Daily Gains Letter

wealth management

What Withdrawal Rate Will Make the Most of Your Retirement Fund?

By for Daily Gains Letter | May 1, 2013

Retirement FundSaving for a comfortable retirement is what motivates many people to start their wealth management planning regimen. Whether you’ve been planning for retirement since you were 25 or 50, saving is only half the battle; after retirement, the real work begins. With your primary source of income gone, you have to figure out how to make your retirement fund last. That’s not as easy as it sounds.

In 2008, at the beginning of the financial crisis, Metropolitan Life conducted a survey asking people who were about to retire on their 401(k) plans what they thought a safe withdrawal amount would be. The answer, on average, was about 10% annually.

That number might have made sense years ago, when interest rates were high and retirees could bank on making money on fixed-income investments like Treasuries. But today, 30-year Treasuries are paying just 2.8% annually, and 10-year Treasuries offer a lowly 1.66%.

Interestingly, not even the financial crisis got people thinking more seriously about retirement withdrawal rates. In a 2011 Fidelity Investments survey, the mean annual withdrawal rate came in at a solid 8.4%; but the answers were all over the place, ranging from a conservative one percent to a no-holds-barred 25%.

In lieu of a one-percent, 10%, or 25% annual withdrawal rate, many advisors have been telling their clients that four percent is a safer number (adjusted for inflation). But is that sustainable? One study showed that an inflation-adjusted withdrawal rate of more than five percent significantly increased one’s risk of wiping out their retirement savings.

The following chart shows how long a hypothetical $500,000 retirement portfolio (containing 50% stocks, 40% … Read More

Are You Programmed to Be a Successful Investor?

By for Daily Gains Letter | Apr 24, 2013

Are You Programmed to Be a Successful Investor?

When it comes to investing, our retirement planning rests in our ability to make sound economic judgments based on mathematically quantifiable numbers. We weigh the financial risks and rewards, and then make our decision.

Fortunately, or perhaps unfortunately, we are a little more complex when it comes to making decisions. For one thing, our emotions, developed after a lifetime of experiences, play a large part in how we act.

This fight-or-flight tendency helps us make good (some might argue “safe”) decisions; it prevents us from swimming with sharks or walking barefoot on lava flows. Granted, some aspects of nature can be somewhat predictable, but interacting with unpredictable investors on Wall Street is entirely different.

Despite our best intentions of trying to make rational decisions on something as black-and-white as finances and quarterly results, our plans are complicated by having to work with others who are attempting to interpret the same information—and coming out with different conclusions.

Too much avoidance of risk and/or fear can get in the way of making some really good investing decisions. We distrust our own conclusions and end up following the herd to financial mediocrity, or even ruin.

By better understanding who we are, where we come from, and what our fears and risk tolerances are, the better we can be at creating a solid, well-diversified retirement portfolio.

For example, at the most basic level, we know that the better we feel, the more apt we are to rush into something—and possibly make mistakes. A large number of optimistic investors—those who didn’t think revenues or earnings were important—saw their retirement fund take a beating at the … Read More

Why You Should Consider Ditching Your Mutual Fund Manager

By for Daily Gains Letter | Apr 10, 2013


More proof has been released that suggests some retirees are better off handling their own wealth management strategies. According to a recent survey, individual investors who paid a mutual fund manager over the last decade would have done better by taking the reins themselves and investing in a passive index fund at a much lower cost. (Source: Pratt, J., “Study: Only 24% of Active Mutual Fund Managers Outperform the Market Index,” NerdWallet, March 27, 2013.)

The survey examined more than 24,000 mutual funds and exchange-traded funds (ETFs) available to U.S. investors for a 10-year period ended December 31, 2012. At the end of 2012, investors had invested more than $7.0 trillion in the 23,000-plus actively managed mutual funds and ETFs. Investors placed just $2.5 trillion in passive funds.

Of those who paid to have their funds managed, only 24% of active fund managers beat the market over the past 10 years. During that time frame, actively managed mutual funds returned just 6.5%, while the passively managed index products averaged 7.3%.

The return statistics for actively managed funds is probably even lower than the reported 6.5%, because the study does not include information on those funds that closed during the 10-year period.

Still, is it really possible that 76% of active fund managers wasted their money getting their Master of Business Administration (MBA) degrees, yet they are no better at finding winning indices than retail investors? This is where it gets fun. There’s even more compelling evidence to consider if you’re waffling between using an actively managed index and doing your own due diligence.

It turns out that a large number … Read More

Three Ways to Have a Company Return Its Wealth to You

By for Daily Gains Letter | Apr 9, 2013


When it comes to the stock market, there are three ways a profitable, publicly traded company can reward its investors: 1) pay a dividend; 2) initiate a share buyback plan; or 3) invest it back into the company. All three of these are aimed at building shareholder wealth, though some are more popular than others.

1. Dividends

Investors looking for capital gains and an income stream in today’s economic climate can’t go wrong with fundamentally strong companies with a good history of paying out quarterly or monthly dividends.

In light of low interest rates, many dividend-yielding stocks outperform the historical avenues for investment income. Most banks begrudgingly doll out just 0.5% interest, while 30-year Treasuries come in near a mere three percent.

Investors hoping to maintain a comfortable retirement need to find better income streams—and for many, it’s in high-yield dividend stocks. Consumer goods company Altria Group Inc.’s (NYSE/MO) share price is up almost 200% since the beginning of 2009, and it currently provides an annual dividend of 5.1%. And business equipment provider Pitney Bowes Inc. (NYSE/PBI) provides an annual dividend of 10.1% and is up 35.5% since the beginning of 2013.

Getting quarterly checks from a company for simply being an investor is a great way to generate additional income. But are there any downsides? Cutting or eliminating a dividend can significantly impact a company’s share price. Paying out dividends decreases the amount of money a company has, meaning it may not be able to operate as efficiently if an unforeseen situation arises—like one did in 2008, when the markets crashed. Companies that didn’t have enough cash to operate … Read More

Underlying Economic Indicators Dim, but Gold ETFs Retain Their Shine

By for Daily Gains Letter | Mar 28, 2013

Gold egg in the gold nest, isolated on whiteAmericans save for retirement by building wealth through a number of different ways. In addition to personal savings accounts, we build wealth through home equity, pension plans, retirement accounts, and Social Security.

Unfortunately, since 2008, the underlying values of our tried and true wealth management techniques have come under attack. Housing prices are still down 41.0% from their peak in 2007. In fact, 10.5 million homes in the U.S. are in negative equity territory, meaning 21.5% of all residential homes in the U.S. are worth less than their mortgages. (Source: Panchuk, K.A., “CoreLogic: 10.4 million mortgages still in negative equity,” Housing Wire, March 19, 2013.)

At roughly 52.4%, Nevada has the highest percentage of properties with mortgages in negative equity; Florida follows with 40.2% in negative equity, and the housing rebound–rich state of Arizona comes in third, with 34.9% of all properties underwater.

Social Security amounts to $1,237 a month, less than $15,000 a year; that’s not a lot to rely on. And there’s really nowhere to park your extra cash, either. Bank interest rates are a measly 0.5%, bonds are near 3.1%, and jumbo five-year certificates of deposit (CDs) only return around 1.5%.

The downturns in home values, interest rates, and retirement accounts have significantly reduced the amount of wealth available to finance retirement for the average American.

Yes, the Dow Jones is in record-high territory, but the underlying economics can’t support the gains for much longer. Eventually, Wall Street has to reflect Main Street, and right now, it isn’t. Unemployment is hovering near eight percent, as is household debt. Gross domestic product (GDP) is flat. And the economic … Read More

Too Much Time and Not Enough Money: Wealth Management for Your Later Retirement Years

By for Daily Gains Letter | Mar 27, 2013

270313_DL_whitefootThe recipe for a comfortable retirement is all about budgeting and making the numbers add up. Living below your means and setting aside money for the future isn’t an easy task. Nor is it particularly fun to postpone doing something in the here and now for a retirement that will last for an undetermined amount of time.

That disconnect can be found around the world. A recent survey, based on over 15,000 consumers in 15 global markets, found that over half of non-retirees (56%) say they are not adequately preparing for a comfortable retirement. That number maxes out at 72% in Egypt, 71% in Taiwan, and 66% in the U.K. (Source: “Retirement,” HSBC web site, last accessed March 26, 2013.)

Here in America, we can expect to spend about 21 years in retirement, but we will burn through our savings in just 14 years. This means that most Americans have not, and are not, financially prepared for the last 33% of their retirement. This isn’t exactly a surprise when you consider that 36% of Americans say they are not preparing adequately and a staggering 20% say they are not preparing at all.

In spite of inadequate retirement savings and a bleak long-term outlook, the short term has greater appeal; 43% of respondents are more likely to save for a trip than retirement.

This poses major questions about how people will fund not only their “active” retirement years, but how they will also cope with the financial burden of possible long-term care costs associated with aging in their later retirement years.

Right now, those nearing retirement (55–64 years old) say the … Read More

Two Wealth Management Retirement Strategies to Reconsider

By for Daily Gains Letter | Mar 26, 2013


From home repairs, to fixing cars, to crafts, publishing, and decorating—in a do-it-yourself culture, nothing is out of bounds. Thanks to low interest rates and underperforming assets with terrible returns, many who are on the cusp of retirement are looking after their own retirement plans in an effort to boost their retirement income. Meanwhile, those already in retirement are looking for ways to sustain their savings.

Self-directed retirement investing is a great way to manage a retirement nest-egg. And there is a wide array of resources and tools available to help retirees going it alone to make informed decisions, including: online calculators (which help determine how much you need to save for retirement), articles, webinars (instructional seminars conducted online), and online videos.

While the Internet is the easiest place to turn to for self-directed wealth management and retirement planning advice, you have to be discerning. Making the wrong decisions can be costly, and it could significantly undermine how comfortably you enjoy retirement.

What follows are two popular wealth management retirement strategies that are commonly offered to those entering their golden years—but that investors need to seriously reconsider.


1. Postpone Retirement to Increase Savings

Whether you’re retired or near retirement, your time is still worth something. You just have to decide how financially set you are and what your time in retirement is actually worth in dollars and cents.

A lot of people nearing retirement are at the peak of their earnings potential. And in some cases, they may not want to quit—even if they are in their late 60s and financially prepared for retirement. The reason many want to … Read More