Author Archives: Money Reasons

About Money Reasons

A offbeat personal finance blogger that comes from the tech world.

Why Unemployment Is Likely To Be Higher Than In The Past 50 years

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I hate to burst everybody’s bubble, but the workers of the United States aren’t really any more valuable than the workers in other countries where the labor is 10 times as cheap.

Everybody acts surprised that unemployment is so high, but we’ve had a jobless recover after 911 too.  I’m not going to go into obvious causes of unemployment, if you are interested in those causes, check out this great Wikipedia article on Unemployment, it covers most of the past points quite adequately.  Instead, I’m going to give a shout out to Michael Porter and his list of the reasons that unemployment is still high.  I was fortunate enough to be watching CNBC when he came on and started talking about the reasons that unemployment is so high.  To be honest, CNBC was on as background noise while I was working, but then Harvard economist Michael Porter started listing his reasons why unemployment is still high, and I was floored.  The reasons he listed was practically identical to my thoughts.  I finally found an economist that I agree with!  I had to pinch myself to make sure I was awake!

Young Digerati?

Young Digerati?

Everything the Harvard economist said was spot on, at least in the next 10 to 20 years.  But eventually I think that automation, robotics and other smart machines will tighten employment again in the future (20 years… if not sooner).   I’ve written about job loss to technology before, but I kept it light.  Today I’m going to list the reasons why I think technology will start to eat away at human labor opportunities.

  1. Robots are becoming smarter and faster.  Robots use to be just toys that kids loved (including me).  But these days scientists are working on smart robots… These robots are aware of their surroundings and can adjust accordingly.  Robots (like industrial robots) didn’t have that type of awareness previously.  Cars, and more sophisticated machine will be transporting us without our involvement, at least 90% of the time.  I wonder if in the future, some type of high-speed transportation (that goes 200+ miles per hour) will exist were we just dock our vehicles on the “train” cars and then the “smart train” takes us to our destinations.  I can see it practically being totally automated, including the financial transactions.  The computer automated car (or is it really a smart robot too?), will schedule a position on the train car and the entire process could be automated, including getting off of the train.  Perhaps the train will be in a bubble tunnel or in an underground system of some sort?  Think of fast food restaurants with no humans working at it… Think it’s not possible?  I think it is.  Perhaps in the not to distant future, doctors will be replace by universal doctoring systems, perhaps even surgeries too.  Human doctors are limited by when the currently know, and what they are willing to learn.  A smart robot could tap into some kind of database for all of the newest approaches towards helping people.  Not to mention that they can do testing practically instantly on patients.  I can go on and on about this, but time is limited so I’ll stop here.
  2. People in other countries (especially Asian) are just as smart (if not smarter) than the people in our country, and they work just as hard (if not harder).  Yeah, transportation costs would be a limiting feature of business going overseas for labor if it wasn’t for the trend where labor overseas is considerably cheaper!  How much cheaper, in some cases over 5 and sometimes 10 times as cheap!  So the average worker in the US make $20 per hour, well in China, the overage wage per hour is $2 (and in other places even less).  This is temporary though, because China has come a long way in the past 10 years, and I expect them to continue to prosper and wages to continually increase.  In fact, I’m more worried about automation and robotization taking over future jobs.
  3. Not all people are book smart or have the desire to continually learn new things.  There are a lot of people who don’t want extra education.  The common answer to job security is education for everybody in the US, but some people would rather work with their hands.  I know plenty of people as smart as I am or smarter that work with their hands instead of living in cubicle-ville.
  4. Business need to be competitive or they die.  If you have two businesses, one in the US, and one in China and they both make the same product, if the US company only employs labor in the US, that US company is doomed to fail.  The cost of the product made in China will be much cheaper and bought over the US companies product.  So if the US company doesn’t hire overseas labor, they is a very high chance that they will go out of business.  Look at Walmart and what they sell, and where their products come from.  While Walmart doesn’t have anything against the Chinese, don’t you think that they would prefer to buy cheap products in the US instead?

So while the government does silly little things like raising the minimum wage which will make it harder for my son to get a job in the very near future, the real problem of the United States and our ability to compete with a offshore, highly trained, and very competent labor force will continue to grow ignored.  I guess if they wait long enough, smart robots will bring the jobs back to the United States eventually and the entire matter will be moot by then.

Sorry for the grim take on matters, notice that I didn’t even mention “under” employment!  That will be a conversation for another day.

Don

 

Why Diversifying Isn’t Always Necessary For High Stock Market Returns

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The following is a guest post by Ryan.  He brings up a great point about diversification in the stock market isn’t always the best option.   Without further ado…

In an era where financial markets market can fluctuate quickly and extremely, fortunes can be won or lost in an instant. However, smart investors try to minimize this risk through diversifying their investment holdings. Diversification is the process by which an investor chooses a mix of investment types that will experience fluctuations in the financial markets at different rates and times. Hopefully, if the investor has chosen wisely, when one investment is doing poorly or takes a huge loss, another investment is making gains that minimize the overall loss.

platypus

One mistake that many investors make is trying to use diversification as a way to try to beat the market. Trying to shift assets into other classes that will perform better in the short-term is just another form of speculation and is not a smart move when you are trying for stability in your assets and long-term gain. Remember the big picture.

Another mistake investors make is falling victim to the buffet mentality (not to be confused with Warren Buffett!), just because it’s there doesn’t mean that it is good for your set of circumstances. Too much diversification leads to disorganization. Portfolios can become difficult to manage and fees can get expensive.

Stocks and bonds should be the cornerstone of your investments. Before you diversify, make sure that you have the right mix of bonds and stocks and that the quantity of those holdings is correct. Obtaining the correct mix is dependent on a variety of factors such as how long you have until you retire, and how much risk you are willing to take. People who are closer to retirement age, and don’t want to see a sharp dip in their assets, should choose a higher mix of bonds over stocks. Yes, they will get lower return on their investment; but, they will also benefit from added security. Younger investors, on the other hand, have more time to weather potential market storms in exchange for increased growth potential, so they can afford to ballast their accounts more toward stocks.

Once you have a comfortable stock to bond ratio figured out, you should turn your attention toward making sure that you are properly diversified within these two classes of investments. There are varying opinions on what constitutes adequate diversification within an investment class, but in truth, there is no one size fits all scenario. It is again dependent upon your particular set of circumstances at this point in time.

When speaking of bonds, you want to have a selection of bonds that are divided between corporate bonds, mortgage bonds and government bonds. You also want to make sure that you have bonds with varying term lengths so that they mature at different rates. With respect to stocks, you want to choose small, mid and large cap stocks. You also want those choice stocks that cover varying industries.

There are two different ways in which you can achieve these levels of diversification. The first is to pick and choose the various investments yourself. Or, you can choose from a wide variety of stock and bond funds. But, buying these funds are not always the magic pill as many of the funds can be very industry specific. And with that comes a problem, if that industry is taking a huge hit in the financial markets, so will your investment.

The process of diversification can be confusing at best, and it is easy to take the wrong path. Start branching out. To begin receiving expert help with your investments connect with Cavalry Portfolio Services on Facebook.

Diversification never eliminates risk entirely. The best that you are hoping for is to minimize the impact of the risk while reaping the benefits of the return. In fact, having too many stocks in your portfolio can decrease your returns. The way that it happens is this: you make an investment in a stock and that stock does very well. If you only have 5 stocks in your portfolio, then you see a greater percentage of return. If you have 500 stocks in that portfolio then the return, and the impact of it, becomes negligible.

 

2013 Late To The Stock Market Strategy

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For the past few years, I’ve been in dividend stocks, but now I have to wonder with the rally in the stock market if I shouldn’t shift into non-dividend paying growth stock instead, at least for the time being… Or am I too late now?
A lot of stock already had decent run up in the stock market, and I’m late to the game with this strategy.  I wonder out loud, “is there still some stocks that haven’t appreciated that I can still get in?”  I’m hoping so.  Stocks that have my interest are financial and insurance stocks in particular.

The reasons that I’m interested in financial stocks are the following:

  • Some financial stocks that fell deep and hard are still valued cheaply, especially considering that a lot of these companies acquired other troubled financial firms.  For instance, Bank of America still owns Merill Lynch, and Merill is doing quite well from what I late heard.
  • Some are still down 90% or more from their highs back in 2007, these banks aren’t going away without the collapse of america, so they should be a good buy, or so it would seem.
  • Alternatively, the mechanism that provided the primary growth for the banks and made them a great investment was the mortgages, and the market for that stream has become much more restricted, especially the sub-prime market (I hope).

As for insurance companies, I’m mostly interested in the bad boy of the housing collapse, AIG.  You see AIG, although an insurance company got involved in mortgages too and obviously did so very poorly.  Apparently they don’t believe in risk management when it comes to business.  But the beauty of AIG is that their stock is still less than 95% of their former value.

AIG

At one time the government practically owned all of their shares of stock, but that is no longer the case, and hopefully they should reinstate their dividend policy again sometime in 2013 and probably at the latest 2014.

Both financial institutions and the AIG insurance company seem like a risky investment, but they also have a lot of potential with little downside left.

So now you know my strategy.  Please remember that this is all for fun and I’m not making any investment recommendations of any sort.  This is just what I’m going to try…

Best,

Don

My Roth IRA Has An Annual Growth Rate of 52.75 % Since Inception!

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Move over Mr. Buffett, there is a new bull in town (don’t I wish)!

According to my Broker, my Roth IRA has average a 52.75% return since inception!  I’m an investing GOD, not.

Please note the following statistics provided by my online Charles Schwab account, and read the real deal below:

RothIRAPerformanceSM

 

It really does make me look like an investing God, but unfortunately the Inception Date is not quite old enough.  Apparently the Inception Date is when my broker started keeping records because I had the account much earlier than the year 2009…

Back around 2003, I started my online Roth IRA with my broker, and I did very well.  In fact, I doubled my balance in less than 5 years.  Unfortunately, I was in some risky stock and I actually loss money and ended the 5 year with less than I put in originally (just by a little bit though).

Devastated, but still excited by the incredible stock market ride, I decided to alter my strategy to a two stage approach:

1.) Invest in a solid dividend stock that would not decrease in value (this was for my emergency fund aspect of the Roth IRA).

2.) Invest in something that I thought would do well in the market, but wasn’t a sure thing.  So I invested in a speculative stock (BAIDU).  I was actually pretty sure this was a good choice, but with speculative stocks one never knows.

Well, my dividend stock did fine, but BAIDU (ticker bidu) went nuts over the next few years.  It’s been my biggest win ever in fact!

So while my numbers look impressive above, practically all of my big gain was betting on the BAIDU racehorse of a stock to make me the big gains.  I’m no longer own BAIDU in my Roth IRA, but the was a fun ride while it lasted.

If I doubled my income in 7 years, that’s only around a 10.2% return, but I sure wish it was 52.75% since inception.  If that were the case, I’d be bragging like there was no tomorrow 🙂

Statistics are funny sometimes, I just wanted to show how interesting they can really be.  Oh, and so far this year I’m off to a great start!  10.12% in the first month, not too shabby!

Have fun this year, the market should be another wild ride!

Don