November 30, 2009

Why Its Time to Retire the 401k - TIME

Why Its Time to Retire the 401k

via Why Its Time to Retire the 401k - TIME.

Very interesting article depicting the truths about Americans' savings & 401k retirement accounts.

November 24, 2009

Lawmakers Propose War Surtax to Pay for Troop Increase in Afghanistan -

Lawmakers Propose War Surtax to Pay for Troop Increase in Afghanistan -

Democrats propose more taxes!  Tax the rich they say - but how long can they expect to tax the rich for every cost burden/expenditure of America without crushing the spirit of independence/ingenuity that motivates people to be rich in the first place??  If we punish American citizens for having too much money - or redistribute too much wealth - what would motivate people to become wealthy?  To work longer hours?  To do more research and spark creativity?

How much is too much?  The rich/business owners cannot and will not bear the total brunt of America's deficits - or they simply will not keep people employed, or maybe they'll leave the country (although I know the extent of their actions will not get this far)...however, the unemployment rate may keep rising!

November 22, 2009

Oil, China, United States

The United States needs a recovery...and fast.  By keeping a devalued dollar, the US can increase its manufacturing sector and export more goods than we import -  and possibly create more jobs (eventually) to restore our country back to its feet.  Ben Bernanke and Timothy Geithner have pledged their support for a strong dollar, but it will be a while before this will come to fruition since the US is in a slow, jobless recovery.  The Fed, taking an active role unlike the contraction years of 1929-1933, has been pumping trillions of dollars into our economy hoping to spur growth and keep the economy from slipping into a depression.  However, the downside of this is that with interest rates held low - inflation is almost certainly due.

China, the largest holder of US debt, is worried that its investments are at risk with every dollar the US prints and has voiced its concern about the stability of the US debt level and our on-going ability to repay back loans.  However, China keeps its currency low (perhaps unfairly) and therefore when the US dollar drops, the renmimbi also falls to keep China's goods and services cheaper than the US.  Although China keeps its currency low - it's economy is growing and may be forced to raise its interest rates to keep its economy's growth from stalling or from experiencing hyperinflation.

To hedge against inflation, China has been dumping its dollars for commodities - mainly oil commodities.  Oil, which is based off the US dollar, has historically been a great hedge against inflation whenever the value of the dollar falls.  So because China is the largest holder of dollars, naturally they would be concern with their US investments and seek to find profits elsewhere or at least shield some of their exposure to US debt/devalued currency.  China's purchases of oil has been helping to keep the price per barrel steady between $77 - $80 even though there is already a surplus of oil inventories in the market today. 

Q: Is oil a good play for an investment if inflation is inevitable?  What about stocks?  A: Yes, both of these are good investments and definitely a lot better than holding cash in the long run!

November 18, 2009

As the economy turns...What's your 20? 2 quick thoughts of mine

---------------1st Thought-----------------------

If you take a step back in history, you will find that the US Economy has been through bad times and good times.  Our economy has gone through various depressions and recessions, as well as prosperity  and increase within a century.  It reminds me of the popular game show "Wheel of Fortune", where contestants spin a wheel hoping to win money while simultaneously avoiding bankruptcy and from losing a turn in the game.  What baffles me is how similar this game is to reality for most of us in how we govern our  money and finances.  People consider that because they have a job in good times - they expect to have that same job in bad times.  But as the current economic crisis has taught us, (with a 10% unemployment rate that continues to climb) that many of us may not have a job.  So now some unemployed people are rushing to pay off debts by taking out more loans, or they decide to live off of savings and file for unemployment benefits to continue living their lifestyle as if nothing has happened. 

But what if you didnt have any debts?  And what if your income did not depend solely on your job?  But rather your income was diversified with dividends and rental income from your investments?  So that even if you lost your job - you would have money still coming in?  It's not impossible at all....some people live this type of lifestyle and not all of them are retirees.  These individuals I speak of live a good life whether the economy is bad or good.  Aim towards this lifestyle and you won't have to worry about saving a 401k for retirement.

--------------2nd Thought--------------------------

Speaking of 401k's - how many of us really expect to retire off of a 401k and savings?  I think it is so funny that the media acts as if this is all we need to do to reach a happy retirement, or the "golden years".  Has anyone taken notice about how the government has raised the retirement age to 67?  Now why would they do this?  Answer:  There isn't enough money in social security to pay everyone when they retire at 65.  So the government needs you to wait a while...even if you dnt have a job.  If the government keeps printing money and expanding its deficits then what do you think will happen when the bill becomes due?  Answer: Higher taxes and inflation.  So if you're one of the people who loves to save cash - see how good you will feel when your $100,000+ in savings is really worth only $70,000 in savings due to inflation. 

Is Obama a supporter of Keynesian economics?  Is Obama similar to President Nixon when Nixon wanted to continue paying for the Vietnam war, expand social programs, and create cheap money to promote growth in the economy during the 70's?  This era was coined as the "Great Inflation", where the US saw inflation as high as 14% !  An advisor to the Obama administration, Paul Volcker, a retired Federal Reserve Chairman with a monetarist approach to fiscal and monetary policy, will hopefully prevent "Nixonomics" from happening again.

I'm not sure if the Obama administration is leading us down the same or similar path as Nixon - but it makes you wonder when the US taxpayer is paying for wars in middle east, expanding social programs and extending unemployment benefits, and keeping interest rates low.  This strategy might give us the jobs and recovery we Americans want, and make some Americans comfortable....but at what cost?

November 8, 2009

Fool's gold

Gold is at an all time high - which means that several people are trading their dollars for gold because of their fear of the dollar potentially becoming less valuable due to inflation.  The more people that invest (demand) in gold drives its price higher... and when demand increases for gold, then the supply increases, which drives the price of gold downward.  I think people are fooled into believing that gold is an actual good investment, when it is clearly not.  If you do your research, one can see that gold and inflation moves hand in hand - which means that those who invests in gold would not make any profit from it if held long-term.  Investing in gold will give you an average return of about 4% YTD - but inflation is also about 4% YTD!  So your net profit is zero.

Obviously, people invest in gold not because of profit - but for stability.  The benefit of investing in gold is because your loss of value is zero!  If the value of the dollar declines due to inflation and you're investing in gold, then your portfolio value does not decline at all since the price of gold will most likely go up as the dollar declines.  If you're going to invest for gold, then it should be for the short term only - since it does not make sense to hold on to gold for the long term.  If I owned gold today, I would be selling today at its highest point...because sooner or later the price will come back down.  But that's just me - short term investing is just like gambling, and I don't like to gamble with my money...I like sure things.

The Bottom Line: 

If you hold on to gold for the long term - you will actually lose money.  Because long term investing in gold yields no profit (+4% return - 4% inflation = 0% ) and once you pay Uncle Sam's capital gains tax (currently at 15%) you have just paid taxes for an investment that gives you a 0% return.