Sunday, May 2, 2010

“Personal Finance: Unloved stocks have paid off - Philadelphia Inquirer” plus 3 more

Personal-Finance - Bing News

“Personal Finance: Unloved stocks have paid off - Philadelphia Inquirer” plus 3 more

Personal Finance: Unloved stocks have paid off - Philadelphia Inquirer

Posted: 02 May 2010 02:08 AM PDT

If you were too scared to look at the mail from your broker or 401(k) or IRA provider in the last couple of years, fear not.

The statement that arrived recently probably will look sweeter as long as you didn't flee the stock market. The first-quarter reports provide a stark example of how the market runs in cycles, sometimes moving from delightful to frightening, and other times from frightening to delightful. Stocks have been in the delightful phase since March 2009, after one of the most horrifying times in market history.

The average stock mutual fund gained 6 percent in the last three months, and 46 percent in the last 12, a nice reward after the terror of 2008 and early 2009.

On the other hand, if you ran from stocks and put your money into bond funds, you might have received a nasty surprise. If you had invested in funds that held U.S. Treasury bonds, you probably lost about 4.6 percent in the last 12 months, according to Lipper Inc., which tracks funds.

Bond funds go through cycles, too, and can lose money when interest rates climb or are expected to climb, the case lately.

When people see a loss in a fund, they may think they have a bad fund. But that's not necessarily the case when cycles are at work. Good fund managers lose money on safe bonds, such as Treasuries, when the cycle is against them. And weak fund managers can win on stocks when a strong cycle carries the overall market higher.

Here's what might be at play in your most recent results:

Unloved to beloved. If you dared to buy the financial companies that looked as if they would collapse in 2008, you have been rewarded. And if your mutual fund manager loaded up on them, your stock fund probably did better than average.

Mutual funds that invest only in financial-services companies, such as banks, climbed 12 percent on average last quarter, and in the last 12 months you would have made an average of 62.6 percent in one of these funds, according to Lipper.

Financial companies are a clear example of cycles at work. Typically, groups of stocks may be feared for a while, but then become popular when investors look in the bargain bin of stocks.

That happened with real estate funds, too. Despite worries about empty stores and vacant office space, real estate funds rose an average of 10 percent in the first three months of this year and 93 percent for the last 12.

That does not mean the climb will continue. Usually, investors buy beaten-down stocks such as financials and real estate before recessions clear. When profits materialize, the stocks can be deemed expensive, and investors move to bargains elsewhere.

A category of stocks loved too long can be vulnerable, especially if investors start to doubt profit expectations.

For example, commodities funds, investing in everything from oil to gold, climbed an average of 27.6 percent in the last 12 months, but investors have questioned their values lately. So some have sold commodities, and the funds fell slightly last quarter, according to Lipper.

Misleading high returns. If you have a mutual fund that invested in small companies, which were unpopular in the early part of the recession, they might look like your best funds now. So-called small-cap value funds climbed an average of 10.4 percent last quarter, while funds that invest in large-cap companies climbed 5.7 percent.

Often, the funds that do best coming out of recessions are the ones that invest in small firms. Eventually, investors decide popularity sent prices of small firms too high, and they switch to larger, relatively inexpensive stocks.

So, financial planner Nick Paldrmic is having clients cut back slightly on volatile small-cap funds, but not dump them.

Most financial planners tell investors to hold onto funds that invest in large firms, those that invest in small firms, and ones holding bonds, so they are prepared for any cycle.

Gail MarksJarvis is a personal finance columnist for the Chicago Tribune. E-mail her at gmarksjarvis@tribune.com.

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Personal Finance: 'Simple 6' steps help you save - Sacramento Bee

Posted: 01 May 2010 09:00 PM PDT

Pick the brains of the most "financially fit" Americans, then dissect their good habits.

That's the premise of a new study from Florida State University, where researchers identified the common traits of everyday folks with high levels of financial well-being.

The results? Surprisingly, some very basic habits, says Dr. David Eccles, a psychology professor and research scientist at Florida State's Learning Systems Institute. He boils them down to the "Simple 6": Talk money with your partner, get advice from employers, work out what you'll need, forecast what you'll have, save more and owe less.

Eccles, in conjunction with the FINRA Investor Education Foundation, will discuss his findings during two free library events this week (see below). Prior to his Sacramento appearances, his first in California since the study was released, he chatted with The Bee from his Tallahassee office. Here's an excerpt:

How is it that a British Ph.D. is studying how good/bad Americans are at saving/investing?

I came over the week after 9/11 on one of the first aircraft flying out of (London). My first job was at the Florida Institute for Human and Machine Cognition … they work in artificial intelligence on tools that help people do their jobs better. It's a big area of research in the military and in corporations: trying to preserve experts' knowledge in a way that novices can access it, even after the person is gone or retired … It's called "knowledge elicitation and preservation."

And that led to studying personal finances?

The common thread is skill acquisition. (After coming to Florida State), we began a study on financial fitness. If we can find people who are successful and are knowledgeable about their own finances, we can instill that knowledge – through workshops and resources on the Web – and help (others) get better at personal financial success.

What's your definition of being financially fit?

Like it or loathe it, the single biggest difference a person can make in (his or her) life – after your health – is to learn how to look after yourself financially … It means building the financial reserves to cope with life's challenges and increase your ability to retire comfortably. We don't set dollar amounts because it depends on people's standard of living and their expectations. For some, that's a husband, wife and three children who each have a cell phone and a laptop. Elsewhere, there is one cell phone and perhaps one laptop in the whole family. These things vary hugely.

How'd you identity these financially savvy Americans whose habits are so laudable?

We had a sample of households who were very similar: married, average age 55, all had children, all owned a home, no bankruptcies, no divorces, all within 10 years max from retirement. The salaries ranged from $30,000 to $200,000, but the average was about $120,000 combined for husband and wife … within each group of our best/worst performers we had incomes in the low/middle/high ranges.

We controlled for lifetime income from age 18 (inheritances, huge medical bills) … then looked at what their net worth – from the least to the most – as they were nearing retirement age. We ranked them from best to worst and looked at their personal financial habits.

Some of the "Simple 6" habits you identified are pretty basic: maximizing savings, minimizing debt, for instance.

They're not astounding. They don't pass what we in academia call the "grandmother test": You tell your grandmother the results of your two-year study and she says, "I could have told you that." The best households aren't using any sophisticated investing strategies … but they've (adopted) some basic habits that are very important.

(Such as) "Ask your employer." Most financially fit households were ones where the wives, in particular, had sought out information from their employer. At the risk of sounding sexist, husbands historically have assumed control for finding out how to manage finances, how to set up a retirement account. But we found our "upper group" was definitely marked by equality: both partners trying to manage and understand their personal finances … For instance, one partner reads somewhere that there's a higher limit for contributions this year to a Roth IRA. So the partner goes home and tells (his/her) spouse: 'Did you know that?' That's knowledge being actively shared.

What's the biggest single obstacle to Americans saving for retirement?

It's too far in the future if you're young … and right now, our conventional spending patterns are not aligned with what we earn. Buying lunch out every day is normal; bringing it is slumming. That's a huge amount of money (spent on eating out) each month.

The credit (card) boom of the last 20 years helped create that mindset; the recession may help change those habits. Maybe there'll be a "new normal" … bringing your lunch three days a week instead of eating out five days a week.

The recession has spooked a lot of people away from their savings strategies, especially for retirement. How do you motivate people to try again?

In a country that expects individuals to take care of their retirement assets and figure out how mortgages work … It behooves us to provide good resources to figure out how to do these things. Just like the American Heart Association gives you five strategies to stay healthy (exercise, don't smoke, avoid fatty foods, etc.), we're trying to do the same for your financial health.

For example, not smoking in your 20s is like putting aside a little savings (at the same age) in your retirement account: both will help you hugely at age 60.

From your 20s to your 50s, that's the age where you can do the most to set yourself up to be financially stable.

For more details on Eccles' study and the "Simple 6" financial habits, go to www.financestudyfsu.org.

© Copyright The Sacramento Bee. All rights reserved.

Have a personal finance question? Contact The Bee's Claudia Buck at (916) 321-1968.

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Personal Finance - Scotsman.com

Posted: 01 May 2010 04:35 PM PDT

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Chris Farrell: Creating a budget? Answers can be found ... - Minneapolis Star Tribune

Posted: 02 May 2010 11:55 AM PDT

There are plenty of tools available to help you construct a budget. Quicken is among several excellent computer programs for data management. Better yet, the new generation of online services for budgeting is terrific. For example, Mint.com is remarkably easy to use. (It has been bought by Quicken.) Mint will aggregate all your credit card, savings, investment, mortgage, auto loan and other financial data. You mine the information to see where your money is going. Mint is a monitoring tool that facilitates budgeting. The web-based budgeting tool sites keep getting better, too. Many banks, credit unions and other financial institutions are improving their online budgeting programs for customers, too.

But tracking expenditures with a calculator, notebook and pencil works well, too, in most circumstances.

Budgeting is a tool, not a goal. In an interview I did several years ago with Eric Tyson, author of "Personal Finance for Dummies'' (and a number of other terrific finance books) we talked about a couple that was making a budget. They were eager to do all kinds of data entry on the computer. Tyson's response was "do they really need to be tracking all of their spending on a monthly basis? Because if they set a specific savings goal like, 'we are going to save 10 percent of our income ... each month,' and they are able to do that, then my feeling is who cares where it goes after you have accomplished that savings."

I vote for keeping a record of your spending for several months to find out where your money is going, and use that for creating a working budget. But once you have one, it's no longer necessary to minutely follow your expenses -- unless there's a good reason to do it.

Chris Farrell is economics editor for American Public Media's "Marketplace Money." Send questions to cfarrell@mpr.org.

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