Posts Tagged Retirement Planning


Following last Tuesday night’s State-of-the-Union Address,  Donald Trump just reiterated most  of the usual things—Jobs, “Obamacare”, Dodd-Frank, Immigration, Terrorism, Regulations, Trade and Tariffs, Education, etc—which he has been talking about throughout his very short political career.   But, after 40 days in office, he has accomplished absolutely nothing, except to infuriate a majority of Americans.

If any of the promises he has made were based on non-practical ideas, Trump would have had people working on his proposals and, perhaps, even submitted legislation to Congress on a few.  For instance, if President Obama’s Affordable Health Care were really so “awful”, we would have seen a draft of TrumpCare by now.  And, if Dodd-Frank, which reined-in the banks, after they took the nation to the edge of the Financial Abyss in 2008, was so terribly bad,  wouldn’t Donald have presented an alternative plan by now?

But so far, Donald Trump seems to be spending his time:  talking and tweeting; holding Command Performance meetings at the White House with people who seemingly would rather be anywhere else; and having his photo-ops boarding and leaving Air Force One, and always with Ivanka and the grandchildren in tow.  I wonder if Trump spends more time at Mar-a-Lago now, since taxpayers are paying for it, than he did before he took office?

Market professionals, who had been expecting a Market Boom; because, Donald Trump vowed to: put people back to work; re-build the crumbling infrastructure; cut the tax rates for everyone; de-regulate all industries; and put more discretionary income in consumers’ pockets.  But now, those investors are beginning to wonder how much of Donald Trump’s agenda is smoke, and how much is mirrors?  They are also wondering if he can even get any of his plans through a Republican-Majority Congress?

When people look at the Trump Regime nowadays, the question most frequently asked is:  Who’s in charge?  Donald Trump has demonstrated that he is certainly not a detail man, whether that means understanding the most important questions facing the nation today, or in directing his staff in carrying out those most important responsibilities.  Trump himself seems to be out more often than he is in, and most of his Cabinet and other key officers seem to be kept out of sight, and few deputies are on-board.  With forty days in, and nothing accomplished: that’s despicable!

The financial markets do not function well with uncertainty.  In fact, Steve Bannon seems to be the only key advisor in the office, and working.   And, that’s like having the fox guarding the chicken coop.  Reports from the West Wing suggest a spirit of: disorganization; disruption, incompetence and disbelief.  Even Reince Priebus, Trump’s Chief-of-Staff, appears to be lost, both in-space and in-time.  Will he be ousted soon?

I believe that this sorry picture of our Nation’s Leadership—without experience, without leadership and without a clue—is why the stock market has paused, and backed-off from the blindly upward track that it had been on for the past couple of months.  There has been more, and more, talk of a stock market pull-back; however, now it might take a “correction”, a ten percent drop, in order to adequately pass some of the false Trump euphoria out off the market.

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Wall Street seems to have gotten its fingerprints all over Donald Trump’s plans to Repeal Dodd-Frank, and just eliminate the Department of Labor’s “Fiduciary Rule” outright.  “Dodd” was passed to rein-in the Banks following The Great Recession (4Q07 to 1Q09).  The Fiduciary Rule, on the other hand, applies specifically to Qualified Retirement Plans (IRAs, 401(k)s, 403(b)s, etc), and it requires financial professionals to place the clients’ interests ahead of the firm’s, and their own.  Shouldn’t that rule apply to all securities accounts?

Back in November, I wrote about giving our combined personal investment portfolio its first major overhaul ever, because: I have on-going concerns about what havoc Donald Trump might wreck on our Economy; and I wish to simplify our portfolio, in the event that my wife and daughter might have to take over managing it at some point.  And given Trump’s continued irrational behavior, these concerns still seem as relevant as ever.

Yale Economics Professor Joseph Shiller won the Nobel Prize, in 2013, for his empirical analysis of asset prices.  Shiller concluded that the market is inefficient, and he has suggested that passive index funds can do just as well as actively-managed ones, but without the higher management fees.  Warren Buffett, in his Letter to Berkshire Hathaway Shareholders, concurred, suggesting that an S & P 500 index fund, possibly with other stock exchange-traded funds, plus individual bonds or a bond ETF, would perform better in the absence of the management fees.  John Boggle, founder of Vanguard Funds, agrees.

In May of 2012, I wrote a post, comparing mutual funds and ETFs.  It provided a brief, but general comparison between actively-traded mutual funds and ETFs.  Given what is happening now; however, I believe that the Advantage has certainly shifted in favor of ETFs.

Here are some sources for learning more about ETFs:

The CNBC (financial channel) web site provides news, plus market statistics.   On the “Markets” drop-down box, the various global markets can be checked in real-time.  At the bottom of the drop-down, go to “ETFs” for a list, prices, performance, and trading volume of the most popular ETFs, with the Sector SPDRs just below them.

Then go to the State Street web page for SPY, and that company also distributes the Sector SPDRs.  On the SPY page, a Fact Sheet can be viewed, as well as other literature.

On the Sector SPDR page, there are Fact Sheets for each of the sector ETFs, performance and a list of all of the stocks, within each of the sectors of the S & P 500. There also is a Sector Tracker, which provides historical performance, for each sector, across various time-frames.

iShares provides a range of mostly overseas ETF, either globally, by region and for many individual countries. Some of the iShares ETFs that I used, when I wanted to put money into various overseas markets, are as follows: EFA for the EAFE (Europe, Australia and there Far East) Index of industrialized markets, EEM, for Diversified Emerging Markets, or EPP for Asia-Pacific, excluding Japan), among others.
Lastly, check the Stock-Encyclopedia ETF Guide to research any ETF, to include Fast Sheet and other research material,

There are hundreds of ETFs on the market.  If your advisor suggests one, be sure to have him/her explain why that (those) particular one(s) would be suitable for your needs.  I would suggest shying away from ETFs that invest in commodities and foreign exchange, because those markets are more oriented toward institutional investors.  Similarly, be aware that ETFs that double or triple the upside of an index, will similarly increase the risk on the downside.

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Psychologists suggest that a good way to understand a somewhat complex idea—especially for those over 50—is with charts and graphs.  For stocks, however, there is a three-dimensional object that surely you have seen—probably threw it down, like me!  The Rubik’s Cube!  Now, I’m not suggesting that you solve it; rather, just picture it!  But, the six-sided cube, with three smaller blocks on each edge, meets our needs perfectly.

Consider the green (or any color) face of the cube.  Large, Medium and Small companies are represented by the top, second and third rows across, respectively.  You will undoubtedly see the term “Cap” after one of those sizes, from time-to-time, which refers to the amount of capital that the various companies have to work with.

The left-hand column includes “Value” stocks, which are generally more mature and somewhat more stable.  “Growth” stocks are represented by the right-hand column, and are normally newer, and more volatile, but not necessarily to any dangerous extent.  “Blend” companies, listed down the middle, have some of the characteristics of both value and growth.  So, a large-cap value company would be represented by the upper left-hand block in our visualization, and a small-cap blend would be in the middle block on the bottom row.

For the investor who wishes to keep things simple, and doesn’t want to invest in individual stocks or bonds, Exchange-Traded Funds are a good option.  ETFs tend to replicate all of the securities in a particular index, for instance:  the Standard and Poor’s 500; stocks of one industry; foreign securities, etc.  Most securities firms offer a wide range of ETFs for you to choose from.  I have found two companies especially helpful:  Sector SPDRs, for adding greater weight by replicating just the component securities of a particular industrial sector of the    S & P 500; and iShares for a wide range of Foreign securities, on a Regional, Country or Global basis.  ETF Tracker, although not a distributor of ETFs, is a good source of information.

Investors shouldn’t place all of their money in companies of just one type—large or small, value or growth.  Similarly, it can be risky to bet it all in one Industrial Sector, such as: Energy; Health Care; Technology or Utilities.  In fact, a good way to suffer a big loss is to invest only in: industries that did well last year, figuring that that trend will continue; industries that suffered last year, expecting a turn-around; or industries that you know well.  And never, ever go whole hog, by investing heavily in the industry that you earn your living in!

Remember that the Rubik’s Cube is three-dimensional. But, let’s extend that third dimension—the depth, perhaps—out to include, say, nine or ten blocks.  That would compare to the approximate number of basic industries in our Economy.  Diversify among, at least a range of sectors, but you don’t have to invest in every one, in order to diversify. If you prefer. you need not invest in individual stocks.

I would also suggest considering a fourth dimension, which you may or may not feel comfortable in doing–Overseas Securities.  Research material is in short supply for many individual Global (U. S. and Foreign) or just Foreign Securities.  Besides Mutual Funds, Exchange-Traded Funds might be a good alternative–both for Domestic and Foreign Securities–for the investor who wants to keep things simple.

Whether you are interested in investing in individual securities, mutual funds or ETFs, be sure to check the web site(s) of securities firm(s) you deal with, or with particular mutual fund companies.  It’s important, when you consider investing in mutual funds that you know the details:  how they have ranked in their respective categories; what their investment goals are; big mutual funds often become more of an index fund, but with much higher prices;  and how long the investment manager has been working on that fund.

The Bond Market is quite difficult to explain, at least in a scatter-shot approach, such as a blog post.  And, unfortunately, most brokers don’t understand the bond market, since it doesn’t have the pizzazz that the stock market does.  Over the years, however, I have written a number of blog posts on the Fixed Income market, which you can read by clicking on the “Investing” Tag, at the right.

NOTE:  As always, if you don’t find what you’re looking for, send a Comment, which I will try to respond to.

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Aside from Trump-proofing our investment portfolio, my more overriding concern in re-arranging it, was to simplify it!  Although my Wife and I discuss our finances openly, and we talk about our investments frequently, I want her to be more involved, and have a deeper understanding of how we are doing, and what we are doing—on a regular basis.

In a recent post, I pointed-out that I had shifted the Asset Groups around, as follows: Individual Stocks from 42%, down to 16%; stock ETFs (exchange-traded funds) from 18%, increased to 33%; Mutual Funds remained even, from 37% to 34%, and Cash increased from 6% to 16% (plus, we have a little more outside).

The more realistic way to understand those changes, however, is as follows:  stocks—both individually, in ETFs and two mutual funds—have hardly been changed; because, two of the three mutual funds (8%), are stock mutual funds.  A global bond fund represents 25% of the total portfolio, for balance.  And, cash has increased by ten percent.  But, why’d I shift stocks around, rather than convert them to bonds, other securities or cash?

I believe that major indices, such as the Dow Jones Industrials and the S & P 500, are an easier concept for my Wife to feel comfortable with.  Investing in ETFs is basically just accepting the “law of averages”.  For instance, a particular ETF just tracks all of the securities in the particular index, and that includes both the good and the bad ones.  In effect, you can’t go wrong if you match the market, so to speak!

Most indices are weighted, so that each security’s proportion is based on the relative size of the various companies.  Apple, Inc., the largest component in the S & P 500, accounts for 3.25%, while the smallest represents just a tiny fraction of one percent of the index.–and the ETF.  We will still monitor the ETFs so that one or two stocks don’t grow out of proportion, as to make the index meaningless.  Similarly, the same can be said for the component companies of any one industrial sector, and such monitoring would be across all the investment groups.

Yale Professor Robert Shiller won the 2013 Nobel Prize in Economics, for his empirical research on Efficient Markets.  Shiller concluded that the markets are inefficient, and that various external factors often effect the outcome.  Accordingly, he recommends investing in stock indices, since very few investors have ever beaten the market. An article about Shiller’s Nobel win, and ETFs, is linked, as follows:

Using ETFs reduces the need to analyze each stock; however, we will monitor the indices, as noted above.  Besides the sector weightings, I will probably modify the relative amounts in the various ETFs by company size, from time-to-time. And at some future date, we might decide to sell the remaining four individual stocks and/or the stock mutual funds.  Now, my toughest sales job awaits me—selling this idea to my Wife!

NOTE:  I have linked a post that I wrote some time ago, which hopefully, will be of value to readers who are unfamiliar with ETFs:

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In a prior blog post, I discussed the fact that I had made a sweeping overhaul of our investment portfolio for two reasons:  the uncertainty that Donald Trump will act rationally, both with regard to the economy and to other policy areas; and the fact that I need to simplify our portfolio, so that my Wife )nd our Daughter) will become more involved.  That’s just common Estate Planning sense!  That post is as follows:

I specifically cited the fact that I had dumped all of our Apple, Inc. (25% of our portfolio); but, that’s not because of the company, per se.   I believe that it is still excellent, which is well-managed.  In fact, I might even buy some back someday.  As the largest corporation on earth, however, and the fact that its iPhones are assembled (but not manufactured) in China, it might be Public Corporate Enemy #1, should Trump  continue to act like an unstable spoiled brat!

I will go into more detail, describing why I decided to simplify our portfolio, in a follow-up post,  Now, I don’t intend to go anywhere, so you will have many more blog posts to delete, for years to come.   But, that is why I went outside of my normal portfolio method of operation.  As I suggested when I began this blog, from time-to-time, I will write about life and career changes, that are best planned for—before, rather than after, they occur.

I actually reached my Eureka Moment on November 14, and downsized our portfolio, based on Asset Class switches, as follows:  Individual Stocks from 42%, down to 16%; ETFs (exchange-traded funds) from 18%, increased to 33%; Mutual Funds remained even, from 37% to 34%’ and Cash increased from 6% to 16% (plus, we have a little more outside).  The number of individual stocks dropped from around ten to four; however, the ETFs (still) are mainly replicates of major stock indices (i.e., DJIA, S&P 500, Russell 2000) and a few Sector SPDR ETFs to enhance specific sectors, such as Energy, Technology and Utilities.  So stocks did’t really decline, they are now just more diversified.

I kept four individual stocks; however, I am not recommending that you invest in them.  Rather, I wish to give you a little flavor of how I make my investment decisions:

Aetna:  provides health care insurance.  This is the whimsical one, in that its hard to tell how it will fair in a Trump World; so, the amount invested is minor.  AET has performed well, as the Affordable Care Act (”Obamacare” to GOPers), as some 25 million more Americans now have health insurance.  Under Trump,  even he doesn’t know what he will do,  So, Aetna may benefit with less customers, but paying higher prices under Trump-O-Mania.

IBM:  Contrary to popular belief, IBM’s major revenue service is IT Solutions, rather than focusing on hardware or software.  Feel companies can compete with the fact that it can provide global quality service in more than 150 countries around the world.   Many corporate IT chiefs prefer its global reach.

ITW:  Illinois Tool Works is composed of independently operated industrial tool-shops in 52 countries around the world.  The independence enables it to modify its operation to the needs of its local corporate customers.

UTX:  Serves industrial and government customers as a (number one-or-two) market leader in four distinct areas:  Otis Elevators; Carrier Heating and Cooling; Pratt & Whitney and Aerospace.  Such diversification, by product and type of client provides stability.

Several people have asked what I did with our money when I bailed-out of Apple, both in comments on the blog and personal Emails.  Let me add that:  when the Economy went through a major melt-down in 2008, and the Dow Jones stock index dropped from 14,000 to 6,500 within 18 months, we road it out, fully invested, but with a few “tweaks”,  And that was with three-to-four years until retirement!  But, seven months before I retired. I decided to add about 25% in a global bond portfolio.  And this re-shuffling now is partially a follow-on to that.  Hopefully, I’ll get the conclusion written by tomorrow.

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When fellow bloggers visit my site, I generally visit theirs; and I have sometimes found them worth following, at least, from time-to-time.  Blogs that describe cooking, working for social causes, mental health issues among returning veterans, etc, can be both interesting and helpful.  Also, they are generally not in a position to be harmful to the reader.  Investment ideas, however, should clearly be presented—and read—as being for general information purposes only, and readers should be cautioned to seek their own specific advice!

No reliable physician is going to treat you without having a detailed knowledge of your medical history—past, present and family.  Likewise, an experienced financial advisor would not offer investment advice without knowing about: your family situation; financial picture; risk-tolerance; long-term goals; etc.  But, when someone accepts even perceived “advice” on specific securities or financial strategies, from on-line blogs, TV “Informercials”, media articles, that information could truly be harmful.

Twenty years ago, “day-trading” was all the rage among investors who didn’t wish to learn before they plunged into the stock market.  They spent the day (sometimes giving-up their jobs) buying and selling the same stocks (and settling accounts before each day’s market close), without knowing much about the companies—just the ticker symbols!  Were they profitable, had experienced senior management, market leaders in their industries, etc?  Just don’t bother them now with the facts!  But, that craze has since gone the way of the Dutch Tulip Bubble of 1637.

Lastly, the Investment Marketplace today has changed significantly from when I joined it, in 1973.  Our financial institutions have changed, American Industry has shifted from manufacturing-to-service-to digital, there are many more public companies and investment vehicles, and the whole world has gone global! And,  don’t forget the significant jump in the volume and speed of information—credible or not—on a 24/7 basis.

This warrants a suitable comprehension of today’s marketplace within a proper historical context.  Some things have changed, and others have not.  For instance, perhaps 80-85% of stock trading is computerized; so, what you might see on television is mostly a charade, rather than “The Floor”. on which the real action takes place.  But remember: there are no short-cuts to investing!

NOTE:  There are a number of investment-related posts on this blog. Just click on the Investing or Investment Primer tags (to the right), and scroll through.

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Many people who invest—meaning risking their financial assets—are lucky if they even have an idea as to what their portfolio’s market value is, let alone knowing “What” they own, and “Why”.  You should understand how the pieces all fit together.  Do you review what you own from time-to-time, and consider making changes—either to improve the performance of individual securities–or perhaps your personal investment goals or risk-tolerance may have changed?  As you get older, perhaps you need to take less risk, since you might not be able to earn back what you might lose.  Also, if you work with a securities professional, don’t hesitate to ask lots of questions, and don’t settle for any half-assed answers!  Make them explain any recommend changes to you–which you can understand.

An investment portfolio should be diversified; because, different types of securities—stocks versus bonds, large company to small, and various industries—are impacted differently by both economic conditions and external factors.  For instance the nuclear accident at Fukushima Daichi, in Japan in 2012, undoubtedly caused stocks dealing with nuclear power to slump, while other types of energy surged.  Likewise, fluctuations in bond yields generally impact utility companies—low yields raise utility stock values, while high yields depress them.

I generally check the markets as or before the New York exchange opens in the morning.  But, I go on to to see how Asia-Pacific closed first, and how Europe is doing at mid-afternoon (their time), before I consider what is moving the U. S. markets.  No doubt, wherever you are, you can check the global markets, as well!  In some cases, Asia-Pacific is merely responding to something that already hit NYC yesterday and, on the other hand, perhaps something happened in China, Japan, Australia, etc.  Likewise, Brexit or another movement of Russia toward the Balkans would generally effect Europe first.

I also check foreign exchange (ForEx) and bond yields.  The importance is not so much the actual numbers; but, if you look occasionally, trends might begin to sink in.  The key point is to be aware of major shifts.  For instance, following the Brexit vote in U. K., in June, a number of currencies weakened versus the U. S. Dollar.  At the same time, current low interest rates on sovereign debt continue to indicate a continued weak global economy.

There are so many things—both obvious and some not—that might have ramifications on “What” is going on in the financial markets—and “Why”.  I believe that the current stock market strength is a wrong move, especially when you consider the extraordinary stimulus package announced jointly by the Bank of England and Exchequer, as well as the massive march, in London, requesting another chance to vote on the Brexit.  A weakness in U. K. could impact Europe, even though Britain is preparing to leave the E. U.  And that, in turn,  could soften the overall global economy. 

NOTE:  I have linked a recent post, regarding why I question the stock market’s current strength, linked as follows:  I believe that it beings a lot of what I have written together.

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