Reader Delo pointed to a link on Minyanville featuring Eight Lifestyles of the Rich and Incompetent.
There seems to be some correlation in the size of the mansion they are occupying and the stock price of the company they’re running. Enjoy the slide show.
Holding Steady
If you watch psychologically important levels, then the fact that the S&P; 500 and Nasdaq remained above 1,000 and 2,000 respectively yesterday, is definitely a good thing.
Despite some bobbing and weaving throughout the session, last half-hour buying pushed the major indexes into plus territory, which means that the Dow and S&P; 500 have gained four trading sessions in a row.
I agree with the fact that the longer the indexes hover around these lofty levels, many money managers with large cash positions will be forced to put that money to work, which could keep the upward momentum going.
Four bits of good news kept the rally alive:
1. Caterpillar’s very bullish guidance
2. A better-than-expected report on pending home sales
3. A strong day for financials and commercial real estate stocks
4. United Airlines’ report of stronger-than-expected passenger traffic
Looming above the good news is Friday’s unemployment report, which has the power to move the market in either direction. Anything “less bad” than expected will very likely help the bullish cause.
The Summer Rally Continues
It seems like no one bothered to look in the rear view mirror yesterday as the major indexes rallied on and broke two important psychological levels. The S&P; 500 managed to close above 1,000 for the first time since November 4th and the Nasdaq above 2,000, a level which it has not reached since October 1.
This now brings the S&P;’s gain for the year to just over 11%. You might be interested in knowing that the S&P; 500 is still 24% below the level of our Sell signal from 6/23/08. That means this bull needs more legs just to get to the breakeven point of last year.
Nevertheless, the current strength in the market is impressive, although I have some doubts as to its duration. Be that as it may, we try to participate in the current run with caution and always prepared to make changes to our invested positions should the need arise.
Should You Or Should You Not?
The current market rebound along with the questionable (and stimulus induced) economic recovery has some readers wondering to what extent they should participate in the current upswing.
Here’s what Paul had to say:
In spite of your skepticism regarding whether or not the market can hang on to recent gains, the trend for both US and International stocks has been very strong. Are you at liberty to say whether or not you are 100% invested yet? If not, what will it take to get you to a 100% equity position?
Personally, I am now 75% into equities, (US and International) but mentally I’m having difficulty investing my remaining 25% cash position, as this market has run up so far so fast.
That is very close to my general allocation. As I pointed out last Saturday, during this current buy cycle, mutual funds in general have been steadier and have resisted market pullbacks better than ETFs.
As a result, some of the 401k accounts I manage were able to reach a 100% invested position fairly quickly while others did not due to whip-saw signals. Predominantly, I have stayed in hedged positions but have added outright longs as well.
Should you now invest the balance and become 100% invested? Since no one can look into the future, I suggest you look at the risk you will be taking.
Say, your portfolio is worth $100k, of which you currently have invested $75k. If you add another $25k to your position, and the markets head south, your risk based on a 7% trailing stop loss would be about $1,750, which represents a loss of 1.75% of your total portfolio. If you’re moderate to aggressive, that is an acceptable risk to take, however, only you can make that decision.
If you’re the conservative type, you may be happy with your 75% allocation and leave it at that. Remember, your comfort level with market exposure is what matters most, not what others tell you should do.
Sunday Musings: Retirement Issues
Random Roger made some interesting observations in a recent post called “You Lost Me At Hello.” Here are some highlights:
Yesterday Yahoo Finance ran this article from BusinessWeek about a “rule” for assessing where your savings compares to where it should ideally be. Meaning if you are 50 years old you should have X. X is not a number but a multiple of your salary. The basis for the formula cited “starts with one of the basic tenets of retirement planning—that people need at least 70% of their pre-retirement income during post-working years.” Insert scratched record audio file.
Rules like this are woefully incomplete. Complications arise in individual circumstances, vagaries of the market beyond anyone’s control and any number of other things.
For what it is worth, the article says that a 45 year old should have 3.6 times his salary saved, a 55 year old should have 5.4 times and when you retire you should have 7.7 times your annual salary.
If you still work what are your biggest expenditures? If you are retired what are your biggest expenditures? What are the likeliest changes to expenses between working and retiring? Our biggest expenses are estimated tax payments and savings. If I ever stop working and start living off of savings then I would think tax payments would go down and savings would mean taking less out of the portfolio one quarter.
…
Another ouch is about disciplined spending habits. Anecdotally, living beyond ones means is a big problem and many people living beyond their means are either in denial about it or don’t understand how the numbers work. I’m telling you this afflicts a lot of people.
This might be a good spot to bring up one of my favorites, the one-offs. Some people never have to deal with anything major while others may be very unlucky. Envision a scenario where a year starts out with an expensive trip of a lifetime (we all need to have fun) followed by needing a new roof, then a deadbeat adult child (sorry but they’re out there) hits you up, then the car needs a new Johnson rod (Seinfeld reference) all coming in a year that the portfolio turns out to drop by 20%. That combo may not be a deathblow but it would surely cause some sleepless nights. Now how much planning can you do for that?
These are all very interesting considerations and no one can perfectly plan every little detail of his future life ahead. While I talk to my share of retired people in my day to day business affairs, I get only incomplete responses when probing about the challenges of retirement.
If you are retired, please share with us (in an anonymous comment if you wish) the surprises and short comings you have encountered as you moved into this phase of your life. What has been disappointing or what exceeded your expectations? Did you need as much money as you thought you would? Are some of your expenses now considerably less than during your working years? Did you scale down in terms of living quarters or automobiles?
And last not least, which will help all readers most, what would you do different if you could do it all over again?
Too Good To Be True
MarketWatch featured an interesting article called “Too Good To Be True.” Let’s look at some highlights:
When consumers get defensive about their money, the financial services industry goes on the offensive.
And there may never be a time where the business seems more offensive than it does now.
Coming off monster losses where seemingly every investment strategy either failed or was lucky to break even, financial firms know that investors are jaded.
So they’ve stepped up their training on how to get consumers past “No” and convince otherwise cautious folks to consider making an investment. Everyone is concerned about their next move, but some people dance to their own drummer while others take dancing lessons in the hopes of improving footwork.
For years, sales-training firms in the financial business have sent me promotional materials for their seminars, but the traffic has surged in hard times. Just last week, there was a Webinar promising to tell sales staff “how to get beyond the excuses people make to stop investing.” This week, the seminar being pitched is all about overcoming the three big objections consumers have to certain investment products.
Interestingly, the consumers’ top reason for not investing, apparently, was not “the financial services business has shown an alarming inability to make money for me over the last couple of years.”
In fact, in talking to one trainer — who asked not to be named or to have his company identified — it’s clear that recent disappointments are no obstacle to the new salesman, because your bad experience was “working with other guys, and we have new and better ideas.”
Consumers should hold onto their worries. There are plenty of good reasons not to fall victim to the next sales pitch, or to at least make sure you’re not a victim of sales-seminar thinking.
If you believe the seminar hype, the three big objections to investing in today’s uncertain economy are:
1. I don’t want to tie up my money.
2. What if I have an emergency (or lose my job, or get sick, or die)?
3. I think I’m going to wait until … (the market is better, my job appears safer, the economy is more solid, I get my kid through college, I pay down debts, I have more confidence).
The financial services industry is coming at you with all types of financial products in an attempt to get past your objections. They’ll sell you investments with limited or no surrender charges — to get beyond the fear that your money is tied up or unavailable in emergencies. They’ll show you charts and statistics about the cost of investing. Name a concern, they can beat it back, although your freedom and peace of mind may come with additional costs.
That’s why you may not want to eat what’s being cooked up for you, no matter how tempting it smells. This story could have been written back in 2002 when investors got hit with heavy markets losses for the first time this century. Now that the bear struck again in 2008, the stories and sales pitches are the same. Remember, Wall Street’s armies of commissioned salesmen are like pigs at a trough. The pigs may change, but the food is always the same. My reply to this issue still is what it was back in 2002. Stay away from commissioned salesmen whose only objective is to fill their pockets and not yours. And before doing business with anybody, ask the all important question, which I have pounded on for years: What is your exit strategy? If they don’t have one, take that as confirmation that the food about to be served to you is indeed the same.
[Emphasis added]