Posts Tagged ‘finance’

Housing’s New Job: Rebuilding the Economy

Monday, April 8th, 2013
Housing's New Job: Rebuilding the Economy

Here’s something we haven’t heard in the last five years: while government and retail shed jobs, builders continue to add them.

A closer look at the numbers shows a split recovery. While the overall economy added 88,000 jobs in March, three areas lost workers that month: government (7,000), retail (24,000) and manufacturing (3,000). Since the start of 2011, government has shed 391,000 jobs, and millions of workers continue to leave the labor force, according to figures quoted in the Wall Street Journal.

The opposite is happening in the building trades. Reflecting the growing recovery in the U.S. housing market, the construction industry added 18,000 positions in March and a healthy 169,000 since last September. That brings construction’s cumulative gain since 2011 to 367,000, beating the 357,000 gain in manufacturing.

Those figures reflect increasing activity in the market. Privately owned housing starts in February stood at a seasonally adjusted annual rate of 917,000, 27.7 percent above the February 2012 rate of 718,000, the U.S. Census Bureau reports. Sales of existing homes and condos have also grown, from 4.52 million to 4.98 million over the same period.

While the economy still faces headwinds, housing looks like it’s building a solid foundation for recovery.

Jumping off the fiscal cliff

Tuesday, November 27th, 2012
Jumping off the fiscal cliff

What’s the best way to position your portfolio so it doesn’t fall off the fiscal cliff? Try doing nothing.

That’s not what you’ll hear in the media, or from some securities firms. Fidelity recommends real estate investment trusts that specialize in healthcare. Seeking Alpha says investors should reduce exposure to U.S. industrials while overweighting global technology. Bond manager PIMCO sees “fiscal contraction without fiscal catastrophe” and an opportunity to sell long-term Treasuries in preparation for inevitable inflation.

Our friends in Venice, Kelly Caldwell and company of Caldwell Trust, say they are creating a defensive posture in client accounts by emphasizing less cyclical investments while keeping equity exposure at current levels. And one writer for the Wall Street Journal cautions about harvesting profits ahead of an almost-certain rise in the capital gains tax rate, advocating a focus on prepaying expenses such as tuition and state taxes.

At Vanguard, the cost-sensitive mutual fund company believes investors should take a wait-and-see approach to portfolio allocation. Rather than anticipating tax rates, you might:

  • Make sure any tax-related decisions are truly in line with your long-term financial goals. A question to ask: are you choosing to recognize capital gains this year because it’s a good move for your portfolio or because you’re speculating that rates are headed higher?
  • Keep taxes in mind throughout the year, not just at the end. That gives you plenty of time to evaluate your situation and make necessary changes.

To that advice I would add a third point, one that Vanguard has championed for years and is echoed by several writers at the Journal: when it comes to your portfolio, think about strategic rather than tactical asset allocation. Year-end shuffling in anticipation of possible rate hikes is a form of short-term trading, one that’s subject to the views and emotions of the moment. Those will change. Your long-term goals probably won’t. Allocate for that.

Then turn off the news.

Entrepreneurs never say die

Wednesday, September 12th, 2012
Entrepreneurs never say die

The headline reads “Small Business Owners Fear Being Unable to Retire.” But according to a survey done last year by the financial services industry, the opposite may be true.

Nearly two-thirds of small business owners fear outliving the money they need to retire, according to a poll from the Guardian Life Small Business Research Institute. Yet many of the 1,433 small business owners surveyed expect to live well into their retirement years, with one in three saying they plan to retire after age 70. Nearly one in seven plan to work part-time in retirement while 10 percent expect to work full-time.

“In many cases, small business owners keep working because they love what they are doing and don’t see the point of retiring,” said Patricia G. Greene, a professor of entrepreneurship at Babson College. “It’s hard for many of them to think what life would be like without (running) the business.”

Sarasota, Florida entrepreneur Martha Nikla agrees. The jewelry designer and owner of Beauty & the Beads has watched too many retirees fade with their careers.

“My mother and many of her friends, wealthy Sarasota retirees, regretted giving up their entrepreneurial businesses and longed to be ‘in the mix.’ According to them, working provided a reason to get up in the morning, a structure to the day, a sense of accomplishment, a way to remain current with technology and societal sensibilities, and was life extending. Playing bridge and eating rubber chicken lunches at the club proved to be a very hollow experience for many of these elderly ladies . . . so much energy and experience untapped. Their advice: never retire, never give up your business.”

When uncertainty becomes taxing

Tuesday, August 21st, 2012
When uncertainty becomes taxing

Financial service firms do a good job of promoting their key messages—Vanguard and its mantra of reducing fees, T. Rowe Price and its call to maintain stock exposure throughout retirement. Other companies provide adequate boilerplate, such as American Funds’ drumbeat of steady investing in all environments. All sound strategy for the long-term investor, but not a lot of comfort in the short run.

When it comes to providing useful advice, there are a few standouts—Vanguard’s retiring Chief Investment Officer Gus Sauter (“Why stay in the stock market?”) and T. Rowe Price Chief Economist Alan Levenson (“Is the U.S. Approaching a Fiscal Cliff in 2013?”) come to mind. They balance corporate messaging with market realities. To that list I’d add Rande Spiegelman, a CPA who serves as vice president of financial planning at the Schwab Center for Financial Research.

Spiegelman has written a guide on how to play the impending fiscal cliff. He charts historic tax rates for income and dividends as well as figures that show what would happen should Congress allow Bush-era cuts to expire at the end of this year. It’s not only sound reporting but useful information. Case in point: some pundits urge investors to take gains and pay taxes now, while the long-term rate stands at 15 percent for high earners. Spiegelman suggests staying the course will yield a bigger net profit, charting a hypothetical investment at today’s rates as well as the higher rates politicians have floated.

Hats off to Schwab for trying to make sense out of uncertainty.

Working for life

Wednesday, June 27th, 2012
Working for life

The headline grabbed my attention: “The Secret to a Successful Retirement: Don’t Retire.” It adorned an article on The Street about a study by Boston College’s Center for Retirement Research: “The best financial advice for the growing number of Baby Boomers eagerly approaching retirement is: ‘Don’t.'”

The study found that a combination of depressed home prices, poor stock market returns, inadequate savings and diminishing pensions means that many people approaching retirement have one alternative: to work longer.

That wasn’t what I was expecting to read. From the headline I thought the article would take a contrarian point of view: that some people find fulfillment in work and would miss that in retirement, along with other benefits like socialization and lottery pools. That busy people seem happier than lazy ones, or just don’t have as much time to complain. That spending more time on Facebook or hugging the TV remote doesn’t lead to a spiritual awakening.

Look at Paul McCartney. He just turned 70 and he’s still performing.

If we believe what people say they’ll do–a big if–most Americans plan to work past age 65–some 74 percent, according to a study released in May by economists at Wells Fargo Securities LLC. Most seem worried that the Great Recession has blown a hole in savings and retirement plans, but I think the reasons for hanging on run deeper.

Work is as much about engagement as it is about money. Yes we need to pay the mortgage but we also need to stay sharp and work helps us to apply that focus throughout our lives, on and off the job. It’s good discipline.

So the next time someone asks when you’re going to retire say “never.” They’ll think you need the money. You’ll know the real payoff.

Jeff Widmer

Boomers continue march to early retirement

Wednesday, June 6th, 2012
Boomers continue march to early retirement

Despite protests that they can never afford to retire, a new survey shows that baby boomers are still leaving the workforce before the magic age of 65. The trend not only contradicts the conventional wisdom spouted by business and financial journalists but may create problems for a federal government already struggling to pay its bills.

In a 2011 survey of 1,012 respondents born in 1946, the MetLife Mature Market Institute found that:

  • Almost half (45%) of 65-year-old boomers are now fully retired, up from 19% in 2008.
  • The majority of boomers (63%) have started receiving Social Security benefits.
  • Half of those retirees started collecting before they had originally planned, while only 5% retired later than originally planned.
  • Almost 4 in 10 respondents (37%) who retired earlier than they had planned cite health-related reasons for doing so.
  • Those who retired later than they had planned mention needing a salary to pay for day-to-day expenses (27%) and a desire to stay active (13%) as the reasons.
  • Six in 10 Boomers are at least somewhat confident in the ability of Social Security to provide adequate benefits for their lifetime.

The findings run counter to the popular belief that most boomers will work longer to make up ground lost to the Great Recession. They aren’t, and that has implication not only for them but for those who craft public policy.

– Jeff Widmer

Continental divide

Friday, January 27th, 2012
Continental divide

What a difference an ocean makes.

Reaction to the release Friday of U.S. GDP numbers varied depending on which side of the pond you’re from.

The headline on the Financial Times website read “US Growth Accelerates to 2.8%.” German’s Der Spiegel wrote “U.S. economy is growing strongly again.” It’s another story in the United States. Bloomberg said “U.S. economy grows 2.8%, less than forecast” and the Wall Street Journal added an element of doubt with “U.S. Economy Expands 2.8%, but Questions Persist.”

Do they ever. After an earlier relief rally the Dow, Nasdaq and S&P spent the rest of the week retracing their gains. This despite the Federal Reserve’s promise to keep interest rates near zero through the end of 2014, a clear signal that if you want to make money, you’ll have to shift the portfolio from cash to equities.

Of course everything is relative. In Europe the financial news of late doesn’t have traders dancing in the street. On Friday Fitch joined the Greek chorus of naysayers when it downgraded the credit of five Euro-zone countries including Italy and Spain. Europeans know they’re in financial trouble and may see the United States as a beacon of growth. Reflecting the sentiment of investors, American media apparently don’t agree. While U.S. housing and employment numbers seem to be improving they’re moving upward at a glacial pace.

So is the glass half empty or half full? Depends on where you stand.

Taking stock of year-end advice

Wednesday, December 21st, 2011
Taking stock of year-end advice

In the past week I’ve read half a dozen articles on major financial websites urging yield-starved investors to switch from bonds to dividend payers. The pitch? That you can get a higher yield with less risk with dividend-paying stocks than you can with bonds, whose yields are depressed as flight-to-safety investors bid up their prices.

The numbers seem to support that view. The yield on a 3-month Treasury is 0.01 percent. The 10-year yields 1.87 percent, the 30-year a mere 2.85 percent. Savings accounts earn 1 percent at best. At the Vanguard Group, which keeps fees low with a religious fervor, the prime money market fund carries an SEC yield of 0.02 percent. That makes the dividend yield on the S&P 500, now 2.1 percent according to Fortune, look like a windfall.

That’s a great deal, unless you want to preserve your principle, or you’ve forgotten the collapse of both the tech and housing markets. The chance of losing money in a savings or money market account is slim. The chance of losing a significant chunk of your stock fund is much greater. Just look at the performance of the markets in 2011. Writing in USA Today John Waggoner says that the S&P 500 index has lost 1.4 percent this year. It gets worse for the average diversified U.S. stock mutual fund, down 5.9 percent to date, according to Lipper.

Not so for the dividend payers. In 2011 the 100 stocks in the S&P 500 with the highest dividend yields are up an average of 3.7 percent before their dividend payouts are calculated, according to Birinyi Associates (as quoted in the Wall Street Journal). There are two problems with using that analysis to power your portfolio. You can harvest those profits only if you constantly screen for those stocks, a job better left to the professionals. And the numbers disguise higher expenses for managed funds. The average mutual fund charges about 1.3 percent a year. Savings accounts charge nothing.

That so-called stock-market bonus—you can book capital gains as well as dividends—makes for a tantalizing but specious argument. Stocks and stock funds will lose money. Savings won’t. Neither will individual bonds held to maturity. If keeping pace with inflation is an issue, TIPS held to maturity should answer the call.

Comparing stable assets to variable ones does investors a disservice. Financial writers and advisors should compare similar assets and decide which ones offer the best yield in that class. Anything else, as Ecclesiastes wrote, is a striving after wind. Or the latest end-of-the-year investment guide.

IRS raises pension plan limits for 2012

Friday, October 21st, 2011
IRS raises pension plan limits for 2012

As the economy stumbles through recovery and more people worry about meeting basic expenses, here’s something you may not hear much about: The IRS says you can contribute an extra $500 to your 401(k).

Contributions to the tax-deferred retirement plans will rise from $16,500 to $17,000 next year as the IRS adjusts those amounts to reflect increases in the cost of living. This is the first increase in the rate since 2009.

Participants who reach the age of 50 before the end of 2012 can withhold an additional $5,500 from their paychecks for a total contribution of $22,500. The catch-up amount has remained the same since 2009.

The AP reports that in 2009 some 33 percent of workers ages 21-64 used 401(k) plans.

The IRS also announced new dollar amounts for a variety of tax provisions that affect 2012 returns filed in 2013:

  • The value of each personal and dependent exemption is $3,800, up $100 from 2011.
  • The new standard deduction is $11,900 for married couples filing a joint return, up $300; $5,950 for singles and married individuals filing separately, up $150, and $8,700 for heads of household, up $200. The IRS says nearly two out of three taxpayers take the standard deduction.
  • Tax-bracket thresholds increase for each filing status. For a married couple filing a joint return, the taxable-income threshold separating the 15-percent bracket from the 25-percent bracket is $70,700, up from $69,000 in 2011.

The question now is whether participants worried about jobs and inflation will have the cash to fund their futures.

Alphabet dupe

Wednesday, February 2nd, 2011
Alphabet dupe

How much of what we do is by choice? How much is influenced by others?

Apparently quite of bit of what we consider choice is programmed from an early age, and a crucial part comes from the classroom. That’s according to a pair of university researchers who studied the effect of surnames on buying habits.

Chances are if your last name starts with a letter toward the end of the alphabet your teachers had you sit in the back of the class, or stand at the end of the line. That meant while people in front were chosen for various opportunities, people in the back had to wait.

When they became adults, they made up for lost time. So goes the theory by Kurt Carlson of Georgetown University and Jacqueline Conard of Belmont University, who conducted the research.

They think the reverse is also true. People whose first names begin with the first letters of the alphabet, the people who sat near the front of the class or stood first in line, got first crack at opportunities. They’re used to being first, so as adults they tend to “buy late.”

The issue of choice is more than academic, especially if we want to remain free of most propaganda, both political and commercial. Several authors have made this kind of research accessible. In Outliers Malcolm Gladwell discusses the case of the Korean co-pilot who, because of cultural inhibitions, didn’t aggressively challenge his errant pilot before a crash. Blogger Laura Rowley writes about the issue and happiness in general on Yahoo! Finance. And Columbia professor Sheena Iyengar explores the positive and negative effects of decision-making in her book The Art of Choosing.