Investors are back to chasing falling stars...
Once upon a time, stocks always seemed to go up. When that didn't work, you could always count on your real estate to keep climbing. Then came 2008. Welcome to the New Normal. Just when the generation that grew up during the fifties, sixties, and early seventies was ready to take a Victory lap with their stock and real estate holdings, the party ended. In the New Normal, stocks don't always go up. Days weeks, months, and years can pass by in a hurry, and real estate is a place to live, not a savings account. Is the market "safe" again? Judging by the sudden complacency of investors, one might think so. But, in the words of those great philosophers known as The Who, a retiree or pre-retiree can't afford to be "fooled again."
When markets don't have a direction, like right now, that's bad enough. But when you wake up in the morning and realize you're running out of decades to fix what happens after another downturn, it's time to re-think your money. My belief is that a retired or nearly retired person needs to eliminate the crash scenario, at least for the core nest egg. Simply eliminate it. But how?
Part of the portfolio--a major part--needs to be in a solid, profitable "set and forget" mode. There needs to be a floor--preferably a cement floor--under that money.
Step two, is making sure that your safe money is building an inflation-beating income that will pay every one of your bills for living expenses for the next 20 to 30 years. Lifetime guarantees are even better.
I believe at least half of a prudent investors portfolio today NEEDS to be in safe, principal-protected positions with tax advantages and permanent income guarantees. The more you explore fixed index annuities with enhanced income riders, the more comfortable you will get. CDs and bank accounts are safe, but who can afford to stay in cash at zero? After taxes and inflation, you're going backwards. The other extreme is desperately seeking alpha and ignoring the risk. Playing catch up by chasing yields at five star mutual funds is back in style. Investors are always looking for that Holy Grail-- the combination of safety and better returns.
Right now, Investors are back to pouring money into the hands of five star, "all star" money managers. Once again, they're looking for the hot fund. Once again, they're bouncing around from fund to ETF, to master limited partnership. Moving money always costs money. My theory is that the frenzy is back because the published three year annualized returns have finally started looking good again on the Vanguard and Fidelity sites. They've forgotten what pain feels like after three years of soothing gains. Hey, the last three years suddenly look great. Problem solved, right?
S & P reports that 2011 was the flattest year in four decades. Up in January, then up, down, up down, up, down, then flat.
In today's world, I guess three years is suddenly the long term? Why are the 3 year returns of many mutal funds and ETFs looking so tantalizing? I believe it's simply because we've passed the third anniversary of the 2008 Derivative market crash. Suddenly, there are no more minus signs for three year returns when the optimistic investor does his or her "research." The Law of Recency strikes again.
The inevitable recoil and re-tracement has resulted in another Chimpanzee throwing darts type of run. So, does the answer lie in finding a good dart thrower who truly does know how to time the markets? Uh, thank you for playing today, pick up your free gift from the receptionist.
Allstar fund manager Bill Miller was the star of stars who had beaten the S & P for more than a decade. His funds became a magnet for money. That's when the trouble begins. When you're smaller, you are mobile and may be able to pick winners under the radar. When too much money comes your way, you're in the floodlight, not just the spotlight, and you BECOME the market. Trying to beat it is impossible when you are already "it."
Who really can sell before the fall and buy at the exact right moment on the way up? Answer, no one, except by luck. Coin flipping works the same. The truly great investors admit to being lucky when it happens. The guys you have to watch out for are the guys who always attribute it to skill. Skill can have a lot to do with success, but it's always better to be lucky than good.
Fast forward to today. Investors are now looking at the past three year annualized returns of 12% to 18% on various funds and actually think there is opportunity there. But history and math tell a different story. Investors are late for the train once again. My belief is that retirees or pre-retirees should look at this retracement as manna from heaven. Don't shoot yourself in the foot. Collect some winnings, get at least half of your money safe, concentrate on building hefty, secure, permanent income. Walk some beaches, count some money. To read about the rise and fall of shooting star Bill Miller, click on the link below:
Annuity Owners Manual
INSIDE: Learn about today's most recently reported annuity ideas, as reported on: