Home' Trinidad and Tobago Guardian : August 17th 2014 Contents SBG22 PERSONAL FINANCE
SUNDAY BUSINESS GUARDIAN www.guardian.co.tt AUGUST 17 • 2014
With global angst going
up several degrees,
there are myriad rea-
sons to feel nervous
about stocks. But
that shouldn t com-
pel you into timing the market; focus on your
prosperity and happiness instead.
As University of Michigan researchers Justin
Wolfers and Betsey Stevenson have discovered
in a study on economics and happiness, there s
a strong link between higher incomes and
self-reported levels of life satisfaction and
happiness. (Link to study: bit.ly/1cg1Mj6)
While money is certainly not the only ingre-
dient for a happy and prosperous life, it can
certainly smooth out a lot of the rough edges.
Here are four reminders for why you should
not let market anxiety eat you up:
1. Stocks follow cycles, but most
analysts are notoriously awful at
predicting when they begin and end.
Look at the year 1982, when the S&P 500
ended a 63 per cent down cycle that began
in 1968 at the height of the Vietnam War and
widespread social unrest. In the early 1980s,
Ronald Reagan was president, the Federal
Reserve was fiercely battling inflation and few
had stocks in their retirement plans.
In the bull market that began that year,
stocks rose some 666 percent until the height
of the dot-com bubble in 2000. Who was
optimistic in 1982 to the point of predicting
an 18-year bull run?
Compare that to what s happening now:
Although we re still in a "cheap money" econ-
omy thanks to the US Federal Reserve s stim-
ulus program and low interest rates, this period
won t last forever. So you should focus on
maintaining your nest egg and reducing stock
and bond market risk now.
2. There is no definitive "trigger" for
cycles to shift.
Market historians often want to pinpoint
what single factor tells investors to buy or sell.
The reasons are often obscure and based on
"animal spirits," or irrational, unpredictable,
High interest rates and energy prices, loss
of optimism, bank failures and inflation are
usually bearish, but not always. From 1921 to
1929, stocks rose nearly 400 per cent, followed
by the Great Depression, although there was
a Wall Street rebound of 266 per cent from
1932 to 1937.
Scholars are still debating what happened
during that period. Few were able to time the
market successfully during that difficult time.
3. Sometimes short-term cycles are
The second years in presidential terms are
typically sluggish, with stocks in the third
quarter averaging a 0.3 per cent return, accord-
ing to Standard and Poor s.
But let s say you thought the market was
getting bearish and pulled money out of stocks
this summer through the end of the year. Then
you d miss fourth-quarter rebounds that aver-
age from 2.0 per cent to 3.0 per cent during
that period. Again, you may not do yourself
any favors with a gut-based market timing
4. The long-term view is bullish.
Going back to 1926, every huge stock decline
has been eventually followed by an even-bigger
recovery, according to Leuthold Weeden
Research. That includes all wars, market crashes
and everything in between. Can you ever tell
when it s "safe" to be in the market? Those
that pretend to know are guessing.
The moral of this story? If you re investing
long term, want to beat inflation and build
wealth over time, stocks make sense.
But focus on a mix between stocks, bonds,
real estate and other assets that allows you to
sleep at night. Your objective is not to figure
out when stocks are heading into a bear market,
but building enough of a nest egg and income
stream to ensure your happiness.
(The opinions expressed here are those
of the author, a columnist for Reuters.)
If you think about it, you ve got a close, inti-
mate relationship with your credit card. The
both of you have been inseparable through
each daily transaction. You treat it right by
paying off your monthly balance on time. You
know all your card s important details, such
as its credit limit and interest rate, right down
to memorising every reward and benefit. You
might even know your card number by heart.
Unfortunately, there s some bad news that
could be financially heartbreaking:
Your credit card company may be holding
out on you.
The fact is, you ve been kept in the dark
about several secrets because your financial
benefit comes at your card issuer s financial
loss. Read on to find out some of the things
your carrier doesn t want you to know.
Fixed rates aren t really fixed. Issuers
can raise your APR whenever they
choose. This information isn t nec-
essarily a blatant secret, but it ll be hidden so
deeply in the fine print of your cardholder s
agreement that card companies are hoping you
Commonly, we re enticed to sign on with a
fixed introductory interest rate that may change
at the company s will. You have the right to
be notified 15 days before a potential rate
increase, but to stay on top of them, check
your mail; you ll receive notifications in a thin,
discreet white envelope.
One late payment ... two penalties.
In a perfect world, one late payment
equals one penalty fee; on-time pay-
ments equal zero fees. In this imperfect world,
you can be penalised with two surcharges on
one delinquency, and you won t know about
them until you ve been charged. These can
come in the form of a late fee (up to $35), and
a penalty rate; a permanent interest increase
that can jack up your APR to as high as 29.99
The 2009 CARD Act sought to place limits
on these increases, though the details aren t
widely known by the average cardholder.
Twice the interest in one month.
Another one-two financial punch
comes in the form of a legal maneu-
ver which allows your card company to impose
two months interest for just one month of
late balance payments. For example: You re
charged twice the interest for a partial balance
payment in October even though you paid on
time in September.
Called double-cycle billing, the card issuer
looks at your average daily balance over two
consecutive months and charges you higher
interest based on the month you carried a
It s not even the interest that makes this a
problem, but the principle of being punished
for good financial behavior.
Disgraceful grace periods. How
many of us who ve made big-ticket
purchases have been thankful for
the grace period? Say you charge $1,000 to
your card and pay $250 by the due date to hold
over your creditors.
Most cards carry grace periods up to about
25 days, allowing you to pay off the remainder,
interest-free. But in the spirit of profiteering,
many providers are reducing the grace period
to just 20 days, while some are doing away
with them altogether. That means you ll get
charged interest on every purchases, even with
timely repayments. Avoid this fall from credit
grace, and check how many grace period days
your card company offers.
No card limits; just with limits. Many
consumers in possession of a no-
limit charge card discover they have
a revolving spending cap---let s use $5,000---
but only learn of it after racking up $7,000 in
purchases, leaving them stuck with a remaining
$2,000, plus interest, to pay off. Why is this
so?Your card company advertised your plastic
as no limits, but it s really set at a no preset
limit, based on your own month-to-month
spending behaviour and habits.
Before snatching up a no-limit card, ask
your provider if the limit is predetermined,
and be careful not to spend beyond that
Minimum payments to the maxi-
mum. It s the nature of the credit
beast: The longer you stay in debt,
the more interest credit card companies can
charge, and the more money they make. In
the past, card holders had a 5.0 per cent min-
imum monthly payment. This became prob-
lematic for creditors because people were moti-
vated to pay off their balances more quickly.
So they lowered the monthly minimum to
2 per cent. But now, with smaller repayment
requirements, we re prone to spend more and
accrue more debt each month.
Experts maintain that this move by card
companies adds thousands of dollars in interest,
creating a repayment schedule that could last
years, if not decades.
Late payments to any creditor can
raise your APR. We hope that our
creditors aren t wishing us to slip up
on our repayments, but if there s one thing to
take away from this article, it s to be on time
paying down your debt.
One late or partial payment, be it your credit
card, car or mortgage payment, can jack up
your total APR across each line of credit in
Can you imagine your auto or home loan
going from 3.0 per cent to 29 per cent? Cred-
itors have something called the universal default
clause, which insures them against people who
pose a credit risk. (Not like they need it.)
Four reasons to ignore market timing
and focus on happiness
7 secrets credit card companies don't want you to know
Links Archive August 16th 2014 Remembering World Wars 1-2 Navigation Previous Page Next Page