I really, truly, don’t want this be a political blog, but sometimes it is impossible to separate politics from the economy, especially when rules made in Washington impact the economies of Wall Street and Main Street so much.
Whether or not we should have ever created the TARP, whether or not we should have ever bailed out AIG or any other bank or auto industry, that is all now irrelevant. The fact of the matter is that we did, and the question is, "How do we go forward?"
I think it is interesting to note that TARP, when rearranged, spells "trap," and many banks and financial institutions are finding that out the hard way. Several institutions took the "trap" money, and then Washington created some ex post facto regulations for the recipients of the trap money. And I am not just referring to the "excessive" bonuses that were paid out by AIG. Once an institution took the trap money, they became at the mercy of government intervention and regulation. Should they be able to continue to advertise on television? Should they be able to sponsor golf outings? Should they continue with holding national conferences or conventions? Should they continue to operate as usual, or better yet, should they convene to determine how they should change their business model? Yet, any little expense became an issue with the media, the politicians, and the taxpayers.
Why? Essentially it is because we now have an ownership stake in the company. Like it or not, the taxpayers now have a say-so in institutions that went into the trap, and there is speculation that the taxpayer money will soon be converted from preferred shares into common stock, which would truly give us ownership. We now have voting rights!!!
This now presents a new problem. Taxpayers own companies they never wanted to own in the first place - Banks. Who wants to own a share of a bank that needed to accept the trap money to begin with? But we do. And we own lots of shares. And why do we buy shares? In theory, you would only go long with one anticipation: to make money. And in theory, the more money a company makes per share, the higher the stock price should go. Right? Don’t you think the politicians know this as well? Don’t bet on it.
This week, the President has started a crusade to eliminate the "excesses" in the credit card industry. Lawmakers have expressed concern at certain credit card practices. Maybe they will reduce the rate of interest that a bank can charge. Maybe they will reduce the fees for late payments. While many may applaud Washington’s efforts, keep in mind that credit cards and banks are not philanthropic institutions. They have to make a buck to stay in business, too, and with credit card defaults at all time highs, the efforts in Washington may just lead to another bailout – this time, the bailout of the credit card industry.
This is a major note of concern: First, we use taxpayer money to take ownership stakes in banks we didn’t want to own anyway, and now, Washington is trying to limit the profit that those banks can make…. So how is the taxpayer ever going to get the money back?
It makes you wonder who really got "trapped" – the banks or the taxpayers? Or both?
Of course, these are just my thoughts - Clark's Thoughts.
Thursday, April 23, 2009
Thursday, April 16, 2009
Welcome to the Wants-Based Economy!
You would have to have been living in a cave to think that we were not going to have negative earnings reports. It will be ugly, potentially very ugly, but there aren’t many people out there who aren’t expecting that to happen, and that being said there may be relatively few suprises.
The last several quarters have brutalized companies that missed earnings expectations, but the markets have not dramatically rewarded companies that beat expectations. As a result, you will begin to see fewer and fewer companies that will be willing to offer guidance.
Consumer spending drives the economy. The problem is that the big spenders – the people with the most discretionary income – are Baby Boomers, and those Baby Boomers have now moved into a "wants-based" ecomomy instead of a needs based. When they had kids at home, they had very predictible spending patterns. The kids needed a new ipod, they needed new clothes, they needed a car when they turned driving age. But now those kids are out of the house, and many are out of college. Their parents can now spend their money any way they want – thus, they are in a wants-based ecomony.
Think about it for a second. The aging Baby Boomer doesn’t need to buy a toaster, a microwave, or a host of other itmes found at your local retailer. They already have an established home. They don’t need a bed, loveseat, or lawn mower. They already own the stuff they need. Now that junior is out of the house, his parents can buy the stuff they want.
The way this impacts the earnings season is that creating the earnings estimates becomes progressively more difficult – a high school kid may go to Best Buy every week and buy a new cd or a video game. A Baby Boomer with discretionary income may go to Best Buy this quarter and buy a new flat screen television, but that doesn’t mean they will be back next quarter. Unpredictible spending makes for more uncertainty in the marketplace. The expenditures have gone from small but expected to large and unpredictable.
Look for the cream rise to the top over time, as early as this quarter. Expect businesses within similar segments to have vastly different numbers. Just because Best Buy does well, does not mean that Circuit City or other type retailers should do well. Just because Lowes has a good quarter, doesn’t mean that Home Depot will. In the past, there were enough consumers to make the entire sector look good. Now that the majority of consumers with discretionary income are in a wants-based environment, and add to that fact that many consumers scared to death to spend their money, expect for the top businesses in each sector to start to shine, as the weaker ones begin to show their faults. Of course those are just my thoughts....Clark's Thoughts.
The last several quarters have brutalized companies that missed earnings expectations, but the markets have not dramatically rewarded companies that beat expectations. As a result, you will begin to see fewer and fewer companies that will be willing to offer guidance.
Consumer spending drives the economy. The problem is that the big spenders – the people with the most discretionary income – are Baby Boomers, and those Baby Boomers have now moved into a "wants-based" ecomomy instead of a needs based. When they had kids at home, they had very predictible spending patterns. The kids needed a new ipod, they needed new clothes, they needed a car when they turned driving age. But now those kids are out of the house, and many are out of college. Their parents can now spend their money any way they want – thus, they are in a wants-based ecomony.
Think about it for a second. The aging Baby Boomer doesn’t need to buy a toaster, a microwave, or a host of other itmes found at your local retailer. They already have an established home. They don’t need a bed, loveseat, or lawn mower. They already own the stuff they need. Now that junior is out of the house, his parents can buy the stuff they want.
The way this impacts the earnings season is that creating the earnings estimates becomes progressively more difficult – a high school kid may go to Best Buy every week and buy a new cd or a video game. A Baby Boomer with discretionary income may go to Best Buy this quarter and buy a new flat screen television, but that doesn’t mean they will be back next quarter. Unpredictible spending makes for more uncertainty in the marketplace. The expenditures have gone from small but expected to large and unpredictable.
Look for the cream rise to the top over time, as early as this quarter. Expect businesses within similar segments to have vastly different numbers. Just because Best Buy does well, does not mean that Circuit City or other type retailers should do well. Just because Lowes has a good quarter, doesn’t mean that Home Depot will. In the past, there were enough consumers to make the entire sector look good. Now that the majority of consumers with discretionary income are in a wants-based environment, and add to that fact that many consumers scared to death to spend their money, expect for the top businesses in each sector to start to shine, as the weaker ones begin to show their faults. Of course those are just my thoughts....Clark's Thoughts.
Wednesday, April 15, 2009
Staying up with the Lingo
Staying up with the Lingo – The Second Derivative
Have you ever noticed that any time a group of people get together with the same interests, a new language evolves? They create their own jargon, their own slang, their own lingo. Sometimes it goes to the point of what outsiders would call, "excess." Occasionally the lingo gets used often enough to spread to the "civilian" world. I have a friend who will routinely ask me for my 10-20, and will conclude the conversation with a "10-4, over and out."
Educators have "educationese." In Indiana they have PL221, NCLB, TRF, SST, and 504 plans.
The military uses terms like Squid, Jarhead, Wingnut, Grunt, ASVAB, AWOL, GI, and ROTC to name just a few.
If you have teenagers at home, you may have heard or read the terms LOL, OMG, OXOXOX, W8, AFAIK, and BRB,
The financial services world can be every bit as confusing. 401K, 403(b), 457, IRA, Roth IRA, SEP, SIMPLE, 1035 and 1031. You can’t watch CNBC for too awful long before you hear economic terms like leading, lagging, contango, stochastic indicators, moving averages, and so on. But, like everything else, the jargon is always evolving.
The new "in" word happens to be a math term. Now, I am not a mathematician. MA 223 at Purdue just about put me over the edge. But I do know that math terms are routinely used in our industry, and rightfully so. Technical traders rely on math computations to plan their daily trades. Math is essential for fundamentalists when calculating P/E ratios and dividend discount models.
But recently economists have been utilizing a calculus term to help find a glimmer of hope in a topsy-turvy world. The "second derivative", as it is being called, is, as one would assume, a movement of a second order. What does that mean in plain English? Instead of the absolute change in a number, it is the rate of change of a variable. Got it? If so, then you had more fun in MA 223 than I!
More simply put, it is the rate of change in deterioration. In today's economic context, we can look at economic variables such as unemployment. For instance, if employment numbers continue to worsen, but worsen by a smaller margin than the previous month, than we have improvement in the "second derivative."
Is this a good thing? Of course. Presumably, the second derivatives must all improve before we have positive change in the "first derivative" (the leading and lagging indicators). But call it improvement in the second derivative or not, the fact remains that things are still bad. The importance in the stock market is that the market moves very quickly in front of actual changes in the economy. So many highly paid individuals are looking at anything resembling "second derivative improvement". Little doubt exists that these types of "improvements" have helped fuel the nice run the markets have had over the past several weeks.
You can impress your friends by using the term when talking about a cigarette smoker. Is he still smoking? Yes, but if he has cut back on the number of cigarettes each day, then there has been improvement on the second derivative. But the fact remains that he is still smoking and still harming his body.
I am just glad that there has been improvement in my second derivative of personal pizza consumption during the last year…..
Have you ever noticed that any time a group of people get together with the same interests, a new language evolves? They create their own jargon, their own slang, their own lingo. Sometimes it goes to the point of what outsiders would call, "excess." Occasionally the lingo gets used often enough to spread to the "civilian" world. I have a friend who will routinely ask me for my 10-20, and will conclude the conversation with a "10-4, over and out."
Educators have "educationese." In Indiana they have PL221, NCLB, TRF, SST, and 504 plans.
The military uses terms like Squid, Jarhead, Wingnut, Grunt, ASVAB, AWOL, GI, and ROTC to name just a few.
If you have teenagers at home, you may have heard or read the terms LOL, OMG, OXOXOX, W8, AFAIK, and BRB,
The financial services world can be every bit as confusing. 401K, 403(b), 457, IRA, Roth IRA, SEP, SIMPLE, 1035 and 1031. You can’t watch CNBC for too awful long before you hear economic terms like leading, lagging, contango, stochastic indicators, moving averages, and so on. But, like everything else, the jargon is always evolving.
The new "in" word happens to be a math term. Now, I am not a mathematician. MA 223 at Purdue just about put me over the edge. But I do know that math terms are routinely used in our industry, and rightfully so. Technical traders rely on math computations to plan their daily trades. Math is essential for fundamentalists when calculating P/E ratios and dividend discount models.
But recently economists have been utilizing a calculus term to help find a glimmer of hope in a topsy-turvy world. The "second derivative", as it is being called, is, as one would assume, a movement of a second order. What does that mean in plain English? Instead of the absolute change in a number, it is the rate of change of a variable. Got it? If so, then you had more fun in MA 223 than I!
More simply put, it is the rate of change in deterioration. In today's economic context, we can look at economic variables such as unemployment. For instance, if employment numbers continue to worsen, but worsen by a smaller margin than the previous month, than we have improvement in the "second derivative."
Is this a good thing? Of course. Presumably, the second derivatives must all improve before we have positive change in the "first derivative" (the leading and lagging indicators). But call it improvement in the second derivative or not, the fact remains that things are still bad. The importance in the stock market is that the market moves very quickly in front of actual changes in the economy. So many highly paid individuals are looking at anything resembling "second derivative improvement". Little doubt exists that these types of "improvements" have helped fuel the nice run the markets have had over the past several weeks.
You can impress your friends by using the term when talking about a cigarette smoker. Is he still smoking? Yes, but if he has cut back on the number of cigarettes each day, then there has been improvement on the second derivative. But the fact remains that he is still smoking and still harming his body.
I am just glad that there has been improvement in my second derivative of personal pizza consumption during the last year…..
Thursday, April 9, 2009
Social Changes?
Last week ended the best 4-week rally for the Dow Jones Industrial Average and the S&P 500 since 1933, and it saw the best 4-week rally on the NASDAQ in history. But all good things must unfortunately come to an end, and Tuesday evening, the earnings season officially began with Alcoa kicking things off. It is interesting to note that Alcoa was off 2% during the intraday trade. That is before they even made an earnings announcement. The fact of the matter is that in recent quarters companies have been brutalized for missing earnings expectations, and their stock prices have not been dramatically rewarded for beating the earnings estimates. One trend that we believe we will continue to see is that companies will become less and less willing to offer guidance. Why should they? If they miss, they look bad, and if they hit, they aren’t rewarded. Perhaps it is far better to offer no guidance in the future and just report their earnings.
We know that we are facing a high unemployment rate right now, and we know that families all over the United States are feeling the effects. Recent reports indicate that 1 in 10 Americans are receiving food stamps. This is an ugly statistic. The big question is why? Unemployment? Recession? Maybe. But perhaps it is a change of attitude in general. Perhaps one big reason for the increase in food stamps is that they are becoming more socially acceptable, and there is less of a negative stigma for recipients, whereas at one point in time it may have been a pride factor to have not accepted the welfare. There used to be a social stigma associated with food stamps - not that I am opposed to helping people who need it, and with the high unemployment I have no doubt that many more people need it today than in recent years, but in days gone by I know many people personally who would have used government assistance as the absolute last resort., and not one of the first.
Another noticeable difference today is that the social changes we are witnessing are not just with the individual. The FED tried to do whatever they could to reduce the stigma attached to using the Fed’s lending facility. They readily encouraged the use of TARP funds for the big banks. And now, some of the banks that took the taxpayers money are being rewarded for their fiscal irresponsibility. Warren Buffett, an investing icon, was quoted (very correctly, I am afraid), as saying: "At the moment, it is much better to be a financial cripple with a government guarantee than a Gibraltar without one." In his letter to shareholders he points out that companies that received bailout funds (like Citigroup, Bank of America, Freddie and Fannie) are paying lower interest rates on bonds than Buffett’s own company. Why should a company that needed to rely on taxpayers, a company that couldn’t make it on its own, pay lower interest rates on bonds?
I must say that I was proud to hear that Old National Bank, an Indiana-based company, was one of the first four banks to pay back the TARP funds. On March 31, 4 Regional banks returned a total of $338 Million. Obviously, this was a good sign for those banks and good for the tax payers.
But will the Fed try to limit these paybacks? One concern with the TARP paybacks is that it will damage confidence in banks that cannot pay back the money. In other words, the FED is concerned that if healthy banks pay back their bailout money, there may be concerns about banks that don’t pay theirs back. It makes us wonder if the "big boys" will be scorned (or even prevented) from being able to pay back the TARP funds early.
It seems to us that the government and the FED are doing what they can to promote the social change. It seems like they almost want us to rely on government welfare….of course those are just my thoughts – Clark’s Thoughts.
www.clarksthoughts.com
We know that we are facing a high unemployment rate right now, and we know that families all over the United States are feeling the effects. Recent reports indicate that 1 in 10 Americans are receiving food stamps. This is an ugly statistic. The big question is why? Unemployment? Recession? Maybe. But perhaps it is a change of attitude in general. Perhaps one big reason for the increase in food stamps is that they are becoming more socially acceptable, and there is less of a negative stigma for recipients, whereas at one point in time it may have been a pride factor to have not accepted the welfare. There used to be a social stigma associated with food stamps - not that I am opposed to helping people who need it, and with the high unemployment I have no doubt that many more people need it today than in recent years, but in days gone by I know many people personally who would have used government assistance as the absolute last resort., and not one of the first.
Another noticeable difference today is that the social changes we are witnessing are not just with the individual. The FED tried to do whatever they could to reduce the stigma attached to using the Fed’s lending facility. They readily encouraged the use of TARP funds for the big banks. And now, some of the banks that took the taxpayers money are being rewarded for their fiscal irresponsibility. Warren Buffett, an investing icon, was quoted (very correctly, I am afraid), as saying: "At the moment, it is much better to be a financial cripple with a government guarantee than a Gibraltar without one." In his letter to shareholders he points out that companies that received bailout funds (like Citigroup, Bank of America, Freddie and Fannie) are paying lower interest rates on bonds than Buffett’s own company. Why should a company that needed to rely on taxpayers, a company that couldn’t make it on its own, pay lower interest rates on bonds?
I must say that I was proud to hear that Old National Bank, an Indiana-based company, was one of the first four banks to pay back the TARP funds. On March 31, 4 Regional banks returned a total of $338 Million. Obviously, this was a good sign for those banks and good for the tax payers.
But will the Fed try to limit these paybacks? One concern with the TARP paybacks is that it will damage confidence in banks that cannot pay back the money. In other words, the FED is concerned that if healthy banks pay back their bailout money, there may be concerns about banks that don’t pay theirs back. It makes us wonder if the "big boys" will be scorned (or even prevented) from being able to pay back the TARP funds early.
It seems to us that the government and the FED are doing what they can to promote the social change. It seems like they almost want us to rely on government welfare….of course those are just my thoughts – Clark’s Thoughts.
www.clarksthoughts.com
Friday, April 3, 2009
The Credit Crunch = 1 Year's GDP
It was a beautiful month for the indices – the S&P 500 gained 9% for March, the Dow had its best percentage month since October of 2002, and the NASDAQ had its best March ever. Unfortunately, January and February were two horrible months in the equity market, and on a year-to-date basis, the S&P 500 and the Dow Jones Industrial Average are still both off more than ten percent.
This last week brought forth many news items, and many stories that we won’t dwell on so we don’t beat a dead horse, such as the AIG "Bonusgate" and the ousting of GM CEO Rick Wagoner. Whether or not GM and Chrysler will be forced in to a structured bankruptcy remains to be seen, but the rhetoric used this week by both the CEO’s of the auto manufactures and that of the President would lead one to believe that bankruptcy is a high probability.
One headline that the mass media will probably not be too keen on reporting is the sheer dollar amount that the United States has already committed to get us out of the Credit Crunch. According to recent figures from Seeking Alpha, we have lent, spent, or committed to $12.8 Trillion in rescue and stimulus packages so far. This figure includes the Stimulus Packages (both Round 1 and Round 2), the TARP, the TALF, and every other promise from the Fed and the Treasury. Just a few years ago, the notion that we would have a $200 Billion deficit scared nearly everyone. At the G-20 meeting, we committed about $100 Billion more to go to the IMF. Today, we are looking at a debt of $12.9 Trillion. Our entire GDP is roughly $14 Trillion. Essentially, we have just committed a year’s worth of American productivity in an attempt to get out of this crisis.
Now, I know that some of the promises are tied up into possibilities of a potential return for the taxpayers, and in some cases, we actually believe that the taxpayers can make some money. But, as one of my favorite economists Brian Wesbury pointed out, in February, the government said that the $787 Billion stimulus was spent to create 3.5 million jobs. That means we are creating one new job for every $225,000 that is spent – and that is assuming that 3.5 million jobs truly do get created! Either way, that is money that will have to be paid back over time, and one more reason that we believe tax rates will only be heading one direction over the long-term.
This last week brought forth many news items, and many stories that we won’t dwell on so we don’t beat a dead horse, such as the AIG "Bonusgate" and the ousting of GM CEO Rick Wagoner. Whether or not GM and Chrysler will be forced in to a structured bankruptcy remains to be seen, but the rhetoric used this week by both the CEO’s of the auto manufactures and that of the President would lead one to believe that bankruptcy is a high probability.
One headline that the mass media will probably not be too keen on reporting is the sheer dollar amount that the United States has already committed to get us out of the Credit Crunch. According to recent figures from Seeking Alpha, we have lent, spent, or committed to $12.8 Trillion in rescue and stimulus packages so far. This figure includes the Stimulus Packages (both Round 1 and Round 2), the TARP, the TALF, and every other promise from the Fed and the Treasury. Just a few years ago, the notion that we would have a $200 Billion deficit scared nearly everyone. At the G-20 meeting, we committed about $100 Billion more to go to the IMF. Today, we are looking at a debt of $12.9 Trillion. Our entire GDP is roughly $14 Trillion. Essentially, we have just committed a year’s worth of American productivity in an attempt to get out of this crisis.
Now, I know that some of the promises are tied up into possibilities of a potential return for the taxpayers, and in some cases, we actually believe that the taxpayers can make some money. But, as one of my favorite economists Brian Wesbury pointed out, in February, the government said that the $787 Billion stimulus was spent to create 3.5 million jobs. That means we are creating one new job for every $225,000 that is spent – and that is assuming that 3.5 million jobs truly do get created! Either way, that is money that will have to be paid back over time, and one more reason that we believe tax rates will only be heading one direction over the long-term.
Wednesday, April 1, 2009
What can the G-20 really accomplish?
The G20 is meeting this week in London to see what they can collectively do to help solve the global crisis. You may be wondering, "Exactly who, or what, is the G20?"
The G-20 is a group of 20 countries formed in 1999 for cooperation and consultation on matters pertaining to the international financial system. Specifically the countries on the G-20 are: Argentina, Australia, Brazil, Canada, China, France, Germany, India, Indonesia, Italy, Japan, Mexico, Russia, Saudi Arabia, South Africa, South Korea, Turkey, the United Kingdom, and the United States. The 20th member is the European Union, which is represented by the rotating Council presidency and the European Central Bank. In addition to these countries, representatives from the International Monetary Fund, the World Bank, and the International Monetary and Financial Committee will be there, and this year, the Netherlands and Spain have also been invited.
Just what exactly do they think they can accomplish? That is hard to tell, since there are so many countries represented from across the spectrum. The US, UK, and Japan have been encouraging stimulus spending as a potential to help curb the global crisis. Russia and China are calling for a new global currency, and they will more than likely expect the IMF to come up with that currency. The European Central Bank, unlike the central banks in the US and the UK, can not buy debt directly from a member state, although it can purchase the debt on a secondary market. The economic slowdown in Germany is hurting all of Europe, and the perpetual loudmouths in France have already threatened to walk out of the G-20 summit if things don’t go to their liking.
No matter what can get accomplished at the G-20, assuming anything will truly be accomplished, one thing is for certain: this is not a group of buddy-buddies. I am not going to refer to any particular country as the "Evil Empire," but we all know that Russia, China, and Saudi Arabia are looking out for their own interests, which most assuredly, are not typically ours. Mexico just put tariffs on 89 US imports after the US broke part of the NAFTA agreement with Mexico. France, although recently on fairly decent terms with Germany, has not always been the closest of allies with her neighbors. If memory serves me correctly, Germany invaded France in 1871, WWI, and WWII, and there may have been several border skirmishes between 1871 and WWI that I am forgetting.
The fact of the matter is, even though we have one global crisis, I doubt that a collective group of global leaders can get us out of this mess, especially in a 2-day meeting that begins on April Fool’s day…..
The G-20 is a group of 20 countries formed in 1999 for cooperation and consultation on matters pertaining to the international financial system. Specifically the countries on the G-20 are: Argentina, Australia, Brazil, Canada, China, France, Germany, India, Indonesia, Italy, Japan, Mexico, Russia, Saudi Arabia, South Africa, South Korea, Turkey, the United Kingdom, and the United States. The 20th member is the European Union, which is represented by the rotating Council presidency and the European Central Bank. In addition to these countries, representatives from the International Monetary Fund, the World Bank, and the International Monetary and Financial Committee will be there, and this year, the Netherlands and Spain have also been invited.
Just what exactly do they think they can accomplish? That is hard to tell, since there are so many countries represented from across the spectrum. The US, UK, and Japan have been encouraging stimulus spending as a potential to help curb the global crisis. Russia and China are calling for a new global currency, and they will more than likely expect the IMF to come up with that currency. The European Central Bank, unlike the central banks in the US and the UK, can not buy debt directly from a member state, although it can purchase the debt on a secondary market. The economic slowdown in Germany is hurting all of Europe, and the perpetual loudmouths in France have already threatened to walk out of the G-20 summit if things don’t go to their liking.
No matter what can get accomplished at the G-20, assuming anything will truly be accomplished, one thing is for certain: this is not a group of buddy-buddies. I am not going to refer to any particular country as the "Evil Empire," but we all know that Russia, China, and Saudi Arabia are looking out for their own interests, which most assuredly, are not typically ours. Mexico just put tariffs on 89 US imports after the US broke part of the NAFTA agreement with Mexico. France, although recently on fairly decent terms with Germany, has not always been the closest of allies with her neighbors. If memory serves me correctly, Germany invaded France in 1871, WWI, and WWII, and there may have been several border skirmishes between 1871 and WWI that I am forgetting.
The fact of the matter is, even though we have one global crisis, I doubt that a collective group of global leaders can get us out of this mess, especially in a 2-day meeting that begins on April Fool’s day…..
Keep a close watch on your "small" accounts
When most people think about retirement, they tend to dwell on their larger assets. It is fun to sit back and think about what the future will hold when you are starting out with a lot of assets or a nice-sized pension. All too often people seem to "skip" over some other key assets, such as an older 401K or 403B from a previous employer that has just been sitting there – rusting away like an old vehicle set out behind someone’s barn. I am always amazed at the number of people that tend to ignore smaller investments, and "put them out to pasture." When asked why the individual hasn’t done anything with the old investment, results like, "Oh, it’s no big deal. It is just a small amount of money," are fairly common. Many people think that a $3-4000 account is not worth the hassle, or it is just "play" money.
But the money didn’t get there on its own. One of two things had to happen to get the qualified account built up. Either the employer contributed money into the account on your behalf (in lieu of a higher salary, of course!), or you contributed to the account on your own. Either way, it cost you something. Don’t treat it as "no big deal." A properly managed account can add up to a considerable amount over several years.
What should you do with a smaller account? First, consider all of your options. In some cases, you can consolidate accounts. This is generally viewed as being a sound thing to do. Secondly, you can start to manage the account yourself, or have a financial professional do it for you.
Depending on how long you have had these smaller accounts, you might have other options to consider as well, such as rolling them into an IRA, and possibly converting the IRA into a Roth. By now you should know that we like the Roth IRA option. Pay your taxes now and get them over with. Which way are taxes heading? No one knows for sure, no one has that proverbial "crystal ball." But according to the latest reports, our government has already committed $12.7 Trillion to help get us out of the Credit Crunch. At some point in time it will have to be paid back…
But the money didn’t get there on its own. One of two things had to happen to get the qualified account built up. Either the employer contributed money into the account on your behalf (in lieu of a higher salary, of course!), or you contributed to the account on your own. Either way, it cost you something. Don’t treat it as "no big deal." A properly managed account can add up to a considerable amount over several years.
What should you do with a smaller account? First, consider all of your options. In some cases, you can consolidate accounts. This is generally viewed as being a sound thing to do. Secondly, you can start to manage the account yourself, or have a financial professional do it for you.
Depending on how long you have had these smaller accounts, you might have other options to consider as well, such as rolling them into an IRA, and possibly converting the IRA into a Roth. By now you should know that we like the Roth IRA option. Pay your taxes now and get them over with. Which way are taxes heading? No one knows for sure, no one has that proverbial "crystal ball." But according to the latest reports, our government has already committed $12.7 Trillion to help get us out of the Credit Crunch. At some point in time it will have to be paid back…
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