Chris Waller, an economist and EVP and Director of Research at the St. Louis Fed, wrote on Monday that negative interest rates are a tax in sheep's clothing. Waller says: Many foreign central banks—such as the European Central Bank, the Bank of Japan and the Swiss National Bank—have implemented negative interest rates on bank reserves as a policy tool to stimulate demand for goods and services. If a bank holds a dollar of reserves, the central bank may take, say, half a cent. The hope is that a negative interest rate will induce firms to lend out the reserves by charging a lower interest … [Read more...]
Working Millennials: Rent or Buy Real Estate?
When you’re a working Millennial, your weekends are extra valuable: Everybody’s working for the weekend. When I was the age of today’s Millennial I worked at Fidelity Investments and lived in Watertown, MA. Rent was a big chunk of my paycheck but that’s what it cost to be so close to Boston. I wasn’t saving much money. Then there was a change. My department was moved out to Marlborough, MA—40 minutes west of Boston. For a while I did the reverse commute from Boston to Marlborough. But that got old fast. I wanted to live where I worked and I was also tired of paying someone else … [Read more...]
The Most Powerful Force in Investing
The most powerful force in investing is compound interest. As Charlie Munger, Warren Buffett's long-time partner once said "Understanding the power of compound return and the difficulty getting it is the heart and soul of understanding a lot of things." The examples of compound interest that we see presented most often are those that show its power over long periods of time. Here we illustrate the power of compounding in another way. The chart below shows the gain on a $10,000 investment over a 20-year period using different rates of return. The rates of return are on the horizontal axis … [Read more...]
The Prudent Man: The Wisest Action is Sometimes No Action
What is the key to achieving the financial success you and your family deserve? Well, for one it’s about keeping it simple—Simple is Sophisticated. Another key is to stop spinning your wheels. In portfolio management terms, spinning wheels or, how long a position is held over the course of a year is called the turnover rate. In other words, if your holdings at the beginning of the year were sold and replaced by new positions, then the turnover rate would be 100%. Here’s a wonderful example, one of my favorite, that Dick Young explains to his readers: Mr. 3.5% Turnover In 1992, Forbes … [Read more...]
Simple is Sophisticated: My Grandchildren’s “Rich as Croesus” Strategy Part II
Scene from Greek history: The deaf-mute son of King Croesus prevents the Persians from killing his father, by Salvator Rosa, c.1663-64. Lucky you! You don’t have to wait for my next installment on Simple is Sophisticated. Going back ten years now, in May 2006, my father-in-law Dick Young wrote to his treasured readers about a simple strategy: Simple is Sophisticated. Easy to understand, but hard to do. For long-time readers this is nothing new to you. The only difference for you is you have a much larger pile of cash from following the advice in Richard C. Young’s Intelligence Report. Why … [Read more...]
Simple is Sophisticated: My Grandchildren’s “Rich as Croesus” Strategy
My father-in law Dick Young wrote this timeless issue in May 2006 in his monthly strategy report: Richard C. Young’s Intelligence Report. Check back in a week or so for more on one of my favorite investing lessons. As you can see I have a somewhat vested interest in the results. Read more of Dick Young's investment strategy here. Simple Is Sophisticated Debbie and I recently made the pilgrimage to Vermont’s Authentic Designs (www.authentic-designs.com) to order much of the inside and outside lighting for a New England home we are renovating. At a most bucolic setting, skilled craftsmen … [Read more...]
Gimme Shelter: Gold vs. Apple
+ … [Read more...]
Dan Mitchell: Lessons from State Tax Policy
Here Dan Mitchell of the Cato Institute discusses why some states deserve kudos for their tax policies, and some states deserve mockery. Just like with nations, there are many factors that determine whether a state is hindering or enabling economic growth. But I’m very drawn to one variable, which is whether there’s a state income tax. If the answer is no, then it’s quite likely that it will enjoy better-than-average economic performance (and if a state makes the mistake of having an income tax, then a flat tax will be considerably less destructive than a so-called progressive … [Read more...]
The Monday Melee: Home Sales Sputter
New Home Sales Slide Again For the third month in a row sales of new homes have fallen. The AP reports: "New-home sales slipped 1.5 percent last month to a seasonally adjusted annual rate of 511,000, the Commerce Department said Monday. That rate has steadily dropped from 519,000 in February and 521,000 in January. Sales plummeted 23.6 percent in the West, which has been prone to volatile swings in sales as one of the nation's priciest housing markets." Slump in Home Buying Hits the West Hardest U.S. and Canada have Some of the Costliest Housing in the World MAP: Seriously … [Read more...]
What’s Working in the Stock Market this Year?
The table below ranks the 24 Industry Groups in S&P 500 by their YTD performance. What is the best performing industry group YTD? Energy, the same industry group that was last year’s worst performer. I also see utilities, materials, and transportation stocks among this year’s big winners. All three were big losers last year. How are last year’s big winners doing this year? Last year’s best performing industry groups included the retailing, software and services, and consumer services groups. All three are down YTD while the S&P 500 as a whole is in the green. This reversal of … [Read more...]
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