Stop Saving Your Money
Kwondre — Tue, 09/15/2009 - 15:02
If most of your savings are in a high-yield savings account or (even worse) under your mattress...you're not preserving your hard earned cash...you're losing it.
Consider this...
The current yield on an ING Direct savings account is 1.98%. The long-term inflation rate in the United States is just north of 2%. That means, every year (at this rate) you are losing 0.02% of your purchasing power. And that's BEFORE taxes.
Assuming a 35% interest income tax rate, your effective after-tax yield on that ING Direct savings account is 1.29%, which means your losing about $0.71 per year on every $100 you put in that savings account.
There are alternatives, but before I mention them...keep this is mind:
There is no such thing as free money. Any profit requires SOME amount of risk
Now, I work with stocks on a day to day basis, and I'm not advocating it to those that are at all risk averse. No one knows where the hell the market is going these days - even if stocks are generally a good long-term investment.
However, you can effectively save without taking excessive risk.
Municpal Bonds are typically unpopular investment vehicles in normal economic times because
A) people don't understand what they are
B) people don't make money selling them to you
and C) they seem relatively unsexy
Basically, when you buy a "muni" you are assuming the debt obligations of the state or city that is offering that debt. They use your money for public services, utilities, infrastructure building etc etc.
What is the risk? That city or state goes bankrupt and is unable to pay its obligations.
How often has that happened? Wel...besides California, no muni has come close in this current economic crisis (I believe). And even California's IOU's are being backed by private institutions.
So...taking the New York muni for example, NYF is a municipal bond ETF. It is currently yielding 4% or so. But here's the kicker. Muni bonds CAN be triple-tax-advantaged, meaning exempt from taxation at the city-state-federal level.
SOOO, to find a 4% after-tax yield, you would need to find an investment or savings account that yields somewhere around 7%...good luck.
For all you people stuffing your mattresses with cash...I think the statistical probability of your house getting burglarized is greater than the chance of a major municipality going bankrupt.
SOOOOO...if you are relatively risk averse, but are looking to NOT lose money to the gods of inflation and taxation...look into muni bonds....there's my RL tip of the week.
there was a city in
Grasen — Wed, 08/18/2010 - 08:29there was a city in Pensylvania that went bankrupt and defaulted on it;s muni's earlier this year. being one of the first to do so it made big news on the news sites.
From what I know of muni's
cromi — Wed, 08/18/2010 - 09:24From what I know of muni's they are both the highest yielding government issued bonds, and come with minimal risk.
Besides bonds issued by the federal government they are pretty safe. Because they are in an institution that cannot fail, because the government is the only real institution that is failsafe. Even with California in dire straits you can still guarantee that at some time those people will get their money. the money may take more time than was previously though but that means more money will probably be given out due to the shorter duration that muni's have compared with bonds. And it's safer than giving your money to madoff. and it supports your own community (for the most part) in the end.
It's not like the government can just fail: *Knock on Wood.
Bumping This
Kwondre — Wed, 08/18/2010 - 07:37Was just reading through this...and it's still valid today
So Kwondre, this is on a
Pettingzoo — Thu, 09/17/2009 - 07:49So Kwondre, this is on a vaguely related note...
What made the T10Y bonds tank on Wed of last week, and then rebound stronger than ever on Thursday? I know the fed released new bonds and all, but why the massive price drop? Was there a difference in rates between the newly released bonds and the old bonds, or did the market just need time to review/react to the new bonds?
I honestly have no idea...i
Kwondre — Thu, 09/17/2009 - 07:54I honestly have no idea...i don't follow the treasuries day to day =T
But if the Treasury issued new debt, then it could simply be a dislocation of people swapping and exchanging. Which would imply normalization soon enough. But again, dunno for sure.
Alright. I was just doing
Pettingzoo — Thu, 09/17/2009 - 07:59Alright. I was just doing some all-around research on the financial world and took at look at them and saw a nearly 5 dollar loss on wed. after the new 10/30Y bonds were issued. Still trying to find info on the WSJ that explains why haha
savings advice
Vitriola — Wed, 09/16/2009 - 10:28That is excellent advice and worked very well for the last 5 or 6 decades. However, we are in a global economic crash unprecedented in recorded human history. The stock market has not even gone halfway in its decline. When banks close, and they WILL close, people will lose everything. The people that put their money in their mattress during the last depression (this one will be worse) were NOT stupid. They did what was sensible for THAT time. We are there again, so having cash on hand is not stupid.
Just for the record...
"The stock market has not
Kwondre — Wed, 09/16/2009 - 11:02"The stock market has not even gone halfway in its decline."
I would like to know what this is based on. How do you know the stock market has not gone down halfway, and why doesn't everyone else know this? Can't just say sh*t like that without backing it up..or at least say "I BELIEVE the stock market ...." to qualify yourself
"When banks close, and they WILL close, people will lose everything."
You realize that many many banks have already closed right?...I don't believe they were denied FDIC insurance.
"so having cash on hand is not stupid"
If what you are saying will occur actually does occur, and economic apocalpyse occurs, what makes you think that green paper under your mattress will be worth anything? If you're stacking gold bullion under your mattress, that's different.
stock market cycles
Vitriola — Wed, 09/16/2009 - 11:28I use Elliot wave analysis for the stock market. Robert Prechter, who was called the "guru of the decade" for calling all the economic turns of the 80s, has marked out the waves over centuries. I have studied the stock market with several systems for about 15 years, though I greatly prefer EW.
The short version of what you ask about the "not even halfway" part is that the current market "correction" needs to go to the area bounded by the previous correct one wave level higher. Translation, we need to drop to the last crash area. The crash of 1929 took the market from about 500 to about 50. Before this correction is finished, the stock market will be in that range. So, from the peak of somewhere around 14.6k to the current of about 9.8k that is not even halfway to the expected low.
fwiw
p.s. If you want to see what Elliot waves are, you can get a free tutorial on prechter's website: http://www.elliottwave.com/
beyond saying...this looks
Kwondre — Wed, 09/16/2009 - 11:40beyond saying...this looks like another "Tesla" situation, I'm going to limit my comment to this:
as a general rule, if someone pretends to be able to predict the future, about something that can make you a tremendous amount of money, and is either offering to give that information to you for free or sell it for a nominal amount, that someone is usually full of sh*t.
ok i lied...second comment...you seem to be quoting the 1929 depression a lot. Do you realize how much has changed in the world since then? To use 1929 as a fair benchmark is, just, i, don't, know...
third comment, the fact that you use the Dow Jones Industrial Average (based on your 14.6K and 9.8K figures) as your basis for the "market" tells me that you're an amateur. The Dow Jones is 30 stocks, and not indicative of the overall market. Professionals, on the other hand, use the S&P 500 and the Russell 1000....its just harder for CNBC and Fox Business to explain why the Dow is not relevant to the masses.
Put your money where your mouth is...show me a personal account screenshot (you can blank out sensitive info like amount and ID etc) that shows you are short-selling the entire market.
There's a saying...Buy when the streets are lined with blood, and sell when they're lined with gold. If you ask me, they're certainly not lined with gold right now.
QFT: "If what you are saying
garreth — Wed, 09/16/2009 - 11:20QFT: "If what you are saying will occur actually does occur, and economic apocalpyse occurs, what makes you think that green paper under your mattress will be worth anything? If you're stacking gold bullion under your mattress, that's different"
Jesus, I've been trying to pound this into the head of my...rural... family members for years now. YOUR GREEN PAPER MEANS NOTHING IF YOUR SO-CALLED APOCALYPSE HAPPENS. Therefore, stuffing it under your mattress does nothing but harm you NOW, in THIS reality.
So, let me lay this out for the mattress-investment crowd:
You invest in a greater-than-inflation mechanism and make a little interest while practicing some form of fiscal responsibility. If instead you keep it under the mattress, you've got exactly less than you started with due to the reduction in buying power of that money over time, but at least you're living within your means right?
You invest in a greater-than-inflation mechanism and lose everything because Satan doesn't care about supporting FDIC insurance. If instead you keep it under the mattress, grats you have lots of green paper to burn for heat while Beezelbub runs rampant o'er the land.
So, what we've learned: Invest wisely now or, barring that, put all your money into canned food and ammo which will be worth far more in the "end times".
It is tough to find ammo
Vitriola — Wed, 09/16/2009 - 11:30It is tough to find ammo these days.
No, it's NOT and it's that
garreth — Wed, 09/16/2009 - 11:54No, it's NOT and it's that kind of ignorant fearmongering that is making a mockery of our public discourse.
Not two weeks ago, I went home to my family's annual "Shotgun Shoot-off and Dutch Oven Cook-off" (no, really, I'm not making that up) and fired off over 500 12-gauge shells by myself, let alone the ammo used by the two dozen other friends and family.
You want to know who loves to spread the fear that you won't have your precious guns and ammo? The folks that make money from their sale: http://www.examiner.com/x-1470-DC-Progressive-Examiner~y2008m11d14-Did-the-NRA-conspire-to-stimulate-gun-sales
"Shotgun Shoot-off and Dutch
Atar — Thu, 09/17/2009 - 06:20"Shotgun Shoot-off and Dutch Oven Cook-off"
My family does something similiar. It's fun as hell!
easy there!
Vitriola — Wed, 09/16/2009 - 12:14I have gone online to look for ammo and found that most of the postings are marked as "out of stock". I have asked local gunsmiths and THEY said that ammo is hard to find and the price has, therefore, tripled. This is a mixture of personal experience AND asking experts/professionals in the business.
Now, how you LEAP to "ignorant fearmongering that is making a mockery of ourpublic discourse" from a simple observation is more than slightly interesting. In this case it is YOU that is being the emo fanatic and making something trivial into the end of the republic. I have been avoiding this deliberately so as to avoid setting you off but you seem to be on a hair trigger. As you are reacting explosively to something that I simply did NOT say I wonder what you ARE reacting to.
Please keep the discussion on a reasonable and reasoned level. Accusing someone of "ignorant fearmongering" with the end that it "makes a mockery of our public discourse" before finding out clearly what is meant, if you misunderstood is not a discourse at all. Lets keep things civil and see if we can actually find points of agreement.
p.s. Here is something to say that ammo is indeed not as available as it was. These are the first websites I found in a search for ammo for sale. Note how many items are marked as "out of stock". This is included to show that I am NOT making this up. Also I would have you note that I drew NO conclusions from the simple observation that ammo was hard to find. What fearmongering is there with no conclusions? The only reason that I mentioned it al all is that YOU brought it up when you said "put all your money into canned food and ammo which will be worth far more in the 'end times'." How can the subject be taboo now?
Websites:
http://www.the-armory.com/shopsite_sc/store/html/9mm_ammo.html
http://www.ableammo.com/catalog/default.php?cPath=10480_14658_14743_1491...
http://www.ableammo.com/catalog/default.php?cPath=10480_14658_14743_1491...
http://tinyurl.com/qoedp9
Discuss first. Shriek later.
Seems that an ammo "shortage"
Shihli — Wed, 09/16/2009 - 12:34Seems that an ammo "shortage" is real - insofar that all of that ammunition is going to the Middle East with the US Military to fight in Iraq and Afghanistan.
But a legitimate "shortage"? As in "we can't make enough bullets for all the guns?" That's not real.
http://confederateyankee.mu.nu/archives/237760.php
http://grantcunningham.com/blog_files/1f0a89deff589f5706c99bd0d0984930-5...
I agree completely. (scary,
Vitriola — Wed, 09/16/2009 - 12:49I agree completely. (scary, huh? <G>)
Thing is, calling it an ammo
Shihli — Wed, 09/16/2009 - 12:58Thing is, calling it an ammo shortage is a misnomer.
A food shortage is like what happened during the Dust Bowl era - there simply wasn't enough food to feed everyone and massive rationing had to take place. This isn't an ammo shortage at all - the ammo is actively being used - by our military.
just for you
Kwondre — Wed, 09/16/2009 - 12:34I made this chart just for you Vit...its from the US Bureau of Economic Analysis.
Dollars spent on guns and ammunition have declined significantly in 2009. This industry is in recession. This can be caused by 1 of 2 factors:
1) People are buying less guns and less ammunition
2) People are buying the same amount of guns and more ammunition, but paying lower prices for them.
factor 2) doesn't really make sense because if there's greater demand for ammo, and some kind of shortage, prices would go up...and total dollars spent on ammo would be growing...but its not.
And so help me God if you say this data is corrupted because its from a government agency and obama is conspiring to misinform the gun-loving public....
poop
Vitriola — Wed, 09/16/2009 - 12:47"And so help me God if you say this data is corrupted because its from a government agency and obama is conspiring to misinform the gun-loving public...."
Poop! I cannot even imagine myself saying something like that! I am willing to take that chart at face value. To this, I would just say that rate of sales and availability of the product are not quite the same things, so this would be one of those "apples and oranges" things.
I'm sorry, i mislabeled the
Kwondre — Wed, 09/16/2009 - 12:51I'm sorry, i mislabeled the chart, but i referred correctly to the data in my post.
Consumption is driven by X * Y, where X is units of guns/ammo sold and Y is average selling price.
If there is a shortage on ammo like you seem to be anecdotally but not scientifically observing, then the variable Y would increase dramatically (constant demand and lower supply). And that chart would be trending upward.
Unless there was an increaase in price based on shortages, but the decline rate in X units sold was so great that it overcame the increase in price. But based on what you, G, and Shihli have linked, that does not seem to be the case. So I conclude that there really isn't a significant shortage of ammo...maybe check Wal-Mart?
I don't think the "jumping"
Kwondre — Wed, 09/16/2009 - 12:22I don't think the "jumping" at you was based on the sole comment that "ammo is hard to find these days", its just that your responses (with all due respect) tend to lack evidence.
I've noticed that you say things like "The Sky is Purple", which in itself is a meaningless nonsensical thing to say, without including some kind of evidence or support like "Today I'm wearing glasses, they're tinted purple, and therefore to my eyes...The Sky is Purple".
So, imo, I don't think people are jumping on you for saying "The Sky is Purple", but I do think you're getting jumped on because you fail to offer the bit of information that you're wearing purple tinted glasses today.
Now...if people take issue with WHY you are wearing purple tinted glasses today, I think that's fair game. Evidence first, conclusion second...or at least in the same post...otherwise, people are always going to yell about your conclusion.
That being said, your evidence on the stock market, is wrong.
Of course it did!
Vitriola — Wed, 09/16/2009 - 12:42Of course the comment about ammo was said without evidence! First, I wanted it to be a simple statement of polite response that was to have as little chance of sparking controversy as possible. Fat lot of good THAT was. Second, it is easy enough for someone that was actually interested in looking into things to have searched the web to see for themselves, so I did not need to post links. Remember, it was not a debate at that point. Third, when it gets to where simple things cannot be said without having to prove it every step of the way what is the point? Others seem to be able to say simple things without the world ending. Why would I want to provoke it?
As to the evidence of the stock market, I would refer you to the end of that post where I said to go to the source. You can debate it with Prechter if you like. I was just excercising the same rights we all have of saying what I thought and why. If there is something on that site that you would like clarified, I would love to accomodate you. As for me, I have been able to predict market changes with amazing precision for years. I was a successful commodities trader for a few years using this. Take a look at elliot waves if you want to investigate.
For what it is worth, I did not really give any evidence about the stock market's extent of falling. That was all conclusion. It takes more than I am willing to type in here to give the evidence. Therefore, when you say that my "evidence on the stock market, is wrong" I must assume that you mean that you disagree with my conclusion without any need to see, let alone analyze, the evidence. That is fine too.
Before you get rolling on
Shihli — Wed, 09/16/2009 - 13:09Before you get rolling on Kwondre regarding the stock market, you *do* know he works on Wall Street right?
YEA!~ I DO DONT I?and if you
Kwondre — Wed, 09/16/2009 - 13:20YEA!~ I DO DONT I?
and if you ask me what i think the market is going to do...my answer is: I have no effing clue.
I have beliefs, but no way will I share them in a broad forum like this where it could potentially misconstrued as advice or prediction.
I guess i just take issue with any system or principle or person that pretends to be able to "predict" the stock market. Because if that were possible, he, she, or it would never ever let anyone know that it was possible, and would be richer than Bill Gates - as simple as that. The stock market is kind of like trying to be a casino...Yes your customers will win 47.3% of the time...but you're winning 52.7% of time...if you're picking stocks at a rate of 50.1% or better, then you're a good investor. If you're at or claiming to be able to be at 80% or 90% or better, you're either lucky (that runs out eventually), or lying.
This is a paraphrased quote from a letter that Warren Buffet, one of the most succesful investors in our generation, wrote to his shareholders and family members in the late 1980's:
"The stock market today is extremely volatile and I fear I am incapable of evaluating all variables necessary. I do not know what I do not know. I do not expect to be able to make you any money this year with any degree of certainty."
I'm going to admit that I
Kwondre — Wed, 09/16/2009 - 12:59I'm going to admit that I don't have the time to thoroughly peruse EW...but my scanning of it, and what i've heard...it is a "back to the future" type science where you use past patterns to predict the future.
What I do now, however, is that even technical analysts (who themselves I find to be self-fulfilling prophecists) say Elliott Wave is popularly practiced, but not legitimate science. From the Wall Street Journal: "The Elliott Wave Principle, as popularly practiced, is not a legitimate theory, but a story, and a compelling one that is eloquently told by Robert Prechter. The account is especially persuasive because EWP has the seemingly remarkable ability to fit any segment of market history down to its most minute fluctuations. I contend this is made possible by the method's loosely defined rules and the ability to postulate a large number of nested waves of varying magnitude. This gives the Elliott analyst the same freedom and flexibility that allowed pre-Copernican astronomers to explain all observed planet movements even though their underlying theory of an Earth-centered universe was wrong."
Also, Prechter has underperformed the market by 25% a year for the past 24 years.
When they say "not a
Vitriola — Wed, 09/16/2009 - 13:35When they say "not a legitimate theory" I assume that they mean "not a viable theory" because it is certainly a theory.
In a sense, everything like this uses the past to attempt to reproduce the future. That is not the basis, though. If I may use an analogy, I would liken it to tree identification. We know that no two trees are alike. And yet, we can still distinguish a maple from a douglas fir. By the same token, EW says that, though every stock chart is different, there are patterns that allow us to tell what it is and, therefore, what it can or, more usual, what it cannot do.
As to "underperforming the market", I do not know about that. What I do know is that people have been saying this to him for years. He was, at one point, told to prove it. He entered into the world series of trading in 1984. He did well the first month. During the second month, his wife was on her death bed and he did horribly. She rallied and his third month went very well. At the end, he had a world record 444% increase. http://tinyurl.com/r3vzr5
So, I think that he is not just a crank. I know that he can call things that no one else can. I know that he has taught me and I have done the same myself. (I am avoiding telling stories here, though the urge is great! <G>) Still, everyone has their own opinion to which they are quite welcome. That is as it should be. :)
"I walked on the moon."
Dufe — Wed, 09/16/2009 - 13:46"I walked on the moon."
Underperforming the market
Kwondre — Wed, 09/16/2009 - 13:45Underperforming the market (based on information gathered from his own newsletters) for 25 years is a tad bit more of a sample size than a 3 month long stock picking competition.
Two years ago, I won my department's stock picking competition by picking two biotech stocks that had products up for FDA approval. I was either going to be in first place or last place. I came in first place, with an annualized return of 1220%.
You know what I won? A $100 Amex Gift Card. Frankly, I think they overpaid.
If this has worked for you in the past, I'm happy for you. Doesn't mean you won't get facerolled because of it in the future.
One quick conceptual
Kwondre — Wed, 09/16/2009 - 08:24One quick conceptual note: when you're evaluating an investment of ANY kind, always use the US 10 Year Treasury Yield as your benchmark.
In the world of global finance, the 10 Yr Yield (currently at 3.6%) is considered the "Risk-Free Rate". Now I put quotes around that because nothing is truly risk free in life, but according to the world, the US Government is the most credit worthy entity in the world.
Therefore, if you are investing in a mutual fund, then your targeted return should be the "Risk Free Rate" + X, where X is a measure of risk you are willing to take.
For a savings account, the rate of return is about 2% these days, which is well below the threshold of the Risk-Free Rate. "It's FDIC insured though" you might say. But keep in mind that if the US Treasury ever defaulted on its debt...FDIC is not going to save your savings account. So there's no point in giving up returns without getting any added safety - which is what you are doing if you're in a savings account relative to a US Treasury bill or something like that.