Recently I posted an article, titled “This Time It’s Different”. Most people when asked about the idea of investing in the market, have responded that “They are waiting to see what happens” and yes, “This Time It’s Different because…..”
If you read my previous article, “This Time It’s Different”, http://5reasonsyoushouldownaroth.blogspot.com/2009/07/this-time-its-different.html I referred to a study done by Hartford on the Recession of the mid 1970’s (1973 & 1974), arguably the closest parallel to our present economic situation. The low point in the market was Sept. 30, 1974. The Dow closed at 607.87 (not a misprint) This was down more than 40% from its high in 1972, when it crossed the 1000 mark for the first time. http://www.democraticunderground.com/discuss/duboard.php?az=view_all&address=389×4124348
The stock market had gone through back-to-back negative years for the first time since the Great Depression.
We should set the stage a bit at this point. In 1972, we were still heavily involved in the Vietnam War, which was highly unpopular, and dragged on for several years. Also, in 1972, the Watergate scandal began. This resulted in the indictment and conviction of several of Nixon’s closest advisors, and ultimately in the resignation of the President himself, on August 9, 1974. http://en.wikipedia.org/wiki/Watergate_scandal
To make matters worse, the Oil Embargo http://en.wikipedia.org/wiki/1973_oil_crisis was put into effect by OPEC, which refused to ship oil to the US due to their support of Israel at that time. Unemployment had reached a high of 6.7% in 1974. http://www.nytimes.com/2008/12/06/business/economy/06jobs.html
So things in 1974 looked pretty bleak. I recently read a letter written by Jim Fullerton of the Capital Group to shareholders at that time(November 1974). Here are some highlights from Mr. Fullerton’s letter.
“Each economic, market, and financial crisis is different from previous ones. But in their very difference, there is commonality….. Today there are thoughtful, experienced, respected, economists, bankers, investors, and businessmen who can (tell) you why this time the economic problems are different; why this time things are going to get even worse – and hence, why this is NOT a good time to invest in common stocks, even though they may appear low…..This time is a whole new ball game.”
“In 1942 everybody knew it was a whole new ball game…..The Germans had overrun France. The British had been thrown out of Dunkirk. The Pacific Fleet had been disastrously crippled at Pearl Harbor. We had surrendered Bataan, and the British had surrendered Singapore. The U.S. was so ill-prepared for a war that……75% of our field artillery was equipped with horse-drawn, French 75mm guns.” (Mr. Fullerton served in WWII.)
“In April 1942, inflation was rampant…..On April 8, 1942, the lead article in the (Wall Street) Journal was: ‘Home Construction, Total far behind last year’s. Private Builders hardest hit.’…..Washington D.C. also considered more drastic rationing with price fixing, or still higher taxes as a means of filling the ‘inflationary gap’ between increased public buying power and the diminishing supply of consumer goods.”
“A leading stock market commentator wrote: ‘The market remains in the dark as to just what it has to discount. And as yet, the signs are still lacking that the market has reached permanently solid ground for a sustained reversal.”
“Yet on April 28, 1942, in that gloomy environment, in the midst of a war we were losing, faced with excess-profits taxes and wage and price controls, shortages of gasoline and rubber…..and with the virtual certainty…..that once the war was over, we’d face a post-war depression, the market turned around.”
“Now I’d like to close with this: ‘Some people say they want to wait for a clearer view of the future. But when the future is again clear, the present bargains will have vanished. In fact, does anyone think that today’s prices will prevail once full confidence has been restored?’ That comment was made by Dean Witter in May of 1932 – only a few weeks before the end of the worst bear market in history.”
“Have Courage! We have been here before – and we’ve survived and prospered.”
Jim Fullerton
As of today, July 23, 2009, the Dow is up nearly 200 points, crossing the 9000 mark for the first time this year. This is a gain of over 38% from its low point of 6547 on March 9, 2009. Yes, This Time It’s Different.
For more information, you may contact me at http://www.helpmy401k.us. You may also follow me on Twitter at www.twitter.com/deanvoelker.
Showing posts with label discount. Show all posts
Showing posts with label discount. Show all posts
Thursday, July 23, 2009
Tuesday, April 28, 2009
401(k) Bargains
I've been talking with several clients lately (even in their 30's & 40's) who aren't sure what they should be doing with their 401(k)s. A few of them have even taken money out of the 401(k) or IRA, because they "don't want to lose anymore".
We need to remember that while the market goes up and also goes down, over time IT GOES UP. Putting money into your 401(k) now (while prices are low) can only help, especially if your employer matches your contribution. We MUST get back to thinking big picture, not just what is happening today. As one advisor likes to say, "Short Term thinking is very murky, but Long Term is crystal clear."
Walter Updegrave mentions this in his article "Don't Miss Out on 401(k) Bargains" in Money Magazine. http://finance.yahoo.com/focus-retirement/article/106833/Don't-Miss-Out-on-401k-Bargains;_ylt=Ajq2DWlNpxka9nV4LwU8Qf.VBa1_?mod=fidelity-readytoretire
The best time to invest is when prices are low, and you don't want to take money out if you don't have to. It has the same effect as uprooting a plant - You are killing your money tree, in addition to paying taxes and a 10% penalty.
When would you prefer to buy groceries - at regular price or on sale?
Treat your investing the same way.
Want to lower your risk? How diversified are you?
The one thing missing in most 401(k) plans is professional advice & education for the employees. It's not enough for the guy (or lady) to come out a couple of times a year and ask if anyone has questions. My job as a professional must be to sit down with you and help you with a road map. We need to see where you are now, and where you need to be. The 401(k) is a vehicle which can (and should) be used to help you get there.
Don't miss out on 401(k) bargains!
For more information, please contact me at www.deanvoelker.com .
We need to remember that while the market goes up and also goes down, over time IT GOES UP. Putting money into your 401(k) now (while prices are low) can only help, especially if your employer matches your contribution. We MUST get back to thinking big picture, not just what is happening today. As one advisor likes to say, "Short Term thinking is very murky, but Long Term is crystal clear."
Walter Updegrave mentions this in his article "Don't Miss Out on 401(k) Bargains" in Money Magazine. http://finance.yahoo.com/focus-retirement/article/106833/Don't-Miss-Out-on-401k-Bargains;_ylt=Ajq2DWlNpxka9nV4LwU8Qf.VBa1_?mod=fidelity-readytoretire
The best time to invest is when prices are low, and you don't want to take money out if you don't have to. It has the same effect as uprooting a plant - You are killing your money tree, in addition to paying taxes and a 10% penalty.
When would you prefer to buy groceries - at regular price or on sale?
Treat your investing the same way.
Want to lower your risk? How diversified are you?
The one thing missing in most 401(k) plans is professional advice & education for the employees. It's not enough for the guy (or lady) to come out a couple of times a year and ask if anyone has questions. My job as a professional must be to sit down with you and help you with a road map. We need to see where you are now, and where you need to be. The 401(k) is a vehicle which can (and should) be used to help you get there.
Don't miss out on 401(k) bargains!
For more information, please contact me at www.deanvoelker.com .
Wednesday, April 22, 2009
How Should I Invest?
Everyone has beeen asking lately - "How should I be investing my money?" or "What's Good Right Now"?
The answers to those questions should provoke several other questions from your advisor.
I could say "Depends", which doesn't mean to invest in adult diapers, but you should give your advisor more information.
How you should invest your money really does depend on you.
* What are your goals?
Is it to be 'debt free'? Is it to own a 60 foot yacht? Golf everyday? Spend time with grandkids?
What does having money mean to YOU? Once you figure that out and communicate that with an advisor, he or she can help to give you the right place to put your money.
* What are your financial circumstances?
Someone with $100,000 in savings and no debt is in a different place in their life than someone who has $500 to "play with", but no other savings. As an advisor, I do not want to "gamble" with anyone's money. I look to provide appropriate long term solutions to help you reach your goals.
My job is to give you the "Map" you need to get from where you are now, to where you want to be - and make sure you are happily involved every step of the way.
* What is your tolerance for Risk?
OK I said it - the "R" word. To which you may say "I don't want any risk."
It's important to understand that ALL investments have risk. Even your savings account which
is FDIC insured has risk.
"How is that?" you ask.
Savings & CDs have "inflation risk", which means they are not good long term vehicles to keep up with the rising cost of living - inflation.
The best way to minimize risk is to use a mix of different investments that have different purposes - like different clothes in your closet - or "Diversification". There are also questions which your advisor may ask you to help you understand what risk means.
It all boils down to one question - Money means different things to different people.
What is important about money to you?
For more information, or to contact me directly, please visit www.deanvoelker.com
The answers to those questions should provoke several other questions from your advisor.
I could say "Depends", which doesn't mean to invest in adult diapers, but you should give your advisor more information.
How you should invest your money really does depend on you.
* What are your goals?
Is it to be 'debt free'? Is it to own a 60 foot yacht? Golf everyday? Spend time with grandkids?
What does having money mean to YOU? Once you figure that out and communicate that with an advisor, he or she can help to give you the right place to put your money.
* What are your financial circumstances?
Someone with $100,000 in savings and no debt is in a different place in their life than someone who has $500 to "play with", but no other savings. As an advisor, I do not want to "gamble" with anyone's money. I look to provide appropriate long term solutions to help you reach your goals.
My job is to give you the "Map" you need to get from where you are now, to where you want to be - and make sure you are happily involved every step of the way.
* What is your tolerance for Risk?
OK I said it - the "R" word. To which you may say "I don't want any risk."
It's important to understand that ALL investments have risk. Even your savings account which
is FDIC insured has risk.
"How is that?" you ask.
Savings & CDs have "inflation risk", which means they are not good long term vehicles to keep up with the rising cost of living - inflation.
The best way to minimize risk is to use a mix of different investments that have different purposes - like different clothes in your closet - or "Diversification". There are also questions which your advisor may ask you to help you understand what risk means.
It all boils down to one question - Money means different things to different people.
What is important about money to you?
For more information, or to contact me directly, please visit www.deanvoelker.com
Wednesday, April 15, 2009
What Else Do You Know About Munis?
Over the past few days, I have been promoting the value of municipal bonds. Right now, they offer a better bargain for your long term savings than CDs.
One of the things I dislike about CDs is that they are really just a holding place for your money.
Money falls into 2 main categories -
*Liquid Money - Money that can be used now or held in an emergency fund (about $10,000
or 3 -6 months of expenses).
*Invested Money - Money that is invested that you don't have an immediate need for.
Looking at those two groups, CDs are kind of a "tweener" - your money seems tied up, so you
can't get to it. Also, the rates are so low currently that it really isn't invested either. Talk about being caught between a "rock" and a "hard place"!
CD yields are so poor, that you may even consider the idea of early withdrawal to take advantage of better (and tax FREE) yields with munis. The penalty usually is forfeiting some interest (WHAT interest??), as much as 6 months.
If you had $10000 in a CD, paying 2% ($200/year, taxable), you would lose $100 to the bank. If you re-invested it in a 5% muni bond, you would earn $500 on the same amount, and not pay federal taxes (perhaps even no state or local taxes) on the interest.
You do the math.
Here are a couple of other articles which support the idea of using muni bonds.
MARKET WATCH - "Muni Yields Aren't Puny"
http://www.marketwatch.com/news/story/bargains-abound-tax-free-muni-bonds/story.aspx?guid=%7B2A55A5F2-2F94-4181-A51A-7FFA12E1A9D2%7D
KIPLINGERS - "Steals In Tax-Free Bonds"
http://www.kiplinger.com/magazine/archives/2008/05/kinnel.html
Warren Buffett likes munis too, and you could do a lot worse than listening to Mr. Buffett!
For more information on municipal bonds, or any other savings ideas, please contact me at
www.deanvoelker.com .
One of the things I dislike about CDs is that they are really just a holding place for your money.
Money falls into 2 main categories -
*Liquid Money - Money that can be used now or held in an emergency fund (about $10,000
or 3 -6 months of expenses).
*Invested Money - Money that is invested that you don't have an immediate need for.
Looking at those two groups, CDs are kind of a "tweener" - your money seems tied up, so you
can't get to it. Also, the rates are so low currently that it really isn't invested either. Talk about being caught between a "rock" and a "hard place"!
CD yields are so poor, that you may even consider the idea of early withdrawal to take advantage of better (and tax FREE) yields with munis. The penalty usually is forfeiting some interest (WHAT interest??), as much as 6 months.
If you had $10000 in a CD, paying 2% ($200/year, taxable), you would lose $100 to the bank. If you re-invested it in a 5% muni bond, you would earn $500 on the same amount, and not pay federal taxes (perhaps even no state or local taxes) on the interest.
You do the math.
Here are a couple of other articles which support the idea of using muni bonds.
MARKET WATCH - "Muni Yields Aren't Puny"
http://www.marketwatch.com/news/story/bargains-abound-tax-free-muni-bonds/story.aspx?guid=%7B2A55A5F2-2F94-4181-A51A-7FFA12E1A9D2%7D
KIPLINGERS - "Steals In Tax-Free Bonds"
http://www.kiplinger.com/magazine/archives/2008/05/kinnel.html
Warren Buffett likes munis too, and you could do a lot worse than listening to Mr. Buffett!
For more information on municipal bonds, or any other savings ideas, please contact me at
www.deanvoelker.com .
Tuesday, April 14, 2009
Single Bonds or Mutual Funds?
What's the best way to buy municipal bonds? Should I buy single bonds or mutual funds?
Like most decisions, there are pros & cons with both methods. You should talk with you advisor about which method is right for you - possibly a mix of both.
One of the advantages of owning a single bond is that you have a fixed rate of return - you know exactly what you are getting. For example, on a $100,000 muni bond paying a 5% coupon, you will get $5000 per year in interest income. Because you don't have to pay federal taxes and you may not need to pay state taxes, that may be similar to getting 7% or more, depending on your tax bracket.
Interest from a single bond is usually paid ever; 6 months, so you would get $2500 with each installment. You may also ask your advisor to structure your bonds in such a way that you are able to receive income every month.
Another advantage it that while your advisor does get paid, his or her commission is built into the price of the bond when you buy it. This is a common question I am asked.
Think of buying soup at your local grocery store. The grocer buys soup in large bulk quantities, with all brand names & flavors. Because they buy so much soup at once, they can buy at a wholesale price. When a customer buys soup, they pay a retail price and may only buy 1 can, or a few cans at a time.
Bonds work the same way. If you buy a bond worth $10000, you will get $10000 when it comes due. Along the way, you have gotten a great tax free rate of return every 6 months. If you are fortunate enough to be working with a great advisor, you may have even been able to buy the bond at a discount, so that when it does come due, you even had a small gain. (Woo-Hoo!)
Its great when everyone wins!
One more thing about a single bond - You know exactly which project you are supporting.
(Example - St. Joseph Regional Medical Center Bond)
A big disadvantage is that a single bond is not diversified. This is where mutual funds are better. Going back to the "soup" example, a mutual fund allows you to carry all the "flavors" in one investment, which is managed by professionals at a mutual fund family.
Most bond mutual funds also pay interest monthly, because they own hundreds of bonds. This can be helpful if you are counting on monthly income from your investments, and a huge advantage over CDs.
Also, it is much easier to invest a smaller amount. For those who don't have the 5000 or 10000 minimums required by many single bonds, you can establish a mutual fund for as little as 1000.
Once you have a fund, you can add to it or even withdraw money easily.
Sales charges on bond funds purchased through your advisor may be as high as 4.25%, although you may qualify for volume discounts, also known as "breakpoints" if you are able to invest large amounts of money.
For more information on municipal bonds or other investing, please contact me at www.deanvoelker.com
Like most decisions, there are pros & cons with both methods. You should talk with you advisor about which method is right for you - possibly a mix of both.
One of the advantages of owning a single bond is that you have a fixed rate of return - you know exactly what you are getting. For example, on a $100,000 muni bond paying a 5% coupon, you will get $5000 per year in interest income. Because you don't have to pay federal taxes and you may not need to pay state taxes, that may be similar to getting 7% or more, depending on your tax bracket.
Interest from a single bond is usually paid ever; 6 months, so you would get $2500 with each installment. You may also ask your advisor to structure your bonds in such a way that you are able to receive income every month.
Another advantage it that while your advisor does get paid, his or her commission is built into the price of the bond when you buy it. This is a common question I am asked.
Think of buying soup at your local grocery store. The grocer buys soup in large bulk quantities, with all brand names & flavors. Because they buy so much soup at once, they can buy at a wholesale price. When a customer buys soup, they pay a retail price and may only buy 1 can, or a few cans at a time.
Bonds work the same way. If you buy a bond worth $10000, you will get $10000 when it comes due. Along the way, you have gotten a great tax free rate of return every 6 months. If you are fortunate enough to be working with a great advisor, you may have even been able to buy the bond at a discount, so that when it does come due, you even had a small gain. (Woo-Hoo!)
Its great when everyone wins!
One more thing about a single bond - You know exactly which project you are supporting.
(Example - St. Joseph Regional Medical Center Bond)
A big disadvantage is that a single bond is not diversified. This is where mutual funds are better. Going back to the "soup" example, a mutual fund allows you to carry all the "flavors" in one investment, which is managed by professionals at a mutual fund family.
Most bond mutual funds also pay interest monthly, because they own hundreds of bonds. This can be helpful if you are counting on monthly income from your investments, and a huge advantage over CDs.
Also, it is much easier to invest a smaller amount. For those who don't have the 5000 or 10000 minimums required by many single bonds, you can establish a mutual fund for as little as 1000.
Once you have a fund, you can add to it or even withdraw money easily.
Sales charges on bond funds purchased through your advisor may be as high as 4.25%, although you may qualify for volume discounts, also known as "breakpoints" if you are able to invest large amounts of money.
For more information on municipal bonds or other investing, please contact me at www.deanvoelker.com
Monday, April 13, 2009
Tax-Free Bonds - - Are They Safe?
On Friday, we talked about how a municipal bond can pay higher interest then a CD, and its even better when you consider you don't pay Federal taxes on the interest you earn. You may also be free from State & Local taxes depending on where you live, and where the bond(s) was issued.
A common question which I am asked is - "How safe are they?"
Muni bonds are very safe investments. They are backed by the taxing power of the state which issued the bond. Bonds are given ratings based on the credit quality of the issuer.
AAA - Very High Credit Quality
AA - High Quality
A - Good Quality
BBB - Investment Grade (still a safe investment)
For obvious reasons, I would not advise buying bonds with less than a BBB rating. For my clients, I generally prefer at least an A rating or above.
When we say 'safe', it means that you should have a reasonable expectation of receiving your interest payments on time and also receiving your principal investment repaid on time. Think of your car. When you go to start your car, you would have a reasonable expectation that it would start when you turn the key.
On the very slim chance it didn't, of course you would take steps (i.e. jump start, battery change) if needed to get it started, and return to having a 'reasonable expectation' for it to start when you need it. Bonds work much the same way, even if you are worried about the ability of a certain state to repay its loan, the state may simply levy a tax to pay back the bond.
You can also buy muni bonds which are insured for that extra layer of safety. Common insurers are MBIA (Municipal Bond Insurance Association) www.mbia.com, AMBAC (American Municipal Bond Assurance Corporation) www.ambac.com, and FSA (Financial Security Assurance) www.fsa.com .
Tomorrow, we can talk about the 2 main ways to buy muni bonds - individual bonds or mutual funds.
For more information on muni bonds, you may contact me at www.deanvoelker.com .
A common question which I am asked is - "How safe are they?"
Muni bonds are very safe investments. They are backed by the taxing power of the state which issued the bond. Bonds are given ratings based on the credit quality of the issuer.
AAA - Very High Credit Quality
AA - High Quality
A - Good Quality
BBB - Investment Grade (still a safe investment)
For obvious reasons, I would not advise buying bonds with less than a BBB rating. For my clients, I generally prefer at least an A rating or above.
When we say 'safe', it means that you should have a reasonable expectation of receiving your interest payments on time and also receiving your principal investment repaid on time. Think of your car. When you go to start your car, you would have a reasonable expectation that it would start when you turn the key.
On the very slim chance it didn't, of course you would take steps (i.e. jump start, battery change) if needed to get it started, and return to having a 'reasonable expectation' for it to start when you need it. Bonds work much the same way, even if you are worried about the ability of a certain state to repay its loan, the state may simply levy a tax to pay back the bond.
You can also buy muni bonds which are insured for that extra layer of safety. Common insurers are MBIA (Municipal Bond Insurance Association) www.mbia.com, AMBAC (American Municipal Bond Assurance Corporation) www.ambac.com, and FSA (Financial Security Assurance) www.fsa.com .
Tomorrow, we can talk about the 2 main ways to buy muni bonds - individual bonds or mutual funds.
For more information on muni bonds, you may contact me at www.deanvoelker.com .
Subscribe to:
Posts (Atom)
