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22/01/2018

We Are a Global Partnership.

In finance, an investment strategy is a set of rules, behaviors or procedures, designed to guide an investor’s selection of an investment portfolio. Individuals have different profit objectives, and their individual skills make different tactics and strategies appropriate.

Value vs Growth: Value investing strategy looks at the intrinsic value of a company and value investors seek stocks of companies that they believed are undervalued. Growth investment strategy looks at the growth potential of a company and when a company that has expected earnings growth that is higher than companies in the same industry or the market as a whole, it will attract the growth investors who are seeking to maximize their capital gain

Momentum Trading: One strategy is to select investments based on their recent past performance. There is evidence both for and against this strategy.

Asset allocation is the rigorous implementation of an investment strategy that attempts to balance risk versus reward by adjusting the percentage of each asset in an investment portfolio according to the investor’s risk tolerance, goals and investment time frame.

16/01/2018

Oil: An Ongoing Story of Supply and Demand
The new normal of oil prices

The crude oil market has experienced a “sea change” since 2014. Oil prices dropped sharply from above $100 in early 2014, bottomed at $26 in 2016 and have now stabilized at around $50 (Figure 1). The market has indicated that this will not be a short term price drop and will continue to be “lower for longer”. The futures curve is now significantly lower and inverse to the 2014 pre-crash levels. In 2014 before the oil price collapse, crude oil futures were traded in the shape of backwardation, with far term futures priced lower than near term futures to compensate for the storage costs (convenience yield). The current oil future curve, however, is in contango. A contango in the crude oil market means that traders avoid holding spot commodities by paying a premium for future deliveries. Since a contango position is highly unprofitable, it reflects a strong pessimism on the crude oil market at the current moment (Figure 2).

For readers who have not followed the story, the sudden slump in oil prices is due to the dramatic increase in the U.S. shale field production rooted in the breakthrough of the new formation technology, the so-called “Shale Revolution”. This new technology uses a combination of horizontal drilling and hydraulic fracturing to tremendously stimulate the field oil and natural gas production in the United States, largely from shale-rich states such as Texas and North Dakota. With its domestic oil production more than doubled, the United States became the world’s top energy producer in 2011. The U.S. Energy Information Administration (EIA) even predicted that the U.S. will become a net energy exporter within a decade. As the United States is persistently building up its energy surplus, the rest of the world’s oil producers are inevitably facing a prolonged oversupply pressure. Since some of the world’s large oil producing countries are dependent on oil exports to cover their fiscal deficits, they could not afford to reduce their long term productions in order to support oil prices. Instead, they increased the overall production to make up the losses due to the unit price reduction. The outcome we saw was oil prices in a downward trend (Figures 3, 4 and 5).

A tug of war for oil prices

When the price of oil bottomed at $26, many high-cost producers were forced to cease or reduce their production (Figure 6). Oil production capacity seems to have reached its limit in the short term and oil prices have stabilized in a range of ~$40 to ~$50. However, market expectations have diverged and many traders are actively speculating on both sides of the market.

Figure 6: 9 out of the top 20 oil producing countries have reduced outputs since 2013

Nigeria, Mexico, Colombia and Venezuela all had significant production cuts since 2013. Other countries such as Algeria, India, Qatar, Angola and China just had moderate to minor cuts of less than 4%. The decision to cut oil production is possibly influenced by individual country’s operating costs (Nigeria, Colombia, Venezuela, Angola) and market demand (Mexico, Algeria, Qatar) while being negatively offset by domestic demand (India, China). After the latest round of OPEC cut talk, Saudi Arabia and Russia will share the majority of the cut.But the other two OPEC members, Iran and Iraq, are taking advantage and increasing their production instead.

Source: U.S. Energy Information Administration (EIA)

Reasons to be bearish

The massive U.S. shale oil production supply is the major fundamental reason for traders to stay bearish about crude oil prices. In addition, bears often cite concerns from the demand side, such as the regulatory pushes for a cleaner alternative source of energy, or the changing consumer habits with the preference of electric over fossil energy powered vehicles, etc. The latest headline is Texas’ refinery shutdowns caused by Hurricane Harvey that trimmed the short term demand for crude oil.

Reasons to be bullish

EIA forecasted an accommodative trend in world consumption in its latest annual energy outlook report. It still sees solid growth coming from Non-OECD countries. Both China and other Non-OECD countries will double their consumption levels in three decades

Non-OECD demand has bypassed that of OECD countries since 2014 and keeps growing. China counts for more than a quarter of the total non-OECD consumption. The following chart on RHS shows that both China and the rest of the other Non-OECD countries share the same level of robust growth for oil consumption, while demands from the developed countries are predicted to be flat.

Meanwhile, the global capital expenditure for drilling projects has been significantly cut down since 2014. That should lead to less oil supply and drive up the prices in the future (Figure 8).

Figure 8: Global Upstream Capital Spending 2010-2017 (in billions of USD)

For domestic sale producers, given that the current oil price has already gone under the average breakeven costs for new shale well production, many experts predict that future shale supply will also shrink if the current level of oil price sustains. In fact, the rapid increase of U.S. shale production is heavily reliant on producers’ abilities to borrow and fund their drilling productions. With already thin profit margins, a projected rate hike by the Fed would make it difficult for these shale producers to fund any future drillings or even revolve the current credits. We should see an increase in oil prices if the credit bonanza in the energy sector eventually stops (Figure 9).

Technical Analysis

The oil price was traded in a bearish chanel in the first half of the year. The trend has reversed, however, after reaching the bottom of 43 at June. It is now in a strong upward trend and breaking up the previous head at 54. The reversal of the sentiment is helped with several rather bullish news such as better than estimated Harvey recovery estimates, sign of the early success of the OPEC production cut and the Iraq kurdish conflict. Whether the oil price can successfully stand above with the high is still unclear; traders are closely watching any further changes in fundamentals such as better than expected emerging market economy recovery or, on the other side, whether shale productors will catch up the production that could potentially corrode any effect in the production cut so far.

Product review

Nasdaq offers a variety of Crude Oil future pricing derived index products, ranging from the conventional front roll WTI and Brent indexes to the more advanced leveraged and inverse indexes. There are also some ETF products available that are benchmarked to Nasdaq’s oil indexes. This allows investors to invest in one or both sides of oil prices depending on their market views and expectations.

The crude oil market has been permanently changed by the breakthrough of shale drilling technology. Oil prices may stay lower for longer but currently trade within a narrow channel between $40 and $50. Traders from both sides have sufficient reasons to support their own long or short speculations. However, it is still unclear which side can dominate the trend in the near future. Nasdaq provides a comprehensive list of crude oil index products that can help professional traders monetize their ideas. There are also a handful of ETF products already benchmarked to Nasdaq’s crude oil indexes so retail investors can express their views with just a click of the finger.

16/01/2018

6 Late-Stage Retirement Catch-Up Tactics

GLENN CURTIS
May 24, 2017, 12:13 pm


1. Fund Your 401(k) to the Hilt
An employee in this age category who is offered a 401(k) at work should consider funding it to the maximum amount. To provide you with a sense of how powerful maxing out a 401(k) can be, consider the following:

An individual who is 40 years old and who contributes $17,500 annually to a 401(k) could accumulate more than $1.3 million in savings by age 65. This assumes an 8% return and no employer contributions (see Figure 1). That’s a powerful savings tool, and it’s evidence that workers nearing retirement should seriously consider funding their 401(k)s as soon and as much as possible. If this individual increases savings by a catch-up amount of $5,500, at age 50, this would lead to an additional $271,000 in savings. Note that for 2017, these figures are $18,000 and $6,000 (catch-up), for a total of $24,000 and even more earnings potential.The basic contribution limit rises another $500 for 2018, to $18,500.

“Factoring in no growth at all, if you can sock away $24,000 a year from age 50 to age 60 (11 years), that’s $264,000 more saved for even the earliest unpenalized retiree. An extra $250,000-plus saved prior to retiring can make or break an income-producing portfolio lasting throughout retirement,” says Martin A. Federici, Jr., AAMS®, MF Advisers, Inc., Dallas, Pa.

2. Contribute to a Roth IRA
Roth IRAs offer investors a great way to save and grow money on a tax-deferred basis. There are some income limitations. For 2017, for example, if you are single and your modified adjusted gross income (MAGI) is $118,000 or more a year, your contribution limit is reduced; if you are single and your MAGI is $133,000 or more your contribution limit is nil. For married folks filing jointly, there are contribution limitations for those with MAGI of $186,000. And at or above $196,000, the contribution limit is nil.(The figures for 2018 are $120,000 to $135,000 for singles; $189 to $199,000 for married filing joi

How much can one potentially sock away with a Roth? Consider the following example:

A 40-year-old who invests $5,500 each year (the 2017 limit) and obtains an annual rate of return of 8% has the potential to accumulate more than $434,000 by age 65. Even a person who waits until age 50 and starts saving $6,500 per year (using the same return assumptions) can save as much as $190,000 by age 65.

“Maximizing your Roth IRA contributions and utilizing Roth conversions when appropriate can really make sense. A Roth account allows for tax-fee compounding, and when withdrawal rules are followed, the withdrawals, including the earnings, will be tax-free. This really creates an opportunity for tax planning later to minimize taxable income when you are in the withdrawal phase, and that can add up and help make your money last longer in retirement,” says Michelle Buonincontri, CFP®, CDFA™, New Direction Financial Strategies, LLC, Scottsdale, Ariz.

A fully funded Roth IRA and 401(k) can help to rapidly build retirement assets.

3. Consider Home Equity
While a home should not usually be considered a primary source of retirement income, it can provide liquidity during retirement. To that end, older individuals might consider borrowing against the equity in their homes in order to fund living expenses. “A large portion of the population has most of their wealth tied up in real estate. This can be used in many ways to fund retirement. You can use the home equity line (HELOC) to draw from when needed, or you could sell, downsize and live off the equity. Whatever you choose, it is important to consider the impact on your monthly income. People are living longer than decades ago, so it is important to make sure you can have a sustainable income for many years to come,” says Kirk Chisholm, wealth manager at Innovative Advisory Group in Lexington, Mass.

A reverse mortgage may make sense because lending institutions may shorten repayment periods and increase repayment amounts for older borrowers (see Can the New Reverse Mortgage Boost Retirement Income?). Selling a primary residence outright and moving to a smaller and less costly home may also make sense for older individuals. In many cases they no longer need need a big house, as children are usually off on their own.

However, selling a home should not be taken lightly. After all, in many instances, it takes the homeowner 30 years to accumulate full equity ownership in the house. Therefore, it would be a shame not to obtain the largest amount possible from a sale. (For tips on selling your home, see Need Retirement Income? Sell Your House! and Downsize Your Home to Downsize Expenses.)

That said, individuals should consider current market conditions and whether it is the most advantageous time to sell. Naturally, homeowners should also consider any tax consequences. Married homeowners who file a joint tax return can generate profits of up to $500,000 without owing federal tax on the capital gains. For single individuals, the limit is $250,000. This is assuming that you meet certain requirements: The home being sold must be your primary residence and you must not have benefited from the capital gains exclusion on another home during the past two years. Additional requirements are explained in IRS Publication 523, available from the IRS.

Finally, if you’re not just moving to a smaller place in your own neighborhood, factor in the cost of living in the area you might be relocating to before making the decision. In other words, it’s wise to make sure that real estate prices and the cost of everyday items like groceries are generally lower than where you live now.

4. Take Full Advantage of Allowable Deductions
It’s important to note that standard deductions aren’t for everyone. In fact, if you have a large amount of mortgage interest, deductible taxes, business-related expenses that weren’t reimbursed by your company, and/or charitable donations, it probably makes sense to itemize your deductions. (For more insight, read Which is better for tax deductions, itemization or a standard deduction?)

Sit down with a CPA and go over your personal situation to determine whether it makes sense to itemize. Then get in the habit of saving receipts and keeping good records. Remember, in the end it’s not always what you make, but what you save that counts – particularly as you get closer to retirement.

5. Tap Into Cash Value Policies
While tapping an insurance policy for its cash should be considered a last resort, if the original need for the insurance is no longer there, it may make sense to cash out. However, before ever canceling any policy or accessing its cash value, you should first consult a tax advisor and an insurance professional to review your individual needs.

6. Get Disability Coverage
Don’t forget to either obtain disability coverage or make certain that your job offers some sort of group disability benefit. The idea behind obtaining such coverage is simple: to protect yourself and at least a portion of your income and nest egg just in case the worst should happen.

Your chances of becoming disabled depend on your career and your lifestyle, but according to a data released by the U.S. Census Bureau in 2014, approximately 57 million Americans report some level of disability. Given that the U.S. population is around 300 million, that’s a substantial number – 19% of “the U.S. civilian noninstitutionalized population,” according to the report. It means that in order to protect your income and improve the chances that you will retire with some form of nest egg, it makes sense to at least consider some form of disability coverage.

“Disability insurance is important to protect your savings,” says Elyse Foster, CFP®, Harbor Financial Group, Inc., Boulder, Colo.. “Contact your employer or professional association for the most cost-effective options.”

The Bottom Line
Individuals in their 40s and 50s who have done little or no retirement planning are certainly at something of a disadvantage. However, with the proper planning and a willingness to save and invest, the odds are not insurmountable.

Address

Agiou Georgiou A', 58 Office GH, Germasogeia
Yermasoyia
4047

Telephone

0035725366660

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