Question: I need a safe and secure retirement investment strategy, with a good rate of return. I have $125,000 that I need to roll-over from a deferred-comp "pre-tax" 401K. I would appreciate any sound investment ideas. — Bill
Mike Norman: Basically, for a safe and secure portfolio you need just two components: an equity index fund, and Treasury notes that you buy in a "laddered" fashion. For the equity index fund I would use the Vanguard 500 Index fund (VFINX). To ladder Treasuries you buy one-year, two-year, three-year, four-year, and five-year notes. When the one-year note matures you roll it into a five-year note. Continue doing this with the remaining maturiities. It will give you a higher yield with less risk. Also, remember to buy your Treasuries through the Treasury Direct program, because there are no commissions or fees. This simple combination of an indexed stock fund and Treasuries will allow you to grow your money and sleep well at the same time.
Question: Which will do better in 2006: Growth stocks or value stocks? — Craig
Mike Norman: I believe that value stocks will do better, however, there aren't a whole lot of these around. A number of studies show that the universe of undervalued stocks in the market today is quite small. This could also be taken as a cautionary sign.
Question: I bought into GM at $37, because of their 5% dividend. I keep hearing doom and gloom one day, and the next day someone says the union has to go along with the company, and predicts the stock will rise. What is your expectation? — Frank
Mike Norman: Frank, as a "contrarian" I love buying when there is doom and gloom, however, GM has some real challenges and they won't go away that easily. If things stay as they are the company has a chance to muddle through and eventually turn the corner. There are a bunch of new car models coming (finally) and sales in China are rising. Moreover, the cost cuts will help to stem the tide of red ink. But if the economy contracts, then all bets are off and GM's situation could become precarious.
Question: If Verizon and EMC in fiber optics are the place to be for video-on-demand, would you say that Corning, in addition to its LCD panels, is going to make good bottom line results from fiber? Enough to move the stock to 30? — Pete
Mike Norman: I like Corning, but it's a stock that I bought back in 2002 when many thought it would go bankrupt (and it was selling for less than $2 per share). Since then it's had a big move up. The only way I'd get behind it now is if I thought we were on the verge of another major upturn in capital spending, which I don't. I'd leave it alone.
Question: What is your opinion on no-money-down housing developments, like those going up in the Poconos? — Scott (Fair Lawn, NJ)
Mike Norman: Scott, I think no money down is great. It's one of the ways that Americans are benefiting from trends like globalization and the rising use of technology. By lowering capital costs we have access to more credit and that helps the real estate market. As long as we don't enact policy that harms these macro trends, then there is little risk in these highly leveraged loans. As for the Pocono developments themselves, they may have run up too far too fast just as most other properties have, but long-term they're fine.
Question: With the focus of the global economy on researching alternative energy sources, I was was considering getting into the oil sands market. I have seen and read some things about the potential of the product and I think there is a lot of money to be made in this area. Are there any good specific companies to invest in? I read about the Canadian Oil Sands trust, but that surely isn't the only one. — Dan (Olivet, MI)
Mike Norman: Dan, most of the major oil companies like Exxon Mobil, Royal Dutch/Shell and Chevron Texaco have been moving into the oil sands. Over the next decade they are projected to invest up to $75 billion. Surely, that's another way to play it.