Money Minute: Google Shares Search for Record High; Health Care Premiums Seesaw

Good news, bad news on health care premiums. That's one of the six money stories you need to know this Friday.

Health care insurance premiums for large employers rose this year at their slowest pace in a decade. According to an Aon Hewitt (AON) survey, rates increased by just 3.3 percent, a significant improvement from recent years. The average worker contributed just over $2,300. However, the average premium hike for next year is expected to jump back into the 6-to-7 percent range, and a good part of that added cost will be passed along to employees.
Hispanic female doctor examining patient
The Standard & Poor's 500 index (^GPSC) gained 11 points yesterday, rising to an all-time high. So far this year, the S&P is up more than 21 percent -- great news for people with retirement accounts. Many mutual funds are linked to this index. But the Dow Jones industrial average (^DJI) slipped 2 points, hurt by big losses from IBM (IBM), Goldman Sachs (GS) and UnitedHealth Group (UNH) -- all of which reported earnings. IBM's stock price fell to its lowest level in two years.

Google Celebrates 15th Anniversary As Company Reaches $290 Billion Market Value
David Paul Morris/Bloomberg via Getty Images
Shares of Google (GOOG) are moving to record highs following strong earnings. Net rose a better-than-expected 36 percent and one market research firm estimates that Google controls one-third of the worldwide market for online advertising. Still, going forward analyst say the company needs to show more revenue from mobile ads.

With government workers back on the job, we'll start to see a string of economic data coming out. Most importantly, the monthly jobs report -- which was due out two weeks ago today -- will now be released next Tuesday.

Former vice-president Al Gore reveals in a new book that he and a partner tried to buy Twitter back in 2009. The book, by a New York Times reporter, also says Facebook (FB) founder Mark Zuckerberg met with Twitter's founders in an unsuccessful effort to buy the company. Twitter said no to both, and it's now planning an initial public offering that values the company at more than $10 billion.

Finally, a new way to combine gambling, investing and football. The New York Times reports a new company will offer shares in Arian Foster, a star running back with the Houston Texans, betting on his future earnings from football and endorsements. Of course, it's a very risky proposition.

-Produced by Drew Trachtenberg.

If You Only Know 5 Things About Investing, Make It These
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Money Minute: Google Shares Search for Record High; Health Care Premiums Seesaw

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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