Money Minute: Home Heating Costs Climb; Solar Panel Sales Rise

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As temperatures go down, heating bills are set to soar.

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Temperatures are unseasonably cold in many areas of the country, and the cost of heating your home this winter could rise sharply from last year -- especially if you use natural gas. The Energy Department estimates it will cost 17 percent more if you live in the Northeast. For residents in the South, the cost goes up more than 12 percent, and by nearly that much in the Midwest. The increase in the West is expected to be about 7 percent higher. Electricity costs are likely to rise by 2 to 5 percent across the country.

That may have you thinking about alternatives. You could join the move to solar panels. Installations rose by about 20 percent this year and an industry trade group expects even faster expansion in 2014. Solar stocks have done even better. SolarCity (SCTY) and SunPower (SPWR) both up more than 300 percent this year.

Here on Wall Street, the Dow Jones industrial average (^DJI) fell 129 points Wednesday, the Standard & Poor's 500 index (^GPSC) lost 20 and the Nasdaq composite (^IXIC) dropped 57 points.

Standard & Poor's has friended Facebook (FB). It was only a matter of time until the social media giant joined the closely watched S&P 500 index. That takes effect at the close of trading next Friday. Facebook's market value now tops $120 billion.

The world's largest hotel chain goes public this morning. Hilton Worldwide raised $2.3 billion with its IPO, pricing its stock at $20 a share. That values the company at nearly $20 billion. Eventually, some of the money could be used to spruce up rooms and facilities. Private-equity firm Blackstone Group (BX) bought Hilton in 2007. It will trade under the same ticker symbol it had back then -- HLT.

And Vera Bradley (VRA), the maker of women's accessories, is out of style with today's investors. It posted solid earnings, but issued a disappointing outlook for the current quarter and next year.

-Produced by Drew Trachtenberg.

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Money Minute: Home Heating Costs Climb; Solar Panel Sales Rise

Warren Buffett is a great investor, but what makes him rich is that he's been a great investor for two thirds of a century. Of his current $60 billion net worth, $59.7 billion was added after his 50th birthday, and $57 billion came after his 60th. If Buffett started saving in his 30s and retired in his 60s, you would have never heard of him. His secret is time.

Most people don't start saving in meaningful amounts until a decade or two before retirement, which severely limits the power of compounding. That's unfortunate, and there's no way to fix it retroactively. It's a good reminder of how important it is to teach young people to start saving as soon as possible.

Future market returns will equal the dividend yield + earnings growth +/- change in the earnings multiple (valuations). That's really all there is to it.

The dividend yield we know: It's currently 2%. A reasonable guess of future earnings growth is 5% a year. What about the change in earnings multiples? That's totally unknowable.

Earnings multiples reflect people's feelings about the future. And there's just no way to know what people are going to think about the future in the future. How could you?

If someone said, "I think most people will be in a 10% better mood in the year 2023," we'd call them delusional. When someone does the same thing by projecting 10-year market returns, we call them analysts.

Someone who bought a low-cost S&P 500 index fund in 2003 earned a 97% return by the end of 2012. That's great! And they didn't need to know a thing about portfolio management, technical analysis, or suffer through a single segment of "The Lighting Round."

Meanwhile, the average equity market neutral fancy-pants hedge fund lost 4.7% of its value over the same period, according to data from Dow Jones Credit Suisse Hedge Fund Indices. The average long-short equity hedge fund produced a 96% total return -- still short of an index fund.

Investing is not like a computer: Simple and basic can be more powerful than complex and cutting-edge. And it's not like golf: The spectators have a pretty good chance of humbling the pros.

Most investors understand that stocks produce superior long-term returns, but at the cost of higher volatility. Yet every time -- every single time -- there's even a hint of volatility, the same cry is heard from the investing public: "What is going on?!"

Nine times out of ten, the correct answer is the same: Nothing is going on. This is just what stocks do.

Since 1900 the S&P 500 (^GSPC) has returned about 6% per year, but the average difference between any year's highest close and lowest close is 23%. Remember this the next time someone tries to explain why the market is up or down by a few percentage points. They are basically trying to explain why summer came after spring.

Someone once asked J.P. Morgan what the market will do. "It will fluctuate," he allegedly said. Truer words have never been spoken.

The vast majority of financial products are sold by people whose only interest in your wealth is the amount of fees they can sucker you out of.

You need no experience, credentials, or even common sense to be a financial pundit. Sadly, the louder and more bombastic a pundit is, the more attention he'll receive, even though it makes him more likely to be wrong.

This is perhaps the most important theory in finance. Until it is understood you stand a high chance of being bamboozled and misled at every corner.

"Everything else is cream cheese."
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