Q & A with Bill : Riddle me this…

Q & A with Bill : Riddle me this…

Riddle me this…

Are there questions about finance, economics, or the markets that you are just dying to ask? This is the forum for you. Each week I will take those questions that I believe will have the most interest to our readers and expound upon them. 
Everything you write will be completely confidential. I never use last names nor will your information be used in any other way.
Some readers may ask for specific recommendations or portfolio allocations. Since I am a money manager, by securities law I am prevented  from making specific recommendations in a public forum  but I can make specific recommendations to individuals so be sure to include your e-mail and, if possible, your telephone number.  And remember, there are no stupid questions only stupid answers so no matter what your level of financial expertise this forum is for you.

Just type in your questions below in the comment section and I promise to do my best to answer all of them and feature at least one a week for our readers. Who knows maybe this week it will be your question.

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  1. I have a substantial position In a NY Muni Bond fund. Currently paying 3.62% . Receiving $1550+ a month, tax free is hard to pass up on. My portfolio is currently 44% equities and 54% bonds. Should I just ride this out and collect my monthly dividend or diversify into a high income bond fund? Or perhaps add to my equity position with dividend stocks?

    Thank you !

    • Dear Northhills,
      I do admit that 3.62% tax-free is hard to give up, so here is what you need to ponder.
      Are you willing to hold them until expiration? If so, whatever loss you may take on the price of the bonds will ultimately come back to par even if it is 10-20 years from now.
      As interest rates move higher in the years ahead (and believe me they will), will 3.62% look as good as it does now? Bottom line, in fixed income the trend is no longer your friend.
      If you want to stay in fixed income a better bet would be high yield corporate bonds or even investment grade corporate bonds for now.
      Finally, I believe that the markets will reward those in equity over the next 6-9 months. As such, large cap dividend stocks or funds would give you the best of both worlds–price appreciation and income.

  2. Dear Bill:

    thank you for your reply..
    Question 10-20 years of a recovery..? in 2008 my fund was down 2.48% but recovered in 09- 12.10%- Sounds like your predictions are for a worse scenario.

    Interesting that Bill Gross, founder of bond fund – Pimco is buying MUNI”S?

    Confusing times…

    • I’m sorry for the misunderstanding. I meant to say if you held long-dated indivudal muni bonds and were content to hold them until they came due, even if that was ten or twenty years from now, and were satisfied with the rate they are paying, than don’t worry about these short-term fluctuations. However, that is not the case.
      You are holding a substantial postion in just one muni bond from just one state, New York. That’s a risky position. New York is not in the greatest shape financially. Interest rates are going up as well and I would seriously question whether the potential tax savings are worth the risk.
      As for Bill Gross buying muni bonds, he may well be doing so but his position may be a small percentage of his overall investment portfolio. Be wary of headlines claiming “Bill Gross is buying munis”. Many times those statements are misleading.

  3. Dear Mr. Schmick
    I must confess that I have been reading your weekly column regularly for over a year now, and less regularly for 2 or 3 years prior to then. Having once practiced the dark science of professional investing for over 40 years, I admit to being struck by how uncommonly well you perceive the entirety of the investment spectrum. I am credited by many for inventing the “small cap (equity) investment style” and am encouraged when I come in contact with others who provide unique observations to our passing investment scene. As you well know, your observations have, by and large, been on the money, and, uniquely, for all of the right reasons. Typically, investors put together their investment plans with the best of intentions through their rearview mirrors which, as you know, is not the secret to financial prosperity.
    Presently, I observe, you seem to believe that the equity market is a more or less safe haven for generating positive returns for the bulk of 2011. Generally, I would agree with that, but am, admittedly, getting more concerned about the restructuring and reorienting process that we all must go through if our country is to continue to prosper. As the spring evolves into summer this year, I will be eyeing the horizon for danger signals which may indicate that the final phase of this Bear Market rally is closing on us rapidly. Let’s keep our senses alert and vision focused, and keep in mind that this all is a Bear Market rally…….we think!!!
    Thanks for helping me to keep a level head.

  4. Thank you for your kind words. Yes, I do believe the equity market may provide a “safe haven” for some months but how long exactly is a question mark. I agree with you that the problems ahead are a matter of concern. I too worry that the period between May and August will be one of extreme uncertainty. At that time, I will be watching closely and will be ready to move to the “sidelines” at a moment’s notice. If I have not yet made that clear in my columns, I will do so presently. All the best, Bill Schmick

  5. Hello Mr. Schmick,

    This is my first New Year’s resolution: have someone look over our financial situation. I have been reading your columns regularly and really like them, so I’m hoping that will be you.

    I want to talk to someone about where we currently have retirement money and get recommendations about what might be improved. Plus, I expect a distribution from my uncle’s estate (30-40K) this year and I don’t know what we should do with it (pay part of mortgage, invest?), given we are a few years from retirement. The sum of all our assets is pretty small (about 150 k in retirement and savings accounts, plus state pensions). Do you have some limit that you work with? I’m sure we don’t have enough money to need an on-going financial manager, just an evaluation and recommendations.

  6. Dear PJC,
    I would be happy to discuss this with you. Give me a call at my toll free number 888-232-6072

  7. Dear Mr Schmick,
    At my age, 59, I want to both grow and protect my brokerage accounts.Some see a long deflationary period ahead for the US. You appear to think the FED is willing and able to reflate and return the US to more average growth rates. Is a strategy of quality dividend paying stocks advisable at this time? Are boomers and younger folk likely to show a new interest in dividends? Will the dividend return to it’s original place in the equity world? Will more companies start paying dividends? Is the dividend a good investment if the FED is successful? If buy and hold is no longer wise at my age (or any age), how does one manage a portfolio of dividend paying stocks?
    Thank you for your time, Michael

    • Dear Michael,
      All of your questions are right on the mark and deserve more space than this comment box will allow. I will address your questions in a column this coming week. Thanks for the idea. I’m sure there are thousands of investors asking these same questions.

      • I look foreward to reading your column on Saturday.
        Thanks for your efforts.

  8. Bill:

    What are your thoughts on the current state of the markets?

    Thank You

  9. Bill,
    Do you believe in the limits to growth?

    • I believe that the Fed is in the driver’s seat. It will do whatever it can to engineer growth but unfortunatley so far it has only given us short term relief. There are some long term limits to our growth, things like education, agining, etc. but energy isn’t one of them.


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