Small investors still counting on stocks for retirement

Maybe individual investors haven't given up on stocks after all.

That's the thesis of a new study, which says Americans still have faith in the stock market's long-term potential even though they have reduced their equity investments in recent years.

The study analyzed more than 23 million 401(k) retirement accounts nationwide. It was done by the Investment Company Institute, a mutual-fund trade group, and the Employee Benefit Research Institute, a research organization.

The study showed that 62% of 401(k) participants had money in stocks last year (defined as either stock mutual funds or company stock).

Four in 10 people had more than 80% of their 401(k) money in stocks in 2010. That's down from 54.1% of people who had such a large helping of stocks a decade earlier, but it still represents a significant amount.

The percentage of 401(k) investors who are out of the market entirely dropped to 11.8% from 12.7%.

Heavy stock concentration declined markedly among older Americans. The percentage of sixtysomethings with at least four-fifths of their portfolios in equities declined to 21.4% last year from 39.7% in 2010.

But among twentysomethings, the percentage rose to 60.4% from 55.3%, according to the study.

Overall, the reduction in stock holdings illustrates the fear and frustration that many feel toward stocks after a very disappointing decade. But the report nonetheless appears to undermine the notion that Americans are dumping stocks en masse.

That's due in part, the study says, to the popularity of so-called target-date funds, which automatically redistribute assets among stocks, bonds and other investments as participants get older.

“Growing use of target date funds appears to be helping to keep younger 401(k) participants invested in balanced portfolios, with equity exposure to help their assets grow over the long term,” said Sarah Holden, Investment Company Institute senior director of retirement and investor research. “While our surveys and others have shown that investors are less willing to take on stock market risk, 401(k) plan features are countering that trend for plan participants.”

Still, the study underscored the touchy economic straits that many Americans are suffering through. In 2010, 21% of all 401(k) participants who were eligible to borrow money from their accounts had done so, the same as in 2009 and up 18% from 2008.

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Photo: The New York Stock Exchange. Credit: Getty Images

 

S&P 500 up for the year as stock market rises solidly

The S&P 500 might enjoy a merry Christmas after all.

The blue-chip index turned positive for the year this morning, thanks to a recently steady stream of encouraging economic data and the breaking of the congressional deadlock over the extension of the payroll tax cut.

The index is up about 0.6% today, enough to notch a gain of 0.4% for the year.

It's too soon, of course, to say the stock market has turned any kind of a permanent corner and is headed even higher. Stocks are no doubt getting a boost from light trading volume in the holiday week when the tilt of economic news can have an outsized effect on the direction of the market.

But it's encouraging that stocks appear to be ending the year strongly. The market has historically fared well in the third year of a presidential election cycle, and the S&P's underwhelming performance had raised concerns about its prospects in 2012.

One obstacle the market might have to confront in the new year: the percentage of S&P 500 companies pre-announcing positive fourth-quarter earnings in the past couple of weeks dropped below 60% for the first time since early 2009.

Thus far, just 57% of companies pre-announced better-than-expected fourth-quarter earnings, according to FactSet Research Systems. That's the first time since the 59% mark in the first quarter of 2009 that the percentage has dropped below 60%.

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-- Walter Hamilton

Photo: The New York Stock Exchange. / Credit: Associated Press

 

Down stock market in 2011 might continue in 2012

There are few sure things in the financial world, but a rising stock market in the third year of a presidential election cycle has long been pretty close.

In the last 80 years, the Standard & Poor's 500 index has fallen only twice in Year Three, and hasn't declined at all since 1939. (See chart below.)

Since 1945, the S&P has risen an average 15.9% in Year Three, far outpacing the 6.3%, 5.3% and 5.7% gains in Years One, Two and Four, respectively. The data-crunching comes courtesy of Sam Stovall, chief equity strategist at Standard & Poor's Corp. in New York.

Well, you can probably guess where this is headed.

Barring a late-year rally, the S&P appears headed for its first Year Three downturn of the modern era. The index is off about 3.5% this year, although the Dow Jones industrial average is clinging to a 2% gain.

The logical next question: How does the market do in Year Four after a less-than-stellar Year Three? The answer: Not so well.

Since 1927, there have been six times that the S&P either fell or rose less than 10% in Year Three. On five occasions, the decline continued the following year, according to Stovall.

The reasoning: Stocks typically rise in Year Three as investors anticipate that the sitting president and Congress will try to stimulate the economy in advance of the election.

But if investors don't get excited enough to push up stock prices in Year Three, they're downright gloomy in Year Four.

Investors, of course, can only hope that the precedent doesn't hold in 2012. And Stovall said the market might break with history, thanks to solid corporate earnings growth.

"While history is a great guide, it’s never gospel," Stovall wrote in a report to clients.

 

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Photo: The New York Stock Exchange. Credit: Getty Images

L.A. radio talk host indicted in alleged Ponzi scheme

The former host of a popular Persian-language financial radio talk show has been indicted on charges that he defrauded investors -- including some of his show’s listeners -- out of $20 million in a long-running Ponzi scheme.

John Farahi, 54, was accused of falsely promising clients of his company, New Point Financial Services, that he would invest their money in corporate bonds insured by the Troubled Asset Relief Program. He actually spent the money on personal expenses, paying returns to early investors and on highly speculative options trades in which he lost millions of dollars, prosecutors said.

The scheme ran from 2005 until 2010, according to an indictment returned late Wednesday by a federal grand jury in Los Angeles.

Farahi hosted a daily financial talk show, “Economy Today,” for about eight years on Los Angeles' KIRN-AM (670) until 2010, when the Securities and Exchange Commission filed a lawsuit that accused him of defrauding New Point investors.

Farahi’s former attorney, David Tamman, was also charged in the indictment. He’s accused of conspiring with Farahi to obstruct an SEC investigation of the fraud scheme.

Tamman did not immediately respond to a telephone message seeking comment. Farahi could not be reached.

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Photo: A briefing room at SEC headquarters in Washington. Credit: Bloomberg News

New financial protection laws to help California seniors

California's elderly are about to get new protections against being victimized by unscrupulous financial product salesmen.

On Jan. 1, a new law takes effect to guard unsophisticated senior citizens from purchasing unneeded annuities that are not likely to provide them with promised financial security.

Annuities are a form of insurance that provide a guaranteed regular income to policyholders.

The law requires insurers to verify that an annuity purchase, replacement or exchange would provide the promised benefits based on a buyer's age, income, liquidity needs, financial goals and other factors. It also mandates that the seller prove that the annuity provides "a tangible net benefit" to its buyer.

The law empowers the state insurance commissioner to pull a sales agent's license, impose fines and demand restitution.

"For far too long, seniors have been victimized by the aggressive marketing and sale of annuity products that may not be suitable for them," California Insurance Commissioner Dave Jones said. "Consumers have unwittingly bought these products not realizing that their invested funds will not be available to them or their funds are terribly expensive to recover if they want to withdraw their money to pay for immediate expenses."

Jones also alerted seniors about another new law that will prohibit financial product sellers from trying to sell unsuitable products to people who recently acquired reverse mortgages to gain access to cash to pay for living expenses.

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Photo: California Insurance Commissioner Dave Jones. Credit: Katie Falkenberg / For The Times 

SEC enforcement chief defends agency

The head of the Securities and Exchange Commission's enforcement unit doesn't take kindly to criticism, even if it's from a federal judge.

In sharply worded remarks Thursday, SEC enforcement chief Robert Khuzami praised the agency's track record in cracking down on Wall Street fraud -- and defended a controversial SEC policy of settling cases against alleged Wall Street malefactors without forcing them to admit guilt.

SEC settlements normally include boilerplate language saying companies neither admit nor deny whatever the agency has accused them of. Companies want to avoid admissions of guilt for several reasons, including fear that they would be vulnerable to lawsuits from aggrieved investors.

U.S. District Judge Jed Rakoff created a firestorm this week when he rejected a proposed $285-million SEC settlement with Citigroup Inc. over a mortgage-bond deal. The judge upbraided the SEC for routinely settling cases without requiring acknowledgements of wrongdoing.

The proposed settlement was "neither fair, nor reasonable, nor adequate, nor in the public interest," Rakoff said.

Khuzami shot back at Rakoff and others in a speech at a conference in Washington.

SEC naysayers suffer from fundamental "misunderstandings" about how the SEC works and what powers it does -- and does not -- have, he said.

Companies would never admit blame, he said, and pushing them to do so would only prolong legal battles, delay recompense to fraud victims and overwhelm the agency's limited resources.

Federal judges have approved admission-free settlements "time and time again," he said.

"While it is easy to criticize from the sidelines, the practical reality is that many companies would refuse to settle cases if they are required to admit unlawful conduct because that might expose them to additional lawsuits by litigants seeking damages," Khuzami said.

"The result would be longer delays before victims get compensated, the expenditure of SEC resources that could be spent stopping the next fraud, and -– quite possibly -– less money in the pockets of wronged investors," Khuzami said. "And we’d lose the certainty that the victims would actually get compensation."

The SEC, Khuzami said, has had "impressive results" in cracking down on Wall Street malfeasance in the aftermath of the global financial crisis.

The agency brought 735 enforcement actions in fiscal 2011, nearly 9% more than the previous year and the most in SEC history, he said.

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Photo: Robert Khuzami, enforcement chief at the Securities and Enforcement Commission. Credit: Jacquelyn Martin / Associated Press

Jacquelyn Martin / Associated Press. 

Villalobos' attorneys drop him for not paying legal fees

 

A judge has tentatively approved a request by lawyers for former state pension fund official Alfred J.R. Villalobos to drop their client over unpaid legal bills.

The Cooley law firm in Palo Alto sought to be relieved from defending Villalobos in a state fraud lawsuit because Villalobos owes $3.5 million in legal fees and is unable to "pay for the fees going forward," Los Angeles Superior Court Judge John H. Reid ruled Wednesday in a tentative decision.

Villalobos' lawyers declined to comment on the judge's ruling. Villalobos could not be reached. However, in legal papers, Villalobos unsuccessfully argued that Cooley should not be relieved from representing him until a U.S. Bankruptcy Court in Reno, Nev., approves his hiring of new counsel.

"If this court grants Mr. Villalobos' request, it is likely that Cooley LLP will be forced to perform further work on behalf of Defendants without compensation," the judge ruled, denying Villalobos' request.

Villalobos, a former board member of the California Public Employees' Retirement System and vice mayor of Los Angeles, is being sued by the California attorney general's office on allegations he plied pension fund officials with luxury trips and gifts to influence investment decisions.

Villalobos and his firm, Arvco Capital Research of Stateline, Nev., earned more than $40 million in allegedly illegal commissions from helping private investment managers win $4.8 billion worth of deals from 2005 to 2009.

The lawsuit, filed May 5, 2010, alleges that Villalobos illegally sold securities without a broker-dealer license. It also alleges that Villalobos and a co-defendant, former CalPERS Chief Executive Federico Buenrostro Jr., violated state unfair competition laws.

Both men have denied the charges. Villalobos contended that he acted only as a "finder" and did not sell securities.

A hearing is set on the legal representation issue for 9 a.m. Thursday at Los Angeles County Superior Court in Santa Monica.

The hearing will also air arguments on an attorney general's motion asking the judge to issue a summary judgment finding that Villalobos and Arvco sold securities without a license. On Wednesday, Reid tentatively denied the motion.

No trial date has been set for the lawsuit against Villalobos and Arvco. Buenrostro, however, is scheduled for trial May 7.

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Photo: Alfred J.R. Villalobos outside the Santa Monica courthouse after a hearing May 28, 2010. Credit: Allen J. Schaben / Los Angeles Times

Facebook may do an IPO in the second quarter

Facebook Inc. may be closing in on an initial public stock offering.

The granddaddy of social-media companies is considering an IPO sometime in the second quarter of next year, although the exact timing has not yet been determined, the Wall Street Journal reported.

The company reportedly is contemplating a $10-billion offering that would value the company at $100 billion.

Investors have anxiously awaited a chance to buy into the fast-growing technology goliath following a string of IPOs this year from smaller social-media companies.

The timing of Facebook's IPO is likely to hinge in part on the condition of the stock market, which has not been kind lately to some other prominent tech IPOs.

In a major disappointment, shares of one of this year's most closely watched IPOs, online-coupon company Groupon Inc., have plunged recently. The stock closed Monday at $15.24, far below the $20 price at which it sold shares to investors earlier this month.

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Photo credit: Facebook

Holiday sales help push up stock market

The stock market finally has something to be thankful for, as stocks surged from the opening bell thanks to excitement over revved-up holiday shopping and the latest plan to contain Europe’s debt crisis.

After sagging nearly 1,000 points this month, the Dow Jones industrial average rose 291.23 points, or 2.6%, to 11,523.01. The Standard & Poor’s 500 index jumped 33.88 points, or 2.9%, to 1,192.55. It was the best day for each index in a month.

Global markets got a boost from news that Germany and France are drawing up plans that would commit European Union members to greater fiscal unity. That raised hope that European leaders may address an underlying cause of the continent’s financial problems: the absence of a workable mechanism that would force individual countries in the 17-nation Eurozone to exercise strict budgetary discipline.

Share prices surged through Europe, with Germany’s benchmark stock index jumping 4.6% and France’s leaping 5.5%.

Investors also were buoyed by reports pointing to strong consumer spending over the closely watched Black Friday shopping weekend.

Shoppers shelled out a total $52.4 billion from Thanksgiving Day through Sunday, a 16.4% surge from $45 billion last year, according to the National Retail Federation. Each shopper on average spent $398.62, a 9.1% bump from last year, and more were willing to buy gifts for themselves on top of presents for family and friends.

Still, it remains to be seen whether the market rebound lasts longer than a day or two.

“Short covering” may have helped to stoke the rally, as traders who had borrowed stock and sold it, betting on further declines, closed out their bets once the market turned up.

Stocks have repeatedly surged in recent months on reports of progress in Europe, only to falter again when investors studied the details and concluded that there was no immediate solution to the debt overhang in many countries.

And some skeptics worry that the encouraging start to holiday shopping could peter out if it's shown that some consumers simply front-loaded their shopping, thus sapping sales from later in the season.

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Photo: The American flag flying at the New York Stock Exchange. Credit: Spencer Platt / Getty Images

Scam watch: Cyber Monday, pre-IPO fund, tech support

Here is a roundup of alleged cons, frauds and schemes to watch out for.

Cyber Monday -- Online shoppers can expect to find many discounts the Monday after Thanksgiving, or Cyber Monday. But the biggest online shopping day of the year also can present opportunities to Internet criminals. The Better Business Bureau has some recommendations to avoid scams on Cyber Monday, including: installing anti-virus software, shopping only at trusted sites, avoiding deals that sound too good to be true, paying with a credit card because those charges can be disputed and looking for the “s” in https:// -- a sign that a website is encrypted.

Pre-IPO fund -- For investors who had been excluded from recent initial public offerings of hot companies, one Florida-based hedge fund seemed like a golden opportunity. Operators of the Praetorian Global Fund claimed to hold pre-IPO shares of coveted companies such as Facebook, Twitter and Groupon. Investors responded in droves, piling more than $12.6 million into the fund since August 2010, much of it through a broker in New York. What the investors didn’t know was that the fund was operated by a convicted felon named John A. Mattera and held no pre-IPO shares, the Securities and Exchange Commission alleged in a recent lawsuit. Instead, Mattera used most of the investors’ money to support a lavish lifestyle, spending it on private jets, luxury cars and fine art, the SEC said. The U.S. attorney’s office in Manhattan filed criminal charges against Mattera, who was arrested Nov. 17.

Tech support phone calls -- North Carolina consumers have reported getting calls from phony tech support specialists who are out to access their personal information and use it to steal their money, North Carolina Atty. Gen. Roy Cooper said. More than a dozen North Carolina residents have called Cooper’s Consumer Protection Division in November to report suspicious calls from phony tech support specialists claiming to be partners with Microsoft or Windows. The consumers are directed to a website through which the scam artists are able to access all data stored on the victims’ computers, Cooper said. The calls seem to target seniors and other consumers who may not be technologically savvy. Cooper and other law enforcement officials encourage consumers to never provide personal information such as bank account or credit card numbers to a stranger over the telephone. If you have a concern about your computer, contact the manufacturer directly.

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Photo: Facebook founder Mark Zuckerberg. Credit: Paul Sakuma / Associated Press 

Groupon shares skid again

Maybe Groupon Inc. needs a groupon for its own stock.

Shares of the daily-deals website sank again Wednesday, skidding below the price of the company's much-hyped initial public offering earlier this month. As of 11:45 a.m. PST, Groupon shares fell $2.80, or 14%, to $17.27. The IPO price was $20.

Shares of Groupon have turned ice cold just as the holiday shopping season has heated up this week. The stock plummeted 10% Monday and another 15% Tuesday.

There's been no hard news to explain the sell-off, though there are plenty of theories, including investor concerns about competition in the online-coupon industry and intensifying economic threats in Europe that would dent Groupon's international business.

Whatever the cause, it's a lightning-quick change of fortune for such a prominent IPO.

Groupon shares surged 31% in their first day of trading on Nov. 4. That raised enthusiasm for other highly anticipated technology IPOs, including Zynga Inc.

But in the 13 trading days since the IPO, Groupon shares have risen only three times.

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Photos: Entrance to Groupon's headquarters in Chicago. The company's stock has dropped since its IPO earlier this month. Credit: Tim Boyle / Bloomberg