Bristlecone Value Partners, LLC
 
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Bristlecone Monthly News Digest 


Greetings!   

 

The past couple of weeks have been gut-wrenching for investors, with frequent daily fluctuations in the stock market in excess of 3%. Current concerns seem to focus on poor economic data and worries about European banks' exposure to shaky government credits.

 

It is hard to know whether the recent bad news indicate a slowdown in the recovery or the start of another recession. In our opinion, the health of corporate America tilts the odds in favor of a slowdown. One key question is how the consumer will behave. Looking at recent news from retailers, it appears that consumption is holding up so far. One unknown is whether the stock market ups and down will dampen the consumer's mood.

 

As much as oversold stocks may represent an opportunity for those who are still contributing to their portfolio, we are keenly aware that a long-lasting bear market, such as the one we experienced in 2008-2009, can have very negative implications for retired investors or people close to retiring. Consequently, we manage portfolios differently when our investors are in the wealth accumulation part of their life or in the distribution phase.

 

We highlight below three recommendations on how to cope with the current environment that can be useful to anyone, but that are particularly important to those living off their assets: 

  • Stick with high quality securities in your cash and bond allocation. Do not make the mistake of chasing higher interest rate yields. This portion of your portfolio is there to provide some protection in a recession or deflationary environment. As we discovered in 2008, high quality bonds tend to outperform pretty much every other investment during tough economic times coupled with low inflation;
  • Take a hard look at your expenses. It is better to be safe than sorry, especially if you are in the early years of your retirement. Look at your withdrawal rate (how much you take out in a year divided by the value of your portfolio). If it has increased significantly due to the market pullback, consider postponing some discretionary expenses.
  • Stick with your investment plan. If you have a balanced and diversified portfolio, chances are that its value declined significantly less than the headlines would lead you to believe. Do not panic and sell your stocks. Bear markets eventually give way to bull markets (the S&P 500 returned almost 50% from March 2009 through March 2010). By getting rid of your stocks, you turn market losses into permanent wealth impairment. Instead, at Bristlecone, we typically rebalance by reinvesting a portion of your bonds into stocks in order to keep the mix between the two constant. Doing so helps, rather than impairs, the chances of recovery for your portfolio.

Eight Steps to Wealth Protection for Aging Investors 
July 15, 2011 - Morningstar

A growing body of research suggests that our ability to make sound financial decisions declines sharply with age. Here's how you can make a plan to protect yourself--or an aging parent
. >> Read the Article 

AARP's New Social Security Calculator 
July 12, 2011 - New York Times

The AARP recently added a section to their website designed to help prospective retirees decipher the complex trade-offs involved in determining when to file for Social Security benefits. This calculator is particularly useful for married couples with disparate ages, for whom maximizing benefits often involves some careful timing decisions
. >> Read the Article 
 July 2011 
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