1) I am planning to retire and like the idea of having dividend stocks to enhance my income. What are your ideas about this strategy? Thanks. — Claude
Mention a stock to my 101-year-old (and still shrewd) grandmother, and the first question she'll ask is, "Does it pay a good dividend?" It's only in recent years we've become so obsessed with capital gains. Well-balanced portfolios should have a sound income strategy no matter how old the investor happens to be.
Considering the volatility in oil prices and world financial markets right now, one has to stay diversified. Bonds aren't the only income-oriented investment you should hold. Indeed, from royalty trusts to real estate funds, its is a big world of income out there. In my experience, it pays to look off the well-beaten path.
I've recently reestablished positions in loan-participation funds, also known as bank-loan or floating-rate funds. These funds hold short-term loans whose rates periodically reset. This makes them one of the few income-oriented investments that can actually do well in a period of rising rates. A few names you might want to consider, and that I hold a financial interest in, are VVR, PPR and EFT. Of course, using a reasonable position size is a must.
I also believe it is prudent to diversify one's currency exposure by owning non-U.S. bonds. Foreign bond funds benefit when the value of the U.S. greenback declines, which would bid up closed-ends like FAM or FCO, in which my hedge fund holds an interest. Both offer monthly dividend payments and should be traded with strict risk management techniques.
2) Will you look into your crystal ball and tell me what you see with the housing market? — J H (Sacramento, CA)
I watch mortgage real-estate investment trusts as a leading indicator of housing prices, and lately names like Anworth Mortgage Asset (ANH), MFA Mortgage Investments (MFA), Luminent Mortgage Capital (LUM), Impac Mortgage Holdings (IMH), Bimini Mortgage Management (BMM) and Annaly Mortgage Management (NLY) have all traded at or near multi-month lows. The sector smells like death, which would make me very leery about becoming overextended in the real estate market right now.
3) My husband was killed in a car accident, and I can't touch the money in his estate for six months. Someone has told me that there is a law called Surviving Spouse Exemption, where I would be allowed a portion of the money to live on. He took care of me, so I have no income. Do you know anything about this law? — R.B.
My most sincere condolences on this horrific tragedy. And while unfortunate accidents are out of our control, the confusing estate and tax laws are a product of government run horribly amuck. You are the surviving spouse — why you wouldn't be able to have access to his estate is beyond me. I'd suggest contacting a reputable attorney on this issue.
4) How do I find a great financial adviser? What are the things I should be looking for? — Dolores
When you hire someone to manage your money, the very least they can do is actually watch it. Yet I know far too many money managers who spend their days in meetings, on airplanes, at lunches or on sales calls. They're doing this, that, everything, it seems, except for watching clients' portfolios. There are plenty of multimillion-dollar portfolios out there that are left adrift like ships on a sea. If your adviser isn't keeping an eye out for icebergs, who is?
So when interviewing financial advisors or money managers, don't be afraid to ask! Does someone review the portfolio every day? Every week? Is someone maxing cash or considering the effect of noncorrelated assets? How are investments screened? Is the portfolio allocation made all at once, or gradually over time?
Knowing how the portfolio is traded is important, because in most cases, "brokers" have now become "account executives" (read: sales people), who oftentimes are many steps away from actually managing the portfolio. Most financial advisers can tell you the average annual return for stocks over the past 72 years. They can tell you what some Merrill Lynch honcho thinks about the economy, or consumer spending, or the market. If they're really good, they can tell what was on the cover of Barron's last weekend, or perhaps even rattle off the names of a few prominent CEOs. But do they know how to trade? Unfortunately, many individuals put their trust in financial advisers who know precious little about the nuts and bolts of managing a portfolio.
But above all, expect results. The only reason to go to a financial adviser or money manager is to make money. Yet in my experience, many advisers excel in managing expectations more than money. So when they bought you Time Warner at $55 a share (and doubled your position every 10 points down), what matters isn't the loss, it seems, but that "It's still a great company," or "It's just oversold," or "It's this crude oil thing that's hurting everybody." Amazingly, even after a client has lost 20%, 30%, even 40% of their portfolio, many financial advisers can still say with a straight face, "It's about the long haul." Boy, I'll tell you — that takes some moxie.
If your portfolio is full of losses and your financial adviser is full of excuses, then it might be time to put your account up for review. Because at the end of the day, it's all about making money, and if your adviser isn't even giving your account the care it deserves, then perhaps you deserve another adviser.
5) I want to pass on my IRA to my children without paying taxes on it. Is there a way to do this? I am 62 years old. — Ed
Everybody needs a good barber, a good doctor...and a good accountant. Considering how frequently the oftentimes bizarre rules about retirement savings can change, I'd find a tax-professional you can trust and put this issue in their specialized hands.
6) What do you think about buying gold and silver as an investment? — Byron
The best-articulated case for gold I've read was written by none other than Alan Greenspan more than 35 years ago. In an essay later reprinted in Ayn Rand's Capitalism: The Unknown Ideal, Greenspan outlined how, "in the absence of the gold standard, there is no way to protect savings from confiscation through inflation. There is no safe store of value."
Traded in every time zone and coveted on every continent, gold is the most widely quoted investment in the history of the world. And while gold's value might fluctuate, the fact that it has value hasn't changed for 5,000 years. In all practical terms, gold is money. It has no board of directors or debt. It will never rust, decay or file Chapter 11. Gold boasts no Ebitda, nonexpensed stock options, conflicts of interest or accounting tricks. Gold is beholden to no one. It doesn't do anything...it is simply owned.
If you're looking to preserve your wealth (or perhaps leave something to your children or grandchildren), I strongly believe now is the time to consider gold bullion. While the investment seems obscure and somewhat impractical, history suggests that an ounce of gold will have value long after Cisco and Home Depot are long gone. For savers, one ounce gold coins and bars can be bought easily through dealers like Kitco.com, Onlygold.com or reputable coin shops.
In recent years, trading gold has become much easier thanks to the successful introduction of two exchange-traded-funds (ETF) that track the price of the metal nearly tick for tick.
StreetTracks Gold Shares (GLD), which started trading on the New York Stock Exchange last November, and the iShares Comex Gold Trust (IAU) are designed to track the spot price of physical gold, with a share representing one-tenth of a troy ounce of gold, less expenses. For investors looking to make gold part of their portfolio, these instruments are a lot easier than storing the bars yourself.
And while I'm bullish on the metal long-term, lately the price action has been anything but encouraging. According to the Commodity Futures Trading Commission's Commitments of Traders report, as of Aug. 16, speculators were long roughly four gold futures contracts for every one they were short. Commercial traders, generally thought of as the "smarter" money, are overwhelmingly short on the metal, with 72% of the category betting the metal will fall. If you own gold, this should make you nervous, because taken as a group speculators tend to be a terrific contrarian indicator.
7) I'm 23 years old and work for a very large corporation. I have a 401K program that I participate in through that company. What is the percentage that you would recommend I put towards my retirement at this point? Also, how risky should my portfolio be, given the fact that I have several years to save? — Samantha, Wisconsin
Considering most firms match employee's contributions to their 401k plans, I'd look to invest as much as possible. You have a lot of time before you retire, so you have the opportunity to get a great jump on building a comfortable nest egg. The real trick is determining where to hold the assets. Employers offer a dizzying array of 401k choices, including mutual funds and the employer's own stock.
An increasingly popular option within many retirement plans are so-called "Lifestyle" funds, which own a diversified portfolio of stocks, bonds and cash. Over time, as the funds near their predetermined "maturity date," the portfolio's investments are shifted out of stocks and into bonds, reflecting a more conservative allocation. This is a great option for individual who prefer to let someone else make their investment decisions.
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Jonathan Hoenig is managing member at Capitalistpig Hedge Fund LLC and is a markets columnist for Smartmoney.com. He appears regularly on FNC's business program Cashin' In.