Return on Investment, or Paying to Hide Out?

I heard an interesting story on NPR the other day, about investors who are so frightened of financial markets that they are willing to pay – and get no return – just to keep their money safe. Even with rates so low on US Treasury bonds (about 1.5% for 10 years!) investors from around the world continue to buy.  At first it seems puzzling, and here’s why: it’s anybody’s guess what inflation will be over the next ten years, but if you expect inflation to average 1.5%, then the inflation adjusted return for those US Treasury bonds would be exactly zero. It’s not a stretch to imagine inflation of 1.8%, meaning investors in the 10-year treasury would lose an average of .3% to inflation every year.

So: why? That one-word question can be answered with one word: fear. Fear of Europe, fear of banks, fear of corporate malfeasance.  Some investors seem afraid of nearly everything; the equivalent of a monster in the financial closet. I’ll admit, it can seem scary out there. Greece is on the brink, Spain seems close behind, China’s economy is slowing. Here at home you still have big banks doing stupid things. So what’s an investor to do? For many, the answer is to hide in US Treasury bonds, despite what seems like a near-certain inflation adjusted loss.

But think: as I’ve said before and will say again, you seldom make money following the herd.  Even if the herd is crowding into Treasuries.  What can you do? How about this: do you think that Procter & Gamble is on its way out of business any time soon? How about Exxon? Hershey?  I think those companies will be around for quite a while, and the shares of each one pay a cash dividend greater than the 10-year US Treasury.  Does that mean you ought to go out and buy their stock? No. But it means you should think about where the opportunities are for real safety – the safety that comes from confidence in your investments. For me, confidence doesn’t come in the form of government insurance or following the herd. Confidence comes in sound management and solid business. Opportunities exist.  Look for them, or ask your financial advisor what opportunities are right for you.

GTC

(This article contains the current opinions of the author but not necessarily those of Brighton Securities Corp.  The author’s opinions are subject to change without notice. This blog post is for informational purposes only. Forecasts, estimates, and certain information contained herein should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. References to specific securities and their issuers are for illustrative purposes only and are not intended and should not be interpreted as recommendations to purchase or sell such securities).

Women Need Financial Planning

Time for some startling statistics…

According to research by Wells Fargo, affluent women are significantly less confident about retirement than men. The least confident of all are single women, and the most confident are married men.

About 700,000 women will lose their husbands this year.  The median age when a woman is widowed is 59.

So…women are less confident than men, they are often widowed at a young age, they live on average longer than men and they control more and more of our nation’s wealth. 

What to do?  Women must take charge of their own financial lives.  This means-

1. Selecting a competent Financial Advisor who is willing to take the time to explain investing and insurance concepts and options to you, with patience and in terms that you can understand.  They should also be able to concisely explain to you the ways in which they are compensated by fees and / or commissions.
2. Doing a budget and understanding your spending and cash flow needs.
3. Where possible, spending less and saving more.  You really cannot save enough money for retirement.  Social Security might not be around in its current format for younger people, most of us no longer have pensions, we have to worry about historical inflation of 3-4%/year, we are living longer / being kept alive longer and the costs of college, healthcare and long term care are all skyrocketing. 
4. Defining your important financial goals, both short and long-term.
5. Gathering up your financial account statements and making folders or a binder for them, so you have records of all of your accounts and know where to find them.
6. Taking the time to work with your trusted advisor to develop a living, comprehensive financial plan that (minimally) addresses retirement, survivor and estate planning.

If you would like assistance with determining what your important financial goals are and how to achieve them, please feel free to contact me at (585) 340-2229.  Thank you.

Susie L. Light
Financial Advisor

(This article contains the current opinions of the author but not necessarily those of Brighton Securities Corp.  The author’s opinions are subject to change without notice. This blog post is for informational purposes only. Forecasts, estimates, and certain information contained herein should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. References to specific securities and their issuers are for illustrative purposes only and are not intended and should not be interpreted as recommendations to purchase or sell such securities).

History Repeats (or at least rhymes)

Investors often use historical comparisons to help gauge expectations on their investments.  While this is a useful practice, history is full of time periods that have little in common with one another.  If we look at the returns of a balanced portfolio (60% stocks / 40% bonds) from the years 1900 through 2010, the inflation adjusted returns were roughly 4%.  However, there were long periods of booms and busts.  There were the post war booms in the 1920’s and 1950’s, as well as the deregulation / declining interest rate boom in the 1980’s and 1990’s.  On the other hand there were painfully long bust periods such as the war decades and the Great Depression.  My point is that some time periods were better than others.  So it helps to focus on the time periods during which the overall economic environment is similar to what we are experiencing today to get a better understanding of what we might expect.  Consider the following features of today’s economic environment:

• High misery index
• High unemployment
• Rising energy and commodity prices
• Low inflation adjusted yields on government bonds
• Rising government regulation and involvement in the economy
• Decelerating productivity growth

It was Mark Twain who famously said that “History does not repeat itself, but it does rhyme.”  And so it is true today as the points above were also uniquely prevalent during the 1970’s.  Unfortunately the 70’s were one of the long bust periods.  But there were investments that did relatively well.  So, when you are looking to the past to help inform your current decisions and expectations, pay extra special attention the 1970’s.  It may help you navigate today’s stormy seas.

Brennan R. Redmond, CFA
Vice President
Brighton Securities

(This article contains the current opinions of the author but not necessarily those of Brighton Securities Corp. The author’s opinions are subject to change without notice. This blog post is for informational purposes only. Forecasts, estimates, and certain information contained herein should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. References to specific securities and their issuers are for illustrative purposes only and are not intended and should not be interpreted as recommendations to purchase or sell such securities).

Dividends and Inflation

Inflation is often the most pressing problem for retirees living on a fixed income.  It forces us to divert a potion of the portfolio away from the safety of bonds because we know that without growth the portfolio’s purchasing power will slowly decline.  Such are the pernicious effects of inflation.  A typical retirement for a 62 year old, non-smoking couple is 30 years.  Over that period of time prices will typically double.  There are good reasons to believe that going forward the heavy hand of government in our national economy could make that worse.  For example, the price of a stamp today is $0.44; in 1980 it was $0.15.

Fixed income is just that, fixed.  It does not go up in time.  In fact, with time it declines in real terms causing the safety of bonds to turn into a sure loser.  In my opinion the best alternative available to bonds are high quality, dividend paying companies.  Over long periods of time the dividends of our great American and international companies have been the only investment that has consistently bested inflation.

With interest rates so low the relative attractiveness of dividends over bonds is compelling for several reasons.  The first is absolute: the yield on the ten-year treasury is about 2.63% while the yield on the S&P 500 index is 3.36%.  The second reason is the prospects of the two asset classes.  When interest rates rise off their historical lows the price impact on bonds will be negative.  Therefore, bond investors have a historically high chance of seeing principal values decline.  At least with high quality, dividend paying companies an investor would at least have a chance (a good chance if you ask me) of growing the value while collecting a more generous income.  Of course, even high quality dividend paying stocks come with risk of loss.  For most investors, a balanced approach is the best approach.

Brennan Redmond

(This article contains the current opinions of the author but not necessarily those of Brighton Securities Corp.  The author’s opinions are subject to change without notice. This blog post is for informational purposes only. Forecasts, estimates, and certain information contained herein should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. References to specific securities and their issuers are for illustrative purposes only and are not intended and should not be interpreted as recommendations to purchase or sell such securities).