Little to Cheer About so far in 2008 - but stocks are on-SALE!
The second quarter closed out on Monday, ending the first half of 2008. I hope your life perspective was productive and energetic. The financial perspective hasn't been very pleasant,
however. In all likelihood, we are in the midst of a recession in the U.S. economy, evidenced on main street and Wall Street. The popular stock market averages, as of today, have entered a 20% correction, and a bear market is upon us. A good indicator of a diversified portfolio for many Americans' savings and investments (IRA's, 401-k's, brokerage accounts, etc.) the popular market averages have fallen hard year-to-date, even if the April to June period saw a slowdown in the damages. The Dow Industrials and S&P 500 fell 7% and 3% in the three months, and 14% and 12% respectively for the first half of 2008. Unless you were positioned in Gold, Silver, or Energy and Commodity investments, your portfolios fell in value. Bonds gained a respectible 1-3%. Financial stocks of all stripes were off 25% plus.
The financial newsmakers most always create a big buzz on such events. "We are in a bear market, a recession - the worst in eons". As alarmists, they are sure to draw in viewers to their almost 24/7 blathering. The mute button is a great feature. I'm not saying to be Mr. Sunshine and dismiss the real problems facing us: lower interest rates for savers; rising inflation (at the food counter and gas pump mainly); along with falling home prices. But let's be somewhat realistic. The U.S. economy has entered 10 recessions since WW2, two in the 1970's, two in the '80's and one each in 1990 and 2001. The market's perform very well coming out of recessions-before you feel better, stocks are ahead nicely ahead.
Don't forget about where we've been, after the 2000-2002 recession, stock prices doubled the next 5 years. Today's markets may trend lower, but if you're up 100% then down 20%, your're still ahead nicely, eh? Remember, no one rings a magic bell at the low to signal when to buy. Generally, the words always and never will get you into trouble more than not, in life and investing. Staying the course within the limits of sleeping well at night is prudent now.
So here are my lesson-points to lessen your stress, and keep your cool with your money when you open your June statements.
1> Don't base your performance on the highest values of your monthly statement - you will be disappointed. You can rarely predict the highest price to sell; the markets are too tricky to allow that. Instead, review things every 3-4 months and set parameters on how you are going to re-allocate your monies. Say, 60% stock mutual funds, 25% bonds, and maybe 15% cash or money market funds. If stocks do well, and are now 70% of your mix, sell some and get back in balance. If stock values decline to 50% of your total, buy 10% more stock. An old, good conservative rule to follow for your allocation; take 100 minus your age, and devote that to stock-based investments. Time will make you wealthy, not your timing or gut reactions. Hope and prayer are admirable in your faith, but aren't good as investment strategies.
2> Seperate your money into various pots, based on risk and objective. Sometimes having just one account makes investing more confusing, and you may make moves that get you into trouble without realizing it. By using 3 accounts, you could allocate some money to a riskier aggressive stock or mutual fund account, and then hold bonds or fixed income in another safer account, and finally have a "safe money" flexible annuity account that you can put away savings for retirement in 10,15 or 20 years with no risk of loss. Move money from a riskier pot to more conservative pots as your "pots" grow in value.
3> Learn how to read a stock or mutual fund chart. "If you can't measure it, you can't manage it", says a saavy investor this week on the television. How true. Looking in the Sunday newspaper for a quotation is not enough. You need to understand supply, demand and a few other indicators that the big boys use with stock and mutual fund charts. I use TC2000.com for my fund charts and Investors.com for my stock charts.
Concerning retirement, as I've blogged in the past, you should fund a retirement account with mostly "safe money" that you won't lose to Mr. Market if you are not a good money manager, or just have a streak of bad luck to blame. Which would you prefer to earn with your money over a 5- year period: +7%, +6%, +0%, +4%, +9% ... OR +11%, +6%, -7%, -3%, +22%? Guess what, they both end up at the same point, about a 29% gain. In the latter string, volatility and a two year loss may force you out of the market in the fourth year, missing year 5's gain of 22%.
Retirement Planning Hotline
I've started a 24/7 telephone call-in line to further inform my clients and friends between my blogs and e-mails. You can call it anytime, and listen in on a recorded topic each call. It will be mainly focused on retirement planning, income planning, and "safe money" strategies; I won't discuss individual stocks or give specific investment advice. You can call me to meet you for a no-fee consultation. If you call and leave your name, I'll send you a free 101 page book on the topic*. The first two callers get the goods.
The call in number is: (641) 715-3800, enter 22509# when prompted. Updates will be sent to you by e-mail when I have a new recording. Tell me if it was helpful to you. Have a great and safe Independence Day. *prior winners ineligible.
Tuesday, July 01, 2008
The First Half of '08
Barry Unterbrink is a fee-based Chartered Retirement Planning Counselor and wealth manager since 1982. As a second generation manager after his father Larry (1934-2021), they managed institutional pension funds totaling $100 million.Both are former Investment Advisory Presidents and financial newsletter publishers.
Friday, May 16, 2008
Taking a Mulligan With Your Retirement Investing
A Mulligan (do over) Strategy to Investing for Retirement
I couldn't but help feeling a little melancholy over Tiger Woods feeble attempt to rally back in the final round of the Master's Golf Tournament last month. I thought of the term "mulligan"; coined after a fellow so named who took to re-playing his errant shots on the course with the hope of a better score. Without Tiger's 3 bogies on Sunday, he may have caught the leader and sent the match into sudden death. His role as underdog was rare. As to investing, wouldn't it be great to re-do our investments after a bad year, wiping the slate clear to a more promising outcome in year 2? As retirement becomes a larger and more important goal of so many of us, I have a solution to accomplish such. It’s called the "annual reset", and is a feature made available inside a fixed index annuity (FIA). With a little explanation, I'm sure you will agree that it is a valuable benefit to grow your savings, while avoiding any loss of your principal along the way.
The annual reset feature allows you to earn index credits, similar to interest, on a one year time frame. Each one-year time frame is “reset” using the last value of the index. Prior interest gains in your annuity are locked in. Let’s work through an example and follow how the numbers hit the page.
Year .........Start.... Finish...... %...... Credit...........Balance
2008-09; 12,000 - 13,000 +8%, +$8,000....$108,000
2009-10; 13,000 - 11,000 -15%, +$0 ...........$108,000
2010-11; 11,000 - 13,000 +18%, +$8,640... $116,640
2011-12; 13,000 - 13,650 +5%, +$5,832... $122,472
2012-13; 13,650 - 14,333 +5%, +$6,123... $128,596
Explanation: The stock market, Dow Jones Index (DJIA) starts at 12,000 and moves to 13,000 in three years. Without the reset feature, you would gain credits of about 8%, or $8,000 after year one. In year two the market loses 15%, as the market retreated from 13,000 to 11,000. Your credit was zero, since you are guaranteed no losses in a FIA. Since year two’s close is 11,000, and you started the program at 12,000, under normal conditions, you would still be losing money at the start of year #3. But with the “no losses in down years” feature, you are up 8% after two years. Because of annual reset, you start year #3 at Dow Jones 11,000. The market does well, rising 2,000 points to 13,000, an 18% gain. Your credits are $8,000 since the cap rate is 8% in any one year period. Remember, the crediting cap is needed to protect your account in the down years. If we took this illustration out for another two years, where the market gained 5% in years 4 and 5, your account would grow to $128,600 using the reset feature. Without it, you would have $119,400. That’s quite a difference, $9,200 more money by my count.
In summary, the combination of annual reset and a guarantee of no losses in down years, make this benefit within a fixed index annuity valuable for investors worried about market risks, while trying to keep their investments growing before retirement. Now maybe I can convince the P.G.A. to apply this concept to tournament play – that would indeed be interesting to watch.
I couldn't but help feeling a little melancholy over Tiger Woods feeble attempt to rally back in the final round of the Master's Golf Tournament last month. I thought of the term "mulligan"; coined after a fellow so named who took to re-playing his errant shots on the course with the hope of a better score. Without Tiger's 3 bogies on Sunday, he may have caught the leader and sent the match into sudden death. His role as underdog was rare. As to investing, wouldn't it be great to re-do our investments after a bad year, wiping the slate clear to a more promising outcome in year 2? As retirement becomes a larger and more important goal of so many of us, I have a solution to accomplish such. It’s called the "annual reset", and is a feature made available inside a fixed index annuity (FIA). With a little explanation, I'm sure you will agree that it is a valuable benefit to grow your savings, while avoiding any loss of your principal along the way.
The annual reset feature allows you to earn index credits, similar to interest, on a one year time frame. Each one-year time frame is “reset” using the last value of the index. Prior interest gains in your annuity are locked in. Let’s work through an example and follow how the numbers hit the page.
Year .........Start.... Finish...... %...... Credit...........Balance
2008-09; 12,000 - 13,000 +8%, +$8,000....$108,000
2009-10; 13,000 - 11,000 -15%, +$0 ...........$108,000
2010-11; 11,000 - 13,000 +18%, +$8,640... $116,640
2011-12; 13,000 - 13,650 +5%, +$5,832... $122,472
2012-13; 13,650 - 14,333 +5%, +$6,123... $128,596
Explanation: The stock market, Dow Jones Index (DJIA) starts at 12,000 and moves to 13,000 in three years. Without the reset feature, you would gain credits of about 8%, or $8,000 after year one. In year two the market loses 15%, as the market retreated from 13,000 to 11,000. Your credit was zero, since you are guaranteed no losses in a FIA. Since year two’s close is 11,000, and you started the program at 12,000, under normal conditions, you would still be losing money at the start of year #3. But with the “no losses in down years” feature, you are up 8% after two years. Because of annual reset, you start year #3 at Dow Jones 11,000. The market does well, rising 2,000 points to 13,000, an 18% gain. Your credits are $8,000 since the cap rate is 8% in any one year period. Remember, the crediting cap is needed to protect your account in the down years. If we took this illustration out for another two years, where the market gained 5% in years 4 and 5, your account would grow to $128,600 using the reset feature. Without it, you would have $119,400. That’s quite a difference, $9,200 more money by my count.
In summary, the combination of annual reset and a guarantee of no losses in down years, make this benefit within a fixed index annuity valuable for investors worried about market risks, while trying to keep their investments growing before retirement. Now maybe I can convince the P.G.A. to apply this concept to tournament play – that would indeed be interesting to watch.
Barry Unterbrink is a fee-based Chartered Retirement Planning Counselor and wealth manager since 1982. As a second generation manager after his father Larry (1934-2021), they managed institutional pension funds totaling $100 million.Both are former Investment Advisory Presidents and financial newsletter publishers.
Saturday, March 29, 2008
IRA Deadline Coming April 15th
IRA and retirement account contribution deadlines: April 15th
The Individual Retirement Account, or IRA is probably the most popular investment account for individual investors. Started in 1974, the IRA allowed workers without a traditional company retirement plan, a much needed way to save tax-deferred for their retirement. The key to building substantial wealth in an IRA account is to contribute to it every year, and let your money grow with the stock market. Here's a table to show you the almost magical effect of compound growth with your IRA.
10 years @ 10% growth, $3,000 per year: ending balance, $52,593
15 years @ 10% growth, $3,000 per year: ending balance, $104,850
20 years @ 10% growth, $3,000 per year: ending balance, $189,007
25 years @ 10% growth, $3,000 per year: ending balance, $324,545
As you see, contributing $3,000 per year, or $58 per week, with the added growth of those deposits, can really add up. Skipping contributions will hinder your performance. Taking money out before age 59 1/2 will also incur tax penalties, and you will pay tax now on the withdrawal. Initially set at $1,500 per year as a maximum contribution, it is $4,000 per person today, and $5,000 if you are over age 50. That can increase those balances above substantially.
You may question my using the 10% figure. That is the average gain in the stock market over 70+ years as measured by the S&P 500 Index, which includes dividends. Take a look at history.
1940's - stock market gained 11% per year
1950's - stock market gained 17% per year
1960's - stock market gained 8% per year
1970's - stock market gained 8% per year
1980's- stock market gained 15% per year
1990's- stock market gained 15% per year
When is the best time to contribute to your IRA account? Anytime. With only a few weeks left to contribute for 2007, you had better get moving. If you are expecting an income tax refund, it would probably pay to even borrow the IRA contribution money now, make your deposit and then pay back the loan with your tax refund or recently approved tax rebate. Give me a call should you require further advice on this topic, or to open your IRA account.
Barry Unterbrink
Retirement Planning Counselor
(954) 719-1151
The Individual Retirement Account, or IRA is probably the most popular investment account for individual investors. Started in 1974, the IRA allowed workers without a traditional company retirement plan, a much needed way to save tax-deferred for their retirement. The key to building substantial wealth in an IRA account is to contribute to it every year, and let your money grow with the stock market. Here's a table to show you the almost magical effect of compound growth with your IRA.
10 years @ 10% growth, $3,000 per year: ending balance, $52,593
15 years @ 10% growth, $3,000 per year: ending balance, $104,850
20 years @ 10% growth, $3,000 per year: ending balance, $189,007
25 years @ 10% growth, $3,000 per year: ending balance, $324,545
As you see, contributing $3,000 per year, or $58 per week, with the added growth of those deposits, can really add up. Skipping contributions will hinder your performance. Taking money out before age 59 1/2 will also incur tax penalties, and you will pay tax now on the withdrawal. Initially set at $1,500 per year as a maximum contribution, it is $4,000 per person today, and $5,000 if you are over age 50. That can increase those balances above substantially.
You may question my using the 10% figure. That is the average gain in the stock market over 70+ years as measured by the S&P 500 Index, which includes dividends. Take a look at history.
1940's - stock market gained 11% per year
1950's - stock market gained 17% per year
1960's - stock market gained 8% per year
1970's - stock market gained 8% per year
1980's- stock market gained 15% per year
1990's- stock market gained 15% per year
When is the best time to contribute to your IRA account? Anytime. With only a few weeks left to contribute for 2007, you had better get moving. If you are expecting an income tax refund, it would probably pay to even borrow the IRA contribution money now, make your deposit and then pay back the loan with your tax refund or recently approved tax rebate. Give me a call should you require further advice on this topic, or to open your IRA account.
Barry Unterbrink
Retirement Planning Counselor
(954) 719-1151
Barry Unterbrink is a fee-based Chartered Retirement Planning Counselor and wealth manager since 1982. As a second generation manager after his father Larry (1934-2021), they managed institutional pension funds totaling $100 million.Both are former Investment Advisory Presidents and financial newsletter publishers.
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