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Who Loses in a Foreclosure Moratorium?
Tweet Share on Facebook October 13, 2010 CommentThe nation's leaders are always working with conflict. They are either in a conflict, entering a conflict, or coming out of a conflict.
Most recently, the crisis involves the shoddy paperwork in the foreclosure process. That lack of detail violated the rights of those being evicted. But who is the real loser?
It is the evictee? It probably would be if they were improperly foreclosed upon. But of the homes being taken over by banks, most mortgage holders haven't made payments in more than 18 months.
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5 Things You Don't Know About 529 Plans
Tweet Share on Facebook October 12, 2010 Comment (1)If you have kids, the thing you worry about most is how you will pay for their college education. Investment companies and state governments devised a product called 529 plans with tax breaks to help relieve parents' angst about how they're going to pay for it. The trouble is, investment firms and states don't warn parents about the pitfalls of these college savings plans. Here are five things you should consider before you buy a 529 plan:
1. You can make only one investment change per year in a 529 plan. When the stock market hit a low in March 2009, many investors panicked and pulled money out of the market—and may have fled their 529 plans, too. Many investors who changed investments in their 529 plans in early 2009 did not know that the IRS made a one-time exemption that allowed them to make two changes in 2009. (But who knows if the IRS will ever make such an exemption again.) As it stands now, 529 investors have one shot to make changes, but handcuffing parents as they save for their kids' education cannot be a good thing.
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Why You Shouldn't Follow the Dow
Tweet Share on Facebook October 8, 2010 CommentMany people follow the action of the Dow Jones Industrial Average (DJIA) to get a feel for how well the market is doing. Nary a day goes by without the top national news anchors mentioning how well this venerable index performed on the evening news.
What is it?
Created by Charles Dow in 1896, the index measures the performance of 30 large, publicly owned companies. It is price-weighted, which means that the company with the highest price per share carries the most weight in calculating the daily index value, while the company with the lowest price per share carries the least weight. In other words, the index is more influenced by the performance of, say, IBM with the highest price per share (trading up around $135) than it is by Alcoa with the lowest price per share (trading down around $12). The 30 stocks are also large capitalization stocks, meaning the companies are valued in excess of $10 billion.
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Celebrating the End of a Rigged Game
Tweet Share on Facebook October 7, 2010 CommentTom (Stock research analyst): "Hi Fred. Can I get a little confirmation that we're still on track for the quarter?
Fred (Public company chief financial officer): We'll be fine. In fact, a couple of deals came in last week and we'll be two cents to the upside and we'll probably raise Q4 guidance. The sales guys are on fire.
Tom: Congratulations. The stock sure needs the lift! Thanks for the update. Talk to you on the conference call.
Fred: No problem Tom. By the way, can you get me tickets to the Super Bowl again?
Tom: Absolutely. We'd love to host you and your wife again in our box.
Believe it or not, up until 10 years ago, the above conversation was both common and legal. It is why mutual funds and institutional investors could often "beat the market" and the rest of us didn't have a chance. But this month, we celebrate the 10-year anniversary of SEC's ratification of Regulation Fair Disclosure, or Reg FD. It leveled the playing field for all investors and took away the most important value-add offered by a mutual fund manager or broker. When historians write about the death of the mutual fund industry, they will point to Reg FD as "the day the music died."
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3 Reasons You Should Not Manage Your Own Money
Tweet Share on Facebook October 6, 2010 CommentMany youngsters are great baseball players. They practice every day with contagious enthusiasm. Yet even though they are extremely good at the sport, they are a long way from being a major leaguer. In fact, chances are that at some point in the next 10 years they will lose interest in baseball altogether.
Most people tend to look at investing just like those youngsters look at baseball. They may like choosing stocks and actually be pretty good at it. But they are still miles away from being a professional manager. That doesn't mean parents shouldn't support their children's baseball dreams, but parents also want to be realistic. Just like you should be realistic about investing your own money.
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Beware of the Bond Bubble
Tweet Share on Facebook October 5, 2010 CommentThere's been a debate brewing in the markets about whether the treasury bond market is reaching valuations approaching a bubble, which could pop and create significant losses for investors. I believe treasury bonds are extremely overpriced, and that investors need to tread carefully in what's typically considered a "safe" investment. If you're not careful with the duration or maturity (how long before an issuer is required to pay back your principal) of treasury bonds you buy, you could end up losing money in them as interest rates climb.
Investors have been piling into bonds since the beginning of 2009. According to the Investment Company Institute, investors have added more than $215 billion to bond funds since the first of the year through the end of August—adding money at a time when interest rates are at historic lows.
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Investors: Please Behave Yourselves
Tweet Share on Facebook October 1, 2010 CommentAll behavior occurs for a reason, and your behavior as it relates to investing matters—a lot.
It's well documented that investment success isn't as much about skill as it is about behavior. Some investors, specifically those without a complete and comprehensive financial plan, make the same mistake over and over again—they buy high in the face of euphoria and sell low in the face of fear.
Euphoria, fear, and irrational behavior have a long record in the financial markets, beginning with the Tulip Mania of the 1600's. Then there was the South Sea Company bubble in the 1700's, the Railway Mania of the 1800's, the Florida land bubble of the 1920's, gold in the 1980's, the dot.com madness of the 1990's, and finally, the incredible housing obsession of the recent decade.
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