College degree is still worth the (very considerable) cost

With college costs soaring and new graduates struggling to land jobs, is higher education still worth the money?

Yes, according to an analysis by one recent college graduate who has studied the issue carefully.

Sarah Millar, who is now gainfully employed as a research analyst at ConvergEx Group in New York, examined the topic in a new report combining empirical data with her own experience as a 2011 graduate of Trinity College in Hartford, Conn.

"Did I just waste the last four years of my life?" Millar writes. "Sure, I enjoyed my time at Trinity, but I could have used that time -- and money, for that matter -- to actually start a career."

(Millar points out that she wrote a 200-page senior thesis, in English and Spanish, on democratic transitions in Spain and Portugal -- which, if nothing else, raises questions about the exacting standards of her alma mater.)

The good news is that college pays off, Millar concludes, citing data from a variety of government and private sources.

The average take-home pay of college graduates is nearly twice that of their high school counterparts: $38,950 vs. $21,500. Even factoring in student-loan payments, college graduates make more in their first year of work than those with only high school diplomas. And history shows that a college graduate can expect his or her income to increase 2.2% annually over a lifetime vs. 1.9% for the high schooler.

The advantage of college shows most clearly in the vastly different unemployment rates of the two groups: 4.4% in November for collegians compared with 9.6% for those with only high school diplomas (and an abysmal 13.8% for those who never finished high school).

Over 40 years, the college graduate's earnings would top that of a high-school counterpart by more than $1 million. Financially speaking, college is worthwhile as long as the total four-year cost is less than $715,000, which, at least at the moment, it is.

"The bottom line of this analysis is that college pays, literally and figuratively," Millar writes.

But Millar details the high price of higher education.

College costs have climbed an average of 6.4% a year since 1981, far surpassing the 0.4% annual rise in income growth, Millar writes.

Students (or more likely, their parents) shelled out an average of $73,500 in tuition payments over the last four years. And when measured againt the $84,500 earned by those who entered the workforce four years ago, the college graduate is $158,000 in the hole. Add in student loans and the deficit can top $200,000.

For the sake of comparison, someone could purchase a Subway or a Tasti D-Lite franchise for about the amount spent on college, Millar writes.

She points out two factors to consider when deciding on college: the name brand of the school itself and the intended course of study.

Average starting salaries of new graduates generally are higher at big-name schools such as Caltech ($69,600) or Princeton ($56,900), Millar writes. The average for a UCLA grad is $49,200. More examples can be found here.

Perhaps more important is what a student majors in.

"A poetry major from UPenn may not fare as well as an electrical engineer from Penn State," Millar writes.

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-- Walter Hamilton

Photo credit: University of Chicago

But Millar details the high price of higher education.

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

 

BofA to pay $335 million to settle Countrywide mortgage bias probe

The post has been updated. See below for details.

Bank of America Corp. has agreed to pay $335 million to settle allegations that Countrywide Financial, which it now owns, systematically discriminated against minority home-buyers at the peak of the U.S. housing boom.

The Justice Department and the Illinois attorney general had alleged that Countrywide charged higher interest rates and other housing-related fees to African American and Latino home buyers than to white applicants with comparable income levels and credit scores.

The company frequently pushed minorities into risky subprime loans rather than into safer prime loans. The collapse of the subprime market beginning in 2007 sparked the U.S. mortgage bust and the brutal recession whose lingering effects continue to reverberate nationwide.

The $335 million will be distributed to alleged Countrywide victims. An independent monitor will be appointed to contact potential recipients and distribute the proceeds to them. People who think they may qualify for compensation can seek information by emailing countrywide.settlement@usdoj.gov.

A Bank of America spokesman would not discuss specifics of the settlement but said the alleged wrongdoing occurred before the giant bank bought Calabasas-based Countrywide.

“I want to make it very clear this pertains to Countrywide activities prior to Bank of America's acquisition,” said the spokesman, Dan Frahm. “Bank of America practices were never in question.”

[Updated at 12:19 p.m. Dec. 21: Frahm also issued this statement on behalf of Bank of America: “We reached this settlement to resolve issues about Countrywide’s alleged historic practices that occurred before Bank of America acquired the company.  Bank of America’s practices are not at issue.

"We are committed to fair and equal treatment of all our customers, and will continue to focus on doing what’s right for our customers, clients and communities. We discontinued Countrywide products and practices that were not in keeping with our commitment and will continue to resolve and put behind us the remaining Countrywide issues."]

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Photo credit: Los Angeles Times

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

SEC touts its crackdown on insider trading

Even as it fends off criticism in other areas, the Securities and Exchange Commission is pointing to its crackdown on insider trading as proof of its effectiveness.

Always a high priority, the agency has significantly boosted the number of cases brought against Wall Street traders and hedge-fund managers, according to data it released to Congress late last week.

That effort was punctuated by the huge insider-trading case against Raj Rajaratnam, which resulted in a $92.8-million civil penalty. That was in addition to the criminal conviction of the prominent hedge-fund manager, which was spearheaded by the Justice Department.

The SEC said it lodged 53 cases against 138 people and corporate entities in fiscal 2010, a 43% increase from the prior year. It said it filed 57 cases against 124 people and entities this year.

The agency also has developed new investigative techniques, including the creation of a market abuse unit that focuses on a variety of practices, including complex insider-trading cases, the agency enforcement chief, Robert Khuzami, told the Senate Committee on Homeland Security and Governmental Affairs last week.

“The increased number of insider trading cases has been matched by an increase in the quality and significance of our recent cases,” Khuzami said.

The SEC has come under scrutiny lately after a federal judge criticized its practice of settling cases of alleged fraud without requiring the companies and executives involved to admit guilt.

Its insider-trading credibility won't diffuse that issue, but it may give the agency some breathing room against those who say it hasn't done enough to stanch Wall Street wrongdoing.

-- Walter Hamilton

Photo: Raj Rajaratnam; Credit: Peter Foley / Bloomberg

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. 

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

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

Many Americans say they will have to work until they're 80

Forget about retiring at age 55. Or 65. Or perhaps even 75.

One-quarter of middle-class Americans fear they will have to work until they're at least 80 years old to afford a comfortable retirement (if "retirement" is even the right word, given that many of these people may never actually retire).

That conclusion, in a survey released Wednesday by Wells Fargo & Co., found that nearly three-quarters of Americans expect to continue working into what long has been retirement age. A little more than half of those said they'll need to work to pay their bills, while the rest said they want to keep working.

The survey was the latest of many showing that Americans are dangerously unprepared for retirement. With only limited savings, many people are realizing they must work much longer, must dramatically scale back their lifestyles, or both.

More than half of middle-class Americans in the Wells Fargo survey said say they must slash their current spending "significantly."

The average person has squirreled away a mere 7% of their hoped-for retirement savings -- a median of just $25,000 versus a desired goal of $350,000, according to the survey. Three in 10 people in their 60s have less than $25,000, suggesting they'll have no choice but to live on Social Security.

The Wells Fargo survey painted a more dire picture than most other polls, which typically pin the worst-case retirement age in the mid-to-late 60s.

But pessimism may be a sign of the times. A new survey by Yahoo Finance found that 41% of people ages 18 to 64 feel the American Dream is "out of reach." The poll found that 37% of people have no retirement savings, and more than half of them have socked away nothing for their children's college educations.

The specter of having to work until age 80 raises a host of issues, including the risk that illness could force many people to drop out of the workforce. And in an era of corporate cutbacks, even healthy  people could be pushed out of their jobs through layoffs or buyouts.

“The fact that the vast majority of middle-class Americans expect to work well past the traditional retirement age has significant societal and economic implications,” said Joe Ready, director of Wells Fargo's institutional retirement and trust unit.

The survey of 1,500 Americans was conducted from early August to late September.

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Photo: Americans may not have much time to lounge in hammocks in old age.Credit: Spencer Weiner/Los Angeles Times