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...]
A Strategy for the Current Stock Market Rally
The S&P 500 is up 15% since July 10 and up close to 50% from its March low. What's the catalyst for recent gains? A strong second-quarter earnings season. More than 75% of S&P 500 companies that have reported earnings beat analysts' estimates. Strong second-quarter earnings gave the minutiae-focused quarterly earnings crowd the courage to leap back into stocks. Even after the recent rally, there remains a truckload of cash sitting on the sidelines. But are quarterly earnings a reliable signal of future sustainable stock gains? In this case, I think not. Closer examination of the … [Read more...]
The 401(k) is Broken
The 401(k) is broken. Year-end 401(k) assets were $2.4 trillion, down $600 billion from year-end 2007 including the inflow from employer match and employee contributions. Average participant investment performance was down 27%. That's average. Many did much, much worse and some people are retiring this year facing the grim possibility of outliving their money. In fact, four of the top five holdings in 401(k) plans by asset value had one-year returns through March 9, 2009, of -46.2%, -53.3%, -41.5%, and -40.8%. The S&P 500 was down 47%. Nearly four dozen target-date funds did even worse … [Read more...]
Telling Stories
Last week, I wrote about a possible bubble developing in the Chinese stock market. If you missed it (we experienced some technical difficulties) you can read it here. Every great bubble is accompanied by a great story. In the dot-com stock bubble, investors were mesmerized by the awe-inspiring potential of the Internet. Consumers were expected to do all of their shopping online. Bricks-and-mortar retailers were considered outdated and obsolete. Dot-com start-ups and telecom equipment stocks were what investors bought for growth. And the growth was expected to compound at exceptional rates for … [Read more...]
Earnings Will Soar
August 7, 2009 More than 75 million Americans began retiring last summer. And as a result of the ferocious 2008-2009 economic collapse, for thousands of them, retirement began a lot sooner than expected. Overall, jobs in the economy are being lost by the millions. See any winners here? I do, and big winners they will be. Large blue-chip American exporters will soon be in the catbird seat. As worldwide demand slowly begins to build momentum, U.S. exporters will get back on track. Not only are raw material costs low and interest rates (borrowing costs) low, but this cycle the labor component of … [Read more...]
Stock Valuations are Not Low
July 30, 2009 How can I say this best? Stock market valuations are not low. If you are retired or saving in hopes of retiring, you must laser focus on having a consistent flow of cold cash to pay the tab for your weekly grass-fed-to-the-end beef, fresh-ground flax, coconut milk loaded with medium-chain fatty acids, and omega-3-loaded Country Hen organic eggs. In other words, you will want to rely on high-dividend yields for compound-interest power. The two most important words in investing are “compound interest.” Please don’t buy into the jive that trying to buy stocks cheap and then trying … [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...]
Young Research’s Top Commodity Play
The U.S. recession has curbed demand for natural gas while supply has continued to increase. The obvious result has been a fall in prices. Currently, natural gas inventories are plentiful, but they will not remain so permanently. Lower natural gas futures have already caused a significant supply response. The Baker Hughes natural gas rig count is down to 665 from a high of 1606 last August. A lower rig count means less new natural gas supply. Add to that the natural decline in production in existing wells and when demand returns, there is the potential for a spike in natural gas prices. Baker … [Read more...]
Savers are Terrified
July 17, 2009 Despite pockets of strength, the bear market in stocks staggers on, eyeing, with an increasing daily concern, the RPM’s (Radical Progressive Movement) sweeping program of socialism and quasi central government nationalization. The stock market hated the Bush-fronted neo-con disaster, and rightfully, is even more scared of the “Chicago Cabal.” At mid-year, the Dow Industrials are down 4.8%, the Transports are down 9.9%, and the Utilities are down 4.4%. It’s a negative clean sweep for the blue-chip industries despite misleading strength in the more speculative market sectors. … [Read more...]
Your Tax Dollars at Work
July 10, 2009 From 1995 through 2006, corn subsidies in the U.S. totaled $56.2 billion, and this spring farmers seeded the second largest amount of land with corn in more than 60 years. According to the WSJ, “The Obama administration is pushing a big expansion in ethanol, including a mandate to increase the share of the corn-based fuel required in gasoline from 10% to 15%. Apparently, no one in the administration has read a pair of new studies, one from its own EPA, that exposes ethanol as a bad deal for consumers with little environmental benefit.” Corn is a killer and darn few Americans … [Read more...]