Don't Quit Your Day Job…

How did you react to the stock market’s (defined, in my mind, as the S&P 500 index) recent precipitous drop? If you’re like many investors, you moved out of ‘risky’ assets such as stocks and into ‘safe’ assets such as money market funds and stable value funds. Unfortunately, the seeming safety of fixed income investments is a mirage… hidden forces, such as the danger of inflation, make ‘safe’ investments less safe than first glance. Paradoxically, the recent movement to safer portfolios has put many people at risk for a reduction in the real value of their money in inflation adjusted dollars.

As noted in a CNN article today, one way to gauge the market’s reading of current conditions is by reading the bond yields. Twice I’ve taken a look at how you can use Treasury Inflation Protected Securities plotted with the Daily Treasury Yield Curve to get a glimpse at the market’s inflation expectations (TIPS adjust their value due to CPI). Some other interesting ratios are presented, the treasury yield curve on its own, and the spread between junk bonds and government debt.

I hope I convinced you in my earlier article you’ll soon be dealing with higher taxes. I’ve got some more slightly depressing news for you… you might be dealing with a reduction in the amount you can contribute to your 401(k) in the near future.

Yes, as Robert Powell says in this MarketWatch article, to go along with retirees not getting an increase in their Social Security payments, you may be losing some of your ability to sock away money in your 401(k). Nice.

Ever made a mistake in investing? Yeah, I bet you have. I have too.

The reasons that investors make mistakes are numerous and hard to detail, but the Wall Street Journal took a really good shot at it today. Covering everything from the pain of selling at a loss to mental accounting, it’s one of the best personal finance articles I’ve read in a long time. Oh, and I read a lot. Everyone has biases which make mistakes possible, the question is how can we recognize them and adapt? Read on…

“Finance is the art of passing money from hand to hand until it finally disappears.” – Robert W. Sarnoff.

From the “it’s about time” category, I present the Supreme Court case Jones v. Harris Associates. The case was filed because a group of investors felt:

1. The board of directors wasn’t sufficiently neutral (the law requires 40% of advisors to be “disinterested”).
2. The fund didn’t disclose the advisers’ financial links to the trustees
3. Compensation for the adviser should be controlled by a majority of the disinterested advisers

As Jason Zweig of the Wall Street Journal writes, the Supreme court has no business setting fees. However, the disclosure rules on mutual funds stem from older laws. Is it time for reform in fund disclosure?

Master Limited Partnerships are publicly traded Limited Partnerships, most often investing in the extraction and transportation of raw materials.  A limited partnership is a limited liability corporate structure which contains Limited Partners, and at least one General Partner.  This gives the funds great tax advantages with liquidity advantages coming from their listing on a public exchange.  The lack of understanding of MLPs also means they are a great place to start looking for market pricing disconnects and investment opportunities.

Unlike the swine flu, the personal finance bug is a relatively hard bug to get. Unfortunately (for them), far too many people avoid putting any thought into their future until that ‘future’ is right around the corner. Investing is a topic that comes up a lot when I talk with people. How you field open ended questions like “How do I invest in stocks?” is a make or break question in which you need to figure out before your trust is deserved. I’ve come up with a step by step method which I use to narrow my confidant’s thoughts and distill their true intentions. Read on, then leave me comments on your style.

Not all of us have surplus money stacked up under our mattresses. But it isn’t very hard to believe that after careful budgeting and hard work we can put away some money for the future. When we finally get to this point some of us see many opportunities and are unsure of what to do with our money. Personal investing can be a very opportunistic option and can pay off greatly if money is put in the right places. We strive to put away money for investing, and then have no idea of what investment opportunities are available and which are the most advantageous. It is important to research different roads we can take before we get to them.

Got cash sitting on the sidelines? It may be time to move some of that cash into play, according to Mark Hulbert writing on Marketwatch.com. “Believe it or not, the stock market performs much better than average when Congress is not in session.”

Congress goes into recess on Friday; this could be your opportunity.

Oftentimes the best place to look for value is in a place few others know to look.

Go ahead and quote that; I just made it up. Closed end funds are an often overlooked place in the market for your investment funds. CEFs are mutual funds which trade on exchanges and lack the price arbitrage functions of Exchange Traded Funds. This means that Closed End Funds can be (and often are) priced significantly differently from their underlying assets.