Comments on: Dow Dives 300; Nazz Flops 4%

By: danm

danm — Wed, 18 Feb 2009 16:41:17 +0000

hawleyl:

I think sometime down the road we’ll get inflation ( 6 months, 2 years?) and that currently the market is not pricing it in at all.

Investment portoflios are important for retirees but it’s probably going to be hard to manage them. Most investors have been averaging less than 6% desipte 10% returns in fixed income and stocks over the last 2 decades! I don’t think that is going to change any time soon.

I think retired investors or those close to retirement should invest theit time and energy into choosing a lifestyle they can afford with long term 4-5% annual returns. That is under their control, the markets are not.

Most boomers should be shrinking their lifestyle now while they still can… unfortunately that is not what the Fed and the leaders want!

By: batmando

batmando — Wed, 18 Feb 2009 15:54:08 +0000

@hawleyl
“I understand that credit card companies think of me as a “deadbeat” because I pay off any balance every month”
Me, too, and it’s more like we are “free-loaders” since we have the utility of card use but our purchases generate no more income (interest, late fees,etc) for the card issuers than the ‘measly’ transaction fees they collect from merchants (which are included in the overhead in the prices we pay).

By: hawleyl

hawleyl — Wed, 18 Feb 2009 15:45:29 +0000

I agree. I don’t want to invest in equities (as part of a asset allocation portfolio that includes cash and fixed income) until I see more stability. I just hope hope you’re right about the 0% inflation. Of the three basic needs: food, shelter and clothing, only shelter has decreased from a high bubble valuation. I don’t know if food and clothing will decrease as they were not previously valued at inflated bubble asset prices. I might expect a little decrease in prices due to less demand by the jobless and increased saving by previously spendthrift consumers. So lifestyle choices are important right now. I’m fortunate that I was not leveraged in my investments. I understand that credit card companies think of me as a “deadbeat” because I pay off any balance every month.

By: batmando

batmando — Wed, 18 Feb 2009 15:42:56 +0000

@ leftback
Adding to our DBA, UCO & UNG positions at these levels this morning?

@ mitchn
“to retire, if they are lucky, to a trailer park in Florida”
for most folks, retirement in a trailer park in Florida would be something to look forward to.

By: danm

danm — Wed, 18 Feb 2009 14:24:41 +0000

for a couple of year and generate 5-6% returns
——
Cash first couple of years.
Diversified port after that.

By: danm

danm — Wed, 18 Feb 2009 14:23:10 +0000

It’s long-term because I don’t plan on dying for 20 more years.
——–
I understand that. I manage my Dad’s money and if you only knew how tough it was to get him into cash a couple years back! He was at 75-80% equity. Every week it was the same conversation:

“But it’s long term, I NEED the 10% long term equity returns”

“Dad, you’re 61. You just started your retirement. You don’t even know what you are going to do. If you lost 30-40% of your portfolio in the next 12 months, how would you feel? How would you react? Would you panic and switch it to cash and miss the rebound? Could you have a heart attack? If you absolutely NEED to be at 75% equity, that means you don’t have enough money. Go find yourself a part time job or change your lifestyle.”

He has more money now than last year. I showed him a spread sheet where he could be in cash for a couple of year and generate 5-6% returns until 90 and he still has more money than he has now.

This obsession with the equity market is a killer. You are basically asking everyone else to work for you. Look around. How many people are working harder than you or have worked harder than you? It works for the top 1%. It has worked for the last cfew decades but it can’t work long term for the majority of the population. As people get richer with a free lunch, they get lazier. We’re there now.

I would not count on the equity market to protect you from inlfation in the next decade. Right now there is 0 expecation of inflation priced into the market. Look at the 70s. When inflation picksu up margins collapse and equities don’t do very well. On top of it, yields are currently at 3%. With inflation, yields would increase and that would make the multiple collapse. So lower multiple with crushed margins = inflation protection?

I’m not sure there’s much hope for investmentportfolios. Lifestyle choices are probably more important right now.

By: hawleyl

hawleyl — Wed, 18 Feb 2009 14:02:24 +0000

It’s long-term because I don’t plan on dying for 20 more years. Think of a retirement account as frozen perspiration. The current crisis has evaporated a lot of retiree portfolio value resulting in less to spend in the future. A 20 year time horizon indicates that some equity exposure is required. The trick is to reduce loss due to evaporation so as to retain money for future expenses while putting some money at risk to counter inflation. Reminds me of the uncertainty principle of physics.

By: danm

danm — Wed, 18 Feb 2009 13:07:49 +0000

I’m a retiree, long-term oriented and scared. I have <2% in stocks and am wondering what next.
——–
Why is it always long term?

When I was doing my CFA, even the 80-year old was long term bcause her money was going to her nephews!

The reality is that, unless you are lying on piles and piles of dough, when there are cash flows coming out of your portfolio, thinking long term is dangerous because money that has been spent won’t be there to benefit from the bounce back.

The other issue I have with this focus on increasing equity exposure because it’s always the long term, is that if you absolutely need 75% equities (based on past returns of course) to maintain your
lifestyle during your retirement it’s either that you don’t have enough money to retire in the first place or your lifestyle is too expensive.

My thesis is that if people reduced their equity exposure in the first place, they’d structure their life differently and gain better control.

By: hawleyl

hawleyl — Wed, 18 Feb 2009 12:10:47 +0000

I’m a retiree, long-term oriented and scared. I have <2% in stocks and am wondering what next. My rationale for selling stocks was that the current situation is a matter of survival, not of making money in the market. (Possibly there is an opportunity for gain for those smarter or more connected to the market.) From many things I read, the current “black swan” situation makes turkeys of all the old familiar technical indicators. So I’m waiting for the current crisis (foreclosures, jobs, etc.) to resolve itself. (It may be a long wait.) In the meantime I may DCA into gold.

By: Bruce in Tn

Bruce in Tn — Wed, 18 Feb 2009 11:58:21 +0000

Morning:

stimulus bill “bubble” alert…

http://www.nytimes.com/glogin?URI=http://www.nytimes.com/2009/02/18/us/politics/18web-stim.html&OQ=_rQ3D1Q26refQ3Dbusiness&OP=d26fc98Q2FmiLFmb_jos__wAmA338m3AmIOmNomQ3B_YRwRjomIOiLF7owRQ27Q3A(wQ27Y

Signing Stimulus, Obama Doesn’t Rule Out More
By SHERYL GAY STOLBERG

Can’t stop the recession, but we will remember that we made the effort for generations……