Investment Advice from the Media

               

Giving advice on investment portfolios without regard to a client’s age, family condition, and needs, is foolish. Everyone has a different investing time horizon and current and future income needs. Those factors affect the choice of securities. In turn, they influence the percentage ownership and type of stocks or bonds to be held. And where bonds are chosen, the “duration” of the bonds used is essential.

                       

I would strongly advise everyone to be fully aware of what duration is and how it works. Very few media pundits write on the practical use of bond duration and its adaptation to take advantage of rising interest rates, rather than the mere avoidance of bonds at that time.

                       

Much of the practical value of media portfolio advice is, unfortunately, used to fill up space and not to enlighten. (See the Earl J. Weinreb NewsHole® comments and @BusinesNewshole at Twitter.)

Reducing Credit Card Debt?

                 

When you see a credit card balance reduction offers, two points will probably never be mentioned about credit card use.

                       

One: you pay income tax on any amount of debt you have reduced. Therefore, cutting that balance is not as simple as it may appear. Reduce your balance by $4,000 and it’s as if you had a taxable gain.

                       

Two: you have hurt your credit standing by resorting to such debt reduction. This may not bother you at first, but it may, eventually.

                       

Another point: How many folks who have so much credit card debt, that they have to resort to drastic measures, are actually permanently getting out of debt? You can be sure their spending habits will be getting them into the same situation, in a few years.(See the Earl J. Weinreb NewsHole® comments and @BusinesNewshole at Twitter.)

12b-1 Mutual Fund Fees

                 

Most funds no longer charge 12b-1 mutual fund fees but the charges are still around. These were originally permitted by the SEC to allow the marketing expense for new investors. They represent a small sales load that adds up over the years.

                                           

The 12b-1 charges originally were used to pay fees for the distribution of funds by brokers. But they still persist even when brokers are not involved, but are still ostensibly used for sales and marketing efforts.

                       

Avoid mutual funds that charge them. Those fees become significant deductions from your accumulated holdings over the years.(See the Earl J. Weinreb NewsHole® comments and @BusinesNewshole at Twitter.)

Added Info: High Frequency Trading

                                   

In addition to our previous blog info: Fund transaction cost arises from the fact that a fund's huge trades can drive prices up or down by tipping the balance of supply and demand. High-frequency trading has helped reduce "market-impact" cost by making it easier to break big trades into many little ones while transacting them very quickly,

                       

Trading costs from spreads and market impact have been cut in half over the past decade, From 0.5% of the trade amount for big company stocks to 0.25%. For small stocks, trading costs have dropped from 1% to 0.5%. In addition, high-frequency trading helps bring out hidden liquidity.

                       

The positives seem to outweigh the purported negatives. (See the Earl J. Weinreb NewsHole® comments and @BusinesNewshole at Twitter.)

Funds Use of High Frequency Trading

                       

Small investors benefit from a reduction in trading costs. High-frequency trading helps, despite much of the notoriety it often gets in the media.

                       

Among costs are the bid-ask spread. A wide spread means the fund must pay significantly more to acquire or sell a stock.

                       

High- frequency trading has reduced this cost by narrowing spreads. Wide spreads are seen as inefficient, with buyers and sellers having difficulty agreeing on an accurate price. Narrow spreads mean the market is working better. (See the Earl J Weinreb NewsHole® comments and @BusinessNewshole at tweeter.)

Transfer of Credit Card Balance

                  

Should you get offers from credit card companies to transfer your current outstanding balance to another card, you may be easily tempted. Especially if you have good credit, and those tempting offers are frequent.

                                           

You may be hurting your credit score, should you take the offer.

                       

When you make lots of credit card transfers it appears you may be applying for fresh credit.That tends to hurt your credit card score. (See the Earl J. Weinreb NewsHole® comments and @BusinesNewshole at Twitter.)

Overseas Investments

                 

Investing overseas is done for diversification. The investor wants the benefits of growth opportunities that are to be gained globally. Perhaps prospects appear to be better than those domestically.

                       

Currency moves are always involved. Will the dollar be getting stronger or weaker? If the dollar gets weaker, such investments become more valuable as translated currency works in favor of the U.S. investor. (Travel overseas becomes more expensive.)

                       

However, should the dollar get stronger, the reverse is true. Investments become less valuable as translated currency works against the interests of the U.S. investor.(See the Earl J. Weinreb NewsHole® comments and @BusinesNewshole at Twitter.)

Credit Card Advances

                 

It may be necessary to take down the maximum amount of credit your credit card permits, but it does not help your credit score. Therefore, do so only in an emergency. It’s nice to know that your credit permits you a certain liberty, but don’t take extreme spending binges.

                       

Of course, if you don’t use your card at all, or only occasionally, you may be dropped or the maximum available credit reduced.

                       

That’s because credit card companies are sensitive about account activity. Despite public misinformation, credit card companies are always writing off lots of bad debt. Use your credit cards intelligently.(See the Earl J. Weinreb NewsHole® comments and @BusinesNewshole at Twitter.)

Buy a Managed Mutual Fund or an Index?

             

Don’t bother looking for the best mutual fund managers. You will be wasting your time. Experience and research show that the “best” in any year are achieved mostly by chance.

                       

In any category of mutual funds, only a small percentage of active managers beat the performance of indexes or un-managed funds.

Furthermore, those who distinguish themselves in any one year, generally cannot repeat their performance the next, or on any consistent basis.

                       

A very isolated few managers can outperform indexes over the years, and if they do, it’s pure luck. (See the Earl J. Weinreb NewsHole® comments and @BusinesNewshole at Twitter.)

Important Consumer Finance

The Dodd-Frank Act law covered consumer protection. But it isn’t yet clear how the consumer will truly benefit. Consumer education was a major consideration but the question is still how Dodd-Frank does this.

                       

The chief function involves financial educational programs, and collecting, investigating and responding to consumer complaints. It’s to research consumer financial markets that affect consumers.

                       

Also included was the mortgage disclosure form from a combination of suggestions from the Real Estate Settlement Procedures Act and the Truth in Lending Act, and existing laws.

                       

True, consumers need help. From my experience, too many consumers are ignorant of basic finance, including the role of interest costs. But I cannot see how this can be accomplished by consumer-oriented documents alone. It can be taught in schools early on. Creating more informed consumers cannot be practically accomplished by regulators.(See the Earl J. Weinreb NewsHole® comments and @BusinesNewshole at Twitter.)

Failure of Stimulus Action

                                       

Why haven’t government stimulus programs worked? We know they have not produced needed jobs.

They have also done havoc to interest rates because of meddling. When left alone, interest rates usually adjust to supply and demand forces and adjust economic events. However, when government imposes stimulus proposals to raise credit and lift the economy, the system is disturbed and distorted. This unbalances the economy and does the exact opposite of what has been intended.

                       

Ludwig von Mises wrote fully about the phenomenon in the 1920s. However, the fashionable economist during the 1930s recession was John Maynard Keynes. He became the poster child of that failed recovery movement.

                       

The Keynes government pump-priming thesis that employed prolonged stimuli actually deepened, and helped induce the Great Depression. Nevertheless, it is the premise of the administration’s failed current policy.(See the Earl J. Weinreb NewsHole® comments and @BusinesNewshole at Twitter.)

Diminished Bank Credit

                  

It’s worth repeating: Banks are not making sufficient loans to small business, even when they have the ability to do so. They make more money these days by borrowing cheaply from the Federal Reserve and investing in government bonds.There is political meddling and too strict bank supervision adding to the  confused picture.

                       

Some banking groups are complaining that they have the money to lend, but with few takers because of the poor economy.

                       

Too many lenders are still hesitant about extending loans they once more readily made.A solution? Clearer tax laws would help.(See the Earl J. Weinreb NewsHole® comments and @BusinesNewshole at Twitter.)

Small Business Bank Credit Politics

                       

Banks are not making sufficient loans to small business, even when they have the ability to do so. They make more money these days by borrowing cheaply from the Federal Reserve and investing in government bonds.

                       

Also, there is political meddling and too strict bank supervision, adding to the bank lending confusion.

Some banking groups  complain that they have the money to lend, but with few takers because of the poor economy.

                       

Yes, commerce is in a slump. But many viable, thriving businesses, are genuinely seeking loans from banks who have funds. Yet, too many lenders are hesitant about extending loans they once more readily made.(See the Earl J. Weinreb NewsHole® comments and @BusinesNewshole at Twitter.)

Federal Reserve’s Inflation Bias

                   

We make a habit of thinking Federal Reserve actions as responsible, even though they are often proven wrong. This has been especially shown by the decisions we have gotten in the past few years

                       

We have to remember that economists are fallible, even when they direct the Federal Reserve.

                       

In the more distant past as well, those in the Fed worried we may have deflation and therefore inflated the economy, and added too much currency. In fact the Fed, almost automatically, has been on the side of abetting inflation, in an attempt to prevent deflation.

                       

Thus, the Fed has been the chief culprit causing the bubbles which invariably lead to busts and eventual recessions.(See the Earl J. Weinreb NewsHole® comments and @BusinesNewshole at Twitter.)