What’s Next For Investments???

My Comments: You have not heard much from me lately. That’s because I’ve been spending hours and hours building an internet course on retirement planning. I’m not there yet but soon will be. Keep following this blog and you’ll get an announcement when it’s ready.

In the meantime, we’re at the end of Quarter 1 of 2018 and it was an interesting quarter for a lot of reasons. For those of you with time on your hands and sufficient interest to explore the details, the following article from The Heisenberg Report is revealing. Whether it helps you make money or helps you not lose money remains to be seen.

Go HERE if you are ready to wade through 8 pages of commentary and graphs. The conclusion you will discern is that market complacency is diminishing rapidly and that something uncomfortable is likely to happen soon.

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Vanguard’s Chairman Sees Muted Decade for Stocks After Long Rally

My Comments: Little is said these days about those who are investing for the future and are still working vs those investing for the future who are no longer working. Think of it as being defined as the accumulation phase of your life vs the distribution phase of your life.

Different rules apply. Vanguard Funds founder John Bogle famously suggested that the bond part of your portfolio, presumably the ‘safe’ part, should be equal in percentage terms to your age. If you were 70, for example, 70% of your portfolio should be in bonds.

Demographics, interest rates, and the profusion of new financial products has largely put Bogle’s dictum to bed. But it does illustrate the continued confusion caused by those who fail to recognize the difference between someone in their 50’s working hard to accumulate a sufficient pile of money for retirement from someone in their 70’s trying to make sure they don’t run out of money before they run out of life.

We are currently conditioned to positive returns from the markets, except for 2015, that started as we emerged from the Great Recession of 2008-2009. Those of you in the distribution phase of your life need to heed the warning expressed here.

By Nico Grant | January 17, 2018

F. William McNabb, Vanguard Group’s chairman, cautioned investors to consider reducing their stock exposure before the nearly 9-year-old rally ends.

“We would expect the next decade to actually be very modest on the equities side in the U.S., a little less so in Europe and a little less so in Asia,” McNabb said in a Bloomberg Television interview that aired Thursday. “But it’s still overall lower than long-term historical averages.”

Stock markets reached a fever pitch in 2017 as the S&P 500 Index hit record highs and the rally has continued this year. The advance, buoyed by low interest rates around the world, economic growth and the U.S. tax overhaul, has sparked concerns that valuations have gotten stretched, spurring some investors to brace for a decline.

McNabb, whose firm oversees about $5 trillion, said long-term investors may benefit by holding balanced portfolios with bonds as well as stocks.

“No one can predict what’s going to happen in the next 12 months,” he said. “Having just said that, I’m sure the equity market will continue to skyrocket for the next few months.”

McNabb, who ceded the role of chief executive officer of the Valley Forge, Pennsylvania-based firm to Tim Buckley this month, spoke to Bloomberg in Beijing, where Vanguard is eager to take advantage of China’s opening to foreign financial-services companies. The country’s government said it plans to remove ownership limits on banks and allow overseas firms to take majority stakes in local ventures.

“With some of the changes, it looks like there may be a path to doing retail mutual funds, depending on how things get interpreted,” McNabb said.

How your 401(k) can survive and thrive in the next bear market

My Comments: Some of you reading this have money in 401(k)s and 403(b)s and cannot simply remove it and place it somewhere safer. Which means you’re completely exposed to the vagaries of the markets and you can only hope for the best.

I learned long ago that HOPE is not an effective investment strategy. So these words from Adam Shell may make your life a little easier. If you want more information, you know how to reach me.

Adam Shell, March 9, 2018

The nine-year stretch of rising stock prices won’t last forever. So now’s a good time for investors to bear-proof their 401(k)s before the next financial storm.

The current bull market, now the second-longest ever and celebrating its 9th birthday on Friday, is most likely in its final stages, Wall Street pros say. That means a bear market will occur at some point, and the stock market will tumble at least 20% from its peak.

What could cause it and when? No one can know for sure. A recession perhaps, or a surge in interest rates and inflation? An unexpected event or investors getting too giddy about stocks and driving prices up to unsustainable levels? All could be the triggers of a big drop in stocks.

Remember, if you have any money invested in stocks, you won’t be able to avoid all the pain that a bear inflicts on your 401(k). While a drop of 20% from a prior peak is the classic definition of a bear market, most drops are more sizable. The average decline for the Standard & Poor’s 500 stock index in the 13 bears since 1929 is 39.9%, S&P Dow Jones Indices says. A swoon of that size would shrink a $100,000 investment in an index tracking the broad market to roughly $60,000.

Prepare ahead of time

“The best way to survive a bear market is to be financially prepared before one happens,” says Jamie Cox, managing partner for Harris Financial Group.

That means not having 100% of your money invested in stocks near a market top. It also means maintaining low levels of debt and having some emergency savings to avoid having to sell stocks in a down market to raise cash, he says.

From a portfolio standpoint, make sure your investment mix isn’t too risky. Are you loaded up on high-fliers that have greater odds of suffering steep drops if the market tanks? Make sure you own some “defensive” stocks, such as utilities, consumer companies that sell everyday staples like soap and cereal, or health care names, which tend to hold up better when markets fall overall.

“Investors should take the time to control the parts of their portfolios they can control,” Cox advises.

If, for example, your portfolio was designed to have 60% in stocks, and that percentage has ballooned to 80% due to the long period of rising stock prices, consider “rebalancing” your portfolio now. Sell some stock to get back to your initial 60% target.

Play defense

The time to be aggressive in the market is when stocks are up, and you can make tactical moves likes cashing out stocks, says Woody Dorsey, a behavioral finance expert and president of Market Semiotics, a Castleton, Vt.-based investment research firm. It makes more sense, he adds, to be defensive when the market is entering or in a period of falling prices.

“Does a bear market mean an investor needs to freak out? No. But it does mean you should be more careful,” Dorsey says. “If the market is going to be difficult for one or two years, just get more defensive. Keep in simple.”

One simple strategy to employ is to get “less exposed to the market and raise cash,” Dorsey says. “Most people are not used to that message, but it’s a good message.” While a normal portfolio might consist of 60% stocks and 40% bonds, a bear market portfolio, he says, might be 30% cash, 30% U.S. stocks and the rest in foreign investments and bonds.

Main Street investors could also consider defensive strategies employed by professional money managers, he says. They can buy things that hold up better in tough times, such as gold. Or add to “alternative” investments that rise when stocks fall, such as exchange-traded funds that profit when market volatility is on the rise or funds that can short the market, or profit from falling prices.

Identify severity of bear

The next bear isn’t likely to be as severe as the epic one following the Great Recession or the dive in early 2000 after the dot-com bubble burst, says Liz Ann Sonders, chief investment strategist at Charles Schwab. Both of those bears saw market drops of about 50% or more.

“The next bear will be a more traditional one that likely comes from the market sniffing out a coming recession,” she explains. “We don’t think it will be caused by a global financial crisis or bubble bursting.”

That means fear levels likely won’t spike quite as high. Investors will also have a better idea of when the bear market might hit, as it will be foreshadowed by signs of a slowing economy.

It also suggests the market will likely rebound more quickly than the average bear of 21 months. As a result, employing basic investment principles, such as portfolio rebalancing, diversification and buying shares on a regular basis, which forces folks to snap up shares when prices are cheaper, can help investors emerge from the next bear market in decent shape.

“Diversification and rebalancing are boring to talk about,” says Sonders. “But they are more useful strategies than all the hyperbole on when to get in or get out of the market, which is not an investment strategy.”

Buy the ‘big’ dips

There are big market swings even in bear markets. A way investors can play it is to buy shares on the days or periods when stocks are under intense selling pressure. “There will be lots of wild swings,” says Mike Wilson, U.S. equity strategist at Morgan Stanley.

Investors have to take advantage of stock prices when they are depressed and present good value, he says, even if it seems like a scary thing to do at the time.

“You have to be willing to step in” when market valuations fall a lot, no matter what’s going on in the world, Wilson advises.

Your Retirement Money

My Comments: If you’ve read my blog posts these past few months and years, you know that I have no idea what is coming next.

What I do know, however, is that anyone who says “it’s different this time” is full of s**t. It’s the nature of the beast for there to be corrections, and it’s just a matter of time for one to appear. On the other hand, telling everyone ‘the sky is falling’ soon gets old, and essentially useless.

My entire focus these days is helping people retire with more money, the opposite of which is to retire with less money. Personally, I’d rather have more money.

If you have any money fully exposed to what I call downside risk, and are uncomfortable with simply ‘staying the course’, here are three articles that appeared in my inbox in the past few days.

You should be interested in preserving your nest egg from a potential downturn, one that will make it harder to pay your bills in the future.

Making informed decisions about your money starts with paying attention and being able to tuck in your tail before the door slams shut.

I make no apologies for any political implications associated with the three articles.

Economics are never 100% divorced from politics. It doesn’t matter who is pulling the strings.

What matters is that the strings are being pulled, and how that pulling will affect you and your bank accounts. These three articles are worth reading if you have any doubts about having enough money when you retire…

The Albatross of Debt: a $67T Nightmare

6 Reasons For Another $6 Trillion Stock Market Correction

Enjoy The Final Ride, Because The Expansion Is Nearing An End

Guess How Many Seniors Say Life Is Worse in Retirement

My Comments: After 40 plus years as a financial/retirement planner, I’ve lost count of the number of people who, as they approach retirement, ask whether they’ll have enough money. Or the corollary, when will they run out?

If you expect to have a successful retirement, ie one where you run out of life before you run out of money, you had better have your act together long before you reach retirement age. Here’s something to help you get your arms around this idea. https://goo.gl/b1fG39

Maurie Backman \ Feb 11, 2018

We all like to think of retirement as a carefree, fulfilling period of life. But those expectations may not actually jibe with reality. In fact, 28% of recent retirees say life is worse now that they’re stopped working, according to a new Nationwide survey. And the reasons for that dissatisfaction, not surprisingly, boil down to money — namely, inadequate income in the face of mounting bills.

Clearly, nobody wants a miserable retirement, so if you’re looking to avoid that fate, your best bet is to start ramping up your savings efforts now. Otherwise, you may come to miss your working years more than you’d think.

Retirement: It’s more expensive than we anticipate

Countless workers expect their living costs to shrink in retirement, particularly those who manage to pay off their homes before bringing their careers to a close. But while certain costs, like commuting, will go down or disappear in retirement, most will likely remain stagnant, and several will in fact go up. Take food, for example. We all need to eat, whether we’re working or not, and there’s no reason to think your grocery bills will magically go down just because you no longer have an office to report to. The same holds true for things like cable, cellphone service, and other such luxuries we’ve all come to enjoy.

Then there are those costs that are likely to climb in retirement, like healthcare. It’s estimated that the typical 65-year-old couple today with generally good health will spend $400,000 or more on medical costs in retirement, not including long-term care expenditures. Break that spending down over a 20-year period, and that’s a lot of money to shell out annually. But it also makes sense. Whereas folks with private insurance often get the bulk of their medical expenses covered during their working years, Medicare’s coverage is surprisingly limited. And since we tend to acquire new health issues as we age, it’s no wonder so many seniors wind up spending considerably more than expected on medical care, thus contributing to both their dissatisfaction and stress.

And speaking of aging, let’s not forget that homes age, too. Even if you manage to enter retirement mortgage-free, if you own property, you’ll still be responsible for its associated taxes, insurance, and maintenance, all of which are likely to increase year over year. The latter can be a true budget-buster, because sometimes, all it takes is one major age-related repair to put an undue strain on your limited finances.

All of this means one thing: If you want to be happy in retirement, then you’ll need to go into it with enough money to cover the bills, and then some. And that means saving as aggressively as possible while you have the opportunity.

Save now, enjoy later

The Economic Policy Institute reports that nearly half of U.S. households have no retirement savings to show for. If you’re behind on savings, or have yet to begin setting money aside for the future at all, then now’s the time to make up for it.

Now the good news is that the more working years you have left, the greater your opportunity to amass some wealth before you call it quits — and without putting too much of a strain on your current budget. Here’s the sort of savings level you stand to retire with, for example, if you begin setting aside just $400 a month at various ages:

You can retire with a decent sum of money if you consistently save $400 a month for 25 or 30 years. But if you’re in your 50s already, you’ll need to do better. This might involve maxing out a company 401(k), which, as per today’s limits, means setting aside $24,500 annually in savings. Will that wreak havoc on your present spending habits? Probably. But will it make a huge difference in retirement? Absolutely.

In fact, if you were to save $24,500 a year for just 10 years and invest that money at the aforementioned average annual 8% return, you’d be sitting on $355,000 to fund your golden years. And that, combined with a modest level of Social Security income, is most likely enough to help alleviate much of the financial anxiety and unhappiness so many of today’s seniors face.

Retirement is supposed to be a rewarding time in your life, and you have the power to make it one. The key is to save as much as you can today, and reap the benefits when you’re older.

Can the Country Survive Without a Strong Middle Class?

My Comments: Most of the recent talk about the Constitution comes in the wake of the tragedy in Parkland, Florida, for obvious reasons. The attention is well deserved but I’d have you think about more than just the 2nd Amendment.

At the national level, if not across the globe, society is re-evaluating itself. Are the values we hold dearly still valid? Are the roles played by the various participants serving our best interests? Are you willing to let the so called ‘elite’ change the economic and social landscape that most of us enjoy without allowing us to express our thoughts? Have we given them so much power that it now makes no difference?

If you’ve followed me for long, you’ve heard me talk about income inequality and the subtle effects it has on not just our society, but in virtually every society on the planet. I hope you will read this, regardless of your political leanings, as it will influence every aspect of the lives of your children and grandchildren. And the clowns in Washington, DC are not helping matters.

Rebecca J. Rosen / Mar 21, 2017

In a powerful new book, the legal scholar Ganesh Sitaraman argues that America’s government will fall apart as inequality deepens.

The U.S. Constitution, it is fair to say, is normally thought of as a political document. It lays out the American system of government and the relationships among the various institutions.

But in a powerful new book The Crisis of the Middle-Class Constitution, the Vanderbilt legal scholar Ganesh Sitaraman argues that the Constitution doesn’t merely require a particular political system but also a particular economic one, one characterized by a strong middle class and relatively mild inequality. A strong middle class, Sitaraman writes, inspires a sense of shared purpose and shared fate, without which the system of government will fall apart.

I spoke with Sitaraman about his book last week at The Atlantic’s offices in Washington, D.C. A transcript of our conversation, edited for clarity, follows.

Rebecca J. Rosen: Your new book, The Crisis of the Middle-Class Constitution, is premised on the idea that the American Constitution is what you call a middle-class constitution. What does that mean?

Ganesh Sitaraman: The idea of the middle-class constitution is that it’s a constitutional system that requires and is conditioned on the assumption that there is a large middle class, and no big differences between rich and poor in a society.

Prior to the American Constitution, most countries and most people who thought about designing governments were very concerned about the problem of inequality, and the fear was that, in a society that was deeply unequal, the rich would oppress the poor and the poor would revolt and confiscate the wealth of the rich.

The answer to this problem, the way to create stability out of what would have been revolution and strife, was to build economic class right into the structure of government. In England, you have the House of Lords for the wealthy, the House of Commons for everyone else. Our Constitution isn’t like that. We don’t have a House of Lords, we don’t have a House of Commons, we don’t have a tribune of the plebs like they had in ancient Rome.

At the time, people debated having a wealth requirement for entry into the Senate, but that didn’t happen. That would have been a common thing in the generations and centuries prior to the creation of the U.S. Constitution. So there’s actually a radical change in our Constitution that we don’t build economic class directly into these institutions. The purpose of the Senate, with its longer terms, is to allow representatives to deliberate in the longer-term interest of the republic, and that’s the goal of the Senate.

What we have is a constitutional system that doesn’t build class in at all, and the reason why is that America was shockingly equal at the time in ways that seem really surprising to us today.

Rosen: Of course, the point here isn’t only that class is ignored, or left out of the Constitution, but that the Constitution actually relies on a kind of equal society in order to function. Could you explain the premise there?

Sitaraman: That’s exactly right. The idea is that the Constitution relies on a relatively equal society for it to work. In societies that are deeply unequal, the way you prevent strife between rich and poor is you build class right into the structure of government—the House of Lords, House of Commons idea. Everyone has a share in government, but they also have a check on each other.

In a country that doesn’t have a lot of inequality by wealth, you don’t need that kind of check. There’s no extreme wealth, there’s no extreme poverty, so you don’t expect there to be strife, to be instability based on wealth. And so there’s no need to put in some sort of check like that into the Constitution.

That’s how our Constitution works. The reason why it works this way is that when the founders looked around, they thought America was uniquely equal in the history of the world. And I know that seems crazy to say, but when you think about it, it makes sense. If you imagine in the late 18th century, America is a sparsely populated area, just on the coast of the Atlantic, with some small towns and cities, and lots of agrarian lands, and it’s really at the edge of the world, because the center is western Europe. It’s London, it’s Paris, and when Americans look across the ocean at those countries, what they see is how different it is. They see that there’s a hereditary aristocracy, something that doesn’t exist in America. There’s feudalism, which doesn’t exist in America. There’s extreme wealth, there’s extreme poverty, neither of which really exists in America. As a result they don’t need to design a House of Lords and a House of Commons, they don’t need a tribune of the plebs in order to make their constitution work.

“The assumption of our original Constitution was that society would be relatively equal.”

Rosen: Of course, there was slavery at the time—and it was built directly into the Constitution.

10 Financial Services That Are A Waste of Money

My Comments: This comes from Britain, so a little translation may be required, but the message is useful here.

Last month, I had a conversation with an widowed client (81 y/o) who was sent  an ‘encouraging’ letter, urging her to buy an extended warranty for her 7 year old car. It caused her to be fearful on two fronts: one, the cost of the coverage and two, that her owning a car is now an existential threat to her finances. It has about 25,000 miles on the odometer.

After 30 minutes of back and forth, she decided she would to sell the car, stop paying for insurance, gasoline, etc., and tell the warranty company to kiss her a**. If she needs to go to the grocery store, or somewhere else where her friends cannot easily pick her up, she’ll call UBER. She already has the app on her phone.

By Amelia Murray 15 February 2018

The financial services industry can be a nightmare: from extended warranties to credit reports, everyone is trying to sell you something they claim is “essential”.

Must-have offers flood our inboxes, come through the door and are pitched over the phone during unwanted calls.

But how do you spot the rip-off from the essential? Which?, the consumer organization, has put together a list of the top 10 financial products you don’t need to pay for – either because you don’t need them or because you can get them free elsewhere.

Credit score subscriptions

Why pay for a credit score subscription when a number of firms offer reports free of charge? Experian charges £14.99 a month, or around £180 a year, for a “CreditExpert” subscription, which offers fraud alerts in addition to a daily credit report. An Equifax subscription costs £14.95 a month.

Noddle, Clearscore and MoneySavingExpert all offer free credit reports and if you keep a close eye on them you’ll be able to spot any suspicious activity yourself without paying a premium.

PPI claims management firms

Banks began aggressively selling payment protection insurance alongside loans, mortgages and credit cards in the Nineties after discovering that they were highly profitable.

Millions of people were mis-sold the policies and ended up paying thousands of pounds for insurance they were led to believe was essential. But many didn’t need it or couldn’t use it because they were self-employed, for example.

The City regulator started to investigate the problem in 2005 and began to crack down on firms that sold PPI in 2006, imposing fines and penalties. It recently launched a multi-million pound campaign to encourage people to claim compensation for mis-sold PPI.

The PPI scandal fueled the rise of firms that offer to manage claims on a “no-win, no-fee” basis. These companies can take up to 40pc of any compensation paid and many consumers don’t realize they can make the claim themselves without charge.

The deadline for PPI claims is August 2019 but many people were contacted by their banks between 2013 and 2015 and given a three-year deadline. Which? has a free online tool that takes you through the claims process.

Overs-50s life insurance

While these policies offer a guaranteed lump sum on death in exchange for a monthly premium, the risk is that the payout will be less than what the policyholder pays in.

The big draw is cover without the need for a medical – so anyone can get a plan – but the longer you live the more it will cost you. If you stop paying you’ll get nothing and will lose everything you’ve already contributed.

For example, a 56-year-old who pays £11 a month to Royal London will get a lump sum of £3,012 when they die. They’ll be ahead financially if they die before the age of 79 but if they live longer they will pay more than they get back.

Many people take out these policies to pay for their funeral. But the cost of dying is outpacing the cost of living so the lump sum guaranteed may end up not being enough. Funeral costs have risen by 112pc since 2004 to stand at £4,079, according to SunLife, the insurer.

If you’re in good health it may be better idea to “self-insure” by putting aside money in a savings account.

‘Packaged’ bank accounts

A number of banks offer accounts that come with add-ons such as travel, mobile and motor insurance for a monthly fee. The cost is typically between £10 and £15 a month, although NatWest’s Black current account costs £28 a month.

But the costs can’t always be justified and the value of the extras can vary widely. Analysis by Which? found that some accounts offered benefits worth £346 a year while others added up to just £102.

As with PPI, some banks have been accused of miss-selling packaged accounts. For example, if you were told by the bank that you had to have one of these accounts or later discovered that you were too old to be covered by the travel insurance, you may be able to claim your money back.

Lifetime trusts

“Lifetime trusts” are supposed to protect your property and assets from being used to pay care home fees. If you need care, the idea is that the trust will cause your assets to be disregarded when you are assessed for state funding.

However, you could find that after spending thousands of pounds setting up a trust the local authority decides that you have deliberately deprived yourself of your assets. In this case the trust will make no difference and your assets will be taken into account anyway.

Which? suggested setting up a “will trust” instead, which is more reliable and cheaper. This will mean half the value of the house is disregarded if the surviving spouse needs financial assessment for care.

Extended warranties

Paying to cover your household appliances can prove costly. A three-year warranty for a £550 washing machine could cost around £199, or 36pc of the sale price, according to Which?

But if you invest in a good-quality machine you’re unlikely to need a warranty. Which? said the majority of white goods it recommended didn’t break down in the first five-years.

Instead of buying a pricey warranty the organization suggested setting aside money yourself to pay for any repairs.

Boiler insurance

Unless you’ve got an especially dodgy boiler, you could end up paying much too much to cover it.

The average cost of a servicing contract is £242 a year and the average cost of a repair is £194, while an annual service costs around £75. But you’re probably not going to need to get the boiler fixed every year. Which? said it would be cheaper to self-insure and pay for repairs yourself.

Funeral plans

Most pre-paid funeral plans cost between £3,000 and £5,000 but don’t include everything you might expect, such as burial plots, headstones, flowers or doctor’s fees. You also don’t know what will happen to the funeral provider in the future.

James Daley from Fairer Finance, the campaign group, said he was concerned that funeral plan providers might not put enough aside to fulfil the promises they had made to their customers, who wouldn’t be around to hold them to account when a claim is made on the plan. He also highlighted a lack of transparency and regulation in the industry.

Some providers also cap the contribution towards burials. For example, a Dignity funeral plan can cost up to £4,035 but it will put just £1,220 towards the burial costs. This will rise in line with inflation.

As with over-50s life insurance, it may be a better idea simply to save up the cash yourself.
We explain what’s covered with life insurance and funeral plans here.

Mobile phone insurance

Avoid buying mobile phone insurance from a network provider because it’s expensive and you may have to pay a compulsory excess if you need to claim. Which? suggested that insurance could cost as much as £160 a year for an iPhone with an excess of £125.

A better option is to add “possessions away from home” cover to your home insurance for around £16 a year.

Car hire excess waiver

Expect the hard sell when you rent a car. Sales staff will offer you expensive add-ons such as satnavs, baby seats and “super collision damage waiver”.

This covers the first part of any claim that drivers need to pay if the car is damaged or stolen, typically between £500 and £2,000.

At-desk excess cover typically costs £20 per day, but sometimes more. Hertz, for instance, charges up to £35 a day. But if you buy stand-alone excess insurance before you go, you can get it for a few pounds a day.

Which? estimated that you could pay £173 more if you bought a super collision damage waiver from a car hire company than if you bought it directly from an insurance firm.