Check out the press news room! Financial

Check out the press news room! Financial Advisor Gregory Ricks Sheds Light On The Financial Risks You Could Be Taking … Are you taking too much??
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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

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How To Take Advantage of Your 401(k)

So, you’ve been saving for retirement for years, spending your entire career penny pinching and saving every morsel you can, hoping to live out your years in a stress-free, fully-funded lifestyle.  You started young and have been saving ever since.  Most importantly, you have invested in the magical program people call a 401(k) at your company and have gritted your teeth as you watched a bit of every paycheck funnel into it.  Good for you!  You have taken an initiative that many people avoid.  As a reward for your planning and diligence, you will be granted, no, not three wishes, but three tips to using your 401(k) in the most productive way.

Many people go through the effort of investing in their 401(k) plans, but make critical errors in how they invest into it.  There are few ways to make sure that the money you pay in now, will give you the best payout in the future.

Tip 1:  Make significant contributions.  Many people think that their 401(k)’s future is mainly dependent upon the performance of the investments, but these people are mistaken.  If you invest a small percentage of your income in well performing funds, you won’t find the success that investing a higher percentage in lower performing funds will afford you.  Of course, this means a bigger chunk of your valuable paycheck, but if you can cut back and live frugally now, you will have more wiggle room later.  Also, it’s critical that you invest enough to take full advantage of any match programs from your employer.  That match offers you tax-free money on a shiny silver platter.  Investing only a small percentage of your income into your 401(k) leaves this platter sitting on the table, out of your reach.

Tip 2:  Invest for growth.  You are cutting back, buying the generic cereals and stepping away from the gator skin shoes so that you can put all you can into your 401(k).  If you are making those sacrifices, you owe it to yourself to get the most from that money.  This can be done by making smart decisions inside of your funds.  Like with any investment, this means taking on a bit of risk.  This doesn’t mean playing Russian roulette with your funds, but being too conservative can almost negate the extra effort you are making.  One way to do this is to invest more of your 401(k) money in stocks.  If your investments face average market performance, putting a higher percentage of your investment in stocks, over bonds or cash, you will find yourself in a better position in the long run.  Of course, this involves balancing your risk with the reward you are looking for, but if you consider getting a little riskier with your investments, you could find yourself with a lot more money later.

Tip 3: Avoid undoing all your hard work.  Borrowing from your 401(k) can be one of the most costly loans you can find.  By taking your money out of the fund, you will be costing yourself the growth that money would have given you.  Life brings about surprises and emergencies that may force you to borrow from your 401(k), if this happens, make sure you plan for the company to take the loan payments from your check.  If you find yourself wanting money for expenses, such as a new car, look into a personal loan or home equity line of credit for financing.  Competitive rates on these options will leave you in a better long term position.  The second part of this tip is to avoid cashing out your 401(k) when you leave a company.  Much of your hard earned money will be whisked away by penalties, fees, and growth loss.  There are a few different ways to avoid simply cashing out when you switch jobs.  Many companies allow you to roll over your balance into their plans, which means your investments and growth will hardly skip a beat with the changeover.   You can also roll your plan into an IRA, which offers a broad range of investments not offered with many other retirement plans.  The easiest option may be for you to simply leave your money in the current employer’s plan if you have a significant amount already saved.  The bottom line is that borrowing from your 401(k) or cashing out early can wipe away a lot of the money that you have been so painstakingly saving.

 

Photo courtesy of bemanaged.com

If you have been planning for your retirement and investing with your 401(k) you have put yourself on a path to success.   By doing these few simple things you can make your path smoother and that success brighter.  You are already going through the effort to save for your future, keep these tips in mind and your effort will be much more worthwhile.

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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

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Hines Ward and Rocky Bleier

Gregory recently had the pleasure of meeting Pittsburgh Steelers Hines Ward and Rocky Bleier – who is your favorite NFL player?

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The Ricks Report – July 2, 2012

The Ricks Report

July 2, 2012

The Markets

A dose of good news from a European summit last Friday helped fuel a strong rally in world financial markets and took some of the sting out of a weak second quarter.

With the expectation bar set very low, the 19^th European Union (EU) summit since 2008 “delivered more steps toward fiscal integration than pessimistic investors had expected,” according to The Wall Street Journal.

Four new measures in particular sent a signal to investors that the EU is taking steps toward a banking union, which could lead to a fiscal union, which could lead to a political union, which could lead to a much stronger European economic bloc. Even though much would have to go right for that sequence of events to occur, investors felt Germany made some important concessions at the meeting which could eventually pave the way for a stronger EU. So, maybe, just maybe, the 19^th time is the charm. We’ll see.

After an incredibly strong first quarter, stocks gave up some of those gains in the second quarter as the S&P 500 index dropped 3.3 percent. Here are a few concerns that weighed on investors during the past three months:

1. Political question marks in the U.S.
2. Another flare-up of worry over Europe
3. Slowing global economic growth
4. Concern that the Federal Reserve may be near the limit in its ability to prop up the economy

Despite these worries, the S&P 500 index is still up a very respectable 8.3 percent for the year due to the very strong first quarter.

The second half of the year will likely offer some fireworks as we have a presidential election, the continuing saga in Europe, and a looming “fiscal cliff” at the end of the year, which could usher in a number of major tax-and-spending changes, according to BusinessWeek.

In the meantime, enjoy the 4^th of July fireworks this week!

Data as of 6/29/12	1-Week	Y-T-D	1-Year	3-Year	5-Year	10-Year
Standard & Poor’s 500 (Domestic Stocks)	2.0%	8.3%	1.7%	13.7%	-2.0%	3.5%
DJ Global ex US (Foreign Stocks)	2.7	1.1	-16.0	4.5	-7.0	4.7
10-year Treasury Note (Yield Only)	1.7	N/A	3.1	3.5	5.0	4.8
Gold (per ounce)	2.1	1.5	6.3	19.6	19.7	17.7
DJ-UBS Commodity Index	5.6	-3.7	-14.8	2.8	-4.4	3.1
DJ Equity All REIT TR Index	4.1	14.9	12.9	32.3	2.6	10.4

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.

WHAT CAN TENNIS TEACH US ABOUT SUCCEEDING IN THE FINANCIAL MARKETS? Dr. Simon Ramo, a legendary engineer and an architect of our country’s rise as a global technology leader, wrote a book in 1970 about, of all things, tennis, titled Extraordinary Tennis for the Ordinary Player. The engineer in him noticed that the game of tennis involves two games – one is played at the professional level and the other is played at the weekend warrior level. Now, that’s not particularly brilliant, but the conclusion he reached from his observation is.

After extensive analysis, Ramo concluded that professional tennis players win points while amateur players lose points.

In other words, for professionals, most points are won by the pro hitting a spectacular winning shot that is just out of reach of their opponent (a “winner’s game”), while amateurs typically lose points by making an unforced error (a “loser’s game”).

Writing in a famous 1975 Financial Analysts Journal article, noted investment analyst Charles Ellis extended Ramo’s tennis concept to the investment business. Ellis said investing had flipped from being a winner’s game to a loser’s game. He meant that to succeed at investing, you need to focus on making fewer avoidable errors as opposed to making spectacular winning investments.

So, how do you make fewer avoidable errors?

The key is to focus on getting the ball over the net instead of trying to always serve aces. Here are three ways we try to do that:

1. Keep investment expenses low.
2. Keep trading frequency to a reasonable level.
3. Keep emotions in check so we don’t let fear and greed get the best of us.

If our main focus was on trying to hit aces all the time, then we’d likely end up with lots of double faults. And, with too many double faults, we won’t achieve your goals, let alone make it to Wimbledon.

Weekly Focus – Think About It…

“Control the things you can control.”

Sam Stosur, professional tennis player

Best regards,

Gregory Ricks

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