Entries for June 2008

Each summer, hundreds of investing gurus and financial advisers come together in Chicago for a powwow known as the Morningstar Investing Conference. Here, they discuss hot topics in the investing world, have round-table chats on stocks, and plot strategies for the rest of the year. Thursday's agenda featured sessions on bargain-hunting, bonds, exchange-traded funds, and the psychology of investing. Here are a few highlights from top stock-pickers:

During the morning stock-pickers panel, Charles Pohl, chief investment officer of Dodge & Cox, said: "It's a really interesting time to be an investor in financials, especially if you have the ability to do a lot of due diligence and basic research.... Some of these companies are excellent franchises, and they're selling at very low valuations, so they represent really outstanding opportunities right now. Now there are real problems out there, particularly in the residential real estate market, the home builders, etc., and there'll be more losses; we're not through it yet, and trying to identify who the long-term winners are, where the long-term values are, is potentially a really profitable activity right now."

At some point, you'll probably be tempted to chuck all the sensible investing advice you've heard out the window and bet on a hot stock with questionable prospects. Are you made of stone?

Go ahead and take that flier, says Morningstar, but create a "mad money" account—and limit its size. This way, you won't jeopardize any long-term financial goals:

You may want to check out this nifty yet puzzling CNNMoney calculator, which ranks your net worth by age and income. Apparently, the median net worth for those between the ages of 25 and 34 is $2,125. But once you turn 35 (and on up to age 44), it jumps to $44,875. For someone with a $50,000 annual salary, the calculator spits out $109,975 for median net worth. Perhaps it's assuming that you're saving every cent.

Blogger Blueprint for Financial Prosperity also finds the calculator frustrating—"meaningless," in fact. "There are simply too many variables," he writes. "What if you're 25, married, and have two kids? What if you're 25, not married, don't have kids...is it even fair to compare the financial situation of the two 25-year-olds? No way."

The technical definition of net worth is the value of all of your assets (such as savings, investments, and home), minus your liabilities (such as credit card balances, student loans, and mortgage debt). Although you probably have a rough idea in your head, this net worth calculator will give you an actual number. It also estimates how your net worth could grow or shrink over the next 10 years.

Whether your work commute involves driving, riding the bus, biking, or running (like me), it's a great chance to improve your investing know-how through podcasts. You're a captive audience, after all. Below are podcasts that cover investing from 10 unique perspectives:

Money Girl: Part of the Quick & Dirty Tips series (which also includes Mighty Mommy and Make-it-Green Girl), this podcast consists of short, informative segments filled with tips and explainers.

• Frequency: Weekly
• Recent topics: Common investing mistakes, investment scams, and shorting stock. Money Girl also covers general personal finance topics, such as how to adjust your withholding and tips for improving your credit score.

Although target-date funds all pitch the same idea—set it and forget it—their composition varies greatly, depending on the sponsor. These seemingly small differences can translate to big differences in risk and return, reports the Motley Fool. The site recently published a handy guide to the stock and bond breakdowns of target-date funds from three major fund companies: Fidelity, T. Rowe Price, and Vanguard. It also estimated what a $10,000 investment in each of these funds might return over a 40-year time period, based on historical averages for stocks and bonds.

The results were interesting. Vanguard, which has the lowest expenses and the most aggressive allocation, would turn a $10,000 investment into $446,645 in 40 years, according to Motley Fool. Meanwhile, Fidelity would return $358,170, and T. Rowe Price would yield $263,513.

Of course, investors should look at more than 40-year simulations before choosing a target-date fund. The Fool's analysis doesn't mention what types of stock funds (for example, foreign versus domestic) or bond funds make up each target-date fund, or whether they include any alternative investment classes. As it turns out, target-date funds aren't totally hands-off investments: They require a little legwork in the research department.

It's no secret that investors tend to favor their home country. Now, new research shows that they also tip their portfolios in favor of companies based in their home states.

In the study "Long Georgia, Short Colorado? The Geography of Return Predictability," researchers examined the holdings of more than 75,000 individual investors between 1991 and 1996 and found that investors put an overabundant amount of their money in their home states. For example, investors in New York bought stocks of companies headquartered 750 miles from home, on average (had they randomly picked stocks, that distance would have been an average of 1,055 miles).

Men and women just aren't on the same page when it comes to investing, says SmartMoney magazine. According to their survey, husbands are more willing to take financial risk when investing than their wives (62 percent for men versus 19 percent for women).

If you and your partner have completely opposite investing philosophies, it pays to (surprise!) sit down and talk about your goals and time frames. Christine Larson, coauthor of The Family CFO, tells SmartMoney: "You could be completely risk averse with money you need for next year, but you can be a huge risk-taker with money you're saving for retirement."

In other words, distinguish between short-term, midterm, and long-term goals and invest accordingly. Or, as the story suggests, you could go your separate investing ways and just review your portfolios once a year to make sure they balance each other out.