Archives For April 2013

It’s been said that you should never retire from something, but always retire to something.  I like that piece of advice, but what seems to be more common is the situation where people retire and don’t know what they’re going to do with their time.

Retirement planning entails more than just the financial aspect of retirement – it can be thought of as life planning. This can be even more important when retirement involves a couple.

One spouse for example may be thinking of retirement as an extended vacation while the other spouse would rather have an active lifestyle. The reality is that most of us are so busy that we never take the time plan how we’re going to live during our retirement years.

It is common knowledge that people are living longer now than they have in the past.  In fact, for a 65-year-old couple, there is about a 50-50 chance that one of them will survive into their mid-90s. That’s a long time, and we may as well plan on enjoying it!

I read an interesting article this morning – http://www.marketwatch.com/story/goodbye-tension-hello-pension-2013-04-29  that addresses this subject in a lighthearted but thought-provoking way.

In Austin this morning, the visibility is limited, it’s drizzly and the streets are wet. As I was driving to work I noticed that everyone was driving a little bit slower, and for good reason. Many things can happen when the streets are wet – and they’re not all good. Oil that has leaked from cars and has been on the street will rise to the surface once it begins to rain – making it more slippery than just being wet. A combination of wet streets and slippery surfaces means that you can lose control of your car quickly. You may not be able to stop in time or you could slide out of control in a turn. That’s why it was good to see everyone slowing down and being more cautious. Wet streets and other conditions can work to heighten our state of awareness and exercise caution.

The same is true with the stock market. Just like we know that risk has increased when the streets are wet, we know that risk increases in the market when it has been steadily moving upwards, and then a significant number of stocks change to a sell signal. A week ago Wednesday, on April 17, 6% of the stocks on the New York Stock Exchange had shifted from being on a buy signal to a sell signal. This measurement is known as the Bullish Percent, and there has now been enough of a change to tell us that the risk has increased in the market.

That signal doesn’t tell us to turn out the lights and leave; it simply tells us that the risk in the market has increased and therefore we should exercise more caution. Exercising caution can mean a number of things – there are a number of strategies to use when these conditions occur that can help us to limit losses should the market continue to go down from here. Unfortunately, I nor anyone else has a copy of next week’s Wall Street Journal. In other words no one can say the market is going to continue to move in either direction. All we can do is to know “what is” and act accordingly.  If you are invested in the stock market through your IRA, 401(k), or after-tax account it would be worth your while to take a look at your holdings and evaluate how they are performing.

Today marks my entry into the blogging world!  My hope is that you will enjoy what I write on this blog and that you will find it to be of help to you or someone you know.

A few weeks ago marked the beginning of a new spring season.  It began on a day when there was exactly 12 hours of sunlight and exactly 12 hours of darkness. Also on that day, the sun rose exactly due east, and it set exactly due west. It’s called the vernal equinox and it marks a time when many rejoice that the cold temperature days are behind us. A new spring season also marks a time when we bring out the baseball glove and our sports focus changes from basketball to baseball.  From T-ball to Little League to high school, and on up to the major leagues, hundreds of thousands of people will enjoy another season of America’s best-loved sport.

But things just wouldn’t be the same if we didn’t have the “experts” pontificating about which team is likely to win the World Series. Doesn’t it make you wonder, how can anyone at the beginning of the season know which team is going to win the World Series? And an even more ridiculous question is who will win the World Series in 2014? Obviously, no one really knows that either!

The Major League baseball season is longer than a marathon. They play 162 games during the season, and there’s much that can go wrong during a season. Players can get hurt and have to sit the season out, weather can be a factor for games, and umpires can make bad calls!

These analogies very closely approximate the experts who predict that a stock will be a good performer in the months or years to come. You can turn on the TV or pick up a magazine or newspaper and read predictions about where particular stocks are going. The truth is, no one really knows, but it sure helps to sell more television ads and print copies – which (we must remember) is the business they are in.

There are so many things that can happen in the stock market in the short-term and the long-term that can affect the price of a stock or mutual fund in your 401(k). From 2000-2003, the market lost approximately 50% of its value. It regained nicely until 2007 when it began another downturn and lost approximately 57% of its value.  These are just two time periods. Think what can happen over longer time periods – like 20 years.  This is why it’s so important to be flexible and more importantly, to have a logical and organized approach to navigating the markets.

The market has recently moved to new all-time highs. Many feel that is due in large part to the Federal Reserve pumping in so much newly printed money into our economy. But whatever the reason, it is important that we not lose what we have gained. The only way to take advantage of the new all-time highs in the market is not lose the next time that it goes down!

Just like in football, the stock market is either on offense or it is on defense. When it is on offense we are trying to make money in the market. When it is on defense, we are trying to keep the market from taking money away from us. With today’s action in the market, the indicator that tells whether we are on offense or defense – flipped to defense. This indicator doesn’t tell us that we should abandon the market, but it does tell us that risk has increased and it is at times like this that we should take an inventory of our market positions and at least begin to think about taking defensive actions.  This may be the early stages of the next decline, or it may simply be a pause that refreshes.  In either case, it will pay to be observant, flexible, logical, and organized.  In the words of the famous philosopher Yogi Berra, “You can observe a lot, just by watching.”

 

 

(Thanks to Dorsey Wright and Associates for contributions.)