Market Volatility: Are You a Victim or a Victor?

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flame

Market volatility is very scary. It (temporarily) destroys our wealth, makes us hate watching the news and just freaks us out emotionally. But…volatility can be our friend. Or, at the very least, our frenemy.

How do we manage volatility?

The Number One way is to manage our emotions. The markets really are simply driven by fear or greed. It can be that basic. It’s such a predictable thing that there are quotes about it. Warren Buffett famously said to “be fearful when others are greedy and greedy when others are fearful.” Simple. Basic. But emotionally hard to do at times.

How did this strategy play out in the past? Well, in 1999 everyone was euphoric (greedy) over tech stocks. If you were fearful then you would have avoided arguably the largest stock bubble, and bust, in one hundred years. If you were greedy when others were fearful, in March 2009, the market would have roughly tripled your investment.

It seems like this approach might have some merit….

STRATEGY NUMBER TWO

Dollar-cost average into the markets: purchase investments on a regular basis with a regular dollar amount. If you’re young you can do this fairly easily through your paycheck. Even if you’re older, or retired, you can still do this. You may have a portfolio. That portfolio should be producing a large income, in percentage terms. So take that monthly and quarterly income and reinvest, if possible.

You can visit RetireIQ.com and request my free report “Producing Large Portfolio Income” to get an idea on how to generate 5-7% annual portfolio income.

STRATEGY NUMBER THREE

This multi-pronged idea is definitely for the “advanced students.” You can manage risk by using short mutual funds when the market is dropping; tactical allocation and cash for macro-events like dropping GDP; and options writing or buying for relatively steady income and hedges, respectively.

Again, these are more complex ways and you may want to get some professional advice before starting in this direction.

If you have any questions or comments you can always reach me at RonPhillipsAdvisor@gmail.com

 

 

How To Profit From Davos, 2016, Part 2

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Recently at The World Economic Forum in Davos, the CEO of PayPal said you can “have the power of a bank branch in the palm of your hand.” I thought that was pretty amazing, if true, and set out to figure out if he was really accurate.

Just poring over my memory of recent commercials, I figured if you had a Samsung (SSNLF 1025.oo, in local currency) smartphone and a Wells Fargo (WFC, $48.56) bank account you could, indeed, have “the power of a bank branch” in your mitts. Wow! You can get a check from a customer, take a picture and deposit it; you could transfer money from account to account and then back again; you could “withdraw” at a store, using your smartphone payment or shop from your phone; you could check balances and transactions, all with an app! This is amazing technology. Unheard of two or three decades ago. Real Star Trek stuff here.

*       *       *

While Samsung is very tough to buy directly for an American investor (I checked into it for a client and, if that same ol’ memory serves, you would need to be a citizen of some European country to get it done). The next best thing is to buy a U.S.-based mutual fund that holds a large position in Samsung. Does such a fund exist? Sure does.

The iShares MSCI South Korea ETF (EWY, $46.77) holds almost 20% of it’s funds in Samsung Electronics. This would probably be the easiest way to get significant exposure to the stock. As a bonus, an investor would also get diversification, liquidity and over 2% in annual dividend income.

Despite the exciting possibility, despite the source of the idea don’t invest a lot into trends. Rarely does it end well going “all in” following an amazing idea. Maybe for a time but not long-term. Yet these industries and ideas can make investors money.

My point here is that following hot ideas is usually a fun way to play with a small bit of money. For consistent wealth-building, though, you want to stick with the very boring approach of asset allocation, true diversification, buying low and time in the market. Sure, play around with 5% of your money but be ready for any result, good or bad.

Here’s the Bloomberg Davos video that got the juices flowing for this article.

For my popular report “10 Investor Oversights” visit RetireIQ.com, enter your info and mention the name of the report to receive a free copy. Also, if you wrangle a new sign-up to this e-letter I’ll give you a $5 Starbucks card. Just direct ’em to the above website. Thanks.

 

 

How To Profit From Davos, 2016, Part 1

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World Economic Forum logo.svg                        

Many of the greatest economic thinkers, managers and superstars attended this year. There were billionaires, heads-of-state, CEOs, money managers, professors and more billionaires. Did I mention there were billionaires there? This was the place to be.

I ran across this great “highlights” video from Bloomberg.com and was happy to see that the “smart money” confirmed my thoughts: this correction is no big deal. I’ve thought, for two years now, that the U.S. market had been up for 6 years straight and needed to correct. Since we didn’t have a significant, or long, contraction, I thought when it finally hit (now) that it could turn into a small bear market. Thankfully I’ve been wrong on this last point.

But I digress. How can you profit from this correction and multiple global bears and how does it tie into Davos?

Answer: Christine Lagarde, the head of the International Monetary Fund, said in the previous video that “we will have volatility” in 2016. And she’s absolutely right. I’ll take it a step further: We will have volatility every day of every year into the indefinite future! That’s the market. And market participants get rewarded for this volatility and patience. So you, as a brave, courageous & profitable investor, need to buy this volatility. Either in a retirement plan on a monthly basis (best) or making calls on an undervalued sector (maybe even better).

I have an answer for the undervalued sector. To me this is a no-brainer. Find a solid asset in the energy sector. I’m going to repeat a drawing of mine about a specific fund. This is not a recommendation only a vivid example of a cheap asset. I’m actually recommending mid-stream MLP mutual funds. I’m using one now that has a TTM (trailing twelve month) yield of 11.54%.

OIL

Visit my website at RetireIQ.com to request a one-page info sheet on that MLP fund, yielding over 11 percent. Just type in “MLP info” when signing up.

So back to volatility. We, as smart investors, have to have the chutzpah to buy these down times. We get rewarded for buying risk assets at low prices. Assets like stocks, businesses, real estate, even bonds at certain times.

I just finished an article for the local paper The Senior Beacon. Take a look in February when it gets posted (online or in most grocery stores). I go into the recent correction, various international bears and how you could further profit from declines.

 

 

The Fed Stops Its’ Absurd Low-Rate Behavior

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The Fed had mighty expectations to raise rates and did just that. Rates will go up by 0.25 percent. This is after many years of near-zero rates and it isn’t a big jump. But it will have an impact on world markets.

Finally, savers will get more income. Who knows? Maybe 5-year CDs will break 2% interest.

Yet the majority of consumers, because of their debt, will face larger borrowing costs in the future. Although the rate rise will be slow and gradual, keeping refinancing beneficial and new debt relatively affordable.

To play rising rates you can invest into super-short term bonds that can rise with interest. And avoid long-term fixed-rate investments. These will typically drop in value and provide less income than newer, fixed investments.

Also, I’ve been recommending, for years now, a super-short-term bond fund that’s paying 3-4% income annually. It has an absurdly-low duration of 57 days! Historically, these low durations perform best in rising-interest times (like we’re beginning now), potentially increasing income and value. Call me at (719) 545-6442 or email me at RonPhillipsAdvisor@gmail.com to discuss it further. Happy New Year!

1 Incredible Bargain to Add Value to Your Portfolio

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Oil going below $35 a barrel, the U.S. reversing a 60-year fuel importing trend, local prices-at-the-pump under $2 a gallon, fracking & horizontal drilling technologies and now oil exporting are making our country the new Saudi Arabia…watch out OPEC. All of this furthers the “oil momentum” the U.S. has been experiencing.

But is low oil a good thing for the economy?

LIKE GETTING A HUGE TAX BREAK

Of course, if you live in a “fracking state” or are working for an oil producer, the drop is not positive. Even with this weakness ExxonMobile (XOM, $79.16) should make $20 billion in profits. Not too shabby.

According to Stephen Stanley, every penny that gas drops puts about $1 billion into consumers’ pockets. The Energy Information Administration says, in January 2014, the national pump price was about $3.40/gallon. In November of 2015, the latest month data is available, the price dropped to $2.26.

That’s like the U.S. consumer getting a $114 billion tax refund! A tenth of a trillion to be saved and spent, priming our economy further. And it didn’t cost the government a thing.

Also, most companies will benefit from this renaissance. If you’re a company that has a fleet of cars then that expense just dropped. If you get anything delivered then that cost could drop. Even if you’re an oil refiner, then your main input cost just got cheaper. And on and on. Low oil can be beneficial to most companies and consumers.

PLAYING THE TRENDS

What do you invest in to take advantage of these market moves?

For low oil you could invest in airlines, consumer staples and consumer discretionary companies. All three of these sectors have an ETF (exchange-traded fund).

The only airline ETF is U.S. Global Jets ETF (JETS, $25.63). You can use Consumer Staples SPDR (XLP, $51.24) and Consumer Discretionary SPDR (XLY, $79.59) for those areas. Both of the SPDRs are the largest fund in their respective sectors but there are many more to choose from.

As always, use these ideas for your starting point to research and learn more, not as specific recommendations. I have other ideas that are producing anywhere from 4-9% in annual income. Call me at (719) 545-6442 or email me at RonPhillipsAdvisor@gmail.com to get more info on these. Happy New Year!

Billionaires John Paulson, Buffett & Trump: Their Money Secrets

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money bags

The ultra-wealthy move markets, news cycles, politics and policy with equal aplomb.

THERE’S LESS GOLD IN THEM THAR HILLS

Let me introduce you to the world’s highest earner. John Paulson started Paulson & Company, a preeminent hedge fund shop. He lucratively bet against the subprime bubble in 2006 and won big.

His latest bet was a little too big, a little too bold. He started his Gold Fund in January of 2010. It hasn’t done too well. Paulson & Co. went from $36 billion in assets down to $19 billion, due in large part to the gold drop.

Paulson’s bet is even bigger, and more unique, because he created gold-denominated shares in his funds. This way you get gold exposure even on more traditionally invested hedge funds.

“We view gold as a currency, not a commodity. It’s importance as a currency will continue to increase,” said the Queens, New York native who earned nearly $5 billion in a single year.

Here’s how well that “currency” has performed since he started. Using the SPDR Gold Trust (GLD; $111.73) as a proxy for gold, it’s been flat since Paulson’s fund was created. GLD traded at $109.80 in January of 2010 and is a couple of dollars higher, as of this writing. Also, the SPDR fund was as high as $185 during that time and is now 40 percent lower.

Take-away: beware of too much exposure to a single asset class.

THE REAL-ESTATE-TURNED-POLITICAL MOGUL

“It’s tangible, it’s solid, it’s beautiful,” so says Donald Trump about his cherished real estate. But is it really that great?

Short answer: pretty much. Longer answer: The Donald is actually invested into quite a few different asset categories. Things like aircraft, licensing businesses and alternative real estate, such as gold courses. He also has about a third of a billion dollars in cash. These other areas produce a disproportionate amount of his cash flow.

The Forbes 400 magazine just had a 15-page expose on “The Maned One,” revealing his ups and downs. Trump was on the inaugural rich list, dropped from it for several years and has been back for two decades.

Take-away: real estate can juice up returns (and risk), help protect against inflation and provide growth, income and diversification.

THE FRUGAL BILLIONAIRE

It’s hard to find much bad to say about our last “big dog”. Investment-wise he is arguably history’s most successful. Although politically he’s gotten a bit controversial, especially regarding taxation and social causes.

I’m talking about The Oracle of Omaha, Warren Buffett.

Buffett’s approach has been the most prudent of the three. His approach is an extreme in diversification. His empire spans hundreds of companies, and stocks, in dozens of countries and industries, churning out billions in new wealth and income on a regular basis. He’s gone a long way since buying a “cigar butt” textile company named Berkshire Hathaway.

Take-away: diversification really does work. For the short-haul and the long haul.

You Can’t Get a Loan for Retirement

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Well, I guess that’s not really true. You can get a reverse-mortgage. If you own a house with enough equity. Or you can pull equity out of other real estate you might own. Or borrow from relatives.

What I should say is you don’t want to get a loan for retirement. It sort of goofs up the low-stress time we’re trying to create for our golden years, having to worry about paying back a loan or destroying equity.

LET YOUR KIDS OR GRAND-KIDS PAY FOR THEIR EDUCATION

I know, I know. It sounds heartless but it’s true. You offspring can, and should, get a loan for their education. It’s a great investment. Probably the very best one they’ll make their whole lives. If you haven’t already seen this famous chart form the Bureau of Labor Statistics, here’s the summary:

Median Weekly Income (annual):

High School Grad: $668 ($34,735)

College Grad: $1101 ($57,252)

Advanced Degree: $1386 ($72,072)

It’s real easy to multiply these numbers over a 40-year career. The basic bachelor’s degree earner gets $900,000 more over their working life than a high school-only grad. The advanced degree person gets $1.49 million more!

Can the kids afford it or what?! According to The College Board, the average cost, per year, of state college for a resident is about $8,900. Over four years that’s $35,600. Remember, that person will average an extra $900k in lifetime income. Return? Subtracting the college cost: $864,400 or 2,428 percent! That’s a huge return on investment.

(Here’s the link to the BLS data.)

Plus, there are many ways to make this great investment into education:

  • loans
  • work studies and other jobs
  • grants
  • scholarships
  • accounts like Education IRAs and 529 plans (funded from gifts)
  • service agreements (e.g. Peace Corp, ROTC, military)
  • local community college then transfer to a university
  • tax credits and probably more ways

Now, back to retirement, can we get grants and scholarships to pay for it? Of course not. So, if we have to make a choice, the higher priority is our retirement. Not that we don’t want to pay for the kids but we may not have the resources. And they’ll be just fine with that extra million or million-and-a-half.

This advice comes with a big caveat: If you have several million already for your retirement you can probably spring for education costs. Some folks do and that’s wonderful. Pay up. Your grand/kids will always remember it and be grateful. And probably earn a lot more lifetime income from your generosity.