| OCR Text |
Show DAILY E4 HERALD, Sunday. January 9, 2005 THE WALL STREET JOURNAL Getting Going Jonathan Clements By Smartr.loney ' It's 2005. Know Where Your Money Is? time for a reality check. Most of us, unfortunately, no idea how much we save each year, how our investments perform or whether we are on track to meet our financial home-equit- goals. part-tim- Want to put yourself to the test? Now is a great time to get a handle on your finances, thanks in part to the influx of year-en- d tax, brokerand 401(k) stateage, mutual-fun- d ments. Gather up those state- j) ments, grab a calculator and ask yourself these Jour critical ques' tions. I fire-sal- saving enough? IAm Folks saving for retirement aim to sock away at least 10 of their pretax income every year. Yet, with the U.S. savings rate hovering just above zero, it is clear most families aren't saving anything close to 10. To see how you measure up, total all the money you saved for retirement in 2004. Include the 401(k) investments listed on your W-your individual retirement account contributions and any retirement savings you stashed in your regular taxable account. I would also add any employer match on your 401(k) contributions. Even if the resulting figure is well short of 10 of your pretax income, you may still be in good shape for retirement, assuming you expect to receive a decent-sizcompany pension. What if you won't get a pension? I'll leave you to nag yourself. But here are two suggestions. Begin by boosting your 401(k) contribution. After that, fund a or Roth IRA. You can salt away $4,000 in an IRA in 2005, or $4,500 if you are age 50 or more. To make these IRA investments as painless as possible, sign up for an automatic investment plan, where money is pulled out of your bank account every month and invested directly in the funds you choose. ments and figuring out how much your portfolio was worth at the end of both 2003 and 2004. Next, tweak these two numbers to reflect money added or withdrawn during 2004. If you socked away additional money during the year, add half this sum to your 2003 balance and subyear-en2004 tract half from your year-enbalance. If you withdrew money, subtract half this amount from 2003 balance and your year-enadd half to your portfolio's year-en2004 value. Finally, to calculate your portfolio's percentage gain, divide your adjusted year-en2004 value by the adjusted 2003 number. In reality, however, most of us don't know how our investment picks perform. Almost everybody has a few good investments to brag about. Meanwhile, we conveniently forget the losing funds we dumped last year and the wretched stocks that no longer appear among our brokerage holdings. Want to know the truth? Here are three ways to gauge your investment performance. First, you may find your mutual-fund company does the calculation for you. Fidelity Investments and T. Rowe Price Group now provide personal rates of return for their 401(k) investors, while Vanguard Group calculates this number for all shareholders. Second, try comparing your mutual funds to their category average. Head to www.momlngstar.com and use the search function to call up each fund you own. Once you have a fund up on your screen, click on the tab marked "total returns." That will give you the performance comparisons you need. But no cheating: If you have owned a fund for a year, don't pat yourself on the back because it has record. a dazzling three-yea- r Third, if you are a hardcore investment junkie, try this rough method for calculating your portfolio's performance. Start by grabaccount state bing those year-en- How's my investment perform- ance? We all like to think we are drivers, smarter than the typical Joe and much wiser when it comes to d d d d d ready for tough times? Suppose the economy nosedived into recession, prompting not only a steep decline, but also a fistful of layoffs-a- nd you were among the people who lost their jobs. It may not be the most pleasant 7exercise, but give some thought to how you would cope. To that end, first get a handle on your typical monthly expenses, including mortutilgage payments, groceries-anity bills. Next, figure out how you would generate the necessary cash to pay these expenses. Maybe you reserve have an emergency Am 3 I stock-mark- - d Andrew Blackman Investment DartbOSrd By $ ich rthif h h1 11 f 1 company Ceradyne in the six months gained 60 through Dec. 31, sneaking past coal miner Alliance Resource Part- ners, up 59. I guess it was Body-arm- says "ftnpS-tilSS- who reads Macomb (Mich.) L,y READER PICKS Ceradyne toe 16th dartboard contest. Ceradyne because he believed that demand for body armor would be strong amid the war on terrorism. He wins a Sunday Journal tote bag and lifetime bragging rights. Donald Nielsen also deserves some bragging rights, although his 59 gain wasn't quite enough $35.77 Resource Partrir. LP (ARLPi AlHar Donald Nielsen. Stockton (Calif.) Record 46 66 Sffi'SS 3"7 TribUne Anheuser-Busc- 74.00 59 3.47 " 54.00 50.73 33.59 29.86 3.40 ' -- David vssr (BUD) h (11) 7 ..p?l0ne..9.rp. (POL) Bell Mlcroproducts (BELM) chemical 'Financial (CHFC) Chlna Unjcom mc. - --2.0 -- be kidding me! "Let all these young workers take You've got to 6.1 their money to Vegas"? Are you serious? I'm 25. Why am I paying now for a benefit I'm never going to receive? I have more confidence in my ability to manage my own , money. Dear Bush: Finish FDR's promise to the baby boomers and stop making me pay for this system that will do no good for me and my family when I retire. Brent Deim Shorevlew, Minn. 'Adjusted fw 3 fw-- 7.44 9.06 22 $9.62 19 16 -- 0.6 10.51 ; QAD Inc. (QADi) stock split Adjusted Iw --11 $8.09 492 7.85 8.92 --15 Star Tribune (MlmeapovSt Paul) special dividend 1 "I'm still using the drug though, and it seems to be working pretty well," he says. He has a profit on Teva and plans to hold it awhile. company Teva Pharmaceuticals, im- pressed with one of its drugs for Parkinson's disease. Teva sank with the rest of the drug sector. ...And in New Contest, It's Technology vs. Tractor Supplies the old economy vs. the new Journal's 18th It's Sundaygame. A stock- - farm-suppli- retailer and a package-delivergi- ant are lined up against an array of firms. Here are the picks, with starting prices on Dec. 31, before the market slid, eBay (EBAY; $116.34) These days, everyone knows about eBay, based in San Jose, Ca- lif. But Arizona Daily Star reader Knight has been an investor since just two months after the op- line auctioneer went public, and is betting on it to flourish over the next six months, too. "I own a jewelry business and have been using eBay since way when," says Ms. Knight, who lives in Tucson, Ariz. "I truly be-lieve in the stock." FedEx (FOX; $98.49) e Diego reader Gayle Johnson has been about Memphis-basecompany FedEx and likes what she sees. "I like, the stock. From what I've been it seems as if it could rapidly," says Ms. Johnson, a y high-tec- h Union-Tribun- d nurse who lives in San Diego. Harris & Harris (TINY; $16.38) Retired insurance investigator Charles Green likes Harris & Har-ris, a New York venture-capitfirm specializing in nanotechnol- ogy. "I just think it's got to take off sometime," says Mr. Green, who lives in Richmond, Va., and reads the Richmond "It may not be in the next six months but certainly in the next six years, It's a good place to be." Intuitive Surgical (ISRG; $40.02) "I like innovative things," says Winston-SaleJournal reader Robert Sloan. "I try to beat the crowd." He believes Intuitive Surgical of Sunnyvale, Calif., has a very promising technology for mini- mally invasive surgery. Mr. Sloan lives in Winston-Salem- , N.C., and e in- is retired from the . dustry. SMiSatelrteRadk(SiRi;$7.62) Orange County Register reader Sharon Multhaupt has been seeing a lot of advertisements for New Sirius Satellite Radio lately. "They're everywhere," says Ms. Multhaupt, who lives in ton, Calif., and works in a York-base- d ment store. "They're putting them in all the new cars, too." Tractor Supply (TSCO; $37.21) John Matthies has had good periences buying from farm- - and s retailer Tractor Supply, based in Brentwood, Tenn. ' "They seem to be on the ball about what they're doing and how they're doing it," says Mr. Mat-Pthies, who lives in McLoud, Okla., and works in a magnet factory. He heard about the dartboard contest from family members who read the Denver Post. Where the Darts Landed Darts fell on the environmental-bac- k firm Clean Harbors services (CLHB; $15.09), Braintree, Mass.; ranch-supplie- Times-Dispatc- real-estat- Crook Editor mhvw)WmMm rgo (CHU) . . ' same time. .We see corporate earnings, but the nation's huge debt, both at the government and consumer levels, threatens to crimp sky-hig- h growth. So what should the savvy investor look for in 2005? Two types of stocks, as exemplified by the 12 picks that follow. The first group has six outfits that will deliver solid profits and dividends even if the economy stalls. The second has six that will do best if the economy thrives. In all cases, valuation was crucial. You won't find overpriced stocks here. And all the companies have major international business, which will help protect them if the U.S. economy slows and lift the value of their profit abroad if the dollar slides more. This portfolio is unlikely to produce the kind of double-diggrowth we saw in the heady 2003 rally. But it will shine in the atmosphere many strategists expect-a- nd provide safety if the market sinks. Dlageo (DEO, $57): The maker of Johnnie Walker and Guinness bought the Seagram line of liquors and revamped its distribution system. Its profit won't grow fast, but it has a hefty 4.4 dividend yield and a reasonable PE of 16. McDonald's (MCD, $32): It's a Happy Meal investment with a PE of 16. Rebounding Mickey D's bought back $500 million in stock in 2004 and recently doubled its dividend. GROWTH STOCKS value-oriente- d Caterpillar (CAT, $94): Caterpillar it slow-growt- h VALUE STOCKS (C, $49): The consumer side of the world's largest bank is going gangbusters. Yet Citi trades at just 11 times expected 2005 earnings, a discount to the S&P and even J.P. Morgan Chase. The dividend yield is 3.3. General Electric (GE, $36): The maker of items from light bulbs to parts is poised for double-digprofit growth. The PE is 20, above the market. But as GE chief Jeffrey Immelt told SmartMoney: "We're going to grow faster than the S&P....Simple as that." Baxter International (BAX, $36): The firm has been hurt by problems in its business, but looks ready for a turnaround. Its forward PE is 19, still a discount to rivals. GlaxoSmithKllne (GSK, $47): Big drug stocks, after years of patent problems and product setbacks, offer attractive valuations. Glaxo, which has 34 drugs in the final stages of testing, trades at 15 times earnings. Citigroup benefits when construction firms and other cyclical outfits ramp up their own output. If it can boost margins, it should handily beat analysts' 2005 profit estimates. It's still cheap at 13 times earnings. Deere (DE, $71) Now is an ideal time to buy Deere, the world's leading maker, because only lately have farmers begun to buy new tractors in meaningful numbers. Analysts expect profit to grow 18. Shares trade at about 12 times expected earnings. Norfolk Southern (NSC, $37) Norfolk, the largest railroad east of the Mississippi, is boosting margins and getting more revenue per car than in 2003, meaning the company has been able to raise prices. It trades at 15 times estimates. Paccar (PCAR, $72): sales were up about 40 in 2004 vs. 2003. That's great for Paccar, one of the world's largest makers of heavy-duttrucks. Despite a big run-ufrom $60 in five months, the stock is still attractively valued, with a PE of 11. Accenture (ACN, $27): Widely considered the best publicly traded consulting firm, it trades at about ' 20 times 2005 estimates, a discount to rivals. The firm's business has rebounded since '03 thanks to an improving economy and a big pickup in government work. UnitedHealth Group (UNH, $88): The ranks of people insured by a UnitedHealth plan in 2004 grew by 3 million, to 11 million. And at 18 times earnings, the stock seems , reasonably priced. For a complete assessment of Big-truc- k ' y p it . medical-equipme- blood-produc- where to invest in 2005, see the Janu- ary issue of SmartMoney magazine. By Russell Peariman And Evelyn Ellison Twttchell 'Why am I paying for a benefit I'll never receiver Consol Energy (CNX; averse to risk and self discipline that we prefer to trust the govern- More Americans should support President Bush in his courageous attempt to address a problem that it appears most Americans and our elected officials are hiding from. Last week's letters indicated a real fear and uncertainty about the stock. market. While I agree that the stock market is risky, isn't 0'ir system all about taking risks in exchange for potential rewards? Peter Zlerz Raleigh, N.C. News & Observer ment with our retirement income. basis for our retirement income. Charles Trlolo Pueblo, Colo. Denver Post We should own the I am a former banker who now volunteers in the Tax Counseling for the Elderly program sponsored by AARP During the past eight years, I have helped nearly 500 people. These people are very dependent on their Social Security. With an average income in the very low five figures, their primary source of income is from these monthly checks. There should be no privatization because most of these people do not have the experience or business acumen to invest wisely. If investments were not made wisely or if the market turned , against them they would be in a terrible fix. The Wall Street Journal Sunday I):.H.eHe Teva Pharmaceuticals (TEVA) Samuel W. Jackson, Richmond ' ' DARTS ' 60 Gre8Hfum.ltt:Sacramen,0.Bee Jeanna ' $57.21 - (DSCM) Jonathan Clements also writes the "Getting Going" column that appears Wednesdays in The Wall Street Journal. Write to him at: Jonathan.clements6wsJ.com. half the letters favoring privatizing, while none did the week before. Write: tonun.sunday039wsl.eom and include your name, daytime phone number, street address and the paper in which' you read The Wall Street Journal Sunday. Sffi0' Macomb (Mich.) Daily Drugstore.com . (20) (CRDN) Bob Frassetto, in the He picked Times-Dispatc- h in on average since June 30, easily beating thprfartr.rrtnnrtfniiniiin ; have been even closer," he says. Mr. Nielsen, who reads Sunday Journal in California's Stockton Record, has owned Alliance Re-source Partners for years and is still backing the company to do Well: "AS long as the Country's not in energy, coal will be important," he says. Last place went to Richmond reader Samuel W. Jackson. He picked Israeli drug was an easy win for our readers Their stocks rose 20 count toward the $5,000. Taxes will be owed on this money, so don't bank on spending the entire sum. Suppose, once retired, that you will want $20,000 a year in pretax portfolio income to supplement Social Security and your pension. My rule of thumb suggests you need to amass a $400,000 nest egg. Don't have $400,000? Maybe it's time to crank up that 401(k) contribution rate. Last week, we heard overwhelmingly from readers who didn't think much of President Bush's plan to privatize Social Security. This week, the other side roared in, with about Final Tally: Readers Trounce Darts S t Sunday.)' But most of the time, I rely on a simple rule of thumb: For every $100,000 saved, you should be able to withdraw $5,000 a year in retirement. If you take your dividends and interest in cash, that would Rarely has the outlook for markets seemed so and so scary at the 5 Betting on Body Armor Pays Off for Michigan Man... one percentage point first and second Am I on Readers' Forum ; Only track for retirement? In a column last year, I noted that I had accumulated more than half the money I needed for retirement. A fistful of readers asked the same question: How did I know? There are a bunch of clever calculators available on the Internet. In last week's column, I mentioned one of my favorites, the 401 (k) planner that can be fbund by going to www.smartmoney.com, clicking on "personal finance" and then heading to "retirement."' (Full disclosure: The Web site is partly owned by Dow Jones & Co., publisher of The Wall Street Journal 4 e 2 Twelve Picks for This Year stashed in bonds, money-markfunds or a savings account. Maybe y you would draw on your line of credit. Maybe you could get by on your spouse's paycheck. Maybe you could pick up e some work. Bui however you manage it, you need some strategy for getting through at least six months and preferably a year without causing a heap of damage to your long-terfinances. In particular, you don't want to be forced to miss mortgage payments, sell stocks at e prices or pull money out accounts of retirement and thereby trigger income taxes and, tax penalties. It's V .. $41.05), a n Pittsburgh energy firm; steel ducer Ipsco (IPS; $47.80) of Lisle, pro-Sa- HI.; NuCo2 (NUCO; $22.19), a art, Fla., supplier of carbon y ide for carbonated drinks; Max of Boise, Idaho (OMX; $31.38); and Superior Energy vices (SPN; $15.41), an oilfield-groequipment firm in Harvey, La. Office-latel- The Social Security system has been a bad program from its inception. Some people do need help, but not all the people. This is just a form of helping people abdicate their own personal responsibility another examthrough entitlement ple of politics trumping economics. Investing is nothing like going to Vegas. But continuing to support a government-ru- n program, badly in need of repair is just watching an implosion. The current system is a Ponzi scheme, and needs overhaul, , and hopefully, abandonment. John Hageman Winston-SaleN.C. WIntton-SaleJournal t am not confident that Social Security will be there for me when I become eligible for retirement. Since the military's recent eligibility to invest lf the Thrift Savings Plan, I have invested the maximum permissible amount to help augment my retirement pension. That's a good model to base the new Social Security plan on. I am all for the I partial privatization. Heck, let's privatize it completely. James Btoe ' R.P. The most common proposal involves diverting 2 of a worker's taxes into a personal account. For someone earning $40,000, this would be $800. The average-- annual charge for a 401(k) plan is about $30. If a person earned 8 in a private account, almost half of the investment earnings on each year's deposit would be paid to the record keeper. That's too steep a price for me; I'll keep the current Social Security program. Robert Rletz Mllford, Michigan Oakland (Mich.) Press I would gladly be exempt from or opt out of Social Security if I had the option. Since I don't, I am fully supporting the president giving me the option to invest my money in something other than the govern- ment's hands. Bumsvllle, Mim. Star Tribune (MlnoeepoBs-St- . Paul) Our nation is built on the economic principle of the right to own private property. We cannot be so Thlesen Billings, Mont. Billings Gazette The word social should have been our first clue. Socialism has failed in every country where it has ever been enforced. My Social Security's money worth is gone, with an I.O.U. left in its place. Willis Price Gran bury, Texas Fort Worth Brian Dahl Ramedl, Iraq WSJ.comSunday Editor's Note: The writer Is a Marine captain from Charleston, S.C., where he usually reads WSJ Sunday in the Post and Courier. Social Security is a welfare program. Contrary to conservative prejudice, not all welfare programs are Social Security, unemployment insurance, federal disaster aid, Aid to Dependent Children, and others help maintain the general economy with a modest but consistent cash flow. Welfare is the hallmark of a prosperous and progressive society. Charles Henderson Everett, Wash. Everett Herald was amazed by the lack of balin last week's letters on Social Security reform until I looked at the writers' addresses. They were all from parts of the country which voted for. John Kerry. They obviously trust the government more than they do the individual. My wife and I have been saving for retirement since we were in our early 20s. The S&P 500 index fund we own has an average rate of re- - " turn of 12.4 since 1976, not exactly a Las Vegas gamble. Safe index funds or even govern- ment bonds are good investment options for all workers. Allowing them to invest a portion of their payroll tax money in a private account will make workers of all income levels pari owners of the American economy. They will understand that capitalism really works I ance , in everyone's favor! However, if they are satisfied with traditional Social Security's meager rate of return, workers should be given the option to stay within the system. It disturbs me that so many want to create an atmosphere of gloom and doom and prevent people from taking control of their own lives. John Stelnberger Charleston, S.C. Post and Courier Editor's Note: Ten of last week's published letters came from people in "blue" states while eight were from "red" states. This week: four blue, seven red. |
