Update: investing, Japan and long-term asset allocations … and donating to relief efforts

The press is full of commentary on the meltdown, cooling system repairs, cobbling together power supply lines, the dearth of inventory as certain plants…

But few comment on the long-term view, other than perhaps how long the radiation may be in the ground, the water or plants…

That is why I wanted to share a portion of the interviews of managers by MorningStar:
“A large group of successful fund managers says the sharp decline in Japanese equities over the past week is overdone. by Morningstar Analysts 03-21-11
“The MSCI Japan Index has declined 11.7% this month through March 16. Meanwhile the S&P 500 is down 5.2% and the MSCI EAFE is down 8.5% over the same period.
“Ben Inker, of GMO-run Wells Fargo Advantage Asset Allocation EAAFX, wrote in a note to clients this morning that corporate Japan can bounce back.
“ ‘Given the long duration nature of equities, where the bulk of value comes from the present value of dividends that will be paid 10 or more years in the future, we believe this event is unlikely to have material impact on the long-term fair value of corporate Japan,’ Inker wrote.”
From the excerpt, you can see why holding on and staying the course is again the best advice. In fact, many US stocks are already resurging, as are stock in other countries.
In fact, some managers are buying Japanese stocks because the shares are “oversold”

As I said, there are opportunities in volatility!

On the human side, there are ways to donate to relief efforts, such as: Global Giving

If you have other ideas on donations or questions on any of this, let me know.

Good luck!


Financial responses to unfolding global events, first the Middle East and then Japan

Our hearts go out to the families who lost loved ones in the earthquake, Tsunami and nuclear reactor catastrophe of Japan and will hope for the best for those fighting with their lives to contain the meltdown.

The globe was hit first with the turbulence in the Middle East, affecting petroleum availability and delivery, driving up gas prices at the pumps while hitting bond values so that mortgage rates fell down.

In the last week, the earthquake, Tsunami and nuclear reactor catastrophes have affected Japan at humanitarian, financial and political levels not seen in decades

These impacts have led to drops in our stock markets and others around the world. Japan supplies about 9% of G.D.P., so that is no surprise. As with any dramatic change, there are always opportunities.

So how do you react? What do you do?

The New York Times compared the nuclear meltdowns to the recent financial meltdown, only not many lives were lost from bad mortgages, economic downturn, house foreclosures and layoffs.

The comparison provides a bit of help. Therefore, other than any action you may take for relief efforts, the financial outlook is somewhat the same as a couple of years ago, recast this way:

 countries struggling to recover, including the US, will experience supply shortages such as the GM plant just shut down awaiting parts from Japan,
 this will frustrate those recoveries in the short-term while alternatives are found and Japan recovers,
 as with the oil availability, the Japanese production short fall should not have a long term impact, either from Japan rebuilding or other nations taking up new supply roles,
 if bonds are a measure, the confidence in the Japanese government has not altered dramatically (bond yields changed some, falling from .57% to .51%)
 Japan will bolster its own economy from government financing of repairs and possibly stepping in where earthquake insurance did not cover or was never purchased,
 Japan will have to rebuild its confidence as well as it sources of energy
 there may be investments to be made in Japan – so it is better to shift the investments that any wholesale sell-off

Summarizing, these events certainly will have financial impacts now, as well as human and emotional, but none of them are cause for selling stocks to buy gold or to go all to cash – just as with the fall of 2008, staying invested paid off (those who sold for cash never got back in time to recover their losses).

In fact, none of the impacts is cause for selling Japanese stocks to buy other international stocks – at least not in general. There will be moves to be made among the specific stocks you hold throughout the globe, but as with the financial meltdown, sticking to your investment strategy, and holding on to your asset allocation, during the nuclear meltdown will be the best course!Let me know your concerns and comments …. It is clearly not a happy time for many

Take care and good luck,


Roth Conversions – decisions on 2010, recharacterize now or pay taxes over two years?

You can still decide as late as October 15th (if you extend filing of your tax returns) to either recharacterize or pay the taxes in 2011 and 2012 instead of on your 2010 taxes for your 2010 conversion to a Roth IRA.

Recharacterize – if you have the misfortune of losing value on the IRA after converting, you can “un-convert” by “recharacterizing” the Roth IRA as a traditional IRA using an IRA-to-IRA transfer (do not distribute funds to yourself, as that distribution voids the recharacterization). You can do this for all or a portion of the account. Once you do so, you cannot convert again until later of 30 days after the recharacterization or the year after the year of the original conversion.
This strategy is useful to address a decreased IRA value or to shift the conversion into future years with less income, so you are in a lower tax bracket.

Tax payments
– 2010 is the only year where you can choose to have the income of the conversion split in half and carried onto your 2011 and 2012 tax returns. This (1) spreads the time to come up with funds to pay the taxes (you never want to use the funds in the IRA as that defeats the purpose) and (2) gives you earnings on funds already available to pay the taxes until the payment due date.

Note: if you are paying taxes on the conversion with your 2010 taxes, the amounts are due April 18, 2011, even if you extend to have the option of recharacterizing. If you do recharacterize, then you will have over paid and have a refund due …. until you convert again.