Entries Tagged 'Bonds' ↓

So say we do have a depression, or a real bad recession. History shows that only through massive government spending – in the 1930′s it was WWII coming along, gov’t spending for the war – can we get out of the trough. It’s pretty clear the Prez is spending like crazy. But keep in mind, that some of the expenditures are also investments. Investments in a big way. Investments we’d be wise to mirror in our own portfolios.

Not only that – but the idea is, these investments will spur the kind of re-growth that builds our economy back up, but without the war and bloodshed. What exactly are our options here?

First – the green economy – green tech, green jobs – anything and everything green. Like it or not, industry new and old will have to be green. Believe in global warming or not, there is nothing wrong with making the world a cleaner place. In fact, it will make many, many people rich. And hopefully provide a planet on which to enjoy this new wealth. Will you be in on it, is the question?

Many people argue that green investment and things like cap and trade is in reality a tax on consumers of electricity. But that misses some major points. For example, we do not account for the “externals”, that is, we are not paying for the destruction we commit when we burn coal and create other greenhouse gases. We must begin to pay, because we can’t ignore the cost any longer. But also, with new green technology, the need to use dirty fuel will begin to lessen, so your costs as a consumer can go down thorugh conservation and adopting green alternatives. You won’t pay a consumption tax on something you don’t consume!

And keep in mind – the horse and buggy industry collapsed when cars came along. The mass transit revolution was trashed by government pushing cars and roads. So, here we are in another phase, where newer, better technologies are going to push out old dirty ones, and some companies will take a hit. But not for long, as alternatives come in like gangbusters into the marketplace.

Next there’s health care. Through technology there are major cost reductions to be had. The money is already flowing as part of the stimulus package.

A third investment the government is making is the auto industry. While it’s pretty volatile now, there’s a big committment to making sure we don’t lose all three automakers. which one or ones are left standing will grow into the future. (Could the Feds be unwiling to let GM go due to the release of the Volt next year? That works both for a green play and an auto play..)

Fourth, infrastructure and “shovel ready” future investments. A lot of increase has probably been built into companies short term already, but considering that there are a lot of bridges to be recuilt and schools and roads and so on, related industries re worth a look.

Ask yourself: What companies are on that bandwagon? What ETFs? What mutual funds? Look to invest in these in your 401(K), or start a self-directed IRA if you can’t invest in them through your workplace. Keep your eyes and ears open. Learn about the varity of investemtns out there. Don’t just save, but also conserve, put themoney aside into investments that make sense ina depression scenario. Don’t be a victim of it, ride the wave instead.

Mutual funds have been very popular, but do investors really know how do mutual funds work?  Even in hard economic times, mutual funds are still one of the most popular investments on the market today, mainly as a result of retirement funds. For example, there are more than 10,000 different mutual funds available on the market to choose from.

There are many reasons for their popularity, but it could be due to historically good returns, or that they are easy to buy and sell. With the billions flowing into 401(K) accounts, mutual funds also gain the lion’s share of such investment. They also offer a way to diversify and dilute risk.

Here’s how mutual funds work:  A mutual fund takes money from investors looking to invest in stocks, bonds, or a variety of other securities. It is basically a conglomeration of multiple individual investments. As this grouping of investments gains or loses value, investors will gain or lose also. When a mutual fund pays dividends, the investor receives his or her share. Mutual funds are professionally managed, and because of the variety of investments, can help investors be diversified. Investors have been led to believe for some time that mutual funds can do a large part of the investing work for an investor.

As for the business side, a mutual fund is a company that pools money from many investors and then invests the total on behalf of the group, in compliance with a specific set of investment goals. Mutual funds raise their money by selling shares of the fund to the public, in the same way that a company sells ownership shares of stock. It is this pool of funds that the fund company will use to make various investments, using vehicles such as stocks, bonds, and money market instruments.

When a shareholder purchases a share in a fund, they receive an equity position in the fund and, by extension, a share of each of the fund’s underlying securities. Usually, shareholders may sell any or all of their shares at any time, but as with other investments, the price of a share will change daily, based on the performance of the underlying securities in the fund.

When choosing a mutual fund, you should keep in mind your personal financial plan and goals. To start, don’t just rely on features such as past mutual fund performance - these do not reflect future performance in any way as many have learned the hard way today. Instead, start by determining your financial priorities, what financial resources you have, how you consider investment diversification, your feeling about how much risk to assume, and what your time horizon is for your investment goals.

If you only look at total returns you are seeing only half the story. Mutual fund returns show past performance, but even if the returns are high, are they competitive with the market for comparable investments? And will it necessarily reflect how a fund will do in a poor market if the returns have been gained only during up years? You should do your research into the underlying investments, fees, and performance before assuming a good total return means the fund is a quality investment. be sure to compare it to other similar funds over the same period. Using research, you can find what are the top mutual funds for your investment style and goals.

As it is often said, past performance can’t predict future results. After the recent downturn in the market, it’s clear that ever-rising values have hit the wall. It’s not certain either when or if the market will return to consistent growth. So, it is becoming all the more important to understand how mutual funds work, what the underlying investments are, and how they can fit into your long term investment plan given the current market conditions.

You probably know where the term “con” comes from – as in, to “con” someone, or a “con game”.  It is short for “confidence”.  By gaining your confidence, someone rips you off.

That’s what we’re seeing right now. People are afraid. They do not feel confident – confident that they will keep their jobs, confident that they will keep their homes, confident that their retirement investments will be there when they are old.

Television, web sites, financial advisers, the analysts on Wall Street, the Wall Street bankers – all are playing a huge confidence game, and we, the investing public, are their victims.  These vultures have really benefited, ever since the 401(K) really took off, and it was clear that regular Americans, now deprived of pensions and other ways to retire comfortably, would just shovel money in without really  knowing anything at all about wise investing, on the promise that “over time, the market returns 8%-10%-14%” you name a figure.  The whole thing has been a con.

But really, what I wanted to talk about is confidence, and how to regain it.  Think:  What would it be like to feel confident that your money was safe, right now?  Think of the stress that would be off your shoulders.  Think of how you would breathe easier, knowing that whatever the market was doing, up or down, you are in a secure position, not losing, not having to learn more than you have time to learn, or more than you can understand.  Not know what the heck to do as you watch the market numbers go down.

What would it take to feel confident that your money was safe?  A friend of mine was completely freaked out, and kept asking me, What should I do with my retirement accounts? (This was last November, she was down 15%.)  I told her I thought the markets would keep going down, for some time, but that was just my opinion, and she needed to do what she felt was safe.

Her adviser (who was completely ripping her off in fees by the way, but she didn’t know that) kept saying “Oh no, you are in for the long term, don’t worry about blips in the market.”

Yet when I looked at my friend, all I saw was worry!  She kept saying she hated the markets, hated having to think about being in stocks.  She did not like the stock market, did not like that she couldn’t understand it.  Her confidence was shattered, and so was her emotional well-being.

I asked her:  Given how you feel right now, are you willing to bet what money you have left that not only will the markets stop going down, but that they will go up enough in one year to recoup what you’ve already lost?  Her answer was no.

I said to her:  If you are this uncomfortable in the stock market, take your money out!  Get this monkey off your back!  You can earn small but secure returns in money markets, CDs, and even learn later about government bonds or other less risky investments.  Will you earn 8%, 10%, 12%?  No, but that is never a sure thing anyway.

She moved all of her accounts to money market funds.  Her relief was palpable. She could breathe again!  She did not have to spend day in and day out worrying and watching tee vee, watching her hard word slip away from her.  Today, she feels a whole lot better for sure that she’s missed the downturn in the last 4-5 months as well.

If you feel insecure being invested in stocks, if you do not have confidence that  your money is in a secure place – then move it. Now. Today.  If your advisor tried to talk you out of that, remember that they have a vested interest in getting fees from you.  Move your money out of their claws.  Your gut is at least as accurate as any investor – including me!  No one has any answers in a market – possibly a depression – like this.

In case you care, and I’m not saying you should do any of this, here’s what I would do, and actually is what I am doing right now:

Move your money to a high-interest savings account.  ING Direct is a good one, and if you also open chekcing, you can access your money wit a debit card.  High Interest these days is just under 2%, but would you rather make 2% or lose 25%?

One your money is safe, then learn about what is out there that is cash or cash-like, and then move some money into those accounts. For example, there are government bond mutual funds like GNMA, or inflation-adjusted bond funds or ETFs where you can invest, and earn a few more points, and your money is relatively safe.  Note:  Funds and ETFs are not insured accounts. For FDIC insurance, you shoudl be in a money market, or CD, and verify it is insured with the institution.

You can then take some money out of savings, and open accounts with a low-cost broker like TradeKing.  Buy into some of those cash-type vehicles through these low fee brokers.

Once you are securely set there, you can explore other ideas, like buying some gold or silver, or some commodities, or buying stocks in foreign countries like China, which are available as ETFs or within a fund.  (I prefer ETFs but more on that another time.)

I also only put the company match into my 401(K).  I put extra money into a ROTH and Individual IRA outside my company, into a self-directed brokerage account, where I can decide for myself where to invest my money – I’m not stuck with the investments and rules my employer decides is right for me. They’ve already proven they have no idea how to protect my retirement interests.

The bottom line is, you need to restore your own confidence.  The so-called advisors are not going to help you.  Television is not going to help you.  If you are scared, fearful, anxious, take steps NOW to remove that stress from your life.

Your money can in fact be safe, and there are in fact places to invest where you can make money right now.  Just not in the ways that the con men will tell you about.

Here are just a few questions you won’t see asked or answered on the so-called money shows on television:

1.  What if this is a depression? What if it’s not a short term bear market?  What happens to my retirement money? Where should I put my money in a depression?  Do you have any idea?  (Remember – It took them a year to call a recession – only 12 months late… but we knew it, common sense told us.)

2.  If 12-15% of Americans are out of a job (both those on unemploymnet and those who have run out of unemployment benefits and have just stopped looking), an unspecified percentage have part-time work that need full time work, and those of us with a job have no idea whether we might lose or keep the one we have, and none of us want to spend our money and we can’t get any credit, and even if we did, we probably won’t get our hand caught in that tiger trap again, tell me where will the profits come from so that big companies will make money, and start a new “bull” market?  Or even an “up” market?

3.  If you can move your money right now into an investment vehicle that will at least earn 2%, 3% or 4%, why shouldn’t I do that while I wait for the market to get better?  (Don’t just tell me not to do it, tell me WHY.  And then tell me why it’s OK to lose another 20% while I wait for the market to turn.  And if you tell me again about what the market has earned “historically”, I will kick your ass.  I am not stupid, I have a calculator…)

4.  If you lose 20% YTD in your investment account, your new lower balance wil have to return 25% to get back to square 1.  (For example:  a loss of 20% off of $5,000 leaves yo with $4,000.   But to make back $1000 on $4,000 is a jump of 25%.)  So when they tell you to wait for the market to “come back” – how far will it have to increase to just get back to where you started?

5.  What if the markets stay depressed for another ten years?  And there is no climb like we’ve seen the past 30 years?  We have already lost enough in the market to erase teh last 12 years of gains.  So, should you believe them when they tell you to take a 20 year time horizon?

6.  If you take your money out of the market, put your money in CDs or inflation adjusted bonds, or government bonds, or other more reliable vehicles, the huge Wall Street behemoth – financial advisors, mutual fund companies, television talk show hosts – they don’t make any money.  Need I say more.