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Financial Planning Articles

One on One with Bill Gross

Legend^®: What are your expectations on the Fed Policy and its intent to tighten the money supply and control inflation in 2006? Some investors have forecast that interest rates will increase indefinitely, whereas others are expecting a slowdown in the Fed Policy.

Bill Gross: We think there might be one more hike left. I think the Fed's pointed to the housing market, and I think that housing is beginning to weaken. And soon, the Fed will recognize that and it will stop. But, you know, there's a chance that we might see 4.75 %. Some would suggest that there's a chance that we go to 5 %, 5.25% based upon higher inflation and a stronger economy. I just don't see that. I think Mr. Bernanke believes that the global savings glut, which is his phrase, has basically been responsible for the inability of long-term and intermediate rates to rise and to stay at these types of levels. In other words, he believes that the global economy, and certainly the U.S. economy, has more slack in it, has less investment fervor, and therefore, that rates for this level of economic growth belong at these levels. So, it's not a very bullish indicator as far as Bernanke is concerned.

Legend^®: We believe that a slowdown in the growth of domestic home prices in various regions across the country will occur. One of the major contributors to this slowdown going forward will be a decrease in the affordability of housing due to increasing interest rates and consumer debt levels being at their highest point in U.S. history. In your third quarter 2005 Investment Outlook newsletter you indicated that this is indeed the scenario our economy is in currently. Are there any other factors that you believe may or may not contribute to a slow down, or increase, for domestic home prices?

Bill Gross: I think you hit the two most important factors. You see, housing gains have contributed significantly to U.S. growth via wealth effects on consumers, cash-out refinancings, home equity loans, and job growth in real estate-related industries. Higher mortgage rates over recent months and continued pressure on real wages and incomes will crimp housing affordability in 2006, taking the froth out of the property market. The decline in housing affordability has already begun Complete interview with Bill Gross 

Q & A with Robert Arnott
Rob, would you describe for us your view of the big picture? What is going on out there?

Robert Arnott: Well, one of the key problems most investors face and many don’t realize they face it, is that the returns of the future are going to be a far cry from the returns of the past. First, basically anything you invest in produces return in the form of income; dividends for stocks and coupon returns for bonds. Secondly, real growth (after inflation) for stocks tends to be about 1%. For bonds of course, the nominal growth is zero, because they are fixed income. You can do that same analysis across a whole panoply of markets but most people have most of their money in stocks – primarily mainstream stocks, and bonds.
Read: Complete Interview with Robert Arnott

Market Overview
By LOUIS P. STANASOLOVICH
A secular bear market is characterized by below average stock market returns as characterized by the S&P 500 for a long time, typically ten to twenty years. On the other hand, a cyclical bear market typically lasts from a few months to a year. The duration of the last four cyclical bear markets was short. A cyclical bear lasted three months in 1987, four months in 1990, ten months in 1994, and two months in 1998. The current bear market has lasted longer than these four combined. Listed below are stock market returns during different types of markets as described by the secular (long-term) bear and bull markets.
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What is Risk
By LOUIS P. STANASOLOVICH

Chances are, the topic of investment risk was not a popular cocktail party discussion during the 1995 to early 2000 bull market. Investors basked in the glow of the returns of their Internet and Telecom funds and talked very little of the trivialities of standard deviation and volatility. However, as these funds, held so dear just a few short years ago, are shutting their doors, the topic of risk in the investment arena has once again been brought to the forefront. It is a topic not understood by many investors, and one that is absolutely essential to evaluating every investment opportunity that may arise.
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Medical Practices Receive Temporary Depreciation Bonuses
By JAMES J HOLTZMAN
With the enactment of the Job Creation and Workers Assistance Act of 2000, medical practices buying new property may now take a generous, upfront thirty-percent (30%) depreciation bonus. The offer is available only for a limited time, many states are not allowing the bonus, and some medical practices may come out better from a tax standpoint by not taking the offer at all
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How to Find a Financial Advisor?
When searching for a financial advisor, there are a number of steps to take in finding an advisor who will be great for your situation. First, make a list of the criteria you require in an advisor. The criteria can include: professional investment and financial planning experience, investment performance, compensation structure (Fee only is best. Watch out for Fee-based advisors. They earn commissions on products sold, but are trying to make themselves sound like Fee-only.), credentials, frequency of contact and willingness to develop a long-term fulfilling relationship for both parties. Furthermore, does your potential advisor have investment research capabilities and services such as The Bloomberg Professional Investment Research Service and Morningstar Principia Pro Plus and/or Morningstar Workstation to analyze individual equities and mutual funds respectively?
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Convert to a Roth IRA. 
With many individual retirement accounts decimated by the bear market, taxpayers may find this the perfect time to convert their traditional individual retirement accounts to a Roth IRA, whose eligible earnings are not taxable upon withdrawal. Because regular income taxes are paid on the money shifted to a Roth, the idea is to convert the smaller pool of assets into a Roth before the assets rebound in value.
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