Smart Investment Choices for 2008 – Part 1

The many threats that are challenging the stock market over the next twelve months, including ever-slowing corporate profits, a recession, rising commodity prices, and a downward spiral in the overall financial-services industry. All of this can cause many investors to fear the stock market – not a good scenario if it is a sentiment that is acted upon be a large number of investors at one time!

That’s why savvy investors should remain calm and take a deep breath before pulling out of the market. While the U.S. economy is currently slow, the world economy is projected to grow at about 4.8% this year, providing many good foreign investment opportunities for smart shoppers. One investment possibility that is currently creating a buzz centers around Central European television stations, for example. In addition, sad as it may sound many of the large U.S. corporations are actually benefiting from the weakened dollar because U.S. goods are more affordable for buyers in other countries. Some firms are also betting on a rising demand for industrials and agriculture, and are investing in the companies that manufacture these commodities.

There are actually a wide array of possibilities for many sectors that will most likely profit from foreign growth. Many of these are going to be among the best investment opportunities in the upcoming year because they are supporting companies that are making emerging economies mirror that of the U.S. For example, in regions stretching from the Philippines to Poland common folks are enjoying better food and goods, and this series will cover some great ways for savvy investors to take advantage of this phenomenon.

40 Year Mortgages - Friend or Foe?

As you’ve probably heard, many lenders have been hit hard by the ongoing subprime mortgage lending crisis. Countrywide Financial, is one example that has seen its stock go down about 75% in the last year alone. And if you couple that with a recently downgraded credit rating, it makes you wonder how they are keeping bankruptcy at bay. The word on the street is that they are doing this by infusing capital from other more successful divisions into the mortgage lending division.

Another way that Countrywide, Freddie Mac, Wells Fargo, Washington Mutual, Fannie Mae and Bank of America are attempting to fix this issue by offering a new, 40 year mortgage product. While this deal may look great to someone who is on the verge of losing their home, (especially if it provides a way to get out of an adjustable-rate mortgage (ARM) that is about to enter into a higher fixed interest rate) in reality the whole concept needs to be examined very closely by new home buyers or current home owners before deciding to go with a 40 year mortgage option.

Here are some things to consider:

The actual savings could be minimal in the long run if the interest rate on your 40 year mortgage is higher than a 30-year fixed mortgage.

Calculate the extra interest you’ll wind up paying over the additional ten years – is it really worth it?

If you plan on selling in a few years, you’ll be building equity more slowly so the profit margin will be slimmer.

The Truth Behind Bank CD’s - Part 2

As I mentioned in the first part of this series on the time tested bank CD, investors need to be aware of the pitfalls and benefits of new CD options that banks are coming up with in order to get investors interested in this ‘guaranteed’ investment.

One way banks are luring clients into the CD craze is by offering what is known as a ‘callable’ CD. These CD’s give investors an initial term that is long – five or more years for the most part. However, the bank reserves the right to ‘call’ the CD – basically this means they can shorten the term of the CD at will. In exchange, investors typically receive a higher interest rate. Many banks offer callable CD’s, including Countrywide Financial, Lehman Brothers and the Royal Bank of Scotland.

If you’re thinking this sounds like a good investment option for you, then consider that if rates continue to drop or if they remain the same, banks will often call the CD’s and you will have to reinvest your money at a lower rate. On the flip side, if rates rise, banks typically won’t call the CD’s and you’ll be stuck with them for the entire (did I mention long) term.As you can see, financial planning that includes callable CD’s is quite difficult. For example, it is difficult to fit them into bond ladders because you can’t accurately predict how long you’ll own the CD. In addition, it often will wind up that you get the raw end of the deal no matter which option the bank chooses, so think long and hard before investing in a callable CD.

The Truth Behind Bank CD’s - Part 1

Bank CD’s have been around for a long, long time, so you may think you already know everything there is to know about investing in CD’s. The truth is that as interest rates fall banks have made some changes to the way traditional CD’s are handled in order to make them more appealing to investors.

Due to the long term nature of  many CD’s, it is important that you fully understand the new features of these investment vehicles before you tie up your hard earned cash! Unfortunately, some of them come with the possibility of a nasty surprise at the end of the investment term.

One way that banks are trying to get investors to buy CD’s is to offer what is known as a ‘bump-up’, ‘step-up’, or ‘rising rate’ CD. They allow investors to essentially ‘bet’ that rates will go back up. They typically pay an initial interest rate like any old CD, but if the prevailing rates do indeed go up, the CD owner can then choose to receive a higher interest rate the the remainder of the term until maturity. One thing to be aware of when looking at step-up CD’s is that the initial interest rate will often be lower than traditional CD’s are offering anyway, which can mean that even if you are able to take advantage of a rise in rates, you could still wind up making less than a traditional Certificate of Deposit. Check your local banks for promotions on these CD’s or contact PFF Bancorp or US Bancorp if you would like to find out more.

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