Money & Investing - Banks.com

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The stock market is down today, thanks the latest unemployment news. With the labor market continuing to show signs of weakness, Wall Street is working through the idea that economic recovery is going to be slow in coming. However, many believe that recovery is on its way, and that now is a good time for small caps.

The Motley Fool points this out about small caps:

During the last bear market — when most stocks nosedived – small-cap stocks absolutely soared, handing savvy investors 22% a year over the next three years.

Their amazing run during the 2001-2002 recession was no fluke. Starting in the middle of the brutal recession of 1974, small caps made an epic run. Shooting up during the recession and extending their run long after the economy recovered, they returned 28% a year for nearly a decade.

And beginning in 1991, small caps powered right through a sharp downturn and kept gaining — handing investors 116% over three years.

The best part of all of these bits of history? Small caps started their run smack in the middle of the down economy — not after the turnaround. And that means right now is a great time to buy.

With stocks on sale, it is possible to find some truly spectacular deals. And with small caps likely to do well in a rebound, it might be the perfect time to get in on the market.

Small caps can be risky

It is important to understand that small caps are often considered riskier than large caps. Their smaller market capitalization means that there is less cash available to shore the company up. As a result, it is important to be discerning in your small cap investment choices. You should look for companies that show good potential, and that have healthy fundamentals.

Another thing you can do is consider small cap index funds. There area number of index funds and ETFs that provide you with the ability to take advantage of the growth likely to be experienced by small caps, but at the same time spreading the risk around and helping you diversify a little bit.

Disclaimer: I am not an investment professional. Nothing in this piece or on this Web site should be construed as investment advice. Before making investment decisions, do your own research and/or consult with an investment professional. All investment comes with the risk of loss. You are responsible for your own investment decisions and any loss that may result from your decisions.

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It’s been a good week for real estate. Signs that the housing market is stabilizing are helping propel recoveries for home builders and for real estate funds on the financial markets. Indeed, investors are becoming interested in real estate related investments again in the hopes that they can get in now and catch a ride on the recovery.

Home builders are seeing an increase, thanks to recent data that housing starts continue to rise, and that the home builders confidence index has gained some ground. The Street reports on the success that home builders are seeing:

Rehaut says supply appears to be more manageable, while demand has begun to stabilize and even slowly re-emerge. “In such an environment, we believe the builders will once again demonstrate positive order growth — historically a powerful positive catalyst — and home-price declines will near their end, resulting in the abatement of impairment charges,” he wrote in a note.

While home prices are likely to continue to decrease — at least for a little while — they should be at the bottom quite soon in most markets, and are even rising in some markets.

Additionally, real estate funds are on the rise. The good news from the housing market means that REITs and other real estate funds are doing well. From ETFs to mutual funds that are heavy in real estate investments, investors are starting to take a look. These types of funds are also popular amongst folks without the capital to buy real estate. It allows them a piece of the action.

In the end, it looks as though real estate investing is likely to become popular again. Investors are banking on a recovery, even though peak housing prices are years away. If they can hold on to home builders and real estate funds for the next five to 10 years, they expect to make some solid profits.

Disclaimer: I am not an investment professional. Nothing in this piece or on this Web site should be construed as investment advice. Before making investment decisions, do your own research and/or consult with an investment professional. All investment comes with the risk of loss. You are responsible for your own investment decisions and any loss that may result from your decisions.

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One of the things we often forget about when making investment decisions is how such decisions will affect our taxes. However, it is important to consider the tax implications of investments that you make. One of the advantages that index funds have over actively managed mutual funds is that there is lower turnover that equates with lower taxes. The Oblivious Investor describes how this works in mutual funds (remember that index funds are types of mutual funds):

With mutual funds (as opposed to, say, shares of individual stocks), you don’t pay taxes only when you sell the fund. You pay taxes each year on your share of the capital gains realized within the fund’s portfolio.

With portfolio turnover in actively managed funds averaging roughly 100% per year, a great deal of the gains end up being short-term capital gains. Because STCGs are taxed at your ordinary income tax rate (as opposed to LTCGs which are taxed at a maximum rate of 15%), investors in actively managed funds end up paying more in taxes than they would with a fund that holds onto its investments for longer periods of time.

This means that you have better tax efficiency with index funds. This is extremely helpful if you are interested in keeping more of your money in your pocket. Use a tax-advantaged retirement account, and you receive these benefits to an even greater degree.

ETFs and tax efficiency

Even though they aren’t mutual funds, ETFs also have some helpful tax advantages. The Oblivious Investor points out that because of how ETFs are created, they normally distribute less frequent capital gains (and smaller gains) to shareholders. This means that you pay less in taxes.

When comparing different investment options, consider taxes as part of your costs. Just as administrative fees and loads are part of the equation, what you pay in taxes should also be considered. If you neglect to factor in taxes, you could be rather unpleasantly surprised.

Disclaimer: I am not an investment professional. Nothing in this piece or on this Web site should be construed as investment advice. Before making investment decisions, do your own research and/or consult with an investment professional. All investment comes with the risk of loss. You are responsible for your own investment decisions and any loss that may result from your decisions.