Using Stocks to Hedge Against Inflation

by David@MoneyNing.com · 4 comments

As our economy and stock market tanked over the last several months, talk of inflation seemed to disappear.  Instead, people began discussing the possibility (and ramifications) of deflation. Now that the stock market has picked back up–at least for the moment–I’ve heard  several people voice concerns about inflation again.

Over an investor’s lifetime, inflation takes a giant bite out of investment returns. For example, if an investor owns a portfolio of bonds on which he earns a 6% rate of return, he’s probably only increasing his purchasing power at a rate of roughly 3% per year. In other words, inflation can easily eat up more than half of the return provided by fixed income investments.

Owning Tangible Assets

Investment “experts” often suggest owning gold or other commodities as a hedge against inflation. The idea is that tangible assets should be able to hold their value even in an economy in which the primary currency is losing its own value.

This makes sense to me. And historically, it’s worked fairly well. However, I don’t personally own any gold or other commodities in my portfolio.

Why?  Because stocks are real assets too.

Many people seem to think of stocks (or mutual funds made up of stocks) as simply numbers in an account. And, given the everything-happens-online nature of the investment world we live in, it’s easy to forget that a stock represents a piece of ownership in a very real asset–a business.

Stocks Over the Short-Term

An astute reader might point out that stocks prices don’t typically increase when inflation levels increase. That’s true. And as a result, stocks aren’t very good at protecting against short-term inflation.

I’d argue, however, that inflation over short periods tends to be fairly inconsequential. Most people aren’t even going to notice if their portfolios decrease in value by 1-2% due to inflation. It’s generally only over extended periods that inflation becomes a big threat.

Stock Over the Long-Term

Thankfully, over long periods, stocks do quite well at holding their value in the face of inflation. Why? Because again, stocks represent businesses. And what do businesses do during inflation? They just raise their prices.

Note the contrast between this and the situation in which workers find themselves. As an employee, it’s hard to simply “raise your price.” Comparatively speaking, businesses are well-suited to dealing with rising price levels.

In summary…

If for some reason you’re worried about a huge jump in prices during the next few months, putting (or keeping) your money in stocks might not be the way to go.

If, however, you’re simply looking to protect yourself from the long-term effects of inflation, a diversified portfolio of stocks should get the job done quite nicely.

Mike writes at The Oblivious Investor, where he reminds readers to ignore the day-to-day craziness in the market and focus instead on getting the investing basics right.  Subscribe to his blog for daily updates.

The Secret Power of Positive Attitude

by David@MoneyNing.com · 5 comments

Just as night time in Asia parallels day time in North America, there are always two sides of every story. Are you feeling like the economy is really hurting you? Here are 10 ways to see heads even if the coin always seem to land on tails. Having a positive outlook will not only help you feel better but it will change your life.

Advertising and the Idea of More

For corporations, advertising works. Not so much for us who want to spend responsibility on the other hand. The more we think about our “wants”, the more we need to buy it. We know this, but instead of accepting this as a fact, why don’t we turn it around in our favor? If the more we think about it, the more times it comes up again, then the more we think about solutions to our problems, the more ideas we get too. I know that:

  • The more I practice, the better I get.
  • The more I write, the easier it becomes.
  • The more actions I take, the more I will accomplish.

Good and Bad Retailers

Tiffany & Co is a high end jewelry chain and naturally, times are tough at this retailer. On the other hand, Walmart is doing exceptionally well recently. The lack of new cars buyers are hurting the automakers but it’s great for companies that make car parts. There are many companies that are shrinking but some are growing even in this bad economic environment.

Seesaw Government Statistics

While the government domestic product (and consumer spending) is decreasing, our savings rate as a nation is rising. For the first time in decades, we are actually saving money on average. It might not be so good for the stock market, but how can that be bad for the citizens of this wonderful country?

The Parent that Shows Up

For decades, the average weekly work hours for Americans have been increasing. We may be stronger and wealthier (in dollar terms) as a nation, but we are giving up precious time with our family for a few dollars earned. 50 years ago, almost every family were living off one salary and we were just as happy (if not happier). Now, we are stressed because our spouse got laid off. Less weekly work hours may sound bad, but it means more time with your family, more time pursuing your hobby and more time to rest.

The Consumer that Can Buy China on Credit

We hear stories upon stories of people that had their credit lines reduced, but is the lack of buying things on credit supposed to be a bad thing? We might not be able to buy a huge house now, but so what? With less purchasing power, we don’t have to spend as much energy to make sure we are responsible with it. How great is that?

At Unprofitable Banks, We Try Harder

After years of arrogant bankers who never care about our business, we are finally starting to see them change their attitude when so many banks are laying people off and trying to retain any customer they can. I see many more non-credit card offers in the mail for your business, and when I’m at the bank, people actually want to help. I welcome anything that makes my banker treasure the real relationships of the good old days.

The Real Estate Rush of the Late 21st Century

As housing prices plummet and everyone is racing to put up for sale signs, it is finally allowing responsible young families to buy a house that is starting to becoming affordable. In Southern California where I live, $300+ per square feet is considered a bargain. How can any young family afford a house with normal salaries? Many people are suffering the psychological effects of falling home prices, but the downturn is allowing many potential home buyers to enter the market and live the American Dream.

The Scared Entrepreneur

As many people lose the security of a job, they turn to entrepreneurship. It’s incredibly difficult to quit your good paying job when times are good to start your own business, but there are tons of success stories for those that do. Why not give entrepreneurship a try while you are looking for a job? It might be the best thing that’s ever happened to you. Even if it doesn’t work out, the experience you will gain is invaluable. Being self-employed, all I can tell you is this – Quitting my $100k job 6 months ago was the best thing that happened to my career.

The Numb Sleeper

Sometimes, it takes a huge slap in the face to wake up from our dream. 40 to 1 leverage might be extremely high, but I bet if the housing bubble doesn’t burst for another 20 years, institutions will be at 200 to 1 leverages. How bad would that have been?

The Starving Businesses

Business is bad, but what has it meant for the consumer? Have you noticed that there are tons of coupons these days for everything? Travelzoo alerted me of $14 airline tickets via its newsletter. All of a sudden, I was able to cut my bills by 10% just because everything is on sale. There are really awesome deals out there. Take advantage while they last.

You never win when you call heads and the tails show up, but as long as you are responsible with the wager, losing once in a while only helps you put everything in context. The key is to be responsible. Be optimistic and ready to take advantage in every situation.

Be Happy Everyday. You Deserve It.

Beat Market Volatility by Being Boring

by Guest Contributor · 3 comments

riding the bear

This is part one of a guest post series from Monevator, a personal blog that provides money tips and motivation for private investors. You can find:

Stock market volatility scares many people off equities – especially in a bear market like this one.

Yet the vast majority of financial advisors agree that investing long term in the stock market is the only way an average person can secure enough capital to pay for a comfortable retirement.

To stick with equities through bad times as well as good:

  1. You need to believe in the long-term case for investing in equities.
  2. You need the right mindset to be put your commitment to investing in equities into practice.

Too many people discover that their intellectual belief in equities defers to their churning stomachs when they see their net worth rise and fall by thousands of dollars in a single day due to market movements.  As a result, they sell their stocks at the worst possible time when the market is down. Then, when the market has recovered, they regain their faith and buy at the peak. This pattern, like we know, will hugely cap your returns over the long-term.

To avoid it, I’d like to suggest three slightly counter-intuitive techniques to help you ride out, or ignore, volatility in your portfolio.

I’ll look at two strategies in follow up posts in this series. Today, I’d like to send you to sleep…

Strategy 1. Pick a boring online trading broker

Whether you invest through ETFs that track the markets or you buy specific shares in small growth companies, you don’t want your trading account to influence your decision making.

It’s all down to investor psychology. These brokers can damage your wealth by:

  • Flashing prices changes
  • Using color aggressively to show your gains or losses
  • Emailing information to you about your stocks performances

These are all dangerous features because they can encourage you to trade shares more frequently than you otherwise would. And several studies have shown that the more frequently you trade, the worse your returns.

To pick one report from the mid-1990s, Terrance Odean of the University of California, Berkeley, concluded that:

The poor performance of those households that trade frequently is generally consistent with the implications of recent theoretical models of investor overconfidence. Our central message is that trading is hazardous to your wealth.

It’s worth remembering that execution brokers make their money when you trade, not when you hold. It may be in their interests to design a platform that encourages you to buy and sell more shares, even if it’s not in your own interests.

So try to avoid brokers with too many bells-and-whistles.

My ideal trading account would look like a spreadsheet from the mid-1980s.  I haven’t found one as plain as that one yet, but we can all dream.

Editor’s Note: I totally agree.  Boring is good in investing.  What do you think?  Are you a flashy trader?

Everbank Review w. 90+ User Opinions

by David@MoneyNing.com · 109 comments

Everbank is another short term saving account option. Unlike others I’ve discussed before, this is a money market account instead of a high yield savings account but for most intends and purposes, it makes no difference. Is EverBank worth the trouble of opening an account? In particular, is the Everbank Yield Pledge Money Market Account up to par? Let’s find out in this review.

Click here to open an account with Everbank

A Little About EverBank

everbankWhile I was searching for news on this bank, I was happy to see that unlike many of its peers, EverBank pretty much avoided the whole mortgage mess. In fact, the third quarter of 2008 for the bank (when many other banks were in the middle of scrambling to keep afloat) meant record year-to-date earnings, record deposits, and record capital. It’s nice to know that the online bank is firing on all cylinders because while most of these types of accounts are FDIC insured, I really don’t want the emotional stress of having any companies I deal with go bankrupt.

What’s a Everbank Yield Pledge Money Market Account?

EverBank’s Yield Pledge Money Market Account is a money market account offering, and there is a minimum balance requirement of $1,500 when opening an account. Traditional money market also limits withdraws per month, but since the limit is six for EverBank, it is a non-issue as online savings accounts are also limited to six per federal regulation. In addition, features include:

  • FDIC Insurance
  • High Yield
  • The Ability to Write Checks (3 a month) – A nice feature that the competition doesn’t have

EverBank Awards

EverBank received numerous awards through the years for its online innovation and product offerings like:

  • BauerFinancial Star Rating “4-Stars” (2008)
  • VERIBANC “Green/*** Rating” (2008)
  • Money Magazine “Best of the Breed” (2007)

While I’m not familiar with all these different awards, it’s nice to see whenever a company wins anything. Furthermore, Money Magazine is certainly a trusted name so winning the best of breed award certainly inspires confidence.

Is EverBank Right For Me

The introductory rate of 3.00% is unbeatable in this market, and 2.00% thereafter is still very high.  In fact, EverBank pledges to keep the yield of your account in the top 5% of competitive accounts as tracked by Bankrate.com.

Also, while the bank only limits you to three checks per month, I find that it is plenty in this day and age where I seldom write checks.  For those that have at least $1,500 and want a safe place to keep your funds that offer one of (if not the) highest yield available, EverBank is definitely a bank you should seriously consider for your funds. I certainly would.

Note: They also have a checking account and certificates of deposits which are great.  If I were you, I would go check them out.

Resources:

Everbank is just one of the online banks we reviewed on MoneyNing.com. Click here for the list of high yield savings accounts we recommend.

Avoiding Confrontations Will Cost You

by David@MoneyNing.com · 7 comments

Many of us try to avoid confrontations like a plague. Especially in the Chinese culture, we were taught not to challenge our teachers. We were told not to question authority and we learned never to question our boss.

Yesterday, I witnessed a reckless kid opening his SUV’s door and subsequently hitting my car’s side view mirror. Instead of doing the right thing and confronting the whole family about it, I walked away. I walked away thinking “This happens all the time and I wouldn’t see anything normally anyway. It’s fine. Let it go.”

I convinced myself that not facing the situation is correct. Well, I paid for it.

When I came back out, I noticed that the kid didn’t even snap the mirror back to the original position. Worst of all, there was a pretty big scratch on the back side. It’s amazing how the full car of people never said anything to me when they hit my car. It’s even more amazing that I thought it was okay to avoid confrontations.

I chose to walk away and I will live with the consequences. Don’t be like me because confrontations are apart of life. If you are right:

  • Alert your boss of your views
  • Tell the teacher that perhaps there’s another point to consider
  • Explain to your parents why you did what you did.

Show respect but there’s no need to back down. Present your points or else it will be you that pays the price.

I did.

Frugal Shopping Secrets Discovered from Buying a Chair

by David@MoneyNing.com · 10 comments

shopping chair
Last week, a frugal shopping event for an office chair satisfied me as a learner, frugalist as well as a consumer. What am I talking about? Let me explain.

I’ve been discussing with my wife about a new chair for a while. Mine is old and ripped but more importantly, I was getting back pains from all the time that I was playing charting writing working hard at my computer.

First, we went to an office furniture store and sat on office chairs that costs over $1,000 dollars. “Yikes.” I thought. Maybe next time. After putting it off for a while, my wife takes me to Office Depot and to my surprise, they got amazingly comfortable chairs. Best of all, they were $150 a piece.

At the end, I came out a happy customer, save a boatload of money and learned a few things about shopping as well. So without further ado, let me share with you what the experience taught me.

  1. Have an Open Mind – When I was looking for a desk chair, I had completely crossed off places like Office Depot and Staples. I got my current chair at those stores, and it sucked. Luckily, my wise wife dragged me there anyway and we saw chairs with comparable quality for 20% of the price of offerings from office furniture stores.
  2. Online Doesn’t Always Mean Bargains – I’m so used to shopping on the net that I almost immediately believed online stores will yield a better price. In actual fact, the store was selling it at $149. The online website? $199. A quick search came up with a $30 off coupon, but I got a $15 off version in the mail for my brick and mortar purchase.
  3. Price Isn’t Everything – Actually, there are certain products that just makes more sense in an offline environment. Being able to try the chairs is much more important than the raw price. Other items like shoes and clothing would also fit in this category.
  4. Resist the Temptation of Extended Warranty – I thought only electronics had these but the salesperson was trying to sell me extended warranty on the office chair. It was only $15 but I can’t see how it made sense. Please, for the 100th time you’ve heard it this week, do not buy extended warranty, especially for something like an office chair.
  5. Details Could Cost You – While black is my preferred choice, I ended up with an dark brown chair. It turns out that the brown version had superior leather and was much more comfortable. Why did the manufacturer do this when all color schemes were the same price is beyond me but I will take whatever advantage I could find.

    Note: Actually, the leather on the chair that I got is comparable to ones that are sold for $500 – $1,000 elsewhere.  I should just buy a few and open up an office furniture store.

  6. Extreme Frugality May Not Make Sense – In certain cases, saving every last cent may not make sense. While my old chair was still working fine, I was starting to get back pains after hours upon hours of sitting in front of the computer typing away. For me, investing for a comfortable chair made perfect sense. Other items that fit in the same category? Computer monitor for your eyes, beds and pillows etc.

If saving money means using your health or well being as a trade off, just say NO.

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