06/18/2008

Exorbitantly high oil and gasoline prices are worrying everyone, not just here at home but around the globe. Fear -- and in some cases downright panic -- is about to set in regarding corporate earnings and the potential lack of visibility going into the second half of 2008.

Now, I am not saying we are going to see a straight line downward in equities, but I do think we are in for summer doldrums in stocks akin to what we witnessed in the first quarter of this year.

The question now, for investors, is what to do about it?

I had a listener to my radio show call in last week thanking me for getting him to sell his Bank of America (BAC) stock back in January. He listened, processed the information, and then took action to save a bundle of money. He told me he would never have sold the stock without a push from me.

This made me feel great. I have been warning people to stay away from the beleaguered financial sector for some time. And while I'm still warning everyone to keep away from financials, it's not just financials that need to be avoided.

Right now, you should be raising the level of cash in your portfolio by getting out of risky equity positions. I would not be holding equity exposure above 30% right now. Your cash position, or safe harbor investment, should be in excess of 50%.

Treasury bonds are one good way to fight off the specter of continued inflation, and fortunately there are a number of great exchange-traded fund (ETF) options that allow you exposure to Treasury bonds with a variety of maturities.

The table below provides a list of various bond ETFs that could be a good place to wait out this market storm.

Right now, subscribers to my High Monthly Income advisory service are allocated to two of these bond funds, and we've been outperforming the equity markets in both for all of 2008.

If your primary goal with your portfolio is income generation, then you owe it to yourself to check out my High Monthly Income service. For more on how you can protect your retirement assets in this volatile market environment, click here.

A "Must Hear" Radio Segment 4

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, and find out which three ETFs can give you the upper hand in your battle to preserve capital and growth your wealth. To listen to this most-excellent, "must hear" radio segment, click here.

ETF Talk: Rydex Raises The Ante

Investors who want alternatives to going long in stocks or equity-based ETFs, and are willing to take a gamble, now have eight new funds to consider.

Rydex Investments began offering shares of the new leveraged and inverse ETFs on Thursday, June 12, targeting four key industry sectors: energy, financial, technology and healthcare. The funds offer investors magnified and inverse exposure to those four industries through matching Select Sector SPDR indices.

Leveraged ETFs magnify exposure to a benchmark index. For example, Rydex offers double the exposure of a long investment to give investors twice the gain or loss that they otherwise would incur. Inverse ETFs simply move in the opposite direction of an index.

Competition among ETF players in the leveraged and inverse niches is so fierce that it reminds me of the Hatfields and the McCoys, a pair of feuding families that waged a bloody battle in 1881 that still is remembered generations later. Relatives of both families have learned to live in peace along the border between West Virginia and Kentucky but Rydex and its big rival ProShares keep firing away at each other with new product introductions. That competition may well benefit you, the investor.

Rydex officials tout that the Select Sectors are the industry's largest and most liquid indices for sector investing, with more than $25 billion in benchmarked assets. Financial professionals have shown growing interest in leveraged and inverse strategies that offer the potential to help capitalize on directional market moves or hedge an investment portfolio, said Carl Verboncoeur, Rydex's CEO.

On a daily basis, Rydex's leveraged Select Sector ETFs aim to double their benchmark exposures to an index, without needing to use additional capital. In contrast, Rydex's inverse Select Sector ETFs seek to move in the opposite direction of their specific benchmarks to let investors profit during sector downturns. These new ETFs, shown in the table below, are designed to be more convenient for investors than margin accounts or options.

The new Rydex leveraged and inverse Select Sector ETFs are intended to complement the investment firm's existing lineup of leveraged and inverse ETFs that provide broad market exposure to small-, large- and mid-cap indices. Rydex introduced its first six leveraged and inverse ETFs in November 2007, said Lori Winkler, a Rydex spokeswoman.

Rival ProShares offers its own family of leveraged ETFs. But Rydex has differentiated itself by holding down the annual expenses it charges investors to 70 basis points, compared to the 95 basis points that ProShares ETFs charges annually. As a result, Rydex's ETFs are "more affordable" to investors than its competitors, Winkler said.

I currently am not recommending these new ETFs, but an investor who is aggressive and sophisticated may want to consider including leveraged and inverse funds in a diversified portfolio. If that description fits you, and you choose to buy leveraged and inverse ETFs, only put a small portion of your overall assets in leveraged or inverse funds.

If you have any questions about ETFs that you'd like me to answer, or 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.

Living Large: A Different Perspective

There was an interesting article in the Los Angeles Times today about a man who lives frugally but happily on a boat in Newport Harbor, Calif. The man lives on less than $600 per month, works two days a week and plays as much golf and tennis as he likes.

Now this man is not rich in monetary terms, but he considers himself rich in terms of time. Now, I am not arguing that you should abandon your lifestyle and embrace the rather vagabond lifestyle of the man in this article, but the piece was thought provoking.

Mainly, it got me to thinking about all of the ways we could do with much less in our lives in terms of spending -- if we really wanted to. So let's do a little exercise. Let's say that you had a 20% cut in pay, and you had to reduce your spending by that amount.

Where would you begin?

At first, most people would say that they could not do it. To that I say -- baloney. You could if you had to, and if things get worse economically, who knows, you just might have to. It may take some creative thinking, but it can be done.

Here are just a few ideas off the top of my head:

These are just a few of the short-term things that could be done. Long term you could:

• Lower your mortgage or rent
• Buy a cheaper, more fuel-efficient car
• Pay off your car and don't buy a new one

Now I am sure I left out quite a few things, so if you have any ideas on how your fellow Alert readers can save money -- either over the short term or the long term -- please e-mail your pearls of wisdom to me.

I'll share the best, most creative and most entertaining submissions with you in next week's Alert.

Principles for Financial Success in Uncertain Times 2

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 rea" 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.

1. Eliminate all consumer debt. Financial independence will not be achieved by 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.

2. 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.

3. Fully fund your retirement plans. By maxing out your 401(k), IRA and other plans, you'll lower your taxable income and increase savings.

4. Manage your risks. Make sure that you have adequate insurance in place to protect your assets and your family.

5. 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.

6. 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.

7. 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.

8. Get real about real estate. I predict more money will be lost in real estate in the coming years, and just like the technology bubble of the 1990s, there will be more losers than winners.

9. Get real about government promises. Do you expect to receive a Social Security check when you retire? Are you anticipating Medicare will be there for you? I suggest you plan to be self-sufficient; that way you won't have to rely on the capriciousness of political promises.

10. 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 according right now.
    
    If you'd like me to speak at your corporate event, just send me an e-mail by clicking here.

Blogs Away: A Fabian Visual Fixation 2

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.

The Music of Tim Russert

But the stars are burnin' bright
Like some mystery uncovered
I'll keep movin' through the dark
With you in my heart
My blood brother

—Bruce Springsteen, Blood Brothers

Like most Americans, I was saddened to hear about the passing of TV newsman Tim Russert. As anyone who has ever been in front of a camera or behind a microphone knows, it's not as easy as it looks. In fact, it's downright difficult. Tim, however, made it look effortless, and he did so while fiercely grilling many of the world's most powerful leaders. I didn't know Tim Russert personally, but I found out during some of the outstanding tributes devoted to him last weekend that he was a big Bruce Springsteen fan. I, too, am a big Bruce fan, which made me feel a kind of bizarre kinship with arguably the best broadcaster in the business. If you'll permit me this indulgence, please allow me to say that on behalf of all the Springsteen fans out there, and on behalf of everyone who appreciates greatness when they see it -- you shall truly be missed.