Tag Archives: Investing

Dow Jones Changes

By Larry Luxenberg  

Apple Goes Into Dow

This week Apple Computer becomes part of the prestigious Dow Jones Industrial Average. The Dow is made up of 30 stocks and since its creation in 1896 has become the single most widely cited indicator of stock market performance. And yet its quirky structure shows the dangers of relying on any one indicator to mark investment performance. The Dow Jones average is based on just price, not the total value of the companies. Once a stock splits, its weight in the Dow goes down even though the value stays the same. After some moves in the Dow this week Goldman Sachs will have the heaviest weight in the average because it has the highest price. Moves in the price of Goldman stock will have a disproportionate affect on the average. Often the Dow moves in sync with other major averages such as the S&P 500 but many times they have widely divergent moves. While the Dow is a good shorthand way of following the stock market, keep in mind that its only a snapshot of a small number of stocks and there are thousands of other great companies.

http://www.bloomberg.com/news/articles/2015-03-19/never-mind-apple-it-s-the-goldman-sachs-era-in-dow-industrials

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Negative Interest Rates

By Larry Luxenberg  

Desperately Seeking Yield

Investors are perplexed and concerned about continued low interest rates.

People who think of themselves as conservative investors like to rely on guaranteed fixed interest rates. Over the last six years that hasn’t been much fun.

In early 2009, the Federal Reserve Board lowered their short-term interest rate target to close to zero and it’s remained there ever since. It seems hard to believe but as recently as early 2008, the target was 4.25 percent.

Investors’ choices in this environment are unattractive: they can accept little risk and interest rates of close to zero or take on different kinds of risk.

Many investors refuse to take on risk. In fact, by some estimates as much as $3 trillion is invested at negative interest rates. With a negative interest rate it means that the investor is paying the issuer or custodian to hold their money. They’ll get less money back than they put in.

In a world of seemingly low interest rates forever, investors will take increasingly “clever” or risky moves to get higher yields. They may not recognize the risks until it’s too late but the risks are there. Prudent assessment of risks and an overall plan are the best ways to survive this period.

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How Much Money Do You Need to Retire?

By Larry Luxenberg  

 

Planning for Retirement
Often I am asked how much money is enough for retirement?

On the surface, it’s a simple and logical question but in reality it’s quite complex. Almost always, the answer is “it depends.”

When are you planning to retire? Age 50? 60? 75? Never? Where are you going to retire? Manhattan? Orlando? Rural Oklahoma? It makes a big difference. Most people would agree that it takes more money to retire in Manhattan than Oklahoma. But what if you have a cheap rent controlled apartment and no car.

In general, most people have an exaggerated idea of how much money it takes to retire and don’t fully appreciate the size of their resources. Sometimes I come across people who face a hopeless situation.

But more often, I talk to people who are unnecessarily worried and don’t realize how large their Social Security and pension or 401-K are.

Their concerns are not harmless; they can lead to bad decisions.

The first step to a good retirement is a realistic assessment of your spending needs and a full tally of your resources. Neither task is simple.

If you are confused and concerned about retirement, we can help.

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Pension Mistakes of Investors

By Larry Luxenberg  

Pension Woes
Recently the New York Times highlighted the troubles of the New York City pension system. The pool of money held to pay future benefits is at least $100 billion short of where it needs to be.

Experts debate the exact amount but it’s clear that there’s not enough money to cover obligations. The pension troubles consuming the budget, rising from 2 percent of total spending to 11 percent in a decade.

What’s also clear is that this huge institutional investor is making the same mistakes as ordinary, small investors: paying too little attention to something that cries out for focus, failing to properly allocate assets and falling prey to the siren song of unrealistically high projected returns in alluring investments.

It’s a shame that boring old stocks and bonds don’t have the pizzazz of alternative investments — hedge funds, private equity, venture capital.

The Times mentions that the pension system’s investment return goal was unrealistically high at 8 percent annually. Actual returns were two percent a year.

Individuals make the same mistakes and this doesn’t have to be; a little realism and some good planning go a long way toward achieving a successful and comfortable retirement. We can help.

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