Name: Andrea

Question:

Many people are worried that Dominion Resources is going under and the shares are worthless. What's your opinion. Do you think uititlies companies have seen their best days????????

Hello Andrea,
 
Thanks for the question.  I don't think any of the utilities will be allowed to "go under".  The government is changing the rules all the time and could easily step in for another "bailout" if this were the case.  That being said, Dominion Resources (D) announced that they are not cutting their quarterly dividend which is extremely positive news.  If the 5.5 percent dividend stays in tact then this is a stock to own for the long term.  They are very diversified, generating electricity through coal, nuclear, gas, and oil resources.  And we all need energy, more and more of it all the time with the increasing population.  The Obama administration might cause a few hiccups along the way, but Dominion is a stock to own in my book.  Get in on the dips and if you're in before the ex-dividend date of May 29 then you'll get the quarterly div. payment.

Name: Suzy B.

Question:

Is this a bear market rally?  Should I sell now and hold tight for a while?  Thanks!

Answer:

My quick answer is yes and yes.  If you look at the fundamentals of our economy and the world economy we are still in a bad situation.  There are still more bank failures ahead, a commercial real estate crash, and State and Local Government bailouts.  Been to California anyone? 

This is a traders market.  There is a lot of money to be made if you're hopping in and out of the market, but long term gains are years away.  If you're investing for 20 years go ahead and hop in on the dips, but if you need money within the next few years... sit tight and stay out of stocks.

Name: TStates

Question: 

So, what do you think of BOOM? It's been on a crazy rally since it hit 4.95 in March. Today it closed 12.37. I'm long and debating if holding through earnings is way too risky.

Answer:

Thanks for the question.  Since I don't know where you purchased BOOM it's difficult to give specific advice, but I'll give you a general recommendation.  If you purchased at $4.95 then you're a genius and you have no reason to continue reading.

BOOM (Dynamic Materials Corporation) provides explosion-welded clad metal plates and welding services through thee business segments: Explosive Metalworking, Oilfield Products, and AMK Welding.  They provide everything from clad metal plates for corrosion resistant pressure vessels to perforating explosives to heat exchangers for oil, alternative energy, aluminum production, and industrial refrigeration industries.  Check out the full summary on their website.   

BOOM provides services for an array of industries that all have long term demand in any economic climate.  If you're long here there's no reason not to sit tight and hold through earnings as this stock will surely perform in the long term.  I'm talking 15 to 20 years.  However, earnings season is a little worrisome and I'm confident the worst is not over.  I'd bet you could pick up some more BOOM in the single digits during the next pull back.  This bear market rally will come to a hault soon enough.

BOOM pays a modest dividend currently at 1.2 percent.  If you're a super long term investor don't worry timing the stock and enjoy the ride - avoid transaction fees, but if you want to play this market then take some profits off the table, wait for a pullback, and get back in sometime before the ex-dividend date of June 25, 2009.  Maybe even reduce your position by half if you've done well thus far.  Make sure you're back in at least by June 24 if you want in on the dividend; purchasing on the actual ex-dividend date gets you nothing... the seller will received that 1.2 percent dividend. 

Name: Yoplaita

This wasn't really a question, more of a token of appreciation.  A nice picture (I don't think they have photoshop) that I thought had to be shared.  I don't care how bad the economy is... this has to make you feel all warm and fuzzy.

Name: Kyle

Question: I am 27 and have been putting money into a roth and 401k for the past several years.  I have my money invested in mostly balanced funds, about 70% stocks and 30% bonds.  My question is this: after hearing the Jonathon Stewart vs. Jim Cramer debate I started to wonder how intelligent it really is to invest in mutual funds for the long term.  It seemed to me like Stewart might actually have a good point when he brought up the fact that investors try to convince the public to invest long term in mutual finds so they can trade in and out and take advantage of these people.  What are your thoughts on this?  Was he just making a compelling argument or is this in fact what is really going on in the investment world?

Answer: 

Hi Kyle, Thanks for the question. Like Stewart said to Cramer "I understand you want to make finance entertaining, but it's not a F****** game".

The good news is that you're only 27 and although you may have experienced up to a 40-50% drop in the value of your portfolio, you're investing for the long term so you have plenty of time for the market to rebound.  Hopefully you are only watching Cramer for entertainment purposes and not for actual investment advice.  I often watch his show to stay informed about what the masses really may be thinking, but intelligent investing involves due diligence and a lot of research to find the in depth information unavailable to basic cable subscribers.  So Cramer is right in saying "Do your Homework". 

In my opinion, you should stay away from mutual funds in your 401k.  I'm not saying avoid diversity, just mutual funds.  A better option is an index fund like the Vanguard 500 Index Investor (VFINX), which mimics the holdings of the S & P 500 and has an expense ratio of only 0.15%.  One of the top rated mutual funds out there is the American Funds Amcap (AMCPX) which has an expense ratio of 0.65% (more than 4x that of the VFINX!).  There's a difference in expenses of 0.5%.  You're paying someone a fee to manage your money that probably will never beat the S & P 500 performance over a period of more than 7 years (maybe will get lucky for a few years).  Over the next 20-30 years that ends up being huge!  You can read more about it in a book lik Stop Wasting Your Wealth in Mutual Funds which will break down how much money you are actually wasting.  So yes, Jim Stewart does bring up a valid f****** point.

Your percentage in stocks and bonds is at a good level for now but if you feel like being a little more risky it's not a bad idea to keep investing when the market dips.  We are seeing historically low levels and you may not invest at the very bottom but you should still be investing because when the bull market comes... it will come fast. 

As for your Roth IRA, where you're able to invest in individual stocks, I would advise doing some research and picking companies you like that are paying a nice 3-8% dividend.  I'm bullish on oils stocks for the long run because I believe there's no way oil prices can stay this low.  If you're truly interested in some alternative views on the current market situation I would recommend reading Rich Dad's Prophecy: Why The Biggest Stock Market Crash in History is Still Coming...and How You Can Prepare Yourself and Profit From It! by Robert T. Kiyosaki and Sharon L. Lechter.  This book goes into detail (however it seems to be written for a 12 year old) about the baby boomers retiring and being forced to liquidate their 401k funds around 2016 which could result in another crash.  Until then I'm confident that your safe.

Name: Eric

Question: I've now been working in the real world a few years and am just getting to the point where I'm able to put some money away for savings, should I be putting my money in a traditional IRA or roth?

Answer:

Hi Eric,  first of all it's great to hear that you're starting to think about your savings.  For those people that may not know, an IRA is an Individual Retirement Account.  IRAs provide either a tax-deferred or tax-free way of saving for retirement.  

For 2009 the Roth and Traditional IRA contribution limit is $5,000.  However, if you will be 50 or older by the end of the year, you can contribute an extra $1,000, for a $6,000 total contribution limit.

Income must be considered when choosing an IRA.  You can have unlimited income and contribute tax-deferred earnings into your Traditional IRA.  The same is not true of a Roth IRA.  I'll give you an example for a married couple first... Married individuals who file jointly can contribute $5,000 ($6,000 if 50 or older) to a Roth IRA if theirgross income is below $166,000. If they earn between $166,000 and $176,000, then they can contribute some amount less than their full limit, depending on actual gross income. If their income exceeds $176,000, they are not eligible to contribute to a Roth IRA for 2009.   For single individuals, the Roth IRA phase-out limit is lower: $105,000 to $120,000 for 2009.  So if you're a corporate exec then don't worry about opening that Roth.

Check out this Roth IRA vs. Traditional IRA Calculator that State Farm provides and you can even enter in some scenarios to find out which will work best for you.

Whatever you contribute towards your Traditional IRA can be deducted off your yearly income, therefore reducing the amount of taxes you pay.  However, once the money in a Traditional IRA is withdrawn, it is subject to standard income taxes and an additional 10% penalty if withdrawn before the age of 59 1/2. An exception is made if the money is used to buy a house or for educational purposes.

Roth IRAs are not tax-deductible, but contributions can be withdrawn at any time without being subject to penalty or tax, though interest earned in the account is. After five years, both contributions and earnings in the account can be withdrawn without penalty or taxation. Same thing with housing and education for the Roth.

My personal choice for most individuals not earning more than $105,000 is a Roth IRA.  This way all interest, dividends, and capital gains can grow tax free.  No taxes when you withdraw!  This is extremely beneficial if your portfolio does well.  Let's say you have some stocks that double or even triple, with a Traditional IRA you'd have to pay taxes on the gains... but with a Roth it's all yours to keep.  If you're young and planning on being in the market for 20, 30 or even 40 years then don't hesitate to start that Roth IRA.  Contribute AS MUCH AS YOU CAN!  Try and get to that $5,000 mark because it will pay huge benefits in the long run.  If you start contributing the max $5,000 per year now...and keep that up for 30 years... and have an 8% rate of return you'll be sitting on over $611,000.00!!!  Thanks for the question, start throwing that money in a Roth!