Daily Gains Letter

retirement fund

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

For Retirement Fund Growth, Think Like a Contrarian

By for Daily Gains Letter | Mar 13, 2013

130313_DL_whitefootWhen it comes to thinking about retirement planning, the “out-of-sight, out-of-mind” mantra seems to be a favorite amongst individual investors. How else can you explain the miniscule 14% of baby boomers who are “very confident” they will have enough money to live comfortably when they retire and the 23% who say they are “not at all” confident? (Source: “The 2012 Retirement Confidence Survey; Job Insecurity, Debt Weight on Retirement Confidence, Savings,” Employee Benefit Research Institute web site, March 2012, last accessed March 12, 2013.)

Granted, the Great Recession that began in 2008 has made retirement planning that much more difficult. Unemployment is high, gross domestic product (GDP) growth is abysmal, wages are flat, and household debt is stubbornly high at $12.8 trillion, while public debt sits at $17.0 trillion. Those who are already retired and those who are nearing retirement have a reasonable explanation for not being able to find enough disposable income to pad their retirement funds. (Source: “Household Sector: Liabilities: Household Credit Market Debt Outstanding,” Federal Reserve Bank of St. Louis web site, March 7, 2013.)

What I do find odd, however, is the reason as to why so many are plunking their hard-earned dollars into underperforming assets with terrible returns, like banks at 0.5% and bonds at a paltry 3.1%. Even jumbo five-year certificates of deposit (CDs) offer a pathetic return of about 1.5%. (Source: “National High Yield Rates for CDs,” Bankrate, Inc. web site, last accessed March 11, 2013.)

Banks, bonds, and CDs are not the retirement fund-fueling workhorses that investors need right now. To build a strong retirement fund, an investor needs to make their … Read More

Dow Hits Record High; Is There Still Value in Small-Caps?

By for Daily Gains Letter | Mar 7, 2013

070313_DL_whitefootDuring the financial crisis, millions of American investors pulled their money out of the stock market and funneled their retirement funds into low-yield, low-risk Treasuries, even into the bank. Unfortunately, with most banks dolling out just 0.5% interest and 30-year Treasuries offering just 3.1%, investors hoping to maintain a comfortable life in retirement are going to have to find better places to park their retirement funds.

With the Dow Jones Industrial Average sailing into uncharted territory, many investors that were sitting on the sidelines are turning their attention back to the stock market. And for good reason.

On March 6, 2009, the Dow Jones Industrial Average touched a low of 6,469.95; on March 6, 2013, it hit an all-time high of 14,320.68—for a four-year gain of 121.3%. During the same period of time, the S&P 500 climbed 121.9%. (Source: StockCharts.com, last accessed March 6, 2013.)

After lying dormant for years in banks and low-yielding bonds, some small investors are thinking about bringing their money off the sidelines and back into stocks. With the Dow reaching record heights, is it really the best time for investors to be jumping back in?

Yes, but with some qualifications.

Historical wisdom holds that small-cap stocks outpace large-cap stocks. As a result, some investors may be considering jumping on the small-cap bandwagon. And why not? Since touching a low of 355.05 on March 9, 2009, the Russell 2000 index, a measure of small-cap stocks, has climbed 165.5%—hitting a record 932.00 on February 19, 2013. (Source: Ibid.)

While the Russell 2000 has solidly outperformed the Dow Jones since 2009, investors have to consider whether the bull … Read More