Retirement Solution?
Retirement should not need a solution. If we are not tired in the first place?
So let’s ask- why are we so tired that we have to be retired?”
Generally we are tired because we are working…rather than doing what we love and providing for our lifestyle in the process. This is why this site is focusing so much on ways to create a small internet business.
One likely economic scenario on the horizon will obliterate retirement for many. Many who think they can retire will find that they have to work either due to inflation or a falling greenback…so it’s better to invest in a business than stocks or bonds.
More on that in a moment. A reader recently sent a note that highlighted the important concern of how to invest for retirement.
“Gary, I do understand your position on market timing when you wrote that timing of the ups and downs in the market has almost nothing to do with whether one should invest or not. You wrote: ‘Forget market timing! This is one of the most minor factors you should consider when investing.’
“Is there not one period in each person’s life when market timing is very relevant? —- when they are leaving the 40-hour work force (and predictable if limited paycheck) and have to begin 401K and IRA withdrawals and pay taxes. Is not a different strategy required for distribution than is required for accumulation? Might I suggest an article on ‘financial changes required at retirement’ and the potential impact of the ‘life’ timing – if not ‘market’ timing events?
Thanks”
On the matter of market timing.
My initial reply was: “We can never tell what markets will do short term. No matter what the market has done, it may do more of the same…or it may not. Looking for value is more accurate and dependable than trying to predict tops and bottoms in the long run. In the long run… only the long run is reliable.”
Market timing should be a minor consideration in your investment choices…whether retiring or not. Here is an example. About fifteen years ago Merri and I drove up and down I-75, Naples , Florida to Macon . Georgia , a lot.
We often stopped at the “Cracker Barrel” restaurant chain. Their vegetable plate was about as close to decent food as your could get in freeway restaurants. Their stores were always busy. This created the thought, “buy shares in Cracker Barrel.” A quick check showed that the stock had just increased from $6 per share into the $13 per share range….a more than 100% increase. “Wow, too late”, we said. “Don’t buy shares that have risen so much” was the next thought.
Wrong thinking! Since then the chain has expanded numerous times and the share price has climbed and climbed and climbed…to over $50 at one stage.
The past price of a share is a very poor indicator of its future price. Had I known the restaurant business well, I should have asked…size of potential unexploited market…skill of management…expansion plans…price to book…price to earnings…debt…potential profit.
Such thinking would have clarified the potential better.
Market timing can give us a few clues. One clue is that “periods of high performance are generally followed by periods of low performance”. This is especially true in today’s highly leveraged world. One reader just shared this thought:
“Dear Gary, In the old days the money supply created inflation because the demand for goods and services was bigger than the supply. In the more recent past the demand for goods is based on credit. The problem with credit is that it can suddenly contract. Reasons are rooted in contracting social mood. People are less able and willing to assume more lending because they are over leveraged and want to repay existing loans. This causes stocks and currencies to go down. Remember that in the currency market the leverage can be 100/1. If this leverage is combined with leverages in stocks of say 10/1, we are talking 1000/1 leverage. So when money panic strikes, markets can go down fast. Even the safest investments can go down. Super Deflation is the end result.”
So we might add that “periods of high performance may be followed by periods of sudden, dramatic low performance.”
Another clue market motion provides is about value. As markets rise, the value of the investments in the market tends to drop.
Now back to retirement. The focus at retirement should be on asset allocation…not market timing.
General theory says that retirees should shift from growth oriented investments to income producing investments. In other words a retiree’s portfolio should reduce equities and increase bonds. Ideally a conservative investor should plan to live on 4% of the portfolios value, if one does not want the money to run out.
So a retiree with $1,000,000 in retirement funds can withdraw $40,000 a year.
The portfolio, however, should still be mixed because of inflation. Each year the $40,000 is likely to buy less. So if the portfolio for example earns 7% per annum, it will allow income growth of 3% per annum. That’s the ideal.
Plus of course the investments held should be well diversified out of the US dollar. Most retirees want to be global spenders…buying products and services from Asia, Europe and elsewhere. Multi currency portfolios via shares and bonds in other currencies protects against the US dollar’s fall.
Learn more about multi currency portfolios from our Multi Currency Portfolio Course at www.garyascott.com/catalog
One way to simply create a multi currency retirement portfolio is through Jyske Invest’s six strategy funds.
These funds are:
Jyske Invest Income Strategy
Jyske Invest Stable Strategy
Jyske Invest Balanced Strategy
Jyske Invest Dynamic Strategy
Jyske Invest Growth Strategy
Jyske Invest Aggressive Strategy
The Balanced, Stable and Income funds are the best suited for retirees. You can get details from Thomas Fischer at Jyske Bank fischer@jbpb.dk
Now back to whether one can be a retiree or not. Look at your retirement numbers. Can you live on 4% of what you have? This is a really conservative number! There are substantial risks of high inflation…so that 4% may buy much less than in the past.
If the answer is no…then part of the investment retirees make may be better placed in their own business. This is not bad though. Chances are that those who remained engaged doing something useful and productive will live longer and happier than those who clip coupons.
Personally…Merri and I are in our 60s and we have never become tired yet, so why would we want to be retired? What we do is what we love… It’s fulfilling and fun. Instead of retiring, make your golden years really fun by doing something you’ve always wanted to do while being paid for it.
But these are others stories for other times. Stay tuned here!
Plus you can read the seven secrets to starting your own self publishing business at
Secret #1: http://www.garyascott.com/2007/10/31/1857.html
Secret #2: http://www.garyascott.com/2007/11/07/1865.html
Secret #3: http://www.garyascott.com/2007/11/08/1866.html
Secret #4: http://www.garyascott.com/2007/11/09/1867.html
Secret #5: http://www.garyascott.com/2007/11/10/1869.html
Secret #6: http://www.garyascott.com/2007/12/05/1908.html
Secret #7: http://www.garyascott.com/2007/12/04/1907.html
Until tomorrow, we hope you are not tired so you have no retirement concerns as well!
Gary
P.S. Learn how to be happy, wealthy and free though your own international business and investments. Join us this winter in Ecuador .
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