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Articles from the tag of Investing
The questions raised about investment in stocks
Posted by: Leona Jones from Dotsearchmedia on Wednesday December 19, 2012 at 9:37 AM   (-08 GMT) | Comments (0)
Tags | Investing, | Stocks | Categories: | Finance - Managing your money, | Financial Markets - Stocks
The last few years have provided the USA with a rude awakening; prior to the Collateralized Debt Obligation (CDO) problems everyone was fairly relaxed. Their real estate was rising in value and credit card companies were happy to provide all the credit needed to buy as required.

Things changed fairly dramatically and as the recession set in, many people lost your jobs unexpectedly. The balances on their credit cards were just one of the problems they faced. Once anyone defaults on a payment their credit score is damaged; their eligibility for anything other than bad credit loans is in danger.

Although there are signs of the economy moving slowly ahead again, there is still the need for extreme caution. The current impasse between the Republican House of Representatives and Obama’s Administration is still to be resolved; the fiscal ‘cliff’ is approaching quickly. Unless there is a resolution before 1st January, spending cuts and tax increases will kick in.

Experts believe that that would take the USA back into recession; more people would need those bad credit loans if that happened. Even if that is solved as it must surely be corporate figures still reflect the problems that still face the world’s economies. There are no forecasts that predict USA growth in 2013 reaching 3%, the level that can reduce the unemployment statistics to the pre CDO level and allow more people to borrow again, even bad credit loans.

With depressed demand comes static business and there is certainly a case not to invest in stocks until there are clear signs that the problems have gone. There is not necessarily a correlation between the return on stocks and a weak economy but certainly it is a time for caution. Stocks however have actually produced a 15% return this year against a 2% growth in the economy so it is a subject that requires some research.

That research has been done over a prolonged period of time. The areas of research include GDP and business profit, forecasts of growth in earnings, interest rates, Federal Debt and historical returns. The conclusion was that there was no conclusive strength in any financial research that could accurately predict the performance of stocks in the following year. The timescale of a single year’s forecast as simply just too short.

There has often been a view that coming change has been factored into the market anyway. It has happened at times with changes in government. The market movements resulting from a different Administration often begin far before a result is confirmed. Although there may be a sudden fall for a few days, it is purely a temporary phenomenon because the market has already readjusted.

There may be some stocks which suffer more than others based upon the Administration’s expected targets. Financial, energy and environmental companies each face different challenges. Financial issues of regulation can for example hit banking stocks. The increased pressure on energy companies to sign on for environmental policies remains an issue.

There might well be an argument that in an atmosphere of low expectation, it is a good time to invest. Ultimately by all means take advice but there may be a number of different viewpoints. The best route is probably one of balance; do not over extend yourself and find yourself in financial trouble; you may find your future options may be bad credit loans. There is certainly a case for looking for opportunity however.

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Real Estate Investing
Posted by: Joseph E Poff, CPA CITP from Auburn Software, Inc. on Wednesday August 4, 2010 at 8:04 PM   (-07 GMT) | Comments (0)
Tags | Investing, | Mortgages, | Real Estate | Categories: | Debt, | Economy, | Real Estate

The Real Estate market has been and will continue to be a highly leveraged commodity. Sure, right now it's in the dumps - hardly anyone can get loans - those that can are too afraid. But there are signs it's already easing. For example, appraisals now must be made by those familiar in the area - there are issues about whether foreclosed properties should be in samples. Applications are becoming less restrictive too - ever so slightly but they seem to be easing. Credit score minimums have also been lowered.

The near or at 100% financing we had enabled a lot of people to buy property - residential and commercial alike who otherwise may not have been able to do so. Under some circumstances that 'can' and 'does' work - but you can't just blindly do it - you need to really look at the situation. Something that wasn't happening in the industry just prior to the collapse. But with or without the 100% financing 70-98% was common place and most of the time worked and still will work. It will be common place again.

In business you make money by leveraging yourself by your employees (or perhaps by machines). If you never had employees a business would have difficulty in growing or surviving.  It's the same in Real Estate - many clients of mine bought their own buildings to house their business in highly leveraged loans. It was rare when they didn't work out. Everyone won in those - my client was in better shape than renting - the bank did fine - things were great.

The concept of cheater intro interest loans, negative amortizations, the borrowers 'pretending' they didn't understand and the borrowers that really didn't understand - no wonder the Real Estate market had what the stock market calls a major correction. But we will go back to the heavily leveraged loans - it just has to happen. Along the way - Real Estate values will go up.

The market is still in a state of flux but smart - nerves of steel investors could make some money by buying some Real Estate. While prices might still drop - say another 10% if you buy now - the likelihood is that would be the extreme and we are probably at or near the bottom now. Signs of stabilization are showing up - not great - but stabilization. Also, pressure will be on our elected officials as the election season starts.

So, depending on your cash situation and investment strategy you might want to investigate the availability and pricing of some properties be that commercial, residential or land - all depending on your personal situation.

Be smart - don't over commit either physically, mentally as well as financially. Real estate transactions can be stressful but the more of them you do the easier it becomes. If you're planning on developing a property - well that's a lot of work - research it first - know what you are doing. If you want to be a landlord be prepared for it being vacant and the dead beats that leave your rental house in shambles. On the positive side - don't look for a quick return, but given time you will come out ok. Just think of the population increases - mathematically, they will have to increase in value.

As an alternative to investing directly into a project you could invest in a mutual fund or similar type investment that specializes in Real Estate projects.

Joseph E Poff, CPA

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Investment Strategy - what's that?
Posted by: Joseph E Poff, CPA CITP from Auburn Software, Inc. on Friday July 2, 2010 at 4:08 PM   (-07 GMT) | Comments (0)
Tags | 401k, | Investing, | IRA | Categories: | Accounting - 401ks, | Financial Markets - Mutual Funds, | Accounting - Retirement Valuations

Do you have an investment strategy? Do you even know what that is? Does it consist of a 401k voluntary deduction each pay period that goes into some fund but you can't really remember which one? Well, don't feel alone - that's the approach of a lot of people I've worked with through the years.

It's ok to have a hands free investment approach to some degree but you don't want it to be totally hands free. If you're driving a car, a boat or flying a plane - all will go pretty much on their own - but you do have to steer occasionally and sometimes stop for gas. Once in awhile you also need to have an inspection of your means of transportation and make repairs. The same is true with your investments.

First - which fund(s) get your money? Funds are often very specialized now with exotic titles such as "The Fund of the Penny" whose stated objective is 'To corner the market on the 1963 US penny and then drive the price up and sell taking a capital gain on the increase in value". Ok - ok - I'm kidding, but there are some very very specialized funds you can invest in. Would the one I listed make sense? No. Do you know that you haven't already invested in it and don't know it? Well it is a fictitious fund ( I think) - but you see the point - you don't know if you don't spend a few minutes looking at it.

I'm constantly amazed that I'll see individuals spend hours - days - months arguing with the phone company over an extra $3 charge but won't spend any time looking at their 'very very large' retirement portfolio. Why? Usually it's because they have trouble understanding it and feel better leaving it in the hands of someone else. This is the 'close my eyes and hope for the best' approach and lots of times that works out ok. It's dangerous to do this though.

I can understand individuals not understanding investing and shying away from it. Working on that phone bill is easier because it's easier to understand. However, investing isn't so complicated - it's just that a lot of people haven't been exposed to it. Learning a little bit about it seems 'very complicated' because the terms are unfamiliar and they come fast and furious especially if someone is selling you something. No one wants to feel like an idiot and show that they don't understand. But you know - that's 'wrong'.

It's just like anything new - boating, flying, bee keeping, rocket building - all are hard in the beginning, but once you pick up on the 'lingo' - which will come quickly - you'll start making a lot of progress. It is hard in the beginning - that's for sure - especially the rocket building - ha ha - but soon the terms make sense and everything starts to fall into place.

In investing terms such as mutual funds, money market funds, T Bills, contract buy downs, reverse mortgages - all of these are terms (and lots of others) most people have heard of but may not be really familiar with them.  And to invest wisely, you don't need to know how to put together your own mutual fund - but broad stroke concepts are good things to know. This was one of the reasons I designed and developed Economics 411 - to expose individuals to some of the different types of investments and to illustrate things such as the dollar impact over say 10 years of investing in a passbook savings account versus 10 years with a money market account or CD. I think that seeing that in black and white in the game will resonate with them. They'll go - wow - I never understood that but do now.

Staying with mutual funds - you need to know how to value them. This is easier in recent years, but there are two parts to a mutual fund. One is that the mutual fund passes out earnings. The other part is the per share value of the fund.

Let's say you have a fund - we'll call it "The Fund of the Penny" - and the value per share at the end of the year was $27.40. Earnings for the year were $.75 a share and the value of the fund at the beginning of the year was $28.65. You have 1,214 shares. How did you do for the year? Should you invest more?

Well, let's look at that.

Beginning of the year value $28.95 per share
Earnings $    .75
End of year value should be if the market value held steady $29.70
End of year value is $28.65
Loss $  1.05

So, you didn't do too good on this - it lost $1.05 a share or 3.6% of it's value.

Now suppose the fund had paid out $2.00 a share during the year - what then? Well, that would mean you actually made $.95 a share. So, as you can see you need to really look at your investments to track how they are doing and if you need to change to a different fund.
With your retirement funds - not just mutual funds - you don't necessarily just want to look at just one year or some isolated period. I remember one time at a client's company retirement plan meeting (Profit Sharing Plan) - there was my client, his investment person, myself and about 30 employees. The investment person had prepared statements for the overall performance of the fund. He showed me his handouts prior to the meeting and they showed that from August to December the retirement funds had increased something like 25% - in just those 4 months. Pretty impressive.

What he 'hadn't' shown was that from January to August the fund has lost 50% ( I can't remember the numbers exactly). In any event the year ended up being a 25% loss (if my math' s correct) for the year - something I told him I'd have to point out in the meeting when I gave my report. Sure enough - the crowd was all pumped up from him and his 25% increase since August. Following him reminded me of when I went to one of the local schools for career day and watched the fireman come in with his fire truck, hoses and gear; the veterinarian with his cages and the animals he brought in; and me - with my mechanical accounting pencil. The crowd was ready to go and I was about to give them a downer. At least then I was able to tell the kids that we had a rock band they'd know as a client.

So, I followed the gentleman and gave out my report which shortly generated questions regarding why my report showed a 25% loss for the year and the broker's show a 25% gain? I had to explain that while his was 'technically correct' - it was limited to that time period - August through December. My report covered the whole year which also encompassed the drop in the market that occurred in early August of that year (some of you will remember the time I'm talking about).

My dad often said - 'figures don't lie but liars figure' so there you go. You can often distort numbers to your needs so make sure of what you are comparing - be consistent. Ask questions of your advisors. Never be embarrassed that you don't know something. Fire your advisor if they can't or won't answer your questions - or seems disinterested. Only doctors are allowed to not pay attention to you!! (Ha ha - just kidding Dr's that are clients.) Don't take that from your advisors.

I'd often tell my older clients that it took them all their life to accumulate their wealth - and in all likelihood if they lost it now there won't be enough time left in their lifetime to rebuild it. So, one of the keys is principal preservation. As you get older, you generally want to start picking a little more safe investments rather than worrying about getting an extra bit of interest. Sometimes it's not worth the risk - but of course you have to review your overall portfolio. Which brings up a good point - diversification - that will be in an upcoming article.

Invest safe and wisely and have fun!wisely and have fun!

Joseph E Poff, CPA
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