When it comes to investing, January brings a clean slate. And we certainly need it. Last year, virtually every investor's portfolio in the country, perhaps the world, experienced a decline. (The exceptions: the Ghanian, Tunisian, and Ecuadorian stock markets all ended 2008 in positive territory.)

Over the next 12 months, let's shake off the annus horribilis we've just emerged from and commit to a journey, a journey of financial re-invention. By the end of the year, your portfolio of passive investments should offer the following:

It should make sense to you as a non-professional investor and as an entrepreneur. You'll understand the holdings in it, you'll understand why you bought them in the amounts you bought them. And you'll know how they fit in with the rest of your financial assets. (For example, do you hold a lot of tech stocks and own part of a tech business? Not good.)

You should be working with the right people. No longer will we keep our money at a brokerage just because our old college frat buddy or family friend's our broker. That's not a good enough reason to entrust someone with our passive assets. Instead, we'll keep our money where we want it. With a provider that's fair, accessible and reasonably priced

It should be transparent. No more oddball illiquid holdings or secret hedge funds from a guy named "Bernie." We want our passive assets in the public markets where we can see them, follow them and have faith that they're priced fairly at all times.

So let's commence a year's worth of blog posts with a very simple, but very useful rule of thumb: the "new money" rule.

The "new money" rule goes as follows. When considering any particular passive investment that you currently hold in your portfolio (a "passive" investment is one where you invest but don't have any control over the underlying company, such as a publicly traded stock, a bond, or mutual fund. I distinguish that from an "active" investment such as a company you run or a limited partnership you are directly involved in), decide whether or not you want to stay invested based on the answer to this very simple question: If you had that money in cash today, would you buy it again?

Or put another way: Do you like everything in your current portfolio? If so, keep it for now. If not, sell it.

Don't keep any holdings because you hope the price comes back. Or because you wish it would come back. Trust me, the market cares about neither. For the most part, keeping an investment because selling it creates taxable consequences is also a bad reason for holding on. The way I see it, if you're paying taxes, it means you're making money. (However, it's worth running this by your tax adviser before you make a move).

As business owners and entrepreneurs, we have some unique concerns when it comes to reaching our goals. We are, after all, wealth creators: a unique breed which adds value through ingenuity, hard work, risk-taking, and our relationships with other people. Our passive portfolio should be in balance with the achievement of those goals and a thoughtful component to our long term vision.

In the financial business, we talk about the "smart money," those people who are "in the know." Well, the smart money isn't always so easy to spot in times like these. So, let's remember on this journey towards financial re-invention that, like with entrepreneurship, the best person to trust is ourselves. We are the smart money. Let's act like it, for our families, for our communities, and for us.

As always, feel free to contact me with your questions at investingguide@inc.com.

Happy New Year!

p.s. For those of you who read my recent blog post, "Where's Robert Rubin," you'll note that Mr. Rubin recently resigned from Citigroup and cited his interest in working in the field of public policy again. The way I interpret that is this: as a much-admired Democratic financial thinker, the very smart, very capable Mr. Rubin can now go back to tinkering with the financial system as he did for President Clinton. During that time, he laid the groundwork for the financial mess we find ourselves in today. Before he picks up where he left off, I hope he brings us up-to-date publicly, including more on what he was thinking when he wrote in his resignation note, "My great regret is that I and so many of us who have been involved in this industry for so long did not recognize the serious possibility of the extreme circumstances that the financial system faces today."

It's not always easy to be nice. I'm a nice guy and I care about people. I want them to have jobs and I want them to take care of their families. I want all of these things for Americans everywhere. That's why, as the financial sector deteriorated and the government bail out program was considered, I supported it. After all, we were told, this would help shore up the banks and that would help credit markets loosen up. The credit markets, they said, were essential to getting Main Street the lubrication it needs to run its businesses every day.

So, now, as a taxpayer, I'm also a shareholder to several of the country's leading financial institutions. As such, I'm exercising my right to tell management what I think.

I think that I'm getting peeved. Here's an example of why my blood is starting to boil:

First, on Nov. 12, we saw this headline:

"American Express Co. is seeking $3.5 billion in funds under the government's plan to directly invest in financial firms."

Then, on Dec. 1, I received this in the mail:

"Two domestic airline tickets and an American Express Rewards Plus Gold Card with no annual fee for the first year. See Details Inside."

What's the problem? This credit card offer was sent to my FOUR-YEAR OLD CHILD!

I know, I know, we've all heard the story about the dog getting credit card offers and we know these credit card marketers are among the most active list buyers in the world and clearly they bought my son's name off one of the kiddie magazines we subscribed him to. So, is this just another cute story about a kid and a credit card? I don't think so.

In Joe Nocera's recent blog, he shared with us an industry insider's account of how credit decisions are made in the industry:

"I recently had a client apply for a credit card. She is a homemaker, with no personal income. The house she lives in is in her husband's name. She would have asked for a $3,000 credit line, just to pay miscellaneous expenses and to establish some credit on her own. So the computer is told that her household income is $150,000; her mortgage/rent payment is zero. The fact is that her husband's mortgage payment
is $7,000 a month (which he got with a no income verification loan). She had a good credit score, but limited credit since she has only lived in this country for the last three years. The system gave her an approval for a $26,000 line of credit!"

He goes on to describe some of the failures in legislation to protect consumers from these absurd systems and concludes with this:

"I've been reviewing many of the banks' annual reports over the last month and there is no question that the default rates are on the rise. If Congress doesn't act today, the bankers will have their hats in their hand before we know it, and doing another a tap dance before the Senate Banking Committee, and asking to be bailed out once again with our tax dollars. Sad, but true."

Well, as a taxpayer and as a shareholder, I would say that my tolerance to endure this insanity is quickly -- and I mean quickly -- drying up. This madness has to stop. We have to learn to live on the money we have. If we don't, I'll need those domestic airline tickets American Express offered my son -- to get off of this sinking ship.

Remember the early rush of press scrutiny that followed the surprise announcement of John McCain’s veep choice? The virtually unknown Sarah Palin was the subject of intense media interest in those first days. As the Alaskan governor prepared for her new national role, the media became more and more heated in their demands for a "press conference." Even after interviews with individual journalists, including Charlie Gibson of ABC and Katie Couric of CBS, the press corps continued to demand a formal conference.

Well, Sarah came and went and, to my knowledge, the press conference never happened. The press failed to get their man -- or, in this case, woman. But, lordy, it's all we heard about for three weeks of the campaign. It's worth noting that her Democratic counterpart, Joe Biden, who went on to victory, received only a fraction of the coverage that Palin did. Could it be that the press was more interested in catching a gaffe-prone beauty queen on video than hearing from the real newsmakers?

If you already have a jaded opinion about the press, then you won't be surprised to hear that there’s another incredibly important world figure, one who’s influence on the global financial stage touches literally every power center in this financial crisis, who the press has virtually ignored: Citigroup adviser and former Clinton Treasury secretary Robert Rubin.

If the press did have the stones to interview Rubin, perhaps they’d ask him about his final days as Treasury secretary, where he played an instrumental role in helping to repeal the Glass-Steagall act, which cleared the way for creating the highly leveraged mega-financial institutions we’re struggling to unravel today. Or what he had in mind when he took a job immediately after the Clinton administration with the very monster he helped to bring to life, Citigroup, to advise them on how to maximize the opportunity he’d helped create during his tenure in Washington.

Maybe they’d ask him about his role within the globe’s most powerful private financial institution, and how he failed to provide good guidance regarding their financial positions at every level, creating a more than $300 billion liability that they still haven’t come fully clean on. Or they’d ask him why he thinks he still hasn’t been called to testify in front of Congress about what happened at Citi during his tenure. Perhaps he, or someone else, can explain to me why heads are supposed to roll whenever a financial institution dips into to the $700 billion TARP fund, including calls for the dismissal of the second Citi CEO in as many years, but no one ever suggests that Rubin has any culpability in this.

In fact, Rubin is the last man standing at Citi. The former CEO, the senior risk management, and the senior derivatives traders have all been let go because of their role in nearly crippling Citi. Meanwhile Rubin hasn’t even offered up one shred of explanation as to his role at the center of a global financial meltdown. Why should he? He’s only the chairman of the bank, after all.

When asked, he says he doesn’t have day-to-day responsibility of Citi, and therefore, he’s not responsible for the actions of the firm. Does that sound reasonable? According to New York Post, the bank’s paid him $107 million since joining Citi in 1999. Chairman, a nine-figure pay package, and no responsibility? Where do I find that job?

Yes, Citi is a mess, and yes, Rubin’s at the center of it, and yes, the taxpayers are going to have to dig them out of the mess he and the rest of them created. Sounds like every other story these days on Wall Street. What’s so different about this one? Why should Rubin have to submit to a press conference while other Masters of the Universe don’t?

Because Rubin is also at the center of the Obama administration’s new financial staff. He’s got close ties to virtually every important figure now being considered for a finance-related position in Obama’s White House, from National Economic Council leader Lawrence Summers to Treasury secretary-designate Tim Geithner. Rubin has these guys on speed dial and they, along with other key Obama picks, are considered "Rubinistas."

Now, don’t get me wrong: Robert Rubin is smart. He’s an asset to our collective financial intelligence. But why, oh why, hasn’t the press or the Congress asked -- strike that, insisted -- that he explain his role, one that began more than 10 years ago while a government official, and continued straight through the Bush era (enriching him fabulously) leading him right into the seat of both financial and political power, without ever having been elected, ever having been questioned, ever having been threatened with losing his job, even though he’s presided over the most spectacular financial failure since the Depression?

Why did the press demand access to a half-baked vice presidential candidate but has given a free pass to a genuine Wizard of Oz? And where’s the U.S. Congress in all of this?

To the press, I have a question:

Why is Robert Rubin getting a such kid gloves treatment?

And my follow up question:

What the #*&% is going on?

As you know, I maintain a blog about investing in the stock market for Inc.com. The methodology is based on a sound, academic approach developed by Nobel-
prize winners and refined by financial industry pioneers over the years. In other words, it's got a lot of brain power behind it.

I'm happy to report that all that brain power has paid off. As the world stock markets have suffered horribly over the past weeks, I've not lost a single night's rest from worrying about my own portfolio.

Why? Has my Nobel-prize winning methodology hedged me against the recent world market declines? No. Does it have a secret formula for avoiding Wall Street's crumbling fortunes? No. Do I stand to inherit a trust fund? Sadly, no.

Just like many of you, I've watched my portfolio drop 30 percent, 40 percent, even 50 percent at times. However, not only have I felt fine during these crazy
market days, I'm even kind of happy about it.

No, don't call the looney bin and don't hate me because I'm beautifully at peace. Instead, let me share with you why I feel the way I do. My investing method, in place since March 1998, has some basic characteristics that turn adversity into advantage. These advantages rely on the same core asset: time.

Most people think that the best way to create a robust portfolio is to start out with lots of money ("it takes money to make money") or great knowledge ("In Cramer We Trust") but I know different. I know that if you have time on your side, the path to wealth is relatively straightforward.

First, I am a long-term stock market investor. This means that I've given myself decades to reap the accumulated rewards of the stock market. I started in 1998 when I was 28 years old. I'll continue to be 100% invested in the stock market until I'm in my 60s -- more than two decades from now. During the course of time, the crazy days of 2008 will seem like a distant memory. And frankly, I like a cheap stock market. The truth is, ever since I started my portfolio in 1998, stocks have always been to damn expensive relative to the value of the companies that issue them. I'm happy that P/E ratios have dropped considerably. As a long term investor, I look forward to 8 to 10 percent annual returns again.

Second, because I have a long-term time horizon, I'm a buyer, not a seller. So each month, I buy exactly the same dollars worth of stock. In a cheaper market, my dollars go farther. These days, every month feels like a great sale. I buy while everyone else hides and my ongoing stock purchasing strategy is being well rewarded.

Take these two together, and I'm a happy camper, investing-wise. I've got the markets right where I want them.

Now, making a living in this economy, that's another problem...

For all the details on my investing strategy, check out The Only Guide to Investing an Entrepreneur Will Ever Need.

The United States, the wealthiest nation in the world, has become the biggest debtor nation in the world. That simple, untenable, disgraceful fact explains much of what ails the stock market, the housing market, even the price of food at the grocery market.

It is a lack of leadership that is substantially responsible for our current sorry state of affairs. Leaders are supposed to show us the way. Instead, what we've had for decades, for my entire lifetime, I believe, is leadership that has chosen to pursue personal riches -- in the form of money, power, and satisfaction -- at the expense of the people they represent.

And it continues today. Even on a daily level we endure these slights and abdications of leadership. The lame duck Congress apparently doesn't have enough support from the Republican party to seriously consider a stimulus package and a bailout for the auto industry. Whatever one thinks of these programs, they're at least worth exploring. Instead, as power passes from one administration -- and one party -- to the next, the message from the losing party is "not my problem."

We've got approximately two months before the new administration takes office, along with a significant shift in congressional power. What difference will two months make? The potential for disaster over the next two months is great. From Wall Street to Main Street, everyone agrees that we're in for a world of hurt in the short term.

The current state of affairs, whether we consider what's gone on for decades, for eight years, or for the past couple of months, or even the forecasts for the next couple of months, must primarily be blamed on a lack of leadership from all quarters.

Many are hopeful that things are about to change. Whatever one thinks of President-elect Obama politically, his victory was proof that our nation has the capacity to move forward. He represents a sea change in the previously intractable issue of race in this country. I don't think it's hyperbole to believe that he can help us address our economic principles as well.

We must address them at home, too. While the willingness of our governments -- red, blue, local, state, and federal -- to spend more than it has is the root cause of so much of what ails this nation, it is also that same syndrome which effects virtually every American household as well. What ails our country has also infected our homes.

We can be hopeful that a new message of restraint will come from a new administration. Even given the historical perceptions of democrats, there's early evidence that the soaring oratory of the newest White House resident will include a call for fiscal prudence and a return to the values of an earlier time.

With that in mind, I am putting in my two cents for a new era of austerity, both from the top down as well as from the bottom up. Every household -- from the White House to your house -- needs to re-consider its poor savings and debt-driven spending habits and work towards this new reality of personal financial responsibility. In order to be successful, it needs to happen at every level, including legislative, cultural and spiritual.

America's government showed great leadership in the 1960s by taking up an unpopular civil rights agenda at a legislative and oratorical level. It took, arguably, 40 years for these ideas to fully take root in America. We're more mature as a nation now and ideas travel faster. We can't afford to sacrifice several generations while we re-center our fiscal compass. If we take that long, there may not be much of an American ideal to save anymore.

Answer: J.D. Power and Associates

J.D. Power and Associates, best known for telling us what consumers think about products, from cars to cell phones, is now extending its reach and research know-how to determine advisor satisfaction levels with their employers.

J.D. Power and Associates Reports:
Firm Performance and Organizational Support Are Primary Concerns For Financial Advisors in Volatile Marketplace

It's a great time to see a report such as this. Why? Advisors, especially independent or independent-minded advisors, are "go-betweens" placed in the middle of a financial institution and an individual client. They are financial shock absorbers of a sort, working to align the capabilities of the financial markets (in this case, the road, unyielding and without emotion) and the client (the car hoping for the smoothest possible ride on the way to its destination).

Continue reading "Question: What Do Cars and Financial Advisors Have In Common"

With the Dow shooting up more than 500 points today in the wake of a 'no' vote on the Washington bail out bill, this is beginning to feel a little like "Who's On First." I can't figure out who's on which side and what's going to protect us from them.

"Protect us from who?"

"The bad guys."

"Wall Street?"

"No, Washington."

"You mean the Democrats?"

"No, the White House."

"Who are they protecting us from?"

"The Republicans."

"The White house is protecting us from the Republicans?"

"Yes, along with the Democrats."

"I'm confused. I thought you said Washington's going to protect us from Wall Street."

"No, Wall Street's came roaring back today. They'll show Washington they don't need the taxpayer's money."

Continue reading "It's Class Warfare, I Think"

At the moment, I'm glued to CNBC. These are such historic moments, with things changing so fast, that only real-time information will do. We've heard a lot about "Main Street's" point of view but at this moment, it feels like we're hearing more about the concerns of politicians who are up for re-election. It's an epic battle -- Wall Street vs. Washington, with Main Street as a bit of an afterthought.

As I write this -- and this conversation may be resolved at any moment -- the House GOP has floated an alternative plan based on a "risk management" approach to the mortgage mess (providing "insurance" rather than outright cash for mortgages that default). What caught my attention on the boob tube this morning was the sound bite from one of the congressmen touting the alternative plan. He said, "Main Street wants a 'work out' not a 'bail out'." I thought that was an interesting perspective. The idea he's promoting is that we let the parties who own these bad assets work out their problems between themselves (with a backstop provided by nationalized insurance), rather than having the American public buy the parties out and spread the pain out among all citizens.

Continue reading "Save Money or Make Money? Which Is Better?"

The markets have thrown everyone for a loop.

As entrepreneurs and business owners, you may be in need of hard-to-find credit.

As homeowners--or for those customers who are homeowners--the feeling of uncertainty can wreak havoc on future plans.

As an investor, and as an owner of a significant asset--your business--you may wonder if you’ve permanently lost some of the value you’ve accumulated from all your hard work.

My prognosis--as an Inc. blogger asked to present views about investing--is that the situation in front of us is a dire, but not insurmountable.

Continue reading "What To Do Now"

I recently conducted a telephone survey on the topic of the upcoming elections. My survey team asked 338 successful, self-made people (I call them "Middle-Class Millionaires"--that's also the title of my recent book) about their intentions regarding the upcoming elections.

If Inc.com readers are among the millions of successful families in this country (and they are--the typical reader of Inc. has a lot in common with America's 8.4 millionaire households), then this could be the year entrepreneurs lead the charge on The White House!

A reporter named Kristen Oliveri, from Institutional Investor's Private Asset Management newsletter, got a hold of my research. Here's what she wrote:

"Millionaires with a net worth ranging from $1 million to $10 million and up plan to vote in the upcoming election, and most will donate up to the legal limit to a political campaign. According to a study by Lewis Schiff and Russ Alan Prince, co-authors of the book The Middle-Class Millionaire, 99.7 percent of millionaires who were surveyed voted in the last presidential election and three-quarters plan to donate to a political campaign this year.

"Middle class millionaires tend to be very vocal, with 98.7 percent saying they are talking to people openly about their choice for president, and are willing to put their money where their mouths are when it comes to funding favored candidates. 'They are not much different than the middle class but they are more actualized than the middle class, meaning they translate their values into action more,'" said Schiff.

"The survey found that 98.4 percent of respondents said they expect to be very involved with convincing people to vote for their favored presidential nominee. Schiff noted that millionaires consider their minds, insights, and opinions to be valuable assets that they share with others, and seek solid information in return.

"'Convincing people of the merits of their political choices is also a demonstration of their powers of persuasion and this is a muscle that they actively flex in their personal and professional communities,' said Schiff."

My survey was conducted before Barack Obama emerged as the Democratic nominee, but it indicated a Democratic-Republican split that mirrors that of the middle class at large.