It was quite a downer of a day in the markets following news of the tragic shootings in Colorado overnight. Stories like these make us realize how life can change in an instant. Our thoughts and prayers go out to the families affected by the tragedy.
Moving on to market-related news, a downgrade of Spain’s debt by Egan-Jones helped send overseas markets tumbling, putting added pressure on the U.S. indices.
Looking at some of the names making headlines today, ManpowerGroup (MAN) and Ingersoll-Rand (IR) felt pressure following their earnings results. In contrast, oil-service giant Schlumberger (SLB) was up on their earnings numbers. General Electric (GE) shares ended with slight gains on the session as the company reported results and mentioned a split-up within their energy divisions. Finally, momentum traders who were long Chipotle (CMG) and didn’t sell right after yesterday afternoon’s earning release got hit much worse as the shares closed down nearly $87. Interestingly enough, Whole Foods (WFM) also got hit hard as investors who are paying 40 and 50 times earnings these days may be second-guessing that methodology. Clearly, the risk is high when playing the momentum/trading game.The Lump Sum Dilemma
I recently read an interesting New York Times piece regarding the dilemma facing many General Motors retirees. In an effort to get ahead of mounting pension expenses, the company has offered a decent number of retired workers the option to forgo future monthly pension checks in exchange for a one-time lump sum payout. In some of the examples, the former white-collar workers who collected pensions in the $4-$5K a month range were offered bailout amounts of $800K-$1million.
The right option for workers to choose varies from case-to-case. Some will prefer the proposed lump sum amount, figuring they can invest the money and get a good rate of return. There’s also the risk of the worker dying sooner than expect, which effectively ends their monthly pension benefits. This possibility makes lump sums look more attractive.
On the flipside, some are fearful they may not use the lump sum of funds properly. Retirees have essentially no way to produce decent guaranteed returns (CD’s, savings accounts) with yields hovering at all-time lows. If they make some bad investment decisions, then what? Another factor not mentioned in the article is the very real possibility that new-found money could become a big hassle for certain folks with particularly needy offspring. I can just imagine a line forming outside a retiree’s house, filled with kids and grandkids looking for hand-outs from grandma or grandpa’s generous pension settlement. Most parents have a tendency to jump in and help financially whenever they can, but often at the risk of putting their own retirement security in jeopardy.
So you see, there are several ways to look at the GM pension story. What would I do? I’d take the money up front and invest it the best way I know how: in quality dividend-paying stocks that offer the best risk/reward going forward. Other than that, I would want to find opportunities where the rate of return makes it worth diversifying into other areas (other businesses, real estate, etc.). I can’t say it enough: the road to wealth is paved with income-producing assets!Our Beat The Markets with Dividend Stocks eBook Has Arrived!
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Looking ahead to next week, third quarter earnings will be in full swing once again, as we are expecting results from McDonald’s (MCD), Boeing [[BA], 3M (MMM), and Exxon Mobil (XOM), just to name a few. The focus will likely be on the economic data as well as the latest Wall Street analyst calls.