January 22, 2010 Punishing yields of 0.05% on three-month T-bills and .85% on short-term Treasury notes are devastating to the millions of investors who rely on income from their portfolios to fund living expenses. The temptation for many of these investors is to reach for yield. Some investors are loading up on long bonds. You can pick up an additional 3% in yield by moving into long bonds, but you also add an extraordinary amount of risk. If rates move up, investors in long bonds will get creamed. I’m talking about losses that dwarf what many investors experienced in the recent bear market … [Read more...]
Investment Success
November 20, 2009 In 1981, the Dow Jones Industrial Average ended at 875, 10% lower than its year-end value in 1965. During this wretched 16-year period, blue-chip stocks went nowhere. This was the ice age for stock prices. High and rising inflation and interest rates and big government were to blame. This sounds eerily similar to America’s prospects today. Savvy investors have successfully navigated long dry spells in the stock market for decades. What is their secret? Buy the high yielders. My chart compares the hypothetical growth of a $10,000 investment in the Dow Jones Industrial … [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...]
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...]
The Terror of Outliving Your Money
July 24, 2009 The terror of outliving your money has now taken hold for too many investors. It’s not hard to see why, given that discerning investors remember like yesterday the 1965-1981 16-year bear market, where the Dow ended up at 875, 10% lower than its 1965 peak of 969. A little closer to home, we all recall with concern the 1999-2008 nine-year bear market, which left the Dow down a frightening 24% from its 11,497 peak of 1999. For all retired and soon-to-be-retired investors, there is a fast and hard lesson to be learned here. Look to dividends and interest and the miracle of compound … [Read more...]
International Investing & Taxes
Are you aware of the tax implications of international investing? When you invest in foreign securities, even those listed on U.S. exchanges, your investment is subject to foreign tax withholding. Foreign tax withholding is simply money that your broker takes out of your dividend income, capital gain, or interest income that is paid to the central government of the company you own. Withholding rates vary by country and source of income. Some countries require withholding on dividends, interest, and capital gains, and others only withhold income on dividends and interest. Why is this important … [Read more...]
WARNING! Avoid the Catastrophic Thinking of Retirement Investing
Ah, retirement. Congratulations. You made it. Whether you got here by selling your business or working your way through corporate America, you’ve made it and you must feel relieved, excited, and probably a little nervous. Your retirement years should be some of the best in your life. But they are also some of the most nerve-racking, with no job to easily fall back on. With this in mind I’ve constructed a list of potentially catastrophic thoughts you might have and how to handle them. Picture yourself 10 years from now with the memories you might have of you and your spouse with grandchildren, … [Read more...]
Retirement Arithmetic
Are you planning an early retirement? We urge you to check out our retirement income arithmetic before you hurry off into the sunset. Let’s look at the arithmetic of a financially secure and comfortable retirement. First, we start with a portfolio balance of 50/50 stocks and bonds. A 50/50 mix offers a nice defense against down years and dampens your overall portfolio volatility. Next we make some return assumptions. Our long-term return expectation for stocks is 8.8%. If you’re still using historical returns of 10%+ you’re going to be sorely disappointed. Our stock return assumption is … [Read more...]
Bond Funds
A recent article in the Wall Street Journal by Jonathan Clements highlighted the advantages of low-cost bond funds. Jonathan correctly points out that low-cost bond funds consistently outperform their high-cost cousins. This is not because low-cost bond funds are run by superior investment managers. It’s simply a result of the funds’ low expenses. As an example, take Vanguard GNMA with an expense ratio of .20% and Franklin US Government Securities with an expense ratio of .72%. Both funds focus exclusively on GNMA securities. The difference in their expense ratios is .52%. According … [Read more...]
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