QUESTION: How much
should I keep in liquid accounts for an emergency fund?
ANSWER: Financial
advisors use the following rule of thumb: for 2 wage earner families,
keep 3 months of living expenses in liquid accounts as an emergency fund.
For one wage earner families, or retirees, keep 6 months in such
accounts. Emergency funds are used for those UNPLANNED expenditures that
pop up from time to time. LIQUID accounts are cash, checking &
savings accounts and other investment accounts which can be converted to cash
quickly- within 21 days- and easily with very little loss of value. Why
within 21 days? If an emergency arises, consumers can use a credit card
to satisfy immediate cash needs, and then liquidate emergency funds within 21
days to pay off the credit card before interest accrues.
NOTE:
Financial planning advice such as the above is general in nature and cannot be
used for all situations. Before applying this to your own unique
circumstances, we recommend contacting your financial advisor to double-check
how to apply the information to your situation.
I felt sorry for Jim Furyk in
yesterday’s U.S. Open. I am a fan – Jim is homegrown Pennsylvanian, is a
tall golfer, and has a unique swing (like mine). Sure, his performance in
the final round was disappointing. But, the pressure has to be incredibly
intense. I know from my personal experience, during the final couple
holes of a match, there is pressure on a 3 foot putt. And, my matches are
for mere bragging rights and not for a million dollar purse and a ticket to the
Golf Hall of Fame like the U.S. Open. Golf is a competitive sport at the
pro level and leaves no room for error. Let’s hope there will be an
opportunity down the road for Jim to redeem himself.
Last week NEGATIVE economic news exceeded POSITIVE economic news. The
markets seemed to take little notice; instead, they watched events in
Europe.
Below is a succinct list of last week’s
events:
Positives:
1)
Athens stock market rallies almost 14% on week on hopes New Democracy party
squeezes out win.
2) Unconfirmed story but likely central banks stand ready for coordinated
action to deal with potential bank runs depending on election outcome.
3) Historically low mortgage rates finally entice many as refinance apps jump
19.2% to most since April ’09 and purchase apps rise 1.28% to 6 month high.
4) Headline US Consumer Price Index slows to 1.7% year over year, slowest since
Jan ’11 and Producer Price Index up just .7% year over year due mostly to drop
in energy prices.
5) Consumer Price Index and Producer Price Index in China moderate further,
loan growth, exports and imports gain more than expected.
6) April machinery orders in Japan rise more than forecasted.
Negatives:
1)
Spanish bond yields spike on heels of 100billion euro of extra borrowing to
finance bank bailout. Italian yields also get dragged up.
2) US retail sales in May soft as drop in gasoline prices offset by iffy labor
market and modest income growth.
3) Initial Jobless Claims total 386k, 11k more than expected and the 9th week
in a row above 370k.
4) University of Michigan confidence in June falls to lowest of the yr as both
current conditions and the outlook fall.
5) Industrial Production unexpectedly falls .1% month over month.
6) June NY manufacturing survey falls 14.8 pts to weakest since Nov ’11..
7) Core Consumer Price Index growth remains sticky at 2.3% year over year,
matching the fastest pace since Sept ’08, Producer Price Index core up 2.7%
year over year.
8) Chinese retail sales and Industrial Production grow less than expected in
May.
9) India’s wholesale inflation up 7.55% year over year, more than estimated
ahead of its central bank’s rate meeting Monday. Industrial Production up just
.1%. Will slowest growth in 10 yrs offset still high inflation?
U.S.
equities defied fears about the Greek elections by rallying more than 1% last
week. The gains came as policy makers around the world reassured investors that
they would supply liquidity if the markets tumbled in the wake of the Greek
vote. The Dow rose 1.7%, or 213 points, to 12,767.17, its second consecutive
week of gains. The S&P 500 jumped 17 points to 1342.84, and the NASDAQ
added 14 points, to end at 2872.80. Stocks in the U.K., France, Germany, Spain
and Italy also climbed Friday.
Regulators
around the world made calming noises. Banking regulators indicated that they
might let banks use a wider variety of assets, like gold or equities, to meet
liquidity buffers, according to the Wall Street Journal. Speculation also grew
that central banks around the world would conduct synchronized easing if
necessary to calm the financial markets. And the Fed has a two-day meeting
ending Wednesday, at which some expect it to extend the Operation Twist
bond-buying program or restart quantitative easing.
“I’m
putting a lot of faith in markets making politicians behave and make the tough
decisions,” says John Manley, chief equity strategist at Wells Fargo
Advantage Funds, who expects the S&P 500 to remain in a trading range of
1250 to 1450. “This nonsense can’t go on forever.” Today’s
marketplace, he says, reminds him of the early 1980s, when the bond markets
pushed yields ever higher, giving the Federal Reserve the political cover to
fight inflation.
Charles Gave, GavKal Research’s chairman, is downright
optimistic about U.S. stocks. “We’ve been in a bear market for the best
part of the last 12 years” due to the misallocation of capital, he says.
China’s currency controls, the Fed’s artificially low interest rates and the
creation of the euro have caused this misallocation, and it’s about to end, he
predicts. “If the euro disappears, it’s fabulously good news. The markets
will go down for two days and up for many years,” Gave says. “We are
witnessing the end of social democracy.”
The euro’s
demise would result in money flowing out of short-term havens and into good,
independent companies that don’t rely on government spending. He likes
companies that have strong dollar-denominated cash flows, don’t need to borrow
money from banks, and don’t rely on government spending. Johnson & Johnson
(ticker: JNJ), IBM (IBM), Texas Instruments (TXN) and SAP (SAP) are among those
he sees thriving in the new world order. He’d avoid banks (Source:
Barrons Online).
Last week, U.S. Stocks and Foreign Stocks and Bonds all increased.
During the last 12 months, STOCKS outperformed BONDS (this is a change from
last week).
Returns
through 6-15-2012
1-week
Y-T-D
1-Year
3-Years
5-Years
10-Years
Bonds-
BarCap Aggregate Index
.3
2.4
6.8
7.3
6.9
5.6
US
Stocks-Standard & Poor’s 500
1.3
7.9
8.5
15.7
-.5
5.0
Foreign
Stocks- MS EAFE Developed Countries
2.3
-2.6
-17.1
1.6
-9.5
2.4
Source:
Morningstar Workstation. Past performance is no guarantee of future
results. Indices are unmanaged and cannot be invested into
directly. Three, five and ten year returns are annualized excluding
dividends.
