2008, A Recap

2008 - A Recap

There can be many reasons we should be grateful and happy with 2008. Our family and our relationships, good health, a roof over our heads and food in the 'fridge. But, we are working more. The median number of leisure hours available each week dropped to 16 last year, down from 20 in 2007 and 26 in 1973 when Harris Interactive starting tracking this stat. Working hours increased from 41 in 1973, to 45 in 2007, to 46 last year. With unemployment on the rise, 7.2% nationally, maybe working more is a good thing – it means you have a job!

It's quite certain now that the financial markets will end 2008 at sizable losses (I started this post between Christmas and New Years while in Virginia). It ranks pretty poorly in the historical perspective; the worst decline in stocks since 1931 using the Dow Jones Industrial stocks average. Kinda interesting that the stock market, in the Great Depression, climbed out of the malaise in the summer of 1932. It lost 25% in '30, 43% in '31, 8% in 1932, and then blossomed 54% in 1933, flat in ’34, then up 48% in 1935. I realize that it's painful, but be patient.

I am usually not upset over bear markets; it's part of the process of cleansing and renewal that we must expect in a capitalist system. What was difficult this go-around was that the credit and housing crisis forced the bear market into the once sacrosanct areas of corporate and municipal bonds, money market funds and similar fixed income investments. Investment principal reduced values, causing runs on stocks and mutual funds, which forced selling to meet redemptions from shareholders wanting ultimate safety in government bonds and treasury bonds. There has been a disconnect between a businesses prospects and earnings power and it's share price - a most difficult scene to manage money.

In the ’32 to ’35 period, corporate and Gov’t. bonds did quite well, averaging 11% and 8% per year respectively. One big difference between the periods; inflation. Consumer prices fell about 1% per year then, while last year’s inflation rose about 6%. Prediction: the huge government bailouts and money printing will bring inflation back; remember the Gerald Ford - Jimmy Carter years? Inflation averaged 8% a year between 1973 and 1977 – that's a big headwind to overcome to keep your money ahead of inflation. Perhaps oil and commodity prices will stay low, capping inflation a bit more. Gold & silver offered little solace last year: Gold +4%, silver -25%. Together they rose 22% on average in '07.

Washington and the "asleep at the switch" regulators received their nasty wakeup call in the mortgage and lending markets, where everyone was getting fat at the feeding trough the first five years of this decade. Just like all "bubbles" the 2005 to 'to be determined' real estate meltdown caught speculators and simpletons alike in the cross hairs of amortization assassination. My thoughts are that Washington needs to assemble an army of psychiatrists to make the decisions within most areas of finance, because it's investor behavior that rules most outcomes in this latest mess. The agreements, contracts, repayment schedules, prices, etc. meant very little. They were the 'drivers', but human irrational decisions are wired into our phyche; hey now I sound like a psychiatrist !

I hope that you've spent a few minutes each month reading my financial blogs and have benefitted in some way by my outlook and specific strategies. (The archives are on the right side of this page). Among the blog posts this year ...January - Bear Market history lesson; hedging techniques. February - I outlined retirement account transfers and rollovers, advantages and disadvantages. March - Retirement account deadlines (I.R.A., etc.) and potential growth of your balances. May - Investment Do-over (How fixed index annuities can prevent market losses and grow your savings). June - Half-time report: using diversification to reduce risk of loss (Telephone Hotline Started). August - Market Update and the benefits of dollar cost averaging. September - The 7% Strategy and the results from 78 years of market history. October - Assessing the bear market and invitation to my retirement planning workshop. November - Holistic Retirement Planning: post review of retirement workshop. To re-read any topic of interest, just click on the dates on the right side of the page, and you'll be taken to the specific post.

Look for more helpful topics in 2009 involving income planning, using options, etc. Sorry for some doom and gloom on this post; but it’s my job to worry about money. I signed up for it!

Give me a call for a free portfolio review, and to assess investment options you may not have considered. Please try to have a better 2009, and count your blessings we have around us that we often take for granted.

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

Strategy Update ... What's Yours?

Dear clients and friends:

In this difficult financial market, I’ve spoken to many investors near and far. The interesting thing about all of the musings and opinions out there, is the amount of mis-information and ill-fated strategies that I hear from folks. The differentiation between prudence, fact and opinion is a huge gapping hole. I am not denying anyone their say – the 1st amendment is still on the books last time I checked.

One popular myth: "If I own this good, quality, blue chip company, the stock price will recover so I will continue to hold it". Fact: Sure many firms are strong and cyclical whose shares do follow the general market, but many do not. We all remember the mess of 2000-2002 better dubbed the “tech wreck” where the Internet and computer stocks soared then plummeted due to excess speculation and, in hindsight, faulty business models. In just 13 months the 2000's will end, and it's not been a great decade so far for investors of most stripes either. Meanwhile, inflation is at least 25% higher so far this century.

Consider this update ...here are some household names that have experienced serious trouble this decade for stock portfolios. Their current status: Oracle - $45 in 2000, today, $17, a loss of 62%. Citigroup - $57 in 2006, today $6, a loss of 89%. Bank of America - $52 in 2007, today $15, a loss of 71%. Home Depot - $70 in 1999, today $21, a loss of 70%. SunTrust Bank, - $94 in 2007, today $28, a loss of 70%. Motorola - $26 in 2006, today $4, loss of 85%. I'll stop here.

I purposely picked on the banks, due to their implosion this past year and my friend's reference to Bank of America, a holding. Some no doubt will survive, many have not and will not. As I told my friend this week, even if you can offer up a solid story for a turnaround, whose to say your bank won’t merge with another bank at a low price. It’s happened this year – then your chance for price recovery is thwarted. Losses of 60% - 90% are tough to recover from; you need doubles, triples or more just to get back to even. That's very unlikely to happen, and if it does, can take years, during which your money could be working harder for you in other areas.

In this vein, William O’Neil, founder and publisher of Investor’s Business Daily, conducted a study of stock market leaders covering over 100 years, and found that just 12% of stocks that were big winners in the last bull market continue to lead in the subsequent bull market. The Motorola’s, Cisco’s, Dells, Citigroup’s of the world – those dogs most likely have seen their day. Sure, many can continue to employ workers and crank out their widgets or services, but they have grown (or shrunk) to the point of mediocrity – their widgets are now a commodity, or their balance sheets are wrecked beyond repair.

The stock market has just rallied for the third time over 1,000 points within this bear market in the Dow Jones Industrials since the end of August. I did not think the October 10th low would be breached, but it did, so I was wrong, and has now bounced off Dow 8,000 again. The Wall Street adage, "the market will prove you wrong by 10% of your worst case forecast" came true for a short period of time. The markets dislike uncertainty, and there’s still much out there both economically and politically.

What to do now; if you still cannot sleep well, use these stock rallies to move some funds from stocks into safer bonds or indexed annuities; lessening your level of risk. Consider bond swaps to upgrade your credits in fixed income. That should increase your income also as rates have been rising in bonds of late.

Lastly, a new BULL market will emerge from all of this, so keep watching for opportunities from your advisor or your own research – better times usually emerge when you least expect it. Bill O'Neil's book, "24 Essential Lessons for Investment Success" is a good read from whom I often borrow facts. It's $10.95 retail, but I've seen it under $9 on Amazon.com. Consider it between the leftover turkey and football games.

Have a great Thanksgiving Holiday.
Barry Unterbrink (954) 719-1151

Holistic Retirement Planning

In late October, I hosted a retirement planning workshop with about 20 interested folks here at a local hotel. We enjoyed some timely discussion and a nice buffet lunch. I thought it helpful to review a few of the topics I presented to perhaps help yourself or someone you know in these financial areas.

* Multi-Generational IRA's
If you own a retirement account (IRA, 401k, 403b, etc.) you had better make sure it's not a tax bomb waiting for your heirs. By structuring your IRA as multi-generational, you can give your heirs many options to continue to defer the growth and tax on your IRA for perhaps 30-50 years or longer beyond your death.

* Estate Protection
Do you have accounts or investments earmarked toward your family or favorite charity after you check out? Is your performance low in this environment - are these investments costing you taxes on dividends or interest? If so, you may want to consider an insurance policy that can ensure your legacy with tax free dollars.

* Nursing Home Protection
One in three of us will need some type of custodial care during our lifetimes. With assisted living and nursing homes costing 40 or 50 thousand dollars a year; learn how to protect your estate with a plan to avoid the Medicaid spend-down provisions.

There were a few more topics discussed then: lessening the tax on your social security benefits; how to check on your broker/advisor's past regulatory and criminal history right on the Internet, and lastly some "safe money" strategies to consider that I've spoke on recently in this blog. See the links to the right for past posts.

Just give me a call - I'm very sure I can solve one or more of your money concerns.
Be well until next time.

~Barry Unterbrink (954) 719-1151
Retirement Planning Counselor