The Real Issues Concerning Healthcare.gov

healthcare.gov, government healthcareSure, it’s a convenient news story when the HealthCare.gov website crashes and doesn’t allow people who desperately need healthcare to even enroll. News outlets continue to milk this story, probably because it shows government ineptitude when it tries to do actual business, and also because we all have Internet frustration stories.

Yet, even if the healthcare.gov website worked perfectly, it would not solve the far larger issues looming in our national economy as we try to figure out how to insure our nation’s populace at a reasonable price during a time when healthcare costs continue to skyrocket.

Far beyond the headlines about website crashes and the sticker shock that people are having when they see just how much they will need to fork out to be insured, are the realities that two gigantic diversions of funds will continue to grow in years to come, further slowing any economic recovery that even the most optimistic forecaster anticipates.

For instance, an estimated 14 million people who thought they could maintain their existing plans will now have to buy one of the government plans where the premiums are much higher than the existing policy they had. As a result, they will not be spending that money on food, clothing, cars or even debt.  Then we need to take into the account the millions of currently uninsured Americans who get (and pay for) healthcare coverage for the first time, it’s good news for them, but bad news for the economy, as yet another drag on consumer spending is added.

Private individuals aren’t the only ones diverting money to healthcare. The federal government will be upping its contribution to Medicare and Social Security as the country’s population continues to age. Thousands of new retirees will be added to each of those payrolls every day over the next two decades.

Where will all the money come from to boost Medicare and Social Security and fund the many other entitlement programs that the government has bankrolled for decades? No one is really sure, but the Fed is not about to start “tapering” bond purchases as it continues to seek to kick-start a rumored recovery that has failed to gain steam.

The net effect for the average person who was thinking about retiring, but now realizes that s/he must continue to work? One vital action step for anyone within a decade or less of retirement age is a “stress test” for one’s retirement plan, using a variety of possible interest rates, economic growth rates and inflation/deflation scenarios.

That’s the only way to get an accurate gauge of how far your nest egg will take you, not the phony promises and projections of optimistic financial planners who still use historic rates of return that are unlikely to ever be repeated in our lifetimes. In fact, if the average retirement plan uses the interest rates that have reigned in the marketplace in recent years, most people’s retirement income plans blow up.

Don’t wait until the twin whammies of healthcare costs on a personal and governmental level begin to further slow our country’s economy. Plan now, wisely, so that you and your loved ones can have a statistically valid plan of action ready for whatever scenarios we encounter in the future.

Jeff Voudrie’s Updated Bio:  A financial services industry veteran with 20 years’ money management experience, Jeff Voudrie, CFP® Professional, is a new breed of private money manager. Using sophisticated electronic monitoring and software, Jeff works with you to create a personal investments management portfolio that reflects your lifestyle goals and risk tolerance. He specializes in stable growth and prudent profits while applying robust, patented risk management processes. Jeff has been interviewed by The Wall Street Journal, CBS MarketWatch, The London Financial Times and the Christian Science Monitor. He is a former syndicated newspaper columnist and the author of two books: How Successful Investors Tripled the Return of the S&P 500 and Why Variable Annuities Don’t Work the Way You Think They Work. He accepts a limited number of new clients in his personal investments management practice. He and his wife Julie live with their seven children in Johnson City, TN. He is heavily involved in his local church and has done missionary work in Hungary and Cambodia.

Common Sense Advisors does not offer investment advice via this medium. Under no circumstance whatsoever do these postings, opinions, charts, or any other information represent a recommendation or personalized investment, tax, or financial planning advice. Learn more about our firm at www.commonsenseadvisors.com

Twitter:  @JeffVoudrie

Any opinions expressed herein are solely those of the author and do not in any way represent the views or opinions of any other person or entity.

Inherited IRA’s Could See Changes With Obama Budget

financial planningIn his latest budget that was submitted to Congress, President Obama included 6 changes involving Individual Retirement Accounts (IRA’s), including Inherited IRA’s. So, why are Inherited IRA’s important? And how might these changes affect retirees?

Inherited IRAs (sometimes referred to as “stretch IRAs”) have been a wonderful way to pass on wealth to the next generation while preserving the tax-deferred compounded growth that is the main benefit associated with the traditional IRA.

There isn’t any way to know if this, or the other proposed changes, will become law, but it is worth being aware so we can be prepared. Today, I decided to focus on Inherited IRA’s because of the impact any changes may have on retirees and their children.

For instance, Sam has added money to his 401k plan throughout his 30-year career. Combined with the company match, he accumulated $1.5 million dollars by the time he retired at age 60. Sam rolled that money to an Individual Retirement Account and it continued to grow, even after he started taking required minimum distributions when he turned 70 ½.

Knowing that his wife would be taken care of in the event of his death, he names his 3 children as the primary beneficiaries of his IRA. Under current law, when he dies, each child has the option of only taking out the required amount based on their life expectancy. The rest can remain in the IRA and continue to grow tax-deferred. Assuming that the Sam’s child was 40 when he/she inherited the IRA, he/she could have another 30 years or more of tax-deferred growth.

Think about that: Sam deferred the taxes on his contributions to his 401k, taxes on the company match and the taxes on that growth for over 45 years assuming he dies at age 75. Then the 40-year old child can continue that deferral for another 30-40 years, but will have to take out required distributions each year. All told, it is possible for there to have been almost 80 years of tax-deferred growth!

With all the budget deficits and the current administration’s concept of Robin Hood ‘fairness’, it is easy to see why the government would want to find a way to get their taxes on the money in the IRA more quickly. Frankly, I can’t blame them—80 years is a long time to wait! Thus, they are focusing on Inherited IRA’s.

In the current budget that the Obama administration submitted, those inheriting an IRA would be required to drain the account by the end of the fifth year after the original owner’s death. That still leaves almost 50 years of tax-deferred growth in the example above—not bad.

If this becomes law, many retirees will want to revisit their beneficiary strategies to see if it might be worth making some changes and/or adjustments. And it is likely that this will not become law—Senator Max Baucus has tried to get this type of measure passed but hasn’t been successful. Still, it is worth keeping an eye on it and even contacting your Congressional members to let them know if you oppose it.

Common Sense Advisors does not offer investment advice via this medium. Under no circumstance whatsoever do these postings, opinions, charts, or any other information represent a recommendation or personalized investment, tax, or financial planning advice. Learn more about our firm at www.commonsenseadvisors.com

Twitter:  @JeffVoudrie

Any opinions expressed herein are solely those of the author and do not in any way represent the views or opinions of any other person or entity.

Why Traditional Financial Planning Is Failing Many

financial planningPeople who have retired in the last 5-10 years are facing daunting challenges. They have seen the value of their homes and their retirement portfolio plummet while the cost of insurance and daily living continues to rise. Adding to their frustration is that the financial planning (upon which they based their decision to retire) indicated that they should be able to live comfortably the rest of their lives. I believe that those financial plans are failing because they were based on erroneous assumptions. Unless retirees recognize that and make the proper adjustments, they risk running out of money well before their life expectancy and becoming dependent on their children and/or the government to meet their basic needs.

Traditional financial planning is based on the assumption that the future will bear some resemblance to the past. The rates of return used in the plans are based on the historical returns associated with each class and category of investments. For example, the return and expected volatility (risk) of large cap value investments is based on what has occurred the past 30 years. Supposedly, that is a large enough sample to cover the majority of likely outcomes. So the overall return of your expected portfolio is based on historic performance.

This approach worked well for many years—until it didn’t. I believe the traditional assumptions no longer hold true and that financial planning needs to include situations and market conditions that previously had a very low probability of occurring. Why should they be used? Because these ‘tail events’ are what pose the greatest risk to the overall success of the financial plan. It’s these ‘tail events’ that are going to result in those that retired in the last decade running out of money years, even decades earlier than what they thought.

For example, traditional financial planning still estimates an average annual return for equities of 10% or greater and average annual returns for bonds at over 5%. Even if they assume variable rates of return the results are going to be skewed because of the underlying assumption that long-term results will equal historic results. Recently I ran a retirement income stress test (an innovative process I’ve developed) on the retirement income plan of someone with a $1.3 million portfolio. The traditional planning software gave his plan a 99% probability of success! Of course, it assumed an average annual rate of return that far exceeds anything he has earned the last 5 years. That means that he will need to earn far in excess of 10% a year to make up for the last five years and get back on track.

Using what I (and most retirees) consider more realistic rates of return, the probability of success dropped from 99% to only 8%. There was a 91% DECLINE in the probability of success just by assuming an annual return in of 5% instead of 10%. Fortunately, this person found out this sobering news while he still has time to do something about it. By adjusting the way he is invested and how it is managed, we have been able to significantly increase his probability of success even if returns remain as they have been the last 5 years. He doesn’t have to make drastic changes to his lifestyle.

What about you? Do you know the probability of your retirement income plan running out of money before your life expectancy? If you are basing your expectations on a traditional financial plan and its lofty assumptions, you may want to see the impact of more realistic return assumptions while you still have time to adjust. Realistic, and flexible, financial planning is key to success. Thanks for reading.

Common Sense Advisors does not offer investment advice via this medium. Under no circumstance whatsoever do these postings, opinions, charts, or any other information represent a recommendation or personalized investment, tax, or financial planning advice. Learn more about our firm at www.commonsenseadvisors.com

Twitter:  @JeffVoudrie   @seeitmarket

Any opinions expressed herein are solely those of the author and do not in any way represent the views or opinions of any other person or entity.

10 Questions: Does Your Financial Advisor Pass This Crucial Test?

financial advisor, stressed outBy Jeff Voudrie
Unless you handle all of your financial decisions on your own, the selection of a financial advisor will be one of the most important factors in the success or failure of your overall financial plan (and retirement plan). Simply put, finding the right financial advisor will greatly improve your probability of success and you will feel less anxious and more in control of your financial situation. However, on the flip side, the wrong financial advisor may leave you with an uneasy feeling that your financial future is adrift in an ocean of uncertainty with no one at the helm.

How can you know whether or not you are working with the right financial advisor?

This article is designed to help you answer that question with 10 simple yes or no answers. Simply answer the questions found below and you will quickly find out if your current financial advisor is part of the problem instead of being part of the solution. And in these difficult times, the last thing you want is one more thing that may be putting a drag on your investing returns.

There are different types of financial advisors, but they all portray themselves as doing the same thing. The best place to start your analysis is in defining what you are looking for in an advisor. Admittedly, many investors have had such bad experiences with financial advisors that they’ve ended up lowering their standards and expectations. This list of expectations will raise the bar back to where it should be and represents what I would expect if I were hiring someone to help guide me through the most important financial period of my life. This is the list that I would want my wife to use in the event that I were to pass away.

The questions below should also add color to the key question, “what’s the purpose of using a financial advisor?” Investors who are retired have a tendency to underestimate their own financial abilities and to overestimate those of the typical financial advisor. Yet the average retiree that has successfully set aside a nest egg probably has considerably more money management experience than the typical advisor! Think about the actions that you had to take in order to build that next egg. You had to spend less than you made. You had to live beneath your means.  You had to make wise decisions regarding the purchase of homes and cars. You had to determine how to allocate your limited funds among the unlimited possibilities. All of those traits give retirees a solid foundation for managing their money.

So you shouldn’t be looking for someone to take control over your retirement savings as much as you should be looking for someone that you can employ to help you. The idea is that you want your financial advisor to act on your behalf, doing the things you’d do if you were a knowledgeable, informed, and experienced investor.

proxy

noun \ˈpräk-sē\

plural prox·ies

Definition of PROXY: the agency, function, or office of a deputy who acts as a substitute for another

Think about it: when you engage a financial advisor you are hiring them as an employee to do what you want done, to act on your behalf, so that you can focus on the things in life that are more important to you—without neglecting the oversight of your financial future.

financial advisor, super heroHere are the 10 questions you need to ask yourself about your current financial advisor or anyone that you are considering hiring as an advisor. Note that ‘he’ is intended to be read in a gender neutral manner.

1.  Does he place my needs above his own and are his compensation methods designed to reflect that? Is the advisor’s compensation directly tied to the success or failure of your account?

2.  Does he help me in the development an overall framework that will guide my decisions and activities over the next decade or two?

3.  Does he closely monitor the global markets, news and trends and use that information to better position my investments based on what is ahead, not what is behind?

4.  Does he dynamically make adjustments designed to optimize my risk/reward ratio as events and trends dictate, so as to manage the overall level of risk and keep it consistent with my tolerances?

5.  Does he provide unbiased advice on the type of investments that should be used based on my unique circumstances, goals and priorities; avoiding one-size-fits-all approaches?

6.  Does he determine when an investment should be bought and sold or does he rely on others to make those vital decisions?

7.  Does he actively participate in the day-to-day management of my accounts or is that responsibility delegated to someone managing accounts ‘in bulk’ for thousands of people?

8.  Does he closely monitor the account on a daily, weekly and monthly basis to make sure they are performing within my pre-determined risk tolerances?

9.  Does he take pro-active action to protect me from significant losses and are there multiple layers of risk management processes in place to avoid disaster?

10.  To help me uncover, identify and prepare for hidden and/or unexpected threats to my financial situation?

So how did your financial advisor stack up? Many retirees (or soon-to-be retirees) will find that what they are really looking for is what I consider a money manager as opposed to a “typical” financial advisor. Over the years, I have found that the typical financial advisor or wealth manager really serves more of a sales/customer service function. The ‘money manager’ is the one that actually does all the day-to-day work that will ultimately determine the success or failure of your retirement income plan.

If you’d like to find out more about how a personal money manager might impact your portfolio, email me at Jeff@CommonSenseAdvisors.com or  go to www.CommonSenseAdvisors.com.

Common Sense Advisors does not offer investment advice via this medium. Under no circumstance whatsoever do these postings, opinions, charts, or any other information represent a recommendation or personalized investment, tax, or financial planning advice.

 

Twitter:  @JeffVoudrie   @seeitmarket

Any opinions expressed herein are solely those of the author and do not in any way represent the views or opinions of any other person or entity.

Prepping for the Retiree Crisis: How to Survive and Thrive In Your Golden Years

warning signs, caution, uncertainty, unknown, problems, risks, fears, trouble on the horizon, future problemsBy Jeff Voudrie
Many retirees are coming to the realization that the assumptions they were given on how long their money will last were wrong. Now, they are faced with making tough choices in order to increase the chances they will outlive their money. (See The Coming Retiree Crisis)

The scope of the Great Retiree Crisis is actually larger than expressed in that article because life expectancies have grown significantly the last 20-30 years.  Poorly designed financial plans are considered ‘successful’ if they show you having money left based on the IRS life-expectancy tables. Those tables can be outdated compared to current life insurance mortality tables.  For instance, typical plans for someone retiring at age 60 were based on a 20-25 year life expectancy.

A retirement income plan that was based upon the assumption that a 75% stock/ 25% bond allocation would average over 9% a year gave many a false sense of security because it showed that they wouldn’t have to worry about running out of money—based on the 20-25 year life expectancy.

Financial planners had reams of academic studies and colorful charts to illustrate why you should be able to earn over 9% a year your entire retired life. “Over the last 100 years…” and “If you just put your money into the stock market and leave it alone you are virtually guaranteed to earn a ginormous return because that’s what happened in 90% of the 10-year periods since 1980.”

Do you realize that if you are married and aged 60 today that there is a 50% chance that one of you will live to age 92? And there is a 25% chance one of you will live to age 96! Those percentages are so high that it is only prudent that your retirement income plan should be based on the expectation that one of you will live well into your nineties. So a retirement life expectancy of 30-35 years should be used instead of 20-25 years.

Very few of you think that you’ll average over 9% a year now. Couple that with a life expectancy that should be 30-35 years or longer and you can understand why so many are so worried. That life expectancy doesn’t take into account any medical or genetic breakthroughs that could extend it even further.

What steps should you take if you find yourself in this situation? The basic problem is money coming in versus money going out. There’s no magic here. You either have to increase the money coming in (without drawing down your investments more quickly) or you have to reduce the money going out.

In order to meet that goal, here are three areas you should investigate thoroughly: housing, employment and leveraging your retirement savings.

Housing: Many retirees had the expectation of downsizing their homes once they retired. From what I’ve experienced, few have actually done it. A home is one of the largest assets you own. If your home is paid for, then selling it and moving to a smaller one will free up that money to generate more income. If you have a mortgage, downsizing will either allow you to be mortgage free or reduce the monthly mortgage payment. A smaller home will also reduce your maintenance costs, heating and cooling costs, property taxes, etc. Some might even consider renting instead of owning.

Employment: If you are nearing retirement, consider working your current job a few extra years. Nowadays, more and more people transition to a part-time position instead of retiring completely. Or you might consider a second career after you retire from your main occupation. If you are already retired, consider going back to work, perhaps doing consulting based on your years of experience. What do you enjoy doing? Is there a way to earn an income from it? Working even part time can extend the life of a retirement income plan significantly. And keep in mind that the less income you need from your investments, the less risk you have to take.

Leverage your retirement savings:  Unless you have the luxury of having more money than you can spend, you need to make sure that your retirement savings are working hard for you. Typically, retirees think that they should invest more conservatively once they retire.  If you are in danger of running out of money before your life expectancy, then becoming more conservative may actually result in you running out of money sooner because your overall return may be less. I’m not saying that you should take a lot of risk. Instead, the way the money is managed needs to be changed. You need to get as much juice as possible out of the orange. Traditional approaches by the typical Wall Street System advisor involve too much risk and an unlikely to provide the returns you need in today’s low interest rate environment. Nor is it likely that today’s annuities will be the total solution. (To find out more check out my book “How Successful Investor’s Tripled The S&P 500” on Amazon.)

Today’s retirees face a reality far different than the generation before them, but a successful retirement is still possible. Realistic expectations combined with careful planning and focused strategic portfolio management is crucial if you want to survive and thrive in your ‘golden’ years.

Common Sense Advisors does not offer investment advice via this medium. Under no circumstance whatsoever do these postings, opinions, charts, or any other information represent a recommendation or personalized investment, tax, or financial planning advice. Learn more about our firm at www.commonsenseadvisors.com

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Twitter:  @JeffVoudrie   @seeitmarket     Facebook:  See It Market

Any opinions expressed herein are solely those of the author and do not in any way represent the views or opinions of any other person or entity.

The Coming Retiree Crisis

retirment worries, retiree concerns, retirment crisisBy Jeff Voudrie
I believe that continued historically-low interest rates and highly volatile equity markets are going to result in millions of today’s retirees being forced to go back to work or to become dependent on the government. I refer to this as the Great Retiree Crisis and retirees must take action now to prevent this from happening.

As a Certified Financial Planner, I am aware of the importance that a financial plan has in achieving ones financial goals. A plan, though, is only as good as the assumptions it is based on and it is this element that may prove to be the Achilles’ heel for today’s retirees and those at or near retirement. The financial planning community has largely relied on assumptions regarding equity, debt and inflation percentages that have been experienced over the last 30 years.

There are 3 problems with these assumptions:

  1. Equity returns the last 30 years have been extraordinarily high as a result of the longest and greatest Bull market in the history of U.S. stock markets. Accordingly, many financial plans used projections that assumed equity returns of 8-10% a year.
  2. Debt returns over the same period are equally skewed. Remember the double-digit interest rates of the 1980’s? In 1989, as a young broker, I was selling 30-year TVA bonds yielding 10%! Financial plans the last 5-10 years have used interest rate assumptions around 5-6% a year.
  3. The scenarios that led to the historic markets the last 30 years are very unlikely to EVER be repeated in today’s retiree’s lifetime. And those who are taking distributions based on these outdated assumptions may soon run out of money.

For instance, let’s assume that someone retired 5 years ago at age 60 with a $500,000 investment portfolio. Based on financial plans popular at that time, the retiree is taking $2500 a month in distributions—money they need to maintain their current standard of living. Since the plan anticipated the ability to average a 7% return on a portfolio with close to 50% in equities, the retiree expects to be able to take those distributions and never run out of money.

Adjusting those assumptions based on what many believe resembles more reasonable assumptions going forward requires decreasing the rate of return assumption for a similar-risk portfolio to around 4% and increasing the inflation assumption from 1-2% a year to 3-4% a year (which may still be too conservative). Suddenly, the portfolio that should last forever is now projected to be exhausted in only 16.8 years! That means that the entire nest egg and what it earns cannot sustain the current withdrawal rate. Since the retiree started the withdrawals five years ago, now they are down to 11.8 years—running out of money around age 76!

What about those that weren’t able to set aside a $500,000 nest egg? Or those that have much larger nest eggs but also a higher current standard of living?

It is vital that today’s retirees recognize the need for focused statistical analysis of their retirement income plan so that they can get the facts about the sustainability and outlook for their income in the current marketplace. in my opinioni, many will need to adjust their standard of living (some significantly) in order to bring their retirement income plan back into balance.

The Great Retiree Crisis looms…those who take action now will be the ones most able to survive and thrive.

Common Sense Advisors does not offer investment advice via this medium. Under no circumstance whatsoever do these postings, opinions, charts, or any other information represent a recommendation or personalized investment, tax, or financial planning advice.

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Twitter:  @JeffVoudrie   @seeitmarket     Facebook:  See It Market

Any opinions expressed herein are solely those of the author and do not in any way represent the views or opinions of any other person or entity.

Retired Wealth Investors: Fed Decision Weighs Heavy

federal reserve, ben bernanke, feds, risk assets, stocks, bonds, mortgage backed securities, money printing, alan greenspanBy Jeff Voudrie
Yesterday, Federal Reserve Chairman Ben Bernanke announced what many are calling QE3 (Quantitative Easing round 3). I guess we need QE3 because QE1 and Q2 worked so well! (Sarcasm!) The result of the actions announced today is that the interest rates on bonds, especially mortgage-backed and longer-term Treasuries will go down. That may be positive in that it will allow homeowners who still have a credit rating to refinance at a lower rate.

In the past, the Federal Reserve has limited the duration of their actions…”We’ll do this for the next six months.” This time was different. Essentially, they removed any limits and said ‘we’ll keep doing this as long as necessary and will even take more extreme measures if necessary.”

The stock markets rallied by about 1.5%.

But what are the unintended consequences of these actions? I believe that there are several. I will just briefly state them here and may elaborate on them more fully in a follow up article.

First, by stating that they will continue indefinitely, the Fed has removed any question of what they will do or how they will respond to events in the future. Previously, the markets would try to guess Fed actions and the markets would go up or down in anticipation of their next move. If investors know already that the Fed will continue to intervene until employment recovers, then the markets will already have priced in continued action. This may actually limit the upside momentum instead of fueling it.

Second, the Fed actions are likely to create runaway inflation at some point in the future. That may actually be a good thing as compared to what has happened in Japan where for 3 decades they’ve pursued similar strategies AND THEY HAVEN’T WORKED. Even after continued stimulus the Japan economy has failed to recover. Increased inflation is a two-edged sword for retirees because it raises their expenses and forces them to move into riskier asset classes in order to offset its effects. The bigger worry, though, is that the economy doesn’t respond, that growth isn’t fueled and that stagflation continues. That’s what has occurred in Japan and they have yet to find a way to escape it.

Third, after almost 5 years of interest rates being extremely low, it is likely to continue to be that way for another 5 years or longer. Who is going to bear the worst harmful effects of this policy? Retirees who rely on their investments to provide the income they need to meet their living expenses. Before they retired (and with the encouragement of the financial planning industry), most retirees assumed the ability to consistently earn 5-7% a year during the years they will draw income off their investments. With low interest rates, it makes earning 5-7% a year MUCH more difficult and requires taking on much greater risk than it did back between 2003 and 2007. Retirees have been burned by the markets twice in the last decade and are loath to reenter the stock market in a significant way. Dividend-paying stocks have already been pushed to outrageous valuations and if retirees make the shift from bonds to equities going forward, they may be setting themselves us to get burned again at the very time they can least afford it.

As a wealth manager specializing in working with retirees, I will be examining the strategies and allocations of the accounts I manage in more detail over the next days and weeks. Currently, most accounts are more heavily weighted in more conservative bond-oriented investments that have done very well this year. Yesterday’s decision should allow those to continue to do well for a while, but I and all retirees will need to prepare for the time when interest rates aren’t able to go lower.

Fourth, many believe that today’s decision may have sealed the reelection for President Obama. That creates a plethora of additional issues that have to be considered including the business impact of higher health care costs, higher taxes, further government intrusion into business and private lives, etc. The impact of Fed actions designed to spur the economy may be offset (or neutralized) by the policies likely to result from another Obama term.

Conclusion: Retirees and those developing retired income strategies are the ones most likely to be negatively affected by yesterday’s Fed decision. The Retiree Income Crisis has only just begun and, I expect, it will last many years and that the worst is yet to come for retirees and their lifestyles.

Common Sense Advisors does not offer investment advice via this medium. Under no circumstance whatsoever do these postings, opinions, charts, or any other information represent a recommendation or personalized investment, tax, or financial planning advice.

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Twitter:  @JeffVoudrie   @seeitmarket     Facebook:  See It Market

Any opinions expressed herein are solely those of the author and do not in any way represent the views or opinions of any other person or entity.

Has China Been Systematically Stealing US Investors Wealth?

By Jeff Voudrie
Since 2008, numerous Chinese companies have become listed on U.S. stock exchanges. Undoubtedly, many wealth investors, including retired wealth investors and those pursuing retirement income strategies, may have invested in these highly-touted, high-flyers. Now, almost 4 years later, evidence of fraud is surfacing that begs the question whether or not these listings were designed solely to systematically transfer billions of dollars into the hands of China’s elite.

That’s the conclusion that can be drawn from several articles and posts that I’ve read today. Each article supplies a part of the overall picture. First, there is Bruce Krasting’s post on Business Insider, “Kleptocrats Are Fleeing China With Loot In Tow.” Here are just a couple of highlights:

“More than a million public servants have sent large sums abroad.”

“In 2011, the Central Bank reported that corrupt officials had transferred more than 120 Billion U.S. dollars abroad.”

There is another article that I read from Bronte Capital that talks about how rampant fraud is in China. In it, John asserts that China is a country “ruled by thieves.” Further, he asserts that “The children and relatives of CPC Central Committee members are amongst the beneficiaries of the wave of stock fraud in the U.S.”

Lastly, there are several articles on Top Secret Writers including this one that specifically speak to the prevalence of fraud associated with those Chinese companies listing on U.S. exchanges since 2008, especially those making use of reverse mergers to do so.

As a wealth manager that specializes in working with retired wealth investors and those developing retirement income strategies, I recognize that now, more than ever, consistent in-depth research is required in order to keep abreast of the dangers that can easily threaten one’s retirement portfolio and lifestyle.

Common Sense Advisors does not offer investment advice via this medium. Under no circumstance whatsoever do these postings, opinions, charts, or any other information represent a recommendation or personalized investment, tax, or financial planning advice.

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Twitter:  @JeffVoudrie   @seeitmarket     Facebook:  See It Market

Any opinions expressed herein are solely those of the author and do not in any way represent the views or opinions of any other person or entity.

Retired Wealth Investors: Should You Chase This Rally?

retire, retired, retirement, retirement timeline, retirement age, retirement planningBy Jeff Voudrie
The U.S. stock market has surged 12% from the low set on June 4, 2012. Retired wealth investors and those pursuing retirement income strategies may be tempted to jump in—especially since the markets have recently broken above some longer-term lines of resistance.

Is now the time to get in if you haven’t already? I believe the answer to that question is “No.”

Since the stock market crash in 2008, I’ve seen two types of reaction to market surges amongst retired wealth investors. There are those retirees that may never reinvest in the stock market and then there are those that have a tendency to chase rallies. I’ll assume that the first type probably won’t ever read this so I’ll focus on the second group.

As a wealth manager, I spend several hours each day watching and researching the markets and news-flow on a global basis. My clients tend to be retired or nearly-retired and they are more concerned with preservation of capital than they are with growth. Don’t get me wrong, they want their accounts to grow and that is a very important focus, but they don’t want to chase growth at the expense of losing 5-10% of their wealth. Therefore, I tend to focus more on risk metrics and the underlying forces that may be the cause of a rally or decline.

The reason that I do not recommend jumping into this rally now is because I don’t believe it has much further to run. The volume during this rally has been well below historic levels so there isn’t a lot of new money flooding into the market. Extended rallies depend on the individual investors pouring more and more money into it in order for it to continue past the ‘professional investor surge.’ That isn’t happening. In fact, the statistics show that individual investors continue to take money out of equities.

Nor do I see a strong fundamental basis for a continued market rally. The news out of Europe is not encouraging. Sure, there continues to be rumors of ‘this’ and press releases of ‘that’, but there is a huge chasm between what is being said and what is actually taking place. Here in the U.S., there has been some improvement in the economic numbers released recently, but those are still within the context of an overall economy that is sputtering.

The bottom line is that there isn’t going to be a magic solution in Europe, nor in the United States. It is going to take time (perhaps many years) to work through the enormous levels of debt that have built up worldwide. China is faltering and it is highly unlikely that it will continue to see 7-8% annual growth rates in the future. Even a change in the U.S. Presidency may not have a significant impact on our fiscal policy.

My investment thesis of conservative investments out-performing aggressive ones on a risk-adjusted basis remains. I continue to believe that we are in a Bear market and remain nimble in navigating the inevitable ups and downs.

Feel free to contact me at jeff@CommonSenseAdvisors.com with any questions or comments.

Common Sense Advisors does not offer investment advice via this medium. Under no circumstance whatsoever do these postings, opinions, charts, or any other information represent a recommendation or personalized investment, tax, or financial planning advice.

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Twitter:  @JeffVoudrie   @seeitmarket     Facebook:  See It Market

Any opinions expressed herein are solely those of the author and do not in any way represent the views or opinions of any other person or entity.

4 Ways Retired Wealth Investors Can Protect Their Money

financial planner, financial planning, retirement, investment advisor, wealth advisor, investor, brokerBy Jeff Voudrie
Retired Wealth Investors are frustrated by a combination of lack of growth in their accounts and the global political and economic uncertainty. They remember what the markets were like between 2003 and 2007 when their accounts steadily and consistently increased in value with little effort. They remember being able to sleep at night and their satisfaction that their advisor was doing a good job.

The situation they find themselves in now is very different. Government statistics show that the average household has lost 40% of its wealth since 2008 due to the stock market crash and the collapse in housing prices.  Their comfortable retirement is not so comfortable anymore.  They feel the pressure of finding a way to increase the value of their portfolios but they recognize the perilous times we are in.

There are 4 things that retired wealth investors in this situation can do:

1.  Keep the first things first. Believe it or not, there are things in life that are much more important than money—things that money cannot buy. Things like relationships with a spouse, children and friends; things like health; like time.  Earlier in my career I focused too much on being the provider and I worked all the time. I wasn’t there during the early years of my four oldest children. I’ll never get those years back. Think about the people that matter the most to you and the value they’ve brought to your life. Our lives are limited and we get to choose how we spend our time. Financial matters must be dealt with, but don’t let them steal your mindshare and rob you of those more important things.

2.  Recognize that the world has fundamentally changed. Today’s retirees grew up in the golden years of the Industrial Age.  They were able to get an education, find a well-paying job with a good company and work at one place for their entire career, retiring with a nice pension and nest egg. The world has changed dramatically in the last 10 years. Our children and grandchildren face a very different reality where jobs are harder to find, the global economy is growing slowly (at best) and their standard of living will probably be below that of their parents. And the stock and bond markets have changed. You experienced the greatest Bull market in the history of the U.S. stock market—one lasting over 20 years without a significant, long-term decline. That market is gone and is unlikely to return anytime soon. It’s been replaced with a Bear market that potentially can last another 5-10 years. That doesn’t mean that the markets keep going straight down. There will be seasons and years when the markets will do well but it will be in the context of a longer-term market that moves sideways or down. The average annual return of your portfolio may be in the low to mid-single digits…in the good years.

3.  Take a more active role in the oversight of your portfolio. Since the type of markets we are likely to experience the next 5-10 years are significantly different from those experienced between 1980 and 2007, your philosophy, strategies and approach to investing also need to change. The buy, hold and prosper many experienced over that time has turned into buy, hold and suffer. If the stock market is going to move sideways or down over the next several years; or if it is going to be highly volatile; or if globally we are going to experience an extended period of slower growth as we work off the massive debt burdens we’ve created then the last strategy you want to use in buy and hold.  Nor should your rely on the typical Wall Street System advisor because they function more as a salesperson than a portfolio or money manager.  That type of advisor may have been sufficient during the Bull market but during times of great uncertainty it is vital that you work more directly with the person actually making the day-to-day decisions. You need to take a more active role in the oversight of your portfolio because, frankly, no one is going to care as much about your money as you do. You need to understand and be involved in the decisions regarding management philosophy and the risk management processes that are in place. Taking a more active role will result in you feeling more in control of the situation and that alone will reduce your stress and frustration.

4.  Be careful and patient. The value of your portfolio and your overall financial condition isn’t going to change overnight. You may never again experience consistent returns of 8-10% a year. Interest rates may remain at historically low levels for several more years.  Economies may only sputter along. Begin taking active steps now to adjust your lifestyle and expectations to this new reality. Help your children and grand-children understand the challenges they will face and prepare them. Beware of investment products like indexed annuities or lifetime income guarantees that appear to offer a return that is significantly higher than the rates offered on things like Certificates of Deposit or high-quality bonds. Invariably, these products and features do not work the way that you think they do, nor are they likely to deliver the return you expect. There’s no magic bullet; there’s no ‘special’ product that is going to solve your problems.

Granted, these actions aren’t going to result in a dramatic improvement in the value of your portfolio overnight. It is important, though, that we recognize that the world we live in has fundamentally changed and that we aren’t going to return to the good ‘ole days. What used to come easy will now require a lot of hard work and effort.  During times like this when the markets can soar or plunge several percent in a matter of hours or days, it is more important to place the greatest emphasis on protection.

There are strategies that are designed to provide retired (or near retirement) wealth investors with the returns they need in a relationship that should allow them to safely navigate difficult waters and arrive at their destination safely. Contact me to find out more.

Common Sense Advisors does not offer investment advice via this medium. Under no circumstance whatsoever do these postings, opinions, charts, or any other information represent a recommendation or personalized investment, tax, or financial planning advice.

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Twitter:  @JeffVoudrie   @seeitmarket     Facebook:  See It Market

Any opinions expressed herein are solely those of the author and do not in any way represent the views or opinions of his employer or any other person or entity.