Kevin Kroskey's Money & Mind

The article below is a timely one from Dimensional Fund Advisor's (DFA) Jim Parker, VP of DFA Australia. Though Ireland is a country there are many lessons to be learned from Ireland's missteps by the individual investor. ---- Reaching understanding on the right way to invest often starts with studying bad investment decisions. But the lessons are far less painful when they are built on others’ experiences. Recent events in Europe provide case studies on what can go wrong when a wealth-building strategy is built on too much debt , too little diversification and too little awareness of risk. Ireland in recent years, for whatever reason, became heavily dependent on a couple of industries – namely construction and banking. The IMF1 in a report this year described the causes of these imbalances as “rapid credit growth, inflated property prices and high wage and price levels”. Now, an economy is clearly much more complex than any individual and the ability of governments

It's quite difficult if not virtually impossible to have forecasting abilities to consistently predict future economic scenarios. Even if a prediction about what will happen to our economy is done accurately, an investor is not done yet. In order to capitalize upon an accurate economic prediction, the investor must still translate the economic prediction into a successful investment strategy and must also get the timing of it correct. No small feat indeed. As we get through a political season where much in relation to our country's economics have been discussed or at least used in the negative political ads that seemingly permanently reside on my television, it's helpful to keep things in perspective and look at things objectively. Marlena Lee, Researcher with Dimensional Fund Advisors, examines historical data to test the relationships between fiscal deficits, interest rates, business activity, investment returns, and exchange rates in a video and/or podcast available b

I was recently interviewed for an article done by Betty-Lin Fisher, Business Writer with the Akron Beacon Journal, about whether bi-weekly payment plans and mortgage prepayments in general are a good thing. She wrote: Claytor and Kevin Kroskey, a certified financial planner and owner of True Wealth Design in Fairlawn, both agreed with McBride that paying off other high debt and funding other accounts should come before prepaying a mortgage. Another option is to do a little more each month. Claytor and Kroskey said they both round up their mortgage payments to add a little extra to their principal. ''By and large, paying down the house is a good idea,'' said Kroskey. But there is a caveat, he said, where he sees people making mistakes. Often, as people are getting closer to retirement and if they haven't done a really good job of saving, they might think, ''I have to pay off this mortgage before I get into retirement. It's what Americans are supp

"The inflation-adjusted income of the median household—smack in the middle of the populace—fell 4.8% between 2000 and 2009, even worse than the 1970s, when median income rose 1.9% despite high unemployment and inflation. Between 2007 and 2009, incomes fell 4.2%." The above paragraph is from a Wall Street Journal article describing the pain the American middle class has experienced over the "lost decade." The media has generally referred to the "lost decade" for the lack-luster results of the S&P 500 from 2000-2009. While I disagree that this time period was a lost decade for a well-allocated investor, I do agree with the author of this article that it was a lost decade in terms of real or inflation-adjusted income. In his autobiography, Alan Greenspan describes this phenomenon and says how the mass influx of labor from China and India kept prices and inflation relatively low world-wide for an extended period of time. The good news, he says, is tha

Consumer sentiment is down. Unemployment is not. Housings starts are terrible. A double dip is on the lips of many. Since this is an election year, each side of the aisle has reasons to portray the future as gloomy. There is an alternative view. Markets on average recover greatly. Yes, maybe this time is different, but then again, probably not. I like to say that 'this time is different' are the four most costly words an investor can utter. If this market recovery is average, then there is substantial market appreciation from today's valuation over the coming years. Moreover, alternative strategies-chiefly lending your money to the U.S. government is fraught with low interests and ultimately high probability in principal decline, if individual bonds are not owned and held to maturity. This is not a prediction, but we need to keep things in perspective. It's difficult to be objective when 'you're in it.' Kevin Kroskey, CFP, MBA

It seemed so obvious. With the economy slowly recovering last year from the worst recession in decades and the federal government seeking to tap the credit markets for over $2 trillion to fund an ambitious spending program, both laymen and experts alike seemed to agree that interest rates had nowhere to go but up. The yield on the ten-year U.S. Treasury note as of June 30, 2009 was 3.52%, down from 5.25% in June 2007 but well above the 2.09% level registered amidst the depths of the credit crisis the previous December. With retail sales and housing activity showing signs of gradual improvement, the only question appeared to be how much higher interest rates would go. Among fifty economic forecasters surveyed by the Wall Street Journal in June 2009, forty-three expected the ten-year U.S. Treasury note yield to move higher over the year ahead, with an average estimate of 4.13%. Seven expected a rate of 5.00% or higher while only two predicted rates to fall below 3.00%. The result? The

Recent Market Volatility in Perspective The US stock market has taken investors on a bumpy ride in recent years. This volatility has tested investor discipline and prompted some people to question their commitment to equities. While no one knows the future, looking at the past may help you gain a better view of long-term market performance and put the recent market volatility in perspective. The above chart shows the historical distribution of US market returns since 1926. The performance years are stacked in ascending order by return range. This chart illustrates that: • Market performance over the past two years has been extreme by historical standards. In 2008, US stocks experienced their second-worst calendar return in eighty-four years. Then, in 2009, stocks rebounded strongly to deliver a return in the top quartile of the historical distribution. • Over the long term, the market’s positive return years have outnumbered the negative return years. Since 1926, the market h

Global diversification gives investors a valuable tool for managing risk and volatility in a portfolio. But smart diversification has an important side effect. It requires maintenance. In a given period, asset classes experience divergent performance. This is inevitable and, in fact, desirable. A portfolio that holds assets that do not perform similarly (i.e., with low return correlation) will experience less overall volatility. That results in a smoother ride over time. However, dissimilar performance also changes the integrity of your asset mix, or allocation—a condition known as “asset drift.” As some assets appreciate in value and others lose value, your portfolio’s allocation changes, which affects its risk and return qualities. If you let the allocation drift far enough away from your original target, you end up with a different portfolio. Once you form a portfolio to match your current investment goals and risk tolerance, you should preserve its structural integrity since as

There is a lot of hoopla surrounding the ability to convert pre-tax IRA (or 401k) dollars into tax-free Roth IRA dollars. Much of this hoopla is deserved and much is not. As with most anything, the devil is in the details.  How this strategy may apply to you could be vastly different when compared to someone else. The article from Money Magazine linked to below does a good job of discussing some background information on the Roth conversion and considerations for determining whether or not to convert; and if so how much. If this strategy seems to be something for you to investigate, I'd recommend obtaining professional help from a good CFP or CPA. This is one area that can easily trip you up as effectively implementing a conversion strategy can get quite complex. http://money.cnn.com/2010/01/25/pf/expert/roth_iras.moneymag/index.htm To Your Prosperity ~ Kevin Kroskey

Investors are often confronted with unexpected developments, and the last decade offers an abundance of examples. Ten years ago, for example, Brazil was on the verge of a currency collapse, and General Electric was among the largest and most admired firms on the planet. Who would have thought that Brazilian stocks would soar sevenfold during the subsequent ten-year period, while GE shares fell 70%? A lucky few may be able to exploit such extreme outcomes to enhance their investment results. But history offers compelling evidence that shows that those making concentrated bets on companies or countries are more likely to get blind-sided by unpredictable events. Markets have 101 ways to teach us the virtues of diversification. While sifting through our stacks of news clippings in preparation for our customary review of the year's events, we came across a number of tidbits from the more distant past that offer some lessons. These quotes turned out to be oopses by those who spoke o