• Stocks are down
• Real estate is down
• Money market yields are non-existent
• Most stock trades (and therefore market movement) are run by computers
• Market volatility is ridiculously high

Who wants to invest for retirement under these conditions?

Oh – the article also suggests that financial advisers are worthless.

Here is the one “beat the market” strategy offered up by the author:   short shares of public companies that are poised to go bankrupt.

Doesn’t that sound fun and easy to do for a retirement investor?

Right now my primary goal is to maintain our retirement nest egg at survivable levels, taking into account the inflation rate.  Investing may be dead but survivor skills still exist.

Some folks are seeking refuge in variable annuities but I’m not even close to going there.

Here is the link to the full article.  Read it and weep: Five Reasons Why Investing is Dead

Related posts:

1. Investing for Retirement – Beware of Greeks and Referendums
2. After Another Market Crash – Will You Change Your Retirement Plan?
3. Is Gold Worth the Risk as a Retirement Investment?

No matter the what is happening in world political and economic affairs, you can generally find optimists and doomsday predictors competing for attention among investors. The optimists are usually mainstream investment gurus who make money when people are optimistic and buying stocks. The doomsday category is occupied by gold bugs, conspiracy theorists, and forecasting experts who rely on historical trends. I tend to read the latter types. Sometimes its merely entertaining. Other times I learn something helpful.

Paul Farrell at Market Watch is usually a good source of doomsday predictions, as he was today. He poses this question to readers like us:

Are you going to keep betting your future on winning 10%, hoping USA Today’s short-term thinking “strategists” are guessing right? Or will a “historic world-changing event” crush the American economy, markets … and your retirement?

Farrell goes on to list ten different “triggers” for a potential doomsday meltdown of the economy. Some sound plausible, others not so much.

But this is how I look at it:  Am I willing to risk a collapse of our financial assets and retirement plans if one or more of these triggering events occurs? If not, am I willing to surrender an opportunity to fully participate in a 10% or more increase in the market?

My answers are no, I am not taking that risk and and yes, I will accept lower market returns to protect our assets.

But I won’t take all of our money out of the market because (a) we won’t need all of that money in near term and (b) the risk of financial catastrophe is not that high.

I encourage you to read the Farrell article (linked below) then ask yourself these same questions.

2012: Stocks up 10% — or Doomsday scenario? 

Related posts:

1. A 15 Year Bear Market For Stocks?
2. After Another Market Crash – Will You Change Your Retirement Plan?
3. Is Gold Worth the Risk as a Retirement Investment?

The guaranteed lifetime benefit feature gives the annuity owner the right to a lifetime payout this is percentage of a “total withdrawal base” amount.

The big investment companies see the guaranteed lifetime benefit riders as a way to increase the appeal of their own variable annuity products. They already offer variable annuities so they typically partner up with an insurance company to provide the rider.\

Vanguard has now done this with Monumental Life Insurance Company to offer its version of guaranteed lifetime retirement income to variable annuity owners. The marketing approach is that the annuity purchaser can withdraw a fixed percentage of a”total withdrawal base” during his or her lifetime, even if markets are bad or the annuity’s principal runs out. They also say that the “total withdrawal base” can increase if the market performs well. The withdrawal percentage is based on the age of the first withdrawal which can be as early as age 59.

To make this product more attractive to a married couple, the purchaser can choose a joint life option. This extend the lifetime income benefit to the spouse, although at a lower annual withdrawal percentage compared to a single life benefit.

Vanguard is currently charging a rider fee of 0.95% of the annuity’s total withdrawal base each year. I would certainly investigate whether this fee is locked or can increase. Keep in mind that 0.95% is a significant cost over time, particularly given the low investment returns now being offered. You are allowed to drop the rider and the fee any time.

Here is one example of how the guaranteed lifetime retirement income benefit works, as provided by Vanguard:

The annuitant of a variable annuity with a total withdrawal base of $150,000 elects to purchase the GLWB rider when he’s 65, and he immediately begins taking withdrawals at a 5% withdrawal rate. He could then be assured of annual withdrawals totaling at least $7,500 per year for life, based on the value of his designated investments when he elected the benefit. Even if the total value of the investments falls because of poor market performance, the $7,500 of withdrawals could continue.

One feature of the variable annuity product compared to a fixed annuity product is that in many cases, you are allowed to withdraw more than your guaranteed annual withdrawal amount, if you need the money and are willing to accept lower future benefits.

Vanguard is known as an investment company with low costs. That’s what interests me about its entry into this guaranteed lifetime income space.

Here is a link to the Vanguard brochure on this new product. (And no, I receive no benefit from Vanguard.)

Have any of you considered a variable annuity with a guaranteed lifetime income benefit?

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I’ve also concluded that Congress and the Fed doesn’t care if any of us ever retire. Let’s review what their collective policies in recent years have done to those of us who are in – or who are approaching – retirement:

1. Knocked the stock market (and thus our retirement savings) on its butt in 2008-2009.

2. Pushed interest rates so low in response to the consequences of their own failed policies that savers are sacrificed in favor of spenders.

3. Failed to adopt any meaningful budget or tax reform, causing a reduction in credit ratings and lack of investor confidence. We pay for this through continued volatility (most of it negative) in the markets.

Volatility has again caused us to dial back our exposure to the equity markets. Some would argue that I should be buying, not selling. Generally that makes sense but not for us, not now.

First, with our kids grown and mostly off the family payroll, we are able to put a lot more cash into our retirement savings. Ignoring market fluctuations, our contributions generally increase our retirement savings balance by approximately 10% each year. What is the market offering us? It can’t even stay flat.

We are not being offered enough return for the risk that we are taking in the market. Worse, until the 2012 election, nothing substantive will get done to change a mostly negative outlook.

So what will we do with the new cash from this recent ETF sale? Accelerate the purchase of more TIPS and I-Bonds. Right now, I would rather increase the cash balance of our retirement savings by 10% each year, then inflation-protect it with bonds paying a 0-3% real return. We will still be buying some equities, mostly commodity-based.

When Congress decides to pay more attention to the plight of retirees and less attention to their own election campaigns, we can re-balance.

Are any of you making changes in response to recent events?

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Occasionally I read a well-reasoned, objective article about gold investing that is not written by a gold “fanboy.” That was the case yesterday. The article was actually written for financial planners to consider when providing advice to their clients.

The author focuses on risk-adjusted returns provided by gold investing. This is very important for gold because of its extreme variability in long and short terms trends.  This is one of the problems in discussing gold as an investment. Depending on what years you include in your historical analysis, the results are all over the place. As the article notes, during the years 1987-2004, gold prices varied by not much more than $200 an ounce. On the other hand, there has been a 260% increase in gold prices over last six years.  If the world economic news suddenly turns positive, that 6 year rally can disappear in a hurry.

More sophisticated investors (not the doomsday types) will observe that investing gold can be a good hedging strategy. The author addresses that point this way:

[M]any admirers of the yellow metal formed their opinions when there were less sophisticated hedging instruments available to individual investors. With the growth of the ETF industry, investors now have access to funds that deliver the inverse performance of a wide range of equity, fixed income, and currency-based assets.

These instruments can be targeted at specific risks, such as inflation or currency devaluation, while the same cannot be said for gold. Some, such as Treasury Inflation Protected Securities, offer a modest return even when markets move against them.

I highlighted the comment about TIPS because that is the inflation-hedge that I prefer. Inflation-protected securities don’t need a constant stream of bad news to increase in value.

Anyway, if you are still considering gold as a retirement investment, the article is definitely worth a read: Gold: Worth the Risk?

Related posts:

1. Second Quarter Net Worth and Investment Results
2. Further Adjustments to Our Retirement Risk Profile
3. A Refresher on Ways to Lose Your Retirement Nest Egg

This decision wasn’t made merely on recent events. I reviewed all of the facts and found these negatives to also be persuasive:

• Over the past 12 months, VEU is down 12.65%
• Over past 5 years, VEU is down 16.28%.
• There is no anti-correlation benefit, e.g., the price movements of VEU and VTI (U.S. stock market index) shares are tracking very closely, with VEU sadly showing both lower highs and lower lows.

In other words, what is there to like about holding VEU? Where is it headed over the next few years, with Europe in continual “who will be the first to default” turmoil?

Is the “you must have foreign equity exposure” rule of thumb really just another retirement planning “rule of dumb”?

I am 60 years old. I’m not waiting indefinitely for some light at the end of the foreign stock market tunnel.

After the the limit order triggered, I started researching and thinking about what to do with the resulting cash.  I gave some consideration to buying one of the new specialized “retirement income funds” from PIMCO.  I ultimately decided against it but I will revisit this again soon.

I also tried to buy some individual TIPS bonds on the secondary market but the prices were not attractive.

Instead, I bought a TIPS  ETF from PIMCO:  LTPZ  This particular TIPS fund focuses on the longer maturity bonds, with an average maturity of almost 20 years. This adds some additional interest rate risk but according to the Fed, interest rates aren’t going anywhere anytime soon.

What appealed to me about LTPZ is its steady performance that is not correlated to movements of U.S. stock indexes.  The fund is up 21.2% YTD, 12.7% over the past year, and has a 15.4 % annualized return since inception.  The distribution yield is 3.30%  while the expense ratio is only 0.20%.

We are now even more heavily weighted in inflation protected investments.  Part of me thinks this is a bad idea but the actual numbers say something else.  Core inflation is on the rise, which will make TIPS more valuable.   I just need to keep a close eye on interest rate trends as compared to inflation trends.  I will also put in a limit order on this holding to protect our position against a dramatic events.

So far so good this week as LTPZ is up 0.66% just since we bought it.

Related posts:

1. Further Adjustments to Our Retirement Risk Profile
2. It Seems that Congress Doesn’t Want Us to Retire

This is when I don’t like the globalization of our economy. I don’t want my retirement investments to get hammered by bad decisions made by overspending foreign governments. It’s bad enough that we have suffered from our own government’s bad judgments.

When I learned early this morning about the Greek referendum, the European stock markets were already crashing. I went into my 401k self-managed brokerage account and adjusted my stop loss orders on our equity ETFs. I am pretty sure the limits I set will be reached today and I will close out of those positions. If I am right, my next move will likely be to use some of the cash to buy more TIPS. What else is there to do now?

I am just sick of the volatility. I am even more fed up and concerned about how little control any of us now have over our financial futures when we put faith and trust in government. Whether it’s in Greece or the U.S., our “leaders” are still too concerned about elections. They cannot bring themselves to do the right things.

The Greek government has punted a very important decision to the voters. Is there much doubt that the voters will say “no” to more austerity? This will cause Greece to default on its debt, sending the markets into another tailspin. I do not want to worry about things such as what the Greek voters will do when planning our retirement. Do you?

How are you handling this current crisis in your own investing?

Related posts:

1. Is Retirement Investing Dead?
2. Prepare Your Retirement Portfolio for Supercommittee Failure
3. Big Stock Market Move on Monday?

You will recall that the supercommittee was created by a last minute “deal” to increase the debt ceiling. The deal scenario itself caused a significant market downturn. This downturn was compounded by a downgrade in the U.S. credit rating. Congress is about to let it happen again.

The committee must present a deficit reduction plan for an up or down vote by November 23. Rumor has it that the committee is hopelessly deadlocked – again – over revenue increases vs. spending cuts. If the committee fails to reach an agreement, $1.2 trillion in spending cuts will be automatically triggered. The failure to agree would be the first blow to market conditions.

But it probably won’t end there. If the committee fails (likely), there will be attempts to undo the original deal to prevent the automatic spending cuts from being triggered. This will unwind everything and put us right back where we were at the first crisis point, minus the debt ceiling problem. A second consequence could be a further downgrade of the U.S. credit rating, delivering a second blow to the market.

I don’t care which party you support – Democrats, Republicans, Tea Party – whatever. This will not be good for your retirement portfolio. Sadly, there are some members of Congress who are willing to knowingly punish the market (and our portfolios) if it would reduce the chances for an Obama re-election. At this point in my retirement planning, I care less about elections than I do about planning for and affording my future.

So what should you do? These are my thoughts (and what I do):

1. Triple-check your asset allocations to make sure you have some non-correlated investments that will likely go up if the committee fails and the markets head south, as expected.

2. Do the same with your 401(k) investment elections.

3. For your stock and ETF holdings, put in some stop loss orders that will trigger and minimize your losses if something dramatic happens. It wouldn’t be a bad idea to consider trailing stop loss orders to lock in any gains between now and the committee deadline.

If you don’t have the time or confidence to do anything on your own, call a trusted, fee-only financial advisor. Tell him or her you want to protect your retirement portfolio against the negative consequences of supercommittee failure. Get some specific advice that makes sense. Then follow that advice.

Here is a good discussion of the current state of affairs in the supercommittee: U.S. Supercommittee Flirts With Failure.

Related posts:

1. It Seems that Congress Doesn’t Want Us to Retire

A recent slide show article from Forbes is very helpful in presenting 20 different actions (or inactions) that can cause us to lose our retirement nest egg.

First on the list of inactions is a failure to diversify. I can’t argue with this ranking at all. On days when the market is lurching south, it is calming to see at least one or two our nest egg assets actually going north. Diversity does that – finding and holding assets that are not correlated.

Number 3 on the list is ignoring inflation. I buy that as well, which is why we own so much of Vanguard’s VIPSX (up 7.84% this year compared to a flat DJIA) and continue to buy a commodities.

Number 12 on the list is “overestimating your investment acumen.” That could be me. If I visited ten different financial planners, at least half would likely have advice for me that would substantially change our investing plan. My response would be this:  Show me how your plan would be improve expectations for achieving our retirement income goal. I have solid predictive data supporting our plan. Your data must be better.

The “be careful riding winners” reminder on the list is also something for me to be cognizant of. Some day (although not too soon), VIPSX will become a lousy asset and I have to be ready to sell it and take our gains. More to this point is gold. This has always been my problem with owning gold: When do you sell it and replace it with a different investment? I don’t like hoping for more bad world economic news so that gold prices will increase.

Anyway, take a quick look through the Forbes list. It may spur you to do something that will actually improve the quality of your retirement nest egg.

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1. Market Timing and Your Retirement Nest Egg

First, a warning: The deadline for undoing a Roth IRA conversion is October 17.

The question of whether you should undo the conversion comes down to money, of course. More specifically, it comes down to taxes. When you converted in 2010, you may have paid federal income taxes (and maybe state income taxes) on an IRA value which is now much lower. Paying taxes on money that has already been lost really hurts. Undoing the conversion will “undo” the tax obligation and put that money back in your wallet. You will probably have to file an amended return to get your refund.

Here is more information on why you should undo your Roth IRA conversion, and how to do it.  (It’s simple.)

FYI – If you change your mind again, you can also “undo” your “undo” as long as you wait 30 days.

Did any of you convert in 2010 and are now reconsidering?

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