Stock market is a high risk investment venue offering high returns to the investors. The investors will always think of the best stocks to invest and call the stock market related television channels where there will be stock market experts interacting with the investors.
Most of the queries by the investors will be related to the best stocks to invest and the experts reply that a particular sector will be performing well in the next few years and ask the investors to invest their money in these sectors. Some investors roughly follow the mutual fund companies and invest their money in the stock where the fund managers of the mutual funds invest. These investors consider that the fund managers will select the best stocks to invest and just follow them as an investment strategy. Some people having no experience in the stock market or lack knowledge about the stock market prefer the mutual funds for their investments. The stocks are selected based on the fundamental and technical analysis of the company stocks.
The fundamentals are considered if the investor wants to invest for a long time period of about 2 to 3 years. The technical analysis is used by the investors to select the best stocks to invest based on the past performance and certain patterns. The investors following the technical analysis will follow a certain pattern in the stock performance and predict that the stock will move up or down and arrive at the high and low. Then the investors will try to sell the stocks at the high and buy the stocks at the low.
The entries of speculators in the form of day traders make the stock market fluctuate to a great extent. The foreign institutional investors play a pivotal role in the performance of the stock market. Since the investors consider that the American and the London stock market have matured, they have shifted investing in the Asian stock markets where the returns are more. Currently, the Asian stock markets and the stocks listed in the stock exchange in the developing countries are the best stocks to invest. The stock experts comment that banking sector is always considered to be safe and will yield a steady return after some years. The blue chip and the information technology sector stocks can yield good returns in a quick manner. Similarly, each expert will give their comments about each industry and offer their buy and sell recommendation to the investors.
Tuesday, April 19, 2011
Monday, March 28, 2011
How to Choose the Right Financial Advisor
In light of the recent stock market roller coaster and financial service company meltdowns, it’s hard to know who to trust today for guidance about investing. Yet, even with all of the uncertainty, as each day passes, you still grow closer and closer to retirement. And with that, you need to know where to put your hard earned dollars to keep them safe, yet growing.
The truth is that most people today spend more time planning a two week vacation than they spend planning their retirement. And, oftentimes people will put their life savings in the hands of a total stranger they picked from a Yellow Pages ad because they simply don’t know how to research financial planners. And, this could prove to be a big mistake.
Although there are no iron clad guarantees, there are some questions you need to ask any financial advisor you are considering placing your money with. After all, this is the money you plan to live on for 20, 30, or more years! So this is a job that you definitely want done right.
Some experts have even likened picking a financial planner to hiring somebody for a job. And this makes a lot of sense. This person will be dealing with the business of your finances – so you will definitely need to hire the right person for the job.
Some of the most important questions you will need answers to include:
* What is your experience? Today, just about anybody can call themselves a financial professional. But where the rubber meets the road is whether or not the person is truly qualified to give good, knowledgeable financial advice. Therefore, inquire as to what licenses and other qualifications they possess such as professional or industry designations like a Certified Financial Planner (CFP) or Chartered Financial Consultant (ChFC). You should also ask how long they have been in the financial services industry. Because, while it’s nice to give everyone a chance, you will likely be much more secure with an experienced professional who has worked in both up and down markets successfully.
* How do you get paid? This is a biggie because an advisor’s pay source may have more to do with his or her recommendations than you think. There are numerous types of compensation structures in the financial services industry. The advisor could be paid on commission, a flat fee, an hourly rate, or a combination of any or all of these. Be sure to inquire as to any conflicts of interest as well. For example, if a financial services representative is paid on commission and they only offer a limited number or types of products, then this could be a red flag as to where their true interests lie. Search here for a list of local, pre-screened fee-based financial planners to match your needs.
* What is your track record? There are actually a variety of ways to evaluate an advisor’s track record. One such method is to simply inquire as to how many clients’ portfolios are performing in line with or better than their goals. Include both short and long term goals in this conversation. In addition to investment performance, you will also want to know their track record in terms of any disciplinary actions for unlawful or unethical actions in their professional career. If the advisor is registered with the United States Securities and Exchange Commission, then you can actually look up this information online
* Can I get it in writing? Once you feel comfortable with an advisor, ask them if you can have an agreement in writing that will detail the services that they will provide for you as well as the fees that you will be paying them for those services. Information in this document should include their investing strategies, specific benchmarks for performance, and suggested products to help get you there. And, always keep this document in your files for reference.
Regardless of how well your relationship is with your financial advisor, always keep in mind that it is you who is ultimately responsible for your money. You may not be at the helm making every trade, but you are responsible for ensuring that your advisor works in your best interests and that they handle your finances properly.
- Dare to Compare Auto Insurance Rates!
The truth is that most people today spend more time planning a two week vacation than they spend planning their retirement. And, oftentimes people will put their life savings in the hands of a total stranger they picked from a Yellow Pages ad because they simply don’t know how to research financial planners. And, this could prove to be a big mistake.
Although there are no iron clad guarantees, there are some questions you need to ask any financial advisor you are considering placing your money with. After all, this is the money you plan to live on for 20, 30, or more years! So this is a job that you definitely want done right.
Some experts have even likened picking a financial planner to hiring somebody for a job. And this makes a lot of sense. This person will be dealing with the business of your finances – so you will definitely need to hire the right person for the job.
Some of the most important questions you will need answers to include:
* What is your experience? Today, just about anybody can call themselves a financial professional. But where the rubber meets the road is whether or not the person is truly qualified to give good, knowledgeable financial advice. Therefore, inquire as to what licenses and other qualifications they possess such as professional or industry designations like a Certified Financial Planner (CFP) or Chartered Financial Consultant (ChFC). You should also ask how long they have been in the financial services industry. Because, while it’s nice to give everyone a chance, you will likely be much more secure with an experienced professional who has worked in both up and down markets successfully.
* How do you get paid? This is a biggie because an advisor’s pay source may have more to do with his or her recommendations than you think. There are numerous types of compensation structures in the financial services industry. The advisor could be paid on commission, a flat fee, an hourly rate, or a combination of any or all of these. Be sure to inquire as to any conflicts of interest as well. For example, if a financial services representative is paid on commission and they only offer a limited number or types of products, then this could be a red flag as to where their true interests lie. Search here for a list of local, pre-screened fee-based financial planners to match your needs.
* What is your track record? There are actually a variety of ways to evaluate an advisor’s track record. One such method is to simply inquire as to how many clients’ portfolios are performing in line with or better than their goals. Include both short and long term goals in this conversation. In addition to investment performance, you will also want to know their track record in terms of any disciplinary actions for unlawful or unethical actions in their professional career. If the advisor is registered with the United States Securities and Exchange Commission, then you can actually look up this information online
* Can I get it in writing? Once you feel comfortable with an advisor, ask them if you can have an agreement in writing that will detail the services that they will provide for you as well as the fees that you will be paying them for those services. Information in this document should include their investing strategies, specific benchmarks for performance, and suggested products to help get you there. And, always keep this document in your files for reference.
Regardless of how well your relationship is with your financial advisor, always keep in mind that it is you who is ultimately responsible for your money. You may not be at the helm making every trade, but you are responsible for ensuring that your advisor works in your best interests and that they handle your finances properly.
- Dare to Compare Auto Insurance Rates!
‘Foundation’ stocks: ‘Prudent’ trio
We like stocks. And we like a lot of ‘em. We focus on broadly diversified investments in undervalued stocks for their long-term appreciation potential.
Each month, we suggest a group of stocks that could help serve as a portfolio foundation. Here’s a look at Kraft Foods (KFT), Verizon Communications (VZ) and Waste Management (WM).
Kraft Foods is the world’s second largest food and beverage company, trailing only Nestlé.
With 51% of revenue derived outside of North America, Kraft materially altered its product portfolio and its capital structure earlier this year when it acquired control of Cadbury plc for $18 billion.
Despite the high price and associated acquisition- related risks, we believe Cadbury is a good strategic fit for Kraft which should accelerate growth and provide access to a number of developing international markets.
While many investors fear that weak consumer spending trends and rising raw material prices will pressure Kraft’s margins, we think the company has a good handle on how to manage through such an unfavorable environment, even if conditions weaken further.
Through ‘Six Sigma’ and various technology enhancements, the company is already emphasizing overhead cost reductions and improvements in productivity.
With a market cap of $55 billion and a dividend yield of 3.6%, Kraft is a dominant player and, we believe, a core holding in the Food, Beverage & Tobacco industry group.
Widely regarded as having one of the best networks in mobility, Verizon Communications offers wireless, broadband and wireline services throughout the United States.
Verizon is a perennial favorite of ours in the communications sector mostly because of its strong cash flow generation and pricing power, but also because it boasts the largest subscriber base and lowest churn rates.
We expect top-line growth to be driven by continual increases in wireless data services, especially now that Verizon can offer service on the cult-like iPhone, which your editor just picked up.
Just a few months ago, Verizon declared a 3% dividend increase despite the spinoff of cash-flow-generating properties.
Margins and revenues are strong, cash flows are booming, and there is no reason to suspect that the fat 5.3% dividend yield is in danger.
Moreover, the company has been cutting costs through staff reductions and in conjunction with landline divestitures.
A dominant player in the communications area, we view Verizon as a core holding and expect the next generation of wireless connectivity to boost margins through higher data-service usage.
It is oft said that one man’s junk is another man’s treasure. True or not, the owner of those green refuse trucks is the nation’s largest provider of collection, disposal, recycling and waste-to-energy services.
Waste Management (WM) has nearly a 30% market share and almost 40% of overall landfill capacity. The company’s revenue stream is well diversified both geographically and by business segment.
While WM continues to face headwinds from the slow-down in waste volumes from construction, the company has been able to drive increased profitability via favorable pricing and an efficient cost structure.
WM generated strong free cash flow ($1.2 billion) during 2010, which supports management’s continued efforts to return cash to shareholders in the form of dividends and share repurchases.
The company announced that it expects to pay $1.36 per share in dividends during 2011 and will allocate up to $575 million towards stock buybacks.
Considering the new dividend level, shares are trading with a current yield of 3.7%
Each month, we suggest a group of stocks that could help serve as a portfolio foundation. Here’s a look at Kraft Foods (KFT), Verizon Communications (VZ) and Waste Management (WM).
Kraft Foods is the world’s second largest food and beverage company, trailing only Nestlé.
With 51% of revenue derived outside of North America, Kraft materially altered its product portfolio and its capital structure earlier this year when it acquired control of Cadbury plc for $18 billion.
Despite the high price and associated acquisition- related risks, we believe Cadbury is a good strategic fit for Kraft which should accelerate growth and provide access to a number of developing international markets.
While many investors fear that weak consumer spending trends and rising raw material prices will pressure Kraft’s margins, we think the company has a good handle on how to manage through such an unfavorable environment, even if conditions weaken further.
Through ‘Six Sigma’ and various technology enhancements, the company is already emphasizing overhead cost reductions and improvements in productivity.
With a market cap of $55 billion and a dividend yield of 3.6%, Kraft is a dominant player and, we believe, a core holding in the Food, Beverage & Tobacco industry group.
Widely regarded as having one of the best networks in mobility, Verizon Communications offers wireless, broadband and wireline services throughout the United States.
Verizon is a perennial favorite of ours in the communications sector mostly because of its strong cash flow generation and pricing power, but also because it boasts the largest subscriber base and lowest churn rates.
We expect top-line growth to be driven by continual increases in wireless data services, especially now that Verizon can offer service on the cult-like iPhone, which your editor just picked up.
Just a few months ago, Verizon declared a 3% dividend increase despite the spinoff of cash-flow-generating properties.
Margins and revenues are strong, cash flows are booming, and there is no reason to suspect that the fat 5.3% dividend yield is in danger.
Moreover, the company has been cutting costs through staff reductions and in conjunction with landline divestitures.
A dominant player in the communications area, we view Verizon as a core holding and expect the next generation of wireless connectivity to boost margins through higher data-service usage.
It is oft said that one man’s junk is another man’s treasure. True or not, the owner of those green refuse trucks is the nation’s largest provider of collection, disposal, recycling and waste-to-energy services.
Waste Management (WM) has nearly a 30% market share and almost 40% of overall landfill capacity. The company’s revenue stream is well diversified both geographically and by business segment.
While WM continues to face headwinds from the slow-down in waste volumes from construction, the company has been able to drive increased profitability via favorable pricing and an efficient cost structure.
WM generated strong free cash flow ($1.2 billion) during 2010, which supports management’s continued efforts to return cash to shareholders in the form of dividends and share repurchases.
The company announced that it expects to pay $1.36 per share in dividends during 2011 and will allocate up to $575 million towards stock buybacks.
Considering the new dividend level, shares are trading with a current yield of 3.7%
Cree: Is It Lights Out for the LED Bellwether?
NEW YORK (TheStreet) — LED lighting sector lightning rod Cree provided its shareholders with another “gut check” day on Wednesday. An inventory glut in the LED market that is lasting longer than expected, and steep pricing declines, forced Cree to lower its existing top line and gross margin guidance.
The trading action after the Cree pre-announcement seemed to suggest that a good number of investors had run out of patience, with more than 19 million shares traded on Wednesday when Cree shares fell by more than 12%, and notably, fell to a new 52-week low, below the $43 mark (Cree shares would finished the week at $44.85).
Just about a year ago, in the middle of April 2010, Cree shares were above the $80 mark. It’s been up and down, and then up and down again, since that year-ago high mark for Cree shares. Even before Wednesday, Cree shares took a big hit since its January earnings, when it first reported the excess inventory in the LED market. Cree shares had been as high as $72 in December 2010.
The trading action after the Cree pre-announcement seemed to suggest that a good number of investors had run out of patience, with more than 19 million shares traded on Wednesday when Cree shares fell by more than 12%, and notably, fell to a new 52-week low, below the $43 mark (Cree shares would finished the week at $44.85).
Just about a year ago, in the middle of April 2010, Cree shares were above the $80 mark. It’s been up and down, and then up and down again, since that year-ago high mark for Cree shares. Even before Wednesday, Cree shares took a big hit since its January earnings, when it first reported the excess inventory in the LED market. Cree shares had been as high as $72 in December 2010.
Top Funds for Your 2011 401k
As we close out a turbulent, yet rewarding year for 401k investors, what better time to begin taking a serious look at how your retirement account is positioned for the year ahead.
Now to be certain, if 2011 is anything remotely close to 2010, we are going to see a lot more flux in equities. That said, I also suspect that we’re going to see more upside in stocks of all stripes — and that could turn out to be very good for the well-thought-out 401k portfolio.
So, what funds should you have exposure to as we ring out the old and begin the New Year?
Here are six of my favorite mutual funds and ETFs for 2011.
#1 – Vanguard Dividend Growth (VDIGX)
Large-cap dividend payers were underwhelming in 2010, and the stock picks of Vanguard Dividend Growth (MUTF: VDIGX) manager Don Kilbride were underwhelming as well. In fact, after a three-year run of strong outperformance, Kilbride has lagged for the last two. That said, Dividend Growth’s long-term performance remains well above its benchmark, and it’s always good to invest with a top-notch manager when they’re down because the rebound can be doubly strong.
The differences between this fund’s portfolio and that of most index funds focused on dividend-payers is that Kilbride has the flexibility to go overseas, and he’s done so, putting as much as 15% of the fund’s assets in foreign stocks (the current allocation is just over 6%). With domestic markets outperforming, it’s a good bet that some of Kilbride’s holdings got swept along in the current foreign market pessimism. More importantly though is the fact that Kilbride’s portfolio consists of fewer than 50 stocks. In other words, when Kilbride’s right on a stock or two, he’s going to be very right, and when wrong, which isn’t often, it’s going to hurt.
Some of the top holdings in VDIGX include corporate behemoths Automatic Data Processing (NASDAQ: ADP), Johnson & Johnson (NYSE: JNJ) and Medtronic, Inc. (NYSE: MDT).
I’ve got confidence that Kilbride and his analysts and colleagues at Wellington Management will begin to outperform again. Whether it comes in the next month or in several, this is one fund that meets many of my criteria for a winner, with a single manager, tight portfolio and strong track record and resources to back it up.
#2 – PRIMECAP Odyssey Aggressive Growth (POAGX)
The PRIMECAP Odyssey Aggressive Growth (MUTF: POAGX) invests in common stocks of companies expected to show rapid earnings growth. However, the managers don’t pay up for growth, preferring to identify companies where they feel a catalyst is in the offing, but hasn’t been reflected in current stock prices. I believe this fund is going to be a long-term winner (it’s my single largest personal holding) thanks to its management, led by Theo A. Kolokotrones, President and Co-Founder of PRIMECAP Management Company. The strength of the PRIMECAP team lies in their consistency, among other things. While they only outperform their index benchmarks about six of every 10 months, when they do outperform, they more than make up for months when they lag these same benchmarks. Periods of underperformance are perfect opportunities to add to holdings. Of course, if you’re a long-term investor like me, periods of outperformance are also great for adding to holdings.
Some of the fund’s top current holdings are in the biomedical sector, a market segment with tremendous earnings growth potential. The fund currently holds Crucell NV (NASDAQ: CRXL), Dendreon Corporation (NASDAQ: DNDN) and Cepheid (NASDAQ: CPHD), all high-profile biotech stocks with potentially huge earnings as well as huge upside. If you don’t have an aggressive growth component in your 401k component in 2011, then POAGX is definitely one to consider for 2011.
#3 – Fidelity Low-Priced Stock (FLPSX)
Manager Joel Tillinghast has rarely owned less than 800 names, and often he owns more than 1000. At last count, the Fidelity Low-Priced Stock (MUTF: FLPSX) held 907 stocks. Tillinghast buys stocks priced at $35 a share or less, which increases the likelihood of small- and mid capitalization investments in bull markets but can net him companies of virtually any size in bear markets.
Normally I’m wary of huge portfolios like Tillinghast’s, but his long-term track record—which reaches back to 1989’s market collapse and banking model meltdown—has been one of solid, consistent performance, particularly when markets and economies find a bottom and begin climbing out of a trough. And he’s built that record on his massively diversified portfolio.
The top holdings in FLPSX come from a variety of sectors, including health care services, consumer services and technology. Companies such as UnitedHealth Group Inc. (NYSE: UNH), Lincare Holdings Inc. (NASDAQ: LNCR), Oracle Corporation (NASDAQ: ORCL) and Safeway Inc. (NYSE: SWY) top the list of the diverse equity exposure in FLPSX.
#4 – Vanguard Emerging Markets ETF (VWO)
It’s risky, and volatile, but the emerging markets are the growth engines of the global economy. As such, a good 401(k) will contain some exposure to this dynamic market segment, and Vanguard Emerging Markets ETF (NYSE: VWO), which tracks the MSCI Emerging Markets Index, is a great way to get it.
The index this fund tracks has changed over the years with countries added and eliminated. Stocks in Brazil, China, India, South Korea and Taiwan represent more than 65% of the fund’s assets at present. And foreign “big-oil” is a major influence on the index, with major producers among the top holdings. In fact, this fund provides tremendous exposure to the energy business without having to invest in an energy sector fund.
Some of the biggest holdings in the fund read like a who’s who of emerging market corporate giants. Companies such as Brazilian mining firm Vale (NYSE: VALE), oil and exploration company Petroleo Brasileiro (NYSE: PBR), premier Asian telecom stock China Mobile Ltd. (NYSE: CHL) and Latin America wireless communications firm America Movil SAB de CV (NYSE: AMX).
Now, because VWO is an exchange-traded fund, you’ll have to use your brokerage option in your 401(k). Of course, I realize that not all plans offer a brokerage option. But the fund also has open-end shares, ticker VEIEX, which may be available in your plan and are fine to use as a substitute for the ETF shares, though they charge 0.50% front-end and 0.25% back-end “purchase” and “redemption” fees. Also, don’t overdo it on your emerging markets allocation. Many of the larger companies you already have in your portfolio have exposure to the emerging markets through their foreign sales and earnings. A 5% to 10% position here would be aggressive.
#5 – Vanguard International Growth Investor (VWIGX)
I always considered Vanguard International Growth Investor’s (MUTF: VWIGX) former lead manager Richard Foulkes one of the best of the breed among international investors. Since Foulkes retired almost five years ago, Virginie Maisonneuve has ably taken over Foulkes’ approximately 45% portion of this $15 billion portfolio.
The fund has three managers, with Baillie Gifford handling another 45% of assets and M&G Investment Management handling about 10% or so. What’s encouraging about the fact that there are three management teams on this portfolio is that it hasn’t exploded to hold hundreds of stocks—it currently has about 180 or so, including companies like Chinese Internet giant Baidu, Inc. (NASDAQ: BIDU), Israeli pharmaceutical company Teva Pharmaceutical Industries (NASDAQ: TEVA) and international consumer conglomerate Unilever Nv/Plc. The top 10 holdings make up about 17% of assets. That’s a good sign of manager conviction, and a whole lot better than buying into a foreign-stock index fund.
With growth stocks presenting some decent opportunities, this fund is a good option as a core foreign holding, particularly given its 25% stake in emerging markets. If international stocks prove to be big winners again in 2011, exposure to this well-managed, diversified international growth fund will be a key component to substantial 401(k) performance going forward.
#6 – Short-Term Investment Grade (VFSTX)
This is my favorite Vanguard fund at the short end of the yield curve. Formerly called Short-Term Corporate, it is extremely safe, produces steady returns, and offers some diversification away from plain-vanilla Treasury funds. Rather than investing only in Treasury, Agency or other government-backed securities, Short-Term Investment-Grade (MUTF: VFSTX) invests in high-quality corporate bonds, asset-backed bonds and a smattering of other non-Treasury securities. The combination responds to rising or falling interest rates less rapidly than Treasurys, meaning that it rises a bit slower when rates drop and falls a bit less when rates rise, since its excess yield protects investors and prices. Over time, a portfolio like this one will outperform a Treasury portfolio, as this one has.
I use this fund as a higher-yield cash substitute and would recommend it in that role for most any retirement portfolio invested for the long haul. Of critical importance from a portfolio diversification/safety standpoint is that while the fund can lose and has lost money in bond market routs, its short duration means it drops less than funds holding bonds of longer maturities and, because of rising yields in its portfolio, begins recouping its losses with larger income streams faster. When interest rates backed up from their recent Nov. 4 lows, Short-Term Investment-Grade lost just 1.3% (data is through 12/20) versus 3.0% for the overall bond market
Now to be certain, if 2011 is anything remotely close to 2010, we are going to see a lot more flux in equities. That said, I also suspect that we’re going to see more upside in stocks of all stripes — and that could turn out to be very good for the well-thought-out 401k portfolio.
So, what funds should you have exposure to as we ring out the old and begin the New Year?
Here are six of my favorite mutual funds and ETFs for 2011.
#1 – Vanguard Dividend Growth (VDIGX)
Large-cap dividend payers were underwhelming in 2010, and the stock picks of Vanguard Dividend Growth (MUTF: VDIGX) manager Don Kilbride were underwhelming as well. In fact, after a three-year run of strong outperformance, Kilbride has lagged for the last two. That said, Dividend Growth’s long-term performance remains well above its benchmark, and it’s always good to invest with a top-notch manager when they’re down because the rebound can be doubly strong.
The differences between this fund’s portfolio and that of most index funds focused on dividend-payers is that Kilbride has the flexibility to go overseas, and he’s done so, putting as much as 15% of the fund’s assets in foreign stocks (the current allocation is just over 6%). With domestic markets outperforming, it’s a good bet that some of Kilbride’s holdings got swept along in the current foreign market pessimism. More importantly though is the fact that Kilbride’s portfolio consists of fewer than 50 stocks. In other words, when Kilbride’s right on a stock or two, he’s going to be very right, and when wrong, which isn’t often, it’s going to hurt.
Some of the top holdings in VDIGX include corporate behemoths Automatic Data Processing (NASDAQ: ADP), Johnson & Johnson (NYSE: JNJ) and Medtronic, Inc. (NYSE: MDT).
I’ve got confidence that Kilbride and his analysts and colleagues at Wellington Management will begin to outperform again. Whether it comes in the next month or in several, this is one fund that meets many of my criteria for a winner, with a single manager, tight portfolio and strong track record and resources to back it up.
#2 – PRIMECAP Odyssey Aggressive Growth (POAGX)
The PRIMECAP Odyssey Aggressive Growth (MUTF: POAGX) invests in common stocks of companies expected to show rapid earnings growth. However, the managers don’t pay up for growth, preferring to identify companies where they feel a catalyst is in the offing, but hasn’t been reflected in current stock prices. I believe this fund is going to be a long-term winner (it’s my single largest personal holding) thanks to its management, led by Theo A. Kolokotrones, President and Co-Founder of PRIMECAP Management Company. The strength of the PRIMECAP team lies in their consistency, among other things. While they only outperform their index benchmarks about six of every 10 months, when they do outperform, they more than make up for months when they lag these same benchmarks. Periods of underperformance are perfect opportunities to add to holdings. Of course, if you’re a long-term investor like me, periods of outperformance are also great for adding to holdings.
Some of the fund’s top current holdings are in the biomedical sector, a market segment with tremendous earnings growth potential. The fund currently holds Crucell NV (NASDAQ: CRXL), Dendreon Corporation (NASDAQ: DNDN) and Cepheid (NASDAQ: CPHD), all high-profile biotech stocks with potentially huge earnings as well as huge upside. If you don’t have an aggressive growth component in your 401k component in 2011, then POAGX is definitely one to consider for 2011.
#3 – Fidelity Low-Priced Stock (FLPSX)
Manager Joel Tillinghast has rarely owned less than 800 names, and often he owns more than 1000. At last count, the Fidelity Low-Priced Stock (MUTF: FLPSX) held 907 stocks. Tillinghast buys stocks priced at $35 a share or less, which increases the likelihood of small- and mid capitalization investments in bull markets but can net him companies of virtually any size in bear markets.
Normally I’m wary of huge portfolios like Tillinghast’s, but his long-term track record—which reaches back to 1989’s market collapse and banking model meltdown—has been one of solid, consistent performance, particularly when markets and economies find a bottom and begin climbing out of a trough. And he’s built that record on his massively diversified portfolio.
The top holdings in FLPSX come from a variety of sectors, including health care services, consumer services and technology. Companies such as UnitedHealth Group Inc. (NYSE: UNH), Lincare Holdings Inc. (NASDAQ: LNCR), Oracle Corporation (NASDAQ: ORCL) and Safeway Inc. (NYSE: SWY) top the list of the diverse equity exposure in FLPSX.
#4 – Vanguard Emerging Markets ETF (VWO)
It’s risky, and volatile, but the emerging markets are the growth engines of the global economy. As such, a good 401(k) will contain some exposure to this dynamic market segment, and Vanguard Emerging Markets ETF (NYSE: VWO), which tracks the MSCI Emerging Markets Index, is a great way to get it.
The index this fund tracks has changed over the years with countries added and eliminated. Stocks in Brazil, China, India, South Korea and Taiwan represent more than 65% of the fund’s assets at present. And foreign “big-oil” is a major influence on the index, with major producers among the top holdings. In fact, this fund provides tremendous exposure to the energy business without having to invest in an energy sector fund.
Some of the biggest holdings in the fund read like a who’s who of emerging market corporate giants. Companies such as Brazilian mining firm Vale (NYSE: VALE), oil and exploration company Petroleo Brasileiro (NYSE: PBR), premier Asian telecom stock China Mobile Ltd. (NYSE: CHL) and Latin America wireless communications firm America Movil SAB de CV (NYSE: AMX).
Now, because VWO is an exchange-traded fund, you’ll have to use your brokerage option in your 401(k). Of course, I realize that not all plans offer a brokerage option. But the fund also has open-end shares, ticker VEIEX, which may be available in your plan and are fine to use as a substitute for the ETF shares, though they charge 0.50% front-end and 0.25% back-end “purchase” and “redemption” fees. Also, don’t overdo it on your emerging markets allocation. Many of the larger companies you already have in your portfolio have exposure to the emerging markets through their foreign sales and earnings. A 5% to 10% position here would be aggressive.
#5 – Vanguard International Growth Investor (VWIGX)
I always considered Vanguard International Growth Investor’s (MUTF: VWIGX) former lead manager Richard Foulkes one of the best of the breed among international investors. Since Foulkes retired almost five years ago, Virginie Maisonneuve has ably taken over Foulkes’ approximately 45% portion of this $15 billion portfolio.
The fund has three managers, with Baillie Gifford handling another 45% of assets and M&G Investment Management handling about 10% or so. What’s encouraging about the fact that there are three management teams on this portfolio is that it hasn’t exploded to hold hundreds of stocks—it currently has about 180 or so, including companies like Chinese Internet giant Baidu, Inc. (NASDAQ: BIDU), Israeli pharmaceutical company Teva Pharmaceutical Industries (NASDAQ: TEVA) and international consumer conglomerate Unilever Nv/Plc. The top 10 holdings make up about 17% of assets. That’s a good sign of manager conviction, and a whole lot better than buying into a foreign-stock index fund.
With growth stocks presenting some decent opportunities, this fund is a good option as a core foreign holding, particularly given its 25% stake in emerging markets. If international stocks prove to be big winners again in 2011, exposure to this well-managed, diversified international growth fund will be a key component to substantial 401(k) performance going forward.
#6 – Short-Term Investment Grade (VFSTX)
This is my favorite Vanguard fund at the short end of the yield curve. Formerly called Short-Term Corporate, it is extremely safe, produces steady returns, and offers some diversification away from plain-vanilla Treasury funds. Rather than investing only in Treasury, Agency or other government-backed securities, Short-Term Investment-Grade (MUTF: VFSTX) invests in high-quality corporate bonds, asset-backed bonds and a smattering of other non-Treasury securities. The combination responds to rising or falling interest rates less rapidly than Treasurys, meaning that it rises a bit slower when rates drop and falls a bit less when rates rise, since its excess yield protects investors and prices. Over time, a portfolio like this one will outperform a Treasury portfolio, as this one has.
I use this fund as a higher-yield cash substitute and would recommend it in that role for most any retirement portfolio invested for the long haul. Of critical importance from a portfolio diversification/safety standpoint is that while the fund can lose and has lost money in bond market routs, its short duration means it drops less than funds holding bonds of longer maturities and, because of rising yields in its portfolio, begins recouping its losses with larger income streams faster. When interest rates backed up from their recent Nov. 4 lows, Short-Term Investment-Grade lost just 1.3% (data is through 12/20) versus 3.0% for the overall bond market
Wednesday, March 2, 2011
Gold, the States, and Federal Monetary Policy
Why are so many state legislators beginning to call for issuance of a form of gold money?
The Constitution prohibits states from coining money but allows them to make "gold and silver Coin a Tender in Payment of Debts." By prohibiting everything except "gold and silver Coin" the Constitution clearly considers gold and silver coinage to be legitimate, no matter who issues it.
States haven't issued currency in any form for more than a hundred years. So why now? Disgust is probably the answer. Various state legislators are disgusted by the federal government's promiscuous dollar-printing. Accordingly, legislators in a dozen states are contemplating legislation to issue gold or silver-based currencies, including Utah, South Carolina, Virginia and New Hampshire.
The transcript of the debates in the original Constitutional Convention shows that the attitude of the Founders toward paper money was one of contempt. One delegate, Roger Sherman, called for the insertion of an absolute prohibition against states issuing their own paper money.
Sherman's argument prevailed, as the Founder's decided that the states would not possess the power to "emit bills of credit, nor make any thing but gold and silver coin a tender in payment of debts" making these prohibitions absolute...
As for the federal government, the earliest drafts of the Constitution included language permitting the federal government to issue unbacked paper money. But this language would not survive the final draft.
Many of the Founders objected strongly to this power. The objections were summed up by delegate Oliver Ellsworth, who sought to "shut and bar the door against paper money."
"Paper money can in no case be necessary," Ellsworth argued, "The power [to issue it] may do harm, never good."
Since most of the Founders agreed, the federal government was also denied the power to issue non-convertible paper money. The federal government mostly operated within these constraints - the main exception being the Civil War, when saving the Union took precedence over all other considerations.
But for most of American history, dollars have been convertible into gold or silver. It is a 20th century innovation to have non-convertible currency. In 1932, FDR denied US citizens the right to convert their dollars into gold by US citizens. Then, in 1971, Richard Nixon denied foreign central banks the right to convert their dollars into gold.
On August 15, 1971, Nixon declared:
I have directed Secretary Connally to suspend temporarily the convertibility of the dollar into gold... Now, what is this action - which is very technical - what does it mean for you?
Let me lay to rest the bugaboo of what is called "devaluation."
If you want to buy a foreign car or take a trip abroad, market conditions may cause your dollar to buy slightly less. But if you are among the overwhelming majority of Americans who buy American-made products in America, your dollar will be worth just as much tomorrow as it is today. (Emphasis supplied.)
President Nixon called the suspension "temporary," but it has been anything but temporary...and the dollar has suffered as a result.
The dollar today is worth less than a quarter was worth in 1971. And yet, Washington has been curiously unresponsive to the suffering brought by Nixon's failed promise. Why? Because Washington, itself, has been a primary beneficiary of monetary depreciation.
The federal government spent $15 billion from 1789-1900. Not $15 billion a year. $15 billion cumulatively. Uncle Sam will spend $10 billion per day in 2011. The federal government spends more every two days than it did altogether for more than America's first century. Although these sums are not adjusted for inflation, they give a correct impression of the magnitude of the change from what our Founders set forth and our early statesmen delivered.
How does Washington get its hands on so much money? Three ways. Taxation, borrowing and printing dollars. The third mechanism is usually the easiest road...at least for a while. Almost no one complains about printing dollars because almost no one feels the resulting consequences directly or immediately.
The power to print money at whim is wrong. It is toxic to our personal and national wellbeing. And it is unconstitutional.
No wonder that legislators in twelve states are considering issuing their own gold-based currencies. By doing so, these states are challenging the federal abuse of an unconstitutional power - challenging the issuance of unhinged paper money.
Federal officials should take these state initiatives as a cue. Federal officials have sworn to preserve, protect and defend the Constitution of the United States. Let them take their oath seriously and restore the convertibility of dollars to gold.
The Constitution prohibits states from coining money but allows them to make "gold and silver Coin a Tender in Payment of Debts." By prohibiting everything except "gold and silver Coin" the Constitution clearly considers gold and silver coinage to be legitimate, no matter who issues it.
States haven't issued currency in any form for more than a hundred years. So why now? Disgust is probably the answer. Various state legislators are disgusted by the federal government's promiscuous dollar-printing. Accordingly, legislators in a dozen states are contemplating legislation to issue gold or silver-based currencies, including Utah, South Carolina, Virginia and New Hampshire.
The transcript of the debates in the original Constitutional Convention shows that the attitude of the Founders toward paper money was one of contempt. One delegate, Roger Sherman, called for the insertion of an absolute prohibition against states issuing their own paper money.
Sherman's argument prevailed, as the Founder's decided that the states would not possess the power to "emit bills of credit, nor make any thing but gold and silver coin a tender in payment of debts" making these prohibitions absolute...
As for the federal government, the earliest drafts of the Constitution included language permitting the federal government to issue unbacked paper money. But this language would not survive the final draft.
Many of the Founders objected strongly to this power. The objections were summed up by delegate Oliver Ellsworth, who sought to "shut and bar the door against paper money."
"Paper money can in no case be necessary," Ellsworth argued, "The power [to issue it] may do harm, never good."
Since most of the Founders agreed, the federal government was also denied the power to issue non-convertible paper money. The federal government mostly operated within these constraints - the main exception being the Civil War, when saving the Union took precedence over all other considerations.
But for most of American history, dollars have been convertible into gold or silver. It is a 20th century innovation to have non-convertible currency. In 1932, FDR denied US citizens the right to convert their dollars into gold by US citizens. Then, in 1971, Richard Nixon denied foreign central banks the right to convert their dollars into gold.
On August 15, 1971, Nixon declared:
I have directed Secretary Connally to suspend temporarily the convertibility of the dollar into gold... Now, what is this action - which is very technical - what does it mean for you?
Let me lay to rest the bugaboo of what is called "devaluation."
If you want to buy a foreign car or take a trip abroad, market conditions may cause your dollar to buy slightly less. But if you are among the overwhelming majority of Americans who buy American-made products in America, your dollar will be worth just as much tomorrow as it is today. (Emphasis supplied.)
President Nixon called the suspension "temporary," but it has been anything but temporary...and the dollar has suffered as a result.
The dollar today is worth less than a quarter was worth in 1971. And yet, Washington has been curiously unresponsive to the suffering brought by Nixon's failed promise. Why? Because Washington, itself, has been a primary beneficiary of monetary depreciation.
The federal government spent $15 billion from 1789-1900. Not $15 billion a year. $15 billion cumulatively. Uncle Sam will spend $10 billion per day in 2011. The federal government spends more every two days than it did altogether for more than America's first century. Although these sums are not adjusted for inflation, they give a correct impression of the magnitude of the change from what our Founders set forth and our early statesmen delivered.
How does Washington get its hands on so much money? Three ways. Taxation, borrowing and printing dollars. The third mechanism is usually the easiest road...at least for a while. Almost no one complains about printing dollars because almost no one feels the resulting consequences directly or immediately.
The power to print money at whim is wrong. It is toxic to our personal and national wellbeing. And it is unconstitutional.
No wonder that legislators in twelve states are considering issuing their own gold-based currencies. By doing so, these states are challenging the federal abuse of an unconstitutional power - challenging the issuance of unhinged paper money.
Federal officials should take these state initiatives as a cue. Federal officials have sworn to preserve, protect and defend the Constitution of the United States. Let them take their oath seriously and restore the convertibility of dollars to gold.
Have You Heard of 10%-Yielding
I've uncovered a small group of double-digit yielders that are so unusual nobody knows quite what to call them.
I've heard them called perpetual cash machines (PCM), income deposit securities (IDS), enhanced income securities (EIS), and income participating securities (IPS). I just call them "stapled products."
Call them what you want. You can buy them through just about any brokerage... but you need to find them first. Only a handful -- less than ten -- exist in the entire world.
What makes these securities so unique is that they provide two separate sources of income stapled together. Typically, companies pair a high-yield bond with their common stock. In that case, the distribution comprises one part bond interest income and one part common stock dividend. That gives you predictable bond payouts with potential equity appreciation.
And that income is pretty hefty. The stapled securities I've found pay an average yield of 7-8%. The top one currently yields about 10%. That's good in any environment, much less a nearly 0% interest rate economy.
So what's behind the companies that issue these unique high-yield securities?
In order for a firm to issue a stapled product, it must generate a steady stream of regular annual cash flows. After all, they are expected to pay both regular interest on a bond and steady dividends. As a result, those companies with unpredictable earnings and poor cash flows need not apply. Since cash flows must be stable, only steady companies in solid, non-volatile industries consider issuing shares.
The ones I've found come from a telecom in Alabama, a bus-maker from Canada, and a hospital-owner with facilities in South Dakota and Oklahoma.
Now, I wouldn't call stapled products risk-free -- certainly, there's no free lunch -- but these securities have demonstrated above-average performance.
Over the past three years, for example, my perpetual cash machines have delivered average total returns of 14% annually, trouncing the S&P 500's 1% average annual returns over the same period.
Past success is of course no guarantee of future performance, and some of these securities are more volatile than others so you have to be selective.
But as a group, I count them as one of my favorite asset classes for the money they have made my loyal High-Yield Investing readers over the years and for the steady monthly or quarterly income they provide. [My research staff recently put together a report that covers perpetual cash machines/stapled products, including the gem yielding 10%.
I've heard them called perpetual cash machines (PCM), income deposit securities (IDS), enhanced income securities (EIS), and income participating securities (IPS). I just call them "stapled products."
Call them what you want. You can buy them through just about any brokerage... but you need to find them first. Only a handful -- less than ten -- exist in the entire world.
What makes these securities so unique is that they provide two separate sources of income stapled together. Typically, companies pair a high-yield bond with their common stock. In that case, the distribution comprises one part bond interest income and one part common stock dividend. That gives you predictable bond payouts with potential equity appreciation.
And that income is pretty hefty. The stapled securities I've found pay an average yield of 7-8%. The top one currently yields about 10%. That's good in any environment, much less a nearly 0% interest rate economy.
So what's behind the companies that issue these unique high-yield securities?
In order for a firm to issue a stapled product, it must generate a steady stream of regular annual cash flows. After all, they are expected to pay both regular interest on a bond and steady dividends. As a result, those companies with unpredictable earnings and poor cash flows need not apply. Since cash flows must be stable, only steady companies in solid, non-volatile industries consider issuing shares.
The ones I've found come from a telecom in Alabama, a bus-maker from Canada, and a hospital-owner with facilities in South Dakota and Oklahoma.
Now, I wouldn't call stapled products risk-free -- certainly, there's no free lunch -- but these securities have demonstrated above-average performance.
Over the past three years, for example, my perpetual cash machines have delivered average total returns of 14% annually, trouncing the S&P 500's 1% average annual returns over the same period.
Past success is of course no guarantee of future performance, and some of these securities are more volatile than others so you have to be selective.
But as a group, I count them as one of my favorite asset classes for the money they have made my loyal High-Yield Investing readers over the years and for the steady monthly or quarterly income they provide. [My research staff recently put together a report that covers perpetual cash machines/stapled products, including the gem yielding 10%.
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