Market-Linked CD's : A Retirement Income Option

A Certficate of Deposit on Steriods
(originally posted 6/2/11; updated to current 6/27/11)
Another safe-money income option gaining favor to 'beef up" your retirement money is a Market Linked Certificate of Deposit (MLCD). This is an F.D.I.C. insured CD issued by a bank, which protects your principal if held to maturity. The different twist here is that your annual interest is not guaranteed, but is based on the performance of a 'basket' of stocks. A cap rate is set on the upside of roughly 7-9% per year for the MLCD term (that's the maximum per year you can earn); the cap is locked in for the MLCD's term. The bet here is that the stocks will perform positively up to that cap and that the final value will outperform the traditional CD's fixed interest. The floor is zero percent if the stock basket declines in value. You cannot lose principal with a MLCD. Five, six and 7 year MLCD's are offered each month, and the June offering that closed last week included the stocks: Bristol Myers, General Mills, Campbell Soup, Newmont Mining, Sprint-Nextel, and Cablevision. With 5 year traditional CD's paying around 2.4% today, I would make the market-linked CD bet with a portion of my safe money. See me for details.

Bank CD ALERT:

If you have rolled over or bought a CD in the past couple months, beware of the newer penalites that the banks are imposing and including in their disclosures. Apparantly, from recent reports I have read, major banks are now assessing a percentage fee if you redeem or "bust" your Certificate of Deposit before maturity. The former rules charged you a period of interest, such as 90 days, if you broke the CD early. One such fee charge would be two tiered; a $25 flat fee, and then a 1-3% charge against the amount withdrawn, depending on the maturity of the CD. What this means with today's low interest rates? You could lose PRINCIPAL as the fee may eat into your original deposit. Not good. Check with your bank to see if they charge these fees; if so, walk, er - run away. By the way, MLCD's can be sold prior to maturity without any penalties. Your principal is not guaranteed if sold prior to maturity, so you may lose or gain on the sale depending upon where current interest rates are, similar to how a bond is priced when you sell it.

Call Barry Unterbrink for more information and details: (954) 719-1151

Income Planning, CD's

Income Planning
Let's Get Creative using
Market-Linked CD's and Income Annuities

For those seeking income from their savings and investments, it may appear that there are a few sensible options left standing to increase income during this time of low interest rates. The Federal Reserve is keeping rates low; economic progress is muted at best, and stock prices hit an air pocket, falling about 2% in May and off to a shaky start here in June so far.
I am not an all or nothing advisor, in that if you are, you are making a bet by placing
much of your money to work at any one time. You may not think of it this way, but you are making a specific bet
on the markets and interest rates, especially important if you cannot access your money and are forced to wait upon a maturity date in the future.

Also, most income investments such as CD's, bonds and annuities are highly sensitive to current
interest rates, so the rate you are offered (and your income) will vary until you lock it in.
Outliving your retirement savings is the numero uno consideration in polls to seniors - it could also affect you financially and emotionally when your savings can't provide enough income to pay your living expenses, forcing you to either do without or make substitutions within your monthly budget. Worry and stress should not be part of this endeavor.

However, if you opt for no planning and just wait for the perfect time - interest rates are high and stable; inflation low; after-tax returns favorable; then no plan gets enacted, and current spendable income doesn't start and you are no better off than yesterday. You have to find a starting point and have a strategy. Also, the perfect time rarely presents itself in the checklist just presented. That's why I advise clients to make
some assumptions today, then stage your money into various income investments over time,
so as to likely hedge your money bet if your assumptions are inacurate or partially wrong.

This requires you to engage in some homework, tabulating your income needs vs. the marketplace offers, and what it can deliver to you today and into the near future. Also, you will need to "think outside the box". We learn by asking questions, so ask lots of them just like you're in a classroom. I come across new investments and products about every month or so that have some investment merit, and I'll share two of them with you below in brief snapshots. There is more to what meets the eye at first glance in the world of income planning. "This is not your grandfather's defined benefit retirement plan" so to speak.

Whether you are a do it yourself investor (DIY), or a seasoned pro with scads of money and advisors, we can all learn a new trick or two with our money. On the income front, what you have to ask yourself is..."Can my current income-based investments generate enough income to provide for my living expenses and comforable lifestyle?" "How long do I need my income to last?" "What is my threshold for losses?" "Can I sustain a 5-10% or more loss with my money if interest rates rise and my savings and investments fall in value?"  The dialog might unfold as follows. "No I can't do this," , or the "Maybe I can, but it's too much work to accomplish it; I haven't the time to follow all this", or "Yes I can today, but when interest rates rise, I'm not sure how that will affect my bonds, CD's and mutual fund prices". "Could I end up losing some of my principal and still not achieve a decent income-based return on my investments?" "Do I have a doable and actionable strategy for selling when things start to turn ugly?"

For many savers who are risk-averse and don't wish to lose their "nest eggs", a popular option for consideration is to ''lay the risk" of  the unknown and uncertainty off on a third party, such as an insurance company. Then your job is essentially done, and they will provide you with a guaranteed monthly income for life or a set period of years. The income generated can often be higher than what you can achieve in the marketplace left on your own. Tax savings can also result from the way it is structured. And if less money is needed to generate income this way, then more funds can be left in other investments for longer term or emergencies, or funding other non-retirement needs. You will need some liquid funds because, as I stated above, you should move money into various income buckets over time, not all at once. This is called "laddering", like a step ladder whose steps represent different points in time. As you age, your income will normally rise also, as you are older and your income is based on your age at the time of investment. Interest rates could be higher also, adding to your monthly payout. The investment vehicle I've been descibing is an immediate income annuity. **see some popular income options with this vehicle at the end of this article.

A Certficate of Deposit on Steriods Another safe-money income option gaining favor to 'beef up" your retirement money is a Market Linked CD (MLCD). This is an F.D.I.C. insured CD issued by a bank, which protects your principal if held to maturity. The different twist here is that your annual interest is not guaranteed, but is based on the performance of a 'basket' of stocks. A cap rate is set on the upside of roughly 7-9% per year for the CD term (that's the maximum per year you can earn). The bet here is that the stocks will perform positively up to that cap and that the final value will outperform the traditional CD's fixed interest. The floor is zero percent if the stock basket declines in value. You cannot lose principal with a MLCD. Five and 6 year CD's are offered each month, and the June offerings out this week include the stocks: Bristol Myers, General Mills, Campbell Soup, Newmont Mining, Sprint-Nextel, and Cablevision. With 5 year traditional CD's paying around 2.4% today, I would make the market-linked CD bet with a portion of my safe money. See me for details.

Bank CD ALERT: If you have rolled over or bought a CD in the past couple months, beware of the newer penalites that the banks are imposing and including in their disclosures. Apparantly, from recent reports I have read, major banks are now assessing a percentage fee if you redeem or "bust" your Certificate of Deposit before maturity. The former rules charged you a period of interest, such as 90 days, if you broke the CD early. One such fee charge would be two tiered; a $25 flat fee, and then a 1-3% charge against the amount withdrawn, depending on the maturity of the CD. What this means with today's low interest rates? You could lose PRINCIPAL as the fee may eat into your original deposit. Not good. Check with your bank to see if they charge these fees; if so, walk, er - run away. By the way, Market-Linked CD's can be sold prior to maturity without any penalties. Your principal is not guaranteed if sold prior to maturity, so you may lose or gain on the sale depending upon where current interest rates are, similar to how a bond is priced when you sell it.

** Immediate Income Annuity Options (from the footnoted text above)
LIFE INCOME: pays you every month until you die.
LIFE with period certain: pays the longer of your life, or a set number of years, say 10,15 or 20 years; if you die in year 7, let's day, your heirs will be paid income for 3 more years under the 10 year certain feature.
PERIOD CERTAIN: Pays a set number of years; not based on the life of the owner.
The above three annuities are termed IMMEDIATE annuities, in that they start to pay income right away, and you are making a single payment to the company and do not have access to your principal.

Brief Market Update
A good friend and blog reader asks me "How did your silver investments pan out; silver prices collapsed about 30% right after your last blog post in late April".  Glad you asked Bill. My reply: "We sold our entire silver investments in the first few days of May at prices equivalent to a $44 silver bullion price. We did not sell at the top of $49.50 or so, but did protect most of our gains that we accumlated since last August". Currently, silver has a lot of work to do on the charts, and at $36 today, is neither a buy nor sell. Commodities overall had a terrible May, and we see no need to "catch a falling knife" in re-entering most of these markets. That will change, and when money flows back into this area, we'll consider our stance. 

Market Update, 1Q-2011 and Beyond

Market Update and Strategy

  An unusual report was issued last week; the credit-worthiness of the United States was put on ‘alert’ by Standard and Poor’s, a highly regarded rating agency. They issued a negative outlook, a downgrade from the ‘stable’ outlook then prevailing. The AAA rating was affirmed, but the longer term outlook change could result in losing that rank unless we get our fiscal house in order. Simple remedy here; spend less than you take in Uncle Sam.

  Besides the immediate reaction down last Monday, the market shrugged it off and gained about 300 points on the Dow the last 3 days leading up to Good Friday, showing the resilience of the stock market in the face of even this type of bad news.

  The stock market put another quarter of positive gains in the history column in March, rising about 6-7% or so in the popular averages in the three months; Dow, SP500 and Nasdaq.  It was the third consecutive quarterly gain dating back to the September period last year, and the 7th rise in 8 quarters dating back to June 2009. As April will close later this week, equity prices are up another 1.5 to two percent or so. But the first quarter wasn’t all roses and a steady plodding up; the stock market sank 7% into mid-March before recovering that much. Wall Street is ignoring the pain we see on Main Street - for now.

  During the quarter, we continued on the theme of resources and sector investing; Agricultural (grains-timber), metals (gold and silver), Internet, health care, and energy themes led our selections. The markets behind these investments did not all continue uninterrupted all three months. Oil and the precious metals sold off on one occasion, and we traded them once or more. Energy (oil, gasoline, and natural gas), Industrials (Cotton), and Coffee are offering up nice returns more so than the average stock index referenced above. Ditto silver which is ahead about 50% this year! Our premise is that the commodities will hold up better or offset the stock market averages in the next down market, so that should offer us some protection relative to the blue chip equities.

 You’ve no doubt noticed grocery and gas prices rising, but you have to eat n drive. One idea: you can hedge some of that energy and commodity inflation you’re experiencing by owning exchange-traded funds that invest in gasoline, food, and even cotton, which has doubled since last August. They trade just like stocks on the exchanges from 9:30 am to 4:00 pm daily. Call me for details on how to get started.
 
 We use a fairly simple approach to spread our money around in specific amounts to invest in what’s working, shunning individual stocks which are more volatile and subject to earnings and specific news risk day to day. Beating the USA market indexes mentioned above, the following had and continue to warrant our capital: Country funds such as Brazil, Canada and Australia, natural gas, and computer software. What worked in late 2010 isn’t working now. Some country funds have hit some air pockets, particularly in Asia and the South American bourses.

 Often just one or two of your investments in 10 can really make a difference. I offer that observation from Pareto’s principle, stating that 80% of your outcomes will most likely be achieved by 20% of your selections. Vilfredo Pareto was a 19th century Italian economist who created a mathematical formula to describe the unequal distribution of wealth in his country, observing that twenty percent of the people owned eighty percent of the wealth. In the late 1940s, Dr. Joseph M. Juran inaccurately attributed the 80/20 Rule to Pareto, calling it Pareto's Principle. Pareto's Principle or Pareto's Law as it is sometimes called can be an effective tool to help you manage your life effectively.

  Interest rates are holding rather steady as the slower economic growth and the Federal Reserve are stubborn to raise them during this weak recovery. We do use the Income ETF’s when we hold sizable cash balances not invested in equity ETF’s. These funds  pay 3-5% in interest per year, and pay dividends monthly. When we don’t own the bond funds, and sit in cash, our return is almost zero percent. We feel it’s safer to avoid bonds when they are falling in price. This will crimp or lessen your income however.

My next post will focus on income, how to achieve it and various options to consider when you enter retirement.

Until then, be well.

Barry Unterbrink
Chartered Retirement Planning Counselor

Mid Quarter Update, Markets, Economy and Jobs

Mid-quarter Update ... Ruminations on markets, economy and jobs


It's mid-February, and that signals the half-way point through the first quarter. Most of the popular stock averages are ahead quite nicely, from +6% for the Dow Jones Industrials to 7% for the Standard & Poor's 500 Index, to 8% for the technology-laden Nasdaq 100 Index. That would be a very decent gain for even 6 months from a historical average of 10% yearly return for stocks the last 80 years. The market pundits and tea leaf readers tell us that a "correction" is overdue. Two data facts stand out: the rather uninterrupted 20% rise since Labor Day, 2010, and the doubling of stock prices since the bear market lows in March, 2009. There's an axiom "prices that double often head into trouble"; but I'm not predicting that here today. Our research director's in charge of timing and allocation of funds, and we're generally bullish and invested now. Call me for a free review of your financial situation and goals.

Here in the investment cockpit, we've evidenced a change this year in the market sector performance. The exchange traded funds we monitor and use for our clients now favor those sectors that would benefit from higher prices: energy, aggricultural commodities, technology  and mining namely. The foreign country funds that served us well in 2010 are mostly all negative in our screens now; Peru, Taiwan, Chile, Singapore, Japan: all seemed to catch a cold in mid-January. These markets can change fast, so they could reappear at some juncture. As an example of a narrow-based ETF we're using now; Internet Holders (HHH); a 13-stock basket covering Internet Commerce. When you own HHH, you own 20% in eBay, 42% Amazon.com, 7% Priceline.com and the balance spread among Time Warner, E*Trade, etc. It's an excellent way to participate in this space without buying the stocks. An aggricultural ETF we favor now contains contracts for soybeans, corn, wheat, cotton, soybean oil, coffee and sugar. China announced they may not harvest enough wheat this year for their internal consuption.

Prices higher?

Today's producer price index report shows us - and some would say confirmed - commodity prices are picking up steam, and that could lead to higher consumer prices for us. Consumer prices are released tomorrow morning. Raw material prices including food and energy, gained 0.8% for January, the highest since 2008. Can companies that produce and bring to market our food pass along costs (think Kellogg, Kraft, Archer Daniels) to us in the supermarket? $5 for a box of cereal is a bit much, so I often defer to a healthy alternative or off-brand to get the same nourishment for my dollar. Higher consumer prices will hurt demand and not enable our economy to grow as fast. And the Federal Reserve is not worried about inflation yet? It seems that their dual mandate of stable prices and full employment are not working out too well so far.

Inflation will hurt fixed income (bond) prices also. If you own any, check your statements or ask us for help.

Main Steet vs. Wall Street (it's lack of jobs, stu**d)

Unfortunately, the events in the finacial district in New York, and the prices on Wall Street do not often correlate with the health of the rest of America and the problems and challenges we face economically. Jobs (lack of them) is front and center for Obama & Company. What concerns me is more longer term oriented; how our country is falling behind in smarts to prepare for the new services, technologies and industries that will need skilled labor in the future. I have a rather vested interest in this, as my two teenagers will have choices to make during their working years that could well be determined by how and what they study today.
Consider these factiods taken from last month's Barron's magazine as they interviewed top money managers and economists in their roundtable discussions.

* the percentage of the US population that's earned 4-year degrees has remained stagnant for 10 years.

* if you don't have a degree, you will most likely stay unemployed longer.

* Unemployment for women is 2% less than men, mainly due to the heavy toll manufacturing and construction jobs took during this recent recession.

* the pool of US students studying STEM (science, technology, engineering and math) has fallen dramatically the past 10-15 years.

* Tech companies, whose growth has spurred many jobs in the past, cannot find enough qualified US workers who graduate with these skill-sets.

* 70% of the PhD program graduates are non-US citizens (think Asian, Chinese, Indian, etc.)

* In the 1970's the US has 20 million manufacturing jobs with a 200 million populace; today it's 12 million on a 320 million population. So while corporations are doing rather well with profits and earnings worldwide, many workers are suffering as their incomes are dropping relative to expenditures. Median family incomes have dropped 4-8% in the past decade; and that's measured before the 2008 financial crisis hit us.

So what's my solution - mainly aimed here Generation Y (born 1981-1999)? Continue to learn and acquire new skills after you leave school to be compettive. Ask for help when you don't understand. Raise your hand a lot. Get a mentor or coach. Learn a second language. On this score, my daughter learned French in high school, my niece, Mandarin Chinese, and my son is tackling Spanish and German in high school. His first job in 2018 may be in Munich or Buenas Aires. As for me, I've joined a Spanish meetup group and intend to be fairly fluent by year-end.

My blog today is quite pessimistic, but sometimes we need to worry, because that will prompt changes for the better. I hope so.

Until next time,

Adios amigos !
Barry Unterbrink, CRPC
(954) 719-1151

Year-end notes: 2010

The year end is fast approaching, I want to thank everyone for your patronage to my blog posts and ruminations on the markets. May you be blessed with good health and fortune this holiday season and beyond into 2011.


Financially-speaking, we should have much to be thankful for also. The equity (stock) markets have delivered to us a better than norm year of performance. If the year ended today, the popular stock market averages are ahead 11-13%. Narrower indexes are ahead 15-18%, some higher. So a buy-and-hold investor has more coin than when this year started. Our hard work appears to have paid off for clients too - as our mixture of non-US based ETF's and market timing reduced the "risk" of playing catch-up during the Spring and early summer market sell-offs.

But, it's been a rather rocky road to riches. How so, you say? The above results were garnered with five market declines along the way between 4 and 12 percent on the Dow Jones. First, a loss of 5%, then gain of 13%, loss of 12%, gain of 6%, loss of 7%, gain of 10%, loss of 7%, gain of 14%, loss of 4%, then gain of 5% to end up where we are today near Dow 11,560. Recall that every bear market starts with a 5% decline - and you just cannot predict which sell-off will be the "big one" like the 53% decline from 2007-2009 which many investors are still remembering vividly.

Not to toot our own horn too much, but our exchange-traded investments worked quite well this year. Silver, Gold, single country funds, and lately commodity-based investments like energy, grains and coal have kept us ahead nicely ahead of the market averages, while having a measure of cash out of the market or in bond-type investments.

We can take a page from a professional gamblers playbook here. Gamblers are most worried about drawdown, that is...what's the worse loss they can experience and still stay in the game. The deeper the loss, the bigger hole you have to climb out of ... agree? A 10% loss takes 11% to get to even; a 20% loss takes 25% to even, and a 33% loss takes 50% to get to even. As losses mount, the tendency is to make bigger bets to get whole again...a very risky strategy. Using the example above of the actual markets performance, a 14.4% drawdown was the maximum for this year (late April to July 2nd). By early August you were back to even, and by Election Day you surpassed the high value achieved in late April.

Bonds have experienced ups and downs as well. With all the monetary and fiscal schemes our government has tried this year, the end result has not made much of a difference to the average American's pocketbook or job prospects I feel. Savers and investors really have overlapping 'wish lists" when it comes to fixed income or bonds. Savers hope for high fixed rates to provide a decent income, and low inflation that will not eat that income up when they spend it. CD's, money markets and fixed annuities are favored here. Investors wish for that also, but also desire falling interest rates and a slow economy that will raise their bond investment values. Again, it circles back to price stability. How much drawdown can you afford?

Since early November, bond savers and investors have now become subject to principal loss akin to stocks. Interest rates are up about 1% for long term bonds since mid-September - a big jump. They are approaching the 4.85% high near Easter time. Bonds and bond mutual funds had a terrible November, many falling 5% or more since election day to now. When bond interest rates rise, bond prices fall. Cities and states are in financial trouble, and their borrowing costs are rising as well. Today, we just cannot find many reasonable places to put money to work that is not in stock-related investments - so we'll sit on cash for now until more favorable entry points arise.

The balance between stocks and bonds will work out over time. As bond rates rise, and you can lock in higher yields, say a 5% interest yield, then money should flow from stocks back into bonds; now it appears that stocks are favored.

We don't try to predict the markets; they will usually give signs on our charts as to what's working when trends develop. We'll continue to uncover profitable opportunities to invest client wealth while limiting drawdowns in 2011.

We'll check back with you next month.

Barry Unterbrink
Chartered Retirement Planning Counselor

ETF and market update

  In our last visit late August, we told you about our concentration of our clients investments in the emerging market country exchange traded funds (ETF’s). One reason for our profits in these countries is the fact that the hedge funds and pension fund managers have just recently discovered the opportunities in emerging markets but they had a hard time on how to invest overseas. Foreign objective mutual funds were the only game in town for 50+ years. Of course they know that Apple, Intel, Wal-Mart and GE have some foreign business exposure but many don't have a clue on the midsized companies in say, Brazil. (See Brazil Mid Cap ETF. ( BRF). These hedge and pension funds will continue to pour tens…even hundreds of millions of US Dollars into single country fund ETFs to diversify their client’s money away from an all-USA position. Money they have pulled from the US markets mainly is the supply source.


A more fundamental reason for the superior gains we have seen for our clients can be traced to the urbanization of these countries and the move towards a middle-class type society of consumers in the emerging markets of the developing world. Over 1 million urban residents are created each week in the developing countries. India alone will have 10 million urban residents a year move to the cities for over 20 years. China will have 17 million people a year moved to the cities for the next 20 years. 900,000 Chinese are estimated to be millionaires at years-end vs. 2.9 million here in the USA. China’s population is 4 times the United State’s. The rural peasants and farmers are now becoming lower class consumers. When they become factory or construction workers, and later educated to office workers and technicians their standard of living will increase and their appetite for consumer goods will soar along with the growth of the economy.

Now the subject of slums and the troubles that come with them will have to be addressed longer term, and not every Indian and Chinese will be buying a Mercedes, but the growth of these ETF investments is probably assured in developing countries (include Brazil and Russia too), and we want to be on-board the bullet train for the profitable ride. One last point….and I am not claiming “cause and effect” just a correlation: All these fastest growing economies have little or no taxes and NO welfare systems. County Funds at the bottom of our list are France, Spain, and Greece.

Stock Market Update
We'll the history books were favorably wrong for September and so far this month. The popular stock averages gained 7-10% since late August, and are hitting yearly highs as we go to press with this post. The Dow Jones Industrials had the best September since 1939! 
Country ETF's and our gold and silver ETF's performed admirably during this period. Yields of 3-1/2% to 5.25% are still available in the bond ETF market now; so that's where we keep cash awaiting investment. As we follow the trend of the markets, perhaps we should close the history books and "stick to our kinitting", to what Mr. Market is telling us today. Weigh in with your comments by clicking on "post a comment" at the end of this blog. I will reply to your questions post-haste!

~Barry Unterbrink, CRPC
(954) 719-1151

The Dog Days of August

August 30th

  Well, the sun will set tomorrow on another calendar month. Here in Florida we call August the "dog days". They are the hottest, most sultry days of summer. They usually fall between early July and early September. They can also define a time period or event that is very hot or stagnant, or marked by dull lack of progress. The term has frequently been used in reference to the American stock market. Typically, summer is a very slow time for the stock market, and additionally, poorly performing stocks with little future potential are frequently known as "dogs."


  The stock market isn't fetching many good tasting bones either lately; the market's down about 5% this month and down 11% since we alerted you to the May-October seasonally weak period for holding stocks. Market history does not bode well for September, either. In my archives I find another interesting tidbit. The absolutely worst month to hold stocks: SEPTEMBER. Some simple market strategy: just sell everything in September and buy back when things and indicators look better in October. This is not a recommendation just some food for thought. To end on a good note; many Octobers have been excellent entry points to powerful rallies. We don't predict - just follow the trends and reduce the risks along the way.

As our clients know, our investments in companies in Thailand, Indonesia, Malaysia and our Silver and Gold ploy has made us money and saved us from the sizable declines some other advisors have experienced. We are not the best but our clients sleep well. Where to park cash that's not invested in stocks? We're using the income-based exchange-traded funds (ETF's) investing in diversified corporate, government and oversease debt; they pay between 3.5% and 5.2% per annum (sure beats zero percent matress money that the money funds pay). We also watch the charts of all our investments. Does your broker-advisor use technical indicators from their toolbox? Bonds can fall as fast as stocks when interest rates rise - always a worry around the corner in this business.

Do contact us if you have any questions or comments - we would like to steer you in the right direction with your investments, retirement plans and other important money.

Do enjoy the upcoming Labor Day weekend with your friends and family.

Until next blog, be well.
 
 
Larry Unterbrink, Director of Research
Barry Unterbrink, Managing Partner, Chartered Retirement Planning Counselor

Of markets, strategies and risk + new web site

                               
Well, the financial markets appear to confuse most by moving up and down with no clear trend of this year. As we almost have July on the books later today, the popular stock market averages are a couple percent on either side of even for the year! While July is shaping up fine, June and the entire 2nd quarter were a real downer. The second quarter shaved about 12% off stock prices, while June carried the brunt of that at minus 5% on the S&P 500 Index.


Our "sell in May" blog post at April's end has been on target. Since May 1st, the markets are lower by 5% to 8.5% (Dow, S&P500 and Nasdaq Composite). We don't religiously follow the strategy to a tee, as opportunities arise between May-October to capture some coin, but if you did, congrats.

One area shining of late is the bond market. It had a bang-up quarter led by lower interest rates and a flight to quality USA bonds. Gains of between 3% and 10% came in among various segments of the market - government, mortgage, and treasury. Junk bonds and emerging market bonds were about even. We've been using the low expense exchange-traded bond funds to juice up income when not invested in stocks. Most pay monthly interest and can be sold anytime during the trading day. By the way, when interest rates rise, watch out - bond prices will FALL. It won't happen overnight, but it will happen - someday.

RISK. We preach a good portion of text here on that topic. Our thesis: mitigate the risks and your money and happiness will increase. Control the risks you can, plan for those less manageable. Pay too much in fees, increase your risk of less money. You also need an action plan, whether it's "sell in May", or an asset allocation strategy, a loss-reduction strategy, technical timing system, or what have you. Just have some rules to follow. BY doing that, your results will be measurable. Systems are measurable and tell a story once they have been implemented. If you don't know where you're going, you'll probably end up  there! True in life and in the financial markets.

I've noted a quote from a prospective client last month in her e-mail to me after we had met earlier in the year with the couple to offer options to plan their retirement "We are not doing ANYTHING right now. We're just hanging on to see what happens with this volatile market. Things were looking up for a while. Now I'm not so sure." Hmmm. Sounds like they have no plan here at all; faith, hope and prayer better work for them. I encourage another meeting. Money
management is a tough business - get help, devise a plan! Call me for a free review of your situation.

Retirement Planning Web site launched - www.barry.retirerx.com


I have launched a retirement planning web site with the help of The Retirement Pros, to serve you as a client, friend or both. I hope you can spend a few minutes there often to review and listen in on topics and advice that may help you plan your finances better. At the site, you can view newsletters and videos on topics such as IRA conversions, CD's, when to take social security, 401k plans, understanding annuities, etc. Downloads are there also to print. Ask me a question - and I will answer you. Just provide your name and e-mail address, and you will have access to all the helpful info.


Thanks for reading. Have a safe weekend.


~Barry Unterbrink, CRPC
(954) 719-1151

Stetson Wealth Clients Lose No Sleep

No Sleepless Nights for Stetson Clients

We are supposed to be in the summer doldrums (see last post, "Sell in May...") but you would not know it from the action of the stock market of late. UP, Down, Up, Down, and then the recent volatility has been: Down, Down, Down, and Down.

Fortunately for Stetson Wealth Management clients our strategy has been to be mostly out of the stock market and into Bond ETF's (exchange traded funds) during this market correction.
In fact the Stetson owner's family funds and portfolios have also escaped the worst of the turmoil as we invest for ourselves just like we do for our clients. We eat our own cooking, as the saying goes.

We have also been switching from owning individual stocks to investing in ETF Funds for most of our investment. Using our classic market timing techniques with these baskets of stocks or bonds we have improved our performance AND reduced risk. For example, with the second quarter almost over the stock market is down over 9.4% while our major clients portfolios are UP amost 3%. If we could compound this difference over the full year the clients would have over 1/3rd more dollars than being fully invested in the market.

One might ask, "Why not just pick individual winning stocks and rack up gains as my broker wants me to do?" Well, there are problems with individual stock selection these days. Most Wall Street firms are cutting back on research dollars probably trying to make up the dollars lost from their past sins. The research they are putting out is increasingly faulty. Earnings and revenue estimates are wrong more than they are correct near market highs. If this is by happenstance rather than design I will not speculate but far too often Wall Street firms are falling back into their old habit of selling from their inventory stocks they are coincidently advising clients to BUY (conflicts of interest are rampant in this industry). Near market peaks one gets 20 buy ratings on stocks for every sell rating. Their Buy and Hold fallacious theory is perpetuated. This same plan has caused many investors and retirees to lose up to 50% of their life savings in the latest big stock market crash - in just 17 months!

University research has estimated that 70% of a stocks daily price change is due to the action of the market in general. Another 20% is due the SECTOR the stock resides in. i.e. Utilities, Energy, Technology etc. That leaves only 10% of the change is due to the individual stock. The ETF Funds of baskets of stocks or bonds packaged into all different sectors are ideally suited to take advantage of this situation especially if you are adept ar market timing. Selecting good sectors of the market combined with excellent timing have served us well at Stetson.

My son Barry and I cooperated in www.stetsonwealthmanagement.com We have collectively been investing and trading securities for over 70 years. We have become experts at selecting winning stock sectors and thus: ETF Funds are the right vehicle at the right time for us. ETFs make it easy to trade instantly baskets of stocks in any sector economically, many times with NO commissions. Is your broker using these techniques? This makes for big savings for investors on commissions.

Utilizing Funds we have been able to save our current clients over $200,000 in losses had they invested in the market at the recent market highs a few months ago. I consider our investment management a success if it greatly reduces or eliminates stress in our client's lives. Most of my philosophy can be summed up by the plaque I keep on my rolltop desk. It says:

The Two Most Important Rules of Investing.
Rule # 1. Never lose money.
Rule # 2. Never forget rule # 1.

by Warren Buffett

Clients: New statements in about 5 weeks. Watch for them.

Larry Unterbrink
Director of Research
Stetson Wealth Management
(954) 719-1151

Sell in May and Go Away

April 30th, 2010


Sell in May and sail away?

It still holds true, current research shows that the old investment adage “selling in May and sailing away” still makes a lot of sense, according to an analysis of market history.

A look at the performance of the Dow Jones Industrial Average over the 59-year period through 2009 shows that the index produced an average gain of about zero during the six-month periods from May to October, according to the 2010 Stock Trader's Almanac.
Over the same 59 years, the Dow averaged a 7.4% gain during the six-month periods from November through April.

To put it another way, $10,000 invested in the Dow during each of the May-through-October periods beginning in 1950 would have generated a cumulative total loss of $474.

But $10,000 invested in the Dow index only during the November-through-April periods would have generated a total return of $534,348. Wow!

The general rational for the seasonal market slump has been that May represents the start of vacation season and the reduced trading activity tends to pull down or hold down the markets. This is especially true in foreign stock markets. University analysis shows the system has worked in 33 of 34 countries tested.

Following the pattern in 2008 would have helped investors avoid a 27.3% drop in the Dow. Of course, the index still lost 12.4% during the following November-to-April stretch.
Getting out in May last year would have meant missing out on an 18.9% gain, while the following six months produced only a 15.4% gain.

While the research proves an advantage over the long term of strictly following the trading strategy, prudence dictates it is always best to take into consideration the overall market and macroeconomic environment, and of course, your tollerance for risk and time frames.

As of now, late April 2010, the Dow is coming off a really good run, and there are all kinds of technical and geopolitical issues to consider such as the debt crises in Greece, Spain, Portugal and Ireland. It might be a good time to tighten some stop orders and put some limits on new stock and mutual fund positions.

Barry Unterbrink, CRPC
(954) 719-1151