In an investment environment that’s seen endowment assets drop and administrative costs climb, many families nationwide are eschewing the cache of small foundations for donor-advised funds. Why? Lower administrative costs and flexibility mean that more money goes to their charitable causes.
According to a recent article in Investment News, Fidelity Investments' Charitable Gift Fund, the largest donor-advised fund with $5.6 billion in assets, took in about $30 million from foundations in the one-year period ended June 30, 2011, up from $16 million a year before. Similarly, Schwab Charitable, the second-largest donor-advised fund with $3.1 billion in assets, saw roughly $28 million converted from foundations to donor-advised funds, double the amount from last year.
A donor-advised fund is an account established at a sponsoring charity. You make irrevocable contributions of cash, securities, or other assets to the giving account and receive an immediate tax deduction. As the account advisor, you then make distributions from the account to other operating non-profits, such as hospitals, schools, environmental organizations, or the Red Cross. The fund handles all the due diligence, tax filing, compliance, and administration. Approval of your grant recommendations is essentially automatic as long as your designated charity is a 501(c)3 in good standing.
The benefits of donor-advised funds I’ve long stressed for individuals also hold true for foundations. For example, whether an individual directs funds to a foundation or a donor-advised fund, they qualify for the charitable deduction that year, and can disperse the funds later, on their own timetable. (Note: There are some limitations on securities so be sure to check with your tax advisor.) Donor advised funds also facilitate donations of stock and other assets, allow donors to maintain privacy, and deliver the benefits of professional recordkeeping at a lower cost that a foundation can.
Of course, you need to consider your foundation’s goals before making the move to a donor-advised fund. Although you may realize tax and administrative benefits with a donor-advised fund, foundations do offer greater grant-making flexibility, allowing you, for example, to establish an endowed scholarship.
Monday, August 22, 2011
Monday, August 15, 2011
Brokerage Firms Must Report Investment Gains; Plus S&P Downgrade
In an effort to ensure everyone pays their fair share of taxes, on January 1st of this year, the Federal government began requiring brokerage firms and other custodians to calculate and report gains or losses on certain customer trades to the IRS. This requires knowing not only the cost basis (the amount paid for the security), but also establishing the method to calculate gains. Most custodians use the “first-in, first-out” method for equities and the average cost method for mutual funds to determine cost basis.
You should consult your custodian to determine what methods are available to you and to determine how your portfolio is setup. For our clients we utilize a hybrid of the "high cost" method. We first try to determine if there are any trade lots that can be sold at a loss. Once that has been done we sell the lots with the highest cost basis that are over 12 months old first. This gives us the maximum tax efficiency on any trading in our client accounts.
Our portfolios’ tax-efficiency has always been a major concern. While many give up on tax loss harvesting in years when investors have not registered significant gains, the exercise is never a waste of time. Remember, harvested losses can offset any gains and up to $3,000 of net capital losses can be deducted from their ordinary income on their tax return for the year. Net losses above that $3,000 can be carried over to future years until they've all been used up by future portfolio gains.
As we expect capital gains tax rates to increase in the future, the tax loss harvesting approach makes even more sense. Simply, losses you book today mean gains that are otherwise likely to be taxed at a higher tax rate in the future could be tax free.
Utilizing “tax swaps” whereby we sell a losing position and simultaneously purchase a similar security (mindful of wash sales rules which prohibit selling and then buying the same security within 30 days) allows us to maintain exposure to the asset class while we harvest losses.
S&P Debt Downgrade:
Unrelated to this blog topic is the subject of Standard & Poor's downgrade of the U.S. credit rating from AAA to AA+. This will be brief but as I mentioned to many, I felt investors and the media made more of this matter than what it deserved. The U.S. dollar is still the global reserve currency and Standard & Poor's and others don't exactly have a pristine record when it comes to making accurate credit ratings.
On the lighter side, I wanted to share the formula below that a friend shared with me. I don't know where he got it, and I am unable to give credit to the person who created it. If someone knows who created it, I will gladly give them credit. In the meantime, I hope you can enjoy the humor of it:
No offense is intended to be directed at the POTUS, Senate Democrats, House Republicans, Tea Party or Wall Street. Just enjoy it!
You should consult your custodian to determine what methods are available to you and to determine how your portfolio is setup. For our clients we utilize a hybrid of the "high cost" method. We first try to determine if there are any trade lots that can be sold at a loss. Once that has been done we sell the lots with the highest cost basis that are over 12 months old first. This gives us the maximum tax efficiency on any trading in our client accounts.
Our portfolios’ tax-efficiency has always been a major concern. While many give up on tax loss harvesting in years when investors have not registered significant gains, the exercise is never a waste of time. Remember, harvested losses can offset any gains and up to $3,000 of net capital losses can be deducted from their ordinary income on their tax return for the year. Net losses above that $3,000 can be carried over to future years until they've all been used up by future portfolio gains.
As we expect capital gains tax rates to increase in the future, the tax loss harvesting approach makes even more sense. Simply, losses you book today mean gains that are otherwise likely to be taxed at a higher tax rate in the future could be tax free.
Utilizing “tax swaps” whereby we sell a losing position and simultaneously purchase a similar security (mindful of wash sales rules which prohibit selling and then buying the same security within 30 days) allows us to maintain exposure to the asset class while we harvest losses.
S&P Debt Downgrade:
Unrelated to this blog topic is the subject of Standard & Poor's downgrade of the U.S. credit rating from AAA to AA+. This will be brief but as I mentioned to many, I felt investors and the media made more of this matter than what it deserved. The U.S. dollar is still the global reserve currency and Standard & Poor's and others don't exactly have a pristine record when it comes to making accurate credit ratings.
On the lighter side, I wanted to share the formula below that a friend shared with me. I don't know where he got it, and I am unable to give credit to the person who created it. If someone knows who created it, I will gladly give them credit. In the meantime, I hope you can enjoy the humor of it:
No offense is intended to be directed at the POTUS, Senate Democrats, House Republicans, Tea Party or Wall Street. Just enjoy it!
Monday, August 8, 2011
Protecting Seniors from Financial Scams
We’ve all received emails riddled with misspellings from scam artists notifying us that a vast amount of cash is just waiting for us to claim, or that something’s amiss with our bank account. All we need to do is enter our bank information and money will be wired immediately and we’ll live happily ever after. Many of these scams are targeted at older people.
A recent MetLife study found older Americans are financially abused by family members, strangers and businesses to the tune of $2.9 billion a year. Alarmingly, despite increased efforts to educate seniors about the dangers of sharing their financial information, the sum of swindled funds is 12% higher than in 2008. The real tragedy, of course, is that both numbers may grossly under-estimate the thefts as experts figure that more than 80% of cases are not reported because the victims are too embarrassed to report the thefts to their children or authorities.
Why are our seniors so vulnerable? A recent Investment News article mentions research from behavioral economist David Laibson that found that people tend to make poorer financial decisions as they age. Laibson’s take on this sad reality is that because seniors are often lonely, they may be more willing to talk to strangers.
To protect your older relatives, I suggest sharing two simple investment adages: If it sounds too good to be true, it probably is a scam. And if you don’t understand it, you should not own it.
If you’re charged with reviewing the bank accounts of a loved one, any large withdrawal should prompt questions. Of course, seniors working with an independent financial advisor who is a fiduciary (i.e., a firm like Bernhardt Wealth Management) have the added assurance of a trusted professional reviewing their financial accounts and activities in their accounts.
A recent MetLife study found older Americans are financially abused by family members, strangers and businesses to the tune of $2.9 billion a year. Alarmingly, despite increased efforts to educate seniors about the dangers of sharing their financial information, the sum of swindled funds is 12% higher than in 2008. The real tragedy, of course, is that both numbers may grossly under-estimate the thefts as experts figure that more than 80% of cases are not reported because the victims are too embarrassed to report the thefts to their children or authorities.
Why are our seniors so vulnerable? A recent Investment News article mentions research from behavioral economist David Laibson that found that people tend to make poorer financial decisions as they age. Laibson’s take on this sad reality is that because seniors are often lonely, they may be more willing to talk to strangers.
To protect your older relatives, I suggest sharing two simple investment adages: If it sounds too good to be true, it probably is a scam. And if you don’t understand it, you should not own it.
If you’re charged with reviewing the bank accounts of a loved one, any large withdrawal should prompt questions. Of course, seniors working with an independent financial advisor who is a fiduciary (i.e., a firm like Bernhardt Wealth Management) have the added assurance of a trusted professional reviewing their financial accounts and activities in their accounts.
Monday, August 1, 2011
Credit-Report Firms to Face Scrutiny
On July 21st, the newly formed Consumer Financial Protection Bureau (CFPB) took over a range of consumer-product regulatory functions from bank regulators. In addition to mortgages and other credit products, the CFPB also is now responsible for the oversight of the three major consumer credit-reporting companies, Equifax, Experian PLC, and TransUnion. In spite of this new level of fresh oversight, presumably to do something about the high rate of errors in credit reporting, my advice still holds: It is wise to request a copy of your credit report at least once a year to make sure that a mistake isn’t damaging your credit score and resulting in your having to pay high interest rates. You can go to AnnualCreditReport.com to request a copy of your credit report.
It will be interesting to see whether this new agency will be able to do anything about the high rate of credit report errors. I would hope that the credit reporting companies would have to open up their own books and processes for thorough examinations.
July 21st was also the year anniversary of the passage of the Dodd-Frank Act. And Securities and Exchange Commission (SEC) Chairman Mary Schapiro, speaking before Congress, used the occasion to warn that the SEC needs “significant additional resources” in order to fully address their new responsibilities under Dodd-Frank. “There’s only so much you can achieve by wringing funds out of the existing budget,” she said. Over time, she says, “full implementation of the Dodd-Frank Act will require a total of approximately 770 new staff,” including experts in derivatives, hedge funds, data analytics, and credit ratings. She also noted that the SEC “also will need to invest in technology to facilitate the registration of additional entities and capture and analyze data on these new markets.”
Let’s hope the SEC gets the resources it needs to fulfill its broader responsibilities under Dodd-Frank.
It will be interesting to see whether this new agency will be able to do anything about the high rate of credit report errors. I would hope that the credit reporting companies would have to open up their own books and processes for thorough examinations.
July 21st was also the year anniversary of the passage of the Dodd-Frank Act. And Securities and Exchange Commission (SEC) Chairman Mary Schapiro, speaking before Congress, used the occasion to warn that the SEC needs “significant additional resources” in order to fully address their new responsibilities under Dodd-Frank. “There’s only so much you can achieve by wringing funds out of the existing budget,” she said. Over time, she says, “full implementation of the Dodd-Frank Act will require a total of approximately 770 new staff,” including experts in derivatives, hedge funds, data analytics, and credit ratings. She also noted that the SEC “also will need to invest in technology to facilitate the registration of additional entities and capture and analyze data on these new markets.”
Let’s hope the SEC gets the resources it needs to fulfill its broader responsibilities under Dodd-Frank.
Wednesday, July 27, 2011
Think About It: Stock Market Quotes
For over ten years we have preached the the merits of the efficient markets hypothesis and why investors should use low-cost, tax-efficient, broadly diversified asset class funds in an asset allocation plan tailored to their unique concerns, goals and risk tolerance. We believe this strategy is the optimal way to grow and protect wealth. And many of the greatest minds in modern finance agree:
"It is nearly always unwise to act on insights that you think are your own but are in fact shared by millions of others."
--John Bogle, Founder of The Vanguard Group
"Most investors, both institutional and individual, will find that the best way to own common stocks is through an index fund that charges minimal fees."
--Warren Buffet
"Investors should remember that excitement and expenses are their enemies."
--Warren Buffet
"Again, the problem is not that investment research is not done well. The problem is that it is done so well by so many...that no single group of investors is likely to gain a regular and repetitive useful advantage over all other investors."
--Charles Ellis, Vanguard Director and author of "Winning the Loser's Game"
"I am no longer an advocate of elaborate techniques of security analysis in order to find superior value opportunities."
--Benjamin Graham, Warren Buffet’s mentor and "Father" of security analysis
"All the time and effort that people devote to picking the right fund, the hot hand, the great manager, have in most cases led to no advantage."
--Peter Lynch, author of "Beating the Street"
"Don't try to beat the market, and don't believe anyone who tells you they can—not a stock broker, a friend with a hot stock tip, or a financial magazine article touting the latest mutual fund."
--Burton Malkiel, Professor of Economics, Princeton University
"Don't try to beat the market. Put your savings into some indexed mutual funds, which will make you just as much money (if not more) at much less cost."
--William Sharpe, Professor of Finance, Stanford University, Nobel Prize in Economics
"Invest in index funds. Your odds of beating the market in an actively managed fund are less than 1 in 100."
--David Swensen, Chief Investment Officer, Yale Endowment Fund
"As a general rule of thumb, the more complexity that exists in a Wall Street creation, the faster and farther investors should run.”
--David Swensen
Quotes on the Lighter Side
"Every day, self-proclaimed stock market "experts" tell us why the market just went up or down, as if they really knew. So where were they yesterday?"
--Anonymous
"If stock market experts were so expert, they would be buying stock, not selling advice."
--Norman R. Augustine
"There are two kinds of investors, be they large or small: those who don't know where the market is headed, and those who don't know that they don't know. Then again, there is a third type of investor--the investment professional, who indeed knows that he or she doesn't know, but whose livelihood depends upon appearing to know."
--William Bernstein
"Prediction is very difficult, especially if it is about the future."
--Niels Bohr, 1922 Nobel Laureate
"I never attempt to make money on the stock market. I buy on the assumption that they could close the market the next day and not reopen it for five years."
--Warren Buffett
"In the business world, the rearview mirror is always clearer than the windshield."
--Warren Buffett
"...there's no better advice on how to live longer than to quit smoking and buckle up when driving. The lesson: advice doesn't have to be complicated to be good."
--Charles Ellis
"One of the funny things about the stock market is that every time one person buys, another sells, and both think they are astute."
--William Feather
"There are two times in a man's life when he should not speculate: when he can't afford it, and when he can."
--Mark Twain
"It is nearly always unwise to act on insights that you think are your own but are in fact shared by millions of others."
--John Bogle, Founder of The Vanguard Group
"Most investors, both institutional and individual, will find that the best way to own common stocks is through an index fund that charges minimal fees."
--Warren Buffet
"Investors should remember that excitement and expenses are their enemies."
--Warren Buffet
"Again, the problem is not that investment research is not done well. The problem is that it is done so well by so many...that no single group of investors is likely to gain a regular and repetitive useful advantage over all other investors."
--Charles Ellis, Vanguard Director and author of "Winning the Loser's Game"
"I am no longer an advocate of elaborate techniques of security analysis in order to find superior value opportunities."
--Benjamin Graham, Warren Buffet’s mentor and "Father" of security analysis
"All the time and effort that people devote to picking the right fund, the hot hand, the great manager, have in most cases led to no advantage."
--Peter Lynch, author of "Beating the Street"
"Don't try to beat the market, and don't believe anyone who tells you they can—not a stock broker, a friend with a hot stock tip, or a financial magazine article touting the latest mutual fund."
--Burton Malkiel, Professor of Economics, Princeton University
"Don't try to beat the market. Put your savings into some indexed mutual funds, which will make you just as much money (if not more) at much less cost."
--William Sharpe, Professor of Finance, Stanford University, Nobel Prize in Economics
"Invest in index funds. Your odds of beating the market in an actively managed fund are less than 1 in 100."
--David Swensen, Chief Investment Officer, Yale Endowment Fund
"As a general rule of thumb, the more complexity that exists in a Wall Street creation, the faster and farther investors should run.”
--David Swensen
Quotes on the Lighter Side
"Every day, self-proclaimed stock market "experts" tell us why the market just went up or down, as if they really knew. So where were they yesterday?"
--Anonymous
"If stock market experts were so expert, they would be buying stock, not selling advice."
--Norman R. Augustine
"There are two kinds of investors, be they large or small: those who don't know where the market is headed, and those who don't know that they don't know. Then again, there is a third type of investor--the investment professional, who indeed knows that he or she doesn't know, but whose livelihood depends upon appearing to know."
--William Bernstein
"Prediction is very difficult, especially if it is about the future."
--Niels Bohr, 1922 Nobel Laureate
"I never attempt to make money on the stock market. I buy on the assumption that they could close the market the next day and not reopen it for five years."
--Warren Buffett
"In the business world, the rearview mirror is always clearer than the windshield."
--Warren Buffett
"...there's no better advice on how to live longer than to quit smoking and buckle up when driving. The lesson: advice doesn't have to be complicated to be good."
--Charles Ellis
"One of the funny things about the stock market is that every time one person buys, another sells, and both think they are astute."
--William Feather
"There are two times in a man's life when he should not speculate: when he can't afford it, and when he can."
--Mark Twain
Monday, July 25, 2011
58 Percent of Investors Have Lost Faith in the Stock Market
Surveys are beginning to record what we all know is true. The financial crisis has had a profound impact on investors. In fact, 58 percent of investors have lost faith in the stock market, according to a survey of 1,274 Americans conducted by Prudential Financial. Forty percent say they have a conservative portfolio, up from 33 percent before the recession, and 44 percent say they are unlikely to ever again invest in stocks. Only 37 percent describe their portfolios as aggressive, down from 46 percent prior to the recession.
While 70 percent of the respondents said they have taken steps to improve their financial situation by saving more or reallocating their investments, the majority have moved their money to more conservative investments. This move to safety creates a new risk that they might fall short on achieving their retirement goals.
For most investors, the biggest threat to a financially secure retirement is not short-term market volatility, but inflation. Consider this: Even if inflation stays at the historical level of 3 percent, the cost of almost everything will double in 24 years. That means if you are living on $80,000 in 2011, by 2035, you’ll need $160,000 to maintain your standard of living. Accordingly, as we plan for retirements to span greater than three decades, it’s clear that portfolios comprised solely of bonds and cash will not protect against inflation. Today, the increased length of retirement requires an allocation to global equities for growth potential and diversification.
Yet, investors may not be as reluctant to invest in equities as they report. According to Strategic Insight, year-to-date cash contributions through April to equity and hybrid funds have surpassed inflows to fixed income funds for the first time since the financial crisis. Equity funds netted $110 billion through April, mixed funds $30 billion and bond funds $100 billion as investors acknowledge higher equity allocations to meet their long-term financial objectives.”
While 70 percent of the respondents said they have taken steps to improve their financial situation by saving more or reallocating their investments, the majority have moved their money to more conservative investments. This move to safety creates a new risk that they might fall short on achieving their retirement goals.
For most investors, the biggest threat to a financially secure retirement is not short-term market volatility, but inflation. Consider this: Even if inflation stays at the historical level of 3 percent, the cost of almost everything will double in 24 years. That means if you are living on $80,000 in 2011, by 2035, you’ll need $160,000 to maintain your standard of living. Accordingly, as we plan for retirements to span greater than three decades, it’s clear that portfolios comprised solely of bonds and cash will not protect against inflation. Today, the increased length of retirement requires an allocation to global equities for growth potential and diversification.
Yet, investors may not be as reluctant to invest in equities as they report. According to Strategic Insight, year-to-date cash contributions through April to equity and hybrid funds have surpassed inflows to fixed income funds for the first time since the financial crisis. Equity funds netted $110 billion through April, mixed funds $30 billion and bond funds $100 billion as investors acknowledge higher equity allocations to meet their long-term financial objectives.”
Monday, July 18, 2011
401(k) Plans Hit the Big 3-0
It’s been three decades since the 401(k) arrived on the retirement saving scene. And to celebrate the tax-deferred account’s milestone, many U.S. companies that eliminated their 401(k) matching contributions during the Great Recession are beginning to restore this valuable benefit.
According to the consulting firm Towers Watson, during the recent recession, almost one in five U.S. companies with at least 1,000 workers suspended 401(k) matching contributions. Now, many of those companies are reinstating the perk – albeit often at a reduced level. Today, the once standard 3% match is considered generous. In addition to offering smaller matches, some companies are linking their contributions to corporate profits or requiring employees to reach a particular dollar level in their account before any matching occurs.
With traditional pension plans going the way of the drive-in movie and concerns mounting over the long-term health of Social Security, 401(k) accounts are a critical leg to the retirement stool. According to the Employee Benefit Research Institute (EBRI), 79 percent of eligible workers (36 percent of all workers) say they participate in retirement savings plan with their current employer. Furthermore, 28 percent of participants report that they have increased the percentage of their salary that they contribute to the plan in the past year, and just 4 percent report they decreased the percentage. EBRI also found that workers who currently participate in this type of plan are more than twice as likely as those who do not to report retirement savings and investments of at least $50,000 (52 percent vs. 23 percent).
While 401(k) participation levels have certainly increased since the plan’s introduction and held steady even throughout the recent financial crisis, the industry can do a better job with education. In fact, EBRI found less than half of workers (42 percent) report they and/or their spouse have tried to calculate how much money they will need to save to secure a comfortable retirement. Disappointingly, this percentage is lower than the 53 percent recorded in 2000 and the 47 percent in 2008.
According to the consulting firm Towers Watson, during the recent recession, almost one in five U.S. companies with at least 1,000 workers suspended 401(k) matching contributions. Now, many of those companies are reinstating the perk – albeit often at a reduced level. Today, the once standard 3% match is considered generous. In addition to offering smaller matches, some companies are linking their contributions to corporate profits or requiring employees to reach a particular dollar level in their account before any matching occurs.
With traditional pension plans going the way of the drive-in movie and concerns mounting over the long-term health of Social Security, 401(k) accounts are a critical leg to the retirement stool. According to the Employee Benefit Research Institute (EBRI), 79 percent of eligible workers (36 percent of all workers) say they participate in retirement savings plan with their current employer. Furthermore, 28 percent of participants report that they have increased the percentage of their salary that they contribute to the plan in the past year, and just 4 percent report they decreased the percentage. EBRI also found that workers who currently participate in this type of plan are more than twice as likely as those who do not to report retirement savings and investments of at least $50,000 (52 percent vs. 23 percent).
While 401(k) participation levels have certainly increased since the plan’s introduction and held steady even throughout the recent financial crisis, the industry can do a better job with education. In fact, EBRI found less than half of workers (42 percent) report they and/or their spouse have tried to calculate how much money they will need to save to secure a comfortable retirement. Disappointingly, this percentage is lower than the 53 percent recorded in 2000 and the 47 percent in 2008.
Monday, July 11, 2011
Dodd-Frank Debated
In a recent news article, “Old Fears Resurface as Lawmakers Confront Basel III, Dodd-Frank Changes,” Donna Borak reported that U.S. lawmakers at a House Financial Services Committee recently addressed whether requirements of the Dodd-Frank Act, combined with tougher international capital and liquidity rules are driving financial institutions overseas.
The article offered dueling perspectives. Rep. Shelley Moore Capito, R-W.Va., told top regulatory officials, "I think failing to examine the aggregate cost of compliance with Dodd-Frank could lead to job losses and, in the worst case, a downgrade of the United States as a financial center
Conversely, Lael Brainard, Undersecretary of the Treasury for International Affairs stated, “There are some who would argue that the United States is moving too fast on financial reform, that we should slow it down, wait to see what other countries implement. I don't agree. By moving first and leading from a position of strength, we are elevating the world's standards to ours."
Borak also quotes Brainard as stressing that in passing Dodd-Frank, that “policymakers were not choosing between stability and growth, as critics charge” The “real point,” she says, “is that we will have much healthier growth if, in fact, we put in place a safe and sound financial system."
I couldn’t agree more, but am sure that the Dodd-Frank debate will continue – especially later this month when the SEC presents to Congress its cost benefit analysis of requiring that broker-dealers be subject to the same fiduciary standard of care as investment advisors. That’s something all investors deserve.
The article offered dueling perspectives. Rep. Shelley Moore Capito, R-W.Va., told top regulatory officials, "I think failing to examine the aggregate cost of compliance with Dodd-Frank could lead to job losses and, in the worst case, a downgrade of the United States as a financial center
Conversely, Lael Brainard, Undersecretary of the Treasury for International Affairs stated, “There are some who would argue that the United States is moving too fast on financial reform, that we should slow it down, wait to see what other countries implement. I don't agree. By moving first and leading from a position of strength, we are elevating the world's standards to ours."
Borak also quotes Brainard as stressing that in passing Dodd-Frank, that “policymakers were not choosing between stability and growth, as critics charge” The “real point,” she says, “is that we will have much healthier growth if, in fact, we put in place a safe and sound financial system."
I couldn’t agree more, but am sure that the Dodd-Frank debate will continue – especially later this month when the SEC presents to Congress its cost benefit analysis of requiring that broker-dealers be subject to the same fiduciary standard of care as investment advisors. That’s something all investors deserve.
Tuesday, July 5, 2011
Investing is Boring
I came across an article in the Financial Post that I thought was worth sharing. The article was titled Investing is Boring: If You Want Excitement, Go to Vegas.
The entire article is well worth reading but I particularly liked the following quote: "timing the market is impossible, forecasts are for the gullible, and stock-picking is a mug’s game."
The entire article is well worth reading but I particularly liked the following quote: "timing the market is impossible, forecasts are for the gullible, and stock-picking is a mug’s game."
Recovery? What Recovery?
Soft. Stalled. Uneven. These are the words we’ve read in headlines that describe the market’s recovery. The economy grew at just an 1.8% annual rate in the first quarter of this year, down from 3.1% in the fourth quarter of 2010. Experts agree that two factors critical to any market recovery have been absent in our transitioning market. To get the recovery into high gear, home prices must stop declining and begin their ascent. Second, consumers, the driving engine of our economy, must regain their confidence and begin to spend more freely.
According to Susan M. Wachter, a Wharton real estate professor, we are three to five years away from being back to what might be considered the “new normal” in the commercial and residential real estate markets. She points out that construction is a job-intensive sector, and therefore, the sector that generally leads the job recovery. Without the boost from robust construction activity, she says the overall recovery is “far more vulnerable to other negatives.”
Mark Zandi, chief economist and cofounder of Moody's Economy.com. put a graphic spin on the market’s recovery. He says to have a vibrant recovery and economic expansion, housing has to go from “being a headwind to a tailwind.” Yet, with average housing prices having declined for six consecutive months, we have a ways to go before that happens.
As for consumer confidence, a survey by the Certified Financial Planner Board of Standards found that a majority of Americans are still experiencing negative fallout from the recession. Fifty-five percent say they have delayed a big purchase and 45 percent have dipped into their savings to stay afloat in tough markets.
However, The CFP Board of Standards survey also recorded hope: 83 percent of respondents said their own personal financial situation will remain the same or improve in the coming year. That optimism is a powerful first step in jumpstarting consumer spending and getting the economy moving full steam ahead.
According to Susan M. Wachter, a Wharton real estate professor, we are three to five years away from being back to what might be considered the “new normal” in the commercial and residential real estate markets. She points out that construction is a job-intensive sector, and therefore, the sector that generally leads the job recovery. Without the boost from robust construction activity, she says the overall recovery is “far more vulnerable to other negatives.”
Mark Zandi, chief economist and cofounder of Moody's Economy.com. put a graphic spin on the market’s recovery. He says to have a vibrant recovery and economic expansion, housing has to go from “being a headwind to a tailwind.” Yet, with average housing prices having declined for six consecutive months, we have a ways to go before that happens.
As for consumer confidence, a survey by the Certified Financial Planner Board of Standards found that a majority of Americans are still experiencing negative fallout from the recession. Fifty-five percent say they have delayed a big purchase and 45 percent have dipped into their savings to stay afloat in tough markets.
However, The CFP Board of Standards survey also recorded hope: 83 percent of respondents said their own personal financial situation will remain the same or improve in the coming year. That optimism is a powerful first step in jumpstarting consumer spending and getting the economy moving full steam ahead.
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