Ever hear of Vanguard? Of course you have. It is a very well-known respected mutual fund company founded by Jack Bogle, now 81 years young! In his latest book, Mr. Bogle warns about the "perils of numeracy." Even though investors have earned about 9% a year in the stock market in the last century, much of that from dividend income and earnings growth, there's more to that story than meets the eye.
Trading costs, sales charges and investment fees as well as TAXES, eat a large portion of the return. In fact, Mr. Bogle says that the number is as much as 75%, before taxes!
Well known as a guru in the investment world, Mr. Bogle says, "Numbers don't necessarily repeat themselves, and the person who presents the number to you may have a vested interest," In his ninth book, "Don't Count on It! Reflections on Investment Illusions, Capitalism, Mutual Funds, Indexing, Entrepreneurship, Idealism and Heroes," which is a collection of his writings over the last decade.
An interview with Mark Jewell of the Associated Press asks Bogle, "What worries you most about the markets?" He responds, "I've never seen a more difficult time to invest, with the specter of these enormous deficits hanging over us, and with the global economy teetering a great deal more than people think it is. China poses special risks, with a huge construction boom that can't go on forever.
When asked "What's your current outlook on the stock market?" He answers, "The market is at a relatively fair value now but may be a bit overvalued for the long term. But I will no more predict what will happen in 2011 than fly to the moon. Anybody who goes into the market to make money specifically in 2011 should either be spanked or have their head examined. It's just too short of a period to predict, and it's a crapshoot."
"Jack" Bogle at least tell it like it is. I really respect the guy.
-Lady Fi.
Kathy
Thursday, March 31, 2011
Wednesday, March 30, 2011
Protecting Yourself in a Skittish Market
Turning the TV channel from Fox News to CNN to MSNBC, the images are familiar. Crowds of people demonstrate in the streets. Molotov cocktails fly through the air and explode in a grisly mix of fire and glass. Another dictator may fall, or protesters may be arrested. The slumber of a previously submissive population has been awakened by a younger generation fueled by social media.
Beyond Egypt and the Middle East, our own economy still struggles to gain footing. Many analysts believe that, as a result of a weak and unbalanced financial system, the bull market that we are seeing right now could experience significant volatility.
The VIX is an index of consumer perceptions of risk in the market place. The VIX index is published in any Financial Newspaper, i.e. Wall Street Journal. It is a bellwether measure of volatility in the marketplace today. In 2010, the VIX peaked in May and June, and has gradually leveled off since then. This index, however, can change quickly.
In 2010 the S&P 500 saw an increase 15.06%. All in all a pretty good return, particularly in light of previous years when the S&P was negative. In looking at 2010 in detail, however, some facts are important to realize:
In May of 2010, the market experienced the "Flash Crash;" an event started by a computer program that eventually led to a 600 point drop in the Dow Jones. In the aftermath the television program 60 Minutes ran a story about how computers are now handling trades on stocks sometimes at split-second interval. The question for today's investor concerned about retirement is what to do when world events impact the direction of markets. While this has been an age-old dilemma, increased volatility in the markets reflects what is happening in society.
While diversification is a good strategy, what happens is the entire market is negatively affected by world events. There is no real way to avoid systemic risk. Systemic risk is market risk. If the market goes down, people lose money, take it one step further if the market goes down so does your retirement account go down. At this stage in your life can you really afford this scenario.
What if there was a product for investors that protects them in this time of increased volatility? If a market has a decline over a period of time, investors will see 0% credited to their accounts as opposed to actually losing money. In compensation for this security against loss the upside is limited. Would you accept a more limited upside in return for a guarantee of protection on the downside?
A study was done that actually asked these questions and 80% of people surveyed stated that they would rather have a 4% return with a guarantee against not ever losing their investment, versus a product that offered 8% return with the possibility of loss. If asked, and you fall into the 80% category, give our office a call and we will gladly provide you with the information needed to make an intelligent decision otherwise enjoy the ride, it's your retirement.
Tom
Beyond Egypt and the Middle East, our own economy still struggles to gain footing. Many analysts believe that, as a result of a weak and unbalanced financial system, the bull market that we are seeing right now could experience significant volatility.
The VIX is an index of consumer perceptions of risk in the market place. The VIX index is published in any Financial Newspaper, i.e. Wall Street Journal. It is a bellwether measure of volatility in the marketplace today. In 2010, the VIX peaked in May and June, and has gradually leveled off since then. This index, however, can change quickly.
In 2010 the S&P 500 saw an increase 15.06%. All in all a pretty good return, particularly in light of previous years when the S&P was negative. In looking at 2010 in detail, however, some facts are important to realize:
- On 106 of 252 days that the market was open, the S&P 500 actually went down.
- If you had taken a daily average, the return on the S&P 500 would be 2.2%.
In May of 2010, the market experienced the "Flash Crash;" an event started by a computer program that eventually led to a 600 point drop in the Dow Jones. In the aftermath the television program 60 Minutes ran a story about how computers are now handling trades on stocks sometimes at split-second interval. The question for today's investor concerned about retirement is what to do when world events impact the direction of markets. While this has been an age-old dilemma, increased volatility in the markets reflects what is happening in society.
While diversification is a good strategy, what happens is the entire market is negatively affected by world events. There is no real way to avoid systemic risk. Systemic risk is market risk. If the market goes down, people lose money, take it one step further if the market goes down so does your retirement account go down. At this stage in your life can you really afford this scenario.
What if there was a product for investors that protects them in this time of increased volatility? If a market has a decline over a period of time, investors will see 0% credited to their accounts as opposed to actually losing money. In compensation for this security against loss the upside is limited. Would you accept a more limited upside in return for a guarantee of protection on the downside?
A study was done that actually asked these questions and 80% of people surveyed stated that they would rather have a 4% return with a guarantee against not ever losing their investment, versus a product that offered 8% return with the possibility of loss. If asked, and you fall into the 80% category, give our office a call and we will gladly provide you with the information needed to make an intelligent decision otherwise enjoy the ride, it's your retirement.
Tom
Tuesday, March 29, 2011
PEACE BE WITH YOU
This is a common phrase used in many religions today to wish someone well, to send them love and goodness.
It is also a mindset. With all the mania in the financial world today, I think what everyone really wants is very simple. Peace of mind.
There is so much information out there to disseminate. Surely, we do not have a lack of it, we have information overload. When a client tells me they want to do more research on my recommendations, I know I have failed. I have not effectively conveyed my message, which is " you can place your trust in me." I have attentively listened to you express your desires and needs for a happy retirement, and based on my professional experience and intuitive nature, I have delivered one or more solution that I sincerely feel will deliver the outcome you need. There are sometimes several scenarios one can put in place to solve a particular issue or concern. The bottom line, is which one of those will give you what you are really looking for - peace of mind. Do you really want to know or try to learn the intricacies of how an investment or insurance product works? Don't you really just want to know what it will do for you?
Certainly, full disclosure is important and mandatory, but honestly, most people glaze over after a few minutes of explaining the mechanics of most investments. What you want is trust. You want to be able to fully trust the person who is making the recommendations. Without trust, you will never have peace of mind. All the research in the world won't give you peace of mind. All the procrastinating in the world won't give you peace of mind. No, my friend, you must dig deep and see if there is trust.
I know this is so hard to do in our world now with all the scandalous behaviors of unethical and dishonest individuals who have abused someone's trust. It is, however, attainable. Trust is a two-way street. You have to let your guard down some and also be honest with the person from whom you are seeking advice. You don't go to the doctor and not reveal your symptoms. You could get a totally inaccurate diagnosis, and that would not make the pain go away and could cause you harm.
For peace to come into your mind you need to empty it of all the noise, all preconceived notions, all the negativity and hyperactivity. Keep an open mind, free of fear. Trust will come, or it won't. You will know. Trust yourself.
Kathy
It is also a mindset. With all the mania in the financial world today, I think what everyone really wants is very simple. Peace of mind.
There is so much information out there to disseminate. Surely, we do not have a lack of it, we have information overload. When a client tells me they want to do more research on my recommendations, I know I have failed. I have not effectively conveyed my message, which is " you can place your trust in me." I have attentively listened to you express your desires and needs for a happy retirement, and based on my professional experience and intuitive nature, I have delivered one or more solution that I sincerely feel will deliver the outcome you need. There are sometimes several scenarios one can put in place to solve a particular issue or concern. The bottom line, is which one of those will give you what you are really looking for - peace of mind. Do you really want to know or try to learn the intricacies of how an investment or insurance product works? Don't you really just want to know what it will do for you?
Certainly, full disclosure is important and mandatory, but honestly, most people glaze over after a few minutes of explaining the mechanics of most investments. What you want is trust. You want to be able to fully trust the person who is making the recommendations. Without trust, you will never have peace of mind. All the research in the world won't give you peace of mind. All the procrastinating in the world won't give you peace of mind. No, my friend, you must dig deep and see if there is trust.
I know this is so hard to do in our world now with all the scandalous behaviors of unethical and dishonest individuals who have abused someone's trust. It is, however, attainable. Trust is a two-way street. You have to let your guard down some and also be honest with the person from whom you are seeking advice. You don't go to the doctor and not reveal your symptoms. You could get a totally inaccurate diagnosis, and that would not make the pain go away and could cause you harm.
For peace to come into your mind you need to empty it of all the noise, all preconceived notions, all the negativity and hyperactivity. Keep an open mind, free of fear. Trust will come, or it won't. You will know. Trust yourself.
Kathy
Monday, March 28, 2011
Play Defense
Did you know the U.S. Government does not have an approved 2011 budget for its DEPARTMENT OF DEFENSE? We're nearly 6 months into the year and Congress has not authorized any money to fight wars-at least not the one with Libya. Still, the U.S. is shooting missiles, dropping bombs, and there's no budget. Weird.
Last year, Congress had the money to pass "Don't ask, don't tell" legislation. Oddly, Congress could not pass a law to pay our troops and fund operations. Very strange.
With all this craziness, gold and silver are looking even more attractive, as well as mineral developers. Oil and energy related shares also look like a defensive play.
The federal budget is way out of control. Spending is over the top, and our debt is escalating daily. No one knows how this will all turn out, but the U.S. dollar is destined for inflation. Lose your purchasing power, lose your way of life.
Gold may once again become the new standard.
Last year, Congress had the money to pass "Don't ask, don't tell" legislation. Oddly, Congress could not pass a law to pay our troops and fund operations. Very strange.
With all this craziness, gold and silver are looking even more attractive, as well as mineral developers. Oil and energy related shares also look like a defensive play.
The federal budget is way out of control. Spending is over the top, and our debt is escalating daily. No one knows how this will all turn out, but the U.S. dollar is destined for inflation. Lose your purchasing power, lose your way of life.
Gold may once again become the new standard.
Friday, March 25, 2011
Happy Birthday, Health Reform
Well one year ago this week, President Barack Obama signed the Patient Protection and Affordable Care Act into law.
And, in the last 12 months-despite promises to the contrary-we still haven't found out everything that's in it. Since the Secretary still has not filled in all the blanks- as if this legislation were some sort of Federal Mad Lib.
We've seen at least half a dozen lawsuits, with as many rulings as plaintiffs, and no clear resolution in sight. And, after all of that, I'm not sure we've seen that many patients "protected" and we've certainly not seen any more "affordable" care.
We've also seen Congressional Democrats endure a midterm beating the likes of which we haven't seen since Clinton decided to pass his own (Welfare) reform. What we have also seen is a public still split over the law; clearly opposed to the individual mandate clause, but without it, the entire thing falls apart, making even less sense than it already does.
Meanwhile, we have a President who believed so much in this legislation last year he insisted on shoving it through Congress, and now we've seen more waivers - and wavering - than an office fantasy football league.
Last week I had the privilege of attending a Chamber of Commerce dinner where the guest speaker was the Vice President of a local hospital. In his speech he mentioned that he has yet to meet any Congressman who has read the 2,500 page report that outlines the details. It still amazes me that this is a fact. He also stated in his speech that he had no idea how this health care reform was going to work.
If you believed in this so much, at least stand by it, and I can respect your ideas and resolve. Otherwise, you're just another slick politician more beholden to polls than principals. And not unlike the host of federal regulations that hangs over our heads, we already have more than enough of those.
Tom
And, in the last 12 months-despite promises to the contrary-we still haven't found out everything that's in it. Since the Secretary still has not filled in all the blanks- as if this legislation were some sort of Federal Mad Lib.
We've seen at least half a dozen lawsuits, with as many rulings as plaintiffs, and no clear resolution in sight. And, after all of that, I'm not sure we've seen that many patients "protected" and we've certainly not seen any more "affordable" care.
We've also seen Congressional Democrats endure a midterm beating the likes of which we haven't seen since Clinton decided to pass his own (Welfare) reform. What we have also seen is a public still split over the law; clearly opposed to the individual mandate clause, but without it, the entire thing falls apart, making even less sense than it already does.
Meanwhile, we have a President who believed so much in this legislation last year he insisted on shoving it through Congress, and now we've seen more waivers - and wavering - than an office fantasy football league.
Last week I had the privilege of attending a Chamber of Commerce dinner where the guest speaker was the Vice President of a local hospital. In his speech he mentioned that he has yet to meet any Congressman who has read the 2,500 page report that outlines the details. It still amazes me that this is a fact. He also stated in his speech that he had no idea how this health care reform was going to work.
If you believed in this so much, at least stand by it, and I can respect your ideas and resolve. Otherwise, you're just another slick politician more beholden to polls than principals. And not unlike the host of federal regulations that hangs over our heads, we already have more than enough of those.
Tom
Thursday, March 24, 2011
How to Trim the Fat From Your Budget
We see some tough times on the horizon. With longer life expectancies, higher inflation and not enough income – the time is NOW to buckle down and watch your spending.
You don’t have to live like a hermit or make drastic changes to your lifestyle, but here are a few suggestions to help you think about how you spend.
- Don’t go shopping without a list. Stick to the items you need so you don’t impulse by.
- Cut down on eating out. It may be fun to take turns creating a new recipe. Or take turns hosting on Saturday nights with friends – you can play games or cards for an inexpensive form of entertainment.
- Use debit cards instead of credit cards. You’ll only spend what’s actually in your bank account and won’t run up your charge accounts with high interest charges.
- Consolidate your errands so you use less gas and less of your free time.
- Think about writing out your bills instead of automatic debits. It makes you more aware of what things cost.
- Go shopping in your own “store.” Your closet and drawers probably have clothes you forgot you have or have not worn in a while. Change it up with a scarf or vest or by layering. Guys too!
- Go out for appetizers instead of dinner! You’ll get a lot more variety and won’t overeat.
- Have one glass of wine or one drink when you go out, and the rest at home! You can probably purchase a bottle for what you pay for 2 drinks in a restaurant. And besides, you shouldn’t drink and drive anyway!
- Be kind to your environment – use aluminum water bottles and refill them. Also, less exposure to plastics, which can break down and may be harmful to your health.
- Use washable containers instead of baggies, aluminum foil and disposable containers.
Small changes in your spending habits can really add up over time and may give you that little bit of extra cash when you really need it.
Kind of like cutting calories during the week so you can indulge a little on the weekends!
-Kathy
Lady Fi
Wednesday, March 23, 2011
Taking Income in Retirement
As great as it feels to take income from an appreciating account, it feels terrible to take income from the same account when the value is declining. From a mathematical perspective, taking income from an account with a declining value might be harmful in terms of retirement planning. The reason is simple - whatever the percentage of investment loss, it takes a larger percentage of gain to make up the loss as the discussion below outlines.
Let's look at an example.
If I have an investment worth $1,000,000 and lose 20% in a given year, I have a year-end account balance of $800,000.
Now, let's assume the following year my investment makes a 20% gain. I now have an account balance of $960,000. A 20% loss followed by a 20% gain still results in an investment loss!!
It takes an investment gain of 25% to recoup the losses experienced from a 20% investment decline.
The relationship existing between losses and subsequent gains is absolute - meaning it always exists, regardless of the percentage. The greater the investment loss, the larger the subsequent gain needs to be in order to recoup all investment losses. It's this simple mathematical fact that makes not losing money in investments so important for so many retirees.
That's why it's important to invest at least a percentage of your assets conservatively, in a vehicle where account values are as stable as possible. A large investment loss makes it more difficult to receive a level, consistent income stream. And, for those individuals in retirement or nearing retirement, receiving consistent income is an essential component of living a traditional retirement.
Avoiding losses in retirement may be every bit as important as making gains, some would argue more important. One of Warren Buffett's best known quotes is "Rule number one: Never lose money. Rule #2: Never forget rule number one."
-Tom
Let's look at an example.
If I have an investment worth $1,000,000 and lose 20% in a given year, I have a year-end account balance of $800,000.
Now, let's assume the following year my investment makes a 20% gain. I now have an account balance of $960,000. A 20% loss followed by a 20% gain still results in an investment loss!!
It takes an investment gain of 25% to recoup the losses experienced from a 20% investment decline.
The relationship existing between losses and subsequent gains is absolute - meaning it always exists, regardless of the percentage. The greater the investment loss, the larger the subsequent gain needs to be in order to recoup all investment losses. It's this simple mathematical fact that makes not losing money in investments so important for so many retirees.
That's why it's important to invest at least a percentage of your assets conservatively, in a vehicle where account values are as stable as possible. A large investment loss makes it more difficult to receive a level, consistent income stream. And, for those individuals in retirement or nearing retirement, receiving consistent income is an essential component of living a traditional retirement.
Avoiding losses in retirement may be every bit as important as making gains, some would argue more important. One of Warren Buffett's best known quotes is "Rule number one: Never lose money. Rule #2: Never forget rule number one."
-Tom
Tuesday, March 22, 2011
Get Ready for the Ride
We are still in a secular bear market! (Secular means a long period of time). The last secular bear market lasted 17 years – If we count back starting in 2001 – and history proves itself, that means we have about 7 more years of a bumpy ride. Don’t be fooled by the last 2 years. Most bear markets have periods of retracement. But as the recent volatility suggests, these periods eventually wash out. I see storm clouds ahead. The bounce in a secular bear market lasted about 26 months during past downward cycles and that puts us around mid May of 2011.
Funny how some people are just gluttons for punishment. If you get creamed in 2002 and/or 2008, why are you still in the ring? It doesn’t hurt to step out for a while. If I’m right, you still have your gains and have avoided another blood bath, If I’m wrong, well you still have your gains!
Steve Blumenthal, CEO of Capital Management Group, an Investment Advisory firm, sees a pullback of about 34%. I like the people he hangs out with – brilliant minds like John Mauldin and Dr. Christopher Geczy. I’m in their camp . Here it comes, buckle up. This is going to be another wild ride. If you choose to stay on – keep your eyes wide open! No surprises here.
Get the heck off and just watch. Somewhat of a thrill, but without the high blood pressure.
The Choice is Yours.
-Kathy
Monday, March 21, 2011
This is NOT the time to Buy and Hold - Spring Cleaning
Who’s the first Irishman you see in springtime?
Patio Furniture.
Yeah – corny, right?
Goodbye winter of 2011- hello Spring.
Spring is always a good time to take stock of what we need, and what we don’t.
We can hope for a traditional strong spring real estate market, but I don’t think we’ll see one. Still too much unemployment and only 50,000 “Gen X-ers” to buy 83 million Boomer houses, among other things...
Perhaps it is a good time for getting rid of those collectibles you’re just not into anymore. I hear E-bay is booming. There are also probably a lot of families going through some tough times who could use “like-new” clothing, shoes, boots and next year’s winter coats. Little league and soccer is revving up-got any equipment crowding your garage and closets?
Spring is also a great time to do a checkup on your financial situation. Organize your records, discard unnecessary paperwork and old statements.
Do you have the stomach for another rocky ride with your investments? I think we’ll see a pullback very soon. Don’t wait too long before you talk to your trusted advisor for their take on things.
Spring is a wonderful time to remember those we love and make sure they will be taken care of if you’re not here. Update those wills you had done 20 years ago. The language may be insufficient to carry out your wishes today! Perhaps you need more than a will-such as a trust. Speak to an experienced estate planning attorney about what’s best for your personal situation. Be sure to have Durable Powers of Attorney and Medical Directives in place-no one plans on getting sick or hurt. This simple act will make it so much easier for your loved ones to step in and act on your behalf. Do it now!
So spring shape-up time my friends. Time to get the “house” in order.
Carpe Diem!
Kathy
Subscribe to:
Posts (Atom)