I don't know about you, but when a stock market analyst talks about the economy and investing and debentures and arbitrage and stochastic modeling and stuff, I totally understand everything. Like, someone can say "volatility" and "buying opportunity for equities" and I'm nodding, demonstrating that I'm in the know. You believe me, right?
But when a market analyst explains it in words that a mother-in-law can understand, that's when the posing ends, and things get real.
In this week's "Your Money This Week" podcast:
- Brad Sorensen, director of market and sector research for Charles Schwab, discusses what the Federal Reserve and Congress are doing to the economy and to investments. (He doesn't mention debentures, arbitrage or stochastic modeling, so don't worry.)
- Bankrate's Sheyna Steiner fetches information about medical insurance for pets.
Advice for investors: Filter out the day-to-day noise
A top Schwab stock guru suggests ways investors can "sleep easier" despite market gyrations. Also, some pet care savings tips.
LISTEN TO AUDIO
Mark Hamrick: From Bankrate.com, this is "Your Money This Week." Here we try to connect the dots between what's happening in the world and your wallet. I'm Mark Hamrick reporting from Washington.
There's never been more information available to help us to guide our investing decisions, but can there be too much information? Should we stay focused on the long term when there's so much to divert our attention? Case in point, the Federal Reserve has punted the decision on beginning to cut back on monthly asset purchases, we will talk with Schwab's Brad Sorenson, and we love our pets. Bankrate's Sheyna Steiner says the financial cost can be more than expected; (here's) how to cope. We have all that and more for you on "Your Money This Week."
In our first segment, "Managing Our Personal Finances in this Age of Information," that includes the news of today including a slow recovery in the job market and the Federal Reserve's effort to bolster growth. Charles Schwab's director of market and sector research, Brad Sorenson, is our guest. To begin, I asked whether the Federal Reserve's decision to stick with its game plan, continuing $85 billion in monthly asset purchases, really changes the investment outlook at all.
Brad Sorenson: Well, from our perspective here at Schwab it really didn't, as it did most of the investment communities surprised us that they decided not to kind of follow up on what had seemed to be a pretty strong forecast that they were trying to set forth, that they were going to start to taper at that meeting. But in overall economic impact of them deciding not to do that, is not particularly great in our view. It does, I think, kind of add to the uncertainty in the market that we are seeing, so there could be a little more volatility, and it unfortunately leads to more discussion of tapering. We are growing a little weary of hearing that word, but that is going to be the discussion for the next several months. And I think there is a little bit of at least near-term hits to the Fed's credibility that they didn't act as they seemed to be forecasting. But overall, the investment picture remains relatively the same to us.
Mark Hamrick: OK, well what is the investment picture sort of briefly speaking?
Brad Sorenson: Well, we think we will see, as we mentioned even with the Fed, and especially more with Congress and the budget situation, the debt ceiling debate. We think we will see an elevated volatility in the near term. We could see, depending on how negotiations go with the budget, if we see a government shutdown, I think we will see some probably weakness in the market as a concern over what that effect that has on the economy kind of filters through. But we think that ultimately that would represent a buying opportunity for investors that need to add equity positions, because we do believe that the economy continues to improve, although modestly. But we are certainly not at risk of returning to a recession, and we think stocks still represent a pretty good value for investors looking for longer-term returns.
Mark Hamrick: And Brad, you have referenced uncertainty several times now, and one of the things that falls under that category of course is uncertainty relevant to a lot of things going on in Washington. And it seems as if the most significant of all of those things is the debt ceiling debate. Do you have to kind of try to look past that as well?
Brad Sorenson: Yes, and unfortunately I think we have some history to look back on that we have seen this debate happen before, both with budget and whether we will have a government shutdown or not, and with the debt ceiling debate. And we have seen in the near term that it can be problematic for the market, but then there is a relatively quick recovery as politicians work out some sort of compromise and end up doing what needed to be done all along. So we think that this will be another round of hand-wringing and posturing, but in the end, they will get the deal done before any real long-term consequences are undertaken. So we would suggest that investors again use the uncertainty and the volatility that we may see to add to the positions as necessary. And with equities, we always recommend looking past the near term. Anything can happen over the next week or two, or with any one report, especially in the political environment, but for equity investors, really they need to look at three to five years and have that kind of view and be willing to ride those ups and downs and not try to time the market with those things.
Mark Hamrick: Most certainly. So then in the more intermediate or longer terms, there are a couple of things that we know for certain. One is that rates eventually head higher, and right now central banks have something, I think I saw an estimate today, had something like $20 trillion on their balance sheets. So if that doesn't go badly, I guess that means at minimum, that there should be a fair amount of cash continuing to slosh around the system, right?
Brad Sorenson: Yes, for the foreseeable future it certainly seems like that. I think that's the one risk that we are looking longer term is when that cash starts to really filter through the economy and we start to see some inflationary signs, which we certainly haven't seen yet, how does the Feds react to that. But that's a problem that is not in the near term and we'll have to wait and see how they react to that and what the economy does. But there is plenty of cash out there right now, and we think that is one of the stories that will help drive the economy into 2014, is that that cash on, especially corporate balance sheets, will start to be put to work by companies that have been sitting on it for the past two or three years. Because the replacement cycle is extended at this point, so companies are going to have to start to replace some of their manufacturing equipment, some of their technology, and use that cash that they have in order to do so.
Mark Hamrick: So Brad, one thing I like to occasionally ask people because you know, being journalists or professionals in the financial services realm, we can sometimes get rather technical with one another. So if you were having a casual conversation, let's say with a relative, I like to sometimes say your mother-in-law, if you had one, about the outlook. What would she need to know, from her perspective, about the investing environment, and/or the economy?
Brad Sorenson: Well, that's a great question that I think a lot of financial advisers would do better to talk in those kinds of terms. And I think what we would tell and what I would tell just a regular retail investor is that it's important to look past and not pay too much attention to all the noise we give in the near term. "See the forest for the trees" is the sort of idea that we have. What are trends that we look at, what are the longer-term trends that we look at, and we sell our bullish on the United States and stocks to the United States and recommend having a diversified portfolio. And if you have those things, you can sleep easy at night and not work about the gyrations that are inevitable in the near term. And we think that, for most investors, that's certainly the way to approach investing and reach the investing bulls that they have.
Mark Hamrick: Yeah, you could literally go crazy trying to follow the market's developments on a minute-by-minute basis, and there is so much more information out there than there used to be. And as you say, some of the basic truths of investing hold true, no matter what. Brad, you know, so much to take in these days about both the investing world and also the economy and policy, but thank you for breaking it all down, we really appreciate your time.
Brad Sorenson: Sure thing, thanks for having me.
Mark Hamrick: Brad Sorenson, the Charles Schwab's director of market and sector research.
Next up, the price of pets. We know the reward of pet ownership is something akin to unconditional love, well maybe more for dogs than cats. But what about their financial cost? Yes, you can spend hundreds, if not thousands of dollars finding the right pet, but Bankrate's senior investing reporter Sheyna Steiner reminds us, it doesn't end there.
Sheyna Steiner: As any pet owner knows, keeping pets isn't cheap. Whether your pet is a fancy-pants purebred pup or an orphan kitten from the pound, the cost you pay to acquire or adopt a pet is only a drop in the bucket compared to the cost of lifetime care and feeding. And those costs can add up, depending on how healthy or accident-prone your pet is. An accident or illness can cost thousands of dollars to treat, and many owners just don't have the scratch to cover an MRI for Fluffy, or to pay for Fido's ACL surgery. That's where pet health insurance comes in.
Pet health insurance can defray much of the burden of unexpected vet bills. There are currently 12 pet insurers in the U.S. with a variety of coverage levels and prices. Some carriers offer very low cost accident-only plans, and others offer nearly full coverage of any accident and illness, including hereditary conditions. The main difference from medical insurance for people is that owners must pay for treatment upfront. After paying the bill, the owner submits a claim for reimbursement. Before insuring your pet with one carrier, shop around and make sure you are getting the coverage that will be best for you. Keep in mind that older dogs can be a little more expensive to insure, and pre-existing conditions won't be covered.
For owners with the discipline to save regularly, self-insuring is an option. Simply take the money you would have spent on insurance premiums and deposit them into a savings account. If your pet never has to break the bank for vet care, then you win. Just be sure to keep your paws off your furry friend's rainy-day fund. For "Your Money This Week," I'm Sheyna Steiner.
Mark Hamrick: Finally, our look at this week in business history. On Oct. 1, 1881, industrialist William Boeing was born in Detroit, Mich., but his mark was made in the Pacific Northwest where he founded and built the Boeing Company. It's now a business behemoth, best known for commercial jet aircraft. As a business, Boeing took off with World War I, selling 50 planes to the U.S. Navy. Boeing himself died in 1956.
You've been listening to "Your Money This Week." Our thanks to this week's guest Brad Sorenson with Schwab. If you enjoyed the podcast, please check us out on iTunes and rate and subscribe to the program. I'm hoping you can help us to get the word out.
Also, check out our other podcast, "Special Report," featuring breaking news. For more on this and other personal finance issues, visit Bankrate.com; and you can follow us on Twitter @Bankrate. Our editor in chief is Julie Bandy, managing editor Katie Doyle, assistant managing editor Holden Lewis. Thanks to producer Lucas Wysocki for his work in the studio. I'm Mark Hamrick. From all of us here at Bankrate, here's hoping you have a great week.