* International Investments – Stay
Cool with Enough
* Natural Health Tip – Stay Cool with Triphala
* Ecuador Real Estate – Sat Cool With Your Own
Business
Cool. This word has definitely taken on a new meaning in the
last decade or so. Change. It’s everywhere including
with words.
I was cool the other day sitting on our front porch, working
in the chilled morning air. A deer (below) grazed on clover
in our front meadow.
I was reading an article in the money section of USA Today
in the regular “Your Portfolio” column entitle “Jack’s
in good shape so no need to take risk”. It pointed out
that Jack who is 66 and still working full time had a savings
portfolio of $584,000. He is thinking about shifting to part
time work.
Read at least the abstract at pqasb.pqarchiver.com/USAToday
Better still, pay to read the entire article.
This led to the question, “How much is enough”.
The reality is that no one knows how much will be enough, especially
when inflation is hot. Inflation and US debt make articles
like this totally upside down wrong. Jack even in what appears
to be great financial shape is very much at risk. He could
be in even a worse position if he follows the advice in that
article.
History suggests that when Governments control money, inflation
destroys its value. Changes taking place are not cool. The
Western population ages as it grows. Natural resources decline.
U.S. government debt is at all time highs and rapidly rising.
Politicians are bolder in their lies. The Iraqi quagmire escalates.
Increased security costs increase the price of everything.
The Social Security and Medicaid numbers make no sense. A record
number of baby boomers are about to retire.
Another historical economic fact is that the retired on fixed
incomes always get screwed first when society and the economy
collapses.
Let’s go back to Jack and that USA Today article. It
told how Jack should make his equity investments more conservative.
His portfolio had 14.5% in global stock funds and 8.7% in emerging-market
funds. The article stated that this could be volatile, doing
well one year and horrible the next.
The article showed how one bad year could really hurt the
portfolio and stated that if Jack enjoyed a 10% annual return
on investments for three years, then lost 10% in the fourth
year, he would need a 34.4% in the fifth year to regain their
10% annual average. The article went on to suggest that Jack
change the portfolio from 87% stocks and 13% cash to 57% stocks,
13% cash, 5% real estate and 25% bond mutual funds. It was
suggested to reduce the foreign exposure from the current 23.2%
to 10%.
Jack’s pension and social security are adequate for
his lifestyle now so he does not need to draw too much on these
investments. Thus the article suggested a more conservative
portfolio.
This could be really bad advice. Jack has two huge risks.
First, he has medical insurance only until he retires. This
creates an enormous problem we’ll look at in a moment.
The second risk is the greenback. This is the one investment
that has proven it is really volatile!
What can Jack’s $584,000 earn? If Jack spends 4% per
annum of his portfolio it’s an extra $23,000 a year.
If he does not need that now why not go for more growth to
protect against inflation and the possibility of down the road
medical problems.
Traditional thought in America says America is safe and steady,
overseas markets riskier. Funny, traditional thought in England
is that Britain is safe and overseas markets riskier. Guess
what the thinking is in Germany and Japan!
Instead, let’s look at some facts. Emerging markets
have just gone through a clean out. They are perhaps low and
offer good value. Wall Street is still at the end of a mid
term rally in a long term bear market and share prices are
definitely not at good historical values. Fundamentals suggest
that US shares have a greater chance to fall than many emerging
markets.
Plus right now bonds could be a really bad deal. We saw in
a recent message that nearly 100 years of history suggests
that during hot inflation bonds are really not cool. See http://www.spottingtrends.com/index.htm
Finally in the next 20 years the US dollar is very likely
to fall, perhaps as much as 50%. Fundamentals suggest that
the dollar is one of the most volatile investments of all!
Holding the dollar versus euro or yen over the long term in
the last three decades has been a guaranteed way to purchasing
power.
The word conservative (just like cool) has changed. Conservative
is a word advisors use for investments they are familiar with.
Familiarity does not necessarily mean good value.
Conservative is based on the past and looking back. Conservative
lacks change. These features are not cool.
No accord was given in any of Jack’s advice as to which
currencies or markets had value. The advice that Jack has received
really is not conservative for a future of change at all.
Let’s look at this in another way.
Since Jack does not need the investments to live on now, let’s
forget the bonds. For diversification he should hold more real
estate and more (not less) overseas shares.
He needs a bigger cushion. His fixed income is at risk from
inflation. His huge risk is the chance of high medical costs
his wife may face. She will not be eligible for insurance once
Jack retires. One or two heart surgeries could put a mighty
dent in their savings!
Fortunately Jack also has the safest investment of all, his
ability to serve. He has developed a service with a value that
can rise with inflation. So if he needs more income, he can
work a bit more.
Let the value of the portfolio grow for another five to ten
years before they need to draw on funds. This extra growth
will come in handy if catastrophic medical bills arise. This
catastrophic risk is a sad state of affairs that so many people
in America face.
In the next segment of this message, we’ll see a natural
health tip and one thing that Jack and his wife could do to
reduce their biggest risk of all without altering their investment
portfolio.
Until then, may what you have always be enough and cool.
Gary
P.S. Join us in Ashe County. Learn more about investing in
overseas markets. Join Merri, Thomas Fischer from Jyske Bank
Copenhagen and Steve Marchant from Ecuador and me at our September
15-16-17, 2006 International Business and Investing Made EZ
course in North Carolina. Our free accommodations here on the
farm are reserved on a first come first served basis so do
not delay! Go to garyascott.com/catalog/ibeznc.html
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