Market is a place when the buyer and the seller meet each other doing some transactions. Forex market is open during 24 hours continuously from Sunday evening till Friday evening. This forex market with its price movement can be accessed easily by everyone in the world using internet connection.
According to Bank International for Settlement survey in 2004, the value of forex market trading reached more than USD 1400 billions everyday. And in 2006, the forex market value was reached more than USD 2000 billions everyday. Therefore, the future outlook of forex market is very good. Beside it, the price movement in forex market is very hard to be manipulated by some people because of its huge fund circulation.
Because of its liquidity rate and price movement acceleration, forex had been a popular investment alternative. It can give high ROI (return on investment) and the profit we gained from it can be higher than another investment average.
World forex market is crowded by many hands who always trading time after time. The people who trade forex are: governments, companies, financial institutions, banks, brokers and common people like us.
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Friday, October 31, 2008
Forex Market
Thursday, October 30, 2008
Foreign Exchange (FOREX) Begins
Planning retirement with various investments is main theme in this blog. Preparing our self to retire rich is the goal of this site. Investment becomes our alternative to retire rich. There are some investment instruments we may choose for retiring rich. We had explained much in stocks investing and little explanation in mutual funds and bonds. Today I want to tell about another instrument we may choose as our ‘basket’ in order to retire rich. And it is foreign exchange trading also commonly called as FOREX.
Talking about Forex is talking about countries currency. The value of currency is different each other. This difference which makes one of currencies can be exchanged with another currency. All of the big countries currency has a floating system that means these countries let the value of currency exchange move up or down freely according to market fluctuation. Because of its fluctuating, the value of currencies exchange can be traded.
There are several factors which caused foreign exchange (forex) trading is growing rapidly. One of them is trading activities among world countries, wishing big profit from forex movement and developing information technology which makes everyone possible to do some forex transactions.
In forex trading, there are a lot of currencies which traded in. But the most traded currency is the world main currencies like below:
USD: US Dollar
GBP: Great Britain Pound sterling
EUR: European Union Euro
CHF: Switzerland Franc
JPY: Japan Yen
These currencies traded in pairs, like GBP/USD, EUR/USD, USD/JPY and USD/CHF. It means when we buy a currency, we also sell its pair. For example, when we buy GBP/USD, it means we buy GBP with USD or sell USD with GBP. When we buy EUR/USD at 1.400, it means we buy EUR 1 with sell USD 1.4000 or we can say that EUR 1=USD 1.4000.
See you in next article! Thanks for reading…
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McCain hits Obama on experience and economy
MIAMI (Reuters) – Republican John McCain questioned Democratic rival Barack Obama's readiness for the White House and Obama planned a prime-time television appeal on Wednesday as a bruising presidential battle hit the final stretch.
McCain kicked off a tour of the must-win state of Florida with a warning that Democratic control of the White House and Congress would be bad news for small businesses and American workers.
"The answer to a slowing economy is not higher taxes, but that is exactly what is going to happen when the Democrats have total control of Washington. We can't let that happen," McCain told supporters at a rally in Miami, Florida, six days before Tuesday's vote.
McCain has charged that Obama's plans to raise taxes on those making more than $250,000 would hurt small businesses, saying Obama wants to be "Redistributor in Chief."
"Senator Obama is running to spread the wealth. I'm running to create more wealth. Senator Obama is running to punish the successful. I'm running to make everyone successful," McCain said.
Obama, who has proposed tax cuts for lower- and middle-income workers, said McCain's economic policies would be bad news for the middle class and would mean more of the Republican approach followed by President George W. Bush.
"He's spending these last few days calling me every name in the book. I'm sorry to see my opponent sink so low," Obama said in remarks prepared for delivery in Raleigh, North Carolina.
"So let's cut through the negative ads and the phony attacks -- under John McCain, the middle class will watch wealth get favored over work, jobs get shipped overseas, and the cost of health care and college go through the roof," he said.
McCain is struggling to overtake Obama's lead in national polls and to defend about a dozen key battleground states won by Bush in 2004, with Florida and its 27 electoral votes leading the list.
A Reuters/C-SPAN/Zogby poll showed Obama with a 5-point national lead on McCain. A blizzard of recent national polls gave Obama a national lead ranging from 2 points to 15 points.
But the key for both candidates is winning the 270 electoral votes needed to capture the White House, and Florida is a big piece of the puzzle.
FLORIDA IS CRUCIAL
A win in Florida for Obama, who earlier this month sent two of his top campaign officials to the state to supervise the voter turnout effort, could clinch the White House for him.
"We need to win in Florida," McCain, an Arizona senator, said in Miami. Polls show the two candidates running about even or Obama slightly ahead in the state that decided the 2000 election after a disputed recount.
Obama also planned a visit to Florida later on Wednesday, where he will make his first joint campaign appearance with former President Bill Clinton at a late-night rally in Orlando after an expensive prime-time television address on three networks.
Obama, whose fundraising juggernaut has broken all records and allowed him to blanket battleground states with ads, has purchased 30 minutes of time on CBS, NBC and Fox on Wednesday night for an extended pitch on his economic plans.
The ad, which costs about $1 million for each network, coincides with the anniversary of the October 29, 1929, "Black Tuesday" stock market crash that ushered in the Great Depression. The Dow Jones industrial average rose almost 900 points on Tuesday and was up slightly in early trading on Wednesday.
Obama has surged in the last month in conjunction with the Wall Street economic crisis, with polls showing voters prefer his approach to turning around the economy.
McCain has tried to paint Obama, a first-term senator from Illinois, as too inexperienced to trust in the Oval Office, and he released another advertisement on Wednesday expanding on the theme.
"Behind the fancy speeches, grand promises and TV special lies the truth -- with crises at home and abroad, Barack Obama lacks the experience America needs," the narrator said.
McCain also renewed his call for the Los Angeles Times to release a videotape of a 2003 banquet where Obama spoke of his friendship with Rashid Khalidi, a leading Palestinian scholar and activist. Also present was William Ayers, a former 1960s radical who Obama served with on a community board in Chicago.
The Times reported on the contents of the tape in an April 2008 story about Obama's ties with Palestinians and Jews, but says it cannot release the tape because it was obtained from a source on the promise it would not be released to the public.
"Now why that should not be made pubic is beyond me. I guarantee you, if there was a tape with me and Sarah Palin and some neo-Nazi or one of those, you think that that tape wouldn't be made public?" McCain said in a radio interview.
McCain's running mate Sarah Palin, the governor of Alaska, warned that Americans should not let up in the quest for more energy independence just because the cost of oil has dropped below $70 a barrel.
"Though this sudden drop in prices sure makes a difference for families across America, the dangers of our dependence on foreign oil are just as they were before," Palin said in Toledo, Ohio.
Surviving a Stock Market Crash - 5 Tips to Show You How
from http://www.obamaeconomy.com
It is scary when the money you were counting on for retirement, education, or your home is rapidly declining in value. Don't panic though. Here are some 5 tips to help you survive:
1. People are living longer:
Males that reach the age of 65 nowadays will have a 49% chance of living to 86. Women will have a 49% chance of living to age 89. With that in mind, it's obvious that you will still need the help of equities (stocks and stock mutual funds) to help you grow your portfolio and keep ahead of taxes and inflation.
Don't abandon these investments.
2. Rebalance where necessary.
Take a look at your portfolio winners. If you had targeted say 20% in international and it is now 30% of your portfolio. Sell enough to bring it back down to 20% and use that cash to invest in another sector that you don't own. Remember that you don't have a realized loss until you sell. Take just enough of a loss to offset the gain that you took above, and then you will pay no tax on the transaction.
3. Diversify.
Don't have any winners? Then you weren't diversified enough to begin with. You should have had enough in each asset class (large-cap, mid-cap, small-cap, international, etc.) and each style (growth, value, blend, balanced, etc.) to create an investment plan to reach the return you need with the risk you are comfortable with, and in the time period that you targeted. Believe it or not, there are some mutual funds that have managed to keep their returns higher than the more than 23% loss of the S&P500 Index this year. There are a lot of free resources such as morningstar.com that will give you the data you need to diversify and feel better about your holdings.
4. Make decisions now.
Act now. Don't look for bottoms. You don't ever know where the bottom is but you do know that stocks are steadily getting cheaper and there are some fantastic buys out there. You may not have control over the market but you do have control over what you buy and what you sell. Don't wait.
5. Get a guaranteed income for life.
Along with positions of cash, bonds, and equities, a fixed annuity should play a part in a portfolio of someone close to working part-time or retiring altogether. An annuity is an insurance contract that in return for a lump sum of money gives you a steady fixed stream of income that is guaranteed for your life or the life of you and your spouse. For people who want to spread out their risk, this is an excellent addition to a portfolio. The downside is that you don't get any inflation protection since the payments remain the same. The upside is that you get an income stream guaranteed by the insurer so you don't have to worry about managing the money. Of course, you need to make sure the insurer is financially strong enough to be able to pay you throughout the term of the contract.
People like Floyd Odlum made millions during the Great Depression, not by fleeing into cash and bonds but by buying into stocks as the market dropped. His motto during the crash was: "There's a better chance to make money now than ever before."
Don't lose this opportunity to arrange your portfolio to meet your future needs. Follow the five steps above, and you won't have to worry about what the stock market is doing ever again.
2008 Fern Alix-LaRocca CFPý All Rights Reserved Interested in more tips to survive this crisis? Get the Whole-Hearted-Way eNewsletter written by Fern Alix LaRocca, a fee-only Certified Financial Planner TM with over 24 years in the industry today
What is a Recession?
In economics, the term recession is generally used to describe a situation in which a country's GDP, or gross domestic product, sustains a negative growth factor for at least 2 consecutive quarters. I say generally because recession can be defined differently by different economists. Just as there is an agency to define the measure of inflation; the official agency in charge of declaring that the economy is in a state of recession is the National Bureau of Economic Research (NBER). NBER's definition of recession is a bit more vague than the standard one that was described above; they define recession as a "significant decline in economic activity lasting more than a few months". For this reason, the official designation of recession may not come until after we are in a recession for six months or even longer. Some economists also suggest that a recession occurs when the natural growth rate in GDP is less than the average of 2%. Typically, a normal economic recession lasts for approximately 1 year.
Causes of Economic Recession
This is another staunchly debated topic; but the general consensus is that a recession is primarily caused by the actions taken to control the money supply in the economy. The Federal Reserve is responsible for maintaining an ideal balance between money supply, interest rates, and inflation. When the Fed loses balance in this equation, the economy can spiral out of control, forcing it to correct itself. This is precisely what we have seen in 2007, where the Feds monetary policy of injecting tremendous amounts of money supply into the money market has kept interest rates lower while inflation continues to rise. This, coupled with relaxed policies in lending practices making it easy to borrow money; the economic activity became unsustainable resulting in the economy coming to a near halt. It is also said that recession can be caused by factors that stunt short term growth in the economy, such as spiking oil prices or war. However, these are mostly short term in nature and tend to correct themselves in a quicker manner than the full blown recessions that have occurred in the past.
Effects of a Recession
An economic recession can usually be spotted before it happens. There is a tendency to see the economic landscape changing in quarters preceding the actual onset. While the growth in GDP will still be present, it will show signs of sputtering and you will see higher levels of unemployment, decline in housing prices, decline in the stock market, and business expansion plans being put on hold. When the economy sees extended periods of economic recession, the economy can be referred to as being in an economic depression.
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Wednesday, October 29, 2008
Stocks Face Worldwide Recession Fears
by Recession.org
Stocks tumbled Friday, although they managed to close off session lows, as Wall Street joined a worldwide market slump on bets that a recession is imminent - if not already in place.
According to early tallies, the Dow Jones industrial average fell 312 points or 3.6%.
The Dow slumped as much as 504 points in the morning, but came back to within 112 points of breakeven in the final hours before falling back again.
The Standard & Poor's 500 index fell 3.5% and the Nasdaq composite slid 3.2%. All three indexes closed at fresh five-year lows.
"The selling today is the result of the broad weakness overseas," said Michael Sheldon, chief market strategist at RDM Financial Group.
Stocks have been mostly lower this week as the credit crisis, sluggish corporate forecasts and slump in commodity prices exacerbated fears of a steeper slowdown. The weakness hasn't been limited to U.S. stocks, with markets in Asia and Europe tumbling this week as well.
Asian markets tumbled overnight, with the Japanese Nikkei losing almost 10%. The Moscow market slumped 14% before the exchange said it was suspending trading until Tuesday.
European markets retreated, with the London FTSE falling 5% after a big drop in the United Kingdom's third-quarter GDP added to recession bets there.
"The main culprits that are likely responsible for the selling include weak economic growth in the U.K. and possible forced liquidation by hedge funds and other investors," Sheldon said.
That so-called "forced selling" due to margin calls has played a big role in the recent volatility. With a margin call an investor has to either pay back a loan or put more money into an account because a security purchased with borrowed money has fallen to a certain level.
One fast way to raise the cash is to sell something else, such as stock.
Bets that the Bank of England and European Central Bank will have to cut rates aggressively in the months ahead sent the euro and pound lower versus the dollar. The dollar slumped versus the yen.
The U.S. central bank is expected to cut rates when it meets next week. But experts are wondering if the Federal Reserve will lower rates to below 1% for the first time.
Oil prices continued to slide, with crude dropping below $65 a barrel despite news that oil cartel OPEC is cutting production by 1.5 million barrels a day starting in November.
The decline is basically the oil market "forecasting a recession," said Terry Morris, senior equity manager at National Penn Investors Trust.
Jittery markets: Investors were braced for an even bigger selloff in the early going after Dow Jones industrial average futures fell 548 points - which triggered trading limits.
The nervous environment prompted the New York Stock Exchange to post a statement on its blog confirming that trading would began as normal at 9:30 a.m. ET.
Reflecting the jitters, the CBOE Volatility index, or the VIX, briefly hit an all-time high of 89.53. But the VIX had improved to 79.47 in the late afternoon.
"There's a lot of nervousness out there, but I think people are surprised it isn't down even more considering what we were looking at before the open," said Joseph Saluzzi, co-head of equity trading at Themis Trading.
Saluzzi said people were shaking their heads, trying to figure out what was creating so much nervousness Friday as opposed to any other day over the last week or so. Partly it was the U.K. GDP report, he said, which was adding to the reality of how global the problems are. "Usually Europe is reacting to us, but today we're reacting to them."
On a positive note, a report showed sales of existing homes jumped more than expected in September, with investors taking advantage of lower prices. The report also showed that prices continue to fall.
Stocks have tumbled over the last year amid the financial market meltdown and economic slowdown. Since hitting an all-time high of 14,164 just over a year ago, the Dow has lost about 38%. Since hitting an all-time high of 1,565 at the same time, the S&P 500 has lost around 41%.
Since hitting a bull-market high of 2,859 nearly a year ago, the Nasdaq has crumbled 44%.
Oil, gas and gold: U.S. light crude oil for December delivery settling down $3.69 at $64.15 a barrel, a 16-month low.
Prices have been sliding since crude peaked at a record $147.27 a barrel on July 11. The decline since then has resulted from speculators pulling out of the market on bets that demand is slowing along with the global economy.
Gasoline prices fell another 4.1 cents overnight, to a national average of $2.781 a gallon, according to a survey of credit-card activity by motorist group AAA. It was the 37th consecutive day that prices have decreased. During that time, prices have fallen by over $1 a gallon.
COMEX gold for December delivery rallied $15.60 to settle at $730.30 an ounce.
Company news: This week has brought the biggest wave yet of third-quarter corporate results. About 140 of the S&P 500 companies have reported.
With 41% of the reports out already, profits are on track to have fallen almost 11% from a year earlier, according to the latest estimates from Thomson Reuters.
After the close Thursday, Microsoft (MSFT, Fortune 500) reported quarterly sales and earnings that topped forecasts. But the software leader also warned that sales and earnings for the fiscal second quarter and the full year won't meet forecasts due to the slowing economy. Shares gained in the afternoon, erasing morning losses. (Full story)
In other news, PNC (PNC, Fortune 500) is buying fellow regional bank National City (NCC, Fortune 500) in a $5.6 billion deal. National City's shares have been hammered over the last few months amid questions about its solvency following a series of bank failures and mergers.
Privately owned Chrysler said it will cut 25% of its salaried workforce starting next month, and that it could announce other restructuring news in the future amid the auto industry slump.
Market breadth was negative. On the New York Stock Exchange, losers topped winners 5 to 1 on volume of 1.09 billion shares. On the Nasdaq, decliners beat advancers three to one on volume of 2.03 billion shares.
Credit market: Lending rates seized up a bit amid the broad recession fears. (Full story)
Libor, the overnight bank-to-bank lending rate, rose to 1.28% from 1.21% late Thursday, according to Bloomberg.com. However, that still kept the rate below the Fed's benchmark lending rate of 1.5%, which is a good sign for the credit market. Libor hit a record 6.88% earlier this month at the height of the market panic.
The 3-month Libor rate, what banks charge each other to borrow for three months, fell to 3.52% from 3.54% Thursday.
The TED spread, which is the difference between what banks pay to borrow from each other for three months and what the Treasury pays, widened to 2.70% from 2.55% late Wednesday. The spread hit a record 4.65% earlier this month. The narrower the spread, the more willing banks are to lend to each other.
Lending rates had been improving for more than a week, but have stalled over the last couple of days.
Credit froze in the wake of the housing market collapse, subprime fallout and contraction in the bank sector. The lack of available credit has punished the already weak economy, making it hard for businesses to function on a daily basis and for consumers to get loans.
Treasury prices turned lower, erasing morning gains. The decline boosted the yield on the 10-year note to 3.69% from 3.64% Thursday. Treasury prices and yields move in opposite directions. At one point, the yield on the 30-year bond sank to the lowest point in its 31-year trading history, to as low as 3.87%.
The yield on the 3-month Treasury bill, seen as the safest place to put money in the short term, slipped to 0.86% from 0.95% late Thursday, showing investors would rather see little return on their money than risk the stock market.
Last week, the 3-month fell to below 0.2%. Last month, it reached a 68-year low around 0% as investor panic hit its peak.
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Tuesday, October 28, 2008
New-home sales perk up on gains in the West
Builders slash inventories of unsold homes by record 7.3% in September
By Rex Nutting, MarketWatch
WASHINGTON (MarketWatch) -- U.S. home builders took a big step in September toward reducing the gigantic oversupply of homes, boosting sales slightly, slashing prices and reducing the number of unsold homes at a record pace.
Sales of new homes rose an estimated 2.7% in September to a seasonally adjusted annual rate of 464,000 in September, the Commerce Department reported Monday, close to the 460,000 pace expected by economists surveyed by MarketWatch. See Economic Calendar.
Sales surged 23% in the West, bouncing back from a similar decline in August. Meanwhile, sales in the Northeast fell to lowest level recorded in the past 35 years, and sales in the Midwest fell to a 17-year low.
Nationally, sales in September were down 33% compared with September 2007.
The inventory of unsold homes fell a record 7.3% in September to 394,000, the lowest level in four years. In the past year, inventories have fallen 25.4%, the biggest percentage drop since the government began tracking the data in 1963.
At 394,000, the inventory represents 10.4 months' worth of sales, about double the normal inventory. It's taking more than 9 months after completion for the typical new home to sell, a sign that builders have much more work to do to bring supply down to match demand.
In the past year, the number of homes for sale that were under construction has plunged by 35%.
The median sales price fell to $218,400, down 9.1% in the past year. It's the lowest median sales price in four years.
Government statisticians have low confidence in the monthly report, which is subject to large revisions and sampling and other statistical errors. In most months, the government isn't sure whether sales rose or fell. The standard error in September, for instance, was plus or minus 12.1%. Read the full government report.
The government says it can take up to five months to establish a new trend in sales. Over the past five months, sales have been on a 489,000 annual pace, 33% slower than a year earlier and about 3% lower than August's five-month trailing average.
In all of 2007, 776,000 new homes were sold, down from 1.05 million in 2006.
Regionally, sales plunged 21% in the Northeast to 22,000 annualized, the lowest pace recorded in 35 years. Sales rose 23% in the West to 108,000 annualized after plunging 30% in August. Sales dropped 6% in the Midwest to a 17-year low of 65,000 and rose 0.7% in the South to 269,000.
Rex Nutting is Washington bureau chief of MarketWatch.
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Four Tips For Buying Stocks In A Recession
In fact, in a Washington Post story entitled "Five Myths About That Depressing R-Word", Kevin Hassett writes "With the economy heading south during recessions, the conventional wisdom is that stock prices drop as well ... However, the market tends to look ahead and starts to respond favorably to the expected end of a recession long before it occurs. Influential economist Donald Luskin of Trend Macrolytics recently ran the numbers and found that stocks have produced an average return of 12.1% in post-World War II recessions. This is only slightly below the average return outside recessions" (January 20, 2008).
Keep reading for some tips on how to invest in a troubled economy.
1. Think Resilience
During recessionary periods, individuals aren't able to spend as much money on high-tech gadgets or big-ticket items, such as cars or high end electronics; instead, people tend to put their dollars toward necessities, such as food or utilities. In addition, according to a McGraw-Hill study of advertising performance, companies that can afford to advertise will win consumers at the local markets, regardless of brand name recognition pre-recession, making them strong contenders for your portfolio.
According to a McGraw-Hill study of advertising performance, "business-to-business firms that maintained or increased their advertising expenditures during the 1981-82 recession averaged significantly higher sales growth both during the recession and for the following three years than those that eliminated or decreased advertising" ("When The Going Gets Tough, The Tough Ramp Up", San Diego Daily Transcript, May 2001).
In addition. MarketSense compared 101 household name brands during the recessionary period 1989-1991. Jell-O, Crisco, Hellman's, Green Giant and Doritos saw sales drop by as much as 26-64%. Jiff peanut butter raised ad support and sales went up 57%; Kraft salad dressings saw a rise of 70%. In the beer category, overall spending was down 1% while Bud Light and Coors Light, each spending ahead of the category, saw sales increases of 15% and 16% respectfully. Pizza Hut sales rose 61% and Taco Bell's 40% thanks to strong advertising support, with McDonald's volume down approximately 28%".
2. Avoid Overpaying For A Stock
In recessionary periods or bear markets, doing your homework is extremely important because overpaying for a stock can have catastrophic consequences.
There are no hard-and-fast rules and certainly no guarantees to help you avoid overpaying. However, you can try to purchase shares in a (promising) company that trade below their tangible book value. Why? In an economic slowdown, earnings might decelerate or even be non-existent. When that happens, something tangible can protect the downside.
In a perfect world, when you purchase shares in a company that trade below tangible book value, even if the company breaks up and is sold off in pieces, you, as the shareholder, may still have a chance of being made whole again through asset sales. (To learn more, read Digging Into Book Value.)
3. Make Sure All the Air Is Out of the Balloon
If a company has been consistently reporting bad news and its stock has been in decline, a risky proposition would be to buy the shares in a recession. After all, who knows whether the worst is over and the stock has bottomed out? In short, the best advice might be to avoid a stock until the stream of bad news appears to have ended, or the market has turned enough to let you have a risk cushion.
But, how can one tell if the worst is over? It's not always easy and there are never any guarantees, but you should generally look for the following hints:
Press releases or earnings calls indicate that management has become more upbeat. This is subjective, however, so you still have more homework to do if this occurs.
The company or the sell side starts raising earnings estimates.
New research coverage has been initiated. This is sometimes a positive sign that future growth or expansion can occur. However, if the company cannot round up the funds to support this section, this could be a negative for the company too.
A company books large one-time charges in its fourth quarter as a means of lumping all the bad financial news into one time period and then painting a favorable picture for the upcoming year. (To learn more about company tricks, see Five Tricks Companies Use During Earnings Season.)
4. Diversify Your Investments
Although this may go without saying, diversify your holdings when possible. This doesn't mean simply spreading holdings across a handful of stocks, but diversifying by industry and, if suitable, getting some overseas exposure too.
Let's take a look at some common diversification questions:
Why is diversification so important during a bear market? Very simply, picking a bottom in a given stock, industry, or market is difficult or impossible. Therefore, limiting exposure to a particular security or group of securities makes more sense. You are more likely to stay afloat if you grab many life preservers, rather than just one (which may not keep your head above water in bad weather).
How much should an investor diversify? Some investors believe that diversification can be obtained with approximately 10 to 20 stock holdings, while others believe in an even larger number of holdings and a variety of asset types. (Keep reading about diversification techniques in Introduction To Diversification, Risk And Diversification and The Dangers Of Over-Diversification.)
What other ways can I diversify? For one, consider mutual funds as a way of obtaining diversification. However, you can choose to explore certain asset allocation strategies and asset classes that best suit your risk tolerance instead.. Whatever way you diversity, and before you invest, it would be wise to consult an advisor. Discuss your unique situation with the advisor to make sure your investments are consistent with your risk tolerance and financial means. (To read more, see Diversification: It's All About (Asset) Class, Diversification Beyond Equities and Has Your Fund Manager Been Through A Bear Market?)A properly diversified portfolio can help smooth returns and make the road to financial security less bumpy.
Bottom Line
Risks are associated with buying equities in bear markets. However, with a little homework, you can mitigate some of that risk. Over time, stocks have proved to be a very resilient asset class, and they needn't be avoided if you know how to handle them.
Glenn Curtis started his career as an equity analyst at Cantone Research, a New Jersey-based regional brokerage firm. He has since worked as an equity analyst and a financial writer at a number of print/web publications and brokerage firms including Registered Representative Magazine, Advanced Trading Magazine, Worldlyinvestor.com, RealMoney.com, TheStreet.com and Prudential Securities. Curtis has also held Series 6,7,24 and 63 securities licenses.
Monday, October 27, 2008
A recession won’t wreck your retirement
By Walter Updegrave, Money Magazine senior editor
Question: I’ve been contributing 15% of my salary and bonus to my 401(k), as well as investing in a Roth IRA and other accounts. With everyone so sure we’re headed for a recession, I’m wondering whether I should move my money into more stable investments to avoid losses as some people suggest or whether I should just view this time as an opportunity to buy in at cheaper prices. What do you think? –Sandy R., Los Angeles, Calif.
Answer: The only sound that’s louder and more persistent than the parade of recession warnings out there is the clamor of pundits spouting strategies that will supposedly safeguard your retirement in the face of a downturn.
Some advocate waiting out the turbulence in cash equivalents like money funds or CDs. Others suggest investing in foreign markets, and still others recommend moving into market sectors that have historically held up well in recessions past.
I call this paper-mache advice. It looks solid at first glance, but doesn’t hold up to closer examination. The main problem is that these recommendations assume you can move your retirement money in and out of different assets with impeccable timing. In reality, you run the risk of selling at a low point and buying in at inflated prices. Throw in the cost of trading, and you can seriously erode your long-term returns.
So what can you do to prevent your nest egg from getting totally scrambled?
Below, I offer strategies for four different stages of retirement planning - early career, mid-career, late career and already retired - that will get you through a recession and a down market while still allowing you to prosper in the longer-term.
But first I want to mention one thing that almost everyone should be doing in an iffy economic climate like this. While it’s always a good idea to have a cash reserve of three to six months’ living expenses to fall back on, it’s particularly crucial to have such a cushion now. Recessions dramatically heighten the risk of job loss. During the last recession of March to November 2001, for example, the United States lost 1.6 million jobs. Having an emergency reserve will reduce the chance that you’ll have to raid your IRA or other accounts and disrupt your nest egg’s growth if you’re laid off.
As an added precaution, you should also have a home equity or other line of credit to give you another resource to draw on if things get really ugly and your cash reserve runs dry. If you don’t already have a line of credit, open one now, as you may not be able to get it if you become unemployed.
Now let’s get to those strategies for different stages of retirement.
Early career
Frankly, your main focus at this point in your planning should be making sure you’re plowing enough money into your 401(k) and other retirement accounts, not following the ups and downs of the economy and the markets. You can quickly tell whether you’re stashing away enough by going to our What You Need To Save calculator. Just plug in your age, annual salary and the amount you already have saved, and bingo! You’ll get an estimate of the percentage of salary you need to put away to retire at age 65.
As for your investing strategy, your goal is to shoot almost exclusively for long-term capital growth. With retirement still 30 or 40 years away, you have plenty of time to recover from temporary losses, so there’s little sense in getting all worked up about them. Indeed, anyone who invested in a diversified portfolio of stocks at the market peak in January 1973 right before a bear market drove stock prices down nearly 50%, still earned an annualized 10.6% over the next 30 years.
I’m not saying you’ll see a repeat of those results. But stocks still offer your surest shot at long-term growth. So when you’re in your 20s and 30s, the best strategy is to devote about 90% of your retirement assets to solid low-cost mutual funds like the ones in our Money 70 and, except to rebalance your portfolio annually, stick to that strategy whatever the market is doing. If you’re not up to creating your own portfolio, buy a target-date retirement fund with a date that roughly corresponds to the year you plan to retire, say, 2040 or 2050.
Mid-career
After you’ve got a few years on the job, you probably have enough money sitting in 401(k)s and IRAs that a market downturn would trigger a big enough dollar loss to get your attention. Which means you could be even more prone to abandon your long-term strategy to avoid short-term pain.
Resist that urge. With 20 or more years to go until retirement, you still have lots of time to make up for any setbacks. So long-term growth of your savings is still your overriding investment goal, although with fewer years left in your career you’ll want to be slightly less aggressive than you were starting out. A mix of roughly 70% to 75% of your retirement savings in stocks and 25% to 30% bonds is generally appropriate if you’re in your 40s and early 50s.
You’ll also want to be sure you’re continuing to sock away enough bucks in your retirement accounts. While our What You Need To Save calculator can give you a quick sense of whether you’re on track, at this point you probably have enough money in enough different accounts that you’re better off doing a more comprehensive analysis with our Retirement Planner. By running a couple of different scenarios using different assumptions about your savings rate and investment strategy, you can get a much better handle on whether you’re on track and, if not, what you must do to make progress.
Late career
Now you’re hitting the home stretch with about 10 years to go until retirement. Now that the kids are leaving the nest and you’re at or near your peak earning years, this is an excellent time to really rev up your savings effort - including making catch-up contributions to your 401(k) and IRA once you hit 50.
On the investment front, however, you face a delicate balancing act. You still need capital growth because you’re investing not just until you reach retirement, but for the years you’ll spend in retirement too. But you also need to protect the money you’ve accumulated so far.
The way to balance those needs isn’t to try to time moves in and out of cash, bonds or defensive sectors. Rather, it’s to settle on a mix of stocks and bonds that can give you a decent shot at long-term growth while providing enough shelter so that you’re not hammered when the market goes south. Generally, that means keeping roughly 60% to 65% of your portfolio in stocks and the rest in bonds.
You also need to begin thinking not just about growing and protecting your nest egg, but gauging how much retirement income it can realistically generate. By plugging in such information as your account balances, how much you’re saving, your estimated Social Security benefits and your investment mix, an online tool such as Fidelity’s Retirement Income Planner can help you estimate how much income you can reasonably count on in retirement. (The tool is free, although non-Fido customers must register.)
Already retired
This is the time when you really have to be careful about market slumps. That’s because the combination of investment losses and pulling money out of your retirement accounts for living expenses can so depress the value of your portfolio that it may not be able to recover sufficiently even when the market rebounds.
There are two ways to protect yourself against the risk of going through your money too soon. One is to scale back your stock holdings enough to allow for modest growth yet limit the damage from a slumping market. At age 65, a reasonable guide is to invest roughly half of your retirement accounts in stock funds and the remainder in bonds and cash. As you age, you should gradually scale back the amount devoted to equities, until it reaches 20% to 30% of your portfolio when you’re in your ‘80s.
The second way to prevent a sinking market from sinking your retirement plans is to carefully manage withdrawals from your savings. If you want your nest egg to support you for 30 years to longer, you should draw no more than 4% to 4.5% or so of your account value initially and then increase the dollar amount of that withdrawal annually for inflation. This will give you an 85% to 90% chance that your money will last 30 or more years.
This is an estimate, though, not a guarantee. The odds will be lower if you’re hit with several years of subpar returns or a market downturn early in retirement. If the markets deliver solid gains, however, you could actually end up with a portfolio larger after 30 years than the one you started out with. That may sound like a big plus. But it could also mean that your desire for security prevented you from enjoying retirement as much as you might have.
So you need to be flexible. If the markets head south early in retirement, you might want to pare back your withdrawals a bit. Conversely, if you see your portfolio’s value begin to balloon, you might be more generous to yourself. You can keep tabs on how long your portfolio might last by going to the T. Rowe Price Retirement Income Calculator.
Bottom line: The threat of a recession and a bear market wreaking havoc with your retirement plans can definitely be unnerving. But shifting assets around in a vain attempt to outguess the markets will likely create more problems that it will solve. A better approach is to create a sensible long-term plan along the lines I’ve outlined here and, aside from minor adjustments, stick to it. In the years after the crisis passes, you’ll be glad you did.
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Sunday, October 26, 2008
Recession Investing: The Right Time to Buy
By Dr. Steve Sjuggerud
"You mean your stocks can actually go up in recession?" my wife asked me yesterday.
She surprised me... I thought she might know this answer. Then I thought, if she doesn't know you can make money in stocks by buying during recessions, you might not know either.
"You can absolutely make money in stocks during recessions," I told her.
Today, I'll show you how. We'll use the last major recession as our starting point...
The 1990-91 recession was the last time we saw both real estate and stock prices take a hit at the same time. Officially, the recession was relatively short, only lasting about a half a year.
The chart tells the story of what happened to stocks:
In the 1990-1991 recession, stocks bottomed 71 trading days into the recession – or 42% into the recession – and had an 18% loss. The market's performance during the 1990-91 recession is fairly typical...
On average, going back to 1950, recessions have lasted roughly 220 trading days (which is nearly a full year). That's just a bit longer than the 1990-91 recession. And stocks hit bottom right about at the halfway point on average (typically just a few days after the halfway mark). That's close to what happened in 1990-91 also.
The average fall from the start of the recession to the bottom in stocks was 19%. So once again, the 18% fall we saw in 1990-91 was in line with history.
My friend Jason Goepfert of sentimenTrader crunched these numbers. I really like Jason's work. Based on it, Jason's best guess is: "It's likely that we are in recession, and it began last quarter – suggesting we should see a major stock market low by sometime this summer."
Jason urges caution with this forecast... Recessions are actually identified in hindsight – meaning we don't know we're officially in one until we're in one. (Or in the case of the last official recession in 2001, we didn't know we were in it until it was already over.)
One important finding of Jason's is: You DON'T make money in stocks by buying the day we enter a recession and selling the day the recession is over. Stocks, on average, lose money in that time frame. You make money in stocks buying during the middle, not the beginning, of the recession.
We can't know if this recession will be shorter or longer than average (heck, we don't even know if we're in recession yet). But here's what we do know: A typical recession lasts less than a year. And the typical stock market bottom has been about six months into a recession. And you definitely make money in stocks from that point on...
One of our key ideas at DailyWealth is: You make the most money in stocks when things go from "bad to less bad." So the bottom line is, yes, absolutely, you can make money in stocks during recessions. Buying in the middle of the recession is what you want to do.
Saturday, October 25, 2008
Investments for a Recession
By Selena Maranjian
Danger, Will Robinson!
Are you ready for a recession, a downturn in the stock market and economy? It's not an immediate certainty, of course, but we'll surely encounter one again, and soon, according to some experts. None other than Alan Greenspan saw the risk of one as nearly 50% recently. He pointed to the subprime-lending mess we have on our hands, for one thing.
So let's say a recession is looming. What can you do to prepare for it? Well, a bunch of things. Some commentators are suggesting looking at exchange-traded funds (ETFs) that focus on stocks outside the U.S. and on defensive industries.
Global ETFs
There are a variety of ETFs that invest globally. For instance, the Vanguard All World (VEU) ETF has half of its assets in Europe and another third in Asia. Of course, foreign companies and economies are still affected by ours, so you can't completely avoid the effects of a U.S. recession. But with more than 2,000 holdings, including Nokia (NYSE: NOK), Toyota Motors (NYSE: TM), and BP (NYSE: BP), you'll at least get plenty of diversification.
One area many people think of as a defensive industry is the consumer-staples sector. Many companies in the sector, such as Procter & Gamble (NYSE: PG), Altria (NYSE: MO), and Coca-Cola (NYSE: KO), are often thought to be as close to recession-proof as you can get. Still, don't expect miracles. Inflation and the rising cost of raw materials can put pressure on these companies' profits, too.
Looking for income
Another place to turn when you have recessions on your mind is to dividends. The iShares Dow Jones Select Dividend Index (DVY) ETF can help you out. It offers bits of more than 100 dividend payers, such as Merck (NYSE: MRK), for the price of one. Many of these companies tend to be in defensive industries, such as consumer staples, pharmaceuticals, and utilities, though some are also in the recently beleaguered financial sector (which actually has some attractive high dividend payers in it -- read Chuck Saletta for more). This ETF's yield is north of 3%.
Putting some bonds in your portfolio can add a healthy dose of diversification, too. Municipal bonds currently yield more than comparable Treasuries do, even though they pay tax-free income. But remember that in the long run, stocks have usually trounced bonds, so don't go nutty with them unless you're in or nearing retirement. And be especially careful of esoteric securities like emerging-market debt, because the risks can be extremely high.
Keep in mind
Of course, safety in a recession involves more than just having the right investment mix (and I wouldn't even argue with those who advise not changing your mix at all, but just sticking with your convictions and waiting out the recession). For example, you should also:
Have an emergency fund, funded. Aim to keep between three and six months' worth of living expenses in short-term investments. These can be critical if you suddenly lose your job (hey, it happens, and more often in a recession) or encounter other unexpected big-ticket expenses (an operation or a new roof). Get more guidance in our Savings Center.
Develop a healthy perspective on recessions. Welcome them, because they tend to bring bargains in the stock market. While others panic and sell, review your watch list regularly with a box of tissues nearby to help contain your drooling.
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Friday, October 24, 2008
How Investment Plans Work
by: John Mussi
More people are choosing investment plans than ever before. With the rising cost of living and the growing insecurity about the availability of many retirement funds, many individuals are looking to investment plans to begin a nest egg or to make some additional money via investment without having to spend a lot of time purchasing stocks and bonds.
Investment plans allow individuals to simply purchase a specific amount of stocks, bonds, or indices on a regular repeating basis, cutting out a large part of the hassle while allowing for some of the main advantages of investment.
If you've been considering an investment plan but aren't completely sure what they might entail, the following information might help you to decide whether or not an investment plan is the right investment option for you.
The Mechanics of an Investment Plan
Basically, an investment plan is a method of making multiple investments over time at regular set intervals. The funds for the investment are taken from a cheque, savings, or money market account automatically, and are used to purchase stocks or bonds that you have decided upon beforehand. In most cases you can change the amount, frequency, or purchased stocks or bonds of the automatic investments at any time, though depending upon the broker through whom you're doing the investments you may be subject to fees or penalties especially if changing details relatively close to the next investment date. Most online investment firms offer investment plans that you can change at any time free of charge.
Deciding How Much to Invest
When deciding how much to invest each cycle with an investment plan, you should take care not to overextend your funds and bring yourself up short. Make sure that the amount that you choose is available and that you'll have it to spare each time your investment comes up� it can be difficult to plan for events in the future, and just because you have a surplus now doesn't mean that you won't find money running tight a few investment cycles from now.
If you feel that you're reaching a point where you won't be able to afford your regular investment, go ahead and reduce the investment amount or put a hold on the next scheduled investment better to put less in than short yourself afterwards.
Choosing What to Invest In
Making the decision of which stocks and bonds to invest in can take some time, but it's worth it� this is your money that you're dealing with, and you shouldn't invest it without putting some thought and research into your decisions. Find stocks or bonds that have performed well over time, and that are likely to continue doing so� they may be expensive at times, but you aren't making your total investment all at once so it doesn't matter as much.
Don't be afraid to add new stocks or bonds to your plan later, either� this can help to diversify your portfolio.
Deciding On an Investment Interval
You also need to decide how often you wish to make your investments� this will largely depend upon the cycle of your paycheques and your monthly bills and expenses. You may decide to invest once per month, after everything has been paid, or you might want to invest a little from every paycheque.
The more often you invest, the lower the amount of each investment can be� after all, two or four small investments per month might end up purchasing more than one larger one.
Decide on what works best for your lifestyle, and modify it as needed later if it doesn't seem to work out for you.
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Thursday, October 23, 2008
7 Essential Steps to Financial Success
Getting financial freedom is everyone’s dream. Retire rich is the most wanted wish of everybody. There is several ways and steps to get financial success and retire rich. Investing in various instruments is the one of ways we can choose in order to gain financial success. Investing in stocks, buying mutual funds, saving bonds is some ways to make our dream come true. But the most important thing is how to plan the steps to reach these goals. My teacher in investing said that these are seven essential steps, each one representing a wealth creating skill that all self-made millionaires possess and practice:
Step 1: Take the Millionaire Frame
Millionaires see learning experiences, where Mister Ordinary sees failure. The moment you take the beliefs and habits of a millionaire, your perception of the world will change completely and you will realize that there are money-making opportunities everywhere and everyday around you. Amazingly, these are opportunities that you were once quite blind to!
Step 2: Set Bright Financial Goals
Wealth never happens by chance. It always begins with a clear goal in mind. At one point of time in their life, millionaires always make a decision to become rich. However, whenever I ask most people what their financial goals are, I often get a blank stare. This is a major reason why they will never achieve any level of wealth because they have no clue what it is. Unless you have a specific figure to focus on, you will never be able to develop a strategy to achieve it.
Step 3: Create a Financial Plan
once you have set specific financial targets of how much you want to earn and how much money you want to accumulate, you can then develop an effective plan to achieve it. Goals by themselves are nothing but pipe dreams. Only when you create a plan, have you made your goal a possibility. The moment you start taking action on your plan, your dream becomes a reality.
Step 4: Massively Increase Your Income
After developing their financial plan, most people tend to become initially disheartened. They look at their plan and realize that with the amount they are earning and saving right now, it will be decades before they see any big money. It is therefore important that you learn how to accelerate and turbo-charge your financial plan by taking steps to massively increasing your income.
Step 5: Manage Your Money & Reduce Expenses
Many people think that by increasing their income, their wealth will automatically increase. Unfortunately, increasing income is only one side of the wealth equation. After all, there are people who earn $1,000 a month who are broke and there are those who earn $10,000 who are still broke. The reason is because when we don't manage the money we earn, our expenses will always rise to our level of income, wiping out any surplus we have!
Step 6: Grow Your Money at Millionaire Returns
By increasing your income and reducing your expenses, you will find that you will be able to accumulate a surplus of funds that you can use to help you build your fortune. You need to do this because, no matter how hard you work and save, you will never be able to create phenomenal wealth unless you learn how to put your money to work for you. Through the power of compounding, you will be able to take small sums of money and build it into huge returns over time.
Step 7: Protect Your Fortune
There is no use working hard to build your personal fortune only to see it all taken away from you. There are many people who have taken decades to build their fortune only to see it wiped out by an accident, unforeseen illness or through an unexpected lawsuit. Self-made millionaires engage professionals like insurance advisors, lawyers and accountants to help them build a financial fortress so their wealth is protected from potential creditors, plaintiffs looking to sue and the government who may take away a big chunk of your wealth through a whole range of taxes that you may not have even heard about. So there you have it, these are the seven steps that you must take towards financial abundance. I believe that if you were to take just these 7 steps today and apply them prodigiously right now, you'll see instant results.
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Wednesday, October 22, 2008
Recession? Depression? What's the difference?
What's a recession? How do we know if we're in one?
By Mike Moffatt, About.com
There is an old joke among economists that states:
A recession is when your neighbor loses his job.
A depression is when you lose your job.
The difference between the two terms is not very well understood for one simple reason: There is not a universally agreed upon definition. If you ask 100 different economists to define the terms recession and depression, you would get at least 100 different answers. I will try to summarize both terms and explain the differences between them in a way that almost all economists could agree with.
Recession: The Newspaper Definition
The standard newspaper definition of a recession is a decline in the Gross Domestic Product (GDP) for two or more consecutive quarters.
This definition is unpopular with most economists for two main reasons. First, this definition does not take into consideration changes in other variables. For example this definition ignores any changes in the unemployment rate or consumer confidence. Second, by using quarterly data this definition makes it difficult to pinpoint when a recession begins or ends. This means that a recession that lasts ten months or less may go undetected.
Recession: The BCDC Definition
The Business Cycle Dating Committee at the National Bureau of Economic Research (NBER) provides a better way to find out if there is a recession is taking place. This committee determines the amount of business activity in the economy by looking at things like employment, industrial production, real income and wholesale-retail sales. They define a recession as the time when business activity has reached its peak and starts to fall until the time when business activity bottoms out. When the business activity starts to rise again it is called an expansionary period. By this definition, the average recession lasts about a year.
Depression
Before the Great Depression of the 1930s any downturn in economic activity was referred to as a depression. The term recession was developed in this period to differentiate periods like the 1930s from smaller economic declines that occurred in 1910 and 1913. This leads to the simple definition of a depression as a recession that lasts longer and has a larger decline in business activity.
So how can we tell the difference between a recession and a depression? A good rule of thumb for determining the difference between a recession and a depression is to look at the changes in GNP. A depression is any economic downturn where real GDP declines by more than 10 percent. A recession is an economic downturn that is less severe.
By this yardstick, the last depression in the United States was from May 1937 to June 1938, where real GDP declined by 18.2 percent. If we use this method then the Great Depression of the 1930s can be seen as two separate events: an incredibly severe depression lasting from August 1929 to March 1933 where real GDP declined by almost 33 percent, a period of recovery, then another less severe depression of 1937-38. The United States hasn’t had anything even close to a depression in the post-war period. The worst recession in the last 60 years was from November 1973 to March 1975, where real GDP fell by 4.9 percent. Countries such as Finland and Indonesia have suffered depressions in recent memory using this definition.
Now you should be able to determine the difference between a recession and a depression without resorting to the poor humor of the dismal scientists.
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Fasten belt and start saving are the solution for American
Written by justin
Jakarta, Financeroll.com - The U.S. may be on its way to becoming a nation of savers, whether Americans like it or not. With home and stock prices declining and credit hard to come by, consumers who have fallen out of the savings habit are being forced to curb borrowing and rein in spending.
That is bad news for companies catering to them, which will have to retrench as well. Detroit automakers may need to slash costs and merge as Americans hold onto their cars longer. Shopping malls might be forced to shut as retail traffic trails off. Hotels may have to shelve expansion plans as vacationers become stingier with their dollars.
The big concern is that households, spooked by the turmoil in financial markets, will cut back rapidly and sharply, plunging companies into bankruptcy and deepening a recession that many economists say has already begun.
If American did have a quick cut in spending, it could turn a pretty nasty recession into possibly the worst downturn we've seen in the postwar period,'' says Michael Feroli, a former Federal Reserve official now at JPMorgan Chase & Co. in New York. Even without a collapse of consumer spending, Feroli expects the economy to contract by 2 percent in both this quarter and the next.
There are signs that consumer spending is already giving way. U.S. retail sales fell in September for the third straight month, the longest slump since the government began keeping records in 1992. And consumer confidence fell by the most on record this month. Fed Chairman Ben S. Bernanke.
Any industry that is tied to the consumer will have to downsize and consolidate.
From 1960 until 1990, households socked away an average of about 9 percent of their after-tax income, Commerce Department figures show. But Americans got out of the saving habit starting in the 1990s as they saw their wealth build up in other ways, first through surging stock prices and later through soaring home values.
Meantime, looser credit standards made it easier for people to afford major purchases without having to save up to pay for them. The result: Since 1990, they have set aside less and spent more, pushing the savings rate down to an average of 3.5 percent. It was less than 1 percent in each of the last three years.
That may be about to change as wealth and credit evaporate. Household net worth, as measured by the Fed, fell $2 trillion in the second quarter from a year earlier and that was before the stock market's nosedive wiped about $3.9 trillion off investors' portfolios in the past month and a half.
Credit is also harder to get. Borrowing by U.S. consumers fell in August by $7.9 billion, the most since statistics began in 1943, to $2.58 trillion as lenders curbed access to loans.
Add to that a cyclical rise in the unemployment rate it already stands at a five-year high of 6.1 percent and could increase to 9 percent.
Consumers are starting to realize that they've been living in a fantasy world. They will have to begin salting away money for retirement, their children's education and other reasons.
Americans have a way to go to catch up with their counterparts in other countries. The 0.4 percent of disposable income that U.S. households saved last year compares with 10.9 percent for Germany and 3.1 percent for Japan.
In the long run, higher savings would be good news for the U.S. economy, because the extra money would help put household finances on a sounder footing and lessen U.S. dependence on investment by China and other foreign countries to finance economic growth.
In the shorter run, though, it will likely mean wrenching changes for companies that have become reliant on rapidly growing consumer spending. Some firms have already begun cutting back to bring operations in line with lower demand.
Companies built up a lot of capacity. They may not need all of it.
The construction industry has been decimated by the collapse of the housing market. At least a dozen homebuilders have sought bankruptcy protection as conditions deteriorated, including billionaire Carl Icahn's WCI Communities Inc., Tousa Inc., Kimball Hill Inc., Levitt & Sons and Neumann Homes Inc.
Automakers are also hurting, especially Detroit's Big Three: General Motors Corp., Ford Motor Co. and Chrysler LLC. U.S. car and truck sales this month may fall to a seasonally adjusted annual rate of 11 million, the lowest in at least 25 years, Deutsche Bank AG analyst Rod Lache wrote in an Oct. 14 note to clients. That compares with a 14.1 million average through the first nine months of this year and a 16.7 million average from 2002 through 2007.
The industry needs desperately a dramatic rationalization; there are too many plants, too many employees. It will be a radical change: far fewer suppliers, possibly not three U.S. companies, maybe three that become two or one. (Bloomberg)
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Sunday, October 19, 2008
Money Saving Tips For The Coming Recession
by Zeke Zongerella
http://www.goarticles.com/cgi-bin/showa.cgi?C=1180721
Have you read the gloomy news lately? We are on our way to a serious recession. Recession is defined by most economists as an economy that shrinks for 2 consequetive quarters. I expect that to happen in this quarter and the next. So how do you cope with rising prices and less cash in your bank account?
Here are some money saving tips on how to stop those currency notes leaving your wallet unnecessarily:
Credit Card Money Saving Tips
You have probably heard it before but here it is again - pay off your credit card debts every month. You can't afford the 18 to 24 percent interest per year on the balance you keep on it. Also pay off the entire amount of the last month on the due date because even if you pay one dollar less, you will still be charged interest on the whole amount.
Home Money Saving Tips
Adjust your heating so that it turns on at 6 in the morning and 7 in the evening for a period of 3 hours at both times. You don't need the heating when you are in bed and at your job.
Get energy efficient bulbs - they give you more light for the electricity consumed and last for thousands of hours. The prices of these bulbs have also gone down considerably since they were first introduced. So what if they are ugly? The cash saved can buy you new lamp shades, to conceal them, in due course.
How about cutting down on your weekly groceries? Plan your shopping for the food that you need for the next week. Most families throw away tons of date expired food because they overbuy at the supermarket. Visit the web sites of all the super markets in your area and favour one with your custom after comparing prices of products on your list and the estimated total bill. It will be an hour well spent. Stock up on any long dated products on special deals, which you consume quite regularly. Buy only what you have on your list. Supermarkets spend huge amounts on research on how to make people like us buy more than what we need.
Forget designer clothes, fragrances and other stuff with brand names. Brand names just add cost to what can be purchased for far less with a store's own brand.
Other Money Saving Tips
Do you really need a monthly pay plan cell phone? Why not get a pay as you go phone? With a pay as you go, you would think twice before you call for every little thing that comes up.
Stop thinking of your car as an extended part of your body. You don't have to jump in to it for going to a place 2 blocks away. Walk, its good for you and saves you gas. Use a bike for places further away.
Forget your weekly eating out. Get food from your favourite take away and a bottle of wine and celebrate at home.
Don't buy anything because of an irrepressible urge. Wait for a day or two and you will find that you don't need it at all. Especially that new car.
Never buy a brand new car. Most cars lose 50% of their value in the first 3 years. Some lose 70%. So why would you want to pay for a new car when you can get a good quality one for half the price? Besides, you don't have to worry about some one scratching it or vandalising it when you have parked it on a lonely street. It isn't new, remember?
Shop on the internet for all your insurances and other services. It is a known fact that most businesses spend more on getting new customers than keeping their existing ones. Loyalty to any company is not viable if it is going to cost you more.
If you are a smoker, quit right now. Smoking is a pay now, pay later plan. You pay now for your cigarettes and pay later when you are hospitalised. You would probably save hundreds, if not thousands, every year if you kicked the habit. You also pay more for your life and health insurance if you are a smoker. So do the right thing and quit.
Keep a diary of your daily expenses - you will be surprised at how much unnecessary expense you incur in your daily life.
Finally, there are hundreds of ways you are leaking money. You would probably have to take a magnifying glass to your expenses to really cut them with out sacrificing your quality of life. You could spend a couple of hours every week end with a detailed break down of your previous week's expenses and try to figure out where all your cash went and why. And then perhaps, you might get the beast under control.
I hope you have found this article on money saving tips useful. If you have any personal money saving tips or ideas on conserving cash, please share them with all of us and thanks for visiting my blog.
Zeke
About the Author
I am a mortgage and financial advisor. Please leave your comments on my blog at http://moneyinfoblog.wordpress.com/. I and my readers would love to hear of any money saving tips you have.
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Wednesday, October 15, 2008
What Are Safe Investments?
By Gary Pearson
If you are considering investing money and are not sure which is the safest place, it is best to get some professional advice. The last thing that you want is to risk losing all your hard earned money due to a poor recommendation given over a drink in a bar. So, what are safe investments?
If you need to know what are safe investments as opposed to high risk investments, there are many qualified consultants who will be able to give you some sound advice. Many safe investments are Government backed and will guarantee you a predetermined interest rate and return on your money. Even then, you are faced with a choice of which to opt for. You will probably hear the words Treasury Bond, Note and Bill being used in conjunction with Government backed investments. These are three types of low interest investment which have Federal Government backing and are as secure as you will get.
You will possibly wish to consider questions such as 'What are safe investments going to realize when it comes time to withdraw my capital? One point that you must understand is that it is rare to get something for nothing. This is true in the financial world probably more than anywhere else! To have the security that you want you will no doubt find that you have to make sacrifices when it comes to the interest rate. Investment schemes such as Treasury Bonds, Bills and Notes do not carry a high return.
If you wish to opt for a higher rate of interest you will have to forego some of the assurance that you get from such a stable and secure option and put your money into a more risky market. This could include investing in the stocks and shares market yourself. If you have a considerable sum of money available you would be advised to use a specialist consultant for this. They have knowledge of the current situations and will be able to invest for you. Obviously this will not be a free service. They will know what are safe investments at any given time and are on the same side as you when it comes to wanting to increase your capital... they will probably be working on a commission basis!
Even though such a consultant may have knowledge of what are safe investments on the open market, you cannot expect these to be as reliable as Government backed schemes. You can, however, look forward to a higher return for your money. It is quite exciting being a part of the world of stocks and shares but always remember the saying "do not put all your eggs in one basket"!
So, what are safe investments? A truly safe scheme is one with the Government backing and guarantee but at the end of the day the choice is yours. Your idea of safe may be slightly different to someone else!
Gary Pearson is an accomplished niche website developer and author.
Article Source: http://EzineArticles.com/?expert=Gary_Pearson
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Tuesday, October 14, 2008
Safe Investing in a Recession - Do You Need to Accept Low Returns?
By Peter Alderton
Safe investing is a hot topic in 2008. With markets in meltdown and recession upon us everyone is looking for safety rather than profits and returns. Are we doomed to poor returns in the recession just to improve the safety for our money?
There's lots of places to invest our money of course, traditionally with various levels of safety. The stock market, real estate, bonds, CDs, currencies and so on. However it seems that just about everything is down right now. Stocks, including some very solid large cap stocks, and particularly banks, are a disaster. Interest rates are at an all time low and mutual funds are not only showing negative returns but are even failing. And even high profile banks are failing completely.
It seems there isn't an asset class that hasn't been affected by the current economic meltdown. The money market is in total turmoil.
Many are putting their money into gold and other precious metals, however these also pay no return, or income, and as an asset class have their own volatility problems.
Safe investing is difficult at the best of times. It's a simple equation. More safety should attract less risk, but lower returns. More risk, and therefore the possibility of higher returns, is of course less safe.
It's the classic trade off between the safety of our money, and profits, or returns on our investments. And given the current situation should we just accept putting our money into bonds that pay us almost no return, in exchange for the safety of a guaranteed return of our capital, and a guaranteed return of fixed income that is exceptionally small?
Is that what safe investing has become in 2008? Are investors all so scared that we are running to anything that just guarantees the safety of our money regardless of the return? Are we willing to accept, at least in the short to medium term, that safe investing means that we forego returns? That we put our future on hold for - how long?
Here's an example of how many investors are fleeing to safe investing options right now. In the week of September 15th the yield on much in demand 3 month T bills went negative. Yes believe it or not, a yield below 0%. And even now yields are low, less than 1% even recently. But safe investors are snapping up investments like that just for the premium. The premium isn't the return, it's the safety.
Would it be possible that there could be some safe investing options in 2008? Lets look at one. Real estate.
You can't be serious I can hear you say. Real estate is a total mess right now. Foreclosures are through the roof. People living on the streets. Homes for sale on eBay starting at $1.
Put all that aside for a moment and imagine.
A real estate investment available right now. No money down. Finance provided for qualified investors. Turnkey, a nothing to do investment that provides to the investor a fully refurbished home, and a qualified tenant. A rental guarantee for the first 12 months. The investor receives an immediate 15% to 20% equity, and 100% ownership.
All backed by a respected US listed company with a solid background in real estate investing.
Available to credit investors, and also investors through their IRAs with a guarantee to double their IRA return.
Would it be possible that an investment like that could exist, and if so would you consider investing in real estate like that to be safe investing?
It exists, and it's certainly safe investing, even in 2008.
But where do you find it?
And would you like to find out more? Or are you happy with T bills at around 1% return?
Want to know more about profitable, sound, turnkey Real Estate Investing? Visit Peter's Website Win-Win Real Estate Investments and find out more about no money down real estate investing at http://win-winrealestateinvestments.com/
Article Source: http://EzineArticles.com/?expert=Peter_Alderton
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Monday, October 13, 2008
Your Money: Keeping It Safe
by Money Magazine Staff
provided by CNNMoney
Scared yet? The Dow Jones industrials suffered a decline of more than 875 points on Monday and Tuesday, and Federal Reserve Chairman Ben Bernanke predicted that the global financial markets crisis is likely to restrain the economy well into next year.
Americans' retirement plans have lost as much as $2 trillion in the past 15 months, according to Congress' top budget analyst.
It's okay to feel the fear. But it's not okay to react to it. Panicking and making big changes in your accounts is likely to do a heck of a lot more damage than a recession ever could.
Sticking to some tried-and-true principles can help you get through the bad times with your sanity and your savings intact.
"Don't panic, stay the course," said Allan Roth, a financial planner in Colorado Springs. "If you can't be right at least be consistent. We're allowed to feel the emotions, but how we react to them is going to be far more important than any short-term swings."
An Early Start
If you're just starting to think about saving for retirement, don't delay. Despite the upheaval of the past few months — and the past few weeks in particular — it would be a mistake for someone in their 20s or 30s to hold off on investing now.
The key here is the long-term prospects for stocks. Ultimately, stock values hinge on the productivity of U.S. workers and the earnings power of American companies. And it's not as if those engines of long-term growth are about to disappear.
The country may need some time to work through the detritus of the housing bubble and lending excesses. And stock returns could very well be anemic as that happens. But history shows that some of the best long-term gains go to investors willing to buy stocks when they're reviled, as in the years following major setbacks like the 1929 crash and the 1973-1974 bear market.
Of course, the long view may not seem particularly relevant to you at the moment. But remember: the money that you contribute to accounts such as a 401(k) is going to be invested for many years.
The real question isn't whether you should be contributing to a 401(k). It's how you should be investing the money you contribute, as well as the money that's already there.
If you're in your 20's or 30s, you still want most of your 401(k) money in stocks, say between 80% and 90%. That may be a tough sell emotionally in these uncertain times. But the important thing isn't what your 401(k) is worth over the next few years — it's what its value will be in 2040 and beyond.
Mid-Career
Even if you're older, you should still think of the money you're contributing now as a long-term investment. But you also need to give some consideration to preserving the assets you've already accumulated.
That means dialing back your stock exposure somewhat, although you don't want to hunker down completely in bonds and cash. Lightening up on stocks will give you more short-term stability. But if you get too conservative, you run the risk of stunting the eventual size of your nest egg — and your lifestyle in retirement.
But before you go tinkering around with your portfolio, keep in mind that while bear markets can hurt a portfolio, how you react to downturns can make matters worse, said Roth. He points out that investing in stocks when they're hot and then running to bonds when they're not has a name: performance chasing.
"When you move in and out, you're actually increasing risk while decreasing your returns," Roth said. Over time, market timing can cost investors around 1.5% a year in returns, according to Roth.
'The Danger Years'
The decade before you quit the work force, along with the five years immediately after, is the most sensitive period in an entire lifetime of retirement planning. The saving, investment and career decisions you make during this time will dictate in a major way whether you'll spend the next 30 to 40 years enjoying the life you've always looked forward to or eating the early-bird special at Denny's.
"It's natural to have a queasy feeling at this time in your life, wondering if your retirement will happen as planned," says Joseph Chadwick of the Longevity Alliance, a financial services firm that specializes in retirement products. "But there's no need to panic."
Stocks held for the long term can be counted on to bounce back eventually. But if you need to sell shares just as they're dropping in value — exactly the scenario many newly minted retirees have faced recently — you run a sharply higher risk that your money will someday run out. That's because when the market does recover, you'll have less money invested to benefit from renewed growth.
Fortunately, there's a minor tweak that can dramatically cut your risk.
Typically, to ensure your nest egg lasts as long as you do, you should withdraw no more than 4% of your savings for living expenses in your first year of retirement. In year two, you might take a little more to account for inflation.
The bear-market adjustment? Give up on the inflation increase until stocks recover.
A study by T. Rowe Price concludes that this simple step cuts the odds of running out of money over a 30-year period in half, from 22% to 11%, on a sample portfolio invested 55% in stocks and 45% in bonds.
Worried that forgoing your inflation raise will bust your budget? Pull a Brett Favre and go back to work part time to make up the "lost" income. You probably won't need to put in more than a few hours a week — a 3% increase on a $75,000 annual withdrawal equals only $200 a month.
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Sunday, October 12, 2008
Insider Activity
Another strategy for investing involves looking out for what insiders at a company are doing with their stock. Keeping an eye on insider trades can be useful because it allows you to see what the people who have a large stake in a company are doing with their stock. These insiders are often the ones who know what is going on at the top levels of their company, and so they may have the best information about whether a company's stock is actually worth more or less than the current price. Insiders can be either individuals or corporations. They are required to report both direct holdings (which are held in the name of the insider) and indirect holdings (which are controlled by the insider but are held by a family member, trust, company plan, or corporation with which the insider is affiliated). Note that we're not talking specifically about illegal insider trading (that is, insiders who are trading based on privileged information), but instead about all types of insider trades, including when no such privileged information exists, but the insiders are just generally confident about the company's outlook.
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Saturday, October 11, 2008
Contrarian
Contrarian investing is a strategy that relies on behaving in opposition to the prevailing wisdom; for example, buying when others are pessimistic and selling when they're optimistic, or buying out-of-favor stocks and selling them when they're popular again. In an extended bull market, the term contrarian can begin to mean someone who is bearish or prefers value stocks to growth stocks, although this is really just a subset of contrarian investing.
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Friday, October 10, 2008
CANSLIM
CANSLIM is a strategy for investing that was pioneered by William J. O’Neil, who later went on to found Investor’s Business Daily. The strategy is a mixture of fundamental analysis and technical analysis. Each of the letters in the acronym describes a different metric used to pick a stock:
• C – Current Earnings: current earnings growth for the stock must be at least in the 20%-25% range
• A – Annual Earnings: average annual earnings growth for the stock over the past five years should be substantial, around 25%.
• N – New Things: the company should be involved in developing new services or products; this can sometimes even refer to new highs for the stock price.
• S – Shares Outstanding: the company should have less than 30 million shares outstanding so that it has the potential for good growth.
• L – Leading Stocks: the company should be a leader in its industry.
• I – Institutional Ownership: the stock should have at least a couple of institutional shareholders (e.g. pension funds, endowments, etc.).
• M – Market Conditions: the market should be moving upward or ready to move upward.
Most of the principals involved in CANSLIM investing make sense to experts. Of course, figuring out whether or not a company meets these seven criteria is a whole other story.
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Thursday, October 09, 2008
Dogs of the Dow
This is a very simple strategy in which you find out which ten of the Dow Jones Industrial companies currently have the highest dividend yield and then you purchase those stocks. These stocks are called the “dogs” of the Dow because they tend to have lower prices than the other Dow components, which means that they could experience substantial price increases in the next year. If you decide to use this strategy, it’s important for you to remember to reallocate your portfolio every year, since the dogs will change over time. Historically this approach has been successful, but there's no compelling reason to believe it will continue to be.
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Wednesday, October 08, 2008
DRIPs and DSPs
Some stock strategies focus on reducing brokerage commissions in order to boost overall returns. Direct Stock Purchase plans (DSPs) let you buy shares of stock directly from the company, without the use of a brokerage (and without the commission they charge). DSPs are a good way to invest since you don't even have to be a current shareholder in order to purchase the shares. The company will not charge you a commission, but they may charge you a small fee in order to set up a stock purchase account.
Dividend Reinvestment Plans (DRIPs) are also a good way for you to bypass a broker and save on commissions by investing your money directly with the company; however, with DRIPs you must purchase the first share you buy in the company through a brokerage. After that, though, you're free from the broker. The company will take whatever dividends it would normally send to you as a check and instead it will reinvest them to purchase more shares in the company for you, all without charging a commission. The only drawback is that you have no control over when your money from the dividends is used to purchase new stock in the company, which means you might be buying new shares at sub optimal times.
Note that DSPs and DRIPs are only offered by some companies, although there are hundreds of well-established blue chips offering such programs
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Tuesday, October 07, 2008
Dollar Cost Averaging
Dollar cost averaging is a good strategy for beginners that involves regular contributions of a fixed dollar amount to a portfolio or specific investment. At each interval, the chosen amount is invested, removing any emotional motivation to react to short-term changes in the value of the investment. Of course, dollar cost averaging does not guarantee a profit, but it does encourage consistent investing and prevents short-term movement from leading investors to make emotion-based decisions that could harm their long-term strategy.
Because the investment is purchased at a range of prices over time, fluctuations in price are evened out and the initial price has a far smaller impact on the returns at the time the investment is sold. The average price paid trends toward the current price at each interval. As a result, the gap between the value of the money paid in and the current value of the investment decreases. However, the average price does not move fast enough to completely eliminate the possibility of profit or loss. Although dollar cost averaging can prevent a large negative gap from growing between the price paid and the current price, it limits the potential for a positive gap in the same way.
Essentially, dollar cost averaging is ideal for investors who wish to eliminate the risk associated with timing the price of an investment and reacting to short-term results at the expense of limiting themselves to a decidedly conservative strategy. Some investors believe dollar-cost averaging is most effective when a stock is underperforming because more shares can be acquired for the same regular investment amount. However, better performance is not guaranteed and that aspect should not be the primary motivation for adopting this strategy.
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Monday, October 06, 2008
Income
Income investors practice a very straightforward strategy: they buy stocks with the highest dividends. Income investors focus primarily on securing a steady income stream, instead of worrying about capital gains (although they obviously hope that the shares will increase in value). The stocks of large, well-established companies usually qualify as income stocks. Income investing is one of the more conservative stock strategies, yet there are still the usual risks involved in investing in equities. In some respects, this strategy is closer to bond investing than stock investing, even when stocks are used.
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Sunday, October 05, 2008
Warren Buffett and Quality
Some investors prefer to consider themselves not 'value' or 'growth' but 'quality'. This is a sort of hybrid approach in which the investor is searching not for questionable companies at bargain prices or exceptional companies at outrageous prices, but good companies at good prices. This strategy relies on a combination of quantitative and qualitative factors.
Warren Buffett is often cited as a classic example of a quality investor. Buffett relies on a fairly simple investment strategy that can benefit any investor interested in identifying good values. He looks for great stocks, then buys them and holds them for several years or more. Buffett is a long term investor who plans to hold onto stocks for many years from the time of purchase. He thinks of his investment as buying a piece of a business, not just shares of its stock. In this sense, the management of the underlying company is an important criterion in the investment decision.
Buffett determines the value of a business by totaling the net cash flows he expects to occur over the life of the company and discounting them by the appropriate interest rate. He may add a premium based on the risk involved in the particular investment. He focuses on return on equity, operating margins, debt levels and capital expenditures to identify the best investments.
Interestingly, Buffett challenges some of traditional notions regarding diversification. He believes that diversification is less necessary for those able to confidently choose a select number of stocks they are confident will significantly outperform the market. For him, identifying a few good values is far more important than spreading invested money across a typical diverse portfolio.
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Saturday, October 04, 2008
Value
Value investors look for stocks that are selling at an attractive price; in other words, they are bargain hunters. This does not mean that value investors buy stocks because they are "cheap" (such as penny stocks); value investing utilizes several measures of a company's value to identify stocks that can be purchased for less money than they're worth, regardless of whether they're worth $10 or $100. Although it's possible that a growth stock could represent a good value, growth investing and value investing are usually considered opposing strategies. This is because value investors tend to focus on traditional valuation metrics such as the P/E ratio, looking for low ratios which are typically not found in growth stocks Value stocks often are ones which have fallen out of favor with the investment community for one reason or another, perhaps because they are in a slumping industry or because they reported poor earnings.
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Growth
Growth investors focus on one aspect of a company: its potential for earnings growth. They believe that companies with high earnings growth will see their stock price continue to increase, since investors will want to own profitable companies that can pay large dividends in the future. The number that they pay the most attention to is earnings per share, especially how it changes from year to year, although they sometimes look at revenue growth as well. Some investors also compare the price/earnings ratio with the annual earnings growth, to get a feel for how much the market is willing to pay for a given rate of earnings growth. Growth stocks tend to be from young companies, so they are often riskier than the average security. They have the potential for large gains, but they also have the potential for large losses. In the 1990s technology stocks were the most commonly purchased stocks by growth investors, although growth stocks can exist in just about any industry.
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Friday, October 03, 2008
Market Timing
Market Timing
Market timing is essentially the opposite of buying and holding. Market timers believe that it is possible to predict when the market, or certain stocks, will rise and fall. It therefore makes sense to buy when the markets are low and to sell when they are high in order to maximize profits. Market timers can use any number of different methods for timing the market – technical analysis, fundamental analysis, or even intuition
Most experts agree that market timing is incredibly difficult if not downright impossible. They also warn against it because:
- It's hard to say when the market or a particular stock is "high" or "low"; often a seemingly high stock will go higher, and a seemingly low stock will go lower.
- Commissions eat away at your profits when you trade frequently, especially on small transactions.
- The bid/ask spread also eats away at your profits, especially for thinly traded stocks.
- In the long run, the market goes up. Unless you're a superb timer, you'll do better staying fully invested at all times. For example, in the last 40 years, the market returned about 11.3% annually. If you were fully invested the whole time, but got out completely for the 40 best months, your annual return would've dropped to 2.7%. If you miss the big moves it hurts, and no one really knows when they're coming.
Thursday, October 02, 2008
Stock Strategies:Buy and Hold
Buy and Hold
The "buy and hold" approach to investing in stocks rests upon the assumption that in the long term (over the course of, say, 10 or more years) stock prices will go up, but the average investor doesn't know what will happen tomorrow. Historical data from the past 50 years supports this claim. The logic behind the idea is that in a capitalist society the economy will keep expanding, so profits will keep growing and both stock prices and stock dividends will increase as a result. There may be short term fluctuations, due to business cycles or rising inflation, but in the long term these will be smoothed out and the market as a whole will rise. Two additional benefits to the buy and hold strategy are that trading commissions can be reduced and taxes can be reduced or deferred by buying and selling less often and holding longer. Some proponents of the buy and hold strategy of investing often believe in the Efficient Market Hypothesis or the Random Walk Theory.
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