Walnut Hill Advisors, LLC

Should retirees be buying bonds when interest rates are low? Typically I’d say that depends but now the risks of owning a long term bond paying a low coupon are much larger than before.

As I write this (October 26, 2010), Yahoo Finance is reporting that the government sold 2 year treasury notes with a yield of 0.40% (notice the “ZERO POINT” in front of the 4) and that TIPS were selling for negative yields! Can anyone retire on that? And seeing that CD rates closely mirror government bond rates of similar maturities (though 2 year CD’s are currently paying over 1% according to bankrate.com – woo hoo!), should people be putting their money in a CD or government bond?

Let’s examine two situations – one is someone who wants to park their emergency fund” money somewhere, and the other situation is where one is looking for income.

For an emergency fund, I recommend people keep the money absolutely safe- that yield is secondary to principal safety. Therefore, a bank account or CD is not bad if you’re thinking along the same lines. For those with a larger pile of money, and a larger emergency fund, you could consider some currency diversification or laddering/diversifying to get higher yields.

Those who are more moderate in their wealth, should not get so fancy. Though this doesn’t affect what I think about owning precious metals (see Why Our Clients Own Gold).

For retirement income, this yield is atrocious. I am almost embarrassed to admit how much writing I wasted blasting our Federal Reserve Chairman, Ben Bernanke, for keeping rates low and impoverishing savers. I won’t get into that here but just know I am upset.

Will Your Retirement Be This Happy?

The Risks

I have met people – who 3 years ago were earning 4-5% on their CD’s, and for a $100,000 balance, it was enough to cover their Medford, MA property taxes – who now earn less than 1% and are POOR because of the low rates.

These people have been “forced” to buy junk bonds and other investments with higher yields in order to offset the income loss. Basically, Bernanke is forcing grandma to speculate when she should be in the bank. This is one of the major risks faced by the interest rate environment fostered by the Fed.

One way to combat this risk is to consider annuity strategies at this point, as insurance companies are one of the few places offering a guarantee* and a decent yield. Retirees and those close to retirement both here in my hometown of Medford, Massachusetts and across the nation need to be prudent about income investing.

A second major risk is interest rate risk – buying a long-term, low-coupon bond, there is short to medium term principal risk. Of course principal is returned at maturity but if someone buys a longer term maturity bond to get the higher yield (2 years at 0.40%, 30 year bonds at around 3.5%), then the principal could fall in the interim and the bondholder will be stuck holding to maturity.

There are few ways to combat this risk other than buying shorter maturities or investing in something else, like dividend paying stocks.

Whatever one does, it will be helpful to work from a comprehensive financial plan and think through decisions before making rash choices. And with the risk of inflation, which is all around us (how’s your grocery bill lately?), what some people consider safe (government bonds or the bank for example) could be risky as inflation makes stagnant dollars worth less over time.

*guarantees backed by the insurance company and not guaranteed by any government agency

If you are interested in more reading on retirement income, try these other articles:

Individuals Must Create Their Own Pensions, But How?

Convert Your Bond Portfolio to a Baseline Pension

And don’t forget to check out our Financial 101 Section!

And if you don’t want to miss out on great articles that can help you make smart choices about your money, and you want to be kept in the loop about free upcoming financial education workshops, then join my Insiders Club. Learn more HERE.

Please see my disclaimer page about tax advice on this site – thanks!

No COLA Adjustment for Social Security Points to the Need for Personal Cost Controls

The Social Security Administration recently announced that there would be no Cost of Living Adjustment (COLA) for 2011, just as there was none for 2010. Sadly, the Medicare premiums will likely still rise meaning most seniors might experience a paycut unless Congress passes another, for lack of a better word, handout to offset this (wouldn’t want to lose senior votes!).

Why will there be no COLA adjustment again? Is there really no increase in the cost of living of the average senior? I think you can answer that question but let’s just review the obvious facts – health costs go into the COLA calculations – if there is no COLA, why was there a medicare premium increase in 2010? Hmmmmm. Also, if you have shopped for food you have likely seen grocery prices through the roof – cereal boxes shrinking with prices increasing (my favorite is the “low profile box” – it looks the same from the front but it’s much thinner). Furthermore, taxes at the local level have increased for many – e.g. California’s state sales tax hike.

Apparently though, the economists at the Bureau of Labor Statistics (BLS) who calculate this stuff see no inflation. They use fancy hedonics and undervalue certain items (healthcare costs are over 15% of costs to average Americans but according to Howard Davidowitz, the weighting of healthcare on the BLS measure is about 8%).

So if there are no COLAs, and costs are going through the roof, what can a retiree, or anyone for that matter do? There are only two answers: make more or cut expenses. Because making more money may be difficult in this economy, and because it might be hard for a 70 year old to land a job these days, let’s focus on saving money.

By far the expenses most likely to escalate other than healthcare costs, are resources/energy and local taxes. I can’t help you with taxes, you’ll have to deal with that yourself (though searching for cities/towns with good tax profiles can make sense – that’s another article for another time). But I have suggestions on how to cut resource/energy costs:

Install a wood stove to supplement natural gas heat

Drill a well and use well water

Install solar electric/heat panels

Use Skype for phone calls

Wood Stove – wood is produced locally, and if you live on some land, you might be able to provide it yourself. Wood stoves also can heat an entire first floor and more, very well depending on the floor pattern. This can offset the risk of oil prices tremedously.

Well Water – water may become THE MOST FOUGHT OVER commodity of the next 50 years. We use it so thoughtlessly because for most Americans, it just flows from the tap – how easy! There may come a time, especially in some arid parts of the US, where water bills rise markedly – better to have your own supply.

Solar Electric (heat) Panels – We did a cost analysis for a client where a $10,000 investment would eliminate an $89 monthly electric bill. With the 30% tax credit, this is over a 42% return on investment in year one and almost 12% annually in perpetuity not accounting for rate increases in public electricity costs. Is your bank account paying you 12%?

Skype – for arounf $30/ year, you can call unlimited home and mobile phones using Skype. Why have a home phone? Why use cell minutes while on hold? (see my article Skype is a Good Deal from ChrisGrande.com HERE)

Bottom line, we have to think differently to succeed. If you don’t want to explore these options, do NOT complain when your bills become too much to handle – I won’t even say told you so!

For more color on how government mismanagement could stoke serious inflation and how you can use ideas like these to protect yourself from living cost increases, see my article,  The Debt Crisis Will Strike Suddenly and How You Can Protect Yourself, on cutting costs at my personal website ChrisGrande.com

If you’d like local advice, feel free to call our office – 781-393-0021 or send us a Quick Contact. We have a team of professionals that can help with your situation.

And if you don’t want to miss out on great articles that can help you make smart choices about your money, and you want to be kept in the loop about free upcoming financial education workshops, then join my Insiders Club. Learn more HERE.

Please see my disclaimer page about tax advice on this site – thanks!

Many people, when leaving their job, wonder what to do about their 401k balance at their old employer. And they worry about making a mistake – rightfully so. Therefore, what should one do when considering this option? Let’s use a story – let’s examine the case of “Mary” who encountered this situation. Upon hearing advice from her cousin Beth, that she should “roll over” her money to an IRA, she looks into the process and decide that the reasons to “roll over” are pretty good; reasons which can include:

• more control over her money
• quicker access in case of emergency
• many more investment options than the limited number in the old 401k

Mary then execute the rollover and it results in her receiving a check in the amount of their 401k balance, which not knowing what to do with it, she deposits it into her bank account. About 4 months later, Beth tells Mary that she must roll that money into an IRA to avoid taxes, which she subsequently does. Then, somewhat surprised, Mary receives a notice sometime the next year from the IRS informing her that she owes a 10% penalty on the amount “rolled over” and that taxes are due on the balance. “But wait,” she thinks to herself, “I thought a rollover was not taxed?”

Let’s review what happened. First off, you might be asking, technically, what is a “rollover?” Let’s go to IRS Publication 590, the complete guide to IRA rules, for the answer:

“Generally, a rollover is a tax-free distribution to you of cash or other assets from one retirement plan that you contribute to another retirement plan. The contribution to the second retirement plan is called a “rollover contribution.” “A written explanation of rollover treatment must be given to you by the plan (other than an IRA) making the distribution.”

Also remember this about reporting a rollover (also from Pub 590):

“You cannot deduct a rollover contribution, but you must report the rollover distribution on your tax return as discussed later under Reporting rollovers from IRAs and Reporting rollovers from employer plans .” (other sections of Publication 590)

Why did the person above get hit with the penality and tax? Here’s why:

You generally must make the rollover contribution by the 60th day after the day you receive the distribution from your traditional IRA or your employer’s plan.  The IRS may waive the 60-day requirement where the failure to do so would be against equity or good conscience, such as in the event of a casualty, disaster, or other event beyond your reasonable control. In the absence of a waiver, amounts not rolled over within the 60-day period do not qualify for tax-free rollover treatment. You must treat them as a taxable distribution from either your IRA or your employer’s plan. These amounts are taxable in the year distributed, even if the 60-day period expires in the next year. You may also have to pay a 10% additional tax on early distributions…

As you can see, Mary waited for months and it cost her. What could she have done? If she did not want to handle the money, she could have elected to take a “Trustee to Trustee Transfer.”

A transfer of funds in your traditional IRA from one trustee directly to another, either at your request or at the trustee’s request, is not a rollover. Because there is no distribution to you, the transfer is tax free. Because it is not a rollover, it is not affected by the 1-year waiting period required between rollovers. This waiting period is discussed later under Rollover From One IRA Into Another . (another section of publication 590)

A trustee to trustee transfer is a direct exchange of the assets, and never touches the hands of the investor. Many people carelessly request IRA “rollovers” when they really want a trustee to trustee transfer. This likely happens more where employee consulting is not available or perhaps where rollovers & transfers from old 401k’s are handled over the phone. Language often catches people (for another example of using the correct “wording”: moving traditional IRA money to a Roth is a “conversion” not a transfer, and reversing the decision is called a “recharacterization!”), and therefore, it is essential that a person seeking to move money from their old 401k be careful and ask questions of their HR department if confused. It would also be helpful to secure the help of a professional when conducting such a manouever.

The Bottom Line

This is an area that can appear simple but offers many possible traps. If you’d like some input and to discuss if this is a good move for you, feel free to contact our office either by phone – 781.393.0021 – or by our Quick Contact form. Either way, I highly recommend you obtain professional advice on doing a rollover or transfer.

If you’d like to read more about IRA transfers and rollovers, try my company website Financial 101 section:

IRA Rollover

IRA Transfer

If you are interested in more reading on retirement plans, try these other articles:

Individuals Must Create Their Own Pensions, But How?

5 Things to Consider Before Taking a 401(k) Hardship Withdrawal (from my personal website ChrisGrande.com)

And if you don’t want to miss out on great articles that can help you make smart choices about your money, and you want to be kept in the loop about free upcoming financial education workshops, then join my Insiders Club. Learn more HERE.

Please see my disclaimer page about tax advice on this site – thanks!

For a couple of years I have been trying to convince my clients to purchase PHYSICAL gold and silver but none of them have listened to me. Of course the clients have been exposed to gold, silver, and gold miners through stocks and ETF’s for quite some time now (about 4.5-5 years, which still isn’t too long ago since gold started moving up in 2001-02), but I wanted clients to have physical possession of their precious metals holdings. I wrote articles on my personal blog (www.chrisgrande.com – which I know my client’s read), I exhorted them personally at my regular client meetings (we do 3 per year, 4 month intervals), and I would tell them on the phone or through emailed article links.

BUT NO ONE WOULD LISTEN

Recently however, things have changed. For some reason, as is the case with all bull markets, people tend not to want the asset until the price has risen

American Gold Eagle

tremendously – case in point, gold. I’ve had two clients ask me about gold in the past 10 days which is two more than the number who asked me over the past five years.  A little recent history: Gold and all precious metal prices fell during the correction (crash) of 2008-2009, after prices had risen from the mid 200 range in the early 2000′s. Perhaps people needed liquidity or were scared and wanted to move everything to treasury bills (i.e. cash). Whatever the reason, prices fell and enough people didn’t believe that prices would rise again. However, they did not factor in something that wise economists understood – that there is no end to what technocrats & politicians will do to try to “prop up” the economy.

No sooner had the market started crashing that Ben Bernanke, chairman of the Federal Reserve Board, began lowering interest rates and flooding the system with money – by buying US government bonds and other assets belonging to Lehman Brothers and the like. Note: buying bonds “floods” the system with money due to the fact that buying the bonds with newly “printed” money means that the sellers of those assets need to find something to do with the proceeds and therefore prop up some other asset – e.g. stocks, real estate,  and of course, gold and precious metals.

2 Year Chart for Gold Prices (source: Yahoo Finance)

And as we are learning now, to further push up prices of real assets, at any point that the economy even appears to weaken, Uncle Ben and committee are right there pledging more monetary stimulus. As well-known economist Marc Faber has said, if printing money were the way to wealth, then Zimbabwe would be the richest country in the world. of course this is the country whose inflation rate blasted over 11 million percent in one quarter as excessive money printing destroyed their fiat currency and sent citizens in a frenzied race to buy real assets and foreign currency, including our worthless paper, the dollar.

Nonetheless, it appears we are ready to begin what has come to be known as QE2 – “quantitative easing 2″ – or ridiculous government economist geek-speak for more money printing. QE1 was of course the initial blast in 2008 with the bailouts. And now the expectations of this new salvo of QE have been sending the dollar down in value vis a vis foreign currencies; and interestingly, some foreign countries have tried to counteract this by trying to devalue their own currencies vis a vis the dollar. What we have is a “race to the bottom” where paper currencies take turns in the lead in the race down and real assets, especially the one money that can not be printed – gold (and silver) – continues to MAINTAIN as a store of value. And please understand that point – gold is not merely rising, you must realize that the dollar is FALLING vs gold – of course worldwide worry over loss of purchasing power is adding even more juice to gold, which by the way, represents a very small percentage of overall global financial assets. In other words, if we were to return to the time when gold backed paper money, we would need gold to price over $8,000 per ounce to back each dollar of paper money under some calculations.

Bottom line – failed hyper-Keynesianism, the inability of those in power to allow the natural corrections to occur in the economy, and to allow the required cleansing of the real estate/cheap money bubble, means MUCH MORE money printing on the way and a continued slide in the dollar. Will it be a straight ride down? NO but it is going down (read great piece on MSN by Bill Fleckenstein HERE – Why You Probably Need More Gold). From a political standpoint, I will be looking to see if clueless politicians blame “speculators” again, when commodity prices go through the roof, instead of blaming the forces that devalue the currency and make oil, copper, steel etc more expensive in dollars – QE by the Fed and Ben Bernanke, and excessive debt accumulation by our government and our elected officials (will these people blame themselves? Likely not if the people reelect them – reelection is really “approval” for the job they’re doing).

Interview with Bill Fleckenstein (click)

One final piece  - in the US we also have massive UNFUNDED social liabilities in Medicare, Medicaid, and Social Security. Politicians are hoping and praying for a massive economic recovery to push this problem further down the line – NOT GONNA HAPPEN.  The only options are either much higher taxes on our contracted economy, benefits cuts, or massive coordinated monetization of US debt by the Federal Reserve (i.e. government issues debt to pay all the bills and the Fed buys it all with created/printed money). If this last option happens, or even if the US defaults in some way, the dollar will continue to lose value against other currencies and can only be bullish for gold.  And interestingly, as people have been bringing it up to me, I get the feel that gold may just be starting its ‘sexy mainstream” stage when more people start buying it. Of course when its price in USD is much higher and everyone is talking about it, we’ll likely sell.

For more on this topic:

My personal site ChrisGrande.com – how you can protect yourself from this debt bubble

My personal site ChrisGrande.com – Amazing What Money Printing Can Do (discusses Mugabe)

If you’d like to get weekly email updates from Chris Grande (everything in one simple mail!) and you’d like to know before the general public about upcoming public appearances – workshops, talks, interviews, then join Chris Grande’s Insiders Club and don’t miss out on anything: Insiders Club.

Working with boomer clients, I have become increasingly worried about the rising cost of medical care as it eats up more and more of a boomer’s shrinking discretionary budget.  We are all aware of the national stats but let me share some more personal, anecdotal stories.

I recently spoke with a client who is hitting the donut hole with her prescription costs. Her medications would end up costing her over $700/month for the last 3 months of this year. The reason is that for one of her conditions, the generic medication doesn’t work nor do some of the competing medications and the only thing that works for her particular condition is a not-generic-yet brand. Unfortunately she is not alone, as the national debate carries on and on.

Some people blame health insurance companies, and some people blame health providers. Others blame people’s excessive use of medical services as something that drives up usage and costs. Bottom line – we have:

• A LOT of people using health services, with the large number of baby boomers starting to wear down knees, elbows, and other joints; and with increasing numbers of chronic conditions
• Reports that the US population is the fattest we’ve ever been – folks, wherever you fall on the health cost debate, you know this trend can not be good for the overall expense levels of the US health care system
• Whatever anyone says, having a doctor visit only cost $5 makes no one think twice about possibly over-using this privilege. Copays are starting to rise ($25 or more for many), it’s still just a fraction of the actual cost, which few people appreciate
• The costs of paperwork, record-keeping, and other admin costs add up – if we look at the publicly filed annual reports of major insurance companies, we find that their profit margins are often about 10%. Think about it this way, if health costs dropped 10% (eliminating insurance companies), would you save a lot of money? Maybe for one year til your premiums rose the next year by 15%! Admin costs are killer.
• Medical malpractice insurance premiums for og/gyn physicians cost over $100,000/year per physician in New Jersey. Think about the math – if an ob/gyn spends $100,000 on “medmal,” $100,000 on annual rent, $300,000+ on salaries of her staff, office expenses of $150,000 and many other items that cost money – you can see that some physicians need $600,000+ of REVENUE to simply break even. Therefore, how many annual visits does the physician need to have to cover costs and pay her own salary? The WHOLE SYSTEM IS EXPENSIVE.

What’s the point I am trying to make? Consider PREVENTION as a way to hold down medical costs. It was the only advice I could offer my client due to her particular circumstances. For those of you that haven’t seen it, see how President Bill Clinton changed how he ate (not a “diet”) to lose tons of weight, lower cholesterol and improve his overall health:

If we can lower our use of medical services, and for a lot of people, some effort on eating right and activity would go a long way, we can make a big difference in our current AND future medical costs. And please, some people don’t want to hear the lecture on health and fitness, but from my perspective, it needs to be said. I work on some people’s financial picture and I see some serious trouble with planning for future medical needs. If some people don’t work on this, then their medical costs could eat up a SIGNIFICANT portion of their budget and their quality of life will be terrible.

The good news is many of my clients take their fitness seriously. Seriously doesn’t mean full contact kick-boxing either! It means they go for a walk everyday, they eat more veggies and fruits, and they work on engaging in a healthy social life which works wonders for mental and emotional health.

What about you? What are you doing? Care to share? Please do comment! Also, don’t forget, to get updates, article summaries, and upcoming workshop dates, join our email community in the boxes to the right —————————————————->

I’d like to point your attention to an article I wrote on my personal website this week regarding paying attention to online prices when you’re in the store. You can read more about that here:

ChrisGrande.com

I was about to happily purchase a desk at Staples until what I saw on the computer screen in the store stopped me in my tracks! Want to know what happened? Click the link above for the full story – and don’t get fooled by in-store prices!

Many advisors are still taking their cues from pensions funds and endowments, even as losses in the recent financial crisis prompt these institutions to reshape their strategies. But that follow-the-leaders approach may not be right for all clients.

So starts a Dow Jones newswire article appearing in Financial Advisor Magazine online this morning. The point being made is that pensions and endowments are using more risk-managed strategies and reducing stock market exposure. Therefore, as the article continues, clients may be “underexposed” to equities (stocks) in their retirement planning portfolios.  it even quotes a couple of financial advisors who mention that they think “inflation risk” is a bigger threat than stock market risk. Of course inflation should be addressed – however, increasing stock market exposure does increase other kinds of risk – especially risk to lifestyle in retirement.

What increasing stock market exposure exposes YOU to is the risk of uneven market returns and “black swan” risk. As noted author Nassim Taleb notes in his best selling book, surprising “black swan’ events, such as market crashes, happen more often than we think. If for example, 2008 was 3 years before your retirement date, and you were invested in a target date fund or such, chances are, you took a big hit. Generally accepted investing strategies, such as Modern Portfolio Theory (MPT – which is used in many target date funds), work ok when the goal timeline is infinite – such as is the case of a University Endowment or maybe a charitable fund. In these cases there is no “retirement date.” But for those who need to make sure there will be income in place at a SPECIFIC time in the future, these risks – i.e. overexposure to stocks – may be unacceptable.

What is the alternative? It may make better sense to ensure a base lifetime income stream before risking capital. How? using some kind of guaranteed vehicles that can create an income stream that matches estimated basic living expenses. Guaranteed vehicles could be government guaranteed vehicles liked bonds, or insurance company guaranteed vehicles like annuities (Of course additional risk management analysis will have to be done if annuities are chosen). Also, obviously, the amount of assets and income sources one has is the largest determinant of how a retirement income plan should be structured.

The bottom line – most retirement INCOME plans focus on strategies using statistics and models, but still expose the whole portfolio (and hence the investor’s lifestyle) to too much risk. Risk management can take many forms – but whatever methods are used, one should consider lifestyle risk management first before thinking about anything else.

I am a thinker – thinking of ways to do things better and thinking of ways to prevent disasters, reduce risk, and reduce worry. of course many ideas end up being a flop. However, sometimes, an idea comes along that actually seems to work!

One such idea is a concept I have thought about for years and interestingly, it was a concept that I later learned was the focus of the work of one my BU teachers (Francois Gadenne) whose instruction I enjoyed immensely. The idea is simple: if you have enough funds to create a “pension” or as my teacher would say, a “floor,” then it would be prudent to create that rather than risk one’s entire retirement stability to the market. And as we know, some folks who retired at a certain time were luckier than others – someone retiring in 1999 who moved all his money to government bonds saw wonderful growth AND income over the past 10 years. Someone who planned to retire in 2002 or 2008 caught a financial “beating!”

The floor idea is simple (I previously called it a “pension-like income stream”) – take some of your retirement portfolio and place it in vehicles that will will provide the targeted income needed for necessities in retirement, thereby ensuring a “floor” of income, and then take the rest and invest it for “upside,” a.k.a. growth in order to try to enhance your retirement income and quality of life. We do this because when considering financial planning, which means intelligently and unemotionally planning for contingencies, we avoid the macho temptation to put all of the money at risk, especially if there is enough money saved to ensure a baseline level of living!

Why not just leave the money in CD’s or bonds and live off the interest? Well, first off, rates of return are LOW. Also, from a tax point of view, these are lousy choices outside of an IRA (because of exposure to income tax, the increases to AGI which could reduce schedule A deductions, it potentially causes social security to be exposed to tax, etc.). And I know in places like Medford, MA, where I live, the cost of living marches steadily higher and I have seen MANY retirees experience a quality of life “erosion” as their interest-bearing investments get rate haircuts on renewal or maturity. If the cost of heating, food, insurance premiums, gas for the car etc all fell when interest rates fell, this might be ok – but they don’t (thanks Ben Bernanke!).

Creating a floor ensures that something will be there because guaranteed vehicles such as Treasuries are used to make this happen. If you are close to retirement, and you are unsure about your portfolio and its safety, look at the various risk management strategies, including what Francois, my teacher calls “Floor plus Upside.”

According to well-known contrarian indicators such as the AAII’s bull/bear survey (American Association of Individual Investors), pessimism is at the extreme level that most of the time signaled a rally in the markets (see front page on left side of AAII website). Will markets start rising from here? Well, it helps that Asian & European markets are already up which bodes well for a good start today.

However, I don’t want you to try to become a super trader or go out and leverage long to the max – I would like you to see that investing in stock markets is much harder, and much more work than TV ads and pundits claimed it was back in the roaring 90′s and the mid 2000′s. In fact, the past 10 years have been humbling to many and follow the predictions back then that we were entering (at the time) a period reminiscent of 1966-1982 in which the Dow Jones Industrial Average started and ended the period at almost exactly the same level.

Therefore, it helps to be creative in such times – considering strategies such as merger-arbitrage which I wrote about a few weeks ago, and higher yielding investments which focus on current cash flow and reinvested growth such as dividend paying stocks, could help make sure that you have steadier returns, possible downside protection and perhaps even some total return gains if markets continue sideways for another few years.

No doubt there are economies in this world that are growing like the US did in the mid 20th century. However, a warning to the novice – even the US had massive fits and starts through its growth history – numerous huge economic swings and crashes come to mind. So even if your thinking is that you will invest in China for example, because they have lots of growth ahead, beware that in any year, they could experience the massive turmoil that can be expected as a growing economy tries to find its way.

With all that said, it seems that the moderate contrarian play at the moment (as opposed to the slightly contrarian or extremely contrarian), is to invest in markets since many think it will fall and have moved to cash. So where does this leave you?

Bottom line – if you are a prodigious saver, perhaps you can hit your goals at a lower assumed return rate – in other words make up for low stock market returns with simply more savings – and consider a moderate portfolio of ideas including perhaps the couple I mentioned above. If you want to go for more growth, consider with Professor Michael Berry calls “discovery investments” as a part of your portfolio (I will cover discovery investments some other time) and if you have a solid nest egg, and need to draw income, then consider a portfolio strategy that I sometimes recommend which is most eloquently stated by my former BU professor Francois Gadenne and taken directly from the RIIA website (of which I am a member):

To build a floor and create upside potential. We assume that during retirement clients need a sufficient level of income (“a floor”) from guaranteed or low-risk sources, as well as the potential for growth through exposure to riskier assets (the “upside”).

Of course I would also make a plug for seeing a professional advisor, and I suppose some of you will, but many won’t so I hope this has been helpful for you. If you do plan to seek out an advisor, you could consider us, inf you are looking for a financial planner in Medford, MA area (right next to Route 93).

Chris Grande

p.s. Marc Faber, well known economist/financial expert, mentions the same points above in his latest Monthly Report.

Note: This is a particularly harsh article – but one I think is terribly necessary to write…

I am worried. From a planner’s perspective, I am seeing more and more widows and divorcees among women between the ages of 50-60. Oftentimes, it was a great husband who passed away (good ones seem to die young) or a relationship that grew distant.

Along with the loss of a loved spouse comes the horrible empty feeling of being alone. not ever being in this situation, I don’t know how it feels firsthand. But what I have seen is how some people cope. Some women handle this quite well but some don’t. One result I don’t like to see is when someone, feeling that emptiness, falls for the “nice guy.” Now, I’m all for nice guys, but this particular type of nice guy is dangerous – financially dangerous.

It all starts with dating again, or simply being out socially. You meet a guy, he seems nice. He’s divorced but from what he says, his wife wasn’t such a good person anyway. She got most of the money. He’s a nice guy though, polite, funny – really enjoyable to be with. You’re not sure how it happens, but after dating for a couple of months, he mentions that he’d love to travel with you more if he wasn’t paying so much in rent (hint). A week later he brings it up again and adds a complaint that his ex-wife got most of the money (hint 2).

A week later he talks about having to help his son with college expenses and it’s really killing him he says (hint 3). About this time, your pity for him is growing and YOU bring up the idea that he should move in with you – why throw away money in rent? he can pitch in and save money. “Really?” he’ll say…’that’s a great idea!” And a few weeks later you have a new man in the house.

However there’s a problem now, that you didn’t notice – he’s really broke. Other than his age 62 reduced social security check, there isn’t much coming in and his credit card bill, cell phone bill, and cigarette habit eat most of that money up. The result? He’s not sharing any expenses, you are still paying for everything and now you have another obligation.

You convince yourself for a while that you’re helping him out and he’ll eventually get a job or do something. Furthermore, he vacuums during the day ( while you’re working of course) and does some shopping so you justify to yourself that he’s helping around the house. A few months pass and you realize that you’ve been helping him with some of HIS bills (so he moves in and you get more, not fewer expenses). You begin nagging him to get a job – now you’re the “nag” and men always find a way to avoid a nagging woman (it’s true). He finds ways to appease you and brush you off and after many months you are growing increasingly angry. But just like younger couples who move in together before marriage and full commitment, you find it hard to get rid of him.

The result, one way or the other, is that you’ve spent so much money and whether or not you eventually get rid of the guy, it’s been costly – all in the name of companionship!

My warning is then that if you are a widow/divorcee, and you own a home and have savings, be very careful about the men you date. As I advise my clients, there is NO NEED for him to MOVE IN with you – let him keep his own place. And the expenses you wonder? If a man is 60 years old with no money, no house, then it’s likely you have a very irresponsible man on your hands and even more reason to keep him at a distance. He can be the fun guy you date, but one you never get serious with for these men can cost women thousands of dollars.

They play off your emotions, your loneliness, your desire to have a man in the house – try to avoid the temptation to fill that void with just any man. Find a responsible guy and if there are none out there, don’t risk it with a drifter. You are typically the family financial backstop – your family needs you and you want to be there for your kids, your elderly mother etc. You can not afford to risk your financial security in these situations. If you are contemplating this, I would advise that your first default response be NO, then take it under a long time advisement. Maybe this man is moving from woman to woman looking for a ‘sugar mamma.” If that’s the case, wait him out and he may just move on – which is all the better for you!

Chris Grande

p.s. If you are seeking a financial planner / advisor in the Medford, MA/ Boston area, feel free to contact us for a phone interview to see if we might be a good fit for you.

PS don’t even let me get started on the Vegas trips you will fund for him – he’ll allow his addictions and habits to take you down the toilet too! Beware!