Best of the Week
Most Popular
1. Investing in a Bubble Mania Stock Market Trending Towards Financial Crisis 2.0 CRASH! - 9th Sep 21
2.Tech Stocks Bubble Valuations 2000 vs 2021 - 25th Sep 21
3.Stock Market FOMO Going into Crash Season - 8th Oct 21
4.Stock Market FOMO Hits September Brick Wall - Evergrande China's Lehman's Moment - 22nd Sep 21
5.Crypto Bubble BURSTS! BTC, ETH, XRP CRASH! NiceHash Seizes Funds on Account Halting ALL Withdrawals! - 19th May 21
6.How to Protect Your Self From a Stock Market CRASH / Bear Market? - 14th Oct 21
7.AI Stocks Portfolio Buying and Selling Levels Going Into Market Correction - 11th Oct 21
8.Why Silver Price Could Crash by 20%! - 5th Oct 21
9.Powell: Inflation Might Not Be Transitory, After All - 3rd Oct 21
10.Global Stock Markets Topped 60 Days Before the US Stocks Peaked - 23rd Sep 21
Last 7 days
CATHY WOOD ARK GARBAGE ARK Funds Heading for 90% STOCK CRASH! - 22nd Jan 22
Gold Is the Belle of the Ball. Will Its Dance Turn Bearish? - 22nd Jan 22
Best Neighborhoods to Buy Real Estate in San Diego - 22nd Jan 22
Stock Market January PANIC AI Tech Stocks Buying Opp - Trend Forecast 2022 - 21st Jan 21
How to Get Rich in the MetaVerse - 20th Jan 21
Should you Buy Payment Disruptor Stocks in 2022? - 20th Jan 21
2022 the Year of Smart devices, Electric Vehicles, and AI Startups - 20th Jan 21
Oil Markets More Animated by Geopolitics, Supply, and Demand - 20th Jan 21
Fake It Till You Make It: Will Silver’s Motto Work on Gold? - 19th Jan 22
Crude Oil Smashing Stocks - 19th Jan 22
US Stagflation: The Global Risk of 2022 - 19th Jan 22
Stock Market Trend Forecast Early 2022 - Tech Growth Value Stocks Rotation - 18th Jan 22
Stock Market Sentiment Speaks: Are We Setting Up For A 'Mini-Crash'? - 18th Jan 22
Mobile Sports Betting is on a rise: Here’s why - 18th Jan 22
Exponential AI Stocks Mega-trend - 17th Jan 22
THE NEXT BITCOIN - 17th Jan 22
Gold Price Predictions for 2022 - 17th Jan 22
How Do Debt Relief Services Work To Reduce The Amount You Owe? - 17th Jan 22
RIVIAN IPO Illustrates We are in the Mother of all Stock Market Bubbles - 16th Jan 22
All Market Eyes on Copper - 16th Jan 22
The US Dollar Had a Slip-Up, but Gold Turned a Blind Eye to It - 16th Jan 22
A Stock Market Top for the Ages - 16th Jan 22
FREETRADE - Stock Investing Platform, the Good, Bad and Ugly Review, Free Shares, Cancelled Orders - 15th Jan 22
WD 14tb My Book External Drive Unboxing, Testing and Benchmark Performance Amazon Buy Review - 15th Jan 22
Toyland Ferris Wheel Birthday Fun at Gulliver's Rother Valley UK Theme Park 2022 - 15th Jan 22
What You Should Know About a TailoredPay High Risk Merchant Account - 15th Jan 22
Best Metaverse Tech Stocks Investing for 2022 and Beyond - 14th Jan 22
Gold Price Lagging Inflation - 14th Jan 22
Get Your Startup Idea Up And Running With These 7 Tips - 14th Jan 22
What Happens When Your Flight Gets Cancelled in the UK? - 14th Jan 22
How to Profit from 2022’s Biggest Trend Reversal - 11th Jan 22
Stock Market Sentiment Speaks: Are We Ready To Drop To 4400SPX? - 11th Jan 22
What's the Role of an Affiliate Marketer? - 11th Jan 22
Essential Things To Know Before You Set Up A Limited Liability Company - 11th Jan 22
Fiscal and Monetary Cliffs Have Arrived - 10th Jan 22
The Meteoric Rise of Investing in Trading Cards - 10th Jan 22
IBM The REAL Quantum Metaverse STOCK! - 9th Jan 22
WARNING Failing NVME2 M2 SSD Drives Can Prevent Systems From Booting - Corsair MP600 - 9th Jan 22
The Fed’s inflated cake and a ‘quant’ of history - 9th Jan 22
NVME M2 SSD FAILURE WARNING Signs - Corsair MP600 1tb Drive - 9th Jan 22
Meadowhall Sheffield Christmas Lights 2021 Shopping - Before the Switch on - 9th Jan 22
How Does Insurance Work In Europe? Find Out Here - 9th Jan 22
Effect of Deflation On The Gold Price - 7th Jan 22
Stock Market 2022 Requires Different Strategies For Traders/Investors - 7th Jan 22
Old Man Winter Will Stimulate Natural Gas and Heating Oil Demand - 7th Jan 22
Is The Lazy Stock Market Bull Strategy Worth Considering? - 7th Jan 22
What Elliott Waves Show for Asia Pacific Stock and Financial Markets 2022 - 6th Jan 2022
Why You Should Register Your Company - 6th Jan 2022
4 Ways to Invest in Silver for 2022 - 6th Jan 2022
UNITY (U) - Metaverse Stock Analysis Investing for 2022 and Beyond - 5th Jan 2022
Stock Market Staving Off Risk-Off - 5th Jan 2022
Gold and Silver Still Hungover After New Year’s Eve - 5th Jan 2022
S&P 500 In an Uncharted Territory, But Is Sky the Limit? - 5th Jan 2022

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

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