Maximize Your Social Security Benefits

You have worked hard all of your life.  You have raised a beautiful family that you are proud of, and you and your spouse are finally ready to enjoy your golden years together.  And yes, you have also planned and saved for these future retirement years.   Maybe you planned many years ago or maybe you planned just recently; but either way, you probably factored in the boost offered from your future Social Security benefits.  Whatever the boost might be, wouldn’t you rather maximize those benefits if possible?  If the answer is a resounding “YES”, then you want to learn about the various claiming strategies, and fully discuss them with your financial adviser/financial planner.  The proper strategy can amplify your lifetime Social Security benefits significantly.

An example of one strategy is waiting as long as possible to start claiming your Social Security benefits.  The earliest age that a retiree can start claiming these benefits is 62 years old.  However, did you know that once you reach your full retirement age (between 65 -67), your social security benefits increase by 8% each year plus inflation adjustments? Wow, the money claimed increase considerably just by waiting a little longer.

Are there claiming strategies that can optimize your Social Security benefits even if you need to start collecting at an earlier age?  The answer is “Yes”.  Advantageous strategies can be applied to this situation as well when you know how to maneuver through the claiming process… you just need the proper expertise to guide you through the rules.  Once you know these rules and know how to navigate confidently through the claiming process, you can apply a strategy that works in your favor, and maximizes this money.

Some of these claiming strategies involve the idea of spousal benefits.  Here, spousal benefits can be applied to a “Restricted Spousal” strategy as well as a “File and Suspend” strategy.  According to Jim Blankenship, CFP, EA of Forbes Advisor Network, “File and Suspend allows for the lower wage earner to increase his or her benefits by adding the Spousal Benefit, while the higher wage earner continues to delay his or her benefit, adding the delay credits.” On the other hand, the Restricted Application for Spousal Benefits “provides one spouse or the other with the option of collecting a Spousal Benefit, while at the same time delaying his or her own retirement benefit.” All and all, any couple must carefully consider the particular rules pertaining to these strategies in order to determine the appropriate strategy that applies to their specific situation.

Overall, these claiming strategies can cushion your retirement years with thousands of dollars.  If you are thinking about navigating through your Social Security claiming process alone, it might be very unrealistic because the rules behind these strategies can be complex and meticulous.   Even the employees at the national and local Social Security offices cannot give any advice; therefore, it’s best to seek the help of a financial advisor who has an in-depth knowledge of the best Social Security strategies for retirees.  The world today is very different… life expectancy has increased, pensions have dwindled, medical costs have increased, and the economy remains uncertain.  Especially now, maximizing your Social Security benefits is necessary because these are unfavorable conditions.  So, make certain that you fully learn and understand the rules of each strategy before you chose.  You can add thousands of dollars to your retirement funds just by applying the right Social Security claiming strategy for you.

Investment Advisory services provided by Gregory Ricks & Associates

Blankenship, Jim. “Are You Leaving Social Security Money on the Table.” Forbes. 26 November 2012. <http://www.forbes.com/sites/advisor/2012/11/26/are-you-leaving-social-security-money-on-the-table-you-might-be-if-you-dont-understand-and-use-this-one-rule/>

Roberts, Damon. “The Retirement Planning Edge: Maximizing Social Security.” Fox Business. 27 November 2012. <http://www.foxbusiness.com/industries/2012/11/27/retirement-planning-edge-maximizing-social-security/>

Image courtesy of: http://www.bankrate.com/finance/retirement/5-little-known-facts-about-social-security-1.aspx

Read Full Post »

5 Basic Tips for Creating a Solid Retirement Plan

You know what the picture is supposed to look like: You spend your whole life on the job, working toward that magical retirement age when your golden years begin — that era when you’re rewarded for  your life’s labors with the time and resources to pursue your passions, whether it be traveling, spending time with your grandchildren, or pursuing a favorite hobby. But with a rocky economy and the cumulative changes over the last generation, that picture might not be so clear.

No matter how near or distant your retirement may be, there are more than a few simple things you can do to prevent your retirement picture from blurring into something unrecognizable. Consider these basic tips to see to it that your retirement is spent doing what you love, and ensure your retirement picture develops the way you’ve always hoped.

1. Set your retirement goals: As with everything you’ve worked for in your life, a secure retirement is a goal you must aim to achieve. Think about what you want your retirement picture to look like. Does it involve living in a paid-off home or relocating to a house on the beach? Would you like to spend your money on yourself, donate to charities, or provide for your children? Consider your retirement picture and what it will take to make it all come together. Be realistic about your goals, and start making some sacrifices now so you don’t have to make them when you’re 80 years old.

2. Start planning now: Whether you’ve just begun your professional career or are looking at retiring in five years, start taking the steps to prepare now. If you’re on the younger side, establish an IRA or participate in your employer-sponsored 401(k), and fund these retirement vehicles with as much as you can. If your retirement is in the not-too-distant future, contribute the maximum to your retirement accounts, and start modifying your portfolio from growth-oriented products to distribution-focused products. This may mean that you’ll have to readjust your spending and savings lifestyle today, but it will pay off in the years to come.

3. Reevaluate your life expectancy: It’s no secret that the average American is living longer than ever, thanks to tremendous medical advancements, but you might be surprised by just how long your retirement years could last, and consequently, how long your retirement funds must last. According to the Society of Actuaries, a 65-year-old man has a 41 percent chance of living to age 85, and a 20 percent chance of surviving to age 90. A 65-year-old woman has even better odds. She has a 53 percent chance of living to age 85, and an impressive 32 percent chance of reaching age 90. With these statistics in mind, ramping up your savings is more crucial than ever.

4. Determine your Social Security benefits: Did you know the longer you delay retirement, the larger your Social Security checks grow? While you can officially start drawing funds at age 62, if you hold off until age 70, you could almost double your benefit amount. Even if you wait until age 66, your Social Security checks would be significantly larger. While working past age 65 might not appeal to you, the higher payout most certainly should. There are many more strategies to get the most from Social Security, especially if you’re married. To explore your options and determine when you’ll begin to draw Social Security benefits, visit www.SSA.gov. They even have an online retirement estimator to help guide your decision.

5. Work with a trusted advisor: If you really want to get the best out of your retirement plan, it’s best to place it in the hands of a capable retirement specialist. A good advisor can talk you through the process, recommend appropriate investment tools, offer practical advice on savings, and what’s more, keep an eye on your retirement portfolio. Ask friends or colleagues for some trusted advisors, and then get to work.

Gregory Ricks & Associates is a registered investment adviser.

image courtesy of: http://rjscorner.net/tag/retirement/

Read Full Post »

10 Kinds of Insurance You Don’t Need to Buy, Part II

In Part I of this article, we covered flight insurance, rental care insurance, extended warranties and even life insurance for children, establishing that none of these insurance policies was worth your while. In the final portion of this article, we’ll look at six more types of insurance coverage you can feel confident about skipping.

Mortgage Life Insurances
As the name suggests, this type of policy pays off your mortgage in the event of your death, ostensibly so your loved ones needn’t be burdened by a looming mortgage. The reason not to buy mortgage life insurance is really quite simple: if you spent that money on term life insurance, your life policy will cover much more than just the mortgage, taking care of other bills and expenses to ease your survivors’ financial strain.

Credit Card Insurances
Just about every credit card offer these days comes with a pitch for inexpensive credit card insurance, a policy that would pay off your bill should you be unable to do so. While it may seem like a good idea at first blush, if you have several credit cards, those policy payments can really add up. The better idea is simply to avoid running up  credit cards entirely and to use them carefully and sparingly. Paying off your balance monthly will not only negate the need for credit card insurance, but you’ll also save a boatload on interest payments.

Disease-Specific Insurance
There are innumerable policies available to cover just about every major illness one could ever suffer, including everything from cancer insurance to diabetes coverage to heard disease insurance. Rather than assembling your health coverage piece mail, all you need to do is purchase one good medical coverage policy. Even a bare-bones major medical policy will cover everything an individual policy would—and having coverage for everything is always better than having coverage just for certain things.

Unemployment Insurance
Most experts agree that it’s far better to put aside regular savings for an emergency fund than it is to shell out premiums for unemployment insurance. While it’s easy to see why this might be an appealing option, relying on your own savings is a far better plan. After all, should you lose your job, odds are that in addition to your savings, you’ll be able to draw unemployment while looking for a new employer. Of course, a great deal of people never find themselves in this position, which means wasted money that could have been saved for something more productive.

Flood Insurance
Despite the terrifying commercials, if your home isn’t in a flood plain or located in an area that’s ever experienced excessive flooding, this is a policy you need not own. Do just a bit of research on your area’s history with water, and you’ll know whether you need to shell out the cash for this rarely necessary coverage.

Accidental Death Insurance
The odds of you dying in an accident are extraordinarily low, especially since most major tragedies that could befall you such as a fire or car accident are covered by other policies. Even if you work a hazardous job, you’re absolutely protected while on the job as well. The lack of real necessity coupled with exorbitant waiting periods and fine print make accidental death insurance a policy you can skip and still sleep well at night.

There are so many policies to chose from, and they all cost money. While a certain amount of insurance coverage is necessary and prudent, you need to choose carefully. In general, broad policies that offer coverage for a multitude of potential events are a better choice than limited-scope policies that focus on specific diseases or potential incidents. Before you buy any policy, read it carefully to make sure that you understand the terms, coverage and costs. Don’t sign on the dotted line until you are comfortable with the coverage and are sure that you need it.

Read Full Post »

This Year Resolve to be Realistic in Your Financial Resolutions

Anyone who goes to the gym knows the pain of searching for a spot in the parking lot at the beginning of January.  Yoga classes that are empty the week before Christmas are crammed to capacity as soon as New Year’s Day dawns, and machines that gather dust all summer feature lines three people deep.  Then, around the middle of February, the new faces begin to fade.  Classes that were temporarily packed regain their elbow-room, and the more esoteric machines in the circuit fade back into obscurity.

There is a similar cycle in financial planning.  Between the charging of the Christmas gifts at 18% and the arrival of the bill, many investors resolve to get their financial life under control.  The number crunchers at statisticbrain.com tell us that 45% of Americans usually make New Year’s resolutions.  Of that group of regular resolvers, 35% of the resolutions are about finances.

Just like getting in shape, the shine of planning for retirement often fades a month or so in, and many investors are back to their same old free-spending ways by spring.  In fact, of the people making New Years Resolutions, only about 8% find success.  Often the reason that body shapers, and retirement savers, fail in their efforts is that they set the wrong goals.

Just as a 300lb person shouldn’t resolve to weigh 120lbs in three months, someone barely scraping the rent together can’t reasonably expect a balance of $100,000 in the bank by the next time the big ball drops.  To assist you in resolving responsibly, let’s adapt 6 guidelines for creating effective weight-loss goals (found on Discovery Fit and Health.com) to preparing for retirement.

Good goals are:

Short Term and Specific – Setting a goal to retire at 55 may make sense when you’re 50, or even 45, but at 25 you just don’t have enough information to know if it will be possible.  Set short-term goals that are reachable in a few years, and then scale them up as the wealth building process works for you.

Trackable – Make sure that the goals you set have aspects that are quantifiable, and use your portfolio and the meetings with your financial planner to make sure you are on the right track to reach them.

Positive – Despite what you pessimists may think, the human brain works better in a positive direction.  Resolving not to be broke in 5 years is much less powerful than a resolution to commit 15% of your after tax income to retirement savings.

Personal – Think about why you want what you want and write that into your goals.  A resolution to max out your child’s college savings plan so that they can enjoy the advantage of an education without incurring crushing debt, is personal.  Resolving to have more in your retirement account that your best friend, is not.

Rewarding – Take time out to celebrate the small victories.  Treating yourself to a steak dinner when you max out your IRA, or a weekend away when your child’s college plan is fully funded, can be powerful motivators to keep on saving.

Realistic – Goals are a funny thing, if you use them correctly they can be rungs on the ladder to your dreams, but used incorrectly they can serve as pointing fingers, criticizing you when you fail, and discouraging further efforts.

 

Just as it’s important to work with a doctor and a personal trainer when customizing fitness goals, it’s important to speak with a financial planner when setting up retirement plans.  They can make sure that the goals you set follow the guidelines above, and can also help you modify them in the case of unforeseen financial situations.

Hopefully, these tips can turn you into one of the people whose resolutions turn into habits, and whose goals turn into stepping-stones on the path to a happy retirement.

 

Photo Courtesy of:  http://blog.affinityhealth.org/wp-content/uploads/2012/11/new-years-resolution-apple.jpeg

Read Full Post »

Make Sure That You’re Covered Long-Term

We’ve all heard the horror stories about the investor who did everything right, who had the right job, maxed out their 401k, diversified their portfolio until comfort in retirement was assured, only to have the rug swept out by a debilitating illness.  For this exact reason, insurance companies have created a product called long-term-care insurance.

 

Since Medicare doesn’t pay for most nursing home costs, and Medicaid doesn’t ante up until your assets are almost depleted, investors who have wealth that they want to pass on to loved ones need to protect it.  Long-term-care policies do just that, In fact, many insurance agents will tell you that as you near retirement age, long-term-care insurance becomes a real priority.  That priority was much easier to satisfy before the policies became losers for the insurance companies, leading insurers like Manulife Financial to ask state regulators for average rate increases of 40%, and other insurers like MetLife, to stop selling new policies entirely.

 

As baby boomers who already have long-term-care insurance get older and file more claims the premiums are bound to continue to rise, and if you get into a difficult financial spot and let your policy lapse you’ve lost your entire investment.  So, what are the options for someone who wants to protect themselves, but doesn’t want to get skinned doing it?

 

What are your options

First, it’s important to deal with an insurance agent who is knowledgeable in the products that he is selling, and is able to explain the options of different policies and the merits of each.  There is a huge price range across different providers, and agents who only sell one product aren’t going to be able to give you the benefits of that variety.

 

As the premiums for long-term-care climb, many providers are addressing the rise in cost by offering custom options.  For instance, instead of unlimited coverage, you can shave some money off your premiums by limiting care to three or four years.  According to the Centers for Disease Control and Prevention (www.cdc.gov/nchs/data/databriefs/db91.pdf) the median stay in a nursing home is 671 days.

 

So, cutting down on the stay that you’re allowed could be a smart option for limiting costs.  Some policies also allow you to reduce the annual inflation adjustment from 5 to 3 percent to cut those costs even more.

 

Options in insurance

Another option for investors who are unable to get long-term-care insurance, or find the costs too prohibitive, are the new, combo products being offered by insurers like Hartford Financial Services group, Prudential Financial, and MetLife.  These permanent life policies and annuities feature accelerated death benefits, or living benefit riders.

 

What this means to you is that the death benefit of these life insurance policies can be tapped in the event of a diagnosis of chronic illness, and used to pay for care.  Many investors like these policies because, unlike traditional long-term-care coverage, if you never need the care, the policy will pay your heirs just like a traditional life insurance policy.  The living benefits of the combo products are usually limited to the death benefit for the policy, though, whereas long-term-care policies will pay all qualified expenses for whatever duration of stay the policy covers.

The decision between these two flavors of insurance is a personal one, but for investors who want to feel safe in their retirement, and who want to make sure that the fruits of their hard work can be passed down to their loved ones, some type of coverage is important.  Talk to your financial advisor to see which one gets you closer to your retirement goals.

 

Image courtesy of www.brinfin.com

Read Full Post »

5 Life Insurance Myths to Disabuse Yourself of Now

Life insurance may not sound all that exciting, but when you do stop to think about life insurance and you, it’s not uncommon to assume that since the concept of life insurance is simple enough, so too are the products. It’s also fairly easy to rationalize the things you really don’t understand about life insurance, and before you know it, you’re harboring potentially damaging life insurance myths.

In addition to your own edification, and frankly, for the safety of your loved ones’ financial futures, it’s important to understand exactly what life insurance is, what it does, and how — not to mention if — you should make a move either to purchase or upgrade your coverage. Read the myths below to see if you need to adjust your thinking when it comes to life insurance.

The coverage you get at work is enough.

While this may, in fact, be the case if you’re single, in good financial standing, have no dependents and aren’t worried about estate taxes, for most people, the term policy offered through their employer just won’t be enough to sustain their families’ needs. After all, your insurance payout must not only support your family financially, it must also pay off any debts, such as the mortgage or even the MasterCard, as well as settle up with Uncle Sam.

Only the working spouse needs life insurance.

This is a curious — and wildly inaccurate — belief, yet it somehow persists. Life insurance on the breadwinner is intended to fill in the gap left by the loss of a paycheck, but that discounts all the valuable work a stay-at-home partner contributes to the relationship. If you’re used to this arrangement, how would you pay for child care or the cleaning, or even manage the household without a little financial help in the event of such a loss? It can be easy to overlook the many contributions of the non-breadwinner, but to do so would be remiss.

The value of your life insurance coverage should equal two years’ salary.

Everyone’s financial circumstances are different, and so are their life insurance needs. You might require more coverage than two years’ salary if you incur medical bills or other debts, have a young family, a mortgage to pay, or any number of life obligations to meet. If your lifestyle is more modest and you’re not financially responsible for anyone, on the other hand, then two years’ salary may even be excessive.

Single people without dependents don’t need to own life insurance.

While it’s true you might not have a family to provide for, odds are you’ll still have to cover the cost of your funeral, pay off a few debts, and maybe leave a little bit behind for your parents. And as one MSNBC article on the topic suggests, using a life insurance policy to fund a gift to a favorite charity can be a wonderful legacy for a single person to leave behind.

You don’t need professional services to buy life insurance.

While this is, in fact true, as any consumer can go online and shop for, and even buy, term and permanent life policies, electing to go it on your own can be detrimental to your financial future. A professional life insurance agent advisor can help you identify the needs you have, what you must protect and how best to protect it. With the knowledge of myriad different policies, if you’re honest about your financial and life circumstances, a professional can not only help you determine how much coverage you need, but also help decide whether a term or permanent policy is right for you. They can even customize a plan to meet your unique needs.

Life insurance is an important product for most everybody to consider, but it helps if you have your facts straight. So whatever else you think you know about life insurance, you might consider running it past an agent or advisor.

Photo courtesy of: tippnews.com

Read Full Post »

How To Keep The Housing Crisis From Bursting Your Retirement Bubble

Everyone dreams of that perfect little retirement home in the relaxing tranquility of some quaint town on the shores of something beautiful.  Ahh, yes.  We can picture it now. The  feel of a cold drink in our hand and the sun beaming down on our face.  The birds are singing and the waves are lapping at the shore.   Then suddenly, “Pop!” What was that, you say. That was the sound of that dream bubble bursting for the 1.5 million older and retired Americans that have lost their homes to foreclosure along with much of the financial security that came with them.

The reality is that, for many older Americans, their dream scenario has turned into a living nightmare.  Instead of visions of beach houses or lakeside homes, many retirees find themselves clinging for dear life to the homes they have inhabited for years.  The housing crisis knows no boundaries, and it has certainly proved that by inhabiting the lives of many retired and soon-to-be retired individuals.  Unfortunately, the tidal wave of foreclosures continues to splash through the 50+ age group.

The AARP released a report outlining the foreclosure climate in the lives of older Americans and the results were a little frightening.  Over 1.5 million of them have already lost their homes.  Currently, about 600,000 people in the 50+ age group are in foreclosure, while another 625,000 are over 3 months behind on their mortgage payments.  16% of all 50+ Americans currently owe more than their homes are worth.
These numbers are not what many Americans are accustomed to.  The proportion of seriously delinquent loans held by older Americans has risen over 450 percent over the last five years.  Many of these people have gone their whole lives with nearly perfect credit, but have now hit a solid wall of debt that doesn’t seem to be budging.  Things aren’t getting any easier with age.  Among Americans 75 and older, one in every 30 homeowners are in foreclosure.  Five years ago, that proportion was just one out of every 300.  The numbers are hurtling downward at an alarmingly fast rate, and they don’t seem to be slowing.

These statistics are more than just ink on paper.  They are seriously altering the lives of many retirees, forcing some to re-enter the workforce or drastically change the budgets they had planned out years earlier.   Their retirement dreams have disappeared and they are simply trying to stay afloat.

The report showed that younger Americans are struggling as well, but the number of older Americans entering the dreaded foreclosure zone is increasing at a much faster rate.  One of the main questions is simply, “Why?”  Why are so many older Americans falling into trouble?   What’s the problem?

The problem is that many of these people set their budgets and their retirement plans before the economy, well, you know.   Most of them are living on a fixed income and quickly find themselves plowing through their retirement savings.  The income from their investments has been drastically cut, but their house payments have not.  Picture this: the faucet of their main source of income has slowed to a drizzle, but the drain of payments remains wide open.  It doesn’t take a financial expert to realize that it’s only a matter of time before the pool of funds will be completely dried up.

That can be a pretty disheartening image, but the bursting of the housing bubble doesn’t have to burst your bubble of retirement dreams, you simply might have to alter your path to get there.  Planning for these difficulties ahead of time can drastically reduce the struggles you could face.  Many people approaching retirement can analyze their investments based on earnings and interest rates of the current market and forecast their plans more accurately.  It might not be as pretty, but it’s a more realistic picture of what things will look like.

The most important thing is to not be blinded by your dreams, but use them as your vision to create a plan that works for you and your future.  With some planning and a little creativity, you could find yourself livin’ the dream in no time!

Photo courtesy of propertyqwest.com

Read Full Post »

The Ricks Report – July 23, 2012

The Ricks Report

July 23, 2012

The Markets

The man with his finger on the pulse says the U.S. economy faces two main risks. We have no control over one of those risks and the other, well, we do have some control, but whether our politicians will appropriately exercise that control is a big question.

Federal Reserve Chairman Ben Bernanke faced Congress last week and he delivered a rather subdued outlook in his semi-annual monetary policy report. He said our economy faces two major headwinds:

1. The Euro-area fiscal and banking crisis and its potential spillover effects on our economy.
2. The unsustainable path of the U.S. fiscal situation (e.g., the “fiscal cliff”).

Source: Federal Reserve

The U.S. has little control over the euro-area situation so we’re at the mercy of European leaders to make bold and tough decisions to get their houses in order. The second item, though, is clearly within our control.

The so-called fiscal cliff, in which a series of tax hikes and spending cuts will take effect in 2013 if Congress takes no further action, could throw the economy back into a recession. The Congressional Budget Office estimates if no policy changes are made, then our 2013 federal budget deficit will decline by about $600 billion. On the surface, that sounds great. However, such a huge shock to our system in a short period of time could be problematic.

So, will Congress agree to adjust the legislation for the benefit of the economy? We’ll see.

For his part, Bernanke said the Federal Reserve “is prepared to take further action as appropriate to promote a stronger economic recovery and sustained improvement in labor market conditions in a context of price stability.” It’s good to know that the Fed is ready to help if needed.

Data as of 7/20/12	1-Week	Y-T-D	1-Year	3-Year	5-Year	10-Year
Standard & Poor’s 500 (Domestic Stocks)	0.4%	8.4%	2.8%	12.7%	-2.3%	5.2%
DJ Global ex US (Foreign Stocks)	0.6	0.5	-16.9	3.3	-7.8	5.6
10-year Treasury Note (Yield Only)	1.5	N/A	2.9	3.6	5.0	4.6
Gold (per ounce)	-1.2	0.1	-0.6	18.3	18.3	17.2
DJ-UBS Commodity Index	4.2	3.9	-11.1	6.3	-3.4	3.8
DJ Equity All REIT TR Index	-1.1	16.0	9.5	31.4	2.7	12.1

Notes: S&P 500, DJ Global ex US, Gold, DJ-UBS Commodity Index returns exclude reinvested dividends (gold does not pay a dividend) and the three-, five-, and 10-year returns are annualized; the DJ Equity All REIT TR Index does include reinvested dividends and the three-, five-, and 10-year returns are annualized; and the 10-year Treasury Note is simply the yield at the close of the day on each of the historical time periods.

Sources: Yahoo! Finance, Barron’s, djindexes.com, London Bullion Market Association.

Past performance is no guarantee of future results.  Indices are unmanaged and cannot be invested into directly.  N/A means not applicable.

IT’S BEEN ALMOST A YEAR since August 5, 2011, the day the U.S. lost its coveted AAA credit rating from Standard and Poor’s. So, how have the financial markets responded in the year since? Quite well, actually.

It may not feel like it, but the broad U.S. stock market, as measured by the S&P 500 index, rose 13.6 percent between August 5, 2011 and last Friday, according to data from Yahoo! Finance. Despite all the angst from the credit downgrade, the threat of a double-dip recession and the turmoil in Europe, the stock market has hung in there.

The returns in the bond market are perhaps even more startling. The 10-year Treasury yielded 2.56 percent on August 5, 2011 and by last Friday, the yield had dropped to 1.46 percent, according to Yahoo! Finance. Normally, you might expect interest rates to rise after a credit downgrade since the ratings agency is essentially saying your bonds are riskier than previously thought.

The U.S., though, is perhaps a “special” case. The day after the credit downgrade, none other than Warren Buffett went on Bloomberg television and said he thought the U.S. should be a “quadruple A” rating. And, to this day, the U.S. dollar remains the world’s leading reserve currency as more than 60 percent of the world’s foreign currency reserves are held in U.S. dollars, according to BusinessWeek.

We shouldn’t get overconfident, though. While the U.S. has tremendous assets, it might only take a few bad decisions from our leaders to undo what took decades to build.

Weekly Focus – Think About It…

“There is nothing wrong with America that the faith, love of freedom, intelligence, and energy of her citizens cannot cure.”

—Dwight D. Eisenhower, 34th president of the United States

Best regards,

Gregory Ricks

Read Full Post »

The Ricks Report – July 16, 2012

The Ricks Report

July 16, 2012

The Markets

Should the Federal Reserve raise interest rates to fire up the economy?

For the past few years, the Fed has been on a mission to lower rates as much as possible. The thinking is lower rates will spur economic growth by making it less costly for businesses and consumers to borrow money.

Unfortunately, it hasn’t quite worked as planned.

Short-term interest rates are near zero and 30-year mortgages are at a record low, yet the economy is still just muddling along, according to Barron’s. Now, some investment managers are saying the Fed should reverse course and raise interest rates.

Last week, prominent money manager David Einhorn went on CNBC and said, “I think having very low zero rates is depressing to people. I think it deprives savers of reasonable incomes, the ability to forecast a reasonable income, and it cuts down on consumption.” He went on to say low rates drive up food and oil prices and lower standards of living.

Folks relying on a stream of income from their fixed investments can probably relate very well to what Einhorn is talking about. As recently as July 2007, $100,000 worth of 1-year Treasuries would have generated about $5,000 of annual income (a 5 percent yield), according to data from the Federal Reserve. Now, it would generate only about $200 (a 0.2 percent yield).

The Fed may be in a classic Catch-22, according to CNBC. With sluggish economic growth, it’s certainly hard to justify a rate hike, yet, low rates are increasingly ineffective. CNBC says a growing number of analysts suggest the best course of action is to allow “the cash-rich private sector to sort out its own problems without the government’s interference.” However, they acknowledge it “likely would be painful, but could be the only sustainable path to recovery.”

With the Fed on the record as saying they plan “to keep interest rates at their historically low range of 0 to 0.25 percent through late 2014,” investors shouldn’t expect the Fed to raise rates any time soon, according to Fox Business. Only time will tell if this low rate strategy is the right medicine for the economy.

Data as of 7/13/12	1-Week	Y-T-D	1-Year	3-Year	5-Year	10-Year
Standard & Poor’s 500 (Domestic Stocks)	0.2%	7.9%	3.1%	14.6%	-2.7%	4.0%
DJ Global ex US (Foreign Stocks)	-1.1	-0.2	-17.4	5.7	-7.9	5.2
10-year Treasury Note (Yield Only)	1.5	N/A	2.9	3.4	5.1	4.6
Gold (per ounce)	0.5	1.3	1.1	20.7	19.1	17.5
DJ-UBS Commodity Index	2.5	-0.2	-14.8	7.2	-4.3	3.5
DJ Equity All REIT TR Index	0.9	17.3	12.7	34.8	2.3	11.6

Notes: S&P 500, DJ Global ex US, Gold, DJ-UBS Commodity Index returns exclude reinvested dividends (gold does not pay a dividend) and the three-, five-, and 10-year returns are annualized; the DJ Equity All REIT TR Index does include reinvested dividends and the three-, five-, and 10-year returns are annualized; and the 10-year Treasury Note is simply the yield at the close of the day on each of the historical time periods.  Sources: Yahoo! Finance, Barron’s, djindexes.com, London Bullion Market Association.

Past performance is no guarantee of future results.  Indices are unmanaged and cannot be invested into directly.  N/A means not applicable.

HOW DO YOU TURN A PENNY INTO 1.25 BILLION DOLLARS? Sounds like a magic trick, right? Well, there’s really no magic other than the law of large numbers.

Here’s how it works and how it may benefit our economy.

A report from the Federal Highway Administration shows Americans traveled approximately 2.94 trillion miles in motor vehicles for the 12 months ending April 2012. Now, when you figure how many gallons of gas that burns up, you get a really big number! Moody’s Economy.com chief economist Mark Zandi has done the math and, by his reckoning, each penny change in the price of a gallon of gas equates to, you guessed it, about $1.25 billion over the course of a year, as reported by CNBC.

With the wild swings we’ve seen in the price of gas, the savings – or cost – can add up quickly. A recent check with AAA showed the average price for a gallon of regular gas dropped by about $.25 over the past year. So, multiply $1.25 billion by 25 and you get, to quote Carl Sagan, “billions upon billions” of additional coin in consumer’s pockets. And, that coin could fuel further growth in consumer spending.

You’ve heard the old saying, “A penny saved is a penny earned.” Today, a few pennies saved on gas can add up to billions!

Weekly Focus – Did You Know…

There’s about $1.1 trillion of US dollars in circulation today – an all-time record high. However, most of it is not “floating” around in everyday transactions. About 75 percent of the $1.1 trillion is in $100 bills which don’t circulate much. On top of that, about 50 to 66 percent of U.S. cash is held abroad. Despite the proliferation of credit cards and debit cards, we still seem a long way away from a cashless society.

Source: CNNMoney

Best regards,

Gregory Ricks

Read Full Post »

The Ricks Report – July 9, 2012

The Ricks Report

July 9, 2012

The Markets

Where is the recovery in jobs?

In the 10 recessions between World War II and 2001, the jobs lost during the recession were fully recovered within 4 years of the previous peak in employment, according to the blog, Calculated Risk. In fact, with the exception of the 2001 recession, the previous 9 recessions had recovered all their lost jobs within a relatively short 2½ years.

The 2007 recession, however, is a different story.

At its nadir in February 2010, the U.S. economy had shed nearly 9 million jobs from its prior peak, according to the Bureau of Labor Statistics (BLS). As of last week’s June employment report, the U.S. economy had recovered less than half of those lost jobs – and we’re more than 4 years removed from the peak employment level of late 2007, according to the BLS.

Why has the jobs recovery from this recession been so painfully slow? Here are several reasons:

(1)   Recoveries from recessions caused by financial crises – like this one – are notoriously slow.

(2)   Extremely high economic policy uncertainty emanating from Washington made corporations cautious in hiring.

(3)   The extension of unemployment benefits to 99 weeks reduced some people’s desire to find new work.

(4)   Uncertainty from events related to the euro crisis dampened business demand and the need for more workers.

Sources: Gary Becker, Nobel Prize Winner and Richard Posner blog; The Wall Street Journal

There is some good news, though, that could eventually provide a spark for new hiring.

Corporate profits as a percentage of gross domestic product (the value of all goods and services produced in the U.S.) recently hit an all-time high, according to Business Insider. This means corporate profits are at record levels. On top of that, corporate cash levels have reached historic highs which suggest corporations have plenty of money to reinvest for growth, according to Yahoo! Finance. With corporate profits and balance sheets looking solid, all we have to do is get these companies to start spending some of that cash on new hires. If that happens on a large scale, it could be a huge boost to the economy and the financial markets.

Data as of 7/6/12	1-Week	Y-T-D	1-Year	3-Year	5-Year	10-Year
Standard & Poor’s 500 (Domestic Stocks)	-0.6%	7.7%	0.8%	14.7%	-2.4%	3.3%
DJ Global ex US (Foreign Stocks)	-0.1	1.0	-17.8	5.4	-7.4	4.6
10-year Treasury Note (Yield Only)	1.5	N/A	3.1	3.5	5.2	4.8
Gold (per ounce)	-0.7	0.8	3.9	19.7	19.6	17.7
DJ-UBS Commodity Index	1.1	-2.7	-13.8	5.0	-4.4	3.4
DJ Equity All REIT TR Index	1.2	16.3	10.2	33.2	2.0	10.9

Notes: S&P 500, DJ Global ex US, Gold, DJ-UBS Commodity Index returns exclude reinvested dividends (gold does not pay a dividend) and the three-, five-, and 10-year returns are annualized; the DJ Equity All REIT TR Index does include reinvested dividends and the three-, five-, and 10-year returns are annualized; and the 10-year Treasury Note is simply the yield at the close of the day on each of the historical time periods.

Sources: Yahoo! Finance, Barron’s, djindexes.com, London Bullion Market Association.

Past performance is no guarantee of future results.  Indices are unmanaged and cannot be invested into directly.  N/A means not applicable.

INVESTORS HAVE GROWN VERY FICKLE in recent years as measured by how long they hold on to a stock. There was a time when investors were really investors and bought a stock for the long run. In fact, between 1940 and 1975, the average length of time a New York Stock Exchange stock was held before it was sold was almost 7 years, according to data from the New York Stock Exchange as reported by a September 2010 Top Foreign Stocks blog post. By 1987, it had dropped to less than 2 years. And, in the highly volatile year of 2008, the average holding period was less than 9 months, according to The New York Stock Exchange.

So, does this fast trading result in better returns?

A highly quoted study by Brad Barber and Terrance Odean of University of California-Davis published in April 2000 analyzed the results of nearly 2 million trades from a discount brokerage firm between 1991 and 1996. The study concluded that the 20 percent of investors who traded the most frequently underperformed the 20 percent of investors who traded the least frequently by a whopping 7.1 percentage points on an annualized basis after expenses.

The main conclusion of the study was, “Trading is hazardous to your wealth.”

One very interesting tidbit from the study was the gross returns between the frequent and infrequent traders were basically the same. In other words, stock selection was not a problem for the fast traders; rather, it was the expenses of the frequent trading that caused their net returns to lag far behind the infrequent traders.

From a practical standpoint, selling a stock is necessary from time to time. The study simply drives home the point that keeping trading costs as low as possible is critical to having net returns come close to gross returns.

Weekly Focus – Think About It…

“Learn every day, but especially from the experiences of others. It’s cheaper!”

—John Bogle, founder of The Vanguard Group

Best regards,

Gregory Ricks

Read Full Post »