Tiny houses gain appeal

In this era of tight credit, high-priced McMansions and rapid life-style changes, the American Housing Dream may no longer be defined as a three-bedroom homestead on half an acre. For many Americans of all ages, there is a movement afoot to downsize their living space dramatically. The typical American house is around 2,600 square feet. Until recently, builders were taking the “barbell approach” by building bigger and bigger homes at one extreme and smaller and smaller apartments on the other. This trend, I suspect, largely reflected the growing disparity towards higher income inequality in this country.   The rich builders reasoned, wanted and could afford the sprawling monstrosity with the private drive and manicured lawns, while the poor were happy to have a roof over their head. But more and more Americans are “going tiny” for a variety of reasons. No question that buying a typical small house or even a trailer that measures 100-400 square feet is decidedly cheaper than a regular home. Most of us spend 1/3 to ½ of our income over a minimum of 15 years paying off the house. In contrast, over 68% of those who own tiny houses have no mortgage. As a result, over half of tiny house people accumulate more savings than other Americans. Homes also require a lot of time and effort to maintain. It is one of the main reasons that retirees are “downsizing” but that is not the only reason. Aside from the on-going expense, environmental concerns, such as fuel consumption, also play a part in that decision. More than 80% of greenhouse gas emissions during a home’s 70-year...

Robo-Advisors have landed

Skynet, move over. The dawn of intelligent portfolio services is rising across the globe. Depending upon your individual circumstances, this trend could be an answer to many investors’ problems. Exactly what is robo-investing? The dozen or so firms offering this service use computer algorithms, rather than humans, to manage your investments. They do so at a considerable cost savings to you, the retail investor. They offer a substantial discount in the fees they charge, compared to more traditional financial service advisors. Until recently, many investors had two choices when deciding how to manage your retirement savings such as an IRA or inheritance, for example. You could do-it-yourself (DIY). Pick some mutual funds, stocks or exchange traded funds your cousin or your fishing buddy suggests and invest for the “long-term.” That works fairly well as long as markets continue to gain year after year, but fails miserably when the markets turn, as they did during the financial crisis of 2008-2009. Most individuals (and professional investors) held on throughout that decline only to sell at the bottom. Twenty-five years or more of savings were wiped out in 18 months. Many retail investors have stayed in cash ever since, missing a 100%-plus gain. Those who held on have made up most, if not all of, their losses, but it has taken over five years to do so. The other option is to hire a financial advisor. Unfortunately, they normally have a minimum asset requirement of $250,000-$500,000 or larger. These advisors will charge you 1-2% annually and many also make additional fees through commission arrangements or “revenue sharing” deals with mutual fund managers....

Should you be worried about October?

A common perception on Wall Street is that October is the worst month of the year for the market. It is true that the month has historically failed to provide stellar returns, but it is actually September that deserves the title of the worst market month of all.             The good news is that September is over. Does that mean we can look forward to better times ahead? Well not quite; we still have to deal with October, which like March, is usually a month that begins like a lion and ends like a lamb as far as selloffs are concerned. So what makes investors so fearful of October? It might be because October has ushered in some auspicious dates of calamity beginning with a 12.8% plunge in the Dow on October 29, 1929. In today’s markets, a 12 % plunge doesn’t feel like a big deal but back then it was substantial and it didn’t stop there. The market went on to lose 90% of its value and usher in the Great Depression. Then there was the stock market crash of October 19, 1987. That was my first of many encounters with stock market meltdowns throughout the world.  Fortunately, it was a short, sharp decline and the U.S. markets recovered quickly. And how could we forget October, 2008? It was the worst month for the S&P 500 Index, NASDAQ and the Dow in 21 years. Global equities lost $9.5 trillion that month and it was the most volatile 30 days in the S&P 500’s eighty year history. We registered the most down days in a single month since...

The Retail Investor Jumps Ship

“The ES_F can’t get above the vwap and high volume node.” “SPY –a perfect symmetrical triangle on the one minute.” “Obama jobs report baked in. I’m short until tomorrow’s real report then we get a fluff rally.” The above comments were lifted from a daily internet trading service peopled by day traders and other speculators. There are hundreds of them. Their comments make little or no sense to most readers, nor should they. Yet, in order to compete in today’s stock markets as an individual investor, this kind of investing behavior is required. Is it any wonder that individual investors are abandoning the stock market in droves as the reality of how the markets have changed hits home? Even before the so-called ‘flash crash’ on May 6, 2010, the retail investor was, at best, risk adverse when it came to the stock market. Burnt badly in 2008 when individuals lost as much as $20 trillion of their net worth, retail investors continued to withdraw money from stocks in 2009, despite a 69% rally in the stock market. By late spring of 2010 that trend had just begun to reverse. Investors channeled $13 billion into U.S. mutual funds in March and almost $7 billion in early April. I started to get excited and mentioned it in my columns. But by the third week in May, the retail crowd sold almost $30 billion in stock funds and is once again on the sidelines. What happened? The debt problems in Greece, which have since spread to the rest of Europe, are partially to blame. Skittish investors who have yet to make back...

Don’t Try to Pick a Market Bottom

In my 28 years on Wall Street I’ve lived through over thirty stock market corrections worldwide. Not once have I been able to call a market bottom. I gave up trying long ago and it has not hurt my performance at all. Here’s why. The truly deep market declines (like the one we are now experiencing) make calling a market bottom unnecessary. In my experience, whenever any stock market has dropped by over 50%, I begin to invest. I figure I can’t go wrong with a “half off sale” even if prices decline by another couple of percent. To my way of thinking, I’m still getting a deal especially if I plan to hold my investment for the next few years. That’s not to say you should put all your cash to work immediately. Instead, I suggest you use a time- tested method of investing called dollar cost averaging. It works this way: let’s say you have $12,000 to invest, take the first third of that sum ($4,000) and buy your stock or mutual fund this month. Add another third in January and the final third in February. This type of investing works well especially in volatile markets and usually produces the best entry level prices. If you are super cautious invest one third every three months. Stock valuation is also a better way of buying stocks then trying to pick a bottom. I use the price/earnings ratio (among others) as a measure of determining how cheap stocks really are. Last month the S&P 500 benchmark index traded at roughly 10.4 times earnings which is the lowest it’s been...

Time-Tested Investment Theory Comes Under Attack

I am about to say something heretical, even life threatening to the investment community. As markets continue to decline and trillions of dollars of retirement money evaporates, an increasing number of investors, myself included, are taking issue with the argument that a Buy-and-Hold investment philosophy is the best approach for all individual investors over the long term. My first beef with the theory comes down to this: what is long term for one investor may not be for another. If you are 75 years old, long term may mean a period of time far shorter than someone celebrating her twenty-first birthday. If you are saving for your four-year-old son’s college education your time horizon is far different than for a daughter who is fifteen. Another issue is timing. Say you are 67 and retiring this year. You remained fully invested throughout this crisis and have now lost 50% of the savings you have been accumulating over the last 25 years. It would be a safe guess to say that for you a buy and hold strategy has been an unmitigated disaster! Much of what we know about modern day investment theory stems from the findings of Harry Markowitz, an academician, who in 1952 developed the Efficient Market Hypothesis. He argued that a stock, bond or portfolio was considered efficient if no other asset or portfolio of assets offered a higher return for the same or lower level of risk. He believed that most markets were so efficient that the current market prices of securities reflected all information (public or private) available to investors. In its strongest form, this theory...