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Friday, 30 October 2009

Suze Orman's Top 10 Money Tips for Women

by CNBC Staff

When it comes to women and finance, sometimes there's a disconnect between what women know and how they act, their ability as achiever and their financial underachieving, and between the power they have within reach and the powerlessness that rules their actions.

Financial expert Suze Orman gives her list of the top 10 money tips for women to follow:

1. Listen to Your Gut

Women are compassionate toward those in need. Instead of going with their gut, they sometimes overlook the obvious and make an emotional money mistake. "A friend, relative, loved one will approach you saying, 'I need to borrow $5,000.' You'll think 'I don't want to' and yet you say 'OK,'" Suze explains. So, think twice before you say yes if your gut is saying no.

2. NEVER Co-Sign for ANYONE

If a friend or family member asks for you to co-sign on a loan, it's probably best to say no. Suze says more often than not, the borrower will default or pay late and you risk losing money or lowering your credit score because as the co-signer, you are ultimately responsible for the loan. Say no out of love, not out of fear.

3. Save Yourself First

If you don't have enough to save for your child's college fund and your retirement, your retirement takes precedence.

As explained in Suze's book "Women & Money," women think they are actually helping their children by paying for their college or wedding. It's a myth. You help your children by saving yourself first. If you retire without ample money to support yourself, you will become a financial burden to your children. There are plenty of loans for college, but there are no loans for retirement.

4. Don't Hand Over Finances to Your Husband or Partner

Suze says women often hand over their family financial matters to their partner because they are either scared, lazy or following an old-fashioned role.

Being in control of your financial destiny requires that you be an active participant -- not just by paying bills, but in overseeing your investments, too. Suze: "Take this step and I think you will be surprised how this helps your relationship."

5. Don't Put Yourself on Sale

Don't treat yourself like you're on sale. If you're reluctant to put a real value on what you do, then it diminishes who you are. As Suze explains, women tend to devalue what they do.

This creates a vicious cycle: "When you devalue what you do, it becomes inevitable that you -- and those around you -- devalue who you are." Women will settle for less. They may offer discounted prices on their services or accept a smaller raise, even when the company is doing well. They have to ask for what they know is "right."

6. Protect Your Assets: Get a Pre-Nuptial Agreement

The basic rule is that you are jointly entitled to assets accrued during a marriage and you are on the hook for debts accrued during the marriage. Anything you bring into the marriage is not automatically shared. Protect your assets.

7. No Blame, No Shame

Two of the heaviest weights women carry (invisible twin obstacles of the past) are the burden of shame and the tendency to blame. Suze explains: "If you don't feel confident in your knowledge of how money works, you hide behind the shame of it, deferring decisions to others or staying stuck in a pattern of inaction. You blame society, your parents, your husband/partner or all of the above. Blame renders you powerless and shame only serves to hold you back." You have to go and find out about personal finance for yourself.

8. Take Care of Your Money

Women nurture people and things that are important to them. So take care of your money the way you do your husband/partner, family, friends, pets, plants and clothes. Cherish money like all of the other irreplaceable items in your life. Find wise investments, save and don't throw it away on meaningless things.

9. Don't Make Your Underage Children Life-Insurance Beneficiaries -- It's a No-No!

Life insurance companies will not make a payout to children under 18 years of age. Suze suggests you create a trust account and name the trust as the beneficiary of your life insurance policy.

10. Own the Power to Control Your Own Destiny

Give to yourself as much as you give of yourself. Power comes from who you are, not what you have, and the transformation starts with how you allow others to treat you. Do what's right, rather than what's easy.

Suze says, "Remember to muster up your courage and silence your fear ... keep your eye on the goal, on what you really want to accomplish, no matter what anyone says or does to deter you. Just keep moving forward."

Economy growing but recovery could be at risk

Economy grows again in 3rd quarter, but worries about staying power of the recovery persist

By Jeannine Aversa, AP Economics Writer

WASHINGTON (AP) -- Fueled by government stimulus, the economy grew last quarter for the first time in more than a year. The question now is, can the recovery last?

Federal support for spending on cars and homes drove the economy up 3.5 percent from July through September. But the government aid -- from tax credits for home buyers to rebates for auto purchases -- is only temporary. Consumer spending, which normally drives recoveries, is likely to weaken without it.

If shoppers retrench in the face of rising joblessness and tight credit, the fragile recovery could tip back into recession.

For the Obama administration, the positive report on economic growth is a delicate one: It wants to take credit for ending the recession. On the other hand, it needs to acknowledge that rising joblessness continues to cause pain throughout the country.

Millions of Americans have yet to feel a real-world benefit from the recovery in the form of job creation or an easier time getting a loan. Even those with jobs are reluctant to spend. The values of their homes and 401(k)s remain shrunken.

President Barack Obama called the report "welcome news" in remarks prepared for a small-business group but acknowledged that "we have a long way to go to fully restore our economy" and recover from the deepest business slump since the 1930s-era Great Depression.

"The benchmark I use to measure the strength of our economy is not just whether our GDP is growing, but whether we are creating jobs, whether families are having an easier time paying their bills, whether our businesses are hiring and doing well," Obama said.

The rebound reported Thursday by the Commerce Department ended the record streak of four straight quarters of contracting economic activity.

The news lifted stocks on Wall Street. The Dow Jones industrials average gained about 150 points in afternoon trading and broader indices also rose.

But whether the recovery can continue after government supports are gone is unclear. Many economists predict economic activity won't grow as much in the months ahead as the bracing impact of the government's $787 billion package of increased government spending and tax cuts fades.

The National Association for Business Economics thinks growth will slow to a 2.4 percent pace in the current October-December quarter. It expects a 2.5 percent growth rate in the first three months of next year, although other economists believe the pace will be closer to 1 percent.

Christina Romer, Obama's chief economist, has acknowledged that the government's stimulus spending already had its biggest impact and probably won't contribute to significant growth next year.

For the third quarter, government support proved crucial. Armed with cash from government support programs, consumers led the rebound in the third quarter, snapping up cars and homes. A jump in spending on big-ticket manufactured goods largely reflected car purchases spurred by the government's Cash for Clunkers program.

Spending on housing last quarter was positive for the first time since the end of 2005. The government's $8,000 tax credit for first-time home buyers supported the housing rebound. Congress is considering extending the credit, which expires Nov. 30.

Federal government spending rose at a rate of 7.9 percent in the third quarter, on top of a 11.4 percent growth rate in the second quarter. And businesses boosted spending on equipment and software at a 1.1 percent pace, the first increase in nearly two years.

Third-quarter activity also was helped by increased sales of U.S.-made goods to customers overseas, as economies in Asia, Europe and elsewhere improved. The cheaper dollar is aiding U.S. exporters, making their goods less expensive to foreign buyers. Exports of U.S. goods soared at an annualized rate of 21.4 percent in the third quarter, the most since the final quarter of 1996.

Businesses, meanwhile, reduced their stockpiles of goods less in the third quarter, after slashing them at a record pace in the second quarter. With inventories at rock-bottom levels, even the smallest increase in demand probably will prompt factories to boost production. This restocking of depleted inventories is expected to help sustain the recovery in the coming months, economists said.

Still, with unemployment at a 26-year high of 9.8 percent and credit hard to get, the recovery faces obstacles.

"Even if we've turned the corner, we know it's a long way before we're completely recovered," Christina Romer, chair of the White House Council of Economic Advisers, said in an interview with The Associated Press. "You can't have an unemployment rate of 9.8 percent and not be deeply troubled."

Economists say the jobless rate probably nudged up to 9.9 percent in October and will go as high as 10.5 percent around the middle of next year before declining gradually. The government is scheduled to release the October jobless rate report next week.

With joblessness growing and wages dipping slightly in the third quarter, consumers are expected to turn more restrained in the months ahead. That would put a much heavier burden on America's businesses to keep the recovery going.

"We're beginning to crawl out a very deep hole," said economist Ken Mayland, president of ClearView Economics. "It will take time to get back to normal again and there are questions about how consumers will hold up in the months ahead. But I think the recovery will be sustained."

To foster the recovery, the Federal Reserve is expected to keep a key bank lending rate at record low near zero when it meets next week and probably will hold it there into next year. With the economy on the mend, the Fed has slowed some emergency support programs but doesn't want to pull the plug until the recovery is on firm footing.

Even with the economy climbing back into positive territory in the third quarter, it's up to another group to declare the recession over. The National Bureau of Economic Research, a panel of academics, is in charge of dating the beginning and ends of recessions. It usually makes it determinations well after the fact.

Wednesday, 28 October 2009

Bear Markets Do Wonders for Retirement

by Joe Mont

The six-month bear market that wiped out nearly half of Americans' retirement savings threatens to scare away the class of investor who has the most to gain from it: young people.

Mutual fund manager T. Rowe Price says in a study that those who began to systematically invest in equities in severe bear markets were "significantly better off 30 years later than investors who began in bull markets."

The analysis charted four hypothetical investors who each contributed $500 a month (15 percent of a $40,000 annual salary) toward a retirement account that replicated the S&P 500 Index over three decades. The starting date marked a severe stock-market downturn: 1929, 1950, 1970 and 1979.

The four investors were initially hard-hit. The S&P 500, for example, had an annualized return of minus 0.9 percent from 1929 to 1938, the second-worst 10-year period in history. The benchmark index grew a mere 5.9 percent in the recessionary era of the 1970s.

But for all four investors, there was good news to go with the bad: They had the opportunity to buy at low prices, accumulating more shares for what would be coming bull markets.

By the end of their first decade, the investors were poised to shake off market drops. The projections built upon 1950 and 1979 showed the greatest success. The S&P 500 returned an annualized 19.4 percent from 1950 to 1959, and 16.3 percent from 1979 to 1988, and their nest eggs swelled to $152,359 and $137,370, respectively.

The study makes its point in dramatic fashion by pointing out that a 30-year investment that began in 1929 ended with a total gain of 960 percent. The investor who started in 1970 fared even better: 1,753 percent.

By comparing the results with investors who began saving during bull markets in the 1980s and 1990s, the four investors did twice as well with their money.

"As counterintuitive as it may feel, it is actually a silver lining that the prices have gone down," says Stuart Ritter, assistant vice president of T. Rowe Price Investment Services. "For young investors still in the accumulation phase, it is better to have the bear market first, because then you buy a whole lot of shares at a lower price than when the bull market hits."

Ritter, who also teaches a class on personal finance at John Hopkins University in Baltimore, says the younger generation is starting to embrace that message despite rampant pessimism.

"They see older people panicking, and they understand why," he says. "But they are saying, 'Gee, 2008 felt bad and people worried about it, but I'm 22 years old and it's a long time before I am going to use this money.' It is a little bit easier for them to put 2008 in perspective, which I find interesting because, for their investing lifetime, 2008 represents all of it. But they are still pretty good at putting it in perspective and saying, 'It is just one year. I have a whole lot more ahead of me.' "

Ritter says it's a challenge to keep investors, young and old, from overreacting to bubbles and cycles.

"How do we change people's perspective from what happened in the past 18 months into the broader perspective that is appropriate for their goals and time horizon?" he says. "We see it at both times [bull and bear]. At the peak of the tech boom, all people see is that, 'Tech stocks always go up; why shouldn't I have everything in stocks?' With the real-estate boom, it was, 'Real estate has been doubling; why don't I have everything in real estate?' Then it was, 'Oh, no, 2008 was a disaster; why would anyone have anything in stocks.' It is just a different variation on the same theme. Our advice is to look beyond the short term and be appropriately invested for your time horizon."

Copyrighted, TheStreet.Com. All rights reserved.

Legalize It: Insider Trading Is a Victimless Crime, Says James Altucher

If James Altucher had his way, it would still be business as usual at Galleon Group. Instead, the hedge fund is embroiled in one of the largest insider trading scandals in history; the company's head, billionaire Raj Rajaratnam, has posted $100 million bail and the firm is essentially ruined.

So why does Altucher, managing director at Formula Capital, think the Feds should lay off Rajaratnam? Simply put, he thinks insider trading should be legal.

Altucher says it's a matter of pragmatism, suggesting insider trading is:

1. A victimless crime
2. Almost impossible to prosecute
3. A big waste of taxpayer money

If insider trading were legal, Altucher says, the SEC would spend their money on tracking down fraud and uncovering "the next Madoff or Enron."

He also believes there's an actual market benefit to insider trading. "If insiders, the ones with privileged information, are throwing that information into the stock price everyone benefits with a more accurate price."

But of course, there's a reason why it's not legal. Allowing insider trading would annihilate the concept of a level playing field in the market. Altucher says hogwash. That's just an illusion. "There's already no level playing field," he says. This problem of insider trading is "so widespread" retail investors are already at a disadvantage.

Interesting arguments, but I doubt they'd make it very far on Capitol Hill.

Friday, 23 October 2009

3 signs of the next real estate collapse

The latest bubble is about to burst, but this time it's in the commercial market. Here's how to see it coming.

By Katie Benner, writer-reporter

NEW YORK (Fortune) -- When the FDIC closed Chicago's Corus Bank last month, it may have signaled the beginning of the next shock to the banking system: commercial real estate defaults.

Corus, whose balance sheet was larded with bad construction loans, is just one of many banks that have a slew of this debt on their books. Refinancing the $2 trillion in commercial mortgages will be tough, as property values decline. And in this new age of cautious lending, few banks are willing to refinance loans.

"There is a lack of new debt," says Michael Haas, a real estate attorney at Jones Day. "There is a hesitancy to extend credit when there is a real possibility that the real estate may be worth less than it was a few years ago."

Now, in a situation eerily similar to the subprime crisis, the result is likely to be a wave of foreclosures and loan defaults that could, in turn, trigger a collapse in the market of the structured bonds backed by commercial real estate and construction debt. But when, and how bad will it be? Here are three indicators to watch.

1. Special Servicers

Firms such as LNR Property, CW Capital, and Centerline are tasked with unraveling the most troubled loans in a last ditch attempt to keep them from default. An uptick in business at these companies means more borrowers under duress.

Between April and August of this year, the value of commercial loans in special servicing doubled to about $50 billion, according to Trepp, a firm that tracks the commercial real estate market.

2. Big Projects

When rents and property values fall, apartment complexes, malls, hotels, and major projects financed during the bubble become more likely to default on their debt.

Fitch Ratings has identified several stressed loans that have been sliced and diced into billions of dollars in commercial mortgage-backed securities, including Tishman Speyer's $3 billion loan for its Stuyvesant Town-Peter Cooper apartment complex in Manhattan and a $4.1 billion loan secured by Extended Stay's hotels.

3. Regional Banks

Watch to see how banks such as Fidelity Southern and United Community Banks -- identified in a SunTrust Robinson Humphrey report as having a high proportion of noncurrent construction loans -- hold up over the next few months. Community banks were especially aggressive in originating commercial real estate loans, but they could still manage to avoid big problems.

"Medium and small banks have a lot of exposure to local building projects," says Chris Whalen, a bank analyst and co-founder of Institutional Risk Analytics. "They're forbearing or getting involved in their customers' business rather than taking losses. They're hoping they can hold out until values come back."

Worries rise about dollar slide -- but what to do?

Dollar slide raises worries worldwide -- but government action likely to be only words for now

By Pan Pylas, AP Business Writer

LONDON (AP) -- Concerns worldwide about the dollar's slide have escalated to the point where currency traders are beginning to wonder when governments might try to do something about it.

For now, any attempt to put a floor under the dollar's exchange rate is expected to remain rhetorical, with actual market interventions by central banks unlikely -- especially if China won't change its currency policy.

But with the dollar sagging against the euro, the yen and a host of other peers, policymakers around the world are voicing worries a weak dollar will dampen their still-shaky economic recoveries. A falling dollar hits exporting countries because they find it more difficult to sell their products to the U.S.

A weak dollar also raises the cost of commodities such as oil, which are priced in the U.S. currency.

So far, currency traders have largely ignored escalating rhetoric from government officials. They pushed the euro above $1.50 on Wednesday for the first time in 14 months and it hovered round that level all day Thursday.

And the dollar could get weaker yet, if the stock market rally has further legs. That's because dollar investments were used as a refuge as markets tanked. Now that markets are rising, that money is flowing back out of the dollar safe haven into stocks or emerging-market currencies.

And so far, the third-quarter U.S. corporate results season has been strong -- around 75 percent of companies that have reported so far have beaten expectations. Larger U.S. budget deficits weigh on the dollar, as do Federal Reserve efforts to spur the economy, such as low interest rates and efforts to expand the supply of money.

At some point, governments could consider intervention -- buying dollars to drive up its exchange rate. Or they could start hinting more strongly to markets they might consider such a step, which could have much the same effect.

"Assuming that the euro closes above $1.50 this week it technically has plenty of open ground on the run up to the record high of $1.6040 hit in July 2008, but there will also be plenty of official resistance to limit its appreciation," said Mitul Kotecha, head of global foreign exchange strategy at Calyon Credit Agricole.

"Such resistance may currently be limited to rhetoric, but it will not be long before markets begin discussing the prospects of actual intervention," he added.

The dollar's current slide has recalled memories of the coordinated intervention of September 2000. Then, the U.S. Federal Reserve, European Central Bank, Bank of England and Bank of Canada intervened to stop an alarming drop in the euro that threatened competitiveness of U.S. companies. The central banks bought billions of euros with dollars and yen. The risky move helped halt the euro's slide.

Today, however, analysts think any successful intervention to stem the dollar's fall would require not just support of U.S. authorities. It would have to also involve the Chinese, who have kept their currency artificially low against the dollar. That helps them boost their exports to the United States -- and China has been cool to suggestions it ease its currency practices.

But that could change if the Chinese start to fret about inflation. Premier Wen Jiabao told a Cabinet meeting Wednesday that policy will focus on balancing economic growth while managing inflation. Analysts said it that could mean that the Chinese authorities might even allow their currency to rise against the dollar. That would reduce the costs of imports and help keep inflation down.

In turn, that would ease some of the upward pressure on the euro, which has been bearing the brunt of the dollar's adjustment -- a move that by itself could lessen any need for Western central banks to intervene.

And it would also help cut China's massive trade surplus with the United States, a key objective of the Group of 20 rich and developing countries.

The arena for any coordinated action could be the G-20 finance ministers meeting at St. Andrews, Scotland early next month.

"The topic of China's exchange rate can be expected to get increased attention in the approach to the next G-20," said Jane Foley, research director at Forex.com.

Some finance ministers in attendance may have reached their dollar pain thresholds. Already this week, Canada's Jim Flaherty expressed worries the U.S. dollar could derail his country's recovery, while Brazil's Guido Mantega has announced a 2 percent financial transaction tax on foreign investment flows. That was intended partly to curb the rise in the value of the Brazilian real against the dollar.

Europeans have started expressing concern. European Central Bank president Jean-Claude Trichet has for weeks been warning that "excessive volatility" in exchange rates could damage economic and financial stability.

For the U.S. to agree to intervene, however, the current dollar decline will have to turn into a rout. President Barack Obama's administration says it wants a strong dollar -- but the fact is, a weaker dollar helps U.S. exports and the country's recovery.

"Unless the dollar collapses, the U.S. is unlikely to feel compelled to adjust its policy levers," said Bank of New York Mellon currency strategist Neil Mellor.

Sung Won Sohn, an economist at California State University's Smith School of Business, said European officials will likely begin talking about the need to halt the dollar's decline without actually intervening in currency markets.

He said in the United States, the Obama administration will keep stressing that a strong dollar is in America's best interests while tacitly sitting back and watching the dollar decline in value.

As long as the dollar's fall doesn't threaten to turn disorderly, the administration is happy to see it weaken gradually, Sohn said.

"We say we are for a strong dollar but the administration is not all that anxious to see the dollar appreciate," Sohn said. "A weak dollar creates jobs in the United States by boosting exports and right now as we try to get out of this recession, we need to create more jobs."

AP Economics Writer Martin Crutsinger in Washington contributed to this report.

Thursday, 22 October 2009

Retire With S$1 Million – even if you haven’t started to save

By Stephanie Thng, Funds Supermart

Start saving early and it could make a world of difference to your retirement plans. Time is your best friend as you will find in this story. Here, we assume five individuals at different stages of their life, from those earning at entry-level, to those close to retirement age. All aim to achieve a monthly income of S$2,500 during their retirement years from age 62 to 82. We also taken into account that the inflation rate stands at 3% per annum, meaning that the general cost of goods and services rises by that amount each year.



Further, we assume that whatever the investors save during their pre-retirement days will earn 8% annually. After they hit the age of 62, we assume that the return on their savings drops to 4% per annum as they take less risk in their investments. This simple illustration does not take into account your other financial needs, such as whether you have planned for your insurance needs (life or term insurance, mortgage insurance, health and hospitalization plans).



If You're 25

Savings: S$0

Monthly Salary: S$2,500

Rate of Increase in Wages: 3% p.a.

Number of Months in Bonus: 2 months

Housing Loan: Not Required

What You Need to Save per Month for the next 37 years: S$158.30



Planning for your retirement when you are 25 years old may seem a bit far-fetched. But the benefits of starting early cannot be underestimated. Assuming that a person starts working at 25 with a salary of S$2,500, you would need to save S$158.30 per month to ensure that your retirement income can stand at S$2,500 per month during your retirement days, which we assume will run from the age of 62 all the way to 82. Even with no savings to start with, having a regular savings plan (RSP) may be a good way to start planning. An RSP would ensure that you have the discipline to force yourself to invest – there is little room for excuses! Very often, we may be tempted to use up our savings for a travel trip or to purchase that dream car. And even for those who believe in the merits of investing, they may not have the discipline of investing regularly because they feel it is not the "right" time to invest. This could be especially true when markets are going through a bull run and some may feel that it is too expensive to go into markets. An RSP is a disciplined way to ensure that you will invest no matter markets are up, down or sideways.



If You're 35

Scenario 1

Savings: S$0

Monthly Salary: S$6,000

Rate of Increase in Wages: 3% p.a.

Number of Months in Bonus: 2 months

Housing Loan: S$800 per month over 30 years

What You Need to Save per Month for the next 27 years: S$666.57



Scenario 2

Savings: S$40,000 (earning 1% p.a.)

Monthly Salary: S$6,000

Rate of Increase in Wages: 3% p.a.

Number of Months in Bonus: 2 months

Housing Loan: S$800 per month over 30 years

What You Need to Save per Month for the next 27 years: S$620.73



At the age of 35, the monthly salary is assumed to have risen to S$6,000. But being able to afford an expensive lifestyle has meant that there are no savings in the bank account, and now you have a housing loan to deal with. While things do not look very bright, it is not too late. Save S$666.57 per month and you could ensure that you have S$2,500 every month during your retirement days.



If You're 45

Scenario 1

Savings: S$0

Monthly Salary: S$8,000

Rate of Increase in Wages: 3% p.a.

Number of Months in Bonus: 2 months

Housing Loan: S$800 per month over 20 years

What You Need to Save per Month for the next 17 years: S$1692.34



Scenerio 2

Savings: S$40,000 (earning 1% p.a.)

Monthly Salary: S$8,000

Rate of Increase in Wages: 3% p.a.

Number of Months in Bonus: 2 months

Housing Loan: S$800 per month over 20 years

What You Need to Save per Month for the next 17 years: S$1582.63



At the age of 45, things will get tougher if no plans have been made yet for retirement. After all, the time horizon till the retirement age of 62 is less than 20 years. Assuming that there are no savings in the savings account, you would need to save S$1692.34 per month. And even with savings of S$40,000, you would still need to save S$1,582.63 per month.



If You're 55

Scenario 1

Savings: S$0

Monthly Salary: S$10,000

Rate of Increase in Wages: 3% p.a.

Number of Months in Bonus: 2 months

What You Need to Save per Month for the next 7 years: S$5319.54



Scenario 2

Savings: S$40,000 (earning 1% p.a.)

Monthly Salary: S$10,000

Rate of Increase in Wages: 3% p.a.

Number of Months in Bonus: 2 months

What You Need to Save per Month for the next 7 years: S$4937.02



The lesson is to start early. The later you drag your retirement planning, the higher the cost. You would need to save over S$5,000 per month (over half your salary) from the age of 55 to 62 to ensure that you have S$2,500 per month during your retirement days.

Wednesday, 21 October 2009

Turning a lifetime of savings into income

The way you withdraw from your portfolio will determine how much income you will have in retirement. Here are a few options.

By Walter Updegrave, Money Magazine senior editor

NEW YORK (Money) -- Question: The 4% rule seems to have become the conventional wisdom for drawing money from your savings in retirement. But I believe the rule is flawed. I think it might make more sense to choose a percentage of your savings that you will withdraw annually and then just apply that percentage to your savings balance at the beginning of each year so you would have more money to spend in years when investment returns are good and less to spend in years when returns are bad. What do you think? --E. W., East Lansing, Michigan

Answer: No method for turning your savings into spendable income in retirement is going to be perfect. Any withdrawal system you come up with is going to have pros and cons.

So rather than thinking of one system as better than another, I believe it's important to understand the implications of different approaches and then come up with a way that's right for you.

Fixed annuities
If I wanted to know exactly how much income I would have each month and also minimize the chances of running out of money during retirement, I'd buy a fixed-income lifetime immediate annuity.

Today, a 65-year old man who puts $500,000 into such an annuity would receive about $3,200 a month for life, which translates to just under an 8% annual payout. (To see how much you might receive for other amounts and ages, you can check out our Income For Life calculator.)

But despite the predictability that approach offers, it has drawbacks too, probably the biggest being that when you buy such an annuity you typically no longer have access to your money for emergencies and such.

What's more, since the payments are fixed, their value would decline in the face of inflation over the years. And you would also be counting on the insurance company having the financial wherewithal to make those payments as long as you live (although you can mitigate that risk by sticking with highly rated insurers and limiting the amount you invest.

The 4% rule
By keeping that $500,000 in a diversified portfolio of stocks, bonds and cash and following the 4% rule, you would continue to have access to your savings should an emergency arise or you just need extra cash.

The 4% rule also helps assure you'll maintain your purchasing power during retirement since you're boosting your withdrawal by the inflation rate each year. And by limiting your initial draw to 4% of your savings, there's a high probability -- generally 75% to 90%, depending on investment performance assumptions -- your savings will last at least 30 years.

But this rule has shortcomings too. A 4% initial withdrawal on a $500,000 portfolio is just $20,000, or $1,667 a month. Granted, that amount will grow with inflation, but it will take a while to overtake the $3,200 an immediate annuity would provide. And while the odds of your money lasting 30 years are relatively high if you stick to the 4% rule, they can drop precipitously if you run into a string of lousy returns or a big market crash like 2008's early in retirement.

The 4% rule has yet another risk people often overlook. If you follow the 4% rule and your investments perform well, you could end up with a very large portfolio late in retirement. That may be okay if you want to leave a large legacy to heirs. But it would also mean that you lived a lower standard of living in retirement than you could actually have afforded.

The fixed-percentage system
This "go with the flow" approach makes intuitive sense in a way. By withdrawing a fixed percentage, you would take out fewer dollars after your portfolio has taken a hit and have more capital left to participate in rebounds from market setbacks. And by boosting your withdrawals in rising markets, you'll be able to increase spending and enjoy yourself more in the good years.

But your system has shortcomings too. Letting your income fluctuate with the ups and downs of your portfolio's value could make budgeting a lot tougher. I suspect many retirees aren't looking for a lot of uncertainty about how much spending money they'll have year to year.

And the success of your system depends heavily on what withdrawal percentage you choose. If you go with a relatively high figure, say, 7%, it would be tough to maintain your purchasing power in the face of inflation.

And unless you're generally able to earn a rate of return greater than your withdrawal percentage, the value of your portfolio would fall over time, as would the annual income you would receive, forcing you to get by on less and less income.

Setting a lower withdrawal percentage would raise your chances of being able to generate income that would keep pace with inflation or at least not decline. But that introduces another risk. The lower you set your withdrawal percentage, the more you increase the chance that your portfolio will earn more than you're pulling out and balloon over time. In other words, you would die with a large portfolio balance. Again, that may be okay if you want to leave bucks to your heirs. But it might not be so great if you stinted on travel or other pleasures during retirement because you were afraid you couldn't afford them.

So which is better? I don't think you can say. They're approaching the issue of turning savings into income from different perspectives. Whichever you choose, you ultimately face the same risks.

You may also want to consider combining withdrawals from your portfolio with guaranteed annuity income. Essentially, you put enough in one or more annuities to cover basic expenses, and then tap your portfolio for whatever else you need.

But ultimately, you can't put any plan for turning savings into income on autopilot and follow it mindlessly. You've got to monitor your spending needs, the size of your nest egg, the performance of your investments -- and then decide whether some fine-tuning makes sense.

Bottom line: A withdrawal system can serve as a roadmap of sorts for getting you through retirement with the income you'll need. But as with any journey, you'll also need to exercise your own good judgment along the way.

How Uncle Sam is killing your savings

Ultralow rates are hurting the nation's prudent savers as they bear the brunt of Wall Street.

By Allan Sloan, senior editor at large

(Fortune Magazine) -- This is a quiz. What do the record-high Wall Street bonuses have in common with the record-low yields for savers?

Answer: They show yet another way that prudent people, especially those living on fixed incomes, are being screwed by the government's bailout of the imprudent.

Here's the deal. The government is spending trillions to keep interest rates down in order to support the economy and prop up housing prices, and those low rates have inflicted collateral damage on savers' incomes.

"It's a direct wealth transfer from savers and retirees to overly indebted borrowers," says Greg McBride, senior financial analyst at Bankrate.com.

Since October 2007, when government intervention in the financial system began picking up speed, yields on the ultrasafe one-year and five-year investments that many retirees favor have tanked.

Two years ago the average yield on a five-year federally insured bank CD was 3.9%, according to Bankrate.com. Now it's 2.2%, a drop of more than 40%.

Yields on one-year CDs have almost vanished: 0.92%, compared with 3.6%. On five-year Treasury securities, yield is down to 2.3% from 4.4%. On one-year maturities, you get a minuscule 0.3%, down from more than 4% in 2007.

The rates on AAA-rated one- and five-year tax-exempt bonds, another safe saver haven, are down sharply, too, for bailout-related reasons that we'll get to in a bit.

As for money market mutual funds, fuggeddaboutit -- the average is about 0.06% (no, that's not a misprint) according to Crane Data, down from 4.6% two years ago.

It's become customary practice -- a wise one -- that when the U.S. economy falters, the Fed cuts very short-term rates, the only ones that it controls, to stimulate business. But this time the Fed hasn't confined its rate-suppression activities to the short-term markets.

It's been a huge buyer of Treasury securities with maturities of up to 10 years, as well as mortgage-backed securities and Lord only knows what else. This buying pressure forces up the securities' prices, and thus reduces their yields.

The Fed, which declined to talk to me, is the major buyer of mortgage paper, in what's clearly an attempt to hold down mortgage rates and prop up house prices. The Fed has also been a huge buyer of Treasury bills -- securities with a maturity of less than a year -- that Uncle Sam has issued to help fund the federal deficit and pay for various bailout programs.

But wait, there's more. As part of the economic stimulus package, the federal government is promoting Build America Bonds, under which the Treasury pays 35% of the interest costs of project-related bonds issued by state and local governments. These BABs, as they're known, are taxable securities rather than being tax-exempt as normal state and local bonds are.

The BAB program has sharply reduced the supply of new tax-exempt muni bonds. Almost $40 billion of Build America Bonds have been issued since the program began in April, according to Bloomberg.

Chip Norton, a muni maven at Wasmer Schroeder & Co., says that by reducing the supply of new munis, Build Americas have been a major factor in driving down yields on one- and five-year triple-A munis to 0.5% and 2.3%, respectively, from 3.4% and 3.6% two years ago.

One day, the federal government won't be able to keep all these interest rates artificially low, as it's now doing. The Chinese government, our major financier, is growing restless. The dollar's falling sharply relative to other currencies is an ominous sign. If this problem accelerates, it will put pressure on the Fed to let interest rates rise to protect the dollar from a collapse.

But until rates go up, Wall Street will be chowing down on essentially free money, while fixed-income people living off their investments will have to eat into their capital, take more risk, or reduce their standard of living. A nice reward from their government for a lifetime of saving. Thanks for nothing, guys.

Oil at $80: That's good news and bad news.

By Paul R. La Monica, CNNMoney.com editor at large

Oil prices are back around $80 a barrel for the first time in nearly a year. But is that good news or bad news for the economy? Let the debate begin.

Of course, the knee-jerk reaction is to declare that rising oil prices must be a bad sign. After all, increased energy prices could be considered the equivalent of a big fat tax increase for an already cash-strapped consumer.

Even though people don't have to pony up four Andrew Jacksons to buy an actual barrel of oil, rising crude prices obviously hurt consumers at the pump.

And in just the past week the nationwide average price of a gallon of gasoline increased by 10 cents, or about 4%, to $2.58, according to motorist group AAA.

On the other hand, oil prices were hovering around a low of near $30 a barrel back in February. And at that time, the average price of gas was below $2 a gallon. But how good did you feel about the economy back then?

Fears about a massive wave of big bank failures and another depression were running rampant. So cheaper oil and gas were little consolation.

It's hard to deny that things simply feel better now than they did seven months ago. The economy may still be in rough shape but few are predicting a financial apocalypse.

Stocks have soared in the past few months because of renewed expectations of a global economic recovery, and the spike in oil prices is also a reflection of these hopes. Sure, there are some out there who are writing off the rise in oil as another example of momentum traders playing the evil speculation game.

But many commodity experts argue that the main reason oil prices are rising is because there are signs of increased demand for oil from emerging markets such as China and India as well as the U.S. and Europe.

What's more, the continued weakness of the greenback is helping to push oil higher because oil is priced in dollars -- despite the occasional rumor to the contrary.

And the dollar's weakness is, to a certain extent, a byproduct of investors flocking to riskier assets like stocks and commodities because of the aforementioned recovery hopes.

So the most important question to ask about oil probably shouldn't be whether rising prices are bad or good. Instead, it should be this: How high do oil prices need to go before higher prices are no longer a sign of recovery but something that can actually threaten the recovery?

Oil's not well for consumers

When I last wrote about rising oil prices back in early August, several economists said that crude prices in the $80 to $90 range could lead to a further pullback in consumer spending.

Now that oil is in fact flirting with $80, those concerns have returned. And they couldn't have come at a worse time. Makers of consumer goods and retailers are prepping for the all-important post-Thanksgiving shopping season, which is already expected to be lousy.

"Higher oil prices certainly don't help. It definitely could put a damper on consumers' spending ability during the holidays," said Kurt Karl, chief U.S. economist with Swiss Re.

But the bigger fear is that if oil does reach the $80 level, $100 oil might not be far behind -- and that could really jeopardize the chances of an economic rebound.

"If oil goes into the $100 zone, then the guy on the street is going to see gas prices above $3. That would be an issue for consumers," said Jim Glassman, senior economist with JPMorgan Chase.

So will oil rise above the century mark again? That is no longer as far-fetched as it seemed a few months ago. But the oil markets have proven to be so volatile, it's anybody's guess whether oil will be closer to $100 or $30 six months from now.

Oil prices are obviously affected, like every other asset in the known universe, by the laws of supply and demand. But figuring out the supply side of the equation is hardly an exact science.

The weather can wreak havoc on production. So can various geopolitical concerns in the Middle East, Nigeria, Russia, Brazil and Venezuela.

With all that in mind, Glassman said he thinks that a so-called "new normal" range for oil could be between $60 and $80 a barrel. Karl thinks oil should eventually retreat from current levels but wouldn't rule out a move above $100 in the next few months.

"The trend is the traders's friend, and the trend is up. There are a lot of little things that impact the price of oil, and lately they all seem to add up to a $5 increase in prices every time you turn around," Karl said.

Still, not everyone agrees that higher oil prices will crush consumers.

Richard Ross, global technical strategist with Auerbach Grayson, a broker dealer based in New York, quipped that you have to wonder about how weak the economy really is if consumers are still finding enough cash to splurge on expensive new iPhones and Macs.

Of course Apple, which reported a record quarterly profit Monday, is a bit of an anomaly. Few companies have the kind of must-own cool gadgets that would cause people to splurge even during a downturn. But Ross raises an interesting point.

He argues that as long as oil prices are rising in conjunction with stocks on more positive economic news, people might accept higher energy prices as a necessary evil of a recovery.

Think about it. Nobody wants to see oil above $100 again. But if oil does climb above that level sometime in the next year and the value of your house is also increasing for the first time in what seems like eons, wouldn't you shrug off the higher prices at the gas station?

"Will anyone be happy about $100 oil and $4 gas? No. But people weren't shaking their pom poms when oil was at $32 and gas below $2 because everyone was worried about banks and the stock market collapsing," Ross said. "If gas prices went up another 20 cents or even 50 cents, people might take that trade off if it's accompanied by more signs that the economy is getting better."

Friday, 16 October 2009

Allow Me to Introduce: The Biggest Sucker Rally Since The Great Depression

By Simon Maierhofer

It's been said (and perhaps you are getting tired of hearing it) that those who don't learn from history are doomed to repeat it. If the parallels of the Great Depression continue to hold up as they have (and according to historical indicators they will), history doesn't have to repeat itself to severely hurt investors. A mere rhyme to the Great Depression would be enough to wipe out tons of portfolios.

But who cares about history when the market is up and the forecasts call for better days ahead. The Dow Jones (DJI: ^DJI) and S&P 500 (SNP: ^GSPC) have rallied over 55% while the Nasdaq (Nasdaq: ^IXIC) has soared nearly 70%. Wall Street is anxiously expecting another earnings season, which is expected to be predominantly good.

Reuters reports that 'earnings optimism lift Wall Street' while Credit Suisse encourages their clients to buy bullish Alcoa options in advance of Alcoa's profit reports.

If there is one thing we should have learned from history, it's that the bear strikes hardest when least expected. Pierre Corneille hit the nail on the head when he said that 'danger breeds best on too much confidence.'

Black Monday's or Thursday's wouldn't be called 'black' if they were expected. Market tops are always marked by extreme levels of optimism.

In January 2009, with the Dow Jones slightly above 9,000, the ETF Profit Strategy Newsletter noticed elevated levels of optimism and warned of a severe decline with a target of Dow 6,700. Today, sentiment readings are even more extreme than they were in January. The implications are obvious.

If there is just one time you want to take a lesson from history, it is RIGHT NOW. The parallels between today and the Great Depression are numerous and strikingly similar. This 5-minute history lesson might be the best investment you'll ever make.

Parallels between the 1929 and 2007 market tops

Even though a major storm was brewing, prior to the 2007 market top, Wall Street saw no 'cloud in the sky.' In its Global Economics Report, released in the summer of 2007, Merrill Lynch's analysts published the following outlook: 'The Merrill Lynch global economics team believes that the economy will continue to grow in 2007 - with no sign of a significant cyclical slowdown.'

From 2007 to 2009, the major indexes declined some 50%.

On December 4, 1928, President Coolidge sent the following message on the state of the Union to the reconvening Congress: No Congress of the United States ever assembled, on surveying the state of the Union, has met with a more pleasing prospect than that which appears at the present time. You may regard the present with satisfaction and anticipate the future with optimism.'

A few days before leaving office in 1929, the parting President cheerfully observed that the economy was absolutely sound and that stocks were cheap at current prices.

Following the 1929 highs, the Dow Jones (NYSEArca: DIA - News) declined 48%.

Parallels between the 1930 and 2009 major bear market rallies

Following the initial 48% decline in 1929, the Dow Jones rallied 48% within a period of six months. This rally was powerful and retraced 52% of the Dow points lost in the initial decline. Even though the market was far from its previous highs, investors had once again gotten excited about owning stocks and felt confident that the market would continue to move higher.

On March 25, 1930, just a few weeks before the waterfall decline resumed, the New York Times reported that 'Wall Street was in a cheerful frame of mind as a result of numerous vague reports of improvement in business and industry.'

Once the bear market resumed, it erased another 86% of the Dow's value.

Following the 54% 2007 - 2009 decline, the Dow Jones rallied 54%. So far, the Dow has retraced 45% of the points lost in the initial decline. The 50% mark, a Fibonacci retracement level, often exercises a magical pull and provides an upper target for bear market rallies.

Similar to the 'vague reports of improvements' reported in 1930, today's 'good news' reports are merely an adaption to lower expectations; many consider it the new normal. Just like in 1930, vague reports of improvements (in 2009 they've become known as 'green shoots') are enough to propel stocks. For savvy investors, the parallels between the two declines and subsequent rallies are certainly too close for comfort.

The instigator - real estate

Did you know that the Great Depression was preceded by a great real estate boom centered in Florida? The Florida real estate bubble burst in 1926, three years before equities. Just as we've seen recently, investors took their leftovers from the real estate bust and poured it into stocks. Talk about jumping out of the frying pan and into the fire.

The Great Depression's Warren Buffett

Yes, the Great Depression had its own Warren Buffett - John D. Rockefeller. In his first public statement in decades, Mr. Rockefeller expressed his conviction 'that fundamental conditions of the country are sound, my son and I have for some days been purchasing sound common stocks.' A few months later, on November 13, 1929, Mr. Rockefeller allegedly entered a million-share buying agreement to peg Standard Oil's stock price at $50.

Rockefeller's public appearance is strikingly similar to Warren Buffett's October 16, 2008 op-ed in the Wall Street Journal, 'Buy America. I am.' Buffett confirmed his view many more times since, most recently in a 7-24-2009 interview with CNBC's Squawk Box where he stated that Dow 9,000 is still a good time to buy stocks.

Initially, John D. Rockefeller looked like a genius because stocks started the mother of all sucker rallies the week he allegedly entered into the buying agreement. The 1930 green shoots, however, wilted quickly. A few years later, mighty Standard Oil - the parent company of Exxon and Mobil - traded at $20 share, more than 70% below its prior high. Few companies have been as influential as Standard Oil in the early 20th century and Berkshire Hathaway today. Even though they are decades apart, their paths might be similar.

Putting this bear market into perspective

The bear market from the 2007 highs has humbled all markets: large cap stocks (NYSEArca: VV - News), mid cap stocks (NYSEArca: MDY - News) and small cap stocks (NYSEArca: IWM - News). Defensive sectors such as consumer staples (NYSEArca: XLP - News) and aggressive sectors such a consumer discretionary (NYSEArca: XLY - News). Global developed markets (NYSEArca: EFA - News) and emerging markets (NYSEArca: EEM - News).

This unique 'red across the board' behavior has not been seen in the 70s, 80s or 2000 bear markets. The only other similar time period to be found is during the Great Depression.

Waiting for the last laugh

While bulls feast on the current gains, bears and average investors observe the market's rise with amazement. This doesn't mean that this humongous rally was entirely unexpected. Contrary to the prevalent dooms-day atmosphere surrounding the March lows, the ETF Profit Strategy Newsletter issued a Trend Change Alert on March 2nd, predicting the biggest rally since the October all-time highs with a target range of Dow 9,000 - 10,000.

John Kenneth Galbraith, author of 1929 - The Great Crash, described the pattern of the 1929-1932 bear market as follows:

'The worst continued to worsen. What looked one day like the end proved on the next day to have been only the beginning. Nothing could have been more ingeniously designed to maximize the suffering, and also to insure that as few people as possible escape the common misfortune. The fortunate speculator who had funds to answer the first margin call presently got another and equally urgent one, and if he met that there would still be another. In the end all the money he had was extracted from him and lost. The man with the smart money, who was safely out of the market when the first crash came, naturally went back in to pick up bargains. The bargains then suffered a ruinous fall. Even the man who waited for volume of trading to return to normal and saw Wall Street become as placid as a produce market, and who then bought common stocks would see their value drop to a third or a fourth of the purchase price in the next 24 months. The Coolidge bull market was a remarkable phenomenon. The ruthlessness of its liquidation was, in its own way, equally remarkable.'

This counter trend rally is likely to be the biggest one of the bear market which started two years ago. While we've seen the biggest rally of this bear, we have yet to experience the biggest decline. This decline may delay for another few days or weeks but it is certain to come.

Just when you thought it wasn't possible

If this sounds impossible, consider the following:

1) The Dow Jones measured in the only true currency - Gold (NYSEArca: GLD - News) has already declined over 80%. To reset valuations, the Dow measured in dollars will have to follow.

2) Japan's Nikkei has lost as much as 80% since its 1990 all-time high. This drop came amidst a global bull market. Imagine what a global bear market can do.

3) A look at current dividend yields and P/E ratios shows that U.S. stocks are grossly overvalued. The current P/E ratio of 141 (reported by Standard & Poor's) dwarfs even the P/E ratios seen during the dot.com bubble, where technology companies (NYSEarca: XLK - News) with no earnings traded at $100 a share and more.

The human tendency to shun overpriced stocks will take over once this emotional buying frenzy has run its course. That's how it's always been, that's how it will prove to be. Once that happens, the majority of investors will wish they'd listened to the subtle but clear advice presented by history.

Do High Commodity Prices Signal Economic Recovery?

By Ron DeLegge, Editor

SAN DIEGO (ETFguide.com) - Don't look now, but many key commodities have hit their yearly highs. Crude oil prices for November delivery on the New York Mercantile exchange crossed $75 per barrel and gold has stayed firmly above $1,000 per ounce.

Commodity permabulls like Jim Rogers see nothing but blue skies ahead.

Rogers, in his usual alarmist tone, told Yahoo's Tech Ticker he's 'quite sure' gold will hit $2,000 an ounce. Never mind that buying gold during the last recent gold rush resulted in a big fat goose egg. People that were unfortunate to try that experiment bought gold at $850 per ounce in 1980 and didn't see levels close to that again until 2008. That's 28 years of futility! But this time, according to the commodity bulls, things are different.

Why are commodity prices rising and is it the signal of an impending economic recovery?

It's the Dollar Stupid

The swift fall in the U.S. dollar has created an opposite effect on commodity prices. Because commodities are priced in dollars, their value rises as the dollar declines. Because of the depressed state of the dollar compared to competing world currencies, it takes more dollars to buy fewer commodities today. When the dollar is strong, the opposite is true.

This also explains, in part, the resurgence in commodities (NYSEArca: GSG - News) and gold (NYSEArca: GLD - News). The rise is not because people are necessarily using more commodities, it's because the dollar has been so pitifully weak.

Just how bad has the dollar performed? So many people in fact are now betting on a permanent demise for the dollar, your local grocer has probably alerted you about trading tips on the subject. A surprise counter rally can't be that far off, can it?

Demand? From where?

Since May, crude oil (NYSEArca: OIL - News) has hovered between a trading range of $50 to $70 a barrel, but that's only part of the story. The rest of the story is that demand for crude and gasoline is waning.

This is confirmed to us by the behavior of the big oil people.

Forced to recognize an unwelcome lack of demand for their products, oil refiners have been shutting down refineries in order to cut cost. They don't want to get stuck with an oversupply of unused sludge. Someone will get stuck with it, but it probably won't be them. My best guess is that it'll be speculators that get oil pied in the face.

Who's Behind It?

What's really fueling this rally? Is it market fundamentals or is it market speculation?

Over 100 years ago, Charles Dow - founder of the Wall Street Journal and inventor of the Dow Jones Averages - devised the Dow Theory to find the answer.

According to Dow's calculations, the manufacturing and transportation sectors would mutually confirm a new bull or bear market. His idea was based on the premise that manufacturing profits are connected to increased production. Increased production would be based on higher demand which would be reflected by an uptick in shipping/transport activity. Are you following?

To Charles Dow, a bull market in industrials could not happen unless the Transportation Average (a measure of demand) rallied alongside the industrials (and vice versa). A harmonious rise would unequivocally confirm a strengthening economy. Anything else would be suspect.

What about now?

In September, the total U.S. railway carloadings declined 22% year-over-year. Contrary to the what the economist that have proclaimed 'the worst is over', this is a glaring sign of weak fundamentals. Furthermore, the divergences in performance between the Dow Jones Transportation Average (NYSEArca: IYT - News) and the Dow Jones Industrial Average (NYSEArca: DIA - News) are too significant to shove aside. You need to read, 'Allow Me to Introduce: The Biggest Sucker Rally Since the Great Depression.'

In summary, if you still believe that rising commodities are due to economic demand, I send you my personal congratulations. Can I interest you in some privately traded shares in the Golden Gate Bridge?

Selling your gold? Don't get taken

As gold prices hit record highs, consumers are rushing to trade their bling for some serious cash. But experts warn that you shouldn't jump at the first cash-for-your-gold ad you see on TV.

By Parija B. Kavilanz, CNNMoney.com senior writer

NEW YORK (CNNMoney.com) -- With the price of gold as high as it's ever been, more people are rummaging through their dresser drawers, safe-deposit boxes and anywhere else they can to trade their forgotten bling for a thick wad of cash.

But proceed with extreme caution -- especially if you find yourself lured by a late-night infomercial promising fast and easy cash for simply mailing your jewels in a pre-paid plastic envelope.

"Ask yourself, would you send cash to Con Edison (the electric company) in the mail?" said Michael Gusky, a 30-year gold jewelry industry veteran and founder of scrap gold dealer Goldfellow.com.

Gusky's pretty sure that people are getting ripped off by a slew of fly-by-night gold buyers who've smelled opportunity in a down economy to make a quick profit at the expense of consumers.

Some of these companies are paying back consumers just 18% to 20% of the true value of their gold items, based on the current market price of gold. That's a range that Gusky calls "despicable," instead of a more acceptable 50% to 60%, leaving the merchants with a reasonable profit margin.

Industry experts say consumers are getting fleeced because they don't know any better, and that many aren't bothering to check the rates being offered by the various sellers, some who are more honest than others.

"This is a low barrier-to-entry business," said Gusky, who sold his former gold manufacturing business to Warren Buffett's Berkshire Hathaway (BRK.A) in 2007.

In most states, he said, you need just one of two licenses: a pawn broker or a second-hand dealer license.

Once you obtain the license just by applying for one, you can become a gold buyer in the comfort of your own home, on the Internet, even in your shoe-repair store.

Manny, who did not want to disclose his last name, owns a shoe-repair store in midtown Manhattan. He also buys people's unwanted gold.

"The rent for my store is too high. I needed to make more money," he said. So he got his gold dealer license by going to a local consumer affairs bureau and obtained a gold-testing "kit" in New York City's Diamond District, where fine jewelers abound.

"Anyone can do it," he said.

But Gusky believes that's dangerous. "As gold prices surge, the buyer market is becoming a very crowded marketplace and it's harder to discern the good from the bad," he said.

Chris Del Gatto, CEO of CIRCA, a buyer of previously owned jewelry in the United States and internationally, agrees.

"The skill set [needed] to scratch 10-karat, 14-karat or 18-karat gold jewelry and figure out what you want to pay per gram is something I can teach you in less than an hour," said Del Gatto.

But it's not as simple as that, he said. This is where consumers get ripped off. Del Gatto said the value of a piece of gold jewelry is determined not only by the amount of actual gold in it but sometimes also by its intrinsic value.

"An older estate jewelry item will have greater value than just its gold weight. But only an experienced buyer can determine that," Del Gatto said.
Top tips for gold sellers

So how do gullible consumers not lose cash on their gold? Gusky and Del Gatto offered their top tips:

Educate yourself: The more a person knows about the value of their gold, the more likely they are to find an honest buyer and get the best price for their gold items, said Gusky.

"The number one misconception people have is that a 14-karat gold jewelry item is 100% gold. Only 58.3% of that will be gold," said Gusky. The quantity of gold in a 10-karat item will be even less, about 41%, he said.

"The recovery and value of gold in that item is based on how much gold is actually in it," he said. The higher the karat, the higher the amount of gold in the jewelry. When 99.9% pure gold is selling for $1,058.75 per troy ounce, one troy ounce of 14 karat "new" gold is valued at 58.3% of $1,000, or $617, he said.

Know what you have: Many consumers are being paid for their gold at predatory prices. So consumers must do their homework.

"Go to a few jewelers and ask them to evaluate how much gold you have and its worth," said Del Gatto. If you have a kitchen scale, weigh your gold at home, note its karat, check the latest gold price per troy ounce and calculate. That will also give you an idea of the value.

Don't put your gold in a mailbox: Remember that point about the pre-paid plastic envelope? "We know that UPS is honest but the problem is that you have no proof if your items ever got to their destination," said Gusky. Instead, check if the gold buyer provides a secure shipping option.

Investigate beyond a buyer's Web site: Don't take the company at face value. Check the Better Business Bureau's Web site for consumer complaints against a company. A quick check Tuesday showed that Gusky's company Goldfellow currently has zero complaints, while another online gold buyer, Cash4gold.com, has 282 complaints registered against it.

Find out how much you will be paid first: Don't sell to anyone who won't quote you a price in advance of paying you, advised Gusky.

Go with a full-time gold buyer: Avoid anyone who doesn't make gold buying their dominant business. "A shoe repair store or a dry cleaner who's now buying gold doesn't fall in this group," said Gusky.

Check for insurance: Most companies advertise insurance on your gold but the fine print indicates nominal liability of as little as $30.

Wait to sell, if you can: Although gold is already at a record high, it could touch $1,200 a troy ounce by year-end, said Carlos Sanchez, precious metals analyst at New York-based specialty commodities firm CPM Group.

"If that happens, consumers may get [back] what they paid for (the item) or even more," he said.

Wednesday, 14 October 2009

"This Is a Sucker's Rally," Strategist Tice Says

David Tice, chief portfolio strategist of Prudent Bear Funds, has one message for you: Don't believe the bullish hype. "This is a sucker's rally. The economy is really not getting that much better," he says.

Tice notes 2008 was a dismal year for Americans on three key fronts (or leg's of a stool):

* Their paycheck.
* Value of their home.
* Investment portfolio.

"We see this as being a long-going economic malaise, where all three of those legs are going to continue to be hurt," Tice Says. Given the long-term down trend, Tice argues investors should be focused on liquidity and having some portion of their portfolio holdings in negatively correlated assets. In other words, when one set of assets moves down in value, another will gain.

Persistent bear Tice adds investors shouldn't swallow biased messages from Wall Street or the media to dive into the market whole hog. Now, Tice says, is the time for wealth preservation.

Cramer's Advice: Don't Give Up

By Jim Cramer, RealMoney Columnist

Jim Cramer's newest book, Getting Back to Even, is out in bookstores today. We're publishing this excerpt as a sneak preview for TheStreet readers.

So why should you believe that investing in stocks, which got us into the mess we're in, can also get us out of it? Why not just cut your losses and stick your money in a traditional savings account where you won't have to worry about it? First of all, because you'll never get back to even that way, and second, because there is a world of difference between owning stocks, which has caused so much wealth to disappear, and trying to make money in stocks, an approach that at the very least lets you sidestep some of the pain. You can get back to even if you follow the latter course.

Most peddlers of financial advice, even after the wealth-shattering crash of 2008, preach the virtues of owning stocks just for the sake of owning them. They will still tell you to buy and hold, an investing shibboleth that I have been trying to smash for ages. The buy-and-hold strategy, if you can even call it one, is to pick a bunch of good-looking blue-chip companies, buy their stocks, and hang on to them till kingdom come. Selling is strictly forbidden. It's considered a sign of recklessness, of "trading," which all too many supposed experts think of as a dirty word. Same goes for the once-sacred mutual funds, with managers who adopted the same careless buy-and-hold, one-decision philosophy.

If you had practiced buy and hold over the last decade, you would have gotten exactly nowhere. The major averages have literally fallen back to levels they first hit ten years ago. That means, for example, that if you'd contributed a little bit to your 401(k) each month, the way most people do, then most of your buying was at much higher prices. The results are in and this philosophy has lost more people more money than anything save gambling, and frankly, it's hard for me to see the difference between gambling and deciding to permanently own stock in a company that could change its stripes at any moment. It's investing blind, and investing blind is no different from investing dumb.

Jim Cramer will be signing books and answering questions around the New York metro region over the coming weeks:

* Tuesday, Oct. 13, 7:30 p.m.: Barnes & Noble in Paramus, N.J. (765 Route 17 South)
* Wednesday, Oct. 14, 7:00 p.m.: Borders in Bridgewater, N.J. (290 Commons Way)
* Tuesday, Oct. 20, 7:00 p.m.: Mendham Books in Mendham, N.J. (84 East Main St.)
* Tuesday, Nov. 17, 7:00 p.m.: Barnes & Noble at Union Square in Manhattan (33 East 17th St.)

That's why my philosophy is "buy and homework." For every stock you own, you must spend at least an hour a week checking up on the underlying company, and that's in addition to the research you ought to do before buying a new stock. I know it sounds daunting, but I'm talking about a block of time that's shorter than an NFL or an NBA game, and certainly shorter than just about every Major League Baseball contest, even without the commercials. It's less time than you'd spend seeing a movie, and I know you've never made a dime going to the movie theater, especially not with the way they rob you at the concession stand.

The homework, like taking your car in for an occasional maintenance inspection, lets you know if everything is still working under the hood, or if it's time to sell and trade the stock in for a different model. Doing the homework lets you avoid holding on to the stock of a troubled company as it meanders closer to zero like AIG and GM, or sinks all the way down like Lehman Brothers or Fannie Mae and Freddie Mac. It lets you stay on top of what's blue chip and what's been downgraded to red or white or no chip at all.

Just owning stocks because that's what you're supposed to do won't help get you back to even. But doing the homework, and owning stocks not for their own sake but for the sake of making money, definitely can. How important is the distinction between buy and hold and buy and homework? It's the difference between passively accepting whatever hand the market deals you and taking control of your own destiny.

Let me give you an example. On my television show, "Mad Money," where I teach viewers how to be better investors, help make sense of the market, and tell you which stocks I would buy and sell, I made a call, based on my homework, back on September 19, 2008, recommending that people sell at least 20 percent of their portfolio because I expected the market to go lower. On that day the Dow Jones Industrial Average had closed at 11,388. Then, a little more than two weeks later, on Monday, October 6, with the Dow a thousand points lower at 10,332, I went on NBC's "Today" show, and in a much-derided appearance told viewers to take any money they thought they'd need over the next five years out of the stock market because I believed it had become too dangerous and too risky.

That call earned me more scorn and criticism than anything else I had ever said in a career that's been full of scorn and criticism. It was also one of the best calls I've ever made, as the market went on to have its worst week in history. You avoided a 33.6 percent decline in just two months if you heeded my first clarion call, and a 26.8 percent decline with the second. A simple sidestep into cash would have kept your savings from disappearing and thus keeping you from having to work for many more years than you had probably thought would be necessary just a few weeks before these calls were made. And I helped you get back in at the lows in many stocks using the methods detailed here, methods you can use without me after I teach you their rudiments, which will allow you to rebuild your savings and make even more money. Basically, I hit the investing equivalent of a grand slam.

Now that the market's bounced back, there are those who say my philosophy of dodging the declines is flawed versus a buy-and-forget-'em method. But these uninformed critics are ignoring the colossal difference between a rally that makes up some of your losses and a rally that actually makes you money because you sidestepped the losses in the first place. In doubt? Consider the difference between someone who avoided the decline starting September 19, my first sell call, and then got in on March 9 when I said the worst of the downside was over and it was time to come back in, versus the buy-and-hold method. The buy-and-hold philosopher with $100 in the market who ignored my September 19, 2008, sell call saw his portfolio drop to $57.50 on March 9. If he then caught the 40 percent gain through the end of July 2009, he would have $81.

Now compare the person who listened on September 19 and sold his $100 and then got back in on March 9, when I said the coast was clear. By sidestepping the loss and then getting in near the bottom he would have been able to make $40 on that $100 and would finish his round-trip at $140. The person who actively managed his money and avoided the worst part of the crash by selling on September 19 has 72.8 percent more money than the buy and holder at the end of July.

How about the October 6 sell call? The buy and holder who slept through the call saw his $100 turn to $63.50 on March 9 but would be back to $88.90 at the end of July. The person who sidestepped and got back in on my suggestion would have that $140, or 57 percent more than the buy and holder. And all of this arithmetic presumes that you didn't panic out at or near the bottom when the declines became too painful to endure. How can anyone in his right mind compare the returns and say that buy and hold makes more sense?

To get back to even, you need to know what to look for in a stock to figure out if it can deliver in a time when the market is busted and the economy has gone bust. I am no perma-bull, someone who always believes it's a good time to buy and to own stocks, although I do believe that you can almost always find good stocks to buy. I was literally screaming about the financial crisis starting in the summer of 2007, warning anyone who would listen that our entire financial system could come crashing down because our policymakers didn't have a clue about the true depth of the banks' problems. You can still see my "They Know Nothing" CNBC rant on YouTube, meant as a last-ditch attempt to save the banking system from its regulators. The call, obviously, was not heeded. I'm not telling you this to boast. I've made plenty of mistakes, too, mistakes I own and call attention to regularly so that we can all learn from them. My point is that I am not relying on some misguided faith in the idea that stocks will always go higher eventually to help you restore the money you've lost and make even more. I have some new investing strategies, including one that relies on dividends -- yes, dividends -- that will help you generate both income and potential upside while protecting you from the downside.

I've also created twenty-five new rules for trading and investing based on the crash and its aftermath to help make you a better investor. Plus, because the government has such a major effect on the economy when we're in trouble, I'll go through the latest rules and regulations from the feds that can help you and your family save money.

No matter what, don't give up. These are frightening, and occasionally infuriating, times, but with a little help you can stop being scared, stop getting mad, and start getting back to even!

Don't Let a Market Crash Hit You at the Finish Line

by Jason Zweig

Can you make the risk of stocks go away just by owning them long enough? Many investors still think so.

"Over any 20-year period in history, in any market, an equity portfolio has outperformed a fixed-income portfolio," one reader recently emailed me. "Warren Buffett believes in this rule as well," he added, referring to Mr. Buffett's bullish selling of long-term put options on the Standard & Poor's 500-stock index in recent years. (Selling those puts will be profitable if U.S. stocks go up over the next decade or so.)

As the philosopher Bertrand Russell warned, you shouldn't mistake wishes for facts.

Bonds have beaten stocks for as long as two decades -- in the 20 years that ended this June 30, for example, as well as 1989 through 2008.

Nor does Mr. Buffett believe stocks are sure to beat all other investments over the next 20 years.

"I certainly don't mean to say that," Mr. Buffett told me this week. "I would say that if you hold the S&P 500 long enough, you will show some gain. I think the probability of owning equities for 25 years, and having them end up at a lower price than where you started, is probably 1 in 100."

But what about the probability that stocks will beat everything else, including bonds and inflation? "Who knows?" Mr. Buffett said. "People say that stocks have to be better than bonds, but I've pointed out just the opposite: That all depends on the starting price."

Why, then, do so many investors think stocks become safe if you simply hang on for at least 20 years?

In the past, the longer the measurement period, the less the rate of return on stocks has varied. Any given year was a crapshoot. But over decades, stocks have tended to go up at a fairly steady average annual rate of 9% to 10%. If "risk" is the chance of deviating from that average, then that kind of risk has indeed declined over very long periods.

But the risk of investing in stocks isn't the chance that your rate of return might vary from an average; it is the possibility that stocks might wipe you out. That risk never goes away, no matter how long you hang on.

The belief that extending your holding period can eliminate the risk of stocks is simply bogus. Time might be your ally. But it also might turn out to be your enemy. While a longer horizon gives you more opportunities to recover from crashes, it also gives you more opportunities to experience them.

Look at the long-term average annual rate of return on stocks since 1926, when good data begin. From the market peak in 2007 to its trough this March, that long-term annual return fell only a smidgen, from 10.4% to 9.3%. But if you had $1 million in U.S. stocks on Sept. 30, 2007, you had only $498,300 left by March 1, 2009. If losing more than 50% of your money in a year-and-a-half isn't risk, what is?

What if you retired into the teeth of that bear market? If, as many financial advisers recommend, you withdrew 4% of your wealth in equal monthly installments for living expenses, your $1 million would have shrunk to less than $465,000. You now needed roughly a 115% gain just to get back to where you started, and you were left in the meantime with less than half as much money to live on.

But time can turn out to be an enemy for anyone, not just retirees. A 50-year-old might have shrugged off the 38% fall in the U.S. stock market in 2000 to 2002 and told himself, "I have plenty of time to recover." He's now pushing 60 and, even after the market's recent bounce, still has a 27% loss from two years ago -- and is even down 14% from the beginning of 2000, according to Ibbotson Associates. He needs roughly a 38% gain just to get back to where he was in 2007. So does a 40-year-old. So does a 30-year-old.

In short, you can't count on time alone to bail you out on your U.S. stocks. That is what bonds and foreign stocks and cash and real estate are for.

In his classic book "The Intelligent Investor," Benjamin Graham -- Mr. Buffett's mentor -- advised splitting your money equally between stocks and bonds. Graham added that your stock proportion should never go below 25% (when you think stocks are expensive and bonds are cheap) or above 75% (when stocks seem cheap).

Graham's rule remains a good starting point even today. If time turns out to be your enemy instead of your friend, you will be very glad to have some of your money elsewhere.

Don't Believe The Double-Dip Story

Javier Espinoza

BofA-ML is forecasting growth for 2010 and 2011.

LONDON -- The global economy is likely to relapse into a recession, right? At least that's what respected voices are saying. Last week, a survey conducted by the Association for Financial Professionals in the U.S. found that finance executives were still wary of the possibility of a double-dip recession. And on Tuesday both a senior executive of investment bank Morgan Stanley ( MS - news - people ) and British Chambers of Commerce chief economic advisor, David Kern, talked about the risks of the global economy relapsing into a recession.

But on Tuesday, Bank of America - Merrill Lynch ( BAC - news - people ) challenged that view. The bank told clients that it did not believe in a double-dip and expected 2010 and 2011 to be "good years" for growth in Eastern Europe, the Middle East and Africa.

"Yes, long-term potential growth will be lower after the crisis—but this will not prevent a rebound from unusually low activity," said David Hauner, an economist at the BofA-ML. "In fact, the initial rebound is coming increasingly more consensual, but double-dip fears keep lingering."

BofA-ML's forecast is for 2010 to surprise investors thanks to a rebound in inventories that have fallen to record levels in many markets, the bank said. It also expects that some improvement in fixed capital investment, a relief in consumer confidence and lower unemployment levels will all contribute to a surprising recovery next year.

"This results in GDP forecasts that are substantially above consensus, with growth at 4.2% globally, 3.0% in the U.S., 2.0% in the euro zone and 6.0% in global emerging markets," the bank said. The financial institution also thinks that inflation will remain low, which should allow monetary policy "to remain looser" than the market expects.

For 2011 the bank sees a "slight further acceleration of growth" for all global markets. It forecasts a 4.5% growth worldwide, 3.3% growth in the U.S., 2.5% in the euro zone and 6.2% in emerging markets.

But it seems BofA-ML is not the only institution to be moving away from the double-dip prediction. Also on Tuesday, RBS chief European economist Jacques Cailloux said that although investors remain "very negative" on the likelihood of a steady economic recovery, the bank doesn't subscribe "to the double-dip story" and there should be no relapse "for the U.S., Europe and also for the rest of the world."

Retired early ... and getting scared

When early retirement isn't working out, these fixes might help you get back on track.

By Walter Updegrave, Money Magazine senior editor

NEW YORK (Money) -- Question: I had the good fortune to be able to retire early at age 52, but last year's market meltdown has made me rethink the decision. I may still be okay, but I don't have the same level of certainty I once had. My question is this: How will Social Security be calculated for me and how does the fact that I haven't worked the last few years fit into the calculation? --Jack Ford, West Newbury, Mass.

Answer: Before I answer your question about how your Social Security benefits are calculated, I want to address the uncertainty you're feeling about whether you can afford to stay retired.

You're not alone. Given the beating retirement savings accounts have taken over the past year, many retirees are wondering whether they will need to "unretire" to one degree or another to avoid having to ratchet back their lifestyle or run through their assets too soon. A recent study by Charles Schwab & Co. estimates that as many as 9.5 million retired Americans are considering at least a partial return to the workforce.
Back to work

And going back to work -- full- or part-time -- can make a lot of sense. The extra income allows to pull less money from an already battered nest egg, giving your savings a chance to recuperate from last year's hammering. Depending on the size of the paycheck, you may even be able to throw some new money into savings.

The rub, of course, is that now isn't exactly a great time to be looking for a job. The latest reading on unemployment continues to show a rising trend with the September rate creeping up to 9.8%. And older job seekers, especially ones who have been out of the workforce in recent years, will generally find it harder to find a job than their younger counterparts.

That said, I still think it makes sense for you as well as any other retiree who's concerned about his financial security to consider finding work. You may not land your dream job or pull down as big a salary as you would like. But if you go about the search in the disciplined and systematic manner described in "The Right Way To Unretire," you'll boost your chances of getting a job.
Collecting Social Security

Now, back to your question about how your Social Security benefits are calculated.

First, to be eligible for Social Security benefits based on your own work record, you must earn a minimum number of "credits." Generally, that translates to at least 10 years of work, but you can get the particulars on the Social Security Administration Web site.

Assuming you clear that hurdle, the question becomes how large a check are you entitled to? That depends on two things: your lifetime earnings and the age at which you start collecting.

Let's start with earnings. Basically, the Social Security Administration looks at how much you earned each year you worked and adjusts each year's figure to reflect increases in wage levels over time. So if you had a job that paid, say, $5,000 in 1967, that amount would be adjusted to just under $39,000 today to reflect the rise in salaries over the past 32 years. This process assures that you don't get short shrift for years early in your career when wages were generally smaller in nominal terms than today.

The Social Security Administration then calculates your average monthly earnings based on the 35 years in which you earned the most money. If you worked fewer than 35 years, it calculates the average based on the number of years you did work, although a shorter working history translates to a lower average and smaller payment. Social Security then applies a formula to this monthly average -- essentially, a weighting system that stunts the increase in the size of your benefit as your earnings rise -- to arrive at what is known as your Primary Insurance Amount, or PIA. (For the sake of brevity -- and sanity -- I've left out a lot of details in this explanation.)

This is where the age at which you begin collecting comes in. Your PIA, or primary insurance amount, is the Social Security benefit you're eligible for if you retire at your full retirement age. Depending on when you were born, your full retirement age varies between 65 and 67. For people born between 1943 and 1954, for example, the full retirement age is 66.

You can begin collecting Social Security (barring disability and other special situations) at 62. You should know, however, that you can increase the size of your Social Security check pretty dramatically by waiting until your full retirement age or later to collect.

Let's say, for example, your full retirement age is 66 and that, based on your current work record, you would be eligible to receive $1,000 a month. If you decided to collect at 62, that amount would be cut to $750 a month. Conversely, if you wait until age 70 to collect, you would receive $1,320 a month. Whatever amount you receive will be adjusted annually for inflation (although given that consumer prices are projected to stay flat or fall in the near term, the Congressional Budget Office estimates that Social Security recipients may not receive a cost-of-living increase for the next few years.)

The fact that you haven't worked the last few years won't affect the size of the Social Security check you're already entitled to based on your work history. You'll get credit for the years you worked and your wages for those years will be adjusted to reflect rising wage levels as I described earlier. The benefit formula doesn't penalize you for not having worked in recent years.

That said, it's possible that you might have qualified for a higher amount had you stayed on the job, either by adding more years to your work record if you're short of the maximum of 35 or, even if you're not, by replacing an earlier low-earnings year.

Which is another reason, aside from the job income, that you as well as other retirees might consider going back to work. The Social Security Administration takes earnings from all work years into account when calculating benefits and reviews Social Security payroll records regularly. If working later in life, even after you've begun collecting payments, boosts your average lifetime earnings, the Social Security Administration will automatically increase the size of your check.

There are other issues you need to consider, including the fact that working while collecting Social Security could temporarily reduce your benefit and possibly subject it to income tax. But going back to work and delaying collecting Social Security to give yourself a bigger check for the rest of your life are two strategies certainly worth thinking about if you're looking to enhance your retirement security for the long term.

Fewer S'pore millionaires

By Esther Teo

MEMBERSHIP of Singapore's millionaires' club has taken a hit in the face of the global economic downturn. The number of high net worth individuals (HNWIs) here - those who hold at least US$1 million in investible assets - shrank by 21.6 per cent to 61,000 last year, up from 78,000 in 2007, according to the Asia-Pacific Wealth Report released by Merrill Lynch and Capgemini on Tuesday.

Japan comes out top of the survey with 1.36 million HNWIs, well ahead of Singapore at sixth place and Hong Kong and Indonesia at ninth and tenth place respectively.

The combined wealth of Singapore's millionaires shrank 29.4 per cent to US$272 billion during the year - the third-largest erosion of wealth in the region after Hong Kong and Australia.

The reasons cited for the decline are the slowing of Singapore's GDP growth and the plunge of the stock market, which fell 50.8 per cent last year.

Asia-Pacific's total population of high net worth individuals, three-quarters of whom are based in Japan, China and Australia, fell 14.2 per cent.

The publication reports that wealthy Asians have staged a flight to safety in the face of economic uncertainty, allocating their wealth to 'safer' cash-based investments and demonstrating a lower appetite for riskier asset classes. They have also favoured more familiar territories, choosing to invest in home regional markets instead of markets in Europe or North America.

Tuesday, 13 October 2009

The 4-Letter Word that Brought Down Wall Street

By Dayana Yochim Dayana Yochim

Do you know the No. 1 rule of finance? Of course you do: Don't spend what you don't have.

That silly little rule is one that the Wall Street suits thought fit to ignore. Given how that strategy played out, I think it's pretty safe to state with certainty that borrowing money to buy stuff you can't afford doesn't always work out so well.

Or, even more simply: Too much leverage is bad.

Leverage is actually a four-letter word: d-e-b-t
Most of us have a wallet full of leverage opportunities -- credit cards. Still, while leverage might be the American way, it should not be yours.

I never get tired of this magic trick, in which I turn less than $20 a week into more than $12,000 in debilitating debt. (Apologies if you've heard this spiel before.)

Consider the difference between setting aside $75 a month versus coming up $75 short and patching over the difference with a credit card. Over five years, that monthly $75 in savings amounts to $4,500 if you simply stuff your loose money into a coffee can. But $75 of debt each month, if you let it go untouched, turns into a $7,600 pair of financial cement galoshes -- including $3,100 in interest debt alone, if you assume an 18% interest rate.

Tah-dah: Borrowing money to patch over a weekly shortfall of less than $20, versus setting aside that money in a non-interest-bearing account, amounts to a $12,100 difference over five years. (Never mind what happens if you introduced mortgage-backed securities into the equation.)

Got debt? Use the good kind of leverage
Your story needn't have the same tragic ending as it did for overly leveraged investment banks. The time to right your overspent wrongs is now.

If you are a good customer (meaning, you haven't had any late payments or other blunders in the past nine to 12 months), then you, my friend, may have some leverage -- the good kind -- with your lender. In fact, one phone call could save you $756.

Don't be shy: Call customer service and ask for a lower interest rate, particularly if yours is more than 15% (which is about the average rate these days). Seriously, ask. Lenders are very willing to talk turkey if that means keeping a customer from moving a balance over to a competitor's card. More than half the people who call their credit card customer service departments are successful in reducing their annual interest rates by an average of one-third.

If your debt can be paid off in a matter of months, even better -- that means you can settle for a short-term rate reduction. You want to shoot for something in the 6% to 11% range.

A cautionary note here: Credit rules are getting tighter every minute, so you must be realistic about the true health of your credit file. Still, don't be discouraged if you don't get it, because you have another trick up your sleeve ...

Swap your debt for more affordable debt
If your balances will take awhile longer to exorcise, then there are a lot of offers out there for 0% to 5% balance-transfer deals. (Check out indexcreditcards.com for current balance-transfer offers.) In these days of tighter credit restrictions, the debt transfer two-step is best performed by those with a decent credit track record.

If that describes you, then moving your balance from your current card to a new lower-rate one is as easy as mailing a balance-transfer check with your statement.

Sounds easy, right? It is. But it's not simple. There are a lot of "gotchas" in the balance-transfer process, including fees, transfer limits, and other zingers that can turn a great deal into an awful one after one misstep. Play by the rules -- all the rules -- to win the balance-transfer game.

A final note: I caution against opening new lines of credit or doing anything that could jeopardize your credit score if you plan to get a loan (car, mortgage, refinance) in the next six months or so. Opening new lines of credit can raise red flags on your credit report. You can do better than the money pros by avoiding the kind of behavior that puts your finances in jeopardy.

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