There have been a couple of articles asking whether the 4% rule of retirement investing still works (meaning that, if retirees withdrew 4% of their nest egg in the first year, and then increased the dollar amount by the inflation rate every year, their savings would easily last their retirement). We encourage you to read them:
In these articles, the writer is asking a question that is common right now – will I have enough money to last my retirement, using the tried and true rules of investing?
We think that the answer is yes. If investors employ some simple risk management, and the 4% rule is alive and well. It’s what we do here at Fabian Wealth Strategies, and we think that this is a positive investing strategy that gives you the 4% you’ve planned on. Even though passive investing is popular right now, we believe that a little planning and preparedness will be powerful tools for your portfolio. As we’ve said many times, the markets are high risk and there’s a lot of market manipulation going on, so we need to be diligent to protect our investments.
If you have questions about how to make your retirement last, or how the 4% rule and some risk management can work for you, please call our offices at 800-391-1118. Also, stay informed as you invest. One great way to stay up on the markets is our free weekly e-letter, the Making Money Alert, which comes out every Wednesday, or our video update, which we record every Tuesday.
This is a podcast summary. For more information, please listen to the entire broadcast here.
Amazingly, the highs in the Dow are seen as the big story around the world. These new highs come at a price, however, and that’s what we need to talk about today.
Most investors believe inflation will be a big problem because of the Federal Reserve’s tampering in the market through Quantitative Easing. They are worried about the value of US dollar, commodities, healthcare, higher taxes, etc.
On the other hand, we could see deflation, which, frankly, we are more concerned about. If all of this money printing doesnt result in economic growth, than the economy will contract. Stocks usually advance ahead of economic growth so everyone is hopeful, but you need to be prepared for both inflation and deflation at the same time in your portfolio. Both could harm investors, and we don’t know, at this point, which way the economy is going to go.
Deflationary consequences:
Job losses
Assets deflate
Debt defaults
Inflationary consequences:
Devaluing of US dollar
Expensive gas, commodities, food, healthcare etc.
Sovreign debt defaults are going to come at some point and restarting economic growth is going to be very difficult if that happens, particularly in Europe. Our advice is this: prepare for an uncertain global economy, and ready your portfolio for both inflationary and deflationary action.
If you’d like more information or guidance on how to do that in your personal portfolio, please email us at askdoug(at)dougfabian(dot)com.
This is a podcast summary. For more information, please listen to the entire broadcast here.
In the news lately, we are seeing a lot of concerns about the the Federal Reserve’s Quantitative Easing strategy. The markets are responding to these concerns and the unprecedented involvement of central banks in the financial markets. Because this is an important topic, here are a few articles for you to peruse and be aware of what is going on out there:
We are seeing the effects of the tug-of-war between inflation and deflation, and even a third option, known as disinflation. Disinflation is the balance point between inflation and deflation, where those forces are at work but not creating drastic change yet.
Our opinion is still that U.S. stocks are overvalued and high-risk. We believe that a correction is coming in the markets and that investors should be ready to invest when options go “on sale” not necessarily when everyone is feeling bullish.
(This is a podcast summary. For more complete details, listen to the full broadcast here.)
Many people may not know this, but behind the scenes, we are seeing large fluctuations in currencies. This is important for investors to pay attention to, because a stronger U.S. dollar is bad for the U.S. stock market.
Japan in particular is making big moves in the currency markets right now, lowering value of the yen, and actually trying to bring back inflation to create better environment for companies and jobs. Remember that inflation helps the economy in some ways, and a lower currency helps exports. Therefore, recently we’ve seen a huge rise in the Japanese stock market as a result of falling yen.
However, South Korea is competing with Japan for their share of the U.S. market, which means that Japan making their exports more affordable is hurting South Korea. It’ll be interesting to see how South Korea reacts in the weeks to come – often countries will implement protectionist strategies or otherwise mess with the free market when they feel threatened. As of right now, we don’t have any conclusions on this currency war, but it’s something to be aware of and keep in mind as you invest internationally, and as you consider precious metals, as this turmoil may affect those investments as well.
Because of the unprecedented involvement of central banks in the markets, many investors think we’ll see inflation like we had in the 1970s. If you remember, inflation was running so high that it was obvious in daily life – gas prices, wages, food costs – everything was rising.
Deflation, by contrast, is like what happened in 2008. We saw a lowering of commodity, housing, wages and stock prices, and a massive contraction in the economy.
Today, we are seeing fluctuation in commodity prices, but we aren’t seeing wage inflation at all. This is important, because we think it’s a sign that inflation isn’t as close as many people think. One reason for this is that nearly every developed country in the world is printing money and running a budget deficit. Devaluing currency seems to be the order of the day for many nations, and almost no one has their finances in check. This means that globally, we have a unique situation to watch, and predicting inflation or deflation is not as easy as it used to be.
Remember that inflation is good for stocks, real estate and commodities. It’s bad for cash, bonds and the U.S. dollar. By contrast, deflation is good for cash, bonds and the dollar. We advise investors to not plan their portfolios on inflation or deflation, however, because it’s not a sure thing. We believe that the next few months will be very important for investors to watch market action closely for clues on this inflation/deflation tug of war. Our personal belief is that we’ll see deflation first (heralded by a massive correction in the stock market) followed by Federal Reserve-induced inflation.
As always, if you have questions about your specific portfolio, please call us at 800-391-1118 or email askdoug(at)dougfabian(dot)com.
(If you read this blog and enjoyed it, listen to Doug’s podcast this week for even more details on this topic, and please share this information with others who might benefit from our perspective.)
We are highlighting the “Fabian Five” because we think it’s very important for investors to monitor these five indices every week, and ask yourselves, are they changing for or against your portfolio? Here are the five indices that we are watching and that we encourage you to monitor as you make investing decisions:
You might notice that we crossed out “Oil” from the list of the Fabian Five and replaced it with “Commodities”. Originally, we had oil listed because it is the obvious energy choice: it moves the world and we’ve seen oil price spikes put an end to global economic recovery in the past. However, we’ve changed our minds on this, because as we’ve researched oil, it seems that there has been a seismic shift in technology and oil exploration. Couple that with the relaxing of tensions in middle east, and it seems that oil is not the key index to watch any more. We figured that a broader look at commodities would serve our purposes better as we monitor the markets, so we are watching GCC.
GCC is an Exchange Traded Fund that is an index of 17 equally weighted commodities – agriculture, precious metals, energy, etc. By using the Fabian Five and watching both the dollar (UUP) and commodities (GCC) we can see inflation coming. Know where the risks and opportunities are by watching these five key indices, and you can make wiser decisions for your investments.
If you have questions about these indices and how to monitor them, don’t hesitate to ask by emailing us at askdoug(at)dougfabian(dot)com.
(If you read this blog and enjoyed it, listen to Doug’s podcast this week for even more details on this topic, and please share this information with others who might benefit from our perspective.)
Just like we all know that it’s common sense to check the weather and make the appropriate preparations for holiday or business travel, it’s also smart to be prepared on the “road trip” of investing. Check the weather, watch for warning signs and have a plan for inclement conditions or unexpected delays. In the spirit of preparedness, here is the “Fabian Five” – the five indices that we are watching and that we encourage you to monitor as you make decisions about your portfolio:
Gold is the ultimate hedge against inflation or financial catastrophe. It’s currently being seen as its own currency, especially with the unprecedented central bank actions we’ve recently been talking about. Because of that, gold is going to be a very important index in 2013. If we start to see a lack of confidence in the markets, you’ll see a lot of money rush in to gold.
There’s physical gold, of course, but now there’s also paper gold: gold ETFs and opportunities for investors to buy and hold gold in their brokerage accounts. Gold will be the indicator for whether or not we’ll have inflation, so this is a very important item for us to watch in the coming weeks and months.
If you have questions about gold and how it might fit into your portfolio, don’t hesitate to ask by emailing us at askdoug(at)dougfabian(dot)com.
(If you read this blog and enjoyed it, listen to Doug’s podcast this week for even more details on this topic, and please share this information with others who might benefit from our perspective.)
For those who need a refresher on what Quantitative Easing means, QE is when the Fed uses its own credit, buying power and ability to print money to buy bonds. The U.S. Federal Reserve is not the only one implementing this policy, as this is currently in vogue around the world – specifically in Europe and Japan. So far, surprisingly, this has not created inflation.
What’s unique about this round of QE is that the Fed is targeting a specific outcome (6.5% unemployment, among other things) rather than a timeline for QE4. So far, the markets are not worried about this grand experiment – it seems that investors are still confident, despite the fact that we’ve never seen these kind of actions from central banks before.
Basically, everyone (every central bank, at least) around the world wants a weaker currency, because it’s a positive for exports and the economy, as long your currency doesn’t get too weak. The end-game of these policies is inflation, and that’s the big risk to investors, but so far it’s not been a problem, and we encourage investors to not panic on inflationary or deflationary fears. As far as inflation goes, all of the previous QE attempts saw commodity prices inflate significantly (25-30%), but QE3 has actually seen commodity prices lower. Obviously, these are unique and strange times we live in, and it’s important to stay calm and well-informed as we watch these policies play out.
(If you read this blog and enjoyed it, listen to Doug’s podcast this week for even more details on this topic, and please share this information with others who might benefit from our perspective.)
The U.S. Stock Market is drifting sideways as we approach 2013, and it appears that it is not worried about fiscal cliff negotiations or Quantitative Easing policies from the central banks. It will be interesting to see how the markets react if and when a fiscal cliff deal is reached, and we will bring you our analysis of those political movements and how they impact your investments when they happen.
Lately, the action has been in the international markets, and Asia breaking away on the upside. As of right now, the international markets are stronger than the U.S., and they are a part of our “Fabian Five” – the five indices to watch and learn from in the weeks and months to come.
We’re ending this year by watching the fiscal cliff talks and keeping an eye on the markets for you. We will be recording our normal Monday Morning Update podcasts on both Christmas Eve and New Year’s Eve this year, so please stay tuned for more information as we close out 2012.
Please send us your thoughts, comments, questions and suggestions about our communications to askdoug(at)dougfabian(dot)com. We want to be a valuable resource to you in 2013. We look forward to hearing your feedback and continuing to improve our blog and podcast.
This is a podcast summary. For more complete details, listen to our full podcast here, and don’t forget to pass this blog on to other friends and investors who might benefit from our perspective. Plus, if you haven’t already, please take some time this week to check out our recent teleseminar for in-depth information on post-election investing and our outlook on the markets.
It’s interesting that the markets are moving ahead of the Fed, and ahead of news on the fiscal cliff negotiations. U.S. economy will likely slow as we go into 2013, but Asia is looking like a good growth opportunity, so keep an eye on that. Gold has been weak of late, which is surprising given the Federal Reserve’s current policy.
Interest rates are going to be one of the key drivers for 2013. Interest rates are very low across the board right now, but we are still not seeing a risk of inflation. Bond market still very healthy, commodity prices are coming down, and it’s a very interesting time for monetary policy.
Even though the fiscal cliff negotiations are not wrapped up right now, we do know that taxes are going up and your cash flow will likely be changing. Only a couple weeks left in 2012, so hope you are enjoying the holiday season and prepared for the challenges and opportunities to come in 2013.
