In my last post, I ask the question; Should We Refrain from Equity Investments, my answer was and is I think not.
Why should we remain in the Equity Investment market; no other investment will match equity growth if we pick the right investments. And this is the rub; can anyone guarantee he or she will pick the right investment time after time? With all the research supposedly being done by various member of the stock and bond industry, very few have matched the S&P 500 or DJIA indexed average over any period of time. Question, is there any where good advice on investing in the market is available? According to Edward Winslow’s book; “Blind Faith”*, research is now little more than a marketing tool built on less than complete knowledge, paid for by issuing company and marketed by sales people marketing themselves as consultants working for your best interest. And if we are doing our own research, is enough information truly available to make an informed decision or are we just gambling? Consider; market price is currently based on demand plus available shares. How much real value do your shares have if several thousand or hundred thousand shares have been awarded as options 20 or 30% below current value? Of the four entities involved, the issuing company, the broker, the holder of the options or you, who is going to make the least profit.
The first supposition to understand is the market is not there to actually benefit us and we are handicap by basing decisions on limited or less than forthright information. Can the individual investor sort out better non-bias information and glean it down to make an objective decision? However, actual investment is the end, not the start of the investment process. Equity investing has risk and risk must be considered individually. There are no circumstances were you put at risk assets you cannot afford to lose. When these assets are protected any assets left over can be put at risk but even then the best yard stick is subtracting age from 100 and having no more than the remainder at risk.
Currently we are in March 2010, DJIA has moved from 6,547 to 10,550 since March of 2009 but are we in a Bull market as some would suggest and does it really matter? We have only recovered 53% of the previous DJIA loss is the worse over, which way will we go tomorrow? Conventional wisdom recommends holding, if you don’t sell you haven’t lost except the time value of money. How much can you afford to lose if you do hold on? At this point there are too many questions and time line to long for anyone close to retirement to maintain a large portion of retirement assets in the market unprotected from loss. The definition of market means stocks, bonds, mutual funds, variable annuities, even a diversified portfolio or money in the hands of a “hedge fund maestro”. Given we have had two meltdowns since the start of this century, does or should unprotected market risk fit into your retirement plans?
If then we need to maintain assets in the equity market, with risk high, time line short and loss unacceptable is there an answer. Again, yes. There are a number of ways to protect any portfolio from market melt down. Starting with the complex to the very simple, but all have a cost. Investing unprotected means you get 100% of the winnings but also 100% of the loss. How much are you willing to give up to not worrying about the possibility of loss? Using the complex method you will give up 10 to 30% but it takes hours of study, a good broker, strong constitution and a learning curve you may not be able to afford or time you don’t have.
The simple solution has been with us for centuries but evolution to its present form guaranteed to provide life long income if we life to long and an inheritance to our families or loved ones if we live to short and can even provide protection during bad health. Fixed annuities have been around forever; though they are not sexy their consistent tax free growth has helped many retirees meet the future. But the advent of the Tax Deferred Index Annuity has changed the game, now we can be in the market but not at risk to lose principal or past investment gains. Safety, fair return, flexibility and a degree of liquidity is the hall mark of today’s annuities. Its unfortunate the financial press is so caught up with what annuities may have been not what they now are, life long security with design or optional riders to facilitate any individual need or desire.
Riding the market to regain savings has and is poor planning. But you can make it work by redirecting a portion of your portfolio each time it rises or hits a plateau and over time lower your risk factor, bringing down or eliminating your total risk.
If you have not looked at Annuities in today’s market you should meet with a competent financial advisor for a professional look. Be objective, disregard current financial press misrepresentations and form your opinions. The roller coaster ride you may now be on is stressful, and stress is unhealthy. Do you want to know your required retirement objectives will be met or do you hope they will be met? Investing unprotected may be exciting, you may win, but you could lose—can you afford it?
Most retirement planners are or should be more interested in you than their commission and few annuity, insurance companies or banks provide significant rewards to sell their product. Within 30 minutes but not longer than 60 you can tell who he or she works for, you are the companies they work with. Good retirement specialist may help keep you in the market but protected and then help you develop more profitable relationships with current advisors and/or fill out your team to obtain other services you may need and keep you on track with periodic review and updates. Working with most retirement advisors is cost free to you but the help, design and structure they provide could be the difference in having a successful retirement.
Hubert McMinn Jr.
* BIND FAITH by Edward Winslow is no longer in print but can be obtained through most book sellers at very reasonable cost.
If you invest in no other investment book this year, get BLIND FAITH!
Hubert McMinn is a retirement planning specialist working within Texas, USA and located in the Houston area. To better understand how to develop a better retirement foundation, contact Hubert McMinn by email at hmcminn@plannedassets.com or for retirement planning ideas and concepts, visit him at: www.plannedassets.com.