Showing posts from August, 2010

How To Survive a 'Zombie Economy'

Rick Newman

Imagine if the U.S. economy grew just 1 percent per year over the next 20 years. The Dow Jones Industrial Average would plunge by 60 percent, to less than 4000. The average price of a home would fall by nearly 50 percent, from $184,000 to about $100,000. The economic carnage would make the Great Recession seem gentle, upending families, devastating communities, and transforming America for generations.

That's the outer edge of a "Japanification" scenario painted by economists at Bank of America Merrill Lynch, meant to examine what would happen if the U.S. economy got stuck in a deep rut like the Japanese economy did in the 1990s. It's an unlikely outcome, yet a weakening U.S. recovery has sent economists back to their textbooks to study the world's most famous "zombie economy." And there are some unnerving similarities between Japan then and America now. Both countries experienced a real-estate bubble fueled by greedy speculators and complicit…

10 Money Moves That Will Always Pay Off

by Brett Arends

Few things in life are guaranteed. When it comes to money, even fewer.

But these are nervous times. The stock market is swaying like a drunk debutante. The economy is wobbly. Who can trust anything any more? Most people are hard-pressed, nervous and unsure of what to do.

Relax. Here are 10 sure-fire money ideas.


1. Max that 401(k)

This is a slam dunk for you. Every dollar you invest saves you money on taxes because it comes off your taxable income. So Uncle Sam is effectively chipping in.

The money can then grow each year, free of any state or federal tax on the interest or capital gains (though when you withdraw your money in retirement it will be taxable income).

Even better: Many companies offer to chip in as well, up to a certain level, by matching contributions with money of their own.

2. Give up the vacation home

Sorry to be a spoilsport. But the finances just don't stack up. The math on most vacation homes -- unless it's dirt cheap, or so near that you…

How Much Money Will You Need to Retire?

Retirement savers need to figure out how much money they need to accumulate and make sure that money lasts at least as long as they do. But first you need to answer another question. How much will you spend each year once you are retired?

Most retirement planning professionals recommend that you initially withdraw no more than 3 to 4 percent of your retirement assets to cover your first year's living expenses. Each year after that you can increase your withdrawals enough to cover inflation's bite, according to research by certified financial planners William Bengen and Larry Bierwirth.

The recent recession has made many of us wary of any standard rules of thumb when it comes to retirement planning. But we can rest easier knowing that this research data includes some pretty rough patches in history: several recessions, some extremely inflationary periods, and the 1929 stock market crash and Great Depression.

What the research shows is that the safest initial withdrawal rate is 3 p…

Are stocks still a good investment?

Walter Updegrave

Money Magazine) -- You could say that Roger Ibbotson wrote the book on investing. After all, Ibbotson Associates publishes the Ibbotson SBBI Classic Yearbook, a tome that analyzes historical data for stocks, bonds, Treasury bills, and inflation and is usually the source of those historical returns you see bandied about in the financial press ("Since 1926 stocks have gained an annualized 9.8% ...").

So when Money's editors wanted insights into how the financial markets might fare in the future and whether time-honored strategies like asset allocation and international diversification were still worth pursuing given recent upheavals here and abroad, it was only natural that we turned to Ibbotson (the man, not the book).

In a wide-ranging discussion, the money manager and Yale finance professor proved quite optimistic about stocks' prospects for superior performance, and he's backed up that confidence with action, launching two mutual funds that will …

Do you have what it takes to be wealthy? :)

9 Investing Strategies for This (Or Any) Market

Ben Baden and Kirk Shinkle

It has not been a relaxing summer for Wall Street. Economic blues at home and debt crises abroad, a sickly job market, and a general fearfulness among investors over the future direction of the market are still weighing heavily on the minds of many Americans. At times like these, it's worth taking stock of some of the investing basics that can make any portfolio a less fraught proposition. Consider the following a checklist for staying sane when markets seem to be anything but friendly.

Don't pay too much. High fees can really cut into a fund's overall returns. This week, Morningstar released new data showing how important fees are in predicting the success of mutual funds. Morningstar looked at the expense ratios of funds in multiple asset classes from 2005 through 2008, then tracked their progress from 2008 through March 2010. Bottom line: Research found the cheapest funds outperformed the highest-cost funds in each asset class over every time pe…

What your kids learned from the crash

By Dan Kadlec

(Money Magazine) -- Recently I asked my 20-year-old daughter what she had learned about money during the Great Recession. I half expected her to say, "Nothing, Dad. Can we skip the teachable moment?"

After all, she's been snuggled away in college with Mom and Dad footing her tuition, room, and board; her personal world remains secure. About the only financial dislocation she's experienced, as far as I could tell, was my refusal to upgrade her cellphone.

Instead, Lexie surprised me with her thoughtful answer. Teacher cutbacks had resulted in fewer classes, she told me, so she'd been squeezed out of one of her major's requirements last semester. That made her realize that she's not insulated from the economy's ups and downs and that she must be able to adapt to events outside her control.

She also told me of friends who couldn't find summer jobs -- though the camp where she worked the past two summers rehired her in a heartbeat. That show…

Stop worrying about a double dip

By Paul J. Lim,

(Money Magazine) -- The great debate on Wall Street is whether the recovery that spurred stock prices to nearly double between March 2009 and April 2010 is about to be snuffed out. The evidence for a "double dip" recession: Europe's economy is teetering; federal stimulus that propped up the credit and housing markets is nearly exhausted; retail sales and manufacturing are declining again.

Plus, if the old saw is true that the stock market is a predictor of the economy six to nine months down the road, then look out. Stock prices have tumbled around 10% since late April and investor pessimism, by one measure, has fallen to lows not seen since 1987.

"You can't deny that there are some added risks of a double dip," says Jeremy DeGroot, chief investment officer for advisory firm Litman Gregory.

But before you start making major moves in your portfolio in anticipation of another slump, some perspective is in order.

For starters, actual double dips ar…

The Fed Is Not Out of "Silver Bullets"

by Jeremy J. Siegel

The Fed’s move on August 10 to “keep the balance sheet of the central bank stable” and offset the run-off of mortgage-backed securities with Treasury purchases was just a baby step. Much stronger measures can and should be taken to combat the economic slowdown.

As readers of this column know, I am a strong supporter of Ben Bernanke, Chairman of the Federal Reserve Board. I think his bold measures to insure the liquidity of the banking and financial system saved us from repeating the misguided policy that led to the Great Depression of the 1930s. This is why I was disappointed in the Fed’s move on August 10 and Bernanke’s testimony July 21 before Congress, one of the Fed’s ritual semi-annual appearances that go back to the 1970s.

During his meetings before Congress, Bernanke responded to a question by Senator Bunning of Kentucky asking whether the Federal Reserve “was out of bullets” in its fight against the faltering economy. Bernanke responded, “I don’t think so.”…

Don't blame the consumer for sluggish economy

Nin-Hai Tseng

Consumers drive more than two-thirds of the nation's economy, and with growth hard to spot these days, it's easy to place the blame on stingy spenders. But that's a mistake.

Personal spending, in fact, has kept pace with the economy, accounting for a steady 70% of GDP before the recession, during the depths of the crisis, and into today's slow recovery. In fact, consumption relative to GDP rose slightly to 71% during the last two quarters of 2009 amid huge government spending programs -- such as the promotion of home and car sales -- to stimulate the economy. It has flattened out since.

But the market tends to get overly obsessed with consumer confidence whenever the government comes out with its latest growth figures. Business behavior is often directly influenced by how consumers say they feel about the economy. And it doesn't help growth much when consumer confidence falls to a five-month low, which the Conference Board reported at the end of July.


Buffett's Lesson on Inflation and Bonds

ByDon Dion

NEW YORK (TheStreet) -- Warren Buffet's Berkshire Hathaway has shifted its portfolio towards bonds with shorter maturities. The sage investor eschews gold as an asset, but is tightening up the Berkshire portfolio as inflation concerns weigh on his mind.

The representation of bonds in Berkshire's portfolio with a year or less until maturity has increased from 16% in early 2009, to 18% as of March 30 this year, and to 21% as of June 30. This shift means that the average maturity of the entire bond portfolio has been getting shorter.

A portfolio heavy in long-term bonds is locked into today's low interest rates. As interest rates increase, long-term bonds lose value because the market readjusts relevant securities to account for the new interest rate. If these rates increase enough, the price of the bonds may fall below par value. In contrast, short-term bonds reach maturity, at which point the investor can reinvest the principal at a higher interest rate.

Investors ex…

What the Double-Dip Recession Will Look Like

by Douglas A. McIntyre

"Nearly two-thirds of Americans believe the economy has yet to hit bottom, a sharply higher percentage than the 53% who felt that way in January," according to a recent Wall Street Journal poll.

A growing and vocal minority of economists believes that there will be a double-dip recession primarily because of the intransigence of high unemployment and the rapidly faltering housing market. The notion of a "jobless recovery" has been around since the recessions of the 1950s and 1960s. It is a concept built on a relatively simple idea: employment lags during a recession but it is always part of a recovery cycle. Production rises as businesses see the end of a downturn and anticipate improving sales. They are reluctant to hire new workers until the recovery is confirmed, but once it has been, hiring picks up.

The 2008-2009 recession was — if it is indeed over — different from any other because of its depth and causes. The first trigger was the drop i…

Is a Crash Coming? 10 Reasons to Be Cautious

by Brett Arends

Could Wall Street be about to crash again?

This week's bone-rattlers may be making you wonder.

I don't make predictions. That's a sucker's game. And I'm certainly not doing so now.

But way too many people are way too complacent this summer. Here are 10 reasons to watch out.

1. The market is already expensive. Stocks are about 20 times cyclically-adjusted earnings, according to data compiled by Yale University economics professor Robert Shiller. That's well above average, which, historically, has been about 16. This ratio has been a powerful predictor of long-term returns. Valuation is by far the most important issue for investors. If you're getting paid well to take risks, they may make sense. But what if you're not?

2. The Fed is getting nervous. This week it warned that the economy had weakened, and it unveiled its latest weapon in the war against deflation: using the proceeds from the sale of mortgages to buy Treasury bonds. That should dri…

Not-So-Happy Talk at Happy Hour

by Michael Santoli

Meet enough traders and page fund managers for lunches, coffees and happy hours, and some themes start to emerge about what's confusing them at a given moment. Here are a couple of market riddles in heavy rotation:

Professional investors seem to be in a persistent state of reverse sticker shock regarding Big Tech stocks. The marquee names of the go-go tech market of the '90s look "too cheap" by most measures, and have for a couple of years, and yet the stocks just sit there.

Take the representative "big five" of Microsoft (Nasdaq: MSFT - News), Intel (Nasdaq: INTC - News), Oracle (Nasdaq: ORCL - News), IBM (NYSE: IBM - News) and Hewlett-Packard (NYSE: HPQ - News). They all trade at between 70% and 90% of the broad market's price/earnings multiple based on the next 12 months' forecasts, after having spent a decade or more at often wild premiums to the average stock, without even accounting for the tens of billions in collective cash o…

How rich is rich?

By Steve Hargreaves

NEW YORK ( -- How much money do you need to feel rich?

Wealth is a subjective concept, but one thing is universal in most definitions: being able to live a comfortable life without having to work.

"I'd like to have enough money so my family and I wouldn't have to work anymore or worry about the necessities, and maybe travel a bit," said Deborah Veale, a Southern California resident visiting New York City.

Veale said she'd need about $10 million to consider herself set.

One woman from Seattle put it at a "couple thousand dollars a month." Another from New York City wanted a billion (although she'd still fly coach.)
Does $250,000 make you rich?

Experts peg the figure to be somewhere around $2 million to $12 million in savings.

On the high end of that range, a single person living in an expensive part of the country (say, New York City), wanting to retire at 35 would need at least $300,000 a year to feel rich, according to Stev…

Three Years on, Is the Financial Crisis Over?

Three years ago to the day, BNP Paribas, the French banking giant, suspended redemptions on three funds, marking the beginning of the credit crunch.

The collapse of the US subprime market and its knock-on effects of the mortgage-backed securities market began a series of crisis that have come close to bringing the global economy to its knees.

Three years later, it appears the world remains clouded by uncertainty. Unprecedented actions by central banks and governments across the world have averted a melt-down in the global economy but commentators say we are not out of the woods yet.

"The crisis will be over when bank lending returns to normal, equities rise and risks come down, this has not yet happened," Brendan Brown, head of research at Mitsubishi UFJ Securities, said.

"The major problem is that quantitative easing has been counter-productive. The central banks have stopped prices from falling. When prices fall, people buy but by shoring up asset prices the central banke…

5 Ways to Retire Before Age 40

by Luke Landes

Voluntary early retirement before the age of forty is not typical. Leaving work behind as early as possible to focus on other aspects of life is a popular goal, but most people will not achieve it.

In order to retire in your forties and still have the funds you need to finance all that you'd like to do, you need to create the right environment to foster extraordinary results with your money. Don't count on winning the lottery or selling the company you built in your basement to Google.

Those who leave the workforce before age forty compose a small percentage of the working population, just as Olympic-level swimmers are a small percentage of everyone who competes in the sport. To achieve in the Olympic Games you need to take several extreme actions. To retire early, you will have to do the same. These tips may help you generate enough money to retire before age forty.

Ignore what other people think. You'll need the right mindset. As you make choices that could le…