Making Money Alert
The Financial Sector Roadblock
05/28/2008
Last week's sharp, equity sell off was a great example of the powerful psychological significance of the 200-day moving average. One look at the chart below of the S&P 500 index illustrates precisely what I mean.
As you can see, the S&P 500 raced up to its long-term, 200-day moving average (red line) a couple of weeks ago, but almost as soon as it got there stocks were knocked right back. It's almost as if the market put up a roadblock that read: DANGER, ROAD AHEAD CLOSED.
As you can see, the sector is in freefall mode, as last week's sell off brought about a drop in the sector below its short-term, 50-day moving average (blue line). This breaching of support at the 50-day average is really telling, and usually signals some very serious downside yet to come.
The very best case scenario for financials is they've "bottomed out," meaning that they've fallen so low that there is no where for them to go from here but higher. Unfortunately, I don't think we are at the bottom for the sector yet, and the drag on the overall market because of the action in financials will likely continue for some time to come.
The question now for investors is what to do?
Many people out there are selling out of fear and buying on hope. Conversely, I've had many people tell me that they are buying out of fear and selling on hope. Hey, I understand the confusion about how to approach this market. Fortunately, there is a way to put emotions aside and be objective about what to do right now.
In my Successful Investing service, we use objective criteria to help us get in the market when the going is good. More importantly, we use the same objective criteria to help keep us away from dangerous market slides.
Is It Time To Buy Real Estate?
I had an interesting conversation with one of my Fabian Wealth Strategies clients a few days ago. This client asked me if I thought it was a good time to invest in a partnership created to purchase foreclosure properties.
Before I tell you my answer, I want you to know that I fully understand the desire to jump in to the battered real estate market. Yes, there are a lot of bargains out there right now, and there are a lot of foreclosure properties up for sale. But there is also a lot of risk. Here is what I advised my client.
First, I reminded her that the real-estate market is still fraught with uncertainty. Inventories are at all-time highs, the economy continues to struggle and the mortgage market continues to face big challenges. The problem for real-estate investors right now is that most qualified home buyers already have homes and are not looking to make any new purchases. So if you are looking to buy low and sell high, you might have a hard time finding a buyer. If you are buying property with the intent of renting it out, you also are facing high inventories and downbeat economic conditions.
My advice to this client was to be patient. I just think it is too early to buy real estate for speculative, investment purposes. Sure, there will be a time to invest in the real-estate market, but in my opinion we just are not there yet.
ETF Talk: The Rise of The Raj
In the inaugural ETF Talk feature on Feb. 27, I highlighted the tremendous, money-making possibilities of India, one of the world's most culturally rich, emerging market powerhouses. Back then, I wrote about a planned exchange-traded fund (ETF), the PowerShares India Portfolio (PIN). That fund launched on March 5 and it now has a track record to share with you. Its early performance is proving that my reluctance to recommend this fund in its rollout stage was on the mark.
The PowerShares India Portfolio (PIN), based on the Indus India Index, is designed to replicate the Indian equity markets as a whole. The index consists of a diverse group of 50 Indian stocks selected from 200 of the largest companies listed on the Mumbai Stock Exchange and 200 of the biggest companies listed on the National Stock Exchange. PIN is allocated primarily to large-cap stocks. Indeed, 71% of the fund's stock holdings consisted of large-cap growth, while 28% were large-cap value stocks, as of May 21.
Since the fund launched in early March, it has exhibited some volatility and now is down slightly -- about 3.6% -- from its inception date closing price, as of May 21. But with India's BSE Sensex on an upward trend and with PowerShares India Portfolio (PIN) reaching an all-time high earlier this month, this emerging market ETF may be headed for higher ground in the months ahead.
As you can see from the chart of PIN above, the fund's price dipped to an all-time low of $22.25 in mid-March. In the two-plus months since then the ETF has rebounded and now is trading at just over $24 a share. This type of volatility is one of the reasons I still recommend a healthy dose of caution before considering a position in this India ETF.
PIN also currently is averaging a daily trading volume of 89,013 for the past three months. While not a strict rule of mine, I generally do not recommend thinly traded ETFs that have an average volume of less than 100,000 shares a day.
Nonetheless, India remains one of the fastest-growing economies in the world, along with Brazil, Russia and China. These so-called BRIC nations offer great investment potential, but they also bring with them the risk of high volatility. Brazil has been the best-performing BRIC market so far this year. At some point, India may follow along. For now, I'll keep monitoring this fund and others that invest in India at a safe distance.
'Paid-Up' Life Insurance -- Is It Really A Good Deal? 2
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 a 71-year-old who 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.
As a 71-year-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 of them.
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" policy. 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, especially since 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 likely may 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 an 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.
Blogs Away: A Fabian Visual Fixation 3
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.
Income Investors: Pick Up Your Phones NOW! 3
On 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 pick up the phone right now and 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 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.
Be Like the Bird
"Be like the bird that, pausing in her flight awhile on boughs too slight, feels them give way beneath her, and yet sings, knowing that she hath wings."
—Victor Hugo
The above quote from one of the greatest novelists of all time is a fantastic lesson for investors. If you find yourself invested in a stock, mutual fund or ETF that's giving way beneath you, don't panic. Be like the bird and rejoice in the fact that you have wings, i.e., you have the choice, to fly your money away and land on the next investment bough.