The Forest Lake Times http://forestlaketimes.com The Forest Lake Times covers community news, sports, current events and provides advertising and information for Forest Lake, Minnesota. Tue, 04 Aug 2015 11:24:27 +0000 en-US hourly 1 Kitchen Science http://forestlaketimes.com/2015/08/04/kitchen-science/ http://forestlaketimes.com/2015/08/04/kitchen-science/#comments Tue, 04 Aug 2015 11:24:27 +0000 http://forestlaketimes.com/?p=65964 Kitchen Science

Local author and “Kitchen Pantry Scientist” Liz Heinecke presented a special STEM program July 9 at Hardwood Creek Library. Attendees played with hands-on science experiments, thought about what else they could try, and talked about science blunders that have led to important discoveries. They did an experiment with red cabbage juice, baking soda, and vinegar to learn about acid-base indicators and chemical reactions. They also figured out how to make the perfect polymer slime using glue and Borax laundry detergent.

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Student News http://forestlaketimes.com/2015/08/04/student-news-19/ http://forestlaketimes.com/2015/08/04/student-news-19/#comments Tue, 04 Aug 2015 11:15:40 +0000 http://forestlaketimes.com/?p=65959 Abigail Laudi and Bailey Norby or Forest Lake and Mary Kasl of Wyoming earned a spot on the dean’s list at Creighton University.

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Why Not to Chase Returns http://forestlaketimes.com/2015/08/03/why-not-to-chase-returns/ http://forestlaketimes.com/2015/08/03/why-not-to-chase-returns/#comments Mon, 03 Aug 2015 19:30:09 +0000 http://forestlaketimes.com/?guid=7206617bf1f0b76ee28685bd83b8b8bb You hear advisors on TV talking about how they research and pick the securities with the highest returns. That sounds good since who doesn’t want the best? Why not jump in and catch the wave? Here are three reasons why not.

1. The past is too late. Those returns did happen, but the investment isn’t already in your portfolio. Regardless of how good they were, you don’t get the past returns of the investments you weren’t in.

If you take an old investment out and put a new investment into the portfolio after you notice it had better return, you get the returns of the lower performing investment. So you see the shell game? Switching out a lower performing investment gives you an illusion that your returns improve.

2. The future is unpredictable. Past performance does not guarantee future returns. You see this in every disclosure. Yet many still have the misperception that they can look at past returns to determine the future return of that investment.

Numerous studies have found that funds that did well in the past do not consistently go on to do so. The Standard & Poor’s ongoing reports on funds performance show that managers don’t year after year outperform the indexes.

I agree with advisor Daniel Solin’s article that we need a stronger disclaimer to better remind investors of this fact. A study he cites found that a more effective disclaimer would be: “Do not expect the fund’s quoted past performance to continue in the future. Studies show that mutual funds that have outperformed their peers in the past generally do not outperform them in the future. Strong past performance is often a matter of chance.”

3. Outperforming is not your goal. The real objective of investing is achieving your life goals, such as a sustainable retirement. That has more to do with your savings and spending rates that it does with returns. And unlike the returns the markets deliver, you can control how much you save or spend.

So how should you invest? Rather than chasing returns, simply invest in broad indexes and get what the markets give you – good and bad. This approach allows you to dial in the level of risk. You don’t get the occasional outperformance, but you also don’t underperform, either. Unless there are systematic risks – when the economy tanks, like it did in 2008 – you get consistent returns that match the markets.

One can wish for good returns all the time. But that is not how the markets work. Unexpected news and all participants’ expectations and reactions to it move prices. Your part is to let the markets work over time.

Follow AdviceIQ on Twitter at @adviceiq.

Larry R. Frank Sr., CFP, is a Registered Investment Advisor (California) in Roseville, Calif. He is the author of the book, Wealth Odyssey. He has an MBA with a finance concentration and B.S. cum laude in physics with which he views the world of money dynamically. He has peer-reviewed research published in the Journal of Financial Planning. http://blog.betterfinancialeducation.com/.

AdviceIQ delivers quality personal finance articles by both financial advisors and AdviceIQ editors. It ranks advisors in your area by specialty, including small businesses, doctors and clients of modest means, for example. Those with the biggest number of clients in a given specialty rank the highest. AdviceIQ also vets ranked advisors so only those with pristine regulatory histories can participate. AdviceIQ was launched Jan. 9, 2012, by veteran Wall Street executives, editors and technologists. Right now, investors may see many advisor rankings, although in some areas only a few are ranked. Check back often as thousands of advisors are undergoing AdviceIQ screening. New advisors appear in rankings daily.

 

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You hear advisors on TV talking about how they research and pick the securities with the highest returns. That sounds good since who doesn’t want the best? Why not jump in and catch the wave? Here are three reasons why not.

1. The past is too late. Those returns did happen, but the investment isn’t already in your portfolio. Regardless of how good they were, you don’t get the past returns of the investments you weren’t in.

If you take an old investment out and put a new investment into the portfolio after you notice it had better return, you get the returns of the lower performing investment. So you see the shell game? Switching out a lower performing investment gives you an illusion that your returns improve.

2. The future is unpredictable. Past performance does not guarantee future returns. You see this in every disclosure. Yet many still have the misperception that they can look at past returns to determine the future return of that investment.

Numerous studies have found that funds that did well in the past do not consistently go on to do so. The Standard & Poor’s ongoing reports on funds performance show that managers don’t year after year outperform the indexes.

I agree with advisor Daniel Solin’s article that we need a stronger disclaimer to better remind investors of this fact. A study he cites found that a more effective disclaimer would be: “Do not expect the fund’s quoted past performance to continue in the future. Studies show that mutual funds that have outperformed their peers in the past generally do not outperform them in the future. Strong past performance is often a matter of chance.”

3. Outperforming is not your goal. The real objective of investing is achieving your life goals, such as a sustainable retirement. That has more to do with your savings and spending rates that it does with returns. And unlike the returns the markets deliver, you can control how much you save or spend.

So how should you invest? Rather than chasing returns, simply invest in broad indexes and get what the markets give you – good and bad. This approach allows you to dial in the level of risk. You don’t get the occasional outperformance, but you also don’t underperform, either. Unless there are systematic risks – when the economy tanks, like it did in 2008 – you get consistent returns that match the markets.

One can wish for good returns all the time. But that is not how the markets work. Unexpected news and all participants’ expectations and reactions to it move prices. Your part is to let the markets work over time.

Follow AdviceIQ on Twitter at @adviceiq.

Larry R. Frank Sr., CFP, is a Registered Investment Advisor (California) in Roseville, Calif. He is the author of the book, Wealth Odyssey. He has an MBA with a finance concentration and B.S. cum laude in physics with which he views the world of money dynamically. He has peer-reviewed research published in the Journal of Financial Planning. http://blog.betterfinancialeducation.com/.

AdviceIQ delivers quality personal finance articles by both financial advisors and AdviceIQ editors. It ranks advisors in your area by specialty, including small businesses, doctors and clients of modest means, for example. Those with the biggest number of clients in a given specialty rank the highest. AdviceIQ also vets ranked advisors so only those with pristine regulatory histories can participate. AdviceIQ was launched Jan. 9, 2012, by veteran Wall Street executives, editors and technologists. Right now, investors may see many advisor rankings, although in some areas only a few are ranked. Check back often as thousands of advisors are undergoing AdviceIQ screening. New advisors appear in rankings daily.

 

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Leland “Lee” V. Harris http://forestlaketimes.com/2015/08/03/leland-lee-v-harris/ http://forestlaketimes.com/2015/08/03/leland-lee-v-harris/#comments Mon, 03 Aug 2015 18:26:30 +0000 http://forestlaketimes.com/?p=66070 Leland

Leland "Lee" Harris, age 82 of Wyoming, passed away on July 31, 2015, after a lengthy illness.
Preceded in death by parents; sister, Sharon Lakso.
Survived by Jean, his bride of 58 years; daughters, Lynn (Craig) Wilda, Lisa Harris; granddaughter, Erin (Matt) Zilles; sister, Virginia (Harold) Larsen; many nieces, nephews, cousins and friends.
Memorial service 11 a.m., Thursday, August 6, 2015 at Mattson Funeral Home, 343 North Shore Drive, Forest Lake. Visitation one hour prior to the service. Interment at Wolf Creek Cemetery, Wisconsin. In lieu of flowers, memorials may be made to Parmly LifePointes.
P.S. This obituary was written by his family. Dad wanted one that simply said, "He died."

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How to Build Wealth http://forestlaketimes.com/2015/08/03/how-to-build-wealth/ http://forestlaketimes.com/2015/08/03/how-to-build-wealth/#comments Mon, 03 Aug 2015 17:31:10 +0000 http://forestlaketimes.com/?guid=79194ff8fc991d465e2560d96732212a My worried clients had needs for the future, but no idea how to get there. I looked them in the eye and told them how they’d get to where they wanted – through a sound discipline of saving money automatically, year after year, religiously.

We set up monthly direct transfers from their bank account to investments, occurring right after they got paid every month. Their paycheck went into a completely separate bank from the one used to pay bills. This assured that the old concept of "pay yourself first" happened.

We also tackled debt with the same relentless system. They are very thankful.

Unfortunately, a lot of people don’t adopt such a strict approach. And that’s to their detriment. Most folks want the result, but don’t know what is involved to attain it.

A few years ago, the television show that captivated Americans was called “Who Wants to Be a Millionaire?” Later, the Indian film Slumdog Millionaire, based on the same show, was an international hit. So the desire to be wealthy clearly has a broad global appeal. But how do you gain wealth? It’s not buying the correct lotto ticket. People often overlook a simple secret to building wealth the time value of money.

Disciplined saving and investing is the key. Oftentimes that lesson is lost in a consumption-based society that is always seeking the next hot thing, regardless of cost or value. Too many people, saving feels like a subtle punishment as though one is “losing” money that could be spent. Really saving is like building an ever-growing gift for yourself.

Ellen Rogin and Lisa Kueng, authors of a recently published book entitled Picture Your Prosperity: Smart Money Moves to Turn Your Vision into Reality. They cite a perceptual difference. Ask people if they can save 20% of their income, the answer may be a resounding “no” – but ask if they can live on 80% of their income, that may seem reasonable.

Saving money should make everyone feel great. It means effectively “paying yourself” or at least building up cash on hand. A household with a save-first financial approach may find itself making progress toward near-term and long-term money goals.

So why do some households save more than others? Building household savings may depend not only on cash flow, but also on psychology. With the right outlook, saving becomes a commitment. With a less positive outlook, it becomes a task – and as we recall from our youth tasks and chores are almost always postponed.

Rogen and Kueng point to something a truth that’s been around since the dawn of time, but only recently received academic study. That is the divergence between expectations and behavior. Since 2001, Gallup has asked Americans a poll question: “Thinking about money for a moment, are you the type of person who more enjoys spending money or more enjoys saving money?”

While more respondents have chosen saving over spending in every year the poll has been conducted, the difference in the responses never exceeded 5 percentage points from 2001-06. It hit 9 points in 2009, and has been 18 points or greater ever since. In 2014, 62% of respondents indicated they preferred to save instead of spend, with only 34% of respondents preferring spending.

So are Americans a nation of good savers? Not to the degree that these poll results might suggest. The most recently available Commerce Department data (January 2015) shows the average personal savings rate at 5.5% - a percentage point higher than two years ago, but subpar historically. During the 1970s, the personal savings rate averaged 11.8%; in the 1990s, it averaged 6.7%.

Economists know full well that a dollar received today is worth more than a dollar received a year from now. Why? Because that dollar could be invested, saved or spent to purchase an asset such as real estate that will appreciate in value. What's more, inflation slowly but steadily erodes the purchasing power of your money, rendering tomorrow's dollar less valuable than today's.

The relationship between time and money provides the foundation for virtually every financial decision you will make. Whether you are saving money for a future event or considering a loan to pay for a current financial need, you will be greatly affected by the time value of money. The following are some tips for making the most of your dollars, today and tomorrow.

That $30,000 luxury car you've had your eye on will cost you a whopping $67,872 just two decades from now.

The cost of some financial objectives will grow even faster than this. College costs, for example, have increased by some 9% over five years on average for private institutions, 12% for public. Planning for such cost increases will ensure that your asset accumulation level is sufficient to meet your objectives.

What's the best time to start preparing for a sound financial future? Twenty years ago, goes the old joke. Failing that, the second-best time is today.

Ways to save more? Automated retirement plan contributions or payroll withdrawals into an investment account can assist the growth of savings, and are a means of paying oneself first.

There is the envelope system, where a household divides its paycheck into figurative (or literal) envelopes, assigning X dollars per month to different packets representing different budget categories. When the envelopes are empty, you can spend no more. The psychology is never to empty the envelopes, of course – leaving a little aside each month that can be saved.

Households take an incremental approach: They start by saving one or two cents of every dollar they make, then gradually increase that percentage, household expenses permitting.

Frugality may help as well. A decision to live on 70% or 80% of household income frees up some dollars for saving. Another route to building a nest egg is to invest (or at least save) the accumulated consumer savings you realize at the mall, the supermarket, the recycling center – even pocket change amassed over time.

How many households budget like businesses? Perhaps more should. A business owner, manager or executive may realize savings through this approach. Take it line item by line item: spending $20 less each week at the supermarket translates to $1,040 saved annually.

Working with financial professionals may encourage greater savings. A study on workplace retirement plan participation from Natixis Global Asset Management had a couple of details affirming this. While employees who chose to go without input from a financial professional contributed an average of 7.8% of their incomes to their retirement plan accounts, employees who sought such input contributed an average of 9.5%.

The study also found that 74% of the employees who had turned to financial professionals understood how much money their accounts needed to amass for retirement, compared to 54% of employees not seeking such help.

Follow AdviceIQ on Twitter at @adviceiq.

Walid L. Petiri, AAMS, RFC, is chief strategist at Financial Management Strategies LLC in Baltimore.

AdviceIQ delivers quality personal finance articles by both financial advisors and AdviceIQ editors. It ranks advisors in your area by specialty, including small businesses, doctors and clients of modest means, for example. Those with the biggest number of clients in a given specialty rank the highest. AdviceIQ also vets ranked advisors so only those with pristine regulatory histories can participate. AdviceIQ was launched Jan. 9, 2012, by veteran Wall Street executives, editors and technologists. Right now, investors may see many advisor rankings, although in some areas only a few are ranked. Check back often as thousands of advisors are undergoing AdviceIQ screening. New advisors appear in rankings daily.

 

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My worried clients had needs for the future, but no idea how to get there. I looked them in the eye and told them how they’d get to where they wanted – through a sound discipline of saving money automatically, year after year, religiously.

We set up monthly direct transfers from their bank account to investments, occurring right after they got paid every month. Their paycheck went into a completely separate bank from the one used to pay bills. This assured that the old concept of "pay yourself first" happened.

We also tackled debt with the same relentless system. They are very thankful.

Unfortunately, a lot of people don’t adopt such a strict approach. And that’s to their detriment. Most folks want the result, but don’t know what is involved to attain it.

A few years ago, the television show that captivated Americans was called “Who Wants to Be a Millionaire?” Later, the Indian film Slumdog Millionaire, based on the same show, was an international hit. So the desire to be wealthy clearly has a broad global appeal. But how do you gain wealth? It’s not buying the correct lotto ticket. People often overlook a simple secret to building wealth the time value of money.

Disciplined saving and investing is the key. Oftentimes that lesson is lost in a consumption-based society that is always seeking the next hot thing, regardless of cost or value. Too many people, saving feels like a subtle punishment as though one is “losing” money that could be spent. Really saving is like building an ever-growing gift for yourself.

Ellen Rogin and Lisa Kueng, authors of a recently published book entitled Picture Your Prosperity: Smart Money Moves to Turn Your Vision into Reality. They cite a perceptual difference. Ask people if they can save 20% of their income, the answer may be a resounding “no” – but ask if they can live on 80% of their income, that may seem reasonable.

Saving money should make everyone feel great. It means effectively “paying yourself” or at least building up cash on hand. A household with a save-first financial approach may find itself making progress toward near-term and long-term money goals.

So why do some households save more than others? Building household savings may depend not only on cash flow, but also on psychology. With the right outlook, saving becomes a commitment. With a less positive outlook, it becomes a task – and as we recall from our youth tasks and chores are almost always postponed.

Rogen and Kueng point to something a truth that’s been around since the dawn of time, but only recently received academic study. That is the divergence between expectations and behavior. Since 2001, Gallup has asked Americans a poll question: “Thinking about money for a moment, are you the type of person who more enjoys spending money or more enjoys saving money?”

While more respondents have chosen saving over spending in every year the poll has been conducted, the difference in the responses never exceeded 5 percentage points from 2001-06. It hit 9 points in 2009, and has been 18 points or greater ever since. In 2014, 62% of respondents indicated they preferred to save instead of spend, with only 34% of respondents preferring spending.

So are Americans a nation of good savers? Not to the degree that these poll results might suggest. The most recently available Commerce Department data (January 2015) shows the average personal savings rate at 5.5% - a percentage point higher than two years ago, but subpar historically. During the 1970s, the personal savings rate averaged 11.8%; in the 1990s, it averaged 6.7%.

Economists know full well that a dollar received today is worth more than a dollar received a year from now. Why? Because that dollar could be invested, saved or spent to purchase an asset such as real estate that will appreciate in value. What's more, inflation slowly but steadily erodes the purchasing power of your money, rendering tomorrow's dollar less valuable than today's.

The relationship between time and money provides the foundation for virtually every financial decision you will make. Whether you are saving money for a future event or considering a loan to pay for a current financial need, you will be greatly affected by the time value of money. The following are some tips for making the most of your dollars, today and tomorrow.

That $30,000 luxury car you've had your eye on will cost you a whopping $67,872 just two decades from now.

The cost of some financial objectives will grow even faster than this. College costs, for example, have increased by some 9% over five years on average for private institutions, 12% for public. Planning for such cost increases will ensure that your asset accumulation level is sufficient to meet your objectives.

What's the best time to start preparing for a sound financial future? Twenty years ago, goes the old joke. Failing that, the second-best time is today.

Ways to save more? Automated retirement plan contributions or payroll withdrawals into an investment account can assist the growth of savings, and are a means of paying oneself first.

There is the envelope system, where a household divides its paycheck into figurative (or literal) envelopes, assigning X dollars per month to different packets representing different budget categories. When the envelopes are empty, you can spend no more. The psychology is never to empty the envelopes, of course – leaving a little aside each month that can be saved.

Households take an incremental approach: They start by saving one or two cents of every dollar they make, then gradually increase that percentage, household expenses permitting.

Frugality may help as well. A decision to live on 70% or 80% of household income frees up some dollars for saving. Another route to building a nest egg is to invest (or at least save) the accumulated consumer savings you realize at the mall, the supermarket, the recycling center – even pocket change amassed over time.

How many households budget like businesses? Perhaps more should. A business owner, manager or executive may realize savings through this approach. Take it line item by line item: spending $20 less each week at the supermarket translates to $1,040 saved annually.

Working with financial professionals may encourage greater savings. A study on workplace retirement plan participation from Natixis Global Asset Management had a couple of details affirming this. While employees who chose to go without input from a financial professional contributed an average of 7.8% of their incomes to their retirement plan accounts, employees who sought such input contributed an average of 9.5%.

The study also found that 74% of the employees who had turned to financial professionals understood how much money their accounts needed to amass for retirement, compared to 54% of employees not seeking such help.

Follow AdviceIQ on Twitter at @adviceiq.

Walid L. Petiri, AAMS, RFC, is chief strategist at Financial Management Strategies LLC in Baltimore.

AdviceIQ delivers quality personal finance articles by both financial advisors and AdviceIQ editors. It ranks advisors in your area by specialty, including small businesses, doctors and clients of modest means, for example. Those with the biggest number of clients in a given specialty rank the highest. AdviceIQ also vets ranked advisors so only those with pristine regulatory histories can participate. AdviceIQ was launched Jan. 9, 2012, by veteran Wall Street executives, editors and technologists. Right now, investors may see many advisor rankings, although in some areas only a few are ranked. Check back often as thousands of advisors are undergoing AdviceIQ screening. New advisors appear in rankings daily.

 

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The Rising Rates Fallacy http://forestlaketimes.com/2015/08/03/the-rising-rates-fallacy/ http://forestlaketimes.com/2015/08/03/the-rising-rates-fallacy/#comments Mon, 03 Aug 2015 14:01:09 +0000 http://forestlaketimes.com/?guid=93e432929dcd879c51d764f3b752d004 Higher interest rates are coming.  That’s bad news for bond investors, right? Not necessarily. Such a widely held belief can beguile you into making mistakes with your bond holdings.

Who knows when and if higher rates are really coming, in spite of Fed Chair Janet Yellen’s statement that they are on the way later this year? Forget the dozen or so erroneous warnings over the past decade.  We also had 13 Triple Crown attempts since Affirmed in 1978, and only this year did a contender, American Pharoah, capture horseracing’s highest honor.

For the first time since June 2006, the Federal Reserve looks primed in the near future. The warning bells are ringing like this one from Fox Business’ website recently: “Lookout Retirees, Here Come Rising Interest Rates.”  The piece warns us to adjust our investment strategies as bond prices, which move in the opposite direction from rates, slide.

The basic premise of these warning bells is that a Federal Reserve rate hike will hurt bond returns so much that investors should reduce their bond allocation. Before taking cover and preparing for the impending rate raises, consider some of the faulty logic encouraging investment action. 

Fallacy 1: Higher interest rates are coming.  The futures market suggests that the Federal Reserve is likely to increase its target for the federal funds rate – which commercial banks charge between themselves for overnight loans – later this year or early in 2016.  Most people take this to mean that interest rates are headed higher. 

What’s not well understood is that the Federal Reserve does not set or directly control intermediate and long-term interest rates that matter most to bond prices. The federal funds rate affects extremely short-term rates, and thus has a strong impact on the yield of money markets, bank savings accounts and floating rate loans. It has much less influence on longer-term rates, which are a function of bond investors’ trades and market expectations. 

We need only go back to the last period of Federal Reserve rate hikes, which began in June 2004, for a clear example of the disconnect between the fed funds rate and longer-term interest rates.  On June 29, 2004, the day before the Federal Reserve began to increase rates, the 10-year U.S. Treasury yielded 4.7%.  Within three months of the first rate hike, the 10-year’s yield declined below 4.0%. 

That is, the Fed increased rates, but bond yields went the opposite direction.  A year after the first rate increase, the 10-year Treasury yield remained below 4% despite the fed funds rate increasing by two percentage points over that span. Purchasing a 10-year Treasury the day before the Fed started raising rates and holding it for a year resulted in a return of 10.1%.  A 20-year Treasury held over that same time earned 19.2%.

One reason: Back then, the Chinese were eager buyers of long-term Treasuries, which drove up their prices and pushed down their yields. Today, amid troubles in Europe and Asia, long Treasuries are the safe-harbor investment of choice for foreign investors. So much for the concept that you don’t want to own bonds when the Fed is increasing rates.

If the market anticipates that Fed rate hikes are likely to trigger an economic slowdown, recession or simply curtail any inflation pressures, expect longer-term bond yields to decrease, not increase.

Fallacy 2: Higher interest rates will hurt bond returns.  This belief holds true in the short-term, but not in the longer-term. If you buy a 10-year Treasury today and you’re seeking the highest nominal return over the next decade, the best-case scenario is that interest rates rise dramatically immediately after you purchase the bond. 

This logic flies in the face of traditional short-term thinking because most people associate rising interest rates with lower bond prices. True, the bond price will decline in the short-run and you would have been better waiting to buy the bond after rates increased, not before. 

But if rates immediately rise, you will be able to reinvest the coupon payments at higher reinvestment rates over the next 10 years, which will make for a higher holding period return over the bond’s decade-long term than if rates had remained constant or declined.  As demonstrated in the figures below, you actually earn an additional $5,460 from a $100,000 over the 10-year period when rates immediately increase by two percentage points rather than immediately drop by two points. 

10-Year Scenario if:

Holding Period Return

Ending Value

Interest Rates Immediately Decline to 0.5%

2.31%

 $        125,602

Interest Rates Remain at 2.5% for 10-Years

2.51%

 $        128,182

Interest Rates Immediately Increase to 4.5%

2.74%

 $        131,062

Fallacy 3: You should sell bonds in advance of Fed rate hikes.  As we showed above, bond yields are not directly tied to the federal funds rate.  Plus, anyone who sells bonds has to find a replacement investment for the sale proceeds.  Cash pays nearly nothing and stock prices have historically provided lackluster results in rate tightening cycles. Also, predicting outcomes is a fool’s errand. Timing the movement of interest rates has dumbfounded investors for decades and is likely to continue doing so. 

If you think you know the future path of interest rates, you are better served to open a hedge fund and make outlandish profits, than to simply make a few dollars on your own portfolio. Bonds in a diversified portfolio provide protection in stock market selloffs. 

While the Standard & Poor’s 500 lost 36.6% in 2008, an investment in 10-Year Treasuries gained 20.1%.  If you’re worried more about sharp portfolio losses than near-term fluctuations, a better idea is to maintain a bond allocation, rather than to abandon this protection. 

What do the fallacies of rising interest rates mean to you? Humans are inherently biased to do something, a point that is not lost on Wall Street.  People prefer action over inaction, regardless of whether inaction is optimal.  Since Wall Street profits from investor activity, there will continue to be warnings of rising interest rates and what you can do to protect yourself. as banks and brokerages have a vested interest in compelling trading activity.

Don’t let public perceptions drive your bond investing. Remember the difference between speculation and investment.

In the words of author Fred Schwed Jr., a stock trader who got out of the market in 1929: “Speculating is an effort, probably unsuccessful, to turn a little money into a lot.  Investment is an effort which should be successful, to prevent a lot of money from becoming a little.”  

Follow AdviceIQ on Twitter at @adviceiq.

Jason Lina, CFA, CFP is Lead Advisor at Resource Planning Group Ltd. in Atlanta. Website: www.rpgplanner.com.

AdviceIQ delivers quality personal finance articles by both financial advisors and AdviceIQ editors. It ranks advisors in your area by specialty, including small businesses, doctors and clients of modest means, for example. Those with the biggest number of clients in a given specialty rank the highest. AdviceIQ also vets ranked advisors so only those with pristine regulatory histories can participate. AdviceIQ was launched Jan. 9, 2012, by veteran Wall Street executives, editors and technologists. Right now, investors may see many advisor rankings, although in some areas only a few are ranked. Check back often as thousands of advisors are undergoing AdviceIQ screening. New advisors appear in rankings daily.

  

 

 

 

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Higher interest rates are coming.  That’s bad news for bond investors, right? Not necessarily. Such a widely held belief can beguile you into making mistakes with your bond holdings.

Who knows when and if higher rates are really coming, in spite of Fed Chair Janet Yellen’s statement that they are on the way later this year? Forget the dozen or so erroneous warnings over the past decade.  We also had 13 Triple Crown attempts since Affirmed in 1978, and only this year did a contender, American Pharoah, capture horseracing’s highest honor.

For the first time since June 2006, the Federal Reserve looks primed in the near future. The warning bells are ringing like this one from Fox Business’ website recently: “Lookout Retirees, Here Come Rising Interest Rates.”  The piece warns us to adjust our investment strategies as bond prices, which move in the opposite direction from rates, slide.

The basic premise of these warning bells is that a Federal Reserve rate hike will hurt bond returns so much that investors should reduce their bond allocation. Before taking cover and preparing for the impending rate raises, consider some of the faulty logic encouraging investment action. 

Fallacy 1: Higher interest rates are coming.  The futures market suggests that the Federal Reserve is likely to increase its target for the federal funds rate – which commercial banks charge between themselves for overnight loans – later this year or early in 2016.  Most people take this to mean that interest rates are headed higher. 

What’s not well understood is that the Federal Reserve does not set or directly control intermediate and long-term interest rates that matter most to bond prices. The federal funds rate affects extremely short-term rates, and thus has a strong impact on the yield of money markets, bank savings accounts and floating rate loans. It has much less influence on longer-term rates, which are a function of bond investors’ trades and market expectations. 

We need only go back to the last period of Federal Reserve rate hikes, which began in June 2004, for a clear example of the disconnect between the fed funds rate and longer-term interest rates.  On June 29, 2004, the day before the Federal Reserve began to increase rates, the 10-year U.S. Treasury yielded 4.7%.  Within three months of the first rate hike, the 10-year’s yield declined below 4.0%. 

That is, the Fed increased rates, but bond yields went the opposite direction.  A year after the first rate increase, the 10-year Treasury yield remained below 4% despite the fed funds rate increasing by two percentage points over that span. Purchasing a 10-year Treasury the day before the Fed started raising rates and holding it for a year resulted in a return of 10.1%.  A 20-year Treasury held over that same time earned 19.2%.

One reason: Back then, the Chinese were eager buyers of long-term Treasuries, which drove up their prices and pushed down their yields. Today, amid troubles in Europe and Asia, long Treasuries are the safe-harbor investment of choice for foreign investors. So much for the concept that you don’t want to own bonds when the Fed is increasing rates.

If the market anticipates that Fed rate hikes are likely to trigger an economic slowdown, recession or simply curtail any inflation pressures, expect longer-term bond yields to decrease, not increase.

Fallacy 2: Higher interest rates will hurt bond returns.  This belief holds true in the short-term, but not in the longer-term. If you buy a 10-year Treasury today and you’re seeking the highest nominal return over the next decade, the best-case scenario is that interest rates rise dramatically immediately after you purchase the bond. 

This logic flies in the face of traditional short-term thinking because most people associate rising interest rates with lower bond prices. True, the bond price will decline in the short-run and you would have been better waiting to buy the bond after rates increased, not before. 

But if rates immediately rise, you will be able to reinvest the coupon payments at higher reinvestment rates over the next 10 years, which will make for a higher holding period return over the bond’s decade-long term than if rates had remained constant or declined.  As demonstrated in the figures below, you actually earn an additional $5,460 from a $100,000 over the 10-year period when rates immediately increase by two percentage points rather than immediately drop by two points. 

10-Year Scenario if:

Holding Period Return

Ending Value

Interest Rates Immediately Decline to 0.5%

2.31%

 $        125,602

Interest Rates Remain at 2.5% for 10-Years

2.51%

 $        128,182

Interest Rates Immediately Increase to 4.5%

2.74%

 $        131,062

Fallacy 3: You should sell bonds in advance of Fed rate hikes.  As we showed above, bond yields are not directly tied to the federal funds rate.  Plus, anyone who sells bonds has to find a replacement investment for the sale proceeds.  Cash pays nearly nothing and stock prices have historically provided lackluster results in rate tightening cycles. Also, predicting outcomes is a fool’s errand. Timing the movement of interest rates has dumbfounded investors for decades and is likely to continue doing so. 

If you think you know the future path of interest rates, you are better served to open a hedge fund and make outlandish profits, than to simply make a few dollars on your own portfolio. Bonds in a diversified portfolio provide protection in stock market selloffs. 

While the Standard & Poor’s 500 lost 36.6% in 2008, an investment in 10-Year Treasuries gained 20.1%.  If you’re worried more about sharp portfolio losses than near-term fluctuations, a better idea is to maintain a bond allocation, rather than to abandon this protection. 

What do the fallacies of rising interest rates mean to you? Humans are inherently biased to do something, a point that is not lost on Wall Street.  People prefer action over inaction, regardless of whether inaction is optimal.  Since Wall Street profits from investor activity, there will continue to be warnings of rising interest rates and what you can do to protect yourself. as banks and brokerages have a vested interest in compelling trading activity.

Don’t let public perceptions drive your bond investing. Remember the difference between speculation and investment.

In the words of author Fred Schwed Jr., a stock trader who got out of the market in 1929: “Speculating is an effort, probably unsuccessful, to turn a little money into a lot.  Investment is an effort which should be successful, to prevent a lot of money from becoming a little.”  

Follow AdviceIQ on Twitter at @adviceiq.

Jason Lina, CFA, CFP is Lead Advisor at Resource Planning Group Ltd. in Atlanta. Website: www.rpgplanner.com.

AdviceIQ delivers quality personal finance articles by both financial advisors and AdviceIQ editors. It ranks advisors in your area by specialty, including small businesses, doctors and clients of modest means, for example. Those with the biggest number of clients in a given specialty rank the highest. AdviceIQ also vets ranked advisors so only those with pristine regulatory histories can participate. AdviceIQ was launched Jan. 9, 2012, by veteran Wall Street executives, editors and technologists. Right now, investors may see many advisor rankings, although in some areas only a few are ranked. Check back often as thousands of advisors are undergoing AdviceIQ screening. New advisors appear in rankings daily.

  

 

 

 

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Responding to readers’ concerns http://forestlaketimes.com/2015/08/03/responding-to-readers-concerns/ http://forestlaketimes.com/2015/08/03/responding-to-readers-concerns/#comments Mon, 03 Aug 2015 12:31:43 +0000 http://forestlaketimes.com/?p=65905 This week I’m commenting on three concerns from readers about recent columns. Each involves how to deal with colleges and university costs.

Ted Nelson, of Andover, dislikes the new Minnesota legislation I praised that will allow students from families with incomes of up to $90,000 to receive up to two free years of tuition at Minnesota’s two-year public technical colleges.

He wrote: “I was shocked when I read your article in the Union Herald. Families with adjusted gross incomes of $90,000.00 per year should not receive welfare that has nothing to do with merit or need. Our legislators should be ashamed for stealing the $90,000.00 per year criteria from the pages of Obama Care.”

I think this law represents a great investment in Minnesota’s families and our future.

First, Minnesota employers are expressing urgent needs for more people trained in a number of career and technical fields. In some cases, technical jobs are not being filled and employers are not expanding because they can’t find enough well-trained people.

Second, legislators recognize that college costs are a growing challenge for many middle-class Minnesotans. There is a fair amount of scholarship money for students from low-income families. Legislators wanted to expand opportunities for students from middle-income (up to $90,000 per year) families.

I think the legislators were right.

Elaine Zimmer, of Brooklyn Park, wrote: “As a mother of two and grandma of five, in the Twin Cities area, I loved your informative recent article on dual credits for high school. I have since found out that there is a fee involved at completion of these courses, and the score (1-5) may make a difference in whether the college you choose recognizes them as such. I think it would be helpful if you could expand on this.”

Zimmer is correct. While Minnesota offers many opportunities for high school students to earn college credit, families should understand important details when helping students decide which to take:

–College in the Schools, offered by high schools in cooperation with the University of Minnesota, and concurrent enrollment offered by high schools with Minnesota State College and University System members, are completely free to students. College credit is not based only on how well students do on the final examination.
–Postsecondary Enrollment Options courses offered either via the Internet or on a college campus also offer free tuition, books and lab fees. The only potential cost is transportation to the campus. Families eligible for free or reduced-price lunches can apply to the Minnesota Department of Education for transportation reimbursement.
–Advanced Placement, International Baccalaureate and Project Lead the Way feature exams at the end of the class. These exams are not free. In some cases, districts pay the cost of these tests. I’m checking with districts on their policies and will report in the fall.

Zimmer also is correct that the amount of credit colleges give also depends on how well students do on the final exam. There also are differences among colleges and universities in terms of how much credit is given for each of these programs. More information is coming this fall.

Finally, several people familiar with former Carleton College president John Nason pointed out that my column about him did not include one of his major accomplishments.

Nason was president of Swarthmore College in Pennsylvania during World War II. He was deeply disturbed by the government’s forcing Japanese Americans to live in camps with barbed wire around them. Nason arranged Swarthmore scholarships for 30 Japanese American students in these camps.

He also urged other college presidents to do something similar. Ultimately, more than 3,000 Japanese-American students received such scholarships. Nason was a compassionate, courageous leader.

Readers mentioned above are only a few of the many people who write each week. You help make this a more informed, and I hope, more useful column.

– Joe Nathan, formerly a Minnesota public school teacher, administrator and PTA president, directs the Center for School Change. Reactions are welcome at joe@centerforschoolchange.org.

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Landmark Honor for Dr. Richard Ottomeyer and Ottomeyer Clinics, PLLC in Forest Lake, MN http://forestlaketimes.com/2015/08/03/landmark-honor-for-dr-richard-ottomeyer-and-ottomeyer-clinics-pllc-in-forest-lake-mn/ http://forestlaketimes.com/2015/08/03/landmark-honor-for-dr-richard-ottomeyer-and-ottomeyer-clinics-pllc-in-forest-lake-mn/#comments Mon, 03 Aug 2015 12:00:09 +0000 http://forestlaketimes.com/?p=65818  

OttomeyerBoothPhoto

Dr. Richard Ottomeyer of Ottomeyer Clinics, PLLC was recently nominated by officials at the Minnesota Department of Health for consideration as a Medicare Physician Champion Community of Practice Provider. This honor was confirmed and awarded by the Centers of Medicare and Medicaid (CMS) and its “Road to 10” initiative for physicians who are champions in their specialty in developing and implementing clinical improvements for better patient care. This Physician Champion Community is recognized as actively utilizing technology to improve the quality of patient care. This recognition makes Dr. Richard Ottomeyer the first Chiropractic Physician to be awarded this honor in the United States.

The largest health care change in the last 30 years will be implemented on October 1, 2015. On this date, both insurance payers and providers in all areas of healthcare will be switching to an entirely new health diagnosis system. This system, called the International Classification of Diseases, 10th Revision or ICD-10 will replace the existing, outdated ICD-9. When this occurs, physicians will transition from having nearly 17,000 potential diagnosis codes to over 64,000. As this change occurs, many health insurance payers and providers will be facing serious potential delays in patient claims processing. The Centers for Medicare and Medicaid (CMS) is suggesting that medical claims processing could be significantly delayed. Providers are encouraged to prepare for a potential 90 to 180 day delay in medical claims processing.

Dr. Richard Ottomeyer and Leann Ottomeyer have been traveling around Minnesota and the United States, educating medical providers about the transition to ICD-10. This dedication resulted in the Physician Champion Community of Practice recognition by CMS. Pictured here is Dr. Ottomeyer and Leann Ottomeyer with David Haugen and Judy Edwards from the Minnesota Department of Health. On June 29th and 30th, Ottomeyer Clinics participated with key shareholders from the Administrative Uniformity Committee to deliver important education and resources for rural medical providers at the Minnesota Rural Health Conference in Duluth, MN.

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3D Water Art http://forestlaketimes.com/2015/08/03/3d-water-art/ http://forestlaketimes.com/2015/08/03/3d-water-art/#comments Mon, 03 Aug 2015 11:47:54 +0000 http://forestlaketimes.com/?p=65914 3D Water Art

Teens made 3-D pictures and painted the windows July 15 at the Hardwood Creek Library.

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Hardwood Creek August Events http://forestlaketimes.com/2015/08/03/hardwood-creek-august-events/ http://forestlaketimes.com/2015/08/03/hardwood-creek-august-events/#comments Mon, 03 Aug 2015 11:16:51 +0000 http://forestlaketimes.com/?p=65937 Around the World in 80 Beats
2 to 3 p.m. Aug. 2
Travel on a whirlwind tour of the musical traditions found on five continents of the world. Performance will be held outdoors on the library courtyard, weather permitting.
R.A.D. Zoo
1:30 to 2:30 p.m. Aug. 3
Meet and learn about new creatures at the Reptile and Amphibian Discovery Zoo! The R.A.D. Zoo will bring at least 10 animals to explore at the Hardwood Creek Library, including turtles, lizards, snakes, and an alligator.
Be a Superhero
2:30 to 4 p.m. Aug. 5
School-age kids and teens can enjoy learning how to be a superhero.
Baby and me art: edible and bubble art
10:30 to 11:30 a.m. Aug. 7
Babies, toddlers, and their parents can enjoy this special “messy” art program. Projects will include finger painting and bubble painting featuring edible paint. This sensory-rich art program will inspire you to get creative with your baby and you will take home a recipe for edible paint.
CHILDRENS EVENTS
Family Storytime
10:30 to 11 a.m. Aug. 1, 8, 15, 22, 29
Super Storytime
10:30 to 11:15 a.m. Aug. 4, 11, 18, 25
Baby Storytime
9:45 to 10:15 a.m. Aug. 5, 12, 19, 26
Preschool Storytime
10:30 to 11 a.m. Aug. 5, 6, 12, 13, 19, 20, 26, 27
Dog Gone Reading with Bella
4 to 6 p.m. Aug. 20
Children in grades K-7 read aloud to a certified therapy dog and its owner. Reading intervals are 15 minutes in length. Sign up at the Children’s Desk or call 651-275-7300.
BOOK CLUBS
Book clubs are open to all. Just read the book, come and discuss. Call 651-275-7300 with questions.
Third Tuesday night adult book club
6:30 to 8 p.m. Aug. 18
“The Round House” by Louise Erdrich.
Man up and read book club
6:30 to 8 p.m. Aug. 19
“As I Lay Dying” by William Faulkner.
Third Thursday night adult book club
6:30 to 8 p.m. Aug. 20
“Eleanor & Park” by Rainbow Rowell.

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