Making Money Alert
An Allegiance To Reality
05/14/2008
Up, down and all around.
That pretty much sums up this market during the past couple of weeks, as investors grapple with questions of recession, inflation, record-high oil prices, the credit crisis and a dismal real estate market.
Some say the worst is over for all of the pain we've seen in equities, while others say the worst is yet to come. But who is really right? Which camp has the truth on its side, and which is just hoping for the outcome it desires?
I am going to come clean here and admit to you that I am not smart enough to predict the future. I suspect that no matter how smart one is, the future is not knowable because it just hasn't happened yet. (I know, that sounds like something Yogi Berra would say). I know this may sound simple enough, but you'd be surprised how many self-proclaimed psychics there are working on Wall Street.
I, for one, prefer a different approach. I am a man who has proclaimed his allegiance. My allegiance is to reality, and that means I am prepared to go where reality takes me.
In practical terms, this means that if the market goes higher, and if it breaks above its long-term moving average, I will get back into stocks. If, however, the market falls from its current levels and decides to go on another bearish bender, then I will opt for the safety and security of a high cash position.
As you can see by the chart below of the S&P 500, the market is trading above its short-term, 50-day moving average (blue line), but still below its long-term, 200-day moving average (red line).
My allegiance to reality compels me to acknowledge a potentially nice uptrend in equities if we can break above the 200-day moving average. My reality-based perspective also tells me that if we fail to break above -- and stay above -- this mark, we may be in for a lot more up, down and all around.
If you want to pledge your allegiance to reality by taking an objective approach to investing, then my Successful Investing advisory service is for you.
Preaching The ETF Gospel
You've probably heard that old saying, "To know me is to love me." Well, I am in no way vain enough to say that about myself, but I will change that old saying in a way that does apply to me. That new saying goes, "To know me is to know I love ETFs."
That's right, I am a self-admitted preacher of the exchange-traded fund (ETF) gospel, and my pulpit this week is the Las Vegas Money Show. This year's gathering has been extremely well attended, and many of the people I've spoken with during the past few days have asked me why I love ETFs so much.
I waste no time in answering these questions with a burst of praise for the 1) low cost of ownership, 2) transparency, 3) objective management and 4) ease of ownership that you get when you invest with ETFs. I can't tell you how good I feel about being an ETF advocate. These products are the greatest investment tools Wall Street has come up with in years, and I want everyone to know it.
If you want to find out just how many ETFs are out there, and how each one has performed during the short- and long-term, you're in luck. Every week I post a new ETF Report at DougFabian.com.
This FREE report is a great way to help you become familiar with the various ETFs out there. You'll also be able to see which ETFs are red hot, and which ones have been left out in the cold.
I encourage you to download your FREE copy of the ETF Report by clicking here.
ETF Talk: 'Going Green' In More Ways Than One
I live in California, and around here it seems like everyone's in a green frenzy. These days you just can't escape the "go green" marketing campaigns used to sell eco-friendly products. Even the investing public is being courted by a growing number of exchange-traded funds (ETFs) designed to let investors "go green" in more ways than one.
These funds allow you to go green by making money, but they also can help the environment at the same time. These green ETFs have been created to give investors a chance to aim for superior returns, while investing in companies that are liked by the ecologically minded. Californians like me tend to appreciate the need to take care of our environment, but you don't have to be a tree-hugger to invest in green companies or green ETFs.
One of the newest environmentally friendly ETFs uses the ticker TAN, but you don't need to worry about overexposure to the sun if you invest in it. The fund is the Claymore MAC Global Solar Energy. Launched during April 2008, the fund is positioned to benefit with the growth of the solar power industry. That growth has already taken place, as the solar sector grew 46% annually between 2001 and 2006. The gains in the solar industry helped solar stocks soar in 2007, and now thanks to TAN, you can get exposure to 25 solar securities that track the MAC Global Solar Energy Index.
Despite the 2007 gains seen in solar stocks, the sector still is young, and the stocks still are very volatile. But if you are comfortable enduring the risks that flow from investing in new technology, and if you don't mind a little volatility, solar ETFs may be an option for you.
If you like forms of alternative energy other than solar, you are in luck. The following table identifies eight ETFs that allow investors to "go green."
Several clean energy and nuclear energy ETF options now are available to investors. These ETFs offer more options than just solar ETFs, and they allow you to diversify your alternative energy investments.
Although I am not currently recommending any alternative energy ETFs in any of my investment advisory services, I do think the alternative energy sector will have its time to shine. When that time comes, I know I will "go green" in a big way -- first to help the environment, and second to help your wallet. (Or should that order be reversed?).
'Paid-Up' Life Insurance -- Is It Really A Good Deal?
By Kevin Yurkus -- President, Fairway Capital
You think you have a great deal with your "paid-up" life insurance? Well, guess again. What you don't realize is that you've created a "dead asset" (no pun intended) that will not likely grow to keep pace with inflation or your changing estate planning needs. What you might not also realize is that you can leverage the cash within your paid-up life insurance policy to generate additional wealth, protection or liquidity for your estate.
Why make the big mistake in paid-up life insurance? Because most paid-up policies have high amounts of cash built up within the policy, particularly in whole-life policies. Sure, the cash grows and, depending on the policy, it might even pay a dividend, but it does not increase the amount of insurance. When you die, only the death benefit passes on to your heirs and the insurance company keeps the cash in the policy.
Let's illustrate a typical case. John is 71-years-old and has a "paid-up" whole life insurance policy with a death benefit of $300,000 and a cash value of $160,000. Upon his death, his heirs will receive only the $300,000 death benefit. They will forego $160,000 of cash value in the policy.
At 71-years-old, John can make his $160,000 of cash work better for him than by just having it sit in a life insurance policy. He has a number of ways to do this. Let's discuss a few.
John can cash out of his policy and reinvest the cash into other investments such as stocks, bonds, real estate, etc. Assuming a conservative 6% rate of return, his $160,000 will grow to approximately $380,000 at John's life expectancy, thus providing $80,000 more to his heirs.
If John is healthy enough to qualify for new life insurance, he can transfer the cash value into a new life insurance policy with an increased death benefit, thus adding additional wealth for his heirs. At 71, John's $160,000 can purchase a new policy increasing the death benefit from $300,000 to $400,000, thus adding an additional $100,000 for his heirs with no further premium payments required.
John can use his cash value to purchase a large life insurance policy and monetize his insurance through a life settlement. For example, John's $160,000 can cover three years of premiums on a new $3,000,000 policy. Once the policy has been in force for two years, John has the option of selling it in the secondary market. Based on his age and assuming no change in health, John could sell his policy for approximately $400,000, thus providing John's estate with $400,000 well before he is expected to die, which is much better than the $300,000 in his current "paid-up". The secondary market (Life Settlements) is comprised of Wall Street institutions paying cash settlements to acquire in-force life insurance policies from seniors 65 and older.
Be careful with option #3, as insurance companies are becoming less enthused about consumers buying policies with the intent of selling. There is a right way to pursue this option. First, using John's example, he has to be wealthy enough to justify purchasing the new $3,000,000 policy. Second, if John does not sell the policy, he needs to be solvent enough to continue the premium payments as the premiums will be considerably higher than his original $300,000 policy. Third and perhaps most importantly, there can be no formal or informal agreement for John to sell his policy. Although John may likely sell his policy, there can be no mandate from a third party forcing John's hand to relinquish his policy.
Does John's case sound familiar? Do you have a similar situation? If so, don't waste away the cash in your policy. Look to upgrade your "paid-up" life insurance.
If you have any questions about how to maximize your paid-up life insurance, or if you are looking for creative ways to enhance your estate planning, please contact us for a initial consultation. We can be reached by calling 1.800.338.1035, or by visiting our Web site.
It's your money, and you should take responsibility to maximize the opportunities for your estate.
Your Retirement's Calling -- Are You There to Answer?
Last Saturday, May 10, I presented part II of my three-part Retirement Income Conference Call series. If you are in retirement, approaching retirement or are in charge of the financial assets of parents or grandparents, I invite you to listen to the replay of this call.
In our first call, we covered the basics of retirement income investing such as getting organized, understanding your income streams, essential and discretionary expenses, the threats to your income, and how to create new lifetime income streams. Now we have moved into a new discussion about two very important topics for retirees.
The first is income investing, and just how it is done. We discussed what vehicles you should use, and where the best opportunities are today for income investors. Second, I spoke in much greater detail about the new living benefits within today's variable annuities. There is a new breed of no-load annuity available that allows you to receive income without annuitization -- and while still maintaining control of your assets.
This type of annuity could be a great choice for a portion of your 401(k) or IRA. We covered all of this and much more in this dynamic and informative conference call.
If you didn't have the chance to call in then, now is your chance to listen to the replay at your own convenience. Just click here to listen to part II of my Retirement Income Conference Call.
The New, Old Take On Being Rich
"A man is rich in proportion to the number of things he can afford to let alone."
—Henry David Thoreau
One new way of thinking with respect to the concept of being "rich" has more to do with how many things in your life you can afford to neglect. Under the old paradigm, being rich had more to do with how much money you had in the bank and how many things you could accumulate with that money. And while I am a big advocate of a big bank account, I am a bigger advocate of a life well lived. Money can help you live a better life, but living life well is all about you, your values and what will actually make you the happiest. Don't waste time on the trivial. Remember, a rich man is one who can afford to let things alone.