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Saturday, 29 May 2010

A little advice for market worriers

If you live in fear of the wild swings on Wall Street, here are the words of wisdom I give my own family.

What should you do with your investments if you hear that the Dow has suddenly dropped 1,000 points in 20 minutes? Or that euro-panic has sent stocks swooning? The right answer should be "nothing." Because if you have to worry about a 1,000-point Dow drop ruining your life, your problem isn't the Dow. It's that you're not running your financial life properly.

Watching markets move is a great spectator sport, but it's not a great participant sport unless you're a market pro, in which case you shouldn't need any help from me. But here's a little secret for the amateurs among us. The more violent that market swings get and the louder the shrieking you hear from TV, blogs, and various journalistic advice givers, the more reluctant you should be to engage in any transactions until the madness passes.

The worst thing amateurs can do is to obsess over the market, minute to minute. Do that and you'll get whipsawed. You'll buy when people are optimistic about rising prices and the market's expensive, and you'll bail out when pessimism reigns and the market's cheap. You want to buy cheap and sell dear, not the other way around. One good thing about the 1,000-point drop, though, is that it gives me a chance to dole out advice that may seem shopworn -- heck, it is shopworn -- but that works very well in both good times and bad. It is that to invest successfully, you need staying power.

You need to know you can ride out declines without losing sleep (or at least not much) because your eating money or rent money or next term's tuition aren't at risk. So don't buy stocks until you have a cash reserve large enough to cover your bills for at least three months if you and any other employed person in your household lose your job (or jobs). Six months would be even better.

The major exception to this rule is tax-advantaged retirement accounts, such as 401(k)s. When you're putting in pretax dollars, getting matched by your employer, and deferring taxes until you take the money out, it's a deal too good to resist. Even without an employer match, it's pretty good.

One caution: The best-sounding investment your 401(k) may offer -- the target-date fund that gets more conservative as you get older -- deserves special scrutiny. If it's a Vanguard target fund, it's okay. No, I'm not shilling for Vanguard, the second-biggest target-fund operator in the country. I'm just giving you the same advice I recently gave one of my children.

Although the Vanguard funds aren't perfect -- nothing is -- they're cheaper and simpler than competitors' offerings. They consist of investments in low-cost index funds, which replicate the markets rather than try to beat them. Vanguard's target fee varies from fund to fund but is around 0.2% a year, about what it would cost you to own the index funds directly. In effect, you're getting a free portfolio reallocation, with fewer stocks and more bonds, as you age.

Other target-date funds, including the most popular in the country -- Fidelity's -- are at least three times as expensive as Vanguard's. They may still be the best deal in your plan, but it's less clear-cut than the case for Vanguard. (For information on attempts to clean up the target-fund industry, see "The Senator Who Wants to Save Your Retirement.")

With the tax savings, employer match, and long period for investment income to build up, it's hard to lose money on a retirement account. In other accounts, it's a different story.

The broad U.S. stock market has fallen by more than 50% twice since early 2000. Yechh! Nevertheless, the best way for the average amateur investor to own U.S. stocks is through a low-fee, broad-based index fund, such as one based on the Standard & Poor's 500 or the Wilshire 5000. They've been far from great over the past 10 years, but at least they haven't gone down 50% and stayed down. By contrast, individual stocks can go to zero, and the stocks of even fine individual companies, such as Microsoft and Cisco, can stay way, way down for years.

So be careful, be prudent, and live below your means. That way, when the Dow drops or rises 1,000 points in a day or the euro goes nuts, you can watch folks freaking out -- but for you, it will be only a spectator sport.

For Patient Investors, Another Window to Buy

by James B. Stewart

The correction that made such a brief appearance two weeks ago has returned, this time apparently to stay. For me and anyone following the Common Sense system, that means opportunity.

Last week, the Nasdaq dropped convincingly below the Common Sense buying threshold, which is a 10% decline from the most recent high reached on April 23. The S&P 500 also dropped more than 10% from its peak, putting both major averages into an official correction, the first since the bull market began its rise on March 10, 2009. The Dow Jones Industrial Average dropped below the 10% correction threshold Thursday, returned above the line Friday and fell back below it again Monday. The Common Sense approach calls for buying on corrections of 10%, and selling after rallies of 25%.

Just two weeks ago I fretted that a buying opportunity had come and gone so fast I was unable to take advantage of it. The $1 trillion rescue plan unveiled by the European Union and the International Monetary Fund had triggered a huge rally, and it looked like the bull market was back. I needn't have worried. European sovereign worries have returned with a vengeance. Not only did the market's plunge renew a buying opportunity, but indexes fell so rapidly last week that the Nasdaq Composite was well below the 10% threshold on Thursday, when I made some purchases.

This is yet another reminder to remain focused on the long term and not get caught up in the minute-by-minute or even daily gyrations of the stock market. I've said for months that eventually there would be a correction, and not just one lasting a few minutes.

Having gone through three successive selling opportunities during the past year, I had ample cash at my disposal. (I generally sell roughly 10% of my portfolio at each selling opportunity and spend about 20% of my cash at each buying window.) In deciding what to buy, I simply followed the advice I've offered in recent columns. One strategy was to add exposure to commercial real estate, a sector I'd shunned as overvalued but recently concluded showed promise. I'll give a more detailed report on my real estate strategy in a future column, but one component was simply to buy a diversified exchange-traded fund, the Vanguard REIT Index Fund (NYSEArca: VNQ - News).

For stocks, I focused on some of my own recent recommendations in the technology sector. Despite generally solid earnings, the tech sector has corrected more severely than the broad market. I bought long-term Apple (NYSE: AAPL - News) calls at only a modest premium to the current price (I already have a position in Apple shares), as well as the PowerShares QQQ (NasdaqGM: QQQQ - News) exchange-traded fund, which approximates the performance of the Nasdaq. I've been impressed recently with strong earnings from big technology concerns like Intel (NasdaqGS: INTC - News), Cisco Systems (NasdaqGS: CSCO - News), and Oracle (NasdaqGS: ORCL - News), which account for three of the fund's top 10 holdings. (Apple is its largest position.)

I also raised cash by selling some Google (NasdaqGS: GOOG - News) puts. This is the first time I've sold puts in over a year. (Selling puts means you agree to buy shares at the strike price if they're trading below that price when they expire.) It's a strategy I recommend when option prices are high (such as when the VIX has jumped, as it did last week) and when I expect shares to rally. If you really hope to own the shares, I find you're better off buying them outright or buying calls. I wouldn't mind owning Google at the strike price, but since I already have a substantial position, I'm also happy to simply keep the cash should the puts expire above the strike price.

I did all these transactions last Thursday afternoon, as the Dow Jones Industrial Average was heading toward a 376-point one-day loss. With the previous brief correction fresh in my mind, I moved quickly in case the window proved fleeting. I needn't have; stocks were still in correction territory this week.

My reaction illustrates the persistence of psychological factors, even after years of investing. Why was I so concerned this correction would be brief? After waiting more than a year for a buying opportunity, the rising market has conditioned me to expect more of the same: a brief correction followed by the return of the bull. I was eager to put money to work and get it out of low-yielding money-market funds. And yet I realized my eagerness should have been tempered by the likelihood that this may not be the last correction. If history is any guide, the fact that there hasn't been a correction for so long increases the chances that there will be another 10% decline.

So I still have cash in reserve. As usual, I'm making no short-term predictions about the direction of the market. My goal is simply to be prepared when opportunities present themselves, as they did last week.
Copyrighted, All Rights Reserved.

Altucher: "Relax," We've Been Through Much Worse Than This

Europe’s sovereign debt crisis has wrecked havoc on the markets in the last few months. We’ve had a spike in the VIX, aka the fear index, the flash crash and many global markets are now back in bear market territory. In the U.S. were on track for the worst May in half a century.

The wild market action has many investors wondering: How will we get out of this mess?

"Everybody needs to just relax a little bit," says James Altucher, president of Formula Capital. "This is not Argentina, this is not Zimbabwe."

The market has been through much worse than this in the past 30 years and Altucher believes the economy and stocks will remain resilient.

When has it been worse?

* --In 1982-83 Brazil, Mexico, Venezuela and most of Latin America all defaulted or, came close to defaulting. "The whole world was going bankrupt and we were coming out of the Volcker led recession from the early '80s where he was fighting inflation," he notes. Guess what? After a bailout – U.S. markets were up 49% those two years.
* -- 1987’s Black Monday. Think the 'flash crash' was frightening? On October 19th, 1987, the Dow fell 22%. In a single day! Hong Kong markets fell 45% on that day, alone.
* --1997’s Asian financial crisis lead to Russia debt default in the following year and the collapse of hedge fund Long Term Capital Management. Talk about contagion.
* -- September 11th, 2001. "It seemed like the world was ending, it was the scariest thing that happened to me, at least, in my lifetime, and it was horrible for the country," Altucher recalls. "And, we were in the middle of a recession."

Bailouts and quantitative easing followed most of these previous crises. But our current predicament comes after we've already had the biggest bailout in history and rates can't go lower. Altucher has a retort to that concern too, noting half the stimulus package hasn't been spent yet. In fact, he's more concerned that using the rest of the funds will create another bubble and lead to higher inflation.

That's a problem the Fed might look forward to.

Tuesday, 18 May 2010

Forget Greece, China's "Red Flags" Are a Bigger ProblemForget Greece, China's "Red Flags" Are a Bigger Problem

The world is intensely focused on Europe these days but don't forget about China, say Wall St. Cheat Sheet co-founders Damien and Derek Hoffman.

A number of "red flags" have emerged in China recently, the Brothers Hoffman tell Henry in the accompanying clip, including:

* -- Rising inflation and a brewing real estate bubble: Chinese real estate rose 12.8% in the past year, the highest since 2005.
* -- Government efforts to quell said bubble: Money supply has been shrinking in China, which Damien Hoffman says is a sign the government "concerned growth is overheated."
* -- Falling exports and rising imports: Amid a slowdown in industrial manufacturing, China reported a trade deficit in March for the first time since 2004. "It looks like the Chinese might be learning some of our bad habits," Damien says.

Because the global market are "so fragile," right now, the Hoffman Brothers worry what will happen if more investors get a sense the world's "engine of growth" is starting to sputter.

"If China has [more] problems in upcoming data points, we think smart money hedge funds are going to sell first and ask questions later," Damien says.

Given the obvious concerns about Europe and the "under the radar" issues in China, the Hoffman Brothers are big believers in gold right now. Even if gold is a bubble, as Henry suggests, it could have much further to inflate if confidence in paper currencies continues to erode, they say.

Fraud Alert

by Kelly Greene

Scam artists increasingly are targeting people trying to repair their nest eggs. Here's what to watch for.

Many investors in their 50s and 60s are desperate to bulk up their nest eggs. But they remain skittish about the stock market -- and are frustrated with low interest rates.

It's a combination that makes them especially susceptible to fraud. "Anybody who's even thinking about retiring is panicking because they're going to outlive their savings," says Joseph Borg, Alabama's top securities regulator. "Along comes a scam artist with a guaranteed, super-safe deal. It's a perfect storm."

State securities agencies have seen their caseloads explode in the past year. And nearly half of investor complaints involve investment fraud targeting people age 60 and older, according to the North American Securities Administrators Association, based in Washington, D.C.

What are the latest schemes? What should people be on the lookout for? Here are some of the newest types of fraud, according to those who keep track, and how to steer clear of scams.

Home Equity

Despite the bursting of the housing bubble, many longtime homeowners still have substantial equity. Some salespeople are inducing them to lend that money, by means of credit lines or reverse mortgages, to limited- liability companies or partnerships promising steady returns.

Kim Cooper, a 47-year-old home-health nurse in Orange County, Calif., used $100,000 from a home-equity line of credit to invest in April 2008 with a local firm, MacArthur Birch LLC. She believed her money would go into a trust buying international securities, and she received a promissory note pledging a 5% monthly return for a year, she says. Instead, Ms. Cooper lost her money.

"We were told all kinds of things -- the money was frozen, Homeland Security had the money in a New York bank because they wanted to make sure it wasn't being laundered," she says. "They kept us hanging on."

The California Department of Corporations, which regulates securities, issued a "desist and refrain order" against MacArthur Birch and two of its managers in October for selling investment contracts without telling investors that their money would be put into another trust. The state also said in its order that the firm didn't tell investors that the state had issued a similar order against that trust in 2007.

MacArthur Birch requested a hearing on the order, set for Aug. 26 in Los Angeles. The firm's managers and attorney didn't return phone messages or emails seeking comment.

Promissory notes like the one issued to Ms. Cooper are becoming more common, says Pat Huddleston, a former Securities and Exchange Commission attorney in Atlanta who has started a service offering due diligence on investments for individuals ( "They look contractual, and they purport to pay interest like bank accounts, CDs and other things that are solid and reliable," says Mr. Huddleston. "It makes an investment look really safe, even when it's not."

Of course, there are legitimate reasons for home-equity loans and reverse mortgages, such as supplementing retirement income to pay long-term-care costs or rising property taxes. But be wary of anyone who recommends that you take out such a loan to make an investment.

Life Settlement Securities

Life settlements, in which older adults sell their life-insurance policies to investors at a discount to face value, have drawn scrutiny for the industry's high fees, opaque nature and aggressive sales practices. Now there are concerns about fraud in the "securitizing" of life settlements. Some companies are packaging hundreds of policies and using them to back the sale of notes. That means the policies being securitized could be overvalued -- or faked, says Denise Voigt Crawford, Texas securities commissioner.

Last year, Texas investigators seized about $20 million in assets from National Life Settlements LLC, a Houston company that sold secured notes backed by life-settlement contracts and promising up to 10% annual interest to about 320 investors, including retired teachers. The state considered the investments to be unregistered securities, and a court-appointed receiver testified that the firm paid new investors with money from earlier ones, rather than investing in life settlements.

A Texas district-court judge issued a permanent injunction against the company's doing business in the state and appointed a permanent receiver to return investors' money.

National Life Settlements' principals, Howard Judah Jr. and Gregory Jablonski, settled the claim without admitting to the state's charges. "The state's position was that these were securities, and our clients' position is that this was an insurance product," says Brent Haynes, a Houston lawyer who represented them.

One important distinction: Until the economic turmoil of 2008 and 2009, a growing number of people had been selling their own life-insurance policies to investors in exchange for a lump-sum payment, according to data collected by Conning Research & Consulting in Hartford, Conn. (A lack of capital in the life-settlement market has slowed the market in the past few years.) For older people who no longer need the policies and could use the money now , this may be a reasonable decision -- and is different from investing in a securitized group of such investments.

Alternative Energy

Heightened awareness of global warming, along with President Barack Obama's challenge to end U.S. dependency on foreign oil, has created a pool of baby boomers receptive to "green" investments -- some of which are fakes, Mr. Huddleston says.

Late last year, the SEC accused Nova Gen Corp., San Diego, which claimed to own technology capable of converting coal into virtually emissions-free biodiesel fuel, of making false statements and selling unregistered stock. Nova Gen projected "wildly unrealistic" revenue based on building power plants for which it lacked permits and funding, according to the SEC's complaint, filed in December in federal court in San Diego. "In reality, Nova Gen is a shell of a company that has no operational technology and no revenues," the complaint says.

Nova Gen has denied the allegations in court filings. The company's lawyer didn't return calls seeking comment.

Of course, alternative energy is a hot new investment category with legitimate ways to make money. But you'd be better off seeking out a mutual fund, or exchange-traded fund, that would use a small portion of your equity investments, to diversify your overall portfolio.

Precious Metals

Scams in which a company offers to buy and store gold for investors -- and to sell the material when it increases in value -- are also increasing, says Judith Shaw, Maine's securities administrator. The problem: "In many cases, the gold doesn't exist," she says.

The right way to invest: Go through a reputable, local gold dealer, Ms. Shaw says. If you don't want to hold onto the bullion yourself, carefully evaluate the seller's offer to store it for you. "Purchasing your precious metal from somebody who's local is far and away better than doing it over the Internet," she says. "Our message always is, 'Please just call us first to check them out.' "

Steering Clear of Fraud

Although every investment has its own set of wrinkles, there are some basic ways to steer clear of various types of investment fraud. If it seems nearly impossible to evaluate an investment product's underlying risks, "avoid it like the plague," Ms. Crawford says.

Also, don't sign anything presented as "top secret." Ms. Cooper, for example, was asked to sign a confidentiality agreement, so she didn't tell her financial planner about the investment until it was too late to get her money back.

Don't invest with your home equity, either. Ms. Cooper is spending an extra $1,000 a month to pay back the home-equity loan she used to invest with MacArthur Birch and worries how she'll afford a new car, which she needs to do her job.

Things you should do: Start with your own background check on the investment and the people pitching it. A good first stop is your state securities department. Go to and click on "Contact Your Regulator." State officials should be able to tell you whether a security is registered, and if it's not, why it isn't. The same agency can tell you if the salesperson is licensed to sell securities where you live. You can also check an investment adviser's history by going to, clicking on "Investors" and then going to "Finra BrokerCheck."

Seeking out the background of the people involved in creating and selling a product could be even more important. Check with state securities regulators everywhere the people have lived for any actions brought against them. Check federal or state databases for bankruptcy or criminal filings, too.

"A company can always file with [a] secretary of state or create an accounting firm to do an audit and look legitimate," Mr. Huddleston says. "But a scam artist can't hide his own background as easily."

Ms. Greene is a staff reporter for The Wall Street Journal in New York. She can be reached at

Monday, 17 May 2010

Don't bother teaching kids financial literacy

By Genevieve Cua

THOSE who advocate teaching personal finance to children in primary schools envision adults in the future who are able to budget, understand the implications of rollover credit card debt and can sidestep complex and risky investment products.

Professor Emeritus Lewis Mandell, who has researched financial literacy issues in the last 15 years, is quick to bring these notions down to earth. Teaching financial literacy to kids doesn't work, he says bluntly. Financial literacy is defined as the ability to make important financial decisions for one's own benefit.

'I'm very pessimistic. I have been doing research continuously, tracking levels of financial literacy which have not gotten any better, and also attempting to measure the impact of educational programmes. The research gives no reason for optimism. It basically shows that students in high school who have had a course in financial education are no more financially literate than those who never had such a course. That's an indication that we have not figured out how to teach financial literacy.'

Prof Mandell is in Singapore until next week. He teaches Economics for Managers in the UB (University at Buffalo) Executive MBA programme, which is offered in partnership with the Singapore Institute of Management.

Since the financial crisis, regulators have been grappling with how the sale of investment products should be tightened particularly when investors are relatively financially unsophisticated. In Singapore, the Monetary Authority of Singapore has proposed a test to ascertain investors' knowledge before they can invest.

Prof Mandell says financial illiteracy takes a heavy toll on individuals and society. '(Mistakes) aggregate. They were not the sole factor in the meltdown but they were an important factor. If everyone makes a bad decision it can have a bad effect on the whole society. Is it possible to educate people to the extent that they will not make such mistakes? It does not appear to be possible.'

There are, however, ways to raise the chances that children will absorb sound personal finance principles. One way is to allow them real experience with money - with adult guidance.

Prof Mandell himself was allowed by his parents to invest his college education savings. 'When I was 13, my parents said - you have some money and you have an interest in the market. They called my broker, who was a cousin and told him to let me trade my own account. That was before there was online trading. So I'd call him and he'd invest. That helped me develop a great interest in finance.'

His daughter, he recounts, came home one day when she was 12, and said she wanted to invest in Pepsi instead of Southwest Airlines which was then a fast growing stock. 'She said - 'I think (Southwest) is boring. My friends and I all like the commercials for Pepsi. I want to invest all my money in Pepsi'.'

Prof Mandell told her to call the broker and to go ahead with whatever was jointly decided. 'The broker said - rather than invest all your money in Pepsi, let's invest half in Pepsi and half in Southwest.

'Pepsi fell. She lost some money but she learnt something extremely valuable. To this day she's very good at personal finance. She has a very good understanding that no matter how much you like a stock, it doesn't mean it will go up.

'I believe that it is useful to get children involved in their own finances to give them a degree of control with adult supervision. If they realise they are spending and investing their own money, they'll be much more serious about it than if it was a game.'

Children, he adds, should also be able to open their own savings accounts and have control over their spending. In Singapore, child accounts are typically jointly opened with a parent. Banks such as OCBC, however, do allow accounts solely in the child's name, from as young as five years old. Yet another avenue is to allow a child to have a supplementary credit card with limits on spending. This, he says, will teach the child to spend responsibly within a budget. Supplementary cards, however, can only be issued to a child of at least 18.

'I believe strongly in child accounts. I believe that a child should at a very early age have an account in his or her name, and that the parent should encourage the child to get into a behaviour of saving . . . If a parent can take money out of the account it doesn't give the child identification with those assets.'

Research on the effect of allowances on children yield startling results. There are generally three types of allowances, he says. One is a regular allowance. A second form is an allowance as a form of reward, for doing chores, for instance. A third is not to give a regular allowance, but to give money when the child asks for it.

'It turns out that children who get a regular allowance have the lowest financial literacy. Columnists are well meaning and often argue that an allowance teaches responsibility but it's the opposite. The ones who do best are those who get an allowance for doing chores or meeting expectations. They're followed closely by those who don't get a regular allowance but who ask for money.

'My reasoning is that children who get a regular allowance - it's like being on welfare. You're not reinforcing good habits. You're saying that regardless of how good or bad you are, I'm giving you this amount, and it doesn't tend to teach responsibility.'

Prof Mandell has been working on a proposal as part of the Obama administration's efforts to address the need for an 'automatic' retirement savings option that is safe and simple. His proposal, dubbed RS + (Real Savings +) is a portfolio that aims to provide capital and inflation protection with some upside from equities.

The default option in most US retirement plans is a target date fund where the asset allocation shifts to a more conservative profile as a worker nears retirement. But such funds came under fierce criticism in the crisis as their fairly heavy equity weightings caused severe losses.

Prof Mandell's portfolio would invest a portion in Treasury Inflated Protected Securities, at an allocation that would deliver the principal on an inflation adjusted basis at retirement. The balance is to be invested in equities through low cost index funds. 'My idea is to use financial engineering to develop products that are not going to make rich people richer, but to make ordinary people safer. They may use derivatives but to benefit the ordinary person rather than the financial institution.'

Thursday, 13 May 2010

Beware this fake-landlord scam

BE CAREFUL if you are looking to rent a home here, or you could fall prey to a rental scam.

This is how it works: A conman, using a fake name, poses as a landlord with rooms for rent at low prices.

He gives fake addresses of apartments in areas like Orchard and Chinatown.

He refuses to arrange for a viewing of the apartments, claiming that he is in Britain on internship and will be back here only by the end of next month.

He asks potential tenants to e-mail him a scan of their passport, and sign a contract e-mailed to them.

He asks them to wire a month’s rent and a security deposit to a Western Union account, and says he will post the keys to them. To reassure them, he sends images of the apartments and a scan of what he claims to be his passport.

A check with a thread on rental scams in Singapore on online forum showed that at least 14 people have received such messages.

The scammer uses different pseudonyms, like Richard Willem Tibor, Jane Louise Millar and Tan Nee, and asks for sums of between $1,100 and $2,500.

Figures from the police show that, on average, one person falls victim to such rental scams every day. Last year, police received 324 reports of rental scams, down from 355 reports in 2008.

Mr Manuel Nacionales, 44, a Filipino systems analyst who has been working here for four years, almost became a victim.

He posted a request to rent a room on share-accommodation. sg, a website that links potential house- or flat-mates, in February this year.

Within a day, he got an offer of an apartment at 14 Scotts Road ? the address of shopping mall Far East Plaza.

In an e-mail sent from, the sender said he was a Singaporean named Tan Nee and could be called on +44-701-115-1047.

He asked Mr Nacionales to send a month’s rent of $700 and a security deposit of $400 to a Western Union account.

Mr Nacionales did receive a scan of the passport of a man called Tan Tong Nee, but did not wire any money after his colleagues advised him against it.

When my paper called the number posing as a potential tenant, the man identified himself as Tan Nee Long in a pseudo- British accent.

Pressed for the address of the rental apartment, he said that it was 202 Far East Apartment.

But a check with Far East Plaza’s residence showed that all its unit numbers are in four digits.

He could not arrange for a viewing of the apartment as he is doing a master’s programme in computer programming in London and has no friends in Singapore, he said.

He would send the keys only after the lease contract was signed and payment made.

“You have nothing to worry about, I’ll be sending you the contract and scanned passport of myself,” he said repeatedly.

When my paper asked him about forum postings about him being a scammer, he said: “No, I don’t do such things… People keep saying rubbish on the Internet.

It’s because I’m not gonna lease the room to them, that’s why they say I’m a scammer.”

He said that he was renting out the apartment on behalf of his mother, who owns it.

When told that he was speaking to my paper, he said “no problem”, but then hung up.’s adviser, Mr David Jenson, 40, said one should never pay or send personal details to a stranger online.

Insist on seeing the title deeds, said Consumers Association of Singapore executive director Seah Seng Choon.

Check out the rightful owners of a property on the Inland Revenue Authority of Singapore’s website, and look for properties via reputable websites like and, said Mr Nelson Tan, a council member of the Institute of Estate Agents.

A police spokesman said tenants should request all parties to be present when signing tenancy documents, and should not pay large sums in cash.

Source : my paper – 12 May 2010

How to Buy Record-High Gold

By Alix Steel

NEW YORK (TheStreet ) -- Gold prices are setting new record highs after conquering the $1,227 level, which has many investors wondering if it's too late to invest in gold.

Gold prices -- which closed at $1,233 Tuesday -- have popped over 9% year to date, with many analysts predicting prices have a lot more room to run. Many predict gold prices can rise to their inflation-adjusted price of $2,300. Others like author Mike Maloney argue that gold will cover all the money in circulation, including credit, and climb to $15,000 an ounce. Some are more conservative. Scott Redler, chief strategic officer of, is looking for $1,400 gold.

"Every day we stay above $1,000 the stronger that floor becomes," says David Morgan, founder of "I just don't see gold with all this going on in the markets right now, worldwide, globally getting below the $1,000 level. I think it's there to stay."

Not all analysts are gold bugs. If you take out the speculation in gold, many analysts believe gold is worth $800 an ounce.

Michael Crook, vice president and strategist at Barclays Wealth, believes that prices will fall to $800 once the crisis premium comes out of the market, and investors buy equities rather than gold.

Regardless of gold's price range, most portfolio managers recommend an investor have 5%-10% in gold. More bullish managers recommend an allocation as high as 20%.

There are many ways to invest in gold. Investing in gold isn't a quick trade, but insurance. It's a hedge against inflation, currency debasement from euro to yen to U.S. dollar, and global uncertainty. Here are some ways you can invest.

Gold Bullion

Buy physical gold at various prices: coins, bars and jewelry. Some of the most popular gold coins are American Buffalo, American Eagle and St. Gauden's. You can store gold in bank safety deposit boxes or in your home. You can also buy and sell gold at your local jewelers. Other companies like Kitco allow you to store gold with them as well as trade the metal.


Gold ETFs are a popular way to have gold exposure in your portfolio without the hassle of storing the physical metal. First, you can invest in one of three physically backed ETFs, which track gold's spot price.

The most heavily traded ETF is SPDR Gold Shares, which has over $45 billion in net assets. The gold ETF has a record 1,192 tons of gold, and the stock is up 8% year to date. Paulson & Co., run by legendary investor John Paulson, is the largest holder of GLD with over 30 million shares.

iShares Comex Gold Trust is up 8.8% year to date with net assets of $3.1 billion.

The newest gold ETF is ETFS Gold Trust, which launched in September 2009. This gold ETF actually stores its gold bullion in Switzerland, which gives investors access to different types of gold. The stock has risen 8.8% year to date and is the cheapest to buy with an expense ratio of 0.39%.

For each share of these ETFs you buy, you generally own the equivalent of one tenth an ounce of gold. The more investors buy, the more physical gold the issuer must buy. Conversely, when investors sell, if there are no buyers, the company must then sell the gold equivalent. Gold ETFs are not owned for leverage, but simply as a vehicle to own gold. There is the possibility of redeeming shares for physical gold, but that arrangement is conducted with brokers and is typically more difficult.

If you want the opportunity of redeeming your shares for gold, another option is Sprott Physical Gold Trust ETV, which launched in February. This closed-end mutual fund gives investors the option of trading in their shares for 400-ounce gold bars. The fund can trade at a premium or discount to its net asset value at any time and has higher fees, making it more expensive to invest in. An investor can obtain physical gold on the 15th of every month, although the holder has to make transportation and storage arrangements.

There are also two other ETFs to consider. Market Vectors Gold Miners and Market Vectors Junior. The GDX is a basket of large-cap mining stocks. It's top three holdings are Barrick Gold, Goldcorp and Newmont Mining. The GDXhas net assets of $6.40 billion and is up almost 10% year to date.

It's little brother, the GDXJ, is a basket of small-cap mining stocks that are in the early development stages of finding new gold. These companies generate 50% of their revenue in gold or silver, have the potential to make over 50% of their revenue in the precious metals or invest mostly in gold and silver. They all have market caps of $150 million or more and have traded at least 250,000 shares per month for six months. It's top three U.S holdings are Coeur D'Alene Mines, Hecla Mining and New Gold. The ETF is up almost 10% year to date.


If you want more risk, try exchange-traded notes, debt instruments that track an index. You give a bank money and, upon maturity, the bank pays you a return based on the performance of what the ETN is based on, in this case the gold futures market. Some of the more popular ones are UBS Bloomberg CMCI Gold ETN, DB Gold Double Short ETN, DB Gold Short ETN and DB Gold Double Long ETN. ETNs are flexible, and an investor can trade them long or short, but there is no principle protection. You can lose all your money.


A riskier way to invest in gold is through gold-mining stocks. Mining stocks can have as much as a 3-to-1 leverage to gold's spot price to the upside and downside. For example, John Embry, chief investment strategist at Sprott Asset Management, predicts that gold prices will pop 30% in six to nine months and that gold stocks could rise over 60%.

Gold miners are risky because they trade with the broader equity market. Some tips to consider when picking gold stocks are to find companies with strong production and reserve growth. Make sure they have good management and inventory supported by either buying smaller-cap companies or maintaining consistent production. Global gold production has been declining since 2001 and big- cap miners keep their gold reserves flush by buying or partnering with small-cap companies, which are in the exploration or development stage.

As gold prices rise, gold companies can make more for every ounce of gold they produce, but their net profits depend on their cash costs, how much it costs them to produce an ounce of gold. Those factors vary from company to company and are subject to currency issues, energy costs and geopolitical factors.

Another factor to consider when picking gold stocks is how quickly the company will benefit from higher prices. Randgold Resources, a miner in Africa, is almost 100% correlated to gold prices. CEO Mark Bristow says that the company benefits from gold prices in almost two days. When gold broke $1,200 last Friday, Randgold shipped out gold bars for sale on Monday.

There are many ways to invest in gold if prices head to $1,300 or slip back to $1,100. An investor can own gold for leverage, safety or hard cash, but regardless, many traders call gold a portfolio must.

Hold Cash To Exploit Market Turmoil

Did you have enough cash when the stock market plunged to its lowest points between late 2008 and early 2009? If you did, and you were confident enough to buy stocks, you would have made good money using the market cycle investing strategy.

Someone told me he had very much wanted to buy some cheap shares at around that time (blue chips were selling at below 50% off their peaks), but he did not have the money. He never believed in holding too much cash and had always spent the bulk of his income paying for insurance premiums, regular saving plans and loans. He thought it was “wasteful” to hold cash. The meagre interest that banks pay was too low in his opinion. But he’s having second thoughts now.

Another person I know saved up conscientiously, keeping the cash in low-interest savings accounts while waiting for the right time to enter the market. He didn’t mind the low interests as he knew he would make 10%, 20% or even 30% return averaged out over the years spent waiting for the right opportunity. Instead of giving money to “professional fund managers” to deliver some “projected 9% return” (which usually never materialize), he would rather manage his own investments in his own way.

Given the recent financial crisis in Europe, there may be a good chance that the stock market may tumble to attractive lows. It will possibly be market turmoil once again.

Do you have the cash to take advantage of it?

Wednesday, 12 May 2010

Roubini: Happy Days Are Over, Economy to Slow in Second Half of Year

Nouriel "Dr. Doom" Roubini sounds less cataclysmic than he did two years ago, when he was one of the only folks warning of impending disaster, but he still doesn't come bearing good news.

A professor of at NYU and economist at Roubini Global Economics, Roubini says that the U.S. economic recovery will slow in the second half of the year, as consumers nurse their wounds and the peak spending from the stimulus wears off.

The culprit?

Final sales, which grew at less than a 2% rate in the last couple of quarters. What drove strong GDP growth in the last few quarters was inventory adjustments (companies replenishing inventory they had sold down during the recession). For the economy to sustain this rate of growth, consumer spending now needs to take over, and Roubini doesn't think it will.

Further, the impact of the government's stimulus on GDP growth will peak this quarter, and its contribution to growth will decline from here on in. With the public fed up with bailouts and concerned about debt and deficits, orchestrating additional stimulus would be difficult if not impossible. So help won't be on the the way.

Perhaps worst of all, the employment picture will stay bleak. Even if we add 300,000 a month forever, Roubini says, it will still take us years to recover all the jobs we've lost since the start of the recession.

And as if this weren't bad enough, Roubini thinks Europe is facing a double-dip recession.

Monday, 10 May 2010

3 things to tell a new graduate

By Tyler Cowen, Money Magazine contributing writer

(Money Magazine) -- One reason behavioral economics has become such a hot field is that it has scads of practical applications. It can help you fire someone, choose a great restaurant, or get other people to do the dishes.

But at your child's graduation from college or grad school, more important life lessons are in order. Three of them are based on the same insight: One of the hardest and most important things to do in life is to behave rationally -- or, put another way, to know your limits.

Your career: Heed your enemies.

In your business dealings, the people with whom you butt heads are often those who have the most insight into you.

If someone thoroughly annoys you, chances are he has a good sense of your faults (maybe that's why you're annoyed!) or holds a point of view you don't often hear. Listen closely. Understanding the value of what your adversaries have to say will help you improve, giving you a big leg up.

Your investments: Buy and hold.

People always like to think that they can beat the stock market. They're almost always deluded. No matter where you think the market may be headed, stick to a buy-and-hold strategy. You'll make more money in the long run, in part because you'll minimize your taxes and trading fees.

Your love life: Understand the odds.

When you have an argument with your future spouse, about half the time you're in the wrong. Grasping that hard-to-accept fact is one of the best ways to save yourself from a costly divorce.

Sunday, 9 May 2010

Money can't buy you happiness

WASHINGTON - YOUR parents were right. Money can't buy you happiness.

That was the message from the Federal Reserve chairman on Saturday to graduates of the University of South Carolina.

'We all know that getting a better-paying job is one of the main reasons to go to college. ... But if you are ever tempted to go into a field or take a job only because the pay is high and for no other reason, be careful!' Ben Bernanke said in his commencement address.

'Having a larger income is exciting at first, but as you get used to your new standard of living and as you associate with other people in your new income bracket, the thrill quickly wears off,' he said.

The Fed released his prepared remarks before he gave the speech. Studies found that just six months after winning a large lottery prize - even in the million of dollars - people reported being not much happier than they were before winning, Mr Bernanke said.

His advice blended what economics and social science have to say about personal happiness. When you boil down all the studies and fancy formulas, it sounds a lot like what your parents told you. -- AP

Friday, 7 May 2010

The Bull Market is Coming to an End

by John Prestbo

Commentary: History suggests the Dow's move is halfway done

The bull market for U.S. stocks will continue until the autumn of 2011. That's the good news. The bad news is that in 18 months or so the Dow Jones Industrial Average will be at roughly 11,100, or slightly below the level it reached in April.

You might think I'm sticking my neck out to make a prediction like this. In fact, I am not predicting anything. Rather, I am simply projecting historical averages from the Dow's (DJI: ^DJI - News) 114-year track record onto current trends.

The purpose of this exercise may be considered whimsical by some people, but to me it is a way of establishing a kind of baseline expectation. The market may — and probably will — deviate to one degree or another. Meanwhile, we have a sense of what history suggests is reasonably possible.

Critics, who are always in good supply, might argue that profits and economic growth drive the stock market, not history. Indeed, that is so. But it also is true that markets and economies move in cycles. While history does not repeat itself exactly, it does revisit enough previous patterns to validate the value we place on someone being "experienced" — which essentially means having personally lived through some history.

Boom and bust

Now for the details: Since May 26, 1896, when it made its debut, the Dow through 2009 has risen in 73 calendar years and fallen in 40. (That adds up to 113, by the way, because we did not count 1896, which was not a full year.) This is an upward bias of 64% to 36%.

The Dow's upward moves lasted an average of 2.7 calendar years, or 32 months. It is this average that suggests the Dow's upward push might expire in November 2011, which of course remains to be seen.

The range of years also can be informative in an exercise like this. The rising Dow periods lasted as many as nine calendar years in a row (that was in the 1990s) and as few as one. Since the next longest span was five calendar years — in the 1920s and again in the 1980s — the nine-year streak is, arguably, an aberration. Taking it out reduces the average to 2.5 years, or 30 months. That would put the terminus of the bull run in September 2011.

The previous two sets of positive moves in the Dow each lasted two calendar years: 2003-2004 and 2006-2007, split by a slightly negative (down 0.61%) treading-water performance in 2005. Teasing out the actual high-low marks (based on the Dow's daily closing values) within these periods shows the first of these lasted 29 months and the second was 30 months.

The downward moves averaged 1.5 years, or 18 months. That is just one month longer than the October 2007-to-March 2009 bear market. Earlier downward moves had a narrower range, from four calendar years (1929-1932) down to one. The previous multi-year drop (2000-2002) was almost twice as long as average at 33 months.

Trading range

The length of the bullish and bearish moves is only half of what history offers. Magnitude is the other.

The average increase in the Dow in the up years is 67.5%, which from the low point in 2009 produces a value of 10,969. The Dow already has closed higher than that (11,205 on April 26), which might imply that the market essentially will move sideways for a long while before it starts to drop.

But ranges come into play here. The nine-year streak in the 1990s delivered a 336.6% gain, while a one-year hiccup in 1915 lifted the Dow less than 1%. In between, there have been nine multi-year occurrences (41% of a total of 22) in which the Dow rose more than 67.5%.

Of those, two were achieved within the duration average of two calendar years (1904-05 and 1908-09). While they occurred more than 100 years ago, they did follow bear markets as deep as the one we recently endured. So, there is precedent for larger gains than the Dow has attained in the current run-up. But historically that has happened in just 10% of the relevant cases.

In downswings, the Dow loses an average of 20.4% — the spot-on definition of a bear market. The magnitude range is narrower, just as it was with duration, but not unimpressive: from a plunge of 80% in the four years ended in 1932 to a 0.18% slip in 1910.

While the 2008 trauma of a 33.8% decline was far from the worst, it was the largest to be confined to one calendar year. (It ranks third among ordinary calendar-year declines, behind a 52.7% plunge in 1931 and a 37.7% drop in 1907.) There have been 16 retreats that occurred completely in one calendar year (versus nine multi-year drops). Runners-up are a 32.9% fall in 1920 and a 32.8% pullback in 1937.

What good is all this information? It certainly does not provide a road map for your investment behavior in coming months. Markets will do what they do, and history — including historical averages — is just the vapor trail.

But knowing what has happened gives you a benchmark for your current outlook — is it too rosy, or not rosy enough? History makes a handy framework on which to hang your hopes and help evaluate their chances of coming true.

John Prestbo is editor and executive director of Dow Jones Indexes, a joint venture of CME Group, Inc., and Dow Jones & Co., Inc., publisher of MarketWatch. Fernando Fernandes and Ross Wiedman contributed research to this report.

Wednesday, 5 May 2010

From Buffett, Thought-Out Support for Goldman


Why is Warren Buffett sticking his neck out so far in defense of Goldman Sachs?

That was the question so many Berkshire Hathaway shareholders, some in disbelief, kept asking here over the weekend, after Mr. Buffett offered his full-throated support of Goldman and its chief executive, Lloyd C. Blankfein, as they fight a civil fraud suit brought by regulators.

Yet by the end of Berkshire’s annual meeting, at least some of the 40,000 shareholders in attendance who had been skeptical of Goldman had come to the same conclusion: Mr. Buffett may actually be right.

“I don’t have a problem with the Abacus transaction at all, and I think I understand it better than most,” Mr. Buffett declared with nonchalance late Sunday afternoon, referring to the mortgage derivatives deal at the center of the lawsuit. He had just finished playing Ping-Pong with Ariel Hsing, a top-ranked 14-year-old junior table tennis player. (He lost 2 to 1.)

His comments echoed the strong view he had offered just the day before: “For the life of me, I don’t see whether it makes any difference whether it was John Paulson on the other side of the deal, or whether it was Goldman Sachs on the other side of the deal, or whether it was Berkshire Hathaway on the other side of the deal,” Mr. Buffett said.

Have we all been thinking about this the wrong way?

Mr. Buffett’s view — conventional, perhaps, on Wall Street but contrarian on that mythical place called Main Street that Mr. Buffett usually occupies — is worth considering for at least one reason: No one else of prominence has spoken out so publicly in support of Goldman. In his trademark way, he made a plain-spoken case that makes sense.

Cynics might regard Mr. Buffett’s statements as predictably self-serving. After all, his company owns about $5 billion in preferred stock in Goldman. What’s more, ever since he made a big investment in Goldman during the thick of the financial crisis, his priceless reputation has been hitched to the firm.

But remember that he has been a consistent and unapologetic critic of Wall Street, especially in the wake of the financial crisis. And besides, his stake in Goldman is more a loan than an investment, so he’ll no doubt be paid no matter what happens with the Abacus suit.

But on the facts of the Securities and Exchange Commission’s civil fraud case against Goldman, Mr. Buffett — he was questioned on this topic over the weekend by shareholders and a panel of three journalists, including me — was resolute. (He did not directly address reports that the Justice Department was conducting a criminal inquiry into Goldman’s mortgage deals, but his positive view of the firm is obvious.)

To him, investors should make their investment decisions based on the quality of the securities, not on who helped put them together or who else was betting for or against them. He suggested those factors were irrelevant.

“I don’t care if John Paulson is shorting these bonds. I’m going to have no worries that he has superior knowledge,” he said, adding: “It’s our job to assess the credit.” The assets are the assets. The math either works or it doesn’t.

In its suit, the S.E.C. has accused Goldman of not disclosing that the Abacus instrument was devised in part by a short-seller, John Paulson, who stood to gain by betting against it.

IKB, one of the buyers, and ACA, which acted as the selection agent and insured the transaction, said they didn’t know Mr. Paulson was on the other side of the deal and had influenced which mortgages were chosen. Together, IKB and ACA lost nearly $1 billion in the deal.

Mr. Buffett, who has always approached investing as a dispassionate exercise based on his reading of the numbers, said IKB and ACA had all the relevant facts that any investor would need. They were able to see all the mortgages, which were referenced in full, and yet they made what turned out to be a very bad bet.

“It’s a little hard for me to get terribly sympathetic,” he said. When he makes his investments for Berkshire, he said, “we are in the business of making our own decisions. They do not owe us a divulgence of their position.”

On Sunday, Mr. Buffett said that the case against Goldman seemed to be based only on hindsight.

“It’s very strange to say, at the end of the transaction, that if the other guy is smarter than you, that you have been defrauded,” he said. “It seems to me that that’s what they are saying.”

Indeed, many securities lawyers have said from the start that the case against Goldman might be hard for the S.E.C. to win, for many of the reasons spelled out by Mr. Buffett in his defense of Goldman.

One Berkshire shareholder who has been a regular in Omaha is Bill Ackman, an outspoken hedge fund manager who has made a career of railing against bad corporate practices. He spent years, for example, trying to get people to pay attention to the failures of the rating agencies before the crisis became full-blown.

In recent days, he has gone even further than Mr. Buffett in his defense of Goldman, suggesting it would have been unethical for the firm to disclose Mr. Paulson’s position in the Abacus deal. He says that Goldman, as the market maker, had a duty to protect the identity of both sides of the transaction.

He agrees with Mr. Buffett that as an investor, he would not have considered it necessary to know that Mr. Paulson had helped select the securities.

If that is really the case, it makes you question all of the outrage being directed at Goldman over this transaction. “The country wants to hang somebody,” one Berkshire board member told me.

With so many easy targets of the financial crisis — Fannie Mae, Freddie Mac, A.I.G., Bear Stearns, Lehman Brothers — it does seem odd that the government, and the public, has chosen to vilify one of only a couple of firms that made fewer mistakes than the rest.

Still, the chorus of Goldman opponents has become so loud that, predictably, some people have called for Mr. Blankfein’s head.

On that subject, Charles Munger, Mr. Buffett’s vocal sidekick and vice chairman, put it bluntly: “There are plenty of C.E.O.’s I’d like to see gone in America. Lloyd Blankfein isn’t one of them.”

How the Sandwich Generation Can Ease the Money Squeeze

by Robert Powell

I spend my nights worrying about my nearly 80-year-old father and stepmother. My wife and I spend our days worrying about funding college bills for four children (expected cost $1 million at Harvard with no scholarships, loans, grants and the like). And in between those worries, I think about saving $3 million (give or take a million) for retirement.

Yes, I am member of the sandwich generation. The good news is that I am not alone. There are millions upon millions of us caught in the middle. And the even better news is that there seem to be experts aplenty ruminating on solutions for this generation.

Consider: In recent weeks and months, AARP, MetLife, Merrill Lynch, Charles Schwab & Co. and likely many others have all released something having to do with the sandwich generation. The surveys don't necessarily reach the same conclusions. But there are nuggets and tips worth sharing.

The Findings

If you're in the sandwich generation, and especially if you're a woman, and your household has $250,000 or more in investable assets, perhaps you can relate to these findings from the recently released Merrill Lynch Affluent Insights Quarterly. You're probably making some lifestyle sacrifices to support your family, cutting back not just on personal luxuries but also saving less for retirement or delaying retirement or both. What's more, you may have invited your adult children or your parents to move in with you to cut down on expenses.

Meanwhile, many Hispanic boomers who are members of the sandwich generation find themselves stretched pretty thin as well, struggling just like affluent Americans to maintain their own finances and prepare for retirement, AARP recently reported.

And MetLife's Mature Market Institute found in a recent survey that "middle boomers" (the 28 million Americans who are ages 52 to 58) have at least one parent still living and half still have children living at home. Nearly three in four of the middle boomers have been providing financial assistance and support to their children and grandchildren and that's averaged about $38,000 over the past five years. Some 14% are providing care to older parents.

Another survey found that boomer parents aren't spending as much on their adult children, but that it's still significant. Four in 10 sandwich generation parents continue to provide at least some financial support to their young adult children, according to the 2010 Families & Money Survey recently released by Charles Schwab & Co.

Caring for Elder Parents

So what to make of those findings? What's in the tea leaves?

If you're a certified, genuine member of the sandwich generation and you're caring for elder parents, soul-searching is the first order of business, according to Andy Sieg, head of Bank of America Merrill Lynch Retirement & Philanthropic Services. "You have to do as much soul-searching as you do portfolio planning," Sieg said. "You have to identify your core values and priorities."

In some cases, you might be able to do that on your own. In other cases, you might need a shaman or an adviser who has a good deal of experience dealing with the trials and tribulations of those in the sandwich generation. No matter whether you go it alone or not, you'll need to address the potential issues and trade-offs in as forward-looking and proactive a manner as possible.

In a zero-sum world, fulfilling a responsibility to a parent -- paying for a geriatric-care manager for instance -- means cutting back on your lifestyle or saving less for retirement or for college. "It's no fun talking about trade-offs," said Sieg. So, it helps to talk about the financial realities and priorities in a rational and calm conversation, long before there's a crisis.

Make no mistake about it: You don't want to talk about such things in an emotion-filled moment; It will bring out the worst of your family history and sibling rivalries.

By the way, a good book that could help you get a sense of your values and priorities is "Family: The Compact Among Generations," by James E. Hughes Jr. Hughes is a legend in helping mostly wealthy families get a handle on what's important to them, but even average Americans can benefit from his wisdom.

Another issue that those caring for elderly parents should address, according to Sieg, is this: As your parents age, it's quite possible that their mental faculties might diminish. And as that happens, you'll find yourself increasingly involved in decisions about their medical care and finances.

Indeed, even though you're not even close to being eligible for Medicare, you'll likely need to become expert in Medicare and all its parts. What's more, you'll need to determine who your parents' doctors, financial advisers and lawyers are and get a sense of the care and advice they are getting. You might find that some professionals don't have as good a handle on your parents' affairs as you might want and have to take matters into your own hands. In some cases, you might need to get a power of attorney and in some cases become your parents' guardian.

Raising Children, Adult and Otherwise

The other side of the coin for those in the sandwich generation is raising children and, in some cases, supporting adult children, even up to age 30.

There are reasons why some sandwich-generation parents are helping their adult children. According to Carrie Schwab-Pomerantz, president of Charles Schwab Foundation, some adult children have an overwhelming amount of college debt and are unemployed. But the adult children of sandwich-generation parents are dependent for other reasons as well: Some have overspent and have a tremendous amount of consumer debt.

According to Schwab-Pomerantz, sandwich-generation parents who are supporting adult children need to help their children acquire the money skills necessary for financial independence and they need to create a timeline for their children to achieve that independence. "Parents have to teach their children how to budget and save and live within their means," she said.

For instance, she said parents need to teach their children to save more and reduce their expenses. "They have to find creative ways to make it part of their everyday life, just like brushing their teeth," she said.

In addition, she suggested that parents help their children create résumés and search for a job, even if it's an entry-level job or temp work. "It might not be the ultimate job, but at least it puts food on the table," she said.

Parents have to help their children think rationally about their future; it might be better, for instance, to work in a job you don't love than to be unemployed searching for the job you love.

For parents with adult children living at home, Schwab-Pomerantz also suggested creating a timeline for them to leave the nest. "You want to be fair to your child," she said "But you don't want to enable them."

As for sandwich-generation parents with young children and teenagers, the advice is similar -- with a twist. Besides teaching money skills, Schwab-Pomerantz said parents should make sure their children have chores. "Chores play a role in children becoming financially responsible. In addition, she said there's seems to be a correlation between having summer job and being a stellar saver.

So, you might be in the middle, but there are ways out of this, er, sandwich.

Robert Powell is the editor of Retirement Weekly.

Robert Powell has been a journalist covering personal finance issues for more than 20 years, writing and editing for publications such as The Wall Street Journal, the Financial Times, and Mutual Fund Market News.

Tuesday, 4 May 2010

Sell in May? Here's a Better Way to Invest This Summer

Investors conditioned to backing out of the market as the summer looms might want to rethink their positions after what happened in 2009.

Those adhering to the strategy of "sell in May and go away" until after the summer got crushed last year, missing a 17 percent gain in the Standard & Poor's 500 (INDEX: .SPX) en route to a relentless rally that continues into the beginning of the new month.

While calls persist that the market has gotten overvalued, many advisors see themselves hanging in-if with a bit more conservative strategy.

"We're going to stick around for a while even though technically we see the market as overextended," says Emily Sanders, president of Sanders Financial Management in Atlanta. "The equity market is still involved in a melt-up situation and as such we're not going to take our clients' exposure away."

Sell-in-May is a strategy that has had mixed results over the years.

It is true that the market as a whole underperforms in the May-October time frame as compared to November-April.

Since 1928, the S&P has gained 1.9 percent in May-October versus 5.1 percent the rest of the year. In the past 10 years the trend is a bit more pronounced with the disparity being 1.4 percent to 6.4 percent respectively.

But investors who have employed the strategy with the entire index have missed market trends that benefit investors who change their allocation into particular sectors rather than just pulling back into money markets or other safe-haven assets.

Investors who invested in the entire S&P index from November until April and then split their portfolios equally between consumer staples (NYSEArca:XLP - News) and health care (NYSEArca:XLV - News) from May to October realized a compound annual return of 10.8 percent per year for the past 20 years, according to recent research from S&P's chief investment strategist Sam Stovall.

Those who played the entire S&P for the 20-year period would have realized compound gains of 6.7 percent.

"[S]hould you believe this bull market has come too far, too fast since the March 9, 2009 low, and believe a challenging period lies ahead for stocks, you may want to consider this semi-annual rotation strategy, remembering all the while that what worked in the past may not continue to work in the future," Stovall wrote.

Indeed, there remains a level of trepidation after the violent 13-month rally that has strategists looking for specific areas to play rather than expectations of a broad market run-up.

"I don't think I would sell in May and go away, but it could be a little rocky here," says Beth Larson, principal at Evermay Wealth Management in Washington, D.C.

Larson says consumer discretionary (NYSEArca:XLY - News), with its fat 19 percent gain this year, may be a bit overheated. Retailers (consumer staples) and financial service companies could be better places to look.

"The biggest danger for retail investors is they buy and sell at the wrong times. It's the natural process of fear and greed, a natural human reaction," she says. "If you were underweight in stocks for your long-term goals-and everybody needs stocks exposure in their portfolio-this is a time to move in."

Sanders likewise is looking to rotate into sectors that weren't as hot as some of the big gainers, leading her to health care and technology (NYSEArca:XLK - News). The health care sector is about flat for the year while technology is up 5.8 percent.

Options employing both long and short strategies provide investors with a way to participate in the market while protecting themselves against losses.

"We're not going to walk away from the market now, but we are starting to employ covered calls as an income-generating or hedging tool," Sanders says. "The options premiums aren't really great in this market because the volatility is so low, but we're still on the lookout for good arbitrage opportunities."

Investors, then, would do well to avoid a follow-the-herd mentality either in or out of the market, advisors say.

Michael Kresh, president of M.D. Kresh Financial Financial Services in Islandia, N.Y., said he's been trimming some positions to get cash for his clients-mostly retirees-but is not making any wholesale moves out of the market.

"We haven't had a 10 percent correction since this bull run started," Kresh says. "It's likely that it's going to occur, but I can't tell anybody when. If we get a correction and the fundamentals are still strong, we would just buy more aggressively."

Why the 'rich' aren't feeling so rich

Even as the economy recovers, the HENRYs - high earners, not rich yet - are struggling.

Shawn Tully, senior editor-at-large

On Tax Day, April 15th, I picked up the Wall Street Journal and was amazed to see an editorial titled "A Message from HENRY" by a California financial advisor. The author, Mike Donahue, condemned the big and growing tax burden shouldered by high-earners like himself, a group he identified as "the HENRYs," in words so scorching that steam practically rose from the page. "We may be only a small percentage of the population, but we pay a large portion of the taxes and employ many," Donahue concluded. "If you take the incentives away, you will lose the HENRYs."

For this writer, it was a proud moment. I invented the name "HENRYs." I wasn't steamed that Mike Donahue didn't credit Fortune for creating the term. On the contrary, just seeing a headline about the HENRYs showed that my brainchild may be entering the culture as a catchy pop label for our times. It may even achieve the same currency as a Fortune invention from the 1980s, "Trophy Wives."

The Journal story inspired me to revisit the folks behind the acronym.

I first wrote extensively about the HENRYs in a November, 2008, cover story called "Look Who Pays for the Bailout." It described the plight of a strata of affluent Americans I called "High Earners, Not Rich Yet," or the HENRYs for short. They're the doctors, attorneys, accountants, owners of real estate agencies and security firms, who earn -- or used to earn -- between $250,000 and $500,000 a year.

These aren't investment bankers, hedge fund managers, CEOs, trust fund babies or other members of the super-rich. No, the HENRYs are generally folks in their 30s and 40s who got the best grades in high school, worked their way through college, and logged long hours as law firm associates or consultants on the rise. In most HENRY households, the husband and wife both work to tally those big incomes.

Put simply, the five million HENRYs form the core of the nation's entrepreneurial and professional class.

Obama eyes the HENRY class

When my story appeared, just before the presidential election, Barack Obama was targeting the HENRYs for big tax increases, declaring that families making over $250,000 a year were "the rich" and needed to "pay their fair share." Even then, I argued, the HENRYs were so squeezed between their big expenses for the things they considered staples -- private schools and day care for the kids, for example -- and an immense tax burden that typically took at $100,000 from a $350,000 income, that they not only weren't rich, but stood little chance of ever saving the big nest egg to qualify as truly wealthy.

The story predicted that the squeeze would become far tighter as Obama raised the top tax rates, and the AMT -- the dreaded parallel system that bars the high-earners from deducting their heavy property and state income taxes -- trapped more and more of the HENRYs. To be sure, the promised increases are scheduled to hit next year, along with a new Medicare surtax aimed straight at the HENRYs.

The high earner in a recession-scarred era

But the world has changed immensely since late 2008 in the wake of the financial crisis and soaring jobless rate. So as it turns out, the rising levies, though painful, aren't the biggest problem the HENRYs are now facing.

To examine the HENRYs new challenges, I called one of the financial planners who proved so helpful in the 2008 story, Barry Glassman of McLean, Virginia. Most of Glassman's high-earner clients are classic HENRYs: physicians, partners in law firms, and business owners. "Most of these people have seen their incomes drop by 20% to 25%," says Glassman. "The families that were earning $400,000 two years ago now make maybe $300,000, and the $250,000 families are below $200,000." The latter are even dropping out of HENRY range.

The HENRYs, says Glassman, saw their incomes jump in the great economy of the early-to-mid 2000s. During those flush years, they took on bigger and bigger fixed expenses and commitments, from big mortgage payments to private school tuition to college saving plans. "Now, the HENRYs are trying to cut their costs by shortening vacations and considering public schools," he says.

The rub is that the drop in their incomes is so dramatic that they can't economize fast enough to maintain a decent flow of savings for retirement. "The HENRYs weren't saving much before," says Glassman. "Now, they're dipping into their savings and investments to maintain something close to their former lifestyles."

What does that mean for their future? What looked like a far from luxurious retirement -- even in the good times, they could forget about getting rich¬¬ -- is now looking even more modest. "The HENRYs will typically end up with $1 to $2 million in savings," says Glassman. So at 4%, they will have incomes of maybe $100,000 a year in retirement, including Social Security. And that $100,000, points out Glassman, will be worth a lot less than it is today.

Of course, an economic rebound could raise their incomes to the pre-crash levels. If so, their biggest burden will shift back to gigantic looming tax increases. So as I've warned before, we might have to Gallicize the name of these members of Yankee bourgeoisie to HENRIs -- High Earners, Not Rich Indefinitely.

Stocks: Why Investors Can Still Expect 8% Long Term

by Richard DeKaser, Contributing Economist, The Kiplinger Letter

You shun stocks at your peril. Attractive returns are in the cards.

Soured on stocks? It's understandable that many investors have, after watching their assets founder for so long. If you invested $100 in the Standard & Poor's 500 in April of 2000, you have only about $97 today. That figure, which includes reinvested dividends, amounts to an annualized return of -0.3%. Ouch! Since 1926, annual returns have averaged nearly 10%.

Many investors now question whether expecting those kinds of gains is realistic anymore. But avoiding equities would be a mistake. Stocks still present an attractive investment, despite the past decade's historically dismal showing, and even after the past year's spectacular 70% gain. You might think that the time to buy has passed. After all, it stings to pay $100 for something that traded at $59 just 12 months ago. But investing based on the recent past is like driving a car while focused on the rearview mirror: stupid and dangerous.

Looking ahead, annual returns of 7% or so is likely in the coming decades ... and perhaps 8% to 9% over the next 10 years or so.

To understand why, start by considering what kind of profit growth can realistically be expected, since common equity is ultimately a claim on a company's earnings. For any given company, answering the question is daunting. Aside from revenue prospects, financial condition, the competitive landscape, the cost outlook and management competence must all be considered. But for the market as a whole, the calculus is simpler: Profits grow about as fast as the economy overall.

Since 1947, corporate profits have averaged 9.4% of gross domestic product, narrowly ranging between a high of 12.1% (1950) and a low of 6.3% (1982). Moreover, the growth rates for profits and GDP hang tight. Over that time span, GDP has grown 8% a year on average, while profits increased 7.9%. During the past decade, corporate profits and GDP each increased at exactly a 4.3% annual rate.

This past decade, of course, wasn't an especially good 10-year span. It started at the pinnacle of the 1990s expansion and ended in the depths of the Great Recession. Going forward, an average of 5% annual economic growth is more likely -- with inflation of 2.25% and real growth of about 2.75%.

Next we need to factor in dividends. Over the past 50 years, the dividend yield for the S&P 500 averaged 3.1%, ranging from a high of 5.7% (1982) to a low of 1.1% (2000). Let's conservatively assume a 2% dividend yield. With a trend of 5% earnings growth, that boosts the expected total return on stocks to 7% over the long run.

But as an economist once famously quipped, "In the long run, we're all dead." Time horizons measured in decades may make sense for the youngest among us, but mature investors aren't quite so patient. So let's assume a 10-year investment horizon -- long enough to abstract from unforeseeable events, but short enough to be relevant for musing about retirement. In this case, valuation must be considered as well as earnings and dividends. Naturally, an overvalued market will tend to underperform the long-term trend and an undervalued market will tend to outperform it. So: Is today's market overvalued or undervalued?

The standard tool for judging valuation is the price-to-earnings multiple, essentially a measurement of what investors are willing to pay for each dollar of corporate earnings. And since investors shouldn't be looking in the rearview mirror, it's expected future earnings that matter most. With the S&P 500 index now hovering around 1200, and analysts predicting $78 in operating earnings over the next year, that translates into a price-to-earnings multiple of roughly 15. That's strikes me as cheap, especially since the average multiple since 1988 is 19. Even excluding the frothy years of 1998 though 2000, the average multiple is 18. A gradual expansion of the P/E ratio to 18 over the next decade means the total return to stocks will be even higher than the 7% long-term average. So,at least for the coming decade, an average annual total return 8% to 9% is a fair bet.

Copyrighted, Kiplinger Washington Editors, Inc.

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