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Briefly Noted

Avoiding Investment Fraud

The SEC recently published “A Guide for Seniors: Protect Yourself Against Investment Fraud.” Though much of the advice seems likes common sense, we think such publications are good if they remind investors to do their own research and not be swayed by a savvy salesperson.

Here are some recommendations from the SEC:

Ask questions and check out the answers to make sure you fully understand the investment and its risks.

Research the company and the salesperson.

Take your time and do not be rushed when making an investment decision. A fraudster will push you to make a decision to prevent you from figuring out he is pushing a scam.

Don’t lose sight of your investments. Regularly read through all of your statements and question anything that you do not understand.

Question why you cannot retrieve your principal or cash out your profits. We, at AAII, also think it is important to have a listing of any fees or charges for selling an investment in writing before making the initial purchase.

Most importantly, never be afraid to complain.

If you need to file a complaint or have questions, you can contact the SEC at (800) 732-0330 or help@sec.gov. You can also contact your state’s regulators. You can download a copy of the SEC’s “Guide for Seniors” at

www.sec.gov/investor/seniors/guideforseniors.pdf.

Source: SEC, www.sec.gov.

Americans Saved Money During Economic Downturn

A large number of Americans managed to save money as the economy bottomed and began to rebound, according to an American Institute of Certified Public Accountants AICPA survey.

Just under half of the respondents (46%) said they managed to save over the past 12 months. Many did so by cutting back on discretionary spending such as dining out (50%), travel (46%) and clothing (35%). Notably, 60% said saving was part of their lifestyle, regardless of how much they were able to save.

However, the recession may have played a role in motivating people to save. Nearly two out of three respondents said they experienced some type of reduction in job-related compensation, including a salary freeze (33%) or a reduction or elimination of bonuses (32%).

We applaud sound financial management and think it is good that so many of the survey respondents are savers. However, one of the big questions that remains is how thrifty Americans will stay as the economy recovers. Investors may want to keep an eye on the monthly personal income and spending data released by the Commerce Department for a gauge as to how frugal Americans are being.

Source: AICPA, www.aicpa.org.

When Will the Fed Raise Rates?

Forecasts for when the Federal Reserve will start to raise interest rates have so far proven to be premature. That said, sooner or later the Fed will start tightening monetary policy. It’s just a question of when.

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So, how will you know when rates will be raised?

First, listen to what Federal Reserve officials say. Pay attention to their speeches, read the statement from the periodic Federal Open Market Committee meetings and listen to the testimony from Federal Reserve Chairman Ben Bernanke. The Fed chairman will want to make his motives clear in advance of adjusting of interest rates.

Second, take advantage of two free online tools.

The Federal Reserve Bank of Cleveland publishes charts showing the expected level of interest rates for the next three Fed meetings. Each chart shows what appears to be the most probable federal funds rate outcome for each meeting. You can view the Cleveland Federal Reserve’s Federal Funds Rate Predictions at www.clevelandfed.org/research/data/fedfunds.

The CME Group recently released a new online tool that details interest rate probabilities for the next eight meetings. A simple table displays a range and the probability of various interest outcomes for each specific meeting. The tool also clearly lists the probability of a rate hike for a given meeting. You can view the CME Group’s FedWatch tool at www.cmegroup.com/trading/interest-rates/fed-funds.html.

Both tools utilize federal funds futures contracts to determine the possibilities. As a result, the forecasts are subject to error and can change based on trader sentiment. Most importantly, the tools merely provide information; they do not tell you how to make money.

Regardless of when the first rate hike occurs, the best strategy for an individual investor remains staying diversified. Incorporate different asset classes (stocks, bonds, etc.) and different securities within those asset classes. Nonetheless, if you are concerned about the impact rising rates will have on your bond holdings, be sure to read Joseph Davis’ article in this issue.


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