Stocks

The Real Interest Rate Worry

Should we fear rising interest rates? Even the thought of them throws the stock market into a spin. The real problem with climbing rates, though, is that they will make servicing the out-of-control federal debt even more expensive.

For most investors, the focus is on what damage higher rates may inflict on stocks. There has been much market panic of late over the possibility that the Federal Reserve will raise rates sometime in the not-too-distant future.

What Great Rotation?

The epic bond rally that began in the early 1980s seems about to end, as the Federal Reserve eyes raising interest rates. So investors keep hearing about a so-called Great Rotation out of bonds into stocks. Well, it’s not happening, due to lingering leeriness about equities after the horrendous market slide that the financial crisis created – memories that this month’s slide have reinforced.

Avoid International Stocks?

War rages in the Middle East and Ukraine. An economic deceleration dogs China. Once again, Japan struggles to revive its economy. Europe heads into another economic slowdown. Why bother investing outside America?

Because the U.S. no longer dominates world stocks, foreign troubles will eventually abate and overseas bargains now abound.

The Market: Exaggerated Woes

What’s odd about this stock rally is how it over-reacts to events, such as turmoil overseas, that show little ability to harm the U.S. economy – which after all is what American equity values are mostly based on.

Consider the latest market buffeting. In September, the Dow Jones Industrial Average lost 0.31%, the Standard & Poor’s 500 fell 1.58%, and the Nasdaq dropped 2.15%.

Then on Oct. 1, the markets really got hammered. The Dow slid 1.4%, the S&P 500 1.32% and the Nasdaq 1.59%.

Lagging Small-Caps: Bad Sign

The stock market rally of 2014 is not uniform. Turns out that not all stocks are created equal. Small–cap stocks are negative this year, at odds with their historical tendency to do well in an economic expansion. That sounds a cautionary note for investors.

Top Mistakes Investors Make

Investors are human and they make lots of mistakes. A panel at National Financial Advisors Week spotlighted some of these errors and had some good tips on how to avoid them.

When the stock market goes south is when a lot of mistakes occur. “History shows we are overdue for a correction,” noted David Callaway, editor-in chief of USA Today and the panel’s moderator.

Invest in Private Companies?

Should you invest in non-public companies? A lot of people are doing that, via privately issued equities and debt instruments; hedge funds, venture capital funds and limited partnerships are also popular non-public companies.

This trend includes a broad swath of industries, just not tech companies. Banking is the largest in dollar terms. An advisor presentation on private investing, as part of National Financial Advisor Week, noted that this arena is an increasingly popular and profitable one.

Boost Stocks as You Age?

The standard investment advice is to decrease your portfolio’s stock allocation as you get older, because equities are riskier than bonds and cash – and you don’t want a bear market to devour your retirement nest egg when you need it. But now, there’s research showing that it is safer if you increase your stock exposure.

Trouble is, this approach doesn’t give you any better results, according to my analysis.

Fed’s Murky Rate Language

The word for today is “considerable,” as in the Federal Reserve’s recurring statement that interest rates will remain low for “a considerable time.” But how long is “a considerable time”? The deliberate murkiness of this phrase, like much else the central bank says, is maddening.

Unlearning Investment Fears

Growing up with their parents’ scary tales of Depression hardship, the generation now approaching retirement age grew up to be wary of investing and owning debts. This means missing out on returns and losing the value of savings to inflation.

The squirrels brought this lesson home for me. Like many others in suburbia, my wife and I had a squirrel problem. We tried various things to keep the creatures out of our garbage cans, with no success. They ate through the covers. Even after we built a wooden shed to house the garbage cans, they got in there, as well.

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