Rick Munarriz

Good morning/afternoon everyone!

Jenn Holmes, HB Editor

Welcome to Hispanic Business LiveChat. We would like to welcome our guest Rick Munarriz, the personal finance columnist for HispanicBusiness.com, taking your questions on the state of the markets and how to keep your investments afloat.

Rick Munarriz

I'm going over a few questions that were submitted earlier, but do feel free to submit more. I type awfully fast (must thank my mother for those piano lessons that I once despised).

All my 401(k) material tells me to diversify, but it also shows that "riskier" investments like small-cap stocks do much better over time. Since I just turned 30, shouldn't I put all my money in the better-return basket, since I don't care if it swings wildly in the next 25 years or so?

Rick Munarriz

Ana, you are right. If this is retirement fund money that you won't see for another 20-30 years or so, you can afford take bigger chances. Small growth stocks are risky but have averaged 12% annualy gains historically (compared to 10% for the blue chips that make up the S&P 500). You may not want to invest it all in small caps right away, but if you plan to continue to contribute to your 401(k), that may be all of the "dollar cost averaging" that you would need. So, yes, a good small-cap stock fund should be a part of your retirement planning strategy.

Which other assets will you include in a long-term portfolio that are not correlated with U.S equities?

Rick Munarriz

We live in a global marketplace, yet you will find several international markets that seem to march to the beat of a different drummer than stateside stocks. You also have asset classes closer to home -- like utility stocks, gold (and gold mining stocks), and energy stocks -- that trade independently from the gyrations of Wall Street. For a little overseas exposure, look at some international exchange-traded funds. They have low management expense ratios, yet provide access to faster growing markets overseas. They are riskier than US markets, but it is one way to diversify.

At least as of last Friday most of my portfolio had shifted from winners to losers. I understand buy and hold, but if I think a protracted downturn is coming, should I bail out now (and maybe jump back in after the dust settles)?

Rick Munarriz

If your gut is telling you to bail, I can't be the one to stop you from doing so. However, as investors we tend to be emotional beasts. We want to buy after the market has risen. We want to sell after the market tanks. It's not the best strategies because you want to buy when the prices are low.

If you look at stocks as shirts at a department store, are you more tempted to buy when the prices are low or just after they were marked up? The skeptic would wonder if the shirt is being marked down because it's no longer in fashion, but if you like the shirt it IS a good time to buy it.

Volatility will test our patience, but the market's historical averages reward patient investors. Sure, the market may keep heading lower as it has over the past couple of weeks, but I can assure you that a lot of investors have come to realize that "the dust settles" higher sometimes.

I applied for a 401K with my company last year, and they never submitted the paperwork. Is there some recourse for me?

Rick Munarriz

Jenn, if your company never deducted your contributions from your paycheck and it took you this long to call them out on it, you may be out of luck.

You do have some options. You can try contacting the company that manages the company's 401(k). If you feel that it's a serious breach you can always contact the Department of Labor. It oversees retirement plans and you can find out more at http://www.dol.gov

However, since you never had the money taken out (much less matched by your employer, if your employer matches contributions) you may not have a strong case to fix the past. Just get on them quickly to make sure they get it right now.

Giving increasing equity market volatility, down (past couple of weeks) and up (yesterday). What are your recommendations for a long-run investor? What is the outlook (2-3 years forward) for U.S equities?

Rick Munarriz

I am a sucker for valuation. At the end of the day, it is earnings that drive share price growth. So I am encouraged by what I've seen lately. If you look at the past 4-5 years, you will find that corporate earnings have grown faster than the share price gains. In other words, stocks are cheaper (on a Price-to-Earnings or P/E basis) than they were a few years ago, and far cheaper than they were when the market fell 5-6 years ago. Coca Cola had no right trading at 50 times trailing earnings.

These days you are finding more realistic valuations. There are plenty of companies growing earnings at a faster clip than their P/E ratios.

I'm not naive. Things like rising energy prices and the meltdown in the subprime lending market have important ramifications. The state of the economy is going to be challenged. However, I think the market is reasonably priced if corporate earnings keep growing over the next 2-3 years. The recent up-down volatility though is likely to continue for now.

What are the advantages and disadvantages of investing in Exchange Traded Funds?

Rick Munarriz

I devoted a column to ETFs back in April.

http://www.hispanicbusiness.com/news/newsbyid.asp?id=62418

In a nutshell, I'm a fan. They are like mutual funds, though they trade in the open market. So you can buy and sell throughout the day, not just priced once at the end of the trading day like conventional funds.

Most ETFs are similar to index funds, yet some specialize in exotic areas like buying only into specific countries or specific sectors like renewable energy or real estate developers. They typically have low fees. Yes, you will have to pay your broker a commission to buy and sell, but brokerage commissions keep getting cheaper and the low annual expense ratios do help offset that.

I have a question about real estate. My mom owns a few properties and she's having trouble paying the mortgages on both at once. She's offered to add me to the title of one of the houses so that I can help her out with the mortgage, but also because it would be a worthwhile investment for me at a young age (i'm 27 and i'd probably inherit the house from her at some point). I have the money to invest. Is this a wise decision? I'd like to help my mom out and reap the tax breaks, investments benefits, etc. Thanks, Tony

Rick Munarriz

Tony, a lot of real estate investors are feeling the pinch these days. Prices aren't going up, yet property taxes, mortgage rates, and liability insurance are heading higher.

Helping your mom is noble. I can't get in the way of a family decision. However, make sure that you both agree as to what will happen. Will you be taking on the entire property? Will you be acquiring a small stake in the property? These are important distinctions because the tax breaks, etc. apply to the owner.

Since I will never be mistaken for a real estate lawyer, my advice is that you find one to draw up any legal documents you need to get this done right. And if your mom is struggling with the mortgages, seek out an unbiased professional to advise her on the feasability of possibly selling one of the properties.

Is the recent volatility in the stock and bond markets only temporary, and, if it is, is this a good opportunity to invest in the stock market?

Rick Munarriz

Volatility is a part of the ups and downs of investing. Ben Graham, the value investing guru, probably said it best when he proposed that the stock market was a voting machine in the near-term and a weighing scale in the long-term.

The past few weeks, though, have been especially rocky. Two weeks ago we had the biggest weekly drop in years. Yet that is the ideal time to take a broader scope of the market as a whole. The market has had a good trailing 12 months.

I approach market weakness as a great time to look into individual stocks that still have their fundamentals intact. Home developers have been roughed up, yet earnings are falling. On the other hand, there are many attractive companies that are cheaper -- and that poses a good opportunity (though perhaps entering cautiously is a better approach than diving in headfirst).

Given all subprime and unperforming prime mortgages impacting financial stocks. Is it this a good time to buy BAC at 10P/E and C at 11 P/E for the long haul?

Rick Munarriz

Joe, obviously companies like Bank of America and Citicorp are going to weather the subprime meltdown better than the lenders that have buckled in recent months. However, BAC and C rarely trade at high P/E multiples anyway. I do like the sector, and some of those big banks are paying out juicy yields. I am still a bit cautious though, because many are still waiting for the other shoe to fall (in that more mortgages will default over the next few quarters).

So I like the valuations, but I think there is more risk in some of these financial services providers than the low P/Es suggest.

Somebody's still going to doing mortgages after the subprime mess clears up. What do you think about buying something like a Countrywide, or maybe a beaten-down builder like WCI, while they're dirt cheap?

Rick Munarriz

I like Countrywide, though some of the recent share price declines is warranted. The company is going to have its share of defaults. However, I like how the company is being aggressive. This morning it announced that it was buying Homebanc's mortgage origination business. I can normally applaud that kind of vulturistic thinking, though I think we haven't seen the last of the subprime fallout.

As for WCI, I'm torn. I wrote an article called "Dumb Move, WCI" earlier this year when shareholders turned down Carl Icahn's $22 a share buyout offer. I was validated. The stock is trading at a quarter of that price. WCI is a victim of its condo businesses. Folks are walking away from their deposits. Cranes are rusting away. It's not as bad in the company's single home business, but this is a company that is still a couple of years from returning to profitability. It is VERY risky. As long as you know that, and appreciate it that this can be a stock that doubles as simply as it can go to zero by this time next year, it's your gamble.

It's a pity, because as a Floridian I want to see local companies thrive. But I think anyone who lives in a coastal city could have seen this coming with all of this condo construction for condo flippers who now have no one to flip to.

I just read that the Fed left the rates unchanged. Do you think this was a good move?

Rick Munarriz

Inflation hasn't been such a scary beast. The Fed has inched rates higher to keep it that way. In the longer term snapshot, I think this is the right thing to do. Sure, higher energy prices may have made shipping goods a little more expensive, but you can't just keep moving rates higher.

Back to the mortgage market, folks in variable rates can catch a sigh of relief (for now).

Hi Rick. My parents are nearing retirement age and have considerable real estate assets. But, my concern is they don't have a will prepared for either of them. My siblings and I haven't been able to convince them to put something in writing. What's our best course of action, and what is the potential fallout if something happens? Will we lose half of it to the gov?

Rick Munarriz

I am no estate planning attorney, but yes -- if the real estate assets are considerable -- a lot of that will be eaten up in taxes. Since a lot of money may be at stake here, I suggest you find an estate planning professional in your area (one that is recommended to you by someone you trust) and give them the specifics. Maybe your parents will have a change of heart with a professional opinion.

This is more complicated than simply drafting a will, though.

Dear Rick, What are your thoughts on investing in solid infrastrcuture stocks. Given the need for revamp of all aged US infrastructures. Not sure if there will be budget left for it, but at the state-level many States will take on rebuilding their infrastructures.

Rick Munarriz

Infrastructure will always be important. The horrific bridge collapse last week in Minnesota is a grim indicator that we may have been negligent in the past. I think that the incident alone is enough to get states to MAKE the budget happen, if deficiencies exist.

So, yes, the circumstances are unfortunate but I think you are right about the sector in the future.

Rick Munarriz

Since we have no more questions -- and the hour is up -- I want to thank everyone for making my first online chat at HispanicBusiness.com so enjoyable.

Jenn Holmes, HB Editor

This concludes our Hispanic Business LiveChat. A big thanks to personal finance columnist Rick Munarriz. For more from Mr. Munarriz on navigating financial markets, stay tuned to HispanicBusiness.com for his weekly columns.

He can be reached through Reportedly.com where he discusses his latest articles.