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Retire, A Complex Word
When you look up "retire" in a dictionary, you get; to withdraw from action or danger, or to withdraw especially for privacy, to move back, or to go to bed. My definition of retire would be do the things you want to do when you want to do them.
With that said, you have to manage your money to achieve said goal. That is what Cramer is talking about and what Kiplinger is talking about, and Money Magazine and such. One of our readers recently commented to me that all these TV Shows and Magazines are telling people how to invest and how to invest for their retirement. Most do not say what to do with your money once you are retired.
We can't completely agree with that, but I can see where that perception is created. Here would be my reply.
There are three buckets of retired people. (That may be a gross generalization and over simplification, but let's work with it.) The first bucket are the Uber Rich. Will define that as total assets of 10 million or more. They have plenty of assets, but more importantly access to almost any of the great investment advisors in the world. They could get last months Barron's and go down the list of IAs and find talented successful advisors to take care of their every need. I only have a few people on this blog that fall into that category and wonder everyday why they open this e-mail. It does keep me humble. Well, a little humble. I guess people with a blog by definition are not humble?
The next bucket would be people who have enough money to not have to change their lifestyle while retired and are not dipping into their capital to do so. We will get to them in a moment.
The last bucket are those people who retired to early or did not plan for their retirement properly so they are either drastically changing their lifestyle or selling off their principal to make ends meet.
We know people in both of those last two categories.
For the people who are not changing their lifestyle and not dipping into their principal assets, good on you. Continue doing what ever you are doing. You have enough investment acumen to have found the correct risk tolerance and return to make retirement what it should be. You are the ones who can watch Bloomberg or Mad Money and take the wisdom without the hysteria. You can look beyond tomorrow, next week, and next quarter and maybe even to next year and make comfortable decisions. You probably have enough interest and knowledge that if you hear a piece of news about a stock or an ETF, you know how to investigate it and possibly ask your IA about it before making a decision. Carry On and keep up the good work.
The last bucket of people, have a tough row to hoe. They need to realize that we live in a world where the longer you live, the longer you live. They have to assume that their expected life will be 5-10 percent longer than they think it is now. If they are 65 and they think they will live to 80-85, think about the fact they will probably live till you are 90 or older.
If these people don't or can't think about re-entering the work force to revitalize an income stream, then they have to work with what they have. While there are some good ideas for these people in book like Cramer's Getting Back To Even, they must be very concerned about risk tolerance. This market is full of mobocracy (I'll save you the time-UTTER CONFUSION). If I were in that situation where my income days were over, I have my nest egg, I have moved to a local that is retirement friendly (Anywhere NOT in California), and I have cut my expenses to the bone, then here is what I might do.
Let's say I have total assets of $600,000 including a paid for home and a couple of IRAs I had established. And let's say my monthly expenses are $2000 a month. Let's also assume the home is worth $300,000 leaving me $300,000 to generate the $2,000 a month.
Right away you can see a problem. $24,000 a year is an 8% return on $300,000.00. Do you know anyone getting a sustained NET 8% return on conservative investments at the moment? Me neither.
My first course of action would be to look into getting a job to take some of the burden off the $2,000.00 a month. Let's face it, if I can work and I am considering selling your principal to make ends meet, I am probably not traveling much, don't have 357 channels on my cable system, am not going to the movies everyday, and not doing the things I want to do when I want to do them, so why not spend a few hours a week making some extra jingle? And if I do score a job, chances are I might have side benefits like a secondary health care insurance and an employer sponsored 401 K program. Things to consider.
BUT, let's assume I can't or don't want to work. What is a safe way to get an 8% NET (Meaning after taxes) return off your money? THERE IS NONE. Here is what we would suggest. Find a financial advisor who is knowledgeable in BONDS.
A little reading would reveal that there are two industry specialists who might be helpful in this scenario. A Certified Financial Planner (CFP) - The CFP is one of the most respected financial planning designations that requires a minimum of three years of experience, follow a strict code of ethics, and pass a lengthy examination. These individuals provide a broad range of financial advice, so look for an IA or FA with this certification and ask them if they specialize in Bonds. To further refine your search, consider working with a Chartered Retirement Planning Counselor (CRPC) - A CRPC designation is offered through the College of Financial Planning to allow planners to specialize in retirement planning. These individuals must also pass an exam and meet a strict code of ethics.
Once you have found your Planner, consider talking with them about setting up a tiered or ladder Bond Portfolio that could conceivably drive a 4-5% NET return for most of your capital. A Laddered approach would allocate the capital to have $2,000 expire in July 2013 and another 2,000 expire in August of 2,013 and another in September of 2013 and so on. Your returns for the first 12 months will probably be disappointing, but at the back end of the time line, say 20 years the yields might be more attractive.
We would think it would not be in this person's interest to BE IN STOCKS AT ALL. Stocks are too volatile at the moment and it would not be conducive to protecting capital. BUT we all know you can't follow the market and sit and all that is going on and not want to play. If you can't help yourself, look for companies with decent sustainable dividends, decent cash flow, and low or no debt.
You can find these by using almost any free stock screener like the one at FINVIZ or Yahoo Finance. Give it try. It only takes a minute to find gems like we described. (We talk about screening next.)
A Lean Mean Screening Machine
Ok we can't put enough lipstick on this market to make any money, so let's add some stocks to our watch list and wait a few months to get back in. Now we can spend copious amounts of pixels telling you how to screen for that next great stock or we can do it for you.
So here is my offer. Send me a stock idea and three reasons why you think it might be attractive. Based upon those three criteria and I will run a screen using FINVIZ to find comparable stocks (possibly better or possible worse).
We are doing this because we are screening for possible new investments when the market turns better. We are using the Auer Screen supported by the Buffet Worksheet.
This keeps us from buying or selling off the headlines which very seldom works. So hit me with your best shots.
Baby What You Want Me To Do?
Jimmy Reed the "electric" blues guy who brought us hits like Ain't That Lovin You Baby and Big Boss Man in the mid fifties had a hit song called Baby What You Want Me To Do. The lyrics go something like this:
I'm goin' up.
I'm goin down.
I'm goin up down round anyway you want me to go,
Yeah yeah yeah.
Jue got me doin what you want,
Baby what ya want me to do?
Kinda felt like the market today.
We got a couple of notes after the close today and all I can tell you is I don't get it. That is why we are cash. That is why there is a Red Flag flying over there to the right. This is not a good time to be in the market especially if you have stopped out of your positions.
Just take a cleansing breath and we will find brighter days a head. Look at your past trades and do a forensic on your wins and losses in the last 6 months. (Dec-May) That is an interesting cycle to study. We had the rally from mid December (22nd) to May 2. What did your stocks do. Did you get out with a profit.
We flew the Red Flag on May 3 and the market is down about 8.1% since then. We will do our best along with the help of IBD, Barron's, and MarketSmith to fly the right flag at the right time.
The Honeymoon Is Over
Priscilla Chan-Zuckerberg has got to be feeling a little nervous at the moment. News just broke that Facebook is thinking about changing teams, from the NASDAQ to the NYSE. This is unheard of for an average cap stock, none the less one of the largest IPOs in history. An initial IPO list is like a marriage. They usually stay wit their exchange till death do they part. Mmmm.
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