In further edited excerpts from the original article* Arseneau goes on to say:

Gold as an Inflation Hedge
It took more than 30 years for an investor who turned to gold at the end of the 1970s (prior to the surge) to regain his money in real terms. The least we can say is that this inflation hedge is a little slow delivering on its promise! What’s more, it took the worst global financial crisis since the 1930s, a sharp depreciation in the U.S. dollar and inflation fears related to the massive injection of liquidity in economies around the world for the return on gold to just barely top U.S. inflation. As investors, we must keep in mind that, over the long term, holding this so-called safe haven comes at a cost. Indeed, other assets afford more alluring returns over the long term.

Gold as a Safe Haven
Aside from its popularity in times of high inflation, gold’s weak correlation to other assets is often pointed to as one of its strong suits. Indeed, if diversification is the objective, then the inclusion of an asset that is uncorrelated to the market is a means of improving a portfolio’s return-to-risk ratio. However, [our analysis indicates] that the inclusion of gold in a U.S. equities portfolio does not lower the risk level enough to compensate for the rate-of-return shortfall. Though the inordinate use of gold does not appear to pay off over the long term, it can nonetheless represent a smart move in the short run.

As it happens, however, the correlation between the price of gold and the U.S. stock market since 1978 has been nil. As a result, gold played its role as a safe haven very well during the past two bear markets.

There is no denying that investors who had the prescience to make gold part of their investment strategy have had reason to rejoice of late. However, we must bear in mind that, historically speaking, the stock market has by far outperformed gold in the two years following a market trough.

Golden Rule: Keep an Eye on U.S. Dollar
Aside from gold’s status as a safe haven, the collapse of the U.S. dollar and inflation fears have also been cited to explain why the precious metal has soared in recent years. In our opinion, the first of these two factors goes a longer way towards accounting for the price surge… movements in the U.S. dollar have had a much larger impact in this regard than inflation has.

As gold is dollar denominated, there exists a negative correlation between the metal and the greenback. Indeed, when the U.S. dollar depreciates, foreign investors who were prepared to pay a given price for gold in their local currency will be willing to pay a higher price in U.S. dollars, thereby setting a spiral in motion. In addition, when the U.S. dollar declines, gold becomes more affordable for foreign investors. This tends to boost demand and, in turn, price. Finally, we must keep in mind, especially in the present context, that the U.S. dollar is also competing with gold as a safe haven.

Has Gold Appreciated Unduly?
A strong relationship existed between the price of gold and the U.S. dollar since 1997. However, in the past year, the relationship has not held up. Increases in the price of gold have largely surpassed what the value of the greenback would justify and, as such, we believe that the relationship will revert to normal in the coming quarters.

Truth be told, the events observed recently have been extraordinary.
1. there has been an unprecedented aversion to risk on the markets.
2. the sharp deterioration in the U.S. government’s budget situation is considered by some observers as a ball and chain likely to weigh down the value of the U.S. dollar over the long term.
3. the massive injection of liquidity by the Federal Reserve has raised concerns about its ability to contain inflation in future. In this regard, the measures taken by the Fed have brought the level of monetary accommodation back to where it was in the 1970s when gold was all the rage!

Fabrication Demand Declining
Investment demand for gold is what has been driving up price rising slowly until about a year ago when exchange-traded gold funds registered exceptional growth. These new vehicles have made it very easy for investors to seek shelter in gold and this has further contributed to the metal’s appeal. The downtrend in fabrication demand (which has been declining steadily for some 10 years now) and the volatility in investment demand are, to our eyes, two risk factors for the price of gold in the coming months.

Growth Factors Behind Us
In our opinion, all the factors that contributed to the recent upswing in the price of gold are set to reverse. Risk premiums are falling at breakneck speed and still have room to contract some more. As for inflation running out of control, unlike others, we are of a mind that the Federal Reserve and its counterparts around the world will not hesitate to tighten monetary policy if inflationary pressures mount. As for the currency, despite the structural challenges facing the U.S. economy, the greenback could be poised to rebound even further on the strength of cyclical forces if the Federal Reserve is forced to hike rates sooner then expected.

Conclusion
Investors who dared place some of their eggs in gold in recent years have been nicely rewarded for what they did. However, the time has come now to revise their positions.

If the past 30 years are any indication, gold does not constitute an attractive investment over the long term. Moreover, in times of economic recovery, the return on gold falls well short of the return on the stock market.

*www.nbf.ca

Editor’s Note: The above article consists of edited excerpts from the original for the sake of brevity, clarity and to ensure a fast and easy read. The author’s views and conclusions are unaltered. (editor@MunKnee.com)

See larger image Buy Gold Now: How a Real Estate Bust, our Bulging National Debt, and the Languishing Dollar Will Push Gold to Record Highs (Hardcover) By (author) S. McGuire List Price: $34.95 USD New From: $18.49 In Stock Used from: $15.00 In Stock

In further edited excerpts from the original article* Shostak goes on to say:

Recessions, according to Keynes, are a response to the fact that consumers — for some psychological reasons — have decided to cut down on their expenditures and raise their savings. If, for instance, for some reason people have become less confident about the future, they will cut back on their outlays and hoard more money. So, once an individual spends less, this worsens the situation of some other individual, who in turn also cuts his spending. Consequently, a vicious circle sets in. The decline in people’s confidence causes them to spend less and to hoard more money, and this lowers economic activity further, thereby causing people to hoard more.

In order to prevent a recession from getting out of hand, the central bank must lift the money supply and aggressively lower interest rates. Once consumers have more money in their pockets, their confidence will increase, and they will start spending again, thereby reestablishing the circular flow of money, so it is held.

Keynes suggested, however, that a situation could emerge when an aggressive lowering of interest rates by the central bank would bring rates to a level from which they could not fall further. This, according to Keynes, could occur because people might adopt the view that interest rates have bottomed out and that rates will subsequently rise, leading to capital losses on bond holdings. As a result, peoples’ demand for money would become extremely high, implying that they would hoard money and refuse to spend it no matter how much the central bank tried to expand the money supply.

There is the possibility, for the reasons discussed above, that, after the rate of interest has fallen to a certain level, liquidity-preference may become virtually absolute in the sense that almost everyone prefers cash to holding a debt which yields so low a rate of interest. In this event the monetary authority would have lost effective control over the rate of interest.

Keynes suggested that, once a low-interest-rate policy becomes ineffective, authorities should step in and spend. The spending could be on all sorts of projects — what matters here is that a lot of money must be pumped in order to boost consumers’ confidence. With a higher level of confidence, consumers would lower their savings and raise their expenditures, thereby reestablishing the circular flow of money.

It is interesting to note that Keynesian economic ideas have been embraced and implemented by the governments and central banks of the major economies of the world [with the Obama Administration its greatest endorser].

*http://blog.mises.org/?p=010700

Editor’s Note: The above article consists of edited excerpts from the original for the sake of brevity, clarity and to ensure a fast and easy read. The author’s views and conclusions are unaltered. (editor@MunKnee.com)

See larger image The Keynes Solution: The Path to Global Economic Prosperity (Hardcover) By (author) Paul Davidson List Price: $22.00 USD New From: $13.67 In Stock Used from: $15.83 In Stock Release date September 1, 2009.

In further edited excerpts from the original article* Slome goes on to say:

Having a guide at your fingertips as you meet unknown forks in the road is a nice asset to have. Unfortunately finding the right guide is much easier said than done because many guides can have ulterior motives and hidden agendas that conflict with yours. As such, finding the right guide requires a lot of research. The scope of qualifications between the capabilities of one advisor compared to another can be like comparing a plastic butter knife with a stainless steel swiss-army knife. The cheap butter knife may handle a few simple needs, but most investors would be better served by someone with a breadth of tools that can assist you with a diverse set of circumstances.

Having your guide is important when it comes to investments, but having someone with expertise in tax planning; estate planning; and insurance planning can be critical. All these areas can have a profound impact on whether you achieve your personal and financial goals.

Along the road of life, there can be many bumps, twists and turns. If you would like the assistance of a professional advisor, consider doing your homework to find your very own Great Portfolio Specialist (GPS). Here is a checklist:

1) Where are You Now?
This means taking inventory of your assets and liabilities, getting a handle on your income and expenses, and having a firm understanding of your tax and family planning issues (will, trust, powers of attorneys, etc.)

2) Where are You Going?
Next you need to know where you want to go? You may have a rough idea, but in order to create a coherent plan, goals need to be defined.

3) Create a Plan
Everyone’s map or blueprint will look different. Some will need highly detailed directions, while others due to different circumstances may have less complex needs.

4) Monitor and Adjust Plan as Necessary
Many unforeseen circumstances can change over time so it is important to review, not only the changes in external circumstances, such as the financial markets, but also any individual changes whether it’s health, family, personal, or goal related.

Some people prefer to do things the old-fashion way or are happy with subpar technology (i.e., compass), however, if you don’t want to get lost or want a clearer defined map, then it’s time to shop for that new Global Portfolio Specialist (GPS) who can help guide you to your destination.

*http://investingcaffeine.com/2009/11/19/secure-your-gps-global-portfolio-specialist/

Editor’s Note: The above article consists of edited excerpts from the original for the sake of brevity, clarity and to ensure a fast and easy read. The author’s views and conclusions are unaltered. (editor@MunKnee.com)

See larger image Poor No More: Wealth Is Within Reach (Paperback) By (author) Curtis Hill List Price: $14.99 USD New From: $14.99 In Stock Used from: $10.99 In Stock Release date February 4, 2009.

In further edited excerpts from the original article* Langemeier goes on to say:

Scrimping and Saving is Not the Only Answer
When finances get tight, the easiest — and most reflexive — thing to do is to scrimp and save. This is the opposite of what you need to do to breathe easier. The best thing you can do when finances get tight is to focus on making more money.

Basically, there are two parts to money in your life: the money that flows in (your income) and the money that flows out (your expenses).

In my experience, most people focus too much on the money that flows out when they should put their time and energy into the money that flows in. For example, let’s say you want a new dishwasher. Many people will choose to cut back on another expense so they can afford the dishwasher. They’ll wait to fix the car, or give up the paint job on the house.

There is no need to do that. There is no need to decrease your outflow of money. That is a negative use of time, energy, and ability. It is better to be positive and focus on how to increase the inflow of money to you. An extra $500 to $1,000 a month is out there, waiting for you. Let’s get it to flow into your pockets, because $500 to $1,000 extra a month could go a long way toward getting a new dishwasher, fixing the car, and painting the house.

There is nothing sadder, to me, than watching hopeful human beings take advice to cut off their dreams and redirect their spirit to getting small.

I am here to tell you that you absolutely, positively can stay in your dreams and get bigger. I don’t know about you, but I don’t think it’s a lot of fun to restrict my life. Not that I live extravagantly, but I do like the simple pleasures: a latte, a weekend movie, new shoes now and then. These things shouldn’t give me stress and they don’t. Because when I need or want something, I generate more cash to pay for it. I don’t save for it or pay for it with a credit card. I go and make the money and it’s always easier than I think it’s going to be.

Dealing with Debt
There is so much judgment around credit card debt these days. I actually find it motivating. When I see clients with credit card debt I know they want a big life; they just don’t know how to pay for it yet. Instead of suggesting to clients that they give up their lives and focus solely on paying off that debt, I suggest they go make more money to pay off that debt.

When you realize you can make money fast, an extra $500 to $1,000 of new money every month, you will also realize you can use a lot of that new money to pay down credit card debt.

Easier said than done? If you’re making $500 to $1,000 extra a month, imagine how much easier it would be to pay off those credit cards. Once you start making this cash, fast, you will be able to direct some of that money to getting rid of your credit card debt. With the $500 to $1,000 extra a month you’ll be making, you’ll find this debt-elimination process very doable.

Soon enough you’ll be debt free and better able to start buying things you want without scrimping and saving. The best part is you will be excited and re-energized daily because you’ll be making more money, getting rid of financial problems, and acquiring the things you want to make your life easier and better.

In addition to promoting saving or scrimping, too many financial experts rely on the markets for making money. The markets, whether we’re talking about the stock market or the real estate market or any other arena where investors are subject to emotional swings and forces beyond their control, are not reliable places to make more money.

Historically, the markets have created money for some people and lost money for others but if you want a sure thing, a way to make a definite $500 to $1,000 a month, then you need to rely on one thing you can be sure of, and that is yourself.

Contrary to popular belief, that doesn’t have to be a lonely prospect. I believe strongly in creating a community of self-reliance. That is, relying on your skills and ideas while enrolling others who can support you and whom you can support in their efforts.

This country was built on self-reliance, on the backs of men and women who used their skills to make things better. This is a great country because the people who built the core of it didn’t play games or speculate. They knew what they wanted and they created it. This attitude is the American spirit, and you are going to grab a piece of the American spirit and make your life better.

*http://yourmoney.ca/saving/ContentPosting?newsitemid=cbbcd734-a72e-4ab4-b484-541bb27c416f&feedname=YOUR-MONEY-HARPER&show=False&number=0&showbyline=True&subtitle=&detect=&abc=abc&date=False

Editor’s Note: The above article consists of edited excerpts from the original for the sake of brevity, clarity and to ensure a fast and easy read. The author’s views and conclusions are unaltered. (editor@MunKnee.com)

See larger image Put More Cash in Your Pocket: Turn What You Know into Dough (Paperback) By (author) Loral Langemeier List Price: $16.99 USD New From: $9.29 In Stock Used from: $8.49 In Stock Release date October 13, 2009.

In further edited excerpts from the original article* Kim goes on to say:

It’s no secret that different age groups have different spending patterns. Younger people are a drag on economic growth since they consume a great deal but don’t produce. In other words, they exacerbate inflation since they increase demand and reduce supply for goods. On the other hand, middle aged people are high earners, producers, and spenders. They tend to moderate inflation and prop up asset prices. Peak spending occurs on average at age 48. Spending patterns resemble a bell curve, so beyond this age, spending tapers off as people save for retirement.

Baby Boomers
Now, let’s extrapolate these spending characteristics on to the most important generation in America: the Baby Boomers (1946-1960). The stagflationary period of the 1970’s, characterized by low productivity and high inflation, coincided with the youth of baby boomers, which makes sense considering the producing and spending characteristics of the young. The Baby Boomers entered their mid 40’s of peak spending in the early 90’s up until 2007. It’s no surprise then that a boom in America occurred in this time frame.

Coming Depression
Demographic trends in the U.S. moving forward portend a decade-long depression. In a country highly dependent on consumption, there just aren’t enough high-earning consumers to drive growth. This is because the 15 years following the baby boom generation saw births decrease by about 25%. These are the people who are now entering their peak earnings and spending years who must replace the productivity of boomers now entering retirement.

Immigration
All is not lost as there are a couple of potential factors that could mitigate these trends. One is increased immigration to our country. However, early indications suggest that there will be growing protectionism in this area, much like the Great Depression when immigration came to a halt. For example, banks that received TARP funds are contrained by law in terms of the foreigners they can hire. These are often highly educated and productive foreign workers who pay more in taxes than they receive in benefits.

Technological Progress
The other potential mitigating factor is technological progress. Unfortunately, technological advances are cyclical and largley driven by demographics as well. Generally young people drive technological innovation. The same baby boomers who discovered nascent technologies in the 70’s and 80’s are now more focused on retirement. Most of the cutting-edge technologies they created, such as the internet, have already achieved maturity- meaning they have reached over 90% of households. Therefore, technology will likely not provide the productivity boost it did in the 80’s and 90’s.

Higher Taxes
The government extended promises when demographics were favorable, such as Medicare and Social Security, that they will not be able to keep. Higher taxes, whether explicit or implicit (through inflation), that result from the demographic storm will further dampen economic growth. According to former Treasury Department economist Bruce Bartlett, tax rates will have to increase 81% right now to compensate for our shortfall in promised benefits. Because of quickly collapsing tax receipts and massive unfunded liabilities, taxes are about to increase significantly.

We have been able to delay the day of reckoning because demographic trends were strong for so long. However, the tide has already started to reverse, and our country is bound to experience significant economic strife in the future. The very nature of spending and productivity patterns with age suggests a significant retrenchment in output is coming, which is the very definition of a Depression.

*http://expectedreturns.blogspot.com/2009/07/case-for-depression-part-3-demographics.html

Editor’s Note: The above article consists of edited excerpts from the original for the sake of brevity, clarity and to ensure a fast and easy read. The author’s views and conclusions are unaltered. (editor@MunKnee.com)

See larger image The Great Depression Ahead: How to Prosper in the Debt Crisis of 2010 - 2012 (Paperback) By (author) Harry S. Dent List Price: $16.00 USD New From: $9.24 In Stock Used from: $10.14 In Stock

In further edited excerpts from the original article* Slome goes on to say:

It has been an incredible roller coaster ride over the last two years, both on the way down, and for those still in the game…on the way up. Most prospects I come across are perplexed with how quickly their portfolios unraveled in 2008 and are scratching their heads with respect to how quickly markets bounced back.

For retirees, and those who thought they were near retirement, the impact of this financial crisis has been devastating. Compounding the mental anguish, I see many investors knee-jerking their way into sub-optimal decisions.

Most frequently, I see investors parked in a cave earning next to nothing on their illiquid assets and/or piling into long duration bonds. Investors often are unaware of the risks associated with the long-in-the-tooth, multi-decade bull run in the bond market …caveat emptor!

What people don’t realize or focus on is the sensitivity to changes in interest rates (called “duration” – the equivalent of “beta” for stocks).

Moreover, investors are not managing for inflation risk. While many retirees in their 50s and 60s relax in their bunkers, earning next to nothing on their CDs and money market accounts, inflation is a huge risk as medical, energy, food, leisure, and general living expenses continue to rise with government fiscal monetary and fiscal policies potentially accelerating the escalation of price levels.

To add fuel to the fire, life expectancies continue to increase. Quite simply, many retirees who don’t have their money invested EFFICIENTLY, run the risk of outliving their nest eggs. This is no scare tactic, this is plain reality.

O.K., O.K., So What’s a Person To Do?
Determine whether you have the time, discipline, and emotional make-up to handle your own finances. Most people think they can succeed on their own, much like the vast majority of people think they are above average drivers. The data shows a different fact pattern. An 18 year study compiled by legendary Vanguard Group founder, John Bogle has shown that the average investor gets destroyed not only by fees, taxes and transactions costs, but also more importantly due to emotional errors and lack of investing discipline.

If you outsource your taxes to a professional CPA, and your estate planning (e.g., will and trusts) to attorneys, then why wouldn’t you seriously consider outsourcing your investments to a professional? “Professional” is the operative word, because unfortunately many people in the investment industry are more akin to aggressive salespeople than they are professional investors.

Since there are so many sharks in the industry, it behooves you to perform your due diligence on advisors under consideration. Here are some items to mark off on your checklist:

1) Fiduciary Duty:
Does the advisor you’re looking at work for a RIA (Registered Investment Advisor), which has a lawful fiduciary duty to make investment decisions in your best interest. Most brokers only have a “suitability” standard, which is a much lower hurdle to meet.

2) Compensation:
How is the advisor compensated? Many advisors are incentivized to sell, sell, sell because they make commissions by shuffling your investments around. You’re much better off by aligning with a “fee-only” advisor who has a natural incentive in place to make decisions that will grow your assets.

3) Experience/Credentials:
Find out how committed your advisor is to their trade. Would you want a nurse to perform your brain surgery or a flight attendant to fly your plane? Probably not. Find out if your advisor has ever invested money or have they just sold products? Do they hold the CFP (Certified Financial Planner®) certification and/or the CFA (Chartered Financial Analyst) designation? Do they have relevant degrees in the field of finance or economics? Less than 5% of all advisors have the combination of these credentials.

4) Investing Style:
Discover whether your advisor uses the same investments in their personal portfolio that they recommend to you? If not, why not? It makes much more sense to partner with advisors that eat their own cooking.

5) Reputation:
With proper research, investors can become more comfortable with the professional chosen and the status of the firm employing the manager/professional. Several government and professional regulatory organizations, such as the National Association of Securities Dealers (NASD), the Securities & Exchange Commission (SEC), your state insurance and securities departments, and CFP Board keep records on the disciplinary history of the investment and financial planning advisors. Ask what organizations the professional is regulated by and contact these groups to conduct a background check.

Following these simple steps and you can weed out many of the shoddy financial advisors that have conflicts of interest and/or lack the skills and experience to invest your money prudently.

*http://investingcaffeine.com/2009/10/21/what-to-do-now-time-to-get-the-house-in-order/

Editor’s Note: The above article is an abridged and enhanced (where appropriate) version of the original. The author’s views and conclusions are unaltered. Lorimer Wilson (editor@MunKnee.com)

See larger image Getting Started in Finding a Financial Advisor (Paperback) By (author) Charles A. Jaffe List Price: $19.95 USD New From: $13.57 In Stock

In further edited excerpts from the original article* Slome goes on to say:

Burton Malkiel, Princeton Professor, economist, and author, summed it up succinctly, “Diversity reduces adversity.” Diversification acts like shock absorbers on a car – it smoothens out the ride on a bumpy financial road.

Jason Zweig, Wall Street Journal writer, acknowledges the academic findings that underpin these diversification benefits by stating the following: “As many studies have shown, at least 40% of the variability in returns can be reduced by moving from a single company to 20. Once a portfolio contains 20 or 30 stocks, adding more does little to damp the fluctuations in wealth over time. If you want to pick stocks directly, put 90% to 95% of your money in a total stock-market index fund. Put the rest in three to five stocks, at most, that you can follow closely and hold patiently. Beyond a handful, more companies may well leave you less diversified.”

Don Chance, a finance professor at the Louisiana State University business school asked more than 200 students to consecutively select stocks until they each held a portfolio of 30 positions. Here are two of the main findings:
1) On average, for the group of students, diversifying from a single stock to 20 reduced portfolio risk by roughly 40% – just as would be expected from the academic research.
2) After the first few initial stock picks, for each individual portfolio, were made from a list of large cap household names (e.g., XOM, SBUX, NKE), Professor Chance found in many instances students dramatically increased portfolio risk. These students juiced up the octane in their portfolios by venturing into much smaller, more volatile stock selections.

Gur Huberman, a Columbia finance professor, also points out a tendency for investors to clump stock selections together in groups with similar risk profiles, thereby reducing diversification benefits. Diversifying from one banking stock to 20 banking stocks may actually do more damage.

Statistically, Zweig points out that, “Thirteen percent of the time, a 20-stock portfolio generated by computer will be riskier than a one-stock portfolio.” Professor Chance found similar results according to Zweig: “One in nine times, they [students] ended up with 30-stock portfolios that were riskier than the single company they had started with. For 23%, the final 30-stock basket fluctuated more than it had with only five stocks.”

Warren Buffett says, “Diversification is protection against ignorance.”

Peter Lynch has referred to diversification as “deworsification,” especially when it came to companies diversifying into non-core businesses.

Charlie Munger says “Wide diversification, which necessarily includes investment in mediocre businesses, only guarantees ordinary results.”

As you can see, there are different viewpoints regarding the benefits. Indeed, it would seem that putting more eggs in your basket may actually crack your portfolio, not protect it.

*http://investingcaffeine.com/category/asset-allocation/

Editor’s Note: The above article consists of edited excerpts from the original for the sake of brevity, clarity and to ensure a fast and easy read. The author’s views and conclusions are unaltered. (editor@MunKnee.com)

See larger image The Perfect Portfolio: A Revolutionary Approach to Personal Investing (Hardcover) By (author) Leland B. Hevner List Price: $29.95 USD New From: $16.94 In Stock Used from: $16.80 In Stock

In further edited excerpts from the original article* Krueger goes on to say:

Much of our challenge with money stems from our difficulty to make one small distinction: what we have from who we are.

A Money Quiz
Answer the following two questions with a single, specific figure.

My current annual income is __________?

In order to insure happiness and contentment financially, with no more money problems and worries, my annual income would need to be _________.

I have given this quiz to hundreds of people. In more than 9 of 10 cases, their answers indicate that their annual income would need to be about twice the current level for them to feel happy and free from money worries. Someone who makes $50,000 a year believes it would take roughly $100,000 a year in order to be financially content; someone who makes $500,000 – five times the first person’s magical number – believes that the figure would need to be about a million a year.

In discussions with people after they take this little poll, there is a “trailing double” effect. People who have actually seen their income double over time have at the same time doubled their “happy and content” amount. In other words, once those who earned $50,000 achieve their hoped-for $100,000 goal, they then raise the bar and believe that it would now take about $200,000 to be happy.

Even when you change the numbers, the story remains the same. The story in this case is: “I need twice as much as I have to be happy.” That’s just one example of the common story threads; there are dozens of others, just as irrational, and just as hypnotically compelling.

Making peace with our moving target isn’t about learning how to aim better, or creating a fixed target that doesn’t move even after we hit it.

Creating financial targets (goals) is an important part of writing a new money story—but finding peace lies not in the target, but in the shooter. Your new money story begins with determining not what it is you want to have, but who it is you want to be.

*http://www.thesecretlanguageofmoney.com/

Editor’s Note: The above article consists of edited excerpts from the original for the sake of brevity, clarity and to ensure a fast and easy read. The author’s views and conclusions are unaltered. (editor@MunKnee.com)

See larger image The Secret Language of Money: How to Make Smarter Financial Decisions and Live a Richer Life (Hardcover) By (author) David Krueger, John David Mann List Price: $25.95 USD New From: $11.10 In Stock Used from: $7.37 In Stock

In further edited excerpts from the original article* eChristian Investing goes on to say:

The average yield of dividend stocks in the Dow Jones index is now 2.9%. The S&P 500 sports 15 stocks with dividend yields above 6%. Those are pretty attractive yields for income investors, given that a money market account currently offers less than a 1% return.

A high dividend payout ratio is typically a warning sign that the current dividend level is unsustainable but below are details on 5 dividend stocks that have impressively high yields but also have very deceiving payout ratios in that they have sufficient free cash flow to maintain such dividend payment levels.

1. Qwest Communications (Q)
Qwest offers dividend investors an impressive 6.9% dividend yield. Wall Street expects that net earnings will decline by 10% this year, pushing the stock’s dividend payout ratio to 94%. However, the company generated nearly $2 billion in free cash flow in 2009 and has very impressive EBITDA margins (36% in the fourth quarter). With a manageable dividend/free cash flow ratio, Qwest should be able to maintain their dividend payout despite Wall Street’s expectations of further revenue declines in 2010 and 2011.

2. Frontier Communications (FTR)
Frontier Communications is the highest yielding stock in the S&P 500 with an amazing 13.7% dividend yield. The telecom stock is in the midst of acquiring assets from Verizon (VZ) in an $8.6 billion deal. The dividend reduction along with the Verizon transaction will significantly improve their dividend payout ratio from their current 175% level, but will still offer investors an amazing 10% dividend yield.

3. Windstream (WIN)
Windstream is the second highest yielding dividend stock in the S&P 500 with a 9.6% dividend yield. While the company’s annual dividend payout of $1.00 per share exceeds their anticipated net earnings of $.85 per share, the telecom stock is only expected to pay out 55% of their free cash flow in 2010. Wall Street also expects the stock to grow earnings in both 2010 and 2011.

4. Paychex (PAYX)
Paychex currently offers investors a respectable 4% dividend yield, but at the same time they are using 93% of their net earnings to fund their dividend payment. However, Wall Street expects the company’s earnings to grow by 8% in 2011. Though the labor markets are still a long way from full recovery, investors are recognizing that the Paychex outlook is much brighter than it was just a few quarters ago.

5. Verizon (VZ)
While Verizon may be the second highest yielding dividend stock in the Dow Jones index, declining earnings in 2010 could put pressure on the company’s high dividend. However, given the company’s strong dividend history we believe a dividend cut is unlikely from Verizon – despite a dividend payout ratio that is now above 80%. A costly marketing battle with AT&T (T) could prevent Verizon from increasing their dividend this year, but the chances of a dividend cut are slim.

When evaluating dividend stocks, free cash flow is often a much better measure to look at than net earnings. Without looking at a company’s cash flow, you can often be ignoring great dividend stocks. A high dividend payout ratio certainly shouldn’t preclude you from doing further analysis on a great dividend opportunity.

*http://seekingalpha.com/article/192523-five-quality-dividend-stocks-despite-high-payout-ratios?source=article_sb_popular

Editor’s Note: The above article consists of edited excerpts from the original for the sake of brevity, clarity and to ensure a fast and easy read. The author’s views and conclusions are unaltered. (editor@MunKnee.com)

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In further edited excerpts from the original article* Marksjarvis goes on to say:

Serious investors always worry when too many regular people start pouring money into a single investment without an inkling about what might drive the price up or down. They’ve simply heard that gold is safe and climbing fast. How can you pass up the magic word “safe” and big profits on an investment?

Some analysts say there are economic conditions in place that will enable gold prices to climb again after this downturn. Goldman Sachs Group’s precious metals team recently said that if U.S. interest rates stay low, that will be conducive to gold prices climbing in 2010 to perhaps $1,350 an ounce but if the economy strengthens and the Federal Reserve raises rates, “gold prices will come under significant pressure” as investors look for better returns elsewhere, such as Treasurys.

What concerns Jim Paulsen, chief investment strategist for Wells Capital Management, is that the frenzy has led to a lack of clarity about what’s been driving gold prices. “Gold has been the answer to inflation; gold has been the answer to disinflation; gold has been the answer to too much debt and to the China bubble,” he said, “but I have never known an asset that was the answer to everything.”

Paulsen said gold clearly is overpriced, and consequently vulnerable to fall. Between 1980 and the present, gold has been trading at 1 to 2.5 times the CRB Commodity Index, which tracks a broad range of commodities. Now, he said, it’s 4 times.

Buyer beware and watch out if you believe gold is safe!

*http://www.chicagotribune.com/business/yourmoney/chi-tue-gold-1208-dec08,0,77237.column

Editor’s Note: The above article consists of edited excerpts from the original for the sake of brevity, clarity and to ensure a fast and easy read. The author’s views and conclusions are unaltered. (editor@MunKnee.com)

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