Publication: Investor's Notebook
YES, YOU CAN HAVE TOO MUCH OF A GOOD THING | |
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Investor's Insight - Friday, January 20, 2006
"A Digest of Investment Opinion From the
World's Leading Financial Advisers"
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Comment The Post Below...
YES, YOU CAN HAVE TOO MUCH OF A GOOD THING
by Scott Burns
Q: My wife and I have about $320,000 of investments. About
a third of that amount is invested in two royalty investment
trusts. One is oil-based, and the other is in natural gas.
Even after the recent dunking the energy market has taken,
we are still 20 percent above water on these.
Obviously, we are completely unbalanced in the portfolio,
but we are addicted to the dividends. I took early retire-
ment at 55. I am now 62 and my wife is 55. The negative I
have heard from my adviser is we are "heavy into a
depleting resource."
At our age, I think we will have left this world before
anyone should worry about the "depleting resource." What
do you think? -- D.M., Seattle
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A: Actually, you and your wife have a combined life expect-
ancy of 32.9 years, meaning that one of you is likely to
live that long. So you're not exactly "here today, gone
tomorrow." In rap star lifetimes, your joint expectancy is
forever. So you should be concerned about energy depletion
over the period.
Fortunately, the news isn't all bad: Higher energy prices,
within limits, work to increase the amount of recoverable
energy in a field because it will pay to invest the addi-
tional money to extract more energy.
Another way to rationalize your position is that your
energy investment is a bond substitute of sorts.
Even so, you've got a very big commitment to energy and
should reduce it.
Q: It appears to me the Federal Reserve is controlling
inflation by controlling interest rates. If this is true,
could a rogue Fed actually induce hyperinflation or de-
flation? -- H.C., Dallas
A: While the Fed is seen as our inflation fighter, it's
no longer clear whether Federal Reserve actions have much
effect on inflation as we usually see it. Recent interest
rate increases may have an effect on asset inflation
(think houses), but it appears to have little influence on
the cost of inexpensive foreign goods, which are a source
of deflation. It also seems to have little influence on
domestic services, which are a source of inflation.
Our central bank, like all central banks, has the power
to increase or decrease the supply of money. But I doubt
we'll ever see a "rogue Fed."
What some fear is a reserve bank that helps the federal
government finance perpetual deficits by monetizing more
and more debt. It's notable that Richard Fisher, presi
-dent of the Dallas Federal Reserve Bank, has repeatedly
stated in speeches that it is important that the Fed NOT
monetize federal debt.
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Q: My wife and I are having an ongoing discussion about
the benefits of using a credit card every time we buy
something. We have been advised that the "free" mileage
and other related benefits far outweigh the cost of the
card. I say that it is a bit of a scam. My wife says I'm
a bit on the wrong side. What do you say? -- R.I., San
Antonio
A: If you think of airline miles as a form of currency,
the currency has been losing its value rapidly. Using
the currency has become more difficult, and the number
of miles needed to get a "free" flight has in-
creased.
For most people, the value obtained by using a credit
card is completely offset by interest payments on out-
standing balances and purchases that would not have been
made if it had been necessary to pay cash, write a check
or use a debit card.
If you have trouble paying your monthly charges, have a
lot of consumer debt, or fall short on your savings goals,
you should reduce or limit the use of credit cards. If
you pay no interest on credit card debt, have little other
debt and are meeting your savings goals, your credit card
is "convenience cash," and you should collect travel rewards.
(Investor's Insight reflects the opinions of experts. It does
not recommend any specific investments, and no endorsement is
implied or should be inferred. For more information, contact
the individual firms cited).
COPYRIGHT 2005 UNIVERSAL PRESS SYNDICATE
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