DailyFinance.com http://www.dailyfinance.com DailyFinance.com http://www.dailyfinance.com/media/feedlogo.gif DailyFinance.com http://www.dailyfinance.com en-us Copyright 2012 Weblogs, Inc. The contents of this feed are available for non-commercial use only. Blogsmith http://www.blogsmith.com/An Investment Puzzle: How to Put Your Assets in the Right Placeshttp://www.dailyfinance.com/2012/04/02/an-investment-puzzle-how-to-put-your-assets-in-the-right-places/http://www.dailyfinance.com/2012/04/02/an-investment-puzzle-how-to-put-your-assets-in-the-right-places/http://www.dailyfinance.com/2012/04/02/an-investment-puzzle-how-to-put-your-assets-in-the-right-places/#commentsFiled under:

Investment choicesObviously, what you invest in can mean the difference between getting rich and losing your shirt. But where you invest can be even more important -- especially if you end up picking winners.

Most people have several different ways to put their money to work. If you have a 401(k) or other retirement plan at work, you can have deductions pulled directly out of your paycheck and put toward your long-term savings. Opening an IRA can give you many of the same benefits with even more flexibility. For goals other than retirement, regular brokerage or mutual fund accounts let you have complete control over your money, and you can take it out or move it without any penalties.

But if you have a diversified investment portfolio with a variety of assets -- such as stocks, mutual funds, bank CDs or other fixed-income investments, and alternative investments -- you may not spend much time figuring out where each investment fits best across all the accounts you have. As a result, you could be missing out on big tax savings.

What should go where?

The right answer depends on your individual situation, but some general rules of thumb apply to many people.

1. Interest-bearing assets belong in IRAs. If you have bank CDs, bonds, or other investments that produce interest income, the best place for them is in a Traditional IRA. The reason is that these assets benefit the most from the tax savings that IRAs provide. Unlike income from stock dividends and capital gains, interest income gets taxed at your higher ordinary rate. Given how low the rates on these investments are right now anyway, the last thing you can afford is to lose a big share of that meager income to the tax man.

2. Save your best ideas for a Roth IRA. A Roth IRA is a special type of retirement account that let's you withdraw all the income it generates tax-free. Therefore, you should put the investments that have the best chance of soaring in value inside a Roth.

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High-growth stocks fit that bill. Think about some of the blockbuster gainers over the years -- stocks like priceline.com (PCLN) and Green Mountain Coffee Roasters (GMCR) that have made a bundle for their longtime shareholders. If you'd put those investments in a Roth IRA, you could've enjoyed all those profits without paying a penny in tax. That's why Roth IRAs are so valuable -- but since you can only contribute limited amounts to a Roth, you have to use your Roth money wisely.

3. Invest long-term in taxable accounts. Even though stocks give you the best chance to make significant money over the long haul, that doesn't mean that they aren't suitable for taxable accounts. Until you actually sell a stock you own, you don't pay tax on any gains. So plenty of people are still sitting on big gains from stocks like Amazon.com (AMZN) and Apple (AAPL) that they've held for years, letting their profits ride -- and they haven't had to pay a dime in tax along the way.

Moreover, as long as you hold onto investments for more than a year, any gains qualify for a tax break. Currently, the maximum tax rate for long-term capital gains is 15%, compared to up to 35% for regular income. So putting stocks and stock mutual funds or ETFs in taxable accounts can be a smart idea -- especially when you can't afford to lock up that money until you retire.

Think Smart

Figuring out what investments to buy may seem hard enough without worrying about which account to use to buy them. But in your constant fight with the IRS, it can make a huge difference -- and it's worth the effort.

For more on smart tax moves:

Motley Fool contributor Dan Caplinger learned a lot of tax lessons the hard way. You can follow him on Twitter here. He doesn't own shares of the companies mentioned in this article. The Motley Fool owns shares of Amazon.com and Apple. Motley Fool newsletter services have recommended buying shares of Amazon.com, priceline.com, Green Mountain, and Apple, as well as creating a lurking gator position in Green Mountain and a bull call spread position in Apple.


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Gallery: The Big Retirement Myth: You'll Spend Less

The Big Retirement Myth: You'll Spend LessThe GoodThe Not So GoodIns and Outs, Ups and Downs



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]]>401kassets under managementAssetsUnderManagementbondscdsFinanceinvesting tipsInvestingTipsRoth IRATax-freeSavingsAccountsTraditional IRATwitterDan CaplingerMon, 02 Apr 2012 15:45:00 ESTInvesting Error: Don't Use Stocks as an Inflation Hedgehttp://www.dailyfinance.com/2012/03/09/investing-error-stocks-not-inflation-hedge/http://www.dailyfinance.com/2012/03/09/investing-error-stocks-not-inflation-hedge/http://www.dailyfinance.com/2012/03/09/investing-error-stocks-not-inflation-hedge/#commentsFiled under:

Hedge fund errorYou've heard it so often you can probably repeat it in your sleep: Equities are the best protection against inflation.

Financial planners say it. Money managers say it. Pundits and gurus say it. Without a nice chunk of equities in our portfolio, we are told, inflation will ravage our net worth, and we may not have anything left for our very old age.

That's why some experts have even recommended that retirees or near-retirees hold 60% or more of their assets in stocks -- terrible advice, and it destroyed many people's finances and peace of mind during the crash a couple of years ago.

The market has come back since then -- without the participation of those who sold at the bottom in despair -- so maybe some advisors believe it was sound thinking after all.

But academic research, old and new, completely flies in the face of this conventional "wisdom." It establishes clearly that stocks are not a very good hedge at all against inflation, particularly high inflation. Even Stocks for the Long Run himself, Jeremy Siegel, acknowledges that.

"Historically, that's been the case," said John Tatom, a finance professor at Indiana State University." I claim that's one of the most well-established tenets in financial economics."


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In a 2011 paper, Tatom wrote: "There is a strong negative correlation between inflation and real and nominal stock prices. Contrary to opinion, equities are not a good hedge against inflation."

Some new research by three noted experts on asset prices confirms this. Elroy Dimson, Paul Marsh, and Mike Staunton of the London Business School have one of the world's deepest databases on the performance of stocks, bonds, bills, and currencies, as well as inflation. It covers 19 different markets and goes all the way back to 1900.

In an article in the 2012 Credit Suisse Global Investment Returns Yearbook, they found that during periods of "marked" inflation, equities easily outperform bonds, probably the worst investment to own during inflationary episodes. Yet equities gave a real return of -12% during those periods, while bonds lost 23.2%. Double ouch.

"When inflation has been moderate and stable,...equities have performed relatively well," the three professors concluded. "When there has been a leap in inflation, equities have performed less well in real terms. These sharp jumps in inflation are dangerous for investors."

"High inflation reduces equity values," they summed up.


Confusing ROI with Inflation Protection

So why have so many experts embraced equities as an inflation hedge? Because they're confusing the large total returns investors may have earned from equities over long periods of time with an actual "hedge" against inflation.

Because of their greater risk, equities tend to produce bigger rewards over the long run -- say, 20 years or more.

But that's not quite in the bag, either.

Exhibit A: the lost decade. The average annual total return for the S&P 500 index from 1999 to 2011 was -0.4%. So, we're going to need a hell of a good next eight years to reach the S&P's long-term averages of just under 10% a year in this 20-year period. Dow 36,000 anyone?

Of course, if you invested in certain types of stocks -- small-cap value, real estate investment trusts, and emerging markets -- you would have done well. But who knew that in 1999?

And when it comes to inflation, even the esteemed Jeremy Siegel of The Wharton School of the University of Pennsylvania hedges his bets, so to speak.

"Over 30-year periods, the return on stocks after inflation is virtually unaffected by the inflation rate," he wrote in Kiplinger's last year. "Although stocks do well when annual inflation is in the range of 2% to 5%, their performance begins to falter when inflation exceeds 5%."

Why? Because "companies can't always pass along increased costs, especially in the case of an important raw material, such as oil. As a result, many companies will see their profits squeezed," he wrote.

Siegel's conclusion: "Stocks are not good short-term hedges against rapidly increasing inflation, but bonds are worse."

What You Should Actually Buy

So, what does that mean? If you own a lot of stock because you want to protect your portfolio against inflation, you probably should sell some.

For instance, if you're five to ten years from retirement and you have 50% to 60% of your assets in stocks, you should reduce those holdings to 40 to 50% of your portfolio.

And if you're worried about inflation, you should take some of that money -- and sell some of your bond holdings, too-- to buy some asset classes that have better track records as inflation hedges.


Such as? "In periods of high and increasing inflation, gold and commodities are definitely something you want in your portfolio," said Mark Johannessen, managing director of Harris SBSB in McLean, Va., and former president of the Financial Planning Association.

Dimson, Marsh, and Staunton's research backs him up. "Gold is the only asset that does not have its real value reduced by inflation," they write. "Gold has on average been resistant to the impact of inflation. However, investment in gold has generated volatile price fluctuations...There have been long periods when the gold investor was 'underwater' in real terms."

Not for the last decade, of course, when gold rose more than sevenfold before stalling below $1,900 per ounce. But the researchers are talking about the very long run.

Another good hedge: housing. Don't everyone all groan at once. According to Dimson, Marsh, and Staunton, "real house-price changes ... seem relatively insensitive to inflation ... Housing has provided a long-term capital appreciation that is similar in magnitude to gold."

Unfortunately, U.S. housing has produced the weakest returns of major markets over the last century, so if you'd like to hedge against inflation with your home, pack up and move to Australia.

Real estate investment trusts (REITs) may be a decent substitute, but there aren't as much data on their performance over many, many years -- and they've had a big run.

Finally, there are TIPs (Treasury inflation-protected securities), inflation-linked bonds issued by the US and other governments. Smart people like David Swensen, Yale's chief investment officer, recommend them for individual investors as good protection against inflation. But they're very expensive now.

So, what should you do? I'd take some profits in your stock and bond holdings and buy small positions (maybe 5% of your portfolio each) in gold, commodities, REITs, and TIPs ETFs, preferably when they've sold off a bit, too.

Then, I'd keep 40% to 50% in stock, 20% to 30% in bonds, and another 10% in cash. That way, you'll have some protection against inflation, deflation, and just normal life.

And if your financial advisor tells you to buy more stock to keep from outliving your money, tell him or her that in the long run, we're all dead.



Howard R. Gold is editor at large for MoneyShow.com and columnist for MarketWatch. You can follow him on Twitter @howardrgold and read why Republicans need to stop pining for a white knight at The Independent.

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]]>bondscommoditiesDavid SwensenequitiesgoldIndiana State Universityinflation hedgesInflationHedgesinvesting mistakesInvestingMistakesJeremy SiegelReal Estatereal estate investingRealEstateInvestingREITSreturn on investmentReturnOnInvestmentstocksTIPSTreasury inflation-protected securitiesTreasuryInflation-protectedSecuritiesTwitterMoneyShow.comFri, 09 Mar 2012 12:45:00 ESTA Few Basic Tax Terms That 'The Man' Doesn't Want You to Understandhttp://www.dailyfinance.com/2012/02/16/a-few-basic-tax-terms-that-the-man-doesnt-want-you-to-underst/http://www.dailyfinance.com/2012/02/16/a-few-basic-tax-terms-that-the-man-doesnt-want-you-to-underst/http://www.dailyfinance.com/2012/02/16/a-few-basic-tax-terms-that-the-man-doesnt-want-you-to-underst/#commentsFiled under:

Tax termsIs the American tax code designed to be confusing?

Looking at the thing, it's hard to escape that conclusion. To begin with, there's its size: The full code is over 70,000 pages long -- 22 times as long as Remembrance of Things Past, 62 times as long as the King James Bible, and 54 times as long as the complete works of William Shakespeare. Or, to put it another way, it's about 175 times as long as its first edition, which was published in 1913.

Contained within its 3.7 million words are thousands of exemptions, definitions, deductions and loopholes, and teasing them out requires an estimated 7.6 billion hours of tax preparation per year. That's more than 24 hours for every man, woman and child in the country. Even the head of the IRS hires an accountant to do his taxes.

Given all that, it's hard to dismiss the notion that the tax code is deliberately designed to confuse the average taxpayer: Its byzantine structure supports an army of accountants and attorneys, computer programmers and bean counters who rake in an estimated $27.7 billion per year helping us prepare our taxes.

But the tax prep industry isn't the only group that benefits. Arguments about cuts and deductions, minimums and premiums have fueled many a political campaign. And whether you're inclined to raise tax rates or lower them, increase incentives or decrease exemptions, chances are that you've been tripped up at least once or twice by a confusing term -- or a slick politician wielding it. With that in mind, we decided to unpack a few of the most weaselly of the IRS's weasel words -- and look at how they may affect your yearly taxpaying ritual.


Income vs. Taxable Income

James RossOne of the most slippery tax phrases is income. Taken at face value, its definition seems obvious -- clearly, "income" is supposed to refer to the amount of money that a worker brings home in a year. But in the hands of the tax industry, even this clearest of words becomes cloudy. Recently, The New York Times highlighted this with its tale of the ridiculous tax rate paid by James Ross (right). The founder of an investment firm, Ross paid 102% of his 2010 income to the taxman.

The tale was tailor-made for tax critics: Ross -- a job-creator, a graduate of Yale and Columbia, and a one-man economic powerhouse -- was clearly being charged a cruel and unusual tax rate. How could the government possibly rob such an upstanding citizen like that? Where do we live, Sweden? By God, Ross had to withdraw money from his savings account to cover his taxes!

Of course, there was more to the story. Ross didn't actually pay 102% of his income, but rather 102% of his taxable income -- the money left over after he subtracted out his mortgage interest, state taxes, and all the other clever deductions and exemptions he was allowed to take from his total income. In fact, Ross actually paid only 20% of his real earnings in 2011 -- about 4 percentage points less than the average tax paid by someone at his level. Thanks to his impressive list of deductions and business-related expenses, he actually scored a nice tax cut, rather than the brutal burn that the Times story would at first seem to suggest.

Income should be an straightforward, clear term, but it's often muddied for political purposes. Total income -- the amount of money that one makes in a year -- can be hard to quantify, so pundits and politicians tend to focus on more easily-defined terms. For example, depending on a politician's leanings, he or she may consistently discuss earned income (all the taxable wages and tips that one gets from a job), adjusted gross income (earned income, minus personal exemptions), or taxable income (earned income, minus all exemptions and all deductions). Because wealthy people often have more deductions and exemptions than lower-level earners, changing which term you use can radically alter how you frame any tax debate -- not to mention the degree to which the rich seem to be unfairly targeted by the tax code.


Dividends: Qualified to Cause Trouble

By all rights, a dividend should be easy to understand: It's money that a company pays out to its stockholders, and for most of the modern era, it was generally taxed at the same rate as any other income. Beginning in 2003, however, special tax breaks for stockholders muddied the waters, turning a relatively simple idea into a complicated -- and controversial -- tax nightmare.

Tax terms

Nowadays, there are two basic classes of dividends -- "ordinary" and "qualified." Ordinary dividends, which come from stocks that have been held for a short period of time, are taxed at the same rate as ordinary income. "Qualified" dividends, on the other hand, come from stocks that have been held for longer periods, and are taxed at a much lower rate.

The differences between the rates are major. People who earn up to $33,950 per year pay a basic tax rate of 10% to 15%. But people who make that money from qualified tax dividends don't pay any tax on it at all. Meanwhile, those who earn more than $33,951 per year pay between 25% and 35% on their taxes, but those who get that money from qualified dividends pay only 15%. This, by the way, explains how tycoons like Mitt Romney and Warren Buffett reach overall tax rates of 15% or lower, while people who make $34,000 per year pay a base rate of 25%.

While the qualified dividend tax rate is attractive, it is also confusing: The IRS' rulebook states that qualified dividends must come from stocks that the owner has held "for more than 60 days during the 121-day period that begins 60 days before the ex-dividend date." But there's also qualified preferred stock, which must have been held "more than 90 days during the 181-day period that begins 90 days before the ex-dividend date if the dividends are due to periods totaling more than 366 days."


Interest Gets Too Interesting

As if dividends weren't confusing enough, some things classed as "dividends" are actually misnamed -- and are taxed as regular income. For example, the "dividends" that you get from your credit union or savings and loan bank are actually classed as interest. This money counts as regular income, and is taxed as such.

(Of course, interest income isn't a huge problem these days. As long as the Federal Reserve keeps its interest rate at or near zero, most financial institutions aren't going pay much interest to their customers. This, incidentally, is part of why banks have been piling on fees and charges over the last few years. But that's another story.)

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Interest itself is another tax oddity. For example, in the current election cycle, something called "carried interest" has come under scrutiny. Essentially, it's a payment method used by many hedge funds and investment firms that pays fund managers and execs out of the proceeds of the funds they manage. By linking paychecks directly to investment income instead of salary, carried interest enables these high-earners to pay a 15% tax rate instead of the 35% that wage earners pay. President Obama's 2013 tax proposal suggests that Congress close the carried interest loophole.

But even regular interest can be confusing. The interest that one gets from a standard bank account, CD or money market account is taxed at the same rate as regular income, but interest from a savings bond doesn't count until the bond matures or until you redeem it. And, if you use your savings bond interest to pay for some of your college expenses, you may be able to avoid paying taxes on it.

If you own U.S. Treasury bills, notes or bonds, the interest that you get from them is subject to federal tax, but not to state tax. On the other hand, interest on bonds that are issued by states may be exempt from federal tax! For that matter, some of the interest you pay -- specifically the interest on your mortgage and your student loans -- may be deductible.


Bruce Watson is a senior features writer for DailyFinance. You can reach him by e-mail at bruce.watson@teamaol.com, or follow him on Twitter at @bruce1971.

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]]>bondscarried interestCarriedInterestdeductionsDividendsFederal Reserve SystemincomeInterestinternal revenue serviceInternalRevenueServiceIRSJames RossJamesRossqualified dividendsQualifiedDividendsstockstax codetax the richtax tipstaxable incomeTaxableIncomeTaxCodeTaxTheRichTaxTipsThe New York TimesTwitterWarren BuffettBruce WatsonThu, 16 Feb 2012 11:50:00 ESTThe Economy Ahead: What to Expect in 2012http://www.dailyfinance.com/2011/12/28/the-economy-ahead-what-to-expect-in-2012/http://www.dailyfinance.com/2011/12/28/the-economy-ahead-what-to-expect-in-2012/http://www.dailyfinance.com/2011/12/28/the-economy-ahead-what-to-expect-in-2012/#commentsFiled under: ,

What to expect in 2012With 2011 fast coming to a close, it's time to think about what's next -- if you dare.

The good news is, there's less talk among the experts of a double-dip recession. But there's also little sign that it's time to pop the champagne cork. The general expectation is for the economy to grow between 2% and 2.5% in 2012 -- not great, but better than no growth.

Some are even more pessimistic. In the recently released annual Bank of America Merrill Lynch 2012 CFO Outlook, 38% of financial executives at U.S. companies said they expected the U.S. economy to expand in 2012, down from 56% in last year's survey and 66% the year before. But only 7% predicted layoffs, and some 46% plan to hire -- the same percentage as planned to in 2011. And 36% said credit had gotten easier to access, compared to 28% last year.

So, there are positive signs, but uncertainly looms large. In the recent Country Financial Security Index, 30% of respondents said they believed 2012 would be better than 2011, 28% said it would be worse and 32% said about the same.

"Next year will be more about the middle and less about the extremes that we've suffered in 2011," says Mark Lamkin, CEO of Lamkin Wealth Management. Over the last four years, the markets had 2% declines about 100 times more than any other time in S&P history. It also recorded 2% daily gains more times that ever before. "Unprecedented was the norm in 2011. Next year will be a year of meeting in the middle."

Expect a modest, but sustained, recovery. The economy won't fire on all cylinders though, predicted Alan Levenson, chief economist for T. Rowe Price: There are too many "what ifs?"

Here's a look at some of the factors that will help determine the fate of 2012.

The Job Market

With unemployment still stuck near 9%, inquiring minds want to know whether 2012 will bring any real relief for job seekers? It may be too close to call. "Job growth picks up in the second half of 2012, but the unemployment rate is expected to be little changed in the fourth quarter of 2012 versus the fourth quarter of this year," said Levenson.

Eurozone Crisis

The European sovereign debt crisis won't be solved over night. Some experts are forecasting a mild recession on the Continent, but others go a step further. "Europe will enter a deeper recession with some of the PIIGS [Portugal, Ireland, Italy, Greece and Spain] defaulting and credit downgrades of some major European banks and governments," says Bill Garrett of Garrett Financial.

The European Central Bank is likely to do either a quantitative easing program, a TARP-style program, or a Eurobond deal if Germany approves, or perhaps a combination of these. "This will put Europe in recession, but avoid a run on banks and a Lehman style event," says Lamkin.

China Taps the Brakes

Slowing demand from China, combined with Beijing's ongoing money-tightening measures, is prompting concern that this vital engine of economic activity may lose momentum at an inopportune time for the rest of the world, said Scott Berg, portfolio manager of T. Rowe Price's Global Large-Cap Stock Fund.

Stock Market Oscillations

For the equities markets, there's just one word -- volatility. The elections, congressional gridlock, and the European debt crisis will be the chief stirrers of the uncertainty pot. "Look for more of the same," says Mickey Cargile, founder and managing partner of Cargile Investment Management. "Investors will need to be patient and have the courage not to bail out of the stock market. I've never seen a stock market that wants to go up as much as this."

Lamkin is optimistic: "With record earnings in the S&P 500 this year, earnings get even better and as confidence returns the P/E's expand for the market," he says. "This leads to a total return in stocks of 8% to 12% for 2012."

Bond Market Inversions

"Risky bonds [will] become 'safe' and 'safe' [will] become risky," predicts Lamkin. "Fixed income bonds face headwinds of higher rates before year's end, six months ahead of the Fed's schedule."

Municipal bonds won't have as good a year in 2012 as they did in 2011, but because of a favorable supply and demand outlook, they should post mid-single-digit gains, says Lamkin.

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The government and corporate bond yield gap will narrow, says Frank Fantozzi, CEO of Planned Financial Services. The performance gap between government and corporate bonds will reverse in 2012, with corporate bonds outperforming as they post modest single-digit gains as interest rates rise and credit spreads narrow. He says bond yields may be volatile within a 1.7% to 3% range, but he expects them to rise over the course of the year, with the yield on the 10-year Treasury ending the year around 3%.

Ongoing economic growth will help normalize interest rates, as will a continuation of Fed policy, stable inflation and tightening fiscal policy. The wide gaps between yield on government bonds and other bonds are likely to converge some in 2012, says Fantozzi.

Gold Keeps Going

2011 was a bull year for gold, with record prices topping $1,900. Will they keep rising in 2012? David Morgan, publisher of The Morgan Report, which focuses on money, metals and mining, believes precious metals will continue to rise because of the inability of the global financial system to do anything other than take the "easiest" way out of the Eurozone debt crisis: debasing the euro, rather than letting massive debt defaults occur.

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"I do expect a soft first quarter of 2012," says Morgan. "More consolidation through the summer and higher prices by year end. $60 silver by year end 2012 and gold over $2400. But it may take a year to get to those prices."

"If the euro problem does not get resolved in some meaningful way, gold could begin its move much earlier and faster," says Morgan.

Cargile, on the other hand, says there is no reason to buy gold. "Gold produces no income; it depends on someone buying it for more than you paid. It's a manipulated market, and volatile."

Politics As Usual

The U.S. credit rating downgrade was largely caused by political intransigence, and as we roll toward the November elections, it will get harder and harder for the opposing parties in Washington to find common ground. "Political gridlock will continue," says Cargile. "It's working for them, but it isn't for us."

But there's the possibility that as the election nears, Obama and the GOP nominee will leave behind the extremes and meet in the middle, which business likes, says Lamkin. "If voters vote accordingly, the most important budget decisions since World War II will be made with the right candidates with a bipartisan banner. After the election, I believe the market will have a strong fourth quarter based on this meeting in the middle and optimistic outlook."

Housing Begins Its Rebound

The first half of 2012 may be the last great opportunity to purchase a home at the lowest market prices we have seen in many years, and at the lowest interest rates we can remember, says Scott Cramer, endowment strategist and president of Cramer & Rauchegger.

From October 2010 to October 2011, the inventory of existing homes for sale dropped from 3.8 million homes to 3.3 million. That's still an excess of inventory, but we could see a major jump in home sales next year as banks realize that the homes they are holding on to will sell, giving them an incentive to release their inventory more quickly, he says. This could lead to the beginning of a slight increase in home prices by late 2012. The Fed also stated recently that it could ease off its commitment to leave interest rates unchanged until 2013, and could slightly increase rates before the end of 2012.

The Smart Moves for You in 2012

So what does all this mean to you? The experts weighed in on smart moves to make in light of the conventional wisdom about what to expect next year.

o. Seek dividends: One problem companies share with individuals is that their bank deposits aren't making them any money. So some of those earnings are getting paid out in dividends to shareholders. There are many solid, well-run companies with great balance sheets paying more than 4% on an annual basis.

o. Consider small and mid-cap U.S. stocks: These should provide attractive returns for investors in 2012, in part due to mergers and acquisitions activity powered by large corporate cash reserves.

o. Skip emerging markets ... or not: The jury's still out on emerging markets. Some experts say to avoid them, "Buy domestic, not emerging markets or Europe. Buy what you understand. U.S. corporations are strong," says Cargile. But other experts think they're returns will exceed those of developed markets. Long term, emerging markets offer intriguing growth prospects.

o. Get creative: You may have dismissed bonds because with a fixed income vehicle, the interest rate is locked in and principal will be negatively impacted by inflation. However, a step-up bond starts with one rate, then increases after a period of time. This gives the fixed income investor a degree of inflation protection, says Cary Guffey, a financial adviser with NBC Securities.

o. Keep up good habits: The recession tamed consumer spending, sparked saving and inspired us to pay down debt. Don't stop in 2012. Start or continue building your emergency fund until you have at least six months of living expenses stashed. Diversify. Stay cool when it comes to the stock market. The wild ride is far from over. Rethink any rash moves motivated by emotions.

Mostly, be ready for anything.



Gallery: 6 Big Financial Lessons of 2011

1. The Roller Coaster Ride Isn't Over.2. Don't Obsess Over Today's News.3. It's Not Just About the U.S.4. Politics Govern Your Pocketbook.5. Take Control of Your Finances.







Correction: A previous version of this story referred to Mickey Cargile's firm as WNB Private Client Service. In 2011, that company changed its name to Cargile Investment Management.

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]]>2012bondschinaDividendseconomyemerging marketsEmergingMarketsEuropeEurozone debt crisisEurozoneDebtCrisisFinanceinvestingpresidential electionPresidentialElectionreal estateRealEstatestock marketStockMarketT Rowe Price Group IncunemploymentSheryl Nance-NashWed, 28 Dec 2011 12:00:00 ESTHow to Profit From the Biggest Potential Crises of 2012http://www.dailyfinance.com/2011/12/12/how-to-profit-from-the-biggest-potential-crises-of-2012/http://www.dailyfinance.com/2011/12/12/how-to-profit-from-the-biggest-potential-crises-of-2012/http://www.dailyfinance.com/2011/12/12/how-to-profit-from-the-biggest-potential-crises-of-2012/#commentsFiled under:

How to Profit From the Biggest Potential Crises of 2012By Lawrence Meyers, InvestorPlace Contributor

Depending on how you view things, we either are in heaps of trouble economically or about to emerge from a terrible recession. Personally, I think it's the former. I always like to have a few trades on my watch list to take advantage of possible crises, as uncertainty creates opportunity. So in looking ahead for 2012, I'm looking to exploit other people's woes like the good capitalist I am.

Here are three bets I'd be pretty comfortable researching in greater detail and possibly pull the trigger on:

Bill Gross, of the famed PIMCO funds, has been a bond guy all his life, and he went bearish on bonds earlier this year. Hell froze over. You can see this either as capitulation or an ominous warning. I am very wary of municipal bonds. Our own country's debt crisis has reached all the way down to municipalities.

When it was revealed that the bond insurers did not have nearly the capital necessary to make payouts on defaulted collateralized debt obligations during the mortgage crisis, I lost all faith in bond insurers. To me, there is an equivalent risk and higher reward with preferred stocks. By purchasing a basket in an ETF such as iShares S&P Preferred Stock Index Fund (NYSE:PFF), you give yourself a 7% yield with minimal volatility. Get out if interest rates rise significantly, though.

Underfollowed and under-read fund manager Robert Rodriguez is a genius. He thinks we're headed for more recession next year, and Congress has been inept in its handling of fiscal policy. I agree. He hates bonds right now, except for very short-duration bonds, and so do I. Prices are near a double-top. I think bond prices will get hit next year, so I might short the iShares Barclays 20+ Treasury Bond Fund (NYSE:TLT).

Going hand-in-hand with our economic crisis has been the decline of the dollar. That trend will continue. That means you can short the dollar via PowerShares DB US Dollar Index Bearish (NYSE:UDN).

The real question at hand is this: Why the heck is the market doing so well in the face of really bad economic times? If you read my recent series on the Dow Jones Industrial Average, you know about several Dow stocks that would make for good long-term additions to a portfolio. That is the key to understanding investment in the market going forward - careful individual stock picking. Go with large-caps in general, and only go with small-caps that are directly benefiting from the situation. As for other systemic shocks that might or might not happen, have your trigger finger ready for these possibilities.

I expect some trigger event to knock the market down 20%. Perhaps it will come from Europe. Or, if Obamacare is upheld by the Supreme Court, expect the market to correct significantly. It will be a sign that overreaching regulation and legislation is acceptable to the High Court, and that's bad for business. However, if it is overturned, then go long Health Care SPDR (NYSE:XLV). Likewise, should Obama be re-elected, the market will react badly. So look at ProShares Short S&P 500 (NYSE:SH). If Obama is kicked out and the GOP takes over Congress, I expect a market surge, so you could go long the market with SPDR S&P 500 ETF (NYSE:SPY).

Stay far away from financials. There might be another big shock coming to the system. I am wary of Bank of America's (NYSE:BAC) stability, and certain sources tell me that the bad behavior of bond insurers, reinsurers and investment banks hasn't changed a bit. If you want to make an aggressive bet on this arena, double-short financials via ProShares UltraShort Financials (NYSE:SKF).

Finally, if you really want to bet against improvement in the global economic situation, believe Obama will be re-elected, that Europe will crater, that commodity prices will once again skyrocket, and that the dollar will crash, then you can short the market big-time via ProShares UltraPro Short S&P 500 Index Fund (NASDAQ:SPXU) and ProShares UltraPro Short Nasdaq 100 ETF (NASDAQ:SQQQ). These babies give you 3x leverage on your short bet.

Of course, all of these are highly speculative plays based on highly speculative crises of 2012. As always, do your own research and, for Heaven's sake, use stop-losses.

Lawrence Meyers does not hold a position in any securities mentioned but may have a position in several stocks the ETFs own. Check out InvestorPlace.com's other looks back at 2011 and ahead to 2012 here.

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]]>Bank of America CorpBill GrossbondsDow Jones Industrial AverageFinancefunds to buyFundsToBuyindex fundsIndexFundsPimcoProShares Short S&P 500stocks to buyStocksToBuySupreme CourtUnited States Dollar (b) vs Euro SpotInvestorPlaceMon, 12 Dec 2011 15:35:00 ESTUS Debt: Money Managers' Least Favorite Investmenthttp://www.dailyfinance.com/2011/12/05/us-debt-money-managers-least-favorite-investment/http://www.dailyfinance.com/2011/12/05/us-debt-money-managers-least-favorite-investment/http://www.dailyfinance.com/2011/12/05/us-debt-money-managers-least-favorite-investment/#commentsFiled under:

Us Debt: Money managers' least favorite investmentNEW YORK (AP) - Ask the people who invest billions for a living to name their favorite picks for 2012 and you'll get a smorgasbord worthy of a holiday party: Brazilian stocks, U.S. junk bonds, and government debt from Colombia. Ask them what they dislike and they'll name one of the top-performing investments this year: U.S. government bonds.

Investors can rattle off a long list of reasons to avoid Treasurys. They pay next to nothing and are bound to plunge in value whenever interest rates begin climbing from their historically low levels. It seems nobody likes Treasurys, yet everybody keeps buying them anyway.

"Our least favorite asset is Treasurys," said Christine Hurtsellers, chief investment officer for fixed-income at ING Investment Management during a recent press briefing. "We still have a lot, but it's hard to make the argument for them."

It's a tricky problem for bond-fund managers at a time when everyday Americans are trusting them with more of their savings. Among investors, there's a solid belief that Treasury prices must fall and push interest rates up at some point. But those who have bet on a Treasury market collapse this year got burned.

Bill Gross, the bond-world version of investment sage Warren Buffett, dropped nearly all Treasury holdings from the fund he manages at Pimco in early 2011. He argued that if Republicans held up lifting the government's borrowing limit, the country would risk default. Borrowing rates would spike as the world's investors dropped U.S. government debt, just as they have in Europe.

Most of what Gross predicted came true. The debt-limit fight raised worries about default and led to Standard & Poor's taking away the country's AAA credit rating in early August. But instead of spiking, U.S. borrowing rates plunged as traders sold everything else to buy U.S. government debt. The race into Treasurys helped drive the entire bond market up 3.8 percent from July to September. Gross got the big picture right but his big bet against Treasurys didn't pan out. Pimco's Total Return Fund lost 1.2 percent, its worst quarterly performance in three years.

It's been a recurring story since the financial crisis hit in 2008. For three years running, pundits have predicted that investors will eventually refuse to finance the U.S. government's $15 trillion in debt and the Treasury market will collapse. But worries over the U.S. economy and the perilous state of Europe's financial system keep drawing banks and money managers from around the world back to the U.S. dollar and Treasurys.

That demand continues to push U.S. government bond prices up, the main reason why the Treasury market has returned 8.5 percent this year, despite microscopic yields, according to Bank of America (BAC)-Merrill Lynch data. The benchmark for stock market funds, the S&P 500 index, has returned less than 1 percent, including dividend payments, and that's with a 7.4 percent surge over the past week.

"It's been a pretty strong year for bonds," said Michael Gitlin, director of fixed income at T. Rowe Price, "and it's largely a result of Treasurys."

Judging by the gauges money managers usually check before making a move, buying Treasurys still looks like a bad idea. Consider this sample:
  • The benchmark 10-year Treasury pays just 2 percent a year. Take inflation into account and the payout on Treasurys equals negative 1.5 percent, what finance types call the real rate.
  • Treasury yields pay less than top-grade corporate bonds at 3.7 percent and even less than the stock market's 2 percent dividend yield.
"My colleagues say there's little value in 10-year (Treasurys) and I'd agree," Gitlin said. "People have been saying there's a fixed-income bubble. No, there's a Treasury bubble."

If there's so little to like about U.S. government bonds, why are the world's investors still buying Treasurys instead of dumping them? In a word, it's Europe.

As the crisis seemed to spread from country to country this year, the world's traders plowed more money into Treasurys. The higher the demand for U.S. debt, the lower the interest rate, or yield. So when it looked like Greece might default on its debts earlier this year, the yield on the 10-year Treasury note sank below 3 percent. And when attention turned to Italy and its government debts the yield sank even further, dipping below 2 percent in September. The shift of money out of Europe and into the U.S. has pushed Europe's borrowing rates to dangerous levels while causing U.S. interest rates to sink.

"You can hate the budget situation and hate the low yield, but if there's a panic it's the asset that outperforms," said Robert Robis, head of fixed-income strategy at ING Investment Management (ING).

A good reason to hold Treasurys, in other words, is that the Treasury market remains the world's favorite hiding spot. So, for many fund managers Treasurys aren't exactly an investment. Buying Treasurys is like taking out an insurance contract, Robis said. They're protection against global financial trouble.

The ING Global Bond fund, for instance, has 15 percent of its $641 million in Treasurys, less than the 20 percent in the benchmark Barclay's bond index. Robis said having none would be like betting European governments will come to a quick solution to the region's debt crisis and that the U.S. economy will soon recover its health.

"There's still a need to hold Treasurys," Robis said. "Just don't expect to make a fortune off them."

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]]>Bill GrossBillGrossbond marketbond marketsBondMarketBondMarketsbondsMoney ManagersMoneyManagersPIMCOus bondsUS debtUS TreasuriesUsBondsUsDebtUsTreasuriesThe Associated PressMon, 05 Dec 2011 08:55:00 ESTIs Safe Investing Possible? How to Manage Market Volatilityhttp://www.dailyfinance.com/2011/10/20/is-safe-investing-possible-how-to-manage-market-volatility/http://www.dailyfinance.com/2011/10/20/is-safe-investing-possible-how-to-manage-market-volatility/http://www.dailyfinance.com/2011/10/20/is-safe-investing-possible-how-to-manage-market-volatility/#commentsFiled under: ,

With all the volatility in the stock market today, some individual investors are wondering if they should be more active with a portion of their portfolio, or back away from equities entirely. But if you bail out of stocks, where can you find decent returns? DailyFinance's Laura Rowley talks with Stuart Ritter, financial planner with T. Rowe Price.




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]]>bondsconservative investingConservativeInvestingfeatured videoFeaturedVideoFinancemoney and happinessMoneyAndHappinessSafe InvestmentsSafeInvestmentsstock marketStockMarketT Rowe Price Group IncVIXvolatilityLaura RowleyThu, 20 Oct 2011 07:00:00 ESTWhat Rookie Investors Should Know About Emerging Marketshttp://www.dailyfinance.com/2011/09/07/what-rookie-investors-should-know-about-emerging-markets/http://www.dailyfinance.com/2011/09/07/what-rookie-investors-should-know-about-emerging-markets/http://www.dailyfinance.com/2011/09/07/what-rookie-investors-should-know-about-emerging-markets/#commentsFiled under: ,

While there's no place like home, the U.S. stock market's recent gyrations have many investors ready to look overseas for better returns. But while more experienced individuals might be ready to jump into emerging markets, many rookie investors are timidly sitting on the sidelines, wondering: Should they or shouldn't they?

Here's what you need to know make investing in emerging markets a little less scary.

Study Up

Start with a history lesson. Learn what you can about the regions of the world that have done well over the past five years, and see what experts are saying about their prospects going forward. Find out about what industries are doing well in these regions. Of course, that's just the beginning.

Brush up on your current events and watch the headlines. Emerging market investments are known for their volatility, and in less stable regions, local politics can have an out-sized effect on returns. However, while you want to know what's happening, you don't want to "chase the news, particularly the good news," says Adrian Cronje, chief investment officer at Balentine.

For example, Brazil is raising its primary fiscal surplus target to 3.4% due to higher than expected revenues. "Yes, Brazil is actually running a surplus: Its government spends less than it takes in through taxes," says Charles Sizemore, editor of the Sizemore Investment Letter. "Meanwhile, Portugal is having a difficult time balancing the books. The country just announced the biggest budget cuts in 50 years, along with a string of new taxes on capital gains and business profits."

Although inflation is starting to pop up again in some countries, emerging markets as a whole are enjoying price stability previously only dreamed of, says Sizemore.

Emerging markets are likely to produce much stronger growth than developed markets over the next several decades, says Ron Weiner, president of RDM Financial Group. They currently trade at attractive historical valuation levels (going back to 1990 based on MSCI data), and their consumers and governments are not burdened by the high debt levels of developed countries. According to research from Goldman Sachs, GDP in the BRIC nations alone -- Brazil, Russia, India and China -- could represent 50% of global GDP by 2050, he says.

It's important to remember that the idea of "emerging markets" covers a wide range of nations, each of which may behave very differently from an economic perspective, despite a growing trend of globalization, says Heiner Skaliks, portfolio manager of Strategic Latin American Fund (SLATX). Last year, the Peruvian market had returns of close to 70%, while Brazil had returns of 6% and Russia had returns of approximately 21% (in U.S. dollar denominated terms). Since the beginning of the year, these markets have had losses of 13%, 21% and 4% respectively, but in the last 30 months averaged gains of 58%, 129% and 44% respectively, says Skaliks.

Don't Bet the Farm on One Emerging Horse

"It is important to remember that just like any other investment, it is impossible to predict the growth of any country," says Mark Matson, CEO of Matson Money. "Be cautious and don't concentrate all of your assets in one area."

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Likewise, don't concentrate all your money in one asset class: Foreign markets offer more than just stocks. Emerging market bonds (including local currency denominated, inflation indexed, and also corporate securities) are an asset class growing in size and -- if handled correctly -- can help you diversify your portfolio, points out Cronje.

Both emerging market stocks and bonds are risky asset classes, but they're becoming less volatile as investors increasingly come to see the relatively stronger macroeconomic conditions in emerging market countries -- less debt, better demographic trends, more policy options available -- as positives amid these in troubled times for the developed world, says Cronje.

Then too, certain emerging stock and bond indexes are quite concentrated in a small number of countries, says Cronje. Be sure you know what you're getting.

What to Watch Out For

Weiner of RDM Financial says he worries about three things: "A continued rise in inflation that causes central banks to have to increase interest rates more aggressively; a substantial slowdown in the global economy that hurts emerging market experts; and an increase in investor risk aversion that causes money to come out of emerging markets."

Though it's a warning that applies in developed markets too these days, be wary of political risks. For example, Venezuelan President Hugo Chavez recently announced plans to nationalize the country's gold industry. These things happen in politically unstable countries, says Sizemore.

Beware of export-focused countries, he cautions. Given that the United States and Europe are weak right now, you don't want to invest in emerging market companies that primarily export to them. You want companies that sell to a healthy domestic middle class, says Sizemore.

Realize too, that the opaque accounting practices common in less well-regulated nations mean the possibility of less-than-useful information on the balance sheet, says John Graves, a principal with The Renaissance Group. Weaker legal protection can cause liquidity to dry up quickly in a company, a market or a region. "Funds or ETFs are not immune to these problems," says Graves.

How to Play the Game

How much you should bet overseas depends partly on your age, and partly on your ability to sleep well at night with your money in an asset that class that can be highly volatile, says Weiner. However, having between 10% and 15% of the equity portion of your portfolio in emerging markets probably makes sense in the current environment -- with the caveat that you should look at this part of your portfolio strictly as a long-term bet, says Weiner. "We believe that emerging market debt denominated in local currency could be as much as 10% of a fixed income portfolio."

Whether you're picking individual stocks or investing through a mutual fund, keep track of the sectors you're investing in. Some sectors, like energy and mining, are driven more by global factors and less by local ones. "For example, if you want to invest in, say, the rise of the Chilean or Peruvian middle-class consumer, you don't want to load up on copper miners, which make up a large part of both countries' stock markets," says Sizemore. "You're wanting exposure to the new middle class and its spending, not to the volatile price of a particular metal."

And that middle class will grow rapidly. "The World Bank projects that 800 million 'middle income' consumers will join the world economy by 2030, with developing markets accounting for 93% of the global middle class by 2030," says Weiner.

"Avoid currency speculation as a newcomer, you will be eaten alive," warns The Renaissance Group's Graves. Instead, he recommends sovereign bonds as a good place to start, purchased through an exchange trade fund. ETFs are also an inexpensive alternative to global funds which, at more than 1.5% for annual expenses, "can be quite dear to own," he notes.

Cronje says currency appreciation will be an important part of returns from emerging market exposure in the future. "Emerging market local currency bonds are therefore an important opportunity to consider."

Sizemore is big on emerging market mutual funds and ETFs with a consumer focus. He recommends the Emerging Global Shares Dow Jones Emerging Market Consumer Titans Index Fund ETF (ECON).

You can create a short list of foreign stocks at finviz.com, advises Graves. "Use a stop-loss on any purchase, either here or overseas," says Graves.

You can also focus on multinational U.S. and global companies that sell goods and services to emerging markets.

Mirror the Pros?

If you're not sure of your own abilities to swim successfully in emerging markets, you might want a lifeguard of sorts looking out for you.

Covestor, an asset management firm and registered investment adviser, offers a wide selection of emerging market models managed by experts. "Replicating the trades of a seasoned emerging markets investor through Covestor or another mirrored investing firm is a good way for people to gain experience investing in emerging markets," says Kalen Holliday, a spokeswoman for Covestor.

Being globally diversified is essential to any healthy long-term oriented portfolio, and investing in emerging markets is a great move in that direction, says Matson.

"Start small, give yourself a long time horizon and be protective of your risk," suggests Graves. "Allow many small errors, look for the good opportunity: Dividends are key."





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]]>bondsBrazilBRICcurrenciesdiversificationEmerging marketsETFsexportsFinanceforeign marketsForeignMarketsGoldman SachsHugo Chávezinflationinternational investingInternationalInvestinginvestinginvesting basicsInvestingBasicsmutual fundsMutualFundsPeruPortugalRussiaSino-Indian relationsstock marketStockMarketstocksstocks to buyStocksToBuyUnited StatesSheryl Nance-NashWed, 07 Sep 2011 06:30:00 ESTWhat City and County Bankruptcies Mean for the Muni-Bond Markethttp://www.dailyfinance.com/2011/08/05/what-city-and-county-bankruptcies-mean-for-the-muni-bond-market/http://www.dailyfinance.com/2011/08/05/what-city-and-county-bankruptcies-mean-for-the-muni-bond-market/http://www.dailyfinance.com/2011/08/05/what-city-and-county-bankruptcies-mean-for-the-muni-bond-market/#commentsFiled under: , , ,

First came Central Falls, R.I., which filed for bankruptcy Monday. Then the headliner talk this week that Jefferson County in Alabama could end up filing the country's largest municipal bankruptcy when it meets Aug. 12. All together, there have been five municipal bankruptcies this year.

Municipal-bond markets remain a relative safe haven for investors. Yesterday, after the stock market took its worst nosedive since the depths of the financial crisis, investors flooded into municipal bonds.

But municipal bankruptcies have the potential to rattle the municipal-bond market in several ways. Investors may be prone to worry about a contagion effect from municipal bonds that are in hot water, casting doubt on the financial soundness of surrounding cities, counties or state. A default also translates into higher costs throughout the market, even though investors do still get paid.

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"It is important to remember that only four to six make headlines, but 45,000 others are doing OK," Lynnette Kelly Hotchkiss, executive director of the Municipal Securities Regulation Board, tells DailyFinance. "Remember that every issuer is unique and needs to be analyzed on its own merit."

The board runs a muni-bond website, called EMMA, which allows investors to search for pricing information for bond trades, as well as official disclosures about material events that could impact bond prices. It's the only resource that makes the same information that retail investors use available to mom-and-pop investors.

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]]>bankruptcybondscentral fallscentral falls bankruptcyCentralFallsCentralFallsBankruptcycity bankruptciesCityBankruptcieseconomyJefferson Countyjefferson county bankruptcyjefferson county bondsJeffersonCountyJeffersonCountyBankruptcyJeffersonCountyBondsmuni bond fundsmuni bondsMuniBondFundsMuniBondsmunicipal bankruptcymunicipal bond fundsmunicipal bond marketmunicipal bondsMunicipalBankruptcyMunicipalBondFundsMunicipalBondMarketMunicipalBondsstock marketStockMarketCatherine NewFri, 05 Aug 2011 11:15:00 ESTLarry Light's Tips on Taming the Wall Street Beasthttp://www.dailyfinance.com/2011/08/04/larry-lights-tips-on-taming-the-wall-street-beast/http://www.dailyfinance.com/2011/08/04/larry-lights-tips-on-taming-the-wall-street-beast/http://www.dailyfinance.com/2011/08/04/larry-lights-tips-on-taming-the-wall-street-beast/#commentsFiled under: , ,

Wall StreetWith the U.S. and European debt crises, concern about a double-dip recession and some lingering numbness from the market woes of a few short years ago, these are uncertain times. And investors are looking for investment strategies that will lead to wealth amid all the uncertainty.

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But to be successful, you should forget the notion of getting rich quick. Fast and furious doesn't work on Wall Street, and neither does putting all your investing chips in one pot. If you want to be a successful investor, think long term and be ambidextrous. At least according to Larry Light, a former editor at The Wall Street Journal and BusinessWeek and author of the new book, Taming the Beast: Wall Street's Imperfect Answers to Making Money.

To "tame the beast" that is Wall Street, savvy investors must be nimble, understand a myriad of investment strategies and know when and how to use them, he writes. His book includes a primer of sorts on the power and pitfalls of value- and growth-investing strategies, as well as of investing in real estate, hedge funds, bonds, currencies, commodities and oversees investments.

It's All About Diversity

Taming the beast is about diversity, Light suggests, which isn't as easy to achieve as you might think. Many strategies must be explored to get to that blessed state where you can say, "I've got plenty of money to sustain me, thank God," he writes. The trick is to be sufficiently flexible to dip into any or all of them, but, by the same token, to know each strategy's limitations.

Light contends that successful investing doesn't require a fancy MBA from an expensive university, "It's not quantum physics," he says. But it does require intelligence and diligence. You have to put in some study time, read everything and watch for trends and opportunities. Figure out what investments appeal to you and under what conditions they thrive, he advises. Ask questions, talk to people and ponder, he says.

What could be the worst move for investors right now? Letting emotions rule. "Don't follow the herd," he says. "If everybody is doing something, it must be right? Wrong."

Check out this video to get more of Light's wisdom on taming the beast:

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]]>bondscommoditiescurrenciesdiversificationfeatured videoFeaturedVideoforeign investmentForeignInvestmentgrowth investingGrowthInvestingHedge fundsHedgeFundsinvestinginvesting strategiesInvestingStrategiesinvestmentinvestmentslarry lightLarryLightreal estateRealEstatestock marketStockMarketstockstradingvalue investingValueInvestingWall StreetWallStreetSheryl Nance-NashThu, 04 Aug 2011 10:30:00 ESTAlabama County Could File for Biggest U.S. Municipal Bankruptcy Everhttp://www.dailyfinance.com/2011/08/03/alabama-county-could-file-for-biggest-u-s-municipal-bankruptcy-ever/http://www.dailyfinance.com/2011/08/03/alabama-county-could-file-for-biggest-u-s-municipal-bankruptcy-ever/http://www.dailyfinance.com/2011/08/03/alabama-county-could-file-for-biggest-u-s-municipal-bankruptcy-ever/#commentsFiled under: , , , , ,

AlabamaWith a Thursday afternoon deadline fast approaching, investors and officials in Alabama are working to review new proposals to avert the biggest municipal bankruptcy in American history. Jefferson County, home to Birmingham, Ala., may have to file Chapter 9 on its $3.14 billion debt if is isn't able to negotiate a settlement.

So far, the negotiations have come up short by $300 million. Jefferson County has asked bondholders to forgive $1.3 billion of its debt, while creditors have offered to write off $1 billion, according to Bloomberg.

"I think they should have filed bankruptcy a year and a half ago," Craig Harris, mayor of Jefferson County town Kimberly, Ala., told the North Jefferson News. "This is a no-win situation."

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Even as negotiations come down to the wire, bankruptcy and debt expert James Spiotto, an attorney with Chapman and Cutler, tells DailyFinance it is in the county's best interest to find a solution outside of bankruptcy. He cites New York City's debt crisis in 1975 and Philadelphia's in 1991 as historical precedents.

"[An alternative solution] saves time, expense and market disruption," he says. "It has been to the benefit to state and local to do it that way. They prefer that they pay their bond debt so they can maintain access to markets and [have cash flow] to pay for [expenses]. It allows local governments to make decisions locally."

Sewers, Scandals and Derivatives

The bankruptcy drama stems from a federal court order requiring the county to rebuild its sewer system years ago. To finance the project, the county issued bonds that were ultimately linked to derivatives. Some of the deals were marred by scandals, and then, in 2008, the financial crisis took its devastating toll, according to The New York Times.

This year, things took another turn for the worse after a key tax revenue stream was lost, forcing the county to lay off hundreds of employees, slash services and raise sewer rates.

If Jefferson County does file Chapter 9 tomorrow, it will have a long-term effect and will prevent the county from accessing capital down the road, Spiotto says. Bankruptcy would not eliminate the debt, but would allow the municipality itself to present a debt-adjustment plan.

"This is not the time to see how much charity there is in capital markets," Spiotto says. "They will see that the market is not that forgiving. It's cheaper in the long run to find [an alternative solution.]"

A default in Alabama also could rattle the $2.9 trillion municipal bond market, which has already seen plenty of fluctuation in the last six months.

More Municipal Bankruptcies

The possible bankruptcy comes on the heels of at least five other municipal bankruptcies this year, including those in Central Falls, R.I., which filed Chapter 9 on Aug. 1 over pension problems. Harrisburg, Pa., has also been talking about filing for bankruptcy over its $5 million deficit, even as the City Council struggles to find an alternative plan by its Sept. 6 deadline.

The largest municipal bankruptcy to date was that of Orange County, Calif., in 1994. The county suffered losses of $1.6 billion from bad investments. Since 1980, there have been 254 municipal Chapter 9 filings, mostly by small special-tax districts and municipalities, according to Spiotto. One-third of these have been dismissed, he adds.

"We need to keep in mind that municipal bankruptcies are extremely rare, so in that sense it is best to look at them as outliers," Gregory Minchak, spokesperson for the National League of Cities, tells DailyFinance. "They are very specific to the cities and where we see them happen and there usually has been some big event that caused it."

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]]>alabamabankruptcybond marketBondMarketbondsfinancial crisisFinancialCrisisJefferson Countyjefferson county bankruptcyjefferson county bondsjefferson county sewerjefferson+county+alabamaJeffersonCountyjeffersoncountyalabamaJeffersonCountyBankruptcyJeffersonCountyBondsJeffersonCountySewermunicipal bond fundsmunicipal bond marketmunicipal bondsMunicipalBondFundsMunicipalBondMarketMunicipalBondsmunicipalities+in+debtmunicipalitiesindebtCatherine NewWed, 03 Aug 2011 17:45:00 ESTSEC Claims Dead Money Manager Sold Fake Bondshttp://www.dailyfinance.com/2011/08/02/sec-claims-dead-money-manager-sold-fake-bonds/http://www.dailyfinance.com/2011/08/02/sec-claims-dead-money-manager-sold-fake-bonds/http://www.dailyfinance.com/2011/08/02/sec-claims-dead-money-manager-sold-fake-bonds/#commentsFiled under: , ,

SECThe Securities and Exchange Commission is going after the assets of dead money manager Joel David Salinas, accusing him and his partner, Brian A. Bjork, of defrauding investors of $50 million. The SEC sued Salinas's estate Monday in the U.S. District Court for Southern Texas.

The 19-page complaint alleges that the men created two firms -- Select Asset Management and J. David Financial -- to sell fake bonds. Salinas, founder and president of J. David, and Bjork, chief investment officer of Select Asset Management, offered yields of as much as 9% on the investments. The fraud began in 2004 and ended only recently, according to the lawsuit.

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Salinas died of an apparent suicide on July 17, according to the SEC, and left a note in which he took sole responsibility for the Ponzi scheme.

Texas authorities also took action against Bjork and Select Asset Management. The State Securities Board's inspections and compliance division has filed to revoke their state registrations, claiming that neither Bjork nor Salinas bought the bonds that Bjork sold to his clients.

Investors Include Basketball Coaches

A new twist in the story emerged Monday: At least two prominent basketball coaches lost money in the schemes.

Salinas was a founder of an elite high-school summer basketball program in Houston and a donor to college sports programs, according to a Bloomberg article, and his investors included college basketball coaches Lute Olson, former coach at the University of Arizona, and Scott Drew, coach at Baylor University. Several other coaches may have been defrauded as well.

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]]>basketballbasketball coachesBasketballCoachesbondsBrian A. Bjorkbrian bjorkBrianA.BjorkBrianBjorkcollege basketballCollegeBasketballfake bondsFakeBondsfraudhigh school basketballHighSchoolBasketballj davidJ. David SalinasJ.DavidSalinasJDavidjoel david salinasJoelDavidSalinasPonzi SchemePonziSchemesalinasscamSECSecurities and Exchange CommissionSecuritiesAndExchangeCommissionselect asset managementSelectAssetManagementtexas state securities boardTexasStateSecuritiesBoardDouglas McIntyreTue, 02 Aug 2011 10:30:00 ESTAre You Seriously Considering Buying Bonds?http://www.dailyfinance.com/2011/07/08/are-you-seriously-considering-buying-bonds/http://www.dailyfinance.com/2011/07/08/are-you-seriously-considering-buying-bonds/http://www.dailyfinance.com/2011/07/08/are-you-seriously-considering-buying-bonds/#commentsFiled under: ,

For many investors, the imperative to own a certain percentage of your portfolio in bonds trumps every other consideration. But the same investors who wouldn't hesitate to pull back on stock allocations when stocks were overpriced don't seem to recognize the same conditions in the bond market.

Bond investors have had to make huge sacrifices in recent years. With rock-bottom interest rates, Treasuries pay so little that they're hardly worth investing in. Banks aren't paying their CD customers any better. When you look at the absolute reward and risk involved, buying corporate bonds makes less sense than ever. In comparison, corporate offerings look attractive -- at least in a relative sense.

Giving up every bit of upside potential for a yield that barely covers inflation doesn't make sense for most investors. Bonds are useful tools, but only when they give you returns worth buying them for.

A Snapshot of Bond Land
As some people fear a return of the conditions that brought on the 2008 financial crisis, bond yields have tumbled. That's good news for those who already own bonds, as bond prices move up when yields fall.

But if you're looking put new money to work now, low rates aren't your friend. The iShares Investment Grade Corporate (LQD) ETF has a current SEC yield of just 4% despite having a quarter of its holdings rated BBB, just above junk status.

Of course, it's possible that bond prices could continue to climb from here. Even now that the Fed has stopped making additional bond purchases through QE2, a new economic slowdown could keep interest rates low for some time. Bond buyers could end up looking smart, especially if the stock market responds to economic woes by falling sharply.

News like yesterday's favorable jobs reports put a more positive spin on the future, but then this morning's jobs number brought all that euphoria back into question.

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Still Not Convinced?
It's a fundamental truth of investing that any time you make an investment thinking that it will climb through the roof, the person selling that investment to you thinks it won't.

When the folks on the other side of the trade are financially savvy companies taking advantage of historically unprecedented favorable market conditions, investors should think twice before taking the opposing position.

Amid such uncertainty, there's one group that isn't taking any chances: Corporations have once again stepped up in issuing new bonds, locking in attractive low interest rates before the fallout from the end of the Federal Reserve's quantitative easing program -- along with a more solid economic recovery -- finally take away the low-rate punch bowl.

Some of the companies issuing new debt included the following:

  • Early in the holiday-shortened week, Devon Energy (DVN) and General Dynamics (GD) were among investment-grade corporate issuers that combined for $10 billion in new bonds Tuesday and Wednesday.
  • Yesterday, Bank of America (BAC) and Deere's (DE) John Deere Capital division successfully sold debt carrying rates of less than 4%, with maturities extending from 2016 to 2021.
  • In addition, Anheuser-Busch InBev (BUD) and Toronto-Dominion Bank (TD) each raised more than $1 billion through a combination of fixed-rate and floating-rate bonds. All of the bonds offered came in with spreads of less than 1 percentage point over Treasuries with the same maturity date.
Applying that fundamental axiom of investing, which side of this trade do you think made the better move: companies or bond investors? My money's on the corporations that issued that debt.

Don't Allocate Your Assets Blindly
Before you jump out and buy bonds that companies are issuing now, take a step back and consider: Who's getting the better end of the trade? Your better bet may well be to buy shares of the companies who are cashing in on low rates.

Motley Fool contributor Dan Caplinger likes investments that pay you back. He doesn't own shares of the companies mentioned in this article. The Motley Fool owns shares of General Dynamics and Devon Energy and Bank of America.

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]]>bondsinvestingmotley foolMotleyFoolDan CaplingerFri, 08 Jul 2011 16:00:00 ESTThis 'Fear Trade' Could Bring You 87% Gainshttp://www.dailyfinance.com/2011/04/27/this-fear-trade-could-bring-you-87-gains/http://www.dailyfinance.com/2011/04/27/this-fear-trade-could-bring-you-87-gains/http://www.dailyfinance.com/2011/04/27/this-fear-trade-could-bring-you-87-gains/#commentsFiled under: , , , ,

This 'Fear Trade' Could Bring You 87% GainsBy Deborah O'Malley, StreetAuthority

With a slew of bad news recently hitting the streets, it appears fear is on the rise.

Unemployment rates remain high at 8.8%, housing sales are still sluggish and, despite an already weak U.S. dollar, the Federal Reserve is expected to keep interest rates near zero -- making the currency less attractive to outside investors.

On top of all this, on April 18, one of the most recognized credit-rating agencies, Standard & Poor's, lowered its U.S. debt outlook from "stable" to "negative." The downgrade means an increased likelihood the United States could lose its coveted "AAA" credit rating within the next two years.

The outlook was lowered because S&P believes the U.S. government isn't taking aggressive-enough action to reduce its massive debt load, especially in comparison to other debt-ridden countries.

Of the 17 countries deemed by S&P to have "AAA" status, the United States is now the only one to have a negative outlook -- a trend that could very well buck.

The notion that the United States could lose its credit rating has all-around negative economic implications. For starters, it means the cost of borrowing could increase. But worse yet, the U.S. dollar could lose its status as the world's reserve currency, causing a potential economic breakdown.

Fortunately, as a trader, there are ways you can benefit from these worries. As billionaire value investing guru Warren Buffet famously said, "be fearful when others are greedy, and be greedy when others are fearful." And by all accounts, now is a great time to be greedy -- with a reliable trading instrument.

But don't just take my word for it. Look to the Volatility Index (VIX) to make the call -- one of the best ways to assess objectively market fear levels.

The Volatility Index is calculated by the Chicago Board Options Exchange. The CBOE takes into consideration a number of trading factors to determine the market's volatility level. In essence, low volatility typically indicates traders feel calm and bullish about the market. But when bad news pushes the market lower -- as is currently happening -- trader fear tends to increase, along with bearish sentiment.

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To determine when market complacency and fear are at their height, fixed levels can be assigned to the Volatility Index (although these levels are historical and change from time to time). Generally, if the index is below 15, fear is relatively low. As the index rises toward 30, fear is increasing. And anything above 45 shows a strong level of fear.

After hitting a two-year low of 14.30 during the April 18 trading week, the index is currently hovering around 15-19. But the index appears as if it might rise, due to the recent S&P downgrade and other events triggering perceived economic instability.

Because the VIX cannot be directly traded, one way to profit from rising fear levels is to play the iPath S&P 500 VIX Mid-Term Futures ETN (VXZ).

This ETN (exchange-traded note) targets mid-term four-, five-, six- and seven-month VIX futures contracts and appears to closely mirror the activity of the VIX. So when the VIX rises, so does VXZ, and when the VIX falls, so does VXZ.

VXZ currently trades for about $53.50 and carries an expense ratio 0.89%. The security has a market cap of about $5.6 million.

Technically, VXZ appears to be on the rise.



The index peaked at $104.32 in May 2010, following the "Flash Crash," which caused volatility and fear levels to spike.

As 2010 progressed into what many perceived as a bull market, fear subsided, causing the security to steadily drop to a two-year low of $51.61 in early February 2011.

Touching support near this level, the security quickly rose to a height of $65.04 in early March, as tensions in the Middle East escalated, causing fear to rise.

Testing a shelf of resistance near $65, the security fell to around the $55 as traders tuned away from the Middle Eastern conflict.

However, during the April 18 trading week, on news of the S&P rating downgrade, VXZ jumped once again -- this time breaking resistance marked by the Intermediate downtrend line. The break of this trendline is significant, as it suggests the security could once again be on the rise.

VXN has pulled back during this April 25 trading week. But if the security again tests and breaks the trendline, it could very well move to nearby resistance at $60.05. If VXN were to test and break nearby resistance at $60.05, the security could easily soar to around $75 before encountering any substantial historical resistance.

The major downtrend line currently intersects at this level. Should VXZ break the Major downtrend line, the security could rocket to the $100-range -- a level it hit nearly a year ago.

If the security were to once again reach the $100-range, traders tuning in at current levels could make a hefty profit.

Action to Take: Recent economic events, especially the S&P rating downgrade, appear to be reigniting fear. The VXZ security provides a great instrument to potentially profit from rising fear levels. The recent pullback provides an attractive entry point. Traders taking a position now could potentially make returns of up to 87%.

Disclosure: Neither Deborah O'Malley nor StreetAuthority, LLC hold positions in any securities mentioned in this article.


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]]>aaabondsCBOEChicago Board Options ExchangeCredit ratingdollarfear indexFederal deficitFederal Reservereserve currencystandard and poorstreasury bondsU.S. credit ratingU.S. debtVIXvolatilityVolatility Index SP 500 Options-VIXVXNStreetAuthorityWed, 27 Apr 2011 07:00:00 ESTThe One Safe Way to Invest in Municipal Bonds Nowhttp://www.dailyfinance.com/2011/04/08/municipal-bonds-safe-investment-default-risk/http://www.dailyfinance.com/2011/04/08/municipal-bonds-safe-investment-default-risk/http://www.dailyfinance.com/2011/04/08/municipal-bonds-safe-investment-default-risk/#commentsFiled under: , ,

The One Safe Way to Invest Now in Municipal BondsLate last year, outspoken banking analyst Meredith Whitney rattled the staid world of municipal bonds with a bold prediction on 60 Minutes that hundreds of billions of dollars in munis would soon default because of declining local tax revenues and expenses such as underfunded public pensions.
That prediction succeeded in scaring the small investor out of the muni market. According to market researcher TrimTabs, some $31.5 billion has been yanked from muni mutual funds since that fateful broadcast.
But Whitney's dire scenario hasn't come to pass: Are we out of the woods on the municipal bond front? And, if not, is it still possible to invest in that sector safely?

Pre-Refunded Munis: Your Payout Is Waiting
Marilyn Cohen, CEO of Envision Capital Management, a fixed-income management firm in Los Angeles, says it's still too early to invest anew in munis.
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"I think we're going to have a second wave of selling," says Cohen, co-author of the new book, Surviving the Bear Bond Market. "I think the default rate in the next 12 months is going to be significantly higher than we've ever seen before, because the market has changed."
So what is a conservative investor to do, given that Treasuries are yielding almost nothing? Well, Cohen isn't spurning all munis. She recommends buying one select group that carry virtually no risk: pre-refunded munis, or escrowed to maturity bonds.
These bonds function exactly like regular munis, complete with the tax-free income. The only difference is that the money to pay off the principal and interest has been set aside in an escrow account.
There are several methods used to fund these escrow accounts, but Cohen recommends buying only pre-refunded munis that have U.S. Treasuries in the escrow. She says even though bonds issued by the government-run Fannie Mae and Freddie Mac mortgage issuers are sometimes used, investors should steer clear of those.
The only risk with these bonds is if the U.S. government goes bankrupt, and there's little risk of that, despite the budget battle in Washington.

Investing in the Real Necessities
Dick Bellmer, CEO of Deerfield Financial Advisors in Indianapolis, is also a fan of pre-refunded munis, noting that the more attractive ones are issued by budget-challenged states like California and Illinois. "People say 'I don't want one of those things,'" he says. But they still carry no risk, even when the issuing state's finances are a mess.
The only real drawback is that so many people have cottoned on to the fact that pre-refunded munis with U.S. Treasury escrow have essentially no risk that they are no longer such a great deal as they once were.
Consequently, Bellmer recommends essential revenue bonds as a possible alternative. These bonds are issued by states for such things as municipal water companies. "If they're going to cut off your water, you're probably going to pay your water bill," Bellmer says, "which means the risk as it relates to essential revenue bonds is probably not a lot of risk. You can still get a pretty decent yield off of those kind of bonds."
Bellmer cautions small investors to make sure the bonds they invest in are not illiquid, because few institutional investors can be bothered to get involved in $25,000 bonds. That means there may not be a big market for them, and they could prove hard to sell in a pinch. He prefers holding bonds to maturity, but not every small investor has that kind of flexibility.

Beware of the Price/Yield Dichotomy
Bellmer isn't a big believer in muni mutual funds: He prefers to hold individual muni bonds.
"I know exactly what I am going to get -- a stream of interest payments and the value of the bond back when it matures," he says. "With a longer-term bond fund, people are buying because it pays a higher interest rate."
But what they don't recognize is that when interest rates go up in the economy because of rising inflation, the entire value of the bond fund is going to go down since price and yield move in opposite directions.
Suddenly the higher-yielding fund doesn't look so good, Bellmer says. Then the only possibility of the fund rebounding is if interest rates go down again -- and that may be years in the future.

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]]>60 Minutesbond marketbondsescrowed to maturity bondsfannie maefixed incomefreddie macMeredith Whitneymunicipal bond fundsmunicipal bondsmunispre-refunded muni bondsT-Billstreasury bondsU.S. TreasuriesCharles WallaceFri, 08 Apr 2011 10:00:00 ESTSix Ways to Avoid Common Retirement Planning Pitfallshttp://www.dailyfinance.com/2011/04/06/six-ways-to-avoid-common-retirement-planning-pitfalls/http://www.dailyfinance.com/2011/04/06/six-ways-to-avoid-common-retirement-planning-pitfalls/http://www.dailyfinance.com/2011/04/06/six-ways-to-avoid-common-retirement-planning-pitfalls/#commentsFiled under: , ,

Six Ways to Avoid Common Retirement Planning PitfallsDespite the endless drumbeat of advice to "save, save, save for retirement," most Americans are saying "tomorrow, tomorrow, tomorrow." Then tomorrow turns into today, and more immediate priorities keep pushing long-term planning off into the future.

In the latest Employment Benefit Research Institute survey, 56 percent of workers reported that the total value of their household's savings and investments, excluding the value of their primary home and any defined benefit plans, was less than $25,000, and about 29 percent said they have less than $1,000. Those numbers are hardly enough to fund even the most modest of retirement dreams.

Truth is, with savings so slim, there's precious little room for error when planning for retirement, because people's nest eggs aren't much of a safety net. But failing to save enough is just one of many mistakes people make when planning for the twilight years. There are a host of retirement planning missteps that can make an already less-than-ideal situation even worse.

Here's a look at where people commonly go wrong, and how they can adjust course to reach retirement in good financial shape.

1. Rethink Retirement

"The retirement message doesn't work. Most people don't have the willpower or the financial ability to forgo spending today for a hazy benefit tomorrow," says Sol Nasisi, chief economist at www.BestCashCow.com, which provides information on banks and credit unions. "Instead, people should think about building personal wealth, a process that it is ongoing and has immediate benefits, but also provides for people when they decide to stop working. Building and accumulating wealth is a much more powerful, immediate message than saving for retirement.

Changing the message changes how one thinks about saving and investing. "Building wealth is a much more active process than saving for retirement, and its benefits can be realized much quicker," Nasisi adds. While this may seem top be just a shift of semantics, "Building wealth is largely a matter of outlook and philosophy. Saving for retirement is a chore, building wealth is a challenge," he says.

Also, forget about the idea of retirement as a permanent vacation.

"The old idea of retire at 65, move somewhere warm, play golf, no longer works," points out Matthew Tuttle, a certified financial planner with Tuttle Wealth Management. "With life expectancies increasing, playing golf and going to early bird dinners every day can get old [after] 35 years. Rethink what retirement means: It could be working fewer hours or changing jobs to something you like more."

Know too, that you may not have as much control over your retirement date as you imagine. "Most people assume they will retire at a certain age, but two in five people retire earlier than planned," warns Katie Libbe, vice president of consumer insights at Allianz Life. "This could be due to layoffs, illness, or any number of factors. The key is to start saving early."

2. Anticipate the Unexpected

When you're young and healthy, you'll spend very little time in the doctor's office, but for most of us, that will change later in life. According to a Fidelity Investments study, a 65-year-old couple who retired in 2010 will need $250,000 to pay for medical expenses throughout retirement, not including nursing-home care. The study found that health care costs average $535 a month, or about one-fifth of an average couple's total monthly expenses of $2,842.

Failing to prepare for the reality that eventually, your young bones will be old is a critical mistake. "Medicare is not free and it doesn't cover everything, including prescription drugs," says Ross Blair, CEO of www.PlanPrescriber.com. "Not planning ahead in retirement for catastrophic medical expenses as well as prescription drug costs and supplemental insurance plans could potentially be devastating to a retiree."

The good news is, there are some tax-free ways to compensate for those expenses. You can contribute to a Health Savings Account. Individuals can contribute $3,050 in 2011, while a family can contribute $6,150 a year tax free. If you're over 55, you can add an extra $1,000 as a catch-up contribution. "When someone turns 65 and ages into Medicare they can use these funds for prescription drugs, certain Medicare plans and other health coverage other than premiums for a Medicare supplement policy, such as Medigap," says Blair. Proper protection is key, be it health, disability, life, or long term care insurance.

3. Forget Tradition

Conventional wisdom may not apply to you. "Following standard industry advice that you should get real conservative, meaning investing heavily in bonds, by the time you are 65 is a recipe for having to find a job in your 70s and 80s when you run out of money," says Tuttle.

Likewise, you shouldn't count on history repeating itself. "You can't assume you'll always get the same return on your investments," cautions David Spader, a financial analyst with www.SavingsAccount.org, which provides information on savings, money market and CD rates. "Don't think you'll be able to beat the market for 30 years."

4. Handle Your 401(k) Wisely

A 401(k) is not a piggy bank. Sure, it's your money, and good for you for participating in your employer's plan -- a surprising number of people don't even do that, believing that they can't afford to. Hopefully, you're contributing enough to get the maximum amount of free money from the company's match, if yours offers it. But borrowing from yourself is a bad idea.

"Taking a loan from a retirement plan can look appealing as a way to get out of a hole, but it can actually create more problems," says Scott Halliwell, a certified financial planner with USAA. "This tactic removes the growth potential on those funds, and, if you lose your job and can't repay the funds, the loan will be treated as a distribution and subject to taxes and penalties."

While it may be convenient, think twice about leaving retirement funds in an employer plan after you leave that job. "The employer plan has limited investment options. The employer makes all the decisions. As soon as possible, most people should roll their employer retirement funds into an IRA," advises Radon Stancil, a certified financial planner with Diversified Estate Services. You can do this tax-free and once the funds are in an IRA, you the owner, have all the control.
5. Redefine Investing

Investing has increasingly become synonymous with putting money in stocks, bonds or mutual funds. While this should be one facet of building wealth, it should not be the only investment vehicle, nor should it necessarily be the primary investment vehicle, says Nasisi. To be truly diversified, an investor should look to real estate, an investment in a business, or starting a side business, he adds.

"Take the initiative and invest some money in yourself and things you can control instead of forking over all your savings to others," says Nasisi. "Look for ways to build income streams that will generate reliable cash well into the future."

6. Set Priorities

You have to put your hard earned money in the right places. "Forget the shiny new BMW or the latest iPhone, save the money and put it to work for you," says Nasisi. While it's a very admirable goal to save money for your children's college education, truth is, there are many ways to pay for college. "But go into the bank on the day you retire and ask to take out a 'retirement loan," says Charlie Long, a financial adviser with Exemplar Financial Network. You get the point.

It can also be a mistake, especially in this low-interest-rate environment, says Long, to pay off a low-interest mortgage, when those funds could be used elsewhere.

Realize that when it comes to retirement you can't "wing it." Stephen Cunha, a certified financial planner with Baystate Financial Services says to remember the five P's: Prior Planning Prevents Poor Performance. You want a written plan that includes an analysis of all financial goals, retirement income needs, insurance, tax, investment and an estate plan, he adds. However, your plan can't be engraved in stone, and should be monitored periodically. You need some tangible evidence of what you want and why, and and idea of how you plan to achieve it -- otherwise, how can you expect to reach your goals?

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]]>401kbondsBuilding Wealthdiversified portfoliodiversifyhealth careHealth Savings AccountHealthCareindividual retirement accountinsuranceinvestingIRAMedicaidmedicaremistakesmistakes investors makeretirementRetirementPlanningRoth IRAsavingstocksSheryl Nance-NashWed, 06 Apr 2011 07:00:00 ESTWhy the European Debt Crisis Is Far From Overhttp://www.dailyfinance.com/2011/03/27/why-the-european-debt-crisis-is-far-from-over/http://www.dailyfinance.com/2011/03/27/why-the-european-debt-crisis-is-far-from-over/http://www.dailyfinance.com/2011/03/27/why-the-european-debt-crisis-is-far-from-over/#commentsFiled under: , , ,

The European debt crisis is back in the headlines, and the news is not good. Portugal's prime minister resigned after his austerity plan for the beleaguered nation were rejected by opposition parties in parliament, and Germany's leadership is waffling on funding the huge bailouts needed by debt-burdened countries such as Ireland and Greece, reflecting the deep ambiguity of German voters weary of bailing out their weaker neighbors. Despite the brave talk of a few months ago, it now seems all but inevitable that Portugal will also need a gigantic bailout of at least 70 billion euros, or $99 billion.

Ratings agencies have downgraded Portugal's debt, and investors have responded by pushing the yield on its bonds to more than 8%, roughly 4.5% higher than the yield on German bonds. Yields on Ireland's debt exceed 10%, reflecting the perceived risk of default or renegotiation.

With Europe at risk of stumbling as a result of its austerity measures and the costs of bailouts, investors need to rethink investments in eurozone economies and the euro itself.

Eurozone growth is already anemic: France managed a meager 0.3% gain in the fourth quarter of 2010, and 1.5% for all of 2010, while the U.S. economy expanded 3.1% in late 2010.

The bailouts are not small potatoes. The temporary rescue fund, known as the European Financial Stability Facility, is currently set at 250 billion euros ($353.6 billion) , and European Union officials want to expand it to 440 billion euros ($622.3 billion). The wealthier nations of Europe have already loaned 177 billion euros ($250.3 billion) to bail out Greece and Ireland, and the high yields on those nations bonds and credit default swaps -- insurance against default -- show that investors continue to see a high risk of default.

Spain Also at Risk

While Spain's economy expanded at a modest 0.9% pace last year, its debt situation remains precarious enough that ratings agency Moody's recently downgraded its bonds. The basic problems of Spain will be familiar to Americans: A property bubble drove residential real estate prices to unrealistic heights, and lenders made loans based on those sky-high valuations. Once home prices retreated, banks were left with large quantities of defaults on land and houses.

Analysts are now suggesting Spanish banks will need at least 50 billion euros in additional capital ($70.7 billion) to cover these mounting losses.

As if these losses weren't troubling enough, rising interest rates threaten to further undermine Spain's homeowners. The European Central Bank President Jean-Claude Trichet recently said that the ECB's key interest rate could rise from 1% as early as April. Fully 97% of Spain's home loans are variable-rate: Their payments will rise when interest rates click higher.

Despite an unemployment rate around 20% and its recent debt downgrades, mainstream analysts see Spain as an unlikely candidate for a costly bailout. But Spain is burdened with the costs of bailing out its own banks, and other analysts are not so sanguine, citing a lack of information on the quality of assets held by the banks. In other words, some fear Spanish banks are overstating the value of their real estate holdings to hide the full extent of their losses.

Structural Flaws in the European Union Papered Over

While there is plenty of chatter about bailouts, austerity measures and heavy debt loads, few analysts are speaking to the potentially fatal weakness built into the European Union and its single currency, the euro, a flaw that is now painfully obvious.

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While the European Union consolidated power over the shared currency and trade, it left control over trade deficits and budget deficits entirely in the hands of the member states. Lip service was paid to fiscal responsibility via caps on deficit spending, but in the real world, there were no meaningful controls limiting private or state credit expansion, or on sovereign borrowing and spending.

In effect, the importing nations within the union (Ireland, Greece, Portugal and to a degree, Spain and Italy) were given the solid credit ratings and expansive credit limits of their exporting cousins such as Germany, The Netherlands and France. To make a real-world analogy, it's as if a spendthrift younger brother was handed a no-limit credit card with a low interest rate, backed by a guarantee from a sober, cash-rich and credit-averse older sibling.

For awhile, it was highly profitable for the big European and international banks to expand lending to these eager new borrowers. This led to over-consumption by the importing nations and handsome profits for big Eurozone banks. And while the real estate and credit bubble lasted, the citizens of the bubble economies enjoyed the consumerist dream of borrow and spend today, and pay the debts tomorrow.

Tomorrow has arrived, but the foundation of the banks' assets -- the market value of housing -- has eroded to the point that both banks and homeowners face insolvency. The heightened risk of default, both by banks and the governments trying to bail them out, has caused interest rates in the debt-burdened countries to rise. Faced with rising costs of servicing their debts, and spending cuts to bring deficits under control, the citizens of the states such as Portugal are rebelling against austerity measures. On the other side, taxpayers and voters in fiscally sound member states such as Finland and Germany are rebelling about being saddled with the costs of bailing out their weaker neighbors.

This structural imbalance will not be easily addressed, but until it's fixed, the E.U. and the euro, are at risk of a great political and fiscal fracturing.

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]]>bailoutbondsdeficit spendingeuroEuropean Central BankEuropean debt crisisEuropean financial stability facilityEuropean unionEurozoneFranceGermanyGreeceinterest ratesirelandPIIGSportugalsovereign debtsovereign debt crisisSpainTrichetCharles Hugh SmithSun, 27 Mar 2011 08:00:00 ESTA Breakout Is Likely -- but in Which Direction?http://www.dailyfinance.com/2011/03/10/stock-market-breakout-likely-but-in-which-direction/http://www.dailyfinance.com/2011/03/10/stock-market-breakout-likely-but-in-which-direction/http://www.dailyfinance.com/2011/03/10/stock-market-breakout-likely-but-in-which-direction/#commentsFiled under: , ,

A variety of technical signals are suggesting we're at a crucial decision point for the stock market: Either the bull recovers from its recent swoon and moves decisively up toward new highs, or the market reverses trend dramatically and moves down.

Although many market observers dismiss technical analysis as unscientific speculation more akin to astrology than math-based quantitative analysis, those skeptics are missing the point: Technical analysis isn't rooted in brute-force matching of curve sets, it's rooted in human psychology. Levels of resistance and support are not mathematical certainties -- they reflect the human psychological tendencies toward greed and fear.

When the market finally recovers a key level, for example, those investors who have grown weary of being underwater simply want their initial capital back, so they sell. This creates resistance. When the market declines, those who have reaped gains from buying during previous dips will jump in and buy more stock at what they perceive as "bargain" prices. This creates support.

And proponents of number-crunching quantitative analysis shouldn't be too cocky about their tool of choice: Quant analysis is based on past price action and patterns just like technical analysis. Just because a math-derived curve set matches recent price action does not preclude the unexpected from happening. This is why quant-based funds such as Long-Term Capital Management tend to self-destruct when markets trend strongly in unpredictable ways.

There are a lot of crosswinds in the market right now. Gains in retail sales and jobs are trends that support a bullish stance, while rising oil prices, food inflation and geopolitical uncertainty are giving credibility to a more cautious or even bearish perspective.

Warnings from Carl Icahn and Bill Gross

Small investors often look to highly successful "superstar" investors for hints on where the market is heading, and two recent news items about such big names have provided solid support for the bear camp: Legendary investor Carl Icahn has dissolved his hedge fund and is returning its capital to shareholders, citing the risk of another financial crisis. And famed bond manager Bill Gross has reduced the Treasury bond holdings of the world's largest bond fund, Pimco's Total Return Fund, to zero. The amount of cash the fund holds has swollen from $11 billion to more than $54 billion, its largest cash position ever.

There isn't any other way to interpret this except as a multibillion-dollar bet against the Federal Reserve's reassuring stance that inflation will remain tame for years to come. If you fear inflation might accelerate, the last investments you want to own are long-term, low-yield bonds that will instantly lose money if interest rates start rising.

Some analysts also interpret this move as an expression of doubt that the Fed will launch a massive third round of quantitative easing in June when the current QE2 campaign is scheduled to end. The Fed's ongoing $600 billion quantitative easing program is widely regarded as having strongly supported the rising equity markets.

As for the rising retail sales numbers, part of those "gains" can be attributed to rising costs: People and businesses are paying more than before for the same goods. If households are spending borrowed money again, that's not a sign of strength -- it's a sign of weakness in the household balance sheet. Consumers turned on the credit card spigot again in December, and they've loaded up on car loan debt this year.

What analysts should be looking at is whether household incomes are rising. Unfortunately, the answer is clear: Wage earners aren't benefiting much from the recent strong gains in productivity.

In an economy based on consumer spending, stagnant household incomes don't provide a strong foundation for future spending increases.

As for stock valuations, by at least one analyst's reckoning, many stocks are at all-time highs. Does the underlying economy support sky-high stock valuations? That's an open question, and one the market is obviously pondering.

To round out the backdrop for the market's current indecision, let's look at these two log-term charts of the S&P 500 and the Nasdaq.

The Nasdaq has retreated from the highs last reached in 2007, following a pattern that looks a lot like a classic "double top."




The S&P 500, meanwhile, traced out a massive double top pattern earlier in the decade. Its rapid ascent from the 2009 lows has been far more robust than the recovery in the overall economy, a disconnect that the current market queasiness reflects.



Now let's look at the daily chart of the broad-based S&P 500 (SPX).



The push and pull of hope and doubt is visible in the wedge (also called a flag or pennant) that has been traced out over the past three weeks. This is a classic wedge of lower highs and higher lows as prices are squeezed into a narrowing band of volatile swings.

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Wedges are typically broken by big moves either up or down. A collapse in oil prices or a strong jobs report might provide the catalyst for an upside breakout, while accelerating inflation, a further rise in oil prices or a weaker-than-anticipated jobs report might trigger a breakdown and a trend reversal.

The 1,300 level offers both a psychological and technical support -- a round number and the 50-day moving average. Any sustained break below 1,300 would signal a possible trend reversal.

The bull has stumbled recently. For it regain its footing, the market would need to climb above the 20-day moving average (MA) and then retest recent highs around 1,343.

The two-month chart of the Nasdaq offers an interesting technical snapshot of indecision: As fear that the rally is over takes hold, the market drops significantly. Then as "bargain-hunting" and hopefulness return, it moves back up to the 2,800 level. But then by day four or five, doubt returns with a vengeance, and the market plummets again only to retrace back up to the 2,800 zone of resistance a few days later.



Now that pattern is breaking down: Price has failed to climb back above the critical 20-day moving average even as it has turned down, and is now clinging precariously to the key 50-day moving average. A break through the 50-day MA would be technically significant.

Nobody knows what the market will do tomorrow, much less three months or three years from now. But to the degree that markets reflect the emotions and calculations of its human participants, the current indicators of doubt and indecision deserve careful watching.

Disclosure: The writer has a small position in ProShares UltraShort QQQ (QID), an inverse ETF on the NASDAQ 100.

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]]>bear market forecastbear market outlookBill Grossbondsbull market forecastbull market outlookCarl Icahnfear and greedFederal Reserveinvestor psychologymoving averagesNASDAQproductivityquantitative analysisquantitative easingSP 500stocksT-BillsTechnical Analysistreasury bondsUS TreasuriesCharles Hugh SmithThu, 10 Mar 2011 06:30:00 ESTLibyan Violence Stifles Demand for Bonds, as Well as Stockshttp://www.dailyfinance.com/2011/02/23/libyan-violence-stifles-demand-for-bonds-as-well-as-stocks/http://www.dailyfinance.com/2011/02/23/libyan-violence-stifles-demand-for-bonds-as-well-as-stocks/http://www.dailyfinance.com/2011/02/23/libyan-violence-stifles-demand-for-bonds-as-well-as-stocks/#commentsFiled under: ,

Violence in Libya stifled demand for U.S. 10-year bonds Wednesday, pushing prices down 22 cents per $100 invested.

The yield on the 10-year Treasury, which moves in the opposite direction of price, rose to 3.49% Wednesday from 3.46% Tuesday after falling from 3.62% a week ago.

The declining bond prices come amid widespread violence between military forces and anti-government protesters in the Libyan capital, Tripoli. Nearly 300 people have been killed in the uprising so far, according to the New York-based Human Rights Watch.

The tensions in Libya caused investors to shy away from stocks, as well as the Treasurys, while oil prices briefly exceeded $100 a barrel on the news.

Meanwhile, the Dow Jones Industrial Average (INDU) lost 107 points, or 0.9%, to close at 12,106 Wednesday. The blue-chip index was had declined as m 149 points in midday trading before paring its loss.

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]]>10-year note10-year treasuryBondbond marketbond pricesbondsGadhafilibyalibya demonstrationslibya protestslibya unrestlibya violenceMoammar GadhafiTreasuryTreasury bond yieldstreasury bondsTreasury notestreasurysDanny KingWed, 23 Feb 2011 18:30:00 EST11 Smart Places to Invest Your Money Nowhttp://www.dailyfinance.com/2011/02/17/11-smart-places-to-invest-your-money-now/http://www.dailyfinance.com/2011/02/17/11-smart-places-to-invest-your-money-now/http://www.dailyfinance.com/2011/02/17/11-smart-places-to-invest-your-money-now/#commentsFiled under: , , , , , ,

Smart Places to Invest Your Money NowThe financial markets and the economy are entering new territory, creating new risks and opportunities for investors.

America's slow recovery is gaining momentum, unemployment is declining and there are even signs that inflation will start to pick up. And while it will be years before before consumers and the federal government fully repair their broken balance sheets, housing prices recover and the majority of the unemployed get back to work, for the first time since 2007, the financial landscape is no longer defined primarily in terms of the crisis. The economy is moving forward.

As all economic transitions do, this moment of change is creating new possibilities in the financial markets. As the landscape shifts again, it's important that investors understand where these opportunities are and where they can put their money. Here are 11 areas experts think you should consider right now:

1. Commodities

As the global economic recovery accelerates, fears of deflation have been replaced with concerns about inflation. The prices of commodities and raw materials such as gold, oil and agricultural products have been rising for some time, but businesses have largely been unable to pass those higher costs along to consumers. That may change. While few experts believe inflation is likely to be a major problem, it can't be ignored.

"We are not big inflation bears right now, but that is not the point," says Seth Masters, chief investment officer for blend and defined contribution strategies at asset manager AllianceBernstein. "Even if there's only a 10% or 20% chance that inflation becomes serious, that is a big problem for investors. It will be bad for stocks and very bad for bonds, so it makes sense to have some protection against inflation, even if that is not the central case," he warns.

Real assets such as commodities can provide protection in an inflationary environment, says Kristi Mitchem, a senior managing director at asset manager State Street Global Advisers.

Rather than looking for the next hot commodity, invest in a broad range of commodities by tapping a mutual fund or an exchange-traded fund. "Investors should be well-diversified in commodities," says Mitchem.

Allocation toward real assets will vary depending upon the age and risk tolerance of the investor, but Mitchem says something in the 10% to 15% range is probably suitable for a broad range of people.

2. REITs

Certain kinds of real estate investment trusts can provide a hedge against inflation as well, according to Masters. REITs that comprise 15-year leases may provide no protection at all. "But a hotel REIT that is based on room rates that can be adjusted as the market demands may be very sensitive to inflation, although that is not always the case," Masters says.

3. Inflation-Protected Bonds

Inflation eats away at the value of traditional fixed-income securities, because the dollars you earn in interest aren't worth as much as they were when you made the investment. Over the years, financial institutions have created a number of products that shield credit from the ravages of inflation. TIPS, or Treasury Inflation-Protected Securities, are one way to go about this. TIPS offer a fixed interest rate, but the amount of principal fluctuates, as does the actual amount of interest the investor collects. At maturity, TIPS should be worth at least as much as they were when they were purchased.

Investors can also purchase I-bonds, a form of savings bond in which the interest rate, not the principal, fluctuates over time. Step-up bonds, in which the interest rate rises every year, can be found in the corporate and government agency credit markets.

4. Australian Dollars

The U.S. Treasury market was a huge beneficiary of the global flight to quality during the financial crisis. Soaring demand drove down interest rates and funded the stimulus that helped bring America out of recession. But now, the Treasury market is saturated with supply -- just look at the record $1.65 trillion 2011 deficit it's funding -- and demand as falling as the global economy recovers.

There are alternatives to U.S. Treasurys, though. "One way to hedge it is with the Australian dollar," says Steve Persky, managing partner of Dalton Investments, a $1.1 billion hedge fund based in Los Angeles. Australia came through the financial crisis without falling victim to the credit pressures faced by the U.S. and much of Europe. Its debt-to-GDP ratio was an estimated 22% last year, compared to 59% for the U.S. Furthermore, its proximity to China and the other Asian growth markets is expected to help the country boost its GDP by 4.25% this year.

5. Municipal Bonds

Given the level of alarm about the municipal bond market, investors might wonder if putting money into this sector is akin to buying subprime mortgages in 2007. Yet most issuers in the municipal bond market will repay their obligations without any problem.

Muni bonds yields -- say, 4% for 10 year bonds -- are attractive, especially considering their tax-free status. The question is how to protect yourself from weaker issuers. John Taft, the CEO of RBC U.S. Wealth Management (RBC), says he prefers general obligation bonds and revenue-backed bonds that are linked to essential services such as water and sewer service, not special projects. Some experts suggest that larger issuers with higher ratings tend to be safer, but Taft believes that independent research by an investor or analyst before buying is key.

6. Large-Cap Stocks

In the midst of the financial crisis, investors fled the equity markets and credit prices soared. As the first signs of the recovery took hold, investors began moving back into stocks. The Standard & Poor's 500 is now at 1,330 -- up nearly 100% from early 2009.

Yet there's still opportunity in stocks, even if a market correction occurs. "Large-cap stocks are relatively undervalued," Taft says. The S&P 500 index of large companies is up 24% over the last 52 weeks, while the S&P SmallCap 600 index is up 35% over the same period of time.

7. Dividend Stocks

Research shows that dividend-paying stocks tend to beat the long market. According to that theory, it's always a good time to invest in them. Wharton finance professor Jeremy Siegel researched the S&P 500 from 1957 through 2009 and found that the top 100 dividend stocks had an annualized return of 12.5% over the entire period, while the 100 companies with the lowest dividend yields returned 8.8%.

"Dividends are issued by quality companies that have a history of cash on their balance sheets -- and they are often large-cap companies, which are currently undervalued," Taft says.

8. Health Care and Consumer Staples

Investors who cycle out of the broad market in springtime and shift into defensive stocks such as health care and consumer staples tend to beat the market, according to Sam Stovall, chief investment officer of S&P Equity Research Services.

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The S&P 500 has returned about 6.1% a year since 1995. But if this simple rotation -- undertaken in April and lasting for six months -- is employed, investors' returns are boosted to 9.7%, according to Stovall. He says the results are even more pronounced among smaller companies. The spring defensive rotation boosts the return to 12.5%, compared to 9.7% for the broad market of smaller companies.

What accounts for this seeming mystery? Stovall says the broader market tends to perform better during the end of the year and late winter, thanks to the availability of bonus money, tax returns and other forms of liquidity. The rotation provides a defense against a traditional seasonal downturn for equities.

9. Stocks with Low Debt-to-Equity Ratios

If inflation picks up -- as many experts believe it will -- "investors may want to take a look at companies with low debt-to-equity ratios," Stovall says. As the cost of debt capital rises, companies with cleaner balance sheets will have less exposure. The debt-to-equity ratio for the broad market is 51%, but several industries have much lower ratios, including tech, with a ratio of 28%. "Tech companies tend to become self-funding because their median profit margins are high, at 15.4% compared to 9.2% for the broad market," Stovall says.

Other sectors with low debt to equity ratios include energy, with a ratio of 39%, and industrials, with a ratio of 46%.

10. Oversold Stocks

For the technically minded investor, some standards measures suggest when stocks are under- or oversold. The relative strength indicator (RSI), for example, tracks stocks' performance over the last 14 days and ranks them on a scale of 0 to 100. Scores below 30 suggest that a company may be oversold.

Stovall said that as of Feb. 15, investors might want to consider these stocks with RSI's under 30: Celgene (CELG), CVS Caremark (CVS), Dreamworks Animation (DWA), Family Dollar Stores (FDO) -- now the target of a $7.6 billion takeover bid by investor Nelson Peltz -- and Peoples United Financial (PBCT).

11. Cash

Finally, most experts say its wise to keep a certain amount of your assets in cash. "There is nothing wrong with keeping 10% or 15% in cash," Taft says. "Warren Buffett always said to wait for the home-run pitch. That is how you make money."

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]]>Australian dollarbondscashCommoditiesconsumer productsconsumer products stocksDebt to equity ratiodividend stocksDividendshealth care stocksInvesting adviceinvestment tipslarge cap stocksmuni bondsmunicipal bondsoversoldreal estate investment trustsREITSstock picksStocks to buyTIPStreasury inflation protected securitiesSteve RosenbushThu, 17 Feb 2011 12:00:00 EST