Guzzo the Contrarian

National Save for Retirement Week

Did anyone know that this week is National Save for Retirement Week?

National Save for Retirement Week was established by the National Association of Government Defined Contribution Administrators (NAGDCA) to raise awareness about the need for retirement planning among today’s workers.

This year, both the U.S. Senate and the U.S. House of Reps. have passed resolutions declaring Oct. 19-25 National Save for Retirement Week.

Now, I don’t know about you, but I see nothing but irony and hypocrisy in these Congressional resolutions.

We’re in middle of a global economic crisis, initially brought about by imprudent congressional decision-making, then continually ignored by the current administration and Congress until it reached depression-like proportions and emergency action had to be taken.

It’s only now, after this preventable financial crisis caused enormous losses in almost everyone’s retirement savings, that Congress decides to pass resolutions to make sure that we’re aware of the need to save more towards retirement.

I just gotta laugh.

On the other hand though, this week should be a good reminder of the importance of asset allocation, and of the importance of dollar cost averaging. A crisis like this does not occur very often, and it presents investors with the greatest opportunities to improve their long-term investment returns.

Instead of panicking and moving investments into “safer” investments, we should be doing the opposite and increase our contributions into stocks, or stock funds, while they’re cheap.

Unless one truly believes that our economy and stock markets will suffer the same consequences that we experienced during the Great Depression, we should be embracing the chance to buy stocks at significant discounts, and thanking those fearful investors who’ve created these opportunities.

403(b) Plan Portfolio Update

403(b) Plan Ideas I moved my entire 403(b) plan portfolio from the safety of a money-market mutual fund and into stock market funds, just before market close today.

I’m still of the opinion that we are closer to a market bottom, than farther from a market bottom. Around 3:30pm (EST), I could see that the market would close near records lows and thought that this would be a good time to take advantage of what I consider bargain prices.

The hospital that I work for uses a Prudential Financial, 403(b) Group Tax Deferred Annuity Plan to manage all of their retirement investments, and I’ve been fully invested in the Prudential Guaranteed Income Fund (a pseudo-money-market fund) since I started working for them.

I’m not an absolute fan of our 403(b) plan based upon a couple of factors, but the hospital does offer immediate vesting of any matches. I also like my job and the non-profit hospital’s mission to the community, so the positives outweigh any of the negatives. As such, I contribute the maximum amount allowed every year.

The Plan also doesn’t offer any low-cost index mutual funds from The Vanguard Group, but it does offer a stable of twenty-two fund choices with exposure to a variety of different markets and sectors. There are also a handful of funds being offered that have a Morningstar rating of 4-5 stars, and “No-Alarm” ratings at FundAlarm.

So, I decided to divide my current contributions amongst three different funds, with exposure to three different markets for the sake of diversity. These are all stock funds, and all loads are waived for plan participants.

(PCVAX) Allianz NFJ Small Cap Value A, gives me exposure small cap stocks. This fund will account for 25% of my 403(b) Plan portfolio.
(RERCX) American Funds EuroPacific Gr R3, gives me international exposure. This fund will account for 25% of my 403(b) Plan portfolio.
(RGACX) American Funds Grth Fund of Amer R3, gives me exposure to large cap stocks, similar to a “core and explore” S&P 500 Index fund. This fund will account for 50% of my 403(b) Plan portfolio.

I’ve also directed all of my future contributions to be allocated to these three funds in the same percentage allocations.

¶ Posted 22 October 2008 † Mike § Investment § Market Timing ‡ Comments (1) ° Tagged: 403b, mutual funds, retirement portfolio

Vanguard’s Bill McNabb

As the global financial crisis unfolds, investors are anxious about the future. Many have watched their portfolios shrink significantly. But Vanguard CEO Bill McNabb is optimistic about a return to market stability and long-term growth.

Video transcript: Vanguard CEO on the markets, economy, and the future.

Read the transcripts or watch it at the Vanguard Investments YouTube site.

¶ Posted 15 October 2008 † Mike § Commentary § Investment ‡ Comments (6) ° Tagged: Bill McNabb, Vanguard, video

Stock Market Retrace

Stock Market Retrace
Source: Cartoons by Harley Schwadron

The Dow dropped 733.08 points, or 7.9%, to 8577.91 as recession fears and continuing doubts about the world financial system’s prospects shook investors. Wednesday’s decline marked the Dow’s largest percentage drop since October 1987 and the second-biggest point drop EVER!

Economic Fears Reignite Market Slump

¶ Posted 15 October 2008 † Mike § Commentary § Stock Market ‡ Comments (0) ° Tagged: volatility

Blog for Poverty

October 15, 2008 is Blog Action Day - Poverty.

Blog Action Day is an annual nonprofit event that aims to unite the world’s bloggers, podcasters and video-casters, to post about the same issue on the same day. Today’s issue is poverty.

Global issues like poverty are extremely complex. There is no simple, clear answer. By asking thousands of different people to give their viewpoints and opinions, Blog Action Day creates an extraordinary lens through which to view these issues.

Each blogger brings their own perspective and ideas. Each blogger posts relating to their own blog topic. And each blogger engages their audience differently. First and last, the purpose of Blog Action Day is to create a discussion.

My discussion involves the topic of education. I believe education is one of the best ways to fight poverty. Education is the foundation for better decision making and enables us to make much better choices in our lives.

We’ve all heard the phrase, “give a man a fish and you feed him for one day, teach a man how to fish and you feed him forever”. In my small way, I’d like to think that’s what I attempt to do on Guzzo the Contrarian. I try to inspire others, through example, to become better educated when it comes to their finances. At least in America, financial education along with action, can help one prevent or escape the vicious cycle of poverty.

What are you doing for Blog Action Day? Haven’t decided yet? You can help spread the word. What can one person do?

¶ Posted 15 October 2008 † Mike § Bond Market § Commentary § Financial § Personal Finance § Sectors ‡ Comments (1) ° Tagged: Blog Action Day, poverty

High Yield, HighTailed

With all of the flight to quality lately, the phrase “junk bond” doesn’t conjure up any warm and fuzzy feelings. As a matter of fact, it does just the opposite. The junk bond (high yield) sector has been hit hard this past month, and investors have been “hightailing it” in droves.

I watch The Vanguard Group’s, High-Yield Corporate Fund (VWEHX) on an almost daily basis and have watched it tank quickly as investors fled to the safety of treasuries. While the stock market has fluctuated wildly over the past 30 days, VWEHX has consistently continued to drop in price daily ever since September 22nd. Even after the stock market rebounded over 900 points on Monday, VWEHX still lost 4 points.

As I wrote in a previous post in August, I watch VWEHX partly as a stock market indicator. But, I’ve also been watching it because at some point, I believe the benefits of owning it will soon outweigh the risks associated with it investing in it. Since it’s 52-week high in October, until yesterday’s 52-week low, VWEHX has decreased in price almost 30%. This is the lowest price in it’s existence, and it now sports a yield of almost 12%!

Well, something unusual happened today. Even while the stock market ended up in the red, VWEHX stopped it’s downward trend, and actually closed up 4 points today.

Now why would that happen? Does that mean that investors have quit panicking and come to their senses? Is this some kind of vague signal that perhaps it’s time to buy VWEHX? Who knows?

There’s still plenty of risk in the financial markets, and although a total meltdown may have been averted, the economy is still in poor shape. It’s almost a given that VWEHX is going to experience some near term defaults. BUT, will those defaults lead to further price declines, and does the 12% yield more than make up for any potential losses?

Just something to think about.

¶ Posted 14 October 2008 † Mike § Bond Market § Commentary § Sectors ‡ Comments (3) ° Tagged: junk bonds, mutual funds, VWEHX

Money Matters

While browsing the internet I came across a special edition of The Columbus Dispatch, entitled Money Matters (pdf).

The Money Matters subheading reads, financial security: it’s not about how much money you make, it’s how you use it. How true, and I couldn’t have said it better myself.

I mention Money Matters because it does an excellent job of highlighting some key guidelines for surviving this economic downturn, and does it in a simple and concise format.

These are guidelines that I also mention often on Guzzo the Contrarian, but you can print this handout for an easy-to-read and quick reference guide. You can also hang it on your wall to help remind you of your daily financial goals, and help you achieve financial nirvana.

If you haven’t yet incorporated these guidelines into your financial life, maybe Money Matters will help motivate you to start soon.