Crisis at Vanguard
Hard as it is for me to believe, a massive hoard of over $600 billion (yes, with a B) is clogging Vanguard’s Total Stock Market Index Fund like a grease-trapped drain. What is most worrisome is what happens when public panic selling hits, kicking off a tsunami of sell orders from banks of robotic computers.
I do not own Vanguard’s Total Stock Market Index Fund, and I don’t ever expect to own it in the future.
The Great Mutual Fund Purge
Index Funds across the board have been purged from portfolios at Richard C. Young & Co., Ltd., never to return. Included in the purge were Vanguard-managed equity mutual funds, all of which are gone.
The Big Transition Ahead
Let me fill you in. As physical publishing has become an increasingly unprofitable occupation, advertisers have bailed in the hope of more lucrative pastures. Obviously, it’s not just the newspaper industry that continues to pass into oblivion. Television, too, is in the tank. Ratings are abysmal for the likes of CNN/MSNBC, who persist on sticking with outmoded formulas, keeping their dwindling audience in a state of perpetual anxiety and confusion.
The Rudderless Individual Investor
The print investment newsletter industry has collapsed under the weight of all the “free stuff” and “fake news” offered on the Internet. The individual investor is now virtually rudderless, with almost nowhere to turn for sound, prudent guidance.
When I started in the investing business, old-line brokerage firms had customers’ men (as brokers were called back in the 1960s). Merrill Lynch dominated with salaried customers’ men, who met face to face with clients to talk investing and to place trades in a comfortable, low-key setting.
Brokerage house boardrooms were on nearly every corner in Boston’s financial district in the sixties. If you are anywhere near my age, you may remember the welcoming, comfortable hangouts for tape readers. Hundreds of customers’ men from Merrill, Estabrook, Moors & Cabot, Goodbody, Kidder Peabody and Clayton Securities ruled the day.
The Idiotic New Order: Massive Equities Index Funds
That supportive assistance of old is all but a fond memory now – no interaction, no strategy discussions, no assistance of any kind. Instead, investors are confronted with faceless, robotic, online trading. Not to mention the truly idiotic new order – indexing.
In my early days of investing, individuals and professionals alike eagerly awaited each issue of Barron’s. In its heyday, the beefy tabloid-style newspaper was loaded with dynamite ads promoting trials to invaluable investment newsletters. Every week, Barron’s featured offers from the greats, most of whom I knew personally: HSL’s Harry D Shultz, Richard Russell, Tony Boeckh of The Bank Credit Analyst, Silver & Gold Report, and Franz Pick, to name a few. Now? Nothing. They are all gone.
My daily efforts today, on behalf of our private clients, are devoted to inference reading and gathering “on the road” anecdotal evidence. Many of my findings (i.e., my projections for an easy Trump win in 2016) can be viewed at richardcyoung.com. I started Richard C. Young & Co., Ltd. (RCY, Ltd.) in 1989 for old friends and referrals. Our investment counsel firm quickly became a haven for discerning new friends and savvy individual investors from all over the U.S.
Here’s what I’ve concluded from my recent research: fixed income is going to return to the forefront, which, in turn, will create turmoil for unprepared investors of every ilk. Many investors are over committed to over-valued, non-dividend-paying stocks and under committed to interest-paying bonds. Apparently they are unwilling to face the evidence that most stocks, like with real estate, offer far more future risk than potential return value.
What is patently obvious to me is just how unprepared many investors are for the inevitable new money crisis. No conservative portfolio concentrating on an appropriate cash flow should ever be committed to more than 75% stocks. And, in truth, for my money, 75% is much too high.
The Facebook Disaster – Just the Beginning
Here’s an example of what I mean by “money crisis.” Look no further than the recent one-day, $120-billion, record-setting wipeout suffered by index fund favorite, Facebook. Facebook lost one-fifth of its market capitalization in a matter of hours. How does that fit in with retirement planning?
Are You Positioned for the New Money Crisis?
Let me tell you how I am preparing for what lies ahead. Recently, I made a sizable series of transactions in my own accounts – a rare move for me. For the first time in decades, my purchases were entirely on the fixed-income side.
Your Mandate and Focus – Cash Flow
The big surprise over the next few years will be the slow reemergence of bonds. The good news is that this quiet reemergence will take time to display itself fully. Untold opportunities will emerge along the transition trail.
Individual corporate and government bonds (foreign and domestic) will slowly retake the hearts of retirement-oriented investors looking for peace of mind and a secure flow of income for either compounding or drawing in retirement.
For decades, I’ve emphasized the words that matter most in investing: compounding, patience, diversification, dividends and interest. These benchmarks are as mandatory today as they were 55 years ago when I first opened my copy of Graham & Dodd.
An Investment Counselor Can Help You Survive, Prosper, Sleep Well
It is one thing for you to have a grasp on these crucial investor mandates. I’m sure you appreciate how having the discipline, focus, and time 365 days a year to apply the intricacies and emotions of investing can be a burdensome worry.
Massive Equities Mutual Funds – Gone
Moving forward, where will our focus be? Individual securities (domestic and foreign dividend and interest payers), with concentration on securities that are not candidates for massive index funds or ETFs.
RCY, Ltd.’s focus is 100% on saving for a secure retirement for families with portfolio assets of $500,000 or more. As noted earlier, my company’s increasing priority is on repositioning in the fixed-income sector. It may come as a shocker to today’s speculation-minded investor, but when I was saving for Matt and Becky’s college educations over an 18-year period, I invested 100% in fixed income.
Today, I am zeroing in on what I call “Guerrilla Warfare Tactics” (GWT) – a short-term get-in/get-out strategy – that will allow our strategy team to act on fixed-income opportunities created by the robotic computers and the indexing sham.
Join Dick Young & Family
Richard C. Young & Co. Ltd. is eager to help conservative investors like you achieve the comfort and peace of mind you desire. To learn exactly how we can help you and your family achieve your investing goals, call us at (800)-843-7273 or click the button below to fill out our easy to complete investor profile. A seasoned member of our investment team will contact you as soon as we receive your response. As always with Dick Young, you are never under any obligation.
Contact us today while the matter is fresh in your mind to learn how you can take the burden of investment management off your plate. My investment counsel firm will review your current position and explain how we can help you best achieve your goals for the future.
Richard C. Young
P.S. Not many years ago, portfolios at our management firm would have consisted of mutual funds from a broad array of fund groups. Today at RCY, Ltd., equities mutual funds are fast becoming extinct. With all but a few exceptions, our equities-oriented portfolios will soon comprise less than 10% mutual funds.
P.P.S. Equities mutual funds, ex a scattering of outliers, will not reappear. The same fate is reserved for ETFs of all stripes. Our in-house equity mutual fund/ETF radar screens will be confined to history’s dust bowl, worthless in any form.
P.P.P.S. Only twice before have households had this much of their liquid assets invested in equities—once during the tail-end of the dotcom bubble and again just before the financial crisis. Neither episode ended well for investors.
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