The 7% Solution (revisited)

The 7% bet ... is it prudent now?

This blog post was originally posted in September, 2008 near Dow 11,150; it's now updated through 2009. The market has fought back hard since the low's one year ago. If you've invested in stocks, you should be ahead nicely year over year. But what now? Perhaps employing a "safe money" strategy is prudent now with a portion of your money. Read on.

Investing has always been a trade-off. Making choices with your money involves weighing the potential risk and rewards to determine the best course of action to achieve your desired goal. So, in a way, investing is akin to odds-making. In America, wagering is never a sure thing, but you can weigh the odds by using past data. This is fairly easy to determine in the stock market since reliable statistics and performance are readily available for past sessions going back at least to before the Great Depression, or about 1925.

I thought it timely to undertake this market study now, as the stock market has fallen about 20% since its high last October (2007). I'm using this 7% figure to compare stock price performance vs. a hypothetical 7% rate of return, what's available in a fixed index annuity. The answer sought: is it generally better to accept the market risk of stocks (gaining above in any one year/decade, and also losing money), or to bet with the a less risky maximum 7% annual return with no risk of loss when the stock market is down for any year. To get started, I took the annual Standard & Poor’s 500 Index* and compared this with a fixed index annuity that would credit you interest annually based on the performance of the S&P 500 Index with a cap of 7%. The cap is the maximum you could earn in any year. The floor is zero in the down years. You would never lose money in a down year with your principal. Dividends were not considered for ease of calculations. Eight decades of data were used, starting in 1930, and ending in 2009. This covered all of my available data, and represented co-incidentally about the lifetime of an investor, 80 years.

The data presents itself as follows:
1930’s Stock market lost 41%, the 7% strategy gained 31%
1940’s Stock market gained 34%, the 7% strategy gained 40%
1950’s Stock market gained 257%, the 7% strategy gained 65%
1960’s Stock market gained 53%, the 7% strategy gained 50%
1970’s Stock market gained 17%, the 7% strategy gained 49%
1980’s Stock market gained 227%, the 7% strategy gained 66%
1990’s Stock market gained 315%, the 7% strategy gained 68%
2000’s Stock market lost 24%, the 7% strategy gained 40%

Well, the tally is pretty easy to figure visually: being a long term investor in the stock market paid off more than the 7% annuity plan, but you needed a strong stomach to stay in during all the bad markets periods (25 years were down years). Using the 7% maximum gain in any one year, and all down years counted as zeros, you would have beaten the buy and hold market one-half the time by decade, ‘30’s, ‘40’s, ‘70’s, and ‘00’s. The other 4 decades your stock portfolio would have bested the 7% strategy. Note also that all decades were winners for the stock market, except the '30's and '00's just completed. But - the 7% plan beat the market in the '40's and '70's due to truly bad years that reduced the average gains over the 10 year decade.

Taken all together, you earned about 2X more by following the market as a buy and hold investor. You may say, "that’s all history now, what do I do today?" My reply; if you are 10-15 years to retirement, keep ¾ of your money in the market, and ¼ in the 7% plan. If you are older and closer to retirement, keep less with Mr. Market, and more in the safer 7% plan. With the recent stock and credit market turmoil, you should look at your money allocations to determine your risks as you inch closer to retirement.

If you can't eat or sleep well, you probably need to consider changes. Call me and I can help you with that.

Barry Unterbrink, C.R.P.C.
(954) 719-1151
* source Ibbotson & Associates SBBI yearbook

Options for Your Investing Benefit, part 2

The last blog post we discussed using exchange traded options to reduce your investment costs. View the last post for the skinny on that. Specifically, we sold Bank of America January 20 call options, receiving $1,200 for our efforts, reducing our cost from $16 to $14.80. This post, I will switch and explain the role of 'Put" options to complement your stock investing.

Put options allow the owner of the options to sell shares of stock at a preset price. We will follow the prior example using Bank of America (BAC) stock. Today, BAC is at about $15.15 a share. A buyer of the shares in recent weeks may have lead to some sleepless nights; the share price is very volatile - touching $19 about three weeks ago. Our assumption, like before is that you are bullish longer term on the prospects for BAC. But...you wish to protect your position against uncertainly and a potential loss should the stock fall to $14-$13-$12 or below.

Stated above, owning put options will protect you from big losses. While we were happier campers at $17, we'll play and await our price target of $20 next year. The put options would allow you to sell your 1,000 shares of BAC at the strike price, $15, $14, etc. up through the options expiration, January 15th, 2010. The price you will pay for the option depends on the protection you seek. Today the $15 put option would cost you $1.30 ($1,300 to cover 1,000 shares). The $14 option cost is $900. The option you buy will provide a floor at which you cannot lose money beyond- $14 or $15 in this example. Notice that in this transaction you are the buyer of the option; you were the seller of the call options when you originally bought your shares at $16. So now you pay the $900 to buy protection. You took in $1,200 when you sold, and now pay $900; so you are about $300 ahead in option income. Let's look at numbers again... it's critical to understand this.

You bought 1,000 BAC at $16.00 = $16,000
You Sold 10 Jan. 20 Calls at $1.20 (collect $1,200)
Your cost of 1,000 BAC shares = $14,800
You Buy 10 Jan 14 Puts @ $0.90 (pay $900)
Your adjusted cost of your 1,000 BAC shares is now $15,700

This changes your profit picture a bit from last time, since BAC was $17.00 then. How? Your cost of the shares, at $15.70 per share is above the current price of $15.15. However, with stock options, you can always adjust your strategy on the fly. Follow me. You now have 20 options outstanding in your account. First, you sold someone the right to buy your shares at $20 (the January calls), and now you bought Jan. $14 Puts enabling you to sell your shares at $14 anytime until the Jan. 15 expiration date. You are protected on both ends now; you can bail out at $14 if things get really ugly, limiting your loss to $1.70 per share ($15.70-$14.00), or you can hope the shares rise back toward $20 and sell them along the way. If they rise above $20, the owner of the call options you sold will buy them from you at $20.

There's one more component to think of here. The 10 call options you sold for $1,200; they're worth just $170 now because BAC fell in price and the likelihood that it will rise to $20 in the next 10 weeks is less likely. You could close out this obligation by buying these options back for $170. Then, you could sell other call options and collect some more income - perhaps the Feb. or May 2010 series.

Takeaway on this: Options can enhance your income and protect your stock profits, but do limit your profits (the trade off) on the upside. They do require some extra work and babysitting of your portfolio also.

A slogan on stock market and investing emotions comes to mind: "Bulls make money, Bears lose money, and Pigs get slaughtered". Perhaps an options strategy will allow you to manage your stock risks better, and avoid the pig pen!

Barry Unterbrink
Chartered Retirement Planning Counselor

Options for Your Investing Benefit

Using Options to Enhance Your Portfolio

Understanding exchange-traded options can increase your financial returns and reduce risk in your investment portfolio. Stock options are an excellent way to help you achieve your money goals, both before and in retirement. Today we will look at using stock options to enhance your stock market profits, so get a sharp pencil and pad and follow along.

You probably already understand the basic option concept. If you were selling your car, and the buyer really wanted the car, but needed some time to raise the money, you may recommend an option. For a $50 payment from the buyer, you could grant the buyer 48 hours to raise the money to buy your car for $2,000. You are obligated to not sell the car to anyone else before that time. You are the seller of the option. The buyer of the option has the RIGHT, but not the obligation, to BUY your car for $2,000 in the next 2 days, or he may walk away from the deal, thus losing his $50. This arrangement places some risk on both parties - the buyer will lose $50 if he does not buy your car, but he has 'bought' himself some time with his option, to buy the car at a pre-set price. The seller gets to keep the option "premium" of $50, but is prevented from selling the car to anyone else for two days (another buyer may offer $2,400 and he has to reject that offer, and all others during the two day time period). Okay, let's discuss how options work when buying and selling stocks.

Basically, stock options work in a similar way, and your involvement with buyers and sellers is handled seamlessly by the options exchange. The options exchanges settle all the money and stock amounts for you through your brokerage or investment account. With options, your goals will dictate which type of strategy you should employ. In its simplified form for this discussion here, the two types of options are CALLS or PUTS. A call is a right by the owner to BUY a stock at a preset price within a certain time frame; a put is an option by the owner to sell at a certain price and time. Let's run through an example using recent real world prices for a CALL option strategy. You buy 1,000 shares of Bank of America stock for $16.00 last month. You are favorable on the company, hoping that they continue to execute their strategy and climb out of this banking mess. You envision perhaps $20 as a target price early next year. At $17.00 a share now, you are willing to sell your shares at $20 in January, 2010. You could wait for the $20 price and realize a $4 per share gain. Alternatively, you could SELL a January $20 call option on the options exchange, giving someone the RIGHT to buy your shares at $20. Remember, above I told you the "owner" of a call option can buy at the $20 price, this term is the option exercise price. Since you are the seller, you must deliver 1,000 shares to the buyer any time up 'till the option expiration date. Your sale of the options as a "seller" results in a CREDIT of $120 per option contract ($1,200 credit for 10 contracts, since each option contract covers 100 shares of stock). Now consider you ledger worksheet after your 10 options have been sold ...
1,000 shares of Bank of America stock bought at $16.00 per share = $16,000
> Sold 10 January $20 call options at $120 <1,200>
> Adjusted cost for your 1,000 shares of stock $14,800

Follow me here: If the shares of Bank of America are higher than $20 by the expiration date of the call options on January 15th), the buyer or owner of your call option that you sold will
exercise that option to buy your 1,000 shares at $20. Why? Because he can then immediately sell them for more in the market. By selling the option right, you have capped the amount of gain you can realize on your stock during the 4 month period. That's the trade-off you've agreed to. If BAC is $20 or below, then the option buyer will just walk away and the option will expire
worthless. Zero. He's lost $1,200. You keep his $1,200 either way.

So why do this? It takes two to tango in options, buyer and seller. By lowering your cost from $16.00 to $14.80 by selling the options, you have added some additional profit into your ownership of BAC shares - about 7% more in 4 months. You get to keep your 1,000 shares if they are under $20, and can then sell them or employ another strategy. Suppose BAC shares do not move above $20 for the next 6 months after Jan,15-2010? ... you could keep the shares and sell the $20 Call options expiring in April and July 2010.

You should now see that the options premiums that you collect of $1,200 every 4 months can also act as an additional income you can invest or spend. If you are an investor, and have never been taught this subject, then you need to call me to explain how this strategy may fit into your overall investing goals. I have elder clients over 70 who employ this strategy using blue chip stocks; hundreds of stocks have options traded on them.

Many variations exist with options. Remember PUT options mentioned above? They can help protect your portfolio from losses and protect a profit you've earned. That topic will be addressed in my next blog post, so stay tuned.

~Barry Unterbrink

Retirement - Will I Run Out of Money?

Will I run out of money in Retirement?

Most likely, our greatest fear as we are nearing or in retirement can be stated in 8 simple words; "Will I run out of money in retirement?" I can see the wrinkled nose and sweaty palms start to kick in as the stress levels rise after someone asks that question. Moreover, it's not an easy quantifiable answer. It's better addressed as "it depends" since it is dependant on various moving parts such as interest rates, inflation, withdrawals, etc. that muddies the income and savings waters.

As a Retirement Counselor, I have to sit back, take a deep breath, and then start to outline the events and circumstances that "could" result in a shortfall of money during your retirement. In this blog post, I will explain a few of these, along with some 'traps' and 'potholes' to look out for on the road to (and in) retirement.

First off, "running out of money in retirement" needs a proper definition. Do you mean running your investments and savings plans to zero? Or do you mean running out of INCOME that those investments can produce? Or is the better question still, "will my current lifestyle be reduced in future years by my choice of investments today", or "how can my current plan to live in retirement be re-worked so I increase my odds of not running our of money" You have to be specific with your question to allow your advisor to give you a more specific answer based on the economic assumptions and historical outcomes.

Once your question is framed in an succinct manner, next you must consider what you are comfortable doing. What is your experience, temperament and willing risk level? Follow me here. If you're a saver and like bonds and CD's, and think stocks are risky, then say that. If your retirement plan owned mutual funds and they worked out, then you can stomach some risk of owning stock-based investments . Where I find most investors get side-tracked is when they do things that are really against their nature or experience, and they allow emotions to color their thinking, often to their detriment. Also, they don't think things through money-wise or they think too much and change their strategy so often that no undertaking has a chance at success. Let's look at some numbers and options that could help you with your retirement planning.

Consider a retirement portfolio (IRA, brokerage account, etc.) that contains $50,000 in bonds and $50,000 in stocks. The stocks are high quality and pay dividends equal to 2% per year. The bond portion pays 5% in interest income. So that's $1,000 from stock dividends plus $2,500 in bond dividends totalling $3,500 income per year. Not bad; that's close to $300/month in income. If the bonds and stocks continue to pay, then it's fairly safe that your income will stay level, or even rise over time as the stock companies increase their dividends if business does well.

Appreciation vs. Income: Where investors go awry is when they confuse 'appreciation' with 'income'. Appreciation is the rise in value of a stock, bond or mutual fund. Income is the earning of dividends or interest from a stock or bond or mutual fund. From my example, what could happen to de-rail your efforts and lead you to running out of money prematurely? Answer: Spending more than you earn.

Suppose your stocks go up in value 25%, to $62,500, and the bonds stay at $50,000. Now you have $112,500 total, right? You may think - OK, now I'll take $1,000 more from my account each year since I've made some money in my stocks - you now take $4,500, or
$375 a month. Whoa there big spender! Where are you getting the extra $1,000? You have to sell some stock(s) or bond(s) to get it ... you are now spending your principal, since your dividends and interest are still $3,500 per year. Spending beyond what your portfolio
earns is spending your principal. For every $1,000 in stock you sell, you are reducing your future income by $20/year (2% of $1,000, and $50/yr. for every $1,000 in bonds sold). It's emotionally warm to think that way in a bull market, but how 'bout when the 25%+ bear
market hits, (we just had one) and your account is now down to $87,500 ($50,000 bonds + $37,500 stocks). De-rail your retirement pothole #1: you will never run out of principal if you don't spend any. Rule: 1a: If you decide to spend principal in the good times, be
prepared to stop spending principal in the bad times. Remember: income from dividends and interest is fairly stable. Appreciation from stocks and bonds is not stable, and cannot be relied upon year to year. Better idea: when stocks rise, move some of that appreciation (gain) to the bonds; now you will earn more income - 5% from the bonds vs. 2% from the stocks.

Taxes and Inflation: The second area of real imporance ignored by most investors, the media and and to some extent by the investment companies, is the effects of inflation and taxes on your retirement money. It's what you keep that counts. We all hate taxes and the darn tax code is changed so often by Congress that hardly anyone can keep up with it. Inflation is a bit easier to figure out. To keep the example easy, say you are earning 5% on your combined stock
and bond portfolio. Taking 15% in taxes away, you now earn 4.25%. Now subtract 3% inflation, and you're left with 1.25% - not much of a gain now, is it? De-rail your retirement pothole #2: be aware of the inflation and tax hits that will occur when you design your retirement income plan.

Maximum withdrawal rates. Multiple studies on this topic have been penned in the last 25 years, and the consensus is a 4% to 4.5% rate of withdrawal would prevent running out of money during a 30 year retirement time frame using 50% stocks/50% bonds. This plan does not consider principal vs. income like above. You take your starting account value and withdraw 4 -4.50% year after year. Another plan I have seen put forth is to withdraw your portfolio's total return (appreciation + income) after subtracting the inflation rate. For instance, your portfolio gains 10% for the year (8% appreciation + 2% income); you can withdraw 7% that year. Why? Because if you earn 10% and inflation is 3%, then you are leaving that 3% gain in the portfolio to offset inflation in the portfolio that you will need next year. That would take some mental math on your part, because you would adjust your income each year depending on your portfolio value and the cost of living (inflation) from the prior year. Where this plan could backfire is when your portfolio loses money, such as last year, so that no withdrawals would be taken. Can you put your retirement income on hold and await better times-probably not. De-rail your retirement pothole #3: Be flexible; work out more than one plan for your retirement income, using more than one portfolio or investment.

Finally, remember - I've used one example of a 50%-50% portfolio mix today. You may own other investments that guarantee your income, such as a pension, social security or an income annuity. The safer the guarantee, the more choices you will generally have with your remaining investments.

Bonus questions & FREE Retirement Calculator. If you earn 5% each year on your portfolio, and withdraw 7% of your principal each year, plus a 4% increase each year to offset
inflation, in what year will your account reach zero? Answer: 15 years.
Reply to this blog by clicking on the comment link below, or send me an e-mail to: barry@stetsonwealthmanagement.com and I'll send your paper retirement planning calculator by mail or pdf file.

I hope you've gleaned some useful information today.

Barry Unterbrink
Chartered Retirement Planning Counselor; Portfolio Manager
(954) 719-1151

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Barry Unterbrink, Chartered Retirement Planning Counselor

Recession End? What To Contemplate Next?

If the 2007-2009 time period were to somehow in the end encompass the economic collapse and surrounding recession, then what's the next actionable course of action to contemplate with your money? That, friends, is the $64,000 (no, let's up the ante and say $64 billion) question. As investor's, we have to look forward to what the future could delve out to us if we are to prove resilient and flexible to profit from the opportunities ahead (or avoid the roadblock or cliff just around the next turn). For many who don't do our homework or fail to assemble plausible outcomes based on past market behavior, there remains little doubt that costly mistakes will embed themselves in the outcomes. I've observed over the years the one-liner "this time it will be different" often precedes anything but ... that is, investor hope and greed extrapolate into the future the continuing of the current good times or bad times. The trouble with that reasoning is: by the time the good or bad times are evident, most of the damage has already been done. By then it's really in the last innings of the boom or bust cycle. There are exceptions, of course.


The current bull market rally in the stock market is a case in point. My last blog on the market's condition Does This Rally Have Legs? was penned in mid-March 10 days after the now-important and recognizable market low near Dow 6,600. The gains in the average stock prices since then has been very enticing and rewarding: Dow Industrials, up 1,685 points, or +27%, the S&P 500 Index, up 220 points, or +33%, and the Nasdaq Composite Index, up 423 points, or +33%. The current rally, which has taken off "like a scalded dog" the past 10 weeks, no doubt took many by surprise. This begs the question then, what do we do now?


If you owned stocks or stock mutual funds along the way up, your should continue to hold them based on your risk level and stage in life. The market's rally may poop put at some time, or roll over and decline substantially, so protecting your recent gains is important. If you're up 25%, I would not give back more than 7-10% of that should prices fall back again. Remember, cash and bonds should hold a place in your portfolio for what's not invested in stocks. Bonds, which had a decent 2008, have not performed well so far this year. The competing stock market, and the flood of the massive new stimulus money contributes to the rise in interest rates. The Government's ability to raise more money is at a higher cost, thus depressing bond prices. The 10 year Treasury bond's yield rose from 2.24% to 3.45% this year, while the 30-year variety moved up from 2.7% to 4.4%. That's a huge jump in rates in just 5 months!

Inflation should be watched carefully with every report. As it heats up in future months and years (which I believe it will), then your investment income will suffer. Consider: if your portfolio is growing at 8% and inflation is 4%, then you can afford just a four percent withdrawal rate to keep money protected from inflation-risk. During Jimmy Carter's reign, inflation averaged 8%, so you had to curtail your withdrawals for some time back then. Interest rates spiked up then, killing your bond portfolio value also. It would take a delicate balance and some luck then to hold onto your principal and generate a decent after-inflation income.

If you buy off on the scenario that I have outlined above, then consider using a guaranteed income annuity to fund part of your retirement income. Insurance companies guarantee your income in future years. Example, investing $100,000 today, a 51 year-old could receive $7,512/year for life when they are 56; wait until age 60 and the income jumps to $10,282/year. That's minimum income - it could be higher if the markets your account balance is tied to performs better. Ask me for a complete illustration on how this works.

Be sure to read the blog post before this one on Gold and Silver investing; it could be rewarding to you also. Be safe out there investing!

Barry Unterbrink
Chartered Retirement Planning Counselor

Collecting Gold, Silver and Coins

The collecting of coins, gold, silver and other precious metals can be fun and financially rewarding. These tangible items are often referred to as "hard assets" because they are heavier than most other commodities or collectibles. Someone once quipped, "if you drop an asset on your toes, and it hurts, then it's probably a hard asset and valuable". Try that with 50 ozs. of silver or a brick of gold - ouch!

The renewed interest in precious metals has been built upon their price rise during the past few years. In fact, there’s been a bull market in gold and silver for 5-6 years. Coincident with the lows of the last bear market for stocks in 2002, gold rose from under $300 to just over $1,000 per ounce. That run bested the gains seen by most of the traditional classes of financial assets – stocks, bonds, money markets. Silver, being the main industrial metal, rose almost four-fold, per ounce, equating to a larger percent gain than gold over the past 5 years.

Basically, there are a just a few ways to go about collecting or investing in this arena. You can buy the physical metal and store it hoping it will go up in value, or you can collect numismatic (fancy word for coin collecting) pieces that have either collector value and some gold or silver content value or both. I prefer coins since that is the way I got myself started as a teenager. Of course, back then wages were low for a teenager (as they are today), so I was limited to a few silver coins and some one ounce silver ingots; gold was out of my price range. My father signed up as a silver dealer with a mining company that was riding the wave of investor speculation as silver shot to over $50 per ounce in 1980, so that helped pique my interest also. When I learned to appreciate the smallish cache of coins I collected with my money, my parents later gifted me a bag of silver dollars. During the 1940’s and ‘50’s, Las Vegas slot machines accepted them when you gambled. My Grandpa was prescient, he had kept them all those years in his Ohio home and passed them on to my Father. It was fun to sort them and look catalog their value. They dated from the 1870’s to the 1920’s. I considered it a hobby and rarely sold or traded many coins. I understood the United States’ common series of cents, nickels, dimes and dollars, so that’s what I collected.

Gold and silver have not shown us a great track record to profits over longer periods of time, however. The price rises in recent years came after a long period of suffering – gold was $850 in 1980 when the Dow Jones stock index was under 1,000. So overall, you have lost big just holding physical gold or silver the past 25 years because inflation has stripped away your profits if you had any to tally. The metals seems to trade in fits and spurts, and often rise in time of investor panic in other areas of finance (recent mortgage and banking mess). Owning collectible coins, in my opinion, has yielded better and more predictable returns over long periods of time, even coins not containing gold or silver, such as early coppers cents.

This study following that I embarked upon should show you that coins can be fun and profitable if you have some patience. I took a list of a few USA coins that I now own or wish I owned, and computed their rate of return over the past 8-9 years. Surprisingly, a collector can assemble a complete set of most American coins going back almost 100 years in cents, nickels, dimes and quarters because most dates are very common in all but the better uncirculated grades. Few exceptions exist, so I will key on those few semi-precious key dates which are still somewhat affordable today that most collectors need to finish their collection. These are coins with low mintages that are the key dates in its collection. I used the pricing at Coinvaluesonline.com, a good and fair reference source. Shown are the date and mint of the coin, the price rise over 8-9 years, and lastly, the compounded price per year average gain, so you can measure the gains apples to apples. Coin grades used hovered around fine to extra fine condition.

1909-S Indian 1 cent, $435 to $950 in 9 years = +9%
1909-S VDB Lincoln 1 cent, $650 to $1,600 in 9 years = +10%
*1914-D Lincoln 1 cent, $425 to $1,100 in 9 years = +11%
1921-S Liberty 5 cent, $675 to $1,000 in 9 years = +4.5%
1916-D Liberty 10 cent, $1,250 to $3,000 in 9 yrs. = +10%
1932-D Washington 25 cent, $155 to $400 in 8 years = +12.5%
1884-CC Morgan $1, $55 to $235 in 9 yrs. = +17%
1889-CC Morgan $1, $440 to $2,000 in 9 yrs. = +18%

As you can see, the average price appreciation has registered around 10% or better for most of the selections. The past few years, there’s been a renewed interest in the Lincoln penny, and older Morgan Silver Dollars. Since mintages are fixed and known, once demand picks up, prices rise sometimes fast. The higher grades command king’s ransom’s of $5,000-$10,000. A rare 1804 silver dollar sold at auction this month for $2 million. Its pedigree dates back to 1950 when it traded for $3,250. That's +11.5% per year gain, also in line with the results above. My study is not entirely scientific, so I’m sure you could punch some holes in it using other coins and time frames. Coin prices move around with demand and investor interest. Also, remember, collectibles should usually not represent a large portion of your retirement assets unless you are an expert in that area. It’s difficult to hold coins and precious metals inside IRA’s for example unless they are US Mint authorized. Coins and precious metals don’t pay any dividends or interest like stocks or bonds. Lastly, as collectibles, coins, gold and even gold funds are taxed at a higher 28% capital gains rate vs. the 15% rate most stock investors enjoy. With all that aside, once you catch the collector bug, you’ll surely enjoy the process of collecting, and hopefully the financial rewards also. It’s a great hobby to pass along to your children someday, or to cash in and retire on.

If you’re the first to reply to this blog post, I’ll buy you an on-line subscription to Coin World. Get going!
* I’ve owned the 1914-D cent mentioned above for 35 years, and it’s appreciated at 7% per year, a 10 fold increase since 1974.

60 Minutes' 401k Recession broadcast analysis

Dear clients and friends:

Last Sunday's (4/19) broadcast of CBS's 60 minutes included a segment on the 401k plans that many americans have relied upon to help fund their retirement needs in later years. If you missed the broadcast, you can replay it on the network's web site at: http://www.cbsnews.com/stories/2009/04/17/60minutes/main4951968.shtml

I feel the journalistic message delivered was helpful, raising important questions that should alert you if you own a 401k or retirement plan. Coincident with the above, the tone by the participants and interviewers was very dour and pessimistic. CBS News Steve Kroft was the reporter, who chased down financial friend and foe that had interests in the 401k plans. The parties included investors, retirement plan designers, and politicians trying to help with some new legislation.

More than one investor's story was told about losing money in their retirement plans. Kathleen Coleman was the headliner interviewee at age 54. Her 401k plan balance declined from $88,000 to $50,000; "I don't deserve this" she says. Worker Alan Weir opened his 401k statement on-air; he lost half his money in a number of months and expects never to see it come back. Hold the story: Alan, open your statement when you get it, take some action! What are these workers thinking? They are all old enough to remember the dot-com meltdown, the subsequent 100% stock market gains from 2002-2007, and the great bull market run of the 1990's. If you are loaded to the gills with stocks or stock mutual funds, you will get mauled in a bear market. Some will get hurt less than others. Suggestion: learn some tactics that will preserve your retirement money when the markets turn ugly. From the performance shown by these investors, I gather they had 70% or more of their plans in stock-based funds. Did they seek outside advice? Attend the 401k employee investment meetings? Consider other options? Ask lots of questions? Look at a chart?

I wonder when these interviews took place? The stock market has gained about 25% since early March. CBS should do a follow-up in a year with the same investors to see how they fared, but that will never happen.

David Ray, President of the 401k Council of America told it fairly correctly - the plans did not let people down - the investments and stock prices let people down. The plan participants (employees) were not aware of the risk of owning ABC or XYZ mutual fund. Consider: Last year, 373 stocks on the New York Stock Exchange gained in value; that's just 1 in 12; in 2007 it was 1 in 3. You can't make decent money as a stock investor with these odds against you in a crappy market, and most mutual funds will follow the direction and velocity of stock indices. You can lose big time if you don't have a game plan. Mr. Ray ended the interview paraphrased 'the realities are the you cannot count on it coming back; do not have unrealistic expectations'. He did look foolish at the end of the segment and danced around the legislative jam on getting disclosure with the fees. Being a lobbyist for the industry tells us all where his allegiences stand. He ended by chiming that we need to be truth-tellers to investor's; they can't count on the money come back, but maybe it will. Why not end on a positive note? I wonder how many people sold their 401k stock funds the next day or since then based on this reporting?

Virtually all retirement plans offer offer safer non-stock based options: money market funds; stable value funds; US Government Bond Funds to name a few.

Concerning 401k plan fees, this was an eye opener for most and good reporting. True, the fees in the plan prospectus are confusing, and I would support legislation that presents full disclosure. For now, it's a call by you to pick those funds with lower fees. I would select from the lower cost stock index funds if they are offered. Some plans that I have seen offer only one fund in each category; that's just not right. You need some selection since that fund can be a real 'dog' and not perform well. Also, I suggest comparing your 401k mutual fund with the same fund outside of your plan to see how much higher the fees are inside your plan. True, fees can be a drag on your performance, but it looks much worse in down markets, when you're not getting any return on your money and still paying the fees.

The 401(k) Plan Escape Hatch

Did you know that retirement laws allow employers to offer options to "move your money" from the plan to another investment account (I.R.A.), etc. while still working? It requires adding a provision to the plan that allows this (write this down), IN-SERVICE, NON-HARDSHIP WITHDRAWALS. Ask your human resource office if that is allowed in your plan today. If it is, get the paperwork to get it started if you're not happy; if it's not, ask them to check with the plan administrator to see if they can adopt it. I've been told mistruths and run around on this, so you must be persistant. Call me if you want me to help you through this.

FREE REPORT ... Tapping Into Your 401k Money Before Retirement
This report, by a noted retirement planning expert I use, details the ways to go about your quest to be "401k free" with all or a portion of your money. It's about a 20 page read. Ask me for a copy and I will e-mail you the *pdf file. What could be more important financial-wise than your future and retirement goals. e-mail me at: Unterbrink@usa.net and ask for the 401k Escape Hatch Report.

Thanks for reading.
~Barry Unterbrink

60 Minutes tonight

Clients and Friends:

If you're able, tune or record 60 Minutes tonight on CBS.
One of their segments will discuss 401(k) retirement plans.

A short preview of it can be viewed at: http://www.cbsnews.com/video/watch/?id=4950505n

As I am sure, most of the information will apply to other retirement plans as well; such as government plans, non-profits, public sector plans (457's), and even I.R.A's.

I will view it also and offer my comments later this week on this blog.
Enjoy your day ...

Barry Unterbrink
Chartered Retirement Planning Counselor

Market Update ... Does this rally have legs?

The "stock market" can cause us all frustration. It can be your friend one year, and your mortal enemy the next. Lately, it seems like a game of chance, with no rhyme or reason to its ups and downs. The "stock market game" has seemed during the past 15 months to be greatly stacked against investors - lots of losing, and each glimmer of a gain gone in a fortnight or two. Perhaps that's about to change.



If you are investing for life, then you have to pay attention to the market and the indicators that tell you it may be safer now to invest than in the past. In short, the risk of losing more money in stocks may be lower than the reward. We call that the risk/reward ratio. By using indicators of the stock markets movements, we can chart the progress of the various market averages on a chart and then make some assumptions for the future. I won't get into all the ways that technical analysis is used to limit risk, but it's safe to say that a dose of this along with some common sense saves people from major disasters with their stock and bond portfolios. As a money manager, I show options and develop strategies outside of the human frailties of hope, feer and greed.



What to do now? Stock prices are currently up about 8% this month, and on a strong up-trend the past 8 sessions, rising about 16%. That's the biggest such rise since the mid-November bottom lasting about a month of a 24% rise. Notably, economic data has been good in some areas. Building permits rose 9% above the forecast, while housing starts were 30% above forecast. Related stocks, benchmarks of consumer spending are rising smartly; Home Depot, Lowe's, -they tacked on over 20% each in the past two weeks. UPS, Fedex, Harley Davidson are all adding points to their quotes. Could this signal the end to the recession; I doubt it. But could this be a signpost that the market perhaps will not go noticeably lower, and start to rebuild in 2009; I think so. Also, deal-making is starting to pick up; a few mergers were announced this past week.



Sure, there are plenty of trouble spots; GDP is declining, consumer spending is down, so is business investment; unemployment is up, 7.9% currently. Remember, through history, stock prices usually reach their lows in the middle of recessions, and since we don't know when recessions end, until months later, we can't gauge the time. Since the current recession started in Dec. 2007, and with a low of around Dow 6,600 earlier this month, that would equate to a 30 month recession, ending June 2010. But ... the stock market could be much higher by then, before the announcement of the recessions end. That's been the case through history. If you're a long term investor, with cash on the sidelines and out of stocks, you may wish to consider moving some money back into stocks. (I am assuming that you did not hold all your stocks or funds in this downturn, but if you did, you're brave and truly a long term investor who no doubt will prevail over time). Perhaps add 15-20%. I know it's hard to do emotionally. But usually if it hurts to act in investing, it's usually a worthwhile move.



Remember the dollar cost averaging method? Placing money into your retirement account in stages, not all at once. This smoothes out the prices (and gains and losses) you may experience along the way. Example, $10,000 invested at the end of August last year would we worth $5,800, a 42% loss by late Feb. The same $10,000 broken into 7 pieces of $1,428 invested on the last day of each month (Aug. thru Feb). would be worth $7,900, a 21% loss. Sure, they are both losses, but it's much easier to overcome the smaller loss. Also, don't neglect dividends. Using a broad index fund like the S&P500 in my example here, you are collecting 3.7% in dividends per year from the component stocks in the index, even if stock prices stay flat and go nowhere for awhile - that's near the current yield on the 30 year Treasury Bond. All or None are rarely good decision-making words, in life and in investing.



A client called last week and stated that she was tired of the poor performance of the stock market, and instructed me to avoid all stocks starting March 12th. She would be happier owning bonds and CD's, and forego any future gains in stocks. That's certainly a bold decision by her; and if you can sleep better at night, then it's apropos. I disagree with being 100% in bonds, for most all investors. She stated that she wouldn't lose money in bonds, which is false. Bonds can decline when interest rates rise, and rates are the lowest in a generation. Bonds can default and not pay your interest or principal back. After reviewing another account of bonds she held manged by another advisor, I noted losses of between 14% and 52% on specific bonds or bond mutual funds in her portfolio. One bond was issued by a municipality on the verge of bankruptcy! I guess she perhaps did not understand or have time to review her statements. I hope I can continue to help her with her portfolio and persuade her that a proper mix of stocks and bonds will serve her well. Being in her mid-70's, this is not the age to start to understand your investments or make money mistakes in your retirement years.



Call or e-mail with any questions or to set up an appointment for a free portfolio review.

I did promise a post on precious metal and collectible investing. Be patient, it's coming soon.



Barry Unterbrink

Chartered Retirement Planning Counselor