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The Independent Investor: Robo-Advisers Have Landed
By Bill Schmick On: 04:00PM / Friday June 19, 2015

Skynet, move over. The dawn of intelligent portfolio services is rising across the globe. Depending upon your individual circumstances, this trend could be an answer to many investors' problems.

Exactly what is robo-investing?  The dozen or so firms offering this service use computer algorithms, rather than humans, to manage your investments. They do so at a considerable cost savings to you, the retail investor. They offer a substantial discount in the fees they charge, compared to more traditional financial service advisers.

Until recently, many investors had two choices when deciding how to manage your retirement savings such as an IRA or inheritance, for example. You could do-it-yourself (DIY). Pick some mutual funds, stocks or exchange traded funds your cousin or your fishing buddy suggests and invest for the "long-term." That works fairly well as long as markets continue to gain year after year, but fails miserably when the markets turn, as they did during the financial crisis of 2008-2009.

Most individuals (and professional investors) held on throughout that decline only to sell at the bottom. Twenty-five years or more of savings were wiped out in 18 months. Many retail investors have stayed in cash ever since, missing a 100 percent-plus gain. Those who held on have made up most, if not all of, their losses, but it has taken over five years to do so.

The other option is to hire a financial adviser. Unfortunately, they normally have a minimum asset requirement of $250,000-$500,000 or larger. These advisers will charge you 1-2 percent annually and many also make additional fees through commission arrangements or "revenue sharing" deals with mutual fund managers.

The problem with the DIY approach is that most individuals are not able to invest their own savings, nor should they. They may excel at their chosen career but those skills do not normally transfer to money management. As for hiring an adviser, many investors can't make the minimums; especially younger people, who are just starting to save.

Robo-advisers, on the other hand, normally set their minimums somewhere between $5,000 and $10,000. For that initial investment, they will manage your money via computer, charge you half of what a real-live adviser will charge (or less), and some even give you access to investment professionals, who will answer questions about the investments.

Some advisers such as Charles Schwab, the discount broker, charge no fees or commissions in essence, free money management, but readers should be aware that nothing is free. The robo-adviser may insist that 10 percent of your portfolio always remain in cash. That money can be used by the broker in any number of ways that can generate them a good return while making nothing for you.

Robo-advisers can also make money on the investments they select for you. They could, for example, invest you in higher-fee, exchange traded funds or their own brand of ETFs, if they choose. The point is that these robo-advisers are in this to make money, and they do. The fact that they do should not deter you from investigating this further.

Clearly, there is nothing new in how they invest you. There is no "HAL" out there whose artificial intelligence is going to make you brilliant investment choices and returns. All of these firms base their investment guidance using Modern Portfolio Theory (MPT), Efficient Market Hypothesis (EMH) and an analysis of your risk tolerance profile. These are all standard tools of any money manager. They simply down-load this into a computer and invest you accordingly.

If your investment skills are zero to none, robo-investing may be exactly what you need. Your returns may not be spectacular but at least you will have returns. For those of us who have sought the poor man's answer to proper investing, this may well be 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: Why Interest Rates Are Moving Higher
By Bill Schmick On: 04:02PM / Friday June 12, 2015

After two years of warning bond investors that their days are numbered, the recent hike in global interest rates is making some of those smug bond babies stay up at night. They should.

We are entering our ninth year without a Federal Reserve-inspired hike in interest rates. It has been over 25 years since bond prices have dropped by any appreciable amount. Given that time period, it is no wonder that bond bulls are taking all these warnings with a grain of salt.

U.S. investors have been expecting the Fed to raise rates at any time. Most pundits think that a small September or November hike in short-term rates is in the cards. The problem is that the Fed has told all of us that a raise in rates is "data dependent."

Given that guideline, every trader on Wall Street is pouring over a range of numbers both here and abroad to try and determine the Fed's next move. Recently, the economic data both here and in Europe has been encouraging. Some say too encouraging. Consumer prices in Europe, for example, have led some to worry that if price levels continue to increase, inflation could be a problem for the EU. Readers may recall that it was only in April that German sovereign debt was yielding 0.05 percent. Today, it is topping 1.00 percent and moving higher.

In other countries, from Japan to the U.K., rates are higher than they have been for many months. But despite the run up in rates, bond interest rates are still abnormally low by historical standards. Take our 10-year U.S. Treasury note, a benchmark rate that investors watch in the U.S.

In the last month, the 10-year rate has increased from below 2 percent to almost 2.5 percent. Yet, at the start of 2014 that Treasury yield was 3 percent. And just before the financial crisis of 2008, yields on that bond were trading north of 5 percent. There is a lot of room to rise.

The fortunes for stock and bond markets around the world still hinge on what central banks are doing. Twenty-six of 35 global central banks are pouring billions, if not trillions, into their financial markets in an effort o jumpstart their economies. It was our own U.S. Federal Reserve that launched the world on this monetary path when we announced the first quantitative easing back in 2009.

Given the success that we have had in growing our economy, central banks have simply taken a page from our playbook with what appears to be similar results, although it is still too early to proclaim a success. These various quantitative easing moves around the world are why this year I've become more bullish on foreign markets than our own.

As for you bond holders in the U.S. Treasury markets, I would begin to sell down your positions now. Many investors have simply countered that they are in these bonds for the long haul. They say they don't care if bond prices crater over the next few years. They will simply buy some more. I say that strategy could land you in the poor house just at the time when you are going to need that money to live on in retirement. Don’t get caught with your pants down.

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: How to Run for President and Make a Fortune
By Bill Schmick On: 11:03AM / Friday June 05, 2015

Almost every day this week we received an announcement of yet another contender for the 2016 presidency, or an announcement that an announcement would be forthcoming. The reason for so many candidates however, may have nothing to do with winning the presidency.

Back in the day, it was rare to have any more than two or three candidates in each party (and maybe an independent) running in the presidential primaries. Over the last few years that number has tended to increase. This year it looks like we may set a record of most candidates seeking the country's highest office. As of this week, I think we have 10 announced with another eight or more coming.

Can all these politicians truly believe they have a chance at the number one spot? After all, it takes money, time, effort, a large staff and so on to run a campaign. In my experience, politicians have never been known to waste their own money on a losing cause unless there was something in it for them.

Running for president, it would appear, has actually become a short-cut to fame and fortune in this country for many politicians. The "losers" benefit from an enormous amount of free media coverage, fundraising sources, job offers and more. In addition, they get a chance to have their views aired to millions of people, regardless of whether these views have anything to do with reality.

Losing candidates are offered television shows, speaking engagements, lobbying positions, even company management slots as well as the opportunity to position themselves for the next race whether for the presidency or in state or local politics.

What's more, given the right contacts, the whole effort is paid for by someone else. In this day of "Super PACs" and unlimited contributions from individuals and corporations, there is always somebody who is willing to buy a politician somewhere.  Politicians canvas the country seeking campaign funds from every available source. When the competition becomes too intense (as it is now), well, there are always the billionaire survivalists or wealthy religious extremist who is willing to bankroll someone who will act as a mouthpiece for their views.

And this newly-found political gold mine is not the preserve of Republicans. As time goes by Democratic candidates are also jumping on board. Who, outside of Rhode Island, for example, would know Lincoln Chafee, the son of a politician and a lifetime politician himself?

He wants the country to switch to the metric system. Then there's Martin O'Malley, former governor of Maryland and mayor of Baltimore, and Bernie Sanders from Vermont. They are all claiming to be the heir to America's Progressive Movement.

Hilary Clinton, the front-running candidate of her party, gave us some insight into how lucrative the speaking tour can be for an out-of-office politician. Her husband, Bill Clinton, earned $104.9 million for 542 speeches over 13 years. Hillary can now demand $200,000 and up after her failed bid for the presidency and her stint as secretary of state. She is in greater demand than her husband.

But let's not pick on the Democrats. Mike Huckabee, a contender for the GOP presidential candidacy in 2008, landed his own television show on Fox News as a result. Rick Santorum now runs a company that makes Christian movies. And let's not forget Sarah Palin.

Our girl Sarah was showered with book deals, TV shows, high-priced speaking engagements and much more. And that's all from a candidate who exhibited a level of world-class ignorance in foreign affairs that stunned me. Remember Rick Perry? He is running again. In case you forgot, he was the 2008 candidate that couldn't remember the names of the three government agencies he had promised to close. I could go on and on but I won't.

You get the point. The tragedy is that most of us learned in civics class that it was our patriotic duty to listen and to try and understand the policies of every candidate seeking this, our most important public office. Now these politicians have managed to subvert and use that duty as a means to further line their own pocketbooks, while expanding their fame and future fortunes.

Enough said.

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: Man's Most Expensive Friend
By Bill Schmick On: 04:37PM / Friday May 29, 2015

The pet business is booming. Last year, we spent $58.5 billion on our animal buddies and will plunk down an additional 4-5 percent more this year. The lion's share of that increase, after food, is going toward health care.

One reason for this growth is that a record numbers of Americans have pets today. The ASPCA estimates that there are 70-80 million dogs and 74-96 million cats that are homesteading in our houses. That means that approximately 37-47 percent of all American households own either a dog or cat. If you throw in birds, fish, rabbits and other small pets, nearly 70 percent of Americans own pets today.

There was a time when the experts could just tell you how much that pet might cost you over a lifetime. A medium-sized canine, according to the stats, could cost you $1,580 in the first year and then roughly $700 annually thereafter for the life of the pet. Your cat might cost less, maybe $1,300 year, but about the same as a dog every year thereafter. Those costs would include spaying or neutering, vaccinations, food, treats, toys, training, leashes and other routine care and medicines. However, that does not include the costs of boarding, sitting, major medical and of course, pampering  

Food is still the largest expense. Dog food prices have risen steadily since I was a kid when my father brought home our first boxer. Back in the 1970s, for those of you who remember, a can of dog food cost about 8 cents a can. Today that can is fetching $3-$4 or more. This year, treats alone will cost us $2.5 billion while pet food costs overall will total $23 billion

Clearly, Mad Men on Madison Avenue have embraced the dog food business. Human dietary trends and social and consumer habits have been neatly translated into new doggy diets, organic treats for your cat and even monthly deliveries of high-priced gift boxes like "barkboxes." Buzz words such as "range-free, byproduct-free and organic" abound on $100 bags of kibble.

No one blinks an eye when advertisers apply the slogan "you are what you eat" to that fur ball you imagine is lacking a certain luster in her coat or looks a bit porky (unless, of course, he is your pet pig). They use these ploys to convince us to spend two or three times the regular price of that run-of-the-mill stuff we normally buy and it works.

But remember, dog food is not people food and the FDA cannot always protect the consumer from companies that claim one thing and sell another. Just recently, Blue Buffalo, a high-priced, billion-dollar, premium pet food company that ships over 10 million bags annually, was called-out by its competitor. Purina sued the company for claiming its food was byproduct free when it wasn't. It took a year in the courts, but finally Blue Buffalo had to admit to the truth.

Health care costs have also risen. Veterinarian care will cost Americans a total of $15.73 billion dollars this year. Medical breakthroughs in technology and medical services like chemotherapy, radiation, surgery, ultrasounds and biopsies for pets are now readily available at our local vets. There was a time when these services, if they were available at all, were few and far between. These skyrocketing costs are the principal reason that the pet insurance industry is growing at an average rate of 13 percent a year from nowhere a decade ago. The number of insured pets has risen to over one million and growing steadily.

The engine of growth behind this pet phenomenon is a growing and changing emotional bond between us and our pets. Increasingly, we feel that Duke or Daisy is a part of our human family. There is even a word for it, "anthropomorphization," the attribution of human characteristics to our pets. Many pet owners today seem to blur the lines between children and their animals. As such, these newest members of our families enjoy the same level of attention and spending that one's other children demand.

You don't have to agree with it, but you can't fight it either. There is something downright comforting to come home to a wagging tail or a body purring against your leg. As for me, I draw the line at the dinner table. My dog does not sit at the table (although he does sit under it where the scraps are best).

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.



     
@theMarket: June Is Off the Table
By Bill Schmick On: 05:39PM / Friday May 22, 2015

The notes of the Fed's April policy meeting, released this week, may have confused more people than not. The central bank committee revealed that they were unlikely to raise short-term interest rates in June. That statement could be taken as both a positive and a negative, depending on your investment position.

The official notice of a delayed rate hike was greeted with relief by some, although the markets had largely baked in that outcome. Many Fed Heads contend that a rate hike in September is still only a 50/50 proposition, while others argue any increase in rates won't happen until sometime next year.

This, they argue, is because the growth rate of the economy is simply not strong enough to weather even a small uptick in interest rates. Some economists in that camp actually believe that the economy may very well be rolling over (as it has in the past), after the Federal Reserve discontinued other quantitative easing programs. Would that be good or bad for the stock market?

A slowing economy could be interpreted either way. Some investors might bail out of equities and back into bonds believing that the market is way too expensive given the possibility of an impending economic decline. Others might see that as a positive scenario. Traders might anticipate that the Fed, like other central banks worldwide that are faced with slowing economies, would launch yet another QE stimulus program. History indicates that would give a further boost to stocks as it has in this country over the past few years (and Europe, Japan and China today).

Then there are the economic bulls, who believe that we will see the economy roar back after the impact of a dismal winter, declining energy prices, and a strong dollar begins to dissipate. These headwinds to the economy are already abating, they argue, and as the summer progresses, both employment and consumer spending will pick up. That would most likely be taken as another positive for the stock market, justifying existing valuations and more potential upside in the future.

For those caught within this quandary, the only thing they can do is watch, wait and worry. As for me, I'm not in that camp, since the present "muddle-through" economy is just fine with me. A "not too cold, not too hot" state of economic affairs has worked out well for our portfolios and tax-deferred retirement accounts.

And now that we are seeing some job growth, even Main Street is getting to participate in the prosperity that has been confined to Wall Street over the last five years. I believe the Fed has our backs, especially those of the middle class. They are as concerned about the growing income inequality in this country as I am. Janet Yellen, chairwoman of our Federal Reserve, has said as much on several occasions.

The Fed, in my opinion, will do all that is humanly possible to maintain and grow this economy with an eye to increasing employment and wage growth. If, in accomplishing these objectives, Wall Street also profits, then everybody wins. Right now, and for the foreseeable future, that is the investment environment we find ourselves.  If, others chose to watch, wait and worry be my guest. I will stay invested and I hope you do too. I wish everyone a Happy Memorial Day and Semper Fi to all my fellow Marines out there.

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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