"As a struggling poet, in my late 20, I teach as an adjunct plus I do some office work. My rent and overhead are low. I am single, come from a family of modest means, and am basically financially illiterate. I would rather read Wallace Stevens than Forbes. What do you recommend?" -- Good Intentions, Michigan
I'll keep it simple. Invest the same amount every month in a well-run mutual fund. Do it with autopay and limit your labor. Invest whatever you can afford to put aside without feeling like a martyr.$ 100 per month, $50, or even $25 will work.
Important: when you set up the account, elect to have the dividends and capital gains reinvested. You'll get the benefits of dollar-cost-averaging, regular saving, and the accumulation of dividends. All the reputable mutual fund outfits have 800 numbers staffed by people who can help you with the application process.
Here are some funds with excellent track records and experienced managers -- in descending order from most conservative to least risk-averse: Vanguard Wellington, Fidelity Balanced, T. Rowe Price Equity Income Fund, Royce Premier Fund, Franklin Mutual Global Discovery Fund.
Reading Wallace Stevens is a more fun and intellectually more rewarding than the memos that Wally himself had to read in the office. But you don't need to read Barron's or Forbes or Smart Money to be an investor. If you have the horizon of a true long-term investor -- using money you won't need for at least ten years --investing on the installment plan in a sure-and-steady fund is one of the best things you can do.
We received a recent inquiry from a poet wondering how to invest a small inheritance she received on the death of her father and stepmother in a car accident last winter. The sum was more than $100,000 but less than twice that sum. She says she would be inclined to put half of it in a money market fund under ordinary circumstances. But at the moment, cash in a money market account is "dead money" drawing no interest. What should she do?
resident expert, a big fan of the great Bill Evans (left) says you should always have enough money in a federally insured savings account to sustain you for six months or through a crisis of emergency. Savings accounts pay less than one per cent interest at the moment -- something like 0.8 % -- but that's better than nothing and $50,000 put away will let you sleep better at night.
An equal sum put into a short-term bond fund -- such as Vanguard Short-Term Investment Grade Bond Fund (VFSTX) -- makes excellent sense because (1) you get close to a 3% return, (2) Vanguard charges you less than any other firm and is noted for probity in an industry where you can't take that for granted. Bond prices vary inversely with interest rates, so whenever the latter go up -- as they will eventually -- the value of the bond fund will decline. But this particular fund has an outstanding record, and when the rates do go up, you can transfer the balance to the Vanguard Prime Money Market Fund.
That leaves a certain amount of money that can be used for long-term investments if you face no major expenditure (down payment on a house, kid's education) in the near future. The market has not recovered from the devastation of 200, which means you can pick up some blue chips at bargain prices. You might look at dividend-paying shares of companies with good reputations, such as IBM, GE, Pepsi, Proctor and Gamble, Exxon Mobil, Intel. The cardinal rules are (1) Diversify. (2) Pick companies you know whoise products or services you understand. (3) Do not trust any broker. (4) Do not buy a stock because someone recommended it in the locker room. You can open a brokerage account with Fidelity, which provides excellent service. If individual stock-picking freaks you out, a solid alternative is Vanguard Wellington Fund (for very conservative investors) or T. Rowe Price's Equity Income Fund (for moderate risk).
On another down day for the market when everything except Wal-Mart went down, fuckit, are stocks oversold? should you stock up on gold? will the Euro continue to crash? what caused last week's flash crash?
It's true that Buffett is shedding some of his blue chips (J & J, Kraft, P & G), but should you? Does Citi under 4 merit a speculative bet? what should we do about Portugal's debt? Will IBM split? Does it matter? Is the emphasis on the latter?
Goldman at these levels is attractive, but are you catching a falling knife?
Is there a silver lining? Or is it too late to buy Newmont Mining?
Where is that slip of paper on which I wrote down the formula for the ideal asset allocation for someone my age sex race and nation?
And would it be worth it, would it be worth while, to buy Exxon Mobil at 62 to short Monsanto to learn esperanto with a smile in Toronto?
Is a short term bond fund still the best place to stash spare cash?
Is Pfizer dead money? How about GE? Talk to me, honey.
Mindful of how many poets and poetry lovers plead financial ignorance and sometimes even boast of their ineptness when it comes to managing their own money, we recently spoke to two of the last sane brokers on Wall Street -- the duo who told us not to panic during that terrifying seven-month period when Lehman went under in September 2008, the US economy went into intensive scare, and the stock market tumbled to decade-long lows in March 2009. Their advice at the time: hold your stocks, wait for the rebound, and then gingerly start buying some ultra-safe blue-chip issues as the warm weather settles in. Anyone who did as advised, simply holding firm, selling nothing and perhaps accumulating some Procter and Gamble, Microsoft, IBM, Coca-Cola, knows how brilliantly that advice has worked. But now, in 2010, everyone is uncertain -- and there's nothing a jittery investor likes less than uncertainty. The experts are divided between the wall of worriers who think we're in for a major correction, with stock values decreasing by a depressing 10 to 25%, and the hardy climbers, perennial bulls, who forecast a sustained recovery from this ugly punishing jobless recovery. So what should we do? Our dynamic duo asks us not to identify them by name or firm, citing federal regulations. Here's what they say:
<<< You have to assume the Fed will raise rates at some point -- but not too soon. Bernanke, a student of the great depression, is fearful of dampening an economic recovery that is sluggish at best, so the rates will likely remain at historical lows until the end of summer. For the individual investor this means that money market yields are getting you exactly zero. Money stashed in an old-fashioned saving account is a good alternative for rainy day funds (i.e. emergency money), even though you barely get 1%. So where should you park your investment money -- what we like to call your "core" account? A good short-term investment grade bond fund, with a low expense ratio, like Vanguard's, probably makes the most sense.
But interest rate hikes are inevitable, and an appealing alternative to bonds (whose value goes down as interest rates go up) is dividend-paying high quality stocks. Although a "flight to quality" usually coincides with a steep loss of investor confidence, that money has gone so far to gold while bolder speculators have been testing the commodity, currency, and international equity markets. Which means that you can buy champion stocks like Exxon-Mobil and Johnson and Johnson at reasonable valuations and count on dividends to give you an excellent total return especially if you plan to hold them for a couple of years. At current valuations we also like Cisco and Intel and the rails as momentum plays. Utilities, with their high dividends, are traditional havens for cautious investors, and you might look at Con Edison (5.6%), Duke Energy (6.1%), Exelon (4.4%). Republic Services at $28 a share, and a dividend of 2.7%, is worth a shot, if only because it's a well-run company and the waste management business generates great cash-flow. Barron's is bullish on Pepsi, Monsanto, Dow Chemical, FedEx, and Abbott Laboratories.
If you have made money on American Express, which just capped a fantastic year, please remember the old adage: Wall Street likes bulls and bears, but sooner or later pigs get slaughtered. Consider taking some money off the table. Of the thirty stocks that make up Dow-Jones Industrial Average, we think GE will gain the most this year. When Berkshire-Hathaway's B shares split fifty to one, you might pick up a hundred and ride with the oracle of Omaha, Warren Buffet. >>>
Thank you, guys. I would add only that Time's cover story on "man of the year" Benjamin Shalom Bernanke is excellent and that the perfect music for this season of financial uncertainty and bitter cold weather is Ella Fitzgerald's live performances of "On the Sunny Side of the Street" and "Accentuate the Positive" with great piano accompaniment back to back. Defines swing. Twelve Nights in Hollywood. Paul Smith and Tommy Flanagan were her pianists.
In the course of reviewing books about Warren Buffett, "the business of life," money, and success In The New York Review of Books last month, Sue Halpern writes: "Buffett, it is safe to say, has a different relationship to money than you and me. For us it's a means to an end. For him, it's a vocation. He is called to it. If it's for anything, it's for getting more of. The man is a collector. He just happens to collect dollars."
Well, I don't know. It's "safe to say" -- a locution implying that saying the wrong thing will get you punched -- that the famous exchange between Fitzgerald ("the rich are different from you and me") and Hemingway ("yes, they have more money") floats behind the "different. . .than you and me" in the first sentence above. But I still have trouble figuring out who "we" are. Do you know anyone, even among the poor, for whom money is simply "a means to an end"? Doesn't money almost always stand for something besides money? Status, for example, or achievement. Or security: there's nothing like a million buck in treasuries to give you a warm sense of security. Or shit (see Norman O. Brown). Or manners (see Proust). Seems to me that money is not only Buffett's vocation but his vacation as well. Then there's the idea of collecting. What is the difference between collecting dollars and collecting stamps, art, coins, fedoras, ashtrays? Aesthetics?
Finish this sentence: If the crash of last September has taught us anything, it's --
Here's what we were writing about one year ago today:
Tough Sledding Versus Clear Sailing
Summers fall into two categories for investors: tough sledding and clear sailing. Clear sailing is when things are as they should be: light blue sky, nice little sailboat on Buzzard's Bay, with breeze enough for going out and coming back, the Red Sox are in first place but looking over their shoulders at the Yankees, and you sit back and feel pretty good about your GE, IBM, Johnson & Johnson, Cisco, and Pepsi.
Unfortunately this summer looks like it's the other kind: tough sledding, when despite the summer heat (92 in New York City today) every step feels like your dragging a sled up a snow-filled slope for the thrill of chuting down later as fast as stock prices tumbled last Friday.
Oil prices per barrel and gasoline prices per gallon are still going up, unemployment is up, airlines are up in the air about how to deal with a whole Sunday Times of bad news, the Dow goes down four hundred points and NASDAQ sheds about fifty, and even GM is thinking twice about the wisdom of mass producing the Hummer.
In such a climate it makes sense to own rails, which run on coal and therefore benefit from the travails of the trucking industry. Warren Buffett has bought a bunch of rails including Burlington Northern and Norfolk Southern. Makes sense to me.
A reader asks: What can be done to save the financial system? How seriously should the individual take the national economic crisis?
There are some obvious steps we can take. Many economists agree on these: -- Banks must lend to individuals or organizations that are good bets to pay back the loan in full. -- Reasonable collateral must underwrite transactions on derivatives. -- Underwriting standards should be strenghtened and enforced. -- Allocate additional funds to FDIC (Federal Deposit Insurance Company) to strengthen confidence in savings accounts. -- Clarify accounting rules applicable in all states. -- Reduce the number of foreclosures by restructuring mortgage debt, adopting "rent-to-own" options or whatever it takes.
Our man on the Street has these tips for individuals:
"This is not a good time to quit your job. If you are steadily employed and are eligible for a tax-deferred investment plan for a portion of your salary, maximize it; you get the full benefit of dollar-cost-averaging and you limit your risk, with obvious tax advantages. There are bargains out there right now. "Sell neither your house nor any blue-chip securities unless you absolutely have no choice. "If you have credit card debt, pay it off right away. Make that your number one priority. Put yourself on a budget. Treat the while business the way an alcoholic treats the twelve steps: soberly and seriously. "It is only sensible to proceed cautiously at a time like this, but I would disregard alarmists who tend to extrapolate from current conditions and discount the possibility of change. "In the short term, be patient. Have confidence. We've been through bad crises before and, if necessity is the mother of invention, we're about due to have some invention. "Read poetry. It has the best cost-benefit ratio of anything in the culture."
It's easy to get scared when you listen to the talking heads -- and when the Congress (the Republicans especially) so irresponsibly and even irrationally votes down the so-called bailout that, while imperfect, would at least allow us to regroup.
At such a moment it's important to remember these axioms: 1) Financial markets always overreact and then correct. For example, yesterday's precipitous drop in the Dow (more than seven hundred points) and today's partial recovery (over three hundred points up as I write).
2) Never pull the trigger (or the plug) when markets are in chaos. Better to do nothing. Today is the last day of the quarter, and quarterly statements are about to be issued. You may want to file yours without reading it first.
3) Don't panic. If you are prone to panic, reread # 2 above.
4) History repeats itself -- but always with variations. Despite comparisons to 1929, there are major differences, legal protections in place along with the apparatus to implement necessary regulatory changes as well as changes in accounting methods to preclude such upheavals in the future.
Posted today on Harper's: <<< From a statement read at an event marking the release of Best American Poetry 2008, held last night at The New School, in New York City. David Lehman is the series editor of Best American Poetry, and Robert Polito is the director of the writing program at The New School.
Chairman Lehman, Secretary Polito, distinguished poets and readers—I
regret having to interrupt the celebrations tonight with an important
As you know, the glut of illiquid, insolvent, and troubled poems is
clogging the literary arteries of the West. These debt-ridden poems
threaten to infect other areas of the literary sector and ultimately to
topple our culture industry. >>>
Click here for the rest of Charles Bernstein's statement.
Charles Bernstein reads at The New School. Photo (c) Star Black