nice point, but not quite

A recent article at SmartMoney.com promotes the idea of foreign bonds. It notes advantages such as better financial shape of foreign countries (Greece, et al notwithstanding?) and benefits of currency movement. It is a great point, actually, but not totally fleshed out in the article.

There are great benefits to foreign bonds, but we feel that they are better invested in through funds. I try to discuss some of the general benefits and drawbacks in another post. Besides the general lack of transparency in the bond market, the illiquidity of smaller foreign issues may make it difficult to get a good price when in a pinch for the money. Funds offer professional management of a diversified portfolio which may be a little more reassuring than a self-assembled mix of a few bonds.

As always, if you are interested in investing in foreign bonds, talk with a Registered Investment Advisor to see if it is appropriate for you.

aggressive saving

The key to accumulating wealth is just that - accumulating it. Aggressive saving, saving early and often, is the key to having money in the future.

This article at SmartMoney.com reveals how to accumulate $1,000,000 in your 401(k) type retirement account. SPOILER ALERT The key is saving. The author suggests that 13% savings on a modest salary is enough to accumulate over $1 Million by retimrement. Vanguard recommends saving 10-15% of income for a comfortable retirement.

Steps to retirement account success:

1. Take advantage of your employer match, usually 3%. If they don't offer one, pester them, ask for it in your yearly review, or whenever the issue of pay and benefits comes up.
2. Every time you get a raise or a bonus, up your  contribution. You lived without that money before, you can certainly spare SOME of it now!
3. Inch your contribution up a little each year anyway. You may only save 3% this year, but with the help of a 3% match and an extra percentage each year, you will be well on your way to a comfortable retirement.

Fear Not

Apparently young people are afraid of stocks. This comes as a bit of a surprise to me, but maybe anyone who starts learning about investing at age 8 would tend to be comfortable in any market. Not only are 52% of young people afraid to put their savings in the stock market, they are even giving up company matches by not participating in 401(k) plans at work. That is giving up free money.

After watching the recession greet their entry into adulthood and now absorbing the constant financial fear-mongering in the news, it is easy to see why one might be nervous about the future. This is bad news though. The stock market can be a savings vehicle, appropriate for long term or carefully managed savings. Historically, the stock market has provided the best returns on invested money.

To not consider investing or to not participate in employer match benefits is to give up your best option for comfortable retirement. This is easy for me to say, as an aggressive saver and an investment advisor, but I am not the only one who is excited about the prospects of investing.

Don't be afraid, get in touch with a Registered Investment Advisor to get a careful manager of your savings.

these companies are buying, should you?

There are two common ways that companies can return money to shareholders: dividends and stock buybacks. I love dividends, it puts cash in my account and is usually indicates that the company is doing well enough to pay the owners. Generally speaking, I like buybacks less. They spend company money to buy shares and take them off the market. With fewer shares, the same (or hopefully, growing!) company earnings are larger on a per-share basis, ideally, increasing the value of each share. Also, if a company buys stock opportunistically (especially when the shares are below book value or otherwise quite cheap) they can add value the same way anyone else adds value to their company: by buying something that is worth more than the cash it cost to buy it.

Overall, for larger companies especially, a reasonable buyback program can add value to current shareholders by giving them a bigger slice of the market cap pie. Two well run large companies have been buying back shares in notable fashion lately.

Firstly, Amgen, a large biotech company recently bought back nearly 10% of ALL of their shares! They spent about $5 Billion of their considerable pile of cash ($17.6B at last quarter) and cash flow (another $5B for the past twelve months) (source: Morningstar). They made an offer to shareholders to directly purchase their shares for $60 each when the stock was trading around $57. Remaining shareholders now have the same great company, split between 10% fewer shareholders. This has turned out to be a great short term buy, as the stock now trades above $63.

One of my favorite companies, Norfolk Southern (yes, partly my favorite because it it a railroad), has been buying shares opportunistically this year. They have an ongoing program, and can purchase shares whenever they like. In the first half of this year, they purchased 11.6 million shares at an average price of $68.28 per share. When the bottom fell out in August, they ramped up their purchases, confident in their future. They bought another 12.2 million shares at an average price of $66.23 per share. They now trade in between $70 and $75.

If you trust the management, and they are buying, you may want to think about buying also.

Disclosure: I own NSC and AMGN directly and in accounts I manage.

no straight answer

For the past few week I have been trying to get an insurance quote. Something fairly simple, right? After all, insurance companies advertise quotes all of the time. They pitch how easy it is to use their website or how friendly their customer service is.

Not for everything. Looking for the specific rates on fixed annuities has proved nearly impossible. Understandably the rate will vary with the annuitant's age and the amount of principal, but even given that, I can't seem to get an answer.

I generally view insurance products as complex and expensive, and this is not helping that stereotype. I'll stick with a diversified investment portfolio and top quality companies myself.