A stronger dollar is the key to recovery, not quantitative easing, says investment manager Abigail Doolittle. (Photo Credit: CC BY/MoneyBlogNewz/Flickr)

Quantitative easing (QE) has been referred to by some economists as the last vestige of an empire in ruin. The idea is to create money, suppress rates, promote liquidity and watch inflation spread. It’s like a plumber who tries to fill a bathtub by pouring in massive amounts of water, without plugging the drain first. According to CNBC, however, the Federal Reserve is reaching toward turning off the tap, and investors have decided to cut back.

Fed sends S&P into downward slide

The S&P 500 was down by 2 percent this week and is in the middle of a 7 percent slide that began May 2. The loss in investor confidence has much to do with drops in a variety of economic indicators, the Federal Reserve turning off the tap being one of those. And the worst may be to come, suggests United-ICAP energy analyst Brian LaRose.

“If you look at what values have been rising over the course of the quantitative easing program, it has been merely commodities and equities, nothing else,” he said. “Reality is starting to take hold.”

Pop goes the golden goose

That reality may be that the gold and oil bubbles will pop, reports Bloomberg. That, in turn, would lead to a surge in the U.S. dollar, which has lost as much as 10 percent against other world currencies since the last time Ben Bernanke and the Fed boarded the QE bus.

The possibility of further bailouts for debt-ridden Greece has dragged the euro down, as has the lack of a unified financial plan between euro-zone nations. The indecision has been less than inspiring to global investors.

In the U.S., consumer worry continues to spill over into the housing market. If people aren’t spending and housing prices continue to fall, the path of disaster for the U.S. is clear, says CNBC.

Finding the bottom with both hands

While analysts like Richard Ross claim that the U.S. economic fix is only beginning to take hold and that, as investment strategist Jeffrey Saut puts it, the market is “bullishly configured” as long as the S&P holds around 1,250, the naysayers remain out in force.

“We have mountainous inflation efforts in place with historically low yields and strong demand for bonds. That’s like a rubber band that’s going to snap at some point, and somebody’s going to get hurt,” says Bill Larkin, portfolio manager at Cabot Money Management in Salem, Mass.

In order to find out where the economic slide will stop, investment firm manager Abigail Doolittle believes the Fed should do much to strengthen the dollar and allow rates to rise. The effect will be slow but lasting.

“Force investors off of the liquidity high of the last few years, and replace immediate-term gratification with the long-term satisfaction of investing in an economy with a truly solid foundation,” she said.

Quantitative easing: When failure doesn’t sound like failure. (Contains adult language)

Sources

Bloomberg

CNBC

Huffington Post

Quantitative easing Wiki

Investing in your future

More than ever though, people learned a valuable lesson about good savings goals and safeguarding their financial futures. People who put off their investment plans due to current bills realized that they needed to change their habits. If you are one of the millions of people who found their savings insufficient to last throughout the recession, then you need to start your investment plan. Experts say that with as little as $100 any consumer can start a new financial life.

The reasons people fail at investing

Though investing is crucial to building wealth as quickly as possible, there are some culprits that thwart even the most vigilant investor’s plan. First of all, market timing is one of the hardest things to overcome. Experts will tell you that there is a right time to invest, but can they really predict the future? They can try, but studies have shown that even the best investor who has watched the market vigilantly for years is only 70% accurate with predictions. The reason is because the market tends to make its biggest fluctuations due to unexpected events.

Second, there is the age old advice to “buy high and sell low.” The problem with this advice is that it inevitably sets investors on an egg hunt for the hottest stocks or mutual funds. Seasoned investors may be able to weather the storm and come out on top, but novice investors inevitably get tripped up with the choices. In addition, the stress of searching out that one big stock can be too much for new investors to manage and cause them to throw in the towel on trading too early.

Finally, the biggest problem with investing is a failure to diversity. The key to maximizing returns is to diversify and without a good investment plan that takes into account all the types of products available, one blow and your money could take a huge it. That hit may be so large the account never truly recovers from it and you are left with drastically smaller account totals than hoped for. The best formula for building a portfolio is to take 25% of each of the following:

• US Stocks, or those on the S&P 500 Index
• Foreign stocks, or those on the MSCI EAFE
• Real estate, or the National Association of Real Estate Investment Trusts (NAREIT) Equity Index
• Gold, oil and other commodities, or those represented by S&P Goldman Sachs Commodity Index

Investing with $100

Money now that the recession is over comes in much smaller amounts, but that isn’t necessarily bad news. Starting with $100 from a tax refund is enough to get any new investor on the road to saving. The easiest thing to do with the additional money is to open up an IRA with any big broker and then commit to investing an additional $50 to $100 a month into the account. The biggest caution when it comes to starting with a small amount of money is to find an account that offers transactions costs that are as minimal as possible. ShareBuilder.com and Zecco.com are two online brokerages that keep trades down to $4 and $4.50, respectively. To minimize trading costs, all consumers should rotate their initial purchases among the following: Rydex S&P Equal Weight, Vanguard FTSE, Vanguard Total Bond Market, Vanguard REIT Index and PowerShares Deutsche Bank Commodity. For those who are starting with just $100, it is more beneficial to trade four times a year at $300, rather than monthly.

Being financially ready

If you are looking to invest but only have a small starting amount, rest assured that it will still grow steadily. Of course everyone should watch their money now more carefully than ever, but a good investing plan is a tool that will solidify your financial future. It isn’t hard and primarily requires determination and focus but in today’s volatile market, it is a necessity to be financially prepared for anything.

If you need money now, apply here!

Do you know what a mutual fund is?

A mutual fund is the name applied to an investment vehicle where multiple investors combine their money in order to buy an assortment of stocks. The stocks that are included in the fund have been specially selected according to each investor’s financial goals. For instance, some mutual funds are focused primarily on earning an income from the fund’s dividends, while another may be focused on seeing growth or a certain level of improvement for fund stocks. As an investment vehicle, a mutual fund is carefully targeted towards a particular objective upon which the investment group has agreed.

Who is in charge of the mutual fund?

A mutual fund is closely monitored by a portfolio manager or a team of portfolio managers. These managers choose which stocks will be a part of the fund and make other investment choices on behalf of the investors. Such choices include when to buy stocks, which ones to buy and when stocks should be sold. The fund manager is responsible for all of the important decisions made on behalf of the group and should, therefore, be selected very carefully.

How many stocks does a mutual fund have?

Every mutual fund is different. Some may only have 25 stocks, while others may have hundreds. This really depends upon the fund’s objective, how many investors the fund has and how much money each investor has in the fund.

Can money be taken out of a mutual fund?

Yes. If an investor needs emergency cash or even if she just changes her mind on the investment, money can be withdrawn from a mutual fund. If the stocks contained in the fund are up, an investor may realize a profit when withdrawing from the fund. Conversely, if prices have dropped, an investor may also realize a loss when withdrawing from a mutual fund.

Is it better to invest in a mutual fund or individual stocks?

This really depends on the investor and the investor’s financial goals. A mutual fund is sometimes less risky, because the investment is diversified over a variety of different stocks. Therefore, if one stock performs poorly, the investor may only realize a small, temporary loss while other stocks in the fund may continue to perform well. However, if that investor were only investing in one stock that ends up performing poorly, the loss is more noticeable. Smart investors realize the value in diversification, which makes mutual fund investments a good choice for many.

Do I need a lot of money to invest in a mutual fund?

A mutual fund is often the investment vehicle of choice for those who don’t have a lot of money to invest or those who are new to stock investing. Because investments made to the fund are under the supervision of portfolio management, a mutual fund is also a way for people to learn more about investing without having to do a lot to manage their investment on a daily basis. Of course, wealth education calls for learning a lot more along the way and selecting the right mutual fund is very important in the entire process. However, it doesn’t require a lot of money. This makes mutual funds a good consideration for beginning investors.

Grace Groner lived in Lake Forest, Illinois, where this is the library. Image from Wikipedia.

She is known as “the secret millionaire who donated her fortune”, but during her life Grace Groner was just the wonderfully kind and older lady next door. Much of her adult life, this secret millionaire lived in a one-bedroom home and lived extremely frugally. When she died, she left her estate to her alma mater. When Lake Forest College found out this instant money total turned out to be about $7 million dollars, they were shocked.

The secret millionaire donates her fortune to a good cause

Grace Groner had made a large donation to Lake Forest College in the past. She had donated $180,000 to establish a scholarship program to help students pursue internships and study-abroad programs. Lake Forest College president Stephen Schutt told the Chicago Tribune that he had known that the secret millionaire was planning on donating her fortune to the school upon her death, but he had no idea how truly large the gift would be.

Grace Groner’s secret to being a millionaire

Unlike most millionaires, Grace Groner did not live large. Instead, like most people that lived through the depression, she was very frugal. Grace walked everywhere rather than purchasing a car. The “secret millionaire’s” clothes came from rummage sales. Grace even lived in the same small single-bedroom house for most of her adult life – a house that had been willed to her by a friend. To put it simply, no matter how much money Grace Groner was worth, she lived simply and carefully. This, combined with a very smart stock purchase, helped her become the secret millionaire.

A single stock purchase created a secret millionaire

Grace Groner worked for one company for 43 years. In 1935, she purchased three $60 shares of that company, Abbott Laboratories. Instead of selling these stocks with the ups and downs of the market, Grace instead held onto the stocks. Every time they split or paid out dividends, she simply reinvested them. Her net worth built over time, and long before she died she had enough money she wouldn’t have been in need of easy payday cash advances.

Lake Forest College’s plans for Grace Groner’s fortune

When Grace Groner donated her fortune to Lake Forest College, she also donated her small home. The college plans to use the $7 million as an endowment that should pay out about $300,000 a year. They will be using Grace Groner’s gift to help students with scholarships, study abroad programs, and more. They will also be turning Grace Groner’s home into living quarters for women who receive foundation scholarships. All in all, Grace Groner donating her fortune to the school has helped ensured that generations of students will continue to receive an education – perhaps about more than just getting ahead in the world.

Start planning now for your sunset years (Photo: wikimedia.org)

In this last article of the retirement series, you will learn how to create a sustainable lifetime income without having to resort to annuities or credit cards. You desire to live well and maintain your standard of living in your retirement years, but you do not know how to do it without depending on what may be shifty advice from a broker or financial advisor. It’s time to put some common sense into your retirement investing. Follow these strategies and you will be well on your way to creating the life you desire.

Start as young as possible

The younger you start investing in your retirement fund, the more you will be able to make in the long term. However, it is human nature to put this off until the last possible minute. This is not advisable…let me tell you why. Say you start investing when you are 25 years old, and you put in $10,000 in a retirement account with annual additions of $5,000. Your interest rate is a generous 6% compounded annually. In 40 years when you reach 65, you will have $923,095.60. Pretty impressive, right?

But what if you wait 10 years? At 35, you start with the same amount of principal, and the same amount of money added annually. Everything remains the same, except you only have 30 years instead of 40. Now, you would only have $476, 443.30. That is a LOSS of almost $500,000!! OUCH! And what a big loss!

The point is to start as soon as you can, so that you can save as much as you can by the time you are ready to retire, without the need to rely on credit cards consistently in your golden years.

No need for over-diversification

Warren Buffet once said about people who spread out their investments in an effort to diversify, “Only people who do not know what they are doing diversify.” And yet, financial advisors who are supposed experts tell you to diversify all the time in order to “spread out the loss”. Of course, in reality, you are spreading out the profits you could be making. The reason is that when you have more money in a stock, you own more shares. The more shares of a company that you own, the more money you can make when the share price skyrockets. Of course, the opposite can be true: The more shares you own, the less value those shares represent when the share price bottoms out.

Over-diversification means that you have a little money here, a little money there—all earning just a little money everywhere. However, if you put more money into fewer investments, your money has the potential to grow higher and faster. The key to success with this is to thoroughly research companies and hold on to your shares for the long term.

Buy low, sell high

You must buy when everyone else is selling, and sell when everyone else is buying. Basically, buy low and sell high. This is the logical way to invest.

When the market is in a downturn, you can buy more shares for less money when everyone else is losing out on a golden opportunity. When everyone else is thinking that it is the perfect time to buy shares as the market experiences its highs, this is the perfect time to sell or hang on to your shares. But never buy during this time! (You may regret it when you run out of cash and need to use your credit cards for basic survival!)

Don’t believe your broker ALL the time!

A man invested $10,000 in 1965, on the advice of his broker. Shortly after he invested, his broker suddenly dropped dead of a heart attack. Well, the man didn’t get any “advice” about when to take out his money, so he held on to his shares for about 35 years. At the end of those 35 years, his investment was worth over 2 million dollars! Imagine if his broker was still alive and told him to take out his money when the market had gone down during that time!

The point is, many financial advisers and brokers tend to go with the emotional flow of the popular sentiment, rather than applying logic to investing. Their clients then adopt this viewpoint. Not every adviser or broker does this, and you can get some pretty good advice from them occasionally. However, do not believe your adviser or broker all the time. Instead, take control of your future!