Making Money Alert
All Things Big Cap And Small
05/03/2007
The market in general, particularly the big-cap stocks in the Dow Jones Industrial Average, keeps on trucking. The Dow's recent run has shattered previous record highs, and the index now is comfortably above the 13,000 mark that it broke past just one week ago.
Other segments of the market also have done well of late; however, not everything out there is enjoying the same good fortune as the big caps. In the small-cap Russell 2000 index (see chart below), we see that even as the Dow continues hitting record highs, the Russell now is hovering virtually just above its 50-day moving average (blue line).
The divergence here, modest as it may be, between the big-cap Dow stocks and the small-cap Russell stocks is significant because it suggests that the remarkable uptrend in equities could be on the wane. It also could indicate that more value exists in big caps now as opposed to small caps.
Whatever the cause of this divergence, it is a phenomenon that requires constant monitoring. The movement away from one market segment and into another often ignites buying opportunities in several specialized sectors.
As always, we'll keep you apprised of all of the trends. Remember, the key to making good decisions is having sound intelligence. And, that's what we're here to provide.
GOLD'S ILLS, DOLLAR BILLS
In recent weeks, the shine has begun to dull in gold. Witness the chart below of the streetTRACKS Gold (GLD). Today, this exchange-traded fund (ETF), which measures the spot price of gold bullion, broke below its 50-day moving average (blue line).
What this downturn in gold constitutes, in my view, is a great opportunity to make some good short-term profits by using funds designed to rise when the price of gold falls.
Complementing this short-term dip in the yellow metal is the recent stabilization in the value of the U.S. dollar versus rival foreign currencies. Traditionally, when the dollar falls gold becomes more attractive to investors. Conversely, when the dollar gets stronger gold tends to lose much of its luster.
Over the past couple of weeks, the value of the buck has stabilized somewhat from the near freefall it's experienced since February. The chart below tells the story of the dollar's recent fortunes. Could this finally be the point where the dollar bottoms out and stabilizes?
Of course, the answer is that nobody knows for certain. I do think that over the short term, say the next several weeks or possibly even months, the dollar will stabilize at current levels or even make a push higher. Any rise in the dollar's value will have the effect of sending gold prices even lower. And, that situation means good profits will flow to those who had the foresight to short gold.
In my ETF Trader advisory service, we currently are profiting from both the stabilization of the U.S. dollar and the recent slide in gold.
THE COACH IS IN 2
I have begun a new chapter in our coaching session series and it revolves around helping individual investors understand the sometimes confusing landscape of variable annuities (VAs). To make the right decisions with your VA, it is critical that you become aware of all your VA's details and options.
When it comes to annuity contributions, there are two basic options. Knowing the difference between the two will help you understand the tax consequences when determining your withdrawal strategy. If you are holding pre-tax dollars in your annuity that you contributed while working for a hospital or school district, or if you rolled over an IRA into an annuity, then all of your future income will be taxable no matter how you withdraw the money. These types of contributions are considered "qualified retirement assets."
The other type of contribution to an annuity is called "non-qualified dollars." With non-qualified annuity contributions, you will not have to pay taxes on your contributions when they are withdrawn. These contributions are part of your cost basis in your annuity. And, you can receive a combination of both your contributions and growth when you "annuitize" your contract.
Ask your annuity provider to explain withdrawal options to you. I suggest several illustrations of the following common options to help you make your decision.
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Life payout. This option lets you receive a monthly income for the rest of your life. If you were to die before the complete annuity payout, the balance of your assets would belong to the insurance company. That scenario is not desirable, but you still should be aware of your life payout figure.
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Period-certain payout. This option allows you to select a specific time frame to receive your payout. The time frame could be 10 or 20 years. If you were to pass away before the term was up, your survivors would receive the remaining payments.
Always remember that you have options and choices when it comes to annuities. Here are some important guidelines for you to be aware of if you are considering a VA.
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Annuities carry high fees. Always ask about fees, expenses and commissions when you get involved with VAs.
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Annuities have multiple investment options. Use the tools in your annuity to your advantage. Do not remain static or just use a buy-and-hold strategy with your critical retirement dollars.
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You CAN change insurance companies and pay no commissions. There are great providers of annuities in the marketplace, so don't let yourself be bullied into a product that carries high commission and surrender charges.
Understanding annuities requires experience and knowledge. I want my readers to know all of their options before making decisions. If I can help you with your annuity questions, please just send me an e-mail and let me know.
If you want a FREE annuity coaching session with Doug Fabian, simply send an e-mail here.
Na Zdorovye! Introducing the Market Vectors Russia
On the ETF Trader news front this week, I want to introduce you to a new country-specific fund that just began trading. Its name is the Market Vectors Russia ETF (RSX). This fund just began trading this week and it is managed by Van Eck Global. The company's aim with RSX is to give investors direct access to a variety of Russian stocks that range from natural resources to communications companies.
This is the first strictly Russian fund to come to the ETF universe. Before the advent of RSX, the best exposure to Russia came in the form of the Claymore BRIC ETF (EEB). Although the EEB ETF is good, it included exposure outside of Russia in countries such as Brazil, India and China. The new Russia ETF is pure Russian through and through.
In fact, the fund is based on the DAXglobal Russia+ Index, which comprises 30 stocks. Those stocks are mostly large cap and either trade on global exchanges or take the form of American Depository Receipts (ADRs). With RSX, you are investing in an oil and gas play, since about 40% of the DAXglobal Russia index contains companies that are heavily involved in natural resources. The new ETF also carries an expense ratio of only 0.69%.
Returns in the DAXglobal Russia+ Index have been stellar of late. Its one-year performance as of March 31, 2007, was 41.36%, while its three-year performance reached 40.32%. For the last five years, the index has posted a sensational 48.30%.
If you were waiting for an easy way to buy into the booming Russian market, now is your chance with the Market Vectors Russia.
ARTISTIC WISDOM
"Are you really sure that a floor can't also be a ceiling?"
—M. C. Escher, artist
The way we look at things often limits us in life. Most people see obstacles as obstacles, but a few special individuals see obstacles as opportunities. When managing your finances or anything else in life, try to look at the world the way Escher does. You see, sometimes a floor really can be a ceiling. Think about it.
Wisdom about money, investing and life can be found anywhere. If you have a good quote you'd like me to share with your fellow Alert readers, send it to me, along with any comments, questions and suggestions you have about my radio show, newsletters, seminars, or anything else.