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Retired Investors Most At Risk Using Buy And Hold ‘Strategy’

Retired Investors Most At Risk Using Buy And Hold ‘Strategy’

Retired Investors Most At Risk Using Buy-And-Hold ‘Strategy’. When it comes time to place your hard-earned savings into a retirement account, the formerly sage advice of “buy-and-hold” may sound appealing. But you had better make sure that you agree with that school of thought in investing because the majority of investment advisors will follow that outdated strategy

The reason why “buy-and-hold” no longer works is because the U.S. economy has experienced two significant, damaging recessions in the past two decades, one from which we are still recovering. Those who have innocently entrusted their money to buy-and-hold proponents have, at worst, lost a huge chunk of their nest egg or, at best, barely broken even or slightly up.

Is that really what you want to do with your savings as you approach the Golden Years?
Buy-and-hold, when it does benefit investors, overwhelmingly favors those who are younger in their careers (age 25-45), points out Jeff Voudrie, president of Common Sense Advisors Those workers are putting money aside on a regular basis, out of each paycheck, so that when the markets go down they are able to buy more shares. “Those in this age range have such long horizons before they need to start drawing out for retirement income,” Voudrie notes, “that they can wait out a significant downturn.”

But for those sliding into the retirement age range, buy-and-hold can prove disastrous, he adds. “Those that are closer to retirement, say 55 years old, don’t have the time to overcome significant downturns. Volatility is something that most retirees want to avoid. Buy-and-hold guarantees that they will experience every ounce of volatility.”

Take, for example, one period of market turmoil over 15 months from 2009-11. Figures show that retirees who moved their money to cash and other safe assets actually did better than those who continued to buy and own stocks. The Congressional Budget Office reported that retirees lost more than $2 trillion during this short period

[1] Brandon, Emily. “Retirement Savers Lost $2 Trillion in Stock Market.” U.S News & World Report. https://money.usnews.com/money/blogs/planning-to-retire/2008/10/08/retirement-savers-lost-2-trillion-in-the-stock-market

Researchers and journalists agree on the peril of a buy-and-hold strategy when the bottom drops out of the market. As Emily Brandon reported in U.S. News & World Report, “Older workers’ average account balances are markedly higher, so they have more to lose in a significant downturn and less time to recoup losses before retirement.”

And, if you suppose that 2008 losses have been replaced during the current market upswing, you would be mistaken. Teresa Ghilarducci reported in The Atlantic that huge numbers of older workers have not recouped their losses in their 401(k) accounts in the decade after 2008. “We thought that this group of people would be relatively able to come back from the crash, but we found that the averages, as they often do, have hid some of the substantial differences between individual workers. These averages distorted the risks people are exposed to when their retirement accounts are tied to volatile financial markets, depend on employer contributions, and require people to maintain or increase their contributions themselves,” she wrote.

“The way American retirement accounts are set up suggests that an increasing number of workers, including those squarely in the middle class, will experience downward mobility in retirement,” she continued, “If current trends continue between 2013 and 2022, the number of poor or near-poor 65-year-olds will increase by 146 percent. These numbers are unlikely to change as long as retirement accounts are exposed to the fluctuations of financial markets and their uneven recoveries.”

To further prove his point about the hazards of buy-and-hold, Voudrie offers a quick analysis of the Investment Company of America (ICA), one of the most widely owned mutual funds, often recommended by Edward Jones and other prominent firms that still adhere to the buy-and-hold approach.
This behemoth, listed as AIVSX, hit a high of $33.63 on June 2, 2000. Approximately 16 months later, on October 4, 2002, it drooped to $21.81, a(retrieved 12/10/2017).

[2] Ibid.

[3] Ghilarducci, Teresa. “The Recession Hurt Americans’ Retirement Accounts More Than Anybody Knew.” The Atlantic. https://www.theatlantic.com/business/archive/2015/10/the-recession-hurt-americans-retirement-accounts-more-than-everyone-thought/410791/, (retrieved 12/10/2017).

stunning 35% decline. If you were a retiree during that time and wanting to draw on your retirement account, you would have seen more than 1/3 of your savings evaporate.

It took another four years for AIVSX to recover to 2000 levels. On May 5, 2006, it rose again to $33.77 per share. In the intervening years, AIVSX shareholders probably hated seeing any stock reports as the value plummeted then creeped up again, and after all the turmoil they ended up with an overall return of exactly 0%–and a huge bill for antacids.

Regrettably, that was not the end of the ride! AIVSX again creeped up in 2007, hitting $37.10 on October 12. Whoops! By March 6, 2009, it had plummeted to $16.73 per share, a mindblowing drop of 55% that was so painful that many sold at the bottom and never invested in the stock market again. And again, it took four years to regain that enormous loss. It wasn’t until October 2013 that AIVSX again crept above $37.

The end result for buy-and-hold account “managers” who have no strong incentive to protect you from such downturns? S/he could report to you 13 years later that you had earned exactly 0% on your money invested in 2000. And, by the way, please note the total fees charged.

This is why Voudrie argues for money management that anticipates downturns and protects the investor from the bottom falling out of the markets. In reference to the unhappy investors who stuck with AIVSX from 2000-2013, he says, “If they could have been out of the market even partially during the significant downturns, they would have done much better and with less volatility.”

Consequently, Voudrie makes a powerful argument for what he calls “tactical management.” He explains: “Tactical management typically involves some type of pre-defined approach that helps identify when to enter the market and when to exit. Tactical-based strategies are better suited for cyclical Bull and Bear markets that might only last for a series of months instead of years.”

Drawing on sophisticated electronic monitoring and software, Voudrie works with his clients to create a personal investments management portfolio that reflects their lifestyle goals and risk tolerance. He specializes in stable growth and prudent profits while applying a robust, patented risk management processes.

That stands in stark contrast to outmoded buy-and-hold approaches. The word picture that Voudrie, a veteran financial advisor with three patents and five books to his credit, uses to illustrate retirees clinging to hope for their savings stuck with buy-and-hold advisors is not reassuring: “They are adrift on the ocean without a rudder to steer.”

Jeff Voudrie, a financial planner in Johnson City, TN has been interviewed or referenced by CNNfn, The Wall Street Journal, “CBS MarketWatch,” The London Financial Times, Kiplinger, and the Christian Science Monitor. He is a former syndicated newspaper columnist (“Guarding Your Wealth in 40 newspapers with 150+ articles on investing and managing wealth) and the author of multiple ground-breaking books: The Retired Investor’s Survival Guide: Protecting and Maintaining Retirement Income Throughout the Looming Financial Crisis (2013), The Retired Investor’s Survival Guide: How Successful Investors Tripled the S&P 500: The SECRET to Stop Playing by Wall Street’s Rules, End Your Frustration, REGAIN Control of Your Finances (2012), The Retired Investor’s Survival Guide: The 7% Annuity Guarantee Exposed (2010), The Retired Investor’s Survival Guide: Why Variable Annuities Don’t Work the Way You Think (2008), The Retired Investor’s Special Report: Annuity Alert: Beware of Allianz MasterDex 10 (2006).

Investments Management Specialist Jeff Voudrie of Common Sense Advisors Reveals How YOU Can Profit From Coming Tax Reform

Investments Management Specialist Jeff Voudrie of Common Sense Advisors Reveals How YOU Can Profit From Coming Tax Reform

Investments Management Specialist Jeff Voudrie of Common Sense Advisors Reveals How YOU Can Profit From Coming Tax Reform. It has been just over a year since Donald Trump was elected President of the United States of America.

Back then, I wrote a few articles explaining the importance of US companies being able to repatriate their foreign profits back to the US at a special one-time reduced tax rate. I made the case that it would be a significant impact on US economic growth.

Since then, the economy has been strengthening and we have seen US GDP back over 3%. It is my belief that that tax reform has the potential to add a second wind to the US economy and to extend the current stock market rally.

If tax reform appears more likely to pass it will undoubtedly be positive for those who are owners of U.S. stocks.

Here’s the numbers.

  • There is currently an estimated $2.4 trillionin earnings held by U.S. multinationals overseas.
  • The top 30 companies with the largest amount of foreign earned profits account for 46% of that $2.4 trillion.
  • Of this top 30, there are two sectors that lead the pack with $579 billion and $425 billion respectively.

 

If you would like to know the specific two sectors that should benefit the most from this repatriation send me an email and I will let you know what they are.

We have been long the right sectors and companies most of this year through a variety of vehicles including low-cost exchange-traded funds, mutual funds and individual stocks. And the accounts have benefitted from this exposure.

Going forward, though, it is going to be essential to include these two sectors to the portfolios that I manage. You may want to as well!

A financial services industry veteran with more than 20 years’ experience, Jeff Voudrie is a new breed of private money manager. Using sophisticated electronic monitoring and software, combined with his 25 years’ experience as a money manager, 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 a robust, patented risk management processes. When you work with Jeff, you have the security of knowing that your life savings is getting the attention it deserves.

Jeff Voudrie, a financial planner in Johnson City, TN 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 ground-breaking 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.

How Retired Investors Can Safely Navigate Economic and Political Uncertainty And Still Earn What They Need

How Retired Investors Can Safely Navigate Economic and Political Uncertainty And Still Earn What They Need

Let’s face it: There is a lot of political turmoil in the United States right now.

It all started when candidate Donald Trump decided to enter the race for President of the United States of America. All elections seem rancorous nowadays, but the one in 2016 was particularly disruptive. His presidency has exposed and sharpened the deep political divides in this great nation. That makes investors nervous.

Those that expected him to moderate his ways and tone after winning the election have been disappointed. He is the first President to openly battle against what he considers the left-wing establishment and ‘fake news’. He uses Twitter in an attempt to communicate his thoughts directly to the American people, but his unfiltered ‘style’ is often hostile and hard to stomach even by those that support him!  The Trump political circus is bound to cause concern for investors because we never know what will happen next. That makes investors nervous.

It is common to factor in political events (changes in regulations, taxes, healthcare, etc.) in our investing theses and/or narratives. That is harder to do with this current administration because there seems to be a lack of continuity. That makes investors nervous.

Then there is the situation where the Republican Party seems to be unable to pass legislation even though they ‘control’ Congress.  How many times have we been ‘reassured’ by Speaker Ryan that they have a plan for tax reform; they have a plan for repealing and a plan for replacing Obamacare, etc. Yet when the votes are tallied the Republicans fail. That makes investors nervous.

Now we see President Trump moving to the left and making deals with top Democrats in order to try to get movement on tax reform, healthcare, DACA, border security and the budget ceiling. That makes investors nervous.

Apart from the political storms, we have also witnessed the devastation of Houston by hurricane Harvey followed days later by Irma in Florida followed days later by Maria. Tens of millions of people have lost their homes amidst the devastation. It will take years for them to recover physically, financially and emotionally. Our hearts and prayers go out to all of them, but that makes investors nervous.

Then there is the geo-political upheaval as Kim Jong-un (the Chairman of the Workers’ Party of Korea and supreme leader of the Democratic People’s Republic of Korea) threatens to devastate South Korea, Japan, Guam and even the mainland of the United States of America. We hear on the evening news that they just successfully tested a thermal nuclear device and that they now have intercontinental ballistic missiles that can reach North America. Understandably, that makes investors nervous!

There are a lot of things to fear in the world right now. And based on the long list of concerns I just detailed you might think that the US stock market might be down 10-15%, but that’s not the case. In fact the S&P 500 is at or near all-time highs.  The S&P 500 index is currently up 12.03% and has been setting all-time highs on a regular basis.

How can the US stock markets be doing so well when there are so many things to be worried about? To quote James Carville: “It’s the economy, stupid.” There are a lot of investors that have missed this 10-month-and-counting rally because they have focused on all the things that I mentioned above.

As a professional money manager, I have learned the hard way that I need to focus my research on economic data instead of some pundit’s opinion. And over the last nine months the economic data has indicated that the underlying economy has been strong. Gross domestic product (the goods and service of a nation) has been growing. In other words, U.S. businesses are doing well and their quarterly earnings and profits reflect that growth.

That doesn’t mean you can buy just anything. As you can see in the graphic below, there are certain sectors of the economy that are doing better and some that are doing worse. For instance, technology is up over 10%; healthcare almost 7%. Yet the Energy Sector is down 23%, Consumer Staples are down over 5% and even the financial sector is negative for the year.

In this type of environment technology stocks do very well because of their operating leverage. As a sector there are up 10% but the individual technology stocks are crushing the sector returns. Take a look at some of the largest technology firms in this list below and their year-to-date returns.

YTD Returns:

Facebook:           48.73%

Amazon:              25.44%

Apple:                   43.44%

Google                 48.72%

The NASDAQ is up 21.61% YTD.

 

Is it too late to get in?

That really depends on your situation and your risk tolerance. The data and research that I rely on indicates that the economy will continue to grow in the fourth quarter and likely in the first and second quarter of 2018. The prior-year comparisons for the first and second quarter of 2017 mean that it will be harder to show growth. That assumes that there aren’t any changes to taxes and incentives. If there is tax reform then I would expect that to increase economic growth, but it all comes down to the data.

For retired investors who have been on the sidelines I would not recommend investing 100% into equities all at once. Instead, I would suggest moving money into the markets on pullbacks in smaller increments based on your risk appetite and your ability to absorb normal fluctuation going forward.

I know that isn’t very specific advice. I’m happy to talk with privately and make more specific recommendations.

For Common Sense Advisors I’m Jeff Voudrie. Have a wonderful and Blessed week!

 

Jeff Voudrie’s Stock Market Commentary – The Trump Rally and Continued US & Global Growth 3-16-17

Jeff Voudrie’s Stock Market Commentary – The Trump Rally and Continued US & Global Growth 3-16-17

Jeff’s Stock Market Commentary: Continued US & Global Growth

Is The Trump Rally Over?

Summary: Although the US major stock markets are at or near all-time highs, the economic data signals continued US and global growth. My viewpoint is that we are still in the early stages of what could be a multi-year growth cycle.

If you listen to the talking heads on the business news channels it is likely that you will come away thinking that the market is overbought and on the verge of another crash reminiscent of 2000-2003 or 2008. As I talk with people (not my clients) I tend to hear the same thing—the markets are too high—then they talk about something like ‘valuation’. Granted, it is hard to argue that there is more upside potential ahead when the markets are already at all-time highs.

I distinctly remember making a similar argument in June and July of 2015 and back then the market drifted down throughout the summer and declined around 15% in August of that year.

So what makes it different now from back then?

The economic data.  In June of 2015 the economy was already starting to show signs of slowing after a multi-year period of growth.  As I’ve said in previous commentaries, my analysis of how to invest starts by looking at whether the economic tide is coming in or going out.

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