Green Time

Monday, August 13, 2012

What you need to know before dumping stocks - The Globe and Mail

 Blogger Preface:  This article rang a bell for me.  All my Yuppie friends, who still have money after the 2008 meltdown, feel they need to keep adding to the mutual funds they own in their retirement funds.  They worry about not having enough money to retire as soon as they want or in the style they want.

How about taking the least possible risk (inflation is always a risk, deteriorating buying power) and making adjustments to your retirement plans?  Financial Planners have done a good job of promoting mutual funds and the stock market as the best form of investment to grow your wealth for retirement.  Some people see no alternatives to having their money work for them other utilizing the equities and bond markets.

Careful budgeting is out of fashion with our consumer oriented, 'must-have-it-all' North American society therefore, not bei ng seen as an alternative to aggressive investment plans to produce the extra money to keep the party happening in retirement.



What you need to know before dumping stocks

The Globe and Mail

“If you do not want to invest in equities, that does not make you dumb,” says Carl Richards, author of

The Behavior Gap: Simple Ways to Stop Doing Dumb Things With Money.

This needs to be said because we live in a world where stocks long ago won the image war in investing. Stocks are for hunters, while bonds and guaranteed investment certificates are for gatherers. Smart people buy stocks, sheep buy the other stuff.

If all that’s keeping you in stocks is peer pressure, for God’s sake get out. Don’t be naive about it, though. The move out of stocks requires both sacrifice and the ability to resist temptation.

“I know plenty of people who don’t want to take equity risk any more – it’s not a problem,” said Mr. Richards, a Utah-based adviser who regularly contributes sketches explaining investing concepts to The New York Times’ Bucks blog. “But let’s build a plan where you save a little more and work more in retirement.”

Mr. Richards’ book doesn’t tell you how to invest – it tells you how to think about investing so you make better decisions. The approach makes him the perfect person to consult on the case of the frazzled investor who wants out of stocks.

People who have lost money in stocks may question why he believes that safe investing requires you to save more and work longer.

 Here is a Statistic that might seem surprising:

bonds and stocks have generated nearly equal returns in the past 10 years at roughly 6.5 to 7 per cent annually.  (in Canada)

Can this be repeated in the next 10 years?  

In fact, it’s not unreasonable to expect a big stock market rally at some point in the years ahead that will be coupled with a bear market for bonds.

 Blogger Comments: The bull market in bonds has actually persisted for 20 years...

Avoid stocks if you want to shun stock market risk.  This does not mean you are forced into the bond market which may be getting 'long in the tooth' as far as producing high returns.  Maybe you want to stay in shorter term GIC's or buy government of Canada Savings Bonds for yield and liquidity.  If rates begin to rise you will be able to benefit in the money markets and short term instruments, whereas the bond market would enter a bear phase and bonds would lose lose value.

 Mr. Richards suggests you look at the long-term numbers for the stock market. In Canada, the S and P/TSX composite index averaged 8.7 per cent annually for the 20 years to June 30, a period that includes the bull market 1990s and two market plunges since 2000. The S and P 500 made 8.3 per cent annually over that period, although this return slips to 7.4 per cent for Canadians as a result of our currency appreciating against the U.S. dollar.

If you still feel abused by the stock market, it could be because you have more stock market exposure than you should. Mr. Richards describes an overweighting in stocks as speculating in the market...

While he believes that decades of stock market history argue for having some stocks in your portfolio, he’s realistic about the possibility of more upsets to come.

 Blogger Conclusion:

 RISK and REWARD is the name of the Game and the Financial Services Industry has sold the Returns 'Possible' investing in Mutual Funds, managed accounts and common stocks in general to  the extent that public perception has seen these promises as near guarantees.  Bad idea.

 The 2008 meltdown in equities and financial markets caused by the housing market collapse in America did a great deal to educate the general public about the risks inherent in all markets.


What you need to know before dumping stocks - The Globe and Mail


Friday, August 10, 2012

Define Success to properly set your compass

I found one day in school a boy of medium size ill-treating a smaller boy. I expostulated, but he replied: The bigs hit me, so I hit the babies; that's fair. In these words he epitomized the history of the human race.
- Bertrand Russell

“All you need in this life is ignorance and confidence; then success is sure. ”
― Mark Twain
"In the confrontation between the stream and the rock, the stream always wins
- not by strength but by perseverance."
- H. Jackson Brown 
 “Don't mistake activity with achievement.”
― John Wooden
 “Supreme excellence consists of breaking the enemy's resistance without fighting.”
― Sun Tzu, The Art of War

“Whatever the mind can conceive and believe, it can achieve.”
― Napoleon Hill, Think and Grow Rich

“Don't aim at success. The more you aim at it and make it a target, the more you are going to miss it. For success, like happiness, cannot be pursued; it must ensue, and it only does so as the unintended side effect of one's personal dedication to a cause greater than oneself or as the by-product of one's surrender to a person other than oneself. Happiness must happen, and the same holds for success: you have to let it happen by not caring about it. I want you to listen to what your conscience commands you to do and go on to carry it out to the best of your knowledge. Then you will live to see that in the long-run—in the long-run, I say!—success will follow you precisely because you had forgotten to think about it”
― Viktor E. Frankl, Man's Search for Meaning

“I want to do it because I want to do it. Women must try to do things as men have tried. When they fail, their failure must be but a challenge to others.”
― Amelia Earhart

“Over the years, I have come to realize that the greatest trap in our life is not success, popularity, or power, but self-rejection. Success, popularity, and power can indeed present a great temptation, but their seductive quality often comes from the way they are part of the much larger temptation to self-rejection. When we have come to believe in the voices that call us worthless and unlovable, then success, popularity, and power are easily perceived as attractive solutions. The real trap, however, is self-rejection. As soon as someone accuses me or criticizes me, as soon as I am rejected, left alone, or abandoned, I find myself thinking, "Well, that proves once again that I am a nobody." ... [My dark side says,] I am no good... I deserve to be pushed aside, forgotten, rejected, and abandoned. Self-rejection is the greatest enemy of the spiritual life because it contradicts the sacred voice that calls us the "Beloved." Being the Beloved constitutes the core truth of our existence.”
― Henri J.M. Nouwen