From time to time, Morningstar publishes content from asset managers, educational institutions, and registered investment advisers under our "Perspectives" banner. If you are interested in Morningstar featuring your content, please contact Online Editor Holly Cook at holly.cook@morningstar.com. Here, HSBC Global Asset Management says Russia is the most attractively valued BRIC market but all should continue to prosper from strong domestic consumption.
Strong domestic consumption in Brazil, Russia, India and China (BRIC) is a key driver of continued strength in these markets according to HSBC Global Asset Management, one of the world’s largest investors in this asset class with more than $28 billion BRIC assets under management. (1)
Nick Timberlake, Head of Emerging Market Equities at HSBC Global Asset Management and lead manager of the HSBC GIF BRIC Equity Fund, said whilst high debt levels would remain a drag on developed world growth for many years, key emerging economies now have the financial fire power to mitigate the effects of lower export growth through home grown consumption.
He argues that a rising middle class combined with low penetration and pent up demand for goods such as computers, mobile phones and automobiles, has unleashed strong internal demand within these markets.
“Amid a population of 2.7 billion people in the BRIC markets, representing approximately 40% of the world’s population, rising affluence is fuelling growing demand for goods. Domestic consumption is also a key driver of intra-BRIC market trade. The BRIC markets are no longer as heavily dependent on the developed world. For example, Brazil’s biggest trading partner is no longer the US but China,” Timberlake said.
Philip Poole, Global Head of Macro and Investment Strategy at HSBC Global Asset Management, added that strong domestic consumption is imperative in order for emerging markets to sustain a healthy growth differential relative to the developed world. “The good news is that we already have evidence of this and economic policies in markets such as China are increasingly focussed on supporting domestic consumption growth.”
HSBC Global Asset Management believes that following a correction within BRIC markets, valuations are now back at fair levels, with current prices presenting a good entry opportunity for investors with a long-term investment horizon.
Russia
Russia, currently the HSBC GIF BRIC Equity fund’s largest overweight position, is unloved and undervalued by the market at present, with the stock market trading at just 5x 2011 price earnings. However, with valuations expected to revert in due course, and with the fundamentals remaining sound, the opportunity for upside looks favourable, according to Ed Conroy, co-manager of the HSBC GIF Russia Equity fund.
Furthermore, prospects are enhanced by the supportive long-term investment case, as evidenced by low levels of government and personal leverage, rising investment levels and an abundance of natural resources.
Although better known for its oil production, Russia also has a particularly compelling story in terms of domestic consumption. Conroy pointed to a seven fold increase in Russian US dollar wages between 1999 and 2008. This has triggered a retail boom in Russia, which by global standards is still in its infancy. As a result, there remains an abundance of growth opportunities for manufacturers and retailers alike. To support this, evidence shows that consumer spending has been more resilient than the broader economy during the recent turmoil.
China
In China, thriving domestic consumption is being driven by numerous factors, not least rising urbanisation and an emerging and aspirational middle class. Other shifts are also taking place. Recent news of wage increases, although not ideal for China’s export competitiveness, should be positive for domestic consumption.
Furthermore, the recent announcement that China would end its de facto dollar peg and return to the managed float system could strengthen the renminbi by better reflecting its intrinsic value. This shift in policy is a positive development for China, according to HSBC Global Asset Management.
“Overall, the possibility of a stronger currency will help attract more capital inflow into China as investors can benefit from potential asset-price appreciation. We maintain the view that renminbi appreciation will be gradual,” Timberlake said.
“Companies with large foreign currency denominated debt, such as airlines, or companies with foreign currency costs but with renminbi revenue will benefit from appreciation. Although export-related companies will be negatively affected as a stronger renminbi will reduce export competitiveness, we are positive on the dominant companies as we believe they will be able to pass on the added costs. This is because the manufacturing market in China has consolidated following the fallout from the global financial crisis. Exporters that have survived and are still in business should have gained market share and increased their bargaining power with customers.”
Brazil
Jose Cuervo, manager of the HSBC GIF Brazil Equity fund, argues that sovereign discipline and relevant market reforms over the past 20 years, along with strong global growth over the past decade, have been responsible for fuelling the accelerated economic expansion in Brazil.
Citing a stable sovereign outlook and reduced inflation expectations as examples, Cuervo argues that this has set the platform for Brazil’s continued expansion and increased domestic consumption.
“This has become a more important driver of the economy, a trend that is set to continue, especially given increasing urbanisation levels, favourable demographics, improved access to credit and strong pent up demand,” Cuervo said.
In Brazil, Cuervo currently favours a range of domestic consumption oriented stocks with greater emphasis on areas less sensitive to interest rate increases.
India
The biggest underweight country in HSBC’s BRIC portfolio is India, which remains expensive in emerging market terms at 14.2x calendar 2011 earnings. Nonetheless, this economy is in robust shape. On Monday, Moody’s upgraded its local currency debt rating, citing government's recent fiscal reforms and a strong economy.
Sanjiv Duggal, manager of the HSBC GIF India Equity fund, said he had expected upgrades such as this, and anticipated further upgrades in the next 3-4 quarters.
Despite the market being expensive, he said there are still plentiful opportunities amongst consumption related sectors such as housing, auto and beverages.
A particular pocket of opportunity is passenger car sales. For instance, in the fiscal year ended March 2010, passenger car sales in India grew at the fastest pace in six years, up 25% to 1.53 million units. Meanwhile, the housing market continues to witness strong demand and Duggal continues to find opportunities amongst the under owned real estate sector.
Monday, October 18, 2010
Tuesday, June 22, 2010
Gap closes between fixed, variable rates
EXPECTATIONS that interest rates will be steady in coming months have narrowed the gap between fixed and variable loans.
A three-year fixed interest rate mortgage has dropped to within 16 basis points of the average standard variable rate, according to ratings agency Canstar Cannex.
''Following the Reserve Bank's cash rate increases and fixed rates remaining somewhat constant, fixed and variable are now almost sitting at parity,'' Canstar Cannex financial analyst Mitchell Watson said.
Advertisement: Story continues belowCurrently, the average standard variable rate is 7.38 per cent, while the average three-year fixed rate is 7.54 per cent.
The RBA kept interest rates on hold at 4.5 per cent this month, after global markets were spooked by the European debt crisis. The June pause comes amid a rate rise cycle that began in September last year, with the RBA lifting the cash rate six times since then.
Investors are pricing in a 4 per cent chance of a rate cut in July, according to Credit Suisse data.
By June 2011, the market is forecasting an interest rate of 4.75 per cent.
''Borrowers could see this as an opportunity to reduce the risk of fixing, but they need to be aware that fixing a home loan is a long-term decision and very much a gamble, so it really does depend on your own individual circumstances,'' Mr Watson said.
The average one-year fixed rate mortgage is 6.95 per cent, while the average two-year rate is 7.39 per cent. Longer-term fixed rate mortgages cost more, with the average four-year fixed rate at 7.87 per cent and the average five-year rate at 8.03 per cent.
Canstar Cannex estimates that a borrower on a three-year fixed rate loan in October would have spent $9600 on monthly payments so far, while a borrower who took out a three-year loan in April last year would have saved $1400.
A three-year fixed interest rate mortgage has dropped to within 16 basis points of the average standard variable rate, according to ratings agency Canstar Cannex.
''Following the Reserve Bank's cash rate increases and fixed rates remaining somewhat constant, fixed and variable are now almost sitting at parity,'' Canstar Cannex financial analyst Mitchell Watson said.
Advertisement: Story continues belowCurrently, the average standard variable rate is 7.38 per cent, while the average three-year fixed rate is 7.54 per cent.
The RBA kept interest rates on hold at 4.5 per cent this month, after global markets were spooked by the European debt crisis. The June pause comes amid a rate rise cycle that began in September last year, with the RBA lifting the cash rate six times since then.
Investors are pricing in a 4 per cent chance of a rate cut in July, according to Credit Suisse data.
By June 2011, the market is forecasting an interest rate of 4.75 per cent.
''Borrowers could see this as an opportunity to reduce the risk of fixing, but they need to be aware that fixing a home loan is a long-term decision and very much a gamble, so it really does depend on your own individual circumstances,'' Mr Watson said.
The average one-year fixed rate mortgage is 6.95 per cent, while the average two-year rate is 7.39 per cent. Longer-term fixed rate mortgages cost more, with the average four-year fixed rate at 7.87 per cent and the average five-year rate at 8.03 per cent.
Canstar Cannex estimates that a borrower on a three-year fixed rate loan in October would have spent $9600 on monthly payments so far, while a borrower who took out a three-year loan in April last year would have saved $1400.
Monday, June 7, 2010
Clean tech patents enjoy record quarter
The number of clean tech-related patents granted in the US hit record levels during the first quarter of the year, according to new figures released last week, further fuelling optimism that the sector is recovering strongly from the recession.
The Clean Energy Patent Growth Index report from intellectual property law firm Heslin Rothenberg Farley & Mesiti found that 379 clean tech patents were granted in the US during the first three months of the year, representing the highest quarterly value since the index began.
The performance marked an improvement of more than 50 per cent year on year and a 12 per cent increase in patents compared to the fourth quarter of 2009.
According to the report, fuel cell technologies dominated the list, with 208 patents granted during the first quarter, while the number of patents granted to solar and hybrid and electric vehicle technologies also rose.
In contrast, the number of patents granted to wind and biofuel innovations were down slightly on the previous quarter.
Car firms dominated the list of companies applying for patents, with Honda's 29 fuel cell patents and one solar patent ensuring it took the crown for the most successful clean tech patent applications during the quarter.
GM was in close pursuit with 28 patents granted, primarily in the fuel cell field, while Samsung came third with a collection of 21 fuel cell, solar and wind energy patents.
Toyota and Ford completed the top five with 12 and 11 patents respectively.
The Clean Energy Patent Growth Index report from intellectual property law firm Heslin Rothenberg Farley & Mesiti found that 379 clean tech patents were granted in the US during the first three months of the year, representing the highest quarterly value since the index began.
The performance marked an improvement of more than 50 per cent year on year and a 12 per cent increase in patents compared to the fourth quarter of 2009.
According to the report, fuel cell technologies dominated the list, with 208 patents granted during the first quarter, while the number of patents granted to solar and hybrid and electric vehicle technologies also rose.
In contrast, the number of patents granted to wind and biofuel innovations were down slightly on the previous quarter.
Car firms dominated the list of companies applying for patents, with Honda's 29 fuel cell patents and one solar patent ensuring it took the crown for the most successful clean tech patent applications during the quarter.
GM was in close pursuit with 28 patents granted, primarily in the fuel cell field, while Samsung came third with a collection of 21 fuel cell, solar and wind energy patents.
Toyota and Ford completed the top five with 12 and 11 patents respectively.
Monday, May 24, 2010
Ottawa housing starts jump 44.6 per cent in April
OTTAWA — New housing starts jumped 44.6 per cent in April to 506 units as Ottawa developers responded to strong market demand.
Canada Mortgage and Housing Corporation said Monday that there was strong activity in all housing classes, led by new apartment projects with single-family units, doubles and rowhousing all gaining.
For the first four months of the year, construction of 1,545 units is running 23 per cent ahead of a year earlier when the global economic crisis frightened buyers and builders.
CMHC market analyst Sandra Pèrez Torres said "The presence of first-time home buyer families continued to be felt as they kept demanding low density, more affordable types of dwellings."
The agency said that construction in Nepean led the region with healthy activity in all regions with the exception of Cumberland.
Across Canada, CMHC said the seasonally adjusted annual rate of housing starts was 201,700 units in April, up slightly from a revised 199,200 units in March.
"Higher multiple starts were nearly offset by a decline in single starts and rural area starts in April. As a result, total housing starts edged higher in April," said chief economist Bob Dugan.
The seasonally adjusted annual rate of urban starts increased by 5.1 per cent to 182,500 units in April. Urban multiple starts increased by 27.2 per cent to 98,600 units, while single urban starts decreased by 12.7 per cent to 83,900 units.
April's seasonally adjusted annual rate of urban starts increased 16.4 per cent in British Columbia, 6.7 per cent in the Prairie region, 4.5 per cent in Ontario, and 1.1 per cent in Quebec. Urban starts decreased 3.3 per cent in Atlantic Canada..
Canada Mortgage and Housing Corporation said Monday that there was strong activity in all housing classes, led by new apartment projects with single-family units, doubles and rowhousing all gaining.
For the first four months of the year, construction of 1,545 units is running 23 per cent ahead of a year earlier when the global economic crisis frightened buyers and builders.
CMHC market analyst Sandra Pèrez Torres said "The presence of first-time home buyer families continued to be felt as they kept demanding low density, more affordable types of dwellings."
The agency said that construction in Nepean led the region with healthy activity in all regions with the exception of Cumberland.
Across Canada, CMHC said the seasonally adjusted annual rate of housing starts was 201,700 units in April, up slightly from a revised 199,200 units in March.
"Higher multiple starts were nearly offset by a decline in single starts and rural area starts in April. As a result, total housing starts edged higher in April," said chief economist Bob Dugan.
The seasonally adjusted annual rate of urban starts increased by 5.1 per cent to 182,500 units in April. Urban multiple starts increased by 27.2 per cent to 98,600 units, while single urban starts decreased by 12.7 per cent to 83,900 units.
April's seasonally adjusted annual rate of urban starts increased 16.4 per cent in British Columbia, 6.7 per cent in the Prairie region, 4.5 per cent in Ontario, and 1.1 per cent in Quebec. Urban starts decreased 3.3 per cent in Atlantic Canada..
Monday, April 26, 2010
This dangerous mistake could cost you £10,000
Make this mistake and a £2,500 credit card debt will take you 50 years to pay off and cost you over £10,000...
If you've got credit card debt, chances are you think there's nothing wrong with only paying the minimum you have to every month.
You might even think it's pretty kind and generous of your credit card provider to allow you to do so.
But you'd be wrong.
Minimum payments
Here’s a quick illustration of how a credit card debt of £1,000 and an APR of 18.9% could potentially escalate if you only paid the minimum payment each month, and how topping it up with extra funds could make a huge difference:
Minimum payment (2%), plus an additional payment of:
Time taken to pay off debt
Interest paid
£0
33 years, four months
£2,769.10
£10
Six years, five months
£576.53
£25
Three years
£262.85
£50
One year, seven months
£135.02
£100
Ten months
£65.13
Compare credit cards at lovemoney.com
And here’s the same scenario for a debt of £2,500:
Minimum payment (2%), plus an additional payment of…
Time taken to pay off debt
Interest paid
£0
50 years
£7,852.38 (!!)
£10
13 years, five months
£2,769.26
£25
Six years, nine months
£1,453.60
£50
Three years, nine months
£807.90
£100
Two years
£421.13
Compare credit cards at lovemoney.com
As you can see, the more you pay off each month on your credit card, the quicker and less expensive it is to borrow on your card.
Obviously, the ideal amount you’d want to pay off is the entire sum, which would mean you’d never pay a penny in interest. But not everyone can afford to do this every month, making the ‘ideal’ situation far from reality for many people.
Related goal
Pay off credit card debts
How to destroy your credit card debt quickly and effectively.
Do this goalHowever, I want to stress that the more you can pay off, the better. Even relatively small amounts can make a massive difference.
For example, if you racked up £1,000 on a credit card with an APR of 18.9%,f it would take you over 33 years to pay it off and an extra £2769.10 in interest if you only made the minimum payment each month. This compares to just 10 months and £65.13 in interest if you can afford to throw an extra £100 a month at the debt.
So effectively, paying an extra £100 a month you will save more than £2,700 in the long run - and more than 32 years of debt repayments!
And bear in mind that's just on a £1,000 debt. The more debt you have, the more it will cost you. With £2,500 of debt racked up on the same credit card, only making the minimum payment means it would take you a startling 50 years to pay your debt off.
On top of this, you’d pay £7,852.38 in interest. That’s three times the original debt in interest payments alone!
Adopt this goal: Pay of credit card debts
Serena Cowdy looks at the perils of withdrawing cash with your credit card
Every little helps!
So, the message may sound rather like an Oxfam appeal, but extra payments of just £10 a month would - in the end - save you a massive £5,083 in interest on a debt of £2,500. That’s enough to buy a decent second hand car. Food for thought indeed.
So that’s how minimum payments can affect the time taken to pay of your debts, but what about your APR?
APRs are often overlooked in terms of how they can affect your debt, and while we’re seduced by the prospect of 0% balance transfer offers, the rate of interest you’ll pay when your introductory offer expires can prove crucial.
So, as an illustration of how your APR could affect your debts, here’s how the interest could rack up on a £2,500 credit card bill depending on your APR, taking into account payments of £100 a month:
APR
Time taken to pay off debt
Interest paid
12.9%
Two years, four months
£365.83
14.9%
Two years, four months
£437.17
18.9%
Two years, six months
£593.48
27.9%
Two years, 10 months
£1,053.91
Compare credit cards at lovemoney.com
As you can see, although there is a less significant impact on the time taken to pay your debt off, the APR on your credit card could make a significant difference in the amount of interest you end up paying overall.
For example, the difference in cost between a credit card with 12.9% and 18.9% APRs during the time taken to pay it off is £227.65.
Rachel Robson explains how negative order of payment works and how to avoid it.
It’s not exactly rocket science, but the costs get higher as the APR rises, and the difference between interest payments for a credit card with 12.9% and 27.9% APRs is £688.08 - enough for a decent holiday.
Higher APRs approaching 30% are normally associated with credit cards for people with less-than perfect credit ratings, or store cards. If you’re not careful, borrowing using one of these could end up costing you a lot more than you bargained for.
The best cure for credit card debts is to transfer them onto a 0% credit card which will reduce your overall interest payments significantly. Get a best buy 0% card from lovemoney.com.
If you need to spend on a credit card and don't have enough to pay off the balance in full, then get a 0% on purchases card instead. Find out more by reading Top credit cards for spending!
If you've got credit card debt, chances are you think there's nothing wrong with only paying the minimum you have to every month.
You might even think it's pretty kind and generous of your credit card provider to allow you to do so.
But you'd be wrong.
Minimum payments
Here’s a quick illustration of how a credit card debt of £1,000 and an APR of 18.9% could potentially escalate if you only paid the minimum payment each month, and how topping it up with extra funds could make a huge difference:
Minimum payment (2%), plus an additional payment of:
Time taken to pay off debt
Interest paid
£0
33 years, four months
£2,769.10
£10
Six years, five months
£576.53
£25
Three years
£262.85
£50
One year, seven months
£135.02
£100
Ten months
£65.13
Compare credit cards at lovemoney.com
And here’s the same scenario for a debt of £2,500:
Minimum payment (2%), plus an additional payment of…
Time taken to pay off debt
Interest paid
£0
50 years
£7,852.38 (!!)
£10
13 years, five months
£2,769.26
£25
Six years, nine months
£1,453.60
£50
Three years, nine months
£807.90
£100
Two years
£421.13
Compare credit cards at lovemoney.com
As you can see, the more you pay off each month on your credit card, the quicker and less expensive it is to borrow on your card.
Obviously, the ideal amount you’d want to pay off is the entire sum, which would mean you’d never pay a penny in interest. But not everyone can afford to do this every month, making the ‘ideal’ situation far from reality for many people.
Related goal
Pay off credit card debts
How to destroy your credit card debt quickly and effectively.
Do this goalHowever, I want to stress that the more you can pay off, the better. Even relatively small amounts can make a massive difference.
For example, if you racked up £1,000 on a credit card with an APR of 18.9%,f it would take you over 33 years to pay it off and an extra £2769.10 in interest if you only made the minimum payment each month. This compares to just 10 months and £65.13 in interest if you can afford to throw an extra £100 a month at the debt.
So effectively, paying an extra £100 a month you will save more than £2,700 in the long run - and more than 32 years of debt repayments!
And bear in mind that's just on a £1,000 debt. The more debt you have, the more it will cost you. With £2,500 of debt racked up on the same credit card, only making the minimum payment means it would take you a startling 50 years to pay your debt off.
On top of this, you’d pay £7,852.38 in interest. That’s three times the original debt in interest payments alone!
Adopt this goal: Pay of credit card debts
Serena Cowdy looks at the perils of withdrawing cash with your credit card
Every little helps!
So, the message may sound rather like an Oxfam appeal, but extra payments of just £10 a month would - in the end - save you a massive £5,083 in interest on a debt of £2,500. That’s enough to buy a decent second hand car. Food for thought indeed.
So that’s how minimum payments can affect the time taken to pay of your debts, but what about your APR?
APRs are often overlooked in terms of how they can affect your debt, and while we’re seduced by the prospect of 0% balance transfer offers, the rate of interest you’ll pay when your introductory offer expires can prove crucial.
So, as an illustration of how your APR could affect your debts, here’s how the interest could rack up on a £2,500 credit card bill depending on your APR, taking into account payments of £100 a month:
APR
Time taken to pay off debt
Interest paid
12.9%
Two years, four months
£365.83
14.9%
Two years, four months
£437.17
18.9%
Two years, six months
£593.48
27.9%
Two years, 10 months
£1,053.91
Compare credit cards at lovemoney.com
As you can see, although there is a less significant impact on the time taken to pay your debt off, the APR on your credit card could make a significant difference in the amount of interest you end up paying overall.
For example, the difference in cost between a credit card with 12.9% and 18.9% APRs during the time taken to pay it off is £227.65.
Rachel Robson explains how negative order of payment works and how to avoid it.
It’s not exactly rocket science, but the costs get higher as the APR rises, and the difference between interest payments for a credit card with 12.9% and 27.9% APRs is £688.08 - enough for a decent holiday.
Higher APRs approaching 30% are normally associated with credit cards for people with less-than perfect credit ratings, or store cards. If you’re not careful, borrowing using one of these could end up costing you a lot more than you bargained for.
The best cure for credit card debts is to transfer them onto a 0% credit card which will reduce your overall interest payments significantly. Get a best buy 0% card from lovemoney.com.
If you need to spend on a credit card and don't have enough to pay off the balance in full, then get a 0% on purchases card instead. Find out more by reading Top credit cards for spending!
Tuesday, March 30, 2010
Friday, March 19, 2010
Get your kids to fund their nest eggs
Naturally, affording retirement isn't an issue that weighs heavily on the minds of young people just starting off in the workforce. So it's no surprise that only 28% of workers under age 25 contribute to employer-sponsored retirement plans, as reported by tax information service CCH.
But as a parent, you don't want your child to end up behind. And with fewer workers being offered corporate pension plans, individual savings are increasingly important in determining quality of life in retirement. As for convincing your kid of this ...
Facebook Digg Twitter Buzz Up! Email Print Comment on this story
Ultimate Guide to RetirementGetting started401(k)s & company plansInvestingAnnuitiesIRAsSelf-employment plansPensions and benefit plansSocial SecurityInsuranceEstate planningLiving in retirementGetting helpShow the cost of waiting
You know that time is a powerful factor in building wealth. But does your child? Demonstrate with numbers: A 25-year-old saving $250 a month before taxes -- the equivalent of $188 after taxes in the 25% bracket -- will have $656,000 by age 65, assuming a 7% average annual return; if he instead waits until 35 to start saving, he needs to stash more than $500 a month to get to the same amount.
Use the calculators on our website, at cnnmoney.com/tools, to run more scenarios. Share your own experiences too. If you've been a disciplined saver, explain what it means for your retirement; if not, say what the consequences might be, says Atlanta financial planner Mary Claire Allvine.
Explain the incentives
Many young adults don't realize how much money they're leaving on the table if their company offers a savings match and they're not contributing. Show your kid: If he's making $50,000, a match of 50¢ on the dollar up to 6% of salary is worth about $1,500 a year.
0:00 /1:07401(k) match coming back?
If your kid argues that he won't be at the job long enough to vest, explain the other benefits of employer retirement plans, such as pretax contributions and deferred growth. And if you can afford to, create your own match by contributing to an IRA on your child's behalf contingent on his saving, says Hadley, Mass., financial planner Allen Davis.
Play financial adviser
Offer your wisdom in choosing investments, which can be intimidating to a beginner. Not confident in your own knowledge? Suggest a target-date mutual fund, which adjusts the mix of stocks and bonds to grow more conservative as retirement nears. Or have your kid pick stock and bond index funds in an 80/20 mix, an allocation that won't need to be changed for a decade or so.
But as a parent, you don't want your child to end up behind. And with fewer workers being offered corporate pension plans, individual savings are increasingly important in determining quality of life in retirement. As for convincing your kid of this ...
Facebook Digg Twitter Buzz Up! Email Print Comment on this story
Ultimate Guide to RetirementGetting started401(k)s & company plansInvestingAnnuitiesIRAsSelf-employment plansPensions and benefit plansSocial SecurityInsuranceEstate planningLiving in retirementGetting helpShow the cost of waiting
You know that time is a powerful factor in building wealth. But does your child? Demonstrate with numbers: A 25-year-old saving $250 a month before taxes -- the equivalent of $188 after taxes in the 25% bracket -- will have $656,000 by age 65, assuming a 7% average annual return; if he instead waits until 35 to start saving, he needs to stash more than $500 a month to get to the same amount.
Use the calculators on our website, at cnnmoney.com/tools, to run more scenarios. Share your own experiences too. If you've been a disciplined saver, explain what it means for your retirement; if not, say what the consequences might be, says Atlanta financial planner Mary Claire Allvine.
Explain the incentives
Many young adults don't realize how much money they're leaving on the table if their company offers a savings match and they're not contributing. Show your kid: If he's making $50,000, a match of 50¢ on the dollar up to 6% of salary is worth about $1,500 a year.
0:00 /1:07401(k) match coming back?
If your kid argues that he won't be at the job long enough to vest, explain the other benefits of employer retirement plans, such as pretax contributions and deferred growth. And if you can afford to, create your own match by contributing to an IRA on your child's behalf contingent on his saving, says Hadley, Mass., financial planner Allen Davis.
Play financial adviser
Offer your wisdom in choosing investments, which can be intimidating to a beginner. Not confident in your own knowledge? Suggest a target-date mutual fund, which adjusts the mix of stocks and bonds to grow more conservative as retirement nears. Or have your kid pick stock and bond index funds in an 80/20 mix, an allocation that won't need to be changed for a decade or so.
Thursday, March 11, 2010
In real estate, nesting is the new flipping
If flippers were the poster children of the real estate boom, then nesters are becoming the icons of the new housing market.
"We saw a nesting reaction after 9/11, but we're seeing a stronger nesting reaction now," said Bob Peterson, president of ABD Design/Build in Ft. Collins Colo. People who have the money are fixing up what they have."
A proportionally bigger share of the home construction dollar -- 20% more during the first three quarters of 2009 compared with the same period last year -- now goes to home improvements, according to the U.S. Census Bureau. In October, remodeling spending increased 8.7% compared with September to an annualized rate of $114 billion.
Jeff Hunt, vice president of Houston-based Brothers Strong remodelers, said that after a long slow period starting early last fall, his business took off. "About Aug. 1, all the stuff in our pipeline broke loose all at once, and since then we've been so busy we can't see straight."
Most of his projects are for nesters planning to stay. "Many people consider buying to get more space but when they look at all the costs they figure it makes sense to stay put," said Hunt. "They say, "I like my house, my neighbors, the schools.' Of course they do. That's why they bought the house in the first place."
Check home prices in your city
All many want is more space. Like Kim and Sandy Sobieski, clients of Hunt in Cat Spring, about 50 miles west of Houston.
The semi-retired title company exec and his wife have plenty of room to expand, and they love their land. "We have 65 acres and we didn't want to give that up just to buy a bigger house," said Kim Sobieski.
Hunt's company converted Sobieski's garage to an entertainment room and finished out its second floor. He also built a new garage and updated the kitchen, doubling its size. The job, which included a new roof, cost about $300,000 and added 1,500 square feet.
"It's very upscale, very nice," said Sobieski. "It's got a whole big room just dedicated to my wife's quilting."
Signs of life
Projects like the Sobieskis are happening all around the nation, helping to push the latest National Association of Home Builders' (NAHB) Remodeling Market Index higher during the last quarter.
Perhaps even more significant, NAHB's future index also jumped, indicating that home re-modeler confidence has strengthened. "The phones are ringing more," said Rose Quint, an economist with the NAHB. "That's led to a nice increase in the future indicator."
Both indexes, however, still languish below the 50 mark, the dividing line between optimism and pessimism. Contractors are seeing things improving, but they haven't made the leap to optimism, yet, perhaps because it's been hard to convert increased inquiries into actual work.
"Some remodelers are receiving more calls for bids, but it's still extremely difficult to close a sale," said Greg Miedema, a Tucson, Ariz.-based remodeler.
The industry may be slack because most buyers remodel when they purchase their new home, and home sales are down about 30% from their peak.
And there are fewer people who can afford to upgrade their existing homes. But those who can, "They say, 'If I'm going to stay here another five or 10 years, I'm going to have it the way I want,'" said Miedema.
The long run
And, in many areas of the country, it's more cost efficient to remodel than trade up. In northern Colorado, for example, many people long ago settled into their 20- to 50-year-old houses on the kind of large lots that are hard to find these days.
"Many of these houses are just are not as reasonably available anymore," said Peterson. "Figure in land acquisition and development costs and fees and you can see the expenses are driving people to remodel."
An added incentive spurring remodeling is the $1,500 federal tax credit for home improvements that raise energy efficiency. Jobs involving replacement windows and doors, heating and air conditioning systems, new roofs and adding insulation all can qualify.
Susan Marvin, president of Marvin Windows and Doors, said that the proportion of replacement windows her company sells versus windows for new home construction has flip-flopped.
"Our replacement window line has outperformed our line meant for the new construction market," she said. "Replacement window sales are up by double digits, and the new construction windows are down by double digits the past few years."
Tight credit
Nester-remodeling might be even stronger, according to Peterson, if home improvement loans were easier to come by.
"Financing is still very tough," he said. "Nearly all my clients are paying cash."
Perhaps because of that, more people are remodeling their homes in phases. Instead of one big remodel covering the kitchen, both baths and opening up the living space all at once, for example, they opt to do just the kitchen at first. Then next year, they may finish the job.
As a result, Peterson is getting more jobs, but the average job is much smaller. "Instead of 50 projects this year, we'll do 70 or 80," he said. "But the average price is down to $40,000."
Slow progress
Most industry observers agree that remodeling activity probably bottomed this year. Kermit Baker, chief economist for the American Institute of Architects and Senior Research Fellow at Harvard University's Joint Center for Housing Studies, doesn't think the home improvement industry will show substantially higher volume until early 2010.
Falling or weak home prices, near record levels of foreclosures, and other distressed sales are discouraging households from undertaking nonessential remodeling projects, he said.
"When home prices are declining, there's not as much opportunity -- or inclination -- to do that," said Baker.
He added that for remodeling to come fully back, home sales must come back strong.
"Nothing would help the industry more than a return to 6 to 7 million home sales a year," he said
"We saw a nesting reaction after 9/11, but we're seeing a stronger nesting reaction now," said Bob Peterson, president of ABD Design/Build in Ft. Collins Colo. People who have the money are fixing up what they have."
A proportionally bigger share of the home construction dollar -- 20% more during the first three quarters of 2009 compared with the same period last year -- now goes to home improvements, according to the U.S. Census Bureau. In October, remodeling spending increased 8.7% compared with September to an annualized rate of $114 billion.
Jeff Hunt, vice president of Houston-based Brothers Strong remodelers, said that after a long slow period starting early last fall, his business took off. "About Aug. 1, all the stuff in our pipeline broke loose all at once, and since then we've been so busy we can't see straight."
Most of his projects are for nesters planning to stay. "Many people consider buying to get more space but when they look at all the costs they figure it makes sense to stay put," said Hunt. "They say, "I like my house, my neighbors, the schools.' Of course they do. That's why they bought the house in the first place."
Check home prices in your city
All many want is more space. Like Kim and Sandy Sobieski, clients of Hunt in Cat Spring, about 50 miles west of Houston.
The semi-retired title company exec and his wife have plenty of room to expand, and they love their land. "We have 65 acres and we didn't want to give that up just to buy a bigger house," said Kim Sobieski.
Hunt's company converted Sobieski's garage to an entertainment room and finished out its second floor. He also built a new garage and updated the kitchen, doubling its size. The job, which included a new roof, cost about $300,000 and added 1,500 square feet.
"It's very upscale, very nice," said Sobieski. "It's got a whole big room just dedicated to my wife's quilting."
Signs of life
Projects like the Sobieskis are happening all around the nation, helping to push the latest National Association of Home Builders' (NAHB) Remodeling Market Index higher during the last quarter.
Perhaps even more significant, NAHB's future index also jumped, indicating that home re-modeler confidence has strengthened. "The phones are ringing more," said Rose Quint, an economist with the NAHB. "That's led to a nice increase in the future indicator."
Both indexes, however, still languish below the 50 mark, the dividing line between optimism and pessimism. Contractors are seeing things improving, but they haven't made the leap to optimism, yet, perhaps because it's been hard to convert increased inquiries into actual work.
"Some remodelers are receiving more calls for bids, but it's still extremely difficult to close a sale," said Greg Miedema, a Tucson, Ariz.-based remodeler.
The industry may be slack because most buyers remodel when they purchase their new home, and home sales are down about 30% from their peak.
And there are fewer people who can afford to upgrade their existing homes. But those who can, "They say, 'If I'm going to stay here another five or 10 years, I'm going to have it the way I want,'" said Miedema.
The long run
And, in many areas of the country, it's more cost efficient to remodel than trade up. In northern Colorado, for example, many people long ago settled into their 20- to 50-year-old houses on the kind of large lots that are hard to find these days.
"Many of these houses are just are not as reasonably available anymore," said Peterson. "Figure in land acquisition and development costs and fees and you can see the expenses are driving people to remodel."
An added incentive spurring remodeling is the $1,500 federal tax credit for home improvements that raise energy efficiency. Jobs involving replacement windows and doors, heating and air conditioning systems, new roofs and adding insulation all can qualify.
Susan Marvin, president of Marvin Windows and Doors, said that the proportion of replacement windows her company sells versus windows for new home construction has flip-flopped.
"Our replacement window line has outperformed our line meant for the new construction market," she said. "Replacement window sales are up by double digits, and the new construction windows are down by double digits the past few years."
Tight credit
Nester-remodeling might be even stronger, according to Peterson, if home improvement loans were easier to come by.
"Financing is still very tough," he said. "Nearly all my clients are paying cash."
Perhaps because of that, more people are remodeling their homes in phases. Instead of one big remodel covering the kitchen, both baths and opening up the living space all at once, for example, they opt to do just the kitchen at first. Then next year, they may finish the job.
As a result, Peterson is getting more jobs, but the average job is much smaller. "Instead of 50 projects this year, we'll do 70 or 80," he said. "But the average price is down to $40,000."
Slow progress
Most industry observers agree that remodeling activity probably bottomed this year. Kermit Baker, chief economist for the American Institute of Architects and Senior Research Fellow at Harvard University's Joint Center for Housing Studies, doesn't think the home improvement industry will show substantially higher volume until early 2010.
Falling or weak home prices, near record levels of foreclosures, and other distressed sales are discouraging households from undertaking nonessential remodeling projects, he said.
"When home prices are declining, there's not as much opportunity -- or inclination -- to do that," said Baker.
He added that for remodeling to come fully back, home sales must come back strong.
"Nothing would help the industry more than a return to 6 to 7 million home sales a year," he said
Wednesday, January 13, 2010
Money 70: Best funds through thick and thin
(Money Magazine) -- For the Money 70, 2009 was a year of vindication. After the vast majority of the funds on our recommended list suffered steep losses in 2008's credit crisis, almost all rebounded strongly last year -- with many posting double-digit gains. But short-term returns aren't the point. It's far more important for you to focus on long-term results.
And over lengthy periods of time, Money 70 funds have proved worthwhile -- provided you stuck with them in good times and bad. Take the case of Royce Pennsylvania Mutual. In a decade where gains were hard to come by in the U.S. stock market, this small-cap fund earned 9.5% a year vs. 3.9% for small stocks in general. Yet by moving money into and out of the fund at the worst possible times, Pennsylvania Mutual investors earned just 3.9% annually, according to Morningstar.
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CDs & Money Market
MMA 0.94%
$10K MMA 1.03%
6 month CD 0.97%
1 yr CD 1.42%
5 yr CD 2.66%
Find personalized rates:
Rates provided by Bankrate.com. The good news: Many Money 70 investors are more patient than average. For example, while Vanguard Windsor II returned 3.8% annually over the past decade, investors in the blue-chip stock fund earned nearly all of that: 3.4% a year.
It just goes to show that you don't need to try to outguess or outperform the market to be a successful investor. Just choose a sensible, long-term strategy and have the patience to hold on during inevitable bad times. This group of funds was designed to help you do just that.
What we look for
Why don't we pay much attention to short-term performance when assembling the Money 70? Academic studies have shown that funds that zoom to the top of the charts during one cycle frequently lag in the next. And trying to choose the next winners is simply a waste of time.
What's more, this list was never intended to be a collection of hot funds. Instead, the point of the Money 70 is to give you a menu of high-quality funds and ETFs that you can use to construct a well-diversified portfolio, which in turn will help you achieve your long-term financial goals.
The criteria: When deciding which funds qualify, we focus on attributes with real predictive value. For starters, we insist that all of our recommended funds charge expenses that are much lower than their category average. In addition, we seek out only trustworthy funds -- those with proven records for putting shareholders first, as measured by Morningstar's stewardship grades. Those ratings are based on such factors as a fund's corporate culture, regulatory history, and board independence. On a scale of A to F, we consider only funds with grades of B or better. (If a fund isn't given a grade, we use our own judgment.)
Money 70: Best funds
Other qualities we look for: a consistent investment strategy and experienced managers. In fact, the average tenure for an actively managed stock fund in the list is more than twice the industry average.
Finally, we do consider performance -- but only over the long term. To initially qualify for consideration, a fund must have beaten more than half its peers during the prior five years. But once on the list, funds that start to underperform aren't automatically tossed out, especially if they have strong track records over longer stretches.
Why don't we quickly kick the laggards to the curb? Sometimes a fund underperforms simply because its investing style is temporarily out of favor. But there are also instances where good funds just make some bad bets.
That was the case with several funds on our list recently. Among them: Bridgeway Aggressive Investors 2, Muhlenkamp, and Weitz Hickory, all of which rank poorly over five years. Bridgeway's computer-driven strategy failed to pick up on the danger signals flashing in the subprime bubble. And contrarians Ron Muhlenkamp and Wally Weitz loaded up on financial and real estate stocks that imploded.
Still, there's a danger in bailing out of funds with good long-term track records too soon. For instance, Bridgeway's 10-year record at its older sister fund, Aggressive Investor 1, gives us confidence that the fund can bounce back. Muhlenkamp and Weitz, meanwhile, have a long history of wild performance swings, with top-notch years followed by dismal returns and vice versa.
Overall, the majority of our funds did well last year -- some 69% of the actively managed funds ranked in the top half of their peer groups. More important, over the past five years 78% outpaced their category averages.
This year's changes
Because we believe in patience, we try not to tinker with the list too often. But from time to time, as funds change and managers come and go, we have to make adjustments. This year there were an unusual number of moves. Among actively managed funds: We removed T. Rowe Price New Horizons, which invests in small, fast-growing companies, because longtime manager Jack Laporte will retire in March. If you own the fund, we aren't recommending that you sell. But we prefer actively managed funds that have five-year records under the same manager.
We replaced New Horizons with Wasatch Small Cap Growth, managed by Jeff Cardon, who's been at the helm since 1986. Cardon favors small stocks whose earnings are growing fast -- typically 15% or more a year. But to reduce the overall risk of the fund, he also mixes in slower-growing Steady Eddie shares. This cautious growth approach helped the fund finish in the top 30% of its peers over the past five years; over the past 10 years it ranks in the top 6%.
Wasatch frequently closes its funds when assets grow to unmanageable levels. In other words, if too much money comes pouring in, the company often turns away business to better serve existing shareholders. That's another reason we like this fund.
T. Rowe Price New Era's manager is also due to retire later this year, but we are keeping this fund on our list. We made an exception because this natural-resources fund offers more diversification than most of its peers. T. Rowe Price also has a strong record for hiring good managers.
At FPA New Income, Bob Rodriguez is stepping away for a year's sabbatical and will return as an adviser, not as the manager. Here again, though, we are making an exception because we expect New Income to follow the same cautious strategy under longtime co-manager Tom Atteberry.
We did reluctantly drop three offerings from Third Avenue -- Small Cap Value, Real Estate Value, and International Value -- because the fund group is raising expenses sharply. International Value, which now charges annual expenses of 1.48%, will see its costs go as high as 1.65%. And expense ratios for Small-Cap Value and Real Estate Value will rise from 1.15% to as much as 1.4% (If you already own them, hang on; you'll be grandfathered into a cheaper institutional share class). These funds are still solid options (see "Picking the Sweet Spot in Real Estate" on page 174), but because their fees are no longer significantly lower than average, they no longer qualify for the Money 70.
To replace Third Avenue's small-cap fund, we brought in T. Rowe Price Small Cap Value. This top-notch small-stock fund is run by 18-year veteran Preston Athey, who favors beaten-down or overlooked shares. Over the past five years the fund has trounced 75% of its peers, and over 10 years, Small Cap Value ranks in the top 10% of its category.
To replace International Value, we added Vanguard FTSE All-World ex-U.S. Small Cap Index. This fund is relatively new -- it launched last April -- but we have confidence in Vanguard's skill in managing index portfolios. We also chose SPDR Dow Jones International Real Estate, an ETF that invests in real estate securities abroad, to replace Real Estate Value.
Among index funds: There are two additional changes in our roster. We are taking out Fidelity Spartan 500 and Fidelity Spartan Total Market to make room for Schwab S&P 500 and Schwab Total Stock Market. We still like Fidelity's index offerings and if you already own them, there is no need to sell. But if you don't have a position in a broad-market index fund, the Schwab portfolios have a key advantage: Minimum investments have been lowered to just $100.
That makes them a terrific option for new investors, since most fund groups typically require you to ante up $2,500 or more ($10,000 in the case of Fidelity's Spartan funds). And for diehard cost cutters, fees on these funds have come down. Annual expenses for Total Stock Market, for instance, fell from as much as 0.53% to just 0.09%.
That's not the sexiest reason to buy a fund. But sticking with low-cost funds that have disciplined management will make it easier for you to stay the course. And in the end there's no better way to achieve your long-term goals.
And over lengthy periods of time, Money 70 funds have proved worthwhile -- provided you stuck with them in good times and bad. Take the case of Royce Pennsylvania Mutual. In a decade where gains were hard to come by in the U.S. stock market, this small-cap fund earned 9.5% a year vs. 3.9% for small stocks in general. Yet by moving money into and out of the fund at the worst possible times, Pennsylvania Mutual investors earned just 3.9% annually, according to Morningstar.
Facebook Digg Twitter Buzz Up! Email Print
CDs & Money Market
MMA 0.94%
$10K MMA 1.03%
6 month CD 0.97%
1 yr CD 1.42%
5 yr CD 2.66%
Find personalized rates:
Rates provided by Bankrate.com. The good news: Many Money 70 investors are more patient than average. For example, while Vanguard Windsor II returned 3.8% annually over the past decade, investors in the blue-chip stock fund earned nearly all of that: 3.4% a year.
It just goes to show that you don't need to try to outguess or outperform the market to be a successful investor. Just choose a sensible, long-term strategy and have the patience to hold on during inevitable bad times. This group of funds was designed to help you do just that.
What we look for
Why don't we pay much attention to short-term performance when assembling the Money 70? Academic studies have shown that funds that zoom to the top of the charts during one cycle frequently lag in the next. And trying to choose the next winners is simply a waste of time.
What's more, this list was never intended to be a collection of hot funds. Instead, the point of the Money 70 is to give you a menu of high-quality funds and ETFs that you can use to construct a well-diversified portfolio, which in turn will help you achieve your long-term financial goals.
The criteria: When deciding which funds qualify, we focus on attributes with real predictive value. For starters, we insist that all of our recommended funds charge expenses that are much lower than their category average. In addition, we seek out only trustworthy funds -- those with proven records for putting shareholders first, as measured by Morningstar's stewardship grades. Those ratings are based on such factors as a fund's corporate culture, regulatory history, and board independence. On a scale of A to F, we consider only funds with grades of B or better. (If a fund isn't given a grade, we use our own judgment.)
Money 70: Best funds
Other qualities we look for: a consistent investment strategy and experienced managers. In fact, the average tenure for an actively managed stock fund in the list is more than twice the industry average.
Finally, we do consider performance -- but only over the long term. To initially qualify for consideration, a fund must have beaten more than half its peers during the prior five years. But once on the list, funds that start to underperform aren't automatically tossed out, especially if they have strong track records over longer stretches.
Why don't we quickly kick the laggards to the curb? Sometimes a fund underperforms simply because its investing style is temporarily out of favor. But there are also instances where good funds just make some bad bets.
That was the case with several funds on our list recently. Among them: Bridgeway Aggressive Investors 2, Muhlenkamp, and Weitz Hickory, all of which rank poorly over five years. Bridgeway's computer-driven strategy failed to pick up on the danger signals flashing in the subprime bubble. And contrarians Ron Muhlenkamp and Wally Weitz loaded up on financial and real estate stocks that imploded.
Still, there's a danger in bailing out of funds with good long-term track records too soon. For instance, Bridgeway's 10-year record at its older sister fund, Aggressive Investor 1, gives us confidence that the fund can bounce back. Muhlenkamp and Weitz, meanwhile, have a long history of wild performance swings, with top-notch years followed by dismal returns and vice versa.
Overall, the majority of our funds did well last year -- some 69% of the actively managed funds ranked in the top half of their peer groups. More important, over the past five years 78% outpaced their category averages.
This year's changes
Because we believe in patience, we try not to tinker with the list too often. But from time to time, as funds change and managers come and go, we have to make adjustments. This year there were an unusual number of moves. Among actively managed funds: We removed T. Rowe Price New Horizons, which invests in small, fast-growing companies, because longtime manager Jack Laporte will retire in March. If you own the fund, we aren't recommending that you sell. But we prefer actively managed funds that have five-year records under the same manager.
We replaced New Horizons with Wasatch Small Cap Growth, managed by Jeff Cardon, who's been at the helm since 1986. Cardon favors small stocks whose earnings are growing fast -- typically 15% or more a year. But to reduce the overall risk of the fund, he also mixes in slower-growing Steady Eddie shares. This cautious growth approach helped the fund finish in the top 30% of its peers over the past five years; over the past 10 years it ranks in the top 6%.
Wasatch frequently closes its funds when assets grow to unmanageable levels. In other words, if too much money comes pouring in, the company often turns away business to better serve existing shareholders. That's another reason we like this fund.
T. Rowe Price New Era's manager is also due to retire later this year, but we are keeping this fund on our list. We made an exception because this natural-resources fund offers more diversification than most of its peers. T. Rowe Price also has a strong record for hiring good managers.
At FPA New Income, Bob Rodriguez is stepping away for a year's sabbatical and will return as an adviser, not as the manager. Here again, though, we are making an exception because we expect New Income to follow the same cautious strategy under longtime co-manager Tom Atteberry.
We did reluctantly drop three offerings from Third Avenue -- Small Cap Value, Real Estate Value, and International Value -- because the fund group is raising expenses sharply. International Value, which now charges annual expenses of 1.48%, will see its costs go as high as 1.65%. And expense ratios for Small-Cap Value and Real Estate Value will rise from 1.15% to as much as 1.4% (If you already own them, hang on; you'll be grandfathered into a cheaper institutional share class). These funds are still solid options (see "Picking the Sweet Spot in Real Estate" on page 174), but because their fees are no longer significantly lower than average, they no longer qualify for the Money 70.
To replace Third Avenue's small-cap fund, we brought in T. Rowe Price Small Cap Value. This top-notch small-stock fund is run by 18-year veteran Preston Athey, who favors beaten-down or overlooked shares. Over the past five years the fund has trounced 75% of its peers, and over 10 years, Small Cap Value ranks in the top 10% of its category.
To replace International Value, we added Vanguard FTSE All-World ex-U.S. Small Cap Index. This fund is relatively new -- it launched last April -- but we have confidence in Vanguard's skill in managing index portfolios. We also chose SPDR Dow Jones International Real Estate, an ETF that invests in real estate securities abroad, to replace Real Estate Value.
Among index funds: There are two additional changes in our roster. We are taking out Fidelity Spartan 500 and Fidelity Spartan Total Market to make room for Schwab S&P 500 and Schwab Total Stock Market. We still like Fidelity's index offerings and if you already own them, there is no need to sell. But if you don't have a position in a broad-market index fund, the Schwab portfolios have a key advantage: Minimum investments have been lowered to just $100.
That makes them a terrific option for new investors, since most fund groups typically require you to ante up $2,500 or more ($10,000 in the case of Fidelity's Spartan funds). And for diehard cost cutters, fees on these funds have come down. Annual expenses for Total Stock Market, for instance, fell from as much as 0.53% to just 0.09%.
That's not the sexiest reason to buy a fund. But sticking with low-cost funds that have disciplined management will make it easier for you to stay the course. And in the end there's no better way to achieve your long-term goals.
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