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How to Get Rich Investing in Stocks by Riding the Electron Wave

Why this Economic Statistic Scares Me to Death for the Stock Market

Stock-Markets / Stock Markets 2013 Jun 12, 2013 - 06:34 PM GMT

By: Money_Morning

Stock-Markets

William Patalon writes: A year ago at this time, a U.S. Federal Reserve study found that the median net worth of the American family fell by almost 40% between 2007 and 2010, wiping out 18 years of economic progress and cutting middle-class wealth back to levels not seen since the early 1990s.

A year later, a new study has found that - despite the continuation of the strongest-bull-market rebound in history - America's finances haven't improved.


The Retirement DerailersSM survey found that a staggering 90% of American investors (aged 50 to 70, and with $100,000 or more in investment assets) have been blitzed by at least one "derailer" - an unexpected event that has put a hefty dent in their retirement savings goals.

And when you drill down into the numbers, the story gets a lot worse.

Respondents, on average, experienced four of these "derailers" - which range from beyond-their-control events like the financial crisis/recession to poor family and lifestyle choices that have lasting consequences.

These derailers set investors back an average of $117,000. But nearly two in five respondents experienced five or more unanticipated events that cost them nearly $150,000.

I have to be honest with you: That last number scares the hell out of me. When you're 50, 60 or 70 years old, a $150,000 hit is one that most folks never recover from.

And I'm not being overly dramatic when I say this; in May 2012, I shared the story of "Big Al" Clifton, the father of a boyhood friend of mine ... and a man I respected very much. Big Al got screwed by an unscrupulous broker, lost a huge chunk of his retirement - and dropped dead not long after.

Fortunately, there's an easy way to avoid Big Al's plight - if not his fate.

"Expecting the unexpected is clearly more important than ever in preparing for retirement," said Suzanna de Baca, vice president of wealth strategies at Ameriprise Financial, which conducted the "derailers" study. "We know the recession had a huge impact on American pre-retirees and retirees, but families are realizing that other unexpected events like supporting a grown child or grandchild can also hit the bottom line - both immediately and long-term. The good news is that these unanticipated events don't always have to be retirement derailers - they can be addressed with a plan in place."

A plan in place... as mundane as that sounds, de Baca's comment is probably shrewdest piece of advice to come from outside our circle of experts in one heck of a long time. And both studies - the one from the Fed and this newest one from Ameriprise - underscores just now important it is for you to take control of your own financial destiny

As the old adage tells us: "If you fail to plan ... you plan to fail."

The timing for updating an existing plan or creating a new one couldn't be better. June marks the end of the year's first half; July 1 is the beginning of the second half of 2013. That makes this a perfect time to assess your finances, your objectives and your plan for achieving those goals.

Indeed, it gives you two weeks to assess your finances and get your new/updated plan in place.

Here are some tips that will help you make that assessment.

Polish Your Plan: The afore-mentioned aphorism ("If you fail to plan, you plan to fail") holds true in a lot of situations - but nowhere is that more true than with your investments. The year's mid-point is a perfect time to update your investment plan. If you don't have one, start one. This plan should reflect your long-term financial goals, your risk tolerance, your current assets and liabilities, and any special considerations that will affect this plan. In short: Specifically what is it that you're trying to achieve in life? Don't ignore your dreams - as unlikely as they might seem right now. By being honest about all that you hope to achieve, you're a lot more likely to actually achieve your goals and even turn those dreams into reality. One of our goals here at Money Morning is to do all we can to help you achieve your goals.

Review Your Holdings: Once you've adjusted your plan (or created a new one), take a look at your investment holdings. Does everything still fit and contribute to that objective? Once you've made that determination, take a look at the individual holdings from a performance/potential standpoint. Is the reason you purchased each security still valid? How is each holding performing? If the stock, bond or ETF you're holding is lagging in performance, or is even showing a loss, is there still enough upside potential to warrant keeping that particular security? If a security is showing a big loss, or now lacks the upside promise it once had, don't be afraid to prune it. There may be a tax benefit for doing so. And you don't want a big loss to turn into an even bigger loss. That's how "derailers" are born.

"Get Real" About Risk: A number of Private Briefing subscribers have written in and conceded that they rode one or more of our recommendations to big - even massive - gains ... only to give those gains back when the market corrected this spring. Indeed, some even had gains of nearly 50% turn into losses. This underscores the reason that risk-management is a crucial element of any winning investment strategy. A number of other subscribers proudly recounted how they used some of our "Buy" recommendations and our advice to use "trailing stops" to lock in high-double-digit gains on such stocks as NQ Mobile Inc. (NYSE ADR: NQ). Trailing stops - which we most recently detailed in a May 20 report - are just one of the risk-management techniques we advocate.

Leave No Stone Unturned: In a market as uncertain as this one (we haven't had a meaningful correction in some time), you need to operate like a top-tier company - maximizing your income and minimizing your costs. Focus on income by making sure to add high-yielding stocks to your holdings, and consider using "covered calls" to maximize that income further.

Keep Your Eye on the Prize: A once-widely used investing adage counseled individual investors to "pay yourself first," meaning you should be sure to put something away from your paycheck or windfall income - before paying your bills or taking care of any other liabilities you may have. That's awesome advice. Even better, "automate" this process: There are lots of mutual funds or investments that allow you to have money electronically transferred from your paycheck or your bank account. It's money you never see, so it's money you don't miss. If your employer offers a 401(k), be sure to take advantage of it. Maxing out your contribution is obviously the best thing to do, but at least be sure to take advantage of the company "match" if one is offered. I'm stunned by how many young investors just don't get this. One twenty-something I knew worked at a company that matched the first 6% contributed at a rate of 50 cents on the dollar. In other words, by putting away 6% of his pay, this person could expect a guaranteed, 50% return on his investment. In finance, they say, there is "no free lunch." Maybe not, but a 50% return in a zero-interest-rate environment is one heck of a blue-plate special. And that doesn't include the tax benefits that accompany such an investment.

A well-defined, nicely muscled - and freshly updated - plan like this will keep you on a winning streak if the market rally continues. And it will blunt your losses should U.S. stocks get untracked in the second six months of the year. Even if you were to get stung by a correction, this plan will keep you on schedule - and you'll watch with relief as other investors who didn't have a plan receive maximum pain.

And your plans won't be "derailed" - which is the most important thing of all.

Of course, if you would like to join the thousands of investors Private Briefing has already helped to make big money in the markets, you can do so for just 26 cents a day.

In just 18 months, Private Briefing recommendations have generated two triples, three doubles and nearly 70 winners. To get access to our best ideas right now click here.

Source :http://moneymorning.com/2013/06/12/this-single-statistic-scares-me-to-death/

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Disclaimer: Nothing published by Money Morning should be considered personalized investment advice. Although our employees may answer your general customer service questions, they are not licensed under securities laws to address your particular investment situation. No communication by our employees to you should be deemed as personalized investent advice. We expressly forbid our writers from having a financial interest in any security recommended to our readers. All of our employees and agents must wait 24 hours after on-line publication, or after the mailing of printed-only publication prior to following an initial recommendation. Any investments recommended by Money Morning should be made only after consulting with your investment advisor and only after reviewing the prospectus or financial statements of the company.

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