admin January 17, 2016 No Comments

The Crazy Stock Market

What’s the story with the stock market these days? Many people are concerned about the Chinese stock market. Note that the Chinese stock market is much like going to Las Vegas in the US. It has little to do with the Chinese or world economy overall. I typically ignore what’s happening in Vegas as I do with the Chinese stock market.

I have a friend who is in the business of buying commercial real estate. We often discuss current economic and investment events. He once said, “The way to make money is in real estate.” I said, “The way to make money is to buy low and sell high in anything.” He admitted he couldn’t argue with that.

My point was that whatever investment vehicle you use the basics are the same. But knowing where the bottom and the top are can be difficult to determine, especially if you don’t understand what you are investing in. My friend understands commercial real estate and I understand stocks and bonds. There’s a lot of derivatives that no one understands, even financial advisors who are recommending them. People often get caught in the herd mentally and follow the crowd even if they don’t understand what they are following.

What is more interesting to me than the Chinese stock market is the US market. I don’t mind when the stock market plunges because it’s far easier to find investments that are closer to their bottom range. The last few years finding undervalued securities has been like looking for needles in the hay stack. The needles are there, you just have to work to find them. Now, the hay stack is much smaller and the needles are easier to find.

We came into 2016 with many expecting a volatile year (including me) because of world events, an economy that isn’t following the normal rules (low unemployment and low inflation doesn’t happen often), and the political elections. This can be great news for market timers, but it’s also good news for people like me who look for prices at bargain rates. I won’t be churning stocks this year, but I will look to invest as opportunities become available and selling to take profits on the upswings of the market.

As I indicated in my last post, interest rates will continue to struggle in 2016 even though everyone would love bonds to “get back to normal”. Unfortunately the price gains on bonds that have gone with low rates during the past six years won’t happen again. So bonds are likely to have real capital appreciation near 0% for most of 2016. They will continue to be reliable income producers and will continue to reduce the ups and downs of your overall portfolio though.

The stock market will have erratic fluctuations as every little global turmoil will make the day traders twitch, giving opportunities to buy stocks at good prices, if selected carefully, or sell when prices pop up again.

The economy will probably continue its slow growth until everyone (businesses, investors, and individuals) decides it’s safe to stop squirreling money in cash. How and when we get out of this mess will probably be when the big corporations feel it’s safe to invest in their future again. While the “big boys” think it’s safest to invest in cash during uncertain times, uncertain times will continue until the “big boys” put on “big boy pants” and take the brave step outside into the drizzle.

Until then, look for opportunities during a crazy 2016.

All information provided is general in nature and not meant to be advice for you in particular. I can’t predict the future, the discussion above is my best guess given the current data that’s available to me. If you’d like to know more about how this topic relates to your situation or are looking for a financial planner, contact me at tara@southbayfinancialpartners.com.

admin January 11, 2016 No Comments

Have you been paying attention?

Interest rates have gotten REALLY Interesting

Interest rates continue to be a mystery. The Federal Reserve Board (The Fed) is trying hard to raise interest rates on government securities. They are meeting headwinds for two reasons.

First, the economic mandates that The Fed is tasked to use as guidance, inflation and unemployment, aren’t helping them raise rates. The Fed is struggling to get to the targeted 2% inflation rate. A large part of the problem is that oil prices are at historic lows. But there are other areas where prices are also not hitting the 2% mark (consumer goods, food). Unfortunately, there’s a good chance inflation will be like a clog in a pipe, water will resist getting through until suddenly the clog works it way out with a gush.

Unemployment, while in its target range doesn’t feel like it. This is partly due to many people who would like to be in the market have given up and aren’t counted. And people who would like full time work are struggling with part time jobs. There has been improvements but the progress is very slow.

The other reason for headwinds against interest rates increases is the world continues to pour money into US bonds. The US seems to be one of the few stable countries in the world and the world’s perennial favorite “safe haven” is the 10 year US Treasury Bond. Even if the Fed raises rates, with demand for US bonds going up, the price goes up pushing the rate down since bond rates go down when prices go up.

While The Fed raised rates in December and have said they plan to continue raising rates, they will struggle to actually make that a reality.

I explored interest rates and the effect on the bond market in two previous posts:Interesting Thoughts about Interest Rates and The Bond Case .

 

All information provided is general in nature and not meant to be advice for you in particular. If you’d like to know more about how this topic relates to your situation, contact me at tara@southbayfinancialpartners.com.

admin December 18, 2015 No Comments

Saving Your Bubble Gum Money

“It’s just not worth $60 to go to [a famous amusement park].” It’s a proud moment when a Financial Planner Mom hears this from her child.

I started teaching my kids financial skills where most financial planners will tell you to start, with an allowance. I started when they were about three. They received three-quarters that would be split between three jars. One was for spending (we called that “bubble gum money”), one for long term savings (in a two-year old’s world that means a week or longer), and one for charity. I let them split their quarters among the three jars however they like.

In the beginning the quarters were basically randomly deposited. I knew over time they would start to understand how different decisions would impact future options. I didn’t guide them because really, how big are mistakes a three year old can make verses how big the life lessons to be learned are?

Bubble gum money could be spent whenever and wherever. In the beginning, my youngest did spend most of her money on bubble gum.

The “long term savings” could only be “saved up” for bigger purchases. My requirement was that nothing was spent the same week the item was discovered. If they wanted that Lego™ set and had the money to buy it, they had to wait until the next week. They learned that impulse purchases were sometimes not the best financial decisions. Many angry moments led to a change of heart. In the moment, it was the only thing that would make them truly happy, but upon reflection they realized the happiness would be fleeting. On the other hand, there were times when the following week they still wanted to use their money for that Lego™ set and we’d go buy it.

Eventually, they started saving their bubble gum money. They realized bubble gum now was not nearly as rewarding as something big later. Shortly after, I started adding to their allowance. I gave them the birthday party budget. They could have a party or could use it to take a friend to Disneyland. Or they could save it to use for something else if celebrating their birthday was a low priority.

If the choice is a birthday party or no birthday party, who wouldn’t take the birthday party. But if the choice is a birthday party or saving for an iphone or xbox gaming system, there’s some serious thinking to be done. I also gave them the clothes, movie, and dance budget to use as they like. Empower your kids to make those financial decisions. They learn best through experience.

Kids who are older can still learn how to make financial decisions. With older kids still at home, sit down and negotiate an allowance. While it might take time and effort to figure out how much and what it covers, make sure you stick to giving them only the allowance. They may be sad or mad they can’t afford something, but help them realize they can save up by reducing their spending in areas that are less important to them. They can also look into getting a job to have more money available to them. If something is really important, they will figure out a way to save for it.

Adult children may need help learning to live within their salary. You are doing them a disservice by buying them a house they can’t afford or loaning them money for a nice, new car. Making loan payments is no easier than saving a little each month for their next car. Help them open a money market account to keep that money until they need their next car. It is hard to say “no” to your children, but know that they will be happier in the long run if they are financially secure.

The foundation of making financial decisions is understanding that you have a finite amount of money. If you choose to spend money today, you won’t have it available for tomorrow. As adults, our “long term” spending isn’t a week, but years or decades. Is that new car more important than your child’s education? Can you afford to do both? How about retirement? Are you going to put your children through college and then expect them to put you through retirement because you don’t have enough money left over?