Tag Archives: Retirement

Investing, Market News, Options, Retirement, Stock Markets

Expert Daytrader Alerts: Master The Global Financial Markets

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Follow Trades from the Experts – Daytrader Strategy Alerts Beat the Market!

  • Tech Stocks
  • Dividend Stocks
  • Energy Stocks
  • Crypto / Gold & Silver
  • Options Trading 

The Income Machine is driven by a comprehensive portfolio strategy approach that offers real value for investors of all experience levels —all for just $19 per month.

Our service provides a model dividend portfolio that can be used to generate high levels of retirement income in addition to a specialized selection of high-probability technical trading signals backed by solid fundamental analysis covering the most critical aspects of the financial markets.At its core, this combined strategy approach gives investors an option to manage investment portfolios in ways that can be passive or active in nature depending on each investor’s unique investment goals.

Income Generators work from the philosophy that these two complex worlds (shorter-term technicals and longer-term fundamentals) can coexist in ways that allow investors to beat the market and maximize returns over time.

Ultimately, we accomplish these goals using a time-tested tactical approach that identifies opportunities in several important asset classes while capitalizing on the market’s dominant trends as they are driven by shifts in trading sentiment.stock market - income machine

The Income Machine: What You Get With Your Subscription

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stock market - income machine

Tactical Investment Tools & Battle-Tested Market Strategies From Seasoned Experts

Decades worth of experience in the financial markets has taught us some important lessons. First, and foremost, is the fact that the odds are stacked against you as an individual investor.

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Commodities, Gold, Precious Metals

Commodities Markets: History of Gold Prices

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Why should investors want to know about the history of gold prices?

As a financial investor buying and selling commodities, it is important to understand the market’s underlying trends. Knowing about the history of gold prices will also help investors make better financial decisions — not only in commodities but other markets, as well.

It is important to know more about the history of your business and the industry in which it operates. Over time, these types of practices can help to shed light on how you should invest and when certain mistakes can be avoided.

Gold’s history as a safe-haven asset

In gold, you will know why the prices change the way they changed, which is why investors should consider buying some of the best gold coin inventory. You also know about the high and the low season.

Gold is seen as the most precious metal among the others. Its value is mostly higher than the others. Today, gold is still used as a reliable way to store wealth and this will continue to be the case because of the changing values of fiat and paper currencies.

Gold prices can change but they have historically remained at a reasonable level of value. Therefore, gold is still the best measure of wealth for investors.

History of financial markets

This is a continuation of the traditional norms, as kings and queens have always stored their wealth in the form of gold. Many decades ago, gold was used as money on an everyday basis.

Our forefathers traded products for gold and remnants of these trends still exist today.  In some nations, gold is used in making coins (though in small amount, but it is of great value.)

Invest in Gold Coins

In some museums, you will find a collection of these coins that were fully or partially made of gold. The prices of gold have however faced changes in the recent years.

Today, gold is traded in electronic trading platforms.  In 2011, it managed to rise up to over $1900 before it started declining, and this shows just how much gold is still valued in society.  Gold is making headlines not only in physical form but also virtually as a basis for many cryptocurrencies.

History of gold prices in the United States

Starting in the year 1791, the prices of gold in the U.S experienced changes. In this year, the price of gold was $19.49 per ounce. 43 years down the line, the price went up to $20.69 per ounce (increasing by just $1.20 after 43 years).

In 1928, the Federal Reserve raised its base interest rate levels, which ended in a recession in 1929. These events inspired many people to redeem the normal currency and exchange fiat into gold.  This is largely why gold has more value compared to the U.S. dollar at this time.

Invest in Gold Coins

Due to the high demand for gold, the Federal Reserve was asked to raise the interest rates. In 1931 the value of the dollar increased and there was a decrease in demand for gold. In 1933, a law was stated that did not allow anyone to own bullion and gold coins. 

Ever since then, the history of gold prices in the U.S became more interesting for bullish investors. The strength and weakness of the dollar has contributed to the increasingy bullish price changes for gold.  Before investing in gold, you should be aware of factors that contribute in change of price in gold.

Our analysts will enable you know the best time to invest and when to avoid such markets.  As a result, there are many factors that have contributed to the change of price in gold over time. 

Demand and supply of physical gold

Gold has many uses from making jewelry to being used as a store for wealth. When gold is in high demand and the supply is low, the prices tend to go up. This is one cause of changes in gold prices. It is not different from the other markets.

Any product that has low supply compared to demand increases in price. When gold is in high supply and the demand is low, prices go down. This is because sellers has more than what the market needs. 

Inflation and deflation

This is a sign that the economy is growing. Higher rate of inflation leads to higher prices of gold. Inflation is as a result of stable political factors and motivation in economic growth.

For instance, gold did not perform well during the world war. Before the beginning of World War 1, some nations adopted the Gold Standard, which was used to compare domestic currencies (before setting the prices) to the value of a certain amount of gold.

U.S. Inflation

However, this came to an end when the war begun. During this period, economic growth was not experienced either. Deflation happens when there is no upward growth in the economy. It is a time when there is less employment opportunities and investments. This leads to decrease in gold prices.

Central banks

Central banks are in charge of the amount of money circulating in a country. It also has the mandate to limit the amount of gold in supply. This can lead to change in prices.

Another factor to remember is that when the central bank increases interest rates, the price of gold rises. Central banks therefore play a vital role in changes of gold prices.

Strength and weakness of the U.S. dollar

These days, Gold is denominated in U.S. dollars. When the value of the dollar goes high, the price of gold decreases. It is also true that gold price increases with a weakening dollar value.

U.S. Dollar

Of course, this is because when the dollar becomes weak, the currency in other nations become stronger. When this happens, the demand for products go up, gold is one of them. Its demand goes high leading to raise in its price. 

Conclusion: gold’s long history in financial markets

The history of gold prices starts way back during the B.C era. It was highly valued like today. As time went by, gold coins were used instead of gold bars. Today, gold remains to be a treasure.

If you have gold, you feel that you are rich. This is because of the value it has and how much it is worth. A small piece of gold will go for dollars. Most importantly, people in the buying and selling of gold should not overlook its journey.

Dividend Stocks, Investing, Retirement

Income Investing: Alternative Dividend Policies

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Income Investing: Alternative Dividend Policies

In order to survive, companies always find ways to construct plans that will help to maintain their present condition. As these companies make some progress, they continually feel the need to give back to their shareholders in order to preserve their trust while continuing their business operations and pursuing other projects in the future. 

A dividend is a percentage of a company’s retained earnings that are distributed to the shareholders in a form of cash, shares of stock, or property. Every time a company earns largely for a year, the shareholders are being paid back by the company through disbursing dividends as a reward for investing in them.

Most companies pay cash dividends to the shareholders. Even though, the dividends are not distributed periodically. The board of directors decides the right time to pay back to the shareholders and the portion of the retained earnings that shall be appropriated for the dividend distribution. Their dividend decisions are influenced by different factors to consider such as the company’s outstanding debts, liquidity position, inflation, legal restrictions, and earnings stability. 

Dividend policy is the financial strategy that the board employs to build its dividend payout to shareholders. The concerns that are included in the dividend policy are the payment timing and the amount which are based on the long-term capability to earn and on the unappropriated retained earnings. The understanding of shareholders from the dividend policy is essential from the fact that the dividends to be received by them will be coming from the unappropriated retained earnings. 

This article aims to enumerate the year-to-year patterns on how companies construct the structure of their dividend payout and explain the rationale behind these. 

Constant Dividend Payout Ratio

Under this policy, it is specified that a fraction of retained earnings is constantly taken for dividend distribution every year. In short, the constant dividend payout ratio preserves the percentage of retained earnings distributed as dividends to the shareholders annually. Despite the stability of the dividend per earnings ratio, short term earnings’ volatility still affects the dividends. The amount of dividends expectedly varies every year as profits fluctuate. In spite of this, most of the companies do not use this policy. 

Constant dividend payout policy appears to be adaptable to weakening market status as the dividend per share directly changes as the earnings fluctuate. The policy does not manifest any disapproving indication from the fact that the dividend payout ratio is not volatile. As a result, investors can be enticed by the companies that use this policy. 

In this policy, the fairly steady dollar dividend is sustained every period despite the earnings’ volatility.  A specific amount is given per year as dividends which depends on the management. The amount per dividend will not fluctuate unless the board is persuaded by data that an increase in dividend payment will guarantee the maintenance of its value in the future. The dividend per share will not decrease as long as the management can still anticipate the longstanding strength of a current dividend. 

A stable dividend policy indicates a constant normal operation of a company and steadies the market value of shares. In addition, a company’s liquidity position gets better. As a result, it can meet the standards of the investors that are looking for stable dividends. The continuous dividend distribution is advantageous for investors. It strengthens the relationship between the shareholders and the company because the dividends have become a regular source of income. This policy is beneficial for retirement as the stable dividend distribution can be financial support to suffice someone’s daily necessities. 

Even with the advantages of applying a stable dividend payout, companies also face risks that can cause severe damages which explains the refusal of companies on its usage. The companies that frequently pay out dividends without considering their financial standing seem undesirable for potential investors. It will also result in the disposal of shareholders of their stocks.

Small, Regular Dividend Plus Year-End Extra Dividend Payout

Applying this dividend policy will let companies distribute dividends periodically and reward shareholders with year-end additional dividend during their successful times. This policy is different from regular paying dividend policies because extra dividends are announced unexpectedly. Most companies pay out large amounts of cash as an extra dividend that is why the board meticulously assesses the company’s condition to avoid complications in the future.

After evaluating the company’s profits for that year, the extra dividends will be declared at the end of the fiscal year. The reason why companies impose this policy is to prevent the implication of long-lasting dividends. Issuing extra dividends also indicates a good management strategy. Another purpose of paying out extra dividends is to prove to shareholders how successful the company is and that it will maintain its financial health over a long period of time which might result in gaining the confidence and loyalty of the investors for the company.  

The small regular dividend plus year-end extra dividend payout is applicable for cyclical companies that are largely affected by economic fluctuation. The profits of these companies are volatile. Therefore, there are times that dividend distributions are postponed due to losses or capital expenditures from other periods that they are still currently working out. Utilizing this policy has a drawback as well. It is a mistake for the companies to pay out extra dividends to its shareholders while erroneously expecting that they can support their future projects. Investors may perceive it as a bad corporate decision made by the board. 

The company might miss the chance to capitalize on new projects or facilities because it already had paid out extra dividends to the shareholders taken from the company’s cash. On the other hand, companies may seem to be inactive in making new projects because they are distributing extra dividends plus small regular dividends. A company must obtain reinvestment opportunities as well from the fact that growth is also an important concern for investors. 

Some investors do not prefer investing from companies that are exploiting the small regular dividend plus year-end extra dividend payout because of its unpredictability. These companies may look as if they prosper just because of some special incidents and not because of their efforts to stabilize their financial condition.  Companies exert every effort to disburse dividends consistently over the long-term future. Nonetheless, some instances require them to prioritize other aspects. 

Dividend Stocks, Investing, Retirement

Income Investing: The Dividend Distribution Process

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Income Investing: The Dividend Distribution Process

A thriving corporation never forgets to keep on looking back on its stakeholders who contributed to their successful performance. Once they secured their financial position and came upon a decision with respect to the dividend policy, corporations usually pay out dividends to their investors as their way of giving back. This process progresses gradually in order to give time for the deliberation of the Board of Directors and for the shareholders’ documentation. 

We are going to tackle the dividend payment procedures, the essential dividend dates that must be considered, and who is entitled to claim the dividend payments. To be included here are the accounting journal entries in order to present the corporate perspective to every dividend payment stage. This article will be beneficial especially for the investors that are just starting out. 

Date of Declaration

This is the date on which the dividend payment is formally confirmed and announced by the Board of Directors. The board has finally decided what type of dividend will be distributed, the dividend size, and the date of payment. This date is also known as the “announcement date”. This is a date of which option holders must let the corporation know if they want to use their right to the option. During this date, the liability to pay out dividends to the shareholders is acknowledged on the books using this journal entry:

Retained Earnings     xxx

     Dividend Payable     xxx

In this journal entry, we debited retained earnings since the dividend to be paid out will be taken from the profit appropriated by the corporation. Dividend payable has been credited because of the corporation’s liability from its shareholders. 

Date of Record

During the date of record, the corporation indicates the shareholders who will be eligible for the dividend payment. The stock and transfer books are to be closed on this date only to complete the shareholder list for the entitlement of the subsequent dividend payment. Therefore, a journal entry for this date is not necessary. In order to use as a source in indicating the eligibility of the shareholders for the dividend payment, a fixed date must be set since stocks are effortlessly transferable.

Ex-Dividend Date

This is a time on which the right of ownership to the dividends is homogeneously dismissed by the stock brokerage four days before the date of record. It is done in order to prevent the recording of the eligible shareholders last-minute prior to the date of record. Thus, stocks transferred subsequent to the ex-dividend date will be automatically listed out from the list of shareholders entitled to the dividend payment. There is also no required journal entry for this date. 

Date of Distribution

This is a date of which shareholders will receive the dividend payment. If a cash dividend is distributed, the corporation will mail the dividend check to every eligible shareholder. This date is also called as “Payment Date”. The journal entry to be recorded for the dividend payment will be:

Dividend Payable     xxx

   Cash, Property, or Share Capital  xxx

Since the liability has been satisfied, the dividend payable is debited. While cash, property, or share capital is credited due to the distribution of the dividends. 

In order to further elaborate the dividend payment process, an example is provided below:

The board of Bank of America Corp. has formally declared dividends worth $0.18 on a quarterly basis last October 22, 2019. It has been announced that the corporation has completed the list of shareholders eligible for dividends last December 6, 2019.  To finalize the qualified shareholder list on the date of record, the ex-dividend is set on December 5, 2019. At last, Bank of America Corp. will issue dividends to the qualified shareholders on December 27, 2019. The dates are illustrated below:

Date of Declaration: October 22, 2019

Date of Record: December 6, 2019

Ex-dividend Date: December 5, 2019

Date of Distribution: December 27, 2019

 

Dividend Stocks

5 Reasons Some Companies Don’t Pay Cash Dividends To Their Shareholders

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5 Reasons Some Companies Don’t Pay Cash Dividends To Their Shareholders

As an investor, your goal in capitalizing on a trusted corporation is either to earn income from your dividends or to receive an amount of capital gains that exceed your investment. The corporation that you may have chosen has previously presented impressive performance and has been regularly paying dividends to its shareholders.

Despite the positive operation of the corporation, a time will come that it will suddenly take a break in distributing dividends. But there is nothing to worry about because it does not automatically indicate bankruptcy as there are explanations behind this occurrence. Dividend policies have a great impact on the management’s decision regarding the payment of dividends.  Investors should remember these general considerations influencing dividend market strategies:

1. Legal Limitations

Although there is no specific law that obligates firms to disseminate dividends to its shareholders, circumstances must be met concerning the dividends allocation system as imposed by law. Firms’ decisions regarding dividends are affected by these statutory restrictions:

  • Insolvency rule

If the company’s total liability has surpassed its total assets, then it signifies incapacity to pay dividends from the fact that it reflects financial insolvency.

  • Net Profit rule

Companies are allowed to distribute dividends if it earns a net profit. On the other hand, if companies incurred losses, shareholders have to wait for the companies to recover from their losses in order to receive their dividends. 

  • Dividend surpasses profit

Companies may not distribute payments if their dividend is greater than retained earnings.  If the amount of dividend exceeds its profit, it only indicates that the company is paying out too much of its dividends but does not earn or retain profit to power its growth.

  • Capital Impairment rule

The creditors’ rights must also be protected. Therefore, companies are forbidden to pay out dividends if it is taken from its capital invested in the firm.  Aside from the limitations provided by law, certain restrictions are urged by investors to the companies in order to take precautions such as requiring them to preserve a certain amount of working capital and to declare dividends subsequent in repaying debts.

2. Firm’s liquidity position

There is a misconception that a firm’s outstanding amount of profits implies its sufficiency in disbursing cash dividends to shareholders. We have to take note that cash adequacy is unconnected to retained earnings. Firms can earn profits well but can also be lacking with cash from the fact that it might be prioritizing the settlement of its debts or recapitalized its cash in the company. Dividends may not be paid if not held in cash that is why dividend payout is influenced by the company’s liquidity position. 

3. Certainty of earnings

If companies have volatile earnings, they cannot depend on internally generated funds in order to support their financial stability.  This occurrence will definitely affect the administration’s decision on whether to focus on satisfying the necessities of the company or paying dividends.

4. Deficiency in alternative financial sources

Small-scale companies tend to have a lower dividend payout ratio due to their inability to get access to capital markets. These companies that are still starting out prefer saving their generated profit as an investment rather than paying dividends. 

5. Tax in dividend income

Shareholders have a personal preference when it comes to receiving cash dividends due to the tax bracket. The tax to be incurred in receiving capital gains is much more inexpensive than in dividend income. Therefore, shareholders who have a high personal tax bracket would rather have capital gains. In addition to that, the higher cash dividend is subject to a higher tax to be paid which also affects shareholders’ decisions.

These are just the common factors that greatly affect the management in settling decisions concerning the distribution of dividends. As you devote yourself further to exploring your chosen corporation, you can also uncover the other details about its dividend policy.  

 

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Retirement, Stock Markets

Retirement: Key Traits of Successful Financial Advisors

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Retirement Planning: Key Traits of Successful Financial Advisors

For many people, the active management of investment finances often becomes an overwhelming challenge.  Significant pitfalls can be encountered when mistakes are made, and this is the primary reason a financial advisor strives to provide the guidance that is needed to achieve long-term financial goals.  

The term financial advisor is generally used to describe someone that helps with investment management, taxes, retirement strategy, and general financial planning.  Of course, not all investment strategies are created equal, and there are many different types of financial professionals. Depending on the type of specialty that is needed, some financial professionals may not be sufficiently qualified to meet the requirements of every investment situation.

This is why it’s always a good idea conduct research beforehand so that it is possible to learn about what’s available and decide on the type of financial advisor that will be best-suited to deliver favorable results. Under ideal scenarios, investment advisors can help navigate the treacherous waters of economics and money management to offer support on the journey toward achieving financial freedom during the later stages of life.

What exactly is a financial advisor?

First and foremost, a financial advisor works as a coaching mentor to help explain when it’s best to make certain financial decisions.  Most are experienced in analyzing what’s happening in the financial markets and translating that information into actionable strategies which positively impact individual financial circumstances.  Some financial advisors will have more expertise in one area rather than another, so it’s critical to assess individual needs first and then pair those requirements with an advisor’s strengths and abilities.  

For example, one advisor may specialize in stock recommendations while others might create an entire financial plan that includes estate recommendations, tax strategies, and insurance planning.  This is why financial advisors are often separated into two different categories: investment advisors and financial planners.

We sat down with financial advisor coach Stan Mann to ask questions and learn about which strategies tend to work best for high net worth clients.  

What are three important traits seen in successful financial advisors?

Stan Mann: From a marketing standpoint, three characteristics of successful financial advisors are:

1. They understand that effective marketing is crucial for their success. A financial advisor who is a competent marketer will be much more successful than an excellent financial advisor who is not a good marketer.

2. Successful financial advisors implement their knowledge. They go out in the field and put it into action. Knowledge is not power. Knowledge is potential power.

3. They have a marketing plan that they follow step-by-step. It is based upon the fundamentals of marketing: strategies and tactics. They adopt specific strategies and implement tactics to achieve their goals.

For instance, a webinar strategy would include tactics like:

  • Writing a direct mail letter or email inviting prospects to a presentation
  • Making a website to maximize conversions
  • Creating a powerful presentation that employs powerful video marketing techniques
  • May decide to place an ad in their local paper

What challenges do financial advisors face in this year’s market environment?

Stan Mann: One big challenge financial advisors face in this year’s market environment is the flood of marketing messages. This makes it very difficult for an individual financial advisor to be heard. Therefore, a financial advisor needs to be unique and different from its competitors, so he stands out from the crowd. Another challenge is that people want to work with specialists, so advisors need to specialize in solving a particular problem for a specific group of people. They need to choose a niche.

What is one easy step financial advisors can take to attract more clients?

Stan Mann: Create a headline for your business that concisely tells who you help and how they benefit from your services. Some examples are: Helping families and business owners develop a sound financial strategy; Agent with New York Life offering personal and retirement protection; I help Ford Motor Company executives make the best use of the retirement options.

Is there anything else struggling financial advisors should know to achieve better success rates?

Stan Mann: Marketing alone will not sell big-ticket items that are provided by financial advisors. The goal of marketing is to get a sales interview. At that point, the advisor takes over and needs to convert the prospect and eventually enroll them in all their financial planning services, from investment management to estate planning.

Role of Financial planners

Financial planners tend to offer broader specialties, which can vary widely in scope.  Some financial planners are able to create personalized financial plans for clients that cover everything from investments to household budgeting and estate planning.  

As a result, these services are typically more comprehensive in nature. But they can also vary widely from one financial planner to another. Other financial planners may only be able to offer a limited number of services, so it is important to be clear availability before entering into contractual agreements.

One formal distinction many find preferable is the Certified Financial Planner (CFP) designation, which requires a bachelor’s degree (or higher) from an accredited college, extensive coursework confirmed through a board-registered educational program and successful completion of the CFP certification exam.  CFP certification status can also be verified through the Certified Financial Planner Board of Standards.

Role of Investment advisers

In contrast, an investment advisor tends to be more specialized in terms of the advice and services that are made available.  Investment advisors help clients to understand the true value of securities and construct strategies for developing an asset portfolio.  Investment advisors can be a firm or an individual person, and they typically analyze the value of stocks, bonds, mutual funds, and other market instruments.  

A good investment advisor can assess a client’s financial goals and give recommendations to buy, sell or hold certain assets depending on current market conditions.  Some individual investment advisors hold certification as a Chartered Financial Analyst (CFA), which is a highly regarded classification in the field of economics.

When is financial advice needed?

Over the course of a person’s lifetime, financial goals will often evolve and change in ways that can be unpredictable.  Events like a death in the family or major career change can negatively influence personal finances.

When big changes occur, it can be helpful to get an expert’s perspective and to get a second opinion before making any important financial decisions. Here are some examples of life situations which could benefit from expert advice from a finance professional:

1. Starting financial planning in early career

In the early years, it might feel as though the future is infinite and that there is no rush to begin financial planning.  But the reality is that it is never to early to start building a financial strategy for the road ahead, and a financial advisor might be able to help avoid many of the pitfalls and mistakes commonly encountered by newbies.  

Creating a personal budget, securing a mortgage, or preparing an investment portfolio can all be made easier with the help of a seasoned professional.

2. Getting married

Properly dealing with touchy money issues could turn out to make all the difference when developing the financial future with a new spouse.  New household unions can create a completely different set of financial challenges, and it is always a good idea to gain advice from people that have encountered those challenges themselves.

3. Entering middle age

Entering the period of middle-age can present its own set of challenges, and these are the years many people must pay college tuition for their children.  In addition to this, the period of middle-age is also when many people begin to look at new savings strategies for the retirement years.

4. Preparing for retirement

Reaching the pre-retirement years can be a transformational period in a person’s life.  Most people don’t know how much money will be needed in order to achieve security after a career is finished.  These are critical questions which can have dramatic ramifications if things are not planned correctly, and a financial adviser can help make preparations to achieve security in the years that follow.

5. Planning for later years

Once a person finishes a working career, it is time to start asking some critical questions.  Will it be possible to continue living comfortably on savings? Are potential health expenses adequately covered?  Will children, family, and loved ones be secure in the event of an untimely passing? Checking in with a financial can help with the answers to these questions and keep things on track for a secure future.  Retirement comes with its own unique set of “what-ifs” but proper financial planning can help to reduce the number of potential uncertainties.

The Bottom Line

No matter what stage of life a person has reached, a little support and guidance can always be valuable and there are many options available when it comes to selecting a financial advisor.   Financial experts are able to assess complex economic situations and devise strategies to benefit from the natural ebb and flow of the market.

Partnering with an investment expert can provide the guidance needed to avoid the stress and uncertainties that are often encountered in various stages in life, and the best financial advisors are able to offer hands-on support and individually tailored strategies to help achieve a strong financial future.  

For this article, we interviewed Stan Mann, Financial Advisor Coach and Founder of StanMann.com.

Market News, S&P 500, Stock Markets

Federal Reserve: Rising Risks for Recession in 2019?

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Federal Reserve: Rising Risks for Recession in 2019?

In the last few months, the financial markets have experienced rising volatility.  This activity has left many consumers on edge and wondering about the best ways to protect their assets.  Recent commentaries from the Federal Reserve have also highlighted a growing possibility that the U.S. economy will experience recessionary conditions as early as next year.  

Not surprisingly, this has already ignited speculation amongst some analysts that the current environment could be causing another financial collapse similar to what was seen during the 2008 financial crisis.  

Of course, much of this speculation is still premature as growth numbers throughout the U.S. remain robust and consumer spending levels are firmly above those which characterized the periods following the credit crunch a decade ago.  But there are still factors which households and individual consumers should consider when making plans for investment or spending money as part of a daily routine.

Effects of Interest Rates and Rising Consumer Costs

In all of the chatter (which has drawn similarities between the financial environment of 2008 and the financial environment of 2018), many people have neglected the ways higher interest rates could impact economic growth —at both the micro and macro levels.  

But this might turn out to the most critical factor which has changed the market this year. The prospect of higher interest rates can have a major impact on the economics of the stock market and this type of activity has already cost investors a great deal of money with respect to this year’s investment returns.

Additionally, higher interest rates can make large purchases more expensive for households.  For example, mortgage lending rates have risen to their highest levels in years and similar trends can be seen in the costs associated with the ability to buy a new automobile.  

For those that are able to buy a home or a car outright, these types of scenarios have limited impact on spending practices. But the majority of households and consumers do not fall into this category and this means that an environment of rising interest rates will have a very real impact on the financial health of most people.

U.S. Economics: Focusing on What Matters

For all of these reasons, it is important for us to focus on what matters and it is never a good idea to dismiss the underlying trends which are being developed by the Federal Reserve.  These are concepts which might seem to be abstract and esoteric. But this could not be further from the truth, as steadily rising interest rates have a very real impact on the ways we structure our long-term purchases.

Since the continued prospects of higher interest rates make large purchases more expensive, it might make sense to complete some of these purchases before the rate cycle reaches its maximum peak.  So, for example, if a family is considering putting off the purchase of a new home until next year, it might actually make more sense to speed-up the timeline and consider alternative options sooner.  

Stock Markets: Long Term Economic Trends

In the long run, these types of decision planning practices can have a substantial impact on the monthly payment and total costs which are required of us. Most financial decisions which are made quickly and impatiently tend to cost more over the long-term, and when we make too many of these decisions it is all too common to see the final outcome rest in bankruptcy.

This is why macroeconomic changes matter and the daily fluctuations in the financial news headlines usually do not matter (at least, not as much).  With this in mind, consumers can probably look past the speculation that a financial collapse is around the corner. But this does not imply the economy “without risk” is an accurate depiction of the current landscape.

Retirement, Stock Markets

Financial Planning: Choosing Between Stocks or Bonds for Your Retirement Account

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Financial Planning: Choosing Between Stocks or Bonds for Your Retirement Account

“Behold the turtle. He makes progress only when he sticks his neck out.” — James Bryant Conant

If you are planning for retirement, you have probably felt the pressures involved when looking at all of the different places to park your money.  The financial landscape can be a complicated place, and the task of choosing between asset classes can seem daunting during the early stages of the process.  Two of the most popular asset classes are stocks and bonds, and many newer investors often wonder which is best for a long-term retirement portfolio.

In any retirement portfolio, investors must understand the concept of market risk as it relates to their positions.  This essentially refers to the possibility of losses relative to the potential for reward (gains) in the investment. These factors work hand-in-hand, but a seasoned financial advisor can help understand the nuances which are present when planning for retirement.  We sat down with Adam Anderson, CEO of MRA Capital Partners to identify new strategies to turn the odds into our favor on the path toward building wealth. Below, we can find some tips we uncovered along the way.

Measuring Potential Returns

As a general rule, greater potential for gain tends to be associated with larger levels of risk.  These factors can be understood when comparing the historical returns generated by investments in both stocks and bonds.  When a retirement portfolio is designed by an industry expert and assets are properly allocated, risk is generally a short-term phenomenon.  The potential for returns differs when we are comparing the advantages of stocks and bonds, and the appropriate selections for your retirement portfolio will depend heavily on your individual goals and needs.

Over the last century, U.S. Treasury Bills have acted as a proxy for money market accounts (generating yields of roughly 3.7% annually).  Longer-term government bonds returns about 5.7% over the same period. Put in simple terms, if you invested $1 in long-term bonds in 1926 your investment would be worth about $100 in 2008.  Stock investments, on the other hand, would have produced very different results (generating annual returns of 9.6% during these same periods). In this case, a $1 investment in large-cap stocks in 1926 would be worth about $2,000 just prior to the financial turmoil of 2008.

Stocks and Bonds

In the chart above, we can see the more recent trends in stock markets as they relate to the bond markets.  Interestingly, there are some cases where the traditional correlations to not match the current tendencies. These asset classes have had periods characterized by similar returns (both small and large).  This is precisely why retirement investors will consult an experienced financial advisor, so that it is easier to spot the differences in any given market climate. 

“As a CFP and Financial Planner, I’ve practiced the principles of asset allocation and diversification through both bull and bear market cycles as well as expansion, contraction, and recessionary economic climates.  Diversification between asset classes is paramount to a successful investment strategy,” Mr. Anderson explained. 

“At the most broad level, the mix between stocks and bonds is most commonly debated especially among retail investors and their advisors.  In my opinion, the most heavily overlooked asset class for individual investors are alternatives.  Alternatives can be commodities, futures, real estate, private equity, art and other non stock or bond investments. Alternatives should make up between 10%-20% of a well diversified portfolio for the average investor but is much higher for some institutional investors, endowments, pensions and high net worth individuals. While I don’t personally endorse this, some even choose to invest only in non market based alternatives ignoring stocks and bonds completely,” Mr. Anderson explained.   

“The benefit to alternatives is that when managed correctly, they should be non-correlated to stocks or bonds. Private equity and Real Estate tend to do a very good job at this. The challenge is finding the right managers and strategies that fit the investors goals and comfort level. Another challenge is investment minimums are generally very high and transparency is generally low when investing directly in real estate for example,” Mr. Anderson explained. 

MRA Capital Partners seeks to remove these barriers by offering limited partnership interests in a variety of single asset real estate investments as well as its Lighthouse Fund which is a diversified pool of high yield asset backed loans.  The individual accredited investor can access these private non-correlated investments for as little as $50,000 and has full transparency via our secure investor portal at www.mracapitalpartners.com.

Limiting Risk in Retirement Portfolios

More broadly, stock markets have generated much higher average returns, and this is why retirement portfolios tend to be more heavily-centered in these areas.  Of course, this added potential for return comes with added risk for the investment. But since the stock market tends to post positive results during the vast majority of market scenarios, any losses tend to be removed over time.

These are all risks which must be understood but when we have a well-constructed investment portfolio it becomes possible to turn the odds in our favor.  Markets will always experience -boom-and-bust type periods in the broader economic cycle. But when a retirement portfolio is well-constructed and diversified, these risks can be mitigated and substantially reduced.  Stock markets move higher during the vast majority of the time, and this is why buy-and-hold strategies tend to work best in generating returns and investment income.

“Heading into 2019, it’s no secret we are in the later stages of the current economic expansion and the federal reserve has made it very clear they plan to continue on their current path of raising rates.  This along with the uncertainty surrounding the current political and trade headline risk is likely to continue to cause volatility in the stock and bond markets,” Mr. Anderson explained. 

“If rates rise more rapidly than anticipated, bonds may prove to be less of a safe haven or diversifier than investors expected.  Additionally, as the world economy continues to become more integrated, many of the more liquid asset classes like stocks, bonds, REITS, and even liquid alternatives like those access via ETFS or Mutual Fund may prove to be more correlated to each other then they have been in the past. In my opinion, carefully selected privately held investments are the best way to gain non-correlated exposure,” Mr. Anderson explained. 

Understanding Time Horizons

Time is another important factor in any investment.  Will you be retiring 10 years from now? Twenty years?  Maybe much sooner? It is never too late to start planning your retirement portfolio.  But the time you have until you stop working your regular job can be an important factor in determining which types of assets to include in your investment portfolio.  If you have an extend time period before your retirement, there is often better opportunity for capital growth through stock investments. Conversely, if you are looking for short-term stability and income, bonds may offer advantages given your individual needs.

“There are risks associated with all investments.  At MRA Capital Partners, we focus on privately held investments back by the hard asset of real estate.  While these types of private equity and debt investments are not immune recessions, rising rates and other market forces, they very rarely behave like traditional stocks or bonds which may be a great complement to a balanced portfolio. Additionally, investments offered by MRA Capital Partners have a strong income component, many distributing 10% or more annually which make them a great complement or even alternative to bonds,” Mr. Anderson explained. 

Of course, these are all factors which should be discussed with your investment advisor, and the answers will differ depending on your individual needs and goals.  There is no substitute for individual attention and it must always be understood that “patience pays” in any financial markets investment.  As the sage wisdom of James Bryant Conant tells us “Behold the turtle. He makes progress only when he sticks his neck out.” This suggests a certain level of risk can be taken, as long as those risks are measured and characterized by patience that is well-researched in the current market environment.

For this article, we interviewed Adam Anderson, CFP®, CRPC® CEO – Managing Partner of MRA Capital Partners.