|Moneytalk Show Review
December 18, 2011
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David Korn's Stock Market Commentary, Interpretation of Moneytalk (Bob Brinker Host), Financial Education, Helpful Links, Guest Editorials, and Special Alert E-Mail Service. Copyright David Korn, L.L.C. 2011
CLICK HERE to download a FREE issue of "The Retirement Advisor"December 18, 2011 Newsletter Excerpts - Editorial Comment ("EC") by David Korn:
written by David Korn and Kirk Lindstrom
DAVID KORN'S COMMENTARY: Excerpts below
TAX EXTENSION UPDATE
Brinker Comment: There is breaking news this weekend that House Speaker John Boehner has said that the Senate’s two-month payroll tax extension is dead on arrival because he believes employers need more certainty about taxes and he wants a deal closer to the one-year extension that the House passed. Bob noted that 2012 is an election year and during election years taxes are best minimized. The payroll tax cut lowers the worker’s share of Social Security payroll taxes to 4.2% from 6.2% and accounts for about $10 billion in revenue each month. That’s $120 billion of additional cash that goes into worker’s pockets over the year if the tax measure is passed for an entire calendar year. Bob pointed out that almost all of this money gets spent because of the consumer’s propensity to spend. Bob said he fully expects to see this pass for the entire year given that it is an election year.
Bob said he is in favor of the tax cut because we need all the tools possible to help grow our economy. We learned that the economy grew at a 2.0% rate in the third quarter which is growth, but not enough. We have an unemployment rate of 8.6% and while the private sector is tacking on jobs, the government sector continues to layoff workers month after month. That said, Bob believes we will could very well see the GDP put up a number above 2.0% in the fourth quarter of this year. Still, the economy is below trend in its growth and so it justifies economic stimulus in its purest form which is payroll tax reduction.
Kirk Here: See US Federal tax bracket rates for 2012 and US Federal tax bracket rates for 2011
SAFE MONEY FOR COLLEGE KID
Caller: This caller’s child is in college and inherited $150,000 from his grandfather. What should he do with it? Bob said he would use fully insured certificates of deposit until the child knows what they will need with their money, such as for the purchase of a house. No need to put that money at risk until the child has a better understanding of his or her future needs.
Caller: Even though the base rate is zero, the inflation rate is 3.0% which makes him think that it is better deal than some CDs even with the 3-month penalty. Bob said he didn’t have a problem with that and felt even with the penalty you are going to do better than most money funds. But the government has limited the amount you can buy to $10,000 a year. Bob noted that originally the base rates of I-Bonds when they first came out were as high as 3%, but today the base rates are close to zero. If you purchased I-Bonds back in the early days you definitely want to hold on to those.
Kirk Here: See Series I Bonds
Caller: This caller has $100,000 in taxable money and he wants to generate income. With the low interest rates we are seeing, would dollar cost averaging into the Marketimer income portfolio seem like a reasonable way to approach it and over what time period would you recommend it. Bob said that portfolio is yielding close to 4.75% and is having a great year with a total return of close to 6% so far this year. In today’s near zero interest rate that is an accomplishment. Bob said he doesn’t have a dollar cost average recommendation for that portfolio but he is comfortable just being in it. Bob said you will have to accept the fact that you take net asset value risk in a bond fund portfolio. Bob added that he tries to keep a low duration in the portfolio. The alternative is you go with someone like CDs where you don’t have net asset value risk, but you get very low yields.
EC: Bob gave a definitive answer to this question, which was that he wouldn’t dollar cost average into his income only portfolio, but would rather lump sum into it. Note this advice might be different if someone was looking to establish a position in just one bond fund, rather than a diversified portfolio of bond funds. However, even with the diversified portfolio of bond funds, if you lump sum in and we get a move up in rates, you will see a quick decline in the NAV.
Kirk Here: Brinker added a mutual fund to his income portfolio that has stocks in it so he changed the name from "Fixed Income Portfolio" to "Income Portfolio." If you want ABSOLUTELY ZERO STOCKS, then the Marketimer portfolios are not for you. Model Portfolio #3 in "The Retirement Advisor" is 100% out of stocks. Unlike Brinker, we show returns by year here. Check it out and make sure you download a recent free sample issue.
Caller: This caller asked Bob for a recommendation on a money market fund. Bob said if you have funds at Vanguard, he would choose between the Prime Money Market Fund and the Tax-Exempt Money Market Fund, but recognize that both are yielding close to zero. Bob said one of the nice features in that fund is that you can have check writing privileges for purchases of $250 or more.
EC: The Prime Money Market Fund is yielding basically nothing. For a list of money funds that are paying a lot more (relatively speaking in this low rate environment), go to this url: http://tinyurl.com/7vwrd4m
Kirk Here: When you are getting next to nothing, I prefer to have FDIC insurance for my cash outside of IRAs. See "Best Savings Account Rates with FDIC."
Kirk Here: In my IRAs at Vanguard and Fidelity, I like to buy short term CDs to get higher rates than their money funds AND get FDIC insurance. See Best CD Rates and CD Rates at Largest US Banks.
Kirk Here: Did anyone besides me find it annoying Bob Brinker didn't take any calls about the stock market and his outlook? He has been FULLY INVESTED since March 2003 with many buy the dips including a "gift horse buy in the mid 1400s" back in 2007. I believe he only talks about the market after he issues a "buy the dip" in his newsletter so he can brag about how good his call was to attract new subscribers. Who in their right mind would subscribe to a "Market Timing" newsletter that has been buy and hold, fully invested for the worst bear market since the Great Depression? MUST Read>>Bob Brinker's Asset Allocation History<<
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