photos courtesy of Gary Morrison

Fun Facts in the World of Personal Finance

by Steve on May 17, 2012

According to the Fed Reserve, the average credit card debt per household with credit card debt is $15,956. The average law school graduate now entering the job market has over $100,000 in debt. 

There were 1,800 individuals who renounced their US citizenship or returned their green cards in 2011. This is nearly 8 times the number as in 2008. It seems that more Americans than ever are trying to avoid the IRS. This might be a bit extreme, but the old adage applies: it’s not what you make that’s important, it’s what you keep.

The average investor is holding 26% of his or her investment portfolio in cash. According to banrkate.com, the average money market fund pays about .49%. You can earn between .75% and 1% at an Internet bank with a high-yield savings account. What does your bank pay? 

Southern Company, an Atlanta-based utility, expects to generate 57% of its energy from natural gas by the year 2020. Southern Company generates as much energy as the entire country of Australia and has cut its coal usage by half since 2007. This is an example of a company that goes into a sustainable investment mutual fund.

In the world of collectibles, the winning bid for an experimental 1792 penny was $1.15 million. There are only 14 of these known to exist and none was ever circulated. The same coin sold for $105,000 in 1974. A 900 year old Chinese porcelain bowl sold for $27 million at a recent auction in Hong Kong. 

April was the first month in seven that consumer confidence did not increase. Investors reacted to the lack of rising consumer confidence by staying on the sidelines and avoiding stocks. The average investor doesn’t get it: the time to invest is when everyone else is worried. Securities are on sale when consumer confidence lags.

Worldwide, 15% of people believe that the world will end during their lifetime and 10% believe that the Mayan calendar could signify that it could happen in 2012.  I guess these 10% don’t need to worry about outliving their money in retirement, but for the rest of us, it’s a fear that can only be overcome with a good financial plan.

Investing in Emerging Markets Means Taking the Good With the Bad

by Steve on May 15, 2012

With emerging market investing, you get the good and the bad. Emerging market investing focuses on companies in countries that are growing rapidly and are not fully developed economies yet. For example the economies of Brazil, Russia, India, and China are considered emerging. 

Over the 13 year period that ended in 2011, the average annual return of emerging market mutual funds has been 11.48%. By comparison, large US stocks averaged a 1.99% per year return during this period and the international index made up of companies from developed countries average 2.34% per year. There is another benefit to this asset class: they are not closely correlated to (they don’t move in the same direction as) the markets of developed countries like the United States, Europe, and Japan. 

However emerging market investments are much more volatile. The 10 year standard deviation is 38% for this asset class. This is by far the largest standard deviation among the 12 major asset classes. By comparison, the ten-year standard deviation of returns for the S&P 500 index was 20.5% and the standard deviation was 2.2% for US bonds.  

In practical terms, what this means is that even though the 13 year average annual return of emerging markets has been excellent, in 2008 they lost 53% of their value and in 2011 they lost almost 18.5% of their value. Of course in between these dips, emerging market funds gained on average 78% in 2009 and almost 19% in 2010. 

You can purchase index mutual funds that specialize in this category. The two largest emerging market index mutual funds are the Vanguard Emerging Markets Index (VWO) and the iShares Emerging Market Index Fund (EEM). 

The bottom line is this: for a portfolio to be diversified, it must contain emerging non-US stocks. However you must be prepared to take the good with the bad.

Warren Buffett’s 2012 Letter to Shareholders

May 10, 2012

Warren Buffett is one of this country’s greatest business people. Note that I did not say greatest investor. His company, Berkshire Hathaway, Inc. is a fascinating conglomerate of companies that he understands, but he is not an investor in the sense that he does not own stocks and bonds and trades them to create value. [...]

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Warren Buffett Speaks on Gold, Banks and Other Topics

May 8, 2012

Over the weekend, Warren Buffett, the chairman of Berkshire Hathaway Inc., held court at the annual meeting for Berkshire Hathaway shareholders. As I have in the past, I’m going to write about several items they came up at-bat annual meeting in the next two blog post. In addition, we’ll discuss the annual chairman’s letter to [...]

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Siren Song of Investing

May 3, 2012

A good client recently sent me a Wall Street Journal article from April 13 that described the fast start of the new PIMCO Total Return Exchange Traded Fund (ETF) (symbol BOND). This actively managed ETF is run by investment superstar Bill Gross (aka “the bond king”) and has attracted a near record amount of new [...]

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More Personal Finance Lessons from Poet Robert Frost

May 2, 2012

Robert Frost, the American poet who lived in the middle part of the last century, may not have been specifically thinking about personal finance when he wrote these lines, but many of his verses apply to managing your personal finances. For example: “A bank is a place where they lend you an umbrella in fair weather [...]

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Personal Finance Lesson From the Seattle Seahawks and Robert Frost

May 1, 2012

Last week, the National Football League (NFL) annual player draft took place and my hometown team selected a player in the first round that very few “experts” believe is a good choice. The conventional wisdom believes they should have taken this player or that player or done this or that. The day after the draft, [...]

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Inherited IRA Traps and Pitfalls

April 26, 2012

There are four types of Individual Retirement Arrangements (IRAs) for individuals: Traditional IRA Rollover IRA Roth IRA Inherited IRA. You probably know that there are different tax issues for a traditional IRA and Roth IRA, but many people are un-aware of the traps and pitfalls that can occur with an inherited IRA.  The tax rules [...]

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Time for Personal Financial Spring Cleaning

April 24, 2012

Because it’s Spring (finally), it’s a good time to do a few things around your personal finances. For example: Go through your personal finance files and throw out stuff you don’t need like old bills, insurance and investment account statements you no longer need and old copies of policies. Review your beneficiary designations on life [...]

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Benefits of Earth Day Investing

April 22, 2012

Today is Earth Day. A day to celebrate mother earth and all she gives us…the air we breathe, the food we eat, the water we drink. In short, Earth Day honors what sustains us and reminds us to consider what we can do to make the planet better. Thank you mother earth. I am grateful for [...]

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