Posts Tagged ‘ economy ’

Income Security VS Job Security – Does it Matter?

By Kevin M

My friend Jay and I were talking about jobs this past weekend and he pointed out something that I hadn’t thought about: There are no astronauts any more! That may not mean too much if you’re under 30, but when he and I were growing up being an astronaut was the ultimate “hero career”. It was, as the kids say today, “the shit” among careers.

Back then it seemed that all of humanity would eventually be going to space—to find resources, to conquer new worlds or at least to alleviate overpopulation here on earth—and astronauts would lead us there. High minded and exciting, yes, except that it never happened!

If a career as cutting edge as astronauts is no longer secure, what can we say about the far more ordinary fields most of us regular folks work in?

You’ve heard it and read it before, and perhaps you’ve even been a casualty of one of the biggest phenomena of our time–the end of job security.

We have to do something about that, but what? Individually, there’s little any of us can do to create job security, but we can gravitate toward it’s close cousin, income security. If we have income security we might not even notice or care that we no longer have job security.
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7 Reasons Self-Employment is More Secure than a Job

By Kevin M

Last night my wife learned something disturbing—not for herself but for some of her coworkers. She has a part time job with a company that just announced that fulltime employees are losing their benefits and being converted to part time status.

Now the optimist may say, “it could have been worse—at least they didn’t lose their jobs”. And while there may be a grain of truth to that assumption, the bad news outweighs the good here, and I’d say by a wide margin. First of all, part time isn’t full time—it’s part time. That means even if you keep your hourly rate of pay, there’s no guarantee of 40 hours a week, or even of 30 or 20. That looks an awful lot like a pay cut to me.

Second is suddenly going from a job with benefits to one without—that includes health insurance. Charles Hugh Smith has made a strong case that the middle class isn’t middle class without health insurance coverage, and I think that point is beyond debate. What we’re looking at here, in addition to the pay cut, is the loss of socio-economic class status. They’ve been demoted to “the working poor” without ever losing their jobs. That’s pretty radical.

There ain’t no more job security

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How Our Stock Addiction Grew Gradually Worse Over Time

Beyond Buy-and-Hold #68

By Rob Bennett

One of my critics makes a great point in a recent Bogleheads Forum discussion of the Valuation-Informed Indexing concept. A poster going by the name “nisiprius” says: “I just don’t believe that a few simple rules based on numbers that are easily available to everyone will substantially improve your risk-adjusted returns.”

I say that the typical middle-class investor could retire five to ten years sooner if he were willing to switch from Buy-and-Hold to Valuation-Informed Indexing. I say that the heavy promotion of Buy-and-Hold was the primary cause of the economic crisis. I say that we would eliminate 80 percent of the risk of stock investing by letting investors know about the 30 years of academic research supporting this approach.

Yet the only difference between Buy-and-Hold and Valuation-Informed Indexing is that Buy-and-Holders choose a single stock-allocation percentage that makes sense for them at all times while Valuation-Informed Indexers change their stock allocations in response to big valuation shifts. Could this one strategic change really make such a big difference? That’s more than a little hard to believe, isn’t it?

It’s hard to believe.
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10 Reasons Why People Can’t Get Out of Debt

By Kevin M

Everybody knows that too much debt is bad; the financial universe is filled with blogs, experts, and gurus who tell us as much and even how to get out. So why are people still unable to get out from under? Is it because debtors behave badly, that they fail to adequately confront their credit problems—or are they just plain lazy?

Maybe, possibly in some cases, but I think there’s a lot more to it, and by the time you’re finished reading this list, you may have a better understanding as to why—if you’re deep in debt—you’re having such a tough time getting out of it. Knowing what you’re up against is the first step to solving a problem, and only when you do can you make any real progress.

1. Lack of sufficient income to do so

A lot of people are making less money than they were just a few years ago. They were making more money when they incurred their debt, but now the lower income level has them in a trap where they have barely enough money to pay living expenses, let alone pay off debt.

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Recent Stock Market History Has Too Much Influence on Our Thinking

Beyond Buy-and-Hold #66

By Rob Bennett

I believe that the case against Buy-and-Hold is rock solid. Common sense tells us that it cannot possibly work. There is now 30 years of academic research confirming what common sense tells us. That research is based on 140 years of historical stock-return data. What more could you ask?

Lots of people are asking for more. Buy-and-Hold remains popular. My articles stating the case against it remain unpopular.

I have exchanged a number of e-mails with a fellow who is a big believer in Buy-and-Hold but also not entirely unsympathetic to my case for Valuation-Informed Indexing in an effort to better understand what is going on in people’s minds. This fellow has looked at the research and acknowledges that is appears generally solid. Still, he is not a convert. Buy-and-Hold seems right to him.

He was fair-minded enough to tell me that, following one of our recent e-mail conversations, he laid in bed for a time asking himself what it would take to persuade him that Buy-and-Hold does not work. That’s the question I most need answered. So I listened carefully to what he told me.

The “this time it’s different” philosophy

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Gold is Looking Like THE Safe Haven

By Kevin M

Does a day go by when it doesn’t seem as if the towers of financial and political power seem to be shaking some where in the world? Iceland, Ireland, Spain, Greece, Portugal and now Italy. Will the Euro implode? Will the dollar implode? I personally don’t think either will, but given the perpetual avalanche of news that no one seems to be able to pay their bills, this is not a time for idle speculation.

And here’s what we do know…interest bearing investments (CDs, money markets and treasury bills) have gone negative against inflation…bond yields are at all time lows and since bond prices run in inverse proportion to rates, when rates do begin to rise, bonds are poised to take a big hit…stocks are swinging wildly in a way that suggests that a tumble of epic proportions may be in the offing…and real estate is already down for the count.

Against this backdrop the most reliable investment of the past ten years has been gold. Even with the correction since August, the price of gold has risen on the order of 500% during a decade when nearly all other investment classes have either tanked or gyrated wildly to no advantage.

Gold—after a 500% run up? That looks like it could be a bubble. Or it could be a sign of the times. A bubble is caused when buckets of money flow into an investment regardless of fundamentals. What has to be considered in the case of gold is that it’s an asset that performs best in a dysfunctional environment. I think that about sums up where we’ve been at for a few years now. Because of gold’s unique relationship to the rest of the economy and financial spectrum, we have to say that gold’s price is in line with its “fundamentals”. It’s an asset unlike any other.
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Buy and Holders Must Sell Their Stocks Before the Economy Can Recover

Beyond Buy-and-Hold #63

By Rob Bennett

If stock prices continue their 12-year march downward, we are going to end up in the Second Great Depression. So we would all like to see a turnaround. The thing with which there is a difference of opinion is the question of what we need to see to bring on this happy event.

Buy-and-Holders believe that it is economic developments that cause stock price changes. If that is so, what we need is an economic recovery. That’s obviously a good thing. So, from a Buy-and-Hold perspective, we all just have to wait for and hope for an economic recovery.

Stock prices are the root of economic crises

Valuation-Informed Indexers have a very different understanding of how stock investing works. We don’t believe that it is economic developments that determine stock prices but that it is stock prices that determine economic developments. Once stocks become insanely overpriced, a crash becomes inevitable and, once a crash becomes inevitable, an economic crisis becomes inevitable because the price crash subtracts so much spending power from the economy.
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Investing in Volatile Markets

By Kevin M

After the briefest of pauses, the stock market is back to swinging back and forth and showing no clear direction either way–Europe-itis is to blame once more. On Friday the European Union was assuring the world that it had matters well in hand—by Monday the world was back to not believing any of it. The global markets responded accordingly by whipsawing back and forth.

As much as we might wish otherwise, the signs are screaming out for of more of the same. Rising stock markets are based on calm and predictability, and both are in short supply—hence the volatility. And volatile markets typically settle in unhappy places. Consider the large stock slides in 2000-2002 and again in 2007-2009; I believe we’re at just such a point again today. Where this run ends is anyone’s guess, but there’s enough uncertainty out there to support an argument for just about any scenario we can imagine—and most of them are bad for our finances.
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Nine Reasons Why Buy-and-Hold Can Never Work

Beyond Buy-and-Hold #62

By Rob Bennett

I often observe that Buy-and-Hold can never work. I get the feeling that a lot of people think I am exaggerating. No. I really mean that. This article sets forth nine reasons why it is so.

1) Buy-and-Holders don’t know when they are doing well or doing poorly.

The key to success in many types of life endeavor is learning from feedback. Because Buy-and-Holders don’t adjust their portfolio values to show the effect of valuations, the feedback they receive is often misleading.

I was warning people back in 2002 that going with a high stock allocation at the price levels that applied at the time was a terrible mistake. The usual response I received from Buy-and-Holders was “I’m doing just fine.” Huh? Buy-and-Hold was a disaster in the late 1990s. It took stock prices to the most insanely high levels ever seen in history. Yet Buy-and-Holders were not aware of the problem because they were viewing the numbers on their portfolio statements as legitimate.
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Investing Is Not a Zero-Sum Game

Beyond Buy-and-Hold #61

By Rob Bennett

For Buy-and-Holders, investing is a zero-sum game. To the extent you do well, the other guy does poorly. To the extent the other guy does well, you do poorly. The reason why Buy-and-Holders don’t believe in trying to beat the market is that each investor is aiming to “exploit” all other investors. So there is risk attached to doing anything other than just accepting the market return at all times.

It’s a very different story for Valuation-Informed Indexers. The idea with the new strategy is to tap into the power of the 30 years of academic research that was published after development of the Buy-and-Hold strategy. That research permits us all to become more effective investors at the same time.

Can we really “beat the market” in stocks?

Is that really possible? Can we all earn higher returns at lower risk? Where does the money come from?
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