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The Independent Investor: Millennials & Money
By Bill Schmick On: 02:54PM / Friday May 15, 2015

Recent studies indicate our nation's youth are not investing in the stock markets. That's nothing new. It takes a rare individual under the age of 30 to have the wisdom to invest at a young age. For those who do, their future could be golden.

A recent survey by Banknote.com, a personal finance company, found that just 26 percent of individuals under the age of 30 are investing in stocks. That number hits home when we compare it to the 58 percent of people between the ages of 50 and 64, who do invest in the stock market.

Part of this lack of interest in stocks can be attributed to young people's attitude toward aging, retirement and death. When I was that age, I was invincible. Like me, at that age, the young believe they have all the time in the world to save. The younger you are the more difficult it is to identify with the concept of someday becoming too old to work.

But those attitudes account for only some of the reasons that under 30s shy away from investing, according to the survey. It appears that a lack of money and investment knowledge are also two important barriers to investing within this age group. Scarcity of funds in this day and age is understandable.

Between the financial crisis, income inequality, and the high cost of education, many young people cannot afford a place of their own, let alone the money to save and invest. Putting away even $100/month when you are unemployed or underemployed is a daunting challenge.

Their lack of investment knowledge simply underscores my contention that neither parents nor schools are teaching our children the importance of saving and investing (see my columns on "Kids and Money," Parts I & II).  Millennials are simply not equipped with the practical knowledge they need to make investment decisions once they are earning a paycheck.

It is a shame, because the absolute best time to begin saving is in your 20s. The most valuable asset these potential investors own is time. Another powerful tool at their disposal is compounding growth. Just how powerful is it?

Consider this: it will usually require just 10 years (using a 7 percent nominal rate of return) for an investment account to double. Just imagine what one dollar invested at the age of 20 would be worth by the time retirement time rolls around 45 years later. Many young people make the mistake of thinking that when they are 40 and making the big bucks they will make up for lost time when it comes to retirement savings. Wrong! The $100 a month saved when you are 25 is worth much more than the same amount saved at 40 years of age because compounding rewards early contributions much more than later contributions.

Let's say your annual income is $30,000 a year and you decide to save 10 percent of your estimated after-tax income ($2,160). In 25 years those contributions will grow to $288,001 using a 12 percent annual return, which is the long-term return of the U.S. stock market. If you put that money into a pre-tax IRA, that amount would be exponentially larger.

Unfortunately, few Millennials will heed this advice and fewer still read my columns. So, do your kid a favor and pass this column on to him or her. They will thank you for it later.

Bill Schmick is registered as an investment adviser representative with Berkshire Money Management. Bill’s forecasts and opinions are purely his own. None of the information presented here should be construed as an endorsement of BMM or a solicitation to become a client of BMM. Direct inquires to Bill at 1-888-232-6072 (toll free) or email him at Bill@afewdollarsmore.com.



     
The Independent Investor: Avian Flu Scrambles the Egg Business
By Bill Schmick On: 10:49PM / Thursday May 07, 2015

By now, most Americans are familiar with the avian flu but its impact on your pocketbook may not be as well known. Here is what we know so far.

Egg producers have been walloped. Nearly 6 percent of America's "layer" hens have been destroyed. That's a lot of chicken, given that last year there were 362 million of those birds in the U.S., which produced 100 billion eggs. What's that going to mean to supermarket shoppers?

Look for at least 15 cents increases in the cost per dozen eggs at the wholesale level, by the time they get to the retail consumer. We still do not know how bad the impact will be on turkey prices but we do know that, like eggs, the turkey population has also been pummeled. About 1.5 percent of the turkey population, which numbers 238 million birds, has been culled due to this flu. How much, if any, this devastation will impact your Thanksgiving dinner this year depends on how wide and deep this H5 strain of avian influenza will spread.

To date, the U.S. Department of Agriculture (USDA) has confirmed 122 cases of the H5 strain that can kill a bird within 48 hours. Nearly 24 million chickens and turkeys from over 14 states have been affected since December. That's a lot more than the previous avian flu outbreak in the 1980s when 17 million birds died or were culled.

Scientists believe migratory waterfowl are spreading the disease as they trek northward in their seasonal migrations. So far no human cases of the strain have been discovered and the USDA does not believe that the flu has entered the food supply, or at least not yet. Unfortunately, the flu is still spreading. Iowa and Minnesota reported more cases this week, including two huge egg operations that combined produce an estimated 4 million hens.

The spreading disease is beginning to have an impact on industry. The first 233 layoffs occurred at Hormel Food's Jennie-O Turkey subsidiary, while some countries (China and Mexico) have already imposed bans on poultry imports. Those were "dark meat" markets where leg quarters are the predominant exports. With exports markets blocked, processors have been flooded with an excess of these poultry products and nowhere to sell them.

Broiler chickens, the largest slice of the $48 billion annual poultry market, have gone largely unscathed. These are chickens raised for meat. Given that this product is dedicated to human consumption, today's industrial bio-security systems are state-of-the-art. Farmers and corporations have learned their lessons and spent millions in construction in response to previous outbreaks of the flu and other diseases. Yet some scientists worry that the disease may be able to penetrate these defenses, if, say, a farm worker accidentally tracks in the disease on the bottom of his shoe or boot.

The USDA has been working on a vaccine that could protect our national poultry flocks from these bird flu strains while the Center for Disease control is working on a possible human vaccine at the same time, so far without success. In the meantime, this week the government approved an additional $330 million in emergency funding to help contain what has turned out to be the worst outbreak of avian flu in our history.

Bill Schmick is registered as an investment adviser representative with Berkshire Money Management. Bill’s forecasts and opinions are purely his own. None of the information presented here should be construed as an endorsement of BMM or a solicitation to become a client of BMM. Direct inquires to Bill at 1-888-232-6072 (toll free) or email him at Bill@afewdollarsmore.com.



     
The Independent Investor: Does Another Trade Pact Make Sense?
By Bill Schmick On: 03:30PM / Thursday April 30, 2015

As Japanese Prime Minister Shinzo Abe's visit to the United States winds down, politicians in both houses of Congress need to decide whether the proposed Trans-Pacific, 12-nation trade pact makes economic sense. It does and we should jump on it.

Through the years I have been in favor of more trade, rather than less. At the same time, I recognize that trade agreements, by their nature, means that in every country some sectors win and some lose. If you can produce something better than I and at a lower price, why shouldn't I take advantage of that?

Yet, there is always vocal opposition from those who perceive their position will be threatened. Those who stand to gain usually keep a low profile (while behind the scenes lobbying furiously for passage). This pact is shaping up to be no different.

Most economists and trade experts believe that Japan stands to gain the most from this Trans-Pacific Partnership (TPP). For them (and us), there are two controversial sticking points. We want Japan to dismantle its long history of protecting domestic auto dealers from U.S. imports. In exchange, Japan would like America to remove our barriers to car and auto parts imports from their country.

Japanese negotiators argue that American auto manufacturers have simply failed to design cars that appeal to Japanese consumers. Smaller, eco-friendly vehicles sell well in Japan. American autos, they claim, pollute more and are too large for Japan's narrow streets and highways. American manufacturers' claim those are simply excuses with no real merit.

That may be true, however, European automakers do not appear to have the same issues. Fourteen European manufacturers, led by Germany's Volkswagen, scored a record number of new car registrations over the last two years. The Japan Automobile Import Association found that 66 percent of these foreign imports qualified for a Japanese tax reduction for eco-friendly cars, while not one American auto import qualified for the same tax break. In addition, the Europeans are expanding the number of sale outlets they maintain in Japan, while U.S. importers have reduced their number.

That may be so, but if we look at the overall numbers, European autos account for less than 5 percent of total car sales in Japan, while we languish at a low 0.03 percent market share. In comparison, Toyota alone commands a 14.6 percent market share in the U.S. Honda holds an 8.2 percent share, while Nissan accounts for 9.4 percent. Clearly, this trade relationship is wildly lop-sided and has been for decades.

Agriculture is another area where Japan needs to let down the barriers for its own good. The Japanese only generate about 44 percent of their daily caloric intake from domestic farming production. This is largely due to an antiquated system that prevents corporate agricultural development. The Japanese farming lobby is hell-bent on preserving the individual farmer, no matter what the cost to the consumer or the country.

Prime Minister Abe understands this (as has many of his predecessors). The difference is that he is doing something about it. He has been chipping away at these barriers in order to spur economic growth. A TPP deal would allow more American beef and pork imports into the country. That works for him. Facing competition from abroad, domestic farmers would hopefully respond to the challenge by embracing economies of scale and opening up this closed community to corporate expertise.  

The TPP could be a good deal for all involved. Protectionism is not the answer, in my opinion. That just allows inept and uneconomical practices to continue unimpeded. Predictably, some Democrats oppose the pact, fearing it will cost the country job losses in the auto sector. Republicans on the other hand, especially from rural farming states, are pushing the deal for obvious reasons. I find that trade deals like this are good for the consumer, whatever the country, even if, in the short-term, some workers could get hurt.

Bill Schmick is registered as an investment adviser representative with Berkshire Money Management. Bill’s forecasts and opinions are purely his own. None of the information presented here should be construed as an endorsement of BMM or a solicitation to become a client of BMM. Direct inquires to Bill at 1-888-232-6072 (toll free) or email him at Bill@afewdollarsmore.com.



     
The Independent Investor: Should You Manage That 401(k)?
By Bill Schmick On: 05:47PM / Thursday April 23, 2015

When the Federal government, together with Corporate America, offered the American worker 401(k) and 403(b) tax-deferred savings plans, as an alternative to pension plans, they forgot one thing. The vast majority of employees have no idea how to manage these plans.

Back in my Dad's day, managing American's retirement savings was the job of professional pension plan managers. The money was invested conservatively, with a long-term view, regardless of market conditions. Clearly, it was the tortoise approach to investing, but by the time he retired his nest egg had grown considerably.

Today, less than 3 percent of all workers are enrolled in traditional pensions. The demise of pensions has many causes. At one time, workers spent a life-time working at only one or two companies. Today employees hop-scotch from job to job, since there is little loyalty left on either side of the desk or production line. Pensions under those circumstances make little sense. The practice of under-funding pension liabilities by corporations certainly did not help. The Pension Protection Act in 2006 ended that gimmick and with it signed the death warrant for most pension plans in America.

Instead, employees today are allowed to contribute a certain amount of their pay, tax-deferred, to these government/company-sponsored savings plans. Some companies will match your contribution up to a certain percentage level and most offer workers a menu of investment choices.  From there, you are on your own.

Let's say you have been conscientious in contributing to your company's tax-deferred savings plan for 25 years and you are getting ready to retire. You call me and arrange a meeting to discuss your options. More often than not, the first thing I discover is that all of your money is invested in one or two bond funds or even worse, a money market fund.

"How long have you been invested in these funds," I ask.

"Since the beginning," the prospective client says, sheepishly.

"I didn't know what to do and I had no idea what any of the funds did, so I just stuck it into whatever came first on the list."

Don't laugh. I have encountered this situation in a variety of forms time and time again. It is not your fault. I have invested six years of education and 34 years of financial experience to get where I am. I suspect that you are every bit as good at your job as I am at mine. And you have probably spent a similar amount of time and effort remaining good at what you do. So why are you expected to also be good at investing your money - and in your spare time?

Let's face it, most workers do not have the time, education or inclination to acquire the knowledge necessary to make good investment choices over many years. What can you do?

You can read columns like this and hope enough sinks in to make the right choices. You can ask people like me, professional money managers, to take a look at your investment and suggest alternatives. I do this for many, many people at no charge. Another alternative to consider that could drastically increase your investment results would be to switch some or all of your money to a self-directed 401(k) or 403(b) plan.

There are two types of these plans. If you are self-employed, you can open a solo or one-participant 401(k) plan. This can be managed by a professional for a fee while you are still contributing to the plan. Normally, the expenses involved in managing the plan are cheaper than the costs and fees involved in a company 401(k), plus you will be receiving professional management advice.

The second type is a little-known investment option that some companies offer in their retirement plans called the self-directed brokerage account. These "Selfies" are part of your investment menu. They allow employees to take advantage of many more investment choices than are normally offered in a 401(k) menu. For individuals who have investment experience, the brokerage option offers a great opportunity to fine-tune an asset allocation strategy. But if you don't have that knowledge, you can hire an investment advisor to do it for you.

Better yet, you have the flexibility to farm out some of the money to a manager for a fee and keep some with your traditional 401(k) plan, if you so desire. This way you can get the professional financial advice you need now, while you are still contributing, rather than having to wait until you retire. As for fees, most company-sponsored, tax-deferred plans charge a yearly fee without providing advice. If you are going to pay a fee, you might as well pay it to someone who is going to manage it as well.

Not all companies offer this option. You should check with your human resources department and if they don't offer the option, suggest that maybe they should. Make sure you take the time to select the proper investment manager, one that has a "fiduciary responsibility" to his/her clients, unlike a broker, who simply is required to put you into a "suitable" investment. Make sure you understand the difference. If you don't, contact me and I'll explain it.

Bill Schmick is registered as an investment adviser representative with Berkshire Money Management. Bill’s forecasts and opinions are purely his own. None of the information presented here should be construed as an endorsement of BMM or a solicitation to become a client of BMM. Direct inquires to Bill at 1-888-232-6072 (toll free) or email him at Bill@afewdollarsmore.com.



     
The Independent Investor: Brazil — Not For the Faint of Heart
By Bill Schmick On: 01:35PM / Friday April 17, 2015

Beset by scandals that could reach as high as the presidential office, suffering from an epic drought, low oil prices, high inflation, a declining currency and a negative economic growth rate, the world's seventh largest economy could be an interesting long-term investment but not for the faint of heart.

No question about it, Brazil is a basket case right now. Dilma Rousseff, the two-term Brazilian president and former head of the state-owned energy behemoth, Petrobras, is embroiled in scandal. So far she has managed to elude prosecutors, who are pursuing 28 different investigations involving 54 politicians. Present and former Petrobras executives, including heads of both Chambers of Congress, former ministers, an ex-president, as well as the top members of President Rousseff's ruling Worker's Party are all involved.

The multibillion dollar kickback scandal involved funneling money through Petrobras and into the pockets of politicians and the election coffers of the Worker's Party from 2003-2010, (when Rousseff was president of the company). She maintains no knowledge of the scheme, however, three out of four Brazilians think she is lying and 44% of the population disapproves of her administration.  Business and consumer confidence are touching historic lows while the Brazilian currency, called the Real, has depreciated 40 percent against the dollar.

Brazil is also suffering from a wide-spread and lingering drought that is hurting their vast agricultural export sector (3.5 percent of GDP and employs 15 percent of the labor force). It gets worse. The country's main source of energy is derived from hydroelectric plants, which depends solely upon water to drive their industrial sector (23 percent of GDP). As a commodity-rich country, the decline of that sector over the last few years has crippled growth. Yet, government spending continued to climb while much-needed and long-postponed structural reform of the country's rigid labor laws continued to be ignored.

As a result, economists forecast that debt as a percentage of GDP will end the year at 65.2%, while the economy will see a 1.5 percent decline in GDP growth. Inflation could reach as high as 7.5 percent. In the face of all this terrible news, why am I recommending buying?

Brazil's stock market has always had a boom or bust element to it. My first visit to Brazil was during the "Lost Decade" of the '80s when the condition of most Latin American countries resembled those of present-day Greece. Needless to say, Brazil's stock market was a total bust. The Bovespa, (Brazil's major index) reached a low in December of 1989.

By the early 1990s, however, thanks to a massive debt-for-equity swap by its bank creditors, the country's investment prospects greatly improved. During the 1990s, the market experienced sizable gains for investors, as well as major losses. Another market low was registered in 2002. At that time (unlike today) investors feared the country would default on their debt, which was far worse. Foreign reserves were also much lower, inflation was higher and the pressure on the Real was greater.

Worst of all, Lula de Silva, a radically liberal candidate of the Worker's Party, was elected president. That horrified the country's financial markets, who believed he would lead the country into a socialistic ruin. "Lula" did the opposite. He took severe measures, with the aid of the central bank, to control inflation, while imposing market-friendly policies and structural reforms. As a result, the Bovespa registered a 250 percent gain from 2003-2004. In the next eight years the stock market was up 1,705 percent versus a 57 percent increase in the S&P 500 Index. At that point the financial crisis drove the market down and it has never really recovered.

Today, I sense that investors' fear may be approaching the level that prevailed back in 2002. And yet, the economic conditions in Brazil are far better today. Some say the commodity cycle has bottomed and so have oil prices. If so, that would be a big shot in the arm for Brazil.

I do know that the U.S. is the country's second largest trading partner and the strong dollar benefits Brazil's exports. The political scandals may topple the president, in which case there is a distinct possibility that a new administration would implement "Lula"-like reforms to jump-start the economy and restore both business and consumer confidence. As for the drought, who knows when the weather will change?

Will all of this happen overnight? Not likely, but for those long-term investors that have the risk-tolerance and patience to wait, Brazil seems like an interesting place to nibble.

Bill Schmick is registered as an investment adviser representative with Berkshire Money Management. Bill’s forecasts and opinions are purely his own. None of the information presented here should be construed as an endorsement of BMM or a solicitation to become a client of BMM. Direct inquires to Bill at 1-888-232-6072 (toll free) or email him at Bill@afewdollarsmore.com.



     
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Bill Schmick is registered as an investment advisor representative and portfolio manager with Berkshire Money Management (BMM), managing over $200 million for investors in the Berkshires. Bill’s forecasts and opinions are purely his own and do not necessarily represent the views of BMM. None of his commentary is or should be considered investment advice. Anyone seeking individualized investment advice should contact a qualified investment adviser. None of the information presented in this article is intended to be and should not be construed as an endorsement of BMM or a solicitation to become a client of BMM. The reader should not assume that any strategies, or specific investments discussed are employed, bought, sold or held by BMM. Direct your inquiries to Bill at 1-888-232-6072 (toll free) or email him at Bill@afewdollarsmore.com Visit www.afewdollarsmore.com for more of Bill’s insights.

 

 

 



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