Rampant Pessimism

Why Investors Flee Equities?

Pessimism among investors has reached epic proportions. The headline above ran last week in the New York Times and led off a discussion of why investors have pulled $130 billion out of the stock market this year.

The previous week, a Times story said “retail investors are not great at trading stocks and many earn poor returns or lose money.” These stories reflect the generally poorly performing markets and terrible economy in recent years.

A generation ago, Businessweek magazine had a cover story on the “Death of Equities.”  Three years after that 1979 article, the greatest bull market of our lifetimes began in August 1982.

Just this week, Bill Gross, the most well known bond manager wrote, “the cult of equity is dying.” It’s dangerous to make predictions since they are frequently wrong. But it’s safe to say that this spate of pessimism, even when well reasoned, is more a reflection of a dismal past than a view into the future.

Investors lurch between despair and euphoria. Risks lurk in both and a successful investor must avoid both extreme pessimism and too much good cheer. Right now most investors can only see a bleak picture and they need to broaden their view.

Secure Retirement Planning

The Right Choices

Recently I talked to someone nearing retirement. The timing wasn’t totally his choice and he was nervous. As he talked I realized he didn’t grasp what critical choices he has to make now or understand the options. He didn’t see where he needed to put the most thought and energy.

Often we sweat the small stuff and don’t grasp the big picture. He couldn’t tell whether he was in good financial shape or not and he didn’t have a way to measure it.

Eventually, I identified the most important choice that he will have to make soon. That choice could determine the comfort and security of his wife for decades if he dies first. Statistically, that is likely to be the case. And yet many people don’t think of this as a real choice or anything important. Or even whether to involve her.

This item is couched in technical language and not flagged in big or bold type. It’s easy to gloss over and down the road you may even forget you had a choice. But its impact could be profound.

Those are the things I like to help people with. Get the big things right and the rest generally falls into place.

Easy and Simple?

The “Simple” Social Security Formula

I was excited to read that Prof. Laurence Kotlikoff had put together a simple formula for deciding when to claim Social Security retirement benefits. Prof. Kotlikoff is one of the country’s top experts on consumer finance and I thought he had found the Holy Grail for one of the most difficult problems in retirement planning. It was disappointing to finally see his “simple formula.” After making some simplifying assumptions, he boils his formula down to 9 variables.

               B(a) = PIA(a) x (1 – e(n)) x (1 + d(n)) x Z(a) + max((.5 x PIA*(a) – PIA(a) x (1+d(n))) x E(a), 0) x (1- u(a,q,n,m)) x D(a)

Here’s the link to the complete article in a recent edition of Forbes Magazine:

http://www.forbes.com/sites/kotlikoff/2012/07/17/when-should-i-take-social-security-a-simple-formula/

http://www.forbes.com/sites/kotlikoff/2012/07/17/when-should-i-take-social-security-a-simple-formula/ 

Frequently I run across people who think that personal finance is easy and simple and that reading a few magazines or newsletters and catching an occasional cable television show on the markets will give them all the information they need. I don’t claim to have all the answers but if you’d like to tackle that formula together, give me a call.

Cranky and Pessimistic

Muddling Through

The economic and political news has been terrible. Most people I talk to are scared and frustrated. They are impatient and skeptical that things will ever improve. 

No one can predict the future but usually things are not as hopeless as they seem in the bad times and not as wonderful as they appear in boom periods. Nothing lasts forever. There are signs that the economy is getting better. But it’s getting better at its own pace; not as fast as we’d like.

This sluggish pace isn’t necessarily bad for investors. As long as the economy chugs along, the stock market is inclined to go along for the ride. If the economy surges, the Federal Reserve has to slam on the brakes. If the economy grows too slowly, the U.S. could sink back into a recession.

But more often than not, we muddle through. It’s not a stirring rallying cry but for a well positioned investor, this can produce great results. Since investors have had a disappointing decade, they are cranky and pessimistic.

Acting on those feelings instead of considering the many factors that go into successful long-term investing could do even more damage to already battered investors.

“A Measly Million: Will I Outlive My Money or Will My Money Outlive Me?”

  

“A Measly Million: Will I Outlive My Money or Will My Money Outlive Me?”

Larry Luxenberg, C.F.A., CSA

n            How Much is Enough?

n            Planning for a Secure Retirement

n            Counting All Your Assets

n           What are the big risks?

n           Taking the Long-Term View

Often people tell us that they won’t be able to retire. Many people have been devastated by the recession and volatile markets. But many are in better shape than they think. Often they don’t include all of their sources of income or aren’t looking at the right risks. Discover the basic building blocks of a comfortable retirement.

“Is Your Retirement Plan Working for You?

 Sandford (Sandy) Wollman

                                                                                                                                                                                                                                                                                                                                                   

   How Entrepreneurs Can Improve Their Company Plan

  The Hidden Costs of Your 401 (K) and What to Do About It

  How the New Retirement Plan Disclosure Can Cut Your Costs

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7 p.m. Thursday June 21, 2012

Comfort Inn

425 E. Route 59
Nanuet, NY 10954
(845) 623-6000

For additional information contact Lexington at luxenberg@lexingtonave.com or 845-708-5306

Lexington Avenue Capital provides individual wealth management and specializes in retirement and Social Security strategies.

Investment Advisory Services provided through Partnervest Advisory Services LLC, a Registered Investment Advisor. 1216 State Street, 3rd Floor, Santa Barbara, California 93101-2602.  Channel Financial Planning and Partnervest are not affiliated.

http://www.lexingtonave.com/text/Lexington%20June%2021,%202012%20Seminar%20Final

Investing in Times of Economic Turmoil

Think Long-Term, Think Big Picture

Most people worry about their financial future and the world economy. They worry about many things outside their control. But what prevents them from achieving the financial future they desire are things they can manage. Learn how to manage the drivers of financial success and avoid common financial pitfalls. Discover the basic buildng blocks of a comfortable retirement.

Free seminar, 7 p.m. March 14 at the Comfort Inn in Nanuet, N.Y.

http://www.lexingtonave.com/text/LexingtonMarch14InvestmentSeminar.pdf

Maximizing Your Benefits

Social Security Seminar

I am speaking at the Ossining Library on Jan. 5, 2012. Social Security benefits are the bedrock of retirement for most Americans and I find that there are many misconceptions about Social Security. Understanding the basics of Social Security retirement benefits can make a big difference in the later years of retirement.