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The One Thing Your Portfolio May Be Missing Right Now
Tweet Share on Facebook October 29, 2010 CommentIt's a safe bet that a peek inside most people's portfolios will show a lot of investments centered around big stocks—and rightfully so, because they are the big names that everyone knows. They command attention and are powerful contributors to the economy, as well as the major market indicies such as the Dow Jones Industrial Average and the S&P 500. These are large-capitalization stocks, aka "large-caps" and are generally companies with a market capitalization of greater than $10 billion. (Market capitalization is the number of shares traded on the stock exchange multiplied by the current share price.)
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Portfolio Envy—Why Her Portfolio is Better Than His
Tweet Share on Facebook October 28, 2010 CommentWhile Freud's 1908 theory of penis envy has been wrought with controversy for over a century, financial sciences have clearly demonstrated that when it comes to money management, most men should have a serious case of portfolio envy. As some men like to take pride in bringing home the bacon, this realization could be quite emasculating. But the facts are in—research by economists Dr. Terrance Odean and Dr. Brad Barber has revealed that women's risk-adjusted returns outpaced that of men by 1 percent annually. Additionally, a past National Association of Investors Corporation study corroborates this finding and even suggests a wider gender gap with women outperforming men by a whopping 1.4 percent annually.
Minimizing Risk
One of the difficulties male investors face is the testosterone factor—an innate urge to beat the other guy, and then, of course, brag about it. This may explain why men trade in their accounts 45 percent more than women. While many men may feel that getting one's panties all wadded up over a little bit of risk is for sissies, research shows that sober risk analysis is essential to constructing a well-diversified portfolio and achieving long-term performance.
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3 Reasons to Pay Attention to Taxes Before January 1
Tweet Share on Facebook October 27, 2010 CommentThe old adage "don't let the tax tail wag the investment dog," may be a little out of context over the next two months. Scheduled to expire, the Bush tax cuts lowered taxes for almost all Americans. If they are not extended, everyone will see a tax increase next year. There is, however, light at the end of the tunnel, but investors must be watchful.
The Obama administration is considering extending the Bush tax cuts permanently for those who earn less than $250,000. They may even consider extending the cuts for those above that income threshold. Vice President Joe Biden has said, "We're open to speak to the Republicans, if they really mean it, if they're talking about deficit reduction, if they're willing to move."
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5 Reasons to Avoid Annuities
Tweet Share on Facebook October 26, 2010 Comment (1)Annuities have become more popular as investors continue to look for guaranteed returns. Salesmen will try to convince people that they need variable annuities, with a pitch that sounds like "if the market goes up, you will participate; if it goes down, you won't lose any money." Here are a few things to know about annuities that many salesmen probably won't explain to you.
1. You might pay a lot more in taxes. One selling point for variable annuities is that the growth in their value is tax-deferred. But when you withdraw money from an annuity, the gains are taxed as ordinary income, which could run as high as 35 percent at the federal level. However, when you own a mutual fund, as long as you hold it for a year and it rises in value, you will pay a maximum long-term capital gains tax of 15 percent when you sell. So when you buy an annuity, you could end up paying more than twice as much in taxes on the exact same amount of gains.
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What Every Investor Needs to Know About the Lost Decade
Tweet Share on Facebook October 22, 2010 CommentHow many times over the past year have you read or heard about the "Lost Decade?" It's been a popular topic because a lot of investors lost money between January 2000 and December 2009.
But just because major indices may have been flat or even down during this period doesn't mean a well-diversified investor needed to follow suit. What many investors don't realize is that there were sectors of the U.S. economy, as well as some overseas markets, that did very well over the same time period. This is why it is so important for investors to have a well-diversified portfolio.
[See the Best Emerging Market Funds for the Long Term.]
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ETF Basics: How to Invest in Emerging Markets
Tweet Share on Facebook October 21, 2010 CommentOne asset class that should be in most retirement portfolios is emerging market stocks. Stocks in companies in the 20 or so nations included in the popular MSCI Emerging Markets index are dominated by Asia (predominantly Taiwan and Korea) at more than 50 percent, Latin America (20 percent), Africa and the Middle East (20 percent), and some smaller European countries. Investing in emerging market stocks is considered high-risk and high-return because you own companies in countries that are in an intermediate stage of development. Their economies are still developing and their stock markets are still gaining global clout.
Just because these countries may be growing at record levels, stock prices don't necessarily rise because their economies and governments are "emerging." Shareholders benefit when companies grow after-tax profits. Governments of these countries might have onerous tax rates, state-sponsored price controls, securities laws that are not evolved or enforced, corruption, or risk of wars and violence, to mention a few common risks. All of these elements make these economies and their stock prices highly volatile.
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3 Facts About the Election and the Economy
Tweet Share on Facebook October 20, 2010 CommentWith the midterm elections approaching, there are some political fallacies in the minds of many voters. And with those fallacies come three facts you must remember:
First, the economy will not be fixed by the election. No matter which side prospers, there are still issues that will not be repaired simply by a political election. The issues probably will not worsen either.
We did not get into this economic mess overnight and we most certainly will not get out of it quickly. There are too many issues with taxes, inflation, unemployment, business spending, bank lending, and consumer and business confidence that cannot be fixed with a ballot.
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5 Ways to Find the Best Mutual Funds
Tweet Share on Facebook October 19, 2010 CommentAn adviser or pundit on television or in the press recommends a mutual fund. Do you rush out and buy it? No way! Before you buy, analyze that fund as you would any other large, important purchase—such as a new car. Along with the sticker price, you'll want to know if that shiny new car has above-average gas mileage, a powerful engine, and strong control in nasty weather. You also want to check the car's interior. Does it have plush automatic leather seats and a good sound system? Likewise, when you're considering buying a mutual fund, you have to look under the hood to examine the type of holdings that are powering it, how much it costs, who's at the steering wheel, and that person's past performance. Here are five things to look for in a mutual fund before you buy:
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Make Your Retirement a Piece of Cake
Tweet Share on Facebook October 15, 2010 CommentThey may not know it, but what many investors really want is for retirement to be a piece of cake. So how do they ensure that they get a great slice at retirement?
It should be obvious.
1. Start by picking the right type of cake for you.
Should seem simple right? It's amazing how many people miss this critical first step when planning their retirement. First and foremost, investors should try to figure out what retirement looks like. These days, retirement looks a lot different than it did 25 years ago. Life cycles used to be linear—people were born and educated, then they worked in a career, had a family, and finally, they entered into a leisurely retirement. Now life cycles look much different. It is not uncommon to see people living a non-linear life—they are born, educated, work in their first career, take time off, pursue a different or advanced education, work in their second career, become re-educated in a passionate interest, and then work part-time or volunteer during retirement and well into the sunset years. Investors who can figure out what retirement will look like for them will have a better idea of what kind of cake they really want.
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3 Emotions That Will Destroy Your Retirement
Tweet Share on Facebook October 14, 2010 CommentWhile many retirement investors have felt tempted to flip Wall Street the middle finger in recent years, famous Italian artist Maurizio Cattelan took this impulse to a new level. In a highly publicized event, Cattelan created a bold sculpture called L.O.V.E., an 11-meter tall marble middle finger that has been strategically placed at the entrance to the Milan Stock Exchange by the city council of this fashionable Italian city.
Intended or not, the controversial modern artist has successfully tapped into a deep reservoir of investor sentiment. His sculpture, though criticized by stock exchange representatives, has been met with public praise. While it remains a mystery as to what L.O.V.E. exactly stands for, it is clear that when it comes to investing, many investors aren't feeling the love.
