Money & Investing - Banks.com

Fannie Mae reported a stunning loss for Quarter 2. The company insists that it will not need the bailout approved in the recently passed housing relief bill. Despite all that Fannie execs can say with regard to avoiding the need for taxpayer money, I’m not sure that this is reality.

BloggingStocks reports on the plan that Fannie Mae claims will prevent the company from needing government (read: taxpayer) help:

What to do? Mudd — whose name is mud in my book — says Fannie Mae will reduce its dividend from 35 cents a share to 5 cents a share and stop buying Alt-a mortgages — those “made to borrowers with solid credit but little proof of their income, or small or no down payments.”

This is a severe blow for those who rely on dividends for part of their income stream. Additionally, it’s a bit of a letdown for those with Alt-A loans facing foreclosure. Alt-A loans are likely to comprise a large number of the next wave of foreclosures, and that could be a serious issue down the road.

However, the stock market still managed to open ahead this morning, with major indexes up. The news that oil prices continue to decline, along with some surprising economic data, have added a bit of confidence to the stock market.

BusinessWeek offers some insight into some of the stock performances today:

Among other stocks in the news Friday, McDonald’s Corp. (MCD) posted an 8% increase in July global comparable-store sales and a 16% increase in its systemwide sales for its worldwide restaurants. The company posted a 6.7% rise in July U.S. comp-sales.

Hormel Foods (HRL) expects third-quarter EPS to be in the range of 37-39 cents, citing higher than expected feed and fuel input costs at its Jennie-O Turkey Store segment. The meat processor adjusted its 2008 EPS guidance to $2.22-$2.28, vs. previous guidance of $2.30-$2.40.

Live Nation (LYV) reported better-than-expected second-quarter EPS of 2 cents, vs. 15 cents one year earlier, as higher costs offset an 18% revenue rise. Wall Street was looking for a 20-cent loss.

Sprint Nextel (S) says it is no longer pursuing the private placement of cumulative perpetual convertible preferred stock, and remains committed to paying down debt and strengthening its balance sheet. The company reiterated its forecast for free cash flow to improve substantially in the second half.

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.

Tags: stock market, stock market news, investing blog, Fannie Mae,
economy, investments, dividends

One of the issues that comes up in terms of retirement planning is how much money you need in investments to live comfortable off the interest — or at least live comfortably while the principal remains mostly intact throughout the rest of your life. Often, multiple “passive” income streams are needed in order to achieve this goal. At the very least, a balanced portfolio can help you get a good mix of less risky and risky investments to maximize your earnings while preserving more of your principal.

My Money Blog offers an interesting look at some different investing strategies for your investment portfolio that can help you earn passive income for retirement:

Bonds and CDs

These are considered the least risky of investments. Consequently, they also have the lowest returns. Government bonds (both federal Treasury bonds and municipal bonds) can offer reasonable yields, however, and CD laddering can be one way to get regular income from cash investments.

60/40 allocation

This is an investment strategy that combines riskier stocks (60% of your investment portfolio) with less risky bonds (the other 40%). According to theory, this will allow you the ability to withdraw 4% of your investment portfolio every year. This will only marginally reduce your principal, as the returns should be high enough most years to cover most of the withdrawal. However, there is a warning:

However, your portfolio will experience wilder swings, and this rigid method is very sensitive to the returns in the first years of retirement. If you have a bad decade upfront, your chance of going broke rises quickly.

Mutual funds

There are mutual funds out there designed to help you attain regular income. They include some stocks, but focus a great deal on bonds as well. The idea is to create an income stream.

In a related category, there are managed payout mutual funds that adjust their allocation depending on how you are spending your money.

Stock dividends

Dividend paying stocks can also be helpful. These are stocks that regularly pay out per share. In some cases, yields are high enough that you can live off the dividends. However, in times like these dividends decrease, so becoming dependent on them can be risky in and of itself.

Income annuity

This is a very interesting income stream. However, it is likely that you will lose your principal. But if you are more interested in a regular monthly income, this might work out for you. Here is what My Money Blog says about the income annuity:

With a simple version of an immediate annuity, you hand over a lump-sum upfront in return for fixed income payments for life. Of course, if you die early then you don’t get your lump sum back. However, you could live until 110. It’s almost like life insurance in reverse. A special risk here is that your insurance company must stay solvent the entire time, so you must check credit ratings.

Whatever you choose — or if you go with a combination — it is important to make sure that you are doing the right thing for you and your situation. And remember to start saving and investing for retirement right now: You can’t live off your investment portfolio in retirement if you don’t have one.

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.

Tags: stock investing, mutual funds, investing blog, retirement planning,
passive income, investments, income annuity

One of the “safe havens” of stock investing strategy has generally been stocks that pay dividends. But now, that whole outlook may be seeing something of a change. Today, Freddie Mac not only announced its spectacular losses for the second quarter of 2008, but also revealed that it will be cutting dividend payouts from 25 cents per share to 5 cents per share.

Ouch.

One of the things to look at in terms of stock investing strategy revolves around the kind of yield these dividend paying stocks have. If the yield seems high, it could be a sign of trouble. Smart Money points out that Freddie, along with Fannie Mae, a fellow government sponsored enterprise, both had rather high yields (13% and 12%, respectively). And we all know where those stocks are now.

Smart Money also points this out about looking for stocks that pay dividends:

Another pitfall to avoid when looking for dividend payers is forgetting that cash is king. Earnings per share don’t pay the dividend; it comes from operating cash flow. A company that consistently generates cash flow is in much better shape to fund a dividend. And don’t forget to look at the balance sheet. A company drowning in debt is going to have a harder time borrowing money to fund a dividend than one with a clean slate. Finally, don’t forget that unless Congress extends the rules, taxes on most dividends will likely go up in 2010.

Choosing companies with dividends really can be a helpful stock investing strategy. However, it is important to take a look at the fundamentals to ensure that the company is in a good place. You want to maintain your dividends, and you don’t want to choose an investment that goes the way of Bear Stearns.

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.

Tags: stock market, investing strategy, investing blog, stock investing,
dividends, investments, Freddie Mac