Many people have run for the “perceived” security of owning bonds since the stock market crash in 2008.  But bonds aren’t quite as safe as the general perception out there.

Here’s why.

Let’s look at two bonds and you tell me how much you would pay for them.  First, there’s Bond-A.  Let’s say you paid $1000 for it and it pays $50 a year in interest.  Ok – that’s not bad so you are feeling pretty good about yourself for the moment.

Then along comes Bond-B.  You can pay$1000 for it and it pays $100 in interest every year.

Which bond do you want to buy – Bond-A or Bond-B?

I’m thinking Bond-B, aren’t you?  Because it pays twice as much interest for the same $1000 investment.  Everyone will want Bond-B, actually.

Which means no one will want Bond-A.  That is to say no one will want to spend $1000 to buy Bond-A.

So is Bond-A worthless? Read the rest of this entry »

For all of the drawbacks a 401k has as an investment, I still think people should invest in them for two reasons.

The first reason is that it’s free money being given to you by the company you work for.  And the free money can be substantial.

A typical 401k plan might be something like this.  If you contribute 5% of your earnings to the plan, the company will match taht and put another 5% in the plan for you.  That’s like getting a 5% raise.

Given that the average raise these days is around 2%, that is, if companies are awarding raises at all, that is two and a half years of raises that you can Read the rest of this entry »

“Give them any color they want, as long as it’s black.”

Henry Ford

One of the major drawbacks to typical 401k’s is the limited choice of investment options.

Let’s face it – you are basically given a choice of bond or stock mutual funds, and in the stock mutual funds a choice of value or growth.  And then there may be an international fund thrown in there.  And that’s about it.

That’s a pretty blunt instrument of choices for something as nuanced and variable as the stock market, or bonds, or other investment opportunities out there.

Take the stock mutual fund choice as an example.  Today, as I write this, buying most stocks is not a Read the rest of this entry »

Many financial advisers believe that every persons investment portfolio should contain at least some gold holdings.  I’ve seen recommendations ranging from 5% to 25%, and even higher.

So why do so many advisers believe this?

Because gold has consistently over time held up it’s purchasing power.  So while gold’s price has certainly fluctuated, it’s purchasing power has endured.  And when we are talking about 401k’s, we are typically talking about your future retirement funds.  And future purchasing power is really what that is all about.

But I have not seen gold as Read the rest of this entry »

In reviewing a friends 401k the other day, I noticed yet another thing about 401k’s that bothers me.  That is a lack of transparency in what they were invested in.

The company had moved it’s existing investment choices to something called Collective Investment Funds (CIF).  As they said in the employee material, a CIF is like a mutual fund in that it has a stated investment objective and strategy and performance and fees.  But it only sells to institutional investors, like 401k plans offered by companies to their employees.

So why would I care about that?

Well, because these CIFS don’t have a ticker symbol I can look up to evaluate their historical performance on my own, as evaluated by third parties that are not  a) the employees company offering the fund and  b) the 401k management company.

To my way of thinking, it is far better to offer employees securities that are actually Read the rest of this entry »

I recently was asked by a friend to evaluate their 401k investment plan.  This exercise just reinforced my view that 401k’s leave a lot to be desired and are blunt investment options.

Essentially, many of them require you to be invested in bonds or stocks or both, with no other choice.  This leaves out the two other main investment options you should have in your portfolio, which are cash and gold (or precious metals).

That’s a pretty serious drawback because it forces you to be fully invested at all times in all markets.

Only rookies are fully invested.  Serious, successful investors keep Read the rest of this entry »

I was reviewing a friend’s 401k the other day at their request.  And I was struck, yet again, with the investment shortcomings of 401k plans.

I always come away from a review like this with the feeling that 401k’s are blunt instruments.  They fall short for investors in a number of ways.  Here are some of those shortcomings.

The 401k seemed to not have any way to just keep your money, or part of it, in cash.  Which means you are forced to be fully invested at all times.  But great investors are seldom fully invested.

The 401k had no option to invest in gold and precious metals, and yet, gold has been one of the best investments over the past ten years – and offers other investment advantages as well.

Furthermore, there was a very Read the rest of this entry »

I recently sold a great gold mining stock at a 125% gain because I wanted to find a better gold stock that paid dividends.  I settled on Newmont Mining Corp (NEM) because it was well established company and paid in excess of 3%.

The stock was well priced at $43.34 a share and I could have just bought it out right.  But instead, I sold $42 put options on it for $112.

This means i the stock goes to $42 or below, I must buy the shares at $42, and I keep the $112 premium.  So I get the stock at a cheaper price and am paid money for this privilege.

So that covers what will happen if the stock goes down over the next two months.

If the stock does nothing, I don’t get to buy the stock, but I still keep the $112 premium.  So that has a good outcome as well.

But what if the stock goes up?  Well, I would still get to keep the $112 premium – so that has a good outcome as well.  But I might have a bit of remorse that I didn’t buy the stock, and thereby missed out on the profits of a stock I wanted to buy.

So I used part of the Read the rest of this entry »

Here’s how the Newmont (NEM) Gold trade is working out.

You’ll recall that I sold a gold stock for 125% gain because it wasn’t paying a dividend.  And I looked for another gold stock that was paying a dividend, and finally chose Newmont Mining Corp because it was a well established company and paid over a 3% dividend – see A Beautiful Gold Trade.

Now, I could have just bought the stock outright for $43.34 a share.  And I don’t think that would have been a bad decision.  The stock price was low enough.  And had I done that, I would already be up over 2% in just eight days.

But instead, I chose to do something different.

I chose to see if I could buy it cheaper – at $42 a share.  But I didn’t just put a $42 order out there.  Instead, I got someone to pay me $112 to buy it  Read the rest of this entry »