The S&P 500 closed at yet another new high yesterday. The market was flat until about 2:00 pm. What was the catalyst that drove prices higher after 2:00? The nation’s esteemed and astute Federal Open Market Committee announced the results of their latest policy meeting. Despite building evidence that inflation is accelerating and that the labor market is tightening, Yellen & Co., said inflation is still too low. They also told us that even though the unemployment rate has come down faster than the Fed expected, the labor market is actually worse than the headline unemployment rate … [Read more...]
Archives for June 2014
Fed Misses Again
Yesterday would have been a perfect opportunity for Fed President Janet Yellen to set a hawkish tone on inflation. Instead, as you can see in the first two-minutes of her Q&A, it’s more of the same wait and see mode at the all-knowing Fed. … [Read more...]
401(k) Nightmare: Part I
Twenty years ago, after graduating from Babson College with a finance/investments degree, I spent the summer backpacking through Europe. In the winter I worked as a ski instructor. And in the spring I got a job at Fidelity Investments. You can imagine how “proud” my parents were. I worked in Fidelity’s 401(k) business which managed plans for Fortune 500 sized companies. This was the golden age of 401(k)s. It was the savings vehicle of choice for large companies, baby boomers were investing like mad—nervous about not having enough money in retirement, and the Dow Jones Industrial Average was … [Read more...]
Risk and Iraqi Banking
Thinking about risk is often difficult. Small persistent risks often take a backseat to catastrophic risks that are easier to conceptualize. Skiing is a good place to understand the differences in risk perception. Hopping on a steep double black diamond slope your first day out could end your fun very quickly. But if you’re headed down a gradual slope lined by trees, the journey may be smooth but one mistake is all it takes to ruin your trip. The point is that the trees along the trail present a persistent risk to any skier not paying attention. Where you put your money is similar in its … [Read more...]
Win By Not Losing
If you have a dollar and lose $0.25 you’re left with $0.75. You’ve lost 25% of what you had, but to get back to $1.00, you’ll have to generate 33% of what you have now. To get it back you could go to work or you could hope the market helps you out. In real life when a husband and wife watch their portfolio go from $1 million to $750,000, they get out of the market. It’s too painful to watch. That tends to make their losses even worse because they lose the power of compounding. There’s a better way—it's counterbalancing. As you can see in the following charts, counterbalancing helps you win … [Read more...]
Win with Extraordinary Stocks
The value-oriented stocks in our Retirement Compounder's portfolio are beginning to get more press. This comes as no surprise to me. Winners tend to attract attention. Dick Young explains in his January 2014 Intelligence Report. Over the last decade, my dividend-based Retirement Coumpounders (RCs) have outperformed nine of 10 industry groups in the S&P. On a statistical basis, this record is extraordinary, even if it is my record. When you consider that I invest 100% from a mix of these 10 industry groups, it is no easy task outrunning all but one group. Moreover, I do not even invest … [Read more...]
Part-Time Work in Retirement
No one wants to work in retirement. But if you consider how valuable your time is, then working part-time may be something for you to consider. Let’s say you can make $1,000 dollars a month doing something you like to do. That’s $12,000 a year on the plus-side. Imagine how much money you need to invest to generate that kind of money. Let’s take risk out of the equation and assume the 10-Year Treasury as the best risk-free choice. Today it yields around 2.6%. You would need to have $461,538 in 10-Year Treasury’s to generate $12,000. That’s a lot of money to invest when you could do it without … [Read more...]
The Million Dollar Question
50 Years of Bear Markets
How would your portfolio withstand a 20% decline otherwise known as a bear market? In the first decade of this century we have had four bear markets. So far, so good in the second decade of this century. But it’s worthwhile taking a stroll down memory lane decade by decade to gauge their frequency. As you can see, beginning in 1960, every decade has had at least one bear market. Think about the environment during each decade. What were the geopolitical risks abroad? What was the economy like? And what was Washington, D.C. up to? Makes one wonder what’s in store does it not? … [Read more...]
Caution! The Dangers of an Unbalanced Portfolio
If you’re readying for retirement make sure you understand the concept of counterbalancing—you’ll avoid the big losses. And your retirement will be much more enjoyable. Here is are two examples of five-year periods where counterbalancing worked well in the good times and bad. I’ve used the Vanguard Wellesley fund as a counterbalance proxy compared to the S&P 500 for an all stock proxy. As you can see, with a counterbalanced approach you can have your cake and eat it too. … [Read more...]