Sound Advice

High Yields, Yes!  But There Are Risks Now that failure to get much done in Washington seems to be the bottom line for lots of talk, but little action, it’s hard not to wonder whether we’re missing something.  Yes, the Federal Reserve Board has aggressively raised interest rates in the hope of putting a damper on excessively high inflation, but one would think that there might be some good news as a result of these efforts. The hoped-for result is that inflation is indeed moderating.  Also of importance, though, is the sharp improvement in interest rates on fixed-income investments, usually a.k.a. bonds.  For much of the past decade or more, interest rates have languished at or near historical lows, which created considerable shortfalls for folks living on fixed incomes. Thanks to the Fed’s hikes, the returns on bonds and the like are beginning to be of interest.  But . . . and that’s a big but . . . there are risks involved. For short-term investing at ...

The Risk of High Dividend Yields Over the last decade and a half, it’s been a challenge finding generous current returns on investments.   That’s especially true for the fixed-income market (primarily bonds), which most of the time has been a relatively safe haven for those seeking assured returns.   The reality is that recent years have not been a mirror for “most of the time.” The problem is interest rates.   As interest rates rise, the values of fixed-income investments fall.   Why?   Because interest rates tend to move in relation to rates set by the Federal Reserve Board.   The Fed’s efforts are aimed at stimulating or cooling the economy. For an extended period, interest rates have been bobbing along the lowest end of the yield spectrum.   At the start, the central bank opted for well above average stimulation to counter the impact of the 2008-9 financial crisis.   For bond investors, that continued the pattern that provided significan...

Say hello to PEG No, she’s not a new neighbor.   PEG is the acronym for Price-to-Earnings Growth Ratio.   Although stock analysts tend to litter their conversations with shop talk such as PE (Price-Earnings Ratio), ROI (Return on Investment), and Debt-to-Equity Ratio, PEG may well be more telling about the level of stock valuations. The process of evaluating stocks begins with evaluations of the underlying companies.   This includes income statements (a.k.a., profit and loss statements) and balance sheets. Concerns about income statements focus on the trends in earnings, which include profit margins, tax rates, and net income.   What’s important here are the trends over time.   Are margins rising or at least holding their own? Are tax rates following a consistent pattern or have there been interim aberrations? And is the bottom line expanding? Flat or rising margins are good.   Level tax rates are also OK, but if there’s been an outlier, what would ...

Recession Ahead?  Golden Opportunity! There’s no reason to disagree with the likelihood that a recession looming ahead will bring more difficult economic times, including a pullback in business profits, substantial losses in jobs, and greater efforts needed by many families to make ends meet.   For knowledgeable investors, however, the downturns that accompany recessions invariably lead to more interesting (read: cheaper) valuations for stocks. With few exceptions, stock market plunges are brought on by moderation and/or reversals in the ongoing pattern of this country’s economic growth.   But as is well known, investors tend to look beyond, often well beyond, the current level of business activity to get a better sense of what lies ahead.   Recoveries always follow downturns. Here’s the evidence: Since 1949, there have been 12 declines of 25% or more in the Standard & Poor’s 500 Index.   In the year following those declines, the average gain from th...

Spouses Need To Talk To Each Other Far too often, I’ve met with recently widowed prospects who never had essential discussions with their spouses about the financial aspects of their lives. More often than not, it appears that there was an assumption that some sort of magic would ensure that there would be no concerns about money after that sad day.   The reality, however, is very much the opposite. This is largely the result of what used to be the view that the husband took care of the finances and the wife took care of the home.   To the extent that this “used to be” scenario continues, it’s a virtual time bomb that will cause considerable problems.     Let’s not even talk about the husband who never bothered to give his wife the combination to the vault in their home. At a minimum, both spouses need to know about the full range of assets (including investments, real property, and personal property) and debts as well as sources of continuing income.   Eq...