Kevin Kroskey's Money & Mind

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...

Through my experience as a Certified Financial Planner(r) in counseling clients and in staying abreast of changes of the financial product companies, it has become quite evident time and again that it is a lot easier to sell consumers what they think they want rather than to educate them on what they need. From insurance carriers and financial sales people selling 'guaranteed products' at exorbitant costs to mutual fund companies seeding multiple new funds and then promoting the ones that do well while silently closing the unsuccessful funds before they receive their Morningstar ratings, consumers are preyed upon and have to side step a mine field of damaging advice and products if they're to be successful and reach their life's goals. The Wall Street machine certainly isn't slowing down. Rather than educating consumers on market history, so they can learn why the negative returns from The Great Recession-- while not pleasant nor frequent--are in fact a part of ...

"I can calculate the motion of heavenly bodies, but not the madness of people."          Sir Isaac Newton, Response to the 1720 collapse of the "South Sea Bubble" Isaac Newton not only invented Calculus and discovered his Three Laws of Motion. Isaac Newton also lost a majority of his wealth in the South Sea Bubble, falling victim to behavioral mistakes investors make.  Research indicates that humans are not naturally wired for prudent, long-term investing. And if a genious like Isaac Newton falls victim, what are ordinary investors supposed to do? In the video accessible through the link below Scott Bosworth of Dimensional Fund Advisors describes common forms of behavioral bias and discusses how these biases influence investment decision making. He also explains how knowledge and discipline can help investors control their instincts for a better investment outcome. Click here to watch the video . (Approximate run time is 20 minutes.) ...