Can General Motors Pull This Off?

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If you think I’m bit nuts today, blame Larry Winget! This guy has the intestinal fortitude of a giant, and I have to say I agree with more of his recent blog post than I don’t. (CAUTION: It contains some stronger language than is comfortable for some, so if you’re squeamish, skip it…If you can handle it, HERE IT IS). [For the record, I still like LeBron James, but I get Larry’s point.]

On to MY post:

As you may know, I spent the 10 years or so of my professional life working with investments. First as a bank trust officer who helped install new 401k and other employee benefit plans into companies of all sizes, then later as a personal financial adviser. Over the years, I have found that most people in the general public simply don’t take time to stop and truly think about their investments. Instead, they simply rely on what other people tell them to be the truth. Therein lies the issue.

Financial advisers are the people who are left to help when a widow has earned their title. For the “traditionalist generations” (those born ahead of the Baby Boomers), too often these “blue haired ladies” would be handling their financial affairs the way their deceased spouse had told them to. Though they never told me, their actions said their spouses had said to them:

  • You can always put money into a Certificate of Deposit (CD) at the bank, because it’s FDIC insured if something should happen to the bank
  • Cash is king
  • The “Blue Chip” stocks in our investment account will always be there.

If I may, I’d like to respond to these facts.

  • On CDs: Yes, you can always put money into a CD, but sometimes there are other VERY SAFE INVESTMENT OPTIONS that can offer you a better return without much more risk. Sure, you may not have FDIC coverage (something instituted by the federal government during the Great Depression), but that’s not always a bad thing.For example: If your only criteria is “FDIC Coverage”, you are limited to bank deposits as an investment. The banks know this, and often offer very low rates of return in exchange for using your money to make more for themselves. I’m not against banks making money, but know that your ENTIRE INVESTMENT PORTFOLIO might serve you better if some of that money is invested in something else like a FIXED Annuity. When used correctly, these can prove to be a nice CD complement or alternative.
  • On Cash: If you plan on living off of your investments for some time, you need one of two things: a large account full of money or a diversified portfolio. I can’t tell you how many times I’d see someone come up to me in a 401k enrollment meeting or into my financial adviser office saying “I’m going to retire next year, what do you think?” Then they’d show me an account with a balance of about $30,000. When I asked, “How much money do you think you’ll need to get through a year?”, the reality would set in and these folks would look at me as if they’d never considered that question. In short, to get where you want to be LONG TERM, investments in something other than cash are going to prove VERY important…unless you happen to start with or fall into a very large bucket of money.
  • On Blue Chip Stocks: “Blue Chip” stocks are those that are typically thought of as the larger, more established companies that “should always be around”. Often times, these are exemplified by the stocks of the Dow Jones Industrial Average (DJIA), an index used to represent the “overall market”. Here’s a fact too many people don’t know: the components (or stocks) used to calculate the DJIA CHANGE! Sure, some companies like General Electric have been a DJIA component since 1907…But, two of the component stocks (General Motors, since 1925 & Citigroup, since 1997) are being replaced on June 8, 2009. Earlier this year, other victims of the financial and economic meltdown were also replaced in the DJIA.

This morning, I ran across a website dedicated to the “re-invention of General Motors“. While I know there is a tremendous amount of pride in this, one of the “big three US automakers”, there is much to be done to pull this one off.

Somewhere along the way, I say a LONG LONG time ago, General Motors ceased operating as an automobile manufacturing company, and became “a large pension plan that happened to also make cars”. I’ll save my complete diatribe for another posting, but the point is this. General Motors (along with other over-sized companies) fell victim to its own success. Somewhere along the way, decisions were made likely based more on emotion than facts, pressure from unions vs. other labor options, and arrogance over intelligence. For those investors who didn’t take time to keep up with the health of the companies in which they were invested, GM’s recent bankruptcy filing was a rude awakening, as all of that former “blue chip stock” almost immediately dropped to a value of pennies on the dollar.

Can GM pull off this “re-invention” and save itself as it claims in this video? I don’t know. But to the millions of people who have learned that “doing what you’ve always done won’t always get you what you’ve always gotten” the hard way…let’s hope so!

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