Good charts on long term returns in this piece from Glenn R Mueller, PhD.:
I recently met with my financial advisor to “rebalance” my … retirement portfolio. Based on my “age and stage of life” his allocation model showed a 50% bond allocation. I laughed and asked him if the company allocation model assumed interest rates would rise over the next 10 years? His answer was “yes- of course.” I showed him the graph below which shows lower than average TOTAL returns in a rising interest rate environment and he checked his long-term data and found that bond holders between 1953 and 1980 had actually lost money. We all know that as interest rates rise, bond values decline and thus the total return can be small or negative. Not to mention that a 10-year treasury at 1.5% is below expected inflation and thus a NEGATIVE REAL RETURN. He agreed that a bond allocation did not make much sense, but since my investor profile was conservative what was the alternative?
Dr. Mueller is Continue reading What do I do with my retirement money, one investor’s answer (with charts). Think apartment building investment-
Bill ‘The Bond King’ Gross, founder of PIMCO says that the long run of stocks outperforming the overall economy is done and that the only policy option left for the ‘advanced’ economies in the world is inflating their way out of debt. Since Inflation = Higher Interest Rates and rising rates reduces the value of existing bonds issued at lower (currently near zero) rates, they don’t look to good as a long term investment either. See his letter here PIMCO Investment Outlook
So what’s a saver or investor to do, especially those nearing or at retirement? Chase yields in emerging market bonds? Who would you trust for information about those issues? Have those economies really decoupled from the US and Europe? Where could you find a decent stream of income with inflation protection build in and appreciation potential on top of that?
Apartment building investments. As we’ve laid out previously apartment owners can benefit from even small increases in rents, have demographics and social trends on their side and new supply has been quite limited over the last decade (see here, here and here for the details). Does the prospect of high single digit current income with inflation protection and even appreciation potential warm your retirement spreadsheet?
In this example, raising rents $25 or about 3% increases the value and owner’s equity $190,000 or almost 12% plus the income goes up more than 9%. That is the power of apartment building investment. Notice that in this example that the building is nearly full, if we were to buy a building that had more vacancies we could have paid a lower price based on the lower Net Operating Income and we would have the opportunity to create even more value by improving the management to bring in more renters. That is why we like apartments.
When I talk about investing in apartments I am not talking about being in the landlord business, I am talking about being in the property owning business and one of the expenses we gladly pay is for professional property management. We’re not in the tenants, toilets and trash business; we hire the pros to handle that and our job is to manage the managers…. And reap the rewards. Find out how we invest in apartments and how you can too by contacting me at firstname.lastname@example.org.
A WSJ article on the flubbed Facebook IPO article linked by Barry Ritholtz on the TBP blog had this quote: “Since the flash crash [ in May 2010], $370 billion has been withdrawn from U.S. stock funds by small investors, according to EPFR.”
The article contains a host of reasons and stats on why and how retail investors are abandoning the stock market but it all comes down to this: Continue reading $370 billion withdrawn from US stock funds since the May 2010 flash crash Via TBP blog
… small and Large. Sunday was the 2nd anniversary of the May 6th Flash Crash of 2010. High Frequency Trading (HFT) insiders have hacked the stock markets so they get a sneak peak at your, and everyone’s trades before they’re executed. Think of it like one player at the poker table can secretly see your cards, and everyone else’s before they bet- Want to play in that casino?
When the HFT trading robots all lock onto the same pattern they can take a major market like the Dow Jones Industrial Average down 700 points in 10 minutes and thus we all remember the Flash Crash. Now it so happened that that time the market recovered about 70% of the loss shortly after but the damage to confidence was done.
Once bitten, twice shy. Or as Joe Saluzzi and Sal Arnuk at Themis Trading (a specialty company that trades equities for large institutions and hedge funds- stock traders not OWS supporters) put it: ” traditional retail and institutional buyers and sellers of stock have been steadily waking up to the dangers of drinking at the increasingly dangerous ”stock market watering hole”. Like the animals on the Serengeti, who for years were accustomed to sipping long and heartily at their favorite spot, retail and institutional investors now see what’s beneath the surface. And they are deciding that the drink they crave is just not worth the risk.
It isn’t hard to blame them. They have witnessed a radical transformation of the best capital allocation market system in the world, into one where:
– 13 stock exchanges cater to hyper traders who game the system, chasing exchange rebates, and leveraging speed for the purpose of a nanosecond scalping dance.
– More than 40 dark pools together trade more than 1/3rd of all shares.
– Conflicts of interest abound as exchanges own stakes in Continue reading Happy Flash Crash 2nd Anniversary. Lack of trust in stock markets is scaring away investors…
From the NY Times:
THE past couple of years have left many people staring in disbelief at the returns on their individual retirement accounts. Consider last year, when the Standard & Poor’s 500-stock index finished the year essentially where it started.
So it makes sense that people are looking for ways to earn more for retirement — or to make up for losses. Yet when I heard that an increasing number of people were moving money from traditional I.R.A.’s to self-directed I.R.A.’s that focused on real estate, I was skeptical that this was a good idea.
First, I wondered, how could this be done with retirement money? Was it even legal? And were people who had worked and saved money for their retirement really putting it into real estate so soon after the bubble burst?
Could you really have a conservative investment in your IRA today that earns 6, 7, 8% or higher? That’s legal? Yes you can, here’s the secret that your Wall St. broker and banker don’t want you to know: You can open a Self-directed IRA. That is an IRA account set up with an independent Custodian who makes the investments you direct it to (clever name huh?) instead of steering you into the products that earn them the biggest commissions and bonuses.
Of course there are some limits on the kind of investments but we’re not looking to corner the market on Greek reverse CDO squared repos (whatever those are). We’re looking for good income, inflation protection and Continue reading The secret to owning income producing apartment building investments in your IRA.