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How Internet Network Marketing is Helping and Empowering Multi Level Marketing Businesses

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If you’ve been in or around the network marketing industry you’ve seen some of the consequences of doing what the old scholars have done over the years. Sure, there is plenty of empowering things about the business model and there are also somethings that some network marketer’s wouldn’t want to talk to you about.

What happens when you send someone out with just a of names list and a few words to tell people when they come in contact with. Which have high hopes and ambition to go out and talk to people only to find out the person tells them no. After that first no it’s harder to get up and get going again to ask the next person.

What happens when they call leads and no one answers only to find out that the leads that they purchased are old leads and they find out later that they just wasted their hard earned money for something that they thought at the time would help them in their network marketing business.

How their up line told them that they need to come to an event or a summit when they new that they didn’t have the money to go, but went anyway just to hear the same lecture over and over the whole entire time they were there. Just to find out later that all of that was a waste of time and money. Of course they are pumped for a little while, but reality comes back quick!

Going to weekly briefings will help them in there business if they will come and bring someone. Only to find out that every week is the same thing. Their doing “the thing”, but nothing ever happens.

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Source by Mark Colbert

Views: 0

January 29, 2020
Effective Working Capital Management and Optimal Synchronization of Cash Flows

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How do firms choose their operating cycle? How do firms choose their cash conversion cycle? What is the impact of firm’s operating cycle on the size and periodicity of investments in receivables and inventories? How do seasonal and cyclical trends affect firm’s operating cycle, cash conversion cycle and investments in current assets? These strategic policy questions relate to optimal cash flows synchronization and effective working capital management designed to maximize the wealth producing capacity of the enterprise.

In this review, we will examine some pertinent and extant academic literature on effective working capital management and provide some operational guidance to small business enterprises. The shorter the cash conversion cycle, the smaller the size of the firm’s investment in inventories and receivables and consequently the less the firm’s financing needs. Although setting ending cash balances is, to a large extent, judgmental, some analytical rules can be applied to assist effective formulation of better judgments and optimize cash flow management.

As you know, a correlate to cash is net working capital. Net working capital is not cash but the difference between current assets (what a firm currently owns) and current liabilities (what a firm currently owes). Current assets and current liabilities are firm’s immediate sources and uses of cash, respectively. Clearly, a firm’s ability to meet its current financial obligations (bills due within a year) depends on its ability to manage its current assets and liabilities, efficiently and effectively.

Effective working capital management requires the formulation of optimal working capital policy and the periodic management of cash flows, inventories, account receivables, accruals and account payables. And because poor working capital management can severely damage a firm’s credit worthiness and limit its access to money and capital markets, every effort must be made to minimize business default risk.

The significance of liquidity cannot be overemphasized. In addition, anything that adversely impacts a firm’s financial flexibility degrades its ability to borrow and cope with unexpected financial hardship. A firm must preserve its ability to react to unexpected expenses and investment opportunities. Financial flexibility derives from a firm’s use of leverage as well as cash holdings.

In practice, optimal working capital management includes effective cash conversion cycle, effective operating cycle, the determination of appropriate level of accruals, inventories, and account payables and the attendant funding options. Working capital policy impacts a firm’s balance sheet, financial ratios (current and quick assets) and possibly credit rating. Critical to efficient firm’s working capital management is a good understanding of its cash conversion cycle, or how long it takes for a firm to convert cash invested in operations into cash received.

The cash conversion cycle captures the time passed from the beginning of the production process to collection of cash from the sale of the finished products. Typically, a firm purchases raw materials and creates products. These products go into inventory and then are sold on account. Once the products are sold often on credit then the firm waits to receive payment, at which point the process begins again. Understanding the cash conversion cycle and the age of account receivables is critical to successful working capital management.

As you know, the cash conversion cycle is divided into three parts: the average payment period, the average collection period and the average age of inventory. The firm’s operating cycle is length of time from the receipt of raw materials to the collection of payment for the products sold on account. The operating cycle is therefore the sum of the inventory conversion period (the average time between when raw materials are received into inventory and product is sold) and the receivables conversion period (the average time between a sale and collection of the receipt). Note that the operations of a merchandising enterprise involves purchasing (the purchase of merchandise), sales (the sales of products to customers, and collection (the receipt of cash from customers).

Some Operational Guidance:

There is gathering empirical evidence suggesting that effective working capital management begins with assessment of operating cycle and optimizing cash flows from firm’s operations. Management must know, understand and anticipate the impact of cash flows on firm’s operations and its ability to maximize the profit producing capacity of the enterprise. Effective cash management is critical to the success of a business enterprise. It is all about cash flows.

One of the best ways to increase cash availability is to accelerate the receipt of incoming payments by reducing the age of account receivables using appropriate mix of incentives and penalties. A firm must evaluate current payment processes and identify effective options to expedite collection of account receivables.

There is strong evidence suggesting improving payment processes and moving to electronic alternatives will maximize liquidity and better manage costs of receivables. Liquidity is critical to the success of every business enterprise and effective cash management is the core of liquidity. In practice, a careful analysis of cash flows and assessment of investment strategies and policies is required to ensure that a firm has appropriate tools needed to maximize firm’s liquidity, and optimize cash flow management.

A firm optimizes cash flow management in its operating cycle by rationalizing-streamlining and improving the ways it manages the inflow of cash receipts, makes outflow cash payments and minimizes the age of account receivables. A firm needs digital records, electronic banking, robust internal controls and agile accounting systems for quick reconciliation of bank statements through timely access to bank accounts, customer records; and synchronizing cash flows, accounts payables, and accounting systems for increased efficiency.

Best industry practices include analyzing cash flows monthly to determine ending cash balance (the difference between total cash inflows and total cash outflows). The goal is a rising or positive periodic ending cash balance; Monitoring customer balances to manage account receivables (money owed to the firm from customers); and appropriate pre-qualifying processes before extending credit to customers is essential to minimizing incidence of bad debts.

A tracking system that monitors outstanding receivables and sends automatic reminders, invoices and statements is a useful tool. Some firms use factors by selling their receivables to factoring companies to ensure steady cash flows; Slowing down cash disbursements: Prudent cash flow management dictates that a firm retains cash as long as possible. Optimize cash flow management by paying on time while utilizing all accommodations consistent with the calculus of financial advantage. Finally, borrow long and lend short and time large expenses by setting aside small amounts to fund large expected expenditures. Always remember that long term liabilities become current liabilities in the accounting period in which they mature.

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Source by James Gaius Ibe

Views: 0

January 29, 2020
Why Men Won’t Marry And Go Their Own Way

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I am fascinated by the number of women who complain that there are not any good men out there for marriage and the number of men who go their own way (MGTOW).

As I was doing research for one of my books, I learned something absolutely astonishing. I learned that both men and woman are more educated in the area of preparation for an occupation that we are to successfully choose and marry a mate for the next forty years. Why is this important? Many people who get into relationships and get married haven’t an accurate idea what they are getting themselves into. They are not educationally equipped with the tools that they need to have a healthy relationship. Even worse, due to the emasculation of men and manhood displayed in media, the court system, films, Human Resource policies, etc., there is no benefit to men for being men.

More now than ever, schools and colleges are feminine-centric. The Judeo-Christian model of marriage where the roles of traditional marriage are not equal is frowned upon by the feminist movement. That said, how can a man see marriage in today’s society as a benefit? Most times he is not fully appreciated for all that he does. He is expected to work his whole life for his family and suddenly his wife decides to leave, causing him to lose all that he has invested in and worked for?

Women are taught that they need to have high standards for the man they are supposed to marry. However, are they emotionally ready for marriage? It is clear that both men and women are not likely to have read a good relationship or communication book to prepare themselves for a healthy relationship. Men often complain how women can sometimes be “drama queens,” are selfish and want to be the center of attention. Some men also report that women are not steeped in bringing much to the table beside the sexual relationship which women tend to use to manipulate men. Men like companionship and women who like to share their time doing the things men like to do. Men love to be respected. They like women they can trust, are considerate but often say that they find these things lacking.

Men who go their own way do not have to bear the risk of being decimated, financially, emotionally and physically. They can live a more peaceful, drama free life. They often will date, but will not marry again. Men want a relationship, but many men and women are unprepared. So how can this dynamic be improved?

I believe that educating ourselves as to what a healthy relationship is supposed to be is critically important. Statistics reveal that the total percentage of college graduates that will not read another book after graduating college is 42%. For High School graduates it is 33%.

Education is essential concerning relationships. Imagine what a difference it would make if 1/3 of our formal education included relationship skills? I submit that the result would be couples better prepared for relationships. That said, reading and practicing what is learned, would improve not only the quality but the longevity of a relationship. Realizing that “being” the right person who is prepared for a relationship versus “finding” the right person could change the dynamic of the lack of available marriage eligible men and women.

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Source by Johnn Williams Jr.

Views: 0

January 29, 2020
PC Speed Doctor Review – How to Optimise Your Computer for Speed

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Are you currently unhappy with the pace of your personal computer? Is it not functioning as quickly as the first day you had it?

Alas this situation happens to be an all too very common problem. It can result in unnecessary stress, hamper your productiveness and even result in your PC to freeze and lose your entire work. Thankfully though it does not have to be like this and there are various methods of getting back the performance of your personal machine.

The most common suggestions from analysts is to defrag your personal machine and then to carry out a computer speed test to determine exactly where the issue lies. A good computer speed test gives you figures, which is fantastic if you are a technically capable but won't assist the normal individual who just would like to get their personal computer fixed.

So how can you fix the issues afflicting your personal machine? What software or service do you need?

To begin with you'll need a tool which can comprehensively identify the issue then recommend possible solutions to overcome these issues. PC Speed Doctor is one such all-in-one tool and has been designed to increase the overall performance, internet speed and output of virtually any computer with just a few simple mouse clicks. There are several computer speed optimization software available on the market, however PC Speed Doctor is different from its challengers in that it's straightforward to use and just simply works!

The product stands up tall to all of the promises it offers. Where the majority of optimization programs only scan the surface of your computer, PC Speed Doctor carries out a powerful intense deep scan which gets to the cause of the problems and then undertakes any necessary steps to overcome the problems. It also optimises your personal computer to give you a machine which is as quick as the day you got it.

PC Speed Doctor also increases your web browsing by performing a computer speed test that discovers all likely bottlenecks that will affect your web experience. Not many other products and solutions check internet speed, but with this tool it can detect the issues and solve them effortlessly. PC Speed Doctor has been critically recommended by industry gurus and buyers world-wide.

Reading user reviews are essential in every purchase and this tool does not get it wrong in receiving thumbs up reviews to its recognition from experts within the compug industry. As well as exceptional evaluations there are numerous recognized instances when people have noted that their PCs are running faster and more optimally.

Cost is also an important consideration in any product purchase and PC Speed Doctor does not fall short here either. It can be downloaded completely Free Today. This will help you scan your computer and determine many of the problems that are affecting your computer. Buy the affordable paid model to mend every one of these things and reinstate your PC to its former glory.

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Source by Arif Hanid

Views: 0

January 29, 2020
What’s The Difference Between Direct Sales And Network Marketing?

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My purpose and commitment is to really help you understand and appreciate the MLM industry. One of the things you need to know when shopping for a business opportunity that is built on the multi-level marketing format, is not only how these businesses work but which one will compliment your skill set, personality and area of expertise.

The Difference Between Direct Sales and Network Marketing

Direct Sales and Network Marketing are both based on the multilevel marketing business model. MLM or Multilevel simply refers to the business structure in which the compensation plan is mapped out. The Direct selling and Network marketing vehicle is the actual distribution system or the way the products are dispersed.

With Direct Selling, the emphasis is usually on direct, person-to person product distribution, which typically involves the independent sales representatives earning a commission from the products that they sell directly to the customers.

The usual way of getting their products out to the masses or finding customers is by hosting product parties, trunk sales, booths and etc., by way of their circle of influence. Advancing in rank is dependent upon the volume of products sold.

In some companies you can recruit other people to hosts parties in which they would be offered a discount on the products for hosting that party and also earn free products if they sell a certain amount of merchandise.

This is important to know if happen to be a really good sales person or if you hate the thought of selling in this way, when choosing a mlm company.

Some examples of Direct Selling companies are:

Avon, Natura, Vorwerk, Herbalife and Mary Kay

Now with Network Marketing, the emphasis is on team building. Building a team of partners who are in agreement to use the company products in their household as well as share products with others outside of their network.

You are basically the customer as well as the business owner and you are able to sponsor, support and train others who want to build a business of their own. So the importance here is on building an organization of like minded individuals who use and move product within and outside their network.

In network marketing, you also have the flexibility to host product parties or have a booth, etc., in order to promote your products if you so choose. You are the business owner, not just a sales representative so you have the power to run your business as you see fit.

This model is a great if you love networking, team building and training others.

Some examples of Network Marketing companies are:

Sisel International, Vemma, Amway and Visulas.

Some direct sales companies also incorporate the network marketing team building model as well depending on the compensation structure, so make sure to do your research.

Understand that the purpose of both models is product distribution, but, it’s the way the distribution happens and the way you, the marketer, gets compensated, that makes the difference.

On a side note, steer clear of companies that don’t have a product OR they have a limited product line that offers little to no value to the public.

End the end, the difference between direct sales and network marketing is fairly minimal. Both serve as an opportunity for the ordinary individual to build their own business, delivering quality products to the masses in a less expensive and more personal way.

By eliminating the middle men; expensive advertisers and merchandisers, the network marketer and direct seller can create residual/ passive income from home with less time, less money and less hassle than the traditional business model.

So Tell Me…

Have you ever owned a network marketing or direct sales business?

What did you like or dislike about it?

Did you find it too challenging? If so, tell me why.

I would love to hear from you!

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Source by April Ray

Views: 0

January 29, 2020
Choosing Wealthy Clients For Your Cleaning Business

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Most people who go into the house cleaning business target the average income earning individuals as their target market. However, there are some who target the upper class, higher income earning individuals as their target market because they find more cleaning business opportunities on these.

Whichever it may be, it is always up to you. However, just be sure that you determine which ones you wish to have as your target market so that you can employ the proper cleaning business marketing schemes and tools to your operations.

The Benefits of Having Wealthy Clients as Your Target Market

Every target market has their benefits and downsides, and so does having wealthy individuals as your clients. The benefits, however, are quite nice. Wealthy clients have big homes, estates, and even more than one home. They also have many properties like boats or yachts, for example. Some of them even may be in the hotel business or something of that sort. So basically, by having these people as your clients, you are opening more cleaning business opportunities for your company.

If you do a great job in cleaning the client’s house, they may like your working style and hire you to clean their estates, their string of condos, or even their yachts. Wealthy clients are also people who own businesses rather than work as an employee. So if they like how you do things, they might even hire you to clean their offices, their buildings, etc… Also, they can refer you to their other wealthy friends and family who may also have their own string of properties that they’d like you to clean. If you do things well, your business will be growing at a rapid pace, and you’ll be hiring cleaning crews, staff, and personnel even earlier than expected.

However, the downside of such is that their homes and other properties are expensive and costly and you have to be very careful when cleaning. Damages caused may cost you quite a hefty amount if you’re careless. And gaining access to their homes will be a lot stricter too. So if you can keep up with this, then you’ll be enjoying having a house cleaning business catering to wealthy clients.

How to Get Wealthy People to Be Your Clients

Basically, how to get wealthy people to be your clients is to go where the rich people are. To achieve this, the cleaning business marketing strategy is to join country clubs, exclusive clubs, and even business and other organizations. Expanding your network will get you to meet these people, but you’ll be keeping up with the expenses too. So which target market? It’s all up to you.

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Source by Janice Fowler

Views: 0

January 29, 2020
Why Not Have A Happy Marriage While Avoiding The Crash Of A Divorce?

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It is very important to find both present moment joy and pleasure about happy and successful married life and your future.

Happiness is of the keys to a successful marriage and is the fuel for a significant life, and without it we can not appear to get the life we want.

Ways to find happiness and to have a successful marriage is not always a simple solution, and yet you have to be conscious of it.

You must concentrate on the things that you have in order to find that you both have a happy married life.

Many folks prefer to dwell on the important things that they do not have and even pine over them.

When people can not find happiness in their own life they do not know the best ways to grow and discover into happy married life.

How to possess the keys to a successful marriage means the aspect that you already have actually found happiness in your own life.

In regular times, individuals understand exactly what they are blessed with.

Others, who just merely crave exactly whatever they see and want it severely and obsessively, are never pleased for their worldly belongings can not fill the empty void inside of them.

The best ways to discover happiness in a marriage starts with everybody finding happiness with God.

When mood swings are in the air and lift you up assisting you to forget concerns, God will help you through your state of mind.

Happiness is the normal state of grace for mankind.

Take a look at a little child taking its first steps with a proud smile and you will realize that state of grace I’m speaking of.

The little child does not want anything in return, it is genuinely pleased.

For the next few days hang around looking for your pure instants of joy.

Each instant in your life kept filled with enjoyment will help you to keep happiness and joy in your marriage.

Please count the moments of joy that you have felt. How to find happiness in a marriage is by your mindset.

Being truly happy is everything!

Previously I discussed free available information on saving the marriage today by staying happy in such an often conflicting world.

True happiness is a mindset of observing the excellence of grace within you constantly flowing your way.

We need to understand how to keep from sinking far too low while we journey through this world.

The trick to finding joy in our own lives and of our marital relationship is to get into the habit of searching for advantages, rather of griping all the time about whatever that has failed.

Pleasure offers us a sensation of power and energy.

Delight means being excited about now and about the future.

I always thought that to discover actually JOY in your life that you need to follow these simple fundamental guidelines.

You need to put your inner divine Self first in your life, something Jesus and so many other masters were here to teach us.

Jesus has channeled to us through the Course in Miracles that, “My holy brother, I would enter into all relationships, and step between you and your fantasies. Let my relationship to you be real to you, and let me bring reality to your perception of your brothers.”

Always put others upfront in your life, and have a caring attitude toward the world in general.

That has always been my mantra, so to speak, for a better more fulfilled happy life and a happy married life.

You must focus on the things that you have within you and learn to reflect that abundance and joy to the material world, in order to find happiness in your marital relationship, too.

Be sure to extend your inner bliss.

Remember, when you have no inner bliss being projected to your life in this world, you can not ever realize how to find happiness in a marriage.

How to discover happiness in a marriage stems from the element that you already have discovered joy in your own life.

On the other hand, a once happy married life for some folks turns into to an ugly matter of the divorce.

(Please also note, I suggest seeking out the web for more helpful material on things like, how coping with divorce may need to be addressed, and if so, learning to redirect the mental power of our errors into positive results.)

To success in love and life!

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Source by James Nussbaumer

Views: 0

January 29, 2020
Why Your Workplace Needs Drug and Alcohol Testing

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Modern workplaces have shown emergence of drug and alcohol misuse by employees both within and outside their offices. It will not be wrong to say that almost every workplace accounts for at least a couple of incidences related to drug and alcohol abuse. It is for this reason, that every workplace must have a drug and alcohol testing program. But it is not enough only to test employees for such substances. It is important to educate them and make them aware of the negative results of addiction too.

Drug and alcohol management therapies form the next stage of the drug management programs initiated by employers for their employees. It is quite encouraging to see business organizations striving to make their workplaces secure and drug and alcohol free.

Here we must be aware that we are not discussing use of drugs and alcohol at the workplace alone. Of course, this kind of behavior by an employee can have serious repercussions. Besides the possibility of injuring himself, the employee can hurt or injure others in the vicinity too. There is also the danger of causing harm or being injured if the employee who is under influence is operating any heavy machinery. More often than not, the reason for accidents and mishaps at factories and workplaces and sites is an employee who is working under the influence of drugs or alcohol.

Most employees refrain from consuming drugs and alcohol at their workplaces. However, they are not stopping themselves when they are out of their workplaces. It is not enough if an employee does not use alcohol at the workplace. It is important that he keeps away from it even when away from work.

Going beyond drug testing, drug management programs can educate employees about why they need to take control of their lives. They are counseled by experts and also sent for medical examination to detect any health problems they may be facing due to drug and alcohol abuse.

The business owner or employer may have spent years building up a good reputation. But one small incident can tarnish the reputation of a business organization. That is why t is important for employers to be aware of their employees’ behavior. A good drug and alcohol testing management program takes care that the privacy of both the employer and the employee in question is now jeopardized.

Your employees make your organization what it is. They deserve a safe environment. In the same way, your clients, associates and visitors to your workplace must feel good about coming to visit you.

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Source by Avisha Jain

Views: 0

January 29, 2020
Timeshare Sales Techniques – The Statement of Intent

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The statement of intent is an excellent sales tool for establishing a number of things right at the beginning of your sales presentation. Firstly and most importantly it is used to calm your clients down and make them feel more comfortable about being on a Timeshare or Holiday Club presentation.

Once you have collected your clients from the reception, have them seated correctly in the warm up area and ordered their drinks, you should give them what is known in the Timeshare Industry as “The Statement of Intent”. Or “Breaking of the pact”

Your clients are probably very nervous, either because of a past personal experience on a Timeshare presentation, or because of all the bad press and warnings they have read or heard about what happens when you attend a Timeshare sales presentation.

The easiest way to alleviate their fears is let them know exactly what is going to happen during their presentation. People only fear the unknown. So if you let them know what to expect and in what order. They will normally calm down immediately.

A good statement of intent should go something like this:

“Ok John and Mary, while we’re waiting for our drinks to arrive let me tell you exactly what’s going to happen while you’re with me here today”. “Firstly I’m going to ask you to help me with a brief holiday survey about where you’ve been in the past, where you would like to go in the future, and what you’ve liked or disliked about some of the holidays you’ve taken in the past. It’s a very important part of my job as the information people like you give us, help my company to keep up to date with the ever changing holiday trends and stay ahead of the competition, then I’m going to show you around the resort and you will see why we now have so many members in my holiday club and you’ll realise the benefits that my members get from being part of such a large and well established holiday company, at the end of my presentation you will be given the option of either saying no thanks, in which case I will make sure you get any gifts you have been promised and a taxi back to your hotel, or you can choose to join the other thousands of families who said yes and are now enjoying the many benefits of being part of my club and I will make sure my manager is available to sort out the best possible deal at the best possible price, either way the choice will be yours.” “All I ask is that you allow me to do a full presentation and answer all your questions before you make your choice.” “Is that fair enough?”

Now get all parties to agree and shake all their hands. At this point you must confirm that they are OK for time, that they’re not rushing of to meet any one in half an hour and they haven’t left Grandma alone on the beach in full sunshine.

Apart from relaxing your clients and making them more open minded, you will have also got rid of the time problem. If they start pushing you to speed things up you can just remind them that they agreed to allow you to do a full presentation and you shook hands on it.

Your clients will have agreed to give you at least ninety minutes. It’s up to you to turn that ninety minutes into a three hour presentation that ends in a deal!

They won’t even notice the time if you, entertain them, win them over, and close them using the “Simple Selling Skills” you’ll be learning when you keep dropping by my site on a weekly basis.

See you next week.

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Source by Alan Roy Hocking

Views: 0

January 29, 2020
Terminal Wealth Dispersion, Life Expectancy and Individual Retirement Accounts

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Terminal wealth dispersion is the technical term that describes the variability of the future value of investment portfolios. This inevitable variability means that no one knows what the value of their investment portfolio will be when they reach retirement age or at any time during their retirement. And the uncertainty of individual’s life expectancies compounds this problem.

Hedging against the risks associated with these two factors places an onerous burden on individuals. Although this hedging could result in a very comfortable retirement, if one can afford the hedge and their timing is right, the potential downside risk is so great that it may be deemed unacceptable by many individuals. So one has to ask “Do individuals really prefer to forgo a sure but modest retirement income and play the odds with their retirement savings in hopes of being very well off in retirement?”

With individual accounts, individuals lose the benefit of the pooling of risks. The two risks that force individuals to over-save are investment risk and the risk of living beyond the average life expectancy. In both cases the outcomes, terminal wealth and life span, are highly variable. When the risks are pooled for a large number of individuals over many overlapping life spans, the average outcomes are highly predictable, which is what makes traditional pension plans work so well.

Traditional pension plans exist, for all intents and purposes, in perpetuity. This being the case, they can build reserves during good times in the financial markets and weather the bad times, thus enabling them to make consistent payouts to retirees regardless of the timing of their retirement. Unfortunately, individuals do not get to choose their holding periods or the years of their retirement and must take whatever comes along, and what comes along might be good or it might be bad. Thus individuals must set savings goals that are sufficiently high to hedge against the risk of the average return of an investment portfolio over its holding period falling well short of that which would be expected very long term.

The relatively short duration of individual’s holding periods leave them very susceptible to the effects of market cycles, which are notoriously unpredictable in amplitude and frequency. Being broadly diversified mitigates this risk but does not eliminate it, as it’s entirely possible for a worldwide bear market to occur during one’s holding period. Then at the end of the holding period for wealth accumulation, a second holding period begins, which will be the term of retirement, and this second holding period carries the same risks as the first, but at a time in life when there is no source of income to make up for portfolio under-performance.

The other component of risk that individuals must hedge is the risk represented by the uncertainty of one’s life span, which means that individuals must aim even higher when setting their savings goals. The managers of large pension plans can depend on retirees living on average for only the average life expectancy of employees who reach retirement age. The average life expectancy for someone who reaches the age of 66 is currently 82 years, and 66 is currently the age when workers are eligible for full Social Security benefits, which makes it a reasonable baseline. Based on those assumptions, the average term of retirement would be 18 years and pension plans should only have to be funded to the extent necessary to cover the cost of this average term of retirement.

Individuals, however, don’t know how long they’re going to live, so they must over-save to ensure that they don’t run out of money before they run out of time. This need to over-save is independent of the first need, thus the need to over-save is compounded, i.e., an individual needs to save enough to cover the cost of living well beyond the average life expectancy and the targeted amount of savings at retirement age must be great enough to ensure with a reasonably high level of certainty that the actual amount on hand at retirement is at least the bare minimum necessary to get by on.

A popular estimate of the term of retirement for which individuals must plan is 30 years. Saving enough to cover the cost of a 30-year retirement is a much greater burden than saving for an 18-year retirement, but planning on a shorter retirement exposes individuals to tremendous risk. It also exposes taxpayers to tremendous risk, as individuals who outlive their savings will undoubtedly require some form of public assistance to make ends meet and are likely to become wards of the state when they become physically incapable of caring for themselves.

An individual who bases their retirement saving on living to the age of 96 but only lives to be 82 will have forgone a lot of pleasures in life, such as travel, fine dining and better vehicles, that they could otherwise have enjoyed. But many individuals just don’t have the level of income required to support the saving rate necessary to amass the wealth required to hedge against the downside of terminal wealth dispersion and the possibility of living well past the average life expectancy. For them it’s not a matter of forgone consumption, it’s a matter of going through life with the knowledge that they are likely to spend their golden years living in abject poverty and that that will be their reward for 40 or 50 years of hard work. And it gets worse!

Some economists now believe that within 15 years or so, given the current rate of health care inflation, 100% of Social Security benefits will be spent on medical expenses: Medicare Parts B and D premiums, copayments, uncovered expenses and medigap insurance premiums. If that becomes the case, anyone without substantial savings or a defined benefit pension will be looking for public assistance the day after they retire. Although this is probably a worse case scenario, there is a general consensus that individuals retiring today will need to set aside approximately $180,000 for medical expenses not covered by basic Medicare.

With the situation already at this state, adding private Social Security accounts to the mix would be like throwing gas on a fire, as individual Social Security accounts carry the same risks as other individual retirement accounts. Those who have tried to kill Social Security since its inception find private accounts very appealing. But, not so coincidentally, most of them seem to be in the enviable position of not needing Social Security to support their retirement. More recently, younger workers, too, have come to oppose Social Security, but not for the same reason as the traditional opponents. Young workers may be crushed by the growing burden of Social Security and may never receive any benefits from the system. Those who oppose Social Security simply because it’s a social program should be expending their efforts on reforming it rather than killing it.

If Social Security had been managed like a pension plan rather than the ilconceived system it is, with today’s workers paying for yesterday’s workers’ retirement, its current situation wouldn’t be so dire. Indeed, it might very well be a fully funded, functional system. CalPERS and other large public employee retirement plans have operated successfully for decades, with success being defined as being able to meet their obligations, not having an adverse effect on the financial markets, no scandalous events attributable to malfeasance by the plans’ sponsors and being free of influence from elected officials. There’s no reason that Social Security can’t also be managed in such a manner. It would literally take an act of Congress to do this, but the hardest part for Congress would be letting the system run without their interfering with its operation.

Passing off the burden of retirement to individuals was a great deal for corporations but it’s a very poor deal for most individuals, and extending individual accounts to include the Social Security system would only make a bad situation worse. It’s not a poor deal for all individuals because there will be some who can afford to save a substantial portion of their income and whose holding periods will coincide with bull markets, thus putting their wealth in the upper range of their terminal wealth dispersion, and who also live a long, healthy life. They will be the ones who benefit from over-saving and living beyond the average life expectancy, but they may end up forfeiting a portion of their wealth in the form of taxes to support the less fortunate. I don’t believe that is what the public expects from a well-conceived system.

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Source by Mike Kennedy

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January 29, 2020