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THE LOWDOWN ON ROTHS
2/8/2010
Posted by
Linda Barlow, CFP
With the start of 2010, the questions (and misconceptions) about ROTH IRAs, ROTH conversions, etc., are flying around.
Let's start with a basic premise: the traditional IRA contribution limit is $5,000,
$6,000 if you are over 50 years of age but there are income limits restricting deductibility of the contribution. Notice that I said there are limits restricting only the deductibility; everyone may contribute to a traditional IRA. Taxes are paid when the money is withdrawn and there are mandatory withdrawals that must begin when you reach the age of 70 1/2.
ROTH IRAs have the same maximum contribution limits but they have some income limits which determine whether or not one can even contribute. The contributions are after-tax money and there is no requirement for withdrawing the money at any age. When/if you do withdraw from a ROTH, the money is tax-free.
The major thing that is changing in 2010 is the ability to convert a traditional IRA to a ROTH. During 2010 there are no income limits restricting your conversion. The conversion, of course, isn't tax free. The income taxes must be paid on the conversion.
Also new for 2010 is a choice of when one reports that income that came out of the IRA. You may select either (A) report the income on your 2010 taxes and pay it all then or (B) report one-half of the income in 2011 and the other half in 2012. What you are risking in order to hold onto the tax dollars a little longer is whether or not tax rates will increase.
If you believe that tax rates will be lower when you retire and are maybe withdrawing the money, then it doesn't make sense to do a conversion. Just pay the tax on the traditional IRA money as you withdraw it.
Also, remember that if you convert, you should pay the tax with dollars that don't come out of the IRA. So you must have other money available for the taxes.
The younger you are the more advantageous a ROTH is because it has longer to grow and become an even larger number that you could withdraw without taxes.
All of this is quite complex and one should take advantage of the many online programs to help you determine whether or not converting in 2010 is a wise decision for you. Also, you may want to seek the advice of a professional.
THIS WEEK'S MARKET WRAP
2/6/2010
Posted by
Consuleo Mack
The bulls and bears each have some fresh ammunition for their defense. The bears need only cite today’s broad based market rout which took down stocks worldwide, as well as commodities from oil to gold and the government bonds of high debt countries including Greece, Spain, Portugal and Poland. As respected economist Dave Rosenberg said in his “Breakfast with Dave” report, “risk appetite is, in a word, fading.”
On the bull side, the headline came from Cisco’s CEO John Chambers who said the economy has entered a new “phase of recovery” after the maker of networking gear reported a 23% jump in quarterly profits and an 8% gain in revenues, its first in a year. And for those of you following contrarian indicators, the American Association of Individual Investors survey shows 29.2% in the bull camp and 43.1% in the bear camp as of this week, vs. 41% bullish and 26% bearish at the beginning of the year.
We like to follow big trends on WealthTrack, and there is a whopper of one playing out in this country and across the globe with profound implications for economies and markets. It is the tug of war between savers and spenders, creditors and debtors, and the contest is being writ large in America. The private sector, individuals and businesses are increasing their savings while the public sector, the government is accelerating its spending and increasing its deficit.
Right now, the government appears to be winning. Its spending to prevent economic collapse is swamping the saving of the rest of us, driving the national savings rate as a percentage of GDP lower and lower into negative territory.
Meanwhile the world’s investors are taking note, increasingly shunning debtor nations’ securities and embracing savers and financially strong investments.
What is the outlook for the stock, bond and art markets, especially given the disparity between savings and debt in this country and across the globe? This week we are talking about the road ahead for housing, stocks and art with three experts in the field.
Our first guest is WealthTrack regular, Richard Bernstein. Rich is now CEO of his new investment firm, Richard Bernstein Capital Management. For many years he was Chief Investment Strategist for Merrill Lynch, and then for Banc of America Securities – Merrill Lynch. He’s been voted to the Institutional Investor All-America research team 18 times, 10 of those times as number one portfolio strategist.
Also joining us will be Michael Farrell, a man who knows the credit markets inside out, especially the mortgage-backed securities markets. Michael is CEO of Annaly Capital Management that invests in U.S. residential mortgage-backed securities issued by Fannie Mae, Freddie Mac and Ginnie Mae. Annaly is a sponsor of WealthTrack, but Mike is here due to his proven expertise as an analyst and investor.
We’ll also get an overview of the global art markets from Caroline Sayan, International Commercial Director at Christie’s, the world’s largest global auction house. She oversees the firm’s sales strategy and art investment portfolio, and she’ll tell us what is selling where in the world of art.
Our guests will each share their “One Investment” recommendation for a long term diversified portfolio. And in my action point I have some thoughts about investing in small company stocks.
Do check out Consuelo Mack WealthTrack online, just go to the Resources page above and look for the link.
Have a great week ahead and a productive one.
THIS WEEK'S MARKET WRAP
1/29/2010
Posted by
Consuelo Mack
We have been talking about potential game changers recently. One was averted today when 70 U.S.Senators overcame the opposition of 30 to confirm Federal Reserve Chairman Ben Bernanke to a secondfour-year term. Still, the level of dissent was unprecedented, surpassing Paul Volcker’s 16 opponents in 1983, after he had caused a recession by raising interest rates as high as 20%. The rise in populist sentiment in Washington has become more pronounced of late. Last week President Obama, with former Fed Chairman Paul Volcker at his side attacked big banks and the business risks they are taking. In his first State of the Union address last night, the President took the rare step of directly criticizing the Supreme Court. With six judges in attendance he took aim at the court’s recent 5-4 decision to loosen restrictions on corporate election spending. Meanwhile, the markets are under pressure from political and economic events. The Dow lost more than 100 points today to close at 10120.46, sending it 2.9% lower year-to-date. Mixed messages from the economy are not helping. The biggest residential real estate deal in U.S. history went bust. Tishman Speyer properties andits primary partner BlackRock defaulted on the 4.4 billion dollars in debt they had used to finance their 2006 purchase of the Peter Cooper and Stuyvesant Town apartment complex in Manhattan. Unable to reach a deal with lenders they gave the property back to the creditors. And December’s nearly 17% plunge in existing home sales, plus the 7.6% drop in new home sales raises questions about the housing recovery. What happens when the government’s tax breaks for home buyers wind down later this year? The Federal Reserve took much of this into consideration when it met to discuss monetary policy this week. The Fed left short term interest rates unchanged, but upgraded its assessment of economic activity from “weak” to “moderate”. What do recent game changing events in politics, policy and the economy mean for investors? This week on WealthTrack we’ll get some answers from three seasoned professionals. Few understand the Washington political scene and its impact on the markets better than Tom Gallagher, head of the Washington policy research team for ISI Group. Institutional Investor has ranked Tom the number one Washington analyst for seven years running. Few have a better investment track record than Steven Romick, one of five finalists for Morningstar’s new “Manager of the Decade” award in the equity category. Steven has run the FPA Crescent fund since its launch in 1993. Over the past ten years, Crescent has delivered 11% plus annualized returns putting him in the top one percent of money managers. And few have the experience Charles Maxwell has in the energy sector. Charley, the Senior Energy Analyst at Weeden and Company, has been called the “Dean of Energy Analysts” by Barron’s and he was ranked the number one oil analyst on Wall Street for many years. Our guests will share their “One Investment” recommendations for a long term diversified portfolio. And in my action point I’ll discuss why you might want to consider investing in Canada. If you are not able to watch WealthTrack on public television this week, our shows are available on this site. Go to Resources and click on Watch & Listen.
THIS WEEK'S MARKET WRAP
1/15/2010
Posted by
Consuelo Mack
Our focus on this week is a critical topic for many of our viewers - retirement income. Only 13% of Americans say they are “very confident” about having enough money to live comfortably in retirement. That’s the lowest level since the Employee Benefit Research Institute started gathering such data in 1993. It is not surprising… some four trillion dollars in retirement savings have been lost in “the great recession” that started in late 2007.
Despite one of the biggest stock market rallies in history last year and the fact that the Dow Jones Industrial Average hit a new 15 month high today, the blue chip average is still 24% lower than it was at its peak in October of ‘07. And the stock market isn’t the only source of losses. Home values, a substitute for savings for many Americans in recent years have declined around 30% from their peak in July of 2006. That’s translated into a loss of some four trillion dollars in home equity over the past few years.
Adding to retirees financial stress are historically low short-term interest rates. Today the European Central Bank kept its benchmark rate at a record low of 1%. Yesterday, New York Federal Reserve President William Dudley told PBS’ Nightly Business Report that in the U.S. “short-term rates are going to stay low for a considerable period of time.” And don’t expect much relief from stock dividends. The S&P 500 is yielding below 2% right now. Last year S&P companies cut their dividends by a record breaking $52.61 billion. In percentage terms the 21.4% decline is second only to the 38.6% plunge of 1938. In a recent report, S&P’s Howard Silverblatt said the “damage done to dividends over the past two years will take years to recover.”
Not surprisingly, this new environment is changing the way people are thinking about preparing for retirement. During the heady years when the stock and housing markets were climbing, many people focused on reaching a nest-egg goal – “the number” that would assure a comfortable retirement. Now the focus is shifting to another number - how much annual income you need to cover your expenses.
This week on WealthTrack, we are talking with three retirement income experts about how you can maximize your retirement income in a low return environment.
We’ll be joined by Mary Beth Franklin, who has devoted many years to the retirement question. Mary Beth is Senior Editor of Kiplinger’s Personal Finance magazine and Editor of Kiplinger’s indispensable annual retirement planning guide.
Also with us will be Harold Evensky, President of the financial planning firm, Evensky & Katz. He has been cited as one of the five most influential people in the financial planning profession by Financial Planning magazine. He is a sought after speaker and prolific author. Among his books is the award winning: “Retirement Income Redesigned: Master Plans for Distribution ”.
And we’ll hear from WealthTrack regular, Jonathan Clements. For 18 years Jonathan was the widely read personal finance columnist for the Wall Street Journal. Now he is Director of Financial Education for Citi Personal Wealth Management. He’s also author of “The Little Book of Main Street Money ”, which is on our recommended WealthTrack Bookshelf.
Our guests will share their “One Investment” recommendations for maximizing your retirement income streams and in my action point I’ll discuss the importance of reviewing your retirement income planning.
If you miss this week’s show, you can always see us online, both as streaming video and as a podcast. Just go to www.wealthtrack.com or simply click on resources above and see the link under “Watch & Listen”.
THE PLANS CAN BE GOOD DEALS
12/22/2009
Posted by
Linda Barlow, CFP
This time of year (enrollment is Nov. 15 thru Dec. 31) you and/or your parents have some critical decisions to make regarding Medicare. Among them is shold you go with one of the Medicare Advantage plans offered by private insurers as an alternative to traditional Medicare?
Such plans must cover the same services as regular Medicare but can do so in different amounts. The monthly premium averages $39 - on top of the standard $96.40 for Part B. So it's possible to have lower out-of-pocket costs with an Advantage plan.
Beware, however, of plans that add benefits you wouldn't use: gym membership, for example. The plans typically operate like HMO's with networks of local providers. Bcause you'll pay more to go out of the network, MA doesn't make sense if you winter in another state or if your doctors don't participate.
You may have fewer options because of cutbacks in federal funding and increases in regulations. If your plan is offering the Advantage again for 2010, still reassess since providers are often changing what they will cover.
Figuring out which plans might be right for you can be daunting but it doesn't have to be. Just go to medicare.gov and click on "Compare Health Plans" and take it from there. This tool estimates your out-of-pocket including drug costs in your MA options and traditional Medicare.
There's been a lot of talking (and griping) on Capitol Hill lately about the government spending more on the MA plans than on traditional Medicare. So health reform and other legislation may alter the program in future years.
Don't let future possibilities put you off; your coverage can't be changed midyear and you'll have another chance to evaluate next December.
TEN SIGNS AGING PARENTS MAY NEED HELP
11/25/2009
Posted by
Linda Barlow, CFP
The holidays are a terrific time; a time for friends, family, and fun. Often we visit relatives, especially parents, whom we haven't seen in months - sometimes years. It is at these times that we may discover some frightening things. We need to be alert to these and ready to take some action, if necessary.
Some warning signs that it might be time to bring in some outside help follow:
1. Mail and bills are allowed to pile up. The task of opening, separating, and handling the mail may have become too much. Observe, too, if they are still able to make out checks. Are they able to make appropriate change when going shopping?
2. The house is cluttered or unkempt; maybe the chore of cleaning has become too much. This would be especially true if the person is usually tidy and has clean surroundings.
3. Food in the refrigerator is spoiled. Preparing and eating the food has become too big a chore. Also notice if the senior is losing weight; their nutrition may be suffering.
4. Scorching on the bottom of pots and pans. They may be forgetting to move them off the range when finished cooking.
5. Wearing dirty clothing and other hygiene items. Is there a smell of urine? Are they bathing or showering regularly?
6. Missing doctor's appointments. Maybe they don't have adequate transportation nor trust themselves to drive there.
7. Repeated phone calls at odd hours.
8. Forgetting to take medication.
9. Inappropriate behavior. This can be loud talking or performing other actions in public which should be done in private. For example, removing ones' dentures in public.
10. Symptoms of depression. Seniors often feel isolated and alone - often because that is the reality! They need to be motivated to regain interest in pleasurable activities.
If more than one of these is apparent, you need to contact a Geriatric Care Manager. That is someone who will look in on the senior frequently and report to you any changes which may need attention.
Don't let these items spoil the precious time that you have with your seniors, but be ready to notice these. It is a relatively new problem since many seniors continue to live alone these days.
Help your senior to make the most of these precious holidays!
THIS WEEK'S MARKET WRAP
11/20/2009
Posted by
Consuelo Mack
You might have noticed that many of the select group of “Great Investors” we have been interviewing in recent weeks consider themselves to be value investors. It is a term they do not wear lightly. As legendary value investor Jean-Marie Eveillard once told me - the reason there are so few successful long term value investors is that it is too difficult and painful to stay the course. Remember Sir John Templeton’s advice, “Buy in periods of maximum pessimism and sell in periods of maximum optimism”? Following that uncomfortable dictum is so contrary to human nature that it is almost an unnatural act!
This week on WealthTrack we will hear from a successful money manager who seems to revel in being contrary, studying the new low list and headlines of corporate disasters for investment ideas. As he told us, “my starting point is to be opposed to the prevailing opinion.” It’s been a winning formula for this father of 4 - ages 7 to 30 - who hails from Oshkosh, Wisconsin and got to Wall Street after a stint as an economics professor.
Robert Kleinschmidt is President and Chief Financial Officer of Tocqueville Asset Management where he has managed its flagship Tocqueville fund since 1992. Over the past 10 years his fund has outperformed 94% of its large-blend peers and handily beaten the U.S. stock market.
He’ll tell us about some of the companies he is investing in currently and also share his fascinating perspectives on economic policy, including the state of the dollar.
Speaking of which, in what is an unusual move this year, the greenback appreciated against the currencies of most of its major trading partners today. The one exception was the yen. By one measure, the U.S. Dollar Index, a six-currency index of the dollar’s value, the greenback is down 7.3% this year. In gold terms it is doing much worse. In New York trading, gold has gained 29% this year, hitting another record yesterday at $1,153.40 an ounce. Many value investors, including Kleinschmidt are losing confidence in the dollar as a store of value. He will explain why.
If you miss the show on television this weekend, you can always see it here online. Just go to the Resources page and follow the link.
Have a very happy Thanksgiving and make the week ahead a profitable and a productive one.
THIS WEEK'S MARKET WRAP
10/30/2009
Posted by
Consuelo Mack
“Those who cannot learn from history are doomed to repeat it.”
If you could have dinner with any financial historian or commentator to gain perspective on the markets, economy, Fed, human behavior, founding fathers, or just about any other topic that strikes your fancy, who would you choose? I’ll wager a guess that if you are at all familiar with the work of this week’s guest, he would be on your short list.
I am going to be sitting down for this week’s WealthTrack with James Grant, founding editor of the biweekly Grant’s Interest Rate Observer, which he describes as an “independent, value-oriented and contrary-minded journal of the financial markets.”
Jim is erudite, articulate, funny, opinionated and very tall. Luckily we were sitting down for the interview otherwise I would have been dwarfed on all counts.
What might surprise you about Jim’s current thinking is this self admitted “glass is half full” kind of guy is actually pretty bullish about the prospects for the economy and has been for a while. This week’s 3.5% third quarter GDP report might have beaten consensus expectations, but it didn’t faze Jim. He expects nothing less and perhaps a bit more. We’ll find out how much more this weekend.
We’ll also discuss some of his other favorite topics including the Fed, past and present- where he pulls no punches- the dollar, gold, China and yes, some of his personal investing habits. We have so much to talk about that we plan to put the full interview on our website as a WealthTrack Extra for you, our newsletter subscribers.
If you can’t tune in on television, remember you can watch or listen on this site from the resources page..
Have a Happy and safe Halloween and make the week ahead a profitable and productive one.
THIS WEEK'S MARKET WRAP
10/5/2009
Posted by
Consuelo Mack
I apologize for the tardiness of this week’s missive. I just returned from California where I had the pleasure of interviewing PIMCO’s Bill Gross for a fund raiser for WISE, Women Investing In Security and Education, a California based, all-volunteer organization dedicated to educating women and girls about finance. This is the second time Bill has generously agreed to give his time to this cause. It was a sell out crowd eager to listen to his latest views about the “New Normal”, the era of sub-par growth (1-3% real GDP growth) PIMCO forecasts will be with us for years to come as the world de-leverages, protectionism rises and governments re-regulate. Among the investment themes Bill is advocating is a search for quality income. The headline is that for his personal account he is buying large cap, income producing stocks like Johnson & Johnson, Verizon, and AT&T, as well as some closed end bond funds, a category he mentioned to us this summer. It turns out that at around 5:30 every morning Bill himself is checking on PIMCO’s closed end funds. Among the ones he mentioned to us were PIMCO’s Corporate Income Fund (symbol PCN), PIMCO’s Corporate Opportunity Fund (PTY) and PIMCO’s Floating Rate Income Fund (PFL). All three trade on the NYSE.
There are some areas of the world that Bill believes will grow at above average rates and they can be found among the emerging markets, which is the theme of this week’s WealthTrack.
I don’t know if you had a chance to read this week’s articles about China surpassing Japan as the world’s second largest economy, now forecast to happen as early as next year. It turns out that China’s stock market value has already overtaken Japan’s. Just three years ago Japan’s equity market cap was 12 times that of the China’s!
Our first guest is David Lazenby, Director of the Emerging Markets team at Batterymarch Financial Management where he has resided since 1987. He also manages the Legg Mason Emerging Markets fund and co-manages the Legg Mason Pacific Equity fund.
We’ll also hear from an Asian specialist, Andrew Foster of Matthews International Capital Management. Andrew manages four funds, among them the 5-star Matthews Asian Growth and Income fund and the 5-star Matthews China fund.
And for a global perspective we’ll be joined by Rudolph-Riad Younes, a former winner of Morningstar’s International Manager of the Year award. Riad is Head of International Equities at Artio Global Management, formerly Julius Baer. He also co-manages the 5-star Artio International Equity fund.
As usual, if you can’t make the TV time you can see us online here on the Resources page.
Make the week ahead a profitable and a productive one.
THIS WEEK'S MARKET WRAP
9/4/2009
Posted by
Consuelo Mack
How much more financially vulnerable do you feel now compared to two years ago? Have your investment views changed? Have you made any substantial shifts in your portfolio or lifestyle?
Maybe you are one of the few who saw the financial tsunami of 2008 coming and actually did something significant to protect yourself. But most of us were caught flat footed and no matter how much we had intellectualized the risks associated with the financial, housing and job markets and the economy as a whole, we didn’t really prepare for that once in a lifetime perfect storm or how we would react to it.
Unless you happened to hear an interview I did right here on WealthTrack in 2007! I am the first to admit, having done the interviews, I did not internalize what our very prescient two guests were telling me!
Well, I am listening now and I decided that you should have the opportunity to hear them again as well, because what they have to say is even more relevant today to help us prepare for another financial storm and increase our ability to weather it.
So this week on WealthTrack we are revisiting “The Black Swan ” author and well known cassandra, Nassim Taleb, and The Wall Street Journal’s “Intelligent Investor” columnist Jason Zweig, who specializes in protecting us from our reptilian brains!
Having experienced the thrill of a stock doubling and the agony of one being cut in half, you know how strong emotions can be - and how much you will try to repeat one experience and avoid the other. The relatively new field that studies our reactions, both conscious and, more importantly, unconscious is called “neuroeconomics.”
Award winning journalist Jason Zweig has written a fascinating book on the subject called “Your Money and Your Brain: How the New Science of Neuroeconomics Can Help Make You Rich ”. Jason also happens to be the editor of the most recent and revised edition of Benjamin Graham’s classic, “The Intelligent Investor ” so he understands both the fundamental and emotional aspects of the art. We’ll talk to him about why our brains often drive us to do things that can be counterproductive and how to overcome them.
When I talked to Nassim Taleb, his second book, “The Black Swan: The Impact of the Highly Improbable ” was on the best seller list, but considered by many to be a somewhat repetitive follow up to his first book, “Fooled by Randomness ” which showed how chance plays a much greater role in life than is commonly understood. For the record, the Dow was trading at over 13,000 at the time of the interview. Needless to say, 4,000 points lower, the former derivatives trader, Ph.D. in financial mathematics, and professor was spot on in warning us about not just the possibility of Black Swans, but their high likelihood! What then seemed to be his “radical” investment prescription, seems to be plain prudent now.
In my Action Point, I’ll chime in and talk about creating an investment plan that fits your emotional and rational profile.
We want to make sure you can watch the show whenever you want, so starting early next week it will be available on our website. Click on Resources page above to watch.
Thank you for reading and watching. Have a great Labor Day weekend and make the week ahead a profitable and productive one.
THIS WEEK'S MARKET WRAP
8/24/2009
Posted by
Consuelo Mack
Do you ever feel as though much of what you have learned about investing is, if not worthless, at least highly suspect? As the markets seem to return to “normal” after the financial crisis, I have a nagging suspicion that for most of us our investment approach will never and should never be quite the same. The “new normal” that we talked to PIMCO’s Bill Gross about at the beginning of the summer centered on the economic and investment environment ahead. He expects considerably slower growth and much higher volatility than that of the recent pre-crisis past. But what about our overall investment strategy? How much should that change?
That is the topic of discussion with this week’s guest, who views the old rules as not necessarily worthless, but instead as “incomplete”. He will fill in the blanks for us.
This week’s “Great Investor” is one of the up and coming stars of the investment world both as a financial thought leader and investor. His name is Andrew Lo and he is considered to be one of the best minds in the world of finance. The late, great business journalist Peter Bernstein, among others, highly recommended him to me.
Lo is a highly regarded Professor of Finance at MIT’s Sloan School of Management and Director of its Laboratory for Financial Engineering. He is a longtime student of investor behavior, tapping into neuroscience and cognitive psychology to better understand how investors make financial decisions. He is Founder and Chief Scientific Officer of AlphaSimplex Group, an investment management firm now owned by Natixis Global Asset Management. ASG runs hedge funds and recently entered the mutual fund arena, bringing hedge fund expertise to the individual investor. In 2008, the firm introduced a mutual fund, the Natixis ASG Global Alternatives fund that seeks to replicate the return and risk characteristics of a diversified portfolio of hedge funds. Lo’s hedging strategies are also the basis for a new exchange traded fund. Proshares Credit Suisse 130/30 fund is the first ETF that offers a popular hedging strategy of a 130% long exposure to stocks and 30% short positions. It trades on the New York Stock Exchange under the symbol CSM, and is fully transparent with both long and short holdings disclosed on a daily basis. In addition, Lo has published numerous papers on finance and is the author of the book, "A Non-Random Walk Down Wall Street".
Don’t forget you can also see the program on WealthTrack.com starting on Monday. Just click on the Resources page above.
In the meantime, make the week ahead a profitable and productive one.
AVOID THESE MONEY MISTAKES
8/14/2009
Posted by
Linda Barlow, CFP
Here are six mistakes that could cost you a bundle, so be sure to avoid them:
1) Underinsuring your home. Update your homeowner's insurance to cover replacement cost in the event of a disaster.
2) Overpaying for your mortgage. Shop for the best rates because one percent difference can cost you $45,000 or more over the life of the mortgage.
3) Investing too conservatively during retirement. Conventional wisdom says to take money out of the stock market as you age; this causes you to miss many opportunities. Instead, invest in an asset mix that leaves enough room for growth, along with your quality bonds and CD's.
4) Launching a divorce war. Try to soften the financial impact with mediation since a full court divorce showdown can cost hundreds of thousands of dollars.
5) Paying needless fund fees. "Load" mutual funds pay up to 5.75% to your broker plus annual expenses up to 2.5%. Choose no-load mutual funds with low expense ratios.
6) Maintaining an unhealthful lifestyle. Bad health habits can cost physically as you grow older, but they can also cost financially. Higher health insurance premiums and life insurance premiums are only the start. You may also require much more medication as the years go by to control blood pressure and cholesterol.
So, these are a very few of the basic ideas that can help to make you wealthier and WISEer.
THIS WEEK'S MARKET WRAP
8/6/2009
Posted by
Consuelo Mack
We are continuing our “Great Investors” summer series this week by revisiting two legendary value investors whose long-term records are still among the best in the business. Interestingly they have taken very different approaches to the markets since last year’s financial crisis. I think you will once again appreciate the wisdom, perspective and investment ideas of both.
The first is Jean-Marie Eveillard, until recently the long-time lead portfolio manager of the First Eagle funds for which he received Morningstar’s lifetime achievement award for one of the most successful long-term records in the investment business. Jean-Marie is known for his defensive, value style of investing. He’ll tell us why he believes it remains the best strategy to follow.
The other is his close friend, Marty Whitman. Marty is the celebrated portfolio manager of the Third Avenue fund and one of the deans of value investing. He is also the author of several books. His most recent, “Distress Investing” is a primer on one of his areas of expertise. He has also written “The Aggressive Conservative Investor”, a title which describes him to a T, and “Value Investing: A Balanced Approach.” He too has an exceptional long-term track record, but he has taken a much more aggressive and bullish stance on the markets since last year.
If you are unable to watch the program, you can also catch it online. Click on the Resources page and enjoy!
THIS WEEK'S MARKET WRAP
7/10/2009
Posted by
Consuelo Mack
In the ongoing investment tug of war between fear and greed, fear seems to have the edge this week. A developing worry is that the Obama administration’s $787 billion stimulus package may not be enough. Last week’s weaker than expected June employment report started the alarm bells ringing again. It’s a concern PIMCO’s co-chief investment officer, Mohamed El-Erian wrote about this week. In his Viewpoints commentary, “The Crisis Is Morphing Again” he notes that “consensus currently underestimates how high the U.S. unemployment rate will go AND how long it will persist at unusually high levels.” You can read the full essay on www.pimco.com.
This week we learned that retailers, ex-Walmart, which has stopped reporting monthly sales figures, reported their 10th straight month of declining same store sales. With unemployment rising, it’s a trend that is not going to be reversed anytime soon. Consumers are trying to pay off debt, not take more on and they are having a hard time in the payment department. The American Bankers Association reported that delinquent loans, credit card payments that are at least 30 days late, hit a new record of 4.75% in the first quarter.
Another concern is corporate earnings. Alcoa started the earnings season off with a smaller than expected 2nd quarter loss this week. But it was still a loss! Thomson Reuters predicts that S&P 500 companies will post their 8th consecutive quarter of falling profits, estimating about a 36% decline, with every sector showing contraction from a year ago.
Investors are taking note. This week’s $73 billion auction of much maligned Treasury notes and bonds went remarkably well. Investors are not ready to shun the world’s liquid, dollar denominated reserve currency yet. Incidentally Bloomberg reports that China’s foreign-exchange currency reserves probably topped $2 trillion for the first time as of June 30th. More than $760 billion of that is in U.S. Treasuries.
Our mission at WealthTrack is to bring you investment advice from the best minds in the business. This week we are continuing our “Great Investors” summer series with another mutual fund star, maverick money manager Robert Rodriguez. He has accomplished a feat no one else has. For the last 25 years he has run not one, but two top performing mutual funds, in not one, but two asset classes - a stock fund and a bond fund. As widely followed personal finance columnist Jason Zweig put it that’s “the investing equivalent of running two marathons at the same time” - which is why Zweig calls him “the best fund manager of our time.”
Rodriguez is the CEO of Los Angeles based First Pacific Advisors where he co-manages FPA Capital, a mid-cap value fund, and FPA New Income, his bond fund which just celebrated its 25th year in positive territory. Last year Rodriguez added another rare distinction to his resume. He and his FPA New Income Fund Co-Manager Tom Atteberry were named Morningstar’s fixed income managers of the year for their outstanding long term stewardship. It’s an honor Rodriguez has won two other times as well, for both the stock and bond fund, making him only the second fund manager to be honored
three times. The first was last week’s great investor, Bill Gross.
Rodriguez was one of the first top tier money managers to rail against the dot com and credit bubbles, raising large defensive cash positions, early moves that lost him clients. He is an outspoken critic of the U.S. government’s stimulus packages, burgeoning debt levels and business intervention. And he is very critical of Wall Street and the mutual fund industry. You’ll hear all of his very cogent reasons, plus get his investment advice. This is a must hear interview.
If you can’t catch the broadcast, you can watch the show online here on the Resources page, just follow the link. We will also continue to have transcripts of all of our shows there, plus information about our guests, their recommendations and our action points.
Have a great weekend and make the week ahead a profitable and a productive one.
WOMEN DESERVE MORE FROM ADVISORS
6/23/2009
Posted by
Linda Barlow, CFP
For all the talk of advisers recognizing the importance of female investors, research proves that there is a long way to go. A study recently completed by Allianz Life Insurance Co., found that fully 70% of recently-widowed women wanted to change financial advisers. Advisors communicated much more with their male clients than with their female clients during the recent downturn.
Whether the rest of the world wants to admit it or not, women pull the purse strings. Women make the financial decisions in 60% of households and that translates into decision-making on more than $14 trillion in invetible wealth.
We already know that 80%-90% of women will be fully in charge of their financial lives at some point in their lives. Therefore, advisers should use materials that speak to women's needs. Women are more interested in legacy planning than men. That is one area that women say is often overlooked by their adviser. Women are more concerned with risk than men and think about decisions more completely before acting. As a result, they enjoy a better return on their investments than do their male counterparts.
So, demand more respect from your advisers; if you aren't getting it now, seek it out. There are plenty of advisers who would welcome you as clients.
THIS WEEK'S MARKET WRAP
6/12/2009
Posted by
Consuelo Mack
The strong are getting stronger. For months now the vast majority of WealthTrack guests have been emphasizing quality and financial strength in the investments they choose. Last night’s breaking news that money manager BlackRock is buying Barclays Global Investors for $13.5 billion in cash and stock illustrates the wisdom of that approach. The combination will create the world’s largest asset manager, with a portfolio estimated at around $3 trillion, larger than the Federal Reserve! The point is, in a market where financing is still hard to come by, a company with BlackRock’s credentials can get even a really big deal done.
So can the United States government, at a price! Faced with financing a budget deficit, which is projected to quadruple to $1.85 trillion in the year ended September 30th, the Treasury is able to sell bonds, but it’s taking much higher yields to do so. Yesterday’s $11 billion auction of 30 year Treasury bonds went well, as yields rose to their highest level in almost two years, 4.72%. The yield on the ten year note has nearly doubled from a low of 2.06% in late December to over 4% at one point today, before dropping to 3.87%. This rise in the benchmark for many mortgage loans has already taken its toll. As Thursday morning’s Wall Street Journal pointed out, rates on 30-year fixed rate-mortgages have climbed to 5.79%, up from 5% just two weeks ago.” By one estimate that
will cut “in half the number of borrowers with an incentive to refinance.”
Meanwhile stocks and oil are continuing their advance. The S&P 500 hit a seven-month high, closing at 944.89 on Thursday. Schlumberger and Chevron were two big contributors as oil prices traded near a seven-month high of $72.68 a barrel in New York, heading for their fourth week of gains. The International Energy Agency raised its global estimate for daily oil demand, expecting consumption to increase in both the U.S and China, while widely followed economist Nouriel Roubini predicted crude would touch $100 a barrel next year.
In case you didn’t realize how much economic pain Americans have been suffering recently, the Federal Reserve has put a number on it. U.S. household wealth fell by $1.3 trillion in the first quarter, sending our financial net worth back to 2004 levels. Net worth, or the value of assets such as homes and investments minus debts like mortgages and credit cards declined 2.6% in the first three months of the year. Blame falling stock and home prices for the sixth straight quarterly decline. If it is any consolation, the hit to net worth was considerably worse last year.
Between October and December it fell a staggering 8.6% - the largest drop on records dating back to 1951.
This week on WealthTrack we will hear from two veteran value investors who like so many others had their worst year ever in 2008. Things are looking up this year.
Our first guest is John Rogers, who founded Ariel Capital Management in 1983 at the tender age of 24, becoming the first African-American to start a mutual fund company. Today Ariel is the largest black-owned investment management firm in the country. The firm’s motto is “slow and steady wins the race” and appropriately the tortoise is the firm’s logo. Rogers believes in patience, timing and making the most of down markets. He’s learned some lessons in the most recent one. He’ll share them with us. He’ll also tell us why he believes there are great bargains to be had in today’s market.
We’ll also hear from seasoned and successful contrarian, Robert Kleinschmidt. As President and Chief Investment Officer of Tocqueville Asset Management, he oversees more than five billion dollars in assets for institutions, private clients and a family of mutual funds, including the flagship Tocqueville Fund which he has been running since 1992. The fund invests in out-of-favor, or beaten up, large-cap sleepers in the global stock universe. He will explain how he is re-evaluating some of his investment thinking after the events of the past year, and why he sees value in natural resource stocks and gold.
Plus, in my action point, I’ll share my thoughts on why maintaining some sort of an allocation to stocks can actually be less risky than going to completely “safe” investments.
Some public television stations are extending their summer fund raising drives, which may mean schedule changes. You can click on this link to find out if WealthTrack is showing at the usual time on your local station:
http://www.pbs.org/stationfinder/index.html
If it isn’t, or if you are away from your TV this weekend, Consuelo Mack WealthTrack is available online. Go to the media center on this website to view.
A quick final reminder, if you haven’t seen part two of my rare television interview with Yale’s endowment chief David Swensen, it is available exclusively to you, go to http://wealthtrack.com/extra/
Have a great weekend and make the week ahead a profitable and a productive one.
THIS WEEK'S MARKET WRAP
5/29/2009
Posted by
Consuelo Mack
I am becoming more, not less concerned about the housing market and its impact on consumer confidence, the economic recovery and the banking system. One of the most telling charts I received this week addresses the second wave of mortgage rate resets heading our way. It comes to us courtesy of value fund manager, Whitney Tilson of T2 Partners who sends articles of interest to his email list. Yesterday’s included an updated Credit Suisse chart. The chart shows how the second wave of mortgage resets is going to be much bigger and last longer, well into 2012, than many thought.
Tilson notes however that “low rates today mitigate the payment shock associated with resets—barring a significant rise in rates.” A valid point. However my concern is that despite the Fed’s best efforts mortgage rates are rising. They are following yields on the 10-year Treasury note which hit the highest level since November on Wednesday. And resets or not, mortgage delinquencies and foreclosures are accelerating. They reached record highs in the first quarter. And they are no longer just a subprime problem. According to the Mortgage Bankers Association, fixed-rate home loans to the most creditworthy borrowers accounted for the biggest share of new foreclosures, 29% last quarter. As the MBA’s chief economist said, referring to rising unemployment, “if people don’t have a paycheck they can’t support a mortgage.” The National Association for Business Economics is now predicting unemployment will rise to 9.8% by year-end.
We are not talking about the state of the housing market on this week’s WealthTrack however; instead we will be revisiting two legendary value investors whose long-term records are still the best in the business.
The first is Jean-Marie Eveillard, until recently the long-time lead portfolio manager of the First Eagle funds. Jean-Marie has received a lifetime achievement award from Morningstar for delivering one of the most successful long-term records in the investment business.
Our second guest is Jean-Marie’s close friend, Marty Whitman. Marty is the celebrated portfolio manager of the Third Avenue fund and one of the deans of value investing. While 2008 was not a good year for either money manager, Marty’s long-term record is also among the best. He’ll discuss why he believes the current market is a once in a generation opportunity to strike it rich.
I think you will appreciate hearing the wisdom, perspective and investment ideas of both.
This weekend is the start of the summer fund raising season on most public television stations around the country, so if you cannot see us on television you can always view Consuelo Mack WealthTrack online, both as streaming video and as a podcast. Just go to Resources on this website and click on WealthTrack.
Also, if you haven’t seen part two of my rare television interview with Yale’s endowment chief David Swensen, it is available exclusively to you. Just go to the following link: http://wealthtrack.com/extra/
Have a great weekend and make the week ahead a profitable and a productive
one.
Best regards,
Consuelo
THIS WEEK'S MARKET WRAP
5/22/2009
Posted by
Consuelo Mack
World economies and markets are still on edge. Standard & Poor’s warned today that it may downgrade the triple-A credit rating of U.K government debt at some point due to concerns about the high level of its public borrowing. As Bill Gross, the Co-Chief Investment Officer of bond giant PIMCO told Reuters in an email today, the fear is that the United States is “going the way of the U.K.-losing AAA rating, which affects all financial assets and the dollar.” The markets definitely reflected that concern. The Dow declined 1.54% to 8,292.13. The S&P 500 fell even more, down 1.68% to 888.33 and Treasuries also suffered. The yield on the 10-year note rose to 3.355%, the highest level since November of last year. The government’s announcement that it plans to bring another $101 billion in debt to market next week did not help.
We try to take the long view on WealthTrack and this week we have the perfect guest to do it with. For only the second time in our four year history, we are devoting the entire program to one person. In a WealthTrack television exclusive I sat down with David Swensen, the legendary Chief Investment Officer of Yale who not only has an incredible twenty year track record but has also transformed the way endowments and many other institutions invest. For the first time in twenty one years he is having a down one now. Yale’s endowment declined 26% in the final six months of 2008. The university’s fiscal year ends in June so we won’t know until then how it’s done this year, but Swensen is still concerned about the global financial crisis and shares some lessons learned from
last year’s turmoil. He also has some definite ideas about how to fix the financial system. He is in a position to do something about it since he was recently appointed to President Obama’s new Economic Recovery Advisory Board.
Swensen has written two outstanding investment books, one, for professionals called “Pioneering Portfolio Management: An Unconventional Approach to Institutional Investment” was recently revised, and another for individuals, “Unconventional Success: A Fundamental Approach to Personal Investment” should be in everyone’s personal library.
Swensen has strong views about investing, what is and is not appropriate for most individual investors and he is a vocal critic of Wall Street, the regulatory authorities and the mutual fund industry, which he believes provides a raw deal for investors. He will give his “one investment” recommendation for long-term, diversified portfolios and also his recommended asset allocation strategy for equity-oriented portfolios.
Agree with him or not, he is worth hearing. He was generous enough to spend some extra time with us, so we have more than a show’s worth of discussion to share with you.
As a special thank you bonus for our newsletter & podcast subscribers we will send you a link to the additional, unedited interview with David Swensen no later than Monday.
As usual, the show itself will also be available on the web, so if you miss this week’s exclusive interview you can catch it by linking on thru the Resources page of this website.
Have a great weekend. Take a moment to remember and give thanks to our brave service men and women, both past and present on Memorial Day. And make the week ahead a profitable and a productive one.
Best regards,
Consuelo
MEN AT THE CAR WASH
5/4/2009
Posted by
Kim Selby, CFP
Every Saturday morning I go and have my car washed. This past week, just
as I sat down, I heard two men sitting near me talking. From the
conversation, I could deduce that the two men had been neighbors at one
point in time. Well, much to my surprise they were not talking about
sports or the college choices of their children, which is what I hear
most men at the car wash talk about lately. What peaked my interest was
hearing one man telling of his wife’s sense of despair about the world
economic situation – her sense that everywhere you look there is
something going awry, something falling apart. The man then said that
everywhere he goes he is tired of people getting all worked up over all
the bad news and that he doesn’t engage in those conversations. (Was
that a “diss” to his wife’s need to air her concerns, I thought?) Yet
what happened next is that he started talking about his feelings about
his job loss and his work at a temporary sales position that may or may
not lead to full time work. Then his friend started talking about his
job and what is happening to him and his family because of the economic
downturn. They talked about President Obama’s 60 Minutes interview,
their feelings about President Obama’s demeanor during that segment, and
of the rationale behind the recent government interventions. At the
conclusion of this exchange, they agreed to get together for lunch
because they work near each other and to try to help each other through
these challenging times. These two men revealed their fears and
concerns. They met each other with compassion. They acted just like WISE
women! I guess sometimes we all need to talk about those things that we
really don’t want to talk about. What is on your mind?
Send comments and questions to
kim@wise-investors.org
CHANGES
4/27/2009
Posted by
Kim Selby, CFP
Income changes, job changes,
lifestyle changes, changes in expectations – change in life as
we know it!
What do we need to do in reaction to
what is happening around us? How do we muster the emotional
energy and courage to shift our way of thinking?
First, we need to acknowledge the
need to make changes. We need to mourn the loss of our past
expectations. We need to let go of our need to have what we
thought we wanted. We need to think with a renewed sense of
urgency; we need to focus on the next intended step to bring
back a sense of stability and of hope to our financial futures.
We may need a therapist for this step!
After this emotional/philosophical
first step, what is next? We need to start a slow deliberate
look at our monthly cash flows. We need to see what changes we
already made and what further changes we need to make to our
spending. Some of you may be thinking, “Who wants to do that?”
How tedious and boring! Well, it is the quickest, most painless
way to see where you stand. All you need for this step is a pad
of paper, a pencil and a calculator!
Once you and your family members
take a close look at how you chose to spend your money in the
past, and the impact of the changes you have already made, you
can feel empowered to continue to say “No”. Saying “No” is
setting a boundary - a legitimate boundary – a boundary that is
now an economic necessity for most every family. Helping
ourselves and our families take control of personal spending is
one of the steps we can take to meet the changes we see around
us.
Across the globe the stage is being
set to shift from a mindset of indulgence in excess to a focus
on sustainability. Do you have the courage to shift your way of
thinking?
Send
comments and questions to
kim@wise-investors.org
NAVIGATING TROUBLED FINANCIAL WATERS
4/20/2009
Posted by
Linda Barlow, CFP
Finding yourself laid off from your job,
returning to the workforce or wanting to start your own business can be
daunting. In addition to all the emotions this brings up: anxiety about
success, how will you be perceived by potential employers, etc., there
is a whole raft of emotions about finances as well.
If the rumors are flying around your firm
that layoffs will be happening, take some proactive steps. Begin to
stash some cash, if you don’t already have the magic three to six
months’ of living expenses saved up. Trim expenses so that you can
allocate more to savings. While we don’t like recommending reducing your
401k contributions, maybe you need to temporarily do that. After all,
the money in the 401k would have taxes and maybe penalties should you
need to use that. Just don’t reduce your contribution below any matching
that your employer does.
Beef up that resume! Prepare several
versions so that you’re ready for positions that may vary somewhat.
Cutting back on expenses is something none
of us like to think about, but if you don’t have a nice nest egg to
carry you through until you break into that new opportunity, you may
need to do that. One of the first and most obvious things you need to do
is cut back on expenses. We all have some expenses that we aren’t able
to cut back on: the mortgage, the utilities, etc. However, all of us do
have some expenses that we are able to reduce: eating out, hobbies,
clothing, personal care services are only a few. Begin to focus on the
“must haves” and forget about the “nice to haves” for the moment. There
actually are many ways we can do that without feeling too terribly
deprived.
Do you really need a cell phone with all the
bells and whistles? A basic plan can save you $50-$100 per month. Are
gym dues necessary? Many community centers and community colleges have
wonderful gyms and the fees are minimal. How about investing in a good
pair of walking shoes since that is the best exercise anyway? Maybe, if
you aren’t working that much, you could temporarily dispense with the
housecleaner. And perhaps you could eat a few more meals at home.
Step up your networking, both inside and
outside of your chosen profession. While the financial return on this
isn’t so obvious and immediate, it is very real. If you own a home, open
a line of credit if you can while you’re still working. Many lenders
have stopped offering these, but if you can get one, leave it untapped
but standing ready in the event you need it. If you qualify, apply for
unemployment; that will last for 26 weeks in most states and will help
to tide you over.
This is no time to skimp on health insurance
and health care. Be sure that you are covered. Most companies offer
COBRA for up to 18 months. You will be paying full premium, which means
that you’ll also be paying the portion that your employer used to pay,
but it may still be less expensive than an individual policy since it is
based on the group rate. If you have COBRA, be really sure that you
don’t miss any premium payments. COBRA insurance may be much more
coverage than you need, especially if you are healthy. You may find
appropriate coverage that is less expensive at eHealthInsurance.com.
Tax breaks abound for the job seeker. First,
all travel expenses in search of a position or to market your new
enterprise are tax-deductible. This includes travel in your personal
automobile or in public transportation and don’t forget the parking
fees. If you’re searching for a position in your same field, fees that
you pay to employment and out-placement services are deductible.
Finally, view your situation as a new and
exciting process! You’ll discover many new and interesting things about
yourself and in a better place feeling much more confident and
empowered.
Send comments and questions to
linda@wise-investors.org
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