Having said that, what follows are ten tips* about the various kinds of life insurance products currently offered on the market and some nuances of each:

1. Life insurance policies fall into one of two camps.

There are term policies, or pure insurance coverage. Then there are the many variants of whole life policies, which combine an investment product with pure term insurance and build cash value.

2. Insurance is sold, not bought.

Agents sell the vast majority of life policies written in the U.S., because the life insurance industry has a vested interest in pushing high-commission (and high-profit) whole life policies.

3. Whole life policies are expensive.

Policies with an investment component cost many times more than term policies. As a result, many people who buy whole life often can’t afford an adequate face value, leaving themselves underinsured.

4. Whole life policies are built on assumptions.

The returns quoted by the agent are simply guesses – not reality. And some companiese keep these guesses of future returns on the high side to attract more buyers.

5. Keep your investing and insurance strictly separate.

There are better places to invest – and without the high commissions of whole life policies.

6. Buy enough term coverage to fill your needs (discuss with a fee-only adviser).

Life insurance is no place to skimp, especially with rates at historic lows.

7. Match the term of the policy to your needs.

You want the policy to last as long as it takes for your dependents to leave the nest – or for your retirement income to kick in.

8. Buy when you’re healthy.

Older people and those not in the best of health pay steeply higher rates for life insurance – so buy as early as you can, but don’t buy until you have dependents.

9. Tell the truth.

There’s no sense in shading the facts on your application to get a lower rate. Be assured that if a large claim is made, the insurance company will investigate before paying.

10. Use the web to shop.

Buying life insurance has never been easier, thanks to the Internet. You can get tons of quotes – and avoid pushy salespeople.

The important thing to take from these tips is this: before you shop around and before you buy a product that may be inappropriate or inadequate, talk with one of our certified financial planners to determine what makes sense given your personal situation. Just because your neighbor’s brother’s sister purchased a whole or universal life policy from her agent doesn’t mean that’s the way to go for you. Everyone’s situation is unique, and the best way to determine this is to come in for a review. It’s possible we may find you’re paying too much for a policy no longer needed and/or are underinsured. Doing something now will provide the financial security you want for your loved ones.

If you, or someone you know, would like to chat with FIM Group about life insurance, please feel free to contact Kevin Russell, Jim Frye or Renee Egelski in Michigan, Jeff Lokken, Kevin Mahoney, or Jason Sobolik in Wisconsin, or Alice McDermott in “paradise” (aka, Maui).

*Source: Money Lesson 101: Life Insurance, www.CNNMoney.com

Patrick, my two-year-old, shrieks so loudly when he wants mine or my wife’s attention that we sometimes keep our windows closed. He indeed triggers an emotional response just as readily as today’s writers, idea evangelists and marketers desire to get our attention, grab headlines and sell people on their ideas. For Patrick, however, it’s gummy bears or playing basketball with his 15-year-old brother, Keeston, even though it’s bedtime. What’s interesting about the emotional “fear-greed” paradigm that we have been seeing so much of lately is that we are all still raw from the crisis of a few years ago and still see little in the way of “fixes” from our leaders. In times of crises, many governments seem to default to taking a shortsighted, myopic, easy path and “just say yes” to things like bailouts, dishonesty, and self-dealing by firms and individuals, and enact irresponsible policies that are just as unhelpful in the long term as saying yes to gummies or basketball. Any parent, adult or common sense-infused sibling knows that to say “yes” to Patrick’s rants is a short-term gain that sets us up for extreme long-term pain. Because Patrick is my third child, I have the sensibility to let him shriek till dawn rather than give in to his demands. Governments, too, should have the sensibility to impose more austere measures regardless of the populist shrieking.

Feeding our fear at this moment in time are the now well-documented, sound byte-grabbing “three Gs”: 1) Gulf (oil spill), 2) Greece (Euro breaking down) and 3) Goldman (ethics and excess). Each of these is a real threat, and politicians and the press have an unrelenting desire to feed our emotions with fear, greed and lust-caused actions. So again people are selling, but really there is no sell without a buy. When someone sells a German bond, Swiss holding company, Hong Kong conglomerate, Spanish utility or French energy company, they’re likely saying, “I like a U.S. money market instrument better.” But on the other side of the transaction, another investor is buying the security and taking advantage of the emotional behavior of the seller. The question, however, in any buy, sell or hold decision is, “What was the logical thought map of the decision?” Was this the best financial advice? Was it logical in the long term or just a quick emotional response to the market’s and media’s shrieks? The world’s government experts, our representatives, heads of state and their advisers seem to have forgotten to think long term with their decisions and are responding to the shrieks of their constituents. Years ago a mentor told me, “Paul, before you can teach well, you need to be a good parent, husband and businessperson. Once you have mastered those skills, then you can teach.” Our representatives need to learn a thing or two. Fortunately, history tells us that while many mistakes are likely to be made, the entrepreneurial spirit of capitalism will prevail, and we will muddle through and fix our problems.

The Greatest Generation

My wife, Amy, and I had the privilege of hearing Tom Brokaw, author of The Greatest Generation, speak and field questions when he came to Traverse City. His thoughtful answers were inspiring and filled me with a hope that only rational analysis could bring. When asked about today’s political, economic and polarized world, he smiled and chatted about Watergate, the Kennedy assassinations, Oswald, Martin Luther King, Agnew, Vietnam and the economic mess that we pulled out of in the ’80s. Also with a smile and a wise demeanor that only someone who had “been there – done that” could have, he talked about what he called “the greatest generation”– those who survived the Great Depression only to find themselves in two major wars, a Holocaust and the devastation of most of the world (except the U.S.). He did not want to trivialize today’s problems, but when he compared them to the world’s scenario during the ’60s and ’70s, we had to feel like our current situation was not something unmanageable. Things are not as bad as they seem in the political arena … just like in the investment arena. As part of our disciplined approach to looking at companies, I often use SWOT (strengths, weaknesses, opportunities and threats) analysis – the same method I used when working toward my MBA. I got to thinking about the world’s economy and we have reason to be either optimistic or negative – it’s our choice.

Lunch in the USA

I had lunch today with a Zambian born immigrant, and we chatted about Africa, where 30,000 of its citizens die of starvation and preventable deaths every day. He is hopeful about Africa’s fixes, but sad that corruption, “live only for today” mentality, aid that causes dependence and its fear-based system seem to bog down any progress. Throughout U.S. history, we have had men and women rise from obscurity to be leaders at times when they were needed most. When I think of how lucky we are, and how events from 234-plus years ago shaped our nation, I can see only reason to be optimistic. This young Zambian’s father worked in the copper belt and spent his meager mineworker’s income to educate his children. That was his only priority. That was his only goal. I’m becoming more and more optimistic that Africa will figure it out, too. When we look at Singapore, China, Brazil and scores of other countries and the progress they’ve made, it is so easy to be rationally optimistic. When the likes of George Washington, Mahatma Gandhi and Nelson Mandela appear when their citizens need them most, it is easy to be optimistic. The Fourth of July is just around the corner, and I am so proud that I was born in the U.S. I am most proud of the fact not that we have fought and won wars and overcome the Great Depression, but that we have fought against complacency, negative attitudes, laziness, despair and had little tolerance for mediocrity throughout our history. We Americans have “good bones” and a great legacy. In a few years, we will look back on the three Gs as an interesting footnote in history. Life goes on, and I am optimistic, because when I perform a SWOT analysis on the U.S., I see the opportunities and strengths boxes filled to the brim and the threats and weaknesses boxes chock full of opportunities to fix.

The article described how some investment firms have fee structures that incentivize advisers to steer their clients to riskier, more expensive products (e.g., hedge funds, structured products, annuities, etc.), rather than acting in their clients’ best interests. The article also pointed out how one adviser had identified 17 different ways firms earn revenues, which often include fees, commissions and expenses that were neither transparent nor disclosed to their clients. Clients were often not aware of the substantial conflicts of interest that can exist, for example, between brokerage firms, trust companies and private banks. Firms, of course, receive investment management fees, which most often are all that a client will see. The client may not realize, however, that their adviser might also receive transaction commissions, trustee fees, accounting fees, fee-sharing, front-end/backend commissions or 12b-1 fees from mutual funds, annuities and such. Expenses can be very substantial, and of course it is hard for a consumer to analyze the cost-benefit-value equation in the complex world of investing.

Unlike some of the practices described above, FIM Group does not charge more for “growth” accounts or less for “yield income accounts,” so there is no incentive or benefit to placing a client in a higher-risk investment category. In fact, our fee structure is the same across all four of our main investment strategies. Plus, we not only fully disclose all costs to our clients in a transparent and straightforward way, we are committed to controlling expenses and minimizing the erosive influence that high commissions, hidden fees and expenses can have on a portfolio. FIM Group is a fee-only weatlth management adviser – which means we cannot receive commissions, fee-sharing payments, or referral fees from trust companies, brokers, banks or any entity or person. None. Nada. Zip. Zero! We only receive the fees that our clients pay, which are fully disclosed and detailed on each monthly and quarterly statement. Through our flexible, global strategy we do invest from time to time in closed-end funds (CEFs) and holding companies that may receive a management fee, but FIM Group is neither incentivized nor compensated when we carefully select investments for our clients. Our job is to seek out the best value and build our portfolios one security at a time, taking into consideration the full investment process.

Doing the Right Thing

We have a huge incentive to control expenses for our clients. Why? Because it’s the right thing to do. We believe that there should be no other reason to do something with integrity and virtue than simply because it is the right thing. If Wall Street had done the right thing and operated with virtue rather than greed, they probably could have completely avoided the problems they experienced in the last couple of years. But as the saying goes, “You can’t regulate morality.”

So is managing a company based on principals and virtue “Pollyanna pie-inthe-sky idealism” or raw and uncooked wisdom? I don’t know really – especially when I see Wall Street executives and brokers make hundreds of millions selling junk that they know is junk by misleading or obscuring the reality to unsuspecting or even “sophisticated” investors.

Virtue vs. Greed

I think it is logical to think about the “virtue vs. greed” equation when investing for clients. Should we invest in questionable businesses no matter how profitable the outcome? Should investors hire managers with legacies that show a trail of woe to its shareholders, clients and rank-andfile employees (while these managers and their kin are often well-rewarded with bonuses made on the short-term speculation)? Should investors be values-neutral in their investing? The tsunami of 2008 and the aftershocks we see today tell us it is a loser’s game to invest with those that are values-neutral and that lack an ethical, sustainable, virtuous business philosophy. So I believe defaulting to doing the right thing – the virtuous thing – is the proper course for investors.

Little by Little…

At its roots you’ll find that consistent, positive compounding performance comes from many little “right decisions.” Decisions about controlling fees, for example, add up over time, as does making quality decisions about investing. It all adds up over time … a little bit here and a little bit there. FIM Group is proud of our track record. If you would ever like to compare your FIM Group performance against another manager, index, benchmark mutual fund, entity, inflation, money market or your Mom’s investment club’s performance, we’d be happy to run the numbers for you. We are committed to integrity, transparency, virtue and performance. If you have any ideas on ways we can improve, no matter how big or small, feel free to let us know by e-mail, phone, snail mail or in person.

Politics and Bailouts

Sadly, taxes, politics and bailouts are part of this value conversation. FIM Group manages all of our taxable portfolios to maximize after-tax returns. Politics will have an effect on tax laws and capital flows because of incentives and bailouts, which seemed to have upset “economic natural order” in the U.S. and overseas. Countries have in some cases allowed risks to be borne by society (bailouts) and rewards to be kept by the taxpayer. Foolish, arbitrary politics creates a moral hazard when risk management and prudent business strategies are trumped by recklessness reinforced by taxpayers’ bailouts. When bad decisions by businesses cause no pain, then a reinforcement loop happens that continues until something changes. Things are a changing in Washington, but right now for business it seems like we are playing a game where the rules keep changing. Things, however, will stabilize as they always do. The new normal, for awhile at least, will be more bone-headed regulations, harder-to-understand tax laws, new layers of incentives and disincentives, and a Congress and White House ill-equipped to say “no” to anything that has to do with spending. I am not melancholy in this assessment. Democracies are reactive systems, so things will need to get overregulated and Congress will have to say “yes” one too many times before voters say “enough,” and the dismantling cycle starts once again. Any student of American history knows this. Any student of world history knows this. And for that we have lots to be grateful for and reason to be optimistic.

Notable examples are Toyota and the US Auto industry. For years, Toyota focused its efforts on building quality and reliable vehicles. However, when their focus changed to becoming the largest automotive manufacturer, they subjected themselves to very serious consequences, which we’ve all seen in the news lately. The destruction of the U.S. auto industry was a result of upper management’s desire to use financial leverage to increase share prices at the expense of building quality vehicles at affordable prices. The new set of organizational pressures and incentives, with few options to obtain goals with legitimacy, has altered judgment and choices. Today, there aren’t as many “car guys” in upper management positions at the auto companies. Rather, financial engineers seem to have taken over.

Finances are indeed important, but from my experience those companies that put their customers’ needs first run a conservative financial profile. Any reasonable and educated person with an ounce of common sense knows that the world is always changing. Common sense managers know that customers’ wants will change, innovation will make last year’s products less desirable, and that customers and clients need quality products and need to be treated with respect and gratitude.

Growth in Earnings per Share (EPS)

It seems that private companies do a much better job with a virtue-oriented business model than public companies, with is rational. Public corporations are judged mostly on growth in earnings per share (EPS), profit growth and shareholder return. As an investment manager we want to invest in companies that place value and emphasis on their product or service and who care about their employees, shareholders and other stakeholders with equal reverence. We also seek out family-owned/ operated companies in which the major shareholders are the families themselves.

Anecdotally it seems that companies with conservative finances and virtue-oriented management think that paying their shareholders good cash dividends is just good business. At FIM Group, we seek out companies that pay good dividends, have a history of paying dividends, are well capitalized, have conservatively managed financial structures and have a record of profitability coupled with great quality products and services.

We also project into the future and anticipate whether we can see companies’ cash flows and dividends increasing over the years. There are a significant amount of parameters that go into selecting a stock for a diversified portfolio; however, dividends are an emphasis, particularly for those clients who are near retirement or are enjoying it currently.

It Pays to Be Global

FIM Group has always been a global manager. When it comes to dividends, global is where it’s at.

Cash dividend yields an average dividend yield of 6.39%. To give some perspective, the current dividend yield for the S&P 500 index is just 1.84%. Since 1926, 45% of the U.S. total return from the S&P 500 was from dividends. From that we can logically assume that even in our robust growth booms in the 1950s, 1960s, 1980s and 1990s, dividends do matter. In the rapidly growing economies and companies we favor, we expect (especially for retirees who need cash income now, not growth later) a similar positive end result.

Four Winds of Positive Performance

There are four return components for a global investor: 1) Dividends; 2) Growth in underlying share value through increased earnings; 3) Increase in share value as investors are willing to pay more for those earnings (PE expansion); and 4) Currency returns. For example, if you own a Swiss, German, Singapore or non-U.S. company, there is potential for capital appreciation purely by the U.S. dollar weakening against the currency. Of course it could go against you, and as we know currencies, investors’ psychology and earnings can go up and down, and if a company’s prospects or markets weaken dividends could be reduced or eliminated. That is one reason FIM Group believes indexing portfolios is a losing strategy. Why wouldn’t you want to sell investments as their prospects erode and embrace investments with good prospects? The asset allocation chart by country indicates FIM Group’s investment around the globe. Our portfolios are well-diversified and actively managed, which helps reduce volatility and increase the potential for steady returns over time.

Adam Smith and Doing the Right Thing

I am a believer in free market capitalism. I am also realistic about human nature and realize that many people will be driven by greed, ego, lack of a moral compass or plain ignorance. Many unethically manipulate the “system” to their benefit at the expense of others. Typically unethical business practice involves the cooperation of others and reflects the values, attitudes, and beliefs that define an organization.

According to Stephen Young, global executive director of the Caux Round Table, an international network of principled business leaders working to promote a moral capitalism, “Moral sentiments stand for the proposition that listening to our moral sense, exercising our capacity for sympathy for others, and listening to an inner source of wisdom is the proper standard for human conduct. Wealth of Nations, by Adam Smith (1776) on the other hand, is often portrayed as a work that elevates self-regard as the proper norm for our interactions and that proudly grounds capitalism on self-seeking of profitable advantage.”

Humans naturally seem to know right from wrong, and Adam Smith felt that people would be guided on balance by moral- and virtue-oriented principals, either self-imposed, or socially imposed by religion, government or laws. I grew up being taught to do the right thing, and as a result an underlying tenet in FIM Group’s philosophy is to favor companies that seem predisposed toward doing the right thing.

I have been reading How to Create a Winning Organization by John Wooden and listening to his audio book about his philosophy. Coach Wooden’s ten NCAA championships, Coach of the Century Award and pyramid of success prove that having a well-developed moral compass results in success – but as he says, that is not the point – the point is doing the right thing.

We believe the majority of Americans and Europeans want their companies and employers to grow, be sustainable and operate ethically. It appears that in many areas of the world, governments view business as a necessary evil or maybe just simply an enemy. Demonizing entrepreneurship, success and business will only cause business to go elsewhere, where it is welcome, and people feel grateful that they have a job. While the creative destruction going on in the old economies of our world are unpleasant, governments do little to fix it and a lot to mess it up. Regulating to deregulate and adding taxes upon taxes only discourage companies and form a barrier to long-term economic success. Vital and vibrant business activity will go on, and profits will be made by those with the vision, desire and ability to work harder and smarter. FIM Group’s investment process is designed toward investors who are well-compensated for taking on risk and who have a reasonable and sustainable margin of safety.

Imagine that your portfolio is constructed in such a way that even if the economy just quit growing, taxes increased and inflation doubled, you would not be concerned at all about your investments! Imagine further that if we experienced significant deflation, increased unemployment and government debts skyrocketed out of control that you still would not be concerned. We feel that every FIM Group portfolio is truly constructed to do well even if the normal economic and financial forces of recession, inflation, deflation, tax increases, unemployment, deficits and such continue. Why are we so confident? The reason is HEF.

HEF = Health, Energy, Food

We have our stock selection investment process that continuously guides our choices. When we bake in all the inputs, we find that our portfolios are well-positioned to benefit from three areas of the economy – health, energy and food/commodities. What was a blessing in disguise about last year’s financial tsunami was that it regarded both great and bad investments in the same way … it made them all cheap. It made great companies in the health care, energy and food businesses investment bargains. It also made companies in the areas of the world that are on the right side of the deficit’s paradigm bargains. If you look at your portfolio and drill down on the “why” of your portfolio’s holdings, you will find investments with great prospects regardless of how the overall economy, stock market, inflation or governments of the world performed. Of course they will fluctuate. Of course they will have volatility. But every year thousands of companies disappear. Our investments aren’t with speculative companies that were constructed in cyberspace and passed off as investments. They are solid companies with good books of business and in industries where they have created a hard-to-replace niche, competitive advantage and are well-priced. We expect that these companies will grow earnings, dividends and sales over the next five years. Will they have some bad quarters? Yes! Will their sales fluctuate? Yes! What follows is why we believe the trend will be up.

Human Nature

Darwin maintained that those species that survive and thrive are not necessarily the biggest or the smartest, but are the most flexible. Humans survive because we are flexible. Americans are modifying their behaviors due to our recession. People today are using coupons, consolidating shopping trips and “brown-bagging” it at work to save money. It’s now “cool” to be frugal.

It’s Cool to Be Frugal

More than ever people are becoming turned off by excessive consumption. For example, current luxury automobile advertisements are not pushing the “look at me, I am successful” button to compel consumers to select their brand. They are pushing the safe, value and durability buyer buttons. In other words, they are appealing to practicality versus stature. We are allowing our brand loyalty to slide in the name of common sense and frugality. Store brands are consistently gaining market share as consumers shop for better value. Private label growth demonstrates the significant decrease since January 2008. Also, consumers are making it more difficult to target and effectively receive marketing. Advertising was down significantly in 2009 as consumers made different choices and spending decreased. Advertising spending worldwide has been affected by the slow worldwide economy and recession.

One Company at a Time

At FIM Group, we select each investment because we feel it will deliver positive returns going forward. We favor the companies that have solid management, produce needed products and will benefit from the trends in both the developed and developing worlds.

Often it can seem overwhelming to view all the holdings in your portfolio. We welcome the opportunity to sit down in person or on the phone to discuss what you own and why. We have found that once clients really understands their portfolio, they sleep better at night and really see the benefit with our strategy. Please don’t hesitate to call or e-mail us to coordinate a time to review yours.

Effective this year, any taxpayer may convert a Traditional Individual Retirement Account (IRA) to a Roth IRA. In previous years, this was restricted to those taxpayers with a modified adjusted gross income below $100,000. While this change may seem minor at first, serious consideration should be given to converting IRAs for several reasons. This article will explain the difference between a Traditional IRA and a Roth IRA and discuss the pros and cons of converting a Traditional IRA to a Roth IRA.

Created in 1974, Traditional IRAs provide taxpayers an immediate tax deduction for contributions made into the account. There are no income taxes paid on the account until funds are withdrawn. As long as withdrawals are 7) Priced right – this area has a tendency to get overpriced as overzealous “Wall Street marketers” hype stock prices to unreasonable levels Thankfully the market tsunami of early last year brought energy stocks down to reasonable levels and in some ways separated the common-sense winning strategies from those that were inflated on hype. We are pleased that we were able to buy such a quality portfolio of solid energy companies at great prices. Some of FIM Group’s client holdings include: Criteria Corp, Pargesa and Cheung Kong Holdings, which provide exposure to both traditional and alternative channels of energy. For example, Hong Kong-based Cheung Kong Holdings owns a large chunk of Hong Kong Electric, which built Hong Kong’s first commercial-scale wind farm – Lamma Winds. For more information on our wind and other alternative energy investments, visit www.fimg.net. There, you’ll find links to the World Wind Energy Association (www.wwindea.org) and the websites of the companies mentioned above. *Please Note - made after age 59½, they are taxed as ordinary income. Withdrawals can be delayed until age 70½, at which point annual required minimum distributions (RMD) must be taken.

In contrast, contributions to Roth IRAs, which were created in 1997, do not result in a current income tax deduction. However, as long as withdrawals are made after age 59½, no income taxes are due. In addition, Roth IRAs are not subject to the RMD requirements.

In general, there is no economic benefit of a Traditional vs. a Roth IRA for most individuals as long the following assumptions are made:

• Future income tax rates are the same as current income tax rates.
• Assumed earning rates are the same for all time periods.
• There is no estate tax liability due on the IRAs upon the death of the account owner.

For 2010, current tax law allows an individual to convert a Traditional IRA to a Roth IRA and elect to pay the income taxes currently or defer the tax liability by reporting one half of the amount converted in 2011 and one half in 2012. It is important to note that this is the taxpayer’s option, giving more flexibility and more income tax planning opportunities.

In most cases, it is not beneficial to pay the income taxes due on conversion from the IRA account itself.

For those individuals whose estate may be subject to estate taxes upon their death, the Roth conversion would result in a lower taxable estate, since the income taxes paid upon the conversion would reduce the total assets of the estate. In addition, married taxpayers may want to consider a Roth conversion as a way to reduce future income taxes for the surviving spouse. Since the surviving spouse will be required to pay taxes at higher single taxpayer rates, converting to a Roth IRA will not only eliminate future RMDs but would also result in any withdrawals being income tax-free.

In general, a Roth IRA is more “income tax-friendly” to a non-spouse beneficiary, since any withdrawals are not subject to income taxes.

One often overlooked aspect of Roth IRA conversions is the ability to “recharacterize” a converted IRA. This in effect allows you a “do over” if the value of the converted IRA suffers a significant drop in value from the date of conversion to the due date of the tax return including extensions (currently October 15 of the following year).

Recharacterizing a Roth IRA is an “all or nothing” option; one cannot pick and choose which investments within the account can be recharacterized. However, a taxpayer can create multiple Roth IRA accounts, giving one the option of only recharacterizing those accounts, if any, that drop in value.

So is a Roth IRA conversion right for you? This is not an easy question to answer. On one hand, you are in effect “pre-paying” income taxes. This has to be weighed against the benefits listed above and what income taxes will be in the future.

If you would like to explore the Roth IRA conversion further, please contact a FIM Group wealth management advisor who will be glad to evaluate your personal situation.

I have spent my career in the investment & financial services business, and I agree with Mr. Immelt. My life experience, however, has reinforced the fact that most people are ethical, honest and know the difference between right and wrong. I also am aware of the fact that some people lack ethics and virtue and want to oversimplify the complexities of life. Years ago I had the privilege of attending a lecture by an expert on “intuition.” I only remember one thing he said, and I have thought of it often over the years, because it has helped us considerably here at FIM Group. He said, “Intuition is not the spontaneous [flash] thought that comes into our head; hundreds of thoughts come into our head every hour, and we don’t act on them. Intuition, true intuition, comes after you know everything about a subject [are expert] – then the intuition works with your knowledge [to successful action or analysis].”

Complex Systems Systems are complex; every trend has literally a thousand counter trends. And I think societies, businesses, families and any system often get off track due to manias, fear, irrational exuberance, pessimism, recency effect or endowment behavior. Some investors still believe that investing is simple and use indexing and passive asset allocation systems. For those with the correct DNA, investing is simple, but it’s not easy. As Warren Buffett said at Berkshire Hathaway’s 2009′s annual meeting, “If you are in the investment business and you have a high IQ, sell 30 points to the next person. You do not have to be a genius at all. But you do have to have emotional stability, and you have to have some peace about your decisions. I don’t know how much is innate and how much can be taught. If you have that quality you will do very well. As I have said many times, it is simple, but not easy.” My partner, Jeff Lokken, who runs our Wisconsin office, was in Omaha at the Berkshire annual meeting earlier last year. He called me from the meeting saying, “Paul, Buffett is talking about inner peace as a key to investing success.” For the past 25 years, what we believe to be one of the key elements of FIM Group’s success has been to maintain inner peace in terms of investing, through our rational, disciplined, common sense approach. Investors who had the inner fortitude and stuck to their discipline in 2008 and 2009 were rewarded.

2010 and 25 years This is my first letter of 2010. After 25 years in the investing business (FIM Group turned 25 in December) I am not compelled to write about what I think the future will hold, not because I can’t or don’t have a book’s worth of thoughts on it, but because it is quite irrelevant. Forecasting is not how you succeed in the business of investing; it is merely one component and a very important part of the process, but it is not the process itself.

When it comes to the future, investing has three parts: First, all investing is about the future; second, all investments are made with incomplete information (about the future); and third, the future is unknown. So after 25 years, if I had to write one sentence that summarizes what I know about successful investing, I would say, “It is best left to ethical, virtuous, experienced, mature, flexible experts who see the world as a system.”

The World as a System. We now know with 20/20 hindsight that many so-called “good ideas” from experts were just plain bad ideas, including: government guaranteed mortgages sold by people who gamed the system for personal profit; a “bigger and more is better than quality and integrity” mindset; and a retail-/consumer-led economic model built on credit and consumption rather than savings and investment. The world is one big system. When we oversimplify by making just a part of the world “all important,” as experts often do, we can get into trouble. Creating a system based on the premise that “Everyone should own a home at any cost!” sure had a downside, as we are experiencing right now with massive unemployment, foreclosures, capital destruction, and business and bank failures. Actually, failure is a necessary and acceptable part of a healthy economy. When a business fails, we learn many lessons from its failure about management, forecasting, ethics, common sense, laziness, change and flexibility. Sadly, we often learn best through failure rather than success. I learned in high school that it is important to study successful people. I still study successful people, but I am more fascinated by studying successful companies because, after all, they are systems.

A Living System “The numbers are easy” is one of my most repeated phrases when I describe FIM Group’s investment approach and the explain the financial planning process. Of course, stretching a great sports manager’s saying, “Numbers are only 99%, the other 100% are products, people, culture, market, relationships, reputation, ethics, sustainable habits and virtue.” We have companies in our client portfolios that have thrived for many generations, surviving wars, depressions, recessions, government intervention, taxes, stupid management and the most dangerous threat to a company’s health: irrational exuberance and oversized, unrealistic egos. Obviously many companies are and were only financial bottom-line-oriented. They are struggling right now, and their former employees are sitting in unemployment lines or are underemployed and hoping.

While pursuing my MBA my Systems and Quality Management teacher discussed the theory of “If you can’t measure it – it doesn’t exist.” I invited him to lunch to further discuss this and asked, “So love, God and good food don’t exist, since they can’t be measured?” We laughed about the measure question, but to this day I encounter people who will forcefully and with much conviction maintain that, “If it can’t be measured, it does not exist.” To the peril of their clients, many of these folks are in the investment business. My point is that mere numbers do not accurately reflect a company’s value.

Rather, value is found in a company’s skills, virtue, franchise, processes, beliefs, culture, talent, reputation and management. So when we look at the world of investing, we try to understand the intangible value of a company. It is easy to add up the value of a company based on the balance sheet, but as we have seen with Merrill Lynch, UBS, AIG, Freddie and many other banks, overleveraged companies and finance companies, the balance sheet value can be destroyed in short order. Those companies seemed to disconnect from the ideas that values, virtue, ethics, long-term sustainable thinking and people matter. The Year 2020 We are long-term investors. We are not managing money market funds. We don’t day trade or speculate on shortterm movements in assets. This frees us to concentrate on what matters most – keeping our retired clients retired, building our clients’ wealth and serving our clients’ real needs, successfully, ethically and with virtue.

I think that our world will look much different in 2020 than it does today. We are a learning society, so by the year 2020 we will look back on the past decade and realize that the U.S. did little to nurture what made us great in the first place (and borrowing and spending did not make us great). We will get back on track and embrace expectations about personal responsibility, work as an ethical behavior, war as a necessary evil and government’s role as a minimal part of our lives (not the pervasive influence it is now).

As an American I hope we will get back to President Kennedy’s ethic of being a responsible citizen illustrated by his statement, “Ask not what your country can do for you – but what you can do for your country.” Of course, the investment action will be everywhere. Creative destruction and failures of systems, business and institutions will be rampant, especially over the next few years as we realize it does no one any good to keep life support on an entity, theory, belief or business that is already dead. Opportunity will also be everywhere, as wherever change exists there is opportunity for profit to be made. Silly people will, of course, hold on to the old paradigm of indexing, passive asset allocation dartthrowing, owning old, dead industries and backward-looking systems, which will leave a whole lot of opportunity for savvy forward-thinking, disciplined investors.

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