Occasionally, someone asks me a technical question about retirement. Can you imagine that!? As if I would know such things!!
This blog is intended merely to convey some of the investment and retirement-related thoughts that occur to me as I approach my own retirement. It was not supposed to be an all-encompassing factual resource for pre- and post-retirees.
But, I have to admit – I have been combing the Internet for just such resources, too. Without much success. The net is full of calculators and check lists and investment advice, but provides relatively little about the overall “project” of preparing for, entering, and living in retirement. But, I recently found a good alternative source of this kind of information.
If you’re willing to leave the net for awhile and employ a very retro-resource – a book – there are some that provide very helpful, broader views of the subject. A recently published, excellent example is The Wall Street Journal – Complete Retirement Guidebook (How to plan it, live it and enjoy it) by Gene Ruffenach and Kelly Green (Three Rivers Press).
This 300-page (small size, large print, lots of graphics), $15.00 paperback does a very good job of helping you define what you really want in retirement. It then provides practical guidance for what you need to do – before and after retirement – to get it.
So, read the book. But, check back here occasionally as you write your own retirement story whenever you need someone to commiserate with.
Larry Halverson: I've Been Thinking
Larry Halverson, CFA, Managing Director of MEMBERS Capital Advisors, Inc., is a veteran of more than 35 years in the financial services industry. Links: SUBSCRIBE TO: I've Been Thinking | 
|
Friday, August 31, 2007
Friday, August 24, 2007
(Continued from last week.)
As we walked, recounting our day’s adventure, I began to wonder. When we were in the ditch and our pursuers were standing just across the fence considering their next move, did anyone (besides me) seriously consider making a solo run for it – bolting from the ditch and heading across the hay field? Doing so would divulge the location of the others, but even if they also ran at that point, they would be a few steps behind and were almost certain to get caught. And, that would occupy the pursuers, further assuring the success of my dash for freedom.
So, I asked. To a person, they all admitted to considering running. Most confessed that they almost did run. But, none did. They realized, even at that young age, that to do so would have cost them their “membership” in the group, and would have caused great pain and hardship for the others (and maybe even for themselves ultimately when the others turned him in). If we just stayed together and didn’t flinch, we would retain each other’s respect, and we would all have some chance, at least, of coming out unscathed.
And, that, as you know, was exactly what happened. The sheriff’s decision not to “lay down the law” extended our good fortune. We knew how lucky we had been, and we certainly learned a thing or two about life, and about ourselves.
We made it home safely, by the back roads and alleys. Once there, we suffered the expected parental wrath (muted somewhat by their recognition that “boys will be boys”) for nearly ruining our shoes “playing Army in the ditches.” We all promised never to do it again. And, we never did.
Why relate this story here? Because it has some striking similarities to what is going on in the investment markets. Some investors’ hunger for maximum returns (greed) got them into trouble. They had invested in high yielding subprime mortgage-backed investment pools, and with the housing market rolling over, the mortgages began to default – more and faster than they expected. The value of the investment pools declined. How much? No way to know. Until all the underlying mortgages are extinguished by normal retirement, refinancing, or sale of repossessed property, the amount of the decline can only be estimated. And, with this great uncertainty, no one has been willing to buy these mortgage pools at any price.
Initially, the financial pain could very possibly have been modest, and limited to these direct investors (and the strapped homeowners, of course). But, they had borrowed extensively to buy more and more such weak paper. They were up to their chins in leverage, and now mostly under water. So, as the problems grew, the concerns spread beyond the direct investors to their lenders and others, and they all wanted out.
But, they couldn’t all get out at once. And, they knew they shouldn’t even try. If nobody ran and they all waited patiently for the scenario to play out, the damage could be minimized. The investment fraternity could save itself a lot of money and avoid a lot of anguish if all its members could just stick together.
Nice thought. But, unlike our covey of pre-teen boys, the markets don’t work that way. In fact, they won’t work that way. For markets to function – to correctly (most of the time) price whatever is being traded – everyone in the markets must be trusted . . . to do whatever is in their own best interests. So, instead of sticking together, investors generally prefer sticking each other. It’s every man for himself (neutral gender intended). If running for the woods appears to be the best option, they’ll run for the woods.
And, then there are “the authorities.” Typically, well after the excesses have developed and the bubble is already leaking, they arrive to do what they should have done before the problems developed. By then, the “fix” exacerbates the problems, hastening and deepening the damage. Rating agencies, regulators, and the congress all seem to be particularly adept at this. Where is the wisdom of the county sheriff when you need it?
I do have to acknowledge that some of the players this time – besides the world’s central banks – have made valiant and partially successful attempts to limit the damage. The fraternity of big Canadian banks were the first to act by voluntarily extending due dates of loans to strapped borrowers. Some mortgage lenders are beginning to do the same. The prime motivation is not eleemosynary, however. They are willing to restructure the debt only because it improves the chances of getting their money back. If the problems are as extensive as they appear, though, this won’t prevent the inevitable; it will merely allow it to play out in slow motion.
So, when the Bear Stearns hedge funds were initially being kept afloat by another injection of capital and their lender’s good will (not immediately calling their loans and liquidating the fund), more and worse news was almost a certainty. Such attempts to make faltering investments look secure rarely work for long. Eventually, there is always someone unwilling to play along. They see the ruse and choose to save their own skin. In this instance, the authorities are doing their part, too, tightening lending standards just as thousands of struggling homeowners and hedge fund borrowers need to refinance their loans.
How bad will it get this time? How long will it last? The initial explosion of market volatility indicated that the ultimate outcome was very uncertain. The recent relative (and, I would say eerie) calm indicates a growing belief that market participants and regulators have been and will continue doing the right thing.
We’ll withhold our judgment. Just as boys will be boys, we expect that markets will be markets. Someone will bolt, or sneeze, or surrender. We’ll just have to await the next chapter to know who and how much pain and suffering their actions will trigger.
So, I asked. To a person, they all admitted to considering running. Most confessed that they almost did run. But, none did. They realized, even at that young age, that to do so would have cost them their “membership” in the group, and would have caused great pain and hardship for the others (and maybe even for themselves ultimately when the others turned him in). If we just stayed together and didn’t flinch, we would retain each other’s respect, and we would all have some chance, at least, of coming out unscathed.
And, that, as you know, was exactly what happened. The sheriff’s decision not to “lay down the law” extended our good fortune. We knew how lucky we had been, and we certainly learned a thing or two about life, and about ourselves.
We made it home safely, by the back roads and alleys. Once there, we suffered the expected parental wrath (muted somewhat by their recognition that “boys will be boys”) for nearly ruining our shoes “playing Army in the ditches.” We all promised never to do it again. And, we never did.
Why relate this story here? Because it has some striking similarities to what is going on in the investment markets. Some investors’ hunger for maximum returns (greed) got them into trouble. They had invested in high yielding subprime mortgage-backed investment pools, and with the housing market rolling over, the mortgages began to default – more and faster than they expected. The value of the investment pools declined. How much? No way to know. Until all the underlying mortgages are extinguished by normal retirement, refinancing, or sale of repossessed property, the amount of the decline can only be estimated. And, with this great uncertainty, no one has been willing to buy these mortgage pools at any price.
Initially, the financial pain could very possibly have been modest, and limited to these direct investors (and the strapped homeowners, of course). But, they had borrowed extensively to buy more and more such weak paper. They were up to their chins in leverage, and now mostly under water. So, as the problems grew, the concerns spread beyond the direct investors to their lenders and others, and they all wanted out.
But, they couldn’t all get out at once. And, they knew they shouldn’t even try. If nobody ran and they all waited patiently for the scenario to play out, the damage could be minimized. The investment fraternity could save itself a lot of money and avoid a lot of anguish if all its members could just stick together.
Nice thought. But, unlike our covey of pre-teen boys, the markets don’t work that way. In fact, they won’t work that way. For markets to function – to correctly (most of the time) price whatever is being traded – everyone in the markets must be trusted . . . to do whatever is in their own best interests. So, instead of sticking together, investors generally prefer sticking each other. It’s every man for himself (neutral gender intended). If running for the woods appears to be the best option, they’ll run for the woods.
And, then there are “the authorities.” Typically, well after the excesses have developed and the bubble is already leaking, they arrive to do what they should have done before the problems developed. By then, the “fix” exacerbates the problems, hastening and deepening the damage. Rating agencies, regulators, and the congress all seem to be particularly adept at this. Where is the wisdom of the county sheriff when you need it?
I do have to acknowledge that some of the players this time – besides the world’s central banks – have made valiant and partially successful attempts to limit the damage. The fraternity of big Canadian banks were the first to act by voluntarily extending due dates of loans to strapped borrowers. Some mortgage lenders are beginning to do the same. The prime motivation is not eleemosynary, however. They are willing to restructure the debt only because it improves the chances of getting their money back. If the problems are as extensive as they appear, though, this won’t prevent the inevitable; it will merely allow it to play out in slow motion.
So, when the Bear Stearns hedge funds were initially being kept afloat by another injection of capital and their lender’s good will (not immediately calling their loans and liquidating the fund), more and worse news was almost a certainty. Such attempts to make faltering investments look secure rarely work for long. Eventually, there is always someone unwilling to play along. They see the ruse and choose to save their own skin. In this instance, the authorities are doing their part, too, tightening lending standards just as thousands of struggling homeowners and hedge fund borrowers need to refinance their loans.
How bad will it get this time? How long will it last? The initial explosion of market volatility indicated that the ultimate outcome was very uncertain. The recent relative (and, I would say eerie) calm indicates a growing belief that market participants and regulators have been and will continue doing the right thing.
We’ll withhold our judgment. Just as boys will be boys, we expect that markets will be markets. Someone will bolt, or sneeze, or surrender. We’ll just have to await the next chapter to know who and how much pain and suffering their actions will trigger.
Friday, August 17, 2007
How about a story to take your mind off the market carnage?
I love sweet corn. Always did. When I was young (in small town Iowa) , my grade school buddies and I would often raid the neighbors’ fields as the kernels were just beginning to turn from tasteless white to so-sweet yellow. We’d shuck it right there in the field and eat it raw right off the cob, five or six ears apiece. If anyone came by, we would just move farther into the field and sit silently in the dense forest of eight foot tall stalks until the threat had passed.
Once, however, this scenario didn’t play out as scripted. Someone must have spotted us because only minutes after we had slipped into the field, we heard a truck approach and stop. Then the voices of the farmer and his wife. Then of their four sons as they all gathered at the edge of the field devising their own plan. They were going to space themselves every 10 or 12 rows and comb the field from one end to the other. All we could do was head for the other end as quickly and silently as possible.
As I ran, crouched over with my hands clasped and arms pointed straight ahead to deflect the leaves, my mind was reeling. I strained to remember what was at that far end (a fence, or a road, or another field – maybe soybeans?), and trying to devise an appropriate strategy for each.
Once at the end, we quickly huddled silently together and listened. We could hear the faint but growing sounds of their much taller and wider bodies brushing the leaves on both sides as they moved up the rows. We had managed to extend our lead on them to a few hundred feet, And, that was good. We needed time. Because the field ended at a wire mesh fence, which separated the field from a muddy, cattail-choked ditch half full of water next to a gravel road. On the other side of the road was a half-mile deep hay field that had just been harvested. Beyond that, the woods.
What should we do? We each knew we had done wrong, and that surrendering and confessing was the noble thing to do. But, no one dared mention this option for fear of being labeled the wimp, the scaredy cat, the sell-out. And, of course, for the additional fear of what the farmer’s sons, and then our parents, would deem an appropriate penalty for our misdeeds.
So, what could we do? The woods were too far to run – we were certain to be spotted crossing the hay field and they could easily run us down there. Heading to either side of the sweet corn field would probably only delay our capture. So, our only real option was to climb the fence, slip into the ditch, submerge ourselves among the weeds and rushes with only our heads above water, and wait it out, hoping that our pursuers were unwilling to endure the discomfort of slogging into the muddy water in pursuit of a few juvenile corn poachers.
And, that’s just what we did. Almost immediately after getting into position, we heard one of the sons call to the others. “I’m at the fence. No one here.”
From several yards to the side, “No one here, either.”
Seconds later from the other side, “Nothing here. We must have missed them.”
After a long pause – long enough to rekindle our hopes of escape, we heard what we had all been dreading, “They might have gone into the creek.” And, it was said by the one closest to where we were huddled, submerged to our chins among the weeds.
With this, our already high and rising anxiety and fear turned to full panic. Our bodies literally shuddered and our minds raced imagining the humiliation, fear, parental scorn, loss of privileges, pain, and more pain that awaited us. We sat there, breathless and shivering in fear, for what seemed an eternity.
Then, from several yards away, we heard the farmer say, “No, they probably crossed the hayfield and are deep in the woods by now. We’ll get ‘em next time.”
The others voiced their concurrence as they walked toward each other, then they moved back into the field together, calmly discussing the condition of the corn and when it should be ready to pick.
We waited as their voices faded away, but we didn’t move until we heard the sound of the truck doors shutting, the engine starting, and the truck driving away. Only then did we begin to extricate ourselves from the scratching weeds and stinking muck we had so willingly scrambled into a short time before.
Eventually, we all had crawled up to the side of the road, and were scraping mud off of and out of our shoes when we heard a car approaching. We could tell it wasn’t the farmer’s truck, but who was it? As it drew nearer, we saw that it had a light bar on top. It was the county sheriff.
Again, we quickly evaluated our options. The woods were still too far to reach unseen. In fact, the sheriff had probably seen us already, so slipping back into the ditch wouldn’t help, either. The corn field? No, we’d pressed our luck far enough with that option. So, we just sat where we were and continued to clean ourselves off the best we could.
When the sheriff’s car reached us, he leaned out the window, slowly looked each of us up and down, but said nothing. We looked back, also in silence, trying desperately not to convey our feelings of guilt, fear, and dread. Finally, he sat back, sighed, then said, “I suggest you boys do your eatin’ at home from now on, okay?”
We all nodded. One said, “yes, sir.” He turned away and slowly drove on. And, we began the long walk home. (To be continued.)
Once, however, this scenario didn’t play out as scripted. Someone must have spotted us because only minutes after we had slipped into the field, we heard a truck approach and stop. Then the voices of the farmer and his wife. Then of their four sons as they all gathered at the edge of the field devising their own plan. They were going to space themselves every 10 or 12 rows and comb the field from one end to the other. All we could do was head for the other end as quickly and silently as possible.
As I ran, crouched over with my hands clasped and arms pointed straight ahead to deflect the leaves, my mind was reeling. I strained to remember what was at that far end (a fence, or a road, or another field – maybe soybeans?), and trying to devise an appropriate strategy for each.
Once at the end, we quickly huddled silently together and listened. We could hear the faint but growing sounds of their much taller and wider bodies brushing the leaves on both sides as they moved up the rows. We had managed to extend our lead on them to a few hundred feet, And, that was good. We needed time. Because the field ended at a wire mesh fence, which separated the field from a muddy, cattail-choked ditch half full of water next to a gravel road. On the other side of the road was a half-mile deep hay field that had just been harvested. Beyond that, the woods.
What should we do? We each knew we had done wrong, and that surrendering and confessing was the noble thing to do. But, no one dared mention this option for fear of being labeled the wimp, the scaredy cat, the sell-out. And, of course, for the additional fear of what the farmer’s sons, and then our parents, would deem an appropriate penalty for our misdeeds.
So, what could we do? The woods were too far to run – we were certain to be spotted crossing the hay field and they could easily run us down there. Heading to either side of the sweet corn field would probably only delay our capture. So, our only real option was to climb the fence, slip into the ditch, submerge ourselves among the weeds and rushes with only our heads above water, and wait it out, hoping that our pursuers were unwilling to endure the discomfort of slogging into the muddy water in pursuit of a few juvenile corn poachers.
And, that’s just what we did. Almost immediately after getting into position, we heard one of the sons call to the others. “I’m at the fence. No one here.”
From several yards to the side, “No one here, either.”
Seconds later from the other side, “Nothing here. We must have missed them.”
After a long pause – long enough to rekindle our hopes of escape, we heard what we had all been dreading, “They might have gone into the creek.” And, it was said by the one closest to where we were huddled, submerged to our chins among the weeds.
With this, our already high and rising anxiety and fear turned to full panic. Our bodies literally shuddered and our minds raced imagining the humiliation, fear, parental scorn, loss of privileges, pain, and more pain that awaited us. We sat there, breathless and shivering in fear, for what seemed an eternity.
Then, from several yards away, we heard the farmer say, “No, they probably crossed the hayfield and are deep in the woods by now. We’ll get ‘em next time.”
The others voiced their concurrence as they walked toward each other, then they moved back into the field together, calmly discussing the condition of the corn and when it should be ready to pick.
We waited as their voices faded away, but we didn’t move until we heard the sound of the truck doors shutting, the engine starting, and the truck driving away. Only then did we begin to extricate ourselves from the scratching weeds and stinking muck we had so willingly scrambled into a short time before.
Eventually, we all had crawled up to the side of the road, and were scraping mud off of and out of our shoes when we heard a car approaching. We could tell it wasn’t the farmer’s truck, but who was it? As it drew nearer, we saw that it had a light bar on top. It was the county sheriff.
Again, we quickly evaluated our options. The woods were still too far to reach unseen. In fact, the sheriff had probably seen us already, so slipping back into the ditch wouldn’t help, either. The corn field? No, we’d pressed our luck far enough with that option. So, we just sat where we were and continued to clean ourselves off the best we could.
When the sheriff’s car reached us, he leaned out the window, slowly looked each of us up and down, but said nothing. We looked back, also in silence, trying desperately not to convey our feelings of guilt, fear, and dread. Finally, he sat back, sighed, then said, “I suggest you boys do your eatin’ at home from now on, okay?”
We all nodded. One said, “yes, sir.” He turned away and slowly drove on. And, we began the long walk home. (To be continued.)
Friday, August 10, 2007
Time to take cover?
I got an interesting question earlier this week. It began with a list of some of the many challenges facing our economy and markets, from the subprime mortgage mess and our energy dependence to funding the military budget and social security. We had just said to be prepared for more market turbulence, but to stay the course with their long-term mutual fund investment program.
The question: “With all this risk ahead of us, wouldn’t it be prudent to do something about it? Shouldn’t I be taking some money off the table?”
Answer to the first question – Yes
Answer to the second question – No
In times of turbulence (in fact all the time), WE the investment managers are investing to reflect our expectations of the future. And, we share the many concerns listed. So, WE are “doing something about it” in our selection of the individual investments in the funds (for several months we have had more exposure to energy, less to housing, more in high quality, etc.) That’s what active managers (as opposed to indexers) do.
But, we rarely take our investors’ money out of the markets they have chosen to be in long-term and temporarily put them into “safe” investments, expecting to get back in later. Such market timing just doesn’t work long-term. People find it nearly impossible to invest when the future looks most grim and raise cash when things look most rosy. Instead, we would tend to sell when we’re scared (like now), and buy when we’re feeling cocky (like last month when our investments were all going up).
The point is this. When we say, “stay the course,” we don’t mean there is nothing that needs to be done. We’re saying, “Don’t YOU do anything WITH THE ALLOCATION OF YOUR INVESTMENTS.” Don’t expect to – don’t even try to – avoid weak markets with your long-term investments. But, do expect your investment managers to invest prudently and with a good understanding of and appreciation for the risks facing investors.
Other questions?
The question: “With all this risk ahead of us, wouldn’t it be prudent to do something about it? Shouldn’t I be taking some money off the table?”
Answer to the first question – Yes
Answer to the second question – No
In times of turbulence (in fact all the time), WE the investment managers are investing to reflect our expectations of the future. And, we share the many concerns listed. So, WE are “doing something about it” in our selection of the individual investments in the funds (for several months we have had more exposure to energy, less to housing, more in high quality, etc.) That’s what active managers (as opposed to indexers) do.
But, we rarely take our investors’ money out of the markets they have chosen to be in long-term and temporarily put them into “safe” investments, expecting to get back in later. Such market timing just doesn’t work long-term. People find it nearly impossible to invest when the future looks most grim and raise cash when things look most rosy. Instead, we would tend to sell when we’re scared (like now), and buy when we’re feeling cocky (like last month when our investments were all going up).
The point is this. When we say, “stay the course,” we don’t mean there is nothing that needs to be done. We’re saying, “Don’t YOU do anything WITH THE ALLOCATION OF YOUR INVESTMENTS.” Don’t expect to – don’t even try to – avoid weak markets with your long-term investments. But, do expect your investment managers to invest prudently and with a good understanding of and appreciation for the risks facing investors.
Other questions?
Tuesday, August 7, 2007
What, you couldn’t live without me!?
I go on vacation for two weeks, investors panic, and the market plummets. I get back (today) and stocks surge.
I have no more two-week vacations planned. Is this, then, the beginning of the market’s recovery and we’re back on our way to new highs?
Doubtful. Regardless of my vacation plans, the process of unwinding our nation’s excesses will take longer. But, it shouldn’t go a whole lot deeper – to the point of a serious recession and a 2000-like stock market swoon.
Why not? Because the U. S. is no longer the dominant engine of the world economy. It is still the most powerful (for now), but it no longer leads the economic parade. It is now supplemented by many other smaller and faster economic engines, nearly all of which are currently cruising along with relatively little baggage in the form of excess debt like we have in our housing and investment arenas. So, as our economic engine loses power and falls back, it can “draft” (as in NASCAR) the economies of the rest of the world. This should keep us from falling into recession as the excesses unwind.
But, we can’t be sure. Investors’ still have a lot to worry about, especially if the unwinding proves to be messier-than-expected. So, investors may not feel comfortable for some time yet. Even if I never take another day of vacation.
I have no more two-week vacations planned. Is this, then, the beginning of the market’s recovery and we’re back on our way to new highs?
Doubtful. Regardless of my vacation plans, the process of unwinding our nation’s excesses will take longer. But, it shouldn’t go a whole lot deeper – to the point of a serious recession and a 2000-like stock market swoon.
Why not? Because the U. S. is no longer the dominant engine of the world economy. It is still the most powerful (for now), but it no longer leads the economic parade. It is now supplemented by many other smaller and faster economic engines, nearly all of which are currently cruising along with relatively little baggage in the form of excess debt like we have in our housing and investment arenas. So, as our economic engine loses power and falls back, it can “draft” (as in NASCAR) the economies of the rest of the world. This should keep us from falling into recession as the excesses unwind.
But, we can’t be sure. Investors’ still have a lot to worry about, especially if the unwinding proves to be messier-than-expected. So, investors may not feel comfortable for some time yet. Even if I never take another day of vacation.
Subscribe to:
Posts (Atom)
