Archive for the ‘Personal Finance’ Category

How To Retire Early – Part One

Monday, June 29th, 2015

How would you like to retire early?  Maybe 62 is a good age or maybe you’d like to retire at 60 or even 55.

But unless you’ve won the lottery, have a government pension, or are the favorite niece or nephew of a rich uncle, you may find it difficult to achieve your goal.  If can still be done, though.  You have two options: cut your expenses or increase your retirement savings.  Better yet, do both.Retirement 1

More specifically, you should be able to take that job and shove it at an age earlier than 65 if you do the following:

Cut back on your expenses.  Even people who think they’re living frugally usually aren’t.  How often do you dine out?  Do you stop for coffee on your way to work?  What do you spend on hair stylists, clothing, manicures and pedicures?  Do you do your own landscaping and mow your own lawn?

Non-essential expenses add up.  Review everything you spend and make a cost-benefit analysis.  Determine whether the convenience and pleasure you derive from your expenses is worth the investment.  Maybe Two-Buck Chuck is no substitute for your favorite Côtes du Rhône, but would you rather drink good wine or retire early?  You may not be able to do both.  (more…)

The Markets Need Psychotherapy

Monday, December 15th, 2014

“The whole idea that the stock market reflects fundamentals is, I think, wrong.  It really reflects psychology.  The aggregate stock market reflects psychology more than fundamentals.”

Robert Shiller, Nobel Prize-winning economist

Tired of low returns?  You may be a bond investor.

Bond investors have been “growing tired of low returns, the endless warnings that rates are about to rise, and constant reminders of the dangers of riskier bonds,” according to Jeffrey Matthias, CFA, CIPM of Madison Investment Advisors.

At the same time, they’ve watched the stock market continue to break new records every time there’s another sign that a central bank somewhere may buy a few bonds or lower interest rates into negative territory.

“None of us have ever lived through this kind of extreme, long-lasting suppressed rate environment,” Matthias wrote, and, as a result, those bond investors who are mad-as-hell-and-are-not-going-to-take-it-anymore have been frustrated enough to take on a lot more risk for a little more yield. Central Bank Assets

When you chase yield, you catch risk.  It’s a dangerous reaction to the yin and yang of investing – fear and greed.

“Typically, when markets are moving higher,” Matthias wrote, “most investors turn greedy and want more.  Should an investor’s more conservatively positioned portfolio produce lower returns when the market surges, the investor may regret not having taken more risk.  In contrast, should a riskier portfolio drop significantly in market value, the opposite may happen and an investor may begin to regret (his or her) decision to have invested in risker assets.  This can be accompanied by a fearful overreaction.”

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Investing at a Profit Now a Sure Thing – For Some

Friday, May 16th, 2014

Imagine being able to trade stocks and knowing that you will make a profit every day.

Of course, for the average investor, this is impossible.  But mega-banks aren’t average investors.

According to Jim Quinn of The Burning Platform, “JPMorgan experienced ZERO trading loss days in 2013.  Goldman Sachs, Morgan Stanley and most of the mega-banks have had virtually perfect daily trading results since 2010.  If they are all winning, who is losing?”

Banks like JPMorgan, Goldman Sachs and Morgan Stanley can, of course, attract the best and brightest traders, so you would expect above-average results from them.  But how does anyone manage to make it through an entire year without a single day in which trading losses take place?

Through legal theft … also known as high-frequency trading (HFT).  As we’ve previously reported, Michael Lewis’ new book “Flash Boys” shines a light on this dark side of Wall Street, pointing out that HFT enables Wall Street’s biggest players to buy shares at one price, then sell them to investors at a higher price in a practice known as front running.

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Getting Your Bond Portfolio in Shape for 2014

Friday, December 13th, 2013

It’s time to start thinking about New Year’s resolutions.  It’s an American tradition to resolve to lose weight, exercise regularly, be nicer, work harder and give up everything you enjoy.

But who are we kidding?  Such resolutions are made to be broken.  So this year, why not make a resolution and keep it?  This year, resolve to pay attention to bonds.

That’s right.  Boring old bonds.  They don’t have the flash that stocks do, they lack the immediate thrill that cash can provide because of its liquidity and they’re not as mysterious as alternatives.  Yet, if you give them a chance, bonds can play a major role in ensuring that your retirement will be secure.Cost of zero interest rate

Bonds are not without risk – especially in a rising interest rate environment – but they can help you protect your principal, produce income and add to your total return.

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Why Gold Soared

Thursday, August 1st, 2013

Gold prices are no longer setting records.  Special parties are no longer being held where people can sell their gold jewelry at spectacular prices.  The Midas touch for gold has faded.

Gold was selling for as little as $256 an ounce in 2002 and soared to nearly $2,000 an ounce in 2011.  An investment of $1,000 in 2002 would have been worth about $7,800 in 2011.  In May 2013, though, gold was back down to $1,343 an ounce.

The Federal Reserve Board’s quantitative easing program not only distorted the prices of stocks and bonds, it also sent gold prices soaring for several reasons:

Record-low interest rates.  As an investment, gold earns no interest, so when interest rates rise, gold typically drops in value.  Conversely, when interest rates fall, the price of gold typically increases, although there have been times when gold prices hit record highs while interest rates were rising.

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Swinging Markets Ahead

Sunday, June 16th, 2013

Volatility is back in a big way.  It’s back not only in the stock market, but in the bond market.  It’s back not only in the U.S., but in China, Japan and other countries.  It’s back not only in developed countries, but in emerging markets.

Just a few signs that volatility has returned:

  • The Dow Jones Industrial Average (DJIA) has had intraday swings of more than 100 points in 10 straight sessions.  On five of those days, the market finished up; on five, it finished down.
  • The Chicago Board Options Exchange Volatility Index (VIX) has jumped more than 40% since May 17.
  • Trading in VIX futures set records for each of the first four months of the year.  May was the third most active trading month ever.
  • The yield on 10-year U.S. Treasuries hit a 14-month high of 2.27% during Tuesday’s trading.

The VIX, also known as the “fear gauge,” jumped from a low of 12.26 on May 17 to 17.25 on Tuesday, but it is still at a relatively low level.  In 2011, it was regularly over 30 and in 2008, it rose over 80.

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Investors Are Back … So Expect a Correction

Friday, February 8th, 2013

Individual investors are moving in.  And the smart money is moving out.

With the Dow Jones Industrial Average pushing past 14,000, individual investors jumped back into the stock market, it looked like happy days were here again.  But were they really?

When average investors are pouring money into the market, it’s a sign that a correction, or even a bear market, is coming.  Likewise, when corporate insiders are selling their shares, look out below.

Individual investors have pulled more than $150 billion out of U.S. stock mutual funds since 2009, but they were coming back in January with a net investment of $10.3 billion.  Include exchange-traded funds and a record $77.4 billion was invested in January, according to TrimTabs Research.

Conversely, there were more than nine insider sales for every buy last week, among insiders whose stocks are listed on the New York Stock Exchange.

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Where’s the Equity in HFT?

Friday, January 25th, 2013

In spite of all of the talk about equity, fairness and helping the middle class that’s been circulating in Washington, the stock market is now rigged to help the rich and powerful – and little is being done about it.

The individual investor is told to invest long-term and plan ahead. But the real money is being made in nanoseconds by supercomputers. If you have the right algorithm, you don’t need to plan for the next minute, never mind 30 years from now.

The SEC has been clamping down on insider trading, in which individuals use knowledge that isn’t available to the public for personal gain. But is high-frequency trading (HFT), in which computers mine data to find and take advantage of pricing inefficiencies, any different?

It’s legal for computers to make decisions based on information that isn’t available to the public, but it’s not legal for people to do so.

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I Think I Can’t. I Think I Can’t.

Saturday, June 30th, 2012

The U.S. economy is becoming the little engine that couldn’t.

You, of course, remember the children’s story in which self-confidence and determination pull the little engine up and over a steep hill.  Unfortunately, after four years of struggling to gain momentum, even the little engine would likely become discouraged.

So it is with the American consumer.  The Consumer Confidence Index for June 2012 slipped for the fourth consecutive month for the first time since May 2008, dropping from 64.4 to 62.0 (63.0 was expected).

In addition, the Richmond Fed Manufacturing Survey dropped from +4 to -3 (a+2 was expected), its lowest number since October 2011.  Survey results can range from +100 to -100, with positive numbers indicating expansion and negative numbers indicating contraction.

In addition, the Bureau of Economic Analysis (BEA) announced its third estimate of gross domestic product (GDP) for the first quarter of 2012, but left the annualized rate at just 1.88%, a percentage point below the growth rate for the fourth quarter of 2011.

The U.S. economy may not be in a recession, but it’s sure not feeling like an expansion, either.

Healthcare For All – Like it Or Not

Friday, June 29th, 2012

The U.S. Supreme Court’s decision to uphold the Constitutionality of Obamacare by a 5-4 vote will mean different things to different people.

Even its impact on healthcare companies will vary.  Health insurers will face pricing pressure, although those that benefit from Medicaid spending stand to benefit from increased funding.  However, the ruling limited the law’s plans to expand Medicaid, determining that the federal government cannot without a state’s entire Medicaid allotment if it fails to participate in Obamacare.

Medical device companies, likewise could feel some strain, while manufacturers of diagnostic tests and hospitals could benefit.