WOW rates are low....

I thought I would share what many of you have already noticed in your money market funds--the yields are LOW.  According to Barron's, the average money market fund is only earning .03% and the average tax free money market fund is at .02%.  Remember, money market funds, savings accounts and checking accounts are not investments.  Over long periods of time the earnings on these types of accounts do not even keep up with inflation.  However, the reason we keep money in these accounts is to provide liquidity--ready access to cash that is risk free.  For this benefit, savers receive paltry returns.  One of the most frequent questions I get is what to do with this money when rates are so low--the answer is: how much risk are you willing to take?  If you can stand some risk, we can buy bond funds and perhaps some stock funds.  But if you don't want to lose any money--guess what, you're stuck with these abyssmal rates.

Stock Market vs. Bond Market

Every opportunity I get I will continue to talk about the different markets, specifically the stock market and the bond market.  When you hear folks talking about "the market" they usually are referring to the stock market.  A stock represents ownership in a public company.  A bond on the other hand is a debt obligation of whoever issues the bond: it could be the U.S. government, it could be corporations, it could also be government agencies.  In general, bonds have less price volatility than stocks and are considered more conservative (this is a general statement as there are many different types of bonds, some of them quite risky).  What you really need to know from this brief post is that the two markets typically move in opposite directions.  For example, last week "the market" (the stock market) was DOWN .71% and the bond market was UP .31% (both returns are based on Morningstar indexes).  The rule of thumb for diversifying portfolios is to have your money invested in BOTH the stock market and the bond market.  The percentage of each that you should own will be dependent on your specific circumstances including how much risk you are willing to tolerate and what assumed returns your financial plan dictates for you.

Results of a bank study

A study conducted by Union Bank found that most people believe financial stress negatively affects health.  The study also indicated that 60% of those surveyed felt they were not doing what they could to get themselves financially educated but believed that being fiscally fit is as important as being physically fit.  The article lists some very good suggestions for those starting out with the financial planning process or just a reminder for those who already are on the right track.  Read the article here:
https://www.unionbank.com/company_information/company_information/news/press_release_index/press_releases/study_confirms_financial_stress.jsp


Thanks to one of you for sending this to me--I always like to pass this good information along!

Charitable Deductions for 2009

From the IRS:
People who give to charities providing earthquake relief in Haiti can claim these donations on the tax return they are completing this season, according to the Internal Revenue Service. Taxpayers who itemize deductions on their 2009 return qualify for this special tax relief provision, enacted Jan. 22. Only cash contributions made to these charities after Jan. 11, 2010, and before March 1, 2010, are eligible. This includes contributions made by text message, check, credit card or debit card.