa rally (50% of the stock market gains typically occur in the 4^th quarter of the year) bring everyone the gift of found money? Which Presidential candidate do the markets like better?

Volatility in the markets will continue to be the overriding theme this year, a day-trader's paradise, as headlines continue to whipsaw back and forth between candidates. September's post-summer market dip performed true to form, putting stocks on sale, but investors need to pick their companies carefully, and look to take their profits in shorter time periods. January 2005 would be a good time to reevaluate positions. It looks like the Santa rally will not disappoint investors who buy in this month, while the markets are down, although the year-end finish is expected to be rather limp. Joseph Lisanti, Editor of the S&P 500's The Outlook, wrote on 8.16.2004, "We have lowered our yearend target for the S&P 500 to 1130 from our previous estimate of 1150. Although that represents a projected gain of only 1.6% for calendar 2004, it is about 6% higher than the market's current level."

Will the election spark a rally?
Though most money managers favor the tax and capital gains incentives that Bush signed into law, and fear Kerry will take them away upon election, I don't see more than a small rallyÑup to 5%--if Bush is re-elected, or more than a 5% reactionary downturn if Kerry wins (which should stabilize quickly on earnings reports). The bigger problem is that both candidates have half of the country against them. Unless or until there is compelling data that economic glory days are returning to Wall Street, investors are going to remain more interested in the outperforming asset class of recent years--real estate (though there are many signs that real estate is slowing down).

There is one market, however, that I'm bullish on for the Santa rally and continuing into early 2005- NASDAQ. NASDAQ is still oversold from the 2000 crash, running at -50% from levels in January 2000, compared with -10% in the Dow Jones Industrial Average and -20% in the S&P 500. Along with a relatively high valuation and conservative growth, many of the mature companies of the Dow Jones Industrial Average are weighted down with pension concerns. This story will begin to dominate headlines more and more, just as criminal CEOs were oh so 2002. At the same time, the young, lean Internet companies of NASDAQ are reporting the strongest earnings growth on Wall Street. Yahoo's 2Q 2004 revenues were over 2.5 times higher than 2003 revenues for the same period. Even monolith Microsoft saw revenue grow by 14% this year, with advertising revenue at MSN up 43% (according to their September 2004 10-K filing). Seems that Peter Schumpeter's economic theories on industrial innovation are playing out for the InternetÑthat the first cycle (2000) ends up a bust, while the second cycle (beginning this year) should be the time when consumers embrace the new Internet technology and incorporate it into their lives. The rush to high-speed connection indicates that even the least cyber-friendly Americans are being forced to connect online. The NDP Group is reporting that 41% of Americans plan to do their holiday shopping online this year, and most of that demographic is consisted of households with more than $75,000 annual salary.

Still, selective stock picking and short-term buy/sell strategies continue to be key to attractive returns. Below are a few picks from NataliePace.com, along with information on which NataliePace.com archived issue you can find the supporting articles that explain why we believe these companies are poised to lead their sector and are currently a pretty good buy. Note that I have included a few companies that are not NASDAQ, but do have presence in the current IT boom cycle.

Are you Playing BLACK JACK with your retirement?

How much of your nest egg should you have invested in the stock market?

Dear NataliePace.com:

"I'm 58 years old, and very nervous about my retirement fund, which is currently in the Stock Market. What should I do to calm my nerves?"

Dear Nervous,

I'd be nervous, too! That is like gambling your future on Black JackÑfun if you're 20!

A general rule is that you should PROTECT 58%, a percentage equal to your age, of your nest egg in completely SAFE investments. If you enjoy the potential upside of the stock market, keep up to 42% (NO MORE!!) invested in stocks. If the markets make you timid, trim back more. Skittish investors make silly, and costly, mistakes, and market crashes (like the one in 2000) can force retirees back to work. Portfolio diversification is the best safeguard for your retirement, but beware of bonds this year. They are real losers when interest rates rise.

Nervous, the best way to calm yourself into the blissful golden years (yippee!!) is to have a diversified portfolio, meet with your broker twice a year and to start educating yourself! Anytime a sector of your portfolio has a strong run-up, you take the profits and realign the portfolio back to the desired percentages. Learning is one investment that never loses, and money is a lot of fun, when it is working for you!

BIO:

Natalie Pace is the CEO of NataliePace.com, "spreading wealth by sharing wisdom." She is a respected financial commentator, and has been featured on Forbes on Fox, Your World with Neil Cavuto, Good Morning America, Time, USA Today, Cavuto on Business and More. Her interviews with CEOs, like Marc Andreessen and Sally Krawcheck, are rated in the top 5 Exec Picks on Forbes.com. www.NataliePace.com 1.866.NataliePace.com. info@NataliePace.com

10 Questions to Ask Your Broker before you hand over your money…

by Stefan Whitwell

Stefan Whitwell, CFA Managing Partner, Tierra Capital, L.P. http://whitwell.net

Before you are allowed to lease an apartment, the apartment owner typically runs a criminal and credit check on you.  Sometimes, they also run checks to see if you have ever been involved in litigation and other disputes.  Do you find it interesting that before most people hand over their money, which they have worked so hard to accumulate, they typically don't ask any tough questions or run any background checks on their broker? You're not alone.  

Several years ago there was a story about a fund manager that ripped off many of Hollywood's most famous actors and actresses - who also failed to do even a basic check.  Likewise, there have been recent examples of publicly traded company CEOs resigning after it was discovered that their resumes were padded with some inaccuracies or half-truths.  Admittedly, sometimes asking the right (and tough) questions can be socially awkward, especially when the broker was referred through a friend or the person is super friendly- but believe me, losing your money will feel a lot more awkward!  Here are ten tough questions to get you started:

1)      What do I expect from my broker? (important to know what your needs and expectations are first)

2)      Years experience

3)      Educational background (university, area of study)

4)      Years with current company

5)      Any complaints with the NASD?

6)      Ever been party to a lawsuit, past or pending?

7)      How is the broker compensated?  (based on asset collection, performance or commissions generated?)

8)      Performance of their recommendations

9)      What do they invest in personally?

10)  References from three of their most long-standing clients - who are still clients

Are Corporations More Powerful than Governments?

by Marilyn Tam, founder & executive director, Us Foundation; Former President, Reebok Apparel

How you, the investor and consumer, can change the course of big business.

"Brands are growing in global importance and both brands and governments are also growing in awareness of the need to balance the financial, social and environmental welfare of the people and the planet. " Marilyn Tam

It was a noteworthy opening to any conference featuring a former supermodel slash small business Bangladeshi entrepreneur, a former child laborer/Fortune 500 executive/author/consultant/philanthropist, the former Chairman & CEO of Unilever Spain & France/President of International Organization of Employers and the Director General of the Universal Forum of Cultures Barcelona 2004.

Marilyn Tam, author, How To Use What You've Got To Get What You Want founder & executive director, Us Foundation; Former President, Reebok Apparel Photo credit: Clint Weisman

The conference? The Role of the Corporation in the 21^st Century in the Barcelona Forum's sparkling new 67,000 square meter convention center in front of over 800 global business and non-profit leaders and some of the world's brightest MBA students. This unusual group gathered on July 19-22, 2004 in Barcelona Spain to share, discuss and create socially and environmentally sustainable business practices. It was an exciting and sometimes contentious four days of dialogue and intense discussions, ranging from optimism to bordering on despair, on the state of business and the world.

I was that child laborer who grew up to return as a business executive to my native Hong Kong. My intention is to improve the working conditions and environmental standards that I experienced when I was young. What I face is the impact of global business, and the pros and cons to development and economic growth. A jumble of wonder, nostalgia and gratitude rushed through me, as I spoke to the packed room.

The Forum was another opportunity for me to make a constructive impact in the world, a way to raise social and environmental consciousness and collaboration between people, businesses and non-governmental organizations. What a long way from the streets of Tai Po, Hong Kong, China! The Universal Forum of Culture Barcelona 2004 (www.barcelona2004us.org) was designed to gather people globally to share, learn and synergize on the key issues of our time: Sustainable Development, Cultural Diversity and the Conditions for Peace. Forty- five conferences on these topics convened at the Forum from May 9 to September 26^th. In addition, there were over 423 concerts, large-scale multimedia and art exhibits from around the world and lots of interactive entertainment being offered in this cultural extravaganza.

The Role of the Corporation in the 21^st Century was convened by the top three business schools in Spain, ESADE Business School, Instituto De Empresa Business School and IESE Business School. The conference examined the role of the corporation as a creator of wealth, an engine of social progress, and also as a negative influence and exploitative force on cultural values and the environment.. The power relationships between the governments, large companies and multinationals were also discussed.

What does this mean to you the investor, consumer and voter? We read cases of how it seems that governments often bow to corporate pressure to give subsidies, special tax breaks, and pressure other countries to change their policies. In the 1950's, General Motors used to say, "What is good for General Motors is good for America." Is that true for all big brands? Do they still believe that what is good for them is good for the whole country and even the world? Or is it true that we as consumers, investors and voters have woken up to realize that there are other considerations for what is good for a country and for the world? What is the reality today?

Do we need more regulation to ensure that governments are making policies to promote the welfare of its people? Do brands influence governmental policy so much that the greater social and environmental good is secondary?

My premise is that it is a balancing act. Brands are growing in global importance and both brands and governments are also growing in awareness of the need to balance the financial, social and environmental welfare of the people and the planet.

What I would like to bring up now is truly the most powerful force on the planet. The power is in you. You are the consumer, the investor and the voter. You can decide where you want to place your confidence. Take the time and effort to find out about issues and vote with your money, your voice and your vote.

Brands and governments have to respond because ultimately they exist because you voted them in with your money or your vote. Public opinion is very powerful. Even in countries where the government is not so free, world public opinion have influenced the results. Brands cannot prosper if we do not purchase their products. We have the power in our hands. If we use our power, together we can achieve whatever we want.

In the USA, we had a boycott of Home Depot, a large chain of home improvement stores, to make them stop selling lumber from endangered hardwood trees. The result was that not only did Home Depot stop selling endangered hardwood, but other home improvement store chains also stopped selling endangered hardwood. Why? Because the brands were responding to public opinion and consumer pressure. The consumers and investors spoke. That is all of us.

Statistics show that investors are placing a 12% premium in the UK for a socially responsible company and 30% more for one in Indonesia. Corporations and governments are waking up. They are realizing that when consumers and investors speak, they better listen.

No, it is not perfect yet. We have many cases of corruption and back room dealings in all countries. No country is immune to this. Our hope and encouragement is that we can see cases of where public opinion has made a difference when we work together. Together we can create a world that is sustainable and fair for everyone.

This is what the world needs now, a venue to gather in harmony and joy, to learn from each other, to share and to celebrate the good, and to work together to solve the challenges. The Barcelona Forum was the dream of a dedicated group from Barcelona, Catalonia, Spain and the United Nations, who saw the need for new ways of dealing with the challenges of the 21^st Century. They have created a nonprofit organization, Universal Forum of Cultures to develop this ongoing global happening. The next Forum will be in 2007 in Monterrey, Mexico.

Marilyn Tam is an influential corporate leader, speaker, consultant, author, respected philanthropist and social activist. www.HowToUseWhatYouveGot.com

Marilyn Tam's book, How to Use What You've Got to Get What You Want, receives an average 5-star rating from Amazon.com customers. In her book, Ms. Tam talks about how to discover your own inner North Star, and how to use it to navigate your efforts to achieve maximum personal success. The hardcover is just $14.00 on Amazon.com. Check it out!

Seven Tips for Taking Charge of Your Financial Destiny

by Christopher Howard

Christopher Howard President of The Christopher Howard Companies author of Three Steps to Wealth and Power

"In life you get what you focus on, so you either pay attention, or you pay with pain. When you don't pay attention to your finances, your habits of spending, saving, investing, working or handling money, then you pay with pain." Christopher Howard

When you change your mind about something, you change your experience of it. If there is any room for growth in your finances right now, or if you have a desire to grow your business, then it is time to "grow your mind" by expanding your thinking. By creating a mindset for wealth, you begin a revolution in your experience of life.

Here are seven tips for taking charge of your financial destiny:

#1) Take responsibility for your current situation. Realize that you are where you are due to the sum total of your actions, as well as your non-actions. To the extent that you blame your financial situation on the economy or any other external circumstances, you give up your own power to shape things exactly the way you want. Let go of any reasons or excuses, and instead focus on the results you are committed to producing now.

#2) Realize that it's all you! Regardless of the state of the economy there are always people who do well financially. So, what separates the people who do well in any circumstances from those who do not? Their thinking. Your financial circumstances are a reflection of your thought patterns, perceptions and beliefs. Some people complain that "It takes money to make money. I don't have any so I never will." But successful entrepreneurs realize that money is created by good ideas. One great idea can practically become your license to print money.

#3) Understand that having money requires focus on money. Many people have been taught to think that they should not focus on, or care about, money. In many circles, it is even considered taboo to talk about it. In life you get what you focus on, so you either pay attention, or you pay with pain. When you don't pay attention to your finances, your habits of spending, saving, investing, working or handling money, then you pay with pain. Begin to pay more attention to every aspect of financial well-being and you can start to powerfully navigate your financial future.

#4) Recondition your financial pleasure centers. People who live their lives without much money have often been conditioned from youth to associate pleasure with spending. Those who do have money have often been conditioned to associate pleasure to saving and investing. They actually link pain to spending! That thought pattern results in accruing wealth. Change your internal associations and you can change your behaviors to ones that result in financial security. Multi-billionaire investor Warren Buffett has said that it's easier to make money than it is to spend it.

#5) Increase your financial vocabulary. Your language determines what concepts are available to you. This is a surprising concept to some people but think about itÑif you don't understand the terms of the stock market or the language of real estate, how can you make educated investments? Increasing your financial vocabulary will expand your thinking, and therefore open you up to new possibilities and money-making opportunities. You can increase your financial vocabulary by reading financial magazines, newspapers and annual reports.

#6) Utilize winning financial strategies. There are effective financial strategies and ineffective financial strategies. One effective financial strategy is to recognize the value of money and measure financial expenditures based on return on investment. By measuring financial expenditures vs. opportunity cost, or the cost of not investing the money elsewhere, you may find that you begin to curb unnecessary or wasteful spending.

#7) Find a financial mentor. Who you are today is to a large extent based upon who you modeled when you were growing up, however, it is never too late to teach an old dog new tricks. If you feel that your finances still have room for growth, study someone who has the kind of success you desire and model the specific behaviors and beliefs that got them there. This is one of the most powerful actions you can take to immediately close the gap between where you are and where you want to be.

Your decisions determine your destiny. Taking charge of your financial destiny can be as simple as making the decision to put each of these tips into practice. Commit to even one of these and I promise you, you will become aware of just how much power you really do possess to achieve your financial goalsÉin spite of what anyone says about "economic conditions."

About the Author

Christopher Howard is an entrepreneur and internationally acclaimed results coach. He is the author of Three Steps to Wealth and Power. For more information about Chris Howard and his upcoming seminars, check his website at: www.powerofinfluence.com

Or in Australia www.universalevents.com.au

Upcoming Seminar Schedule. Don't miss these opportunities!

San Jose --Breakthrough to Success--November 5-7
New York-- Breakthrough to Success--Nov. 12-14

Mutual Funds Exposed:

by Stefan Whitwell, CFA, Managing Partner, Tierra Capital, L.P.

And now another episode in the ongoing drama, Wall Street Scandals -- Mutual Funds. Before I proceed, I'd like to first make the point that if you made the choice to invest in them, you bear half the blame for the fact that you are getting ripped off -- and you are getting ripped off, both ethically and financially.

First, consider that there are now more mutual funds than there are underlying stocks. Yes, that is correct. Please re-read this one more time. Now ask yourself, "Why do you think that is?" Simple: financial brokers make money by forming mutual funds and charging fees for doing so. So they continually just repackage the same stocks with a new name and a new fund manager, and sell them to investors who ASSUME that they are doing so with the investor's best interests in mind. Investment banks make money from mutual funds in a variety of ways, none of which involve them taking any risk (commissions, broker spreads, management fees etc). If the stocks do poorly, the fund management companies still make money.

Whitwell Rule #1: It is best to invest in financial products where the fund managers only make substantial fees if the investment performs and makes you money. Even better: invest in funds where the fund manager has some of their own financial money invested in the fund.- This will help insure that your interests are aligned. One of the ways you can find products like this is to ask your attorney or accountant for introductions to real estate or private equity fund managers. High-end attorneys and accountants almost always have some fund managers as clients. It is also a good sign when fund managers actively use the services of high quality accountants and attorneys. Real estate partnerships and private equity funds both tend to require the fund manager to invest their own capital, and the better ones prioritize the return of capital to the investor before the principals start making substantial money.

Whitwell Rule #2: The only time you should invest in mutual funds or individuals stocks instead of market indices, is when you have specific reason to believe that you have picked a better performing fund manager and that you have superior insight into which sectors/industries or stocks will outperform (which most casual investors do not, because they have day jobs and do not have the time or inside connections required to personally interview all the fund managers and analyze the industries' financial state of health). The best way to invest in the index is through mutual funds known as "Index Funds." Vanguard is one such firm that is well known because they have some of the lowest fees on their index fund product line. These are available through most online and in-person brokerage firms.

Whitwell Rule #3: Investing in mutual funds is like betting on a one-arm-boxer fighting a guy with two arms of the same size. Does that sound like a good bet? Mutual funds, by definition, are almost always only allowed to buy stocks. They are not allowed to sell stocks short, and they are almost always not allowed to go net short the market. As a matter of practical reality, they almost never move all their positions into cash, even in dangerous markets. So that means that in sideways markets or in declining markets, you are going to get hurt -- every time. In a future blog, I'll explain why. It has to do with "relative performance".

So what is the alternative? The short answer is what is commonly called "alternative investments," like real estate and hedge funds. Infiniti Capital has one of the best fund of hedge funds out there and on their site you can find a lot of useful information that will help you learn more about alternative asset classes: http://www.infiniti-capital.com.

Lastly, after state and federal regulators filed civil fraud charges against Putnam (the 5th largest US mutual fund company with $272 billion under management), their CEO Lawrence J. Lasser was forced to resign. But, don't worry, he'll be okay. Despite the fact that thousands of investors got ripped off, the ex-CEO will get a severance package of around $89 million, according to the Wall Street Journal. My favorite headline though relates to Prudential Securities Inc., which, according to the Wall Street Journal, received more than 25,000 warning letters that its brokers were engaged in improper market-timing of mutual funds in the past year from mutual-fund companies.

Bottom line: mutual funds made some sense 15 years ago. Today, however, you need to think twice about blindly allocating your money to mutual funds when much better alternatives exist, such as index funds and private equity funds (both real estate and corporate).

You worked hard for your money -- why not make it work hard for you?

Stefan Whitwell

http://tierracapital.net

http://whitwell.net

Full Disclosure: Stefan Whitwell is on the advisory board for Infiniti Capital, but he does not have any beneficial interest in them and will not get any economic benefit if the reader were to get in touch with them and invest in their product. (In fact, at last check, they do not market to US investors and hesitate doing so due to the US regulatory climate.) Infiniti Capital has a great amount of information on their website that could be a source of learningÉMost investors, unless they have offshore accounts, will not be able to invest there.

NataliePace.com Note: Please be careful when selecting a hedge fund. Respected Pimco Bonds Managing Director, William H. Gross, notes that "hedge funds can be manufactured in anyone's backyard like a gallon of moonshine whiskey." Steven Galbraith, principal at Maverick Capital, has been quoted as saying, "The barriers to entry in this business are nonexistent. It's roughly equivalent to creating a lemonade stand."

"Sophisticated investors [know] that they can do whatever their hedge fund manager can do at 1/100^th the price." William H. Gross, Managing Director, PIMCO Bonds August 2004 Investment Outlook, Lemonade For Sale.

VISION: To build a global community of investors through a worldwide website, seminars, radio, television and print partners.
GOAL: To provide high-quality, first-run, ethical financial news, information and education, presented in an entertaining format, across all media (television, radio, print and online).
MISSION: To provide the news, information and education investors need to make better choices and to make investing as much fun as shopping.
PHILOSOPHY: Member Mosaic. Piecing together a more complete picture of the publicly traded company, one tile at a time, by valuing firsthand consumer experience, conducting evaluations of the executive team and lining up the numbers of the publicly-traded company with its competitors in a Stock Report Card.
For more information on NataliePace.com contact us at info@NataliePace.com

NOTICE: NataliePace.com is NOT a stock brokerage service, and does not operate or act as one.