Personal Savings Fall to 74 Year Low

<div class='quotetop'>QUOTE(daronspicher @ Feb 2 2007, 08:51 AM) [snapback]384361[/snapback]</div>

This part reminded me of a 20/20 episode last week on debt. They spotlighted a family with $60,000 in CC debt, and whose bills were double their monthly income. Needless to say, they were very stressed out, so what did they do? They took more vacations last year than any other year! :blink:
One of their debts was a $100,000 timeshare that they bought for "investment".
They had a financial advisor go over everything, and make recommendations. He set up a whiteboard list, and said "you can't pick and choose, you can either do ALL of this, or NONE of it". He said they had 5 months left of savings, and that would be it. They would be in bankruptsy and lose it all. On the list: sell the timeshares, sell their huge, new house, and rent until they were financially stable enough to be able to buy a house again.

 

Chogan, I'm wondering if your brain ever hurts. I'm glad you popped into PC and hope that you stay. Thanks for taking my questions so seriously. As I mentioned earlier, I am a lay person, but it seems that you've covered all the key issues that needed to be discussed. I'm a little extra sensitive to things right now as my husband's getting laid off. His job is going to the Phillipenes. Unless all of the firms that are outsourcing are also exporting, I cannot see how these business owners are not utlimately shooting themselves in the foot. If people in the US are making less (or no) wages, who will be buying their goods. I know it's different in the service sector but ultimately it seems this whole thing is going to come around full circle and do harm. You know more than I, but I'm not sure how you can say that not much can be done about this. Have any tax incentives been provided to companies to try to ensure that jobs are retained in the US? The more people make in the US, the more income the government receives. It seems like a win, win.

I mentioned earlier that I just consolidated my debt. I had to call my lending company to go over some things and I wound up in India. If I would've know I would be directly funding this practice, I would've searched for another company.

I especially want to thank you because my husband and I have been fairly negligent about managing our retirement accounts. We've seen healthy returns and haven't been paying attention to other options available to us. I heard on the radio about two weeks ago that one should invest in gold. Then you mentioned this in another thread. Now you speak of investing in the foreign market. For all of this I'm grateful. We are preparing to "interview" several people to figure out where his 401K money will best be managed. You've shed light on a lot of options for us and have confirmed our notion that we best start paying a lot of attention to our money, instead of just relying on historical market increases to get us by.

I hope that you don't mind doing me the favor of replying as to which websites you can recommend which may provide up to date information as to the economy and even investment suggestions. Keeping in mind that I'm a layperson, of course, and that don't use any lofty verbiage.

Thanks a bunch, Chogan.

 

<div class='quotetop'>QUOTE(SSimon @ Feb 2 2007, 12:00 PM) [snapback]384427[/snapback]</div>

On the outsourcing thing, I'm sorry to hear about the job loss. The couple of times I've lost a job it was really stressful, and the longer you've been at a place the more stressful it is.

In terms of government policy, I'm not saying that nothing could be done, I'm just pretty sure that nothing will be done. The classical economic theory says that free flow of international trade is unambigously good for both countries under all circumstances. They certainly are trained to ignore the "redistributive effects" -- that it's your job that got lost, so that the purchasers of whatever it is your husband produces can get a somewhat lower price and/or somewhat higher profit. Actually, that's not fair - from time to time there have been (e.g.) federal funds to assist retraining individuals displaced by foreign competition. But I think the overall picture is far more complex than the standard econ 101 model, and for a variety of reasons I don't subscribe to that particular bit of doctrine 100%. But that makes me a heretic. It looks like the people who run the gov't do. Except where they've been bribed to say otherwise, as in sugar quotas and such. If the only people who get hurt are workers, and it increases return to capital, there's no way anybody in DC is going to try to step in, advisable or inadvisable.

On the economy and investments, let me send you a PM over the weekend. I am not the right person to get advice from here. I have a poor track record as an investor.

Plus, the most humiliating fact of all: my mother-in-law routinely outperforms me in the stock market by a factor of about 3 to 1. Shes the schoolteacher, I'm the professional economist. Go figure.

And the worst investment decisions I have made have been the ones I have made while stressed and in a hurry to decide something. My rule now is, when in doubt, do nothing. I tend to do that a lot. If you've been getting good returns, I'm not so sure that wouldn't be an OK short-run rule here as well.

The main problem with free investment advice is that by the time it gets on the radio, the asset has been fully priced. And, people -- including me -- lie. People only talk about what they already own that worked out well. So people tend to talk bullish about things that they've already made money on, which means stuff that was a great investment if you bought in a few years ago. But may or may not be a good investment at the current price. I do have some gold and foreign-denominated assets, neither of which I am very proud of for non-economic reasons, but the bulk of which I got into a little over 4 years back. I just calculated it, and roughly half my financial assets are still dolllar-denominated piece of paper. Some of those I have a valid reason to own, most of them I do not. So I not only talk just about my winners, I exaggerate what I did. Which makes me just like everybody else in this area.

On the advice thing, let me give you an example. One of the best, documented simple strategies for stock investment is the Dogs of the Dow. Last year it did not do well, but the track record over the longer haul appears quite good. I don't do this myself but have been considering setting up a separate account to do it. The gist is that you buy the 10 Dow stocks with the highest dividend yield as of January 1 of a given year. Hold them a year. Do the same thing Jan 1 next year. And so on.

High dividend yield means low price, essentially. You buy the dogs. The stuff nobody else wants. Actually, you buy the big dogs, as these are Dow index stocks.

http://www.dogsofthedow.com/

The point is that by taking this mindlessly contrarian attitude -- I'll buy the crap nobody else wants today, but is paying pretty good yield -- in most years (but not last year), you'd have done pretty well. Without paying a nickel in fees, or any of the rest of it. It's just the opposite of buying what 's hot and what people are talking about, because those are largely stock that, if you already owned them, you'd have been taking a beating on them. But it apparently works quite well. But it takes more guts than I've had, up to now, to sink a lot of cash into a bunch of troubled, losing stocks, despite the track record for the strategy.

I'll PM further this weekend.

EDIT:

Whoops, the other rule is, never take investment advice from an economist when it's groundhog day. I goofed on the Dogs of the Dow -- apparently they did OK last year.

SECOND EDIT:

I always seem to get more out of answering questions than I put into it. Been a while since I checked in with the Dogs of the Down. That Dogs of the Dow website is just a hoot. Those folks don't want a nickel of your money, they're not trying to sell you a thing, but they have great information. That's really unusual in my experience. For example, I didn't know there were unit trusts available that do the Dogs of the Dow. Putting tax issues aside, they say that under $4K to invest, you're probably better off with the unit trust, over $4K, better of buying the stocks directly.

And my gosh, I forgot you could have bought GM with a 10.3% dividend yield, 12/31/05. Wow. Don't I wish I'd done that now.

Talk's cheap. Maybe I'll put my money where my mouth is and go set up a new acount for this. Yeah, then look at the 2007 Dogs. Do I really want to sink a lot of cash into a bunch of troubled drug and telecom stocks? Anyway, this is among the reasons that I'm a lousy investor. Poor risk-taking skills.

 

Thanks for the sympathetic note. He's a computer programmer. His company just hired Accenture and displaced the whole IT Department. In perusing job boards, he should be ok.

I'm not one to take advise and just swallow it whole. I like to research my options and see what best fits our overall picture. I hereby hold you harmless. Besides, I'm at the age where I'm not going to do anything very aggressive w/ our money. It just seems noteworthy that we should be a little more diversified w/ our holdings. At minimum, you've lit a fire under me to reassess our holdings and this is never, ever a bad thing.

You seem a kind soul. Hope your life works out well for you.

 

Chogan, Soros is over my head, but I think P Krugman is GREAT. I even thought about subscribing to the NYT, just so I can read his columns.

You do know that GM cut it's Div rate in half, right ?

I'll have to disagree with any recc regarding Dogs of the Dow, or any investment system for that matter. When I got interested in investing about two years ago, I was turned on to a couple of good books. One is called value investing (or something similar), authored by Graham. The second BRILLIANT book is called ~ A random walk. The inescapable conclusion I get from both, is that no substitute exists for due diligence is following a company, it's industry, and world events. Takes time and effort, but free lunches don't exist.

And so long as we are picking your brains, I'm interested in your opinion on my take regarding the S&P, or other index funds: Although they can certainly (and do) reflect national trends, and benefit from low expense overhead if picked correctly, I think they have a fatal flaw: speculative expansion from ignorant money. People dump money into their retirement accounts, and it gets dumped into indexes. For awhile everybody is happy, because the index goes up. But I call it a bubble, based on absence of industrial outupt to justify the stock price. So I expect it to pop, someday.

 

You mean we were suppose to be saving all this time?

 

My savings this year were horrible. You see, I bought this car...