Is your Retire Fund in jeopardy of a Stock Market reversal?

You have recently retired, or will retire in the next few years, but you are still heavily invested in the stock markets because that is where the growth has come from for the past 10 or so years.

Maybe you took a beating in 2008, or maybe you didn't start saving/investing until late in your career, and you feel you need a bit more!

 Maybe it's time you considered "solidifying" the investments you still have.

Paper profits are great, until a sudden reversal in stock prices occurs.  If that happens this year,(and this writer believes it will), then you may be left trying to decide to "stay in" to try and recoup your losses, or cash out with 20-50% less profit. If such an event occurs, it maybe a decade before you recoup those losses.

To this date the Nasdaq has returned, year to date, over 19%  "THAT" my friends is a great return on investment! The SP500 has returned almost as much YTD!  I sincerely do not believe that retirees or those nearing retirement, "will ever see" returns like this again!!!

If you are over 50 or need the money in your portfolio for retirement, if you cannot afford a downturn in stock prices (or bond prices for that matter see: Bonds) then maybe you should consider the wise advice of the foremost investor in modern history, Mr. Warren Buffett, who famously said:

Remember, "Cash" is also a Position and, at this juncture, it may be the best position!

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Target date funds or Retirefunds are gaining in popularity

Target date funds or Retirefunds, are gaining in popularity among young professionals who have a date already in mind for their retirement, or at least a "year" targeted for retiring.

Essentially, the fund manager(s) use the current age of the investor in relation to their expected retirement date to determine the type of investment(s) that should be in the portfolio from year to year. The younger the investor, the more risk can be assumed in accumulating retirefunds for the future. Of course, as the date approaches, those assets are rolled over into what should be more risk free assets. That is referred to as the "glide path" of these funds.

The idea is not new as it has been practiced in varying forms by retirement funds and managers over the years. What is different now is the actual date of your retirement (or the year at least) is required knowledge to assure you are placed in the right portfolio for your risk tolerance, which is pre-determined by the fund manager(s). Management fees are usually quite high and even though diversification is a hedge against risk, it is not a guarantee.

Unless you have many millions of dollars to invest, you won't have a particular fund managed to mirror your exact date, but you should chose a fund with the closest date to your actual retirement so as to gain maximum benefit.

Among many providers of Retirefunds, Manulife Financial uses this method for their target date funds. They also offer target date fund options managed by Franklin Templeton Investments, Fidelity Investments and BlackRock. These managers have all advanced their target date funds in recent years. In fact, target date funds now represent the second largest allocation of retirement dollars in the United States and Canada after large-cap funds, within individual 401k plans. (RRSPs in Canada) As with any investment plan, their are some risks. A growing risk for these and other retirement funds, is the current bond market.

One good sourceof information for these ETFs is at the ETF Data Base or etfdb.com where you will find a definitive list of funds and their costs. For instance you can buy the S & P 2030 target date ETF for a cost (ER) of only .38% ER Costs of these type of ETFs range from .29% to .65% with an average of .38%
Such a low ER is a large selling feature for these funds. Here is a list of such funds and their ERs. Target dated ETF "Index" funds, are popular for this type of investment as they combine the benefits of Indexing, dollar cost averaging and low cost of service.

As these Retirefunds get closer to the retirement date of the owner, it has been normal over the years to move that money from stocks into bonds as they have traditionally been considered "safe" investments. For the past 30 years bonds "have" been a safe investment! However, this may have lulled many investors into believing that will always be the case but alas, all good things must come to an end, and many economists now see dark clouds over the bond markets.

Interest rates have been near zero in the western world since the financial crisis of 2008 due to quantitative easing first initiated by the United States Federal Reserve Bank (FED) followed by other Western Central Banks in the European Union and Japan. The problem for average investors is that, as interest rates begin to rise again (as they inevitably do) bond rates will dive, driving bonds lower and lower. Some fund managers seem more aware of this creeping monster than others do. Some will stick with this seemingly tried and true method of "winding down" your risk. It may well be that bonds in the medium term may actually up your risk. Some managers are switching this part of the portfolio to large cap stocks that pay dividends, real estate trusts and gold and silver.

Investopedia describes target date funds in this way:
A mutual fund in the hybrid category that automatically resets the asset mix (stocks, bonds, cash equivalents) in its portfolio according to a selected time frame that is appropriate for a particular investor. A target-date fund is similar to a life-cycle fund except that a target-date fund is structured to address some date in the future, such as retirement.

Though many people believe a target date Retirefund is right for them, opposing views do exist such as in this recent article in Forbes.

When selecting Retirefunds for your portfolio, you should also be cognizant of the fact you are selecting the "management" of these funds. Fund allocations differ from manager to manager and you should do some homework in finding the right asset allocations for your comfort level. I like to be comfortable with the management teams approach and I am wary of an future calamity in the bond market.

Here are more sites where you can begin your research into Retirefunds.
Vanguard
T Rowe Price
The Fund Library
CNN Money
Morningstar
ETF Data Base
BlackRock
CNBC

Sir John Templeton was recognized as the best investor of his time, and maybe all time!

Sir John Marks Templeton (November 29, 1912 – July 8, 2008) was an American -born British stock investor, businessman and philanthropist. There is much written about this famous investor, but what you really want to know are how he thought about investing.

He made money as the great depression unwound into the second world war, by investing in, essentially, every penny stock on the NYSE.

 He made money in every decade since, averaging 16% per year from 1954 through 1992, with his "Templeton Growth Fund", the grandfather of all Globally diversified mutual funds.

Even after he retired, just prior to the dot com bubble, (when everyone else was saying "it's different this time") he predicted most of those companies would soon go bankrupt, and abruptly made over $80 Million dollars shorting most of them.  He said it was "the easiest money I ever made". He is a legend in investment circles and here are his 10 secrets to successful investing:

1. Invest for real returns: "The true objective for any long-term investor is maximum total real return after taxes."

2. Keep an open mind: "Never adopt permanently any type of asset or any selection method. Try to stay open minded and skeptical. Long term top results are achieved only by changing from popular to unpopular the types of securities you favour and your methods of selection."

3. Never follow the crowd: "If you buy the same securities as other people, you will have the same results as other people. It is impossible to produce superior performance unless you do something different from the majority. Buying when others are despondently selling and selling when others are greedily buying requires the greatest fortitude and pays the greatest reward."

4. Everything changes: "Bear markets have always been temporary. And so have bull markets."

5. Avoid the popular: "When any method for selecting stocks becomes popular, you will need to switch to unpopular methods."

6. Learn from your mistakes: "'This time is different" are among the most costly four words in market history."

7. Buy during times of pessimism: "Bull markets are born on pessimism, grow on skepticism, mature on optimism and die on euphoria. The time of maximum pessimism is the best time to buy, and the time of maximum optimism is the best time to sell."

8. Search worldwide: "To avoid having all your eggs in the wrong basket at the wrong time, you should diversify. When you search worldwide, you find more better bargains than when you monitor only one nation. You also benefit from more safety thanks to diversification."

9. Hunt for value and bargains: "Too many investors focus on outlook and trend. Therefore, more profit is made by focusing on value. In the stock market the only way to get a bargain is to buy what most investors are selling."

10. No-one knows everything: "An investor who has all of the answers doesn't even understand the questions."

Sir John, as well as legendary investor Warren Buffett, have most of their best stock picks when there was blood in the streets, at the point of maximum pessimism.

Basically, if you invest with the crowd, you will get the returns of the crowd.  If you can step outside of that box, when everyone else is panicking and selling, you just may be following in the footsteps of the best investors who ever lived.

Creating wealth or preserving wealth - Why chose?

What should I do with my nest egg? Where should I invest?  How should I invest? Gold, Silver, Stocks, Bonds, Funds?  Can you help me decide please?

These are some of the questions investors have when they seek financial help. Fund managers and bankers know these questions will be asked. They know, because they are quite familiar with the driving force behind those questions.

Bankers, fund managers and money managers often break down clients into two categories. Those who want to create wealth and those who want to preserve wealth. Now, ask yourself this simple question: Are you in either camp?  If so I am sure you have your reasons. Some of you believe your portfolio, which may be fairly substantial or even just adaquate, should be protected and preserved for your retirement years. That, my friends, seems to make good common sense, Does it not?

A Santa Claus Rally, or a Christmas Crash? Tread softly, and carry a big bag of cash!

It's almost year end, and the big dogs of the managed mutual fund industry have quite a quandary on their hands.

They stayed out of the fall rally, hoarding cash, and subsequently made no money, while the market surged ahead.

Their problem:  Well, they now either have to make up all of that in the next two weeks, or be prepared to explain to their many clients why their investments did not keep up with the market, and in fact, performed well below it.

Small cap and Micro Caps are the new BIG in investing!

Image via Wikipedia

Diversify young man, diversify!

That has been the mantra of the entire investment industry for 40 years now. However the cracks in the dam of diversification widen immensely when the markets go sideways, or begin to fall, as they are this year (and probably for years to come). Here are some reasons why diversification may well be a huge money pit over the next few years.

In a previous article, I explained how average investors are getting screwed by the mutual fund industry.

Ten years ago, if you invested in most diversified mutual funds, you would have made approximately zero on all your investments to date. (Ten years of ZERO!!!) The mutual fund industry is the most bloated, overpaid and valueless industry in the world today, in this writers humble opinion. They charge you fees from 2-4% for essentially "not managing" your investments. Many of the managed mutual funds out there are actual closet indexers (they follow the index of the country or market they are invested in by buying the large cap stocks as they appear in order in the index) You would do better simply by buying an index fund yourself and paying the .05% fee instead of 3-4% fees. Why is that?

Well there are several reasons for this behavior not the least of which is the fact that (and this has been subject of scientific studies) a trained monkey, picking stocks over an extended period utilizing diversification, on a statistical basis, does as well, within 1 or 2%, as almost all of these fund managers.  In other words, they have no specific skill in picking stocks using diversification.  Diversification works when there is a bull market, but there is no protection when markets plunge (as in 2000 or 2008) and the next two years could be absolutely devastating for fund investors.  That is probably why there has been $50B (approx) removed from these funds over the summer. Being long term investors, most of those won't be back to the market anytime soon unless it is to pick specific stocks in small bull markets.

There have been many studies over the years in regard to this. In the current market, being manipulated by governments around the world employing Quantitative Easing (QE), large traders like GS, JP and the like using super computers and flash trading, in a market notable only for it's very thin trading, the word that comes to mind is "fraudulent" when it comes to stock prices, especially the large cap supposedly "blue chip" variety.

The fund industry wants you to believe that diversification will be your investment savior, however many savvy investors today know too well how this industry works. Just ask yourself, were you diversified in 2000?  Were you diversified in 2008? Did your fund have investments in Enron? AIG?, Dot Bombs? Fannie? Freddie? Nortel?, JDS Uniphase? Citi, GM, Chrysler, AA, etc etc??? Did your funds make you "ANY" money at all? We need to change our thinking, now, and dramatically!

There is, in fact, a way to use this bloated industry, to pad your Retirefund over the next few years. There are indeed stocks out there, flying under the radar (thankfully) of this bloated industry, simply because no tainted ratings agency has noticed them (yet) or because these small caps are not yet big enough for the industry to promote to fund managers. I,m not talking about the \'under $2B\' range of stocks that the managers consider small cap. I,m talking about really small, micro cap entities that are forging niches in future markets that haven't hit the big time yet. That is where smart investors are looking in this market.

Find those gems that have a foot hold in new markets, are front runners with nimble and smart  management, in a market soon to be targetted by the big dogs of the fund industry.

Now you are on to something.   Something that truly makes sense, in a senseless market. Today, you have at your finger tips all of the technology you need and more. More than the so called experts have ever had in the past, so, use it! Do your home work. Dig for information, and evidence of advantage in micro caps, and stay on top of that information. Prosperity will follow.

Using this simple strategy last year, I advanced my own retirefund by over 220 per cent. Last month alone,  I doubled my money on one stock and I believe that over the next two months, it will double again.
This month another of our picks is up 36% on discovery of a new green tech energy process that may revolutionize how we deal with (and utilize) carbon emissions.

Are they all home runs? Of course not. Anyone who tells you they only hit home runs is lying through their teeth. However, if you hit a home run every 5th time at bat, then you will be a heavy hitter over the year.  If you get a single, a double or a walk on 3 of the other 4, you will win the batting championship, hands down.

Here's to your Retirefund!

HP

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Stocks Scorecard October 2009

It’s bragging time! While I know full well that a “rising tide floats all boats” I also know that some boats are faster than others. Since January the S&P/TSX is up 25.2% so if you had bought a simple index fund you would be in the money by that amount minus .5% of your entire portfolio.

However, if you had invested along with me this year, here is what your returns would be at this point in the calendar:

TD Bank, 96% (bought in March) (sold Oct 1^st)

Ballard Power 130.97% (YTD)

Wi-lan Technologies 26.9% (YTD)

Apollo Gold 33.4% (bought in Sept)

Corridor Resources 74% (bought in March)

Now, if you had sold your U.S. Cash into the Canada buck when I did in January, this small simple transaction would have returned for you over 27.6% or more than the entire index.

To update these picks, I have sold approx 75% of my TD Stock (anytime you get a lift of 96% on a bank stock you take profit, period) however I am holding on to the rest as I still see great upside in all four of these picks. I also have some low PER mutual funds and my near term use funds are in money market funds.

I hope you have done as well with your Retirefund this year to date; however the year is not over and there is much more to be made. Of the four stocks I am keeping I expect that, even though their returns have been great, Ballard Power, and Apollo Gold have the momentum to double in the next two months with good upside beyond in early 2010. Wilan Technologies is still a sleeper with upside in the 300% range in my opinion, over the next 12 months, because of it’s 750 wireless patents. Corridor Resources is a small gas play with takeover potential.

I have increased my holdings in Apollo gold twice this month, since buying in at .45 My last purchase was at .55 as I believe that this stock has the most upside potential of all four.

Happy Investing. Happy retirement.

HP

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Is the Lottery your Retirefund?

Image by Renegade98 via Flickr

"I'm planning on winning the lottery"!

The plan is not the problem. The "execution" of the plan is. I am constantly surprised (and then again maybe not) at the number of people who have told me exactly these words ( in a joking manner of course) when asked about their retirement. Sadly, for many, it is not a joke.

Statistics for the Baby Boom Generation, and the top of Gen X indicate that over 50% of people surveyed have saved "nothing" for retirement. Let me repeat that, "nothing"! Many more have "some savings and investments, but not enough to retire and will most likely keep working beyond 65 (unless of course, they win a lottery).

You know, it is never too late to invest. There is a well known saying that, "The best time to invest in the market is 25 years ago. The next best time is Right now"! The stock market has been the driver of wealth for 100 years. It will be the driver of wealth for the next 100 years. At this time of uncertainty and worry, it may be a good time to jump back into the market. Summer rallies are not a common occurrence, but they do happen.

Get good advice, invest over time (not in one chunk) spread your investments around many stocks/funds. (The same strategy that spawned the mutual fund industry). Don't listen to the naysayers, for they will surely come and question your sanity. When the naysayers (friends, family, co-workers) begin to tell you how you are wasting your money, ask them if the lottery is their Retirefund! Then watch them squirm.

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