My humble opinion on current financial issues.

Very often, I have people ask me my opinion on current finance-related issues. Sometimes I'm asked in person, but many times I'm asked via Eclecticsite.com's Financial Page. The "My Humble Opinion" page is simply a journal of my ongoing thoughts and opinions. Though most of what I talk about will be directly related to finances, I'm sure that I'll sometimes wander off on a tangent. I'll only be adding entries when I feel I have something of importance to address. If there is any particular topic on which you would like my thoughts, please just send it along and I will do my best to honor the request. Please understand that everything I discuss is nothing more than my own humble opinion. Sometimes my predictions will be right on the mark and sometimes not. I will always try my best to be open and honest, but everything I discuss will simply be my humble opinion.

What about the Euro?
12/7/11
There's a lot of talk right now about the Euro and how much trouble it may or may not be in. So, what about the Euro? Basically, if the Euro does collapse, there will be a devastating ripple throughout world economies. The actual scale and effect is too complex to accurately predict no matter what "experts" say. Just know that it would end up being really, really bad...at least for a while. How long? No way to really know. In my humble opinion, even if the Euro is saved, it's future is in serious doubt unless Europe finds a way to start shedding her debt either by paying it off or by debt forgiveness. Significantly reducing her debt would require Europe to also significantly lower her standard of living. The same would be the case if the United States decided to eliminate her debt. Again, in my opinion, this is unlikely to happen and even if saved for now, I think the Euro would find itself in serious trouble again sometime down the road. If things get fixed, then the economy will continue its serpentine climb to improvement. Of course, that will only last until the next serious down cycle; but, that's how economies work. They cycle. Good to bad to good and back to bad again. There really is nothing the average person can do about the possible disintegration of the Euro. What we CAN do is be ready in case things do turn ugly. I know it's the same old story over and over from me, but the best way to be prepared is to be debt free and have a nice emergency fund built up. It's funny how those two things seem to be such good ways to be prepared for just about any financial disaster, but they are. Other than that, all you could really do is to have a few months worth of food and water tucked away to get through the transition period from collapse to the start of rebuilding either the same system, or a new one.

OK...fine.
9/30/11
People occasionally ask me for stock tips. I generally don't give them because people have different levels of knowledge regarding the stock market, different amounts of money to invest, and different tolerances for risk. Besides, I don't want to be responsible for someone getting financially hurt if my idea goes bad. In spite of my reasons for generally not giving stock tips, people keep asking. So, OK...fine, I'll let you in on what I am doing personally. I am NOT recommending any particular investments or stocks, I'm just letting you know what I am doing based upon how I currently view the stock market. First of all, remember that I do not recommend individual stocks. I recommend mutual funds or ETFs (Exchange Traded Funds). For more on these investments and how to invest in the stock market, be sure to read my article about stock market investing. Anyway, I think the market will kind of bounce around for a while and then improve slowly. This, of course, goes out the window if there is some major news event that changes things. You see, that's the problem with trying to "beat the market" as they say; there is just no way to predict what craziness the world will come up with in the near and far future, and this craziness affects the stock market considerably. So, right now, I am pretty much splitting my money between the IWM ETF and the QQQ ETF. I also think it would be a good idea for me to put a little bit of money in the DZZ ETF. Now, let me explain to you what each if these is and why I'm choosing to invest in each one. First, IWM is the symbol for the iShares Russell 2000 Index which represents thousands of small companies. When a market improves, it is generally the smaller companies that grow the fastest. Since I think the market will improve, I want some of my money in those faster growth companies. QQQ is the symbol for the PowerShares QQQ Trust which is largely made up of technology companies. Technology is another sector that tends to lead a recovering market. Finally, DZZ is a gold short. That means it goes up when gold goes down and down when gold goes up. Since DZZ uses margin, it actually moves at about twice whatever gold does but in the opposite direction. Moving in the opposite direction is what the word "short" refers to. Just remember that it works in both directions. If gold goes up, then DZZ goes down twice as much. If gold goes down, then DZZ goes up about twice as much, in percentage that is. Since gold is at an all time high, and gold tends to move the opposite of how the economy is doing, I want to have a small amount of my money in DZZ so that when the economy recovers and gold falls, I make money. Remember, though, that all of this is purely speculation on my part and all depends on future world events which I cannot predict. This is just a quick explanation of what I am doing personally with the current market. Do your own research and make your own decisions. The information given here is just my humble opinion. OK, now that I've put it in print, it will be interesting to look back sometime down the road and see how wrong, or right, I actually was.

At the time of this writing:
IWM $64.30 per share.
QQQ $52.40 per share.
DZZ $5.28 per share.

A wild ride.
9/20/11
The stock market has sure been one wild ride lately. A few people have asked me what I'm doing about it personally. Well, honestly, not much! Historically when the stock market has these wild up and down movements, it's a good time to get in. Is it scary? Yes. Can it go bad on you and cause you to lose money? Yes. But historically, it does eventually trend up. Often times, these wild rides in the stock market serve as what is called a "Shakeout." A shakeout is when the uneasy, wild movements of the market scare many people into pulling their money out. This, in fact, is part of what creates the wild ride in the first place: people pulling money out of the market, wondering if that was a wise decision, then dumping the money back into the market. The thing about a shakeout is that when all those who want out are finally out, the market can settle down and generally even start to trend up a bit. Many of the people who got out, now start getting back in which helps drive the market further upward. That is why a market that is bouncing wildly after dropping significantly can be a good time to get in. Just pull up a chart of the DOW or S&P and look for what happened after every time it bottomed out and bounced around.

The big mistake that too many investors make, is that they pull their money out at the bottom because they're scared, then put it back in at higher prices as the market starts to trend back upward. They often lose a lot of money by getting out low and getting back in higher. That's why I just let my stock investments ride it out. That way I'll know that when the market trends back up, my money will be rising right along with it. I know one guy who decided to make his money by selling his stocks on an upward bounce, then buying them back on a downward bounce. He kept doing this on every bounce making a small profit each time. The problem is that eventually the market bounced up and then started trending back up. Since he had sold his stocks on that bounce upward, he now had no stocks with which to ride the uptrend. In order to get back in, he had to buy more stock at the now higher, up-trending prices. Since the stock prices were higher, it ended up costing him most, if not all, of the little bit of profit he had made playing the bounces. I'll admit that it is tempting when you see all those, almost predictable bounces; but, you never know which time it will bounce up and not bounce back down for you to buy the stocks back. What am I doing? Just letting my holdings ride. In fact, when I have enough extra money, I like to buy more stock at times like these. Just make sure you invest in the stock market the right way!

What now ???
8/8/11
The Unites State's debt rating has been lowered to AA+, the stock market is dropping like a rock and people are worried. People keep asking me "what now?" As in "what should we do?" For the most part, if you're already following what I teach about living debt free and having savings, then continue to do what you've been doing. If not, then get on that right away. It's never too late to be better off. What am I doing with my broad market stock investments? Nothing. I'm leaving them right where they are and I'll ride the market out as I always do. The way I see it, one of two things will happen: eventually the market will improve and the value of my portfolio will too, or the economy will completely tank in which case my money won't be worth much anyway. Historically, it will be the former. Am I right in this assessment? Only time will. tell.; but, I like playing the historical odds and history says that one of these two things will happen and eventual improvement is the most likely. I'm willing to bet that looking back from maybe even the near future, now will prove to be a very good time to have gotten some broad market stock investments going. Of course I could be wrong, but history suggests otherwise.

The price of gasoline (as usual)
4/12/11

The price of gas just keeps going up (no surprise to me) and people are really concerned. Well, first of all, understand that in general we Americans rely very heavily upon our cars. Our economy and our culture are built around that fact. For that reason, the price of gas is very, very emotional. We respond much more emotionally to an increase in the price of a gallon of gasoline than we do to many other price increases in our society. Just look at what the price of a pizza has done over the last 30 years...yet you don't see Americans all up-in-arms over pizza prices. Why? Just what I said; the price of gas is very emotional to us Americans.

I did some quick math just to put things in perspective for myself, and here is what I found. In my calculations, I assumed an average fuel economy of 20 miles per gallon and an average driving distance of 15,000 miles per year. I rounded all of my results to make the math a little cleaner.

With these assumptions, the average driver would use 750 gallons of gas per year. That means that a $1 increase in the price of a gallon of gas would mean an additional $750 per year. Therefore, each $1 increase in gas would cost an additional $63 per month which comes to $17 per week. Now for the perspective part of this discussion: that $17 per week is the price of a pizza, or going to the movies, or taking some kids to McDonalds. My point? If gas goes up one whole dollar, you would only have to give up a pizza or going to McDonalds to cover the cost. Many Americans do end up going out for pizza or to McDonalds or to the movies or some other such thing at least once per week. Cut out one of those trips, and a $1 increase in gas is covered. If gas went up $2, cutting out something like going out to a restaurant or to a sporting event would probably cover it. Dealing with increases in gas prices is like dealing with any other financial challenge--you need sacrifice. I once had someone complaining bitterly to me about the cost of gas. He stated that he just could not afford it any longer. I asked him if he had stopped all unnecessary trips in his car. He asked what I meant, so I explained. Had he stopped driving out to visit friends and family? Had he stopped driving to restaurants, movies or sporting events? Had he stopped driving to get away for a weekend? He admitted that he hadn't yet given up any of those things. I then pointed out to him that when he was down to necessary driving only and still couldn't afford the gas, that would be the moment he could no longer afford the cost of gasoline. Basically, he wanted to get control of having difficulty filling his tank, but had been unwilling to make any sacrifices.

Look for things in your own life you might be able to give up to make sure you can afford to put gas in your car. What about people who are so financially tight that they have nothing in their lives they could give up? Well, that is when you stop all unnecessary driving. In other words, no driving somewhere just for fun or enjoyment. Then think about combining trips. If there's something you need, is there a store along one of your necessary driving routes that carries that item? That includes grocery stores, hardware stores, re-sale shops, convenience stores, etc. Even if the items you need cost a little more at those stores, as long as it's less than what the gas would cost, you're doing well. Also, can you carpool with others to places such as work, church, shopping, etc.? Look for creative ways to avoid trips in the car.

Basically, my advice is what it always is: Follow a written budget, get out of debt and start building up savings so you can deal with increased costs. Political pressure aside, the cost of gas will continue to trend up over time just due to inflation. Like everything else, you already know the cost is going to increase, so prepare yourself now starting with all the things I just discussed.

What about the disaster in Japan?
3/15/2011

So, what exactly are the financial implications of what's going on in Japan after an unbelievable 9.0 earthquake? Answer...no one really knows! However, I do have a few observations and some guesses. First of all, understand that the economy of Japan was already burdened by debt to the point that I'm not sure how it has held on this long; so, the cost of rebuilding, of dealing with the nuclear disaster, and the humanitarian aid will have to have a significant effect on Japan's economy. They may try to hide it with more borrowing and government IOU's, but Japan will eventually have to get its financial house in order if it is to avoid a financial collapse now or sometime in the future. By the way, the national debt here in the United States is headed in more or less the same direction. Keep a close eye on what Japan's economy does as time goes by and see if they end up getting into huge financial trouble. If nothing changes, the U.S. will be going down the same road sooner or later and you'll know what to expect.

In the meanwhile, expect the stock market here in the U.S. to take a hit, at least for a while. The prices for some goods could rise as a result of this as could the price of gasoline. It may take months or it may take years, but in my opinion, barring significant, unforeseen events, the ill-effects here in the U.S. of the Japan disaster will eventually improve and things will financially get back to normal...whatever 'normal' is. I believe the stock market will come back up, and when it does, it could jump suddenly. If you pull your money out of the market now, you may be holding it in cash, miss a quick up-tick, and end up taking a big loss. Actually, now will probably prove to be a good time to get into the market so you can ride it back up. What am I doing? I'm leaving my stock market investments right where they are. Now understand that I'm talking about broad-market ETFs and mutual funds, not individual stocks. If you have stock in individual companies closely tied to Japan, this could get very ugly for you. The way I see it, if there is a worldwide financial collapse, it won't matter much where my money is...it all pretty much goes worthless. I fully believe it won't come to that--at least for now. In the meanwhile, continue to prepare for any and all disasters by getting out of debt and building up savings.

How worried am I?
2/22/2011

Since I have been asked this questions several times recently, I decided to comment on it here. Many people have been watching closely the goings-on in the Middle East and are very concerned for what the consequences might be here in the United States. Their question was: how worried am I about all of this? Well to be honest, I am concerned for how these events may ultimately effect people living here in the U.S., but personally, I am not worried.

"Concerned" simply means keeping track, more or less, of what's going on and then taking any actions or making any preparations that may be warranted.

"Worried" implies that I am stressed and possibly scared over how it may effect me personally.

No one--and I mean NO ONE can fully predict what effects events in the Middle East may ultimately have on us here in the U.S. I am no different. I honestly have no idea exactly how all of this will eventually play out and to be honest, it doesn't really affect my plans. I'm referring here, of course, to my financial plans. After all, my intent here is to address financial issues. Will oil and gasoline prices rise? In my opinion, YES, that's a given. When, how much and for how long they will rise, nobody knows. Besides which, regardless of what politicians might say, the Earth's oil will eventually run out. So, if events in the Middle East don't interrupt oil supplies, eventually oil supplies will be interrupted nonetheless. I believe this is a lot closer to happening than most people think. It won't be suddenly and all at once though. As oil reserves are depleted, countries will compete for the remaining resources first financially...then eventually, I truly believe, with military action. Sometime down the road, it may be soon or it may be decades, gasoline might go to $6, $12 and I wouldn't be surprised to even see $20 per gallon or more! But as I said, no one really knows.

The smartest thing to do is to stop worrying and start preparing. So, how best to prepare? Well, it's the same old stuff I've been teaching right from the start. Live on a budget, get out of debt, build up savings and start figuring out now how you would pay super-inflated gas prices. I understand that may sound rather simplistic, but it's still good advice. Think about it. Of all of the ways that events in the Middle East could significantly affect us here in the United States, what is most likely? Economic impact is most likely! How do you prepare for unforeseeable economic impact? Live within your means (with a budget), eliminate other people having so much control of how you spend your money (by getting out of debt), be prepared for emergencies and high gas prices by having a financial cushion (by having money saved for emergencies) and plan now what changes you may need to make in different scenarios that my come to pass.

So,here's my advice: Get out of debt and start saving as much money as you can. Those are things you CAN control--don't worry about the things you CAN'T control. If you just do that, you'll be surprised how many calamities you'll be prepared to handle.

Have we learned anything?
1/21/2011

I heard recently that, due to the serious downturn we all experienced in the economy, more people than ever have reduced, or even eliminated, their debt. To those of you who have done so, I say well done! Reducing or eliminating debt is always a wise decision. However, to this I add a warning: be very, very careful not to fall back into the same trap at some time in the future. Right now, many people are making huge adjustments to their lifestyles in reaction to the fear that is instilled by a struggling economy.

My prediction, and hence my warning, is that as the economy improves, many people will regain their previous level of confidence and comfort with regard to the economy and will slowly return to buying things on credit and taking on debt along with all of the associated payments. I doubt that credit will ever be quite as easy to come by as it was in the last ten years or so since the lending practices of many businesses and credit card companies have recently been revised. At one point credit was so easy to come by that credit card applications were appearing in the mail on a daily basis. If you've noticed, for now that has stopped; but over time, credit will become somewhat easier to get than it may be right now and that's when people will begin to get back into the habit of borrowing. If you have been smart enough to reduce or even eliminate your debt, make every effort to stay that way. If you have not, well, it's never too late to be better off, so start on a debt reduction plan right now.

Should you buy gold?
1/21/2011

With the price of gold hitting all time highs right now, I am constantly asked if now is the time to invest in gold. First of all, gold has never been a good investment. On average, over the last hundred years or so, the increase in the price of gold has barely kept up with inflation. This means that over time, money invested in gold will more or less retain it's buying power, but won't really appreciate and build into true wealth.

Besides which, think about it, if gold is at an all time high, which way is it most likely to trend? Down! At least somewhat. The price chart for gold does show an overall uptrend, but that uptrend, as I have already stated, merely reflects an increase in inflation. When gold is at an all time high, it tends to drift back down and get back to following the same curve as the rate of inflation. Sometimes, when it hits such a high, it levels out for a while and waits for the economy to catch up to it. The net result is that the buying power of money invested in gold simply keeps pace with inflation. Yes, if you look at the historical price of gold it might look as though someone could have gotten rich if they had invested in gold just prior to the recent run-up, and that may be true; however, there was no way to have known exactly when that point was. As they say, hindsight is perfect, but at the time there was no sure way to know that gold was going to shoot up like that. What about people who had bought gold a long time ago and had held onto it? Well, yes their investment actually increased significantly in the short term, but look at the rate of increase in the price of gold the whole time they were holding onto it. Compare that to how they could have done if they had just invested in the overall stock market. The return on a broad market stock investment would have grown proportionately more and would have performed much better than just keeping up with inflation. If you think it might be a good idea to invest in gold in case of a natural disaster or an economic collapse, please refer to this section of one of my other articles on the Financial Page.

Bottom line: In my humble opinion, don't invest in gold!

Please know that all of the thoughts, information, suggestions and techniques given on this site are nothing more than the author's opinion on the matter being addressed. Do further research before making any decisions.

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