Stocks go up, stocks go down.
Do you feel poorer today than you did a week ago, thanks to the 700 pount loss in the Dow Jones Industrial Average?
If so, may I suggest that you need to rethink your investment strategy?
Another long time aphorism came to my mind in thinking about the latest decline in the Dow -- easy come, easy go.
The DJIA went from 13,000 to 14,000 in just 56 days.
Did that 7.7% rise in under 2 months reflect the American economy rising 7.7% in under 2 months? Of course not.
Yet a week ago, millions of investors were once again congratulating themselves on how smart they were to be buying stocks. I have o quarrel with that in general -- it's when you start thinking of market price rises as cash in your pocket, that I suggest you're out of touch with reality.
The truth is, we don't know the future. I don't know whether the market is going to rise or fall tomorrow, and neither do you. Nor do any of the paid commentators and talking heads.
What's more, we have no idea whether the DJIA has attained any unpenetrable "floor" . . . is there an absolute limit on how fair the DJIA can go down now that's at just over 13,000 and has been over 14,000?
We'd like to think that the DJIA will never see 10,000 or 7,000 or 1,000 again -- but we don't know. You have no guarantees. What if Al Quaida terrorists succeeded in setting off atomic or dirty bombs in multiple major American cities, including Manhattan where the New York Stock Exchange is based? How far down would the DJIA go? Who knows? Will that ever happen? I sure hope not. But we have no guarantees.
Nor do we have guarantees against biochemical terrorism, or a natural problem such as bird flu or natural catastrophes such as the flooding global warming allegedly will bring.
The trouble with called price rises in your stocks "capital gains" is that they all too often don't reflect real gains in REAL capital. The traditional economic definition of "capital" is not simply a profit made selling an investment -- that's the IRS's definition -- no, it's the productive assets of one kind or another.
Land, warehouses, forklift trucks, patents. Cash in the bank is simply the liquidity used to obtain capital assets or to pay the expenses associated with running them.
If the stock market were strictly rational, the price of a company's stock would go up only to the degree that the company achieved success in expanding its net capital assets. The price of the overall stock market would go up only to the extent that overall economic activity expanded the value of the country's net capital assets.
Obviously, the stock market is not strictly rational. Efficient, yes -- but not rational.
Of course, a strictly rational stock market would not go up or down in sharp, fast bursts. It wouldn't be so exciting, but you would still have the advantage of participating in the overall growth of the nation's economy. That's still a big advantage over money market accounts.
And if you buy only stock that pays dividends, then you get quarterly checks in your mailbox whether the market price is up or down. Use this drop in the Dow to buy dividend-paying stocks cheap.
They may never be this low again.
(Or maybe they'll get a lot lower -- but you don't know that, and you don't know when. So buy now to start collecting dividend checks now.)
Dow down 700
Dow down 700
Sunday, July 29, 2007
Tuesday, July 24, 2007
What if . . . something unprecedented affects your investments?
Sometimes I wonder whether my way of thinking helps or hurts me when it comes to income investing and investing in general.
I think that if I were to try to get a "real" job in the financial world, I'd be at a disadvantage. That's because the general financial community accepts historical returns and situations, but I'm a long-time science fiction reader (and very minor writer) and therefore am used to asking, "But what if . . . ?"
For example, to the conventional, statistically savvy financial mind, the sun is not going to blow up tonight simply because it's been existence over 4 billion years and hasn't yet blown up. To most people, the sun going nova is simply an incomprehensible event.
But as a science fiction reader I'm used to thinking about suns going nova. If a particular star is about to go nova, it's going to go nova even though it's been in existence for billions of years, and therefore provided billions of mornings to any planets in its solar system.
My only comfort is my understanding -- hopefully not wrong or out of date -- that our particular G class, yellow sun is of a type that doesn't go nova. I put more faith in the findings of astronomers who've studied many stars that have gone nova or not than I do in the narrow, statistical viewpoint of, it hasn't happened in the past 4 billion years so it's not going to happen.
Sorry, but if there's something inside the sun that's about to make it go nova, all the statistics in the world won't stop it.
But, as I mentioned, I'm sure that pension fund managers charged with obtaining optimal performance at a given degree of risk are not interested in statistically highly improbable "long tail" events that may make their forecasts based on historical results irrelevant.
Yet the world is always changing, and sometimes the statistically improbable happens. In 1998 the Long Term Capital Asset "hedge" (I use quotes because they did not hedge their trades, but rather leveraged them 100 to 1 or more) fund placed a lot of money -- huge amounts of it borrowed -- on a derivative contract based on the historical relationship between United States and Danish government bonds.
In the summer of the 1998, a "what if" occurred that they didn't think of, despite their Nobel prizes in Economics and PhDs and Masters . . . The sun didn't go nova, but the Russian stock market did "melt down" -- losing about 90% of its value. This, following the Asian currency crisis of 1997, frightened people in developing countries around the world so much that the shipped all the cash they could to the United States and bought United States Treasury bonds, driving their price far past its historical relationship with Danish government bonds.
Net result -- Long Term Capital Asset not only lost all its investors' money and went bankrupt, the New York Federal Reserve Bank had to intervene to prevent a massive breakdown of the United States (and, probably, world) financial systems.
So . . . what if millions of retiring baby boomers start selling their non-dividend paying, "growth" stocks?
What if . . . ?
What if . . . ?
I think that if I were to try to get a "real" job in the financial world, I'd be at a disadvantage. That's because the general financial community accepts historical returns and situations, but I'm a long-time science fiction reader (and very minor writer) and therefore am used to asking, "But what if . . . ?"
For example, to the conventional, statistically savvy financial mind, the sun is not going to blow up tonight simply because it's been existence over 4 billion years and hasn't yet blown up. To most people, the sun going nova is simply an incomprehensible event.
But as a science fiction reader I'm used to thinking about suns going nova. If a particular star is about to go nova, it's going to go nova even though it's been in existence for billions of years, and therefore provided billions of mornings to any planets in its solar system.
My only comfort is my understanding -- hopefully not wrong or out of date -- that our particular G class, yellow sun is of a type that doesn't go nova. I put more faith in the findings of astronomers who've studied many stars that have gone nova or not than I do in the narrow, statistical viewpoint of, it hasn't happened in the past 4 billion years so it's not going to happen.
Sorry, but if there's something inside the sun that's about to make it go nova, all the statistics in the world won't stop it.
But, as I mentioned, I'm sure that pension fund managers charged with obtaining optimal performance at a given degree of risk are not interested in statistically highly improbable "long tail" events that may make their forecasts based on historical results irrelevant.
Yet the world is always changing, and sometimes the statistically improbable happens. In 1998 the Long Term Capital Asset "hedge" (I use quotes because they did not hedge their trades, but rather leveraged them 100 to 1 or more) fund placed a lot of money -- huge amounts of it borrowed -- on a derivative contract based on the historical relationship between United States and Danish government bonds.
In the summer of the 1998, a "what if" occurred that they didn't think of, despite their Nobel prizes in Economics and PhDs and Masters . . . The sun didn't go nova, but the Russian stock market did "melt down" -- losing about 90% of its value. This, following the Asian currency crisis of 1997, frightened people in developing countries around the world so much that the shipped all the cash they could to the United States and bought United States Treasury bonds, driving their price far past its historical relationship with Danish government bonds.
Net result -- Long Term Capital Asset not only lost all its investors' money and went bankrupt, the New York Federal Reserve Bank had to intervene to prevent a massive breakdown of the United States (and, probably, world) financial systems.
So . . . what if millions of retiring baby boomers start selling their non-dividend paying, "growth" stocks?
What if . . . ?
What if . . . ?
Monday, July 23, 2007
Dow 14,000, and on up!
I meant to mention it earlier, but I did notice that the Dow Jones Average closed above 14,000 for the first time in history. Hip, hip hooray!
If you're accumulating stock, you should be sorry that the shares you are going to be buying now will be more expensive -- but only Warren Buffett and I seem to have figured that out. It seems to be immutable human nature in everyone else to place more importance on the total value of the stock shares they've already bought than on the price they're going to pay in the near future.
One reason is that we celebrate capital gains over dividends is the difference in tax treatment. This was alleviated by President Bush's tax cuts of 2003, but unfortunately that law is temporary. If Democrats are in charge in the future, they've made it known that they'll allow the lower tax rates on dividends to expire.
This would be bad, but I still advise investing for income. To get the preferential tax treatment on capital gains, you still have to realize those capital gains by selling them. And with many stocks after the baby boomers start to retire, you may not have any capital gains.
But the run up to Dow 18-20,000 foretold by Harry S. Dent seems to have begun.
DOW 14,000
DOW 14,000
If you're accumulating stock, you should be sorry that the shares you are going to be buying now will be more expensive -- but only Warren Buffett and I seem to have figured that out. It seems to be immutable human nature in everyone else to place more importance on the total value of the stock shares they've already bought than on the price they're going to pay in the near future.
One reason is that we celebrate capital gains over dividends is the difference in tax treatment. This was alleviated by President Bush's tax cuts of 2003, but unfortunately that law is temporary. If Democrats are in charge in the future, they've made it known that they'll allow the lower tax rates on dividends to expire.
This would be bad, but I still advise investing for income. To get the preferential tax treatment on capital gains, you still have to realize those capital gains by selling them. And with many stocks after the baby boomers start to retire, you may not have any capital gains.
But the run up to Dow 18-20,000 foretold by Harry S. Dent seems to have begun.
DOW 14,000
DOW 14,000
Sunday, July 22, 2007
Austrian School economic prophesy
Is the world and U.S. economy in a bubble which will inevitably break?
This article maintains that it is, based on the work of the Austrian School of economics:
Austrian economics
I don't know, of course. And just because the current leaders of the Austrian school think we're in a worldwide bubble, doesn't mean Hayek and van Mises would think so if they were still alive.
The dislocations which the author mentions all result from the drastic lowering of the value of the U.S. dollar. Perhaps India's stock market is valued more than the U.S. stock market in part because so many financial newsletters, including some from Agora, Inc -- the author's employer -- emphasize how much India and China's economies are growing in relation to the rest of the world.
If India were as economically developed as the U.S., its stock market obviously would be worth a lot more than the U.S., since India has 3-4 times as many people.
The advice to put 20% of your portfolio into gold, I think is crazy. Especially after reading Peter Bernstein's book The Power of Gold, which is a terrific argument against everything "gold bugs" such as this author say.
My own advice is to put all of your portfolio into income-generating investments such as stocks that pay dividends, if if you need to use DRIPs (Dividend ReInvestment Plans). Gold is just a metal -- it doesn't write you any checks, and it costs money to store safely.
I'm not saying the price of gold won't go up in the future -- perhaps tremendous just as the gold bugs are predicting.
But the problem with that is the same problem I have with buying stocks and other investments for capital gains. You can't realize your profit without selling the gold/stocks. And then you miss out on future gains, plus you must pay capital gains taxes.
There's at least one gold mining stock -- BHP Billiton -- that does pay dividends. If gold goes up, its dividends will likely go up. So you could buy shares of that company if you want to hedge your portfolio with gold.
Austrian doom and gloom
Austrian doom and gloom
This article maintains that it is, based on the work of the Austrian School of economics:
Austrian economics
I don't know, of course. And just because the current leaders of the Austrian school think we're in a worldwide bubble, doesn't mean Hayek and van Mises would think so if they were still alive.
The dislocations which the author mentions all result from the drastic lowering of the value of the U.S. dollar. Perhaps India's stock market is valued more than the U.S. stock market in part because so many financial newsletters, including some from Agora, Inc -- the author's employer -- emphasize how much India and China's economies are growing in relation to the rest of the world.
If India were as economically developed as the U.S., its stock market obviously would be worth a lot more than the U.S., since India has 3-4 times as many people.
The advice to put 20% of your portfolio into gold, I think is crazy. Especially after reading Peter Bernstein's book The Power of Gold, which is a terrific argument against everything "gold bugs" such as this author say.
My own advice is to put all of your portfolio into income-generating investments such as stocks that pay dividends, if if you need to use DRIPs (Dividend ReInvestment Plans). Gold is just a metal -- it doesn't write you any checks, and it costs money to store safely.
I'm not saying the price of gold won't go up in the future -- perhaps tremendous just as the gold bugs are predicting.
But the problem with that is the same problem I have with buying stocks and other investments for capital gains. You can't realize your profit without selling the gold/stocks. And then you miss out on future gains, plus you must pay capital gains taxes.
There's at least one gold mining stock -- BHP Billiton -- that does pay dividends. If gold goes up, its dividends will likely go up. So you could buy shares of that company if you want to hedge your portfolio with gold.
Austrian doom and gloom
Austrian doom and gloom
Wednesday, July 18, 2007
Smart Capitalist blog
I found a website with a great domain name. I wish I'd thought of grabbing it -- Smart Capitalist.
It's a blog, and of course I was attracted to the article on High Income Investment Cash Cows.
I like the general thrust, but take issue with a few items. One, although energy and pharmaceutical companies are in the news a lot, that doesn't mean they're not cash cows, so they're not in the same category as high tech stocks. Some energy and pharmaceutical companies return a lot of cash. Obviously, oil and natural gas and energy itself are rising in price. And pharmaceutical companies have a good business in that once they find an effective drug and get it approved, it's a high margin business. The drug itself is almost "digital" in that it can be replicated very cheaply. The high price is not due to the ingredients, it's to pay for the research. So once a drug makes back its research costs, it's a big money maker.
He mentions insurance, too. I don't recall seeing insurance companies in the high dividend paying lists, but maybe they're just behind the biggies (REITS, consumer goods, utilities, banks). After all, Warren Buffett bought Geigo Insurance for Berkshire Hathaway, so he expected it a large cash flow from it. They buy a lot of clever and entertaining radio ads, so I assume they're still making good money.
smart capitalist
smart capitalist
It's a blog, and of course I was attracted to the article on High Income Investment Cash Cows.
I like the general thrust, but take issue with a few items. One, although energy and pharmaceutical companies are in the news a lot, that doesn't mean they're not cash cows, so they're not in the same category as high tech stocks. Some energy and pharmaceutical companies return a lot of cash. Obviously, oil and natural gas and energy itself are rising in price. And pharmaceutical companies have a good business in that once they find an effective drug and get it approved, it's a high margin business. The drug itself is almost "digital" in that it can be replicated very cheaply. The high price is not due to the ingredients, it's to pay for the research. So once a drug makes back its research costs, it's a big money maker.
He mentions insurance, too. I don't recall seeing insurance companies in the high dividend paying lists, but maybe they're just behind the biggies (REITS, consumer goods, utilities, banks). After all, Warren Buffett bought Geigo Insurance for Berkshire Hathaway, so he expected it a large cash flow from it. They buy a lot of clever and entertaining radio ads, so I assume they're still making good money.
smart capitalist
smart capitalist
Tuesday, July 17, 2007
The Gold Standard Not So Golden?
Reading The Power of Gold by Peter Bernstein makes me think again about gold as the money standard. I posted before my misgivings about how mining gold apparently creates wealth, instead of the formation of new, better and cheaper goods and services. Bernstein's story dramatize the effect of gold (usually negative) on economies through history, including what happened when Spain stole so much gold and silver from the New World.
And if the economy activity of a country increases, how does that automatically increase the supply of the gold metal? It obviously doesn't.
Yet the concept of hard money is still very popular. Conservative talk show hosts like to promote gold-buying services. I remember when Laura Ingraham interviewed Ron ?, a popular economic commentator and analyst (his own radio show used to be carried here in St Louis on Saturday night, but unfortunately they dropped him). She was surprised that Ron joked that everybody should own enough gold to "bribe the border guards."
The price of gold can go up, but this is not the same as the benefits of a passbook savings account. It's solid metal that doesn't itself pay any money or interest.
Bernstein is building a strong historical case for saying that gold is a liability rather than an asset, at least when you take it beyond its function as decorative jewelry and an electrical component. It's not money, is the message I've gotten from the book so far. And when you try to make it money, it's dangerous.
And the glory years when the world was on the gold standard? This was not the norm. The gold standard in the sense of pegging a country's currency to a fixed price for gold and saying that your paper currency is always redeemable into gold -- that's a product of the 19th century through the beginning of World War I. As somebody during that period said, and which Bernstein quotes enough times to make it clear he agrees, the gold standard was not the cause of the world's prosperity during that period -- it was a result of it.
I'm looking forward to reading what he has to say about modern times and finances.
gold standard
gold standard
And if the economy activity of a country increases, how does that automatically increase the supply of the gold metal? It obviously doesn't.
Yet the concept of hard money is still very popular. Conservative talk show hosts like to promote gold-buying services. I remember when Laura Ingraham interviewed Ron ?, a popular economic commentator and analyst (his own radio show used to be carried here in St Louis on Saturday night, but unfortunately they dropped him). She was surprised that Ron joked that everybody should own enough gold to "bribe the border guards."
The price of gold can go up, but this is not the same as the benefits of a passbook savings account. It's solid metal that doesn't itself pay any money or interest.
Bernstein is building a strong historical case for saying that gold is a liability rather than an asset, at least when you take it beyond its function as decorative jewelry and an electrical component. It's not money, is the message I've gotten from the book so far. And when you try to make it money, it's dangerous.
And the glory years when the world was on the gold standard? This was not the norm. The gold standard in the sense of pegging a country's currency to a fixed price for gold and saying that your paper currency is always redeemable into gold -- that's a product of the 19th century through the beginning of World War I. As somebody during that period said, and which Bernstein quotes enough times to make it clear he agrees, the gold standard was not the cause of the world's prosperity during that period -- it was a result of it.
I'm looking forward to reading what he has to say about modern times and finances.
gold standard
gold standard
Sunday, July 15, 2007
MAKING 36% by Dr. Terry F Allen
Fuller Mountain Press sent me a small book for review: MAKING 36%: Duffer's Guide to Breaking Par in the Market Every Year In Good Years and Bad by Dr. Terry F Allen.
It's basically a lead generator book. That is, if you read it, get excited and want to begin its program -- but you're understandably intimidated by the work involved -- you can enroll in his email trade notification service.
Basically, he advocates making 36% by putting on calendar spreads. These are option trades that take advantage of the difference in volatility between LEAPS (Longterm Equity AnticiPation Securities) and short term options.
Unless you're already an accomplished options investor, I know that's as clear as mud. I've read about calendar spreads before, but I found his explanation somewhat difficult to read in detail. Yet, I know reason to doubt that it works. I'm simply doubtful that too many people can put on these trades and also make the necessary periodic adjustments simply from reading this book. I'd certainly hesitate to risk my money on that. But again -- that's all the more reason why you need his email service.
So far as I know, his method his standard. He does confine his calendar spreads to one particular equity -- one which I wouldn't have guessed, so it's not fair of me to reveal it here.
Plus, he provides a great service by giving us the name of a broker that allows us to do option trades within an IRA. That is terrific news for all of us saving for retirement.
For more information, go to Terry's Tips
calendar spreads book
calendar spreads book
It's basically a lead generator book. That is, if you read it, get excited and want to begin its program -- but you're understandably intimidated by the work involved -- you can enroll in his email trade notification service.
Basically, he advocates making 36% by putting on calendar spreads. These are option trades that take advantage of the difference in volatility between LEAPS (Longterm Equity AnticiPation Securities) and short term options.
Unless you're already an accomplished options investor, I know that's as clear as mud. I've read about calendar spreads before, but I found his explanation somewhat difficult to read in detail. Yet, I know reason to doubt that it works. I'm simply doubtful that too many people can put on these trades and also make the necessary periodic adjustments simply from reading this book. I'd certainly hesitate to risk my money on that. But again -- that's all the more reason why you need his email service.
So far as I know, his method his standard. He does confine his calendar spreads to one particular equity -- one which I wouldn't have guessed, so it's not fair of me to reveal it here.
Plus, he provides a great service by giving us the name of a broker that allows us to do option trades within an IRA. That is terrific news for all of us saving for retirement.
For more information, go to Terry's Tips
calendar spreads book
calendar spreads book
Friday, July 13, 2007
Chinese investment advisor blogger arrested
This story about the arrest of a Chinese investment tips blogger is interesting, and scary in several ways.
Chinese investment tips blogger arrested
First, it reveals that the Chinese government gives warnings by first arresting people. This is apparently their warning to other such people giving investment tips. This guy did apparently go beyond giving his advice, as I myself do on this blog -- he made over $1 by selling investment advice. Here in the U.S. I'd be breaking the law if I gave individual investment advice since I'm not legally qualified to do that. (Though if you want to pay me $1 million, I might consider risking the penalties! :) )
Secondly, the investing psychology of the Chinese people is a boom mentality. A few weeks ago I read an article about how some woman believed that the Chinese government would not let the stock market crash before the Olympics of 2008.
So many Chinese investors apparently think they're now getting a free ride from the stock market -- it's going to keep going up and make them rich because the government won't let it, at least before the 2008 Olympics, to keep from losing facing internationally.
They may even be right, which means the whole question becomes, will they all pull out right before/during or after the Olympics? And, who's going to pay for it all?
Thirdly, the Chinese people also want the security and comfort of taking investing advice, including tips on specific companies, from other people who supposedly are experts. I could be wrong, but I suspect that right now there're not a lot of Chinese shareholders who have heard of the Efficient Market Theory, asset allocation, diversification or the benefits of index funds.
Chinese investment blogger arrested
Chinese investment blogger arrested
Chinese investment tips blogger arrested
First, it reveals that the Chinese government gives warnings by first arresting people. This is apparently their warning to other such people giving investment tips. This guy did apparently go beyond giving his advice, as I myself do on this blog -- he made over $1 by selling investment advice. Here in the U.S. I'd be breaking the law if I gave individual investment advice since I'm not legally qualified to do that. (Though if you want to pay me $1 million, I might consider risking the penalties! :) )
Secondly, the investing psychology of the Chinese people is a boom mentality. A few weeks ago I read an article about how some woman believed that the Chinese government would not let the stock market crash before the Olympics of 2008.
So many Chinese investors apparently think they're now getting a free ride from the stock market -- it's going to keep going up and make them rich because the government won't let it, at least before the 2008 Olympics, to keep from losing facing internationally.
They may even be right, which means the whole question becomes, will they all pull out right before/during or after the Olympics? And, who's going to pay for it all?
Thirdly, the Chinese people also want the security and comfort of taking investing advice, including tips on specific companies, from other people who supposedly are experts. I could be wrong, but I suspect that right now there're not a lot of Chinese shareholders who have heard of the Efficient Market Theory, asset allocation, diversification or the benefits of index funds.
Chinese investment blogger arrested
Chinese investment blogger arrested
Wednesday, July 11, 2007
Euro headed down thanks to euro-boomers?
So Richard Lehman is complacent about the coming baby boomer retirement "crisis" -- in the United States. Interestingly, he's not so complacent about what's going to happen soon in Europe. In his viewpoint, Europeans are too used to living on the welfare state. As I said in my last entry, he expect American boomers to just keep on working until they can afford to stop.
He expects European boomers to stop working and demand that their governments pay the promised retirement benefits -- no matter what.
Since few of them have this money (most Western European Social Security systems are in worse financial condition than that of the U.S.), they're going to have a problem meeting this demand. Also, birth rates in Europe in the past 30 to 40 have been lower on average than that in the U.S. Therefore, there're going to be even fewer workers per retireee than in the U.S.
Therefore, Western European governments are going to have to run their printing presses full-time, to send their baby boomer generation the pensions they've been promising them since they established their post-World War 2 welfare states.
End result -- the euro will be inflated and lose value in comparison to the dollar.
So the current situation where the euro is at a record high against the dollar won't last more than a few years or so.
euro baby boomer retirement crisis
euro baby boomer retirement crisis
He expects European boomers to stop working and demand that their governments pay the promised retirement benefits -- no matter what.
Since few of them have this money (most Western European Social Security systems are in worse financial condition than that of the U.S.), they're going to have a problem meeting this demand. Also, birth rates in Europe in the past 30 to 40 have been lower on average than that in the U.S. Therefore, there're going to be even fewer workers per retireee than in the U.S.
Therefore, Western European governments are going to have to run their printing presses full-time, to send their baby boomer generation the pensions they've been promising them since they established their post-World War 2 welfare states.
End result -- the euro will be inflated and lose value in comparison to the dollar.
So the current situation where the euro is at a record high against the dollar won't last more than a few years or so.
euro baby boomer retirement crisis
euro baby boomer retirement crisis
Monday, July 9, 2007
NO USA baby boomer crisis, says author
I just read Income Investing Today: Safety & High Income Through Diversification by Richard Lehman, and he casually dismissed the upcoming
baby boomer retirement crisis.
No problemo, he says. Most baby boomers just aren't going to retire, at least not for many years.
He notes that in 1935 when the Social Security Act was passed in the United States, the average life expectancy was 64. Therefore, they knew in advance that over half of all workers weren't going to collect Social Security at all!
Now life expectancy is in the 80s. There's no reason to stop working at age 65, and so baby boomers won't. They'll be too scared of running out of money before they die.
This will bolster the Social Security trust funds, because these older workers will keep paying into the system. Plus, they won't be drawing checks until they reach the age (I think it's now 70) when they can receive full checks no matter how much money they earn.
This will also bolster the Medicare trust fund, because these boomers will still be covered by health insurance (though he doesn't seem to think about how much demands will be placed on health insurance companies by covering so many people in the 60s and 70s).
I think he's correct to a degree, but it won't be as smooth as he implies. For one thing, I'm sure that most baby boomers will not want to continue working at the same job they've hated for the past 30 years.
Start an online auction business, yes. Sell macrame designs, yes. Teach English to children in Nairobi, yes. Open up a bait shop in the Ozarks, yes.
Keep working the same, dull boring job -- no.
no baby boomer retirement crisis
no baby boomer retirement crisis
baby boomer retirement crisis.
No problemo, he says. Most baby boomers just aren't going to retire, at least not for many years.
He notes that in 1935 when the Social Security Act was passed in the United States, the average life expectancy was 64. Therefore, they knew in advance that over half of all workers weren't going to collect Social Security at all!
Now life expectancy is in the 80s. There's no reason to stop working at age 65, and so baby boomers won't. They'll be too scared of running out of money before they die.
This will bolster the Social Security trust funds, because these older workers will keep paying into the system. Plus, they won't be drawing checks until they reach the age (I think it's now 70) when they can receive full checks no matter how much money they earn.
This will also bolster the Medicare trust fund, because these boomers will still be covered by health insurance (though he doesn't seem to think about how much demands will be placed on health insurance companies by covering so many people in the 60s and 70s).
I think he's correct to a degree, but it won't be as smooth as he implies. For one thing, I'm sure that most baby boomers will not want to continue working at the same job they've hated for the past 30 years.
Start an online auction business, yes. Sell macrame designs, yes. Teach English to children in Nairobi, yes. Open up a bait shop in the Ozarks, yes.
Keep working the same, dull boring job -- no.
no baby boomer retirement crisis
no baby boomer retirement crisis
Sunday, July 8, 2007
The Power of Gold
I've started reading Peter Bernstein's next book, The Power of Gold. Its theme can be discerned from the subtitle: The History of an Obsession. Its focal point seems to be the old story of a man who was transporting his fortune -- in the form of many pounds of gold -- when this ship he's on is hit by a bad storm. He strapped the gold to his body and of course it drags him to the bottom of the ocean. He didn't have the gold -- it had him.
Still, as always, Bernstein weaves a fascinating narrative of belief and history. I'm pretty sure that when we get to modern times, he's not going to come down on the side of those who believe that we should return our money to a gold standard.
But this book's copyright is in 2000, before the current run-up in gold's price. Are we in the early stages of a new bull market in gold? Should we care?
My own attitude is shaped by the realization that gold doesn't dividends, although it's possible for gold mining stocks to do so. It's not common, though BHP Billiton is a top international dividend paying stock.
gold
gold
Still, as always, Bernstein weaves a fascinating narrative of belief and history. I'm pretty sure that when we get to modern times, he's not going to come down on the side of those who believe that we should return our money to a gold standard.
But this book's copyright is in 2000, before the current run-up in gold's price. Are we in the early stages of a new bull market in gold? Should we care?
My own attitude is shaped by the realization that gold doesn't dividends, although it's possible for gold mining stocks to do so. It's not common, though BHP Billiton is a top international dividend paying stock.
gold
gold
Wednesday, July 4, 2007
Income Investing Book
Today I just made an important addition to my income investing site - I launched by sales letter for the book YES, YOU CAN BE A SUCCESSFUL INCOME INVESTOR! by Ben Stein and Phil DeMuth.
It's a good book, the one which opened my eyes to the absurdity of throwing money at common stocks in the hopes of capturing capital gains in the future, which you can't profit from without selling the stock and losing future.
In the near future I will finish my own book on income investing, but in the mean time you can read about Stein and DeMuth's here:
Income Investing for Baby Boomer Retirement
income investing book
income investing book
It's a good book, the one which opened my eyes to the absurdity of throwing money at common stocks in the hopes of capturing capital gains in the future, which you can't profit from without selling the stock and losing future.
In the near future I will finish my own book on income investing, but in the mean time you can read about Stein and DeMuth's here:
Income Investing for Baby Boomer Retirement
income investing book
income investing book
Preferred Stock Investing -- good book
I've finished reading PREFERRED STOCK INVESTING by Doug K Le Du and I'm quite impressed.
While I've been (justifiably) writing about the temporary, unpredictable nature of capital gains of common stocks, this guy has been looking at preferred stocks -- and figured out a system to capture the capital gains that many preferred stocks have, particularly during periods that interest rates are decreasing.
To reinforce his point that this system is very safe, he continually contrasts it with the benefits of certificates of deposit, but finds that he can usually get a total return more than 3 times that of a CD. He claims that the risk is the same. I'd say that's not true -- but it's true that the risk of high quality preferred stocks is low. He has criteria for screening out the risky ones.
If you work his system for enough years, you may eventually lose some money to a company that goes out of business, but it'll be rare. In the meantime, you can make a lot more money than with a certificate of deposit.
This book is a lead generator for his email notification service, which charges you for the information to work the system. However, he's fair - the book gives enough information to work the system yourself. But it'll take some time and trouble and paying fees to some websites, so it's probably cheaper to let him do the work for you if you're going to commit to making money this way. The price of this service may change, but it's quite reasonable - a lot less than I expected, in fact. I pay more a month for my Internet access.
And the worst that can happen is -- you collect quarterly dividend checks that are probably 3 times higher than the interest a CD would be paying you.
preferred stock investing
preferred stock investing
While I've been (justifiably) writing about the temporary, unpredictable nature of capital gains of common stocks, this guy has been looking at preferred stocks -- and figured out a system to capture the capital gains that many preferred stocks have, particularly during periods that interest rates are decreasing.
To reinforce his point that this system is very safe, he continually contrasts it with the benefits of certificates of deposit, but finds that he can usually get a total return more than 3 times that of a CD. He claims that the risk is the same. I'd say that's not true -- but it's true that the risk of high quality preferred stocks is low. He has criteria for screening out the risky ones.
If you work his system for enough years, you may eventually lose some money to a company that goes out of business, but it'll be rare. In the meantime, you can make a lot more money than with a certificate of deposit.
This book is a lead generator for his email notification service, which charges you for the information to work the system. However, he's fair - the book gives enough information to work the system yourself. But it'll take some time and trouble and paying fees to some websites, so it's probably cheaper to let him do the work for you if you're going to commit to making money this way. The price of this service may change, but it's quite reasonable - a lot less than I expected, in fact. I pay more a month for my Internet access.
And the worst that can happen is -- you collect quarterly dividend checks that are probably 3 times higher than the interest a CD would be paying you.
preferred stock investing
preferred stock investing
Tuesday, July 3, 2007
Preferred stock investing
I wouldn't have thought there was anything exciting about investing in preferred stock, but it turns out I've been wrong. I'm reading PREFERRED STOCK INVESTING by Doug K Le Du. I haven't finished, but it's clear he's outlining a clever way to take advantage of the ups and downs of preferred stock prices that result from interest-rate changes.
Figure out the interest rate trend, combine with his knowledge of how preferred stocks work, be very selective in your buying of these stocks (he gives 10 strict criteria, and only one to three such preferred stocks are newly issued every month), buy them cheap (using a smart method I'd never heard of), and then hold them until they reach their maximum value.
While I don't believe he can predict interest rate rises and falls, you can figure out the overall trend -- enough to use this system to make a profit.
I also like how one of his principles is reducing work. I think far too many financial/investing writers want readers to do tremendous amounts of research, read annual reports and so on.
My one possible objection is that his system does include selling for capital gains. However, finding new preferred stocks to "ride" on their way up, and using a smart system to get predictable capital gains is so different from common stocks that I am inclined to think this may be worth it. I'll reserve judgment until I've finished reading the book.
You can get it at: preferred stock investing.
preferred stock investing
preferred stock investing
Figure out the interest rate trend, combine with his knowledge of how preferred stocks work, be very selective in your buying of these stocks (he gives 10 strict criteria, and only one to three such preferred stocks are newly issued every month), buy them cheap (using a smart method I'd never heard of), and then hold them until they reach their maximum value.
While I don't believe he can predict interest rate rises and falls, you can figure out the overall trend -- enough to use this system to make a profit.
I also like how one of his principles is reducing work. I think far too many financial/investing writers want readers to do tremendous amounts of research, read annual reports and so on.
My one possible objection is that his system does include selling for capital gains. However, finding new preferred stocks to "ride" on their way up, and using a smart system to get predictable capital gains is so different from common stocks that I am inclined to think this may be worth it. I'll reserve judgment until I've finished reading the book.
You can get it at: preferred stock investing.
preferred stock investing
preferred stock investing
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