I heard that the Treasury started Floating-Rate Notes earlier this year. What are these and when might an investor use them?
In January of 2014, the U.S. Treasury issued its first floating-rate Treasury bond. The recent sale of these bonds (fourth monthly auction) was more oversold than any other issue at 4.64 times more buying interest than were sold. The floating-rate note has a very short duration at approximately 1.5 months. The rate resets daily based on the 13-week Treasury Bill, which is currently around 0.08%. This is still a low interest rate, but better than a money market fund’s yield and with less risk. We suggest using them for short-term cash holdings as they will net you a better yield.
Liquidity is reportedly low, so the floating rate note may be hard to find. Money markets have been among the top buyers of the notes. Otherwise, they can be purchased at TreasuryDirect.gov. There is no guarantee on price of the bond. This is in contrast to a money market fund that promises not to “Break the Buck.” However, if a floating-rate note were to break the buck, it will likely be by mere cents or tenths of a cent. Their price is still really stable given the reset frequency.
Should we “Sell in May and Go Away?”
The old adage of “sell in May and go away” is also known as the “Halloween Indicator”, but let’s put some perspective on selling in May and going away: The Dow closed April at a record high and the S&P 500 is within half a percent of another all-time high.
Additionally, over the last 60+ years, the Dow has posted an average gain of 0.3% from May through October, versus a 7.5% return during the six months from November to April. Going back to the Dow’s creation in 1896, the market has posted a 5.4% annualized return during the winter months and only 2% during the summer. Clearly, these numbers are not just aberrations but really are statistically significant.
We do not advocate market timing, but there are some specific industries that have tended to do well during this period, including Food & Agriculture, Multimedia, Retailers, and Utilities.
What do you think of the financial media recommending stocks? Specifically, Jim Cramer?
First and foremost, you have to look at who you are getting a recommendation from, consider their background, their credentials, and if they have managed money before or if they currently manage money.
Jim Cramer tends to make recommendations rather frequently. He does not take into consideration the cost of that type of management and trading. So while his picks may be helpful, it would not likely be cost effective to follow every recommendation. His portfolio philosophy is also a bit elusive. He talks about high-quality, best of breed stocks, but he often holds them for a 30-day window. We recommend being cautious with his recommendations. We believe the most you can get from Jim Cramer is entertainment. He doesn’t try to hide that either, although he does try to help people understand their investments. We don’t recommend trading like Jim Cramer, as that would make you a day trader. We look for stocks to be long-term holdings.
At Henssler Financial we believe you should Live Ready, and that includes understanding the advice you are given. If you have questions regarding your holdings, the experts at Henssler Financial will be glad to help. You may call us at 770-429-9166 or email at email@example.com.