IRA tasks to do before the year ends

By Robert Powell, MarketWatch

BOSTON (MarketWatch) — It’s not enough. The average balance in an IRA would fund less than two years of retirement for the average American and represents not much more than 5% of the income a person needs to maintain a decent standard of living.

The average IRA account balance in 2008 was $54,863. The average IRA individual balances — all accounts from the same person combined — was $69,498.

Despite what might seem like paltry balances, IRAs in the aggregate are an incredibly important piece of the retirement puzzle, since they hold the largest single share of the $13 trillion in U.S. retirement assets.

Your IRA, your own piece of the retirement puzzle, whether paltry or not, requires some tender loving care, especially during the last few months of the year. Here’s a list of what you might need to do before 2011.

Who’s your beneficiary?

Here’s some well-worn but can’t-be-repeated-often-enough advice: Review your beneficiary designations. Make sure there is both a primary and a contingent beneficiary named on the beneficiary designation form.

If there is no beneficiary named, the IRA proceeds will go to the estate and lose the tax advantage.

It’s especially worth checking your beneficiary designations if you’re divorced, recently or ever. Make sure your ex-spouse has been deleted as a beneficiary, unless you want them to remain as a beneficiary. The U.S. Supreme Court has recently ruled that the beneficiary named on the beneficiary designation form trumps divorce.

Make sure your custodian (i.e. the Investment Company) has a written copy of your beneficiary designations.

Turn wealth into income

Right about now, the Social Security Administration is sending you a report that tells you how much income you’ll receive in today’s dollars when you retire. Write down that number on a piece of paper.

Now, total up the value of all IRAs and 401(k)s in your household and multiple that number by 0.04. That number is the amount some experts say you could withdraw from your retirement in today’s dollars.

Now, add that number to your Social Security benefit figure, and then subtract that amount from your income. The results are roughly the amount of money you’ll need from other sources — such as work, pensions, reverse mortgages, life insurance or inheritances — to enjoy a lifestyle similar to what you have today.

Let’s use some round numbers as an example. Say you have household income of $100,000. You expect to receive $25,000 per year from Social Security and withdraw $5,000 per year from your retirement accounts. Somehow you’ll need to come up with another $70,000 per year to live the life to which you are accustomed.

For some, the best way to close the gap will be to contribute more to their IRAs and 401(k)s, work longer, and lower their standard of living.

Review your investment plan

Consider updating your investment policy statement or plan. Make sure your asset allocation remains appropriate given your financial goals.

Also, rebalance your IRA if you haven’t done so within the past year. It’s best to rebalance your IRA in a holistic manner. That is, look at all your assets in all your accounts, taxable and tax-deferred.

In many cases, consider putting your fixed-income investments in your tax-deferred accounts and those investments that produce capital gains and dividend income in your taxable accounts. And while you’re at it, check whether you’ve bought or sold any inappropriate investments in your IRA accounts.

Since IRAs are tax-deferred vehicles, it makes no sense for them to hold ‘tax-preferenced’ investments such as municipal bonds and annuities.

Roll old 401(k)s to an IRA

If you have one or more 401(k)s sitting with former employers, consider rolling that money over to an IRA. You’ll generally get better investment choices, lower costs and more control of your investment assets.

http://www.marketwatch.com/story/10-ira-tasks-to-do-before-years-end-2010-09-24?siteid=nwhnwhnr

Just Do It?

Nike has been an interesting stock to watch lately. Despite market saturation and absurd competition in both the North American and European markets, the company continues to make money hand over fist thanks to innovative designers and one of the most popular brands in the world. In the next few years, an increased focus on emerging markets could be the key to sustained growth.

Getty Images

Nike benefits from a premium brand image, a major factor in the company's ability to demand top dollar for its products. As a result, the company's gross margins are enviable, and its balance sheet is excellent.

Because of Nike's sheer size, it is typically the biggest single supplier for its retailer customers; that means that the company holds the majority of the pricing power in its relationships. It also means that retail outlets will continue to focus energy on selling big-ticket Nike items.

While the company's 27 cent dividend is welcomed by Wall Street, the payout is far from game-changing for Nike's shareholders. That said, continual dividend increases and billions of dollars earmarked for share buybacks do have a palpable impact on shareholder value over time.

With eyes to emerging market countries and a history of doing right by shareholders, Nike should continue to be a favorite among investors (including Warren Buffett) in 2010.

http://www.cnbc.com/id/39386750/page/2/

Disclosure: I own Nike

4 ways the self-employed can save for retirement

By Catey Hill, SmartMoney — 09/17/10

As if saving for retirement wasn’t hard enough already, small business owners have the extra burden of having to set up their own savings funds. Business start-ups reached their highest level in 14 years in 2009 and as more Americans become their own bosses, picking the right savings plan is an important planning decision.

But with different costs, advantages, and tax consequences to sort out – on top of the business you’re trying to run – setting up a self-employed retirement account can be tricky. On top of retirement security, opening the account often results in a significant and sometimes huge tax deduction.

Here are some of the major retirement plans for the self-employed -- and some of the advantages and disadvantages of each.

Individual 401(k)
The individual 401(k), also known as a solo 401(k), works similarly to a 401(k) at a large company — and you can select between a Roth or a traditional plan. But it is only available for individual business owners and their spouses. The annual contribution limit for 2010 is $16,500 — with the option of a profit-sharing add-on that is 25% of your compensation or $49,000, whichever is less. The plan also offers $5,500 annual catch-up contributions for savers 50 and older. These plans are now offered by most mutual fund and investment management companies.

Pros: This plan is flexible. There are no forced contributions, and sole proprietors can put away more money than they can with the SIMPLE IRA and often more than with the SEP IRA. Business owners can take out a loan from this plan.

Cons: The individual 401(k) is more costly – these plans usually range from about $15 to $250 per year, though some can be even more expensive. They’re also more difficult to open and administer than some other options. And because costs vary greatly, savers need to shop around.

Best for: A solo businessperson who wants a higher cap for saving. For most people, this plan will allow them to put more money away than they would be able to with the SEP. Just be sure you’re up for the hassle of opening and operating the plan.

SEP IRA
The Simplified Employee Pension is basically a pension plan funded by the employer using a simple formula for contributions: In 2010, employers can contribute up to 20% of net self-employment income (or up to 25% of employees’ compensation) or $49,000, whichever is less. Employers of any size are eligible for this plan.

Pros: The SEP is easy and inexpensive to start and administer, typically about $15-$35 per year. It also has higher contribution limits than the SIMPLE IRA, and contribution amounts can vary each year, which allows for more flexibility. The SEP can be opened as late as the extended due date for your income taxes – until Oct. 15 for sole proprietors – and requires no annual government reports.

Cons: The sole responsibility of funding the SEP IRA falls on the employer, so if you have employees, you, as the employer, must contribute the same percentage of compensation for them as you do for yourself. Most people can save more with an individual 401(k) than with a SEP IRA. There’s no allowance for catch-up contributions. And you cannot take out a loan from this plan.

Best for: Because the burden of funding the plan falls solely on the employer, this is best for a one-person business or one with very few employees. It works well for people who want to put away a fairly significant amount of money in an inexpensive and easy-to-maintain way -- and have flexibility around their contribution levels.

Simple IRA
The Savings Incentive Match Plan for Employees is a tax-deferred retirement savings plan for small businesses that the employer must contribute to. Employees can if they choose. In 2010, the employer must annually either match employee salary contributions up to 3% (this can be reduced to 1% in any two out of five years) or put in 2% of compensation for all eligible employees -- even those who don’t put in money for themselves. Employees can contribute up to $11,500 and an additional $2,500 if they are age 50 or older.

If you’re a solo businessperson, you act as both the employer and employee in this plan, meaning that each year you can contribute up to $11,500 or 100% of your income, (whichever is less), in addition to 2% or 3% of your income. Only employers with fewer than 100 employees and no other retirement plans are eligible. You may be able to hold both a traditional IRA and a SIMPLE IRA depending on your modified adjusted gross income.

Pros: The plan is inexpensive to open and run, typically about $15-$35 per year, and easy to start – it usually just takes one call to a financial institution and a few forms. It’s also easy to administer and requires no annual government reports.

Cons: Contribution limits are low relative to other options. Employer contribution levels are relatively inflexible. Plus participants cannot borrow against their accounts, like they can with a traditional 401(k).

Best for: It’s a simple plan for very small businesses that don’t want to contribute a lot and don’t want to take out a loan from the plan. Because employer contributions are mandatory and this plan cannot be terminated until the beginning of the next calendar year, the SIMPLE IRA is best for an employer who knows he or she will be able to pay the match.

Defined benefit plans
The defined benefit plan is similar to a traditional pension with benefits calculated using a formula that includes age, income, target benefit and more. Any employer is eligible, and in 2010 employers may contribute up to $195,000, though the actual contribution depends on the formula calculations. Like a SEP IRA, this plan is funded solely by the employer, but contributions to a defined benefit plan are determined by a complicated formula, which often results in much higher contribution limits than with the SEP IRA.

Pros: The defined benefit plan allows employers to save much more money than any of the three other plans.

Cons: This plan is very complicated to open and operate, requiring an actuary, who will likely charge fees of more than $1,000, to determine contributions. The contributions to the plan are mandatory.

Plan best for: High-income business owners with the time and resources to set up and administer this complicated plan—and who want to put away a very significant amount of money.

https://news.fidelity.com/news/article.jhtml?guid=/FidelityNewsPage/pages/self-employed-save-for-retirement&topic=saving-for-retirement

Your Retirement - Your Money

If you had a 401(k) with a previous employer and did not take that retirement account money with you, then you lost control of your money. Why should your old employer keep and manage your retirement investments?

The best solution is to "roll over" that 401(k) into a retirement account that you own and manage.

For no out-of-pocket expense to you, can establish an individual retirement account. Put that money back to work in investments that make sense to your current situation.

Where do you go for 401(k) Advice?

For overworked, under-saved Americans, free, personalized investing advice at work may sound like a great opportunity. But when representatives from the retirement plan come to Mark Patterson’s office, the 59-year-old Nashville lawyer usually skips the sessions. “Those representatives, they’re not financial planners,” Patterson says, adding that the advice they give is often “fairly basic.”

In corporate conference rooms across the country, companies that are trying to help employees plan their future are facing an odd problem: They don’t seem to want the help. Faced with mounting concern that a generation of retirees simply won’t have enough saved, firms big and small have started offering financial advice to employees through their retirement plans. But by nearly everyone’s admission, few workers ever attend a seminar or log in to a retirement help site, even though a majority say they would use advice like that if they could.

What’s the disconnect? Company-sponsored investing advice isn’t all it’s cracked up to be, and it’s often not delivered in a very appealing or accessible way. PowerPoint presentations, scripts and investment jargon are the norms at workplace seminars, and online sites often ignore outside investments and may feel impersonal. And while it’s clear that providing any kind of advice increases participation, savings rates and diversification, it’s not clear what type of advice is most effective.

Some plans offer online tools that calculate retirement income or tell participants whether their portfolios need more diversification. Some offer personal, face-to-face sessions with a plan representative who can talk generally about the importance of diversification and show examples of model well-balanced portfolios. In some cases, that representative will use a computer model to come up with specific recommendations for which funds an individual should buy. Others make vague recommendations and talk more generally about asset allocation.

Schwab’s survey found that 51% of investors say they prefer one-on-one meetings to online tools.

For the 10% who use the advice, it does help, experts say. Almost half of investors who’ve designed their own portfolios have less than 10%, or more than 90%, of their money in stock. Schwab’s survey found that getting advice made workers save more, diversify their investments, and stay the course through the market crash – and rally.

http://www.smartmoney.com/personal-finance/retirement/is-free-401-k-advice-worth-the-money/?cid=sm_pfspend_rss&mod=smartmoney##ixzz10SdCJ7TP

Pay for Massages With a Flexible Spending Account

There are a lot of massage therapists in Jacksonville including my buddy Tony Hanneken. What many of them may not know, however, is that potential customers could be getting treatments at a significant discount by using the health care flexible spending accounts that they may have through their employer.

Here’s how this works.

First, you need to sign up for a Flexible Spending Account with your employer. Your employer will pull money from your paycheck before they take out income taxes. You decide how much to deduct each year for health care expenses that insurance doesn’t cover, keeping in mind that if you don’t use the money within a year or so, you lose it.

Then, ask the administrator of your account whether massages are expenses eligible for reimbursement. If they are, you will probably need a prescription from your doctor for massage therapy for a particular ailment to use your account to pay for the massage. Most doctors are happy to oblige once you explain the reasoning to them.

Finally, make your massage appointment. You’ll probably need to pay upfront and then apply for reimbursement (don’t forget to submit your doctor’s note or prescription).

[This item courtesy of the New York Times]

Thrift Savings Program

Any Thrift Savings Program (TSP) participant, on leaving Federal or military service, may rollover their TSP account into a qualifying retirement account. Upon separation the participant then has 60 days to complete the rollover of the funds to a qualifying account to preserve their tax-deferred status. No other option is available under these circumstances.

Rolling over your TSP into an Individual Retirement Account allows you to maintain tax-deferred investments. And by taking charge of your own money you can increase the value of your retirement funds.

Info: Veterans' Group Life Insurance

VGLI is a program of post-separation insurance which allows service members to convert their SGLI coverage to renewable term insurance. Members with full-time SGLI coverage are eligible for VGLI upon release from service.

VGLI coverage is issued in multiples of $10,000 up to a maximum of $400,000. However, a service member's VGLI coverage amount cannot exceed the amount of SGLI they had in force at the time of separation from service.

VGLI has several attractive options. You can apply for VGLI up to 1 year and 120 days after separation. No medical exam is required but after 120 days you will have to answer health questions. VGLI does not exclude Veterans for reasons related to mental health. VGLI does not exclude Veterans for reasons related to Post Traumatic Stress Disorder.

However, VGLI comes costs. VGLI premium rates are the same for smokers and non smokers; healthy and not-so-healthy. As a result, premiums are considerably higher across the board.

Rates are banded. That is, every 5 years you will receive an age-based premium increase. For example, a 49 year old who buys $200,000 worth of coverage will pay a monthly premium of $44. The following year when that individual becomes 50 years old, the premium jumps to $72 a month.

So, for those separating who don't smoke and are in good health, there are much better Life Insurance options available. Shop around.

After you leave the service, maintaining adequate Life Insurance protection for your family is essential.

Info: Servicemembers' Group Life Insurance Supplements

Servicemembers' Group Life Insurance (SGLI). SGLI is a program of low cost group life insurance for servicemembers on active duty, ready reservists, and members of the National Guard. SGLI coverage is available up to the maximum of $400,000.

Sounds like more than enough to take care of the family in the event the servicemember dies.

Or is it?

An E-5 with six years of service earns $49,860 a year which includes BAQ and BAS. Assuming no other significant income, that $400,000 would provide for about 8 years of income to the surviving spouse and children.

An O-3 with six years of service earns $82,296 a year which includes BAQ and BAS. Again, assuming no other significant income, that $400,000 would provide for less than 5 years of income to the surviving spouse and family.

Obviously you can stretch the $400,000 longer but the surviving family risks a significant reduction from their current standard of living. If the death benefit is used to pay off the house mortgage, will there be enough remaining money to cover property taxes, car payments, children college tuition and other family expenses? See the attached video for a testmonial.

http://www.lifehappens.org/reallifestories/hecker

Supplementing SGLI is a strategy to ensure your family is more fully protected in the event of a tragedy. And since premiums are low and military members often qualify for the best insurance rating, this could be a blessing to your family's well-being.

Investing via the Mailbox

I get to talk with a number of people every day. Many times the conversation will come around to something that person read in a magazine: Money Magazine, Kiplingers, Consumer Digest and Smart Money. Inevitably the question asked of me is always about the "investment recommendations" highlighted by those magazines.

While the analysis that goes into those recommendations is often solid, the information is time late. Sometimes as much as two months.

By the time that magazine hits your mailbox, the relevant information about a particular investment has been chewed on and acted upon already.

Now that does not mean that the recommendation is any less good. It means that for the most part the big money has already been made.

And remember, before dumping any money into something you read about, it is always a good idea to get some advice as to the value and suitability of that investment to your personal situation.

"Not-so" Junk Bonds

The number of U.S. companies at significant risk of default (rated B3 or below) drops to a two-year low, according to Moody's.

High yield bonds will continue to pay rich dividends.

More on Dividends

Nearly 14 percent of the companies in the S&P 500 are paying more in dividends than the average yield being offered in the bond markets. One reason for this is that companies went into cost-cutting measures during the Great Recession cutting headcount and minimizing inventories. As a result many companies are sitting on piles of cash and are issuing dividends to distribute the cash out.

Some notable mentions here include Altria Group Inc which has a yield of 6.48%, AT&T, which has a yield of 6.02%, Verizon Communications which has a yield of 6.31%, Lorillard Inc. which has a yield of 5.53%, Qwest Communications, Entergy Corporation which has a yield of 4.17%, Waste Management Inc. which is boasting a yield of 3.69% and Chevron Corp. (CVX) which has a yield of 3.63%. These are all companies that appear to have relatively sound strategies and are likely to continue to issue healthy dividends.

In addition to providing an income stream, dividends are known to be used as a recession safety net and an inflation hedge in times of economic recovery.

Disclosure: I own Altria and Verizon.

A Strategy to Consider

A number of important large-cap companies such as Cisco, Texas Instruments and Microsoft have announced dividend increases. A little unusual for the technology sector.

One of the things necessary to get the market to have legs is to get the retail investors to get back into stocks from fixed income investments (bonds). The best way to do that is if stocks become competitive in terms of yield, when compared with fixed income bonds and mutual funds.

When that happens investors will inevitably chase the yield and start pumping money into the dividend paying stocks and mutual funds. That increased demand will drive stock and mutual fund prices higher. Not only do you collect the dividend you also capture the capital appreciation as the stock price increases. But you need to be in the game early to get the most benefit.

There’s a huge appetite for yield and that’s where your money should be.

Verizon iPhone Is in Reach

Scott Moritz - 09/20/10

Verizon named Lowell McAdam president and future CEO Monday, a move that all but seals the deal with Apple for the Verizon iPhone.

McAdam, the head of Verizon Wireless, has been the front-runner for the no. 2 for more than a year. And given his wireless credentials, if anyone is going to thaw the frosty standoff between Apple and Verizon, it will be McAdam.

The Apple and Verizon impasse dates back to McAdam's predecessor, who originally rejected the iPhone outright over so-called control issues.

But in his three years leading the wireless unit, McAdam has probably done more than anyone to move the old line giant away from its fortress approach to the mobile market -- toward a more open system.

Among his accomplishments, McAdam reversed Verizon's stance against Google's open network effort and formed a partnership with Google to develop the now popular Android phones.

So it seems likely that under McAdam, Verizon will let some of its old feuds die and possibly embrace the iPhone as one of the key devices that could help light up the company's new LTE 4G network.

http://www.thestreet.com/print/story/10866165.html

Stocks To Follow History, Big Returns In 3rd Year Of Presidency?

By: John Melloy, Fast Money, Monday, 20 Sep 2010

President Obama needs to make some sort of compromise with Republicans on tax cuts, and most of all, not enact an overall restrictive fiscal policy, in order to avoid being the first American President since Herbert Hoover to have the stock market fall in the key third year of his first term.

From Franklin D. Roosevelt to George W. Bush, the stock market managed a minimum of double digit returns in the third year of their Presidency. President Hoover saw the market drop 47 percent. The third year of the Presidential tenure is usually the best of the four as the bold Commander in Chief, dealing with a typical mid-term election brushback, is forced to enact some sort of bipartisan policy or just stands his ground and benefits from the market-friendly environment of a deficit-freezing gridlock.

What's different with our current President's situation is that refusing to compromise would mean tax cuts on income, capital gains, dividends and estates would expire, amounting to essentially a tax raise. The Obama administration has offered to extend those Bush tax cuts for everyone except for the wealthiest 3 percent of Americans.

Obama more than tripled the 8 percent average return that occurs in the first year of the Presidential cycle, but the gains have stalled as his stimulative policies have taken hold. The S&P 500 is little changed in 2010, swinging from gains to losses.

"To me, by far, the single most important Obama action was Treasury Secretary Geithner's stress test," said Karen Finerman, president of hedge fund Metropolitan Capital Advisors. "Unlike prior administrations who had no clear plan, the stress test laid out a comprehensive plan to secure the banks. This allowed some confidence to return to the market and in fact, allowed private capital to bail out the banks."

Indeed financials led by shares of Bank of America have been among the best performers under Obama's tenure. The S&P 500 financials as a group have returned more than 50 percent since he was inaugurated. Still, many of the investors that supported Obama's previous actions have joined the majority of the country now in believing a bigger compromise is in order on the tax cuts.

A CNBC Poll from Sept. 9-12 showed that 55 percent of Americans believe increasing taxes on anyone will slow the economy and kill jobs.

http://www.cnbc.com/id/39268399

Investing extra dollars: mortgage vs. stocks

By Amy Hoak, MarketWatch, Sept. 17, 2010

CHICAGO (MarketWatch) — With mortgage rates at near-record lows, some homeowners now face an investment decision with their extra cash: Pay down the mortgage or take advantage of those low rates and invest the money in stocks.

While there’s no one-size answer on whether to retire home debt or invest excess cash elsewhere, there are a couple of rules of thumb on the matter — and plenty of exceptions, depending on your age, cash flow and risk tolerance.

Other considerations aside, to determine which is more advantageous, compare the mortgage rate you have with the return you can get from another investment. Keep in mind the tax benefits of mortgage interest deduction; if you’re in a marginal tax bracket of 20%, for example, a 5% mortgage is more like one at 4% if you’re deducting the interest.

If you believe over the next 10 years you can achieve a rate of return of X, then if your mortgage is higher than that, you should be paying off your mortgage. If the rate that you think you will be able to get from however you are comfortable investing is higher than your mortgage, then you wouldn’t pay it off.

So, for example, if your choice is paying off a 4.5% mortgage or investing in a 2% certificate of deposit, it’s better from an investment standpoint to pay down the mortgage. Conversely, if you’re holding a 4.5% mortgage and you’re confident enough that you can earn 6% annually in the stock market, stocks are the better bet.

Of course having confidence in this unsteady economy could be the challenge: Most people are probably not going to get a 6.5% return on their portfolio in the next 10 years.

Their mortgage debt, however, is guaranteed to linger until it is paid in full. And that makes paying down the mortgage — even in with today’s low rates — a wise move right now for some borrowers, especially those nearing retirement.

Still, the decision doesn’t completely rest on rates.

The first thing to keep in mind: If you have cash on hand, it doesn’t need to be spent or used. Everyone needs to have liquid reserves.

Having a substantial emergency fund is important. People should have at least six month’s worth of expenses saved. If you’re a sole breadwinner or business owner, make that nine to 12 months.
Once you have that — and all other higher-interest debt, including credit-cards and auto loans have been paid — attacking mortgage debt could be an attractive option.

http://www.marketwatch.com/story/investing-extra-dollars-mortgage-vs-stocks-2010-09-17?siteid=nwhpf

Separating from Military? Continue to protect your family

VGLI is a program of post-separation insurance which allows service members to convert their SGLI coverage to renewable term insurance. Members with full-time SGLI coverage are eligible for VGLI upon release from service.

VGLI coverage is issued in multiples of $10,000 up to a maximum of $400,000. However, a service member's VGLI coverage amount cannot exceed the amount of SGLI they had in force at the time of separation from service.

VGLI has several attractive options. You can apply for VGLI up to 1 year and 120 days after separation. No medical exam is required but after 120 days you will have to answer health questions. VGLI does not exclude Veterans for reasons related to mental health. VGLI does not exclude Veterans for reasons related to Post Traumatic Stress Disorder.

• However, VGLI comes costs. VGLI premium rates are the same for smokers and non smokers; healthy and not-so-healthy. As a result, premiums are considerably higher across the board.
• Rates are banded. That is, every 5 years you will receive an age-based premium increase. For example, a 49 year old who buys $200,000 worth of coverage will pay a monthly premium of $44. The following year when that individual becomes 50 years old, the premium jumps to $72 a month.

So, for those separating who don't smoke and are in good health, there are much better Life Insurance options available.

After you leave the service, maintaining adequate Life Insurance protection for your family is essential. Make smart and cost-effective choices.

How to Make the Most of Your 401(k) Plan

Here are some tips to maximize your retirement savings:

Devise an investing plan and stick to it
Create a long-term investment plan—also known as an asset allocation strategy—and choose a mix of low-cost mutual funds. Stay true to your plan even if the market falters. It’ll pay off in the long run.

Be wary of fees for investment advice
Some employers offer investment advice to manage your account. If it’s free, go for it. But be careful about paying a percentage of your portfolio to have someone guide it for you. It’s usually not worth the cost for young investors with limited assets. Many companies offer free online calculators and guidelines to get you started.

Don’t touch your 401(k) before you retire
You may be tempted to dip into your growing pool of money to splurge on a high-def TV or other major purchase. Don’t. You’ll pay extra fees and taxes, and you’ll lose out on the glory of compound returns. Basically, by letting your 401(k) alone, your gains can be reinvested and earn more than you would with a smaller chunk of cash. Left alone, it can grow exponentially year after year. So try to tap into other cash sources before you raid your 401(k).

Think about paying off high-interest debt with 401(k) loans
Wait a minute! We just told you not to tap those funds. But if you’re young and deluged by high-interest credit card debt, it could be worth borrowing against your 401(k) to eliminate those balances. The loan comes from your own funds and you are in essence paying the interest back to yourself. Still, you should only do this if you’re truly in hot water and have no where else to turn.

If you go this route, be careful. In most cases, the loan must be repaid within five years, with the interest rate at prime plus one percent. And if you lose your job or leave your company, you’ll have to repay it quickly—normally within 60 days. Otherwise, the IRS sees it as a withdrawal and will get you for income taxes and early-withdrawal fees. A final caution: you can’t contribute to your 401(k) until the loan is repaid, so you’re stalling any progress you’ve made toward funding your retirement.

Roll over the funds if you leave your job
It may be tempting to ask your company to cut you a check, but it’ll cost you a bundle in taxes and penalties. In most cases, you can leave an old 401(k) account alone for as long as you want, where it will remain with the brokerage firm that administers your account. If your former company kicks you out of the plan, you’ll need a new home for your funds. The best options are to roll the funds into an IRA, or into a 401(k) at your new job. Make sure you talk with your plan administrators—as well as the new firm where you’ll park your money—to be certain you follow the rollover rules and avoid penalties.

http://guides.wsj.com/personal-finance/retirement/how-to-make-the-most-of-your-401k-plan/

Federal/Military Thrift Savings Program

Any Thrift Savings Program participant, on leaving Federal or military service, is faced with several options.

• (1) Withdraw it. For most people, this is a counterproductive option. If you withdraw your money and deposit it in your savings account, you'll face taxes — and possibly a penalty tax — if you're under 59½ years old.
• (2) Leave it in the TSP. While the government will let you keep your TSP account, you won't be able to add any more money to it. If you don't withdraw the full balance by age 70½, the government automatically converts your entire balance into a lifetime income annuity.
• (3) Take it with you. To obtain the greatest flexibility while preserving important tax benefits, you can complete a tax-free transfer — called a rollover — to a traditional Individual Retirement Account (IRA). Upon separation the participant then has 60 days to complete the rollover of the funds to a qualifying account to preserve tax-deferred status.

Option 1 costs you money. Not recommended. Option 2 is doable but do you really want the government to hold on to your money?

Option 3 is often the best alternative. You have control over your money and can make the investment decisions. Rolling over your TSP into an Individual Retirement Account allows you to maintain tax-deferred investments. And by taking charge of your own money you can increase the value of your retirement funds.

Retailers Turn to Gadgets

By Miguel Bustillo, Wall Street Journal, September 14, 2010

Electronics retailers are revamping their aisles to focus on hand-held gadgets this holiday season to excite consumers who have grown weary of their traditional big-sellers: televisions and personal computers

Shoppers this Christmas can expect to see more smartphones, electronic readers and touch-screen computers in the most prominent store displays, underscoring a dramatic shift to powerful portable devices that is fast changing the face of consumer electronics retailing.

The new priorities are plainly evident in the changing strategy of Best Buy Co., the nation's largest electronics retailer by revenue, which is now morphing into a mobile gadget specialist after decades of promoting the latest in big-screen televisions, desktop computers and high-fidelity stereos.

Best Buy, which reported a 61% jump in second quarter profit Tuesday despite flat sales at stores open at least 14 months, said it will showcase devices such as Apple Inc.'s iPad tablet computer and Amazon Inc's Kindle e-reader this holiday season. It also plans to turn the middle of its stores into a playground for motion-sensing videogame accessories from Sony Corp. and Microsoft Corp.

"People are willing to disproportionately spend for these devices because they are becoming so important to their lives," Best Buy Chief Executive Brian Dunn said in an interview. "We are really positioning the company to be the place where people can come and see the best of the connected world."

Shopping for dividends

By Linda Stern, Reuters — 09/08/10

WASHINGTON (Reuters) - Dividends are nice -- especially when bank accounts are paying less than 1 percent in interest. If you can buy shares of a company like General Electric , Kellogg or Waste Management and pick up an immediate yield of more than 3 percent, why wouldn't you?

Almost 70 companies in the Standard & Poors 500 Index are paying more in dividends than the 3.8 percent average yield now being offered in the bond market. That's a big deal: That's more companies beating bond yields than at any other time in the last 15 years.

Investors are increasingly on the hunt for dividends, in part because they see corporate dividends as acting both as a recession safety net and a recovery inflation hedge. If your share price goes down and your bonds lose value, at least you can cash that dividend check. And if the economy strengthens, inflation could become an issue. Dividends might help you then, too.

A diversified mix of high-yielding stocks almost always pays an inflation-beating real return.

But dividend-paying stocks aren't risk free, as anyone who once held Bank of America or Citicorp for their awesome pre-credit-crunch dividends will tell you. There are other issues as well.

Here's how to go dividend shopping with your eyes wide open.

• Understand the tax risk. It wasn't until George W. Bush-era tax legislation passed that dividends received the same favorable tax treatment as capital gains. Right now, most dividends are taxed at a maximum rate of 15 percent, the same as long-term gains. But those provisions expire on December 31. After that, dividends would again be taxed like ordinary income -- at rates as high as 39.6 percent -- if there is no new legislation to protect them. Most people expect dividends to retain tax breaks in the new year. The White House has suggested raising the top rate on dividends and capital gains to 20 percent, but nothing about taxes in this deficit-ridden mid-term election year is a sure thing. A sharp increase in taxes on dividends would produce a correspondingly sharp drop in the value of dividend-paying stocks.
• You can use dividends to create your own income stream. Using a stock screening program to cherry-pick a dozen different high-yielding companies, select your list so that at least one company pays a dividend in every month of the year. You'll get dividend checks rolling in every month. That can be a huge benefit for retirees facing monthly bills.
• You can get someone to choose for you. There's a host of dividend growth mutual funds, high-dividend mutual funds, and exchange traded funds that focus on buying entire indexes of big-dividend stocks. Some charge more and offer more nuanced company selection. The ETFs charge much smaller amounts, with 0.35 percent a year being a typical management fee. But this year, at least, the indexes have not been beating the better managers.
• Your old strategy may be faulty. For a long time, investment experts believed that the best dividend play involved buying shares in a company with a long history of increasing its dividend. But it can take decades for a fast-growing-but-low dividend to outstrip one that starts higher and grows slower.
• Be careful. A yield of 3.8 percent on a solid company is a very good deal. A yield of 9 percent or more probably signifies a company (or at least a dividend) that is in trouble. Companies that have problems do end up having to cut their dividends. That's a lesson driven home by the credit-crunched banks and by BP which canceled its dividend this year in the aftermath of its disastrous oil spill. So, don't reach out too far. And don't put all of your dividend hopes on one company, or even one industry. Buy a fund, or buy 'em by the bunch. And enjoy!

5 Financial Mistakes New Graduates Must Avoid

by Marv Dumon

According to U.S. Census figures, more than two million students were enrolled in college in 2005, with hundreds of thousands of students anticipating their degrees. These young adults were largely confined in the relatively safe, secure and structured environment that is academia, but new life lessons are learned as students transition into the real world.

How graduates approach financial planning in the first few years after college can set the tone for their financial habits down the road. By adhering to a strategy and plan, recent college graduates can avoid mistakes in how they deal with their personal finances.


Real World Lesson No.1: Plan To Save
Recent graduates celebrate their recent conquest of college term papers, exams and theses. Undoubtedly, a large chunk of these newly minted grads take whatever jobs they can find. Some are disciplined enough to pursue the right field for them. However, recent grads too often find the traditional workplace routine unfulfilling or unchallenging. Unreasonable spending habits often take over as an escape from the daily grind, and entire paychecks are spent on regular expenses (such as rent and utilities), purchases (such as an automobile and furniture) and luxury items (such as travel and an oversized television).

Although you should enjoy your newfound freedom, you should also strive to save a nice portion of your paychecks. The recurring cash flow can be placed in a combination of stock, bond and money market investments. Once you are no longer living in the comfort of your parents' home, it is prudent to plan for contingencies such as automobile accidents, personal injury, lay-offs and other unforeseen expenses.

Real World Lesson No.2: Money Spent Is Money Lost
Having been broke for four years or so while in college, recent graduates naturally equate a steady paycheck with newfound wealth. No longer subject to the disagreeable taste of dorm food and late-night snacking on hot noodles, young adults easily form a new habit of transforming their recurring income into regular dining at upscale restaurants, bars and clubs.

In the real world, assets either appreciate or depreciate. The purchase of a car is the purchase of a depreciating asset; it diminishes in value as soon as it leaves the lot. The same is true for furniture, clothing and expansive television screens. Flying to Cabo San Lucas over spring break is an expense - it is cash leaving your wallet, never to return. The same is true of costly apartments, fine dining and weekend barhopping.

Several factors can help create real financial security:

• The performance of assets that appreciate over time, such as blue-chip stocks, dividend-yielding bonds and homes.
• Investing in yourself as a professional to improve your prospects for growth and increased income. By investing money each month to improve your performance in your chosen field, you can expect to earn more promotions and higher pay over the long run than your complacent counterparts. These personal investments can take the form of training, online classes, industry certifications, books and seminars.
• In a dynamic and competitive marketplace, paychecks provide only the illusion of security; it's how you use your paychecks that determines your financial well-being.

Real World Lesson No.3: Control Debt Before It Controls You
Depreciating assets and reckless spending often lead to only one thing: debt. Debt devours your cash flow and negates your assets, skewing your personal net worth toward the negative side. Set time lines for eliminating your various debts, including school, car, credit card and home loans. Pay off the debts with the highest interest rates first - that's just common sense.

There is good debt; you can use other people's money to buy appreciating assets, essentially using other people's money to make money for yourself. That's how the private equity people do it. But the rule of thumb is to discipline yourself in executing your plan of attack. Kill the debt beast, whatever its form, by a certain deadline.

If a paycheck only provides the illusion of security, then debt should provide real fear of the negative things that can happen to a recent grad if unforeseen contingencies occur.

Real World Lesson No.4: Become a Good Credit Risk
Paychecks are a limited income and are vulnerable to being reduced or cut off altogether. In Lesson No.3, we point out that if poor habits and consumption behaviors are not kept in check, debt can be financially disastrous. However, large transactions do exist that necessitate the use of debt - the wheels of the economy would grind to a halt if consumers had to bring in sacks of cash in order to pay the full value of a car or home up front. That's where credit comes in.

Manageable debt, as a means of establishing a good credit history and acquiring appreciating assets, helps recent grads become financially credible to lenders when it is time to take out an auto loan or mortgage. Additionally, there may be some extenuating circumstances that require a recent grad to take out an emergency loan. Manageable debt means that payments and the principal balance are easily affordable and that there is a target time line for eventual pay-off. It is not an excuse to throw money at the craps table in Vegas. That's an even nastier rabbit hole.

Real World Lesson No.5: Face Facts - Get Life Insurance
As you get older, you will begin to realize certain inevitable facts of life: old age, marriage, kids, grandchildren and, yes, even death. So get life insurance.

These events will happen; either you plan for them and care for those closest to you, or you don't plan for them. In the latter case, lack of foresight and planning can lead to financial distress for your family members. Death is stressful and expensive for survivors. Life insurance can help alleviate much of the stress at a critical time.

Parting Thoughts
Personal finance is a critical area for your mental and emotional well-being. As a student, IQ, grades, standardized test scores, popularity ratings and tolerance for alcohol are the benchmarks against which your teachers and peers judged your success.

But once you graduate, personal finance should become one of your dominant priorities. Unfortunately, the educational system - while providing interesting theories and insights on the universe - provides little in the way of real-world preparation for students in the areas of personal finance, workplace challenges or life's other adversities. A strong personal balance sheet and income statement will go a long way in helping you to overcome these challenges and maybe even find new and exciting opportunities to increase your net worth.

http://www.investopedia.com/articles/younginvestors/08/financial-mistakes-new-graduates.asp?partner=pitm09b

September Investment Update from Bank of New York

I have been recommending the same to my clients...

"...We find considerably better opportunities in intermediate-term municipal bonds and high grade corporate bonds, Treasury Inflation Protected Securities and at higher risk levels, high yield bonds and high-quality dividend paying equities..."

Christopher Sheldon
Director of Investment Strategy
Bank of New York Mellon Corporation
September 2010 Investment Update

Investors feel like buying again!

According to the weekly survey of investor sentiment done by the American Association of Individual Investors, investors haven't been this bullish since April 15, 2010 (only days from the high for the year).

But wait, according to the exact same survey done just two weeks ago, investors were more bearish than they had been in over a year.

What changed in two weeks? The only thing I know for sure is that the market was up 5 percent between the time investors wanted to sell and the time they wanted to buy.

This whole thing is crazy.

Why in the world is there a weekly survey of investor sentiment?

We know that real people have a tradition of buying high and selling low. They’ve been doing it for a long time. They do it over and over, despite knowing better. And they do this because we make investing decisions based on how they feel instead of what we know. This is natural, maybe even genetic. We run away from things that cause us pain, and we want more of the things that give us pleasure or safety.

But we need to stop it if we’re going to get a different result!

I’m not sure what the answer is. In fact I am pretty sure it’s never going to change. No matter how many people throw facts and figures at us about holding on for the long term, no matter how many rational arguments people make, we’re going to run if we get the sense we’re about to get hurt.

So what can we do about it? Here are two ideas:

1. Swear off the stock market forever. Look, the reality is that making money in the stock market is hard. Most of us just don’t have the emotional makeup to do it. That’s OK. If during the last 10 years you’ve found yourself making big behavior mistakes over and over, then stop. You might be better off just committing yourself to a life of owning only certificates of deposit, given how poor your stock returns could be if you trade too much.

2. Act like you have a blind trust. Find someone you trust, give them your money, tell them to buy you an index fund and then have them update you again in five years. This could be a financial planner like me, but you could also enlist a trustworthy friend who won’t charge you anything for the privilege.

I know that there are people who have been successful, people who behaved correctly. If you are one of them, congratulations and keep doing what you’ve been doing.

But we have to recognize that the way most of us have been doing things hasn’t worked, and it probably won’t work in the future.

http://bucks.blogs.nytimes.com/2010/09/13/the-folly-of-tracking-investor-sentiment/?ref=your-money

Saving money on life insurance

For families, often term life insurance is a great option, providing a reasonably priced way to keep your family’s future protected. The good news is that there are ways that you can save even more on this type of a plan. Here are several great money saving tips you can use when making this purchase to save more money.

Tip #1 – Purchase at a Young Age

There are many younger people that don’t see why they need this type of insurance. Sure, you may not have as many financial needs, but you’ll also find that the rates are going to be cheaper at this point as well. If you can lock in plenty of protection while you are young, you will be able to get good prices, which saves a lot of money. And many companies will offer you the opportunity to convert that term policy to a permanent policy without having to re-do medical exams. When you buy life insurance when you are young and in good health you get the best possible deal.

Tip #2 – Choose the Right Coverage Length

Another important tip that can help you save on your term life insurance is choosing the right coverage length. Each person is a bit different and the needs one family has will be different than another family. If you are younger, you may want to go with a 20 year term. If you are closer to retirement, going with a shorter term is a good idea. On the other hand, if you take out a 30 year mortgage, then going with a 30 year term is a great idea to make sure that your mortgage is covered.

Tip #3 – Look for a Break in Price

There are a variety of different price breaks that you may be able to get, depending on the coverage amount that you end up choosing. In many cases, you’ll end up paying less for more coverage. When you increase your coverage, you will often find that the price barely increases at all, making it well worth the bit of extra money.

Tip #4 – Get the Coverage Right for You

You’ll find that many life insurance agents try to get you to purchase more coverage than you really need. You need to make sure that financial loss can be replaced, but you don’t want to pay for too much coverage. Usually you’ll get the best coverage and the best deal when you go with an amount that is about 7-10 times the amount you make yearly. Many people just look at the mortgage and burial expenses when determining their coverage. A good place to start is determine how much money your family would need if you and your income went away. You need to cover the period until your spouse could be self sufficient and the children out on their own. With children at home it would be good to factor in the costs of college expenses too.

Tip #5 – Try Different Payment Options

Another way that you may be able to save on this type of insurance is by going with a different payment option. If you pay the entire premium up front of you pay directly from your bank account with EFT, there is a good chance that you’ll end up getting a nice discount. You may even get a discount by choosing online billing options instead of paper billing. Paying your premium anually in one payment will cost less than making monthly payments.

You can get quality term life insurance without having to spend too much money. Keep these tips in mind and you’ll be able to find great ways to save.

Buy low and sell high, not the other way around

Apple is the most widely followed stock in the world. No company has the fans and the following that Apple has for both its products and its stock. Truly, it's an incredible company.

But one needs to be a bit cautious about any company with such a high degree of popularity. It's tough to get stocks that are so incredibly popular at bargain prices or at a point that represents good value (unless of course you bought below $100 a couple years ago amidst the Steve Jobs health rumors and the depths of the bear market).

Today, Apple is trading above $260. The easy money has been made. With Apple still paying no dividends, it is hard to justify an entry point at this level.

Making money abroad

While global players are getting ever-bigger boosts from their operations in fast-growing economies like China and Brazil, companies dependent on the U.S. market are hemmed in by recession-scarred consumers who are hesitant to spend.

Among the 30 companies in the Dow Jones Industrial Average, the 10 that get the largest share of their sales abroad are expected to see revenues grow by an average of 8.3% over the next year.

By contract the 10 that do the least business outside the U.S. are likely to show average revenue gains of just 1.6%

For example, Atlanta-based Coca Cola Co. has operated internationally since the 1920s, and now garners about three quarters of its sales overseas.

This two track trend is likely to continue.

Wall Street Journal, 8 September 2010

The dividend approach to investing

The dividend approach to investing is not a get rich scheme. Investors who ultimately make money with dividends are interested in slow but steady returns, low volatility and positive feedback in the form of dividends during all market environments. The companies that manage to raise dividends for long periods of time are characterized by having a strong brand, and strong competitive advantages that help them increase earnings over time. Only companies that expect strong earnings in the foreseeable future will commit to raising dividends. As a result investors in dividend companies enjoy an increasing stream of dividend income, which matches or exceeds inflation over time.

http://seekingalpha.com/article/224124-five-dividend-machines-raising-distributions?source=email

The Perfect Salary

A recent study analyzed Gallup surveys of 450,000 Americans in 2008 and 2009 and suggested that there were two forms of happiness: day-to-day contentment (emotional well-being) and overall “life assessment,” which means broader satisfaction with one’s place in the world. While a higher income didn’t have much impact on day-to-day contentment, it did boost people’s “life assessment.”

Now there are more details from the study, conducted by the Princeton economist Angus Deaton and famed psychologist Daniel Kahneman. It turns out there is a specific dollar number, or income plateau, after which more money has no measurable effect on day-to-day contentment.

The magic income: $75,000 a year. As people earn more money, their day-to-day happiness rises. Until you hit $75,000. After that, it is just more stuff, with no gain in happiness.

That doesn’t mean wealthy and ultrawealthy are equally happy. More money does boost people’s life assessment, all the way up the income ladder. People who earned $160,000 a year, for instance, reported more overall satisfaction than people earning $120,000, and so on.

“Giving people more income beyond 75K is not going to do much for their daily mood … but it is going to make them feel they have a better life,” Mr. Deaton reported.

He added that, “As an economist I tend to think money is good for you, and am pleased to find some evidence for that.”

http://blogs.wsj.com/wealth/2010/09/07/the-perfect-salary-for-happiness-75000-a-year/

Midterm Elections and Your Money: My Thoughts

On this Labor Day holiday I'd like to offer some observations on what I see as the significant potential to increase the value of your investments.

The stock market has been operating in a range all Summer long. Almost weekly bad news from the debt crisis in Greece to the BP oil spill have driven the market down. Main Street gloom related to high unemployment has significantly reduced customer demand and consumer confidence. That in turn keeps retail investors from investing more and reduces institutional investments as investors withdraw from their mutual funds and retirement accounts to cover monthly bills. More sellers than buyers drives prices down.

Corporate austerity as a result of the Recession has led to some record profits. Companies are flush with cash. But the threat of new taxes and the uncertain costs associated with the new Healthcare legislation has weighed on corporate decisions to restrain expenditures that might otherwise go to expanding production lines and the workforce.

And every poll out there reports Main Street America is not happy with the economy and the Administrations' handling of it.

So what is the good news?

Mid-term elections.

Previous Administration actions have not improved things appreciably and due to growing voter unrest things will have to change if those in Congress hope to be be reelected. I fully expect to see the boot be lifted from the neck of corporate America. The only way to move the economy forward is to allow companies to do what companies do best - - make products and money. If this happens expect production lines to expand and private sector hiring to increase. That would go a long way towards improving consumer confidence and reduce unemployment. Result = Stock market will react in a positive manner.

If despite of new Administration initiatives, the Republicans gain control of Congress, expect Wall Street will react even more positively.

I see the potential for significant upside between now and Christmas. Don't stay on the sidelines.

Invest confidently when others lose their nerve

This summer has burned investors, and no amount of SPF -- stock protection factor -- has been able to soothe their sores.

Investor sentiment is highly negative, with 42% of respondents to the latest American Association of Individual Investors survey in the bearish camp. Investment advisers, too, are more pessimistic about the economy and stocks than at any time in the last 16 months.

Even hedge-fund managers, who you'd think would be cool and collected in these challenging times, are on edge. Just 17% of hedge-fund managers are bullish on the prospects for Standard & Poor's 500 stock index, and almost half are down on stocks in general.

What's an individual investor to make of all this gloom and doom? For starters, you can tune out the noise and enjoy the coming Labor Day weekend. Use the down time to review your portfolio and your short-term and long-term investing goals. Are you on track? If not, figure out how you're going to be proactive about your finances. Research stocks, mutual funds and exchange-traded funds that look attractive, and start putting money into them little by little.

If you do just that, you will find relatively quickly that you are becoming more confident about your money. In time, your confidence will increase. And with greater self-assurance and control over your investment decisions, you will find yourself less anxious and less reactive about markets and investing. Then you can develop perspective on Wall Street's day-to-day fluctuations, and ignore the "act now or it's too late" mentality that only makes others rich. Most importantly, you'll be able to answer, firmly and loudly, when opportunity knocks.

http://www.marketwatch.com/story/invest-confidently-when-others-lose-their-nerve-2010-09-02

Intel Wants to Be Inside Everything

Two years ago, Intel held a contest for college students, asking them to come up with new uses for the company's Atom processor. One proposal: a shower that regulates water temperature and plays music from the Internet. While Intel doesn't plan to enter the shower market, it is putting its chips into gas pumps, cars, musical instruments, and other devices where few processors have gone before.

Chips that act as the brains of electronic devices other than computers or mobile phones are known as embedded processors and represent a $10 billion market. That's small compared with the $34.5 billion market for PC processors. Intel will have $43 billion in revenues this year. Of that, only about $1 billion comes from embedded products. Still, Atom sales are growing fast, and the company is counting on the chip to help break its dependence on the slowing PC market.

Although Atom chips aren't as powerful as the ones that run PCs, they're much cheaper, which makes them economical for powering all kinds of devices. Nautilus puts Atom chips into its treadmills to stream Internet video onto built-in displays and upload the times and distances from workouts. Digital advertising signage is another growth market for Intel. LG Electronics is using Atom chips in signs that will recognize the age, gender, and other characteristics of passersby and change the advertising pitch accordingly. Since Atoms also use little power and don't require bulky batteries to run, they're popping up in unexpected parts of the world. In India, banks are using them in handheld terminals that serve rural areas off the electricity grid. Once a month or so, an itinerant teller visits a village, giving locals access to loans and other banking services.

ARM Holdings sells designs for similarly energy-efficient chips that are licensed by customers including Texas Instruments, Qualcomm and Marvell. Those companies already have a hold on the mobile-phone market—one area Intel has failed to penetrate—and are trying to expand that dominance into the embedded market.

In the second quarter, Intel received 3,800 inquiries from customers that wanted to design Atom into their products. Some 1,200 of those proposals are on their way to becoming Atom-based products. While Intel isn't designing a different chip for each customer, it is offering so-called systems-on-a-chip, semiconductors with the functionality of multiple chips built into one. That makes it easier for electronics manufacturers to get their products to market quickly.

http://www.businessweek.com/magazine/content/10_37/b4194029898101.htm

Bullishness on U.S. Stocks Jumps From 17-Month Low

Sept. 3 (Bloomberg) -- Optimism about U.S. stocks increased by the most since July as economic reports emboldened investors following three straight weekly losses in the Standard & Poor’s 500 Index, according to a survey from the American Association of Individual Investors.

The proportion of investors who anticipate a gain in the next six months jumped to 30.8 percent in the week ended Sept. 1, the biggest rise since the period that ended July 15. That compares with the 17-month low of 20.7 percent the previous week and the historical average of 39 percent.

“The improvement in bullish sentiment comes on the heels of a strong stock market advance during the first trading day of September,” Charles Rotblut, AAII vice president, wrote in a report yesterday. “A fall in the percentage of bearish and neutral investors accounted for the 10.1 percentage point increase in bullish sentiment.”

U.S. stocks rallied the most in almost two months on Sept. 1 as better-than-estimated growth in American and Chinese manufacturing bolstered confidence in the global economic recovery.

Will the Stock Market Rally This Fall?

One things seems clear this fitful season draws to a close: The recently range-bound stock market has the capacity to rally this fall. Whether it will is another matter.

Stocks have bounced back from their lowest level in nearly eight weeks.

It seemed we've spent much of this summer fretting about Europe's sovereign debt, China's tightening credit and our own economic vulnerability, in between sightings of Hindenburg omens and death crosses. And who still believes our politicians can fix this mess (don't all rush at once). But while stocks aren't egregiously expensive, they can fall 10% to 20% if the merely stagnant job market worsens. Can you blame investors for being indifferent, with bulls barely buying and bears barely selling?

American companies have the means to hire more employees and order new equipment this fall. Corporate profits as a percentage of gross domestic product are pushing 40-year highs. Costs have been cut to the bone. Cash vaults are at the fullest in decades. But what companies lack is the gumption. And CEOs can't pull the trigger on hiring or spending until today's economic and policy fog lifts.

Will it? Deleveraging and paying down debt is a long, cheerless slog, but some recent red flags may prove temporary. Jobless claims ticked up recently to a vexing nine-month high partly because a new law this July restored unemployment benefits to 2.5 million people—and not all because there were layoffs anew. The financial markets seized up in May as Europe struggled, triggering the hesitation now showing up in economic indicators, but financial conditions have eased fitfully since then. A 27% plunge in sales of existing U.S. homes in July isn't wholly shocking, since homebuyer tax credits that expired in the spring had pulled forward much of the demand.

As if Washington needs any more hurdles, a short window of just 20 legislative days leaves little time this fall to enact measures that might create jobs, stimulate the economy or reduce our debt. Campaigning and posturing for the midterm elections adds another distraction. But the faltering recovery has increased odds that the Bush tax cuts might get extended.

It's a lot to ask our politicians to get their act together, but a little resolution and clarity could go a long way. Policy uncertainty and collective breath-holding explain why the market typically muddles along before midterm elections, rising just an average 1.2% all year leading up to Election Day. But once that's over, stocks gain an average 3.2% for the rest of the year. Over the last 16 mid-term years, the market has never made a new low post Election Day, but it has climbed to new highs on seven occasions.

Demand for U.S. financial assets with relatively high yields and relatively low volatility could remain elevated for several years. Here is a short list of big-cap, dividend-paying and less economically-sensitive stocks.

These stocks pays an average yield of 4.2%, twice that for the S&P 500. These "better than bonds" opportunities include Verizon, Altria, Duke Energy, Eli Lilly, Southern, NextEra Energy, Abbott Labs, Lockheed Martin, General Mills, Coca-Cola, McDonald's and Colgate-Palmolive

http://www.smartmoney.com/investing/stocks/will-the-stock-market-rally-this-fall/?page=all#ixzz0yUF5poXz