Investment Management

Interesting Financial Blogs – Really!

Woman reading a blog on her iPad

Woman reading a blog on her iPadWhen I get an extra hour in a day, I like to go on-line and read my favorite financial blogs. Not only do they keep me up-to-date on business news, but I always learn something that I can use in my life or share with clients. I have a feeling that this pastime is not shared with many (other than my financial advisor friends) but I do know that we all want to be smarter about our money. Be honest – how many of you made a New Year’s resolution that had something to do with your finances?

The following is a list of blogs that I promise, will inform but not bore. After all, money really can be quite interesting.

The BillFold is not your typical money blog. It’s about ordinary people and situations and it can be both silly and serious. Each post is related to money in some way, it just isn’t always obvious.  In the editors own words “We are a site about money. We are interested in people’s lives and how funds make those lives awesome and not so awesome.”

I enjoy The Business Insider finance blog, called Clusterstock because it not only reports and analyzes business news but it acts as an aggregator of the top news stories from around the web. It can be your one-stop shop for financial news.

Every year we read news stories about the World Economic Forum that is held in Davos, Switzerland where business, political, academic and other leaders gather to shape agendas for a better world. This same organization supports a blog on its website that is full of interesting articles about global economics.

Each business day I receive an email from The Seeking Alpha blog called Wall Street Breakfast-Must-Know News. It summarizes the top stock market and economic news and provides a link to the full article if I choose to read more. I find it to be an incredibly efficient way to stay on top of financial news.

Happy New Year!

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A Financial English Primer

Call it “finglish,” or financial English. Financial and economic terms dominate the news nowadays, amid talk of fiscal cliffs and eurozone troubles. Plus, new financial terms crop up all the time for a new product or strategy, like quantitative easing.

Since the news is particularly ripe with financial terms right now, it is a great time for us to learn some common finance terms. Some finglish terms are often confused and used improperly in the media. Hopefully, this will increase your financial knowledge, help you to understand the key issues we’re facing and communicate better with your financial advisor.

Six Finglish Terms You Should Know

Federal budget deficit. This term is in the news constantly and for good reason—the deficit is huge, at $1.1 trillion. This means that the federal government is spending $1.1 trillion more than it is earning in revenues over a year. Why? Because entitlement spending, interest paid on the national debt and defense spending are much greater than revenue from taxes. And when the economy is weak, as it is now, tax collections are down.

National debt. A lot of people confuse the debt and the deficit. The amount of gross federal debt outstanding is a difficult-to-imagine $16.2 trillion. The national debt increases or decreases based on the annual federal budget deficit or surplus. But a surplus has not been seen since 2003 and the deficit is now growing at a rate of almost $1 trillion a year. Together with the budget deficit, this debt was one of the reasons Standard & Poor’s gave when downgrading the United States’ credit rating last summer.

Entitlement spending. This refers to Social Security, Medicare and Medicaid outlays by the government. Though we pay into this system during our working years, with rising costs of healthcare and longer lives, much more goes out than comes in. Our country’s leaders know that entitlement spending has got to be reformed to fix the debt problem. But it’s a political minefield, and a divided post-election government will make change difficult.

Debt ceiling. The federal government is limited by law on the total amount of debt it issues. This limit is known as the debt ceiling. Currently, the debt ceiling is $16.4 trillion, an amount that we will exceed in early 2013. Fortunately, the government can continue to operate and pay its obligations through various accounting mechanisms and Congress will mostly likely vote to increase the ceiling.

Quantitative easing (QE). This is a weapon in the Federal Reserve’s arsenal to help the country out of a recession when all else fails. This is sometimes referred to as “printing money,” but this term is misleading since very few new paper bills are issued and the Treasury prints currency anyway, not the Fed. The Fed tends to use QE when it has lowered interest rates to close to 0% and the economy doesn’t improve. Quantitative easing increases the money supply by flooding banks and other financial institutions with capital through the Fed’s asset purchases in an effort to promote increased lending and liquidity.

The Fed announced the third round of QE on Sepember. 13, 2012. Each month, for as long as it takes, the Fed will buy $40 billion in bonds and mortgage-backed securities, and keep rates close to zero until 2015. Many economists are concerned that open-ended asset purchases could lead to inflation, as there is still a fixed amount of goods for sale (too much money chasing too few goods leads to higher prices).

Yield Curve. When the Fed expands the money supply, it intends to spur borrowing by lowering interest rates further out on the yield curve. The yield curve is basically a chart showing borrowing costs for bonds of different maturities.

Naturally, longer maturities of 10 to 30 years come with higher interest rates to compensate the lender (the bond holder) for parting with that money for a longer time. Short-term debt usually carries a lower interest rate. By driving down long-term borrowing costs, the Fed hopes to encourage businesses to borrow more so they can invest and hire people.

Becoming a Better Informed Investor

The list above is only the tip of the iceberg when it comes to finglish. There are many others terms that you should be familiar with. Getting used to financial terms makes you a more empowered investor and a more informed citizen. Don’t let seemingly arcane vocabulary turn you away from investing and pursuing your financial future.

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Stock Market Volatility Doesn’t Imply Direction of the Stock Market – It’s The Price We Pay for a Higher Return

Stocks, Bonds, Bills and Inflation

Stock market volatility doesn’t imply direction of the stock market – it’s the price we pay for a higher return. Repeat this phrase to yourself whenever you feel anxiety overcoming logic and you’re tempted to sell your stocks into cash. After you calm down, take time to review your portfolio to determine whether it’s allocated in alignment with your risk tolerance and your need for return on investment (ROI).

Risk Tolerance
To simplify the concept of risk tolerance, think of it as measuring how much volatility you can stand before you want to cash out. The riskier an investment is = the higher the return potential = the higher the volatility. “OK,” you say, “I can’t stand any volatility so I plan to sell all my stocks and transfer the proceeds to my savings account.”

Stop there. It’s not quite so easy. And repeat: “Stock market volatility doesn’t imply direction of the stock market – it’s the price we pay for a higher return.”

Return on Investment
Most of us invest because we want our money to grow. We want it to outpace inflation, to fund our key financial goals and to enable us to maintain our lifestyle in retirement. To understand how much ROI you need (and consequently how much volatility you will need to withstand) a few numbers are critical to know: How much you have now; how much you can add in the future; how much you will need in the future; and when you will need it.

If you are young and have many years ahead to save and invest, or if you have been a disciplined saver and investor, you may not need as high an ROI to reach your goals. If the volatility of the markets gets to you, you can rebalance into a lower-risk, lower-volatility portfolio. (This is accomplished by increasing your allocation to bonds or cash-like investments.) However, if you run the numbers and realize you have some catching up to do, seriously reconsider your desire to “run for the hills” and maintain an allocation to stocks.

Important Caveat
When determining your risk tolerance and need for ROI, keep in mind that the stock market isn’t the place to invest money in stocks that you’ll need in the short term (in 3–5 years). For example, retirees would be wise to keep 3–5 years of living expenses in very safe investments. A prospective new homeowner wouldn’t want to invest their down payment in stocks. In addition, it’s just smart to maintain an emergency fund of six months to a year’s worth of living expenses in cash-like investments.

The charts and statistics below illustrate the long-term return potential of stocks, bonds and cash.
Stocks, Bonds, Bills and Inflation

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Book Review: The Ten Trillion Dollar Gamble: The Coming Deficit Debacle and How To Invest Now

The Ten Trillion Dollar Gamble by Russ Koesterich

The Ten Trillion Dollar Gamble by Russ KoesterichU.S. federal deficits and the national debt are hot topics these days and for good reason. The federal deficit in 2010 was $1.3 trillion and the amount of gross federal debt outstanding (the national debt) is now $14 trillion. No one expects these to stop growing anytime soon.

Economists call the U.S. type of deficit a “structural deficit” because it isn’t temporary; the U.S.government habitually spends more than it takes in. Imagine if you ran your own personal finances this way. It would mean you spend more than you make each year and never pay your debt off—it just grows. Your creditors wouldn’t allow it and bankruptcy would surely be the outcome.

In The Ten Trillion Dollar Gamble: The Coming Deficit Debacle and How to Invest Now, Russ Koestrerich takes on this issue in straightforward prose that even a person unfamiliar with deficit economics can understand. In the first few chapters he explains the what, why and how of the U.S. deficit problem. He attributes the large and growing deficit to entitlement spending: revenue spent on Social Security, Medicare and Medicaid, compounded by our politician’s unwillingness to take action to reduce and control this spending. Koestrerich’s premise is that the largest pieces of the deficit pie, entitlement spending, along with the interest expense on existing bonds and defense spending, are politically untouchable. No politician wants to be voted out of a job.

Koestrerich concludes that the deficit isn’t going away and the result will be higher interest rates, slower economic growth and inflation.

In Chapter 2, Koestrerich explains why this matters to you—why slower growth, higher interest rates and inflation will dramatically affect the U.S. standard of living. As more government spending goes to paying interest on the debt, there will be less spending on more productive areas, such as job creation, education and infrastructure. Taxes will inevitably rise as a way to fund the deficit, hurting business and households alike. Higher deficits lead to higher interest rates on government debt which then extends to higher rates on consumer loans such as mortgages, auto and student loans. And in the worst outcome, inflation will start to rise, and each dollar will buy less goods and services, stretching already tight household budgets to a breaking point.

If you believe in Koestrerich’s worst case scenario, then Chapters 5 to 9 are for you.In them, he outlines investing strategies that can potentially protect your capital and make money in a deficit-run economy:


  • Reduce bond holdings, particularly U.S. Treasuries.
  • Focus your bond portfolio on shorter maturities.
  • Build bond ladders.
  • Raise allocation to municipal bonds.
  • Favor corporate bonds over government bonds.
  • Add international (including emerging market) bonds to your portfolio mix.
  • Add TIPS (if held to maturity).
  • If you need income, look to preferred and dividend paying stocks as bond substitutes.


  • Increase your exposure to stocks outside of the U.S.
  • Favor regions with better growth prospects and less debt, i.e. Canada, Australia, Germany, Hong Kong and Singapore.
  • Own stocks in countries that produce commodities, particularly energy, i.e. Canada and Australia.
  • Focus on U.S. companies that are large exporters of goods or services.
  • Give more weight in your portfolio to emerging markets, i.e. Brazil.
  • Overweight stocks that are more resilient to rising rates such as technology, energy and healthcare and own less in utilities, financial and consumer discretionary stocks.


  • Allocate a percentage of your portfolio to a broad commodity basket and gold.

Real Estate

  • Buying a larger home, a second home or some commercial property is a good strategy in the event of higher inflation, but buying REITS is not.

Koesterich does an excellent job of describing the ways to invest in these different asset classes and the book is a useful investment primer. He explains his recommendations in just enough detail and again, in prose that most investors can understand. I would recommend this book to anyone who wants to get a deeper understanding of our current economy and ways to invest, whether you believe we are on the road to a deficit debacle or not.

Note:  This book was provided to me free of cost by McGraw-Hill. Any investment strategies discussed above are not recommendations. Consult your financial advisor or conduct your own due diligence to ensure investments are appropriate for your risk tolerance and investment timeframes.

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Curtis Financial Planning