Best of the Week
Most Popular
1. Stock Markets and the History Chart of the End of the World (With Presidential Cycles) - 28th Aug 20
2.Google, Apple, Amazon, Facebook... AI Tech Stocks Buying Levels and Valuations Q3 2020 - 31st Aug 20
3.The Inflation Mega-trend is Going Hyper! - 11th Sep 20
4.Is this the End of Capitalism? - 13th Sep 20
5.What's Driving Gold, Silver and What's Next? - 3rd Sep 20
6.QE4EVER! - 9th Sep 20
7.Gold Price Trend Forecast Analysis - Part1 - 7th Sep 20
8.The Fed May “Cause” The Next Stock Market Crash - 3rd Sep 20
9.Bitcoin Price Crash - You Will be Suprised What Happens Next - 7th Sep 20
10.NVIDIA Stock Price Soars on RTX 3000 Cornering the GPU Market for next 2 years! - 3rd Sep 20
Last 7 days
Dow Stock Market Dow Trend Forecast Current State - 22nd Apr 21
Gold Rebounds Amid Positive Economic Reports - 22nd Apr 21
China's record first quarter fuels strong expansion in 2021 - 22nd Apr 21
Gold Price Next Key Level - 22nd Apr 21
Here's What to Look For When Hiring a Real Estate Agent - 22nd Apr 21
Ethereum EIP 1559 and Raven Coin - 21st Apr 21
Gold, USDX: The Board is Set, the Pieces are Moving - 21st Apr 21
World Economies Need to Find a Lot More COPPER! - 21st Apr 21
DogeCoin CRASH! Time to Start Mining BOODGIE Coin! Crypto Mania 2021 - 21st Apr 21
Pausing Stocks and Gold Fireworks - 21st Apr 21
Precious Metals and Miners Start of New Longer-Term Bullish Trend - P2 - 21st Apr 21
Looking For A Mortgage Broker? Here Is How To Hire One - 21st Apr 21
Amazon AMZN Stock PRIMEDAY SALE! Trend Analysis - 20th Apr 21
Stock Market Sentiment Speaks: You May Not Believe My 2021 Targets - 20th Apr 21
Stock Market Phase Two Projection - 20th Apr 21
Are Precious Metals & Miners Starting A New Longer-Term Bullish Trend? - 20th Apr 21
Inflation: First the Gain, Then the Pain… - 20th Apr 21
8 Stock Market Indicators in 1: Here's the Message of the Panic/Euphoria Model - 19th Apr 21
Gold - You Can Win a Battle, but Still Lose the War - 19th Apr 21
Will Interest Rates Rally Further Push Gold Price Down? - 19th Apr 21
Gold Fireworks Doubt the Official Inflation Story - 19th Apr 21
YuanPay Team Discuss The Process Of Crypto Diversification - 19th Apr 21
Central Banks May Ramp Up Gold Buying - 18th Apr 21
How to Get Rid of Driveway Weeds With Just WATER! 6 Months later NO Weeds, Ultimate Killer! - 18th Apr 21
State of the European Markets - DAX, FTSE, CAC, AEX, SMI, IBEX 35, S&P/MIB, Euro Stoxx 50, RTS - 18th Apr 21
Einvestment Fund: What You Need To Know About Investments - 18th Apr 21
Google Alphabet (GOOG) AI Deep Mind Stock Trend Analysis - 17th Apr 21
Stocks and Bonds Inflationary Slingshot - 17th Apr 21
Best Smartphone Selfie Stick Tripod Review by ATUMTEK Works with Samsung Galaxy and Iphone - 17th Apr 21
How to Give Budgie's First Bath | Easy Budgie Bathing and Water Training with Lettuce - 17th Apr 21
Record-breaking Decrease in New Passenger Vehicle Sale in Europe - 17th Apr 21
US Stocks Climb A “Wall Of Worry” To New Highs - 16th Apr 21
Gold’s Singular Role - 16th Apr 21
See what Anatomy of a Bursting Market Bubble looks like - 16th Apr 21
Many Stock Market Sectors Are Primed For Another Breakout Rally – Are You? - 16th Apr 21
What Skyrocketing US Home Prices Say About Inflation - 16th Apr 21
Still a Bullish Fever in Stocks? - 16th Apr 21
Trying to Buy Coinbase Stock on IPO Day - Institutional Investors Freeze out Retail Investors - 15th Apr 21
Stocks or Gold – Which Is in the Catbird Seat? - 15th Apr 21
Time For A Stock Market Melt-Up - 15th Apr 21
Stocks Bull Market Progression Now Shows Base Metal Strength - 15th Apr 21
AI Tech Stocks Buy Ratings, Levels and Valuations - 14th Apr 21
Easy 10% to 15% Overclock for 5600x, 5900x, 5950x Using AMD Ryzen Master Precision Boost Overdrive - 14th Apr 21
The Current Cannabis Sector Rally Is Pointing To Another Breakout - 14th Apr 21
U.S. Dollar Junk Bond Market The Easiest Money in History - 14th Apr 21
The SPY Is Nearing Resistance @ $410… What Is Next? - 14th Apr 21
The Curious Stock Market Staircase Rally - 14th Apr 21
Stocks are Heating Up - 14th Apr 21
Two Methods in Calculating For R&D Tax Credits - 14th Apr 21
Stock Market Minor Correction Due - 13th Apr 21
How to Feed Budgies Cucumbers - Best Vegetables Feeding for the First Time, Parakeet Care UK - 13th Apr 21
Biggest Inflation Threat in 40 Years Looms over Markets - 13th Apr 21
How to Get Rich with the Pareto Distribution - Tesco Example - 13th Apr 21
Litecoin and Bitcoin-Which Is Better? - 13th Apr 21
The Major Advantages Of Getting Your PhD Online - 12th Apr 21
Covid-19 Pandemic Current State for UK, US, Europe, Brazil Vaccinations vs Lockdown's Third Wave - 12th Apr 21
Why These Stock Market Indicators Should Grab Your Full Attention - 12th Apr 21
Rising Debt Means a Weaker US Dollar - 12th Apr 21
Another Gold Stocks Upleg - 12th Apr 21
AMD The ZEN Tech Stock - 12th Apr 21
Overclockers UK Build Quality - Why Glue Fan to CPU Heat sink Instead of Using Supplied Clips? - 12th Apr 21 -
What are the Key Capabilities You Should Look for in Fleet Management Software? - 12th Apr 21
What Is Bitcoin Gold? - 12th Apr 21
UK Covd-19 FREE Lateral Flow Self Testing Kits How Use for the First Time at Home - 10th Apr 21
NVIDIA Stock ARMED and Dangeorus! - 10th Apr 21

Market Oracle FREE Newsletter

FIRST ACCESS to Nadeem Walayat’s Analysis and Trend Forecasts

Investing When You Think We’re in a Bubble

Stock-Markets / Investing 2013 Jul 25, 2013 - 06:34 PM GMT

By: Don_Miller

Stock-Markets

Some folks may think we have returned to a pre-crash environment all over again, where the market moved on multi-year highs. Year to date, the major indexes are up roughly 15% depending on when you’re reading this article; and that’s on top of 7% returns from the year before and 5.5% the year before that. To the uninitiated, this almost looks like acceleration. To the more pessimistic, it looks like a trap: we’re in for a nasty correction that will pull down the entire market. You can’t turn on the television or read through a financial news website without being overwhelmed by stories telling us the market will crash in the next “X” number of weeks or months.


I’m not even going to try to predict what I think will happen because we’re long term investors, not traders. But every one of us should be concerned about this and take appropriate actions to profit from the upside and protect ourselves from the downside. After all, many folks have to make up for lost time while others need to make their money last far longer than they dreamed.

During my peak earning years, I imagined what retirement would be like based on the generation ahead of me. When those folks stopped working full time, they slowed down a bit, spent weekends watching their grandchildren's activities, and had plenty of time for a little fun of their own. They had few financial worries; perhaps their biggest concern was their health, and even that wasn't an issue until they got really old.

How do you know when you are really old? I don't know; you would have to ask someone much older than I am.

For the generation ahead of me, "retiring comfortably" meant you had accumulated enough wealth and/or had a pension large enough to not worry about money. Retirement meant your money was working for you. These folks had no debt and enough money coming in to pay the bills. For the first six years of my retirement, life was exactly like that for me too, and it was fun.

Of course, not everyone in my parents' generation had it quite this good. Folks who were a little less fortunate might still retire, but their retirement was more about basic survival. They had enough money for food, clothing, and shelter, but not enough to take a cruise or foot the entire cost of taking the children and grandchildren to Disneyland.

These folks lived within their means, much like my grandparents did on the farm. Grandma and Grandpa grew their own food and had a huge cellar with enough canned food to feed an army. Instead of looking after their finances – of which they had little – they looked after their garden and managed what little money that had wisely. While their golden years were simple, they were happy and managed to survive independently.

The Wisdom of Retired Old Men Eating Out

During a recent breakfast with my ROMEO (Retired Old Men Eating Out) buddies in Illinois, a friend shared his concerns about the shaky stock market. Is it experiencing a real boom, or is it just a house of cards? Apparently he was not alone in his concerns, because Chuck Butler mentioned the same issue in a recent Daily Pfennig:

"I talked to a stock analyst the other day, and the first thing she mentioned to me was that she didn't understand why investors didn't see that the stock market rally was nothing more than an asset bubble created by stimulus. I told her to get ready to deal with this for a long time. The Fed is in a rut and so is the economy, unable to get out unless the stimulus is applied. This should keep the economy going with a pulse, and interest rates low, so housing continues to improve and stocks reach price levels that are not supported by earnings."

I could have easily answered that question for her. Sure, investors know it's an asset bubble, and when it bursts, it will be terrible. Retirees just hope to be out of the market when that happens. In the meantime, we need income to survive, and there's nowhere else to find it.

A decade ago we could have invested the vast majority of our life savings in safe, fixed-income investments. Today, fixed-income investments that pay anything near what we need no longer exist. For our money to really work for us, we have to live off the income and never touch the principal. The consensus among my ROMEO buddies was: What other choice do we have today but to invest in dividend-paying stocks? (Here’s a plan using some of my favorites for monthly income.)

Retired folks now have two choices:

  1. Invest in the stock market with full knowledge that it is risky and propped up by the Federal Reserve.
  2. Invest in fixed-income investments that do not even beat inflation, which means we eat away at our principal and worry about outliving our money.

Investing a large portion of our portfolio in the market is just the lesser of two evils. And of course, it still comes with plenty of caveats about investing wisely and diversifying across sectors and risk levels. On top of that, you still have to find yields that keep up with inflation and provide income.

If we can't meet this huge challenge, our dreams will suffer, and we may even find ourselves in survival mode. The last thing we want is to be dependent on the government or our children for our next meal.

There are a variety of approaches for getting the job done. One of my wealthier ROMEO buddies has an independent, professional money manager with whom he's worked for years. While he is pleased with the results, he still oversees the process and is constantly on top of it.

Another member has fired five financial advisors over the years. His primary complaint was that they didn't listen and invested in ways too risky for his personal comfort, no matter how hard he tried to explain his concerns.

He shared an example from late 2008 when the financial crisis got into full swing. While our CDs got called in, he had several good-quality, high interest-rate bonds that were non-callable. One prospective money manager wanted to sell them off immediately. Many of those bonds, however, have now matured after paying a nice yield up to maturity, and the others have appreciated handsomely. He would be kicking himself now if he had listened to that money manager.

Nevertheless, now that interest rates are so low, he is afraid the gains from his immature bonds will quickly disappear if they begin to rise. Does he sell his high-yielding bonds now at a profit, or ride them out to maturity? In the meantime, now he must invest his recently redeemed cash in a shaky stock market along with the rest of us.

Regardless of the size of our portfolios, we are all experiencing some market anxiety and need to actively monitor our money. The consequences of ignoring our nest eggs are too great to bury our heads in the sand.

In 2007, our ROMEO breakfast talks were all about sports. But today, even though baseball is in full swing, fans are still on a high from the Blackhawks winning the Stanley Cup, and the NFL will soon start pre-season games, the only sentence I've heard about sports is: "At least when we want some relief from trying to figure this stuff out, we’ll be able to watch the Bears." We all have bigger fish to fry.

Not Our Fathers' Game

The investment lessons we learned from our fathers were nice, but most just don't apply today. Folks point to technology as a marker of how quickly things change. The same holds true for retirement.

"Set it and forget it" investments don't exist anymore, and we sure can't abdicate responsibility for our life savings to a financial advisor. But managing our own money means educating ourselves on topics we may have ignored before. What is a balanced portfolio, and how can it help mitigate risk? How can we earn income while keeping our nest egg relatively safe?

For those of us who don't want to go it completely alone, we also need to know how to work with a broker or financial advisor. Having to fire your advisor is difficult and often costly, particularly if he lost some of your money. Learning to manage your advisor or broker should be on the top of your list, if you're going to work with one. It's not only a matter of trust, it's simply the prudent thing to do if you want your money to last.

Entertainment vs. Education

Many older baby boomers and retirees like to read the financial section of the newspaper and watch market pundits on television. That's fine as long as we see it for what it is – pure entertainment. We have all heard horror stories about folks who mistook a blurb on a hot stock for true, in-depth research. Some of those so-called money shows should come with a disclaimer on the bottom of the screen: "Don't try this at home." Following the risky advice they spew can be downright dangerous.

The good news is there are trustworthy sources of real financial information that can help us manage our life savings, but they are not found in a 30-second sound bite, nor a column limited to 300 words. Every retiree needs his own information arsenal: newsletters, periodicals, websites, and trusted advisors. Combined with our life experiences, this arsenal can keep our nest egg safe and our golden years, well… golden.

Retirees who understand they have a job to do – looking after their life savings – and approach it with diligence and a commitment to learn generally fare pretty well. Those who don't, however, risk spending much of their lives on the dole. That doesn't sound like much of a choice to me.

----

One of the reasons we started Money Forever was to provide retirees and those planning their retirement with solid advice free of any conflicts of interest sometimes found with many financial advisors. When my retirement finances were put at risk by the financial crash, I put every bit of my time into working with the leading investment minds in the country – experts who had no other agenda than to help me.

With the help of these experts, we developed an entirely new strategy, one that actually has me better off today than I was before the crash: and one that’s being used by thousands of Money Forever readers right now. Part of our strategy is to create a monthly income stream from conservative investments. We've recently put together a short presentation explaining how the plan works – how you can receive income every month, and even when you should expect that income. Click here for more.

Even if you decide not to give Money Forever a try, I urge you to find reputable investment newsletters with editors you feel you can trust. Most have full refund periods and you’ll generally know within the first couple of issues whether the editor, his strategy, and his newsletter are right for you. Bottom line is, don’t go it alone.

© 2013 Copyright Casey Research - All Rights Reserved

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.

Casey Research Archive

© 2005-2019 http://www.MarketOracle.co.uk - 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