Financial

Moving further up the scale of risk, SPIDRS are a means for an investor to own a 'share' of an index of stocks. Want to make it easy to track your portfolio, invest in a S&P 500 SPIDR. One share of this SPIDR would be approximately equal in value to 1/500th of each of the 500 stocks that make up the S&P 500 index. To track how your fund is doing, simply tune in at the end of the day to catch how the S&P 500 did. If it went up 2% in a day, guess what? Your account went up 2%. There are SPIDRS for most major indexes, and sectors (financial, technology, small-cap, etc).

A good way to get into real estate, without getting your hands dirty by fixing toilets, dealing with tenants, or attempting to profit via fixing and flipping, is a real estate investment trust. REITs, as they are called for short, are collections of properties that are traded like a mutual fund. They are often specialized, such as major metropolitan are condos, suburban shopping malls, industrial, or big box retail.

As an investor in a REIT, you own shares of the total property value. You also are paid dividends based on the total net income of the properties. Since it is real estate that earns the income, you can even offset some of your dividends through depreciation. A fund paying 7% annually, would likely have a depreciation deduction of 2%, meaning you would be paid 7% in dividends, but would only be taxed on 5%.

While the real estate market is pretty rocky now, real estate is a solid investment over the long run. By choosing a reputable real estate investment trust, you can simply invest and watch your money grow, with little to no intervention.

Moving up the risk scale a tiny bit, we have horizon funds. Most major mutual fund families (i.e. Principal, Fidelity, Hancock, etc) offer some form of horizon fund. These funds take the guesswork out of diversification. Based on your retirement time frame, be it 10, 20, 30, or 40 years away, you pick the fund with a maturity year closest to your retirement goal.

If someone were planning on retiring in 2022, the 2020 fund would probably be a good choice. All this means is that as time progresses and you get closer to your fund's maturity date, the investments in the fund become more and more stable (bonds), with fewer and fewer stocks and higher risk investments. When the horizon is 30 years out or more, the diversification of the fund will tilt substantially toward equities (stocks).

Horizon funds are another good tool for people who don't want to focus a lot of effort on their portfolio by rebalancing every year or quarter.

Annuities are touted as a simple form of investment for people with a large sum of money (from the death of a spouse, other inheritance, or even lottery winnings). They are suited for those who have trouble managing money, or those who don't want to actively manage their money. In exchange for relinquishing control over a sum of money, you can be guaranteed payments for life if you wish.

According to the U.S. Securities and Exchange Commission, annuities are a contract between you and an insurance company. In this contract, you typically make a large payment, or group of payments to the insurer. In exchange, the insurer begins to pay immediately, or at a date in the future, periodic payments. These payments are tax free, and can be for a fixed period of time, or for the remainder of one's life. They can also pay a death benefit to your estate's beneficiaries. Fixed annuities guarantee a minimum rate of interest and payment amount. Variable annuities have interest rates which are tied to mutual funds. Another form of variable annuity is an indexed annuity which could be tied to a specific stock market index or an inflationary figure.

I like to take charge of my investments and monitor them closely. Some who know me might think it's a bit O.C.D., but I can usually tell you the price of tea in China on a given day. But for many, they just know that they have a sum of money that they want to invest in something. They have a horizon, or future date that they are saving for, or want to have access to the money. In the meantime, they want something that will generally outperform a run-of-the-mill cd or a money market account. There are numerous investment opportunities available if you prefer to leave the granular details of your investment to a responsible third party. Stay tuned for a sample of 'hands off' investment opportunities.

Sell in May and go away is the old adage. Basically, this means that as stockbrokers pack up and vacation for the summer, so should investors. The summer months are usually slow ones for the stock market. There's not typically a lot of news. By the end of spring, the holiday glow is over. There aren't any big holidays to pump up sales at retail stores. Gas prices usually rise and take a little more disposable income from consumers. All in all, it's not usually a very exciting time in the stock market.

Next year, we have an important election year. No incumbent president or vice president is running (not that Bush would win re-election if he could win, or Cheney could win, given their dismal approval ratings). Another adage is that Wall Street tends to favor Republican led administrations. As the year goes on, my suspicions are that we are looking at a high probability of having a Democrat in the White House after next year, due to "war fatigue". As signs point more and more to that, my guess is that the market will begin to price that in...and hence anyone selling before Wall Street determines the likely winner of the Presidency will be, will sell before the bear takes hold of this market.

0.6835 Euros, 0.47798 pence, .91404 loons, 1 dollar.

Exactly a year ago, it was:

0.7874 Euros, 0.5263 pence, 1.1294 loons, to the dollar.

The dollar has been dropping to levels not seen in decades against other major world currencies. Put another way, unless a country is artificially propping up the dollar versus their own currency (ahem, China and Mexico), our exports are becoming a lot cheaper to the rest of the world. This will translate to higher income to large US companies selling goods abroad. So at least for large cap stocks involved in trade overseas, the stock market should do well for a time. Now, at some point, without any intervention, the time will come when foreigners won't touch the old greenback for anything...but we're not there yet.

Regardless of the outcome of next year's election, the stock market shouldn't crater prior to November 4, 2008. The reasoning? The Federal Reserve will do whatever it can to avoid going into a recession prior to the election. Supposedly, the Fed is immune to political pressure...but let's face it. Who's your Daddy?

All of the signs could (and many do) point to a big slowdown in the next and future quarters, but as long as the Fed stomps on the accelerator by lowering interest rates further, injecting more money into the economy, we'll at least temporarily avoid the 'R' word. A little inflation can be overlooked, so long as there is growth. Now, after the election, the Fed can put on the inflation brake and give investors a little tough love over their choices the last couple of years. But any effort to do so now would be met by fierce outcries and be viewed by half the country as throwing the country into the hands of one political party or the other.

As such, look for the Fed to be very accommodating to investors, and hence the stock market over the next 12 months.

Ok, so I've been blogging about soaring oil prices and the impending recession. But you know something? I'm still 'all in' when it comes to the stock market. I have diversified a bit by having 40% of my portfolio in foreign (mostly Asian) stocks...which by all accounts is a ticking time bomb of a bubble in and of itself...but that's another story. The remaining 60% of my portfolio is in U.S. equities.

My reasoning for not running away from the stock market is summed up by the following three keys: an upcoming election year, the incredible shrinking dollar, and the age old adage sell in May and go away.

I'll discuss each of these in detail in my next few blogs.

Amazon.com announced their quarterly earnings today, and even managed to beat the consensus expected earnings per share by a penny. That is, everyone expected them to earn 'x', and they earned x + 1 cent. Since July, the stock has been surging in value and is was up 50% from their recent bottom price. So what did investors do today? They sold, big time. The stock dropped 12% today over fears that their profit margins are shrinking.

In true bubble fashion, investors panicked and started dumping tech stocks. Watching the indexes during the day, it was amazing to see the NASDAQ down nearly 3% at around 2:00 Eastern time. The Dow and S&P ended the day nearly unchanged, and the NASDAQ recovered fairly well, ending down 1%. All in all, a roller coaster day, and a punishing one for Amazon.com.

I recently valued a coin collection according to the industry standard guide, the Red Book. Now, the book says that price valuations reflect industry averages based on the best possible selling conditions, collector to collector. However, after picking a few samples taken from the Red Book, and doing a quick search on Ebay for items matching the coins' dates, grades, and appearance, I found that the valuations of many coins were off substantially.

Granted, the book is the 2008 edition, but many of the items on Ebay were selling at 50-70% of the listed price in the book. I would propose that Ebay is both a haven for both buyers and sellers, collectors and dealers can access Ebay and have a crack at any item listed, can bid on the item in an auction environment, this best approximates the "best selling conditions" touted by the book in their valuations. It also serves to remove the locality factor, as a slumping economy in one region of the country doesn't necessarily affect the outcome of an auction in which other regions can participate.

In the old days of local coin shows, and the jeweler/coin dealer shop, have been replaced by an economy in which we can all be dealer collectors. But, as a result, the prices have come down...and an old industry standard like the Red Book is losing relevance.

With the unexpected half a point cut in the federal funds rate on Tuesday, and a 2 day victory rally in the stock market, investors took a brief pause in the middle of their party. As I mentioned earlier, commodity prices are now soaring, the dollar is dropping, and oil is once again at record prices. Additionally, we had the unemployment numbers released today which showed that there were fewer initial claims for unemployment than expected, and an excellent earnings report by Goldman Sachs. The President is saying that the underpinnings of the American economy are in good shape. Now, while I am inclined to doubt anything a politician says, maybe things aren't so bad. If so, Bernanke has just set the stage for an inflationary surge next year. So where is a safe place to put your money in an inflationary period?

Two words: tangible assets. Precious metals such as gold bullion and gold mining stocks, residential real estate that is easily rented, oil companies. Since there is likely to be continued global unrest, defense contracting and weapons manufacturers are likely to continue being popular. Foreign stocks and funds are also likely to rise quickly as the dollar drops. Get ready for a rocky ride over the next few years and make sure your money isn't losing value in a savings account.

Countrywide received additional financing for continuing operations today, to the tune of $12 billion. The additional credit comes from several of its existing creditors and came as welcome news to Wall Street investors today. Their stock price rose 10% at the opening bell of stock trading, and added another 10% by the end of the day. Countrywide still has a long way to go to get back what they've lost. They are down to about half of what they were back in May of this year. It was, however, good to see them working their way out of this bind.

I'm a bit of a financial geek. I plan, and plan before making an investment. One of the things I check when looking at the profitability of an investment is what inflation will do to any given amount of money over time. Using the "Rule of 70" you can determine what a given amount in todays dollars will be equivalent to in the future.

For example, if today, you want to have the equivalent of a million dollars at retirement age, and you are the age of 25, you can determine approximately how much you will need to have the equivalent of a million dollars at age 65. If you anticipate that inflation will run at 3.5% annually, then you divide 70 (from the rule of 70) by 3.5. The result is 20, so you can deduce that every 20 years, a given amount of money doubles. So, by the age of 45, you would need 2 million future dollars to have the equivalent of 1 million of todays dollars. By the age of retirement at 65 (another 20 years down the road), this amount doubles again. You would need 4 million future dollars to have the same lifestyle that you wanted at 1 million of today's dollars. Naturally, any fluctuation in inflation could change this amount, so it's more of an estimating tool.

So if you were researching an investment that you had to purchase for 10k today, and that would return 19k in 20 years, even though the return is higher than what you put in, you would be losing money to inflation!

For anyone owning dividend paying stock, and in the 10% or 15% tax bracket, beginning in tax year 2008, dividend payments will be tax free. Granted, if you're in the 10% or 15% tax bracket, you probably don't have an investment portfolio to speak of. However, if you find yourself with money to invest, and are certain to still be in those tax brackets through 2010, the last year they are tax free, it's something to think about. Instead of throwing this money in a savings account, which will probably soon be earning less and less interest as interest rates drop, consider buying some bargain priced, dividend paying stock.

If you earn enough to be in the 25% bracket or higher, the federal taxation of your dividend payments is still a bargain at only 15% instead of your normal tax rate. Since savings interest is taxed at your normal rate, you'd be crazy to leave a lot of money in a savings account. After taxes and inflation, you're losing money by letting it sit in a savings account.