Author Archives: Matt@DearMrMarket.com

The New “MyRA” … A Direct Route To Retirement Or A Bad Detour?

Posted on by
Reply

Dear Mr. Market:

MyRA#7

If you ask the average hard working American what their top financial concern is, it’s that that they won’t be able to retire.  We could certainly go on and on about different solutions and how people can get on track to make their dreams a reality but today we will focus on a new program offered from the government.  On January 29th President Obama delivered his State of the Union address.  One of the takeaways from this speech was a new retirement account called MyRA (short for My Retirement Account).

Currently over half of the U.S. workforce is not covered by a retirement plan through their employer.  MyRA is targeted at low to middle-income workers, encouraging them to save for their own retirement.  Contributions will be funded through automatic payroll deductions where individuals can start with as little as $25 and contribute amounts as small as $5.  Individuals would be guaranteed that their account would never go down and they will not pay any fees on the accounts.  Sounds like a great product doesn’t it?!  Well let’s take a step back and dig a bit deeper to really explore what the MyRA is all about….

The MyRA can essentially be viewed as a way to introduce individuals that have not saved or funded a retirement account to the many long-term benefits of doing so. At this point companies are not required to be involved in the program, if President Obama wants to force employers to participate a vote from Congress would be required.  The accounts would be funded with after tax dollars much like a Roth IRA.  While it will be funded with payroll deductions individuals will be able to keep their accounts when they change jobs.  MyRA is subject to Roth IRA income and contributions limits.  Individuals can invest up to $5.500 per year (or $6,500 for investors 50 or older); once the owner reaches the age of 59 ½ they can make withdrawals tax-free.  There are also no required minimum distributions (R.M.D.’s). Continue reading →

How did your Portfolio do in January of 2014?

Posted on by
Reply

MW-BB798_sm6040_20130422180557_MD

Dear Mr. Market:

Apparently you’re kicking off February much like you wrapped up January; in correction mode.

A stock market correction is actually not a bad thing and in this case it’s actually a MUCH needed one. If you’re anything close to being a long-term investor you should be hoping for at least a 10% haircut at some point before 2014 wraps up. Without a breather or some form of consolidation this market has no chance to build a base and move to higher levels by year-end.

If you had a fairly well balanced and allocated portfolio in 2013 you probably looked at your statements and saw that bonds were not just dead weight but rather a huge drag on performance. Not only did the overall bond market lose at least -2% for the year, the proverbial “writing on the wall” was being etched in permanent ink ; bonds had zero upside and only risk associated with them. If rates are to rise, as so many speculate they will, we could see bonds sting investors worse than any other time in history. Bottom line: That’s scary stuff for anyone in the typical 60 / 40 model…

The place to be in 2013 was stocks, but let’s be honest… Did you really trust them to keep going higher and higher? Did a +32% return for the S&P 500 feel “real” to you? Most people we talk to still don’t trust stocks but they ironically weren’t invested in them as much as they would’ve liked. Those that couldn’t resist a record breaking stock market finally cut bait on their bonds. Unfortunately, the reality is that our 5 year stock market party is possibly coming to an end…or at least a healthy pause. Continue reading →

Windhaven Portfolios: Is Schwab just blowing hot air?

Posted on by
Reply

Dear Mr. Market:

The investment industry is notorious for not being transparent with investors.  The industry tends to be a shade of grey as opposed to being black and white. There are often hidden agendas or conflicts of interest that the average investor is never aware of or informed about.  Think back to some of the situations that have negatively impacted investors in just the last few years: Bernie Madoff, Insider Trading, the Mortgage Industry debacle and the meltdown of Enron!  Conflict of interest is essentially why the Sarbanes-Oxley Act is now in existence.

Conflict of Interest – Occurs when an individual or organization is involved in multiple interests, one of which could possibly corrupt the motivation. (from Wikipedia).

WindhavenToday we will take a look at an investment firm that has had incredible growth over the last several years: Windhaven Investments.

schwabIn 2010 Charles Schwab & Company (SCHW) purchased a small investment advisory firm in Boston named Winward Investments.  The firm’s strategies had posted impressive results for several years and didn’t use the industry standard ‘buy and hold’ type of approach.  They used primarily ETF’s (Exchange Traded Funds) and claim to invest in over 40 different sectors, participating in positive markets and protecting in downturns.  Schwab paid a hefty price for the firm, paying $150 million in cash and stock (source: WSJ). Continue reading →

Clean Energy Fuels (CLNE): Bleeding soon to become Profit

Posted on by
Reply

anghmap-011614Just about anyone who has invested in Clean Energy Fuels Corp. (Nasdaq: CLNE), has traveled a rough road thus far. Clean Energy has serious potential but its great story hasn’t materialized at all. The stock has done absolutely nothing for shareholders and if you’re the type of investor that screens for strong fundamentals it probably hasn’t hit your radar; at least not yet…

What do United Parcel Service (UPS), Frito-Lay/Pepsi (PEP), Procter & Gamble (PG), Ryder (R), and Lowe’s (LOW) all have in common? Each of these companies, and more and more of corporate America, is pouring money into the natural gas industry. Companies like these all see the writing on the wall with regard to energy trends and they are expanding their natural gas fleets.

The U.S. heavy-duty trucking market is beginning to embrace the economic and environmental benefits of natural gas fueled trucks.  There are over 8 million heavy-duty trucks in the U.S. consuming about 20,000 gallons of fuel per year.  The operating cost savings that operators will benefit from by converting from gasoline and diesel to natural gas along with movements towards clean air regulations bode extremely well for companies like CLNE.

Company summary:

Clean Energy is headquartered in Newport Beach, CA and has a market capitalization of almost $1.1 billion.  CLNE supplies compressed natural gas (CNG) fuel for light, medium, and heavy-duty vehicles; and liquefied natural gas (LNG) fuel for medium and heavy-duty vehicles. They are the largest provider of natural gas fuel for transportation in North America. CLNE fuels over 30,000 vehicles per year at over 500 fueling stations throughout the U.S. and Canada. The company has created and continues to develop a network of fueling stations with what they call “America’s Natural Gas Highway”. This network connects major truck corridors across the country for coast-to-coast and border-to-border natural gas fueling. Continue reading →

Should You Buy Target (TGT) Stock?

Posted on by
2

Target InvestigationDear Mr. Market:

With the holiday season now in the rear view mirror U.S. consumers are being reminded of the world we live in.  In the middle of the holiday shopping season Target made an announcement that had an impact on millions of individuals.  On December 19th Target announced that 40 million credit and debit cards had been jeopardized by a cyber attack.  Since then the number of cards has grown to 70 million, it has been reported that the number could grow to as many as 110 million!  Just last week Neiman Marcus released news that it is dealing with a similar situation and other retailers are likely to be in the same boat in the coming weeks.

On Friday (January 10th) Target announced that the security issue had a negative impact on their holiday shopping results.  Stores saw sales decline up to 5% (depending on location) when compared to the previous years results.  When 4th quarter earnings are announced on February 26, 2014, the additional expenses the company has incurred due to the hacking incident will certainly have an impact.  CEO Greg Steinhafel announced that 4th quarter EPS (earnings per share) were lowered to $1.20 – $1.30 from the previous guidance of $1.50 – $1.60.  Continue reading →

Portfolio Combo #3 : 60 / 40 with extra Fries and a small Coke please…

Posted on by
13

MW-BB798_sm6040_20130422180557_MDCongratulations! You either hit the lottery, just retired, or are leaving a job where you will rollover your $1 million 401(k) into an IRA. For the sake of our newest monthly column and “game”…that’s the basic situation. All joking aside, this scenario plays out all too often and it’s not a game at all.  Most baby boomers or high net worth investors are often faced with having to decide on what the most appropriate allocation mix is. They also may find themselves in a situation where they want smart and time tested investment advice but don’t want to be sold the “flavor of the day”.

We decided to kick off 2014 with a model portfolio (“Core MPG Tactical Portfolio”) that allows an investor to track and see what tactical adjustments we are making for our very own clients. Each month you will see how this model portfolio performs against a benchmark. You will also be able to read commentary on why certain adjustments were being made. Before we outline the initial portfolio here are some basic details and rules of the road: Continue reading →

Force your Portfolio to be Disciplined in 2014

Posted on by
1

Rebalance Cartoon

Congratulations Mr. Market…you’ve delivered a tremendous year of returns to equity investors!  With the broad equity markets delivering returns over 25% (S&P =29%, DJIA = 25% and the NASDAQ = 37% as of 12/27/2013) investors are now faced with the question of what to do now?  For those investors that were invested in stocks, especially domestic stocks, year-end statements are going to look very impressive but remember that is only on paper. As we step into 2014 what should investors do with their portfolios?

Often investors choose to go with an adage commonly heard in casinos – “Let it ride!” Although the market defied odds and dodged several ominous obstacles, there is no guarantee that it will continue to do so going forward.  Sitting back and doing nothing could very well allow those returns to dwindle away and become nothing but a memory.  It wasn’t that long ago that ‘The Tech Bubble’ hit investors with a strong left uppercut that they never saw coming.  Mr. Market delivered three years of impressive returns (1997 = 33%, 1998 = 28% & 1999 = 21%) only to see it disappear with three consecutive years of negative returns (2000 = -9%, 2001 = -11%, 2002 = -22%) and let’s not forget 2008 (-37%).   How can investors avoid repeating history while also managing the risk and unrealized gains in their portfolio?  Continue reading →

Which Investment Door are you Going to Open in 2014?

Posted on by
Reply

open-door-in-a-empty-room-80a6d3-1050x700Dear Mr. Market:

Imagine yourself in an empty room that has three doors. This room represents the investment year of 2013 and the door that they are about to open is where they hope or think the best returns will be for 2014.

Door #1 – Bonds: Very few people are near this door. There certainly isn’t a line to open the door and most investors walking by seem smug as they peek at the lonely door along with the depressed looking people waiting nearby. It’s clear to most that the bond markets have already begun to crumble. With interest rates that are sure to rise this asset class feels like dead money and the ‘writing is on the wall’ for flat to dismal returns. Continue reading →

Mutual Funds’ dirty little secret….Capital Gains Tax

Posted on by
Reply

cap gains tax cartoonDear Mr. Market:

With one of the strongest stock market years on record many mutual fund investors will end the holiday season by unwrapping a lump of coal. In January most mutual fund companies and the IRS (Internal Revenue Service) will mail out Form 1099-DIV. 2013 will bring mutual fund investors capital gains distributions ranging from 6% to 60%. It’s no secret that we’re not fans of most mutual funds and capital gains distributions are just one more reason.  Today we will take a moment to address an issue that every investor (especially mutual fund investors) needs to be aware of – Capital Gains Distributions.

Capital Gains Distribution – The payment of proceeds prompted by a fund manager’s liquidation of underlying stocks and securities in a mutual fund. Capital gains distribution occurs when a mutual fund manager liquidates underlying positions that have made gains since they were added to the fund. Capital gains distributions will be taxed as capital gains to the person receiving the distribution. (Source – Investopedia.com)

 When a mutual fund sells any position at a profit it creates a capital gain, these can be either short-term or long-term.  By law mutual fund companies are required to distribute these gains to all of their shareholders.  If the position was held for less than a year it will be considered short-term. These are distributed to shareholder as income dividends and taxed at their ordinary income rates.  Long-term capital gain distributions (over one year) are taxed as follows: 0% for taxpayers in the 10% and 15% tax brackets, 20% for individuals in the 39.6% bracket and 15% for all others.  The key thing to remember when looking at mutual funds is that the investor has absolutely no say as to when positions are purchased or sold within the fund and the taxable consequences that are incurred. Continue reading →

Raise Minimum Wage = Higher Unemployment

Posted on by
Reply


images-28Dear Mr. Market:

One of the greatest things about this country is that we are all free and entitled to voice our own opinions.  In this forum, however, we rarely intend to bring up political divisions as there are simply too many and we find very little upside in wasting our energy in that department.  Certain issues, however, have a direct economic impact to you and we believe those are worth digging into. The most recent debate over raising the minimum wage has certainly “ripped the Band-Aid” off an old but existing economic wound.  Taking all feelings and intuitively good intentioned emotions aside, let’s set the economic record straight on this hotly debated topic.

Currently, Congressional Democrats want to raise the current minimum wage from $7.25 (nationally) up to $10.10/hour and also index it to the Consumer Price Index (CPI). With a Republican-led House this is unlikely to happen as they believe most businesses would have to cut jobs. Supporters of wage increases claim that the standard of living rises, poverty levels drop, and businesses become more efficient. The opposing side counters with claims of increased poverty, higher unemployment, and detrimental effects to most businesses. Who is right when it comes down to pure economics?

At a first glance raising the minimum wage obviously seems fair and just. Most people initially want that and so do unions who dislike low-cost labor competition. Clearly a full-time worker making the minimum wage is likely to be well under the poverty level. (family of 4 = $23,550 ) Over half of the minimum wage population is well under the age of 25. The majority of individuals in this population are unlikely to be supporting a family of four and in all likelihood are working their first job.

If it was just about picking a number and raising the wage to one that seems or “feels” right we ought to just go with $20/hour, right? Picking a random number or one that works backward to solve an economic problem won’t solve anything. In economics it comes down to basic realities like supply and demand, cause and effect etc. $20/hour seems a lot more “fair” than $10/hour but realistically when setting prices they must be derived from demand and economic data instead of grabbing them from thin air or what feels right.

The most famous economic study that supports raising the minimum wage is from 1992 by Card & Krueger. (David Card and Alan Krueger) These two economists surveyed fast food franchises in the New Jersey area before and after a minimum wage increase of 18.8% ($4.25/hour to $5.05/hour). Their studies showed that employment actually increased. Why was that and should proponents of raising the minimum wage really balance their main argument on this famous study? Continue reading →