Tag Archives: economy

Falling Prices Are Good, Unless You Are An Imminent Seller

When the stock market is tanking, like it has been recently, I find many people are scared to talk to me about it. They seem to think that declining stock prices are like a death in the family – a reason to offer condolences. But, why is that? I don’t fret if I go to the grocery store and find prices have fallen 20%. When I go to buy gas, I’m quite happy to find prices have fallen. Why is this so different with stock prices? After all, I’m a net buyer of investments. Only if I had some imminent plan to sell my stocks because I needed the money very soon would falling prices be a bad thing. I think most people think I’m putting on a brave face or bucking myself up when I say I’m happy to see stock prices falling. They can’t seem to conceive that falling prices are good for buyers of stocks just as it is good for buyers of groceries, gas, cars or even houses. I think that is because people too closely associate themselves with their current net worth. Instead of conceiving of their net worth as something in flux, that goes up and down like everything in the economy, they feel their current net worth indicates how much they can pull over time. But, current net worth is a snapshot, not life itself. Just as a picture cannot capture a life, neither can current net worth define your lifetime cash flow. Even for those close to or in retirement, stock market fluctuations need not be of major concern. If you have money you need to spend next month or next year in the stock market, you are indeed at risk. But you need not bear that risk unless you choose to. Your cash needs for the next three or so years should be in a stable value position, like a bank or money market account, not in the stock market. Most people who fret over stock market returns don’t need that money soon, either. They know they will need it in time, but they don’t need it today. Market volatility and declines are a benefit to the calm investor who knows that current net worth is just a snapshot. Thought of in this way, stock market drops can lead to higher net worth over time and increased cash flows. That is why I’m happy to see the stock market decline, and I think others should be, too.

There Are No Holy Grails

When the markets get volatile, many strategies start performing poorly. Even your most basic diversified low fee indexing strategy will start to look weak, even though it likely beats most professional fund managers. And when these strategies start to weaken, many investors will start getting impatient. You probably know that nothing works 100% of the time, but that still doesn’t stop the allure of the green grass elsewhere. I know, the gold strategy looks so good in the short run. That fancy hedge fund strategy has outperformed since the S&P 500 (NYSEARCA: SPY ) peaked. That short-only fund looks really smart now. But the problem is that most of these fancy-sounding strategies are charging you high fees to underperform 80% of the time. And unfortunately, they lure in most of their assets during that 20% of the time when the markets look weak. But here’s the thing – there are no holy grails. Nothing works all the time. If you don’t hate something in your portfolio most of the time, then it probably means you’re not diversified. But be careful about the difference between being diversified and being diworsified. Diversification is best done when it’s simple, low-fee and tax-efficient. Diworsification occurs when you’re just layering on expensive and tax-inefficient strategies that provide far less benefit over the course of an entire market cycle than you think. And most importantly, find a good strategy and stick with it. You’ll be better off in the long run if you find a diversified, inexpensive, tax-efficient and systematic investing process, as opposed to constantly flipping in and out of strategies and searching for that holy grail that doesn’t exist. Share this article with a colleague

The Complete Guide To Retail ETFs

As a pioneer in retail business, the United States provides ample growth opportunities for all types of retail companies. From growth perspective, retail ranks among the dominant U.S. industries and employs an enormous workforce. Retail sales represent approximately 30% of consumer spending, which itself accounts for more than two-thirds of the economy. The U.S. economy is sending out signals of growth, driven by lower oil prices and an improved job market. In July, 215,000 people were hired, reflecting improved employment prospects. According to the recent data from Bureau of Labor Statistics, the unemployment rate for July was constant at 5.3% reached in the previous month, its lowest level since Sept. 2008. This improvement in the job scenario is likely to boost consumer confidence and provide them with a sense of security when it comes to purchasing power, thereby increasing consumer spending. According to a recent Conference Board data, the Consumer Confidence Index rebound in August increased to 101.5 from July’s reading of 91.0. Moreover, consumer spending increased 3.1% in the second quarter from the initial estimate of 2.9%, and also improved considerably from the first quarter’s spending rate of 1.8%. July retail sales growth of 0.6% also validates the pickup in consumer activity. Additionally, real GDP expanded at a 3.7% seasonally-adjusted annual rate in the second quarter of 2015, according to the “second” estimate released by the Bureau of Economic Analysis. This fared way better than the “advance” estimate of a 2.3% increase and 0.6% growth recorded in the first quarter. The positive revision in GDP numbers reflects a rise in consumer spending, higher business spending, increased investment in intellectual property products and larger inventory levels at businesses. An expected rebound in the economy, combined with declining unemployment rate, cheap gasoline prices, higher consumer confidence and improving consumer spending, the retail space is bubbling with optimism. ETFs present a low cost and convenient way to get a diversified exposure to this sector. Below we have highlighted a few ETFs tracking the industry: SPDR S&P Retail (NYSEARCA: XRT ): Launched in June 2006, SPDR S&P Retail is an ETF that seeks investment results corresponding to the S&P Retail Select Industry Index. This fund consists of 103 stocks, the top holdings being Netflix Inc. (NASDAQ: NFLX ), Amazon.com Inc. (NASDAQ: AMZN ) and Casey’s General Stores Inc. (NASDAQ: CASY ), representing asset allocation of 1.33%, 1.29% and 1.22%, respectively, as of Aug. 28, 2015. The fund’s gross expense ratio is 0.35%, while its dividend yield is 1.04%. XRT has $1,118 million of assets under management (AUM) as of Aug. 31, 2015. Market Vectors Retail ETF (NYSEARCA: RTH ): Initiated in Dec. 2011, Market Vectors Retail ETF tracks the performance of Market Vectors US Listed Retail 25 Index. The fund comprises 26 stocks, the top holdings being Amazon.com Inc. ( AMZN ), Home Depot Inc. (NYSE: HD ) and Wal-Mart Stores Inc. (NYSE: WMT ), representing asset allocation of 12.78%, 8.66% and 7.75%, respectively, as of Aug. 31, 2015. The fund’s net expense ratio is 0.35% and dividend yield is 0.39%. RTH has managed to attract $216.9 million in AUM till Aug. 31, 2015. PowerShares Dynamic Retail (NYSEARCA: PMR ): PowerShares Dynamic Retail, launched in Oct. 2005, follows the Dynamic Retail Intellidex Index and is made up of 30 stocks that are primarily engaged in operating general merchandise stores such as department stores, discount stores, warehouse clubs and superstores. The fund’s top holdings are O’Reilly Automotive Inc. (NASDAQ: ORLY ), The Home Depot Inc. ( HD ) and CVS Health Corp. (NYSE: CVS ), reflecting asset allocation of 5.66%, 5.34% and 5.24%, respectively, as of Sept. 1, 2015. The fund’s net expense ratio is 0.63%, while its dividend yield is 0.61%. PMR has managed to attract $24.7 million in AUM as of Aug. 31, 2015. Original Post