Financial Planning Corner

Graduating Without a Financial Plan for the Future

2011-05-15T10:41:00.000-07:00

We had a great time at Julia's graduation party yesterday. Congratulations Julia!

Notably, I came across a pretty good article in the Washington Post today that talks about what a poor job our education system does educating our children about personal finance. For all of the new grads and soon to be new grads or anyone soon to enter the job market, please read the attached article here.

Unfortunately, the article does not give much detail about what our children and young people should do to get their finances in order, pay off their student loans, and plan for the future. Since I am an experienced, professional financial planner and a registered investment advisor, I would like to help the children we love, who, in many cases, are being put into debt by their elders (national debt or college loans anyone?!) or have fears that all the social security and medicare money will be used up by the baby boomers and they will be left with nothing or more likely less than what their parents receive.

While I believe that social security and medicare will be protected for our children, I also firmly believe that the benefits of these entitlement programs will be reduced, maybe substantially reduced in the future when our children retire.

Therefore, and without further ado, I am offering to give some FREE financial advice to our new grads or soon to be new grads to help them meet their financial obligations and challenges so that they can have a happy and successful future. There are no strings attached, so please pass the info along to your family and friends.

To help the widest audience of our graduates or soon to be graduates, if you have any financial questions, please post them to my financial blog here. I will consolidate similar questions and answer them as soon as I can. If your question is of a personal nature that you would prefer not to share with the group, just drop me a note at my email address: barry@barkerfinancialmanagement.com.

Barry

Market Volatility Has Returned

2011-03-10T07:08:00.001-08:00

The stock market has returned to its volatile days and there are ways to both benefit from the volatility and to also mitigate its effect on your portfolio. Some of this is similar to what is done in the Permanent Portfolio approach with tactical variations not pursued by the strategy that covers and protects the investor from all types of market, political, and economic conditions. I will cover this in more detail in my April Newsletter.

2011 Stock Market

2010-12-18T19:07:00.000-08:00

Over the next couple of weeks, I will discuss how I expect the U.S. and global stock markets to perform in 2011 and how to develop a new investing paradigm to take advantage of what should be a very different market. Globalization is changing the way that markets work because there is greater interdependency and no market silos. Compassionate investing may also present strategic opportunties in 2011 while dispassionate investing may create headwinds to success. Stay tuned...

Compassionate Investing

2010-12-16T06:17:00.000-08:00

I have gotten away from creating new posts on this blog due to a load of work, but also a lack of comments from any readers. It is difficult to know if anyone is actually reading these posts which I hope are valuable, but take time and thus some feedback would be appreciated to determine if these posts add value for those looking for both financial planning and professional investment advice. I will continue to post until the end of this year and then see where we stand.

Seeking Alpha recently published an article extracted from my newsletter where I discuss whether or not investors should consider compassion when they design their investment strategy for 2011. This is certainly not covered in any real way by the bible of strategic investing "The Intelligent Investor" written many years ago by Benjamin Graham. This certainly puts "Value" investing in a different light as it assigns intrinsic value to "Compassionate Investing", by investing in companies that better the human condition and/or improve the environment. Less value is associated with investing in things that only make or lose money and give no thought to the damage that is done to investors, the environment, countries, or society.

I am not proposing that compassionate investors only invest in social funds or in companies that improve the environment or human condition, but I am saying that compassionate investing can be made a part of a successful investment strategy and that we should consider the damage that we do when we invest in things that do more harm then good. Perhaps I should write a book called the "Compassionate Investor" to describe in more detail how this can be done without sacrificing investment returns and how investors can become more successful in their lives and meeting their financial objectives by doing so.

Institutional vs. Retail Investing

2010-09-13T14:40:00.000-07:00

Institutional investors now comprise over 60% of the U.S. stock markets. This is up nearly 20% from 20 years ago. How institutional investors invest has a huge impact on the direction of the stock market. Many institutional investors are mutual funds so some of this shift comes from retail investors who did not invest before and now buy mutual funds for the knowledge that fund managers bring and for diversification. Not many actively managed mutual funds beat their indexes so individual investors are increasingly buying index funds and passively managed ETFs. Retail investors who buy stocks play an increasingly small part in the overall stock market and its direction and when they do buy they need to be extra cautious because an institutional investor that sells their entire stake in a company can cause a stock price to drop precipitously. Likewise, if a mutual fund buys a large stake in a company, the stock price may rise as demand for shares increases.

What this all means is that retail investors should perform due diligence when buying a company's stock to determine if artificial demand for shares has created a mini-bubble in a share's price which could be difficult to recover from when the share price stabilizes in line with its fundamentals. When retail investors follow institutional investors in a particular company, the retail investor will see diluted earnings or out-sized losses if the buy at the wrong time so they must be cautious when buying individual stocks.

The Global Economy is No Match for a Capitalized Media

2010-09-07T08:26:00.000-07:00

I am back from an extended summer vacation with my batteries fully recharged so that I can clearly visualize the direction of the global economy and its impact on the stock and bond markets. My goal with this post is to provide some educated thought on how the average investor can protect what they have and still earn a decent return on their investment while the market tosses and turns like an insomniac nearing their next month without sleep.

The bottom line is that the global stock market, with the possible exception of emerging markets, is now driven more by human behavior than economic fundamentals which is exacerbated by the media who overly dramatize financial and economic news and are not beneath doing a little fear mongering to sell newspapers and ratchet up viewer ratings. In its present weakened state, the global economy is no match for a capitalized media! I will take up how to deal with the Pavlovian response of the markets to a media gone amok in a later post.

Sadly, the lower we are on Maslow's Hierarchy of Needs, the worse the stock market's impact has been on our retirement portfolios and, with housing foreclosures rampant, many of us are preoccupied with finding a place of shelter instead of assessing the health of our portfolios. To those I say get your house in order and then make a personal recovery plan to salvage your retirement portfolio. This is critically important and must include sufficient cash for liquidity, bonds and not bond funds, dividend stocks, and some low cost emerging market mutual funds or ETFs to even things out. I will provide more details on how to structure a retirement portfolio in today's market in my September "Smarter Investing" newsletter.

Dividend Yields Up to 20%

2010-08-01T13:19:00.000-07:00

Well it has been awhile since my last post primarily because I celebrated my 60th birthday in Las Vegas and am still recovering from that wonderful week and a couple of other weeks of vacation. Now that I am properly rested it is back to the grindstone.

I have issued the July newsletter where I talked about some stocks that yield nearly 20% in dividends. Normally I would not advocate buying any stock with yields this high because it is very likely that there is something seriously wrong with the company whose share price has dropped so precipitously that their dividend yield has risen to double digit numbers meaning that the likelihood that they will pay that dividend is extremely small and it is more likely that they will cut ir eliminate he dividend causing the stock price to fall even further. There are , however, exceptions to every rule or cascading event.

The REIT stocks like Chimera and Anally Capital Management are potential exceptions because they have to pay out 90% of their profits as dividends and they are exploiting the spread in borrowing costs and mortgage rates to make a lot of money. This is goo management and a smart investor can take advantage of the huge dividend yield as long as they keep a close eye on interest rates and sell the stock as soon as there is any sign that interest rates are going to go up in the foreseeable future, likely a year from now. Still, a 15% to 20% return on your investment over a year's time is a pretty good deal if you understand what you are getting into and monitor the situation closely.

An Apple a day keeps Verizon at bay

2010-06-16T17:33:00.000-07:00

I stopped in an Apple store yesterday to see the new iPad but more to observe the customer interest this device. The iPad had more heft than I expected and an avid reader may quickly tire of holding the 1.5 lb iPad for an hour or more at a time. Still there were a ton of people perusing the iPad and Apple has sold a million of them to date and interest does seem to span a broad demographic so sales may be better than expected. Add in Apple's new iPhone 4 which people are burning the phone and internet lines to pre-order and it looks like Apple has two big potential blockbuster products on its hands with the only caveat being poor AT&T (when compared to Verizon) wireless coverage. This is not yet a problem yet for the iPad since the 3G version has not yet been introduced, but will soon be. Being joined at the hip with AT&T puts some serious drag on iPad and iPhone sales but when my retired friends are drooling over their new iPhones and talking about buying an iPad for themselves it will no drag enough to prevent Apple from having a banner year especially when the 3G version of the iPad is introduced tot he market. Apple looks like good buy right now for those who need to diversify into technology stock with good potential growth.

Gold Bubble or Safe Haven?

2010-06-09T15:09:00.000-07:00

The flight to safety in Gold is likely to catch up to anyone who is not paying attention. Graham sagely recommended that intelligent investors sell when stocks are expensive and to buy when they are cheap. This goes for gold and any other precious metal. Who doesn't believe that gold is expensive today? If you hold gold too long, there is a good chance that you will not be able to sell it fast enough when the bottom of the market drops out. It is better to sell off some gold now and put the money into other investments to hedge the market. I predict that as the U.S. economy strengthens, gold prices will beunder pressure and will fall under $800 an ounce by the end of 2011.

Tactical Maneuvers for Today's Stock Market

2010-06-05T08:04:00.000-07:00

The markets continue to whipsaw back and forth as investors follow their emotions instead of the fundamentals that drive the market. Any hint of a debt problem in Europe, e.g. now Hungary, or a worse than expected job report (private hiring has slowed while the census has temporarily boosted employment) causes and out-sized response by investors which is more on the downside than on the upside and is exacerbated by stop loss orders and the shorts jumping on the bandwagon.

This is a sign that the market is in for a long slog growth-wise and the market will continue to jump up and down, more down than up, in panicked response to the latest scare. There is not enough strength in the U.S. economy to force an overall upward trend in the markets so it is possible that the markets in general and the DJI will continue to oscillate a few hundred points and range between 9600 and 10400 until the Global economy strengthens enough that growth will drive some of the emotion out of the markets.

This could go on until the end of the year and possibly a year or longer and smart investors could benefit by using a small portion of their portfolios to buy on the dips and sell on the peaks with stocks, ETFs, or index funds that they know and have no redemption fees with the given caveat that no one can time the market and I don't advocate that anyone do that unless it is an element of an overall investment strategy and that they use funds that they don't need in the foreseeable future. I also don't advocate taking a short position unless you really understand what you are doing and are not aghast at the moral aspects of kicking a good company when it is down.

Given the likelihood that this market will continue to seesaw back and forth for a long time, one can make a good argument for taking advantage of the oscillations as a tactical maneuver of an overall strategy to bolster the performance of your portfolio with the prospects of a market averaging 2 to 4% growth on the next few years.

Is BP a Good Buy Now?

2010-06-03T17:51:00.001-07:00

BP stock has lost over a third of its value as it tries to cap the Gulf oil well and some investors and analysts are claiming that the price makes a good entry point for those looking to get in cheap with the added benefit of a dividend yield near 8%. BP can be hugely profitable, but be extremely cautious if you are looking to buy shares of this company.

The expense to cap oil well and pay for the cleanup and compensate seafood industry workers and others impacted by their inability to fish the Gulf will be enormous, but BP can handle those costs. They can also handle the cost to litigate any civil and criminal lawsuits and pay damages if they are found liable. The greater danger is in the societal and political implications and ultimately the cost impact of being branded an evil-doer as Dubya would say.

Several congressmen have already said that it is incomprehensible that BP continue to pay a dividend until the depth of their liability is known and the gulf tragedy continues. There are calls for Tony Hayward, their CEO, to resign and that BP should be broken up and sold.

BP may in fact be a good buy, but a smart investor will wait until the picture becomes clearer before making a bet on BP.

Is it time to pull out of the European Market?

2010-05-18T16:45:00.000-07:00

Well it is clear that the psychology of the market is driving investor actions instead of the fundamentals. The U.S. economy continues to show increasing strength but the domestic market continues to fall on fears that Europe will fall into recession if they engage too aggressively in debt and budget reductions.

Of course the other side of the coin is if their austerity program is not aggressive enough, they will go all bankrupt and the whole house of cards will come tumbling down around their ears ending the great European Union and signaling the death knell of the Euro, the common currency of the member nations. The EU and the IMF are left with little room to maneuver as they negotiate the narrow chasm between bankruptcy and recession.

This is a heck of a balancing act and if they pull this off without fomenting a disaster, then the EU and the weak links comprised of the PIIGS will recover, but the recovery may take years. Thus the outlook for Europe is somewhere between bad and worse so this is not a good time to be investing in the European market. The reaction in the U.S. market, however, appears to be overwrought based on the current state of the economy and could be ripe for those investors who are willing to do their homework and screen for companies that are undervalued and buy them on the uptick.

Is Market Contagion a Good Time to Buy Stocks?

2010-05-17T17:20:00.000-07:00

The debt situation in Greece and Europe in general is still dragging on the domestic and international stock markets with some justification. The U.S. economy is showing continued signs of strengthening, however and is supported by growth in manufacturing and discretionary spending, especially in electronics, and a stiffening of the housing market. Notably, Apple will sell millions of iPads to make up for a shrinking market for the iPhone and could be a good buy especially if shares of Apple are being sold off due to the overall selling contagion spreading from Europe. Most of the iPads will be sold in America and as the economy strengthens and people have more discretionary income to spend. There is some budding evidence that iPad will be a monster hit especially after introduction of the 3G models. Keep an eye out on the stock price of AAPL to find a good entry point, but don't buy until the stock price recovers which it appears to be doing now.

MLPs for Everyone's Portfolio

2010-05-12T15:14:00.000-07:00

I recently read a Kinder Morgan Energy Partner company PowerPoint slide show that presented some very interesting facts about the company. I think investments in structural energy companies like KMP that operate energy transport pipelines for natural gas, oil, CO2, etc. are a good instrument for portfolio diversification since they generate a lot of cash from existing operations and typically pay a hefty dividend.

The issue for most of us has been the fact that since you are buying in as a partner they you a K-1 every year and a lot of tax forms have to be sent in with your returns to the IRS. This may be a small price to pay given KMP's stellar 2009 performance while paying a 6% plus dividend. For those who prefer not to tick off their accountants, you can buy into the Kinder Morgan management company, ticker symbol KMR, and still get the performance and the dividends which are paid out as shares of stock so there are no forms to file with the IRS unless you sell and realize a capital gain. In essence, KMP is KMR without the paperwork requirements.

There are also a couple of Exchange Traded Notes (ETN) out there like UBS E-TRACS Alerian MLP Infrastructure ETN which give added diversification within this subsector. I am not, however, a huge fan of ETNs given their fairly high expense ratio and credit risk, i.e. if the issuer, e.g. Barclays, UBS, or JPM go out of business you could lose your entire investment.

The other compelling thing about KMR is that the shares are selling at a 15% discount to KMP. It is not often outside of a company stock option plan that you can buy shares of a company at a discount. I own shares of KMP and am considering purchasing KMR for my IRA since it does not have any UBTI (Unrelated Business Taxable Income) like KMP does which precludes holding KMP in an IRA because it could trigger a taxable event if more than $1000 is earned in any given year. Both KMP, which may be suitable for a taxable investment account, and KMR, if held in an IRA, are worth consideration to diversify a portfolio in today's volatile market.

As usual, this is not advice to buy KMP or KMR and no one should buy stock in any company without thoroughly researching the company's financial and forward looking statements and determine if it is a suitable investment considering their current portfolio allocation and tolerance for risk.

Dividend stocks with Significant Potential Growth

2010-05-11T15:46:00.000-07:00

The market is still trying to figure out what happened and pretty much went sideways today. There are still opportunities to get in on some beaten down stocks especially those that pay a good dividend and should continue to do so, e.g. WWE, KMB, and CTL. All should do well when the market returns to fundamentals. The market always runs on greed and fear and with the fear index as high as its been recently there is an opportunity to profit if you maintain a long term outlook. Notably, this is not advice or a recommendation to buy these stocks. As usual, you must review the company's financial information and research the stock before making any commitments to buy or sell.

Stock Market Lemmings

2010-05-08T08:47:00.000-07:00

I would like to repeat that the recent stock market retreat was caused by computerized trading on stock prices which caused a lemming effect without the lemmings and not on economic fundamentals which are more supportive of the market than at anytime over the last two years. The bottom line is that long term market performance will be driven by market fundamentals and not by the computerized algorithms that attempt reduce market risk but instead instill fear in investors which adds to market volatility. The market has always been about greed and fear and the current computerized trading systems amplifies both. There needs to be aggresive action by the SEC to deal with this problem or it will continue to hinder the market's recovery.

Fear brings Opportunity

2010-05-07T17:10:00.000-07:00

Fear continues to plague investors who continue to sell stocks in the face of good economic news including the largest increase in jobs in awhile. In fact, unemployment has risen to 9.9% from 9.7% as the job market has improved enough that people that had given up looking for jobs have returned to the job market. Today I added 200 shares of an emerging market ETF that I sold for a healthy profit not more than a couple of months ago as the share price had dropped well below what I had originally paid back then and I expect to be able to sell it at a greater profit i couple months hence. Again opportunity presents itself when fear is driving the market in the face of decent fundamentals.

I would stay away from the European market right now until Merkel etal have loaned Greece enough money to allow their austerity measures some traction so they can begin to pay down their debt. It is still too early to say whether or not Greece will default on their bondholders and a debt restructuring may be in the cards down the road.

Several solid companies are cheaper than before and their share price may have reached a good entry point. There are some good dividend players in the telecom and industrials markets andtech including Microsoft could be a good buy right now.

Today's Market Meltdown

2010-05-06T17:48:00.000-07:00

You may be understandably concerned about today's global market declines as insufficient economic fundamentals underpin the Dow and the S&P 500 at its current levels. So any significant bad news, especially firebombing banks and rioting in the streets of Athens when Greece approved the austerity measures required by the IMF and the EU before they agree to give them the money they need to prop up their foundering economy, will shock the markets causing steep declines followed by a slow return to normal after the dust settles and the investor fears are mollified by the realization that the U.S. economy is still chugging along and Greece's economy is smaller than 36 of the states in America.

News reports tell us that today's rapid stock market decline was also exacerbated by an enormous trade error when $10B in stock of a DJI company was sold instead of $10M triggering a massive automatic sell off as stop-loss trades were made by computer until the last domino had fallen. Everyone on the trading floor are pointing fingers at everyone else, but of course no one is responsible or accountable apparently which seems to be the theme of the year at Wall Street from Blankfein on down.

Regardless, no one who needs their money in the next five years should have it invested in the stock market, but if you won't need your money for the next 10 to 20 years, there is really no other investment that will earn as historically a healthy return as the stock market and give you a decent chance to beat inflation and retire in comfort.

Underemployment

2010-05-05T17:31:00.000-07:00

My friend Ray (a very smart guy) recently posted some very interesting information on underemployment which appears to bring overall unemployment close to 20%. This is a very high number and its impact on the economy should not be underestimated since it will likely double the time it takes to get back to a sustainable level of employment.

My outlook for the U.S. economy pending additional major ecological disasters and the inability of the EU and the IMF to effectively prop up the Greek economy and the rest of the PIIGS continues to be slow growth with sporadic volatility because those invested in the U.S. stock market will remain apprehensive until the the job market improves and we begin reducing the deficit and pay down the debt.

Of course, this assumes that our elected officials find the political courage to do what is necessary to turn this ship of state around and the leadership to convince the American public that now is the time to make our own sacrifices instead of saddling our children with an enormous amount of debt which is $58K per person I believe and rising everyday.

Will a powerless deficit reduction committee created by presidential decree do the trick? It appears doubtful, but I am hopeful that what is happening in Greece will help our political leaders to see the writing on the wall and to spur them into directed non-partisan legislative action for the good of the country (if the country goes bankrupt isn't that the ultimate in national security issues?!) and the American people who should be holding themselves and their elected officials on both sides of the aisle accountable.

Holding our elected officials accountable should be done with decency and vigor without resort to the shameful tactics used by some on the far right and left. The strength of our country lies in our capacity to change and to do what is necessary to meet the challenges of the day, to leverage the diversity of our people, and to marshall the good will of all for the common good of the nation.