Tag Archives: investment advice

5 Ways to Protect Your Money in Retirement

My Comments: OK, #5 may be a bit of a stretch for me. I’ve had a black thumb all my life; anything I plant dies immediately.

There are now millions of us in retirement, or what for some of us is semi-retirement. And whether you believe it or not, the rules underlying economics and finance have not suddenly become invalid.

No, the world is not about to end, though some would have you believe it might. But it will be different and there are always unintended consequences. The level of uncertainty right now is troubling to me, so these steps you might take are informative.

Martin A. Smith, CRPC®, AIFA®, RPS® February 27, 2017

Retirement is a celebrated event for obvious reasons. You have worked 30 to 40 years hopefully doing what you love and made a positive impact on society, within your church, and for the legacy and name of your family. Despite these noteworthy accomplishments, if you are not careful your “golden years” might not be quite as golden as you have hoped.

There’s almost nothing worse than finally arriving at your desired destination in life only to have the rug snatched from under you because of some mistakes that could have been avoided. That is what I am here to help you accomplish today…before you retire. Or, if you are already retired, then I urge you to consider the first of five ways retirees should protect their money during retirement. Truth is, you really do have a lot to lose, so let’s not risk it!

Here are five ways retirees should protect their money during retirement:

1. Invest in a Good Cybersecurity System

Cyber fraud is on the rise and retirees and the elderly are among the most vulnerable targets for cyber criminals. In many cases, being a victim of this type of crime can be avoided. Learn how to take measures to secure your personal data, such as sending secure emails with files that are encrypted when communicating with your financial advisor.

2. Understand What Your Retirement Money Is Invested in and Why

Financial literacy is a challenge for many. While many retirees are familiar with investment vehicles such as mutual funds, stocks and conceptually speaking, bonds, there are fewer who are able to explain how their portfolio is invested, what type of asset classes their portfolio is comprised of and how the economy will impact their portfolios.

In addition, I have found that a number of investors simply have the wrong notion in their minds about the pros and cons of investing in the stock market during a recession. Investment portfolios will fluctuate throughout the economic cycle (peak, recession, trough recovery expansion and peak).

3. Buy Long Term Care Insurance (LTC)

If you are like most people you expect to live a long time. Innovations in medical science and biotechnology mean that people are living longer. In fact, according to the National Institute on Aging’s “Global Health and Aging” report, “The dramatic increase in average life expectancy during the 20th century ranks as one of society’s greatest achievements. Although most babies born in 1900 did not live past age 50, life expectancy at birth now exceeds 83 years in Japan—the current leader—and is at least 81 years in several other countries.”

What does this mean for someone who is retired? While it is mostly good news, the bad news is that living longer comes with a price tag and an expensive one at that. That price tag is what we refer to as needing nursing care (i.e. long-term care), whether it’s in-home care or a nursing home facility.

The average daily cost of Long Term Care in most states exceeds $200 per day, in today’s dollars. Just image what the future inflation-adjusted cost will be. Long-term care is definitely a conversation that you want to have with your financial advisor.

Unless you have enough money saved to self-insure, a person who is retired can watch the value of their estate diminish considerably if they are uninsured and forced to spend their retirement savings to provide for their own nursing care needs, or the needs of an uninsured elderly parent.

4. Steer Clear Of Items That Depreciate

Many things will depreciate in value faster than you can say, “I love my retirement!”

I cannot say enough about “impulse buying,” especially for those who may suffer from an impulsive spending disorder. If you truly love your retirement, then don’t jeopardize your quality of life in retirement with wasteful spending. One example that comes to mind is casinos. According to http://www.casinowatch.org, there are 1,511 casinos in the United States that rake in $71.1 billion in annual revenues.

5. Plant a Vegetable Garden. Yes, I Am Serious!

You can’t enjoy your retirement fully if you are not in the best physical shape, right?

According to the Centers for Disease Control and Prevention (CDC), moderate-intensity level activity for 2.5 hours each week can reduce the risk for obesity, high blood pressure, type 2 diabetes, osteoporosis, heart disease, stroke, depression, colon cancer and premature death. The CDC considers gardening a moderate-intensity level activity, and can help you to achieve that 2.5 hour goal each week.

So, perhaps now would be a good time for you to engage in an activity that requires you to kneel, squat, use your arms, shoulders, back and leg muscles more vigorously.
Gardening is one of the best ways for retirees to gain exercise without having to spend money on a gym membership. In addition to the benefit of just being able to enjoy the outdoors and gain peace of mind as you feel the wind blowing, you can also save money by growing your own food.

Furthermore, how comfortable are you with the idea of pesticides, certain chemicals and “orgenetically engineered foods” that have been genetically engineered in some laboratory? I’ll pass! You should enjoy your retirement, therefore I hope you consider these suggestions.

Stock Manager of $37 Billion Doesn’t Believe the Earnings Hype

roller coaster2My Comments: Monday, post #2.

First, you don’t get to manage $37B unless you know what the hell you are doing.

Two, the higher we go, the harder will be the fall. Put a lot of your money in cash and keep it there until the dust settles.

by Jonas Cho Walsgard / February 19, 2017

Global stock investors may have their hopes set too high for 2017.

With rising stock prices, analysts may need to dial back their expectations with companies missing earnings growth estimates posing the biggest risk to equity markets, according to Robert Naess, who manages 35 billion euros ($37 billion) in stocks at Nordea Bank AB, Scandinavia’s largest bank.

“There’s too much optimism,” he said in an interview in Oslo on Wednesday. “It’s definitely too high. I’m pretty sure I’ll be right.”

Stocks have rallied amid signs of stabilization in China’s economy and bets that President Donald Trump will boost U.S. infrastructure spending, roll back regulations and cut taxes. The Standard and Poor’s 500 Index has risen 28 percent since hitting a low in February last year pushing up price to earnings to more than 21 times, the highest since 2009. Positive earnings per share growth is estimated at 15 percent for the S&P 500, according to data compiled by Bloomberg.

“This indicates that it’s a bit expensive,” the 52-year-old said.

Investors shouldn’t be fooled by top line sales growth as profitability is set to be squeezed by rising wages amid declining unemployment, the fund manager said. With margins already high, corporate earnings estimates will have to come down, he said.

Naess and his partner Claus Vorm quantitatively analyze thousands of companies to build a portfolio of about 100 “boring” stocks. They invest in companies with the most stable earnings and avoid expensive stocks, a strategy which delivered an 11 percent return for the Global Stable Equity Fund in 2016. It has returned 16 percent on average in the past five years, beating 96 percent of its peers.

The fund this year has boosted its stake in EBay Inc. while its biggest increases last year included Walgreens Boots Alliance Inc., Walt Disney Co., Verizon Communications Inc. and Apple Inc.

“It’s always better to have stable equities,” Naess said. “Long term you will get better returns. Good companies continue to be good. More cyclical companies have a tendency to stumble now and then.”

And while investors could be overestimating future company earnings, they may also be putting “too little weight” on potential risks from U.S. policy changes by President Donald Trump, such as potential trade conflicts, Naess said.

“There’s still risk with Trump even if the market receives it very positively,” he said. “There’s more risk now than before. The outcome range with Trump is wider.”

Trump is in the wrong place at the wrong time when it comes to the stock market

changeaheadroadsignMy Comments: It’s Monday, my day to talk about investments. Today, there will be two posts instead of one.

I think we’re in a bubble, and those don’t end well. From the tulip mania bubble several hundred years ago in Holland to the DotCom bubble in 1999-2000, a lot of people lost a lot of money.

If you aren’t already concerned about your exposure to the markets, you need to be. The downside threat far exceeds the upside potential.

Frank Chaparro / Feb 19, 2017

It looks like this bull market just won’t quit. Friday marked the 2,003 trading day since the stock market rally began back in 2009, making it even longer than the bull market that preceded the 1929 crash.

And since President Donald Trump’s surprise victory in November, stocks have been on a seemingly unstoppable upswing with the S&P 500 rallying nearly 10%.

The S&P 500, Dow Jones industrial average, and the Nasdaq all recently hit all-time highs at the same time for five straight days, making for the longest such streak in 25 years.

On top of that, stocks have not witnessed a 1% decrease since October 11. That is the longest streak since 2006.

As Trump noted in a tweet Thursday morning, consumer confidence has also improved. In January, consumer confidence soared to the highest level in over a decade.

And it’s not surprising that confidence is soaring when you consider the fact that a number of economic indicators are improving. The latest jobs report, for instance, exceeded forecasters expectations with 227,000 jobs added versus the predicted 180,000.

And that’s not all. Confidence also seems to have translated into higher retail sales. Retail sales picked up a 0.4% gain in January, which exceeded the 0.1% gain analysts expected.

But despite all of this data that suggests a strong and resolute economy and market, Michael Paulenoff, the president of Pattern Analytics, is still convinced a correction is on the horizon. He points to the current position of the Volatility Index and declining volumes as proof that our 415-weeklong rally is coming to an end.

“For decades volumes have preceded a rise in prices in the stock market. Likewise, declining volume leads to a decline in prices,” he said.

Paulenoff told Business Insider that the end of our current rally will put President Trump in the exact opposite situation as his predecessor.

President Obama presidency began a year after the stock market lost nearly 40% in the midst of the 2007-2008 financial crisis.

“When President Obama’s term as president started the markets were grossly undervalued,” he said.

“Obama just happened to be at the right place, right time — after a 50%-60% correction in the equity market amid historical fears about another depression,” Paulenoff added.

Trump, on the other hand, is not in the right place. “He is touting the upside in equity markets, for which he is not responsible,” Paulenoff said.”And it’s ironic because the coming correction is also not his fault, but people will likely attribute it to him.”

Opinion: This Market Bubble is About to Burst

bear-market-bearMy Comments: Yesterday, I decided it was time to think about moving my clients out of cash and back into the markets. At least with some of their money. Now, once again, I’m not so sure.

If you are retired, or about to be retired, and have the ability to control the investments made inside your retirement accounts, it’s a time to be very cautious. Missing a little upside to protect yourself against a serious downside is, I think, a smart move.

Published: Feb 8, 2017 | Mark D. Cook | Moneywatch

The U.S. stock market at this level reflects a combination of great demand, great complacency, and great greed. Stocks are clearly in a bubble, and like all bubbles, this one is about to burst.

What do previous financial bubbles have in common with this one? There are many similarities, but one in particular is the real estate bubble of the mid-2000s that led to the 2008 global financial crisis. Then, extensive real estate buying overwhelmed supply. People were borrowing even more than 100% of the cost of the real estate, using creative means of financing never seen before in U. S. credit markets.

But debt is debt, which means it is a liability that someone is responsible to repay. That obligation was totally absent in the minds of borrowers and lenders alike — until demand dried up and reality hit.

How is this similar to the market now? The Federal Reserve has created an environment of low- to almost non-existent returns on bank saving accounts, and in the process it ruptured the savings mentality that had been a foundation of American society. People once could live within their means and make a habit of saving some of their income for retirement. They expected banks to pay a rate of interest to savers that was fair and consistent.

When this was no longer the case, people with savings chased returns in riskier areas including stocks, as well as not saving as much. Indeed, the saving generation has been forced into stocks, in which they do not have deep-seated faith. They will take the first opportunity to return to their savings ways again.

Three factors substantiate the view that this market is in a bubble. Each factor warns that stocks are in extremely overbought territory.

The first factor is the CCT indicator. This indicator is a proprietary internal measurement of the general volume of the New York Stock Exchange. The measurements take into account the institutional participation as a ratio of the overall volume. Also measured is the duration of heavy block buying in rallies.

The sum total of all the measurements now shows the lowest bullish energy ever — even lower than in 2008, just before the market crash.

The second factor is the sluggish VIX  (S&P Volatility Index) and the persistence of readings just above 10. These overbought readings indicate a pressure to return to higher levels, thus requiring downside volatility to neutralize the pressure. The longer this persists, the greater the downside pressure.

The third factor is a short-term daily indicator called the 1.5% one-day decline, which signals a pending environment change in chart patterns. The U.S. market has now gone three months without a 1.5% one-day decline. This is the longest period in the record-keeping history of this indicator — and a sign of imminent danger. Bubbles burst.

Investment Strategies for Your Retirement Accounts

InvestMy Comments: A phrase I’m known to use from time to time is that ‘life in this country is better with more money than it is with less money.” While this might seem too obvious for you, there are many people whose efforts to have more money have fallen flat. Here’s a few ideas that might help you.

Michelle Mabry, CFP®, AIF® January 26, 2017

With interest rates coming off a 36-year low and expected to rise, most investors expect to see bond prices fall and consequently deliver a negative return in what is considered a low-risk asset. We have seen a rebound in equities, and with the S&P 500 and Dow at all-time highs, some say the stock market is richly valued. As a retiree seeking income from your investments and looking to preserve your principal, where can you turn? What are ways retirees can invest for income and still minimize risk?

You have always heard you need a diversified portfolio and that has not changed, but what has changed is how you diversify it. Retirees need to determine the proper asset allocation of stocks, bonds, cash and alternatives based on income needs, time frame, and tolerance for risk.

How to Diversify Investments in Retirement

Let’s look at bonds first. If you invest in a traditional bond portfolio you are exposing yourself to interest-rate risk as rates rise and bond prices fall. You need to understand the average duration of the bond investments you hold. For example, a typical intermediate-term bond fund will have a duration of 5-10 years. If the average duration is eight years, then a 1% increase in rates will result in an 8% decrease in the net asset value (NAV). This would wipe out all the interest gains and then some. The shorter the duration, the less the potential loss.

So it is important to look for other assets that have low-risk characteristics or standard deviation similar to bonds but produce absolute returns, that is, a positive return regardless of which way rates are moving. Floating rate income, TIPs and some market neutral funds can be a good way to diversify your fixed-income portfolio. You may also want to look at structured notes as a way to produce yield and protect your downside.

Dividends as Equity

For the equity portion of your retirement portfolio, consider blue chip dividend-paying stocks or dividend growth strategies. Many large-cap funds pay dividends in excess of 2.5%, plus you have the upside appreciation potential over time to keep pace with inflation during your retirement years. Remember to keep focused on the longer term and not be too concerned with short-term volatility. Dividend-paying stocks have outperformed most other asset classes over time. Small-cap stocks have been one of the best-performing asset classes, so it would make sense to find dividend-paying small- and mid-cap equities as well.

When searching the universe of mutual funds and ETFs, there are not many of these, but a couple that have attracted our attention are WisdomTree Midcap Dividend Fund and WisdomTree Small Cap Dividend Fund with yields of 2.63% and 3.03% respectively as of December 30, 2016. Of close to 2,000 ETFs available in the U.S., a search revealed only four that are exclusively dividend-driven and which also hold just domestic small- or mid-cap stocks. Two of the portfolios feature issues that have exhibited dividend growth while the other two ETFs (the WisdomTree funds) include all dividend payers in their capitalization range.

Include Alternative Assets for Diversification

Also important in developing a portfolio for retirement is a focus on absolute return strategies, and many of these fall into the alternative asset class. Alternatives are anything that is not a stock, bond or cash. Alternatives have no correlation or negative correlation to other asset classes so they are great diversifiers. Our retired clients typically have one-third of their portfolio in alternatives. Examples include managed futures and long/short strategies as well as volatility strategies using options. An example is LJM Preservation and Growth which has shown a positive return every year since its inception 10 years ago with the exception of one year, 2013, when the stock market went straight up and there really was no volatility. The fund was up in 2008 when stocks and bonds were not, and therein lies the importance of a diversified portfolio to manage risk.

By rebalancing your investments quarterly or semi-annually back to the original investment allocations you can create the cash needed to sustain your monthly withdrawals in retirement until the next rebalance. We do not recommend a withdrawal rate in excess of 4% in light of current market and economic conditions.

Last seen in 1929, in 2000, and 2008

Stocks have only been this expensive during the crash of 1929, the tech bubble of 2000, and the last financial crisis in 2008-09

My Comments: Economics 101 teaches us that owning shares of a stock means you own a piece of the company that issued the shares. It’s value on any given day is what someone else will pay you for those shares. That an offer by someone to buy your shares is based on what they think the shares will be worth in the future.

A way to measure the relative value of those shares to calculate the Price/Earnings ratio or P/E. This simply means that if I can buy another share for $20, and the earnings attributable to that share last year was $1, then the P/E ratio is 20:1. Simple isn’t it?

When you add in the historical norms for the industry to which your company belongs, and the general economic outlook going forward, you can make a decision whether to keep your shares, sell your shares or buy some more. Right now we are in deep water, far from land, and the boat is leaking.

by Bob Bryan | December 9, 2016

Stocks are getting a bit pricey.

All three major indexes break though their all-time highs on a seemingly daily basis, and this has pushed earnings multiples higher and higher.
The current 12-month trailing price-to-earnings ratio of the S&P 500 sits at 25.95x, while the forward 12-month price-to-earnings is roughly 17.1x, according to FactSet data. Each of these is higher than its long-term average.

In fact, based on one measure of valuation, the market hasn’t been this expensive anytime other than before a massive crash.

The cyclical adjusted price-to-earnings ratio, better known as Shiller P/E, which adjusts the price-to-earnings ratio for cyclical factors such as inflation, stands at 27.86 as of Friday. There have only been a few instances in history when stocks have been this expensive: just before the crash of 1929, the years leading up to the tech bubble and its bursting, and around the financial crisis of 2007-09.

This does not necessarily mean that a crash is imminent — during the tech bubble, the Shiller P/E made it well into the 30s before coming back down. Additionally, there are some criticisms that Shiller P/E is generally more backward-looking since it adjusts for the cycle, so it may not be as accurate.

Another caveat is that, during the three previous instances, investors have been incredibly bullish on stocks (there’s a reason Robert Shiller’s book is titled “Irrational Exuberance”) and most indicators of sentiment — from the American Association of Individual Investors to Bank of America Merrill Lynch’s sell-side sentiment indicator — are still depressed.

Still, an elevated level for the Shiller P/E certainly isn’t going to make it any easier to sleep at night.

A Mind-melting Number of Galaxies in the Universe

My Comments: Now that Matthew has taken his wind and rain to bother someone else, I can focus my time and energy on less earth-shattering thoughts. I  am very thankful we were spared what happened in Haiti; I can’t imagine the agony those people are living with.

And speaking of not being able to imagine, this post is about the world out there that I’ve been interested in for decades. Perhaps because there is no rational answer to the mystery.

I’ve included the first few paragraphs and hopefully a .gif that if you watch the few seconds shown, will make your understanding of our role in this whole exercise we call life a little clearer. My take is that since I have but a few years left, I better make the most of it.

7 OCT 2016

Of the thousands of photos taken by the Hubble Space Telescope, one stands out as the shot that changed astronomy forever. Called the 1995 Hubble Deep Field, it captures thousands of galaxies in a single shot, and was the first photo of its kind ever taken.

But if all those dots represent entire galaxies – and the Milky Way alone is a whopping 100,000 light-years across – how gigantic must a photo be to fit thousands of them in?

Well, it depends on how you define gigantic.

If you’re comparing it to a selfie, it’s pretty freaking huge. But if you’re comparing it to the Universe itself, even a cluster of thousands of galaxies – each hundreds of thousands of light-years across – is minuscule.

More than a decade ago, astronomers at NASA made the incredibly controversial decision to point the Hubble Space Telescope at nothing in particular for a while.

Fortunately, that expensive gamble paid off, and we now have an entire series of Deep Field photos showing so many galaxies in the one shot, they look like stars.

Each of these Deep Field photos were taken over a period of 10 days, and had exposure times of more than 100 hours.

Read more HERE!