Daily Gains Letter


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

Lumber Sales Forecasting Stronger Housing Market?

By for Daily Gains Letter | Apr 30, 2013

Lumber Sales Forecasting Stronger Housing Market?Reflecting the strength in the U.S. housing market, Weyerhaeuser Company (NYSE/WY) reported very good financial results in its first quarter.

The company’s 2013 first-quarter revenues leapt to $1.95 billion, way up from $1.49 billion in the same quarter last year, on solid demand from all its business lines.

Net earnings grew significantly to $144 million, way up from earnings of $41.0 million in the same quarter last year.

On the stock market, Weyerhaeuser is expensively priced, but it certainly is great to see this mature company reporting solid business growth.

Stocks related to the U.S. housing market have been on a tear for the last couple of years, but it is very much a sector that is chock-full of risk.

It is not a group of companies on the stock market that a conservative investor would want to use while saving for retirement.

The Home Depot, Inc. (NYSE/HD) is a component company in the Dow Jones Industrial Average and has been a powerhouse wealth creator recently.

On the stock market, Home Depot has doubled over the last 18 months, which is pretty spectacular for such a mature, large-cap company.

It is a reflection, however, of the enthusiasm that institutional investors have for the U.S. housing market and the resurgence that it is now experiencing.

Of course, there is no runaway bull market in housing, but the action in the stock market reflects a recovering housing market, as does the fact that earnings from housing-related companies are going up.

D.R. Horton, Inc. (NYSE/DHI) reported excellent growth in its latest quarterly revenues of $1.4 billion, up a spectacular 49%.

The company’s earnings … Read More

Consumer Staples No Longer a Buy in This Market

By for Daily Gains Letter | Apr 29, 2013

Consumer Staples No Longer a Buy in This MarketThe Procter & Gamble Company (NYSE/PG) is likely a company that a lot of people have in their stock market portfolios, whether they’re saving for retirement or are actually in retirement now. It remains a great business with solid potential going forward.

On the day that Procter & Gamble released its first-quarter earnings results, the stock dropped about $5.00 a share, or six percent. The company revised its 2012 second-quarter earnings lower to below previous Wall Street estimates; top-line growth was anemic.

On the stock market, Procter & Gamble just came off a new all-time record high. The company currently has a price-to-earnings ratio of 17.5 and boasts a dividend yield of three percent.

This blue-chip company has proven to be worth accumulating when it’s down, but the stock is still way up and not quite yet in the buy zone. A full-blown stock market correction should bring this position much lower; then it would be the kind of opportunity to consider with new money.

Another stock that’s likely to be in many retirement portfolios is Colgate-Palmolive Company (NYSE/CL), which has been doing exceedingly well since the beginning of this year. The company reported first-quarter earnings that met Street expectations, and the stock market’s reaction was positive.

Consumer staples stocks are always welcome in a retirement portfolio, or any stock market portfolio with an adherence to risk and capital preservation. It is true, though, that all stocks are risky assets; no matter what, even the most stable companies can experience major downturns, because they are equity securities.

Procter & Gamble had an earnings miss at the height of the stock … Read More

Three Tips for Getting Your Savings into Shape

By for Daily Gains Letter | Apr 22, 2013

Three Tips for Getting Your Savings into Shape

Even after taking a slight breather last week, the Dow Jones Industrial Average and the S&P 500 are still unabashedly bullish. However, that doesn’t mean the average American is basking in the glow of the greenback.

While a small majority of American consumers have more savings than credit card debt, almost 25% say they have more credit card debt than money in the bank. And 16% say they have no credit card debt or savings. This means that 40% of Americans are in a financially precarious position. (Source: “February 2013 Financial Security Index charts,” Bankrate.com, last accessed April 19, 2013.)

At the end of 2012, total household debt in the U.S. came in at $11.35 trillion. The largest portion of debt went to mortgages at $8.06 trillion, for a national average of roughly $200,000—non-housing debt is at $2.75 trillion. Broken down, student loan debt has increased to $970 billion, or $24,803 per person. Credit card debt rose to $680 billion; 40% of Americans have at least one credit card with a balance of $15,799. Meanwhile, auto loan debt increased slightly over the third quarter of 2012 to $780 billion. (Source: “Household Debt and Credit Report,” Federal Reserve Bank of New York web site, last accessed April 19, 2013.)

No matter how you look at it, this adds up to a significant debt load for the average American family; and our ability to pay off that debt is limited—and becoming tougher and tougher. In December 2012, the average real disposable income was $32,663 per person, lower than the $32,729 recorded in December 2006. (Source: “Real Disposable Personal Income,” Federal Reserve Bank … Read More

Stock Market Flying High, but What About Risk?

By for Daily Gains Letter | Apr 4, 2013


The performance of many blue chips—consumer staples stocks, in particular—is really stunning. And looking at the shares and how much they’ve moved on the stock market, even since the beginning of the year, you really have to wonder how sustainable this stock market rally is.

I am a big believer in blue chips and investing in stocks that pay growing dividends over time. But right now, we have so many companies trading right at their all-time record highs. I wouldn’t say that the stock market is expensively priced, but realistically, other than momentum players, would individual investors be buying these stocks at their all-time record highs? I find that unlikely.

The stock market breakout really is meaningful and pronounced. Consider The Procter & Gamble Company (NYSE/PG), which has been bid up approximately 16 points since last summer. Procter & Gamble’s stock chart is featured below:

Chart courtesy of www.StockCharts.com

The stock market is most definitely due for a break. The leadership from blue chips has been significant, but it also reveals the fragility and uncertainty in the marketplace. Institutional investors want to buy stocks, and they are; but they are buying the safest names.

For the stock market’s current momentum to continue, technology stocks are going to have to show more leadership going forward. Investors are buying in anticipation of a decent first-quarter earnings season.

Among the many blue chips that are soaring in this stock market, consider Johnson & Johnson (NYSE/JNJ). This stock has been rising consistently and strongly since the beginning of the year. Its performance is so unusual. It really is a powerhouse breakout. Johnson & Johnson’s … Read More

The Best Insurance Policy for Speculative Trades

By for Daily Gains Letter | Mar 28, 2013

280313_DL_zulfiqarSometimes, investors try to look for stocks to score a “home run”—speculate on them to double, triple, or even increase 10-fold in prices. Unfortunately, in hindsight, they forget the amount of risk they are taking.

At the very core, speculation is about taking higher risk in the hope that the gains will be exponential.

As I have been saying in these pages, the goal of investing is to grow savings over time by minimizing risk—to focus on long-term growth over short-term gains.

When a person speculates, he or she leaves their portfolio vulnerable to a significant drawdown. Mark Twain said it best: “There are two times in a man’s life when he should not speculate: when he can’t afford it and when he can.” (Source: ThinkExist.com, last accessed March 26, 2013.)

Speculation isn’t easy, and not every investor should try it; but if an investor does go ahead and tries to speculate, then they must make sure their capital—as much capital as possible— is protected in case things turn against them.

Consider this scenario: say you bought 1,000 shares of pharmaceutical company XYZ Inc. for $10.00 each, hoping that the stock will go to $50.00 on the approval of the company’s drug by the government. Sadly, a few weeks later, you find that the drug was not approved, and the stock now trades at $5.00, 50% lower. Your loss on this trade is $5,000 (calculated using the starting value of $10,000 minus the current value of the stock).

To protect their losses, investors can use an option strategy called the “protective put.” In essence, a protective put is like buying … Read More

Where to Find Certainty in the Stock Market with Cyprus on the Edge

By for Daily Gains Letter | Mar 27, 2013

270313_DL_clarkThere are a lot of great stocks out there with proven track records for making money. These are retirement stocks—brand-name stocks that pay dividends to create wealth. With dividend reinvestment, you can effectively compound this wealth in an easy, costless manner.

One blue chip company that I’d like to highlight is Johnson & Johnson (NYSE/JNJ), which has an outstanding track record of increasing its dividends to shareholders and achieving capital gains on the stock market.

I couldn’t get data for before 1972, but Johnson & Johnson has increased its annual dividends every year since then. Since 1972, the company’s stock has split three-for-one on two occasions, and two-for-one on four occasions. The company’s last share split was on June 12, 2001, and the stock is definitely due for another split.

On the stock market, Johnson & Johnson recently spiked 10 points higher. And that’s just since the beginning of January. The company’s long-term stock chart is featured below:

dl_0327_image001Chart courtesy of www.StockCharts.com

Track record-wise, the stock is up well over 10-fold within the last 20 years, and that’s just capital gains; that doesn’t include dividends paid.

Everyone knows Johnson & Johnson’s consumer products; the company’s baby shampoo is for sale virtually everywhere. But Johnson & Johnson is much more than that. It’s dozens of popular healthcare brands, skin creams, and medicines. The company’s pharmaceutical research in oncology, contraceptives, immunology, and vaccines is extensive. Finally, Johnson & Johnson manufactures implants, diabetes care products, and joint replacement products. It’s a company with hugely favorable exposure to demographic changes and an aging population.

Of course, this is why Johnson & Johnson is rarely … 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 Questions You Need to Ask Yourself to Determine if Your Asset Allocation Is Effective

By for Daily Gains Letter | Mar 22, 2013

220313_DL_zulfiqarInvestment management is considered to be one of the most critical aspects when it comes to investing for the long term. At the end, the goal is to have enough savings to retire comfortably and be stress-free in your golden years. Proper investment management can help individuals achieve their goals while taking adequate risk.

While there are many techniques a person can employ when it comes to investment management, asset allocation is arguably the most discussed one. The myth among investors is that if they keep a certain portion of their portfolio in a specific asset class and hold it, over time, they can produce the optimal return—for example, 50% of their savings in stocks and 50% in bonds.

Asset allocation, at the end of the day, is simply spreading your savings across different asset classes to reduce risk.

It can certainly reduce volatility in an investor’s portfolio and help shield them from major losses; but unfortunately, it can also hinder performance—and over time, it will affect their end goal. Consider this: you have a portfolio consisting of 50% stocks and 50% bonds. Now, if the bond market declines by eight percent and stocks increase by five percent—what’s your portfolio return? The answer: negative three percent.

Fixed asset allocation doesn’t work! There isn’t a number attached when it comes to asset allocation. It depends on an investor’s risk tolerance and their time horizon. Instead of holding a certain percentage of savings in a specific asset, they should focus on constantly balancing their portfolio. Sometimes, one asset class might have higher risk over the others.

In order to check the effectiveness … Read More

Semiconductor Play for Portfolio Growth, Diversification, and Income

By for Daily Gains Letter | Feb 27, 2013

270213_DL_zulfiqarWhen you are building a portfolio and saving for retirement, a financial planner usually suggests that you diversify as much as you can—to protect your capital and reduce your risk. The last thing investors want when they are saving for retirement is to lose what they have.

When you diversify, your risk decreases. Even if you are investing in the same industry, investing in different companies reduces your risk significantly.

One way to do this is to look for companies that are operating in multiple regions and industries. Why? This is simple: if one country is witnessing economic slowdown, the other country might be performing well. The same goes for industries—some industries might excel at times of economic growth, and others might suffer.

STMicroelectronics N.V. (NYSE/STM) is a perfect example of this kind of company—well diversified in different regions around the world and in multiple industries. This company is based in Switzerland, and it has research and development centers in 10 countries, 12 manufacturing sites, and global exposure with sales offices around the world. (Source: STMicroelectronics N.V. web site, last accessed February 25, 2013.)

STMicroelectronics N.V. (STM) is one of the largest semiconductor companies and has products for different industries. The company is a leader in serving integrated device manufacturers (IDM) with products, including microcontrollers, smartcard products, standard commodity components, micro-electro-mechanical systems and advanced analog products, application-specific integrated circuits, and application-specific standard products for analog, digital, and mixed-signal applications. STM also offers subsystems and modules for the telecommunications, automotive, and industrial markets, comprising mobile phone accessories, battery chargers, ISDN power supplies, and in-vehicle equipment for electronic toll payment. (Source: Yahoo! … Read More