Think Long Term

You gotta be in it - to win it...

It's been two months since my last blog to you. I hope you had a nice summer and are getting back to normal with your schedules as we enter the last quarter of 2007.

The stock market did not fare too well this past week. Friday marked the 20th anniversary of that fateful day in 1987 when all hell broke loose, chopping 508 points or 22% off the popular Dow Jones Industrial Average in one day. I remember it quite clearly. My father and I were managing pension fund money then, and I had taken my fiancee out to lunch that day (we married 5 months later). I called in and asked if the market had pulled up from the morning retreat. He paused and said I had better come back quick. The market had fallen 109 points the prior Friday and was off over 200 at that point. I still have my ring-binder with yellowing pages of hand-written orders I placed then. We were net buyers of shares after that crash, adding to stocks we already owned. That was about it: stock prices stablized, the S&P 500 was actually up 5% overall in 1987, and stock prices doubled in the next four years before a slowdown (still gains) in the early 90's.

Friday's fall, almost 400 points, was nasty in its own right, but bore little resemblance to 1987. It amounted to just a 2.6% loss. But, just 20 stocks rose in price in the S&P 500 Index of 500 stocks. All this history is past news, and what the newspapers and on-line media-reporteres will fill the pages with this weekend. Rarely do you read about market history longer term, where we all should be thinking anyway.

My main point is: Don't let the media and talking heads scare you into foolish decision-making with your money. Unless you are retiring tomorrow, buying a boat and sailing away, you should have participation in the stock and bond markets to 'be in the game' and help assure your retirement and savings 5,10,15 or more years from now. I've harped on this before - with history on my side - get yourself a good manager who knows how to control the risks with your money - who can read a chart, be independent, and who has learned from their mistakes.

For instance, with a 10-year time horizon, a 70% stock, 30% bond portfolio has a performance range of +2% to +17% during the last 79 years. I figure that +2% to +5% is needed to keep up with inflation, so anything above 5% can build real wealth over time. And the trick is to stay in the game, as you don't know when the super-charged periods will occur. Since stock prices rise in 3 of 4 years anyway, the odds are good for gains during the next 10 years.

October 9th marked the five year anniversary of the 2002 market low of Dow 7,300, so in effect, stock prices almost doubled (+95%) in 5 years. Who knows what will happen in the next 5 years? Perhaps a regression to 7-8% gains per year? A change in the leadership in Washington in 2008 could be both good and bad for various markets and businesses also.

Stay tuned! There's rarely a boring day in this business.

Thanks for reading !

~Barry Unterbrink
Retirement Planning Counselor

Know the Odds

Learning the Odds

Understanding the odds of events in life is important. It can lead to better choices with our money decisions. We should encourage this topic's study among friends and our children.

The gambling houses know the odds of you winning and handily "adjust" the rules so that they are favored to win over time. Warranty plans and product mail in rebates are based on the odds that you will act in a certain way, or a product's reliability will keep repairs down. Life insurance companies gauge how many people will die per year. Same with games of chance like the state lotteries. They design and advertise the games to draw in the most money, then offer you much less than what is advertised if you opt for the lump sum payment. In their defense, it wouldn't make sense to pay out all the money...they operate as a state-run business more or less to fund their budgets, education, etc. I guess I feel a little better knowing this when I lose. I get a kick out of the names they've created: Fantasy Five, Mega-millions, Megabucks, etc.

Some examples: Tonight is a big night for the nation's lotteries: $350 million is up for grabs, ranging from $6 million in Ohio to the huge $181 million Multi-state Powerball game across 27 states. Surprisingly, the smaller Florida Lotto at $25 million, is a worse bet than the Powerball, because the latter has grown so huge that it will pay over 7 times more money for only 5-1/2 times less odds to win. Of course, if multiple winners are announced, then the odds change again and could favor the Florida Lotto game.

Knowing which option to take when you retire can relate to odds-making. Do you roll over the lump sum, or accept the annuity payments for life? Is your health good, fair or poor? Did your brothers, sisters and parents live long, or have challenges with their health and longevity that could affect you - and your money decisions now?

The stock market is sometimes referred to as a lottery, mostly by those investors that have not fared well investing in stocks. Over time, the stock market can be expected to provide about a 10% gain each year. So...do you index your portfolio, accepting the standard 10% return, or do you take some risk to do better? I can help you decide if I know what "type" of investor you are (or want to be) and how you handle risk when it shows up. I can give you options and a historical perspective. I might talk you into, or out of something after we talk things over.

I hope this short piece on odds will get you to thinking about your decisions, especially ones of a financial nature.

Stay cool in these 'dog days of August'.

Barry Unterbrink

Living Large and Long

The longevity of humans on this earth is increasing year by year, and this will have profound effects on how we live, work, save and invest. This is especially important if you are a younger person now, as future advances in health and medicine will affect you more. Consider where we have been...

In 1,000 AD, life expectancy was about 25 years. Four hundred years later, it had jumped to 35, not bad. By the year 1800, one could expect about a 40-year life span. These figures seemed too low I thought. However, remember, very few lived to very old ages, and many died as infants or young from illnesses we now have cures for or medicines to mitigate the effects. Plagues and wars took their toll as well. The fastest advance in longevity took place the last 200 years, where life expectancy about doubled, from 40 to 76. This will no doubt lead to more challenges for us. I'll address two: the Social Security mess and the baby boomer generation, along with my job as a financial planner.

Social Security: Ida Mae Fuller, the first social security recipient in 1940, collected about $23,000 in benefits for her $25 in taxes paid into the system. Wow, that was a good deal. She did live to age 100 however. Our checks might not last that long due to a shrinking pool of workers to support the future beneficiaries. The politicians keep monkeying around with the rules with no real progress for a long-term fix. The Government will control the retirement age, qualifications, taxation, or they could just renege on the inherent promise of what social security was supposed to deliver. Given: the full retirement age will lengthen into the 70's.

Retirement Planning: 78 million U.S. births were recorded between 1946 and 1964. I’m a middle baby boomer. Are you? Boomer or not, are we prepared for the future? It will take an astute savings and investing plan to stay financially healthy into our 80's and 90's. That’s my job – understanding needs and advising clients on the latest trends and solutions to retirement planning using the financial markets and products designed for savings and income.

The fastest segment the next 15 years will be the 85+ group, but the 55-64 age group is right behind them with a 70% growth rate. What does all this mean to us? Well, if you are in good health and come from a robust "gene pool" you may spend more time in retirement than your working life. A 25-30 year career may be followed by a retirement from age 55 to age 95. A retired couple today aged 65 can expect one spouse to live to age 87! I can envision that in my children’s lifetime, they may need to work from age 30 to age 70, then retire and live 40 years in retirement (or semi-retirement). I think I’ll go exercise now to increase my own life span.
Barry Unterbrink, 954-719-1151