equities http://www.wisebread.com/taxonomy/term/10659/all en-US Help, I Bought a Stock Dud! — What Now? http://www.wisebread.com/help-i-bought-a-stock-dud-what-now <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/help-i-bought-a-stock-dud-what-now" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/imagecache/250w/blog-images/man_stress_laptop_000029627144.jpg" alt="Man stressed because he bought a dud stock" title="" class="imagecache imagecache-250w" width="250" height="140" /></a> </div> </div> </div> <p>We've all bought a stock that has failed to perform as expected, and we may have even lost a good chunk of change in the process. When you realize you've bought a &quot;dud&quot; of a stock, it's natural to feel a bit helpless. But things may not be as bad as they seem. Consider these ways to handle a bad stock investment:</p> <h2>1. Wait it Out</h2> <p>Unless you need the money soon (or you suspect the company is going out of business), there's not much downside to holding onto a stock, since the price will almost inevitably rise again. In fact, this is the approach most experts recommend &mdash; buy and hold a stock, staying steady through the dips.</p> <p>A company that seems like a dud now might have a great turnaround later. Consider Facebook (<a href="http://www.google.com/finance?cid=296878244325128">NASDAQ: FB</a>). Its much-anticipated initial public offering in 2012 was a bust, and the stock languished below $30 per share for months. Now it's trading above $80. (Disclosure: I own some shares of Facebook stock.)</p> <h2>2. Sell, and Buy Something Better</h2> <p>If you've lost your patience with a stock, it can under some circumstances be fine to consider investing your money elsewhere. But consider the cost implications of selling &mdash; such as short-term capital gains taxes, trading fees, and the costs associated with the new stock or fund. And once you sell, don't look too hard at the performance of the stock you unloaded &mdash; you might go crazy.</p> <h2>3. Sell to Balance a Capital Gain</h2> <p>If you have other stocks that you've sold for big gains, you can avoid a tax hit by selling your dud stock. In fact, if the losses exceed the gains, it can offset taxable ordinary income, as well. This is called tax-loss harvesting, and it's a great way to offload some underperforming stocks while avoiding a tax bill.</p> <h2>4. Buy More</h2> <p>Are you sure the stock is a dud? Or is it just undervalued? One man's &quot;dud&quot; could be another man's bargain. As the great investor Warren Buffett once said, &quot;The lower things go, the more I buy.&quot;</p> <p>For example, some experts recommend buying energy stocks now for this reason. While these stocks have been pummeled of late by low oil prices, they'll eventually rise again, and this may be a good opportunity to buy these stocks on the cheap.</p> <h2>5. Give it to Charity</h2> <p>If it stresses you out too much to hang on to a bad stock, give it away. There are many tax advantages to donating stock, and charities often like receiving stock because of the potential for increased value. And they won't be on the hook for any capital gains.</p> <h2>6. Get More Diversified</h2> <p>You shouldn't worry too much about a &quot;dud&quot; stock if you have a wide range of investments. Seek to hold a good mix of large, midcap, and smallcap stocks in various industries, and no single stock should comprise a significant percentage of your portfolio. It may also be worth it to explore international investments, real estate, and bonds. Index funds are an easy way to get diversified. The point is that if you have a good mix of investments, that underperforming stock shouldn't be a major source of anxiety.</p> <h2>7. Sell Short</h2> <p>If you are completely convinced a stock won't go up in value, you can profit off its poor performance by betting that its price will go down even more. When you short sell a stock, you borrow shares at one price, then buy them for real when the price goes down. This can serve as a hedge against the ownership of other shares that have lost value. It's important to note that short selling can result in <em>big </em>financial losses if you bet wrong, so it's truly a strategy for more experienced and well-funded investors.</p> <p><em>What actions do you take when your stocks underperform?</em></p> <br /><div id="custom_wisebread_footer"><div id="rss_tagline">This article is from <a href="http://www.wisebread.com/tim-lemke">Tim Lemke</a> of <a href="http://www.wisebread.com/help-i-bought-a-stock-dud-what-now">Wise Bread</a>, an award-winning personal finance and <a href="http://www.wisebread.com/credit-cards">credit card comparison</a> website. Read more great articles from Wise Bread:</div><div class="view view-similarterms view-id-similarterms view-display-id-block_2 view-dom-id-1"> <div class="view-content"> <div class="item-list"> <ul> <li class="views-row views-row-1 views-row-odd views-row-first"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/8-money-lessons-we-can-learn-from-baseball">8 Money Lessons We Can Learn From Baseball</a></span> </div> </li> <li class="views-row views-row-2 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/10-times-you-shouldnt-invest-in-stocks">10 Times You Shouldn&#039;t Invest in Stocks</a></span> </div> </li> <li class="views-row views-row-3 views-row-odd"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/8-ways-to-prepare-for-a-stock-market-dive">8 Ways to Prepare for a Stock Market Dive</a></span> </div> </li> <li class="views-row views-row-4 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/7-investments-that-usually-soar-during-the-summer">7 Investments That Usually Soar During the Summer</a></span> </div> </li> <li class="views-row views-row-5 views-row-odd views-row-last"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/4-foolproof-ways-to-protect-your-money-from-inflation">4 Foolproof Ways to Protect Your Money From Inflation</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Investment capital gains equities saving stocks Mon, 27 Apr 2015 11:00:06 +0000 Tim Lemke 1401146 at http://www.wisebread.com How to Understand and Protect Yourself From Inflation http://www.wisebread.com/how-to-understand-and-protect-yourself-from-inflation <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/how-to-understand-and-protect-yourself-from-inflation" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/imagecache/250w/blog-images/iStock_000020437431Small.jpg" alt="Piggy banks" title="Piggy banks" class="imagecache imagecache-250w" width="250" height="151" /></a> </div> </div> </div> <p><em>This article was made possible by support from&nbsp;</em><em><a href="http://r1.fmpub.net/?r=http%3A%2F%2Fad.doubleclick.net%2Fclk%3B258577129%3B76092346%3Bw&amp;k4=3754&amp;k5={banner_id}">OppenheimerFunds</a>.</em></p> <p>At the time of Julius Caesar, the monthly pay for a Roman legionary soldier was one aureus &mdash; a gold coin that weighed about 8 grams (just over one-quarter of a troy ounce) and was enough money to buy 200 pounds of flour. Eight of them were enough to buy 23 acres of woodland in Kent.</p> <p>That much gold would be worth a bit over $400 today &mdash; which will buy you perhaps 500 pounds of whole wheat flour (maybe 1,000 pounds of white flour). You'd have to be looking at some pretty remote places before you could find 23 acres for $3,300, but there's land that cheap.&nbsp;</p> <p>During the next three hundred years, there was inflation in Rome. The aureus shrunk to 7.3 grams and then 6.5 grams and then was replaced by a new gold coin that weighed 5.5 grams.</p> <p>They used a different strategy for their silver coins. Instead of shrinking them, they debased them with base metals. The value of the main silver coin, the denarius, collapsed. One of Julius Caesar's soldiers could have bought an aureus for 25 denarii. Three hundred years later, it took 275,000 denarii to buy even the new, shrunken gold coin.</p> <p>Take a guess at just how high the inflation rate needs to be to produce that sort of collapse in value. I'll give you the answer in a bit.</p> <h3>The Gold Standard to Fiat Currencies</h3> <p>People always talk about inflation as if there were some golden age when we were blissfully free of it. That isn't really true, but it was kinda true during the age of the gold standard. For a couple hundred years, during the eighteenth and nineteenth centuries and up to about 1930, you could make really long-term plans knowing that your British pounds and U.S. dollars would be worth as much to your children and your grandchildren as they were to you.</p> <p>The experience of the Great Depression changed everything. Since then the common wisdom has been that, although inflation is bad, any past inflation should be accepted as a done deal. Inflation should be kept low, but no attempt should be made to reverse it.</p> <p>The result has been that, unlike during the nineteenth century &mdash; when you could leave your daughter an income of a few hundred pounds a year and be confident that she'd be as well off in her old age as in her youth &mdash; everybody who makes plans has to think about inflation.&nbsp;</p> <h3>How Bad Is Inflation Going to Be?</h3> <p>Let me give you two numbers.</p> <p>The first is 7.8%. That's the inflation rate from 1971 (when Nixon closed the gold window, ending the last vestige of the gold standard) through 1983 (the end of Paul Volker's first term as Chairman of the Federal Reserve). By the end of that period, it would have taken $2.46 to buy what a dollar would have bought at the beginning.</p> <p>The second is 3%. That's the inflation rate for the two periods before and after that, from 1933 (when the U.S. went off the gold standard as far as ordinary people were concerned) until 1971, and from 1983 through today. In both periods, inflation turns out to have been almost exactly 3%.</p> <p>Oh, and you remember the terrible Roman inflation that made the value of the denarius collapse so that it took 275,000 to buy what 25 would have bought three hundred years before? That also works out to an inflation rate of just about 3%. That's all it takes to destroy your money if you give it three centuries to do its work.</p> <p>If I were making plans, I'd bet that about 3% is the most likely inflation rate. As you can see, there is ample historical precedent. I'd be surprised to see a rate higher than 7.8%.</p> <p>At an inflation rate of 3%, your money loses half its value in 24 years. Ordinary people make plans that stretch off for that long or longer &mdash; when they're planning their career, when they're planning their retirement, when they're planning to take out a mortgage to buy a house. Failure to plan for inflation may be disastrous for individuals who are surprised by the devaluation of their savings and assets. But the distortions to the real economy from a 3% rate are minimal, especially if the rate is fairly steady.</p> <p>Higher rates, on the other hand &mdash; especially rates that begin to approach 7.8% &mdash; are completely untenable. Not only is the value of cash destroyed quickly, but long-term planning is also impossible, because rates that high are unstable. Will they spike up to 15%? Return to 3%? There's no way to guess. Worse, a rate that high imposes real costs on the economy. Because no one can count on prices being stable even from day to day, people have recheck prices for every routine transaction.</p> <p>Given that inflation can change or even ruin long-term financial plans, what's our best move to protect our wealth?&nbsp;</p> <h3>Four Ways to Protect Your Savings From&nbsp;Inflation</h3> <p>For inflation protection, the first suggestions are always gold, inflation-indexed securities, cash, and equities.</p> <p><b>Gold</b></p> <p>Over the centuries, gold has held its value like nothing else. Over the decades, though, gold is sometimes pretty crappy. You'd have had to spend over $500 to buy an ounce of gold in 1979 or 1980 &mdash; and gold wouldn't be worth that much again until 2005. For most of two decades you'd have been sitting on a loss.</p> <p>On top of that, the value of gold doesn't grow &mdash; a stash of gold coins will buy about as much flour or land as it would have bought 20 centuries ago.</p> <p>That's not to say that gold doesn't have a place in your portfolio, but it was a lot more appealing during the couple of decades when you could buy it for $300 an ounce than it is now.</p> <p><b>Inflation-Indexed Securities</b></p> <p>The U.S. Treasury issues several inflation-protected securities, called TIPS. They pay a yield set at auction for the life of the bond &mdash; but they pay that yield on principle adjusted for inflation. If you'd bought a 3% 10-year TIPS bond in 2002, it would be paying that rate on its inflation-adjusted value, which is closing in on $1,280, and might well reach it before the bond matures next month.</p> <p>There are several downsides to TIPS, one of which is that you have to pay taxes on the inflation adjustment annually, even though you don't actually get the cash until the bond matures. Another is that the yields have collapsed to near zero (and in fact are currently trading at levels that imply a negative interest rate).&nbsp;</p> <p>One special case of inflation-indexed security is the <a href="http://www.wisebread.com/while-waiting-for-rates-i-bonds">Series I Savings Bond</a>, which is actually rather interesting right now. It also pays inflation plus a fixed rate, and its fixed rate is also zero at the moment &mdash; but can't go negative. A bond that you buy today will yield a return equal to the inflation rate &mdash; and will yield that return for almost any time period you want. You have to hold it for one year, but after that you have the option of cashing it in any time you want or holding it 30 years. (There's a penalty of three months interest if you cash it in after less than five years, but that will be very small unless inflation gets quite high &mdash; and if inflation gets quite high, you'll probably want to keep the bond anyway.)</p> <p>The main downside of Series I Savings Bonds is that you're limited to buying $10,000 per year. If you're a small investor, that's probably not a serious obstacle.</p> <p><strong>Cash</strong></p> <p>Very short-term investments like T-bills or money market funds usually yield enough to stay ahead of inflation. The return on cash was almost always several percentage points above inflation from 1960 to 1990.</p> <p>Sadly, that's not true any more. For most of the last decade, cash has paid less than the inflation rate, because central banks are holding rates down to minimize the harm of the financial crisis.</p> <p>Until the central banks relent, the yield on cash is too low to protect you from even small amounts of inflation.</p> <p><b>Equities</b></p> <p>Investing in the stock market provides inflation protection, because the companies are working in the real economy &mdash; buying and selling things that have real value.</p> <p>During a period of inflation, companies will face rising costs for the things they buy and the wages they pay their workers &mdash; but they'll generally be able raise the price of the things they sell by a similar amount.</p> <p>The result is that investing in stocks during an inflation isn't too different from investing in stocks any other time. You want a diversified portfolio. You want your money invested in companies with good management in a profitable business. If you do that, the inflation thing will sort itself out.</p> <p><strong>Candy Bars</strong></p> <p>A final inflation example &mdash; how about candy bars? The ones your parents or grandparents will have told you cost a nickel when they were kids, the ones that cost $1 now? What will they cost in 2050?</p> <p>If inflation ran at 7.8%, they'd cost close to $20, but I don't think that's at all likely. An inflation rate that high would do such serious damage to the economy that it could never be sustained for decades.</p> <p>Nope. I'm willing to bet that inflation will continue on at about the same 3% rate that we've seen over and over again for the past 2000 years. If I'm right, they'll cost about $3.</p> <p><em>The opinions expressed in this post are solely those of the author</em>.</p><br /><div id="custom_wisebread_footer"><div id="rss_tagline">This article is from <a href="http://www.wisebread.com/philip-brewer">Philip Brewer</a> of <a href="http://www.wisebread.com/how-to-understand-and-protect-yourself-from-inflation">Wise Bread</a>, an award-winning personal finance and <a href="http://www.wisebread.com/credit-cards">credit card comparison</a> website. Read more great articles from Wise Bread:</div><div class="view view-similarterms view-id-similarterms view-display-id-block_2 view-dom-id-1"> <div class="view-content"> <div class="item-list"> <ul> <li class="views-row views-row-1 views-row-odd views-row-first"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/4-foolproof-ways-to-protect-your-money-from-inflation">4 Foolproof Ways to Protect Your Money From Inflation</a></span> </div> </li> <li class="views-row views-row-2 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/a-simple-guide-to-series-i-savings-bonds-i-bonds">A Simple Guide to Series I Savings Bonds (I-Bonds)</a></span> </div> </li> <li class="views-row views-row-3 views-row-odd"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/new-rate-set-for-series-i-savings-bonds">New rate set for series I savings bonds</a></span> </div> </li> <li class="views-row views-row-4 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/7-reasons-millennials-should-stop-being-afraid-of-the-stock-market">7 Reasons Millennials Should Stop Being Afraid of the Stock Market</a></span> </div> </li> <li class="views-row views-row-5 views-row-odd views-row-last"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/whats-the-right-percentage-of-cash-for-your-portfolio">What&#039;s the Right Percentage of Cash for Your Portfolio?</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Investment equities gold standard inflation savings Wed, 13 Jun 2012 10:36:08 +0000 Philip Brewer 934373 at http://www.wisebread.com Who Cares About Where The Stock Market Is Headed? http://www.wisebread.com/who-cares-about-where-the-stock-market-is-headed <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/who-cares-about-where-the-stock-market-is-headed" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://wisebread.killeracesmedia.netdna-cdn.com/files/fruganomics/imagecache/250w/blog-images/roller-coaster.jpg" alt="roller coaster" title="roller coaster" class="imagecache imagecache-250w" width="250" height="168" /></a> </div> </div> </div> <p>Your online stock broker may have told you that this was the time to start buying into the market. On the surface, yes, it is a good time to buy in. Long term investors with an investment horizon <a href="http://www.wisebread.com/why-young-investors-should-stay-the-course-and-continue-to-invest">longer than 10 years</a> should be well served by shoveling their long term money into equity funds and stock accounts.</p> <p><strong>But where's the market headed next?</strong>&nbsp;Lots of investment experts are offering a variety of stock market predictions, and while this market goes on to make and break a few careers, you know that whoever gets it right will be congratulated profusely for their prescient calls and intuitive forecasts. </p> <p>Before you lend a financial guru your full attention and decide to hitch the fate of your nest egg to their prognostications, I thought to give you an argument for each possible direction the market can take; my premise here is that it's tough to really say which way the market winds will blow next.&nbsp; There will always be a risk if you time the market, so market timing is something you should only try if you know what you're doing.</p> <p>Care to guess which way the market will go next?&nbsp; Here are some arguments that may support each possible move:</p> <h3>Why The Stock Market Will Go Up</h3> <p>Some of the bulls out there will celebrate the apparent revival of the market. The rally we're seeing has experienced a strong, solid momentum upwards as it barrels its way north from recent dismal lows. There was a lot of money sitting by the sidelines now returning into equities. Was the market truly that oversold and are we now swinging towards its more natural equilibrium?&nbsp; Is President Obama really doing that great a job with restoring our broken confidence as investors?&nbsp; Here's why the market may be on its way up for good: <strong>economic analysts are saying that we'll begin to see the economy recover by next year.</strong>&nbsp; And historically, the stock market has typically moved up many months in advance of any anticipated <a href="http://www.wisebread.com/the-end-of-a-recession-versus-recovery">economic recovery</a>.&nbsp; But who knows, the bulls may still be celebrating prematurely.</p> <h3>Why The Stock Market Will Slide</h3> <p>The bad news bears claim that the stock market rally won't last and we're contending with a bull trap. They point out that <strong>grim market conditions and poor economic fundamentals haven't yet changed significantly</strong> to merit any improvements in the indexes. Although we're seeing a strong uptrend right now, many experienced investors point out that established stock market bottoms are normally revisited and retested before the market resumes a true bullish run. If volume starts to dry up the higher this market goes, then watch out below!</p> <h3>Why The Market Will Stay Flat</h3> <p>This volatile stock market doesn't seem very &quot;flat&quot; given its recent intense action lately. But &quot;flat&quot; can also mean that the market just backs and fills in a given range without making progress over a long period of time.&nbsp; Is this scenario possible?&nbsp; Sure. This is what happened after the relentless bear market of the 1970's.&nbsp; With the market stuck in a narrow range for most of that decade, it was clearly a frustrating time for stock investors; if you invested in stocks in the 1970's, it was &quot;dead money&quot;.&nbsp; Such a time can also be likened to what happened in Japan in the 1990's. I can't help but note the parallelisms in place between the US credit and <a href="http://www.wisebread.com/how-the-subprime-lending-boom-hurt-everybody">mortgage crisis</a>, and the real estate collapse that triggered Japan's &quot;lost decade&quot;.</p> <h3>What Should Investors Do Now?</h3> <p>Because I know not what will happen next with the stock market, and don't really trust what others have to say about it, I can only bank on the investing strategy I've staked my money on for two decades now.&nbsp; <strong>I've stuck with a fairly conservative <a href="http://www.wisebread.com/asset-allocation-for-all-markets">asset allocation</a>; I've employed dollar cost averaging and portfolio rebalancing</strong> to manage my market risks while giving my portfolio a shot at experiencing some modest growth over time.&nbsp; If you have long term funds (such as retirement funds) that can remain in the market for at least another decade, then investing in equities is a reasonable move.&nbsp; Just as long as you've got yourself in diversified assets (cash, bonds, stocks, and possibly a small amount in real estate, commodities, precious metals) and keep the proportions set according to your risk profile, age and financial goals, then you should be in a decent position. I assure myself that I'm doing the best I can given the current market environment by managing a balanced portfolio that's built to withstand volatility.&nbsp; Now I only need some patience to get over this hump.</p> <p>&nbsp;</p> <br /><div id="custom_wisebread_footer"><div id="rss_tagline">This article is from <a href="http://www.wisebread.com/silicon-valley-blogger">Silicon Valley Blogger</a> of <a href="http://www.wisebread.com/who-cares-about-where-the-stock-market-is-headed">Wise Bread</a>, an award-winning personal finance and <a href="http://www.wisebread.com/credit-cards">credit card comparison</a> website. Read more great articles from Wise Bread:</div><div class="view view-similarterms view-id-similarterms view-display-id-block_2 view-dom-id-2"> <div class="view-content"> <div class="item-list"> <ul> <li class="views-row views-row-1 views-row-odd views-row-first"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/survive-the-bear-market-10-steps-to-ride-the-downturn">Survive The Bear Market: 10 Steps To Ride The Downturn</a></span> </div> </li> <li class="views-row views-row-2 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/5-creative-ways-to-invest-during-a-weak-market">5 Creative Ways to Invest During a Weak Market</a></span> </div> </li> <li class="views-row views-row-3 views-row-odd"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/how-to-avoid-gambling-away-your-investments">How To Avoid Gambling Away Your Investments</a></span> </div> </li> <li class="views-row views-row-4 views-row-even"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/how-to-make-the-most-of-your-401K">How to Make the Most of Your 401K</a></span> </div> </li> <li class="views-row views-row-5 views-row-odd views-row-last"> <div class="views-field-title"> <span class="field-content"><a href="http://www.wisebread.com/a-lot-of-people-dont-understand-what-an-investment-really-is-do-you">A Lot of People Don&#039;t Understand What an Investment Really Is. Do You?</a></span> </div> </li> </ul> </div> </div> </div> </div><br/></br> Investment equities investing investment stock market Fri, 10 Apr 2009 17:49:17 +0000 Silicon Valley Blogger 3014 at http://www.wisebread.com