The 'F' Word: Foreclosure
After years of steady double-digit gains in prices, real estate seems like a can't-lose way to get rich. Unlike tech stocks (which seemed like a can't-lose way to get rich six years ago), home prices seem like they don't go down. Better still, you can buy in with somebody else's money, and keep all the gains for yourself.
Besides the history of positive returns, another reassuring factor some home buyers consider is that, worst-case scenario, they'll just give the keys to the bank and walk away. Heads, I win (home prices go up); tails, you lose (home prices go down).
I've heard this “logic” from home buyers entering the market at prices they know are a little stretched, I've read it in the paper, and I've heard it from economists and other experts. Even the doomsayers — warning of rising interest rates leading to banks taking over properties from adjustable-rate-mortgage-fueled home buyers — seem to think the worst-case scenario is handing over the keys to the bank. If only that were so. ...read the rest of this article»
The 'Rent vs. Buy' Lie
After a multi-year plateau, rents are finally rising again. Rising rents can make buying a smart move, but with inflated home prices, renting and investing in mutual funds could be a better move.
Renters are watching closely, and asking themselves if now is a good time to buy a home. Rents are currently going up faster than home prices, reversing a multi-year trend of homes price increases far outpacing rents.
Unfortunately, many so-called “rent vs. buy” calculators on the Internet can lead you down the wrong path. For one thing, they should be called “rent & invest vs. buy”.
For the last few years, home prices have climbed, but falling interest rates (and creative mortgage products) have made homes almost as affordable (in terms of monthly payments) as they were before the big run-up. Recent increases in interest rates — notably shorter-term rates that are used to set many adjustable rate mortgages — have made the current home price levels unaffordable for many new buyers. This increases demand to rent, which, coupled with decreases in the supply of rental units from condo conversions, can raise rents. But do rising rents make buying a smart decision now? ...read the rest of this article»
The Fed - Dr. Feelgood
Much of the volatility in the stock market in recent months relates to investors’ fears about the Federal Reserve’s decisions on short-term interest rates. Until very recently, the big questions were, ”When will The Fed stop raising rates? Will they overdo it and cause a recession? Will they fail in trying to stop the climbing inflation rate?”
On August 8th The Fed didn't raise rates, ending a campaign that started back in June 2004, yet some fear they are not done yet – while others worry that the damage was already done.
The Federal Reserve gets a lot of play in the financial press, but the reasons behind the fed raising and lowering interest rates are not clear to most people. We thought it was high time for a short primer on why the Fed does what it does. ...read the rest of this article»
Don’t Get Swept Away
The good news about the Fed bringing interest rates back up is that investors no longer have to make due with pitifully low yields on the cash they have lying around.
Trouble is, many poor souls with accounts at the nation’s premier brokers are STILL earning rock bottom rates of around 1% (and lower) a year. In today’s 5% world, this just shouldn't be. The culprit is the innocuous sounding “sweep” account. At the big four “discount” brokers – E*TRADE, TD Ameritrade, Schwab, and Fidelity – investors parking cash often get carjacked.
How are the brokers sticking it to customers, and what can customers do about it?
When you are not in stocks, bonds, or mutual funds, your cash is swept into the broker’s “interest bearing” account.
Many investors keep a good chunk of their account in cash at any given time – not just between trades but often for years at a time. Recently E*TRADE customers had total cash deposits of $10 billion in sweep deposit accounts – the largest single place customers park cash, more than money market, savings accounts, and CDs combined. E*TRADE paid out an average rate of 0.74% on this $10 billion last quarter. ...read the rest of this article»
Sell High
The top of the great emerging markets run will likely be very close to the levels hit on May 16, 2006. That’s the day Dreyfus filed with the Securities and Exchange Commission to launch another emerging market stock fund – to be named Dreyfus Emerging Markets Opportunity Fund.
With billions of new money flooding into emerging markets funds (after a massive three-year rally that has seen most funds in the category triple in value), Dreyfus is getting tired of sitting on the sidelines while competitors bring in all the loot.
Can you blame ‘em? Emerging market funds are about the last area where a fund company can make an honest buck. Management fees for your typical emerging market stock fund are double domestic stock funds – even the ETFs in this area have high expenses. iShares MSCI Emerging Markets Index (EEM) charges 0.75% a year. As this ETF recently peaked at around $14 billion in assets, Barclays Global Investors (the company behind the popular ETFs) rakes in more money from this fund than any other they run. ...read the rest of this article»
Callable CDs
Imagine getting an FDIC-insured 6.5% return with zero risk! Too good to be true? With Callable CDs you can get mouthwatering returns without the ups and downs of stocks. Trouble is, you can’t have your cake and eat it too.
CDs (certificate of deposit) are appealing to risk-averse investors. They are FDIC-insured against loss (unlike mutual funds) and readily available with just a few thousand dollars at your local bank – seemingly without sales charges or commissions.
With interest rates on the rise, CDs are becoming more attractive, particularly to those worried about stock market gyrations and low dividend yields from stocks.
Because of the safety, CDs typically don’t yield much – the best CDs yield slightly more than government bonds for similar maturities. As interest rates have climbed in recent weeks, investors can typically get around 4% - 5.5% on better CDs, depending on the term. ...read the rest of this article»
New AARP Fund
It's a match made in mutual fund marketing heaven.
AARP, the organization dedicated to the interests of persons who aren't quite as young as they used to be, launched its first three mutual funds and the end of 2005. And you don't have to be over 50 – the minimum age to join AARP – to invest in them.
AARP's Conservative, Moderate, and Aggressive Funds are geared toward investors with risk tolerances ranging from, well, conservative to aggressive. Each fund invests in a different mix of three underlying index funds managed by State Street Global Advisors. Those indexes track U.S. stocks through the MSCI U.S. Investable Market 2500 Index, international stocks through the MSCI EAFE Index, and U.S. Bonds through the Lehman Brothers Aggregate Bond index.
According to AARP, the aim of the new no-load funds is to make the investment process easier in hopes of encouraging people to increase the amounts they invest. ...read the rest of this article»
Viva la Revolution!
Newly elected socialist/populist Bolivian President Evo Morales sent military troops to natural gas facilities on May 1st, claiming state control over the country’s resources. Oil companies were given 180 days to renegotiate contracts with the country – almost literally at gunpoint.
Such a move is bad for the global “oil imperialists” of the world like Exxon Mobil, Petrobras and Total S.A. It doesn’t bode well for investors in Latin American mutual funds like T. Rowe Price Latin America (PRLAX) – our current Latin American fund category favorite.
When socialism is on the march it’s best to get your money out of the way. ...read the rest of this article»
Sixth Annual Mutual Fund Turkey Awards
Gobble gobble. It’s that time of year again: Time for MAXfunds to nominate funds for our sixth annual fund turkey awards. With this series we’ve developed a nice track record identifying lousy funds before they get wiped off the map by forced extinctions or mergers – or just sued into oblivion by limousine-chasing lawyers – and we aim to keep up the good work. (Our methodology helps identify great funds, too - which is why our MAXadvisor Powerfund Portfolios continue to post market-beating numbers)
This year is full of fund turkeys that are plump, juicy, and full of trans fats.
The MAXfunds Turkey Awards: Suitable for framing or “Exhibit A” in shareholder class-action lawsuits.
The “Losing Real Money” Award
Winner: Oppenheimer Real Asset A (QRAAX)
Money always piles into a fund right before the music stops. You can’t really blame the fund company. Oppenheimer Real Asset launched in 1997 – and immediately tanked about 50%.
Investors shied away from commodity investments for a few years. After a big run in commodities in recent years, they piled back in -- just in time to lose money. Oppenheimer Real Asset is up pretty big in recent years, but investors have lost a few hundred million dollars in the fund nonetheless. ...read the rest of this article»