Here’s the Minimum You Should Invest in Fixed-Income

Back in May of 2002 I warned readers of the dangers of market timing, and of investing too much of their portfolio in equities. I wrote:

Your Focus: Dividends & Interest

In this issue, I re-emphasize why I think conservative investors must focus laser-like on fixed-income interest and dividends from common stocks. No matter what hype you read in the media or hear from brokers, stocks in general are not cheap—far from it. When all you get from the average big company stock is a 1.5% yield and you pay nearly 30 times earnings in the process, you are not looking at bargains. As you know, I do not invest for my own account on where I think the market is going, nor do I advise market prognostication for you. If Warren Buffett or Charlie Munger or Martin Whitman or Mike Holland or Jack Bogle don’t do it, and Ben Graham never did it, I sure as heck am not advising market timing for you.

Counterbalancing Is King

Instead, I invest a minimum 30% in fixed-income securities and the balance (70%) primarily in value-oriented equity securities. And I emphasize dividends. That is the exact strategy I insist you adopt if you want to retire in comfort. If, instead, you and your spouse are comfortable with gut-wrenching volatility, sweat-soaked sheets, and the raw nerves and foul disposition that come with sleep deprivation, just take a pass on my value-based diversification strategy.

A substantial counterbalancing fixed income position is still right for investors today. Diversification among asset classes is one of the most consistently effective ways to minimize losses in a market downturn. If you are unsure about the diversification in your portfolio, evaluate your holdings today and make the necessary adjustments.

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How Can You Spot a Loser in Investing?

Back in July 1994, I wrote:

You Has It or You Don’t.

Dressed in snakeskin, feathers, grease paint and radiant colors, New Orleans gris-gris musician, Dr. John, delivers his musical message. Funky, gumbo-tinged rhythms spiced with a Bayou flavor makes for a perennial Mardi Gras atmosphere when delivered by Crescent City favorites like Jessie Hill, Cyril Neville, Chuck Carbo, Allen Toussaint, and the eclectic Night Tripper, Dr. John.

When asked what makes the whole musical gumbo of New Orleans come together, Dr. John explains that it’s the groove of the thing, a pulse, an inner self sort of thing. Notes the Doctor, “You either has it or you don’t.”

The Rhythm of Investing

Why is it that some investors you know seem to get it right most of the time, while many more do not? No rhythm, that’s why. It’s not hard to spot a loser in the financial markets. A loser has no plan, little perspective and less understanding of the risk/reward trade-off. There’s no beat.

A winner in the financial markets, by contrast, always has a plan, has great perspective and is a keen student of the risk/reward ratio. It’s the backbeat that lays down the rhythm for the foundation of New Orleans R&B as well as for successful investing. You need the foundation.

So, to spot an investing loser, look for someone with “no plan, little perspective and less understanding of the risk/reward trade-off.” If you haven’t developed these three critical elements of a winning investment strategy, get started today. Here are three small steps you can take today towards investment success.

  1. Get a plan. If that means hiring an advisor, do so.
  2. Get some perspective. A good start can be made by signing up for the Richard C. Young & Co., Ltd. monthly client letter (free even for non-clients) at
  3. Get a better understanding of the risk/reward tradeoff by picking up a copy of The Intelligent Investor by Benjamin Graham. And if you have managed to spot an investing loser among your friends or family, the book makes a great stocking stuffer too.

Dr. John – Full Concert – 08/13/06 – Newport Jazz Festival (OFFICIAL)

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Can Politics Predict the Markets in 2019?

I have written in the past that politics can have a great effect on market performance. Today America is enduring one of the most contentious political climates in memory, and at the same time the stock market has become volatile.

The best year in the four-year presidential election cycle is the year before the election. In this cycle that’s 2019. Since 1875, the average performance of the S&P 500 in the calendar year before a presidential election has been 14.3%. The presidential election year itself comes in next with an average of 10.9%, and midterm election years and the year after the presidential election produced averages of 9% and 8.9% respectively.

So does that mean a roaring bull market is guaranteed in 2019? Of course not, there are no promises, no tricks, and no shortcuts in investing.

I wrote this back in 2006 (charts have been updated to reflect the subsequent years):

Politics & Stock Prices from 1959 On

The stock market likes good times. Until just recently in 2005, most investors (not you, I trust) have not had much about which to cheer. Much of the trauma this year has related to the foul media coverage President Bush has received regarding Hurricane Katrina and the Iraq war. Just how much does the political landscape affect stock prices? A whole lot. In fact, few variables rate higher on my list of stock market influences. To make my point, I have put together four historical displays starting with the year I got started with the stock market—1959. The displays depict stock market gains and losses in each of the four years of the presidential cycle.

Display #1—Election-Year Power

Anyone who tells you to pay no attention to politics as it relates to the stock market is smoking something funny. Politicians of all stripes will say just about anything to get elected, and the vote-getting bribery of politics provides a good-time feeling in almost every election year. Since 1959, a presidential election year has brought with it higher stock prices in 10 of 12 years.

Display #2—The Year After a Presidential Election

The rubber hits the road as the incoming president attempts to back up all those over-the-top campaign promises. The results are often short of the mark, and the stock market has an in-and-out time of it. The stock market results in 2005—an after-election year—have been pretty predictable.

Display #3—Two Years After a Presidential Election

This is also an in-and-out year, as electioneering is not front and center. Furthermore, tough and often unwelcome presidential decisions must be made.

Display #4—The Year Before a Presidential Election

Since the banner year of 1959, there has not been a single stock market downer in the year leading up to a presidential election. Furthermore, stocks make big gains more so than in any other year in the presidential election cycle. Since 1959, you get a 22-and-2 record of ups and downs when you pair the year before a presidential election with the election year. By contrast, pairing the two years following a presidential election gives you a not-so-hot 11-and-11 record.

Looking Ahead and Cringing

In terms of the presidential election cycle, next year has the lowest odds of success of any of the four years in the cycle. Worse yet, the year coming up, 2006 (two years following the presidential election), has the fewest number of big years.

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Are You Investing in the Armored Truck of Financial Markets?

Are your investments characterized by the flash and speed of a supercar, or the reliability and protection of a Brinks truck?

There’s nothing wrong with a super powered automobile made to take on curves at maximum speed, but the power that makes those machines exciting, is also what breaks their parts. All that torque can be hard on an automobile.

Meanwhile, the massive diesel engines and reinforced steel protective bodies of armored trucks make sure its cargo reaches the destination.

Back in 1990 I called Treasuries “the armored Brinks truck of financial markets.” I was responding to a subscriber’s comment, here:

Subscriber Joan Howell recently contributed a nifty note on the wisdom of Treasuries. Joan writes, “I began to see a similarity in the selling of mutual funds, stocks and automobiles—a constant turnover of whatever is the fanciest, flashiest, or sexiest mode. Not that the ones at the top of the list are that bad, they just never stay permanently at number one. Then I thought of Treasuries as an armored Brinks truck: gray, square, solid, authoritative, weighing tons; no need to be ‘in fashion’ but always there, reliable, very profitable.”

Joan’s illustration is a beauty and adroitly defines the comfort level that Treasuries provide.

My family owned advisory firm, purchases treasuries for clients as a component of a balanced portfolio. If you are a retired or soon to be retired investor with $500,000 or more to invest looking to ease the burden of portfolio management to spend more time with your family and would like to discuss our treasury strategy during a free, no-obligation portfolio review with a seasoned member of our investment team, please fill out the form below.

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Most People Aren’t Measuring Performance Correctly: Here’s How

When you measure performance in your portfolio, are you getting the right picture? If you are like most investors, the answer is no. Here is what I wrote in December 2013 about how you should be measuring performance:

Cycles and Investment Success

Understanding cycles is vital to your long-term investment success. Most folk intuitively understand that the economy and the financial markets go through cycles. The economy expands and then it contracts, the stock market rises and falls, interest rates go up and they go down. Cycles just come with the territory in a free market economy, but when it comes to evaluating investment performance, too many investors behave as if cycles don’t exist. The mutual funds and investment managers who have earned the highest returns over a given period of time, whether it is three years or five years, gather the largest share of investors’ assets.

Three or five years may seem as though it is long enough to evaluate investment performance, but it is not. The proper way to evaluate investment performance is to measure over a full market cycle. Why? Because just as the economy and the broader stock market go through cycles, so too do investment strategies. More aggressive investment strategies are likely to outperform in up markets, but they are also likely to trail badly in down markets. The opposite is true of a more defensive strategy.

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Commit This to Memory: Update

UPDATE: Since I originally posted this on October 11, 2018. Look at my chart to see what has happened since then. 

Bond yields are rising, tech stocks look shaky, emerging market currencies are tanking, and in the midst of the longest bull market in history, September property sales in Manhattan are down 39% compared to 2017, with median sales prices falling 9% during that time.

There are some warning signs flashing. What should you be doing now to prepare for a future downturn? In April of 2002 I wrote:

Here is a historical goody that will offer you much comfort. In every stock market downturn since 1950, with one mini-exception, intermediate-term U.S. Government bonds have risen. Talk about the power of counterweighting. Talk about an Armadillo-like defense shield.

If you want to properly prepare for your retirement and retire in comfort, please commit the preceding to memory. Promise yourself you will keep your fixed-income component up to snuff. And never futz with your mix. Do not be an interest-rate forecaster or a trader. Once you have your mix correctly in place, leave it alone except for occasional tinkering and pruning. You do not want to hack and chop. Portfolio management for long-term conservative investors is about ebb and flow—slow and steady and patient. Remember, successful investing is counterintuitive. For example, most investors equate successful investing with trading activity, when just the reverse is true. At the same time, they look to stock price gains as their equities benchmark. In reality, the place to begin is dividends and dividend growth. Companies that pay a decent dividend and increase the dividend year after year will have share price appreciation. It comes with the turf.

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What Will Happen if Trump Increases Tariffs on China?

This week President Trump said it would be “highly unlikely” that he would hold off on increasing many tariffs on Chinese goods from 10% to 25%. Analysts are asking, what will happen if he goes forward with his plan?

The media is answering that question with a spectrum of possibilities ranging from apocalypse to Armageddon.

But what happens if Trump doesn’t take a tough stance with China? What is China’s endgame? And, if China is successful in implementing its plans via unfair trade practices, would the potential outcome be any better for the U.S. economy than the negative aspects of a trade war?

In December of 2005 I analyzed the China question, writing:

Chinese End Game

Is China deceiving the world about its military spending and intentions? I believe the answer is clearly yes. London-based International Institute of Strategic Studies is floating a weapons and defense spending number of over $62 billion for last year versus official Chinese reports of $30 billion. Seems the comrades count spending on Russian submarines, aircraft, and destroyers as “off balance sheet” items. China is fixated on re-unification with Taiwan and anticipates military intervention from the U.S. I have explained why such intervention is not needed.

The economic impact of a war with China would be devastating for all sides. If tariffs can be used as a negotiating tool to bring the Chinese to the table on unfair trade practices, it could be a success for both countries in the long term.

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Are You a Shepherd or a Gunfighter?

Before you answer, remember that at least 50% of gunfighters end up dead.

Are you the type of person who will dutifully grow your investment portfolio over the years by shepherding it in the right direction?

Or will you risk it all in one high risk gunfight after another until your number is called?

Consider what I wrote here, thirty years ago in December of 1988. It’s a comparison of some high-level shepherding vs. some inexperienced gun slinging.

Do you know the two most powerful words in investing? If you’ve been with me through the years, you know the answer. But for all of my new subscribers, the two magic words are COMPOUND INTEREST. Let me show you their importance and suggest an exclusive menu of high-yield winners perfect for your portfolio.

The name Joseph Rosenberg may not mean anything to you. Joe’s a money manager for Loews Corp. How much does Joe shepherd? Over $1 billion. A few years ago I made a presentation to Loews’ top management. The group included CEO Laurence Tisch, now also head man at CBS. Rarely if ever have I been more impressed with the composite investment knowledge of a small management team. It’s, of course, not for lack of acuity that you’ll find Laurence and Preston Tisch listed among the Forbes “Four-Hundred Richest Americans” at a staggering $1.7 billion.

“The Most Important Thing in Investing”

You can imagine my interest when I opened my 1989 Fortune “Investors Guide” and saw staring at me a near-full page color photo of Joe Rosenberg in his mountain climbing clothes. Joe is an adventurer at heart, but when it comes to investing, listen to Fortune tells readers:

“Joseph Rosenberg, who manages more than $1 billion for Loews Corp., believes so fervently in the awesome power of compounding that he carries a compound interest table in his pocket at all times…even to the peaks of Yosemite. His faith is simple and absolute.” Says Joe of the powers of compounding: “It is the most important thing in investing.”

About the same time I was enjoying Fortune’s neat picture of Joe sitting high atop a peak at Yosemite, I read an article on a young woman referred to by the Wall Street Journal as “the new Wall Street guru.” The Journal informed us that this young lady had enjoyed a single-day media coronation, “while some legendary investors [including Joe and the Tisch brothers, I might add] have built their records over decades.”

And how is the “new guru” doing? Not so well, I’m afraid. Her fund ranked dead last in its category in the 1988 period annualized by the Wall Street Journal. So much for new gurus.

Think about it. Do you want to become wealthy by following my policies of compound interest performance, or do you want to draw to an inside straight, pan for fool’s gold, or perhaps relive the financial equivalent of the gunfight at the OK Corral? As Joe Rosenberg told Fortune readers, “It’s foolish to undermine the power of compounding by taking big risks that could kick you out of the game.”

To harness the power of compounding you must be a shepherd, not a gunfighter.

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My Concentration Is on Full Faith & Credit Pledge U.S. Treasuries

As Wall Street tumbles, my concentration is on full faith and credit pledge U.S. treasuries. Reuters‘ Caroline Valetkevitch reports on the market:

The Nasdaq fell 3 percent on Monday as investors dumped Apple, internet and other technology shares.

Shares of Apple Inc fell after the Wall Street Journal reported the company had cut production orders in recent weeks for all three iPhone models launched in September.

The iPhone maker’s stock dropped 4.0 percent to $185.86 and is now down 19.9 percent from its Oct. 3 record closing high in the wake of a disappointing holiday quarter sales forecast.

Other market leaders – including the ‘FANG’ stocks – also fell sharply. Shares of Facebook were down 5.7 percent, was down 5.1 percent, Netflix fell 5.5 percent.

Read more here.


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Are You About to Retire Broke?

Most Americans are simply not saving enough. GOBankingRates released a survey this week showing that 42% of Americans will retire broke. Hopefully, that doesn’t include you, but even if you have been saving, it’s a good bet you could do more.

In July 2014, I explained to readers why they should boost savings.

Boost Your Savings

The strategy implication of a low-return environment is that savings must play a greater role in your investment plan. The stock and bond markets aren’t going to bail you out. To secure a prosperous financial future, today’s low-return environment demands that you boost your savings rate. And not just by a little, but by a lot.

Consider a hypothetical investor who we will call Joe. Joe is 50 years old and he plans to retire in 15 years. Joe has $1.2 million in retirement savings. He has an annual income of $150,000 and he thinks he can retire comfortably with $100,000 in income. Since Joe doesn’t plan to retire for another 15 years, we have to adjust his $100,000 income need for future inflation. Assuming a 3% inflation rate, Joe will need to take $155,000 in income when he retires.

Using my maximum advised 4% withdrawal rate, Joe shouldn’t retire until he has a $3.9 million portfolio ($155,000 is 4% of $3.9 million). Since Joe already has $1.2 million invested in a 50-50 mix of stocks and bonds, his savings goal is within reach. But only if he makes regular contributions to his portfolio. How much does he have to contribute to his portfolio to achieve his savings goal?

A lot more than he would if he could count on a 7% return. At a 7% return, Joe would be able to put away $2,000 per month, or about 16% of his income, and easily achieve his retirement savings goal. But at a 4% return, Joe will have to save about $84,000 per year to reach his $3.9 million target in 15 years—that’s more than half of his annual income.

The ugly reality of the Fed’s aggressive monetary policy is that many Americans are going to have to save more and work longer in order to retire comfortably. I am not suggesting that you boost your savings rate to 50% of your annual income, but I am suggesting that you reassess your retirement savings plan in light of today’s low prospective return environment.

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