01/10/2007
It didn't take long for 2007 to kick into high gear and nowhere was this more evident than the hefty sell-off in the energy sector. Oil prices got slammed to start 2007 and caused an oil slick that sent the commodities sector reeling.
Aside from the immediate damage to the oil sector and energy stocks, the decline in oil prices could be the harbinger of a bigger decline in the overall world economy. What we could be witnessing here is the start of a larger, global economic correction and the first victim could be this overbought U.S. stock market.
In fact, I'll be looking at the decline in oil and other commodity prices as a sort of canary in the coal mine with respect to the overall health of the world economy. Why? Well, because a global slowdown accompanied by a steep sell-off in many of the extremely overbought emerging markets could be followed by a sell-off in our own overbought U.S. stock market.
So far in this young year, we've already seen the signs of a weak domestic market. Both the Dow and the S&P 500 have kicked off the year with some sizable selling and the first week's market action could be the start of a larger, longer downtrend in equities.
Subscribers to my Successful Investing service know that a nice downtrend in equities means a great buying opportunity ahead for those who know how to read market indicators. If you don't want to live in fear at the prospect of a down stock market in 2007, then you need to get yourself on the path toward being a confident investor -- an investor with the proven tools at your disposal to let you know when to be in, and more importantly, when to be out of stocks.
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When it comes to variable annuities (VAs), I have what could be described as a classic love-hate relationship. I love VAs because they are a great tool to help you enhance your retirement nest egg and they offer unlimited contributions, which is great for those who receive some type of windfall such as an inheritance, a life insurance payout or a big settlement.
I hate VAs because, so often, they are used by unscrupulous brokers who charge outrageous commissions to gullible investors who are often unaware of what exactly they are buying.
So, how do you put the love on your side and how do you minimize the hate when it comes to VAs? Well, that's exactly what I cover in my online seminar, The Secrets to Variable Annuity Success. If you want to find out more about these great retirement investing tools, I encourage you to check out my seminar by clicking here.
One of my top priorities throughout the years has been helping subscribers grow their retirement dollars. These funds are what I frequently call your “serious money" because it is the money you will rely on to help fund your golden years.
Over the past year, I've taken a very cautious stance with respect to equities and how to manage your retirement money. While risk management still is the primary directive of my investment philosophy, I think that at some point soon that risk will become quite a bit lower. Lower risk will mean a tremendous opportunity to enter equities at very attractive levels.
To take proper advantage of what I think will be a huge buying opportunity, you first must get your serious money prepped and ready to meet the challenge. That means you have to become intimately familiar with all of your retirement accounts, including what choices they offer, how much money you have in each, and what the rules are of your particular plan.
The following are five essential steps that I recommend for investing your 401(k), 403(b), 457, variable annuity or other retirement plan(s) wisely. Taking these steps isn't difficult, nor is it extremely time consuming. But in life, there is no free lunch. You will have to exercise a little effort to make sure you know the key components of your particular plan. But trust me; the small amount of energy you employ will pay huge dividends -- literally -- when the time comes to hang up your work boots and to go fishing.
Save more money. This year the laws governing 401(k)-type plans have been changed to allow for higher total contributions. You also are allowed to contribute to a Roth IRA this year if your income does not restrict you from doing so. If there was ever a mantra that I could advocate that you utter aloud to yourself each day, it would be this: save more money, save more money, save more money.
Understand your investment choices. Not all retirement accounts are the same. One I recently reviewed had more than 125 Fidelity funds to choose that included sector, commodity, and country-specific options. While this variety of fund options is atypical for 401(k) plans, it is indicative of the fact that every plan has its unique choices. To take full advantage of your plan, you have to understand what choices are available.
Divide your assets into three parts. This year its all about diversity with respect to your holdings and you should be prepared to allocate to both domestic and international equities. You also should be prepared to use sector funds to help bolster your overall returns. With that in mind, I want you to prepare to divide your 401(k) and other retirement accounts according to a one-third strategy. To this end, our allocation probably will be one-third domestic, one-third international, and one third sector funds at some point. My advice to you is to be ready to allocate your retirement money according to this tripartite formula in 2007.
Know and understand your bond funds. There are many “what ifs" as we enter 2007. What if the war in Iraq spills into Iran? What if there is another major terrorist attack on U.S. soil? What if the economy is severely affected by the bursting of the housing bubble? All of these potential events could become reasons why you may need to move into the safety and security of bonds. As a result, you will need to know what kind of bond fund options you have in your retirement accounts, how they work and under what conditions they can make you money.
Know your exit rules. Some 401(k) plans are starting to put a damper on the number of trades -- also called “exchanges" -- that you are allowed to perform in your account. Knowing your plan's exit and trading rules may help you to avoid costly moves. It will also help those of you with very restrictive plans know what you're up against.
So, there you have it -- five steps to 401(k)-type plan success that require just a little time and effort. In return, I promise that effort will pay off handsomely. Get started on knowing your plan today. There is no better time than the present to start taking control of the future.
Worried about managing risk in this uncertain political and economic climate? If you aren't worried, you should be. The risks we all face right now require sound financial stewardship. These days, you just have to know how to protect yourself.
That's why I want you all to go here for your FREE Special Report titled, “The Successful Investor's Guide To Managing Risk."
If you don't already know what a big fan of exchange-traded funds (ETFs) I am, you've either got your head in the sand or you are a new Alert reader. For the benefit of those ostrich types out there, as well as the new members of my online community, I am going to repeat what I've so often said about ETFs.
Quite simply, I have never been more excited about a financial instrument and its possibilities than I am about ETFs. The low cost, array of choice, ease of trade and objective management you get with ETFs is by far the greatest development in investing we've seen during the past decade.
One of the commitments I've made to you, the Alert reader, in 2007 is to bring you all of the news out there on the ETF front. I also will help you to understand, to interpret and to profit from all the latest developments in ETF land.
As we begin 2007, I want to point out five ETF trends sure to have a significant influence on the market throughout the year.
ETFs Take a Trip Around the World
International investments continue to grab investor dollars. Recent data show that $124 billion of new money has flowed in equity mutual funds this year and much of that money has gone to international ETFs.
I expect international ETF offerings to continue their recent expansion and to continue to outperform domestic ETFs. I also see a huge increase in the number of region-specific ETFs, as well as a continued influx of investment capital into these regions. The regions most likely to get greater ETF exposure in 2007 are China, Japan, Taiwan and Eastern Europe.
A New Kind of Active Management
Last year, we saw the advent of the actively managed ETF -- a mutual fund hybrid of sorts that is designed to get investors back to the managed investment model. Of course, active management entails higher costs and additional fees to you that will boost the revenues received by the ETF companies.
One of the beautiful characteristics of ETFs is their objective management. As a result, the performance of ETFs usually is tied to a specific index. When that index is performing well, the ETF will do well, too. When the index is out of favor, then the ETF that tracks it will be a laggard, as well. This simple design isn't likely to be usurped in popularity by actively managed ETFs, but I think you are going to see more of these new fangled investment vehicles in 2007.
ETFs Make it into Your 401(k)
The investing public already is proclaiming its allegiance to ETFs. That fact is not ignored by corporate America and its millions of employees who want ETF offerings in their 401(k) plans. The expenses associated with 401(k) plans are quite high but plan administrators now are seeing a way to lessen these fees by using ETFs. This cost-saving potential is why 2007 could be the year of widespread ETF adoption in many large 401(k) plans. And, as these plans have success, more ETFs in more retirement plans likely will be a trend for years to come.
It's All About the Bear
The bull market, particularly during the last half of 2006, has taken many a pundit by surprise. But anyone with a sense of history knows that this latest winning streak can't continue forever. I've been arguing that a correction is very likely at hand. And, that outlook means a sustained period of selling in stocks. Fortunately for us, this looming correction doesn't have to mean an inactive portfolio. Thanks to bear market ETFs designed to go up when the market goes down, you can make money even if stocks are trending lower. I think a lot more of us, including myself, will be using bear market ETFs in 2007.
Fidelity Joins in on the Fun
Even one of Wall Street's biggest players is being pressured to get into the ETF game. Fidelity Investments, one of the investment world's most lauded firms, is likely to enter into the ETF fray real soon. The company actually tried to do this back in 2003 but it pulled the plug on the project for fear of cutting into its managed fund business. But with more and more investors wanting ETFs, you can bet that it won't be long before the investment giant gives its clients what they want -- and what the customers want is ETFs.
For more information about the latest news in the ETF world, you can find no better place than ETFTrends.com. This site is run by my long-time friend, Tom Lydon. Tom is attuned to the ETF business. And, like me, he's made it a personal mission to keep readers up to snuff on all of the latest, breaking ETF news. If you're interested in ETFs, you've got to check out ETFTrends.com.
"A minute of perfection was worth the effort. A moment was the most you could ever expect from perfection."
The above quote is from author Chuck Palahniuk's great novel Fight Club.
I like this quote because it reminds me that regardless of how hard we strive to make things right, often the truly great moments are merely fleeting. Remember this truth when you are engaged in that monumental struggle we call life. The perfect moments may indeed be brief, but they can burn so bright.
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.