Not Such Bad Shape

Will I Ever Be Able to Retire?

Many Baby Boomers are intimidated about the prospect of ever being able to retire. Having lived through the Great Recession, they have lost faith in the future.

They read about the large sums of money required for decades of retirement and the prospect of accumulating that seems daunting.

What they don't think to do is add up their assets and look at how those match up against their retirement needs.

Many boomers own a home. Most will qualify for Social Security, often with a spouse. Often they have a pension, a 401-K, an IRA. Some have a small business, a valuable collection, some investments. They also might plan to transition into retirement with a part-time job.

Next they have to figure out where they will live in retirement and what kind of lifestyle they'd like. Most people have reasonable expectations and often these are achievable, perhaps with some modest tradeoffs.

While many people are in bad shape, most Americans  are better prepared for retirement than we generally believe. Nothing pleases us more than showing people that their fears are overdone and that they can look forward to a good retirement.

Too Much Pessimism?

Sunny Days Ahead?

Pessimism is pervasive. Many people believe the economic future is bleak.

Perversely, investment strategist Richard Bernstein believes that attitude augurs well for future stock market performance.

Historically, Bull markets --- great increases in stock prices -- have often begun in difficult times when people are most discouraged and predate economic recoveries. Bernstein, formerly the top strategist for Merrill Lynch, believes that the current widespread fears and disgust are sowing the seeds for the greatest bull market of his lifetime.

Speaking at an investment conference in Boston recently, Bernstein said he sees signs of improvement in the economy. For one, he said, total debt -- including government, mortgage, consumer and business debt -- has dropped at the fastest pace in modern U.S. history.

Housing is beginning to recover as is the job market. Stock market valuations, particularly compared to other asset classes such as bonds and commodities, are reasonable.

If Bernstein is correct, the stock market could potentially soar sometime in the next few years and the economy will follow. Prosperity may not be just around the corner but don't discount the possibility that good times lie ahead.

Approaching the Cliff

No Harm, No Foul

A current pressing topic for investors is what, if anything, to do about the "Fiscal Cliff."

I learned long ago that taking actions based on expectations about what Congress will do or even has done is often a losing proposition. Congress routinely acts in ways that puzzle even its top leaders. Legislation frequently is so complex that its true impact isn't apparent for years.

Nonetheless, there are times, as at present, when thinking about possible Congressional action could prompt one to take actions that will be beneficial  regardless of what Congress does. As always, taking action in your financial affairs requires analysis of your unique circumstances. You should not act because of the hysterical guidance from pundits.

When Congress last faced this type of situation, in the debt ceiling negotiations last year, the outcome and the market reaction surprised nearly everyone.  For now, make sure that if you take action, you're doing no harm to your long-term interests regardless of what emerges from Capitol Hill.

If what you plan results in improved portfolio diversification, better investments or a more thoughtful approach to your financial future, go ahead. But don't act impulsively and undo long-held plans only because of this short-term  struggle.

The End is Near

Tax Moves to Take Now

Big changes may come to income taxes next year. The media is full of discussions of the "fiscal cliff" and what lies ahead. At this point no one knows for sure what changes are in store.

Rates for ordinary income, dividends or capital gains could rise, perhaps even substantially. Some deductions could be curtailed. Inheritance or other taxes could be revamped.

With this backdrop, there's a danger that investors will over react and take actions that could damage their financial futures. But everyone should at least consider some measures before year-end.

For one thing, investors should focus on the possible rise in capital gains tax rates. If one has long-held positions with big gains, particularly if the holdings are in one or two stocks, now is a good time to consider realizing those gains at the low current rates and diversifying your portfolio. 

Everyone who is eligible for a Roth IRA or Roth conversion should at least consider it. And anyone who has a retirement plan at work or who could institute one should utilize it as fully as possible depending on their personal circumstances.

We don't know what the future holds but we should prepare as best we can.

Patience

One Size Fits All?

Often I’m asked about our investment results for the last year. It’s a reasonable question on the surface but betrays a misunderstanding of investing and personal finance. Unless results are disastrous or too good to be true, you can’t tell much in a year or even a few years.

Each of our clients has a different portfolio and thus different results. Would you outfit all of your friends with size 8 black shoes regardless of their foot size, taste and budget?

For most people, a home is one of their biggest investments. They may live in the house for 20 years or more. Over that time generally --- until the recent unpleasantness – house prices rose. Sometimes prices rose quickly but more often they rose in fits and starts with occasional drops. Long-time homeowners accumulate wealth patiently and while using the house for their family’s daily life, only dimly aware of market fluctuations.

But with the stock market, where prices change continually, people focus on quick results. That impatience isn’t benign; it causes much misery.  Inspect the soup ingredients and the recipe but let it simmer. Don’t yank it off the stove at the first pleasant whiff.