October 16, 2009 Mistake #4 on my list of the top 10 mistakes investors make is ignoring cost. Cost is a vital determinant of investment performance. Reams of academic and professional research show that no-load funds with low expense ratios and no 12b-1 fees consistently outperform their high-cost cousins. There is absolutely no good reason to invest in any fund with a sales load or a 12b-1 marketing scab. These fees are simply kickbacks that fund companies pay brokers for hawking their funds. See the conflict here? Brokers aren’t interested in finding the best funds for you; they’re … [Read more...]
Top 10 Mistakes #5
October 9, 2009 Entry #5 on my list of the 10 biggest mistakes that investors make is focusing on potential return before risk. I have been in the investment business for over four decades and I can tell you that the most successful investors are those who evaluate risk ahead of return. The first question I ask before I make any investment is how much can I lose? I advise the same strategy for you. Those investors putting prospective returns ahead of risk most often make emotionally charged decisions that lead to investment ruin. Make risk your primary focus. Only then should you consider … [Read more...]
Only One Way to Go
October 2, 2009 The investment environment looks (a) great or (b) grim? Here is my answer. The yield on fed funds is basically zero. Money market yields are averaging 1%. A five-year CD will get you only 2.7%. The yield on the blue-chip Dow Industrials is a dangerously low 2.9%, and the yield on the NASDAQ is a miniscule 0.6%. See anything that appeals to you here? I sure don’t. When yields are historically low, they have only one way to go-and that, of course, is up. And when the yield on any investment rises, unless there has been a dollar change in the payout, the price of the asset will … [Read more...]
Empty Storefronts
September 25, 2009 Anecdotal evidence offers serious reason for concern about the economy! I just returned from a 2,000-mile Harley trip from Newport, RI, to Blowing Rock, NC, and back. Do you know what struck me the most, aside from the beauty of our country? Empty store fronts from one town to the next. We spend little time on the interstates. Most of our riding is through small towns of 25,000 people or fewer. We noticed the problem in Carlisle, PA, a beautiful little college town that I have ridden through a dozen times or more. I was also shocked by the empty store fronts in Newport’s … [Read more...]
Top 10 Mistakes #6
September 18, 2009 Entry #6 on my list of the 10 biggest mistakes investors make is failing to focus on the Fed’s federal funds rate beacon. Today the fed funds rate is basically zero. That means rates have only one way to go-up! Interest rates have been in a decade-long decline. But as you can see, the decline is over. The last big run-up in the fed funds rate occurred in the 1970s, when it soared to almost 20%. The ’70s were a decade of booming inflation as the Consumer Price Index (CPI) hit 20%, and not surprisingly the stock market in the ’70s went nowhere. By the early ’80s, the … [Read more...]
Top 10 Mistakes #7
September 11, 2009 How does a triad of a 20% prime rate, $200-per-barrel oil and $2,000-per-ounce gold sound to you? Are these numbers possible, or even probable? Oh yeah! And, in fact, the record-breaking deficits and printing press activity at home suggests these numbers may be underestimated. If Israel attacks Iran’s nuclear sites (a 50/50 bet), you’ll perhaps see oil prices well above $200 per barrel. Your strategy is to protect yourself from such an outcome while exposing yourself to minimal risk if you are wrong. In my strategy reports, I write about what you should do. And as a client … [Read more...]
Top 10 Mistakes #8
September 4, 2009 More money has probably been lost by overreaching for yield than by any other misguided strategy. Today, investors are really spooked. Money market funds, bank CDs, and treasuries offer little in the way of yield. That’s why I would suggest that you eschew all three, except for your emergency funds. I would also, given my views on inflation (expressed monthly in my letters and Matt’s client letter), avoid long maturities. A middle-ground approach is the way to go. I outline my views in both my monthly strategy reports and use this work to craft portfolios at Richard C. Young … [Read more...]
Top 10 Mistakes #9
August 28, 2009 Most investors fail to make dividends their #1 priority. When it comes to stocks, if you are retired or saving for retirement within the next decade or so, dividends and dividend growth must dominate your thought process. If the results of the last decade have taught conservative investors anything, it is that dividends matter. At Young Research, we do not even consider a stock for our in-house, 32-stock model portfolio unless it pays a dividend. And at our family investment management company, we do not invest for clients in non-dividend-paying stocks. Moreover, we like … [Read more...]
Top 10 Mistakes #10
August 21, 2009 In the coming weeks, I will lay out the 10 biggest potential tragedies and traps for investors this summer. Number 10 on my list is not recognizing that the recession is over. The media have largely missed the transition. But let me prove to you that the worst of the recession ended in March and that a modest recovery is already underway. On the menu bar at the top of this page, click Economy, then click Recession Watch. A series of slides (1-29) is set up for you. Click Next to start your slide show. Note carefully the slides numbered 3, 8, 9, 10, 17, 18, 19, 20, 22, 23, 24, … [Read more...]
The Magic Number
The magic number for retirement is four, as in a 4% annual draw on the initial balance of your retirement portfolio. Thus, if your portfolio totals $1 million, you draw $40,000 in year number one. In future years, you draw 4% or $40,000 annually, whichever is less. To achieve the 4% goal, you will want a balanced portfolio of bonds and stocks. You will want to craft an armadillo-like portfolio, assembled with care to dampen volatility and smooth out long-term returns. You will always gauge risk before looking at potential returns. You will look to achieve most of your annual 4% cash flow, if … [Read more...]