It all began several years ago when I first started to develop an interest in economics and investing. It doesn't take a genius to realize there are some extremely large problems. I'm not a doomsday preacher but these are simple facts that must be addressed. The worst part of the situation is that nobody else seems to be paying any attention! That is, until October 14 when Peter Grandich released an article titled, "Man Your Battle Stations". That was the first time I've EVER seen a non-doomsday preacher signal that trouble is ahead. He is the first investment guru to take notice and publicly talk about it. FINALLY! I HIGHLY SUGGEST YOU READ IT!

1. Deficits

It's no secret that the U.S. is having some money problems. In order to pay for increased security, wars, social services and health care, the U.S. is beginning to bleed money. At the same time the U.S. is spending record amounts the economy is beginning to falter. The U.S. is also printing a massive amount of money and no longer publishes the M3 index that tracks the money supply!!! This is a recipe for disaster. Even with the increased government spending the country's infrastructure is getting old and tired.

2. Mounting Debt

With the rising deficits comes rising debt (duh!). The debt is now the largest its EVER been and increasing at an alarming pace. This MUST STOP. What happens when a household or company takes on too much debt? Eventually if it continues it will BANKRUPT the country! Some of you are probably thinking I'm not backing this information with numbers… the numbers are in plain sight. That fact that you may not know them is part of the problem! You probably know the latest gossip on Britney Spears but nothing about these important issues the United States is undergoing.

3. Shrinking Middle Class & Exporting Jobs

At the same time the U.S. is spending record amounts the middle class is shrinking! Jobs are being exported to foreign countries where the labour laws, standard of living and cost of living are all much lower. The large middle class is what makes the U.S. Market a powerhouse in the world's economy. It is slowly being eroded.

4. Fiat Currency is Flawed

I wrote an article about Fiat Currency Flaws a while back. It still holds true. Read it. Then read Safe Investments Like CDs & T-Bills Are No Longer Safe! After you have read these articles you will see why I don't hold too much trust in any fiat currency that isn't backed by a tangible resource. This is also why I'm so bearish on the USD. Combine these facts with the M3 index ceasing to exist and you have the beginnings of the end for the USD. James Dines of the Dines Letter fame only further confirmed this!

5. USD Value

In the last five years the value of the dollar is now 60% lower against the Canadian dollar. This marks a SIGNIFICANT change and is one of those alarm bells that must be ringing! 60%!!!! Think about that. The Canadian dollar is worth more than the USD now. The worst part is the trend is continuing to get worse and the USD is VERY weak. I wouldn't even rule out a currency collapse in the future if this continues. I hope it doesn't.

6. Retirement (Retire What?)

The nations first baby boomer's will being to retire shortly. The baby boomer's make up the largest well educated group within the economy. I think they deserve a retirement after all the years of work… but this is part of the problem. A large portion will start retiring at the same time the country is going through lots of problems. I'd hate to be a baby boomer on the tail end of the generation as the economy and value of your portfolio may not easily allow for retirement.

Think about this: What if every baby boomer began selling stocks each year, all their stocks over a period of just a few years to help pay for retirement? What if the baby boomer's started cutting back on spending as most retiree's do? What if they begin to retire in droves?

7. Present & Future: Wars & Proxy Wars

Wars happen, they always have. There are wars going on right now… both real wars and proxy wars… and the economic war that is always present.

The biggest problem is the baby boomer generation will start retiring in droves at the same time the nation is undergoing severe deficits, expanding debt and a falling dollar.

8. U.S. Economic Outlook

These are but a few of the many problems that the nation will face over the coming decades. Go read Man You Battle Stations for more information WITH numbers to back it up. My next task is to identify some ways to safeguard your investment portfolio from the risks. You don't want to become part of the problem by being just another victim, instead try to be part of the solution. It will help you sleep at night a whole lot better knowing that you have some safeguards in place to ensure your retirement and that you won't lose your home or have trouble feeding your family. It's all just precautions that everyone should take, even if the outlook is good. Even natural disasters (New Orleans!) can do dramatic harm and it pays to be prepared!

It's my belief that the U.S. wants to create a North American Union (like the European Union) so that it will essentially own all the Canadian/Mexican resources. That would help increase the U.S. balance sheet overnight. I also believe a North American Currency would be involved, as the USD is looking like it could collapse or get so bad it would cause an economic recession/collapse. This North American Union is BAD for MANY reasons, for all countries involved and perhaps I'll also detail it at a later date. So much stuff is going on right now in the world! Stay tuned.

Related Posts

This is a post from the ETF Topics site. All Rights Reserved.

"Sir, we just ran out of money!"

"Then print some more!"

The problem is that is has become too easy to print more money. Normally supply and demand would cause a currency to fall fast if too much money has been printed. This isn't happening because the US stopped printing the M3 (an economic indicator) that allows the world to see how much money is floating around in circulation. Also, with the case of the US dollar, it's a world wide currency and used for oil trading, so it hasn't acted like a normal currency might have when supply increases dramatically.

China has been responsible for buying up much of the debt the US has been issuing to the point where its reserves of USD are swelling at an alarming rate. Now the Chinese may stop purchasing so many USD (decreasing demand) because even they are worried about a falling dollar and they don't want to lose money either. It's interesting to note that they are also now in a very strong position at any economic bargaining table. You will notice not much gets done on the intellectual property rights and how China blatantly refuses to protect patents. China now has the power to cause a collapse in the USD if the two countries were to ever decide on a show down, whether it be economically, politically or war… I say this not out of fear, but because I've studied history and I came to the conclusion that two super powers often don't get along too well after a while when resources are finite.

I've alluded to the currency situation in the past as possibly the worst the world has ever seen for fiat currency. I still believe a collapse could happen though the when and where, I have no clue. I'm not saying it will happen, but it could eventually occur. If the US dollar were to ever collapse I think a new currency, the Amero (or similar name) would surface very quickly and it would be backed by gold and/or silver and would mark the end of fiat currency. Things would be turbulent and there might be a few years where the economy won't do so well, but we'll eventually recover. In fact, something like this may need to occur… it may even be a foregone conclusion that it will eventually occur. I'm not entirely sure.

Fiat Currency: A Potentially Fatal Flaw?

Fiat currency has one big flaw. This world has a finite amount of resources but an infinite number of dollars can be printed to try and fulfill an infinite number of human desires. Anytime you try and buy a finite good with a seemingly infinite one, things don't always work out well.

Related Posts

This is a post from the ETF Topics site. All Rights Reserved.

Man-made global warming is the biggest lie ever sold to the public in the 21st century. It's funny how everyone watched a single documentary by a former politician and instantly believed the science to be gospel (people believe it like its a new religion!). The documentary is so absolutely flawed and filled with lies that I don't dare mention its name. I find it even funnier that some powerful groups wrote that they wanted to use environmentalism and global warming to tax the food we eat and the air we breathe. Then, after Gore lost to his buddy Bush in the election, he went on to create the documentary that carried out the aforementioned plan. Gore was worth about one million dollars when he was running for President. After he lost he made a single documentary and now his net-worth exceeds $100 million.

Carbon dioxide has been chosen to be the enemy of mankind by Gore and the elites. Oh how funny it is. He didn't choose air pollution or water pollution or any harsh unnatural chemical that we (as humans) are actually guilty of spewing into the atmosphere. Instead, the elites chose a naturally occurring chemical that can never be reduced to zero so that we can never declare we have won the war on carbon dioxide and man-made global warming. Carbon dioxide is essential to life on earth - without it there would be no life. We breathe in oxygen and exhale carbon dioxide. Plants would not be able to carry out photosynthesis without carbon dioxide - in other words there would be no plants and as such, no life on earth. Furthermore, the ocean and volcanoes produce massive amounts of carbon dioxide that make man-made carbon dioxide look negligible.

If carbon dioxide is so bad, why does it occur naturally with no ill affects on our health. The planet naturally creates massive amounts of it (much more than we do!). If you still believe carbon dioxide is the worst thing since Hitler, than perhaps you ought to boycott carbonated soft-drinks… Yup, the pop we drink has CARBON DIOXIDE in it. Oh my, I can't believe we are still force feeding such a dangerous chemical down the throats of our youth! //end sarcasm. I don't see bans or extra taxes on pop yet, but I'm just waiting for people to make the connection (and realize pop has CO2) and ban Coke and Pepsi in an effort to curb global warming. That would make me laugh. At least we can laugh about it, right?

As for the global warming part… there is scientific evidence that every planet in the solar system is warming up. We can't blame the martians for driving cars around and warming up their planet nor can we use carbon dioxide to explain why all the planets are warming. We can use sun activity to explain the warming. Who would have thought the reason we are heating up could be due to the sun warming up? What a revelation! The sun just entered a new solar cycle and has been exceptionally active and has a plethora of sun spots for us to watch. Solar flares are also increasing. THE SUN IS WARMING. When my house gets too warm, I don't blame my bad gas and heavy breathing (exhaling CO2) for warming it up due to an excess of CO2 in the house. I go check the furnace. Perhaps the sun is the first place mankind should look to when Earth begins to get a little hot? A little common sense could go a long way.

If I was to time travel back to the last ice age and go to the exact same spot I'm sitting at now, I would be under several hundred metres of ice (under a glacier!). In order to melt that glacier that covered where I'm at now, we didn't start up our vehicles and begin belching. The Sun melted the glaciers from the last ice age. You see, there are natural cycles in the world, just as there are natural cycles in the Universe. The Earth has periods of warming and cooling, due to… drum roll…. the sun.

Now that I've debunked man-made global warming, I think it's time to say I'm 100% against polluting, including air pollution and smog. I hate all the waste that goes on in the western world. BUT carbon dioxide is not our enemy.

There have recently been riots around the world, all about food. You see, the prices for different food crops have skyrocketed in the last year or two. Why? One of the reasons is increased demand from ethanol. Many crops are now being turned into a fuel that will pollute less than gasoline and diesel. I find this funny. If we were serious about reducing our footprint, we'd all switch to electric vehicles and we'd put all our money into inventing a more efficient battery technology so electric vehicles would have a longer range. Instead, we are now taking food and converting it to fuel, which increases the demand and price of crops. Not only that, but this ethanol is so inefficient it actually uses more energy than it creates! The poor from around the world are getting squeezed and it is becoming increasingly difficult to afford FOOD.

I said it earlier, Global Warming may be occurring. But it isn't man-made. It's selfish for us to think we have such a huge affect on this planet that every action mother nature takes is a direct result of us screwing with her. Go fly a plane. Look down. See how minuscule we really are. The Sun is causing the warming. The man-made global warming myth will lead to many politicians implementing new taxes on carbon (carbon is the building block of life - they are taxing it now) and carbon dioxide. This myth is also causing food prices to soar and the poor around the world to starve even more.

It's not all bad. Pollution will be reduced due to so many new-found environmentalists. They may be targeting carbon dioxide, but in their efforts they will reduce all sorts of real pollutants. It will push us to look to new energy sources beyond oil. This is all good. I've talked about Kyoto in the past. It was flawed and would never work. Want to do your part? Invest in solar, wind, geothermal, battery technology and electric cars. Then go recycle, reduce your waste, buy some solar panels, an electric vehicle, and start composting and growing some of your own food in a small backyard garden. With any luck, and a little carbon dioxide, your plants will continue to do their part in providing clean fresh air and good nutritious food.

Want to make money due to this man-made global warming myth? Think about all the timber companies and how much of a carbon sink their forests are. If carbon credits become a reality (I hope not, they are dumb as hell), then all these timber companies stand to make a fortune. Carbon credits would be wrong, and I've outlined why in my old article "Kyoto is Lame". Let's just pray carbon dioxide is still around (lol, as if we could stop it!) so the forests don't die. In fact, I sort of want to go out and make a PRO-CO2 fundraising dinner in an effort to save the forests… I'm just kidding, as we don't have to worry, the Earth will continue to spew out CO2 from the oceans, land, animals and volcanoes and there ain't a damn thing we can do to stop it. That doesn't mean we can't use the new green movement to do good things and make plenty of money!

Related Posts

This is a post from the ETF Topics site. All Rights Reserved.

Some people start a business to have control over their work schedule or career while others invest in a business to do good things or help a family member out. There are hundreds of answers to the above questions and I don't intend to go through them all (because I can't and who cares about all the reasons!?!). We all have our own reasons. As an investor, the only reason I would want to own (or invest in) a company is if it's able to provide positive returns on my investment or if the business is being used to do good. Nothing new here.

I've noticed that many successful private business owners are often looked upon with envy by those who are lower on the financial totem pole. Ordinary citizens look at business owners and assume they aren't just being paid for their work in the company, but a portion of profits (if its a profitable company) as well. This is often true if its a profitable company that isn't in its early rapid expansion stages where every dollar of profit gets reinvested.

Now the problem I've noticed is that many of those same ordinary citizens have stock portfolios that are invested in large profitable companies that don't even offer a dividend or else the dividend is extremely small! Many stock investors look at their portfolio's differently than they look at those who own a private company - but both are investments in corporations. If a profitable mature company isn't paying a dividend, then the investor must believe the company will continue to grow the intrinsic value of the company quickly by reinvesting the profits for growth. I don't think I could EVER invest in a large cap company that doens't provide some dividends to its owners. For a large cap to continue to grow at double digit rates year in and year out, is extremely difficult (at least on a consistent basis). Let's face it, it's much easier to grow a $50 to $100 million market cap company at 20% a year for five or ten years than it is for a $200 billion market cap company.

I'm not against investing in a company that doesn't offer dividends, so long as that company is either undervalued or in a high growth stage. There are different reasons to invest in a company and you MUST know why you invested in a particular company. It amazes me how many people don't really know why they invested in a particular company. It also amazes me how many investors forget they are partial owners of a company - It's not just a stock ticker that goes up and down. You are actually buying a portion of a COMPANY.

It seems to me that profitable public companies are treated different than profitable private companies. If you owned a profitable private company, you would almost undoubtedly give yourself some dividends since it's often a lower tax rate than capital gains and an efficient way to get cash out of a corporation. But some public corporations that are profitable and large do not give out dividends. Another interesting thing to note is the high valuations on many public companies. If you go and look at the valuations for private companies, they are often much lower (hint: Some investors with a few million might be better off looking into investing in private corporations if the valuations are good and a solid management team is in place, though it certainly isn't for everyone!). Now, there are some benefits of stock ownership in a public company - namely that fact that you can buy and sell whenever you want (you have to love liquidity!) and you don't have to worry about managing the company (though you better vote and know the management team). But we often pay a premium for this hands-off convenience.

But I'm (as usual) getting off track. Damn my scatter brain. Why invest in a large company on the stock market? If you're reaching the age of retirement, your investments should have a focus on generating income so you don't have to start dipping into the value of your portfolio. Not every year will the stock markets or your portfolio go up. Dividends offer some income without forcing you to sell shares of a company. Dividends are often taxed at a lower tax rate than capital gains and is a more efficient way to get cash out of a corporation. If your young your reasons to invest will differ and will be focused on growing the portfolio as rapidly as you safely can. That may sometimes mean investing in high yielding dividend stocks depending on what the opportunities are. Regardless, dividends from a portion of the company profits can play an extremely important role in the long term performance of your portfolio so long as the dividend doesn't come at the cost of the company's long term sustainability.

I believe that owners (or investors) of a profitable company are entitled to a percent of profits if it's a mid to large cap (which doesn't have the same growth potential as a small cap). That doesn't mean I want every penny of profit to be paid out in dividends - growth is good, I just like to see management be more efficient and not waste money. If you give management too much money to work with they may get lazy. If that same management team had 10% less money to work with but still needed to reach the same target growth rates in order to receive their despicable and insanely large bonuses, I think they will work their tails off and maybe actually deserve some of their bonuses… Make them earn it.

I like the fact that I can easily tell what my return will be by looking at the dividend yield. There are no guarantee's that dividend will continue, but there aren't many guarantee's in life. But why be an owner of any large company if you aren't entitled to a percent of the profits through a yearly dividend? For a mid to large cap company, if the management team is worth those big dollars we pay them, they should be able to give us investors a mix of dividends and company growth and anything less just isn't good enough (especially when you look at their salaries!). So don't expect less. And remember, in the next twenty years, stocks that offer dividends will probably do MUCH better than stocks that do not due the the large number of people that will be entering retirement and putting their portfolio dollars to work generating dividends.

Related Posts

This is a post from the ETF Topics site. All Rights Reserved.

What, for most Americans, is the difference between America and many other nations? The Middle Class and its standard of living. What continues to enable the Middle Class to exist? Their access to debt - selling their future to others (a modern form of slavery). PERIOD. Most Americans are but one paycheck away from being in serious trouble. Many Americans are worth LESS than most citizens in other nations that they look down upon. America is not rich… America is now the poorest nation on Earth. The access to cheap debt is drying up and the house of cards is falling down. Capitalism without capital is not capitalism.

Capitalism can't be solely funded on debt, that is slavery (owing your future to someone else!). America doesn't practice true capitalism. That is the problem we are witnessing. What is most people's (including politicians) answer? Bailouts and other socialistic policies. Socialism got us into this mess, but we pretended it was capitalism and blamed capitalism while looking toward socialism for answers. That is a joke. Capitalism was the answer - it was what brought wealth to America to begin with. We changed the system and now look at where we stand.

The system was changed so that others' (the private banks that control the Federal Reserve and the politicians that control government) would control the money supply and our wealth. When others control the money they can control the people and funnel the wealth to themselves with increased taxation. This keeps the common man down. Taxation comes in many forms. You have taxes on earnings, taxes on purchases, taxes on payroll, property taxes, hidden taxes built into products (oil - the main energy source for this economy), taxes on investments, capital gains, and death taxes. Now they are talking about taxes on air. They tax money that has already been taxed. This level of taxation only further keeps us enslaved and asking for help from the government - The very same government that took our money and wealth away to begin with. Inflation is another tax that is largely hidden. This all allows the government and those that control it to have control over us! This was not always the case. At one time we had a real currency. Wealth, was at one time, real! They couldn't track it very well, nor tax it efficiently. They changed the system, the currency, and the rules. After they created a fiat currency they could completely control (they did it over time), they went on to slowly create new taxes (hundreds of taxes now exist). They then slowly increased the taxes. Inflation was largely hidden from us without including the cost of energy, food, or housing. Our wealth was dwindled away to nothing. How else do you explain 4th and 5th generation Americans still not owning anything, especially when they should own some of the wealth that their forefathers earned during their lifetimes? Inflation and taxes ate away my forefathers lifetime earnings - and they did have some wealth and lived very frugally. What is to show for their savings? After inflation and taxes, not a whole lot. A viable currency should also be a good store of wealth, which fiat currencies are NOT!

I have concluded that those who own the Federal Reserve (it's not federal!) now also have a huge influence on politicians. They help get them elected with large donations and contacts. We call America a Democracy, but it's an oligarchy. There are two parties! You get to choose A or B! The big media companies polarize America on smaller issues and help the parties stay in power by not allowing another party to emerge and be competitive. Both parties have been promoting socialist policies. Neither party is much different. Both parties have implemented FREE trade agreements with foreign nations that have not allowed us free access to their markets. Yup, both parties have made it so we must unfairly compete with foreigner's who play by a different set of rules/laws (while we have our hands tied!). Both parties wanted the bailout! McCain and Obama were both in favour of giving taxpayer money (not yet earned money, further enslaving America's future with increased debt) to private banks - and only the really big ones - not the local community banks or regular citizens. It is suspicious that the bill gave power over the currency to an external person who could not be audited or investigated. If it was "our" money (we the people), then why was it not done in an open fashion for all to see? But we can't ever know what happened with that money.

Furthermore, what do you expect politicians to do as the house of cards continues to tumble down? More bailouts - to the large corporations - and yet no help at all for the small guy… In fact, they will tax the small/mid size businesses and the Middle Class to pay for the bailouts. Then, of course, they will give some handouts to the poor to appease them and keep the system from chaos and rebellion. That is what socialism is - it is handing money to the very poorest to stop a rebellion, while putting control of the masses in the hands of the few.

There is a serious flaw with the current system. It's called debt (and fiat currency). Debt is not capital, currency or wealth. Most Americans have been lied to, told to go out and take a 30 year mortgage on a home - that it is a good investment. As interest rates got lowered, more Americans rushed out to buy homes - and they bid each other up in the process. A home that once cost $80,000 then climbs to $100,000+ in a matter of months, not because of inflation (though that also hurts!), but because people bid the homes up against each other with debt dollars - not even money they have, but tomorrows earnings. The manipulation of interest rates and of the currency have created the big bubbles and busts. Manipulation is not capitalism.

America would be free if she and her citizens were free of debt, taxes and inflation. Debt is the master, the owner - Americans are free to work where they want (as long as they can find or create a job that makes money). But Americans are not free to decide if they want to work. Most Americans must. They are not free. They are wage slaves. Someone else owns their future. They are slaves to the system. Even a portion of the money they earn is taken. When they die another portion of their life's work is taken. Inflation eats the rest. This keeps our future generations down.

The system is designed wrong. Using debt as a currency is an evil of sorts. While the banks get bailed out (those that issue debt to others) - The people in debt see no bailout. Truth is, neither should have to be bailed out. The socialist system got us here. A system of fiat currency and the Federal Reserve (that is not federally owned - but a private corporation!) that controls our debt and what interest rates we must pay. Socialistic policies only delay the inevitable with bailouts and spreading the wealth around artificially and unsustainably. For how long will they delay the inevitable? We don't know. Fiat currencies have always failed in history - and this one is set to fail as well. They won't let it fail without a fight - but the longer they delay it, the worse the consequences will be. Remember, their solution is socialism and we know how well that has worked for others and ourselves.

After nearly a century with fiat currency and the Federal Reserve, America's wealth has diminished to nothing. A century of hardworking individuals and what is left to show for it all? We still have no money and owe more than ever to others. The fiat currency and the Federal Reserve, combined with socialism promoted by both political parties has bankrupted America with an illusion of wealth and prosperity that promoted a level of unsustainable consumerism and a culture that was eager to take on more debt (remember, our culture used to despise debt!).

A rich country doesn't have to take on debt. A rich country's citizens don't have to take on debt. A rich people don't owe their future to others. America is not free. America, indebted to others. America, The Broke.

Ask yourself. How did America go from the most successful, prosperous and rich country on Earth - to this? America abandoned the system which brought us our initial success.

Related Posts

This is a post from the ETF Topics site. All Rights Reserved.

I don't know if my thinking is a little off, but here is my argument (well it's a weak argument, but that's because I'm tired). You may be surprised by the conclusion I'll ultimately reach on this subject.

I'd rather invest for dividend yield over dividend growth but my favorite strategy lies somewhere in the middle. I assume most stocks that operate under a high dividend yield, do so for one of several reasons: The share price has recently dropped (due to bad news? poor outlook?), it might be a risky business, or it could be an old ‘out of favor' cash cow. Either way, I would never invest in a company that isn't solid and at least growing modestly. So that should filter out a bunch of high yield stocks, but not all.

A company that has a high dividend yield, at one time or another, probably (key word) raised its dividend and as such could be considered a dividend growth stock. It might be a poor dividend growth stock, but growth is growth.

Now here is where my real argument comes into play. Let's pit dividend growth investor against dividend yield investor with two hypothetical situations (to which I will undoubtedly craft the story to validate my theory) and see who comes out ahead.

Dividend yield investor finds a stock with a 13.00% yield. Dividend growth investor finds a stock with a 2.00% yield and an average annual dividend growth rate of 10%. Guess how long it will take before the dividend yield stock is paying out even 5%? 10 years! That is ten years of getting ~11% less per year in dividend returns!

Yes, I realize that the dividend growth company probably has some capital gains, but so can the dividend yield stock! Now if was the exact same company under two different scenarios (had the company went with two different structures) I'd rather own the dividend yielding one. This allows me to get some money on a regular basis and decide where to put it. There are some tax reasons I really enjoy dividends as well. Heck, I won't even finish the story.

I've picked several very high dividend yield companies that have a history of not only increasing the dividend but also increasing the share price! Some have more than doubled in share price (within 2 years) while raising dividends and giving out a ~10% to ~14% dividend yield. Technically, it was a high dividend yield growth stock (my favorite). I could invest in a company that will take 20 years to raise its dividend to a high level (based on the original purchase price) but I'd rather stick my money in places where it will start making me money now. This money will earn a higher rate of return and then allow me to choose other high yield growth opportunities to invest in along the way.

Who wins in Dividend Yield vs. Dividend Growth… neither. If the same company was hypothetically put into two different business structures, the net result would be fairly similar… Yes, there are tax implications… but overall, we'd still be talking about the same company (perhaps a bit more sluggish and sloppy due to its extra cash horde… or smaller and more efficient if it gave away extra profits). The biggest difference is the dividend yield investor would have had an opportunity to use his higher dividend profits (as long as he doesn't waist them) to retire or grow the investment portfolio. Many folks that plan on retiring simply don't have the time to wait for a dividend growth stock to make its original 2% dividend yield high enough to live off of. Plus, management often get a whole lot more creative and result oriented when they don't have a ton of extra cash… the company that gave out all the dividends would undoubtedly have less assets, but it might not suffer as much as you think. A lot of companies have a core product or service that is their primary cash cow and, in order to grow, management tries to launch new products, of which most fail or never reach the same level of profitability as the core ones. This money, if given to the investor, allows him to invest in other companies with profitable cores… paper profits don't seem as appealing as profits that are allowing me to retire or re-invest each month…

The real question is, why is there a debate about dividend yield vs dividend growth at all? The answer should be simple… Dividend Yield + Dividend Growth = Win!

Related Posts

This is a post from the ETF Topics site. All Rights Reserved.

Who Is Borrowing?

The scary part about this is that the majority of people buying homes and refinancing their debt to do renovations or buy rental property are baby boomers. The boomers are aging rapidly and approaching the retirement stage in life. Do they all plan on selling their homes and downgrading to last through retirement? If so, who will buy all these homes at these high prices? Mind you, it's not the same in every part of the country. While watching some interesting real estate programs on TLC you will notice that for a quarter million dollars you can buy an extremely nice home in some areas… while other areas the same home would be worth well over a million. Each regions economic situation plays an extremely large role. So I'm just talking about those of us that live in expensive areas that expect to sell their homes and let the money see them through retirement; It's absurd and not a good strategy… at least not if you're on the tail end of the baby boomers generation.

All this debt has to be paid. In order to pay it many people are going to have to tighten the purse strings and stop spending massive amounts of money on new homes and expensive renovations. This will hurt the economy but it may still grow due to inflation and immigration. Time will tell.

US Government Making Same Mistakes?

The US government is making some of the same mistakes its population is. It's borrowing and going heavily into debt during a time it shouldn't be (right before a major segment of population retires and expects pension, health care, etc). This debt must be paid… my fear is that government may end up resorting to inflation to make past debt seem cheaper to swallow, or even collapse the currency and replace it with another. I think many of these issues are magnified due to the inherent flaws of fiat currency. No system is perfect though. It really wouldn't surprise me if inflation or a currency collapse is used as an opportunity to make all this debt easy to swallow.

Pay That Debt Off, Invest in Finite Resources

It's better to be safe than sorry. Do you really want to get caught up in a period of rising interest rates when you have a lot of debt and want to retire? Pay off debt and invest in finite resources! Get cracking! There is too much uncertainty in this world, no use getting caught on the short end of the stick! It's easier to sleep at night if you play it safe, rather than sorry. It may also be easier to retire :-) .

Related Posts

This is a post from the ETF Topics site. All Rights Reserved.

We have all heard some of the arguments in favor of increased outsourcing. We know that countries that can efficiently produce a good or service should be rewarded and should do so in greater volume so that each country can become more productive at producing goods and services that they excel/specialize in and stop wasting time and resources on producing goods/services that they struggle with. The result is that the nations in the world will produce more goods/services and wealth. Most of us understand the principle and even agree with it - But that doesn't mean there aren't consequences to its application.

It's beginning to look like the dream of every company is to be to headquartered in a tropical paradise with no taxes, manufacture goods in a 3rd world country with wage slaves, and sell the products/services to the West at a high price point. There is a fundamental flaw in the design of an economy that does this and the sustainability of economies built on this model are questionable.

The large customer base in the West is largely a result of the spending power of the Middle Class ,which is a result of good jobs with decent pay. The problem occurs when the Middle Class is eroded, shrunk and diminished through a loss of quality jobs and decent pay due to competition with wage slaves. It's not like these quality jobs WITH their quality pay are going elsewhere - the job may be, but the quality pay sure isn't! It really does seem like every company wants to sell products/services to Western nations but they don't want to employ anyone in the West due to the higher wages. Soon, you have to ask yourself, where will the Middle Class work? How can the Middle Class compete with wage slaves in the 3rd world? On price alone, it simply can't. But an even better question is, to who will these companies sell their products? The Middle Class in the West will be less able to afford the products, and the wage slaves in other nations generally aren't paid well enough to become customer's for many of the companies either (of course, there are some exceptions to this rule, but does the increase in the East equal the decrease in the West? I don't know, I'm asking you and I'm willing to bet that the East is gaining less than the West is losing.).

Many businessmen, economists, and investors will tell you the Middle Class will have to produce goods more efficiently with new technology or at a higher quality. Once again, I'd say it's not that simple. Even wage slaves in the 3rd world can use new technology to manufacture goods more efficiently, and the quality of goods coming out of the 3rd world is increasing all the time. They are also able to train their employees for much cheaper.

I'd also like to argue that 3rd world countries that utilize wage slaves aren't more efficient but the companies are merely taking advantage of currency differentials and lower labor standards (willing to work longer hours for less). Taking advantage of wage slaves is nothing more than exploitation and it causes a race to the bottom in terms of wages for the Middle Class and even for the Wage Slaves in the 3rd world. See, even the wage slaves in one 3rd world country must compete with wage slaves elsewhere. The new business models employed by businesses have no concerns about sustainability or loyalty or paying fair wages to increase the standard of living of their employees around the globe. Even countries like China will run into this problem eventually. As wages begin to increase in China, companies will start looking to other countries that have cheaper wages and they won't hesitate at shifting manufacturing if it will increase profit margins.

Sustainability is lacking. Think about it. As the Middle Class is less able to buy goods and services, the same companies that left the West still want to sell items at a premium price to the West. At the same time, wages in the 3rd world won't be creeping up very fast either. So, the companies that are trying to sell goods and services will have to continually look for ways to make their product/service cheaper in order to find customers or they will run the risk of shrinking due to lower sales. Job losses from the current economic woes are occurring worldwide, including China! Yes, the shrinking Middle Class in the US and other Western Nations is even bad for China! (Honestly, who else would buy some of that useless junk other than us? Though, much of it I know we shouldn't be buying and economically we may not be doing so in the future.)

What I'm trying to say is, with the low wages many companies pay their employees in the 3rd world, many will have a hard time buying their goods, and the West, which has traditionally bought these items will slowly stop doing so too. It begins to look like it's a race to the bottom. This race also negatively affects many companies - and it isn't even the fault of many businesses. They simply CAN'T compete with companies in other nations unless they move their manufacturing too. It's a double edged sword - For the entirety of this article it sounded as if I was harping on businesses, but many of them are forced, due to free competition that has opened up with other nations, to move operations to take advantage of the wage slaves to effectively compete with their foreign competitors.

I'm all for free competition. That being said, there are several problems with free competition on a global basis at the moment. Currency manipulation that occurs and helps one country wage economic war on another is a problem. I know, it works both ways and we're certainly guilty of doing this ourselves, but when one country purposefully manipulates its currency to keep it lower than another to give it a trading advantage, there is nothing the average person can do to compete… free competition? How do you compete when the average employee or company can't do anything and is now playing on an un-level playing field?

Another problem with free competition in the world is many countries do not have proper labor standards to protect their population or help increase its standard of living. How is a Western worker supposed to compete with (wage) slaves in another country that work for almost free? Free competition only exists where there are common rules/regulations - without some common labor laws, free competition as we have meant it isn't possible and that is why it is unsustainable, in my opinion. We want the economy to grow and the people of the world to have an increased standard of living. We all know that due to technology, the world is increasing its standards of living - but on an economic basis I don't see this occurring as well as it should. See, the West has seemingly done alright so far, while the rest of the world has begun to industrialize. I don't believe the West has done well. I think much of the "success" in the West over the last decade or so has been due to debt and isn't really success at all - We still have to pay that money back eventually! No economy can be completely self-sustaining while requiring tremendous amounts of debt to finance itself. Debt has hidden from the world the true effects of globalization and "free trade" without a level playing field. It's just now coming home to roost and the world will feel the effects. Why is China willing to take on so much US debt? China has benefited from the unsustainable world economy that has been built on the backs of the US consumer being financed with debt. See, even China isn't completely sustainable as it relies heavily on the West which is currently unsustainable. Vicious circle.

Don't take my word for any of the above - I know it's poorly written, and I'm having a hard time trying to get my point across. Yes, there are major flaws with my reasoning and argument - go ahead and point them out because I really only want to start some discussion on this issue (and I clearly don't "get it", so help me!). In general, I don't think the world economy is sustainable when the ONLY thing we are competing on is price and some countries have an advantage due to low standards of living (practically slaves… I mean, even slaves earn food from their work, and many of these so called "free" people are basically wage slaves that earn just enough to eat!). The Middle Class rose during a period where companies wanted to pay their employees a good fair wage and that notion seems to be eroding and companies are now abandoning this practice. I don't foresee massive wage cuts (though there will be some) - I foresee inflation without adequate increases in wages. The Middle Class will continue to erode without quite realizing its happening due to the masking effects of inflation. As the Middle Class erodes, the race to the bottom will seemingly continue.

I believe the free market works when there are some common rules/regulations that allow a level playing field across nations - the trick is doing so without creating an all powerful (and scary) world government or world currency controlled by a handful of elites. I know, fair free trade/competition is easier said than done, but I don't think our current experiment with "free competition" (or "free trade") on a global basis is occurring as we intended it. We need some of the best economic minds to come up with viable solutions that will ensure REAL free trade across the globe without concentrating power in the hands of the few. We certainly have some work cut out for us. Heck, perhaps there is no such thing as free trade since there seems to be a cost associated with it. Perhaps what we are looking for is fair trade? (not that we've been fair to the rest of the world either). I don't know and I think I need some help to understand what the best course of action would be.

Related Posts

This is a post from the ETF Topics site. All Rights Reserved.

The Pro of Buy and Hold Forever (Hint: Think Compound Interest + Taxes)

Before I get to the flaws, I want to mention one of the pros of the buy and hold forever. When you buy a stock and sell it after it has appreciated, you have to pay capital gains taxes. If you don't sell it you don't pay any taxes. Let's set an example up to show how important this aspect can amount to.

Example: Let's say you bought a stock and held it for one year and sold it at the end of a year, and you repeat this exact same cycle for 35 years (selling the stock once a year). Each year before you sell the stock it goes up in value by 10% and your starting portfolio is $50,000; and lets say your taxes are 40%. At the end of 35 years your account value would be $384,304 and you would have paid $222,869 in taxes over the years (if you add those up, that equals $607,173). If you would have held one stock the entire 35 years and had the same 10% annual appreciation it would be worth $1,405,121!

Yup, the power of compound interest never ceases to amaze me when I do the math. I guess it pays to think about the compound interest on money that you pay in taxes as well! I think far too many people forget that. It gets even more important if you factor in dividend yields. If the stock starts paying a 4% dividend in year 35, the guy that trades a lot and now has an account value of $384,304 will only earn $15,372; Compare that with the guy that held the stock for the entire time and has an account value of $1,405,121 and now earns $56,204 in dividends.

This should illustrate why I like a buy and hold strategy (if you start making too many trades you get brokers and the tax system involved more than they need to be). I LIKE BUY AND HOLD… but "Forever" depends on the company and the situations.

"Buy and Hold Forever" Is Bad Advice

A better strategy would be called "Buy and Hold as long as the company is fundamentally strong and the money can't be better employed elsewhere." When you say "Buy and Hold Forever", too many people will take that advice at face value and will hold on to companies that are going through severe problems and perhaps on their way to bankruptcy. It's so crucial to discern the two strategies have differences. Why continue to hold a company that is now only growing at 1% a year(lower than inflation) or shrinking when you can invest in another company that has much better fundamentals? It wouldn't make economical sense to do so.

So, Buy and Hold For As Long as a Company Is Fundamentally Strong and the Money Can't Be Better Employed Elsewhere. At least that makes more economical sense to me.

Related Posts

This is a post from the ETF Topics site. All Rights Reserved.

• Where to keep your emergency fund
• How much to save in your emergency fund
• Whether you should build your emergency fund versus paying debts like credit cards
• How having a big emergency fund will having you beating away members of the opposite sex with a large stick

What I will be doing is telling you why I don't have much of an emergency fund at all.

Before I really get into this, let me just reiterate I'm just some knucklehead with a keyboard. I don't advocate my method over the more traditional prescriptions regarding emergency savings. I'm just giving you another view. Do whatever works for you. And if you're so sick of reading about emergency funds on PF blogs that you're about to throw up, please stop reading if only for your computer's sake.

They always say write for your audience and you probably wouldn't be reading a blog claiming to be 'Advanced' unless you had the basics down. So chances are you have your financial life somewhat to totally under control. You know what you're doing. You most likely don't have credit card debt and if you do, you're working it down. That means you also probably have ample credit available.

Congratulations.

So do I.

That is the core reason why I don't have a large emergency fund. In case of emergency, true emergency, I can tap one of several sources of credit. A HELOC or credit card becomes my second line of defense in the event my small liquid emergency fund cannot handle the expense. This buys me time until I set up some other arrangements. For the record, my definition of 'small' is about three months of living expenses.

Here's why I only have a small emergency fund.

• I have a small pile of cash for unforeseen expenses (again, three months of living expenses). By definition, an emergency comes up infrequently. This isn't for replacing the broken vacuum cleaner.
• If true disaster strikes, I have access to plenty of credit that can provide a quick backstop in the event the emergency exceeds my cash fund.
• I have other assets that I can sell if the emergency isn't solvable within a short period of time.
• I'd rather not tie up a large emergency fund in savings that is, for all intents and purposes, just maintaining its real purchasing power.
• I have great health insurance and disability insurance. If I were to lose my job, we could move to my wife's plan.
• I am not the family's only source of income - my wife works, too.
• I feel confident about keeping my job and believe I can get another one in my industry relatively easily.

I know this method isn't for anyone. Maybe it's not for most people. But like I said, if you're still reading this blog, you're not most people. That said, it is critical you do whatever makes you feel comfortable and able to sleep at night. If you're comfortable sleeping on a large pile of money, keep at it! For me, I can sleep on a thinner mattress.

Related Posts

This is a post from the ETF Topics site. All Rights Reserved.

Interest rates down - Dollar down

As interest rates fall, borrowing becomes cheaper. Correspondingly, lending becomes less attractive. The U.S. is the world's biggest debtor nation, meaning lots of other countries have loaned us money. When we pay back those loans with interest, we do so in U.S. dollars.

What all this means is that investors overseas have lots of dollars in their hands. When a rate cut occurs, investors holding U.S. dollars see lower returns. When your bank offers a savings account interest rate lower than someone else's, what do you do? You move your money to the other bank. Same thing here. Investors dump dollars in favor of some other currency. That drives down the value of the dollar relative to those other currencies.

What a weak dollar means to you

A weak dollar has several different effects, among them:

• Traveling overseas sucks for Americans because it costs much more. Conversely, anyone from another country vacationing in America loves it because their currency buys so many more dollars.
• Because oil is priced in dollars, the price of a barrel goes up. This is part of the reason oil has hit a record high recently.
• Overseas investments by Americans are more profitable. This is especially important for people who have a portion of their 401(k) or other investments in global mutual funds.
• American businesses that do much of their business overseas will be more profitable.

Related Posts

This is a post from the ETF Topics site. All Rights Reserved.

What is a short sale?

I covered the definition of a short sale in a previous post, but this is a refresher. A short sale is the sale of a house that has a mortgage greater than the current market value of that property. The bank agrees to forgive the outstanding mortgage balance after the sale completes. Short sales aren't a given - the borrower must negotiate with the lender the accept the short sale.

Why would the bank agree to a short sale?

A short sale is isn't so much a win/win as it is a lose less/lose less for both parties. The borrowers don't have a place to live anymore. The lender's don't get paid back all they're owed. On the other hand, the property doesn't go to foreclosure, which is good for both of them.

In a foreclosure situation, especially in a down market, the lender can expect to recover less than if the property is sold short. Maybe they'd recover 75% 50% in an auction, but 85% in a short sale. It's obviously not ideal for the lender, but at least they don't have to sell the property.

The drawbacks for a borrower

As you would expect, there are several drawbacks to short selling for the borrower. Perhaps the biggest one is that they no longer have a place to live and any money they did put into the house is gone. Also, a short sale is going to show up on their credit report. It's hard to say exactly what the effect will be on credit score, but anecdotally it's somewhere in the neighborhood of a 80-100 point drop. That's nowhere near the penalty for a foreclosure, but still significant.

There's also another pitfall - taxes. The IRS treats the forgiven mortgage amount as income, so you're going to pay taxes on that amount. When you're talking about mortgage-size amounts of money, this could be very significant.

Other things to note about short sales

There are several other points about short sales to note. First, a lender might balk at paying the commission for a broker, which could complicate things.

Second, it takes some work to convince the lender to accept a short sale. You'll have to be several months behind on payments and most likely have to show evidence of significant hardship that caused you to get so behind. Your mortgage resetting to a too-high-for-your-budget payment isn't good enough. If you've lost your job, divorced, or have medical bills, you're in a better negotiating position. Well…regarding the short sale, that is.

Related Posts

This is a post from the ETF Topics site. All Rights Reserved.

Some companies have started offering a new defined contribution retirement plan to employees. Here's how it works. In return to ceding control over how your contributions get invested, you gain a turbocharged contribution from your employer. As this article from Business Week points out, these plans are hybrid of a traditional 401(k) and a pension.

And the increased employer contributions can be substantial - think 15% to 20% of your yearly salary. That's in addition to the more standard 6% match on your contributions.

So what's not to love? Well, like the man says, there's no such thing as a free lunch. In return for the increased match, you turn over control of how the plan (and your money) is invested. Typically, the employer will select a so-called lifestyle or target date fund. Such a fund matches your projected retirement date to an appropriate asset allocation. I personally like target date funds and recommend them to people without much interest in investing. In this case, you'd be turning over control of the investment, but it would like be invested how you would have done it anyway.

That isn't so bad until you consider the down side of the equation. If how the employer invests the money isn't so smart and you don't have enough to retire at your projected retirement age, tough luck. You keep working.

I'm not so sure you'll see a lot of this in the future. I don't think turning over control of their money would appeal to a great many people. Besides that, there's the legal risk. You can sign all the papers you want, but if your company takes your retirement money and invests it inappropriately, I tend to think you'd have legal recourse.

Related Posts

This is a post from the ETF Topics site. All Rights Reserved.

In times of low interest rates and high inflation, there's an awful effect for savers - negative real interest rates. Like a job where you never get a raise, negative real interst rates happen when your income (in this case from interest on your savings) declines after the effects of inflation. For a recent example, consider that in a typical 'high-interest' savings account, you are offered 3%. With official CPI running at 4%, you're losing 1% of your emergency savings in real purchasing power terms. To make things worse, I haven't even included the effect of taxes on those interest payments. To make things much, much worse, I'm using the CPI put out by the federal government which many, including myself, think is a fiction. (I believe true inflation is much higher and if you've bought food, gas, health care, or day care recently, I think you'd agree. See Shadow Stats for more information.)

The bottom line is if you have a cash emergency fund, it gets smaller in real terms every day.

Fine, you say, but a 1% decline isn't so bad. And besides, what's the alternative? I think there are two decent alternatives to an ever-shrinking emergency fund - a fully-funded Roth IRA and ready credit.

Among the great features of a Roth IRA is its withdrawal rules. Without getting into all the various tax treatments for withdrawals before retirement, for our purposes you only need to know one thing. You can always get access to your initial investment. That is, if you fully fund a Roth IRA in 2008, you can always get at your $5,000 initial investment without tax or early withdrawal penalties.

With that in mind, I think a Roth IRA is a very good vehicle for emergency savings (beyond a small to medium size cash account for 'mini-emergencies' like car repairs). You can invest the money with an eye toward growth (i.e. not in a passbook savings account) that should earn a higher return. But in a true emergency, you can still access the money. When the emergency passes, you can begin putting the money back into the Roth (for that year only).

The second alternative to a large emergency savings account is ready credit. Some people will recoil in horror at the thought of using credit in any form as an emergency fund. But I believe ready credit can make an excellent emergency backstop. I'd call any widely-accepted revolving credit line 'ready credit.' Examples are unused credit card balances and HELOCs.

The great advantage to using ready credit as an emergency backstop is that it puts the interest rate risk onto the bank. They bear the 1% loss you'd incur if you saved as in my example above. (Mind you, the bank doesn't actually suffer a loss. They obviously invest that money into higher-than-inflation investment vehicles.)

The disadvantage to this technique, and it is admittedly a big one, is the possible sudden loss of those credit lines just when you need them. Recently, people have experienced a decreasing credit line on their credit cards. And in the event of a job loss, banks are known to pull or reduce HELOCs. I don't deny this is a problem. However, I would point out that not all emergencies involve the loss of a job (the most common reason for a loss of credit). Examples of situations where you'd want access to a good bit of money without having lost your job abound.

Do I think you should abandon a cash emergency fund? No. I just think, ideally, the 'emergency fund' should actually be a set of concentric rings around you. Closest to you is money kept for day-to-day expenses and any extra in a checking account. Beyond that is a smallish cash emergency fund. Beyond that is ready credit and/or saleable investments.

What do you think? What's your emergency fund technique?

Related Posts

This is a post from the ETF Topics site. All Rights Reserved.

That was the question a reader posed on one of my older posts. Here's the question from J. Brown:

"The majority of my assets are in retirement accounts (IRA's, specifically). I used to have an umbrella policy, but was told that if I were sued, the money in my IRA could not be looked at to satisfy any judgment. Is this true? Where can I go to find additional info on this?"

What's An Umbrella Policy?

Before I get to the answer, let me quickly review what an umbrella policy is. An umbrella policy is an insurance policy that provides liability protection beyond that offered by other policies. The 'other policies' are usually homeowners and auto insurance. If you look at your auto policy, you'll see a maximum liability amount. If a judgment is entered against you beyond that amount, you're on the hook for it (assuming you have that level of assets).

That's kind of confusing, so let me use an example. Let's say I have $100/$300 coverage through my auto policy and don't own a house. I have assets of $150,000 and cause a serious accident that results in a lawsuit. I lose and the plaintiff is awarded damages of $140,000. My insurance company pays $100,000 of that award and I'm on the hook for the rest.

Now if I had an umbrella policy, I wouldn't be writing that $40,000 check. For a few hundred bucks a year, an umbrella ups your liability coverage to $500,000 and up. You can get millions of dollars of coverage if you want. But remember you only need an umbrella if you have a lot of assets - enough to warrant the coverage.

So can they get my IRA?
So this brings us to the question. Is your IRA included in your assets? In my example, what if all of my $150,000 in assets is in an IRA. Can it be seized?

The answer, as with everything law, is "it depends."
It depends on where you live. State law determines whether these assets are included or not. That's not very helpful, so here's a great resource that gives the answer for all 50 states and DC. Look for 'IRA and Pension Plans.'

I didn't look at all 50 states, but in every case I checked, the answer was, No - IRAs are not counted and cannot be taken in a lawsuit. If you live in California, hire an attorney - I couldn't figure out the answer.

Now let's all hope this never comes up for us.

Related Posts

This is a post from the ETF Topics site. All Rights Reserved.

Problem: Your company doesn't offer a match.

Solution: Contribute as much as you can to a Roth IRA, then contribute to your 401(k).

I recommend maxing out a Roth IRA before contributing to a Traditional 401(k). The reason is that Roths are funded on an after-tax basis, but you withdraw the money at retirement tax free. I believe most people will be paying more taxes in the future, so a Roth is usually the best solution.

I also recommend contributing to a Roth IRA even if your plan offers a Roth 401(k). The reason is because you can always withdraw your contribution to a Roth IRA without penalty before retirement if disaster strikes and you need the money.

After you max out the Roth IRA, go back to your 401(k) plan. A 401(k) has great tax benefits. It reduces your current taxable income. Your contributions compound tax-deferred or tax-free, depending on with type you use (Traditional or Roth). It's also an easy, automatic way to save for retirement. A company match is nice, but it's not the best reason to use a 401(k) to save for retirement.

Problem: Most or all of the funds offered in your plan suck.

Solution: Figure out just how bad the funds are and decide if saving outside a 401(k) makes more sense.

Great, so how do you do that?

I'd consider a fund 'bad' if it has higher-than-average fees for its type and middling or below returns compared to its peers over many different time periods. If just some of the funds in your plan fit that description, invest instead in the ones that are good, even if it means overweighting your asset allocation. That is, if you're offered a good stock fund in your plan, but no good bond funds, go ahead and invest in the stock fund. Outside your 401(k), say in an IRA, you can overweight bonds to compensate.

If truly all of the funds are bad, you have to consider not contributing to the 401(k) at all. Before you do, though, consider any employer match. If you're offered a match, you're almost certainly better off contributing to the match maximum and investing in bad funds. That's because the immediate 50% or 25% return a company match gives you counteracts the general suckiness of the fund you invest in. For example, if you're offered a 50% match on contributions up to 6%, go ahead and contribute the 6%. Even if your fund returns -20%, you're still netting a positive 30% return - great by any standard.

So what if you have the worst situation of all - the funds suck and there's no company match? In that case, there's a very good chance you'd be better off not contributing to the 401(k) at all. Instead, invest in an IRA. I recommend a Roth IRA, but Traditional is good, too. That way, you can choose any fund you want.

Problem: Your match is in company stock and the stock is going nowhere.

Solution: Sell your company stock as soon as you can.

Back in 2006, Congress passed the Pension Reform Act that allows 401(k) participants to sell company matching stock. For stock given before the law was passed, you can sell 1/3 of the total each year over three years. For future matches, you can sell immediately. I advocate selling matching stock as soon as you can anyway, but this is especially true if the stock is declining or flat.

Related Posts

This is a post from the ETF Topics site. All Rights Reserved.

At the moment, Citi is offering 30,000 American Airlines air miles when you sign up for one of their cards. Of course, you probably already have at least one credit card and don't really need another one. But why let that stop you!?

I actually just got through applying for and being approved for two credit cards for a total of 60,000 air miles. Will my credit rating take a hit? Probably. Do I care? No. And by looking at the sorts of flights I take, the monetary equivalent of those air miles to me is about $1,000 to $1,500. That's a pretty good return on my investment of 5 minutes of work applying for the credit cards and the 30 minutes or so it'll eventually take me to cancel the cards. I've got a co-worker doing the same thing.

Are we scammers? I don't think so. We provided full and accurate information to Citi during the application process. Citi chose to approve us. We will comply with the terms that Citi has set forth and in return they will deliver what they promised just like any legitimate transaction. If asked why we're canceling, our answer will be the truth — we don't need the cards. If asked if we signed up just for the points we'll say yes. It's just business.

Still not convinced? Think of it this way, have you ever tried a sample at a grocery store knowing full well that there was no chance you'd buy the product? Yeah, I have too :-)

Related Posts

This is a post from the ETF Topics site. All Rights Reserved.

First, an assumption that I will continue to invest in equity ETFs. If my portfolio at some point becomes 100% bonds or treasuries, for example, then there's not much point in worrying about an ETF exit strategy.

Second, this is my thinking phase. Before doing research and reading the thoughts of others, I wanted to see if I could work out the various pieces of the puzzle. I find this approach makes the research more informative.

Stock Market Factors to Consider

The stock market is full of signals both for buy and for selling. The problem is that most investors, professional and amateur alike, aren't good at consistently interpreting these signals correctly. However, I was thinking that some simple ones to consider for an exit strategy are

1. The moving averages e.g. 200-day moving average which is sufficiently long enough to smooth out short-term spikes and dips.
2. Performance relative to other sectors. That is, a holding moving in lock step with the overall market is probably less risky than a high-flying holding.
3. Duration for which the sector has been outperforming. Since cycles exist why not acknowledge that outperformance can't last forever?

Economic Factors to Consider

Often lagging what's happening in the "real" world, the stock market isn't necessarily a good indication of the economy as it exists today. For instance, there were cracks showing in the mortgage industry well before those cracks were reflected in the prices of mortgage-related equities. So I think it's important to look for warning signs within the economy itself. Of course, you may end up getting out of the market too early, but I don't think many people would be complaining had they got out even a year before the recent crash.

Personal Factors

And of course everyone's situation is going to be different. Your expected need for the money you're investing is going to play a big part in determining how much stock market turmoil you're able to tolerate. For my purposes, I'm assuming that the money will be needed within 10 years. A somewhat long time, but perhaps not long enough to ensure that a portfolio decimated by a crash has had time to recover.

In future posts I hope to look at actual exit strategies that others have devised with the ultimate goal of identifying an approach that suits me. If you happen to already have one you like, please do share in the comments below.

Related Posts

This is a post from the ETF Topics site. All Rights Reserved.

The Cost of Technology

In our fast-paced society, technology has become essential to how we live, work and play. And with a little planning, you can still enjoy your favorite gadgets and technology while cutting down on your family's monthly expenses.

1. Bundle your services. Tired of three monthly bills for Internet, phone and cable service? By bundling services, you could save $20 or more per month. Check with your current service provider and others to find the best deal.
2. Cut the cord. Use your cell phone for all your calls and cancel your traditional phone service. The typical local phone bill is between $30 and $50 each month. That could be $360 to $600 back in your pocket annually if you make the jump.

   Unfortunately, more than 70 percent of consumers experience indoor cell phone signal service problems. So making an investment in a signal booster such as the industry-leading zBoost (www.wi-ex.com) can help make cutting the cord a smooth transition.

3. Go fluorescent. Did you know that fluorescent lightbulbs use 75 percent less energy than standard lightbulbs and can last about 10 times as long? An ENERGY STAR-qualified compact fluorescent lightbulb (CFL) will save about $30 over its lifetime and pay for itself in about six months.
4. Check your appliances' energy IQ. While new energy-efficient appliances are an initial investment, when you compare the power usage of your old washer and dryer to newer models, it's easy to see the long-term savings and how they far outweigh the short-term expense.

   The average home spends about $2,000 on energy bills every year, and by changing to appliances that have earned the ENERGY STAR seal, you can save $75 a year in energy costs while helping to save the environment.

5. Get unplugged. TVs, computers, cable/satellite receivers and other electronics still use power even when they're turned off. Unplug them and save. U.S. households spend $100 per year to power devices while they are in this "standby" power mode.

   The worst offenders among "off" powered energy users are televisions, game consoles (Wii, PS3, Xbox 360, etc.), DSL or cable modems, computers (laptop or desktop), printers, microwave ovens, sound systems, cable and satellite receivers, DVD players, VCRs and routers.

Related Posts

This is a post from the ETF Topics site. All Rights Reserved.

History does not always repeat, and there is a sizable hole that consumers and investors have to climb out from. However, there are reasons to think that the steps taken by the Federal Reserve and U.S. Treasury to alleviate the financial crisis and to get credit flowing again will ultimately bear fruit.

For example, the recent announcement of the Term Asset-Backed Securities Loan Facility (TALF), under which the Fed will spend $600 billion to buy mortgage-backed securities, has already led to a big decline in 30-year mortgage rates, making home buying more affordable.

Certainly, concerns remain about additional shoes that may drop in the credit mess–including credit cards and commercial real estate. There is also the concern voiced by some that Wall Street estimates for corporate profit growth in 2009 remain too high.

Still, there is reason to be optimistic for the long term. The yield on the 10-year Treasury has hit an all-time low and assets in money market funds are near record highs.

While valuations of many stocks are suggesting that corporate profit growth will not return anytime soon, gas prices are much lower in most places and many are expressing optimism about the economic team that President Obama has assembled. The result is a growing number of people now believe it may be a much better time to be buying than selling, even though it wouldn't be a big surprise if the lows of November are revisited.

As the American humorist Arnold H. Glasow said, "The key to everything is patience."

Experts say there are a number of reasons to think that the steps taken by the Federal Reserve and U.S. Treasury to get credit flowing again will ultimately bear fruit–in time. That's why patience is essential.

Related Posts

This is a post from the ETF Topics site. All Rights Reserved.

ETF Guy answered:
You make a valid point and I see little reason to invest in multiple TOTAL market funds. There are reasons to invest in multiple index funds that track different portions of the market such as large vs. mid vs. small. And of course, total market index funds are generally country specific so you'll need other index funds to capture international markets.

Bob answered:
You are basically correct. Invest in a single US stock index fund. If you invest enough, the fund may lower its expense charges. I like the Vanguard total stock market index fund: VTSAX. Then you can add some index funds for other countries (Europe or Emerging Markets) or perhaps in a specific sector (REIT or Energy, etc). If you buy alot of different stocks and are well diversified then it should act like a index fund for the overall market. Note that the nasdaq is heavy on tech companies so it typically goes up / down more than the S&P500 for example. The S&P 500 has something like 70% of the entire US stock market cap so it is a pretty good representation of the overall US stock market except for small cap companies.

L.G. answered:
Each investment company's index fund contains a different mix/percentage of the various types of stocks, which would affect how that fund reacts to the market's ups and downs. If an index fund was heavy in financial stocks, it would be more likely to tank right now.

Personally, I have Fidelity's OTC Index Fund and it has done quite well when compared to what the OTC itself is doing and how other OTC index funds have performed. It is not losing as much as some of the other OTC index funds and actually rises on some days when the OTC itself has tanked. So, you want to know how the index fund is weighted.

Space Invader101 answered:
No, you're absolutely right. For a long term investor who doesn't want to look at stocks every minute of the day like I do, I'd recommend buying about 5-10 blue chip dividend paying stocks in companies that profit year after year no matter what the market does to their price in the short-term. Coca Cola and Pfizer are good examples.

Alternatively a managed fund with large cap (blue chip) stocks would also be good. Not all stocks pay dividends.

Related Posts

This is a post from the ETF Topics site. All Rights Reserved.

Adam J answered:
Nope, that's entirely reasonable. That strategy will cover you against anything but a massive depression (which you have plenty of time to ride out) or a sizeable planetwide catastrophe (in which case your IRA will be the last thing you'll be worrying about).

And I'm not betting on the depression–while I could see a recession or two, advances in biotech, nanotech and computer science should keep the market moving upward at a solid pace.

Zenthema answered:
I don't see anything wrong in ETF's as long as you watch and trade them. Money in the stock market is at risk. You can't just let it sit..things go up and also down. You need to monitor prices and also get some
education in trading.

Related Posts

This is a post from the ETF Topics site. All Rights Reserved.

Joe answered:
I disagree with your theory that bond values were "pummeled" in the last 6 months. For instance, take the Vanguard Total Bond Market Index Fund, a fund that invests broadly trying to recreate the Barclays US Aggregate Bond Index. It averaged 3.96% over the last 6 months, 5.05% over the last year. The Index itself average 5.24% over the last year. This is not a specialized index, its a broad index of most bonds.

The basic concept remains. You should buy and hold ~100% diversified stocks in your 20's and slowly shift into bonds until by retirement you are ~50-70% bonds. When you are young you have plenty of time to recover from a crash. The older person is cushioned by their bonds. There are funds that automatically switch over into bonds as you grow older.

Most alternate investments are usually of lower return or higher volatility. One exception is real estate. Buying a home to live in is usually a good investment. However, this alternate investment was also hit during the recent recession.

Related Posts

This is a post from the ETF Topics site. All Rights Reserved.

ETF Guy answered:
Just like in the US, Barclays is a big index fund / ETF player in Canada. In the US their products fall under the iShares brand, but in Canada they're under the iUnits brand which you can read about at http://www.ishares.ca/. As you would expect, there is an ETF that tracks the TSX which is probably a good place to start.

strath answered:
What about ETFs - exchange-traded funds. These are based on indexes but their management costs are even lower than index mutual funds.

Largest family of ETFs in Canada by far is run by Barclay's Global Investors. No, not promoting them, it's just a fact. They also run an even greater number of US ETFs. You can find the US list at ishares.com.
For Canadian ETFs go to ishares.ca. Click on each of the tabs at the left to see the selection. A big broad-based ETF has the symbol XIU (under market cap tab). This one contains the top 60 TSX traded companies. It is, therefore, a conservative pick.

There are sector ishares - Canadian energy, financial, gold, etc. Also two or three bond ishares plus one based on the MSCI global index. One buys these ishares through a broker. Discount brokers are useful here if you wish to keep your management costs to a minimum.

One doesn't need to compare such ETFs because their price will fluctuate exactly according to the index each one contains. So any one management company's product will be the same as another company's product pegged to the same index.

muncie birder answered:
There are not a great deal of Canandian Index funds. I know of one– EWC. Expense ratio= 0.59%. Ten year growth rate 13.84% annually–not bad at all. The S&P 500 should perform so well.
By funds offered by different institutions, do you mean mutual funds? Yahoo finance. Forbes Morningstar.

Ron Mexico answered:
Use Morningstar.

cool_01 answered:
The Ethical Canadian Index Fund aims to provide long-term growth through capital appreciation by tracking the performance of the Ethical Canadian Index. It follows a sustainable approach to investing.
For more log on

Related Posts

This is a post from the ETF Topics site. All Rights Reserved.

zygote22 answered:
I guess the answer depends on what you mean by "extremely high-yielding" and "over long periods". Emerging markets have had a tremendous run in the last few years, but over longer time periods they don't look quite as attractive.

Take Vanguard's Emerging Markets index fund (VEIEX) as a typical example. Its five year performance is an exemplary 34.70%, while its ten year performance is a still good 12.96%. Since its inception on 05/04/1994, however, it has an average annual return of only 10.15%, which is extremely ordinary for a fund that invests entirely in stocks.

I would say that these numbers are indicative of an extremely hot investment that has been producing returns that are unsustainable in the long term. Still, a 10+% average annual return is certainly acceptable over a decade and a half. So if that's your criteria for "extremely high-yielding" over a decade and a half time frame, I'd say that emerging markets are a reasonable long term investment.

muncie birder answered:
Historically, you are absolutely correct. Their returns have been outstanding, especially developing market funds. Now, whether that will be true in the future remains to be seen.

Here is my hypothesis. Developing countries are almost assured to grow much faster than the developed countries. They have a lot of catching up to do. But certainly investments in developing countries have a great deal of risk. If there is the possibility of a 25% annual return, some risk is warranted. Heck the risk may actually be less than investing in the U S and the return greater, after all your investments are no longer dollar denominated.

Kir answered:
International Exposure: Yes
Emergeing Markets: NO

If you have a long time to invest, I would be putting 10-15% of my new money into developed country funds. China is a sucker bet. It has had huge returns the last few years, but if you bought late last year, you would have lost your shirt, and I don't think the blood letting is over. Don't walk, run away from Emerging Markets. Oh sure, they could bounce back, but it is equally likely that they will loose another 50%. Keep in mind that China is still up 200% from where it traded in 2005. And it's a communist country. Anyway, this should be a very small portion of your portfolio.

bud68 answered:
Everyone's portfolio should have some exposure to such international stocks - either through a combination of domestic and international stock funds or a "global" stock fund that includes both. Most target retirement date funds contain an international component. Its a matter of first determining the asset allocation that you want.

Related Posts

This is a post from the ETF Topics site. All Rights Reserved.