Four Years of Publication

With the December, 2009, issue, Fidelity Select Fundranker has completed its fourth year of publication. From January, 2006, through November, 2009, the Top Eight Model Portfolio lost 3.317%, while the S&P 500 Index (as tracked by Fidelity’s Spartan 500 Index - Investor Class Fund) and the Nasdaq Composite Index (as tracked by Fidelity’s Nasdaq Composite Index Fund) lost 4.685% and 0.214%, respectively.

From January, 2006 through June, 2008, when the Top Eight Model Portfolio made its all-time high, it gained 41.969%. From January, 2006, through February, 2009, shortly before its March 9, 2009, Great Recession low, the Top Eight Model Portfolio fell 31.579%.

In contrast, from January, 2006, through October, 2007, when the Nasdaq Composite and the S&P 500 Indexes made their all-time highs, they gained 30.893% and 28.218%, respectively. From January, 2006, through February, 2009, shortly before their March 9, 2009, Great Recession lows, the Nasdaq Composite and the S&P 500 Indexes fell 36.191% and 37.163%, respectively.

From March, 2009, through November, 2009, the Top Eight Model Portfolio gained 29.383%, while the Nasdaq Composite Index gained 40.869%, and the S&P 500 Index gained 39.447%.

Posted 12/3/09 7:25pm ET in Fundranker, Market | Permalink | Comments (0)

Great Recession

Many pundits are calling the recession that started in December, 2007, the Great Recession, which seems to capture succinctly what it has done to our economy--worse than other recessions, but not as bad as the Great Depression. We like this name, and we will refer to this recession as the Great Recession in future blog entries.

Posted 12/3/09 6:58pm ET in Economy | Permalink | Comments (0)

November Surge Renews 2009 Rally

As of Wednesday, November 11, the market rose seven of the eight trading sessions to that point in November, giving new life to the 2009 rally that began last March. On November 11, the S&P 500 Index (as measured by Spartan 500 Index Fund) closed at a new rally high, while the Nasdaq Composite Index (as measured by Fidelity Nasdaq Composite Index Fund) and Fundranker’s Top Eight Model Portfolio closed 0.4% and 3.3%, respectively, below their values on October 19, when recent rally highs were set.

From recent rally highs of October 19, through October 30, the S&P 500 Index fell 5.6%, the Nasdaq Composite Index fell 6.0%, and Fundranker’s Top Eight Model Portfolio fell 9.7%. You can see that a good portion of this late October downturn has been recouped in the early November surge.

To give some perspective to the rally the market has enjoyed since March 9, consider these numbers. From October 31, 2007, market highs through March 9, 2009, the S&P 500 Index fell 54.8%, the Nasdaq Composite Index fell 55.1%, and Fundranker’s Top Eight Model Portfolio fell 54.1%. To completely recover from March 9, 2009, lows to their October 31, 2007, values, the S&P 500 Index, the Nasdaq Composite Index, and Fundranker’s Top Eight Model Portfolio would have to gain 121.5%, 122.7%, and 117.9%, respectively. Well, since March 9, they have gained 64.8%, 71.3%, and 52.9%, respectively, which are fantastic gains for an eight-month period, but you can see they have a long way still to go.

Posted 11/11/09 9:15pm ET in Fundranker, Market | Permalink | Comments (0)

October Downturn

After hitting rally highs on October 19, the Nasdaq Composite and the S&P 500 Indexes turned down dramatically, falling seven of the last nine trading days of October. This downturn has not reached the point of calling it a correction, defined as a drop of 10%, but it did produce the first monthly loss for the market since this rally began in March. Several economic reports this week played into the downturn.

New home sales fell 3.6% in September, contrary to economists’ expectations of a seventh monthly increase in a row. Due to the coming November 30 expiration of the $8,000 first-time home buyer tax credit, potential home buyers may be rethinking their plans. Legislators are working now to renew the credit.

The Consumer Conference Board’s Consumer Confidence Index and the Reuters/University of Michigan Consumer Sentiment Index both declined in October, although the Nielsen Global Consumer Confidence Survey reported that their U.S. reading had risen since their last survey in July.

The only good news this week was that the GDP rose 3.5% in the third quarter, and it sparked a sizeable market rebound on Thursday, October 29.

However, the Labor Department reported Friday morning, October 30, that consumer spending fell and personal income was flat in September, which worried investors enough to undo Thursday’s rebound.

Even though the economy expanded in the third quarter, it is by no means out of the woods. Consumer spending is the mainstay of the U.S. economy and is directly affected by consumer sentiment, which in turn is affected by the current high unemployment rate, now at 9.8%, and which economists expect to continue to rise as high as 10.5% through the middle of next year. The recovery is likely to be weak and slow until the jobs picture brightens.

Remember though, that consumer sentiment is largely a trailing indicator, meaning that it reflects more on what has happened in the past than what will happen in the future, making it a favorite indicator for contrarian investors.

Posted 10/31/09 9:07am ET in Economy, Market | Permalink | Comments (0)

Fundranker Upturns October Update

Fundranker’s Top Eight Model Portfolio gained ground again in September, tying its seven-months-in-a-row record from May, 2002. The table below shows Fundranker’s multi-month gains and compares them to returns of the Nasdaq Composite (as measured by Fidelity Nasdaq Composite Index Fund) and the S&P 500 (as measured by the Fidelity Spartan 500 Index Fund) over the same time periods. Since we didn’t start tracking the Nasdaq Composite until October, 2003, its returns are shown starting in 2004:

Fundranker’s current seven-month upturn of 42.376% places third in the list by percentage gain. Fundranker is up again so far in October, so perhaps we'll get to add another month to this upturn to break our seven-month record.

Over all the upturns, Fundranker now has an average gain of 22.223%; the S&P 500 gained only 11.994% on average. Over the 11 upturns during which we tracked the Nasdaq Composite, Fundranker now has an average gain of 17.099%; the Nasdaq Composite gained only 13.646% on average. See our Fundranker Upturns September Update post for earlier information.

Although past results are never an assurance of future performance, it’s still great to know that Fundranker regularly outperforms the Nasdaq Composite and S&P 500 indexes.

Posted 10/23/09 2:43pm ET in Fundranker, Market | Permalink | Comments (0)

Average Monthly Returns

Fidelity Select Fundranker has monitored Nasdaq Composite Index performance (as measured by Fidelity Nasdaq Composite Index Fund) since October, 2003 and S&P 500 Index performance (as measured by Fidelity Spartan 500 Index Fund) since January, 1997. For October, 2003, through August, 2009, Fundranker’s Top Eight Model Portfolio and the Nasdaq Composite Index both had five months with negative average returns. For January, 1997, through August, 2009, Fundranker’s Top Eight Model Portfolio had only three months with negative average returns, while the S&P 500 Index had five months with negative average returns. Here’s a chart of average returns that compares Fundranker’s average monthly returns to those of the Nasdaq Composite Index over nearly six years from October, 2003, through August, 2009, and Fundranker’s average monthly returns to those of the S&P 500 Index over nearly 13 years from January, 1997, through August, 2009:

Fundranker outperformed the Nasdaq Composite Index for only four of 12 months, but its average monthly return over the nearly six-year period topped that of the Nasdaq Composite Index by a little. Fundranker outperformed the S&P 500 Index for eight of 12 months, and its average monthly return over the nearly 13-year period was significantly better that of the S&P 500 Index.

Posted 920/09 7:58pm ET in Fundranker, Market | Permalink | Comments (0)

September Surge

Yardeni Research reports that, going back to 1926, September is the only month with a negative average return. Well, September made an exception through the first half of the month this year; the market rose seven of 10 trading days through September 15. Over that time period, Fundranker's Top Eight Model Portfolio outperformed the Nasdaq Composite Index (as measured by Fidelity Nasdaq Composite Index Fund) and the S&P 500 Index (as measured by Fidelity Spartan 500 Index Fund):

Posted 9/16/09 10:23am ET in Fundranker, Market | Permalink | Comments (0)

Fundranker Upturns September Update

Fundranker’s Top Eight Model Portfolio has gone up another month since we last reviewed Fundranker’s upturns. The table below shows Fundranker’s multi-month gains and compares them to returns of the Nasdaq Composite (as measured by Fidelity Nasdaq Composite Index Fund) and the S&P 500 (as measured by the Fidelity Spartan 500 Index Fund) over the same time periods. Since we didn’t start tracking the Nasdaq Composite until October, 2003, its returns are shown starting in 2004:

Fundranker’s current upturn of six months is just one month short of our record upturn of seven months and places third in the list by percentage gain. Fundranker is up again so far in September, so perhaps we'll get to add another month to this upturn to match our seven-month record. September, a historically poor month for the stock market, has only been part of three previous Fundranker upturns.

Over all the upturns, Fundranker now has an average gain of 21.838%; the S&P 500 gained only 11.732% on average. Over the 11 upturns during which we tracked the Nasdaq Composite, Fundranker now has an average gain of 16.399%; the Nasdaq Composite gained only 12.899% on average. See our Fundranker Upturns August Update post for earlier information.

Although past results are never an assurance of future performance, it’s still great to know that Fundranker regularly outperforms the Nasdaq Composite and S&P 500 indexes.

Posted 9/10/09 8:25pm ET in Fundranker, Market | Permalink | Comments (0)

Rally vs. Bull Market

The rally that started from the market low reached on March 9, 2009, is still going strong. When does it become a bull market? The answer is subjective and hard to pin down, but it generally calls for a prolonged period of rising stock prices. This rally has lasted nearly six months, but that is rather short compared to previous well-known bull markets. On the other hand, the stock market has increased dramatically in the five plus months since March 9. As of August 24, 2009, the Nasdaq Composite Index (as measured by Fidelity’s Nasdaq Composite Index Fund), the S&P 500 Index (as measured by Fidelity’s Spartan 500 Index Fund), and Fundranker’s Top Eight Model Portfolio were up 59.5%, 53.3%, and 43.0%, respectively, since March 9.

There are several promising signs that this rally could continue. Consumer confidence rose more than expected in August, the housing sector is showing signs of improvement, the automotive sector just got a huge shot in the arm with the Cash for Clunkers program, unemployment dipped in July, and monthly job losses in July came in at 247,000, the fewest in a year.

Posted 8/25/09 3:39pm ET in Fundranker, Market | Permalink | Comments (0)

Fundranker Upturns August Update

Fundranker’s Top Eight Model Portfolio has gone up another couple of months since we last reviewed Fundranker’s upturns. The table below shows Fundranker’s gains and compares them to returns of the Nasdaq Composite (as measured by Fidelity Nasdaq Composite Index Fund) and the S&P 500 (as measured by the Fidelity Spartan 500 Index Fund) over the same time periods. Since we didn’t start tracking the Nasdaq Composite until October, 2003, its returns are shown starting in 2004:

Over all the upturns, Fundranker now has an average gain of 21.669%; the S&P 500 gained only 11.487% on average. Over the 11 upturns during which we tracked the Nasdaq Composite, Fundranker now has an average gain of 16.092%; the Nasdaq Composite gained only 11.487% on average. See our June post about Fundranker Upturns for earlier information.

Although past results are never an assurance of future performance, it’s still great to know that Fundranker regularly outperforms the Nasdaq Composite and S&P 500 indexes.

Posted 8/15/09 11:25am ET in Fundranker, Market | Permalink | Comments (0)

Select Automotive Shines

Select Automotive is up 18.8% for July 1 though 24, 38.9% for May 1 through July 24 (nearly three months), and 131.8% for February 2 through July 24 (nearly six months). It is only down 5.6% for August 1, 2008, through July 24 (almost 12 months). Given that two of the three major American automakers were bailed out by the federal government earlier this year and also made speedy trips into and out of bankruptcy in the last few months, this incredible runup indicates a lot of investor confidence in the automotive sector. Investors must like the new direction American automakers are taking, and they must think that consumers are willing, able, and starting to buy cars again.

The American automotive industry is hugely intertwined in the American economy as well as the world economy. Consumers buy cars all over the world, automakers hire lots of people to build them, their suppliers hire lots of people to build various parts for the cars, and all those workers go out and spend the money they earn. It’s a self-feeding circle of economic improvement that can’t help but bode well for the economy.

Posted 7/24/09 11:01pm ET in Economy | Permalink | Comments (0)

Rally Resumes

The spring rally we enjoyed, after pausing for four weeks, has turned into a summer rally. The Nasdaq Composite climbed 11 sessions in a row through July 22, 2009, hitting new rally highs every day since July 15. The S&P 500 rose seven sessions in a row through July 21, hitting new rally highs on July 20 and 21. Fundranker nearly matched the Nasdaq Composite, climbing 10 sessions in a row through July 22, finally hitting a new rally high that day.

As of July 22, the Nasdaq Composite (as measured by Fidelity’s Nasdaq Composite Index Fund), the S&P 500 (as measured by Fidelity’s Spartan 500 Index Fund), and Fundranker’s Top Eight Model Portfolio are up 52.1%, 42.3%, and 35.2%, respectively, since the bear market lows of March 9.

Investors apparently are pleased with second quarter earnings and future outlooks companies have been reporting recently. Although economic indicators are mixed at best, the stock market seems to be fulfilling its roll as an advance indicator of economic recovery.

Posted 7/23/09 11:15am ET in Economy, Fundranker, Market | Permalink | Comments (0)

Rally Pauses Four Weeks

The spring rally we enjoyed has gone on pause the last four weeks. After hitting rally highs during the week ended June 12, 2009, the Nasdaq Composite and Fundranker fell three of the last four weeks, and the S&P 500 fell all four weeks. As of July 10, the Nasdaq Composite (as measured by Fidelity’s Nasdaq Composite Index Fund), the S&P 500 (as measured by Fidelity’s Spartan 500 Index Fund), and Fundranker’s Top Eight Model Portfolio are still up 38.6%, 31.0%, and 20.1%, respectively, for the rally since March 9, but they are down 5.5%, 7.0%, and 9.6%, respectively, since June 12.

Second quarter earnings season is upon us and quickly will tell us if and how much the economy and individual companies are beginning to recover from the recession. Given the past four weeks action in the stock market, investors clearly want to see some improvement before buying into the rally again. Several key companies will report earnings this week: Yum Brands Inc. (owns KFC, Pizza Hut, Taco Bell), IBM Corp., Marriott International Inc., Harley-Davidson Inc., and Bank of America Corp. Earnings reports from these companies will provide investors with penetrating looks at just how much the economy is beginning to recover.

Posted 7/12/09 11:38am ET in Economy, Fundranker, Market | Permalink | Comments (0)

FNINX, FSPFX Close Permanently

Fidelity’s Select Networking & Infrastructure and Select Paper & Forest Products closed permanently on June 19, 2009. As of that date, Select Networking & Infrastructure was merged into Select Communications Equipment (FSDCX), while Select Paper & Forest Products was merged into Select Materials (FSDPX), both of which are in the Fundranker’s Top Eight Model Portfolio this month. Shareholders of the two closed funds were issued equivalent shares of Select Communications Equipment and Select Materials.

Select Communications Equipment is doing well so far in June, and it looks like it will remain in the Top Eight Model Portfolio for July. Select Materials has fallen out of the Top Eight Model Portfolio and most likely will be exchanged in July.

We will be updating the Fundranker website soon to reflect this change in Fidelity’s Select Fund offerings.

Posted 6/25/09 10:00am ET in Fidelity Investments, Fundranker | Permalink | Comments (0)

Rally Falters

The spring rally faltered during the week that ended June 19, the last week of spring, and started summer with a precipitous drop on June 22. Is the rally taking a temporary breather, or are we seeing a more determined correction to the three-month runup we have enjoyed? The Conference Board’s Index of Leading Economic Indicators, which rose in both April and May, shows that the recession is losing steam. Economists predict a gradual recovery beginning later in 2009, so it’s more likely we’re seeing a temporary and healthy hesitation in a continuing market upturn.

The Nasdaq Composite (as measured by Fidelity’s Nasdaq Composite Index Fund), the S&P 500 (as measured by Fidelity’s Spartan 500 Index Fund), and Fundranker’s Top Eight Model Portfolio fell 1.7%, 2.6%, and 4.5%, respectively, for the week that ended June 19. As of June 22, the Nasdaq Composite, the S&P 500, and Fundranker have gained 39.4%, 33.0%, and 20.6%, respectively, from their March 9 lows and are 7.3% higher, 3.2% lower, and 7.9% lower, respectively, than their January 6 highs.

Posted 6/23/09 10:42am ET in Economy, Fundranker, Market | Permalink | Comments (0)

Fidelity Minimum Initial Investments

According to the latest Fidelity Investments Select Funds Prospectus, all of the Select funds require a $2,500 minimum initial investment for traditional and Roth IRA accounts, but they require only a $500 minimum initial investment for SEP-IRA and Keogh accounts. In practice, however, Fidelity’s online trading system allows minimum initial investments of $500 for new positions in Select funds for traditional IRAs and Roth IRA accounts, as well. At the time of this posting, Fidelity’s online trading system does not seem to work correctly for Select Utilities, for which it still requires a minimum initial investment of $2,500 for any IRA or Keogh account, in exception to the prospectus.

If you exchange between $500 and $2,000 into a new position in one of the Select funds online, you’ll receive a warning that your account may be subject to a small balance maintenance fee of $12. According to the Select Fund Prospectus, account fund balances are evaluated in November or December each year, and those with balances less than $2,000 are charged the $12 fee, even those in SEP-IRA and Keogh accounts. Accounts opened after September 30 are not subject to the small balance maintenance fee for that calendar year. Also, if you have at least $25,000 in assets at Fidelity, small balance maintenance fees for your accounts are waived.

In our FAQs about getting started and rebalancing, we discuss minimum amounts you should invest when using the Fundranker system for various types of accounts. Because of how Fidelity’s online trading system treats traditional and Roth IRA accounts in exception to the Select Funds Prospectus, in practice you can lump traditional and Roth IRA accounts in with the minimums we discuss for SEP-IRA and Keogh accounts.

Posted 6/18/09 1:34pm ET in Fidelity Investments, Fundranker | Permalink | Comments (0)

DJIA Changes

The Dow Jones Industrial Average, made up of 30 U.S. industrial stocks chosen by the managing editor of the Wall Street Journal, changed last week. As of Monday, June 8, General Motors Corp., which declared bankruptcy on June 1, and Citigroup Inc. were removed from the average. Travelers Companies Inc. replaced Citigroup and Cisco Systems Inc. replaced General Motors.

General Motors had to be replaced because a company in bankruptcy is on a different playing field than competitive businesses, and it can no longer contribute to an index that tries to reflect the market as a whole. Although Citigroup is not in bankruptcy, it also was replaced because it is headed into a period of significant restructuring, and the Wall Street Journal felt its stock would reflect that process more than it would the banking sector.

The decision on which companies should replace General Motors and Citigroup was tied to the last time a DJIA component was changed. AIG was replaced by Kraft Foods last September, so Travelers Companies was chosen to renew an insurance presence in the DJIA. Also because of the earlier addition of Kraft Foods, the Wall Street Journal did not need another consumer goods company to replace General Motors. They chose Cisco Systems because they felt its products were relevant to economic and cultural adjustment to the digital age, much as automobiles influenced economic and social changes in the 20th century.

Posted 6/16/09 9:41am ET in Economy, Market | Permalink | Comments (0)

Rally Still Going

The spring rally continues to advance and now has lasted 14 weeks. The Nasdaq Composite (as measured by Fidelity’s Nasdaq Composite Index Fund), the S&P 500 (as measured by Fidelity’s Spartan 500 Index Fund), and Fundranker’s Top Eight Model Portfolio all hit new rally highs on Thursday, June 11, and closed Friday, June 12, with gains of 46.7%, 40.8%, and 32.9%, respectively, over their March 9 lows. As of June 12, the Nasdaq Composite, the S&P 500, and Fundranker are 12.9%, 2.5%, and 1.5% higher, respectively, than their January 6 highs.

Posted 6/15/09 10:31am ET in Fundranker, Market | Permalink | Comments (0)

Wall of Worry

It’s said that bull markets like to climb a wall of worry. Although investor and consumer sentiment gauges have risen lately, they are still low by historical standards. Recent unemployment, manufacturing, retail, and other economic data paint varying pictures of the economy, some positive, some negative. Banks are raising capital and want to return TARP money to the government, but General Moters and Chrysler are both in bankruptcy and face major restructuring to remain viable businesses. So is there enough worry to propel this rally further? Shall we worry even about the amount of worry? Do we dare call this rally a fledging bull market?

Posted 6/9/09 10:02am ET in Economy, Market | Permalink | Comments (0)

Fundranker Upturns

The market upturn since March 9 lows prompts a look at how Fundranker has performed when it has risen for multiple, consecutive months. The table below shows Fundranker’s gains and compares them to returns of the Nasdaq Composite (as measured by Fidelity Nasdaq Composite Index Fund) and the S&P 500 (as measured by the Fidelity Spartan 500 Index Fund) over the same time periods. Since we didn’t start tracking the Nasdaq Composite until October, 2003, its returns are shown starting in 2004:

If you look at our recent post about Fundranker Downturns, you’ll notice that Fundranker has had significantly more multiple-month upturns than downturns and that the upturns tend to last longer than the downturns, as well. Over all the upturns, Fundranker had an average gain of 21.016%, while the S&P 500 gained only 10.997% on average. Over the 11 upturns during which we tracked the Nasdaq Composite, Fundranker had an average gain of 14.905%, while the Nasdaq Composite gained only 11.325% on average.

Although past results are never an assurance of future performance, it’s still great to know that Fundranker regularly outperforms the Nasdaq Composite and S&P 500 indexes.

Posted 6/4/09 11:45am ET in Fundranker, Market | Permalink | Comments (0)

Fundranker Downturns

Through June, 2008, the Fundranker system bucked the bear market trend that started November, 2007, but in the frantic market downturn during the last half of 2008 and January and February of 2009, it gave back those gains and then some. Fundranker has had multiple-month downturns only 15 times since 1997, when historical tracking of the Top Eight Model Portfolio began. Here are Fundranker’s losses during those downturns along with its returns during the next 3 months, 6 months, and 12 months:

The five-month downturn that began in July, 2008, was the first multiple-month downturn Fundranker had had for two years, and it is by far the worst and longest that Fundranker has suffered. As the worst recession since the Great Depression continued, Fundranker added another two-month downturn in January and February, 2009, and it was nearly as bad as the previous worst multiple-month downturn, July through August, 1998, when Fundranker fell over 18% but gained over 83% during the next 12 months. During the last big bear market, Fundranker had three multiple-month downturns over the ten-month period from June, 2002, through March, 2003, but it gained 45% in the next 12 months.

Although past results are never an assurance of future performance, you still can benefit from knowing that Fundranker almost always has gone on to better performance in the months that follow a multiple-month downturn. Let this knowledge boost your confidence in Fundranker. Stay disciplined, and stick with the Fundranker system.

Posted 6/3/09 9:31pm ET in Fundranker | Permalink | Comments (0)

Fundranker Goes Positive

The first day of June was a good one for the markets and an even better one for Fundranker’s Top Eight Model Portfolio. As of June 1, Fundranker’s Top Eight Model Portfolio is in the black for 2009, with a YTD gain of 2.232%. It also finally surpassed its previous high, reached on January 6, by a fraction of a percent. Take a look at our daily chart for June.

Posted 6/2/09 9:08am ET in Fundranker | Permalink | Comments (0)

Rally Continues

The spring rally had nine straight weeks of new highs, fell during the week ended May 15, 2009, and rose (but not to a new high) for the week ended May 22. The Nasdaq Composite made a new rally high as of May 29, and the S&P 500 nearly did. Fundranker’s Top Eight Model Portfolio, the S&P 500 (as measured by Fidelity’s Spartan 500 Index Fund), and the Nasdaq Composite (as measured by Fidelity’s Nasdaq Composite Index Fund) have gained 26.17%, 36.63%, and 40.04%, respectively, since their recent March 9 lows. As of May 29, the Nasdaq Composite is nearly 8% higher than its January 6 high, the S&P 500 is within 1% percent of its January 6 high, and Fundranker is within 4% of its January 6 high.

The stock market shot up in the last half hour on Friday, May 29, and, despite continuing financial turbulance, such as General Motors declaring bankruptcy this morning, June 1, stock market futures are indicating that surge may continue today. It seems that this rally has staying power. Maybe it truly is an advance indicator that the economy is beginning to recover. See our Spring Rally post for earlier information on this rally.

Posted 6/1/09 9:30am ET in Economy, Fundranker, Market | Permalink | Comments (0)

Spring Rally

After nine straight weeks of new highs and after weathering the recent deluge of earnings reports, the spring market rally finally took a break during the week ended May 15, 2009. Fundranker’s Top Eight Model Portfolio, the S&P 500 (as measured by Fidelity’s Spartan 500 Index Fund), and the Nasdaq Composite (as measured by Fidelity’s Nasdaq Composite Index Fund) fell 5.65%, 4.87%, and 3.38%, respectively, for the week but still have gained 18.36%, 31.12%, and 32.48%, respectively, since their recent March 9 lows. As of May 15, the Nasdaq Composite is nearly 2% higher than its January 6 high, the S&P 500 is within 5% percent of its January 6 high, and Fundranker is within 10% of its January 6 high.

Despite this week’s setback, has the market turned the corner? The stock market generally begins a sustained recovery several months before it becomes apparent that the economy is recovering from a recession, although it also can stage bear market rallies and still hit new lows if true recovery doesn’t occur. Are tantalizing hints of economic recovery, such as improvements in bank-to-bank short-term lending, pending home sales, construction spending, existing home inventories, and consumer spending holding out real or false hope? Stay tuned to see if this spring rally regains its footing. See our March/April Rally and New Market Rally posts for earlier information on this rally.

Posted 5/17/09 11:59am ET in Economy, Fundranker, Market | Permalink | Comments (0)

Roth IRA for a Child

There is plenty of controversy over the relative merits of traditional IRAs and Roth IRAs for worker-age individuals who qualify for both. In general, you get to deduct contributions to a traditional IRA up front, but you pay taxes when you withdraw money from it after age 59½ on both your contributions and whatever gains accrue; you don’t get to deduct contributions to a Roth IRA up front, but you don’t have to pay taxes after age 59½ when you withdraw money from it on your contributions or any gains that accrue. Many variables make the decision very difficult to quantify, and some of the questions that arise can’t be answered without a crystal ball, such as what tax rates may be like in the future when you withdraw money from your IRA.

But what about that babysitting or lawn mowing money your child makes while she is in middle school or high school? What about that first part-time job she gets at the corner drugstore? It’s pretty likely that with her income level, she won’t even have to file an income tax return, and yet this income is considered after-tax income. You couldn’t ask for a better situation for a Roth IRA to make sense. Your child won’t pay income taxes on the income, but she can take full advantage of a Roth IRA. Plus, that money will be in your child’s Roth IRA for a long, long time; time during which it can grow and grow and grow.

Your child’s Roth IRA contribution for 2009 (contribute by April 15, 2010) is limited to her earned income or $5,000, whichever is less. With the jobs we’re talking about, she is likely to earn less than $5,000. So do you ask her to give up her hard-earned money, which, since she made the effort to earn it, she must want for something else? Well, that depends on your situation. If you think getting your child set up with a life-long investment is important, and you have the means, you can spring for all or most of the money to put in it (you can give up to $12,000 per year to an individual without the gift being taxable). After all, it probably won’t be a large amount the first few years.

You are probably asking, what if my kid only makes $50 babysitting the first year she makes any money? Check with your bank or credit union to see what their minimum requirements are for opening a Roth IRA. Many have very low minimums, so you can start very small.

Because a Roth IRA is not considered for FAFSA (Free Application for Federal Student Aid), it is a great way to save in your child’s name, shield those assets from financial aid considerations for college, and yet still have access to at least some of the money for college, as follows.

Your child can make certain withdrawals from her Roth IRA before age 59½ without including the amounts as taxable income or having to pay a penalty: for example, she can withdraw any or all of the contributions she makes over the years, or she can withdraw up to $10,000 for qualified first-time homebuyer expenses, even if they exceed all of her contributions. Investment earnings that accrue in a Roth IRA are another story; if your child withdraws earnings (other than as qualified first-time homebuyer expenses) from her Roth IRA before age 59½, she will have to include those amounts as taxable income and will have to pay a 10% penalty, as well.

Setting up a Roth IRA is a great opportunity to teach your child the importance of saving for the future. Show her how her Roth IRA may grow over the years from her contributions as well as investment returns. Review various ways her Roth IRA can be invested and decide together which to use. If you want your child to feel more ownership of her Roth IRA, you and your child could agree on a “company matching” strategy, where you play the part of the company and do the matching (probably way more generously than your company matches your 401K), and your child puts in some part of her earnings.

Posted 5/12/09 11:57am ET in Investing, Tax Tips | Permalink | Comments (0)