The Independent Investor: This Too Shall Pass

The markets have gone straight down for almost two weeks. The media is becoming more and more pessimistic as the averages plummet. Doom and gloom permeates the investor population. This usually means that opportunity is just around the corner.

In my own world, the telephone has been ringing off the hook and my inbox is full of panicky emails. So this column is for all those clients, readers and prospective clients out there who are wondering what the heck is going on.

First you must take a look at the emotions you are feeling. Fear, anxiety, even panic are just some of the emotions I have identified in my communications with investors. Most of you reading this column, however, have experienced far worse declines than this through the last few years. Remember the 20 percent decline in 2011? How about the 16 percent decline in 2010?

If those pullbacks seem hazy to you or if you have forgotten them already, then that should be a lesson to you in how fleeting these market corrections can be. Sure, while they are occurring, the paper losses can be painful, but remember they are not real losses unless you sell them.

It is hard to ignore the headlines though. The Wall Street Journal (among others) leads with this front page headline today "Stocks take Beating as Alarm Grows." Makes you want to sell everything, right? Ask yourself this question: if that headline read "your house is taking a beating as alarm grows" would you sell? Of course not, you say, my house is a long-term investment.

Well isn't your retirement account also a long-term investment? If your time horizon is three, five, 10 or even 20 years from now, why would you want to sell now? Of course, if you thought the bull market was over and that we were heading into a multi-year decline in the stock market that would make sense. But where is the evidence that a scenario like that is facing us?

"But the stock market was flat last year," argued one investor. "What makes you think this year will be any better?"

Well, since 1970 there have been six "flat" years for the S&P 500 (-2 percent to 2 percent) and following those years, the index returned between 11-34 percent. In which case, this year should end with a positive gain, even though it has started out badly.

If one looks at pessimism in today's market, it is clear that the gloom is positively dripping off the walls. John Templeton once said that "bull markets are born on pessimism, grow on skepticism, mature on optimism, and die on euphoria." Is anyone out there felling euphoric right now?

Some scientists say that human beings are really not wired for stock market investing. They say your brain is wired best to respond to short-term stimuli, especially when your brain perceives danger of any kind. Therefore, your natural reaction to a market plunge is to flee to the sidelines. Recognize that and fight against it. Investing requires a multi-faceted, long-term approach. Unfortunately, the brain is weakest in discerning long-term patterns or focusing on many patterns at once.

My advice is don't fall prey to the herd instinct. The markets may go lower from here before cooler heads prevail. But they will prevail. Just believe as I do, that this too shall pass.

Bill Schmick is registered as an investment adviser representative with Berkshire Money Management. Bill’s forecasts and opinions are purely his own. None of the information presented here should be construed as an endorsement of BMM or a solicitation to become a client of BMM. Direct inquires to Bill at 1-888-232-6072 (toll free) or email him at Bill@afewdollarsmore.com.

The Independent Investor: A Tale of Two Chinas

For years, investors bought into the China story. Growth rates twice as fast as the rest of the world, fueled by sky-rocketing exports made competitive by billions of hard-working, low-wage employees grateful to have a job. What happened?

Times have changed. Back in the late 1970s when China first opened its fledgling economy to foreign investment, manufacturing became the chief driver of economic growth, which led to increased exports, more foreign investment and double digit growth rates. The powerful Communist government controlled the process through its sponsorship of state-owned enterprises. These mammoth companies became the symbols of a new "Chinese Authoritarian Capitalism."  

As such, they played a pivotal role in channeling that foreign money and the goods it produced through the economy. Along the way, these companies were listed both on the Chinese stock market as well as abroad. They became the investments of choice and were included in all the most liquid and popular mutual funds and exchange traded funds. As time wore on, these companies borrowed more, hired more and purchased more and more.

Corruption, mismanagement and scandal began to pop up among the managements of these companies. At the same time, as the worldwide financial crisis unfolded, the Chinese economy started to falter.

Unfortunately, at about the same time, China's leaders decided that it was time to transition the economy from its reliance on manufacturing and exports to a new growth model more dependent on consumer services and other forms of consumption. The move made economic sense.

China, through opening its economy, had engineered the birth of an enormous and growing middle class. These new consumers, so the reasoning goes, are both willing and able to support such an economic shift. As China's old economy began to slump and its reliance on areas such as banks, energy, industrials and materials decreased, other sectors such as technology, alternative energy, education, media and entertainment exploded.

However attempting such a monumental feat in short order had consequences. China's economic growth rate continued to fall.  Partially a victim of overall slowing global growth, as well as the predictable disruption of transitioning their massive economy from exports to consumption, the country saw its growth rate cut in half over the last few years. Of course, not many realize that China's economy had expanded 100 percent from what it was ten years ago. As such, a 6-7 percent growth rate today, on 10 times the amount of GDP, is still far greater than any other country in the world.

While all of this played out within the country, foreign investors were pretty much excluded from investing in the new growth areas. Most of the existing investment vehicles are made up of "old China" companies that are closing down, losing money or both, while new China stocks are off-limits to most foreigners.

Investors today need to understand these changes, which go beyond a simple old/new division. The Chinese middle class, for example, is becoming increasingly health conscious and focused on quality. And because the government is cracking down on the rampant corruption among corporate executives, especially in the state-owned enterprises, luxury goods and "gift-giving" providers are also seeing a decline in business.

Here in the U.S., there are a few ways of playing the growing portion of the Chinese economy. There are a handful of "new" China stocks available, as well as a couple of mutual funds and exchange traded funds (ETFs). If you are interested in discussing this further, give me a call or shoot me an email. Saying this, investing in China is not for the faint of heart under the best of circumstances. It requires work and a strong stomach for volatility.

Bill Schmick is registered as an investment adviser representative with Berkshire Money Management. Bill’s forecasts and opinions are purely his own. None of the information presented here should be construed as an endorsement of BMM or a solicitation to become a client of BMM. Direct inquires to Bill at 1-888-232-6072 (toll free) or email him at Bill@afewdollarsmore.com.

The Independent Investor: Christmas in the New Age

Back in the day, going home for Christmas was what you did. Family members and friends would make their yearly pilgrimage to the old homestead. Car, plane or train, it made little difference how long it took, because everyone wanted to be home for the holidays. But times are changing.

Ever since the invention of Skype, Facetime and an array of other Internet services, face-to-face get-togethers are not as important they once were. In these lean economic times, the cost of air and train fare (and until recently fuel) made these trips both time consuming and expensive. In addition, taking off the required work time is not so easy today. Most managers are fairly stingy giving vacation time around the holidays. As a result, holiday hops are out and facetime is in.

And it is not just Christmas. I know in my own life, my wife and I chat with our kids and grandkids quite often via Skype.  This Friday, I will skype with my sister in Pennsylvania while I am visiting with my children and grandchildren in Manhattan. Sure, there is nothing like hugging your children and being with your family in person, but the internet has provided a pretty good backup alternative to keeping in touch.

Christmas music is another area where the internet has come in handy. Whether it is Pandora, Groove shark, Sirius or any other service, you can now get in the holiday mood without spending a lot of money on CDs; (it used to be cassette tapes or vinyl records, if you are my age).

Today I can build playlists, tune in stations on my iPad or construct queues of holiday songs from Bing Crosby to Justin Bieber at the tap of a key. Christmas, according to Christian theology, commemorates the birth of Jesus Christ. It has been celebrated continuously as a religious holiday since the third century A.D. Although the Internet has yet to penetrate Christmas church attendance in any meaningful way, but it will, given enough time and incentive.

However, today in the United States, only 51 percent of Americans consider Christmas a religious holiday and eight out of 10 non-Christians celebrate Christmas as well. The younger you are, the less likely you will be to celebrate the religious aspects of the event. For most of us, Christmas has become a cultural holiday.  

Some things remain the same. Santa Claus is alive and well. Of families with children who believe in Santa Claus, 69 percent will pretend that Santa will be visiting their household on Christmas Eve. Even among those of us who do not believe in the red-suited gift giver, we still tend to pay homage to his image, if not his presence. As for me, I will certainly be reading the " 'Twas the Night before Christmas" to my grandchildren on that momentous evening.

Christmas trees are also still a cornerstone of Yuletide tradition. Eight out of every 10 Americans will put up a Christmas tree this year, which is about the same ratio as a generation ago. Of course, artificial trees now account for about half the Christmas trees in America. Every year, the eco-friendly argument resurfaces with some who argue that one or the other is bad for the environment. Recent data seems to indicate that they are equally as bad.

Honestly, I am kind of relieved that I don't need to go tramping through a forest, knee-deep in snow, and chop down a tree to haul back to my cabin. I also like the fact that I don't worry today about using lit candles or those 1950-era bubble lights (which were almost as bad) in decorating the tree. Life is much safer today, from my perspective.

About 86 percent of us will be exchanging gifts, another tradition that has survived the passing of time. Although there is some evidence that the kind of presents are changing.

More Americans, especially Millennials, are opting to give a gift of "experience" rather than the standard material possessions like cashmere sweaters, diamond bracelets or power tools.

Ski trips, dinner at one's favorite restaurant, or for those who can afford it, an island getaway, are becoming popular gift-giving alternatives.

All-in-all, I would say that the digital age has provided as many positives as negatives in how Americans celebrate Christmas today. Through the years we have seen the tradition of Christmas continue to evolve and that's what makes it so magically enduring. The Internet has certainly provided us wonderful cost-effective avenues for communication.  It is up to us to use it in a way that enhances our own holiday experience.

Bill Schmick is registered as an investment adviser representative with Berkshire Money Management. Bill’s forecasts and opinions are purely his own. None of the information presented here should be construed as an endorsement of BMM or a solicitation to become a client of BMM. Direct inquires to Bill at 1-888-232-6072 (toll free) or email him at Bill@afewdollarsmore.com.

The Independent Investor: How Rising Interest Rates Will Change Your Life

It's official: Wednesday afternoon the Federal Reserve bank hiked the short-term interest rate, called the Fed Funds rate, for the first time in 9 1/2 years. It is the beginning of a new financial era for all of us and it behooves you to understand its implications.

Let me first assuage any concerns you may have that this single 0.25 percentage point increase will impact your life anytime soon. Instead, simply view this event as the beginning of a progression to gradually higher interest rates that will ultimately impact everything from car loans to retirement savings accounts.

The mechanism by which the Fed raises rates is complicated. Just know that overtime there is a domino effect to raising rates. As the Fed hikes on the short-end of the yield curve, interest rates on bonds of all sorts will gradually readjust with longer dated securities (like a 30-year bond) rising more than shorter duration securities (say, a 10-year note). But this takes time and exactly how much time depends on the growth of the economy, the expectations for inflation and a hold whole of other variables such as interest rates overseas.  

While some economists hope that the Fed's decision is a "one and done" event, most financial experts are already expecting at least three more rate hikes in 2016. If so, you should start to feel the impact of rising rates by the latter part of next year. For example, only an hour after the Fed raised rates, several money center banks hiked their prime rate to 3.5 percent from 3.25 percent.  

As such, you should begin to monitor the inflation rate, credit card loan rates, mortgage rates (especially on existing adjustable rate mortgages), CDs and money market rates. All of the above have been so low for so long that they are no longer on most investors' radar screen.   

The facts are that as time goes by, borrowing money is going to cost you more. One of the ways you have benefited from low rates is in car loans. The auto industry has had a tremendous windfall in sales over the past few years. Light vehicle sales have almost doubled since the lows of the financial crisis. This was largely due to the automaker's ability to offer you financing on their products at record low rates.

For those in retirement, rising rates can be a mixed bag. For almost a decade, retirees have had to contend with lower levels of income because historically low rates of interest mean low rates of return on bond investments. Over the next few years that will change. New buyers of bonds will receive higher returns on their money as rates rise.

However, for those who have insisted on holding a large percentage of their retirement savings in bonds, expect to see lower rates of return as rates rise. And by the way, this also applies to investors who are retiring soon and have money in target-date retirement funds in their 401(k) and 403(b) tax-deferred savings plans.

There are some who worry that even this small increase in the Fed Funds rate will have a dampening effect on consumer sentiment. Clearly, for those of us who have experienced periods of rising rates in the past, our knee-jerk reaction is higher rates equates to slowing economic growth, which leads to less spending. Again, I need to caution you that a moderate rise in interest rates can and has happened in conjunction with a growing economy and accelerated consumer spending. It is all dependent on how well the Fed engineers this process.

For the past several years, I have placed my faith in the Fed, first to rescue us from the financial crisis, then to engineer a recovery despite no help from those in Washington. I trusted them to engineer a plan to normalize interest rates and so far I have not been disappointed. I will continue to back the Fed in this latest move and you should as well.

Bill Schmick is registered as an investment adviser representative with Berkshire Money Management. Bill’s forecasts and opinions are purely his own. None of the information presented here should be construed as an endorsement of BMM or a solicitation to become a client of BMM. Direct inquires to Bill at 1-888-232-6072 (toll free) or email him at Bill@afewdollarsmore.com.

The Independent Investor: Did the Digital Grinch Steal Christmas?

Ever notice that however hard you try, the Christmas season is simply not what it once was? The routines and traditions you remember so fondly from your youth have somehow faded away. The digital age has transformed the holidays, and for some of us, the experience has been a mixed blessing.

When I was a kid, we left cookies and milk for Santa (no never mind that we lacked a fireplace for him to come down). Building on that tradition, I engineered faint footprints of ash the night before Christmas for my own child (Santa's, I swore solemnly the next morning) leading from the fireplace to the Christmas tree. Fast forward to today, kids can now call the North American Aerospace Defense Command (NORAD) and track Santa's Christmas Eve run if they want, so much for those visions of sugar plums dancing in their heads.

Technology has changed a lot more than Santa's travel itinerary. Take letters and greeting cards for example. Even though I still receive holiday cards in the mail, the volume has dropped precipitously. Personally, I dreaded signing stacks of cards while trying to create unique and heart-felt messages for people I barely knew. As for licking the back of envelopes and stamps, my lips still sometime purse simply at the thought of those days.

Today, in this era of Facebook and Instagram, there is no need to spend money on a card or stamp when a status update or sending a holiday-like photo over the Internet can be done rapidly and with little effort. You can wait until the last minute or send a barrage of messages as the "day" approaches if you so desire. Seven days of Hanukkah was just made for the Internet, in my opinion.

One of the largest changes in how we spend the holidays is shopping. I for one decry how Christmas, Hanukkah and New Years are now all about "the sale." The holidays have become so commercialized that the entire experience of sharing with family and friends is at best a side show while the main focus is on the loot received. Sure, back in the day, one would pick up something (singular) for a loved one, usually a few days before Christmas that required thought and effort. Over the years that has transformed into fighting crowds, buying whatever and waiting in checkout lines while searching for those perfect gifts.

Shopping online has changed all that, thank goodness. Now I can surf the web, buy the gift and even have it delivered to one's door gift-wrapped with a personal note. For fumble-fingered me, who can't wrap a present to save my life, this is a Godsend. Yet, I will admit that my loved ones appreciate it when I wrap their presents. They say it makes it real for them to get my lumpy packages trussed up like sandbags, so I still do it.

Digital shopping also allows me to shop worldwide, obtain better prices, greater variety and comparisons of products. It also helps those whose kids still believe in the Big Guy. I remember accidentally finding a stash of toys for me and my siblings in an upstairs closet one year. I was crushed until my Mother convinced me that Santa had simply dropped them off early for her to wrap. Obviously, I am still traumatized by the event. Today shopping online means those gifts arrive in cardboard and can be safely put away until Christmas, Hanukkah or both.

Although real Christmas trees have been replaced in many families with ready-made artificial ones, technology has vastly improved that sickly silver tinsel we used to use (and still vacuum up in the carpets six months later). Inflatable and animatronic Christmas characters, which move and groove, all sorts of digital tree ornaments,  along with apps that can turn your outside and inside decorations on and off make those once-a-year Holiday House Designers look positively artistic.

Next week we will continue this topic, but in the meantime, I would love to hear your own experiences in how the digital revolution has made over your holiday season. Just email your thoughts at my address below.

Bill Schmick is registered as an investment adviser representative with Berkshire Money Management. Bill’s forecasts and opinions are purely his own. None of the information presented here should be construed as an endorsement of BMM or a solicitation to become a client of BMM. Direct inquires to Bill at 1-888-232-6072 (toll free) or email him at Bill@afewdollarsmore.com.