March 24, 2010

Approach To Investing

Your approach to investing is everything. Bottom line is that a lot of what you have heard on TV or read is not true.

Your approach to investing has to change if you think you can time the market. I just read an article at yahoo finance which backs up what I've known for years, that timing the market is virtually impossible.

Research for the twenty year period 1983-2003 is below.  Pay attention and learn something that you may not already know and certainly your stockbroker or financial advisor is not telling you.

1983-2003 period for S&P 500
Buy and Hold = 10%
Minus the 30 worst days = 19%
Minus the 20 best days = 5%

Moral of the story is that if you are willing to risk missing the best days trying to miss the worst days, go ahead but you will have probably wasted a lot of your time, and money and got nowhere. You need to change your approach to investing.

I have said it before and will say it again, buy a no-load mutual fund or ETF that tracks the S&P 500 and you are doing really all you can do.

March 23, 2010

If Its Too Good To Be True .........

People will ask me about investing in pink sheet stocks (.pk) or over the counter bulletin board stocks (.bb) from time to time and my answer is always the same, I have yet to see anyone make any money buying them. So run, dont walk away from anyone who is offering to sell you anything like that.

I have been around stocks for almost three decades and the story is always the same, its a small company with a great product that just needs funding.  Maybe something to do with China or India.  Biotech and a cancer cure always generates some buzz.  Homeland security is new.  JUNK.  I know the stories sound good but so does Dr. Seuss.

If the company actually had a real product, they would go the private equity route to fund their needs but those guys are far too smart for that junk.  So the peddlers of pink sheet and otcbb companies have only the regular investing public to prey on.  Stay away.

March 12, 2010

Saving For Retirement

Saving for retirement is scary but its easy to understand. I know alot of financial advisors scare people but here is the scoop.

When you retire, you will be living on your savings and income from social security (hopefully). Thats about it. Hopefully you will have a lump sum from years of savings and its common thought that you can spend about 4-5% of your nestegg every year (without any growth, thats 20-25 years after retirement day).

I know there are a gazillion financial calculators on the Internet (I like yahoo finance as a source) but quite frankly, there are just too many variables to bother and do not let a financial advisor charge you for this. Will my kids need money? What will healthcare cost? What will taxes be? What kind of return can I expect? Divorce? Lawsuit? Inheritance?

Now, you can't and shouldn't count on any growth (ask a recent retiree) but very long term, the S&P 500 has returned just over 8% so if you have a portion in the S&P 500 and most in safe govt bonds or CD's, you will probably end up near 3-4%.

You may not touch the principle some years and of course, some years, you will. Again, its nice to plan but the large amount of variables outweigh any real planning you can do so don't stress too much.

Bottom line.  Save the most you possibly can and keep fees very low (I like Vanguards S&P 500 exchange traded fund symbol VTI) and as you approach retirement, you will have a much better idea as to how much that 4-5% a year will be.  It will then be time to plan and adjust your lifestyle to match what you have.

March 10, 2010

Same Old Story

Turn on the TV, read the paper or talk to any financial advisor and you will hear the same people repeating the same old story over and over and over again.  YAWN.
  • The market will be volatile until its not
  • This is a stock pickers market
  • You need to own this sector and not that one
  • We are buying the big diversified multi-nationals
  • The market is overpriced / underpriced
Do you know what the common theme is?

Not one of these guys can beat the S&P 500!!!  Their goal is to appear more intelligent than you, get some exposure on TV for their firm so that you will continue to give them your money for which they receive some nice fees, only to underperform the market time and time again.

March 2, 2010

Are Mutual Fund Returns Really What They Say???

Ok, you hear about this great mutual fund and you jump in.  First year it returns 100%, nice, very nice.  The second year isn't so good, down 50%.  The mutual fund then claims an average return of 25% which is technically true if you just do the math and average the two years.
However, if you were a shareholder for both of those years, your return is 0%.  Whatever you gained in the first year was wiped out in the second.  Its called CAGR which is compound annual growth rate which is the 'real' or annualized return. 
As an investor, you need to be wary of many things, only one of which is the 'return' a mutual fund or your stockbroker claims to have acheived.
Since 1990, the stock market (as judged by the S&P 500) returned 10.16% but a CAGR of 8.23%.  That is a massive difference and is rarely discussed.