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
Monday, May 25, 2009
Recession End? What To Contemplate Next?
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 15, 2009
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.
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.
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.
Monday, April 27, 2009
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.
~Barry Unterbrink
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.
~Barry Unterbrink
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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