Making Money Alert
Straight Down A Financial Wormhole
06/11/2008
Record-high oil prices may be grabbing most of the headlines, but the bloodletting in the market during the past month or so hasn’t just been caused by oil. In my opinion, it’s the financial stocks that have taken us down this market wormhole, and today we saw more evidence that my thesis is indeed correct.
Banking stocks now are trading at their multi-year lows, as reflected by the ugly chart below of the Philadelphia Bank Index ($BKX).
In my opinion, what’s happening on Wall Street is the clear realization that a recession now is an undeniable reality. There was so much talk -- and hope -- that we weren’t going to have a recession during the past few months, and that hope is what I think held the market up through April and early May.
But as I always say, hope is not an investment strategy.
The recent action in the market, seen here in the chart below of the S&P 500 ($SPX), clearly shows the carnage since the midway point in May.
The S&P 500 now is trading below both the 50- and 200-day moving averages, a clear sign that the bear is back in town.
Now, if you’ve been reading the Making Money Alert all year, and if you’ve followed my lead, then you are not fully invested in stocks. If you are a new reader and are just now trying to figure out what to do about this volatile market, let me make the following suggestions.
First, lower your risk. Risk is all about stocks, and your overall exposure to the equity markets. I think right now you should have no more than a 30% allocation to equities. If you are a more conservative investor, you may want to go completely to cash and wait out this market storm.
Second, take steps to lower your fees by moving your money out of high-cost mutual funds, big brokerage companies, expensive annuities and other financial vehicles sucking up your net worth with their high fees.
Finally, expand your horizons by finding out about new, innovative exchange-traded funds (ETFs) that can help you to navigate these choppy market seas.
Hey, I know it’s hard to stay positive when the market is tumbling, but if you take the necessary steps to protect your money, you’ll feel a lot better about your financial situation, not to mention the fact that you’ll be a whole lot richer.
A "Must Hear" Radio Segment 3
Now more than ever, it’s absolutely essential to get defensive with your ETF portfolio. In a recent radio show segment, my son David and I discussed how to use three defensive ETFs to help ward off the ravages of a declining market.
I encourage all of you to listen to this segment to find out which three ETFs can give you the upper hand in your battle to preserve capital and grow your wealth. To listen to this most-excellent, "must hear" radio segment, click here.
ETF Talk: Going Green Follow-Up
Last month, I introduced you to what has become one of the hottest, most talked about exchange-traded fund (ETF) sectors -- green ETFs. As many of you already know, I live in California, and around here it seems like everyone’s thinking green. A growing number of exchange-traded funds now are designed to let investors "go green" in more ways than one.
Alternative energy ETFs allow you to go green by making money, but they also can help the environment at the same time. Last month, I featured one such fund -- the Claymore MAC Global Solar Energy (TAN) -- which launched in April of this year. This fund is positioned to benefit from the growth of the solar power industry. That growth already is taking place, reflected by the solar sector’s 46% average annual rise between 2001 and 2006. Indeed, the gains in the solar industry helped solar stocks to soar in 2007.
Despite the gains seen in solar stocks during 2007, the sector 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 volatility, solar ETFs may be worth considering after the recent pullback.
The table below lists the top alternative energy ETFs, including solar. As you can see, 2008 hasn’t been the greatest year for these funds. Yet despite this year’s declines, I think alternative energy funds are definitely worth tracking.
Now because of the volatility in the above funds, I still am not currently recommending any of them in my investment advisory services. However, I do think that 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?)
If you have any questions about ETFs that you'd like me to answer and that you think might interest the rest of my readers, click here and I may be able to do so in an upcoming ETF Talk feature.
Principles for Financial Success in Uncertain Times
One of my favorite things to do is speak at corporate events. I love interacting with the crowd, answering questions and meeting new people. The subject of my next corporate speaking event is how to "get real" with your finances now, before you find yourself in dire straits.
The title of my talk is, "Principles for Financial Success in Uncertain Times." Here’s a brief outline on some of the topics I’ll be covering.
Eliminate all consumer debt. Financial independence will not be achieved carrying a big debt load. It’s obvious that you should not be paying interest on credit cards or student loans, so one of the best investments you can make right now is the paying down of debt.
Manage your taxes. Higher taxes are coming, and the more you make, the more they’ll take. The smart money employs every strategy allowable to beat back the tax man.
Fully fund your retirement plans. By maxing out your 401(k), IRA and other plans, you’ll lower your taxable income and increase savings.
Manage your risks. Make sure you have adequate insurance in place to protect your assets and your family.
Positive cash flow. Most Americans live above their means, so if you find yourself in financial trouble, it’s a good bet that you are outspending your income.
Get financially literate. Managing your assets in uncertain times requires energy and expertise. If you are so inclined, get an education in the financial markets. Read books, newsletters and Web sites, and follow the markets carefully. If you’re not inclined to do it yourself, hire a fee-only advisor to manage your money and stay away from firms that charge high commissions.
Minimize fees. Mutual funds, annuities and high-cost advisors are ripping off millions of Americans. Know what things should cost and avoid all products with high surrender charges.
Get real about real estate. I predict more money will be lost in real estate in the coming years, and just like the tech bubble of the 1990s, there will be more losers than winners.
Get real about government promises. Do you expect to receive a Social Security check when you retire? How about Medicare? Will it be there for you? I suggest that you plan to be self-sufficient. That way, you won’t have to rely on the capriciousness of political promises.
- Start planning for a realistic retirement. Many Americans feel that they are entitled to a condo in Florida and four rounds of golf per week. It will take a million dollars to safely generate $50,000 per year in income, so if you want to retire with more income than that, you’ll have to plan accordingly right now.
If you’d like me to speak at your corporate event, just send pop me an email by clicking here.
Blogs Away: A Fabian Visual Fixation
Want to hear my latest rant on the state of the financial markets? Well, now watching, is as easy as a mouse click.
Just click here for your Fabian visual fixation.
Nature and Rejecting Self-Pity
"I have never seen a wild thing feel sorry for itself. A little bird will fall dead, frozen from a bough, without ever having felt sorry for itself."
—D.H. Lawrence
The next time you feel sorry for yourself -- whether it is related to your financial circumstance or anything else -- resist the temptation to wallow in self-pity. Remember the observations of the great novelist D.H. Lawrence, and rebuff your human frailty. Self-pity only makes one weak, so cloak yourself with the strength of your own will and choose to prevail.