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Stock Market Term 5 -
Market Order – A market order is an order to buy or sell a stock that will be executed on a stock exchange. When you place an order with your broker that includes no other conditions, that's an example of a market order. You agree to buy or sell a stock at what ever the market price is when the trade is executed. Due to the time difference between when the trade is requested and when it's executed, there can be substantial difference in the price you buy or sell a stock at compared to where you wanted to buy or sell at.

For example, if you're looking at a stock on your computer screen and it's sitting at $20.00 a share, it may have moved to $21.75 from the time you place the order to the time a trader actually buys the stock for you on the exchange. Remember that stock exchanges are just markets filled with buyers and sellers. The price offered and the price that sellers are willing to sell for changes constantly as the trading day progresses.

Stock Market Term 4 -
Limit Order – As the name suggests a limit order is an order to buy or sell some stock that's limited by price. There are buy limit orders and sell limit orders. When you place a limit order, the transaction can only occur when the stock's price reaches, but doesn't exceed a certain price. This can occur either on the high or low side.

For example, you want to buy some shares of XYZ Corp. (You just love that company) and it's currently trading at $10.00 per share. You can place a limit order that will not be executed if the stock is trading at greater than $12.00 at the time the order is executed. That prevents you from paying more than you wanted to for the stock, which can easily occur with a fast moving stock due to the lag between the time your order is placed and when the trade is actually executed on the stock exchange.

You can also use a limit order when selling. Say you're holding XYZ Corp at $10.00 per share. You can place a limit order to sell your shares but set a limit at some amount, say $8.50, below which you don't want the trade to be executed. If XYZ falls below $8.50 before the trade can be executed, the transaction won't be made.

Stock Market Term 3 -
Stop Order – The stop order is basically the flip side of the limit order. With a stop order, you set what's called a “stop price”. When the stock reaches your selected stop price the trade will be turned into a market order, not before. As with the limit order, there are sell stop orders and buy stop orders. These are great for locking in profits or limiting losses.

For example if an investor is holding XYZ at $10.00 per share, they can set a sell stop order at $9.00/share. That way if the stock drops to $9.00 it will trigger a market order to sell. If the investor (you?) bought the stock at $7.00 they are locking in the $2.00 per share appreciation as profit. Keep in mind that they may not receive the entire $2.00 due to the time difference between when the market order is placed and when the trade is executed.

Stock Market Term 2 -
Stop–Limit Order – If you really aren't comfortable with the market fluctuations that can cause your trade to be executed at a price above or below your stop or limit order, you need to use what's called, appropriately enough, a “stop–limit order”. The stop-limit order is a marriage of both types of orders. As with the stop order you set a stop price. The difference is that the when the stop price is reached the order converts to a limit order, rather than a standard market order.

Why wouldn't you always use a stop-limit order? Well sometimes you can't, because your broker prohibits it with certain classes of stocks, such as over the counter bulletin board (OTC-BB) stocks. When they allow you to place these orders should be clearly spelled out in their service terms. The other reason you may not want to use a stop-limit order is that, as with a standard stop order, if the price of the stock never reaches the limit, your trade will not be executed.

Stock Market Term 1a -
Ask – You'll see the term “ask” on your computer screen when looking at different stocks and their activity. The Ask amount is what the seller of the stock is willing to sell it for.

Stock Market Term 1b -
Bid – Bid is the flip side of Ask. It's what the buyer is offering to pay for a specific stock.

That wraps up the top 10 stock market terms you need to know. There are hundreds more terms that are used by investors, brokers, and traders. Like lawyers, they have a language that is all their own. I'll post the definition of more stock market terms in the near future.

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Stock Market Term 10 -
Sell short – Selling short (also called “shorting” a stock) isn't a term that applies only to investors under 5' tall. Selling short refers to a strategy where the investor bets that a stock is going to fall, and if it does they'll realize a profit. Basically to sell a stock short an investor will borrow from their brokerage house in order to purchase a specific number of shares of a specific stock. They never actually own the shares, they're on loan to the investor.

At some point in the future, they have to repay those shares to the brokerage house. If they were correct, the shares will cost them less than they paid. For example, if they short 100 shares of XYZ corp at $10.00 a share, it costs them $1,000, except that they don't actually have to pay the $1,000 yet. They are obligated to repay the 100 shares of XYZ at some point in the the future, however. In this example if XYZ corp's stock drops to $7.00 a share, the investor can repay the brokerage house the 100 shares and realize a $3.00 per share profit.

One could have made tremendous profits shorting mortgage company stocks in the past year, but the shorting strategy does have a downside. One downside of short selling is that the upside is limited. You can only earn an amount per share that's equal to the share price. Obviously there isn't any more money in there. So, in this example, you could earn a maximum of $10 per share on XYZ. On the other hand in a traditional purchase your upside profit potential is pretty much unlimited. If XYZ went to $100 at some point in the future, you'd have made $90 a share.

Stock Market Term 9 -
Equity – An equity is analogous to a stock. It's an ownership stake in a company. When an investor purchases a share of stock they're purchasing a portion of ownership in the company. This is also called taking an equity position in the company. It's one of the two main ways a company raises money. Selling ownership in the company is called equity financing. The other way is selling bonds or notes, which are financial instruments that a company promises to repay with interest. Selling company bonds or notes is called debt financing.

Stock Market Term 8 -
Margin – Buying stocks on margin is borrowing money from your broker to buy shares of stock. This is strictly regulated by the Federal Reserve. It is a way an investor can use leverage to grow their investment, because they're using borrowed funds. This is just like when you purchase your house with 10% down, you're leveraging the 10% down payment to control a much larger asset. When the house appreciates you get the benefit of the entire appreciation, although you only paid 10%. As you can imagine, an investor can lose big time if the stock goes down, because you are leveraging both gains and losses.

The Fed requires investors to have a 50% equity in their accounts when buying on margin. So if you want to buy 100 shares the ubiquitous XYZ corp's stock at $10 per share you have to have at least $500 in your account to do so. In reality, because of Federal Reserve regulations, you can't get a margin loan from broker unless you have a minimum of $2,000 in your account.

Stock Market Term 7 -
Call Option – A call option is a contract that two investors enter into where one sells the other the right to purchase a certain security at a certain time for a certain price. The buyer is not obligated (hence the term “option”) to make the purchase, but the seller is obligated to make the sale for the agreed upon price, should the seller so choose. The buyer realizes their profit because they are buying an option to purchase a stock they are hoping they can sell on the open market for more than they paid. It's similar to (but not the same as) employee inventive stock options.

Say XYZ corp is trading at $10 a share and the buyer purchases options to XYZ for $12 a share. The seller locks in a $2.00 share profit because of the $2.00 premium. The buyer pays the $2.00 per share premium as a nonrefundable deposit. Should the stock rise above the $12.00 share price, the option buyer can then buy the stock for the $12.00 agreed upon price, and sell them for whatever the market value is on the day they sell them. The difference between the option price and the sales price is the investor's profit.

Stock Market Term 6
Put Option – A put option is basically the flip side of a call option. It gives an investor the option to sell a specific stock or commodity at an agreed upon price (known as the the “strike price”) at some point in the future. When an investor purchases a put option they are hoping the asset is going to lose value before they exercise the option.

For example, if they buy a put option for, you guessed it, XYZ corp, at $20 a share and XYZ drops to $15 a snare, they'll realize a $5 per share profit, minus the amount they paid for the option. If they paid $2 per share for the option their net profit would be $3 per share. It works like this:

The owner of the put contract buys XYZ at the market price of $15 a share then sells it as per the terms of the put option for $20 per share. They earn $5 per share, but had to pay $2 per share for the option, so they net $3 per share.

Stay tuned for Part 2 of the Top 10 Stock Market Terms - I'll post them tomorrow.

Posted by debtblog at 01:56 PM | Permalink | Comments (0) | TrackBacks (0)

Some of your general investing choices include real estate, individual equities (stocks), bonds (debt), equity funds, mixed funds (stocks and bonds), and your own business. Within those very broad classifications, there are numerous sub classifications. For example, there are many different types of mutual funds you can invest in, all with different characteristics designed to meet the needs of different investors. You can short sell stocks, buy and hold, or try and time the market (for most investors timing the market isn't too smart).

For real estate investors, you can invest in REITs, buy single family properties and rent them out, rent multi family properties, flip properties, concentrate on foreclosures, develop and improve existing properties, or develop raw land. If you'd rather run your own business, there are literally more different business opportunities you can invest your money in than there is room to list them. You can start your own business from scratch, buy an existing business, buy a part of an existing business, or buy a franchise. The different types of businesses that are available to invest in is mind boggling.

There are several characteristics of investors you can look at to find just the right investment choice. One of the first to consider is the time horizon. How long will it be until you'll need access to the money? If you're investing for retirement and you're only 25 years old, you'll choose a totally different strategy than if you're 56 (the new 36) and rolling over an IRA. If you're 25, you can invest more aggressively than if you are closer to the time when you'll need the money because there is time to recover from volatility effects.

Typically more aggressive investments will deliver a higher rate of return, but they will bring with them commensurately more risk. If you're investing for far down the road, you'll have time to recover from those little ups and downs. Looking back over the last 20 years the tech sector has done very well indeed. However, there have been some serious bumps in the road.

For example, the Fidelity Select Software and Computer fund (FSCSX ) has returned an annualized 16.34% over the life of the fund. That's a highly respectable return, and you could do well if all your assets generate such a ROR. The problem is that the tech sector tends to flirt with volatility on occasion. If, in 1998 you were planning on retiring in 5 years, you may have looked at the stats for life of the fund return and think that plopping your money in FSCSX would have been a great idea. That would have been a fatal mistake with regards to your portfolio, however.

As you were crawling our from under the overpass, squinting in the noonday sun, and wondering what the hell happened to your money, you would have realized that just because an investment has great historical returns, it might not be the best investment for you. In this case virtually all equities in the tech sector were pulverized by the dot.com implosion. FSCSX lost almost 50% of it's value between the end of 1999 and the end of 2002.

More recently investors have experienced similar problems with regards to real estate and mortgage sector investments. The key when evaluating an investment vis-a-vis your time horizon is to look at the volatility. By definition volatility indicates a greater likelihood of wide swings in value, even if the overall rate of return during a specific time period is high. That means that you could be caught with your pants (or portfolio's value) down just when you need to begin withdrawals. By choosing investments with lower volatility when your time horizon is relatively short, you'll lower your risk of this happening.

The next thing to examine when evaluating different ways of investing money is your required rate of return. You can never predict an investment's future rate of return with 100% accuracy because you only have past history, industry trends and an evaluation of the local and world economies on which to base your decision. Lord knows any of these variables can be pretty difficult to predict with any certainty, let alone all of them combined.

You can, however, get within shouting distance of what you can expect to receive as a return on your investment by examining these factors and the past history of the prospective investment. In many cases there will be any number of industry analysts only too happy to offer their opinion. In some cases they'll be spot on, but it's often better to look at a general consensus on what performance can be expected in the future.

You will need to determine your required rate of return by determining how much you'll need to accomplish the goal of the particular investment. If you're investing for retirement, you'll need to determine how much annual income you'll require to keep you in the lifestyle to which you've become accustomed, and how long after retirement you plan on living (ah, but you know what they say about the best laid plans!). You can calculate how much of a retirement nest egg you'll need to supply that annual income figure for the requisite time period. Basically, your lump sum retirement account is calculated to pay out like an annuity. Typically a fixed rate of return is assumed for calculating purposes.

Once you know how large that lump sum must be and how long you have to amass that sum, you'll be able to calculate what rate of return you must generate to reach it, providing you known how much you'll be contributing each year. You can calculate your required rate of return using a formula, but it's generally easier to use an investment calculator.

The next thing you'll want to look at when evaluating a prospective investment is your risk tolerance. Many people have substantial tolerance for risk, others are extremely risk averse. Sometimes their risk tolerance for things financial is different that in other aspects of life. For example, you can love to bungie jump, ski and rock climb, but get pretty skittish when it comes to risking your hard earned cash. You'll want to balance your risk tolerance with the required rate of return to find a suitable investment.

Keep in mind that there is usually a positive relationship between risk and return. Higher risk investments compensate investors for taking greater risks with a higher expected rate of return. It's the expected part that can trip you up here.

Lastly, there are various intangibles that come into play. You may want to invest in things that interest you or in industries with which you have some familiarity. If you have a strong social commitment, you may want to pursue “socially responsible” investing. Other things will impact your investment choices as well, such as local or global economic factors that can make certain investments more attractive due to temporarily greater expected returns, shortened expected payout times or lowered risk.

An example of this is real estate investing in the current economy, particularly in foreclosed properties. Many regions have particularly large opportunities available here due to conditions in their regional economies. In these areas current economic climates, there are large numbers of foreclosed properties, leading to opportunities for investors who would like to invest their time and money here. You may want to retire unbelievably wealthy in a short amount of time. Well, your choices are understandably limited here, but foreclosure investing does offer you the ability to do so. Although the potential upside is large, you could also get yourself and your retirement nest egg into a spot of trouble this way. After all if it was that easy, everyone would be doing it. A few wrong moves and you could be the one getting foreclosed upon.

Another investment opportunity spawned by changing economic conditions is the growing number of new business that cater to those people wanting to save money on fuel costs, weather on motor vehicle fuel or heating oil. The very rapidly rising costs quickly created a market for products and services that wasn't really viable just a short time ago. The risk here is that your investment could be torpedoed if fuel costs drop in the future. Although analysts predict the costs of petroleum products to remain high for at least the next 18 months, possibly longer, analysts have been wrong before.

In order to evaluate different ways of investing money, you'll want to look at the following factors:

• Your investing time horizon

• Your required rate of return – Is the prospective investment expected to generate sufficient returns?

• An investment's risk as it relates to your personal risk tolerance

• Other personal factors that influence your comfort level with a personal investment.

• Your reason for investing – Is it a hobby, do you want regular income from the investment, or are you investing for retirement?
  

These factors will help determine if the different ways of investing your money will deliveer your desired result.

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Investing in oil; is it a good idea as the price of oil is hitting an historical high of $135 per barrel? How about that black staple of American energy production; coal? What about investing in energy sources for the future, such as alternative energy funds? As oil prices continue to rise, investing in alternatives may make sense. Oil could price itself out of a job somewhat if it keeps going up. Maybe some of these new technologies will step in to fill the gap. The problem is that oil provides little of our electrical energy. In addition, oil is still pretty cheap, relatively speaking, and there are few alternatives for many of the non-energy uses for oil. You can't pave a road or build consumer products from the sun, but you sure can with petrochemicals.

Is there a more or less direct relationship between the returns generated by alternative energy funds and the price of crude oil? It seemed like something that would bear checking into, so I did a little digging into the returns generated by some of the top alternative energy funds vs. the price of crude oil over the last few years to see if there were any correlations to be found.

As the price of oil goes higher it will make the price of power generated by conventional, oil fired generating plants commensurately more expensive. Oil is used to generate only about 2% of the power in the United States, so the price of oil should have only a slight relationship to the price of electricity on a national scale. Coal, on the other hand, is used to generate about half of the electricity consumed by your new big screen, so the price of coal may have a larger effect on alternative energy funds. I'll check both to see if this is the case.

The price of coal is exploding at a rate that is about on par with the rise in oil prices. If you're investing in oil, and want more commodity investments in the energy sector, it certainly bears looking into as another energy investment alternative. Appalachian coal sat at about $45 per short ton in September of 2007. Want to venture a guess as to where the price is now? Coal form the same region is now over $100 per short ton. Coal from other regions is also rising fast, but not at quite the same rate. For example Illinois basin sourced coal is now at about $57, where 9 months ago it fetched only $32. Maybe coal futures would have been a great bet last summer. Oh well, 20/20 hindsight.

Here is a look at light crude prices for the last 2 years:
2007 NYMEX Light Crude Oil Prices:

2008 NYMEX Light Crude Oil Prices:

As you can see, except for a dip in the first 45 days of this year, crude oil prices have exhibited a rather steady rise for the last 18 months.

Coal Prices since May of 2005

It's pretty hard to miss the rather dramatic spike in short ton coal prices over the last 9 months, as seen here, although it followed a roughly 30% drop in prices shown in the prior 9 months. Notice that Uinta Basic coal was falling, even as Appalachian coal was rising.

Now here are prices for some of the leading alternative energy funds. It's probably not a large enough sample to be truly representative, but it gives investors an idea. The first thing to note is their volatility. The next thing is that they seem to not be correlated to the relatively steady rise in oil prices exhibited over the last 2 years, except over the last 60-90 days, when the ones I looked have shown impressive gains (on the order of 20%). In fact, alternative energy funds have shown rather mediocre returns with the exception of this period, and could have been bested in a number of sectors.

I would have expected the rise in oil and to a greater extent, coal prices to have spurred investment in alternatives to these rapidly rising energy supply sources, and to have precipitated a rise in their prices. Some of the individual stocks have done fairly well, but as a whole the funds themselves have been underwhelming.

Here are pricing trends for a few alternative energy funds -

Guiness Atkinson Alternative Energy

New Alternatives Fund 

Powershares WilderhillClean Energy (PBW) - ETF 

You'll note that there seems to be a correlation between each other, but that's because they contain some of the same issues.

So, it looks like the price of alternative energy funds is not going to track with the price of crude oil, although both have experienced gains in the last few months. Perhaps this is the start of a trend, but then again, it may be an anomaly. They have shown a closer correlation with coal prices, but again, not a direct link. Thought this look at oil investing vs. investing in companies that make future energy sources would prove interesting.

Posted by debtblog at 02:17 PM | Permalink | Comments (0) | TrackBacks (0)

They've also added a community sentiment graphic to show a bullish or bearish sentiment on a stock. Where they get the information to run this, I'm not entirely sure. It appears they track how many Zecco customers have bought and sold a particular issue for the past 5 days, and present it in a dashboard style interface. It will also graphically show where a particular stock lies on 2 scalers, worst performing - best performing, and least held – most held. They also have added a paperless option so you can opt to receive trade confirmations and statements by email, with no printed documents sent through snail mail.

To learn more, click here.

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For example, say you hold 1,000 shares of Microsoft (MSFT) corp that you bought at $10.00 a share. You can tell your broker to sell those shares if the stock ever drops below a price that you feel comfortable with, for example $7.50. That way you limit any potential losses on your position.

There is a problem with a traditional stop loss order however, and I’m sure you’ve spotted it already. What happens if Microsoft corp shows impressive gains for a year, say it increases its share price to $18.00? That’s great, but your stop loss order is still set at $7.50, so if MSFT corp’s stock then drops back down you’ve protected yourself against a 25% loss in your original position, but you haven’t protected your gains at all.

A trailing stop limit changes that for you. A trailing stop limit order actually changes the number at which it goes into effect as the stock price changes. That buys you a very important benefit as an investor. It protects you against loss, but also allows you to make a nice profit while doing so. Basically it mitigates a certain measure of risk while maximizing your investment returns. Anything that mitigates investment risk while allowing an investor to generate potentially explosive returns is a great thing.

For example, say you have the same position in MSFT that you got into at the same $10 / share price, but this time you used a trailing stop limit. If you used a 25% trailing stop limit, it would increase so that any time the stock dropped 25%, a sell order would be triggered. That way when the stock went to $18.00, then dropped back down, much of your profit would be preserved. Your loss would be limited to a maximum of 25% of the stock’s highest market price. In this example, your sell order would have been triggered at $13.50 / share.

So, instead of your position being liquidated at $7.50 and you losing all your profit on the stock’s increase, plus part of your original stake, you would lock in some profit, in this case a 35% gain. When setting up a trailing stop limit order you can usually specify either an trailing amount or a percentage. In this example you could have chosen the 25%, or you could have chosen an actual dollar amount, such as $1.50. If you chose to use the dollar amount, your sell order would have been triggered at $16.50.

If your broker offers both options you’ll be free to choose whichever suits your particular position and mental state the day you make the order. If you’re setting the trail using a dollar amount, you’ll typically have a limit price and an optional offset. The limit price moves up and down with the market price and that’s what’s used to trigger the sell order. The offset, if you use one, is an additional amount that’s subtracted from the trailing limit, say .25, to arrive at your actual sell order price.

Using a trailing stop limit can generate explosive gains for your portfolio because you will maximize gains in your stocks, while minimizing losses. Any time you can do that, you’ll be retired on a beach in Maui that much sooner.

Take a look at this - For investors it can help you get those returns you're looking forinvesting package

Posted by debtblog at 01:49 PM | Permalink | Comments (0) | TrackBacks (0)

First of all, as they are minors, children can't actually buy and sell stocks themselves. They can however take advantage of the Uniformed Gift to Minors Act (UGMA) that enables minors to legally own property. It does this by allowing the establishment of a trust for the minor's assets. There is a trustee for the UGMA that is typically the parents. Unlike more complicated trusts, UGMA related trusts are statutorily established in the individual's state of residence. That's nice because you don't have to rack up a mountain of legal fees to establish a UGMA trust, as can be the case with many other trusts.

What the UGMA allows is the gift to a minor child of an amount of money with no tax consequences as per the limits of the gift tax exclusion. The exact amount of the annual gift tax exclusion can vary from year to year, according to IRS regulations, but currently it's $12,000 from one individual to another. There is no actual contribution limit for a UGMA, but there will be tax consequences if the contributions to the account are greater than the current year's exclusion limit. You can establish a UGMA trust for your kid's investment whims at your broker's office or bank by simply filling out a few forms and choosing a custodian.

You can do all the investing you want with the funds in the account, as long as you don't things like gambling as investing. Any realized gains or losses will be reported under the child's SSN. At the age they cease to be minors, either 18 or 21 years of age depending on the state of residence (although some states allow you to move the age from 18 to 21 if you so desire), the funds in the UGMA trust revert to the ownership of the minor. Hear this, you will lose every once of control over these funds at that time.

This bears a bit of thought, because no matter how responsible or irresponsible your kid, you'll have a trust fund baby on your hands if you establish a UGMA. The difference is that you can not prevent the minor from gaining control of the funds through special terms of the trust as you can in other trusts. They are all set up according to the state's statutes, remember? (There are other trusts that you can set up as custom as you would like, but these will usually cost more to establish than a UGMA trust).

Something else to know about a UGMA is that they reduce the child's eligibility to receive student financial aid. Apparently the Feds feel that if your kid is sitting on a half a million dollar trust fund the taxpayer shouldn't foot the bill for their education. The point is that any assets in a UGMA established trust account are considered the child's assets when applying for financial aid, so they will have an impact on eligibility. That's something to consider when setting up a UGMA so your kids can dabble in the markets.

Another thing to consider is that transferring any funds from the UGMA into another vehicle, such as a 529, will cause you to be liable for capital gains taxes on the transfered amount. That's because the assets can't actually be transfered directly. They must be sold, then the proceeds from the sale are used to fund the 529 account. The other issue is that 529 plans are actually adult owned, so the funds must be transferred back to the parents, possibly incurring other tax consequences. 529 plan assets are not used for calculating financial aid eligibility though.

What if you child just wants to invest for an education. Not to fund their education, but to learn how the markets work, and get an actual financial education. That is a great thing, because the vast majority of children today have absolutely no idea about anything financial. If your child is responsible enough to actually want to spend their time investing their assets, rather than spending them at the mall or on smoking dope, you probably have less to worry about than many parents. Most kids would rather spend their money on new games for their PS3 than on shares of the Visa IPO, so if your's doesn't , congratulations.

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Lessons About Investing – 1
The first thing to determine when you're beginning investing is why you're investing. What are your goals? Only once you've determined your goals can you develop a plan to achieve them. Are you looking to create a future income stream to fund your retirement, do you want to invest as a business to create income for the present, or are you trying to fund a specific goal, such as college for your children. The other option is that you could be investing for fun, and investing can be an enjoyable hobby (when you do it right).

So, your first lesson is to set your specific investing goals before you begin investing. Be specific when you're doing this. For example, it's not enough to say “I want to fund my retirement”. You have to actually know how much money it will take to do so. One of the most common mistakes beginning investors make is failing to invest in such a way that will meet their goals, because they haven't really set any. So, if you're looking to invest as a retirement funding mechanism, your first task is to decide just how well you'd like to live when you stop working.

If a Jed, pre-Beverley Hills lifestyle suits you just fine, then you'll have an easier time than if you would like to retire and earn the same as your pre-retirement income. If you can feel comfortable at 75% of your pre-retirement income, that will give you a specific monetary goal. Obviously you'll have to know what your pre-retirement income will be to do this. Unless you spend time down at Zoltar's, you'll have to rely on a bit of educated guessing.

This is a bit more difficult now than your parent's day, because of the mercurial nature of most people's careers in our brave, new century. In any case, look at your career path, and determine how much your income will realistically increase over your working life. If for example, you are pretty sure you can count on roughly a 5% raise every year, use that number in your calculations.

Lessons About Investing – 2
Your second lesson about investing is to invest in vehicles that will meet your investing goals while taking into account other important factors. The two most important of these are probably your personal risk tolerance and time horizon. For example if you're risk averse, you will want to stay away from high risk investments, no matter if they promise high returns.

Looking at your time horizon is extremely important to help ensure that your investments will have the funds you need when you need them. Some investments tend to be fairly volatile, meaning they go up and down in fairly large swings. Volatile investments may generate pretty high returns over time. The problem arises if you are close to the time when you may need to begin withdrawing funds. If the investment has wide swings in value you risk it being in a trough, rather than a peak when you need the money. Not a good situation.

Lessons About Investing – 3
That leads into lesson about investing number 3. It's one that even the best, most experienced investors can have trouble learning. Don't try and time the market. That's it. Trying to guess exactly when to buy and sell in order to maximize your returns is not a trivial task even for the pros, most amateurs will just get killed trying it. Guess right and you'll make out like a bandit, but the more likely scenario is that you'll be wrong much more often that you'll be right and end up taking a bath.

Lessons About Investing – 4
This a lesson that can be very expensive if not learned. You have to diversify your holdings. If you are a fund investor much of the diversification will be handled for you, unless you invest only in sector funds in a limited scope of sectors. You want to avoid putting all your eggs in one basket, lest you end up in the situation Enron employees found themselves in. Actually this often happens to investors that mainly invest in their employer's stock. While that can be a great experience, just ask Google employees over the last few years, or Microsoft employees in the '90's, it can also be a horrifying ride if you're forced to watch you retirement funds evaporate.

Diversification is an investor's best defense against such a catastrophe. If you're well diversified, a calamity in a certain industry or sector will have much less of an effect on your portfolio, because you have holdings in other areas of the market that will, in theory, be unaffected.

Lessons About Investing – 5
An investing lesson you should learn early is to always do your due diligence. You should know all the factors about your investments that could come back to bite you if things go wrong or you need access to the money. You should know about tax and withdrawal consequences, fees, and other things that can affect your investments. In addition you should know as much as possible about the companies you're invested in, their businesses, and the economic factors that could affect them.

These are 5 of the top lessons you should learn before you start investing. The money you make (or save) will be your own.

Posted by debtblog at 02:08 PM | Permalink | Comments (0) | TrackBacks (0)

Is silver investing worthwhile, or are all the gold talkers right? Currently, silver is sitting at $16.96 an ounce, while gold is at $889.70. That doesn't mean, however that gold is a better investment. Actually you could have made impressive gains in through silver investing over the last 3 years. As with many commodities, silver has been in high demand because of various world economic factors, causing prices to skyrocket (investment cliche number 307).

For much of 2005, silver hovered in the mid $7.00 range. In August of '05 it briefly dipped back into the $6's, where it had spent most of 2004, before starting a nice climb, culminating about 22 months ago, when it reached $15/oz in mid may of 2006. Subsequently it gave much of those gains back, falling to $10 by mid June. Since then silver has been pretty generous, see-sawing itself up to it's present level of almost $17.00. Actually Silver reached a peak of just over $21 in mid March, only to lose 25% of it's 3 year run and land at it's current value. So, in 3 years you would have seen roughly 242% gains in a silver stake. How does that compare with the talk show darling, Au?

In April of 2005, Gold was sitting right about $440/ oz. It was flat for the first portion of the summer of 2005, actually declining to about $425 by early June. It then started a rise roughly parallel to that of Silver, growing to $750 by mid May of 2006, before dropping back to $575 by mid June. Since then, like silver, gold has risen nicely. The exception is that gold reached a peak of just over $1,000 an ounce in mid March of this year before giving back about 20% of it's 3 year gains to land at its present value of $889.70. This equates to a gain of roughly 202%, impressive, but less than the over 240% gains posted by it's ugly cousin from Nevada.

What are we likely to see from silver investing in the future? Silver has historically been in high demand, and in the past traded at about 1/10^th the price of gold. In the early 1980's it even rose to almost $50 an ounce (not adjusted for inflation). Like many other commodities, volatility is the order of the day. Investing in precious metals is not for the faint of heart, but is often used to diversify a portfolio and protect against losses in the stock market. This is because many of the things that cause stocks to rise or fall will stimulate the opposite result in precious metals, as investors tun to alternative places to rest their capital.

One thing about investment in precious metals or any other commodity is that while prices can see precipitous drops, they will never decline to absolute zero, as can happen with stocks. If a company goes out of business, it's stock will be worthless, while a commodities stake will never experience a decline all the way to nothing.

One of the most powerful factors stimulating prices is expected future demand. Nothing causes bidders in the commodities pits to ratchet up prices more than either the fear that something will be unavailable, or that demand will grow enough to outpace supply.

One of the largest uses of silver today is in the electrical switch contacts of small appliances and consumer electronics components. Silver is also used in appliance in other interesting ways. Because silver has bug killing properties, it is now being used in washing machines, air conditioners, and toilet seats to kill germs. As developing nations demand more and more such trappings of 21^st century success, we'll have to pull more silver out of the ground to supply raw materials for them. Another popular use of silver is for the rear window defroster conductors in vehicle defrosters. Again, look to China to cause demand to grow here.

One place where the use of silver will be on the decline is in photography, where 24% of the world's silver was used in 2001. Since most of pics today are printed using ink jet and dye sub printers, rather than developed on traditional film, this use of silver will taper off.

Due to the many uses of silver in industry, jewelery and economic conditions such as inflation and uncertainty in the middle east, silver could be a nice addition to one's portfolio for the near term. Pressure on the dollar, recent rises notwithstanding, could help to drive the price of silver even higher. Many of these conditions were the same as were seen 30 years ago, when silver last experienced a huge price run up. Just remember that prices eventually came back down to earth, so if you are going to try your hand at silver investing, keep both hands on the wheel.

Posted by debtblog at 01:49 PM | Permalink | Comments (0) | TrackBacks (0)

Mutual funds are available from most of the major investment houses, such as Fidelity, Janus, Vanguard, T. Rowe Price, and many others. Typically, mutual funds are managed by a fund manager, whose responsibility it is to insure that the fund's return to investors is as high as possible. Ostensibly an investment professional with years of experience, backed by a team of researchers, and powerful software would be able to do this with no problems.

However, the dirty little secret of the mutual fund world is that many mutual funds do not outperform the market as whole over the long term, which is how most funds are used. Active investors who trade stocks on a regular basis tend to prefer individual equities. They may still hold mutual fund shares, but most of these will be used as buy and hold type of investments.

There are several broad classifications of mutual funds, which roughly describe the types of companies they invest in. Which funds you choose to invest in, if any, will be determined by your investment objectives. If you're investing for retirement that's a long way off, you'll pick different funds than if you are investing with an eye to receive regular income from your investments.

Sector funds concentrate their investments in a single industry or a group of tightly related ones.

Growth funds invest in companies who are, in the opinion of the fund's management, likely to experience rapid growth.

Index funds track market indices, such as the S&P 500, Dow Jones, Wilshire 5000, or NASDAQ composite index. These tend to not be actively managed, so in theory these funds have lower expenses than other classes of funds.

Balanced funds - A fund composed of a mix of equities (stocks) and debt (bonds). In theory stocks and bonds tend to cycle roughly inversely to each other, so a balanced fund can help diversify risk.

Income funds – Income funds are targeted at maximizing dividend income within the fund's objectives. These types of funds tend to have a lower volatility (smaller price swings) than growth funds.

Emerging Market funds – This type of international mutual fund concentrates on equities of companies in rapidly growing foreign (to U.S. investors) markets. These have the potential for tremendous growth (the 5-year Lipper average for emerging market funds is around a 200% return), but investing in overseas or Latin American markets can be risky.

Other mutual fund terms to know -
Expense ratio – How much of your money is used to pay the fund's management and administrative fees. An average is between 1% - 2%. These expenses can have a dramatic impact on long term investment returns, so choose carefully.

Load - A fee paid to purchase shares in a mutual fund. Not all funds charge loads. 

A mutual fund is simply fund comprised of a group of stocks managed by someone who knows more than you do about the economy, money management, and certain industries. They're easy to buy and a good way to get into investing for the average person. You can include mutual fund shares in most retirement programs. They are, in fact, a favored vehicle for retirement accounts such as 401k plans and IRAs.

Posted by debtblog at 02:13 PM | Permalink | Comments (0) | TrackBacks (0)

 
If you are new to investing you need to ask yourself one main question: “What are my goals?” If you’re investing for retirement, fun, or to build a large position you can cash out to use for other things, you’ll use different investing strategies. If you’re investing for retirement you’ll have to take into account your current age, risk tolerance, the age you’d like to retire and how much you can invest each period. You may want to create a chunk of cash you can use to fund other things, weather that is other investments or fun in the sun. You could also be looking to start investing in the stock market as a hobby to occupy your spare time, and make a bit of money if you do well.

All of those reasons are great reasons to get started investing in stocks, but you’ll want to begin with a different approach for each. One thing should be the same though. You’ll want to learn as much as possible about investing, economics, human behavior, and finance. It’s often been said that knowledge is power, but in this case knowledge is the difference between your portfolio going up or evaporating altogether.

If you’re investing for your retirement and you have a long time to go before you retire, you can invest in stocks that may be a bit more risky than if you’re investing for retirement and have only 10 or 15 years to go before you want to hang it up. You can afford to invest more aggressively because you have time in which to absorb short term losses. In most cases aggressive investing will carry with it a bit more risk and your portfolio will probably have a bit more volatility. Volatility is the propensity of your portfolio to go up and down.

If you are investing for the short term, you want to be a bit more conservative because large swings in your portfolio’s value could cause you to be in the middle of a drop at precisely a time when you need to be withdrawing funds. If you have a longer time horizon, you have time to absorb such short term losses because in time the market should carry your stocks higher again.

If you’re investing purely for fun, you can afford to take as risky or as conservative a position as you’d like, depending upon your mood. If your research unearths a stock that seems to have promise, you can go ahead and take a position (buy some). If it drops, well, you’re only in it for a good time anyway. If it goes way up, you’ll get the investor’s rush as your portfolio rapidly grows.

In the majority of cases I like Warren Buffett’s value approach to investing. Value investing is buying stocks in good companies that are, by most analytical indicators, undervalued compared to stocks of other companies in their industries. In many cases some of the most boring stocks can be some of the strongest performers. I did a post a while back about boring stocks. On the other hand, some of the sexiest, most attractive stocks can such your portfolio dry in a heartbeat.

You can invest in individual stocks or mutual funds. Mutual funds are funds comprised of a large number of stocks or other securities and are managed by those who in theory know better than you about such things. If you want to choose your own stocks, and want to stay in the value investing mold, here are some pointers as I see it. Value stocks can earn you nice returns, but as with many things stock market related, can eat up your funds in a hurry too. So called value companies are in many cases experiencing some sort of trouble, which is why their stock price is so low in the first place. Your job as an investor is to determine what kind of trouble they’re in and if they are likely to recover over the long term.

If you choose a company that is attractively priced now, but has attractive prospects going forward, you’ll do very well. However you can easily pick a company that is in fundamental trouble and has limited prospects for future success. In that case you’ll likely lose most or all of your investment in that stock.

Here are some of the fundamentals you can look at to help determine if the company has good prospects for success in the future. One of the most important is the cash flow. If the company has a history of positive operating cash flow, and has positive operating cash flow in the last year, that is a good sign. There’s an old saying in business “Cash is king” and that’s certainly true when you’re analyzing a company whose stock you’re considering investing in.

Another important thing to look at is weather the company is profitable. To determine that you need to look it’s net income. If the company has a positive net income for the previous year, preferably two, that’s good. Remember as an investor, you’ll be a part owner in the company. You can feel better about it’s prospects to make money for itself in the future, and by extension, make you money, if it’s doing so already.

Look deeper at the operating cash flow. How was the money generated? If the operating cash flow is greater than the net income that’s a good sign for you as a potential investor. If the company’s operating cash flow for the past 4 quarters are greater than its net income you can usually give the company strong consideration. Also, make sure that the cash flow didn’t come from sale of assets or stock, but from the company’s actual operations of its core business.

One last thing that I like to check is what is called the “current ratio”. That is the company’s current assets related to its current liabilities. If it is decreasing its liabilities related to its assets ever year that is another good sign.

So, once you’ve figured out why the heck you’re thinking of investing in the stock market and learned what you can about how things work, you can take the plunge. Remember by buying stock in a company you’ll be buying a piece of that company, hoping to participate in its future success. Company’s that are well run, in growth industries, and undervalued compared to their competitors stand a good chance of success. On the other hand, you want to steer clear of companies in declining industries that have poor financial indicators and management with shaky track records.

You may want to trade using a full service broker or use a discount broker. A discount broker will give you little or no guidance, but charge you a very small fee each time you make a trade. On the other hand a full service broker will make recommendations but charge you for doing so. You’ll have to pay them each time you buy or sell anything. Some full service brokers are very good and can give you solid recommendations, while others are only interested in the commissions they earn from your trading. Most are somewhere in between.

As with many professionals you’ll want to carefully investigate their track records and talk to their current customers. If you have friends and associates who have a broker they are happy with, and has demonstrated long term success, you may use them. There are also fee based brokers that don’t charge a commission of reach trade you make, they charge you a flat fee no matter how many trades you make. If you plan to make a lot of trades and want the advice and service of a full service broker, a fee based broker may make sense for you.
 

If you plan to make quite a few trades, but feel comfortable doing your own research and choosing your won stocks, you probably want to go with a discount broker. You’ll pay a much lower fee. If you don’t want or need the advice, there’s no reason to pay for it. I did a post comparing online discount  stock brokers a few months ago.

Posted by debtblog at 01:37 PM | Permalink | Comments (0) | TrackBacks (0)

So, how does it work? How can you actually profit from a company’s troubles and it’s stock price’s decline. Short selling works like this. First of all, with short selling, you don’t actually buy the stock, it’s on loan from your broker. When you make the transaction, the stock is sold and you receive the proceeds from the sale. They are deposited into your brokerage account. Sweet! You just got money in your account from a stock you didn’t even own.

Not so fast there, Warren (whose standard investment strategy, buy value stocks and hold for long term appreciation, is the opposite of short selling). At some point you have to repay the money the broker loaned you. Actually you have to repay the shares, and that’s where you make your money. In investor parlance, getting out of your position and repaying the broker is called “closing the short”. If, for example you borrowed to short 100 shares of Bear Stearns in mid August of 2007. The stock was trading for around $120 a share then. You are then liable to repay 100 shares at some point in the future. If you wanted to cash out for Christmas, you could have gotten out for $89 a share. You would purchase 100 shares at $89 each to repay your broker. The difference between the price when you borrowed and when you repaid is your profit. In the example you made $31 a share, for a profit of $3,100.

Not bad at all, but as we know now only a small fraction of what you could have made. Holding until today would have gotten you a much tidier profit in the neighborhood of $115 a share, for $11,500 in gains. This little example illustrates the potential of short selling, but it also shows one of the problems. One of the problems associated with short selling is risk. A well run company may not fall, especially in the long term. You have to get out when the stock’s price is lower than when you borrowed.

The other big disadvantage, especially over the long term, is that you are limited in your total profit from short selling. The most money you’ll ever make is the difference between the price when you got in and zero. For a short seller, that’s a best case scenario. Cases like Bear Stearns, where a company goes from selling for well over $100 a share to virtually zero in a few months, are pretty rare. Typically you’ll get returns of far less, and if the stock does turn around, you’ll have to repay the shares at a higher price than what you got them for.

Short selling is usually not for the novice investor, although you could have made a nice profit by short selling financial services stocks over the last 6 months, novice or not. Have a great day, and stay Debt Free.

Posted by debtblog at 01:46 PM | Permalink | Comments (0) | TrackBacks (0)

Just what are the limits you're subject to when contributing, withdrawing or rolling over a 401k plan anyway?

401k Contribution Limits:
For 2008, according to IRS rules you can contribute a maximum of $15,500 to your 401k plan. If you're one of the 95% who failed to contribute the maximum amount to the plan in prior years, the IRS allows you to contribute a “catch up” amount, which for 2008 is $5,000. You must be over 50 to take advantage of the catch up contribution. Any employer matching funds are not included in the IRS contribution limits. So, if you're contributing the maximum of $15,500 and your employer provides 50% matching funds, their $7,750 is over and above the limit, so your effective limit for 2008 is $23,250.

401k Rollover Limits:
You're not limited on the dollar amount for 401k rollovers, as you are with contributions, however you can only roll over once every 12 months. Unless you're a rabid job changer, this shouldn't present too much of a barrier.

401k Withdrawal Limits:
There are several limits placed upon your ability to withdraw the funds in your 401k. You can't just retire, pull out the entire lump sum, and head for the Caribbean. Well, you could, but you would be faced with severe financial penalties for doing so.

Withdrawal Age - There age limits for 401k withdrawals. Currently, you must be 59-1/2 years of age to begin withdrawal of funds, unless you are rolling over into another IRS approved financial vehicle such as an IRA. You are also allowed to withdraw funds before age 59-1/2 to avoid foreclosure if you meet the terms of IRS section 213. I recently did a post covering early withdrawal and other 401k hardship withdrawals. You must also begin withdrawal from your 401k by age 70-1/2 if you have not already begun doing so, unless you are still working for the employer sponsoring the 401k. The post 70-1/2 withdrawals must meet IRS mandated minimums, currently defined by tables and based on life expectancy. Failure to take the post 70-1/2 withdrawals triggers a whopping 50% (of the mandated withdrawal amount) IRS penalty, so take the money out)

Withdrawal Amount - There are currently no limits on how much you can take out, but remember withdrawals are taxable events. The IRS allows you to take the entire amount of the 401k, but it is taxed as ordinary income and reported as such on your form 1040, so the more your take out, the higher tax bracket in which you place yourself. If you were born before 1936, you meet special rules, including the ability to average a lump sum distribution over 10 years. See your tax professional if you were born when Roosevelt (either one) was President.

Posted by debtblog at 02:01 PM | Permalink | Comments (0) | TrackBacks (0)

Starbucks experienced a 1% decline in same store traffic, year over year for Q4, 2007 (ending 9/30/2007). They actually had a 5% increase in average transaction value, but that was driven by a price increase on menu items and expanding their lunch program by more than 1,000 locations.

Starbucks has noted a problem, and in their quarter-ending conference call indicated “we recognize that the flat-to-negative trends needs to be addressed” and  ”The pressure we are seeing on the traffic isn’t entirely unexpected considering the challenging operating environment and similar trends reported across both the retail and restaurant industry. It is apparent that our customers are feeling the impact of the economic slowdown.”

One should take note that this was for the period ending in September of 2007, before the bulk of the problems experienced by the credit industry. For Q1, 2008 Starbucks had a 3% decline in the number of same store transactions in U.S. stores. They also raised prices, which helped them raise the average transaction value by 2%. Investors have responded to the consumer’s propensity to avoid inexpensive luxury goods and Starbuck’s flagging sales by shedding their stock, and sending the share price from $26 at the end of November 2007, to its recent close of $18.26.

If you are looking for investment opportunities, this can be a great tool. Take note that when economic conditions dictate that an economic downturn may be in our future, one of the first classes of consumer goods to suffer are inexpensive luxury goods typically consumed by people who shouldn’t so much money on inexpensive luxury goods. As consumer uncertainty regarding their future increases, the trend is for a pullback from spending in certain areas. Spending on luxuries will drop more quickly and farther than spending on necessities. $4.50 coffee drinks while considered a necessity for some consumers have been reevaluated by an increasing number of others, resulting in the sales figures reported by the green giant of coffee shops.

Posted by debtblog at 02:54 AM | Permalink | Comments (0) | TrackBacks (0)

The elimination of the NYSE’s fixed commission structure in May of 1975 opened the door for the discount brokerage. Prior to that day, stock brokers charged investors a fixed commission for every trade, and it was expensive. There was no freedom to negotiate either, as minimum trade commission prices were set by the SEC. It was a real old boys club, and most would-be investors were excluded. After the process was deregulated, discount brokers began to appear, one of the earliest and most famous being Charles Schwab.

Today there are many discount stock brokers, much to the benefit of all investors, weather they are hard core traders who make their living from investing, or the casual investor who may only make a few trades a year. With the ability to trade from home, and free from the requirement of having a broker involved in every trade, there are no longer barriers to those who would like to dip their toes into the stock trading waters before they take the plunge all the way. Those who like to trade consistently have things much easier as well.

The evolution of discount brokers effectively removed the last barrier to that group of investors. Now, with the price of trades ranging from as low as free to $20 a trade the cost of trading has been reduced to the point where it’s been effectively eliminated for most people.

The other huge advantage of the Internet and online brokerage for most people is that it’s now very easy to find information (not always true) on various investment choices. Weather an investor is looking for general information a particular market, company or even legislation, it’s all there for the browsing. Most online discount brokerages make available a complete set of tools for their customers. The array of tools available now to the amateur investor would actually be the envy of most professionals only a few years ago. Most even offer real time, streaming quotes. In the not too distant past, that would have been the province of the hard core professional investor or institution.

There a still full service brokers, and most of those have online and even discount style accounts. Many investors today don’t feel they need the level of service (and are unwilling to pay for it) offered by a full service brokerage houses. Who are the big players in the discount brokerage game, and what do they offer you? Well, here is a comparison of some of the most popular online discount brokers and what they offer you:

TD Ameritrade – No commission trades for the first 30 days, but you may want to keep trading for a bit beyond 30 days. After the initial 30 day period, you’ll pay $9.99 per trade with no maintenance fees. They offer 24/7 online and phone support. There is a $2,000 minimum required to open a non-IRA account and a $1,000 minimum for IRA accounts. Many investing tools are free, however real time news from Dow Jones will cost you about $30 a month.

E*Trade – E*Trade was the first online brokerage, dating to 1983, but at that time, they weren’t something anyone could just log on and use. Now they offer stock trades according to a graduated pricing plan. Those who make up to 29 trades a quarter and have less than $50,000 in their E*Trade account will pay $12.99 per trade. If you have a larger nest egg and/or make between 30 – 149 trades a quarter, you’ll pay $9.99 per trade. Options traders can tack on an additional .75 fee per trade. Broker assisted trades cost an additional $45. E*Trade has no required minimum for IRA accounts. Pink sheet stocks will require a $54.99 fee to trade. E*Trade has an annual $160 maintenance fee.

Zecco – Zecco offers free stock trades for those who make fewer than 10 trades a month and have more than $2,500 in their account. That makes them my choice for the occasional or semi-active investor. Those making more than 10 trades a month will pay only $4.50 per trade. If you prefer options, you’ll spend $4.50 + 50 cents per contract. They have recently added a very complete set of online tools and analysis screens. You can even have stocks rated by how many other Zecco clients have bought and sold them recently. That can be very powerful. Something else favoring beginning investors is that there are no minimums required to open a Zecco account. Find out more here.

Scottrade – Scottrade offers low, $7.00 online trades for stocks trading at over $1.00 per share. Pink sheet stocks will require a $27 fee to trade. If you need help from a real, live person to make a trade, broker assisted trades run $27 as well.(the same $27).If you’d like to walk in and talk to someone face to face on occasion, they have over 330 branch offices scattered throughout the country. Scottrade offers free, streaming, real time Dow Jones information.

Charles Schwab – Thanks to a persistent ad campaign in the ‘80’s and ‘90’s, Chuck is who many people think of when they hear the term “discount stock broker”. They’ve been around since way before discount brokers went online. They charge $12.95 to trade for orders of less than 1,000 shares. If you exceed the 1,000 share limit, they’ll tack on a penny and a half per share fee, but no account maintenance fee. Charles Schwab also has real time Dow Jones info for free if you’re an account holder.

Note:
I currently am involved with Fidelity, Zecco, Scottrade, and E*Trade. In addition, I have used TD Ameritrade in the past, back in the days before the TD was added. I should have kept the Cisco I had in that brokerage account back during the Internet boom. I sold it at a loss and closed the account, before I jumped (semi)actively back into the market a few years later. Oh, well

Posted by debtblog at 01:34 AM | Permalink | Comments (0) | TrackBacks (0)

A few weeks ago I posted about ways to find the best stock picks. One of the stocks I mentioned in the post was from audio pioneer Dolby labs. Friday they released their Q4, 2007 (Dolby’s fiscal Q1, 2008) earnings report, which showed pretty darn good results. Quarterly revenue gained 44%, and net income for the quarter was up a robust 60%, landing at $47.7 million.

Posted by debtblog at 08:55 PM | Permalink | Comments (0) | TrackBacks (0)

What if all the lights go MSFT's way? What will that mean for investors, Internet users, employers of the two companies, and a group that hasn't been talked about much, Yahoo Small Business users? Well, from an investor perspective I see much short term turmoil. First of all, if you own some Yahoo stock, congratulations, you just made 49%. Wait, that's only if you've only had it for a few months. Maybe you saw their play for online poker and thought they would boost their revenue, so you picked up a few hundred shares. If you've had it for longer, you're not even back to where you were at the end of October, so don't get all worked up just yet. There's a couple of turns to go before the end of this race.

There is a major corporate culture integration issue to deal with, and that's far from a sure thing. You have two different corporate cultures that would have to mesh in order to make the merger successful. There's obviously no guarantee that the going there would be at all easy. Difficulties there would impact the efficiency of the organization (MiYahoo, MicroHoo, Microsoftoo, Yahoo- a Microsoft Company) and cost money. It would also hinder the new organization's ability to react quickly to any initiatives by the main competitor in this whole stew, the Big G (I'm not talking about Good Chevrolet). This is something Microsoft is having enough trouble doing already.

With Microsoft's past history of being obstinate when it comes to getting what it wants, there's a good chance that this deal will go through as planned, even if they have to do a little pot sweetening along the way. Regulators don't seem to be of a mind to block a deal at this time. Will they leave the Yahoo brand itself alone, while trying to cure whatever ails it? Or, will they just roll everything into Microsoft and set their sights on Google? One would think that just acquiring Yahoo in order to completly absorb it would make little sense. After all, Microsoft already has competitors for many of the products and services that Yahoo offers. Merely gobbling them up and then attempting to integrate their offerings would do little to guarantee that they would keep existing subscribers for Yahoo Mail, IM, and MyYahoo. These subscribers are one of the primary nuggets Yahoo offers.

If they are going about this to only grab a larger share of the online search market, with little regard to some of the other Yahoo assets would seem a bit foolish and shortsighted, and Microsoft may be many things, but typically they are not either of those. One of Microsoft's main problems is that they have often shown themselves to have the “My Way or the Highway” mentality. That being said, they have long had the business MO of acquiring what they cannot produce in house. DOS ring a bell, anyone?

If this deal goes through, how will the RedmondBoyz deal with the fact that Yahoo runs on a platform that Microsoft despises, open source FreeBSD? Will they try to port the entire thing over to a Windows platform? Past history indicates that there's a very good chance they would, much as they did with Hotmail. There would be inevitable problems with such a transition and that would cost them many of the subscribers they are paying $44 billion for, not to mention the huge labor cost of the transition itself. Would they just leave it well enough alone form a platform perspective and welcome (or even tolerate) a bit of open source into their midst? That would be hard to imagine.

The logical question is this. How can two different companies that can't figure out how to match Google separately, make some inroads into Google's market share when they are unable to crack the code on their own? If it was only that they currently lack the pure intellect to mount a serious challenge to Google, bringing in some new blood may well provide the missing ingredients. However, many of the smartest minds in the world are already employed by Microsoft and they haven't solved the puzzle yet. How will swelling the brain trust some more make a difference? It's more likely that it's a problem with the organization itself that has prevented Microsoft and Yahoo from not even toppling Google, but reaching half their market share. Given that that is likely the problem, how will two different organizations that are unable to topple Google on their own, manage to mount serious competition separately?

How about Yahoo's subscriber base? How will Microsoft treat them? After all, there's a reason that they choose Yahoo over Microsoft in the first place, and haven't seen fit to change up to this point. If Microsoft merely tries to turn Yahoo into Microsoft II, or just completely disolves Yahoo entirely, some of them will inevitably leave the fold. Where will they go? Well, Google has GMail..... The fact is that Yahoo is a major media company. They attract millions of people every month to Yahoo Games, Finance, Sports, Music and Movies. Would Microsoft be so foolish as to turn their back on these visitors. Probably not, but they may well be so foolish as to think that they are so much better that they can just move all these properties to the Microsoft equivalent and everyone would just follow.

Yahoo has so many different media partnerships. How will Microsoft work through the myriad different agreements, contracts and content agreements that they'll have to negotiate? How much money will this cost and how will it affect operations, both from a subscriber and a business side? Time may tell, if the deal is consummated.

Another issue is that Yahoo has serious brand equity. That's a major asset, and part of what Microsoft is offering huge dollars for. Are they offering all that cash only to be rid of the brand, or are they trying to capitalize on it? Will they capitalize on it initially, only to retire it at some point in the future (as soon as they can find a way, without costing themselves too much?) Time will tell, and better minds are certainly employed by Redmond's biggest tax contributor.

A group that would doubtlessly be affected, but has not been much discussed are the thousands of small business people and bloggers that use Yahoo web hosting, domain registration, tools, and other Yahoo SmallBusiness components, such as Yahoo Stores. What will become of them, anyway? Many of these small business people make their living with some or all of these Yahoo products and services. Microsoft has no serious competitors to this part of Yahoo's business, although they have made attempts to develop them at various points along the way. All of these different components have competitors in the marketplace, and everyone that is currently using them has other choices, but changing to a different platform would be tremendously costly and interrupt their business.

Doubtlessly some of the online businesses would disappear, their owners to rejoin the corporate world, as bitter a pill as that would be to swallow. Others would just suck it up, absorb their losses, and move on, chalking it up as just another speed bump in their parking lot. Yahoo small business is such a small part of Yahoo's overall revenue picture that I wonder what Microsoft would do.

One thing this whole thing may well do is force Google to really get busy. One suspects they've been merely going through the motions a bit lately. Those days will be over, and the snoozing Giant will be up and fighting again. Microsoft better watch it's flanks. Integrating an acquisition of this nature while simultaneously fending off a competitor such as Google is a pretty big bite to chew. They better have sharp teeth.

Posted by debtblog at 03:15 PM | Permalink | Comments (0) | TrackBacks (0)

Now, most investors know better than to count on hitting a home run every time they pick a new stock. More often investors seek to mitigate the risks of seeking the long ball by filling most of their portfolio with less risky investments. If they’ve done their homework, and the market cooperates, they’ll make out pretty well. The question is why look for the home run stock at all? The chances of picking one of those meteoric companies that can single-handedly fund your retirement is exceedingly slim. By the way has anyone ever noticed that meteors tend to go down? I don’t know where the term “meteoric rise” came from, but most likely it was from someone standing on their head.

What are your chances of landing that big, home run investment, so you can retire at 32 and drive your new GT2 merrily off into the sunset? Well, there are almost 4,000 different stocks listed on the OTCBB. Some are great companies to be sure, and are using the capital they raise from issuing shares traded there to fund their growth in the hopes that one day they’ll move to one of the larger exchanges. The problem is that there are so many risks inherent in trading such issues that most investors, even very aggressive ones, are better off leaving these alone. Your chances of finding the next Google, Microsoft or Intel among the OTC-BB or pink sheet companies is exceedingly unlikely.

In most cases companies with that much on the ball and that much investor support will simply IPO on one of the larger exchanges. None of the aforementioned companies were ever penny stocks, despite Internet rumors to the contrary. Google IPO’d at almost $100 per share and Microsoft, who raised an amazingly small $58.7 million from their $21/ share IPO in 1986, never came close to penny stock status. By the way, IPO underwriter Goldman Sachs collected a $541,000 fee from MSFT for their services. By the way, Microsoft never needed the IPO as financing. In 1986, they had cash reserves of approximately $38 million, but they’d given so many incentive stock options, they felt they’d soon have to register under SEC rules. Never liking to lose control of time or place, Bill decided to get a jump on the whole thing.

Lets take a look one small step up the stock hierarchy, micro cap stocks. Do you have a good chance of making hay there? The typical definition of a micro cap stock is one with a market cap of smaller than $250 million. I went a bit smaller, to companies with market caps with under $100 million on any of the three major exchanges. Surely the risk to investors there is less than on the OTC-BB or pink sheets, right? If nothing else they are subject to more oversight, and should (in theory) be less likely to experience major moves in stock price precipitated by surreptitious actions of either company insiders or Internet price manipulation schemes. There are about 565 stocks meeting the under $100 million figure.  Of these, an astonishing 478 are trading at 10% or more below their 52 week high. That is about 85%. Now this may not be too surprising, given that the market has dropped precipitously over the previous 6 months.

Taking a look at larger, more established firms, we find that there are 236 companies with a market cap between $10 billion and $25 billion, and that 192 of them meet the criteria of trading at 10% or more below their 52 week high. That is about 81%.

I found 217 companies with market caps of greater than $25 billion, but below $200 billion. How many of these companies are trading at greater than 10% below their 52 week high? About 165 of them, or 76%.

When looking at the really big players in the corporate world, those with market caps exceeding $200 billion. There are 12, a fairly small sample. 10 of them are trading at greater than 10% below their 52 week high and half are 15% below it.

What does it all mean? It looks like there is an positive correlation between a company’s market cap and their recent stock performance, until the very largest companies are reached, at which time the relationship goes bad. In different market and economic conditions this may not hold true of course.

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Stock Picks Rule Numero Uno
Pick the stock of a company that just became, or is about to become an industry standard. One of these that’s received some press recently is Dolby Labs. I’ve been familiar with this company for many years because I owned a business in the audio / video industry and have been involved in it for decades. Not only has Dolby been the standard in cassette tape noise reduction since the dawn of time, they weren’t content to develop technology for a format with a limited lifespan.

Dolby labs has also been one of the three main companies producing surround sound formats for theatrical movie releases, and  Dolby Digital has been the standard in home surround since the days when it’s predecessor, Dolby Pro-Logic, ruled the roost. Now Dolby has gone and gotten their Dolby Digital + and Dolby Digital True HD appointed the official audio formats of the both next generation video disc standards (too bad the industry couldn’t agree on just a single next-generation video disc format, but that’s a story for another day), HD-DVD and Blu Ray Disc. They are also in car audio, cell phones, and personal media devices.

Like Microsoft(MSFT) in the early years, they are debt free and have substantial cash reserves in the bank. Dolby has fantastic consumer brand recognition, thanks to years of putting their logo in front of people in theaters, on cassette tapes and on consumer and professional audio equipment. They have only been public  Since early 2005, have an operating margin of almost 40% and their year of year quarterly revenue growth is over 25%. Even better, unless they get complacent, they should continue this for years, because they are in a growing market and they have only 1 direct competitor in the consumer space. That is DTS Inc., a good company, but they are 1/3 the size, only 20% of the revenue, and without Dolby’s portfolio of technologies, patents, and licensing deals.

Stock Picks Rule Numero Dos
Look for stocks of companies that are well positioned in small markets that are about to become very large markets. They can be production, development, or supply companies. One example here would be the bio fuels industry. In addition to the cachet such investment possess because they are perceived to be green and environ-friendly, it is a market positioned for dramatic growth in the not to distant future. Currently there are many small companies competing for dominance in the space. As the price of petro-products continues to increase, it makes the development of bio fuels economically attractive. A company or two will emerge to dominate the industry and form the backbone of a new fuel economy.

As an indicator of the growth potential in this market, the USDA reports that 75 million gallons of biodiesel were used in 2005 for transportation. This is but a drop in the bucket compared to the 38 billion gallons of diesel fuels used for transportation. The growth here will be tremendous. In 2006 the city of Cincinnati alone used 1.8 million gallons of biodiesel to power city vehicles.  In August of 2007, Louis Dreyfus Corp. of France opened the world’s largest (for a brief period) biodiesel plant in Claypool Indiana. Using Soybeans, this plant produces 88 million gallons of biodiesel every year. That is 15% more than the entire United States used of the fuel only 2 years previously.

There were 165 commercial biodiesel plants operating in the U.S. by August of 2007. The 4 other largest biodiesel plants were owned by -
- Delta Biofuels – Mississippi – 80 million gal – opened May 2007

- Archer Daniels Midland Corp. (ADM) – North Dakota – 85 million gal – opened August 2007

- Green Earth Fuels of Houston LLC – Texas – 86 million gal – opened July 2007

- Imperial Grey’s Harbor – Washington State – 100 million gal – opened in August 2007

Numerous others produce between 20 and 50 million gallons of the stuff annually. The demand for this fuel should only grow, especially as some of the problems with ethanol fuels, such as the 20% gas mileage penalty and the hydroscopic nature that makes it difficult to transport by pipeline (requires truck transport, which is much more expensive than pipelines), receive more publicity. Weather the huge use of soybeans for biodiesel substantially drives up the price of soybeans remains to be seen; any commodities investors out there?

Stock Picks Rule Numero Tres
Choose the stock of a company that is legislated into prominence. Anytime legislation is passed requiring, or restricting the use of a company’s products or services, there are investment opportunities created. In the case of the requirement of product or service, demand will increase. In the case of restriction or outright bans, demand for alternative products and services will grow.

An example is when states require their residents to be insured. That creates a larger market for insurance companies allows greater profits. When the U.S. and foreign governments legislated certain safety features in automobiles, such as airbags, there was obviously greater demand for all components of them.

That is one reason astute investors watch the legislative process like hawks scanning a field for mice. There are investment opportunities created in the halls of government every day. Watching for them can show you when you can profit from an opportunity, or when it is time to cut and run.

Use these 3 rules to help pick stocks that will grow your portfolio in this new year (and beyond).

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Here are three other ways you can use, along with more traditional methods, to make top stock picks:

Top Stock Pick Method 1 -
Look at the insider trading. This, like any other method, definitely isn't foolproof by any stretch of the imagination, but if the insiders are buying their companies stock, that is a definite vote of confidence from those that ostensibly know the company and its market the best. If the firm is well established and the stock is near a 52 week low, strong insider acquisition activity can indicate good things to come. Every time someone who holds more than 10% of a publicly traded company's shares wants to buy or sell, they must file a form 4 with the SEC indicating their intent to do so. They must fill out this form within 48 hours of their making a transaction, weather it be buying, accepting a stock grant, or selling. This gives the average investor the ability to track their trading and learn from it.

Top Stock Pick Method 2 -
Look at companies that have consistently beat analysts earnings predictions. If a company has handily exceeded the pros predictions for 3 quarters in a row, that says a lot about not only their health, but the firm's ability to generate a profit. It is doing this while in many cases remaining under appreciated. This lack of love can translate into a stock that's under priced in the market compared to it's performance. The strong revenue can, in many cases, drive the stock price higher.

Top Stock Pick Method 3 -
Look to the news for your stock picks. Use some of the many news search engines. Look for companies that have positive stories done on them, from reputable news outlets, over the last 6 months. The more positive news stories, the better a stock pick it will be according to this theory. This can be coupled with a news search for articles on the company's principal industry and market. If they are generating positive news stories as well, it can be an indicator of good times ahead for the firm in question.

These are just three methods you can use to generate top stock picks. However (seems there's always one of those), you should combine these methods with more conventional analysis before you actually pick a stock to add to your portfolio.

Posted by debtblog at 02:49 PM | Permalink | Comments (0) | TrackBacks (0)

If you're going to have a go investing in stocks, your main objective will be to find good stocks to invest in. A tall order, that, but definitely not hopeless. Fortunately, there are many great companies out there from which to choose. If you are going to pick good stocks, you could do a heck of a lot worse than to follow such investors as Warren Buffett. Warren is a champion of an investment style termed value investing. Value investing is an investment style whereby the investor tries to buy stocks in good companies that are undervalued by some measure. The theory is that eventually the market will catch up with the goodness in the company and the investor will profit accordingly. This has proved immensely successful for Buffett and others.

There are other approaches to investing as well. One approach that works very well is to look into the future and try to discern what businesses will have products or services in greater demand than they are today. That accounts for the growing number of investors that invest in emerging markets such as China and Latin America. The economies in these areas are experiencing fantastic growth, and are poised to continue their expansion well into the future. Another area that shows promise for investors is the health care arena. As the population ages and and people live longer, there sill be a greater demand for medical and long term care. Usually, growing demand for a product or service portends great things in the future.

Finding an area to invest is all well and good, but within that area, an investor must still choose what to invest in. How do you find good stocks to invest in? You can pick individual equities, or choose from funds made up of many different ones. If you choose funds that are made up of many different stocks, called mutual funds, you're trusting in the fund's manager and team of analysts to find good stocks for you. Many investors feel more comfortable with this approach, since the analysts and fund managers have experience and training on their side. In theory, this should mitigate much of the risk associated with stock investing.

Other investors choose the go it alone route, preferring to trust their instincts and research to pick stocks. If you are among this group, you'll want to find good stocks, but that's not just a matter of laying out the business section on Sunday and buying up the equities with highest year to date growth. You'll want to look at past performance, sure, but you are actually investing in the future of the company, not its past. The past can be an indicator of future performance, but 100 years ago there were many well run buggy whip companies that probably proved to be poor investments. A quote from Warren Buffett is in order here. “If past history was all there was to the game, the richest people would be librarians. “

That being said, how can you find good stocks to invest in today? I'm kind of partial to Buffett's value approach myself. You can surely find worse investors to emulate. When picking companies in which to invest, Buffett has some rules. His number one rule is “Never Lose Money” Now if you went to business school, you were taught that there is an intrinsic relationship between risk and reward (thanks Finance 325). Higher risk brings with it greater return, if you stick with it long enough, while more conservative investments will provide lower returns. That, however is not always true. There are many examples of very risky investments that fail to pay off, while numerous blue chip companies that offer comparatively little risk to the investor, but pay off handsomely in the long term. Those are the stocks that Buffett (and I) favor.

Here are 10 more quotes from Warren Buffett that give an insight to his investing strategy:

“I never attempt to make money on the stock market. I buy on the assumption that they could close the market the next day and not reopen it for five years. “

“It's far better to buy a wonderful company at a fair price than a fair company at a wonderful price. “

“Look at market fluctuations as your friend rather than your enemy; profit from folly rather than participate in it. “

“Only buy something that you'd be perfectly happy to hold if the market shut down for 10 years. “

“Our favorite holding period is forever. “

“Price is what you pay. Value is what you get. “

“Risk comes from not knowing what you're doing. “

“The business schools reward difficult complex behavior more than simple behavior, but simple behavior is more effective. “

“Time is the friend of the wonderful company, the enemy of the mediocre. “

“We simply attempt to be fearful when others are greedy and to be greedy only when others are fearful. “

“Why not invest your assets in the companies you really like? As Mae West said, "Too much of a good thing can be wonderful". “

What exactly does he mean by these pearls of wisdom? Look at the company first. Is it well run, and do the managers of the company have a good handle on the firm? What line of business is the company in? Do the prospects for the industry and the company's products and/or services look to have look to be strong in the future? Can you invest in the company for a fair price? You don't need to buy it for a song, but you should be able to get stock in the company for less than stock in comparable companies in the same industry.

f the company is well run, has a history making a good profit, with potential for solid growth, and in a growing industry, it should be profitable in the long term. Even better is if you can find a company that has had some recent problems, but looks to be overcoming them. This will often push their stock price down in the short term, creating a opportunity for the investor. The key is, however that the company have intrinsic strength and be in a market with strong growth potential.

Using the preceding strategies is one way to make sure you find good stocks to invest in. You won't always pick winners, but if you do it right, and try not to hit a home run every time, your winners should far outnumber your losers. Remember, don't try to get rich off one stock, get rich off them all together.

Posted by debtblog at 02:50 PM | Permalink | Comments (0) | TrackBacks (0)

Now it's time for you to begin living, and you need to fund your retirement so you can tool around Arizona and Nevada in the Prevost. Maybe you're still working and you've changed jobs, hopefully to a new employer that has a handsome 401k plan with contribution matching. Either of these two occurrences  may cause you to have some questions about  401k rules for withdrawal, distribution or rollover. Hopefully this post can help.

401k Rules for Withdrawal and Distribution-
Want to take some money out of your 401k? Here's what you can and can't do if you'd like to withdraw some funds. The first thing you'll want to look at is your age. There are strict rules regarding age  for 401k withdrawals. The magic ages are 59-1/2. and 70-1/2. If you're past 59-1/2 years old you can withdraw funds from your 401k without incurring a penalty from the IRS. The IRS will withhold 20% of the total amount you withdraw, however. This will count toward your income tax due for the year. If you're lucky, an planned well, you may have a refund coming. In that case, the 20% will be basically a short term, interest free loan to the U.S. Government, and you'll get some or all of it back in the form of a refund.

The 59-1/2 and 70-1/2 ages refer to April of the calender year in which the plan participant reaches them. You must take your distribution to qualify. If you don't take a distribution in the starting year, the required distributions for 2 years must be made in the next year (one by April 1 and one by December 31).

If you are under age 59-1/2, you can still withdraw money from your 401k plan, but the IRS will ding you 10% for the privilege. The rules here state that there are actually limited circumstances where you can avoid the 10% early withdrawal penalty. These circumstances include total and permanent disability, death (also total and permanent for most of us), medical expenses that exceed 7.5% of your adjusted gross income for the year, ESOP dividends for your employer's securities (in the 401k), and the IRS levy of your plan.

If you're over 70-1/2 years old, you are required to begin taking mandatory withdrawals. You can leave the money in the plan if you have more than $5,000 (otherwise they'll usually just cut you a check), but that's cost prohibitive, as your friends at the IRS will take a full 50% of your minimum distribution. That basically means you have to begin taking that minimum distribution.

401k Rules for Rollover –
If you leave the employer who sponsors a particular 401k that you have funds invested in, you may want to move your money into one of 2 other investment vehicles; another 401k (if the plan allows such transfers), or an IRA. Your funds in a 401k aren’t actually owned by you, they’re in a trust owned by your employer. An IRA, on the other hand, is really your asset. This is the reason it’s more complicated to move assets from a 401k plan than it is to transfer them from an IRA.

If you’re moving to a different employer, you may want to transfer your assets from your old employer’s 401k plan to your new employer’s plan. On the other hand, it may fit your financial plan better if you move it to an IRA. The process of transferring assets from your 401k into another one, or into an IRA, is termed “rollover”. Rollover is the financial term for moving assets from one tax protected entity into another.

In order for you to rollover a 401k, you’ll first have to set up an account for the funds to go to, if you don’t have one already. This is not created at the time of the rollover, but before. The primary rules that apply to a 401k rollover are as follows;

Rule 1 - If the money is transferred directly to you, you have a 60 day window to make sure it gets to the other tax deferred account. If you miss the 60 day window, you’ll owe a 10% penalty if you’re under age 59-1/2.

Rule 2 - You can roll it over without the 20% IRS withholding if the dollar amount is greater than $5,000. If it’s smaller than that, you’ll normally just get the distribution check sent to you, less the 20% IRS withholding.

Rule 3 – There are some changes coming for tax year 2008. After 2007, you will be able to roll over your 401k directly to a Roth IRA if you make less than $100,000, and are not married filing separately.

Rule 4 – Although the rollover is not viewed as a taxable event by the IRS, you still must report it on your federal income tax return, so don’t forget to do so.

Rule 5 – There are certain distributions that do not qualify for rollover status. These include required minimum distributions for those older than 70-1/2, hardship distributions, employer stock dividends, life expectancy based payments over a greater than 10 year period, and life insurance payments.

For more information on rules for 401k rollovers, see the IRS, here.

Have a great, Debt Free, weekend.

Posted by debtblog at 02:39 PM | Permalink | Comments (0) | TrackBacks (0)

In many cases, mutual funds are made up of different securities that have some type of similarity. There are funds that are made up entirely of stocks, known as equity funds. Others are primarily composed of debt instruments, these are called, appropriately enough, bond funds. Sometimes the funds are made up of stocks of companies with particular characteristics. These are classed according to the particular attribute that loosely defines all of the stocks that make up the fund. Some examples would be growth funds or value funds. Growth funds are made up of stocks that demonstrate capital appreciation, where value funds look to count among their holdings primarily equities that investment professionals feel are undervalued and have great potential for future growth.

Some funds are defined by their market capitalization (the total value of their outstanding stock). These are typically known as large cap, small cap, mid cap, and micro cap funds. Basically large cap companies are large, and small cap companies are small. Pretty easy, huh? Large companies are usually more stable, while smaller ones are more volatile, but can offer more growth potential (but that rule definitely does not apply not all the time).

There are also income funds. These babies are composed of financial instruments that pay good dividends, which are then either reinvested if the aim is to achieve growth, or withdrawn, if the aim is to sustain a lifestyle. Stocks that pay handsome dividends are typically from solid, established companies. They don't experience the same amount of capital appreciation, but are not as likely to depreciate either. For this reason, and the aforementioned income possibilities, they are often used by older investors that seek to obtain steady income and capital preservation to serve them in their retirement years.

Some mutual funds specialize in a certain industry or group of companies. These are known as sector funds. Examples would be funds that deal primarily in energy companies, transportation, electronics, communications, computers, and so forth. These have the potential for tremendous growth, if the particular sector is rapidly expanding. However, they can be devastated if the sector takes a large hit, as happened with many tech related sectors in the early part of this decade.

There are also mutual funds that are defined as combinations of terms, such as large cap value funds, or small cap sector funds. In such cases they are just more tightly defined for investors that are looking to more narrowly invest in stocks and/or bonds with certain characteristics.

Given the huge varieties of mutual funds available to the average investor, how can you find the best performing mutual funds, without sifting through financial data for endless hours? Many of you probably don't find that all too stimulating. Keep in mind that performance should mean different things to you depending upon your requirements and where you lie in your investing life cycle. Also remember that most investment advisers (I am not one) recommend a buy and hold strategy when aiming to maximize retirement savings.

Here are some ways to easily find the best performing mutual funds:

Best Performing Mutual Funds - Lesson 1 -
Look at the past performance numbers. All mutual funds have published statistics to make comparing them easier. You'll be able to see how much they have gained this year to date, over the past year, five years , and since the fund's inception. Keep in mind that many excellent funds can have a down year or two, so be careful of letting poor current year performance solely determine your decision.

Best Performing Mutual Funds - Lesson 2 -
Don't forget the expenses. Those fund managers have to get paid somehow. They are paid by charging the fund's shareholders a fee. The fees also cover administrative expenses incurred by the fund. This fee is often called a “load”. This fee will be subtracted from your returns, so it is definitely worth examining when making your decision. No load funds shareholders aren't charged a fee. Lower fees are better, obviously, but need to be viewed against the background of the fund's overall performance. This will be listed in the fund' prospectus as the “expense ratio”. Lower numbers translate to lower expenses. Remember that small numbers can add up to big numbers during the length of time you'll hold your investment.

Best Performing Mutual Funds - Lesson 3 -
Take a deeper look inside. You wouldn't buy a car without looking under the hood, even if you aren't a mechanic. The same should be true for your mutual funds. Look at the industry the particular fund is invested in, and the companies that it holds. You don't have to perform an in-depth analysis, that what they pay the mutual fund company for. However, you should look to see if they hold anything that looks like an obvious dud. You want to stay away from any “here today, gone tomorrow” stocks, especially if you are investing with an eye towards that tomorrow.

These are just some simple rules to help you find the best performing mutual funds. Remember that a bit of caution now can pay huge dividends later (especially if you're investing in a value fund).

Posted by debtblog at 02:43 PM | Permalink | Comments (0) | TrackBacks (0)

Just a word about company valuations, and the amount paid my Microsoft yesterday for a small, 1.6% share of web 2.0 pioneer Facebook; $240 MILLION?? That sets the valuation of Facebook at an astounding $15 billion. As a way of comparison, that sets the value of Facebook higher than the market cap of the following Fortune 1000 companies: Weyerhaeuser ($14.89B), Heinz ($14.8B), Marriot ($14.73B), CIGNA ($14.4B), Safeway ($13.89B), Campbell Soup ($13.7B), and Macy’s ($13.66B). Now, I am unsure how the rest of the world feels, but that seems a bit high to me by way of comparison. Microsoft’s (NASDAQ: MSFT)market this morning was a little over $292B, with an EBITDA last year of over $20B.

Looking at Facebook's 50 million registered users, many analysts and investors apparently disagreed with me, as MSFT rose on the news of the acquisition. Microsoft has been looking to more effectively gain market share and monitize Google's cash cow, the online advertising market. It seems that  investors are looking at this as just the way for Redmond to make that happen. Most analysts conotinued to maintain positive outlooks for the software giant's stock.

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One of the clues to their identity was that the investment entities are exempt from paying federal income taxes, according to Title 26, sections 856 – 860 of the Internal Revenue Code. This IRS code section states that certain business entities can pay zero corporate income taxes. That’s right, zero, nada, zip! None of their income is considered taxable for the purposes of federal income taxes. Here’re a few quotes from the federal tax code, section 856 that gives a big clue about what these investments actually are, and one of the reasons they can be so favorable:

“For purposes of this title, the term ``real estate investment

trust'' means a corporation, trust, or association--

        (1) which is managed by one or more trustees or directors;

        (2) the beneficial ownership of which is evidenced by

    transferable shares, or by transferable certificates of beneficial

    interest;

        (3) which (but for the provisions of this part) would be taxable

    as a domestic corporation;

        (4) which is neither (A) a financial institution referred to in

    section 582(c)(2), nor (B) an insurance company to which subchapter

    L applies;

        (5) the beneficial ownership of which is held by 100 or more

    persons;

        (6) subject to the provisions of subsection (k), which is not

    closely held (as determined under subsection (h)); and

        (7) which meets the requirements of subsection (c).”

So, that pretty much indicates that we’re talking about REIT’s, since that portion of the tax code deals exclusively with them. There are many flavors of REITs, however. The Pinchot Plan deals with those that are concerned primarily with land management, development, use, and raw materials extraction.

According to one of the websites / emails that purports to have the “inside information” on this investment plan, there are 6 companies. One of which they almost mention by name. Because the company referenced is called “Plum Creek” and there is a Plum Creek Timber Company based in Seattle, a REIT that happens to be the nation’s largest private landowner, I think it’s a pretty safe assumption that the email refers to them as one of the 6 companies.

As for the other 5 companies, a web search on some of the information contained in the email brings up Rayonier Inc, a REIT since Jan 1, 2004. This company derives much of its revenue from auctioning its timber reserves located in Alabama, Washington, New Zealand, Florida and Georgia. It gained almost a million acres when it acquired Jefferson Smurfit Corp in 1999, making it the 8th largest landowner in the U.S.

One of the others on the list looks to be the Potlatch Corp, located in Spokane, WA. They have, as the email suggests, over 1.5 million acres of land. Their most recent acquisition was 179,000 acres of central Idaho timberland they bought last month for $215 million. Recently they converted into a REIT. The fact is that the conversion allowed them to pay shareholders the one-time $15.15 per share dividend the email refers to. One aspect of the Potlatch REIT is its emphasis on recreational properties. Once leaders in timber products production, such as lumber and OSB (oriented strand board), used heavily in home building, they have shifted their emphasis to a more development oriented business strategy.

According to CEO Mike Covey, Potlatch will no longer consider land acquisitions that have no recreational component. They may have made this decision at just the right time, as new home starts, one of the primary uses of lumber and OSB, face a big decline. Potlatch began divesting itself of manufacturing assets a few years before its REIT conversion, and did so quite profitably. In 2004 they sold their OSB plant in Minnesota for a whopping $457.5 million, and netted a healthy profit. They still operate 13 manufacturing facilities, though.

Number three on the Pinchot email list is probably Longview Fiber (NYSE: LFB), a timber producer in, appropriately enough, Longview, WA. I’m more familiar with this company, because some of my wife’s high school friends work there. Actually, living much of my life in the Pacific Northwest, I’m more than a little familiar with most of the companies that the Pinchot email refers to. Longview was actually sold earlier this year to Canadian firm Brookfield Asset Management, the Borg of asset management companies with assets worth over 75 billion USD (and growing fast).

Most of the information in the email is sufficient to discern the true identity of the companies in question, thanks to the wonders of the Internet and the modern search engine. If you have a few spare hours, you can figure almost anything out on your own these days. The problem is, who has a few spare hours these days?

How have these REITs fared recently? Looking strictly at stock price, Potlatch closed today at $43.02, up about 15% since the beginning of last year. Since it was turned into a REIT at the beginning of 2004, Rayonier (RYN) has steadily gained, going from $27.50 to its latest close of $44.03. That’s a 37% gain in the past 3 years and 9 months. The other REIT I looked into as part of the Pinchot Plan research, Plum Creek Timber has gained just shy of 35% in total since its REIT conversion in July of 1999.

So from a purely stock appreciation, none of them has lost any value, and  most have gained enough to make them worthwhile. Their real value, however isn’t from a stock price perspective. They pay huge dividends. You know how I feel about those. It’s pretty much all good. If you get good, consistent dividends over the long term, you almost don’t need stock price appreciation. Oh, it sure doesn’t hurt, but you can make impressive gains without them, if your dividends are solid and reinvested.

Did these companies pay dividends, as the email suggested they were required to? Rayonier paid out $129 million and $144 million in dividends in 2005 and 2006 respectively. They had a forward annual dividend rate this year of 2.00 and a 5yr average dividend yield of 3.80%. Plum Creek Timber’s rate was lower, at 1.68, but they had a higher 5yr yield of 4.60%. Potlatch returned an identical 4.6% yield and a forward dividend rate of 1.96.

Posted by debtblog at 12:48 AM | Permalink | Comments (0) | TrackBacks (0)

For example, you could have grabbed a piece of the profit in the home video market 25 years ago with any of several plays. You could have bought shares in a VCR producer, such as Sony or JVC. Another option would have been to invest in a company that made magnetic coatings for video tapes, or a company that made the tapes themselves and developed many of the technologies for them, such as TDK. A third way you could have made a profit from the expanding home video market would have been to buy some shares in one of the myriad of home video store chains that spring up during this period. Yet a forth way to profit from this trend would have been to start your own video store.

The success of beginning your own store would be very hard to predict, and would depend on many factors; the store's physical location, your marketing efforts, the demographics of the community where the store was located, your skill as a business person, etc. The success of other methods would be much easier to see in retrospect. We can just examine the various companies stock price history.

Let's look at Sony (SNE) and Matsushita (MC, parent company of Panasonic). From 1983 to 1988, the stocks performed very similarly. Sony began in mid 1993 at about $6.25, while Matsushita started at $7.30. By mid 1988, they had climbed to $21.86 (SNE) and $22.34 (MC). That would have been a great 5 year run for any investor. From there however, Sony dramatically outperformed the other company. By the mid 1990's (July 1995), Sony had a stock price of $26.64, wh8ile Matsushita was languishing back at $16.60. By early 2000, Sony had given investors stellar returns, landing at a high of over $156/ share. Panasonic's mom and dad, on the other hand, had not delivered on its' initial promise, reaching a stock price of just over $30. Note: Sony has now fallen back to around $50/share, from it's mid 2000 high.

How about a play on one of the big video store chains as a way of cashing in on the home video trend? There were a few possibilities if were to have chosen this direction. The largest of these is Blockbuster Video Inc (BBI). How would you have fared had you gone this route? In 1987 an investment group led by Waste Management founder Wayne Huizenga bought a controlling interest in Blockbuster from founders Dandy and David Cook for $18.6 million. Through a strategy of franchising, rapid acquisition and cross promotions with companies in complementary industries, such as Dominoes Pizza, Blockbuster Video grew from 4 stores and $7 million in sales in 1986, to 3,500 stores and various other entertainment holdings with a combined quarterly revenue of almost $700 million for Q1 1994! Quarterly rental revenue alone accounted for almost $400 million.

Unfortunately for the common investor, the only way to buy the company's rapidly appreciating stock came in 1994, when they were folded into communications giant Viacom. Blockbuster itself did not have their IPO until 1999, when the company's glory days were far behind it. As many investors would agree, now, on the eve of most content being delivered primarily over the Internet, is probably not the time to invest in a store that is so heavily invested in physical media and the infrastructure to support it.

What about a company that mad e many of the video tapes and developed some of their core technologies, TDK? This could have been a profitable move for investors, as TDK was also developing magnetic technologies for computer drives and optical media technology, both of which took off in the late 1980's. TDK rose from the low $30 range in 1987 to finally close at $147.50 by the time of the tech stock collapse in August of 2000. TDK now sits in the mid $80 range. After a fall back to the mid $30's in 2003, it has slowly been making a recovery, and actually would have been a nice buy in late 2002 or early 2003.

What about a trend you can cash in on now? Take a look around you. What trends do you notice that could deliver nice investment returns? There are some market conditions that bear watching. Number one – the new housing market is at its lowest levels in over a decade. The Canadian dollar is at its strongest point in who knows how long. Wood futures prices are at a decade low level. The Conference Board of Canada forecast earlier this year that Canadian wood products industry revenues would drop 25% by the end of the year, and that, combined with falling U.S. dollar will be driving some Canadian wood products producers out of business, further tightening supply.

A tight supply of a commodity that is experiencing very low prices, in the face of temporarily declining demand (the housing market will, at some point, make a comeback), points to a very strong market in the future, with rapid price appreciation. While I'm definitely not a prognosticator, and hold no wood futures myself, this seems like a trend that could be capitalized on. How could you do this? As with most trends, there are several plays on this market. You could just buy wood futures contracts, but many folks don't have the stomach or expertise for futures investing. Another angle to wring profit form this trend, if it develops, would be to invest in American wood products companies that are poised to make large profits on wood's rebound.

Do careful research and you'll find firms that own large stocks of trees, well developed production facilities and solid distribution networks, and enviable financials. To make matters even better, many of these are under priced, due to the current low wood products prices and poor housing market. That, however is the time to get in on a trend, before it takes off. Happy investing.

Posted by debtblog at 02:08 PM | Permalink | Comments (0) | TrackBacks (0)

First of all, simply avoiding taxes shouldn’t be the driving force behind your investment decisions. Return maximization and portfolio risk level should first be balanced to get you the returns you need to meet your retirement goals without turning your hair prematurely gray. After you’ve done this, you can turn to the task of minimizing your tax burden so you can keep, and reinvest, more of your investment returns.

On tool that could benefit many investors tax avoidance plan is the tax managed fund. This class of funds is used outside of your 401(k), which has its own set of tax advantages. What is a tax managed fund, and how does it compare to other funds? A tax managed fund, as the name suggests, is actively managed by the find manager in order to reduce the portfolio’s taxable capital gains that would otherwise be distributed to fund shareholders. Does it work? You bet, but the efficacy of the particular fund at reducing taxes depends to a great extent on the manager him/herself. Their decisions will determine weather you in fact pay taxable capital gains or not.

Bond laden funds or equity funds that pay hefty dividends may still cause income distributions, but these are most likely  a good deal smaller than what an investor would otherwise be dealing with from more traditional mutual funds. Something to be aware of however is that due to the more hands on approach taken by managers of tax managed funds, they tend to have relatively high expense ratios compared to say an index fund. This is definitely something to be considered when shopping for your next retirement vehicle. When you’re shopping however, tax managed funds are just an additional can on the shelf of the retirement fund aisle, and having a larger selection is never a bad thing.

Posted by debtblog at 05:54 AM | Permalink | Comments (0) | TrackBacks (0)

For most people, just buying into a few solid mutual funds, or getting whatever your 401(k) offers is probably the best strategy anyway. Picking stocks takes creativity, insight and most importantly, plenty of research. Most people simply aren’t able to do the copious research required to pick winning stocks. To retire well, you’ll need to choose investments that generate consistent returns, and even the pros who can do so are wrong on many occasions. The key is to be right more often than you’re wrong, and by a greater margin.

Here are 3 different purely financial analysis techniques you can use to look at potential investments. Some of these are better suited to one time capital investments than investments such as stocks, where the future is hard to predict. In addition, the quality of information you use to make the calculations will obviously impact the accuracy of your results. In a game that lives and dies by a few percentage points, it doesn’t take much of a swing either way to make or break your portfolio. The 3 analysis techniques are: Net Present Value, Payback Period and Average Rate of Return. Oh, you can also use the “Stick my wet finger in the breeze” technique, which has, in fact, been practiced by many successful investors, but more often than not leads to financial disaster.

Which you choose is determined by your individual requirements. The one common problem faced by all purely financial analysis techniques is that they ignore non-financial factors such as the quality of the management team and their past performance, future plans of the company, what a company’s competitors may be doing, regulatory issues, the legal environment, the general market situation the company faces, opportunity cost, and so on. For this reason, purely financial analysis should never be the sole criteria for evaluating an equity investment. These other factors may have as much or more of an impact on the investment’s future.

Investment Analysis Technique 1 – Net Present Value
If you took any finance classes in college, you probably remember this one. It uses the time value of money, and is in fact useful any time you have to determine the value of a series of payments over time, such as when calculating the true value of an annuity or the cost of a loan. Here’s the formula for it:

Got that?? Well, basically it states that the sum of a future payment or payment stream, with the appropriate discount rate applied, equals the sum all the discounted payments received over time. t = time of the cash flow, Co is how much cash you start with, Ct is how much cash you have at time t, and r is the discount rate. Obviously the discount rate will drastically affect the project. If it’s a certainty the calculation will be accurate, if it’s an educated guess, well, maybe not so accurate. It’s really much easier to use a financial calculator or Excel, which is why such devices and software was invented. The advantage is that you can use this technique to easily see the effects of interest rates and profitability on the investment.

Investment Analysis Technique 2 – Payback Period
This technique takes a look at how long it will take to recoup your initial investment. It works well when you have little time for an investment to bear fruit and you need to know if it will pay off in the allotted time frame, and indicates when the investment will begin generating positive cash flow.

The downside to the payback period technique is virtually everything else, but critically it ignores the time value of money, something you can ill afford to do on a long term basis. It also fails to account for profitability after the initial investment has been recouped, so it’s not great for projecting long term results. It’s better for firms looking to analyze a capital investment, though. Its greatest advantage is that it’s very easy to use, which is also why it fails on so many other levels. You simply look at how long the return from the investment takes to equal the initial cost of the investment. Bingo!

Investment Analysis Technique 3 – Average Annual Rate of Return
This is similar to the payback period technique in that it looks at the stream of revenue generated by an investment and the initial cost of the investment. To determine the average annual rate of return generated by an investment, you take the net total cash flow that it generates over a specified time period, divide it by the time period, and divide the result over the amount of the initial investment. To include the time value of money, you want to use the compounded rate of return.

If you bought a rental property for $300,000, put 10% down, and rented it for $2,500 / month, your rental income total for the 5 years would be $150,000. To check your average rate of return over a 5 year period, you need to look at your costs over the period. If you got a 6% mortgage for the $270,000 balance, your P& I would be $1,350. If you pay an additional $500 for taxes and insurance, your costs for the 5 year period, including your $30,000 down payment, would be $147,000.  Income for the same period would be the aforementioned $150,000. Your total simple return for the 5 year period would be 2%. Ouch! Taking into account the time value of money for the 5 years, your compounded return would be only .4%, dismal by any standards. NOTE: This example ignores such factors as closing costs and possible rent increases over the 5 year period.

Now a .4% compounded return is nothing to write home about, you could do way better in the stock market or even at Uncle Larry’s dice game, and that doesn’t even take into account any expenses you may have for repair or renovation. But it also doesn’t take into account any appreciation or depreciation on your property, and here’s where real estate investors count on the power of leverage to make their investments pay off. (Considering today’s market in some areas, counting on appreciation may seem foolish, but over the long term the property will appreciate).

Stocks may generate far higher returns and some pay nice dividends, which can be reinvested or used as an income stream for living expenses. With equity investments however, the amount you invest is the amount you invest, and that’s all there is to it. With real estate, you have the principle of leverage that can multiply your results substantially. The rental income provides you with a .4% compounded return, but if the property appreciates at the annual average of 6.3% over the 5 years, you will make out much better, because that 6.3% affects the entire $300,000, not just your $30,000 initial investment.

If the 6.3% holds, your property will be worth $407,181 at the end of the five year period, giving you an unrealized gain of $107,181. If you add this into the equation, it changes substantially. Now your compounded return for the 5 years is a much more favorable 11.8%, and with time will be even more impressive.

Have a great, debt free weekend.

Posted by debtblog at 02:04 PM | Permalink | Comments (0) | TrackBacks (0)

It seems that Home Depot Supply could use the latest building industry downturn as an opportunity to consolidate its builder business. In any industry downturn, firms are looking to economize and increase efficiency wherever possible so they can ride out the bumps ahead. With their massive capital and buying power, HDS is in a perfect position to help builders do just that. Now is the perfect time to consolidate their foothold on the building industry. With a solid distribution and supply network, they are a position to gain market share by forging new and expanding existing partnerships with the nation’s home builders. Time will tell if they do, in fact, take this opportunity to help home builders out in their hour of need, and, in so doing, give themselves a leg up as well.

The building industry suppliers that weather the storm will be in a great position to emerge from the current market problems with a greater market share and bolstered account list. For suppliers, now may be the time to focus even more intensely on remodeling oriented contractors, as the need for repairs and remodels grows as homeowners keep and improve their homes, rather than selling and moving up. Many will be dissuaded from selling due to poor residential real estate prices and lower demand because of a smaller pool of qualified creditors. If home owners still have substantial equity in their homes, a possibility if they’ve owned their homes for more than 5 – 7 years, remodeling may be a better choice than braving a stagnant sellers market.

Buyers, on the other hand, will be rewarded with a myriad of choices. Homes will be had for a relative song in many markets, as the list of foreclosures and deeply discounted properties grows. With cash from the savings they receive, they can jump in to making any improvements in their newly acquired properties. This may not be enough to offset the number of homeowners that don’t make pre-sale improvements before selling their homes, or the lack of new buyers that typically make improvements soon after acquiring their new homes. According to the remodeling industry study published by the Harvard University Joint Center for Housing Studies, there will be a slowdown in the remodeling industry, but it promises to much briefer than in the building industry as a whole.

A sector of the housing market that may still hold promise is the extreme upper end of the market. While not completely recession proof, the very rich will always have money to spend, and many spend it on homes and remodels. It’s not uncommon for wealthy homeowners to plunk down $3 – 5 million on a new home, only to immediately tear into the place for, as they see it, essential improvements. After all, if you can afford homes in this price range, you’re paying for location first and the structure second. The golf course or waterfront lot is the real prize in the deal, and that fabulous custom home is just so much clay to mold into the home of their dreams.

I’ve personally experienced wealthy heirs remodel exquisite, mid-century lakefront estates, and spend millions doing so, only to resell them because they couldn’t bear certain aspects of the place when they were finished. Life’s tough all over, I suppose, but that’s an insight into the minds of some in that socio-economic strata. When investing, the more insight, the better.

The Harvard study found that, while the number of new home builder has experienced a consolidation over the last 10 years or so, the number of remodeling contractors has actually swelled in the last 5 years by almost 25%. Remodel contractors in the Pacific Northwest and the East coast have experienced especially strong growth.

One emerging trend in home architecture is the resurgence of mid-century modern style homes. These homes are those built in the post WWII time frame until the early 1960’s. The trend began emerging a few years ago in remodels and new homes in Sun Belt states and has begun to spread to East Coast, and mid-west areas as well.These homes are characterized by architectural features such as “floating” elements, pocket doors, cantilevered roofs and decks, post and beam elements, and cathedral ceilings. If you’re targeting homes as remodel candidates with potential for strong appreciation, this is one style that could show strong demand in the future.

As always trends are cyclical, so the duration of this trend is unknown, but it appears to be gaining strength. There have begun to be magazines published that focus on this architectural style. New magazines are a good predictor of future demand and emerging trends (not just in this area, but of any trend). Watch for the increasing number and thickness of these publications, as the number of features and advertisers grows. =

Posted by debtblog at 02:12 PM | Permalink | Comments (0) | TrackBacks (0)

You can see by looking at the stock price charts of the heavily building industry related home improvement centers. Notice how they move almost in lock step of late, mostly trending down, however there is some movement that looks like short term recovery. Notice how the bank that is most heavily mortgage related, Wells Fargo, actually moves down the least of the three banks in the chart, but that all 3 banks and Home Depot actually move basically together, although the banks have showed a bit of a bounce back in the last couple of days.

In the next screen, notice that Fannie Mae (FNM) is actually posting a nice gain for the year and that the vertical scale must be expanded to accommodate the price drop experienced by embattled Countrywide Financial Corp (CFC). Adding in Capital One (COF), who yesterday announced they'd be taking an $860 million loss to rid themselves of the risk created by their recently acquired GreenPoint Mortgage division, shows the magnitude of the recent drop experienced by Countrywide, the nation's largest mortgage company.

When Countrywide (CFC) is superimposed against stocks from 3 of the country's largest home builders, Centex (CTX), DR Horton (DHI) and Pulte Homes Inc. (PHM) you can see that although the home builders have moved down almost in unison, Countrywide has fared much worse.

Does that mean there are no opportunities left in the sector? No, it doesn't. There are always opportunities. People still need places to live and the money to buy them. As noted before, there may be a mini remodeling boom as fewer people buy new homes. A $50,000 HELOC will allow a nice little addition and kitchen remodel. Don't look for a big jump among appliance manufacturer's though. As the housing market slows, the an increase in kitchen remodels will probably never make up for the number of new, high end appliances installed by the big home builders.

There are also millions of folks out there who represent great credit risks, despite what many of the banks and investors would have you believe. Lending to these people is still a very solid, profitable business. Much of the problems the market is experiencing today is of it's own making (mortgages that should have never been made) and some of it is driven by fear and hype, the record number of foreclosures notwithstanding.

Posted by debtblog at 01:24 PM | Permalink | Comments (0) | TrackBacks (0)

That's the kind of market to be in, a niche market about to be transformed to a mainstream market. Just look at the past markets to make the same leap; automobiles (not a great example at this point in time, but look at the broader historical context), plastics, aircraft, premium coffee, and electronics. There is a very nce period from just before the niche becomes mainstream to when the market matures and becomes saturated (driving down profit margins) where investors can make out handily. The key is to avoid those companies that will become lost in the inevitable shakeout. NOTE: I foolishly don't own any of this stock, yet.

Posted by debtblog at 02:26 PM | Permalink | Comments (0) | TrackBacks (0)

As many of you reading this will readily agree, that’s completely insane! Your little diversions now can cost you plenty. Even if you manage to avoid getting in trouble with the law, getting a girl pregnant / getting pregnant yourself, or wrecking your car, you’ll be losing out on the power of compounded savings and tax benefits of an employer sponsored savings plans with matching. If you had your fun and emerged relatively unscathed, nice work! Now, however you’ll need to look at some strategies to help you play retirement catch up.

Due to the aforementioned benefits of compounding and tax savings, the length of time you participate in an IRA, 401(k), SEP or other retirement savings vehicle will really boost the value of your retirement near the end of its term. What can you do if that term has been a bit abbreviated due to starting late? Here are some ideas to chew on.

Retirement Plan Boosting Strategy #1
Stay late. It’s probably not exactly what you want to hear, but it’s very powerful. With 50 being the new 30, and many Americans beginning their retirement plan contributions as if that were the case, you can work for just a few more years and reap dramatic increases in your retirement plan totals. For example if you move your retirement age back from 65 to 68, you can benefit big time.

If you’d managed to amass $500,000 in your accounts, that additional 3 years of contributions and compounded interest will provide the difference between just getting by and living a pretty comfortable life. Not only will you have 3 fewer years to withdraw money from your plan(s), there will be a much larger dollar amount in them. For example, if you use my standard 8% return calculation, that $500k will grow to about $800 in those 3 years.

That obviously brings up the thought “That’s huge! Why not just stay until 70?” You’d benefit there too by having almost $1,000,000 to retire on. If you’re in your 50’s now, there’s a great possibility the feds will have moved back your social security retirement age until 70 anyway, in an effort to salvage the whole Social Security idea.

Retirement Plan Boosting Strategy #2
Have an expert look at your retirement plan. Some things are extremely complex. For example, don’t let your tax free 401(k) contributions reduce your taxable income to a point where it could take you down a tax bracket, causing the value of other tax exempt vehicles and deductions, such as your mortgage interest, to lose some value. Some experts argue that you’d be better served in that case to invest in a Roth IRA and blue chip stocks, then pay the capital gains on these vehicles when you sell them. That’s contradicted by others, who feel that is a recipe for disaster, and you should max out your 401(k) or 403(b) at all times. In fact, there is no one best retirement strategy. It depends on your individual situation.

Many factors come into play here; your age, the value of your retirement plan(s) now, the age you’d like to retire, your income, your tax bracket, the value of your home and your plans for it upon retirement, etc. For example, you may have $500,000 equity in your home. That’s a pretty realistic assumption in many areas of the country. In fact, many of you may have a significantly higher amount that that, if you’re in California, Seattle, Las Vegas, or the North East and have owned your home for a while. In that case you can take up to $500,000 if you’re married without paying any capital gains tax at all. Since 1997, you’re eligible to pocket the entire amount you profit on the sale of your primary residence without owing Uncle Sam a dime, up to the $250,000 for singles and $500,000 for married couples. If that describes you, and you are planning on selling, buying a Prevost, and touring the country in your golden years, that obviously changes your retirement planning some.

The point is that you’re looking at a whole array of retirement options, each with their own set of tax and income consequences. The unique combination of factors combines to render no one option the best for everyone. Look carefully to make sure you’re maximizing your tax and income benefits now, before it has a chance to cost you more later.

Posted by debtblog at 02:20 PM | Permalink | Comments (0) | TrackBacks (0)

Contrary to what some in the media and on the tin foil hat blogs would have you believe, the U.S. government isn't always the super secretive bunch with an emphasis on the obfuscatory. In fact, they are responsible for some pretty useful publications when it comes to your money. If you're into picking your own stocks, here's a U.S. government website that can really help, courtesy of those hard working folks over at the SEC.
http://sec.gov/cgi-bin/browse-edgar?company=&CIK=&type=4&owner=include&count=40&action=getcurrent

It's a list of the most current SEC Form-4 and forms 424B 1-7 that have been filed with the agency. Why should you care about another of the 4.5 million forms printed and demanded by the Federal Government? Because these specific forms are required by the Feds (pursuant to the SEC Act of 1934) when a company insider, that owns over 10% of a company's specific class of stock, purchases their own company's stock. It's also required to be filed if they sell it.

You know if those actually an integral part of the company's inner workings, ostensibly with access to the best information are going to risk their hard earned dollars on their company, it may be a good bet for you too. Other sites, such as Yahoo Finance, also publish a list of insider trades. This list however is the most complete (to the point of being confusing) and timely. The filings are listed the same day they're filed.

At last, here are some insider trades you can profit from legally. In many cases, but not all there's a coorllation between insider stock purchases and the stock rising. Do some research, but this behavior cuts accross all different sectors, fro high tech and communications, to biotech, to food service.

Here's the SEC website where you can get all forms filed with the SEC, according to their EDGAR database. EDGAR (Electronic Data-Gathering, Analysis, and Retrieval) is a handy little tool for investors that's been with us for the last decade. See, those tax dollars you pay every year do provide something besides roads, regulations, and F-16's.

http://www.sec.gov/cgi-bin/browse-edgar?action=getcurrent

Posted by debtblog at 01:27 PM | Permalink | Comments (0) | TrackBacks (0)

How are you supposed to do that? Well, I'm basically a financial chicken. Sure, in the past I've tried to make impressive gains from micro-caps and OTC stocks that friends with great investment track records assured me were spectacular deals. In many cases these companies seemed like good plays on paper too. You know the drill; sound financial fundamentals, great management team, and in a market that looked to be positioned for both large near term and long term growth. In most cases, these stocks turned out to be a bad idea.

I had another such tip come across my desk a few months back, this one for a start up that looked to have a huge upside with little downside. I ran it by a friend who is a very successful investor. In fact, he sits on the board of several large, public companies and runs a medium sized technology VC firm. He's a great sounding board for such matters. His advice: Stay away from such investments. He pointed out that, for every one of these microcaps or start ups that looks like it will provide you with financial security, there are about 95 that will take it from you.

That's kind of how I feel about investing in the Chinese or Indian markets, no matter their potential. But, that being said, there's just too much potential there to avoid. So, how's an investor to capitalize on the trends generated by these expanding new economies, without facing excessive risk and uncertainty? It's the same way investors can capitalize on the oil market without actually investing in any of the big oil stocks. Look for companies that stand to benefit from the expansions in these areas.

It's been noted that during the gold rush, those who really made the gold were not the miners, but those who supplied them. It's much the same today. Look at the Chinese and Indian economies. What are their greatest needs, and which companies are best positioned to supply them or their component parts? Obviously, raw materials are essential to expanding economies. One only has to look at the recent raw material price increases in the commodities markets to see some of the effects caused by China's, and to a lesser extent India and the Middle Eastern country's, voracious appetite for things such as copper, aluminum, zinc, oil and nickel. These are basic needs of manufacturing economies.

What other needs of the Chinese and Indians are companies struggling to meet, and more importantly, which companies are best positioned to supply them? If the firms are located in more stable countries, such as the U.S., Canada and Europe, then in theory, you'll get to take advantage of the growing demand in China and India, but mitigate much of the risk of actually investing directly in securities from those countries.

Other examples include companies that supply that which China and India cannot, either technology or industrial tooling. China has a stated goal to increase efficiency and reduce energy usage. Who can make that possible? What about those who supply something whose needs always increase when the economy grows, such as transportation, specifically air travel. Airlines who service China for freight or passenger service or the companies who supply them with aircraft, leasing, spare parts, or other associated products or services could be attractive as that market grows.

You can do very well taking advantage of the growth in foreign economies without exposing yourself to the degree of risk you'd experience by owning foreign equities.

Posted by debtblog at 01:39 PM | Permalink | Comments (0) | TrackBacks (0)

They are solicitations for an investment newsletter that covers drips. I'm not a subscriber, so I can't vouch for the efficacy of the information contained therein. However, I have posted previously about DRIP investing. You can, indeed make impressive long term gains with them. It all points to the effectiveness of choosing equities that pay high, consistent dividends (which I've also posted about, it's a great investment strategy, even over targeting stock price appreciation) and reinvesting them. In addition, there is a pretty good post over at Stock Gumshoe dealing with the whole 801(k) email thing. There are also some good follow up comments regarding the 801(k) solicitations that go into greater detail.

Posted by debtblog at 01:43 PM | Permalink | Comments (0) | TrackBacks (0)

You can do as Warren Buffett suggests, invest in companies as if the market doesn’t exist. Instead, look at the firm as if you were buying it strictly on the merits of it as a business entity. How are its products and / or services? What about its financials and management team. Check its labor relations and any legal issues it may be facing. What about the broader market in which it competes? Is there a strong future demand for its products? I posted some time ago about the affects of new product introductions on a company’s stock price.

For a great example of how a new product can boost a company’s stock price, take a look at Boeing (BA) after they announced the new, highly fuel efficient, 787 Dreamliner. It’s been one of the great, sustained runups of any company in recent memory. I only wish I would have bought some stock as Boeing hovered around $30 a few years ago. As it sits now, the aerospace giant is at $103.70. This rise in Boeing stock price coincided with the announcement of it’s (at the time) 7E7 Dreamliner in early 2003. On March 24^th of that year, Boeing closed at $26.10. The 7E7 was submitted for FAA type certification, one of the earliest stages in a commercial aircraft’s new product lifecycle, in April.

What did Boeing do? They had sustained a fairly consistent drop in stock price for the few years leading up to their eventual climb. In early October of 2000, they closed in the mid $60 range. At the time, they were proposing a new high speed passenger aircraft they called the “Sonic Cruiser”. Obviously the market wasn’t impressed. From that mid $60 level, the stock consistently dropped until late March of 2003, at which point Boeing switched strategies. Instead of betting their future on speed, they chose fuel economy. History has proven that this was the correct strategic decision.

On a related note, Boeing is a great illustration of the potential success of the buy and hold strategy. In early April of 1970, they sat at split adjusted 41 cents a share. $1,000 invested at this point would be worth $251,219 today.

Other ways to invest in the face of such mixed economic news could take advantage of the uncertainty facing the mortgage and home building industries. As lenders drop mortgage products, retrench, or go out of business altogether, and builders look at bleak forecasts for the near term, opportunities lurk for the astute investor (I make no pretense to being one of them). What are your options in such a market?

One possible option would be selling mortgage industry stocks short. Typically, short selling is for the more advanced investors in our midst, so choose carefully. As this industry continues to experience difficulties, the stocks of many mortgage lenders will doubtlessly fall. Some examples include Washington Mutual (NYSE – WM), who at the beginning of this month was at $43/ share, is now at $38. Another candidate even more heavily engaged in mortgage lending would be American Home Mortgage (NYSE – AHM). American was at 18.06 at the beginning of this month, but now hovers around $10. Still another opportunity could be found in Countrywide Financial Corp (NYSE – CFC). This month, Countrywide has fallen from $36 to $29 a share. Homebuilder DR Horton has been dropping since mid-May ($23.75) to their current price of $17.08.  As noted, short selling can be a great opportunity in a declining market, but it can also be very dangerous. You can lose big time if the company, or the industry, should turn around.

There are also opportunities, as I’ve posted about previously, in the distressed real estate market. Don’t forget to look at companies that supply industries that are on the rise. An example would be the construction crane industry. A visit to Las Vegas NV, Bellevue WA, or Shanghai, China will confirm that there’s money to be made in the heavy construction crane business. The Manitowoc Co. Inc. (NYSE – MTW) is a leading producer of those huge construction cranes used in the construction of large, commercial buildings. In some cities there are 12 – 20 of them visible at any one time.

The rise of Manitowoc stock price corresponds to the huge demand for mammoth construction cranes throughout the world. In early April, 2003 they could be had at the bargain (split adjusted) price of $8.45. They are now in the mid-70 dollar range. This is a fantastic rise no matter how you look at it. That $74 is down from earlier in the month when they closed at $85.11. If you were clairvoyant, you could have made a ton coming and going!

The point is that, no matter how you do it, there are always investment opportunities to be found, weather the market and the economy are up, down or sideways. Have a great weekend.

Posted by debtblog at 02:54 PM | Permalink | Comments (0) | TrackBacks (0)

The 3 ethanol plants are yet to be on-line, but by the time all three are producing at full capacity, projected to be early in Q1, 2008, VeraSun's total ethanol production should be about 1 billion gallons per year. The news of the acquisition comes soon after VeraSun's (VSE) 52 week low, reached on Friday, July 20^th . The news rallied the stock from the low of $13.01 at Friday's close, to the upper $13's at the time of this post. Time will tell if the rally continues. After peaking at almost $27 in November, VeraSun has been on a downward slide. Will this deal arrest the plunge?

In other interesting alternative energy related investing news, Quantum Fuel Systems Technologies Worldwide Inc. (NASDAQ:QTWW) indicated this morning they would be supplying GM with 3 liquid hydrogen refueling stations to facilitate the auto giant in the demonstration of new hydrogen fuel cell vehicles. Quantum also produces the fuel cells used by GM in the technology demo vehicles.

In a press release this morning from Quantum's Irvine, CA offices, Alan P. Niedzwiecki, President and CEO said the following: "Our transportable hydrogen refueling stations are designed to support our customers as they advance their hydrogen fuel cell vehicle initiatives and are helping to establish the foundation of a hydrogen refueling network. The high pressure storage systems developed by Quantum, which these new refueling stations support, translate directly into a greater vehicle driving range for hydrogen fueled vehicles, a critical factor for the commercialization of fuel cell vehicles." Since a close of $3.29 a year ago, Quantum has been slowly regaining ground, with a nice 40% spike last month that's mostly been given back. At the market's close on Friday, it's stock sat at $1.42, up from a $1.06 close in late April.

GM has also recently demonstrated a hydrogen fuel cell vehicle that has a 300 mile range. With the clamoring to free the U.S. and other countries from foreign oil dependence, this technology is just another promising development. For years, hydrogen fuel cell technology has held promise, but only recently has it shown the capability to offer both the range and power demanded by consumers in an actual vehicle. We'll see if the new developments in this field continue. GM plans on introducing production fuel cell vehicles in the future. Earlier this month at the Berlin Auto Show, the General showed its new HydroGen4 concept vehicle. In 2008 they will test 10 of the cars in Europe.

Last month at an event in Canada, Nick Zielinski, Chief Engineer of Advanced Vehicle Development for General Motors, showed several advanced fuel vehicles, including a version of GM's Volt electric hybrid concept that uses GMs 5^th generation fuel cell instead of a conventional, internal combustion power plant. In a heads up, GM has also announced the award of battery development contracts for it's next generation of hybrid vehicles. The two competing teams are from Compact Power Inc. and LG Chem, and a team from tire manufacturer Continental and A123. In addition, GM moved 500 engineers from advanced vehicle R&D to advanced vehicle production and engineering. Design targets include an advanced power train with a life cycle of greater than 150,000 miles in real world use.

Posted by debtblog at 01:20 PM | Permalink | Comments (0) | TrackBacks (0)

The IEA reported this morning that in spite of the rising prices, the pace of oil production has not kept up with the quantity demanded in the marketplace. They are predicting that this trend will only accelerate in the coming years. Are they crying wolf? Who can tell, but this comes on the heels of a report issued last month that indicates per capita gasoline use in the 3 northwestern states of Washington, Oregon and Idaho down by an average 10% since 1999. The report theorizes the increased gasoline prices are responsible for much of the decline. You think? Since this came at a time when more NW residents opted to drive SUVs and high performance cars than ever before, it’s probably not because their vehicles are more fuel efficient. Yet.

The IEA report also indicates that the standard culprits; economic growth in the 3^rd world, especially India, China and the Middle East, a growing population and, a failure to increase refinery capacity in the U.S combined with a stagnation in oil production, is the main cause of the shortfall. The report does not see the trends that created the shortfall easing any time soon. Oil production numbers will have to be increased through more expensive means, such as deep water, artic and oil sand extraction.

While this may mean pain for you, and the economy as a whole, it has a silver lining, as do most dark clouds. Just as the problems in the sub-prime mortgage market have generated opportunities for the foreclosure and distressed property investor, this economic situation will create investment opportunities in the alternative energy sector.

Weather you’re in individual equities, traditional sector funds or ETFs, those that are heavily invested in alternative energy stand to do well in the foreseeable future. As an example, Phoenix, AZ based First Solar is on a tear, posting revenue numbers that beat Wall Street’s expectations last quarter by 220%. They have experienced as much as a 392% year over year quarterly sales growth recently, despite just signing new deals that have yet to cone to fruition.  See a story in the investors business daily here.

The Wall Street Journal reported yesterday that U.S. wind power producers are hamstrung by a lack of windmills. U.S. windmill makers just can’t keep up with the demand, leading to a search for wind turbine producers elsewhere. Last year 2,454 megawatts of wind turbine generated energy capacity was installed in the U.S. It’s the same in other countries throughout the world, record numbers of turbine installations have outstripped supply.

One wind turbine producer that’s bet heavily on the trend to continue is the Spanish firm of Iberdrola SA. The Madrid based utility concern has snapped up alternative energy production companies recently, but also owns Gamesa SA, the world’s second largest wind turbine producer, acquired last year for just over $4B. Denmark’s Vestas Wind Systems A/S is the largest wind turbine producer, with 13,000 world wide employees. Last year they installed over 15,000 megawatts of wind generated capacity and had a 28.2% share of the market. Modern wind turbines require around 8,000 component parts, so producers of such parts are not to be overlooked when searching for investment opportunities.

McCord Air Force Base in Washington State is set to begin expanded trials on a new, synthetic jet fuel that’s 50-50 mix of JP-8 and a coal shale derivative. The fuel was produced by Tulsa based Syntroleum and costs, are you sitting down? $10 a gallon! If the Air Force, which uses over 6 million gallons of jet fuel a day, would switch to the fuel, it could provide the economic impetus needed to jumpstart mass production.

As it stands now the high cost is largely due to the lack of large scale production facilities. A plant to produce the fuel in large number will cost an estimated $1 billion (with the inevitable cost overruns, figure $1.4B). It’s kind of the chicken / egg corundum. There’s insufficient quantity of the synthetic fuel demanded due to the high cost, but investors are hesitant to invest in the production plant because there’s not much demand for the fuel. This says nothing of opportunities in the biodiesel arena, a fuel also now being used in small quantities by the Air Force. The fuel is also slowly finding favor with consumers, and the trend is sure to accelerate.

Although there is opportunity in the alternative energy sector that’s recognized by investors, it seems few of us have actually put our money where our mouths are. A recent report by the Calvert Group determined that although 85% of investors feel they can make money in alternative energy, only 20% have actually entered the sector. This in itself is indicative of a future profit opportunity. As more investors enter the sector, demand for shares in alternative energy firms will rise and with it, prices.

Posted by debtblog at 02:12 PM | Permalink | Comments (0) | TrackBacks (0)

As of this week, new SEC rules are now in effect as part of the Credit Rating Agency Reform Act of 2006 that require credit rating agencies to register themselves with the SEC. These are not consumer reporting agencies, such as Eperian or Equafax, but the agencies such as AM Best and Moody’s, that rate securities for investors. How will this new legislation affect you as an investor?

The intent of the legislation is to increase competition among the agencies. The agencies are also required to submit more documentation to government regulators so the agencies have less rope with which to hang themselves. It creates a new set of rules for registering a class of companies known as “nationally recognized statistical rating organizations”, or NRSROs. It makes my brain hurt just saying all that. It’s been so complicated to register such companies, that only 6 such firms are with us, but that number is now expected to grow.

What the new SEC rules will not do, however is to demand that the individual ratings companies use common standards for metrics they use in their evaluations. That was because the different firms don’t use the same systems to derive their ratings and default definitions, and it would create problems for them. It also requires that the agencies make bond rating and default information available to the public for free or for a reasonable fee, but fails to disclose what reasonable means. I’m sure reasonable for you and me isn’t the same as reasonable for Raymond McDaniel or Kathleen Corbet. Just a thought.

These new rules were originally released 9 months ago, but made some changes after comments on them were evaluated. It’s thought that these new rules have the potential to increase the umber of credit ratings firms doing business from the current 6 to somewhere around 30. This could enable the small investor to more easily obtain detailed information, and for a more reasonable cost.

Other SEC rule changes coming late this month include the reduction of the capital reserves required of investment banks. This is great for the banks and their shareholders because they can now use this for additional investments, bonuses and profit. Since 2004, investment banks have been able to use non-cash assets for the purposes of calculating capital reserves. The new calculation requirements are called Basel 2. The GAO released a report in February stating that this new rule would mean “large drops in minimum required risk based capital” held by the banks. As of this time, only the 6 banks that petitioned the SEC for the change are affected.

Lastly, on Wednesday, the SEC announced new rules aimed at making things easier for investors. YEEHA! Oh, wait! They didn’t mean easier for us to make money, although it could help. The new ruling forms the SEC Advisory Committee on Improvements to Financial Reporting. It’s hoped that they’ll find ways to “make financial reports clearer and more beneficial to investors, reduce costs and unnecessary burdens for preparers, and better utilize advances in technology to enhance all aspects of financial reporting” according to SEC Chairman Cox’s press release.

Posted by debtblog at 05:01 PM | Permalink | Comments (0) | TrackBacks (0)

Investing strength – You need strength, good solid investments you can bank on to support your portfolio. Weather you are primarily in equities, debt, real estate, commodities, or some other investment instruments, you absolutely must have pillars to support your portfolio. It’s much the same in athletics. You usually need some strength to achieve high levels of performance.

Investing balance – In your portfolio, balance helps keep you moving ahead. In this case I’m speaking of balance in the sense of some diversification to mitigate risk. You usually don’t want to put all your investment eggs in the same basket, lest it topple to the ground. In sports, it’s often those with great balance that perform stellar athletic feats.

Investing speed – When you are investing you want to be able to both recognize trends early, and move quickly when it’s required to take advantage of great investments. That speed can serve you well if you’re able to jump into the game early and in the right place. Again, in sports, it’s often the athlete that exhibits impressive that gets to the goal, base or finish line in first place. The athlete that can rapidly move and change direction when it’s required is better able to avoid the tackler, fist, or foot that’s coming their way, and deliver a strike of their own.

Investing coordination – All the speed and strength in the world is no good if you’re unable to use it as you desire. In sports you’ll often find those with outstanding coordination are often able to prevail over those that are stronger and/or faster than they. After all, you have to make contact with the ball in order to get the base hit. All the strength and speed in the world will do you no good if after your powerful swing all you hear is STEE-RRIKE! Likewise in your investment portfolio, you must coordinate the various parts to work effectively together. The whole should be greater than the sum of their parts, and able to ride out little problems like the ones plaguing the Dow for the last 3 days.

Posted by debtblog at 12:38 AM | Permalink | Comments (0) | TrackBacks (0)

If you found yourself in such a position, what would you do? Maybe you're there now, with that fat check burning the proverbial hole in your pocket. What would you do? I have a friend who's got a great, commission sales job. He just bought a Porsche 911. Would you do the same?A new boat perhaps? He is financially able to make the Porsche purchase without harming himself due to a high income and some good real estate deals in the past. Many people are not so fortunate.

The car dealerships in coastal towns thrive on fishermen, especially young ones, returning from the sea and heading straight on over to by that new 4x4 or Mustang GT they've always wanted. I worked for a company some years ago that had just such a dealership, and the end of the various fishing seasons were much anticipated events. They created a large percentage of the annual gross profit for the dealership as the fishermen rolled in with fat checks from their share of the catch.

It's tragic in a way that the youngest among us are least equipped to handle such windfalls, but most able to benefit from them. Due to the effect of compounding, such a large sum could be a life changing event if it's handled correctly. For the young athlete or fisherman, going to the Chevy dealership for a new $40,000 4x4 Silverado isn't the most fiscally responsible choice. Here is how that cash could affect the future of the same individual if it was invested in some other ways.

2007 Chevy 2500 4x4, ¾ ton with the Duramax Diesel engine and full power options retails for $39,703. Figure another 7% or so for taxes, to bring the total price to $42,482. According to the Automotive Lease Guide, it rates 4 stars for expected depreciation, so you'll lose comparatively little there, compared to many other vehicles. Still, figure in 10 years, it'll be worth around $15,000.

Index mutual fund – Put the same $42,482 into an index fund such as the Vanguard 500 (as the name suggests, it tracks the S&P 500), and you'd likely see the following. Of course predicting future stock market performance is a bit dicey, and if you could do it accurately, we'd all be buying your book on Amazon, but here goes. From January 1997 to January of this year, the fund gained about 80% in value. The $42,482 you put into the truck would be worth approximately $76,638 if it performed similarly over the next 10 years.

Perhaps you'd rather invest in real estate. Here is gets trickier, due to the local nature of real estate markets. You could get a 400% return for the 10 years, or you could get no return at all, depending on where you put your money. The one advantage you get to real estate you don't get with the stock market is the power of leverage. That $42,000 could purchase property worth about $420,000 if you put 10% down. Assuming an annual real estate appreciation rate of 6%, you'd turn that $42,000 into a property value of $752,156. Take out the original purchase price of $420,000, less any principal paid to date, say $20,000, and you'd have a gain of $352,000.

This ignores the mortgage payments made in the interim, so we'll factor those payments in. Assuming a 30 year, 6.5% mortgage (that may not be the best choice in this instance), your monthly P&I payments would be about $2,401. Your payments for the 10 years would be $288,120. $211,000 of that would have been interest. You'd get a mortgage interest deduction as well, so if you are in the 35% tax bracket, that's a savings of roughly $73,000 in income taxes. You would, however have to pay property taxes during the 10 years. $2,500 a year for taxes sounds about right, so there's about $25,000 in property taxes paid over the 10 year period.

If you sold the property after 10 years, your original $42,482 would have turned into $111,880. This ignores the fact you’d probably have to pay for a place to live during the 10 years anyway, and that lodging has some value that would add to your return. In addition, you’d have selling expenses associated with realizing your gain that would have to be deducted from your return.

So, you could choose the stock market, real estate, or perhaps some other investment. Any way you slice it, they’d probably outperform the Chevy, except when it came to towing.

Posted by debtblog at 03:30 PM | Permalink | Comments (0) | TrackBacks (0)

Traditionally, a cooling in the SFR market market has precipitated an increase in the apartment market. The market decline will probably only be accelerated by the recent troubles in the sub-prime mortgage market, which can only serve to thin the number of available buyers for single family residences. Might there be other reasons to investigate REITs as a comfortable resiting place for some of your portfolio? Well, just as a slump in the single family residential market may foreshadow a rise in the multi-family rental market, REITs have traditionally trailed the broader market in terms of appreciation.

REITs are, however, a fairly new instrument. The combination of factors we are experiencing today has yet to be experienced since the large variety of REITs that are now available have come into the marketplace. In New York City for example, apartment rents have actually increased for the first 4 months of 2007, with 2 bedroom units showing the strongest performance. This would lend credence to the supposition, in New York at least, that the apartment market will gain strength as home buyers are shut out of the market or must sell as their ARMs adjust upward.

In Phoenix, another once hot SFR real estate market, rents are up almost 5% over last year as some home buyers look to rent, rather than buy. According to RealFacts, the average apartment rent in the metro Phoenix area rose from $771 last year to $805 this year, clearly out pacing general inflation. There is also upward pressure on rental rates because investors are snapping up apartment complexes, then making improvements and raising rents to recoup their investment. Some investors make improvements with an eye toward future condo conversions. Although the trend toward condo conversions appears to be over for the present time, it isn't out of the question for the not to distant future.

Further west, in California's LA and Orange counties, apartment rental prices are up even more, an average of 7.2% over the same time last year. If you're looking to rent an apartment further north, say in San Jose, you'll fork out 12.1% more than last year for the same apartment. Still further north, in Seattle, be prepared to reach into your pocket for over 9% more cash every month than last year.

Rents are rising, what about available product on the market for renter to rent? Nationwide, there looks to be a large number of available units. The apartment vacancy rate stood at 6.1% for the first quarter of this year, the highest in almost 24 months. Part of the increase is due to the tightening in the sub-prime mortgage industry. The same pressure that's preventing people form buying homes and forcing them into the rental market is also putting rental inventory into the market, as buyers are unable to sell homes and condos. They are forced therefore, to put them up for rent or lose them to foreclosure. It's a relatively good time to make this choice for home owners, due to the rising rental rates in many major metro markets.

Well, do all these factors make it a good time to put your investment dollars into apartment oriented REITs? It depends. Generally, rising rents bode well for the market. On the other hand, increasing apartment vacancy rates do not. South Florida is especially poor in terms of increasing vacancy rates due to the number of condo projects that are now being converted to high end apartments, because of the condo market collapse there. The CREA REIT Review, a paper devoted to REITs (what else?) indicates that while apartment rental rates are rising, the rate of growth has leveled off. It also notes that while REITs in general have had strong performances recently, apartment oriented REITs have trailed the broader REIT market.

 
In fact, a Bloomberg index of 19 apartment oriented REITs showed a substantial 14% decline for the first quarter of this year. CREA recommends focusing REIT investment strategy on high barrier, coastal real estate markets that are earlier in their recovery cycle, such as Seattle and Northern California. As with any other investment, there are some nice, golden eggs to be found, but you must tear apart a few geese to find them. Go get your gloves.

Posted by debtblog at 01:19 PM | Permalink | Comments (0) | TrackBacks (0)

It also shows why using movies as an investment guide may not be the best strategy. If you recently enjoyed the 1991 film “Other People’s Money” with Danny DeVito and Gregory Peck, you may have been convinced that dumping any connection to the metal in your investment portfolio would have been prudent. That would have been a mistake.

Fiber optics not withstanding, CU has had an excellent performance of late, due mostly to the increased demand from China and India. Partly because these nations are installing new cabling for power, telephone and data networks at a prodigious rate, there has at times been less than 1 days worth of refined copper in the hopper. That accounts for a good portion of the rise in copper from about $1.30 24 months ago to $3.30 today.

That’s all well and good, but is copper an anomaly? After all, wire and cable is produced mostly using copper, not pork bellies or wheat. Are other commodities poised to make similar gains? In part, yes they are. It’s all part of the law of supply and demand. Materials with finite production capacity will rise in price as their relative scarcity increases. In time the increase in price will cause a rise in production. Some commodities, however, are more difficult to increase production of. In addition, the demand for some are rising faster than others and this trend will actually increase.

Your goal as an investor is to determine which commodity will be most affected by such trends and capitalize upon them. The price of oil may well continue to increase, but the volatility instilled by geopolitical events frightens many investors. What then of other commodities? If you’re investing primarily on futures, grain and soybeans imports by China have been rising rather dramatically for the past 5 years.

This trend looks to continue as their standard of living rises. A paper produced in late 2004 by Tuan, Fang and Cao points to the increased importation of soybeans into China for some time to come. The Chinese production of soybeans will probably not be able to keep pace, partly because the amount of arable land in China that’s devoted to corn production, considered a more important crop. As other nations devote more of their arable land to corn production in an effort to supply the ethanol being used as a substitute for oil, this may well be the same there as well.

What about other metals? Surely copper isn’t the only metal required to ensure economic growth. No, it’s not. Uranium, used in the production of nuclear power, has almost doubled in price since December. In 2005 it increased in price 76%. As fears of a disruption in the oil markets caused by tensions in the Middle East fail to dissipate, this trend may continue as well. U.S. nuclear power plants are now operating at over 90% capacity, compared to just over 50% 20 years ago. If no new plants are built, there may be little room for increased uranium demand from the U.S. What about other countries? Even with the demand in the U.S. possibly reaching a peak, there just isn’t a large supply of Uranium around. Uranium mines just don’t produce enough. Over ¼ of the uranium on the world market actually comes from recycled Russian missile warheads! They had about 10,000 of the things, but what happens when they’ve all been dismantled?

Uranium futures haven’t been an easy investment, even with the recent price increases. The radioactive metal hasn’t been traded on a formal commodities exchange as are other metals. The price was set by a few private business organizations. This just changed, as of early this month, when Uranium futures began to be traded on the NY mercantile exchange (NYMEX). To buy futures of the stuff, you need to go to the merc.

As with other investments the key to commodities is having accurate, timely information, and alot of it. Do your research. Look at global trends. Find out about production capacity, existing, under construction and planned. Look at existing and pending legislation that can affect the delivery and/or supply of certain materials. Look at the stock market to see what industries may demand what materials. Where are populations growing, and what are they demanding. Look closely at China and India. What will they be using in the future, both near and far?

As with any investment, commodities entail substantial risk. Your job is to mitigate those risks, get yourself debt free (unless you’re investing on margin) and build a healthy financial future. Have a great (for those of you in the States, long) weekend.

Posted by debtblog at 02:25 PM | Permalink | Comments (0) | TrackBacks (0)

Why should you care, other than the fact it indicates development of sorely needed manufacturing capacity in the U.S.? What if you live in New Hampshire or Oregon and are thousands of miles away? It would be a pretty long commute, even in the nicest ride. You should take note because such developments point to the need for quality information, and how such information can make you money.

There are countless examples of depressed communities being saved by economic development. In every case, a little knowledge by investors created a massive profit opportunity. The old axiom “Knowledge is power” is true, but “Knowledge is profit” is just as accurate. It’s all based upon good, timely information. In the case of the ThyssenKrupp plant it’s probably not too late for astute real estate investors to purchase properties and make a handsome profit, even though some profit opportunity has already been lost due to the speculation created by publicity surrounding the deal.

There are many places to gain such information in an attempt to ferret out potentially profitable real estate investment opportunities. One of the best is local county websites. They will almost always have listing of funds that have been appropriated for future projects. It’s one of the advantages of the environmentally conscious society in which we live. Yes, it makes projects 50% more expensive, but it also gives investors a lengthy warning of future projects. Years before any major road expansions or other construction projects are undertaken, an EIS, or environmental impact statement must be prepared. This requires study, and in the case of projects using any public money, financial appropriations for such studies.

This is important, because years before a road is put through or expanded or other value altering construction projects are undertaken, the funds will be appropriated. In many cases, these projects are fairly quiet at this stage and few in the public will have any inkling this will be occurring. This gives you, as an investor, an opportunity due to knowledge of impending projects. These often build value in a property and profit for the investor.

Another successful technique that works in growing communities, especially those with fairly flat topologies, is to purchase properties in a direct line with a major thoroughfare, but a mile or miles away from it. This is long term investment strategy, but an effective one. In time, the community will grow and the road will be extended, or if it exists now, it will be expanded. When that occurs, the property you purchased will experience strong appreciation. You should be prepared to wait some years before this occurs. However, I’ve personally seen properties that were purchased for far less than $50,000 be sold for over $5 million in 20 – 30 years using this strategy. Sadly they weren’t mine, but I haven’t been investing for that long yet. Not a short term investment, but a great retirement.

As with anything, there is risk associated with this strategy. You could be wrong, the area could suffer economic collapse, there could be a zoning change, or other legal action and you could be sitting on some land that makes a great tumbleweed farm or gopher park. There is risk with every investment though. That’s why the quality of your information and the thoroughness of your research is so vitally important. Some time spent now can pay huge dividends later. That information, combined with other factors the land possesses, is a formula for large real estate investment profits. The same is true for other investments. Good quality, actionable information is the one thing that can separate losers from great investments.

Posted by debtblog at 02:13 PM | Permalink | Comments (0) | TrackBacks (0)

If you are disciplined and a skilled investor, or use a financial advisor who is, taking all the money in a lump sum may indeed be the proper choice. However that doesn’t describe the majority of those with defined benefit pension plans. Many are fairly unsophisticated investors who’ve never had to manage a large sum of money before. That being the case, a majority of them is ill-equipped to manage it correctly. You should know this too; if they are not one of those who bill on an hourly basis, your financial advisor will make a tidy bit of cash if you receive the lump sum payment option. That’s because they will rake in substantial commissions from the investments you purchase with the retirement plan funds you receive.

How can you determine which is the proper way to go? Well, there are probably as many answers to that question as there are retirees and financial consultants, of which I’m neither. However there are some simple questions you can ask yourself to assist you in determining the proper course of action. Plan this move well in advance, and give yourself plenty of time to make the proper retirement choice. If you mess this one up, it could make the difference between your next decision being weather to eat at McDonalds or Wendy’s, or work there.

Your pension plan is an annuity. It will pay you a steady income stream until your death. In many cases your spouse may receive payments until their death as well. The value of the annuity is determined form your pay and how long you were with the company. The lump sum is based on the national life expectancy figure, combined with the previous two figures. Your expected remaining life weighs heavily on your decision. If you’re as healthy as the proverbial horse, you may do better if you take the lifetime payments. Why? Because the lump sum, being calculated from a national average, is likely to be smaller that what you’ll receive if you live a long, fruitful life after retirement.

Look at your life as an actuary would. How’s your health? What about your family health history? If both are good, you may outlive the national estimate by a substantial margin, assuming you don’t get hit by a train next week. Be honest, if you’re substantially overweight, in poor cardio vascular health, or have been told to shape up by your physician, you should do so, or check the “lump sum” box.

As a way of comparison, the U.S. DCD gives the average life expectancy of a 65 year old American male in 2004 as just under 83 years. A woman can expect to last a bit longer, to 85 years. If your family is full of centarians, you will probably come out ahead by getting a steady stream of payments from your pension plan, as opposed to that one, big check.

You may be tempted to view the whole thing with the “bird in the hand” mentality, and take the lump sum. That may be the proper thing to do if your company is on shaky ground financially, especially with regard to its pension finances. You are, however federally insured up to $49,500 per year if you’ve retired at age 65 or later. That’s something to think about. That dollar figure applies to pension plans insured by the Pension Benefit Guarantee Corporation (PBGC) The PBGC will most likely apply if you worked for a private firm (except most law firms or physician’s organizations) of greater than 26 employees, that had a defined benefit retirement plan. You should make a quick call to your HR or pension department to be sure.

You may also do better if you company offers a bonus for early retirement. Some firms have concluded that it’s better to show employees the door a bit early, than continue to provide them with a weekly paycheck, insurance and other benefits. Keep in mind that every retirement plan is somewhat different. You should know the details of your specific plan before you decide.

Posted by debtblog at 01:55 PM | Permalink | Comments (0) | TrackBacks (0)

The question is; will this robust earnings trend continue, and will it be enough to propel MSFT to some impressive gains. After a healthy run from 1986 to 2000, Microsoft has experienced pretty flaccid stock performance, much to the dismay of many who had expected the stock’s performance to remain upward bound.

As I noted in a post a few days ago, increased earnings are one of the prime harbingers of climbing stock prices. These latest earnings figures certainly qualify. The EPS quarter / quarter was up by about 65%, right in the range where it helps convince investors to be in a buying mood. The last time Microsoft released a major OS product revision, over a decade ago with Windows 95, the stock just dribbled upward for about 6 months, then more than doubled in the following 12 months. Will we see something similar this time? Time will tell, but MSFT stock has been far from impressive so far this year, actually losing ground since Jan. 1^st, although it has posted fairly strong gains since mid-March, with gains of about 15%. Unfortunately for Microsoft shareholders however, that 15% only served to get back some of the losses experienced in Q1.

Another trend noted to help increase stock prices is the introduction of a new product or service. Well, Microsoft certainly did that. In addition to Vista, they also released their version of a portable media player, the Zune, and a download service to go along with it. Only time will tell if the Zune becomes a thorn in the iPOD’s side, but whatever the fate of the Zune, you can be sure that Vista will thrive for at least a few years to come. It might be a great time to look at some hardware manufacturers stocks as well, due to the memory, speed and 3D requirements needed to make the most of Vista.

One other non-MSFT related note. If you have shares of cell phone service provider iPCS, today’s a happy day indeed as they announced a special cash dividend of, now sit down, $11 per share! It’s enough to make you get out the old cell phone and start calling some friends. Sadly, I hold no shares in either company.

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Between October 1^st 1965, and April 1^st of 1982, the Dow actually lost ground with closing values on those dates going from 969 to 784. Considering inflation, you’d have been hating life had your retirement savings been in an instrument that roughly tracked the Dow. Obviously, there were individual stocks that outperformed the broader market by a considerable margin.

The Boeing Company for example, buoyed by the expansion of commercial air travel and aerospace applications, saw its shares climb from $2.15 on that same October 1^st date, to $2.29, a trivial climb it would seem, but the aerospace giant was on the way up and had more than doubled it’s stock price by the end of 1982, to $5.92. Seems like a great buy now, no?

Some stocks have done much better over short time intervals. What is the prime determining factor in spotting these equities that outperform the overall market, especially at times when the market is doing poorly? There are a few factors that seem to precipitate large gains in stock price, and thankfully, these are relatively easy to spot. It should be noted however, that these factors definitely do not guarantee the stock price will rise.

Here are some of those factors that appear to directly precipitate a strong performance in stock price:

Strong Growth in Stock Prices Factor #1 – Earnings
Investors are looking for a great company that makes money, and this factor demonstrates it. Stocks that have showed earnings increasing more than 25% over the prior quarter have historically done well. The other very important earnings factor is annual earning per share. Those that had an EPS increase greater than 50% over the prior year did very well too. Look at Exxon-Mobil, who has reported record earnings recently and showed a solid increase each quarter. Their stock has advanced from $40 in Jan of 2004, to almost $80 today.

Strong Growth in Stock Prices Factor #2 – Product Introductions
Many times a new product introduction will pump up a company’s stock price. As the product succeeds in the marketplace, investors respond favorably. In addition, a successful new product usually serves to initiate an earnings increase. Note that the new product launch must be successful in order to positively affect stock price, which many are not. Only about half of new commercial products introduced actually succeed in the marketplace. Of those that succeed, only about 20% are true, long term successes. The Marketing Science Institute reported in 1989 that the average gain precipitated by the introduction was .75% in the three days immediately following the product’s announcement. They also found that: “Financial markets positively and quickly recognize the value of marketing decisions. This is both a long- and short-term effect. In addition to the 3-day stock return effect, the 14-year price/earnings ratio of introducing firms is twice that of a matched sample of non-introducing firms.”

Another key finding of the MSI study was that original new products have a positive affect on the firm’s stock price while the market fails to recognize product updates. Another interesting point was that the frequency used by the firm for the product introductions has an affect as well. Companies that announced multiple products experienced almost twice the long term stock price increase as those that introduced a single new product.

Strong Growth in Stock Prices Factor #3 – Institutional Buying
Buy what the big boys are buying. This is true at the beginning of the large funds purchase cycle. Initially interest by large funds will drive the price up, due to the demand itself, and the investor perception that such interest reflects positively on the company. In time that may lead to an excessive ownership stake in the firm by institutional, which does not help the stock price.

Strong Growth in Stock Prices Factor #4 – Demand
Weather it’s toothpaste or stocks, if the demand outstrips supply, the price will rise. You probably learned that if you weren’t sleeping that day in Econ 101. So it is with stocks. This axiom more readily affects smaller cap stocks. The demand for something with a smaller quantity is easier to get to a level where it will increase the price. William J. O’Neil, who founded Investors Business Daily, did a comprehensive study of stock prices with respect to demand factors. One of his key findings was that, over the 38 year term of the study, 95% of companies that experienced a strong move upward in stock price had fewer than 25 million shares outstanding when they started their upward climb.

There you go. These 4 factors have been shown to foreshadow a nice increase in a firm’s stock price and overall market value.

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There are a few types of retirement plans for the self employed. The contribution limits vary, but by implementing a combination of different retirement plans, you can contribute a basically (for all but the most successful business owners) unlimited amount. Here is a quick outline on the different retirement plans for those of you who are self employed.

Keogh Plan –
Your friend at Boeing, GM or CitiCorp has a corporate pension plan, you’ve got a Keogh. This is the small business owner’s answer to a corporate pension plan. Set up the plan by the end of the calendar year to be eligible, but you can actually defer the funding until the filing of the tax return, as long as the plan was in place by Dec. 31^st of the tax year. Contributions are either based on a profit sharing plan, or as with many large, corporate pension plans, designed as a defined benefit plan. The latter must be set up using an actuary and the contribution will be such that you reach the target benefit, up to $180K, in the remaining number of years until the payout begins. The profit sharing version of the Keogh Plan allows an annual contribution of up to $45,000 (for 2007) and are based upon a percentage of your business’s profit or your compensation.

Solo 401(k) –
This is the version of the venerable plan for those of you that have taken the entrepreneurial plunge. The solo 401(k) let’s you contribute up to $15,500 this year, unless you’re a half centurian, then you can boost that to $20,500. You can add to that up to 20% of your income (sole proprietor) or 25% (corporate compensation) as well. The obvious benefit to the solo 401(k) is that you can contribute the same percentage as you can with a traditional retirement plan, such as a Keogh, then spice it up a bit with an additional $15 or $20K.

For those of you with yourself as the only employee, you’re as good as gold. There’ll be only a little paperwork involved to get everything rolling. As with the Keogh, you must be ready to go, with everything filed by December 31^st, if you want it to count for 2007. If you do have other employees, you’ll probably be required to offer a contribution to them as well. Talk to your plan administrator about this if you already have one, or find a good financial consultant who’s versed in self employed retirement issues and how they affect your specific business and employees.

Simplified Retirement Plans (SEP) –
Ah, the SEP. SEPs are super easy and you can contribute up to the same $45,000 limit as with the Keogh Plan, using the same percentage guidelines as with the Solo 401(k). Call your bank, they can get you going with a SEP pretty darn fast. If you wait too long, it’s not a big deal, as long as you get everything handled by the time you file your 2007 taxes. The really cool thing is that you can even wait that long if you’ve filed an extension. Pretty cool, huh?

Don’t miss out on proper retirement planning if you’ve got your own business. You can still have your Roth IRA with these other plans, but you shouldn’t have only your Roth. The beauty is that you can enjoy substantial tax breaks and fund your plan with substantial dollars. Retirement could be sooner than you thought.

So, here’s the plan; Get debt free, fully fund your retirement plan(s), retire debt free with a nice income.

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Given everybody’s investment requirements are different, here a 4 keys to a successful, long term investment strategy.

1 - Diversity – Yes, I’m sick of hearing about diversity in this overly PC world, but we’re talking about your portfolio here; diversity in stocks. Over the long term, equities are the best performing asset class, with an average annual return twice that of bonds, which are the next best asset class (but one you should have in your portfolio as well). The operative phrase here is “long term”. Few of us will be investing for 50 years. For most of us the time horizon will be more like 20 to 30 years. There’s a chance that you could experience limited returns with a 20 year time horizon.

My pick for equities are value oriented stocks from healthy companies with a solid earnings history. That’s important on two counts. One, earnings are the prime indicator of stock appreciation. Two, these companies tend to pay great dividends, which can be reinvested. This leads to point number two, which I’ll get to in a second. Make sure you choose stocks from different, diverse industries. You don’t want an industry specific problem to whack a chunk off your portfolio’s value. Choose companies you’d want to own a piece of even if the stock appreciation wasn’t an issue.

Bonds will balance out some of the volatility in your stock holdings. They tend to rise when the stock market falls. In addition, bonds are not as volatile as stocks. The shorter your investment time horizon, the more your portfolio should have in bonds. That’s because if your portfolio is too volatile, a few bad years could knock you backwards so far you’re unable to recover your portfolio’s lost value. You’ll probably not get the return with bonds you’d get with stocks, but your chances of losing a substantial portion are diminished as well. If that loss does happen to you, but you have a long time horizon, you can recover from the setback, and the greater returns typically generated from equity investments will actually let you come out ahead. In the long term, bonds will not beat inflation, so you’ll actually tend to lose purchasing power, not the desired result for long term investing.

Under diversification often happens to those who are invested in company retirement plans that require the purchase of company stock. Remember, you’re already tied to your company through your job. That’s a huge investment in itself. Do you really want all your eggs in one basket? Try to put a few in another.

2 – Dividend Reinvestment – Dividend reinvestment is a wonderful thing. You can actually make little money from the appreciation of your stocks and still experience healthy portfolio growth by reinvesting your dividends. Later, after your portfolio’s all grown up, you can receive a nice income from your dividends as well. You can do this with a Dividend Reinvestment Plan (DRIP) and purchase the stock directly from the company, through a transfer agent, or from a traditional brokerage firm. Some of the company offered plans allow you to purchase the additional stock at a small discount. You could also just use the dividend check to purchase more stock, if there’s no formal plan available, but you’ll lose the benefits provided by formal plans.

Fees from the companies can vary widely, so check them out. Other DRIPS may or may not include additional brokerage (for stock purchased on the open market) or service costs. You’ll then earn dividends on your original shares plus the new shares purchased with dividend earnings, allowing you to purchase even more.

To illustrate the power of dividend reinvestment, consider this: Since 1950 the S&P 500 stocks have returned 7.65% annually. When the dividends from the S&P companies were reinvested, the return jumps to 11.5%! There is obviously an opportunity cost associated with this. After all, if you reinvest the dividends, that’s capital you don’t have available for other purposes, but it will supercharge your portfolio’s performance and can be made automatic. Automatic wealth generation is the best kind, isn’t it?

3 – Long Term Thinking – Unless you plan on retiring in the next few years, you’re in this for the long haul. Don’t check your Ameritrade account everyday. You’re going to have some fluctuations, so just don’t get too worked about it. This isn’t day trading. Unless you’re rebalancing your portfolio, or a major opportunity suddenly appears out of the mist, you’re going to hold on to your stocks for a long time. Don’t go for the quick hit. You may make a nice profit, but more often than not, you’ll take a hit. There’s investing, and then there’s speculating. You should be doing the former.

4 – Planning – As in business, you should have an investing plan. What are your goals? What are your options for meeting them? If you have a formalized plan, it’ll be much easier to stay on track and avoid pitfalls, such as dropping a few thousand on the latest electric scooter company. Just like your business plan, your investment plan will get you to think about all the details and how you’ll address them. If you actually have a path, it’s much easier to stay on it. Like business, the military, motor racing and athletics, investing is a goal oriented, performance based activity. Determine the goal, focus on it, and plan to achieve it.

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Many affluent investors, those with investable assets over $500,000, are not as astute in the ways of finance as one would expect. According to research published in 2005 by the Spectrem Group, a research firm specializing in the affluent consumer niche, many investors in the upper reaches are oblivious to certain finer points of investing and personal finance you'd think they'd be well versed in. For example, an astonishing 70% of those investors studied admitted to having little or no knowledge of tax shelters! One explanation may be that they can afford to hire experts to handle such things for them, but you'd expect them to have at least rudimentary knowledge of tax related matters.

Over 60% of investors in the study were not versed in 529 plans or annuities either. Less than half felt they had much knowledge of cash value insurance or, unbelievably, IRAs. You'd expect at least IRAs would be fairly familiar to investors with this kind of asset base. It seems that many of these investors could be even more affluent if they had a better understanding on how to retain more of their earnings and give less to the IRS and state DORs.

Who do the investors turn to for primary financial advice? Most of those surveyed (31% in 2006, up from 24% in 2004) used a full service broker, with only slightly less (28%) using their accountant. Surprising that they aren't more aware of tax shelters, given the propensity of this investor class to use accountants for primary financial advice. Among these investors, there is a trend toward full service brokerages and away from wire service providers. Only 17% in 2004 used financial planners as their primary financial advisor, and that figure dropped even lower last year, down to 13%.

What's strange that when ultra high net worth investors (over $5 million net assets) were surveyed over the last few years, they report swinging in the other direction than the affluent investors. The trend among this group is away from full service brokers and toward private financial advisors. In 2001, 41% of ultra high net worth investors used full service brokerage houses, but that number has now dropped to 30%. At the same time, the trend toward independent financial advisors among these investors is growing. Of those who used financial advisors, 65% avoided those affiliated with a major financial institution, citing greater objectivity.

When investing, where do they put their money? Another study released in 2006 by the same organization found that affluent investors tend to avoid risky investments like a date with bad breath, preferring to concentrate on investments with a more or less guaranteed return. They have 37% of their assets in real estate, with an average 23% of that being in their primary residence. 22% of their assets are investable, such as equities and bonds. Millionaire investors, those investors with over a million dollars in investable assets tend to have a much lower percentage of their total assets in real estate (13%) than the affluent investor. That makes sense when you look at the percentage that the affluent investor has tied up in their primary residence. Presumably, the investor with much larger holdings would have a smaller percentage in their primary residence.

The ultra high net worth investor actually has a lower risk tolerance than those with substantial, but fewer assets, with 76% thinking themselves moderate or conservative when it comes to investment behavior. They tend to avoid venture capital and hedge fund investments, interesting, when you consider an investor must have substantial assets to be eligible for such instruments. Many are now keeping more of their net worth in cash or value oriented equities. One note is that these investors tend to be older, and they may have been substantially more aggressive earlier in their investing careers. Recently average(?) investors of the ultra high net worth class have 45% of their assets in domestic equities, 15% in bonds and 13% in cash. Only 1% were in commodities or hedge funds and 5% in private equities. Only 7% hold investment real estate, apart from the assets they have in their residence(s).

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First of all, just because you're bypassing the whole broker idea, ostensibly to avoid paying their trading commission or fee, you should understand that you may still have to pay a fee to participate in a company's DSP. It depends upon the specifics of their plan. In most cases the plans work differently than purchasing stocks through normal broker channels. When purchasing through a broker, you can enter an order anytime you'd like, and the purchase will be executed more or less right away, depending upon the market. You get the stock at the current market price. With most brokers, you can enter a limit order, so that you can have a bit of control over the price at which you buy or sell the stock. It is usually a bit different when going through a company direct stock plan.

In most cases such plans have specific days that you'll purchase the stock. There will be certain days set up that the plan allows purchases, and the transaction will be made automatically. Many plans allow you to purchase a certain dollar amount, rather than a specific number of shares. For example, you could make a $250 purchase. If the stock is selling for $20 a share, you'd buy 12.5 shares. In addition, the price you'll pay for the stock is typically made at the market average for the time interval when you make the purchase. So, if for example, the plan allows weekly purchases, you'd pay the weekly market average price for that stock.

DSPs are advantageous because it allows you to make small, regular investments in the company of a specific dollar amount. In addition you don't have to be current company shareholder in most cases in order to begin participation in the plan. Some companies have require you to make a specific initial investment in order to participate. In many cases that dollar amount is larger than the reinvestment amount you'll be able to contribute every month or other interval.

For example, General Electric requires you to purchase a minimum $250 to begin participating in their DSP. In addition, you'll have to pay a $7.50 fee to sign up for the plan. There is also a transaction fee of $3.00 for purchases made by check, or $1.00 for purchases made over the Internet by direct withdrawal from your checking account. After the initial $250 purchase, you can set up the plan to regularly invest anywhere from $10 to $10,000 in GE stock. Other companies have similar arrangements. Check with their websites for the specific plan details.

One note, don't confuse the direct purchase program with the directed share program, even though both are abbreviated using the letters DSP. A directed share plan is a plan that allows employees of a company to buy shares of a firm as part of public offering at the public offering price. This type of plan is fantastic because if you are trying to retire consumer debt, you can still invest at reasonable prices and regular intervals, so you can build a nest egg while you're trying to get debt free.

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Wouldn't it be great to be able to comfortably retire without the money worries typically associated with your sudden lack of employment? Many people would give about anything to know that it was already taken care of for them and they could just relax if they chose, or concentrate on enjoyable business interests or charities. Can Social Security provide this? You must be thinking this is April 1^st if you for one second believe anything close to that.

It is, however, eminently possible to achieve just that. Paul Merriman describes how you can do it in his book “How to Live it Up Without Outliving Your Money”. As with most things retirement related, it takes advantage of the principal of compounding and consistency. In one example Paul describes, he set up a retirement fund for his grandson so that at the age of 65, the grandson would be able to receive payments that would fund his retirement.

Mr. Merriman has the financial wherewithal and knowledge to pull this off, but he set some pretty ambitious goals for himself and the grandson's retirement instrument. First of all, and this is really great, NO TAXES! That's correct, he wanted no part of burdening the growth of the money with any tax liability at all. You've got to love that. Second, he wanted to make this happen with a single seed payment of $10,000 or less. Third, he wanted the money top be available in any case, no matter what happened. To top it all off, Paul wanted the retirement fund, in addition to the income it provides to his grandson, to donate at least $20 million to charity at some point in the future.

This is a pretty tall order, and yet readily achievable. How did he pull it off? Using a variable annuity combined with an irrevocable trust. Because you can give a one-time, tax exempt gift of up to $10,000, Mr. Merriman gifted his grandson that amount. After the money stayed in the grandson's possession for greater than 30 days, he was able to have the money transferred to the trust that was set up with the grandson as the beneficiary. The trust's assets, at the time $10,000, were invested in 50% U.S. equities and 50% in international equities. Assuming that the return on these followed long term historical averages, the growth would approximate 11%. This should, unless we have a repeat of the Carter '70's, more than out pace inflation.

Upon the Grandson reaching the age of 65, the trust would begin to pay out 5% of it's assets annually. These annual payments would equal about $700,000, give or take. Lest you think that's an ungodly amount of money, don't forget that inflation will have plenty of time to do its dirty work on that sum. It will only be worth $135,000 in today's dollars at the time of its disbursement. Now, this is still a pretty healthy retirement, especially combined with Social Security (I can hear you laughing now), and any other retirement instruments the grandson sets up on his own. At his death, providing he lives for 20 years after he turns 65, there should be plenty to leave to his heirs and slide the $20 million to a charitable cause.

Now most of us don't have this kind of time to grow our retirement portfolio, but this illustrates what you can do if you start early. I've seen it happen all to often when employee benefit plans are installed and younger employees opt out so they can spend more on their BMW or at the clubs. I know that you've got different priorities in your twenties, but this is your money, they are not taking it away from you when you contribute to your 401K or other retirement plan, it's just being diverted so it can grow for a while. It's going to grow for someone, weather it's the club owner or you, so it might as well be you.

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Key 1 – You've got be alert for the buys. These don't come around every day, so you've got to be looking for them. When a solid company stumbles, it usually makes the news somewhere. You've got to be alert for such stories. Even better is to be looking out for the precursors to major problems so you can pounce on the firm's stock when the time is right.

Key 2 – The company has to be financially solid. It's easy to get a great buy on a long shot or an upstart with no history, but then that's not always a great buy, is it? Were not talking about gambling on a Phoenix-like rise from the ashes here, we're talking about firms with solid, long term track records, and enviable financial pictures. Reliable profitibility is what you're after. Even those companies will occasionally stumble, either through unforeseen circumstances, management snafus, or personnel problems.

Key 3 – The company in question must have solid prospects for long term success. Their products or services must have viability in the future, or they must have a track record of developing such products. There were doubtlessly many financially solid companies 100 years ago that made the proverbial buggy whips, but few were great buys. You want to invest for the long term using this strategy, and a company with a solid product and/or service line is essential for success.

Key 4 – The company must have innate value. If you're looking an equity that has a P/E of 80, unless they pay some pretty hefty dividends, you'll not likely see the stock go anywhere for a long while, no matter how great their turn around potential is. Look for a company that's undervalued, preferably by a substantial margin. The sage of Omaha has made a bit o dough choosing just such stocks over the years.

Key 5 – The company has got to reward you. Dividends are important. As I've noted in previous posts, you can have tremendous success by reinvesting dividends. The firms you choose when investing with this strategy should have a fairly long history of paying healthy dividends. You can reinvest the dividends to experience healthy portfolio growth. In the future, when it comes retirement time, you'll have a healthy source of dividend income to help you through retirement.

Take heed my friends. Look for those stocks in companies that were once great, and actually still are. Almost every great company has experienced a bit of trouble at times throughout it's life. You've got to know which are just experiencing the kind of trouble that creates an opportunity for you by driving down the stock price temporarily, and which is the next Enron. Having a stout investment and retirement portfolio, with high value components, is one of your best tools to remain debt free, especially later in life.

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The need for portfolio rebalancing comes about when you’ve had a significant change in some of your assets, hopefully due to dramatic gains in value. Say, for example, that some of your stocks have had an exceptionally good run, or that your real estate holdings have experienced dramatic appreciation. You may want to move things around a bit to lock in your gains and minimize your risk.

You can reallocate within asset classes as well. Look at your equity positions. Are they still apportioned according to your goals and risk tolerance? Maybe the aforementioned gains have caused the small cap part of your portfolio to outstrip the rest of your stocks. In that case, you’d want to shift some of your stocks to other classes, such as large cap or value, depending upon your favored distribution.

Be careful. If part of your portfolio is taxable, you could experience serious tax consequences by rebalancing. Selling assets could cause you to be liable for capital gains taxes, which could erode some or all of your gains. Check with your investment advisor to be sure.

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If you see these, keep in mind that, as an investment vehicle, they rate only slightly better than a boat. They’re just a hole in the water into which you pour your money. Many bad investments have the potential for huge returns, that's how they suck so many people in. You chances of success, however, amy be dismal. Some can deliver great returns if you perform the proper due diligence. One of the keys to successful investing is 'Be Informed'. You can't take this advice too far. The more you know, the fewer surprises you'll encounter. Unfortunately, in the investment world, surprises turn out to be bad more than good.
 

1-     Any penny stock tip that comes over your fax machine. You probably get 10 of these a week. Yes, you could get lucky and make a killing on one of them, but you may as well help out your state’s education fund by playing the lottery. You’ll probably have a better chance of striking it rich.  These are usually just a part of some pump n’ dump scheme, designed to stimulate interest and sales, and raise the stock price a bit so the guy that sent you the fax can make his 150% profit. By investing in one of these, you’ll be violating one of the keys to investment success; be informed.

2-   Real Estate – I can hear you all grumbling now. I’m not talking about any real estate, but the potential to lose copious amounts of money by not doing your due diligence in a real estate transaction. Usually real estate is a very good investment; however the potential is there for you to get stung in a big way. Especially if you are a novice investor, you need to watch out for such potential problems in real estate investing as;

A-    Coming legislation renders your property essentially worthless. This can happen if you’re not careful, especially with the drive in certain areas of the country to limit building due to environmental or growth concerns.

B-    Not being able to secure financing for your intended project. If there are problems or issues with the property such as no utilities, or a sewage holding tank, you may have to correct these before a lender will agree to provide financing for your development project. If these considerations were reflected in the price, fine, if not, look out.

C-    Building code issues could cost substantial money to mitigate. If there’s a building on the property, it may be just fine; on the surface. The problem arises when you go to get it remodeled. In many jurisdictions, you’ll have building code issues that must be addressed. If you don’t touch the building, you may be okay, if you begin to remodel or add on to it, you may have to bring the entire structure and site up to compliance with existing building codes. Needless to say, this can cause you to fork out substantial amounts of money, so do your due diligence!

3-      Multi-Level Marketing – Okay, it’s possible to make a fortune in MLM, but just not very likely. I mean extremely unlikely. You’ll hear statistics such as “MLM is a $10 billion business.” While true, it’s only a very tiny fraction of the around $2-1/2 TRILLON retail sales channel. Sadly, most people who enter into a MLM program are throwing their money away. According to some estimates, only about 1/2% of Amway distributors make over $40 a month. That doesn’t work out to very much per meeting, does it? I’ve personally seen extremely organized and personable people bring hundreds of people in their down lines in MLM organizations and make virtually nothing for it. In addition, be very wary of those companies that offer you the ability to receive stock in lieu of monetary compensation. In most cases, it’ll end up with about the same value as Great Northern Paper stock has today, $00000.

According to the Federal Trade Commission, 70% of a company’s goods and/or services must be purchased by non-distributors, or the company is considered a pyramid scheme . Most MLMs average 10 – 20%, draw your own conclusions. You can enter into a MLM business, but be careful, chances are you’ll invest considerable time and resources, yet never end up raking in the MLM dough like your uncle Harold.
 

There are countless other historically bad investments, such as timeshares and classic cars. The key is that some of these should not be viewed as investment vehicles at all. They’re hobbies and pleasurable diversions. If they happen to unexpectedly turn a profit, so much the better. Have a great Thanksgiving. If you live outside the US, have a great day at work while we take in some American football, pumpkin pie, and roast turkey.

Posted by debtblog at 02:21 PM | Permalink | Comments (0) | TrackBacks (0)

The 401k is the de facto replacement for the pension plan. When our fathers were working, not only could they buy a brand, new '65 Goat with a 389 tri-power, there was at least the expectation that their company or union pension plan would fund their retirement. Most workers today are under no such illusions. Enter the 401k plan. The 401k is an example of a defined contribution plan, while traditional corporate pension plans are of the defined benefit variety. According to the Profit Sharing / 401k Council of America, about 440,000 U.S. businesses offer 401k retirement plans to their employees. Chances are good your employer is one of them, and you're a participant.

The good news is that you've got a much greater degree of control over your destiny with a 401k than with the old pension plan. For some workers, that's also the bad news. There a few mistakes you can make when aiming for a cushy, 401k-funded, retirement. The big mistakes, and the ones that get the most ink, are failing to contribute and starting too late. By failing to contribute at all, not only are you completely missing the boat on funding your retirement plan, in most cases, you're committing the cardinal sin of leaving free money on the table. The free money is your employer's matching contribution. Much has been written on this error. Suffice to say; don't make this mistake.

Staring too late will case you to miss the boat on the much of the power of compounding. If you invest early, even if you can only manage to set aside a small amount, you'll come out way ahead when it comes time to take the gold watch. It can be the difference between putting that watch in a glass case on your travertine and walnut mantle or heading to Larry's Guns and Loans with it.

The 401k mistake that doesn't make nearly as many lists of 401k mistakes to avoid is choosing 401k accounts with excessive fees. Make no mistake, the 401k is just an automatic investment in a fund, usually a mutual fund. These funds often have fees used to pay various expenses incurred by the fund, such as advertising, and the fund manager's salary. These fees vary widely by fund. You'll find them in the different fund's prospectus your HR manager passes around when you sign up for the plan. It's up to you to use some due diligence to determine which of the choices your firm offers has the best return after the fees are accounted for.

By some estimates, you could lose over 20% of your funds return due to excessive fees. Obviously that can derail your dreams of trips to Europe and that little sports car you've always wanted. What should you look for? Well, when you're examining the prospectus or perusing the Internet, you'll notice three main fees and expenses associated with your fund(s). Before you even get to those, you'll probably have to pay a set up fee to get the ball rolling. Then, you 'll have to deal with these three gems. The load, which your fund may or may not have, is the expense the fund incurs by paying the broker to sell you shares in the fund. They're also known as disbursement fees and commissions. You'll probably also see advertising and promotion fees. These pay for all those really neat ads you see between watching Maria Sharapova'a cute, little ass bounce around as she tries to intercept that passing shot. The advertising fees for your fund(s) should be as low as possible, hopefully around a quarter of a percent.

There'll be another fee you'll be paying. That's the fund manager's salary. Yep, he's got to eat too, and he or she wants to send their kids to the best schools, naturally. So how much of your retirement should you contribute to help theirs? That number varies widely, and it's not always a case of you get what you pay for, either. According to 1998 study by the U.S. Department of Labor, the investment management fee can be up to 90% of the total fees levied against the account. On some plans you may see what are known as wrap fees. These are most often seen on plans offered by insurance companies, and most commonly with annuities. The wrap fee looks at the total asset values of the account and levies a fee based upon that value.

You need to examine the expense ratio to determine how the fees will impact your retirement plan's growth. You can find that listed in the prospectus as well. Take a good look, and compare the different funds you're offered before deciding upon your asset allocation. It may be a good idea to get some professional help. After all, the results of decision you make when choosing the different funds to make up your 401k, could be with you far into the future.

One last note – Do not over invest in your company's stock. You're already tied to them with your job. You don't want to have all your future eggs in one basket.

Posted by debtblog at 02:31 PM | Permalink | Comments (0) | TrackBacks (0)

There are at least a couple areas that you need examine to get a better picture of the equity that you're considering.

1 - Government regulation. Look at proposed government regulations that may affect your industry, and company in particular, in the future. This is a very broad area that can have huge repercussions. If for example, the firm owns a large piece of real estate that is about to be impacted by land use regulations, that can make a difference in the firm's future profitability. Government regulations can encompass different areas such as; environmental, land use, health and safety, financial, licensing, and more.

In many states (27, mostly in the west), there is a popular initiative and/or referendum process that can give you an additional source of legislation beyond the state legislature. A popular referendum or initiative is legislation that is initiated by private citizens and placed on the ballot for popular vote. You can look on the Internet in most states to find pending or proposed legislation, either from the state's legislative bodies or from the state's citizens. In many states, you'll be able to find bills that are in committee or about to be voted on. A little knowledge here could really help your portfolio. The cost of compliance with certain legislation definitely affects corporate profits and impacts their lines of business. Many industry associations have watchdog groups that are keep an eye on state and federal legislators to be aware of any pending legislation that could affect their industry.

2- The supply chain. Take a look at vendors that supply the industry that you're considering, and their suppliers. For example, if you want to get a better picture of the future of natural gas production, take a look at the production and future orders of companies that produce drilling equipment. See the trends. In addition, you'd want to look at the firms that produce the component parts for drilling equipment. Is demand strong for their component parts? That will give you a picture of what the drilling equipment business will be producing in the future.

If you were evaluating the broadcast industry, you'd want to take a look at orders for production equipment. If a company that made HDTV production equipment, such as Grass Valley (a firm that makes HDTV production equipment), for instance, had reported a large order, you can be pretty sure the company that placed the order is undergoing, or will soon undergo, expansion in it's business. There are places you can look to find information besides the Internet, although that is a key resource. Most industries have trade publications that get you inside information not usually found in the business sections of the newspaper or in general business magazines. Even better, many of these trades are available for free. All you need do is obtain a business license and indicate you have a business need for the publication and many of these trade journals will be sent to you for nothing. I currently receive about 6 that provide a wealth of information on production orders, personnel changes, pending legislation, and other pertinent facts.

In short, make sure you're well informed about not just the company in which you considering tying your future to, but any other area that could affect that company, for it too is affecting your future.

Posted by debtblog at 01:27 PM | Permalink | Comments (0) | TrackBacks (0)

 To decide how to allocate your retirement assets, you can try countless options; pick amongst the choices yourself, solicit help from your friend that knows everything about money, seek real professional help, hang out at the Starbucks in the financial district and hope to overhear the latest investment tips, or just let your employer take out the maximum allowable contribution from your pay each pay period.  There are nearly as many methods to determine where to put your retirement investments as there are places to put them. How are you supposed to even decide how to decide?

Thankfully, there is more information than ever available at your fingertips. You should be able to find the vehicle or combination of vehicles that will meet your personal criteria. It should generate the return you need while staying within appropriate guidelines for risk and expenses. In my post on June 12^th, I opined why “Boring Stocks Can Be Oh, So, Sexy”. That post dealt with using solid, dividend paying stocks and continually reinvesting those dividends. It turns out that’s a fairly safe way, as investment vehicles go, to generate a healthy retirement fund. Investors such Warren Buffet favor these types of equities. To further sweeten the pot, this method can ensure you have a steady cash flow with which to enjoy your declining years.

 So, how are you supposed to find these healthy, dividend paying stocks? There are some guidelines you can look to for assistance.

1.                  Corporate Health - This is a must. If the company isn’t fundamentally sound, it may pay dividends today, but you may not be able to count on them for the long term. Obviously, counting on an investment for the long term is key if you are looking to them to provide a stable, retirement income. The company should have a history of delivering actual products or services and making a regular profit while doing so. Two important components; a solid free cash flow history and consistent, sustainable growth.

2.                  Value - Look for undervalued companies. These are companies that have solid fundamentals, yet are trading below what expectations would dictate after evaluation of the fundamentals. Often these firms are sequestered away in boring, unexciting industries, yet are extremely solid businesses.

3.                  Realistic Dividend Payouts – If the company in question is paying out dividends way out of line with others industry, you should dig deeper. If they’ve done so for years, while maintaining profitability, this could possibly continue. However, if these payouts are a more recent development, it may signal trouble.

4.                  Solid Executive Team – Take a good look at who’s running the ship. If those at the helm have a history of good decision making and strategy over the years, this has a good chance to continue. Pay close attention to firms they managed before their current tenure. How did those businesses perform before they arrived, and did they improve when the executives in question took over? In this day and age, when executive management seems to have the lifespan of  a snowflake in Miami, you should have a management history to examine that encompasses a previous position or two. If the CEO and other top brass has been in place for many years, and the company has performed well, including dividend payouts, you have less to be concerned about.

5.                  Consistent Stock Price Appreciation – If other investors have smiled on this company in the past, maybe you should too. Obviously, Wall Street has seen something it likes. That’s important, because it shows perceived corporate health, and because the stock price must show consistent improvement in order to maximize your retirement fund. You’re looking for the powerful combination of consistent dividend payments you can reinvest, and stock price appreciation.

If you’re of a mind to roll your own investments, remember, stay solid and look for consistent dividends. As an added bonus, you’ll save on payments to Uncle Sam, as the IRS has relaxed tax rates on dividends down to 15%. You’re most likely paying more than this on your other sources of income. Regular contributions to such investments could allow you to retire in a style beyond what you’ve become accustomed.

Posted by debtblog at 12:39 AM | Permalink | Comments (0) | TrackBacks (0)

• One, the firm has some solid IP in this very specialized area, and is developing a nice patent profile.

• Two, they are building basis for what could be a huge, heretofore nonexistent market. This type of technology has countless uses from inventory control to payment systems, in addition to the unimagined uses that are always found for new technologies.

• Three, it found its way to me from a very credible source, that is a heavy hitter in the commercial real estate market. His firm brokers real estate deals for skyscrapers and other huge, commercial and industrial spaces. So it may have some more credibility than others.
  

Even with this going for it however, there is still a very large chance it would, like most startups, either fail, or languish in obscurity for all eternity. Sadly, I'll never know, as I don't have the $50K cash required to find out. That $50K works out to about .19% of the company as it stands now, so it would be worth quite a bit if the business goes anywhere, or is acquired by a larger firm.

It all brings up how different people respond to financial risk. I am fairly risk tolerant, especially if I feel there is a substantial upside. I tend to weight my analysis such that there is a definite risk/reward relationship. If the potential return is greater, I'll take correspondingly more risk. If I had the liquidity to do so, I'd probably pony up the $50K, because I feel the chance for success outweighs the chance my kids' college fund would evaporate. My wife, on the other hand, is considerable more risk averse. She places greater weighting on the potential success or failure of a specific investment, and less weight on it's potential return. For her, and other risk averse individuals, the potential risk can outweigh even a very great potential reward. She'd pass on an investment opportunity like this every time. She's more of the blue chip / muni bond fund type of gal.

All investors perform this analysis when determining how to allocate their resources. We all do the same calculation in our minds every time we make a decision, investment related, or otherwise. Should I cross the street? Well, I can probably make it across to the Starbucks for my Carmel Macchiato and not get tagged by that taxi. I really think the Macchito would taste great right now, and I can run pretty fast, so it's worth it.

Be aware of your risk tolerance and be prepared to either temper it, or expand it's bounds a bit now and then. You might open up to some new possibilities.

Posted by debtblog at 02:12 PM | Permalink | Comments (0) | TrackBacks (0)

To the uninitiated it can be kind of confusing. Wouldn't you want both value and growth in your investments? Why can't you have both? Do stocks that are a good value not grow? If they don't grow, why not? Well, as with many things, with equity investments the nomenclature may not really describe exactly what's going on. Value stocks certainly can grow and growth stocks can be really good values. If you've been investing in the stocks market for a while, you're well aware what the different descriptors indicate.

Posted by debtblog at 01:50 PM | Permalink | Comments (0) | TrackBacks (1)

Does the Internet need another portal? Probably not, but having the video angle will increase the AOL versions chances, even if only among the “Jackass” set. This seems to be the direction much new entertainment is taking these days though. It all makes sense, when you consider America's obsession with celebrity. Why wouldn't everyone want to be one? Well, they wouldn't, but enough do that it makes these kinds of sites raging successes. Just take a look at the prime time TV schedule any weekday. Reality (?) shows dominate. Everybody wants instant fame and fortune, in varying degrees. The shift in attitude has conspired to make too many young (and not so young)Americans lose focus on the traditional methods for accumulating wealth and a solid retirement nest egg. Don't fall victim to this sense of immediate entitlement and accelerated self worth.

If it's well executed, this new addition to AOL may turn it around, even if just a bit. After a dive somewhat reminiscent of Bo Peng in Athens, and a small rebound, Time-Warner's stock has been rather stagnant since the beginning of 2004. Wall Street didn't seem to react to the news of the new portal with much enthusiasm, however. An hour after the announcement, the stock was trading down almost half a percent. Later in the day, the stock was up over one percent, although that could have been on anticipation of the pending completion of the Adelphia deal T-W is involved in.

A Washington Post story on the introduction goes into more detail here:

http://www.washingtonpost.com/wp-dyn/content/article/2006/07/30/AR2006073000572.html

Posted by debtblog at 02:06 AM | Permalink | Comments (0) | TrackBacks (0)

We all know uncertainties contribute to market declines. I stated as much in my post about Islamic terrorists on June 22. That got me thinking. Do individual terrorist events cause market problems? To find out, I looked at some major terrorist attacks around the world, starting with the Munich Olympic attack in 1972 and how they affected the Dow Jones Industrial Average. I looked at the market the day before the attack, and then at 1 week, 2 weeks and 1 year after. I didn't take into account any other world events or economic conditions. The conclusion from this admittedly cursory analysis? With the exception of the September 11^th attack on the Pentagon and the World Trade center, each caused a minor or no effect on the DJIA. Sometimes the market even rose. So take that, you terrorist bastards!

See the results here –