The pain of math

From this morning's news:

The Obama administration has been eager to counter the argument that the stimulus has been ineffective amid a Washington debate over whether a second stimulus might be in order.

Administration officials said they looked at $150 billion of the stimulus spending and determined it had created or saved about 650,000 jobs through September 30.

This is pretty simple to break down:

$150,000,000,000 in stimulus / 650,000 jobs = $230,769 per job.

The average American, age 25-64, makes roughly $32,000 per year (per this wikipedia chart).

So, we spent an average of $230,769 to create jobs that typically pay $32,000. That's enough money to pay their salary for 7 years.

The only thing more shocking than the amount spent per job created is that the Administration apparently thinks this is an effective counter-point to the idea that the stimulus has been ineffective.

Do they think nobody can do math anymore? Or do they really think $230,769 per job is a good deal?

Posted by Mark at 12:20 PM | Comments (0) | TrackBack
Category(s): Economy

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Setting the record straight on the Crash of '29

On this 80th anniversary of the Great Stock Market Crash of 1929, I refer you to Mark's February 2008 article that corrects common misconceptions about the crash.

As he noted then, "Sadly, because these misconceptions are foisted regularly upon the investing public, many investors fear bear markets intensely and make poor decisions as a result."

Read The Truth About the Crash of 1929.

Posted by Joseph at 10:50 AM | Comments (0) | TrackBack
Category(s): Current Market Events

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Personal-finance blogs roundup

My "future posts" folder is getting crowded, so here's a quick roundup of some Personal Finance blog posts I've been sitting on for a while:

3 Reasons to Run from Debt Settlement Companies: "You may have seen ads on TV featuring companies that claim they can 'repair' your credit. They tell you that you won't even have to pay all that you owe to creditors because they’ll negotiate your debt down to a smaller percentage..."

The Spending Habits of the Average American: "Last week, a site called Visual Economics posted a chart showing where the average U.S. consumer spends her money. Here's the chart in question, which has been making the rounds of the internet..."

How Credit Cards Are Getting Meaner: "What's going on inside the minds of credit card companies now that the CARD credit card reform act is coming down the pike? A customer service supervisor for a major credit card company emailed us to give us the low-down: reduced grace periods, cutting credit lines, increased fees on balance transfers, and, of course, jacked up APRs..."

How to Negotiate and Lower Your Bills: "We've recently been looking at our expenses to see if we can lower any of our bills. So far, the results have been promising. Earlier this year, we cut our car insurance bill in half. We also noticed that our cable and internet bill went up, so we called our provider. After speaking with customer service, they extended our promotional rate for another year. That 5-10 minute phone call saved us around $150..."

iSave: 50 iPhone Apps to Help You Save Money: "It's easy to get behind on your budget or lose track of your daily spending when you're on the go all day long. But what if you had the opportunity to take all of your financial tools with you on the road? These 50 iPhone apps make it possible to save money all day long without having to save every receipt, carry around a heavy calculator or check in with your broker every half hour..."

Posted by Matthew at 11:38 AM | Comments (0) | TrackBack
Category(s): Family Finances

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November issue of SMI now available

The November 2009 issue of the SMI newsletter was posted to the website earlier this week. There's some great content in it, for SMI web members and visitors alike.

Visitors may be interested in this month's cover article, “Trusting God to Work Things Together for Good.” This testimony from Austin details his journey of learning to trust God through a long period in the financial wilderness. This is an encouraging reminder that no matter what you may be facing, our loving and faithful Lord is worthy of all your confidence!

Also available for visitors is our Third Quarter Report Card, detailing the performance of SMI's main investment strategies. The overall market has done well of late, but our strategies have done even better!

Of course, there's even more great content available for SMI web members, including 4 Common Financial Mistakes Parents Make (and how to avoid them), Why Investing in Foreign Funds Can Help You Benefit From a Falling Dollar, How Health Care Reform Will Impact You, and more.

Become a member today to enjoy instant access to all these articles, as well as SMI's recommended fund list.

Posted by Mark at 4:37 PM | Comments (0) | TrackBack
Category(s): SMI General Announcements

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SMI staffer on Crown's MoneyLife program

Our October cover article, "Is a College Education Still Worth the Investment?," is the subject of today's MoneyLife radio program from Crown Financial Ministries.

Host Chuck Bentley interviews SMI writer/researcher Joseph Slife, who wrote the article. Listen below.

Posted by Matthew at 11:14 AM | Comments (0) | TrackBack
Category(s): SMI General Announcements

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Decade in review

One of the things I've been working on for this month's upcoming November newsletter is the report card we include every quarter on the performance of SMI's model portfolios. As I've been analyzing the data, one thing that has stood out to me is how different the experience of the past decade has been for "the market" vs. SMI's Upgrading strategy.

Over the past month, there have been quite a few "decade in review" type articles written. They've been spurred by a couple of recent events: the Dow re-claiming the 10,000 level (which first happened in March 1999), and last month's 10-year anniversary of "Dow 36,000: The New Strategy for Profiting From the Coming Rise in the Stock Market" being published. Not surprisingly, as in this example, the main idea seems to be to point out what a waste of time the past decade has been for investors, since the market is stuck right back where it started a decade ago.

While that may be largely true for indexers and others who earned roughly the market's rate of return over the past decade, it's decidedly not true for those who followed SMI's Upgrading strategy. Over the 10 years ended 9/30/09, SMI's Upgrading model portfolio earned a total gain of 116.5%.

The media line is the past decade was a waste, that you're flat over the past decade.

The truth for Upgraders is that you've more than doubled your money over the past decade.

Quite a difference.

If you weren't following SMI's Upgrading strategy and find yourself with meager investment gains (or even overall losses) over the past decade, take hope. There is a better way to invest. You don't have to repeat the mistakes of the last 10 years in the decade to come.

Posted by Mark at 4:49 PM | Comments (0) | TrackBack
Category(s): SMI Model Portfolios

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A tale of 1,000 points

The Dow reclaimed the 10,000 level yesterday, roughly a year after it last held that level, and more than 10 years since it first passed that milestone.

As David Callaway of Marketwatch points out, a look back clearly shows that it's anybody's guess what happens next:

When the Dow first closed above 10,000 in 1999, it only took another 24 trading days for it to close above 11,000, according to Standard & Poor's. It took seven years and a bear market after that for the Dow to achieve 12,000.

Which path will lead to the next 1,000 points? The 24-day path? Or the 7-year and a bear market path? Nobody knows.

But if you don't have your money invested, it doesn't matter either way. On the flip side, if you have at least a 7-year time frame until you need the money, you can take the risk that the next 1,000 points will take the wandering road. And hopefully you'll be pleasantly surprised by something closer to the 24-day path.

Posted by Mark at 2:58 PM | Comments (0) | TrackBack
Category(s): Investing Principles

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Time is running out for Sam and his family

Let me tell you about my friend Sam. I've watched the way he handles his finances for years, and unfortunately, he never seems to learn from his past mistakes. He's never learned to live within his means, and he's now deeply buried in debt.

One of his biggest weaknesses is he has a hard time saying no when he sees a need. He has a good heart and tries to help people, even when there's no way he can afford it. He just keeps spending away, somehow assuming that everything will work out somehow. You probably know people like this, too.

In Gone with the Wind, Scarlett O'Hara captures Sam's basic outlook on his financial situation: "Oh, I can't think about this now! I'll go crazy if I do! I'll think about it tomorrow .... After all, tomorrow is another day!" I fear it's not going to end well.

On top of that, he has a big problem focusing on his work and seeing it to completion. Most of the things he's tried to do, he hasn't done very well. I hate to say it, but his incompetence has led to many disappointments. Here's an example of just one of his more recent failures.

His latest idea is to get into health care in a very big way. He's been working on a plan for many months, and it looks like a decision will be made soon. But there's still a lot of uncertainty about what the whole thing will cost.

Also, it's disconcerting that similar undertakings have been tried before, and the results have not been encouraging. One would think there are lessons to be learned from the failures of others, but Sam isn't buying it.

He's convinced he can make it work where others have fallen short. But given his track record of repeated failure when running big programs like this (not to mention the poor financial condition of that letter delivery business he started), it's really hard to believe this time will be any different.

Unfortunately, Sam's family serves as his biggest enabler. Rather than calling him to account and forcing him to face up to his shortcomings, they too often remain silent. Sam's family needs to get together for an intervention, or his profligate ways will be their ruin. You wonder if they'll wake up in time.

Posted by Austin at 1:48 PM | Comments (0) | TrackBack
Category(s): Health Care

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Consumers jumping off the credit card wagon

It's not all voluntary, and it's not always a decision made of virtuous intent. But for a variety of reasons, consumers are rapidly cutting their credit card use.

Marketwatch reports that consumers cut their borrowing by nearly $12 billion in August, a 5.8% annualized rate of decline. Nearly $10 billion of that cut was credit card debt. That was the 11th consecutive month in which credit card debt declined, which is the longest stretch since this sort of thing has been tracked.

A lot of this is forced budget tightening, but there's a decent amount of anger mixed in too. We've reported about some of the changes credit card companies and banks have been making in recent months, and these changes are evidently rubbing many consumers the wrong way.

Credit-card holders are so irritated that 32% of them told Consumer Reports in a recent survey that they have paid off or closed a card in the last 18 months. Half of those who canceled did so because they were peeved by recent actions credit-card issuers took, such as cutting limits, hiking interest rates, jacking up fees or imposing new charges. (my emphasis)

Among those holding credit cards, 21% of respondents said they were treated unfairly by card companies. Less than half, 41%, said they were highly satisfied with their card issuer.

While the process is painful and the result is a sluggish economic recovery, in the long run our economy is only going to be as healthy as the underlying consumers it is comprised of. So to the extent that we are being forced off our credit card addiction, this is almost surely a positive long-term development.

Posted by Mark at 2:23 PM | Comments (0) | TrackBack
Category(s): Family Finances

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Gold vs. Bonds

Mark Hulbert points out that in recent months both gold and bonds have performed well. But, he asserts, that can't last — eventually they're going to have to part ways.

While he focuses on different reasons than we did, Hulbert's conclusion echoes our own from the October issue of SMI: "Don't be surprised if the bond market over the next several months is markedly weaker than gold."

Posted by Mark at 3:20 PM | Comments (0) | TrackBack
Category(s): Inflation Watch

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Looking beyond money funds

Today's money-fund yields are scraping bottom, but the Wall Street Journal notes that the super-low returns should be kept in perspective.

A $10,000 money-fund stake yields just $5 a year in earnings at last week's average 0.05% seven-day yield on taxable funds, as tracked by iMoneynet Inc.... (emphasis added)

To be fair, though, savers amazed at low money-fund yields should recognize that the funds are doing exactly what they are designed to do: pass along the interest rates in a particular segment of the financial markets, that of high-quality debt with very short maturities. The Federal Reserve has pushed those rates near zero in its effort to stimulate the economy.

And by one measure — their ability to preserve the spending power of people's cash — money funds aren't doing any worse than usual these days. Over the 12 months through August, the average money fund returned 0.65%, according to Lipper Inc., while the U.S. consumer-price index fell 1.5%. Money-fund yields are barely moving forward, but prices have gone backward.

In other words, if you're simply trying to keep your savings ahead of inflation, you can still do that in a money fund (assuming the official measure of inflation is accurate).

Still, a return of 0.05% in a money-market mutual fund is significantly less than you can earn today in an online savings account, a high-yield checking account, a CD, or a bond fund.

From the Journal:

While the yields on money funds are a product of market conditions and the funds' expense levels, "yields on bank deposits are dictated by what the bank is willing to pay," says Greg McBride, senior financial analyst at Bankrate.com....

One drawback: Savings account rates have been declining and are likely to continue to drop, Mr. McBride says. And a bank with a competitive rate this month could be far from the top ranks six months or a year from now.

With certificates of deposit, by contrast, you can lock in an interest rate for months or years [assuming you don't need ready access to your money].... As of last week, the average one-year CD had a yield of about 1%, and the highest yields were twice that, according to Bankrate.com....

Another way to boost the income you are earning on your cash is to move some or all of those dollars into funds that hold debt securities that are somewhat longer in maturity than those in money funds.... For instance, Vanguard Short-Term Bond Index, with a big slug of government debt, last week was yielding 1.65%, and Vanguard Short-Term Investment Grade, with a focus on high-quality corporate debt, was yielding 2.71%.

But you might lose most of that additional income in a period when [market interest rates] rates rise.

All of the above illustrates that there is no "perfect" solution or "best" choice among savings vehicles right now. Each has assets and liabilities.

You simply have to weigh the options — looking at both the available rates and the inconveniences that come with certain choices such as high-yield checking — and decide what what's best for you.

Posted by Joseph at 3:45 PM | Comments (0) | TrackBack
Category(s): Family Finances

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A powerful illustration

The unhappy September jobs report (PDF) offers a powerful illustration of why the SMI Four Levels process stresses building a contingency fund. The report notes that the average duration of unemployment is now 26.2 weeks — almost exactly half-a-year.

At Level Two we encourage you to "set aside three-to-six months of living expenses for emergencies." (For more specifics, read How Much Emergency Savings Do You Really Need?)

Layoffs and job reductions happen. Facing a job loss with a cushion of ready cash can make all the difference in the world.

Posted by Joseph at 4:07 PM | Comments (0) | TrackBack
Category(s): Family Finances

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New Sector Rotation fund gains 9.5% in first month

Last month, we replaced the current holding in SMI's Sector Rotation strategy after it had gained 19.3% over the four months it was held. Keeping that hot streak intact, the new fund raced out to a 9.5% gain in September!

To learn the identity of this recommended fund, as well as all the details of SMI's Sector Rotation strategy, which has averaged gains of 24.2% per year over the past 19 years (1990-2008), become a Web Member today!

Posted by Mark at 10:32 AM | Comments (0) | TrackBack
Category(s): SMI Advanced Strategies

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