Best of the Week
Most Popular
1. Market Decline Will Lead To Pension Collapse, USD Devaluation, And NWO - Raymond_Matison
2.Uber’s Nightmare Has Just Started - Stephen_McBride
3.Stock Market Crash Black Swan Event Set Up Sept 12th? - Brad_Gudgeon
4.GDow Stock Market Trend Forecast Update - Nadeem_Walayat
5.Gold Significant Correction Has Started - Clive_Maund
6.British Pound GBP vs Brexit Chaos Timeline - Nadeem_Walayat
7.Cameco Crash, Uranium Sector Won’t Catch a break - Richard_Mills
8.Recession 2020 Forecast : The New Risks & New Profits Of A Grand Experiment - Dan_Amerman
9.Gold When Global Insanity Prevails - Michael Ballanger
10.UK General Election Forecast 2019 - Betting Market Odds - Nadeem_Walayat
Last 7 days
What UK CPI, RPI INFLATION Forecasts for General Election Result 2019 - 11th Dec 19
Gold ETF Holdings Surge… But Do They Actually Hold Gold? - 11th Dec 19
Gold, Silver Reversals, Lower Prices and Our Precious Profits - 11th Dec 19
Opinion Pollsters, YouGov MRP General Election 2019 Result Seats Forecast - 11th Dec 19
UK General Election Tory and Labour Marginal Seats Analysis, Implied Forecast 2019 - 11th Dec 19
UK General Election 2019 - Tory Seats Forecast Based on GDP Growth - 11th Dec 19
YouGov's MRP Poll Final Tory Seats Forecast Revised Down From 359 to 338, Possibly Lower? - 10th Dec 19
What UK Economy (Average Earnings) Predicts for General Election Results 2019 - 10th Dec 19
Labour vs Tory Manifesto's UK General Election Parliamentary Seats Forecast 2019 - 10th Dec 19
Lumber is about to rally and how to play it with this ETF - 10th Dec 19
Social Mood and Leaders Impact on General Election Forecast 2019 - 9th Dec 19
Long-term Potential for Gold Remains Strong! - 9th Dec 19
Stock and Financial Markets Review - 9th Dec 19
Labour / Tory Manifesto's Impact on UK General Election Seats Forecast 2019 - 9th Dec 19
Tory Seats Forecast 2019 General Election Based on UK House Prices Momentum Analysis - 9th Dec 19
Top Tory Marginal Seats at Risk of Loss to Labour and Lib Dems - Election 2019 - 9th Dec 19
UK House Prices Momentum Tory Seats Forecast General Election 2019 - 8th Dec 19
Why Labour is Set to Lose Sheffield Seats at General Election 2019 - 8th Dec 19
Gold and Silver Opportunity Here Is As Good As It Gets - 8th Dec 19
High Yield Bond and Transports Signal Gold Buy Signal - 8th Dec 19
Gold & Silver Stocks Belie CoT Caution - 8th Dec 19
Will Labour Government Spending Bankrupt Britain? UK Debt and Deficits - 7th Dec 19
Lib Dem Fake Tory Election Leaflets - Sheffield Hallam General Election 2019 - 7th Dec 19
You Should Be Buying Gold Stocks Now - 6th Dec 19
The End of Apple Has Begun - 6th Dec 19
How Much Crude Oil Do You Unknowingly Eat? - 6th Dec 19
Labour vs Tory Manifesto Voter Bribes Impact on UK General Election Forecast - 6th Dec 19
Gold Price Forecast – Has the Recovery Finished? - 6th Dec 19
Precious Metals Ratio Charts - 6th Dec 19
Climate Emergency vs Labour Tree Felling Councils Reality - Sheffield General Election 2019 - 6th Dec 19
What Fake UK Unemployment Statistics Predict for General Election Result 2019 - 6th Dec 19
What UK CPI, RPI and REAL INFLATION Predict for General Election Result 2019 - 5th Dec 19
Supply Crunch Coming as Silver Miners Scale Back - 5th Dec 19
Gold Will Not Surpass Its 1980 Peak - 5th Dec 19
UK House Prices Most Accurate Predictor of UK General Elections - 2019 - 5th Dec 19
7 Year Cycles Can Be Powerful And Gold Just Started One - 5th Dec 19
Lib Dems Winning Election Leaflets War Against Labour - Sheffield Hallam 2019 - 5th Dec 19
Do you like to venture out? Test yourself and see what we propose for you - 5th Dec 19
Great Ways To Make Money Over Time - 5th Dec 19
Calculating Your Personal Cost If Stock, Bond and House Prices Return To Average - 4th Dec 19

Market Oracle FREE Newsletter

UK General Election Forecast 2019

Retirement Planning, Why the "100 Minus Your Age" Rule is Wrong

Personal_Finance / Pensions & Retirement Jul 12, 2010 - 08:12 AM GMT

By: DailyWealth


Best Financial Markets Analysis ArticleTom Dyson writes: The other day, a millionaire asked me to construct a retirement portfolio for her...

Unfortunately, I don't have the right government certifications for this type of work, so I had to refuse the job. But it got me thinking...

Most financial planners would have recommended some ratio of stocks to bonds. The rule of thumb is, you subtract your age from 100. That's the percentage you put in stocks. The rest you put in bonds. My friend is in her fifties. A conventional financial planner would probably have her put 45% of her money in stocks and 55% in bonds. I'm 35. They'd have me put 65% in stocks and 35% in bonds.

I can't stand this advice. For starters, it's based on the flawed economic theories they teach at business school. These theories suggest the best returns come from buying and holding a diversified basket of stocks.

Buy and hold worked last century when the Fed was able to reinflate the economy every time it looked like a recession was coming, fostering an almost unbroken 70-year bull market. Now we're paying for that party with a long, drawn-out bear market. Not only is buy and hold broken... it's about the worst possible strategy you could choose in this environment. If you bought the S&P 500 on January 1, 2000, for example, you'd have lost 27% of your money already...

Your basket of bonds won't generate any worthwhile returns, either. The Fed has declared war on your savings by putting interest rates at zero, so corporate and municipal bond rates are near all-time lows while credit risk is higher than ever.

But the thing I hate most about this advice is it suggests you should hand over 100% your wealth and savings to the Wall Street machine. It suggests you aren't capable of managing it yourself.

What strategy would I have suggested she use instead? The "barbell" strategy is my favorite.

In the barbell strategy, the two "bells" generate the returns, while the "bar" keeps most of your money safe. With this strategy, 20% of your investments generate 80% of your return... and the rest gets invested in the safest place you can find, probably cash.

Famous financial author and hedge-fund manager Nassim Taleb's hedge fund uses this strategy. He keeps 95% of his hedge fund's money in Treasury bills and invests 5% of his fund in high-risk option strategies. If the Treasuries generate 1% and the options generate 100%, the total performance of the portfolio is just under 6%.

So what barbell strategy would I recommend for you?

First, build your "bar."

Your bar should be composed of extremely safe investments held outside the financial system. Own a modest house, without any debt. This is your personal property. Keep a stash of gold and silver bullion. Keep six months worth of expenses in cash. Open an account with Treasury Direct and buy a large chunk of short-term government bills direct from the Treasury. Consider buying short-term debt of other governments, too. You're avoiding Wall Street this way... and keeping your money absolutely safe.

Don't trust your bank, broker, or mutual fund manager to keep your cash safe. If the system fails, they'll all fail together, no matter how strong they are individually.

The "bar" won't pay you any significant income, but it will keep the bulk of your wealth 100% safe. The "bells" generate the income...

One bell runs strategies that profit from a declining stock market... like short selling, covered-call strategies, and short-term technical trading.

The other bell invests in unique, safe, high-income opportunities, like the kind I've been writing about in DailyWealth. These ideas could be stocks, bonds, or preferred stocks. The key is, these investments must be able to generate income safely in an environment of falling stocks. You should own a basket of these stocks to diversify risk... and always use stop losses as a final backstop.

Let's say you invest 70% of your wealth into the "bar," which pays 1% a year; 5% into trading, which generates 50% a year; and 25% into bear market income, which generates 10% a year.

Take a $100,000 hypothetical portfolio... $70,000 in the "bar" at 1% equals $700, $5,000 in one "bell" at 50% equals $2,500, and $25,000 in the other "bell" at 10% equals $2,500. That's a total of $5,700 from a $100,000 portfolio.

This portfolio will generate a total 5.7% a year... while keeping the bulk of your assets absolutely safe and sound.

This is a fantastic return in an environment where everyone else is losing money... and the stock, commodity, and real estate markets are falling.

You'll have to build your own barbell strategy... with the right balance between trading, income, and defense. These numbers are just for demonstration, but in general, with more working years ahead of you, you can keep your "bar" shorter and make your "bells" heavier.

Good investing,


P.S. I recently told my 12% Letter readers about a biotech stock with a 17% dividend, a loan-servicing business with a 12% dividend, and a natural gas utility with a 10% yield. These are just three examples of recession-proof businesses with high yields I've found recently... You can learn more about my five favorite income ideas in this video presentation.

The DailyWealth Investment Philosophy: In a nutshell, my investment philosophy is this: Buy things of extraordinary value at a time when nobody else wants them. Then sell when people are willing to pay any price. You see, at DailyWealth, we believe most investors take way too much risk. Our mission is to show you how to avoid risky investments, and how to avoid what the average investor is doing. I believe that you can make a lot of money – and do it safely – by simply doing the opposite of what is most popular.

Customer Service: 1-888-261-2693 – Copyright 2010 Stansberry & Associates Investment Research. All Rights Reserved. Protected by copyright laws of the United States and international treaties. This e-letter may only be used pursuant to the subscription agreement and any reproduction, copying, or redistribution (electronic or otherwise, including on the world wide web), in whole or in part, is strictly prohibited without the express written permission of Stansberry & Associates Investment Research, LLC. 1217 Saint Paul Street, Baltimore MD 21202

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

Daily Wealth Archive

© 2005-2019 - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.

Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules