Daily Gains Letter

retirement


Preparing for Retirement: CNBC Financial Planner Says You Need $2.5 M!

By for Daily Gains Letter | Apr 24, 2015

retirement savingsOn a recent show on CNBC, a financial planner surprised everyone when she said a person should have about $2.5 million in his or her retirement plan. Of course, those on hand were aghast by the comments, including myself. But having since thought about it, it does make some sense.

Four Percent Rule No Longer Sufficient for Retirement Savings?

The thing is that the old rule used by financial planners that those in retirement can withdraw four percent annually to live for another few decades simply doesn’t pan out for the majority of people, given their retirement savings and retirement plan.

The problem with the four percent rule and the savings process are the extremely low interest rates and resulting bond yields that make the retirement plan difficult for many.

Based on the low interest rates offered, even a million dollars in a retirement plan could be on the low side, especially if you are expecting a nice and long retirement, as long as interest rates do not pop higher. If this is a low rate era, then you better start pumping up your retirement investing strategy.

At, say, two percent, a million dollars yields you only $20,000 annually, which is nothing in these times. Upping your retirement plan to $2.0 million yields $40,000, which, along with added withdrawals, would give you a comfortable retirement in the sun.

The reality is that the low yields that have been around for more than five years don’t help the income investor and those looking to build up their retirement savings. That’s the reason why the stock market has been as strong as … Read More


Four Companies Rewarding Patient Investors

By for Daily Gains Letter | Mar 13, 2014

Patient InvestorsThere’s more to renewable energy than just wind and sun. And thank goodness for that, because our interest and investment in traditional renewable energy sources like solar panels and wind farms seems to be on the decline.

The amount spent on deals to finance clean energy and efficiency projects tanked 12% in 2013 to $254 billion—a quicker pace than the 9.1% drop in 2012 from a record level of $318 billion in 2011. (Source: Goossens, E., “Clean Energy Support Falls Again to $254 Billion in 2013,” Bloomberg, January 15, 2014.)

The drop in investment and interest in traditional renewable energy sources is a setback when you consider annual investments in renewable energy sources need to double to $500 billion by the end of the decade—and then double again to $1.0 trillion by 2030. That represents a huge clean energy investment gap.

Decreased interest in some renewable energy sources also comes on the heels of the discovery of abundant sources of non-renewable energy, like shale oil. And since we don’t really like change all that much and prefer the path of least resistance, our dependence on non-renewable energy sources like oil is not going to diminish anytime soon. That said, the scales will eventually tip in favor of renewable energy sources.

With that in mind, when it comes to your investments, some analysts recommend allocating five percent of your retirement portfolio to clean energy.

After years of silence and disappointing investors, optimism on the heels of a number of large contracts are helping companies that make fuel cells reward really, really patient investors.

Plug Power Inc. (NASDAQ/PLUG) got the fuel cell … Read More


Three Ways to Protect Your Wealth from Global Uncertainty

By for Daily Gains Letter | Mar 5, 2014

Crude oilNothing helps create volatility on the stock market like the threat of war. And just a few short days after the close of the bloated $52.0-billion behemoth in Sochi, Russia has embraced its ne’er-do-well Olympic spirit and invaded the Ukraine. Or, according to Putin, “pro-Russian soldiers” have simply moved into the Ukraine to defend Russian interests.

With a growing threat of war/retaliation on the horizon, investors have been pulling their money from riskier assets, like stocks—sending global financial markets reeling. Crude oil and gold prices, on the other hand, have been on the rebound.

While it seems utterly crass to deconstruct the potential for war down to economics, the fact remains—a stand-off or sanctions could both disrupt gas supplies to the European Union and send U.S. crude oil prices higher.

For starters, any issues in the Ukraine could disrupt the flow of natural gas supplies from Russia to the European Union. That’s because the European Union gets about a third of its crude oil and natural gas supply (and a quarter of its coal) from Russia, mostly piped through the Ukraine. Russia, the world’s biggest crude oil producer, generated 10.9 million barrels a day in 2013 and currently exports close to 5.5 million barrels of crude oil per day.

Since the end of the Cold War, no one really worried about relying on Russia for crude oil and coal. All of that has changed. While the notion of war is remote, it’s still on the table. Nations far removed from Russia and Ukraine might push for economic sanctions, just as the U.S. has done, threatening visa bans, asset freezes, and … Read More


More Economic Indicators Show Next to Nothing Has Changed for U.S. Investors

By for Daily Gains Letter | Feb 24, 2014

More Economic Indicators Show Next to Nothing Has ChangedTwo things have been consistent this winter: bad weather and bad economic news. And both just keep on rolling. With spring just around the corner, the weather will clear up; the U.S. economic news, on the other hand, might not be so lucky.

Over the course of the last week or so, a raft of weak economic news and earnings has welcomed the markets.

For starters, a higher number of Americans filed applications for unemployment benefits for the week ended February 8. Jobless claims climbed by 8,000 to 339,000; the four-week moving average for new claims increased to 336,750 from 333,250.

For the week ended February 15, applications improved—though barely—by 3,000 to 336,000, which was less than what was forecast. The four-week moving average (which is considered a less volatile figure), increased by 1,750 to 338,500.

And then there’s more bad economic news on the home front. Last week, the National Association of Home Builders (NAHB) said that its monthly housing sentiment index tanked from 56 in January to 46 in February, the largest monthly drop in history. The negative sentiment goes hand in hand with the two-percent drop in applications for U.S. home mortgages for the first week of February. Mortgage application activity continued its nascent drop in the second week of February, falling 4.1% to 380.9.

Further weakness is being felt in U.S. manufacturing. Economic news from both the New York and Philadelphia indices disappointed. The New York manufacturing gauge slowed in February after hitting a 20-month high in January. Manufacturing conditions slipped to 4.48 in February from 12.51 a month before. Analysts had forecast a much more … Read More


Think BlackBerry Is a Takeover Target? Read This Before Buying

By for Daily Gains Letter | Feb 24, 2014

Think BlackBerry Is a Takeover Target“I am going to buy BlackBerry Limited [NASDAQ/BBRY] and leverage heavily. Maybe buy options rather than the stock. I believe the company’s stock prices are going to go much higher than where they stand now. They look like a takeover target soon. I’m going all in.” These were the first few words my friend Mr. Speculator blurted out when I received a call from him the other day.

“Why would you do something like this?” I asked. His response is something that long-term investors can learn from—and should avoid.

He wants to buy Blackberry stock because Facebook, Inc.’s (NYSE/FB) purchase of “WhatsApp”—an instant messaging app for smartphones—will make “Blackberry Messenger” (BBM)—Blackberry’s instant messaging software—a good potential target for buyers.

This is what I will give to Mr. Speculator: he may have a point. The value for BBM may be higher now, but going into a trade without anything having materialized—be it in the news, if the company has offered to sell a part of the business, etc.—is just unhealthy for your portfolio.

An investor who is looking to build a portfolio for the long run should avoid what Mr. Speculator is doing—betting heavily on a trade that has no sign of materializing.

Here’s my take on the issue: if an investor has suspicions that a company will be taken over by another firm, instead of allocating a major portion of their portfolio to that stock, like Mr. Speculator is doing with Blackberry, they should only risk a certain amount, like two percent of their portfolio per trade, for example.

First of all, when an investor only risks a certain portion … Read More


Top-Yielding Stocks to Combat Low Interest Rates

By for Daily Gains Letter | Feb 13, 2014

Low Interest RatesFederal Reserve Chair Janet Yellen has confirmed what most already knew. The recovery in the U.S. jobs market is far from complete. Yellen noted that the unemployment rate has improved since the Federal Reserve initiated its last round of quantitative easing in late 2012, falling from 8.1% to 6.6%. Curiously, in 2013, the U.S. economy grew just two percent.

That said, against the backdrop of a so-called improving U.S. economy, the numbers of the long-term unemployed and part-time workers are far too high. In fact, 3.6 million Americans, or 35.8% of the country’s unemployed, fall under the “long-term unemployed” umbrella—that is, those who have been out of work for more than 27 weeks. The underemployment rate (which includes those who have part-time jobs but want full-time jobs and those who have given up looking for work) remains stubbornly high at 12.7%.

The improving unemployment numbers come on the heels of two straight months of weak jobs numbers. In January, economists were expecting the U.S. to add 180,000 new jobs to the U.S. economy; instead, just 113,000 new jobs were added. In December, economists were projecting 200,000 new jobs would be added—instead, the number was an anemic 74,000.

For the head of the Federal Reserve, this translates into more money being dumped into the bond market ($65.0 billion per month) and a continuation of artificially low interest rates.

Once again, bad news for Main Street is good news for Wall Street. After Yellen’s speech, the S&P 500, NYSE, and NASDAQ responded by surging higher. Again, the Federal Reserve’s ongoing bond buying program and open-ended artificially low interest rate environment is great … Read More


Where Investors Can Find Stability in These Economically Unstable Times

By for Daily Gains Letter | Feb 11, 2014

Stable Investment for Economically Unstable TimesWhile most astute investors would point to a weak U.S. economy as the reason for the recent lackluster U.S. employment data, economists, in their infinite wisdom, point to Mother Nature. She seems to shoulder a lot of the economic blame in this country.

In January, the U.S. economy added just 113,000 new jobs, far fewer than the expected 180,000 jobs. Freezing winter weather is being blamed for the weak U.S. unemployment data. This is the second straight month of disappointing jobs data from the U.S. Department of Labor.

Last month, the U.S. economy added just 74,000 jobs—far, far below the forecasted 200,000 jobs. The back-to-back weak employment numbers continue to fuel fears that the so-called U.S. economic recovery might be stalling…if one could ever really say the U.S. economy took off.

The new unemployment data shows that 10.2 million Americans in the U.S. economy have work. While the number of people who have been out of work for more than 27 weeks declined by more than 200,000, the number was probably impacted by the 1.7 million Americans who lost their extended federal unemployment benefits at the end of December.

Last Thursday, attempts to revive a program aimed at extending unemployment benefits by three months for the long-term unemployed failed, being supported by just 59 of the 60 senators needed to pass the motion. At the end of the day, in this U.S. economy, 3.6 million Americans, or 35.8% of the unemployed, are stuck in long-term unemployment limbo.

And they might be stuck there for a long time. A recent experiment conducted by a visiting scholar at the Boston Fed found … Read More


What to Really Look for in This Overvalued Market

By for Daily Gains Letter | Jan 27, 2014

Overvalued MarketWhen it comes to investing, I think it’s important to have a balanced investment portfolio made up of value and growth stocks. I also think it’s important to be balanced in the way you look at or research stocks through both fundamental analysis and technical analysis. Being too extreme or having too much allegiance to one investing methodology means excluding a rich pool of information.

I have an acquaintance who’s an investor. He swears by day-trading, even though he’s lousy at it. Here, I’d like to employ Dr. Phil’s mind-numbing, near-sighted phrase, “How’s that workin’ for ya?” but to be fair, I don’t really know too many successful day-traders anymore.

Anyway, my friend, whom I call “the investing dandy,” is a pure technical analysis trader, meaning he doesn’t even care what stock he’s trading and most times, he doesn’t even know what the company does.

Technical analysis attempts to forecast future price movements based on past price and volume movements. The idea is to find patterns within the past movements, and use those chart patterns and past price performance to predict what will happen to the stock in the future.

Fundamental analysis, on the other hand, looks at a company’s financial statement in an effort to predict a trend. Unlike technical analysis, which considers the past direction of a chart to predict a stock’s future movements, fundamental analysis focuses on the forward-looking picture.

My friend contends that because the markets have been performing so well over the last few years in spite of lukewarm earnings, there’s no reason to consider a fundamental analysis.

Therein lies his folly. While he’s right … Read More


Want to Give Up on Picking Stocks and Just Play the Market? Here’s How

By for Daily Gains Letter | Jan 13, 2014

Just Play the MarketThe year 2013 was a stellar year for stocks. The key stock indices have seen record increases: the S&P 500, which showed its best performance since 1997, increased by almost 30%; the Dow Jones Industrial Average saw a similar increase; and the NASDAQ Composite Index performed even better, ending the year with a return of more than 35%.

Looking at these numbers, one must really ask how their portfolio has done. If your portfolio had similar returns—well done! If it lagged, here’s something to note: hedge funds returned only 7.4% for the year. They lagged by almost 23% compared to the broader market return—the most since 2005. (Source: Bit, K., “Hedge Funds Trail Stocks for Fifth Year With 7.4% Return,” Bloomberg, January 8, 2014.)

Two key stocks that beat the returns of key stock indices and the returns given by the hedge funds many times over this past year were Gray Television, Inc. (NYSE/GTN) and Tesla Motors, Inc. (NASDAQ/TSLA).

Gray Television, Inc.

In 2013, this stock opened at $2.28. On the last trading day of the year, it closed at $14.88. If you held Gray Television stock in your portfolio for the entire year, your profits per share would have been $12.60, or just over 552%. (Source: StockCharts.com, last accessed January 9, 2014.) This return is similar to beating the hedge funds return by almost 75 times and beating the returns posted by the S&P 500 by 18 times. Below is the chart that shows this stock’s precise move.

Gray Television Chart

Chart courtesy of www.StockCharts.com

Tesla Motors, Inc.

Tesla Motors opened at $35.00 in 2013. On the last trading day of the … Read More


How Investors Can Limit Risk When Using Leverage

By for Daily Gains Letter | Nov 7, 2013

Investors Can Limit RiskLeverage, at its very core, is borrowing money to invest. If investors want to use leverage in their portfolio, it can be very risky. My friend, Mr. Speculator, who I met not too long ago, disagrees with this claim; he thinks it’s the greatest invention: “With leverage, your gains can be huge and your portfolio grows much faster,” he said.

As usual, Mr. Speculator isn’t very clear about a very important concept of investment management.

While Mr. Speculator is in favor of taking leverage, I tend to be very cautious about it. At the end of the day, it’s all dependent on the investor and if they want to take on leverage or not.

Leverage can be both beneficial and troublesome for the portfolio; it’s a double-edged sword investors really have to be cautious about. What it does is maximizes the gains, meaning profits are much bigger, but it increases the magnitude of losses as well, making them become massive really quickly.

Consider an investor who has $100.00 to invest and knows that he or she can purchase 10 shares of company XYZ. Now, if we assume over a one-month period that shares of XYZ go up by 10%, then without borrowing money to invest, this investor’s return will be 10%, or $10.00.

On the other hand, if we assume the investor borrows $100.00 on top of the money they already had, their gain would be 20%, or $20.00. This is because they had doubled the money—great, right? But if the investment goes down 10%, their loss will be 20% as well.

Is leverage necessary for the portfolio?

Investors who … Read More


Four Ways to Profit from America’s Wealthiest Citizens

By for Daily Gains Letter | Nov 7, 2013

Wealthiest CitizensHalf of the U.S. workforce is partying like its 1998—and not in a good way. According to the Social Security Administration, the median wage in the U.S. in 2012 was $27,519.10, marginally better than 2011’s median wage of $26,965.43.

That said, the median wage remains virtually unchanged since 1998, when the median wage was $27,519.55 when adjusted for inflation. So actually, you made $0.40 less in 2012 than you did in 1998. But I digress.

The report shows that more than half of Americans earned less than $30,000 in 2012. Incredibly, 15% of working Americans took home less than $5,000, with an average amount of just $2,024.79. During 2012, the S&P 500 climbed 13%, illustrating that the majority of Americans are not benefiting from the so-called recovery we call the U.S. economy.

Fear not, for there is hope. Stagnant wages are not hindering everyone: the number of Americans pulling in more than $5.0 million a year in 2012 increased by 26.8% year-over-year to 8,982. In 2011, just 7,082 Americans earned more than $5.0 million.

These stratospheric numbers only take net earnings into consideration; they do not account for capital gains made on the stock market, dividend growth, etc. Whereas America’s wealthiest citizens turn to the stock market to pad their retirement savings, the majority of Americans rely on increasing property values, income vehicles, and pension funds to pave their way to retirement.

Thanks to a record run on the S&P 500 and Dow Jones Industrial Average, America’s wealthiest have been seeing their holdings increase significantly since the Great Recession ended in 2007. On the other hand, thanks to the artificially … Read More


How Low Interest Rates Are Holding 144 Million U.S. Workers Hostage

By for Daily Gains Letter | Oct 28, 2013

144 Million U.S. Workers HostageAre the long-term retirement plans of working Americans being held hostage by the Federal Reserve?

If the point of quantitative easing was to stave off a recession and spur jobs growth, I think it’s fair to say the Federal Reserve’s $85.0-billion-per-month money-printing scheme has been a failure. At the very least, I’m not so sure the money was well spent, and that the end does not justify the means.

I enter as evidence almost $4.0 trillion that the Federal Reserve has dumped into the U.S. economy since 2009. To put that into perspective, the average unemployment rate that same year was around 8.5%; that translates into roughly 13.1 million Americans being out of work in 2009. Fast-forward to today, and the unemployment rate stands at an unacceptable 7.2%, or 11.3 million Americans. (Sources: “Civilian Labor Force (CLF16OV),” Federal Reserve Bank of St. Louis Economic Research web site, last accessed October 24, 2013; “The Employment Situation – September 2013,” U.S. Bureau of Labor Statistics web site, October 22, 2013.)

It could be argued that over the last four years, the Federal Reserve has printed off $4.0 trillion to create 1.8 million jobs.

But at what expense? Since the stock market crash in 2008, the Federal Reserve, through its use of quantitative easing, has sent U.S. interest rates towards near-record lows. In fact, the Federal Reserve has kept the federal funds rate target between zero and 0.25% for almost five years.

That’s terrible news for anyone looking to save money, and near-record-low interest rates make it virtually impossible for people to save money to meet their retirement needs. Sadly, for those nearing … Read More


Profiting from the Record Bakken Oil Haul

By for Daily Gains Letter | Oct 18, 2013

Bakken Oil HaulThere’s more to the Bakken in North Dakota and Montana and the tar sands in Alberta than oil. Oil may be the primary opportunity for most investors, but there are a number of interesting secondary and tertiary investing platforms to consider. And when it comes to oil and petroleum products, one of the biggest growth areas has to be North American railroad stocks.

Despite the fact that a new pipeline in the booming Bakken fields in North Dakota was recently completed, more ways to transfer oil are needed to keep up with production. That’s because North American production is outpacing pipeline capacity.

On top of that, continued resistance to pipeline infrastructure expansion in North America is putting pressure on rail systems to pick up the slack. And two of North America’s biggest railway companies have only been more than willing to do so.

In fact, the amount of oil and petroleum products being shipped by rail has soared. In 2008, just 9,500 carloads of crude oil and 220,000 carloads of ethanol moved throughout the United States by rail; in 2012, the combined figure for crude oil and petroleum products was 600,000 cars. (Source: “Moving Crude Petroleum by Rail,” Association of American Railroads web site, December 2012.)

Roughly 70% of North Dakota’s oil and 70% of America’s ethanol is transported by rail. Why does so much Bakken oil rely on railroads? Whereas oil sand development can be in production for several decades, wells in the Bakken are in production for a much shorter time span—around 10 to 12 years—meaning that it’s not always economical to connect Bakken oil fields to existing … Read More


Over 80% of Americans to Work During Retirement to Make Ends Meet

By for Daily Gains Letter | Oct 17, 2013

Americans to Work During RetirementEconomic growth in a country occurs when the general standard of living increases. This means that individuals are able to get jobs, have some disposable income, have savings, and go out and spend. In turn, this causes businesses to produce more, create more jobs, and so on—in other words, the wheels of economic growth continue to turn.

Sadly, the U.S. economy appears to be far from that. Many get the impression that key stock indices increasing means economic growth, but this is certainly not the case.

If the U.S. economy was experiencing economic growth, one would assume that Americans are living well and spending on goods they want. However, according to a Gallup survey conducted in August, 20% of Americans experienced times during the past year when they couldn’t afford food; in June, this number stood at 17.7%. This was the first time in the last 68 months when 20% of Americans had troubles affording food. (Source: Brown, A., “More Americans Struggle to Afford Food,” Gallup web site, September 12, 2013.)

The misery in the U.S. economy doesn’t end there. There are more trends showing economic growth just isn’t there.

According to a poll by the Associated Press-NORC Center for Public Affairs Research, 82% of Americans aged 50 and older say they will likely work during their retirement, while 47% of Americans expect to retire later than their anticipated time of retirement. (Source: Sedensky, M., “Poll: Half of older workers delay retirement plans,” Yahoo! News, October 15, 2013.)

If Americans being unable to afford food and soon-to-be retirees rethinking their options are what count as economic growth, then what would … Read More


Coal: The Next Great Long-Term Play?

By for Daily Gains Letter | Oct 17, 2013

Long Term PlayWhen it comes to global energy production, the United States will be the top dog in a few short years. Back in November, the International Energy Agency (IEA) forecasted that the U.S. would overtake Saudi Arabia as the world’s top oil producer by 2017.

Over the last week, two more reports have positioned the U.S. as an even stronger near-term energy giant. The IEA said the U.S. will surpass Russia as the biggest non-OPEC producer of oil and natural gas in 2014. (Source: Harrison, V., “U.S. to pump more oil than Russia in 2014,” CNN web site, October 11, 2013.)

Over the last two quarters, the U.S. has produced more than 10 million barrels per day—its highest output in decades. Thanks to increased production in the Bakken oil field in North Dakota and the Eagle Ford shale formation in South Texas, U.S. production of oil and natural gas liquids will exceed 11 million barrels per day by the second quarter of 2014.

Perhaps more interestingly, it was announced earlier this week that coal is expected to surpass oil as the world’s primary energy source by 2020. Despite President Obama’s best efforts to reduce U.S. carbon emissions and phase out our dependence on coal, it looks like the fossil fuel is going to continue to be a major energy source. (Source: “World Coal Consumption To Surpass Oil By 2020 Due To Rising Demand In China And India,” Huffington Post web site, October 13, 2013.)

In fact, global coal consumption is expected to rise by 25% by the end of the decade to 4,500 million tonnes of oil equivalent, surpassing oil at … Read More


What You Can Learn from Missed Investment Opportunities

By for Daily Gains Letter | Oct 8, 2013

Missed Investment OpportunitiesOne of the basic rules that investors should follow when it comes to portfolio management is to not have a bias. What biases eventually do is either hinder investors from making better decisions or cause investors to not even recognize an opportunity that can take their portfolio to new heights.

For example, take the Affordable Care Act, more commonly referred to as “Obamacare.” A friend of mine, who is saving for his retirement, has a bias when it comes to this topic. He says it’s not worth it for Americans, and it’s just another expense to add to the budget. It won’t stick around for long, he believes, and we will eventually end up back at where we are now.

He has his reasons, and as a result, he doesn’t want anything to do with companies that are in any way related to the Affordable Care Act–which includes pretty much the entire health care sector. “I don’t want to expose my portfolio to anything like this,” he said.

Recently, we were having a discussion and he told me that he “missed out on one big investment opportunity for [his] portfolio.” I asked him what that was, and he answered with another question: “Have you looked at the health care sector at all lately?” Please look at the chart below to see what he meant, and what he regrets.

XLV Health Care Select Sector SPDR NYSE Chart

Chart courtesy of www.StockCarts.com

The chart above provides a general idea about how the companies in the health care sector have done. This exchange-traded fund (ETF), which tracks the sector’s performance, is up nearly 100% since the Obamacare law was signed by … Read More


Two Retirement Strategies for Combating Ongoing QE

By for Daily Gains Letter | Sep 30, 2013

Two Retirement StrategiesFederal Reserve Chairman Ben Bernanke has reassured us that his quantitative easing (QE) efforts have been an asset for both Wall Street and Main Street. But for some odd reason, the benefits seem to be trickling upward.

Over the last four years, the S&P 500 has climbed 150%. During the same time frame, the number of Americans receiving food stamps has risen 113% to 47 million, or one-sixth of the American population.

As a broader measure, since the Great Recession began, the top one percent of earners have seen their incomes rise 31.4%, while the bottom 99% saw their earnings rise 0.4%. This translates into the top one percent capturing 95% of the total growth in American wealth during the so-called recovery.

Even those Americans who thought they planned responsibly for retirement have been caught flat-footed. Thanks to QE and artificially low interest rates, the Federal Reserve has taken “income” out of “fixed income” investments and made saving for retirement that much harder.

And with “QE Infinity” in play, it’s not going to get any easier. According to a new global study, one in eight workers say they will never be able to fully retire. It’s worse in the U.S. and the U.K., where the numbers sit at roughly 20%. (Source: “The Future of Retirement: Life after Work?,” HSBC.com, September 2013.)

On top of that, just 51% of American workers say they were “very” or “somewhat” confident that they would have enough money to live comfortably in retirement; in 1995, that number was 72%. That said, 51% actually seems a little optimistic when you consider that 57% of workers say … Read More


Your 401(k): How It Can Really Profit from Patience and Conservative Plays

By for Daily Gains Letter | Sep 13, 2013

How It Can Really Profit from Patience and Conservative PlaysYour 401(k) is supposed to be a retirement account with a long investing horizon—not a day trading platform. Unfortunately, there are a growing number of investors doing just that, throwing not just caution to the wind, but also their long-term financial stability.

Way, way back in 1978, Congress enacted the Revenue Act to help encourage Americans to save more for retirement. The Act allows Americans to save for retirement while, at the same time, lowering their state and federal taxes. The term “401(k)” refers to the section number and paragraph in the Internal Revenue Code: section 401, paragraph (k).

The most widely used investment vehicle, your 401(k) is a long-term diversified investment strategy designed to (ideally) minimize risk while helping you realize your retirement goals. With a 401(k), you make money on long-term investing in a diversified portfolio that takes advantage of capital gains growth and compound interest.

As an added incentive, many employers will match your contribution. In 2013, employees can tuck $17,500 away in their account, and those over 50 years old can put away an additional $5,500.

While plunking down a solid portion of every paycheck into your 401(k) may take discipline, you do so because you want to have some sort of safety net when you retire, which is a long-term strategy. Too many investors, however, are tired of the returns they’re seeing with their 401(k)s, especially in light of the major strides the S&P 500 and Dow Jones Industrial Average are making.

In an effort to chase higher returns on their 401(k)s, many investors are now tapping into it for day trading purposes. This is … Read More


Gold Keeps Rising: Time to Drop Your Bearish View on the Yellow Metal?

By for Daily Gains Letter | Aug 29, 2013

290813_DL_zulfiqarI will be the first one to agree that it’s very difficult, if not impossible, to price gold bullion. Unlike stocks or bonds, it doesn’t provide investors with income or necessarily have an interest rate. Sadly, just for this reason, the yellow metal gets a lot of scrutiny. We saw what happened to gold prices not too long ago: they were slammed on the notion that the precious metal doesn’t have any use in a portfolio anymore, and it seemed as if no one knew where the precious metal would find support.

Now, a couple of months after the sell-off, the price of gold bullion is up about 20% from its lows around the $1,175 area.

Looking at all this, one must wonder: what’s really next for gold bullion? Is the bull market that began in 2001 over, or do gold bullion prices still have some room to grow?

Gold -Spot Price Chart

Chart courtesy of www.StockCharts.com

When I look at gold bullion prices, I tend to focus on the supply and demand side.

Looking at the demand side of gold bullion, it seems robust. As the prices were falling, there was a significant amount of concern that the consumers will eventually diminish in numbers.

We did not see this phenomenon occur. Consumers stayed; as a matter of fact, they rushed to buy more. Keep in mind that earlier in the second quarter of this year, gold bullion prices had a significant downturn. By the logic presented, buyers should have diminished by the end of the quarter.

Consider this: the Word Gold Council (WGC) reported that the demand for gold bullion in China during … Read More


Time for Income-Starved Investors to Reconsider REITs?

By for Daily Gains Letter | Aug 23, 2013

Time for Income-Starved Investors to Reconsider REITsAfter a serious pullback in May, is it time for income-starved investors to reconsider real estate investment trusts (REITs)? Or will America’s favorite sugar daddy, Federal Reserve Chairman Ben Bernanke, tease investors with ongoing threats of tapering?

The North American REIT bull market was stopped dead in its tracks on May 22, after Bernanke hinted the central bank might begin tapering its massive $85.0-billion-per-month government bond-buying program.

By being the major purchaser of U.S. government bonds, the Federal Reserve has been able to keep interest rates artificially low. Tapering its bond-buying program would mean, in theory, that interest rates head higher. In an effort to protect their retirement portfolio, investors are selling stocks they see as being vulnerable to rising interest rates.

REITs are at the top of the list. That’s because REITs are in the business of purchasing property and higher interest rates on the heels of financing translates into lower profitability.

While artificially low interest rates are a godsend to REITs, they’re a nightmare for average Americans looking to generate retirement income on their long-term bonds.

Interestingly, since May and the ensuing market volatility, the Federal Reserve has said that inevitable tapering would not necessarily result in higher interest rates. That’s more good news for REITs—and more bad news for income-dependent investors.

Unfortunately, many REITs have failed to fully recover from the Federal Reserve’s May 22 comments. Those depressed prices have opened up a door of opportunity for savvy investors. That’s because, when prices for REITs (and dividend stocks) fall, yields rise. The volatility means investors can pick up quality REITs at depressed prices with higher returns.

REIT … Read More


When It Comes to Retirement, Investors Need to Focus on This Little Four-Letter Word

By for Daily Gains Letter | Aug 22, 2013

Investors Need to Focus on This Little Four-Letter Word“I think it’s all about taking risk; you have to take more of it—get out of your comfort zone. You can’t just keep doing the same thing and expect different results—it’s that simple.” These were the exact words from my friend, Mr. Speculator, on portfolio management. “I am not looking for just a menial 10% return,” he added. “I am in it for a much bigger gain. To gain more, you have to risk more.”

Mr. Speculator is right about one thing: to gain more you have to risk more.

However, long-term investors who are saving for retirement, their kids’ education, or anything else for that matter, should not follow the lead of Mr. Speculator. Taking high risks can be dangerous, and at times, it’s no different than gambling. Being willing to risk it all is not a good investment management technique.

When it comes to retirement, investors need to have a very strong focus on one four-letter word—“risk”—or else one move in the wrong direction could make a dent in their portfolio—which may cause them to push back their retirement or give up on their plans altogether.

Take a look at the current bond market, for example; clearly, the risks are increasing. Look at the chart of the yield on 10-year U.S. Treasury notes below:

10-Year Treasury Note Chart

Chart courtesy of www.StockCharts.com

The yields have increased roughly 75% since the beginning of May.

Bond investors are fleeing. According to the Investment Company Institute, in June, U.S. long-term bond mutual funds had a net outflow of 60.4 billion—this was the first since August of 2011. In July, they continued to flock to the … Read More


The Kind of Companies You Don’t Want in a Retirement Portfolio

By for Daily Gains Letter | Aug 19, 2013

The Kind of Companies You Don’t Want in a Retirement PortfolioMy friend, a passive investor who, in his own words, doesn’t “like losses,” called me and asked if JC Penney Company, Inc. (NYSE/JCP) is a good place to be. “Should I buy,” he asked, “or just stay away from it?” To add a little background context, the investment portfolio he is managing is for his retirement; he wants stable and consistent returns over time.

Why J.C. Penney? The company has come under scrutiny for a while. The stock prices have plummeted due to the company posting poor performance, and its survival has become questionable. The company’s shares were traded as high as $42.00 in the beginning of 2012; now they hover close to $14.00. Look at the chart below, and you will see a clear downtrend in which the stock’s value declined 67%. My friend thinks there’s value in this company over the long period.

JC Penney Company Chart

Chart Courtesy of www.StockCharts.com

I think the better question that my friend should have asked is: “Should an investor who is saving for retirement add companies under severe stress to their portfolio?”

Some will definitely disagree with this, but companies that are under stress are not worth risking the retirement savings—J.C. Penney is just one example.

If I go a little back, I remember some saying that Bear Stearns—an investment bank and one of the early casualties of the financial crisis in the U.S. economy—was a great buying opportunity. Later on, the company’s share plummeted and it was forced to be taken over by a big bank. Investors who bought the stocks in their retirement portfolio then faced severe losses.

For all we know, J.C. … Read More


The Markets Have Changed; Time to Change the Way You Invest?

By for Daily Gains Letter | Aug 13, 2013

The Markets Have Changed; Time to Change the Way You InvestSimplicity still prevails when it comes to investing for the long term—namely, saving for retirement. My good long-time friend, Mr. Speculator, disagreed with me on this statement while we were having a debate about simple versus complex investment management.

“You see, gone are the days when it worked,” he said. “Markets have changed. To manage their retirement savings and portfolio, investors really need to start using advance portfolio management techniques, or else they won’t have enough by the time they need the funds.”

Mr. Speculator may be right: some aspects of the markets have certainly changed. For example, the introduction of computerized trading (high-frequency trading) has made markets prone to wild swings. Remember the flash crash in 2010? The Dow Jones Industrial Average plunged about 1,000 points, and then recovered a few minutes later.

Sadly, Mr. Speculator is forgetting that when you are saving for retirement, you are looking at a long-term horizon. Investors shouldn’t be focused on day-to-day fluctuation when they are investing for the long term.

Simple investment management, such as buying good companies for a long period of time, works.

Consider a person saving and investing for retirement in 20 years. Instead of looking for quick profits and worrying about wild swings in the markets, they can just look at companies like The Procter & Gamble Company (NYSE/PG).

Look at the chart below of the company’s stock price in the last 30 years. As you can clearly see, it has risen in spite of all the wild swings we have seen in the overall markets over the last decade, such as the tech boom and the subprime … Read More


The Alternative Asset Allocation Plan Every Investor Needs

By for Daily Gains Letter | Aug 13, 2013

retirementWhen it comes to investing, everyone wants to be in the best performing asset classes. Unfortunately, few, if any, are that good at consistently choosing the top performing asset classes to add to their retirement fund year after year. That’s why diversification is so important.

Riskier investments like stocks provide the best returns over the long term; they also happen to be the most volatile asset. Bonds, on the other hand, are much safer, and, as a result, offer very little when it comes to returns. By combing different types of investment strategies among different asset classes, investors can generate profit and reduce risk levels to meet their retirement goals.

To help minimize the risk of human error, emotions, and uncontrollable outside factors and to maximize long-term performance, investors concentrate on asset allocation—the art of spreading out their money in stocks, bonds, commodities, cash, and, for some, real estate.

The old asset allocation equation used to suggest people keep a percentage of bonds equal to their age in their retirement fund, with the remainder in stocks; a 40-year-old, for example, would park 40% of their investments in bonds and 60% in stocks. But since no two people have the same financial needs, it’s pretty hard to have an asset allocation strategy that works for everyone. The fact of the matter is that it’s up to each individual to find an asset allocation risk level that meets their long-term portfolio needs.

That can be difficult to do in this climate. In spite of weak economic news and high unemployment, the S&P 500 and Dow Jones Industrial Average are hitting new highs. … Read More


How to Profit from America’s Preference for Alcohol

By for Daily Gains Letter | Aug 8, 2013

America’s Preference for AlcoholSome investment strategies have a short buying opportunity, while others are seasonal, cultural, or even considered recession-proof. On the other hand, some investors avoid certain buying opportunities because they disagree with them ethically.

Love it or hate it, from an investing standpoint, alcohol represents a strong buying opportunity for growth- and income-starved investors. But because of American’s changing tastes, some alcoholic beverage companies have better long-term growth potential than others—and this could present investors with a great buying opportunity.

Beer, the thirst-quenching powerhouse of the 1990s, is losing its grip on America’s youngest drinkers to wine. In 1992, almost half (47%) of all Americans said they prefer to drink beer, while only 27% said wine and 21% drank liquor. (Source: Jones, J.M., “U.S. Drinkers Divide Between Beer and Wine as Favorite,” Gallup.com, August 1, 2013.)

A lot can happen in two decades. Beer’s lead over wine has slipped dramatically, and the two are running neck and neck for supremacy; beer is now the alcoholic beverage of choice for just 36% of American drinkers, while wine has soared to 35% (liquor is up slightly at 23%).

America’s Preference for Alcohol

What’s behind the radical change in taste? In the 1990s, 71% of adults under 30 years of age said they drank beer most often; today, just 41% say they do. Interestingly, both whites and nonwhites have also turned their backs on beer, which is down nine points to 38% and 19 points to 34%, respectively. The two fastest-growing segments have instead developed a taste for wine and liquor.

That doesn’t mean Americans have completely turned their backs on beer—just certain kinds. Beer took a hit … Read More


Why Chasing Income Stocks Is No Longer a Smart Move

By for Daily Gains Letter | Aug 2, 2013

Federal ReserveAmerica’s favorite sugar daddy, Federal Reserve chairman Ben Bernanke, has once again come to Wall Street’s rescue. The U.S. Federal Reserve said that while the economy continues to recover, it is still in need of support. As a result, it will continue its $85.0 billion-per-month bond-buying program unabated. (Source: “Federal Reserve Issues FOMC Statement,” Board of Governors of the Federal Reserve System web site, July 31, 2013.)

Before the markets opened Wednesday, the Bureau of Economic Analysis reported that second-quarter U.S. gross domestic product (GDP) expanded at a faster-than-expected pace of 1.7%; that’s up from a revised 1.1% in the first quarter. (Source: “National Income and Product Accounts Gross Domestic Product, second quarter 2013 (advance estimate),” Bureau of Economic Analysis web site, July 31, 2013.)

Despite the better-than-expected results, the Federal Reserve said that the U.S. economy expanded at a modest pace during the first six months of the year, and that the overall economic picture remains lackluster.

To help quell nervous investors, the Federal Reserve also revised the unemployment rate at which it would consider raising interest rates to six percent; previously, the Federal Reserve had said it would raise interest rates once the jobless rate hit 6.5%. Needless to say, with unemployment sitting at 7.6%, the U.S. economy has a long way to go.

Lower long-term interest rates are supposed to encourage consumers and businesses to take out loans for homes, new equipment, etc. At the same time, banks have been reluctant to lend to those who need it the most, which is reflected on Wall Street. Thanks to the Federal Reserve’s $85.0-billion-per-month quantitative easing policy, the S&P … Read More


Is Retirement at Risk for Late Baby Boomers?

By for Daily Gains Letter | Jul 29, 2013

Retirement at Risk for Late Baby BoomersOn July 23, the Dow Jones Industrial Average hit an all-time intraday high of 15,604.22. That same day, the S&P 500 also hit a new high of 1,698.78. With the markets doing so well, you could be forgiven for thinking today’s baby boomers are laughing all the way to the bank.

But that’s not so! Most baby boomers haven’t really benefited from the bull market. While it runs with reckless abandon, it’s leaving behind most Americans who are in retirement. Over the last five years, stocks and bonds have rallied, but the housing market has remained relatively flat. That means affluent Americans who park their assets in stocks and other financial products have done quite well. Those Americans with their wealth tied up in the value of their homes, however, have not.

Since the beginning of the current bull market in 2009, the S&P 500 has climbed more than 160%. U.S. housing prices, on the other hand, are still more than 25% below their 2006 highs.

Retiring baby boomers are also facing another challenge. Early boomers—those between 61 and 65—are more financially stable (for the most part) than their younger peers (those between 50 and 55). The early boomers worked during a period of economic stability in an era when defined benefit plans were the norm. In 1965, the inflation rate was 1.59%; by 1970, it had risen to 5.84%.

The late boomers, in contrast, started working in a more unsettled economic time. In the 1980s, many companies rolled their retirement plans over to 401(k) accounts, tying their self-directed retirement savings to the ups and downs of the stock market. … Read More


How to Manage Your Risk in These Volatile Markets

By for Daily Gains Letter | Jul 1, 2013

Risk Management in Today’s Gold MarketDuring the financial crisis, investors saving for retirement were punished for staying in the stock markets. The key stock indices plummeted and took many investors’ wealth.

After seeing the crash taking a heavy toll on their portfolios, investors moved into safer asset classes. They rushed to bonds, gold, and gold miners because they thought that’s where the value was—and where they could make some of their lost savings back.

Things are different now. If investors are still tied to those asset classes, chances are they are feeling a pinch. Gold prices are down significantly from their peaks and bond prices appear to be in a freefall. Since the beginning of the year, gold has fallen nearly 30% in value, and bond yields—those of 30-year U.S. bonds—have soared more than 20%.

Sadly, even with all the financial innovation, there isn’t an investment instrument that protects an investor’s portfolio completely from market fluctuations. However, investors can minimize their downside risks significantly by managing their risk properly.

Managing risk may sound like an easy concept at first, but it’s far from it. It ultimately consists of three steps and requires a significant amount of research. The three risk-management steps are risk identification, risk evaluation, and risk reduction.

Risk Identification: This is the most important part in risk management. Investors need to find what kind of risks will affect their portfolio. For example, imagine a person heavily invested in one sector; even if he or she is diversified across different companies, troubles can take a chunk out of their portfolio. Take gold as it stands now: even if investors bought different gold miners when … Read More


The Stocks You Need to Know About Now to Protect Your Retirement

By for Daily Gains Letter | Jun 27, 2013

retirement savingsThe dream of retiring comfortably is a mirage for the vast majority of Americans. According to the National Institute on Retirement Security (NIRS), the retirement savings shortfall in the U.S. is worse than anyone thought. But it’s not an impossible dream for wise investors.

After the U.S. markets crashed in 2008, many Americans saw the value of their hard-earned nest egg evaporate. While the S&P 500 and Dow Jones Industrial Average have been on a five-year bull run, this hasn’t trickled down to the average American. In fact, unemployment remains high, a record number of Americans receive food stamps, wages are stagnant, and personal debt is up.

All of that makes it difficult to set aside money to save for retirement.

And we are now bearing witness to the number of Americans who are sorely unprepared for retirement. In fact, the NIRS study found that roughly 45%, or 38 million, working-age households do not have any retirement account assets. (Source: “The Retirement Savings Crisis: Is It Worse Than We Think?,” National Institute of Retirement Security web site, June 2013.)

More specifically, when all working-age families are accounted for, the typical family has just $3,000 saved for retirement. Those nearing retirement don’t fare much better, with only $12,000 in the bank.

On top of that, 80% of working families have retirement savings less than one times their annual income. As a result, the U.S. retirement savings deficit has ballooned to between $6.8 and $14.0 trillion.

Even at the best of times it can be difficult to plan for retirement. After two recessions (2001 and 2008), even the most optimistic can give … Read More


How “Market Knowledge” Is Robbing Investors

By for Daily Gains Letter | Jun 21, 2013

How “Market Knowledge” Is Robbing InvestorsI have a friend who inherited a large amount of money just before the markets crashed. He bought a house and “Rolex” watch, retired, and decided to become a day trader. Unfortunately, he has no experience with the stock market, but it seemed easy enough to him.

Since then, despite the five-year bull market, he has managed to lose a fair bit of money. This does not prevent him from telling those around him how they should invest—after all, he has a Rolex watch and no debt. Even with a dwindling bank account and an embarrassing investment portfolio, he still fashions himself a stock market dandy.

Over the last number of years, he has been the markets’ biggest cheerleader. The markets are going up—the definition of a rebound. I, on the other hand, am an unrepentant bear. I’m not saying the markets aren’t bullish; I’m saying the markets are bullish because of the Fed’s quantitative easing policies, not a burgeoning U.S. economy.

When the financial crisis began in 2008, the U.S. national debt stood at $9.2 trillion; today, it is near $17.0 trillion. By the end of the decade, the White House says the national debt will touch $20.0 trillion.

Yes, the S&P 500 and Dow Jones have reached dizzying heights. But it’s important to remember that, even with quantitative easing, it’s taken five years just to get back to pre-crash levels. Five years after the government bailouts began, unemployment is still high; home values have not rebounded; wages aren’t just stagnant, they’ve actually declined; and the number of Americans relying on food stamps has soared 80% to 47.5 million…. Read More


Fed’s “Great Exit” a Sustainable Strategy?

By for Daily Gains Letter | Jun 18, 2013

Fed’s “Great Exit” a Sustainable StrategyFor much of last week, the global markets were taking a beating on growing concerns that the central banks will start easing their economic stimulus. Before the markets opened Friday morning, Reuters boldly announced that the rout was over, and U.S. markets opened trading up. (Source: Jones, M., “GLOBAL MARKETS-Shares pick up, dollar steady after bruising selloff,” Reuters, June 14 2013.)

Two hours later, though, Wall Street was singing a different tune. The U.S. markets slipped after the International Monetary Fund (IMF) announced it cut its 2014 growth outlook for the U.S to 2.7% from three percent. The unemployment rate for 2014 is projected to decrease slightly (on average) to 7.2 %. (Source: “Concluding Statement of the 2013 Article IV Mission to The United States of America,” International Monetary Fund web site, June 14 2013.)

Time will tell if these projections will come true. After initially predicting U.S. 2013 growth of 2.2%, the IMF revised it downward to 1.9%; the IMF continues to maintain that lowered projection. This tepid growth is expected to keep unemployment hovering around 7.5% for the remainder of 2013.

The IMF noted that the Federal Reserve needs to carefully plan its exit strategy to avoid hurting financial markets. The best way to do this, it maintains, is to continue its $85.0 billion a month bond-buying program until at least the end of 2013.

In addition to continued economic stimulus, the IMF also said Washington wasn’t doing enough to cut long-term budget deficits—though it would seem that higher deficits go hand-in-hand with money printing—and that Washington needs to cut entitlement spending and generate higher revenues.

What this … Read More


Retirement Post Recession: Why It’s No Longer the Golden Years

By for Daily Gains Letter | Jun 14, 2013

Retirement Post RecessionWill your retirement mantra be, “save, save, save,” or “work, work, work?” That depends on how close to retirement you are—at least, according to a recent study published by The Pew Charitable Trusts. (Source: “Are Americans Prepared for their Golden Years?,” The Pew Charitable Trusts web site, May 16, 2013, last accessed June 13, 2013.)

When the Great Recession hit in 2007, the oldest baby boomers were just a few short years away from retirement. And, after a lifetime of economic expansion and planning for retirement, they faced the real possibility of losing a significant portion of their savings. The economic downturn also heightened retirement planning concerns facing virtually everyone else.

Many Americans who had held off saving for retirement saw their situations exacerbated by unemployment and a bleak job market. Many more also found themselves saddled to homes that were worth a lot less than they were just a few years before—though that’s a better predicament than those who discovered their houses were worth less than the mortgages they were carrying.

According to the report, early baby boomers (those born between 1946 and 1955) were heading toward retirement with enough savings to maintain their financial security. And thanks to both the “Dot-Com” boom and housing bubble, early baby boomers had higher overall wealth, net worth, and home equity than the Great Depression babies (those born between 1926 and 1935) or war babies (born between 1936 and 1945) had at the same ages.

But that doesn’t mean their retirement plans didn’t take a hit. Between 2007 and 2010, every age group experienced a significant loss of wealth. Early boomers lost … Read More


Has the Stock Market Correction Already Begun?

By for Daily Gains Letter | Jun 10, 2013

Stock Market Correction Already BegunFor months I’ve been asking if the red-hot stock market has gotten too far ahead of itself. Between December 31, 2012 and May 22, 2013, the S&P 500 increased 19%. During the same period, the Dow Jones Industrial Average climbed 18.9%.

These strong increases came in spite of the fact that during the first quarter of 2013, 78% of the S&P 500 companies issued negative earnings-per-share (EPS) guidance and nearly 80% of the S&P 500 companies issued a negative outlook for the second quarter.

I argued that the current bull market has nothing to do with the shape of the U.S. economy. The current bull market has been supported by the Federal Reserve’s $85.0-billion monthly quantitative easing policy and artificially low interest rates.

And once the quantitative easing policy is cut back, Wall Street will no longer be able to rely on the Federal Reserve, and instead will have to focus its attention on the shape of the actual U.S. economy.

It’s quite possible that investors are beginning to see how dire the U.S. economy actually is. On May 22, the Federal Reserve hinted it might start tapering off its $85.0-billion-per-month quantitative easing policy as early as Labor Day. The markets haven’t been the same since.

Currently trading near 1,600, the S&P 500 is trading down more than four percent from the peak of the rally on May 22. It has also been making lower lows, consistent with a textbook downtrend. The Dow Jones is in hot pursuit, trailing almost four percent from its May 22 peak. The longest uninterrupted rally since the markets bottomed in early 2009 is in … Read More


How Holding Cash in Your Portfolio Could Mean Opportunities for You When Others Run for the Exit

By for Daily Gains Letter | Jun 6, 2013

interest ratesWhile talking to a friend of mine about general economics and the current market conditions, discussing topics such as where the stock market is headed next since it has gone up significantly and what these low interest rates mean in the long run, he opened the debate to an interesting front: how much cash should an investor have in their portfolio? Is cash any good to hold for investors who are in the market for the long term, saving for their retirement?

One of the most basic strategies to manage a portfolio is to invest the funds into different asset classes, which is referred to as “asset allocation.” The reason for asset allocation is that if one asset class (i.e. stocks) declines in value, the other class (those with a negative correlation to stocks), can rise and minimize the losses. Most often, investors who are saving for retirement allocate their portfolio to stocks and bonds completely—because they tend to have a negative correlation—and not hold any cash at all.

To say the least, investors who hold cash in their portfolio can benefit significantly, and may be able to earn a higher rate of return compared to those who don’t. But before going into further detail, how much cash should the portfolio of an investor actually have?

To assess how much cash an investor should have in their portfolio, they need to look at certain factors, such as how long they are planning to invest and if they need any funds in the short term.

Going back to the discussion with my friend, he, for example, plans to invest for the … Read More


Should Investors Still Diversify with Gold?

By for Daily Gains Letter | Jun 6, 2013

Should Investors Still Diversify with GoldWhen it comes to investing, it’s important to diversify and spread your money around. Put all your assets in one basket and it could evaporate overnight if the markets go into correction mode. As a result, diversification is a good strategy to follow, because it can protect you from losing your entire retirement portfolio should the markets turn.

Having a number of different stocks does not make a portfolio diversified. A diversified portfolio means having different kinds of investments, including stocks, bonds, cash, and so on. While we all know diversification is key, it’s important to know where you should park your assets.

When the markets are bad, people turn to inflation hedges like gold. When the markets are doing well, they park a good portion of their portfolio in the stock market. Right now, a lot of people are turning to the stock market. And why not? The current bull market is now in its fifth year, the Standard & Poor 500 is up more than 18% since December 31, 2012, and the Dow Jones Industrial Average is up almost 20% since the end of 2012.

Many economists think this is just the beginning and that investors should keep their money parked in stocks. Others are not so sure, pointing to a raft of terrible economic news, including stubbornly high unemployment, falling median incomes, an increasing number of Americans receiving food stamps, high personal and student loan debt, and stagnant wages.

Wall Street is even getting a little nervous. Almost 80% of S&P 500 companies have issued a negative outlook. The S&P 500 may be reporting strong returns, but … Read More


Why Investors Need to Stop Wondering Where the Market Is Headed Next

By for Daily Gains Letter | Jun 4, 2013

Investors Need to Stop Wondering Where the Market Is Headed NextJitters in the stock market—or any other market, for that matter—sometimes confuse investors and make them question its direction. They often ask where the market is headed next, or how the recent events will play out. Even worse, they may completely lose trust in the market and just let their life savings decline as inflation continuously takes its toll.

To say the very least, these are genuine concerns, because their life savings are often at stake and a significant move can wipe out their wealth. The broad market sell-off in 2008 and 2009 was a prime example of this, when investors, unsure about the direction of the market, took a major hit to their portfolio—and missed out on the stock market rally that began in March of 2009.

As a matter of fact, according to the findings of the Federal Reserve Bank of St. Louis, when adjusted for inflation, American households have only recovered 45% of the wealth they lost during the Great Recession. (Source: Derby, M.S., “Households Still Haven’t Rebuilt Lost Wealth,” Wall Street Journal, May 30, 2013.) They are still underwater, despite the key stock indices like the S&P 500 being up more than 100% since then.

The recent market action, which occurred after a few members of the Federal Open Market Committee (FOMC) showed concerns about the steps taken by the Federal Reserve and wanted it to reduce its size of asset purchases, has investors rattled once again. The noise is increasing, and bulls and bears are suggesting where the markets are headed next. Some are calling that the stock market has reached its top, while others … Read More


Do Low-Yield Stocks Provide Better Income Potential?

By for Daily Gains Letter | Jun 4, 2013

Do Low-Yield Stocks Provide Better Income Potential In a high-interest environment, fixed-income assets like Treasuries, bonds, and certificates of deposit (CDs) are a staple for risk-averse investors. They provide regular investors with a stable place to park their retirement money while collecting a steady return.

By keeping interest rates artificially low, the Federal Reserve has sent income-yield-hungry investors running for the much riskier stock market. While the Federal Reserve recently hinted it might taper its $85.0-billion-per-month quantitative easing policy, investors are hardly willing to reconsider traditional fixed assets.

And why should they? Sure, it’s been six years since investors’ nerves were thrashed from the market crash and four years since the recession ended, but the economy doesn’t look or feel any different, despite the S&P 500 and Dow Jones Industrial Average touching new highs almost weekly.

For many investors nearing retirement or already retired, high-yield dividend stocks have become the new bond market. Unfortunately, some investors looking to pad their retirement account have been too heavily focused on that one solitary metric.

Not all high-yield dividend stocks are created equal. Where an investor might have avoided a stock because of red flags, today, they are considering the same stock waving the same flags, simply because they offer a strong dividend—regardless of whether or not they have enough money to do so.

Investors looking for steady capital appreciation and strong dividend growth are not usually looking for a financial roller coaster to invest in. But that’s what they’ll get if they don’t do their research.

In December 2012, Just Energy Group Inc. (NYSE/JE) was trading above $9.00 per share and paid out $1.24 annually. In February of this … Read More


Two REITs Set to Make Big Profits Off Retirement Boom Ahead

By for Daily Gains Letter | Jun 3, 2013

Two REITs Set to Make Big Profits Off Retirement Boom AheadMaking money in the stock market is about taking advantage of opportunities. While most opportunities are short-lived, others have a much longer horizon. The American baby boomer generation is entering retirement at an unprecedented rate. This opens up opportunities for the next 20 years for investors looking to profit on sectors that will benefit from aging baby boomers.

The births of the American baby boomers started in 1946 and ended in 1964, during which time 77 million people were born. On January 1, 2011, the first of the baby boomers began celebrating their 65th birthdays; over the next 16 years, roughly 10,000 Americans will turn 65 every single day.

That represents an enormous demographic. How large? For the first time ever, the senior age group now makes up the largest part of the U.S. in terms of size and percentage, accounting for approximately 35% of the population. By 2030, the number of Americans aged 65 and up will double to about 71.5 million, and by 2050, that number will grow by more than 20% to 86.7 million. Baby boomers also have deep pockets, accounting for 40% of total consumer demand. (Source: “Resources 50+ Fact & Fiction,” Immersion Active, last accessed May 31, 2013.)

Even with all that money and time on their hands, North American baby boomers will still need somewhere to live—and somewhere to visit their healthcare providers.

A real estate investment trust (REIT) is a company that owns and operates income-producing real estate. A REIT is a great way for individual investors to take advantage of the developing real estate trends without having to actually own real estate…. Read More


Will Baby Boomers Boost Demand for This Recession-Proof Play?

By for Daily Gains Letter | May 31, 2013

Baby Boomers Boost Demand for This Recession-Proof PlayAs they say, nothing is certain except death and taxes. Thanks to an aging North American population, the former has become a lot more profitable. And since we’re all going to need to deal with it eventually, there’s no reason to discriminate against death; in fact, those nearing or already in retirement could even profit off it.

Granted, nothing is recession-proof (every sector goes through cycles), but some sectors or stocks seem as though they should be. And for the next 20 years or so, the death care industry may be a safer bet than most.

The American baby boomer generation, born between 1946 and 1964, is 77 million strong. On January 1, 2011, the first of the baby boomers began celebrating their 65th birthdays; over the next 16 years, roughly 10,000 Americans will turn 65 every single day.

Not surprisingly, Canadian baby boomers are also beginning to retire. But the shift into retirement for Canada’s baby boomer generation is going to last a little longer; the births of the Canadian baby boomer generation began one year later, in 1947, and lasted two years longer (1966). In Canada, baby boomers make up 30% of the population. Long after the last baby boomer has retired, the senior’s population will continue to dominate the Canadian landscape; by 2051, roughly one in four Canadians will be 65 or over. (Source: Kidd, K., “Canada’s baby boom different from U.S.,” Toronto Star web site, March 9, 2013, last accessed May 30, 2013.)

And an aging North American demographic means the demand for death care is going to remain strong. This hasn’t been lost on Wall … Read More


Simple Concept Can Grow Your Portfolio Exponentially

By for Daily Gains Letter | May 30, 2013

Simple Concept Can Grow Your Portfolio ExponentiallySeeing speculative bets work out as expected is the best thing an investor can get—but sometimes, this is not the case. It’s mentioned in these pages over and over again: when an investor takes short-term speculative trades, they are exposing their portfolio to a significant amount of risk, which can be dangerous for those who are close to retirement or are saving for it.

Those who are involved in the world of investing for the long term should do just that—focus on the long term and use time to their advantage. Staying in the markets can be painful to some due to the noise and volatility on a short-term basis, but the gains on an investor’s portfolio can be phenomenal over the long haul.

With the help of one investing concept and solid growth companies in their portfolio, investors can save up a significant amount of money for the time when they need it, be it retirement, travel, or their child’s education. Investors who want to invest for the long term should equip their investing knowledge with the concept of “compound interest,” which Albert Einstein called “the most powerful force in the universe.” (Source: “Albert Einstein Quotes,” ThinkExist.com, last accessed May 28, 2013.)

Simply stated, compound interest is when an investor earns money over what he or she has already accumulated. This concept may sound a little confusing at first, but it can make a portfolio grow exponentially over time.

To make the concept clear, consider this scenario:

Say, for example, you have $10,000, and you put this amount into a savings account that pays you two percent interest per … Read More


U.S. Retirement Confidence Way Down as Investors Flock to Products, Services That Reduce Risk

By for Daily Gains Letter | May 29, 2013

U.S. Retirement Confidence Way Down as Investors FlockRetirement confidence seems to follow the trends of the global economy. At least, that’s according to one recent survey that looked at 12,000 workers and retirees in 12 European, North American, and Asian countries, including France, Germany, Hungary, Japan, the Netherlands, Poland, Spain, Sweden, China, the United Kingdom, the United States, and Canada—making this one of the largest studies of its kind.

The study found that 65% of the participants believe future generations will be worse off in retirement than they are today; more than half of the American workers (55%) feel that way, while 80% of the workers from France and Hungary expect future generations to be worse off. The Chinese are the least pessimistic, with roughly one in five participants feeling the same way. Only nine percent of respondents believe future generations will be better off in retirement than those in retirement today.

Thanks to government cutbacks, 63% of employees think their government retirement benefits will be less reliable or helpful; American workers come in near the top at 65%. America’s retirement pessimism continues, with just 12% saying their personal retirement planning is “very well-developed.”

A further 37% of Americans don’t know if they can achieve their desired retirement income. Only 12% are very optimistic that they will have enough money to live on, and only another 12% are very optimistic that they will be able to choose when they retire.

Not surprisingly, you have to have a handle on what it takes to retire to actually be able to plan for a comfortable retirement. The current retirement-related risks have increased on the backs of “financial illiteracy”—with only … Read More


The Ultimate Retirement ETFs for Conservative Investors?

By for Daily Gains Letter | May 23, 2013

Ultimate Retirement ETFs for Conservative InvestorsDo you want to save more or less by the time you reach 65? It might seem like a question with an obvious answer, but…

Back in the 1950s and 1960s, Americans on the cusp of retirement had their defined pension plans to look forward to and didn’t really worry too much about saving for retirement—or running out of money. All of that changed in the 1980s, when many companies rolled their retirement plans over to 401(k) accounts. That one simple act meant a worker’s retirement savings now fluctuated with the ebb and flow of the stock market.

While it’s important to invest in your 401(k), it’s also important to know what your money’s being invested in and where it’s going. Unfortunately, most of us don’t. A recent study that looked at American investing knowledge found there’s a large gap between what we think we know and what we really know.

The study found that “nine out of 10 Americans (92.6%) dramatically underestimated the total 401(k) fees the average household will pay over the course of a lifetime.” When asked how much the average American household with two working adults will pay in 401(k) fees over the course of their lifetime, only 3.3% of respondents answered correctly, at $150,000–$200,000. The largest group (38.1%) was the most off the mark, saying it would cost less than $10,000. (Source: “The Online Investing Knowledge Gap: 2013 Investment Literacy Survey,” NerdWallet, March 18, 2013.)

So if you want to save more money for your retirement, there may be better options out there. If you’re looking to take advantage of the stock market, whether it’s … Read More


Key Stock Indices Soaring Higher; Will They Hit the Ceiling?

By for Daily Gains Letter | May 17, 2013

Key Stock Indices Soaring HigherThe stock market rally that began in March of 2009 is gaining attention once again. The key stock indices have surpassed the highs they registered before the U.S. economy was hit with a financial crisis and the ones made at the peak of the tech boom.

With all this, the direction in which the key stock indices are headed next has become a topic of discussion among investors: can they go any higher? Or we are bound to see another market sell-off, like the one we saw in 2008 and early 2009?

When looking at the state of the global economy, things are turning bleak. We have major economies outright worried about their future economic growth. For example, the Chinese economy is expected to grow at a slower rate compared to its historical average; the Japanese economy is still struggling with a recession, and efforts by the Bank of Japan to boost the economy haven’t really showed much success; and the eurozone is witnessing its longest economic contraction, with major nations falling prey to economic slowdown.

But looking at the U.S. economy, it portrays a different image; it appears things have improved. Unemployment is lower and consumer spending has increased since it edged lower in the financial crisis—both possible good signs of a stock market rally.

To no surprise, the noise is getting louder and louder as the key stock indices are moving higher. The bears are calling for the end of the bull market, while the bulls are cheering for the key stock indices and believe that they are bound to go much higher. Estimates are being thrown out; … Read More


Defensive Investors Need Some Liquid Courage

By for Daily Gains Letter | May 15, 2013

Defensive Investors Need Some Liquid CourageWith the Dow Jones Industrial Average and S&P 500 reaching for the stars, many investors are wondering if they should buy high and sell higher, or look for undervalued stocks that have (they hope) plenty of room to run.

It might seem like an overplayed cliche, but it’s always a good idea to look for stocks that do well regardless of where the economy is headed. When it comes to your retirement portfolio, it’s always a good idea to allocate defensive stocks.

In spite of the stubbornly high unemployment rate, high personal debt levels, and fragile housing market, consumer confidence has been rebounding.

The Conference Board, a New York-based private research group, said recently that its Consumer Confidence Index rose 10% month-over-month to 68.1 in April. While the double-digit gain is a welcome sight, it is still well below the 90 reading that indicates a healthy economy; that level of consumer confidence hasn’t been seen since the Great Recession began in late 2007. (Source: “The Conference Board Consumer Confidence Index Improves in April,” The Conference Board web site, April 30, 2013, last accessed May 14, 2013.)

Still, there is reason for some continued optimism, as The Conference Board noted consumers remain upbeat about the short-term outlook. The percentage of consumers expecting business conditions to improve over the next six months climbed to 16.9% from 15.0%. At the same time, those expecting business conditions to worsen slipped to 15.1% from 17.7%.

With consumer spending accounting for about 70% of U.S. economic activity, it’s easy to see why consumer confidence is such an important short- and long-term indicator.

On the heels of … Read More


Record Stock Market Rally Leaving Half of Americans Behind

By for Daily Gains Letter | May 14, 2013

Stock Market Rally Leaving Half of AmericansThe stock market continues to chug along, hitting new highs virtually every day. Back in early March, the Dow Jones Industrial Average crossed 14,200 for the first time ever. It has continued to climb over the last two months and is currently sitting near 15,100. So far this year, the Dow Jones is up more than 15%. The S&P 500 is running in step and is up 14.5% in 2013.

With things going so wildly well on Wall Street, you’d think Americans would be cheering in the streets! But they’re not—not by a long shot. Incredibly, economists argue that stock market gains make the average person feel richer, and it encourages them to spend.

It’s hard to feel empowered as consumers to spend when wages are flat and taxes are up. In fact, the median household income has dropped by more than $4,000 since 2007 and 2008. So while the stock market is rocketing to new highs, American workers aren’t really reaping the benefits.

While lower-wage jobs accounted for 21% of all recession losses, they accounted for 58% of recovery growth; those who are working those jobs take home a handsome $13.83 per hour. Mid-wage jobs accounted for 60% of recession losses, but only 22% of recovery growth. (Source: “The Low-Wage Recovery and Growing Inequality,” National Employment Law Project web site, August 2012, last accessed May 13, 2013.)

Workers in seven of the 10 most common occupations typically earn less than $30,000 a year, which is significantly less than the nation’s average annual pay of $45,790. Registered nurses make the most at $67,900 a year. (Source: “May 2012 National Occupational … Read More


U.S. Retirement REIT Looks North for Extended Baby Boomer Play

By for Daily Gains Letter | May 13, 2013

U.S. RetirementIn 2011, the first mass of baby boomers started to retire in the United States to the tune of 10,000 per day, which will continue for the next 17 years. Making up more than one-quarter of the population, the baby boomer generation controls the largest portion of the country’s disposable income. This has opened the door to a lot of opportunities for investors looking to capitalize on the retiring baby boomer generation.

Not surprisingly, Canada is also home to its own wave of retiring baby boomers. Interestingly, the Canadian baby boomer generation began one year later (1947) and lasted two years longer (1966) than the baby boom in the U.S. (Source: Kidd, K., “Canada’s baby boom different from U.S.,” Toronto Star web site, March 9, 2013, last accessed May 10, 2013.)

For some investors, that translates into additional opportunities for growth.

In Canada, baby boomers make up 30% of the population, with seniors making up the fastest-growing segment of the Canadian population, a trend that is expected to continue for the next few decades. In 2011, an estimated five million Canadians were 65 years of age or older, a number that is expected to double through 2036. By 2051, about one in four Canadians is expected to be 65 or over. As Canadian baby boomers retire, they’re going to need somewhere to live. (Source: “Canadians in Context – Aging Population,” Human Resources and Skills Development Canada web site, last accessed May 10, 2013.)

Those lucrative factors have not gone unnoticed on Wall Street.

Health Care REIT, Inc. (NYSE/HCN) announced recently that it agreed to buy a 75% stake in Revera … Read More


Three Stress-Free Strategies for a Streamlined Retirement Portfolio

By for Daily Gains Letter | May 9, 2013

Strategies for a Streamlined RetirementWhen it comes to money, more is better. But when it comes to your retirement portfolio, less might be more. With over 8,000 mutual funds and exchange-traded funds (ETFs); roughly 3,000 stocks traded on the NASDAQ, 2,800 on the NYSE, and 3,800 on the AMEX to choose from; and 401(k)s, individual retirement accounts (IRAs), and countless asset management strategies, it’s easy to see how an investment portfolio can get complicated.

And cluttering complicated investment portfolios with too many assets and vehicles can make them difficult to understand. A failure to streamline a complicated portfolio means there could be overlap, which means you could be funneling money into one asset class when it could better serve you elsewhere.

A streamlined retirement portfolio does not mean it gets gutted to the lowest common denominator; it means you know what you’re invested in, ensuring there are few or no redundancies. It also means rebalancing your portfolio’s asset allocation, which will depend on your age, desired outcome, and risk level. Here are three stress-free strategies for simplifying your portfolio while increasing its possibility for success.

Consolidate: While the U.S. Bureau of Labor Statistics doesn’t track lifetime careers, it’s fair to say most Americans have held more than a few jobs before retiring. It’s quite possible, then, that you have more than a few 401(k) accounts. Simplify things by collating all of the old plans into a current workplace plan. If that isn’t an option, roll them into a single rollover IRA.

To make life even less stressful, you could also consolidate your bank accounts, mutual funds, and bonds. Having everything in one centralized account … Read More


Can the Eurozone Crisis Really Make a Dent in Your Portfolio?

By for Daily Gains Letter | May 8, 2013

Eurozone CrisisThe eurozone has sent waves of confusion through the global economy, and investors are concerned about what it could do to their portfolio. To say the very least, investors have all the right to be worried—bulls and bears are creating noise, making investment decisions even more difficult to make.

 

Bears’ Argument

The eurozone is in recession for the second time since 2009.

Back then, the problem was the debt-infested nations like Greece, Spain, and Portugal that swept the region with a slowdown, but now things appear to be different. The strongest nations like Germany and France are showing bleak performance. Similarly, other smaller nations that didn’t even make the news before are now in the headlines—just look at Slovenia and the Netherlands, for example.

Why is this a concern? The problem at the very core is that there are America-based companies that operate in the eurozone. If the region suffers through severe economic slowdown once again, the demand from consumers will decline due to high unemployment. As a result, the U.S. companies will see their sales decline, and eventually, their portfolio will deteriorate.

Bulls’ Argument

To fight this economic slowdown in the region, the European Central Bank (ECB) has taken some major steps. For example, to reduce the risks of the region dissolving, the ECB said it will “do whatever it takes” to save the region. (Source: “Verbatim of the Remarks Made by Mario Draghi,” European Central Bank web site, July 26, 2012, last accessed May 7, 2013.)

On May 2, the ECB announced a cut in its interest rates, lowering them to 0.50% from 0.75%. In addition, while … Read More


Short-Term Escapes for the Weary Could Hold Some Long-Term Surprises for Investors

By for Daily Gains Letter | May 7, 2013

Short-Term Escapes for the Weary Could Hold Some Long-Term Surprises for InvestorsAn unexpectedly rosy jobs report on Friday helped propel the Dow Jones Industrial Average and S&P 500 to record highs. The Dow Jones crossed the 15,000 threshold, touching 15,009.59, while the S&P 500 hit 1,618.46.

The U.S. Department of Labor announced that a net 165,000 jobs were created in April, and hiring was much stronger in February and March than first estimated. Together, job creation and hiring helped bring the unemployment rate down to 7.5%, the lowest in four years. (Source: “The Employment Situation – April 2013,” Bureau of Labor Statistics web site, April 3, 2013.)

The upbeat jobs report is a reassuring sign that the U.S. jobs market is indeed improving, in spite of higher taxes and government spending cuts that took effect earlier this year—and in spite of the Federal Reserve dumping $85.0 billion into the economy each month.

Growing optimism in the world’s largest economy could be just what retail investors sitting on the sidelines have been looking for.

After years of bad news, including the U.S. housing collapse, 2008 financial crisis, high unemployment, economic troubles in the eurozone, geopolitical tensions in the Middle East, nuclear threats from Dennis Rodman’s friends in North Korea, and domestic terrorism, American investors need a little silver lining.

This could be good news for all the previously ignored economically sensitive stocks. One area that has been performing well over the last 12 months has been the entertainment industry. The perfect short-term escapes for economically and politically weary people, movie studios and concert halls have been performing well. It’s one of the few cyclical industries that’s been acting like a defensive play…. Read More


Two Easy Strategies for Exiting an Illiquid Position

By for Daily Gains Letter | May 6, 2013

Strategies for Exiting an Illiquid PositionWhen it comes to investing in the stock market for the long term, one of the key elements investors should keep in mind is the liquidity of their investment. Oftentimes, investors might buy into companies with no or minimum liquidity, thinking things will get better. As time passes and their investment grows, they eventually run into a problem—they have to sell it to register their gains, and this can only happen if someone is willing to buy their shares.

The word “liquidity” is thrown around often by analysts to explain the financial situation of a company, but in the context of this article, “liquidity” refers to how quickly an investor can turn their investment into cash without moving the price of a stock significantly higher or lower—or, simply stated, the ability to sell and buy with ease.

Stocks are considered very liquid in the world of investing. Investors can sell them fairly quickly, but there are places in the stock market where they have to be really careful. Consider a penny stock that has a volume of, say, less than 1,000 shares a day. If an investor holds 10,000 shares of the company, it can be very difficult for them to sell their position without moving the price lower.

One strategy investors can use is to sell their position multiple times by using market orders. Going back to our example: if an investor holds 10,000 shares of a company, they might want to consider selling 500 shares or so at a time. This way, they may not move the price as much, and may be able to liquidate. A major … Read More