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Prospects For Stocks Are Dim Says WS Journal

The title really does say it all- “Prospects For Stocks Are Dim” says Tom Lauricella of the Wall Street Journal.  It’s hard to chart a course in this turbulent market and the risks are just too high for most investors.  Individuals can not afford to take the risk of losing principal, and it seems those risks have never been higher.

With record low interest rates, bonds  carry immense risk to principal if interest rates rise.  As value moves opposite to yield, a rise in yield will vaporize principal faster than a stock market crash.

And stock market crashes seem to be more the norm than the exception anymore.  Respected money manager Ben Inker of GMO in Boston is quoted in the article below saying:

“Corporate profits are at all-time highs and we don’t think that is sustainable,” Mr. Inker says. That, he adds, suggests stocks are more expensive than investors realize.

As a result, over the next seven years “we don’t think the stock market is priced to deliver a lot of returns,” says Mr. Inker. “Maybe you will keep up with inflation.”

Faced with such high risk times, volatile options, and low expectations from even the best managers, why not make a smart, safe, insured bet on quality annuities, especially our Secondary Market Annuities which can routinely yield high 5% to 6% range.

What’s not to like?

Here’s the full article below-

Prospects for Stock and Bond Returns Are Dim

By TOM LAURICELLA

Source: WSJ 

When it comes to expecting stocks to provide them with any kind of decent return, many investors are throwing in the towel. After all, it’s been years of back-and-forth swings in their portfolios.

Meanwhile, the double-digit returns on bonds over the last 25 years have investors piling into fixed-income investments in record numbers—even as many money managers and analysts warn that investors shouldn’t expect those kinds of returns to continue.

It’s an especially confounding time to be sketching out expected returns on a portfolio, with both stock and bond markets buffeted by significant and unusual forces that could play out for many years to come.

A Grim Five Years
The outlook for stocks stretching out for the next five years or more would seem to be grim, thanks to entrenched fiscal and economic woes in the U.S., Europe and Japan. The U.S., for one, continues battling stubbornly high unemployment and the lingering effects of the housing collapse.

At the same time, some argue that the Federal Reserve’s unprecedented efforts to pump money into the financial markets will eventually lead to a flare-up in inflation. That would send interest rates higher and lead to a nasty bear market for bonds.

Throwing fuel on that fire was the Fed’s decision earlier this month to expand its effort to effectively print new money and prop up the economy. The Fed said it would make an additional $40 billion per month in bond purchases until the unemployment situation materially improves.

But those same efforts by the Fed are keeping the bond bull market alive by capping interest rates and, at the same time, feeding investor demand for riskier and higher-return investments, such as stocks.

In the face of entrenched investor skepticism, the U.S. stock market has staged a powerful rally in 2012. The Standard & Poor’s 500-stock index is up 16% so far this year.

This convoluted backdrop has sparked a vigorous debate over the kind of expectations investors should have for stocks and bonds. Keep in mind that returns are measured by more than just changes in bond or stock prices. What matters is total return—plus stock dividends or bond interest.

Attracting considerable attention have been particularly gloomy arguments from famed bond-fund manager Bill Gross, of Pacific Investment Management (Pimco). Mr. Gross believes bond returns will likely drop to 2% a year on average and stocks will gain only 3% to 4% a year.

Though it may seem like a meaningless debate among the talking heads on financial television networks, expectations matter for individual investors. “They’re a critical component to strategic asset allocation, establishing tolerance for risk and thinking about how asset classes interact” within a portfolio, says Joe Davis, head of Vanguard Group’s investment strategy group.

For Shawn Rubin, a financial adviser at Morgan Stanley Smith Barney, return expectations are central to conversations with clients about their asset allocation and rebalancing strategies.

Often, investors “underestimate the lumpiness of returns and how frequently riskier investments have 5% or more of paper losses,” he says.

Another issue is coaxing investors to think about expected returns in relation to inflation, and not just on a nominal basis. For investors whose primary goal is to avoid having inflation erode the value of their savings, “right now, you don’t need a lot of return to achieve that goal,” says Mr. Rubin.

Take the debate over bond returns. Hal Ratner, an asset-allocation specialist at Morningstar, is among those who think bond returns will dwindle in coming years. He notes that on a short-term basis, investors owning U.S. government bonds are effectively losing money once inflation is factored in.

“That makes you think, ‘Should I really buy government bonds?’ ” says Mr. Ratner. “But in the event that something bad happens [in the stock market], we know that they will protect your portfolio…like buying insurance.”

So for investors with a shorter time horizon, bonds, even with minimal returns, still can act as a cushion should the rest of your portfolio lose money. “Time horizon is absolutely critical,” says Mr. Ratner.

On the stock side of the equation, the calculus gets a lot more complicated.

For starters, expectations are often colored by recent experience, especially a negative one. In the case of stocks, they’re shaped by the financial crisis, even though the S&P 500 has returned more than 6.5% a year for the last 10 years once dividends are factored in.

“For investors, the last 10 years don’t feel like they’ve been up 7%, what they feel is what they felt [like] in 2008” when stocks collapsed, says Lisa Emsbo-Mattingly, director of asset allocation at Fidelity Investments.

Fidelity’s asset-allocation group, which sets the investments for the firm’s target-date retirement mutual funds, believes that over the next five to 10 years, U.S. stocks can generate average to slightly-below-average returns—roughly in the neighborhood of 6% a year.

This forecast is based on expectations that the U.S. economy is not mired in a Japan-like extended recession and will be able to post moderate—though below historical trend—growth of about 2%. Add in the productivity of U.S. companies and strong corporate balance sheets, and Fidelity thinks earnings growth should be able to power better future returns than many investors are currently expecting.

Expensive Stocks
Ben Inker, co-head of the asset-allocation group at money manager GMO, takes a different approach, putting more weight on stock valuations compared with the outlook for corporate profits.

“Corporate profits are at all-time highs and we don’t think that is sustainable,” Mr. Inker says. That, he adds, suggests stocks are more expensive than investors realize.

As a result, over the next seven years “we don’t think the stock market is priced to deliver a lot of returns,” says Mr. Inker. “Maybe you will keep up with inflation.”

Still others take a different view of stock valuations. On balance, “valuations are close to average,” says Vanguard’s Mr. Davis. “That would suggest…returns that range in the high single digits.”

Stock Picking Robots

This week, from SmartMoney, I’m going to feature a story about a supposed scam about two brothers from England who developed a magical strategy for picking stocks and selling advice. The SEC charges that this scam involved the brothers selling newsletter subscriptions to unwitting investors who believed in the ability of a mythical robot to pick winning trades in the market.

Read the article here… Wall Street is Full of Stock-Picking Robots

Apparently investors were told “the ‘robot’ was a highly sophisticated computer trading program and the product of extensive research and development.” Over several years roughly 75,000 investors handed out more than $1.2 million in subscription fees for the service. The whole thing gets a little dicier when we learn that the duo had a separate business where they were paid to promote certain stocks. In turn, for a price, the robot would pick the paid-for stock in the next newsletter.

The article actually suggests what would be my biggest question with this whole story. How is that different from what happens on Wall Street on a daily basis? Hedge funds and asset managers are constantly promoting their proprietary computer trading systems as a reason for you to place business with them. Not to mention the fact that there are plenty of firms who pump an enormous amount of money into certain stocks as a way to artificially inflate the stock’s price, only to sell it moments later at a profit.

I certainly don’t condone these actions in any way but I will tell you that for the average investor, the game is rigged. Have you ever felt powerless as you watched your hard-earned assets evaporate? Well, in many cases you are. Fundamentals favor the long haul while many of today’s trading practices emphasize short-term profits. The problem is that short-term dips in the market cause emotions to drive decisions for many people.

It’s hard to ignore the healthy returns available in many market cycles. But as you approach retirement, wouldn’t it be wise to protect your baseline first? That allows you to take the risks needed to capture real growth over time without threatening your ability to retire when you want.

So, protect the assets that are needed for sustainable retirement income first. Then you are free to chase massive returns with whatever ‘stock picking robot’ most appeals to you.

If you’re tired of the Wall Street games, give us a call.

Have a great week!

Bryan J. Anderson
800.438.5121
bryan@annuitystraighttalk.com

Great Short-Term SMAs Available Now!

From what I’ve heard, the information shared over the last few weeks regarding the secondary annuity market has helped several people gain a greater understanding of this product class. Stepping into a little-known niche of the financial markets is a major transition for anyone. Understanding all that goes into a serious financial commitment is essential to making a calculated decision.
 
Because the inventory changes so quickly at times it is my job to let you know where the value is with what is currently available. Most of you have unique objectives so I’d like to highlight one specific area where this market offers fantastic opportunity.
 
Right now, the short-term deals are hot! Without the commitment of long-term deferred income or lump sum payments, you can secure exceptional rates on three to nine year contracts. Today, those contracts are yielding 4.75%-5.75% in comparison to the rates on CDs and Money Market funds that run between 1% and 3%.
 
For instance, here are a few quality short-term deals…
 
·         $66,906 will grow to $75,000 in three years for an effective yield of 4.75%
 
·         $194,842 will grow to $240,000 in four years for an effective yield of 5%
 
·         $57,733 will grow to $83,000 in seven years for an effective yield of 5.5%
 
And that’s just a small sample of the available contracts…
 
This is an easy decision to make. With so many people unsure of how to allocate capital in a volatile market, many have decided to play it safe. Well, here’s your safety with a little yield to go with it. All of this in a shorter time frame that will give you plenty of flexibility for any changes that may come in the stock market or economy.
 
Check out the current inventory now and see for yourself. Call or email immediately to reserve a deal that suits your situation.
 
If this is the type of investment that works for you but you don’t see anything that fits just right, please let me know to keep an eye out for the perfect deal so it doesn't slip away.
 
Have a great week!
 
Bryan J. Anderson
800.438.5121

bryan@annuitystraighttalk.com

CD vs Annuity Idea

Okay, we all know there are a lot of people with money sitting in CD and money market accounts that are currently yielding very little interest. With the uncertainty in the global economy, I can certainly understand why many are choosing to play it safe for the time being. Are you one of those people?

 
Would you like an alternative with more potential? For the most part I stay away from general product recommendations without knowing your specific situation, but sometimes it helps to demonstrate how annuities can be used in the proper context. This one is very simple and we’ll consider a five year time frame with a particular fixed index annuity that is currently available in the market.

 

CD Vs Annuity: Comparison-

 
This product will pay a minimum guaranteed rate of 1.5% and also allows for up to 5% interest credit if the market performs well. Let’s assume you have a CD or money market fund paying a similar minimum interest rate, which could be more or less depending on your specifics.
 
With an initial premium of $100,000, this annuity will return $107,728 in the absolute worst-case scenario. If the stock market returns positive in at least one year, the total yield will be even higher. And who knows, maybe you’ll win more often than that.
 
Now your CD or money market may have the same guaranteed base, but I’ll bet it doesn’t allow for higher yields with positive stock market performance. Not to mention the fact that the annuity allows for tax deferred growth as compared to the annual taxation of the alternatives.
 
The best part is that the annuity is terminated after five years so you aren’t locked in to a lengthy contract. You should know by now that I’m a big proponent of flexibility and this product provides that with enough growth potential to make it worth a closer look.
 
If you are interested in this product issued by an A rated insurance company please call or email for more information so we can see if this is a match for you.
 
Take care and feel free to contact me at your convenience.
 
Bryan J. Anderson
800.438.5121
bryan@annuitystraighttalk.com

Traditional Asset Management Doesn’t Work For Retirement Income Planning

After taking a week off to organize my thoughts and clear a pile of paperwork, I’m ready to continue the pension series. We left off at the point of covering the major threats a portfolio will face through retirement and now it’s time to look at the traditional approach to conquering those challenges. 
 
It should come as no surprise that asset accumulation strategies fail to offer the kind of assurances everyone needs when it’s time for those assets to support you entirely. Even still, traditional management strategies will have a place in a well-balanced portfolio, just not the leading role that the major management firms would like you to believe.
 
As you work and save for retirement you’ll no doubt alter investment strategies to adjust to the constantly changing economic environment. Over the years the typical advice has led people to save incrementally, use dollar cost averaging, buy low/sell high and shift toward more stable fixed return assets like bonds and treasuries as retirement approaches. Regardless of how that advice has worked for you, there’s good reason to suggest you may want to diverge from that path, at least in part, when it’s time to withdraw assets.
 
As luck would have it, this great article on the subject was published in the Wall Street Journal last week. Recommendations based on complex computer models have always suggested it’s safe to withdraw 4% to 5% of a portfolio for income. The equities markets return 10% in an average year so over time your income should increase to combat inflation and as long as the balance increases you’ll never run out of money no matter how long you live. 
 
Seems easy enough, right? Well, for various reasons that strategy hasn’t performed to plan when put into practice. The first red flag is the ‘probability of success’ attached to a strategy when the computer spits out your numbers.
 
Why the probability of success? In realistic terms, market fluctuations will require income adjustments and constant changes to spending patterns to stay on track. No one knows for sure what will happen so there’s no guarantee for success only a statistical chance. Sure the market may average 10% in the long run but volatility affects you differently when withdrawals are needed for income, regardless of whether the market is up or down today.
 
A Vanguard study noted in the article further asserts the point this way: If investors are relying on either gains in the stock market or bond-market yields to make their money last, "then investors must either accept continuous, relatively smaller changes in spending or else run the risk of having to make abrupt and significantly larger adjustments later."
 
In essence, suffer now or suffer more later. That may not be the kind of worry-free retirement plan you’re looking for. Find the Vanguard study here.
 
Furthermore, new variables that take into account market conditions at the time of retirement are given no consideration in current models. Low interest rates and high stock valuations create a double whammy. Low interest rates mean that the bond yields your portfolio will need to meet projections aren’t available in the current market. And currently high stock valuations increase the probability of a market correction that could spell early disaster for the most carefully designed market based retirement income plan.
 
The biggest problem to this approach, in my opinion, is the fact that a single strategy is applied to planning for the major financial threats we’ve talked about, namely longevity risk, market volatility and inflation. It all depends on the mood of the market, and not just now but every day for the next 20 or 30 years. If you had a choice, when would you like your retirement income to be reduced? I vote never. I’ll repeat myself, the traditional approach to retirement income planning has absolutely no guarantee of success.
 
Yes, if assets are sufficient, continued market participation will lend many benefits in retirement but could come at a steep cost if the majority of your assets are exposed. While you are working, current spending depends on your paycheck and market dips are affordable because you don’t need that money right now. Spending in retirement shouldn’t be any different. Income assets and growth assets should be held separate so you can get the most from both.
 
Separation of powers, so to speak, is an easier approach and will yield more for your future benefit. Next week I’ll come full-circle and talk again about how the pension-approach will alleviate much of the uncertainty when too much weight is given to an algorithm. Computers don’t care about your finances but I do.
 
Stay tuned for next week’s continuation of this series as I get to the point of it all.
 
Take care and have a great week!
 
Bryan J. Anderson

800.438.5121 bryan@annuitystraighttalk.com

Will This Rally Last?

Happy New Year everyone!  It looks as though it’s time to get back to work after the holidays so I’m going to tackle a subject that seems to be creating some debate recently.

The stock market has been on an impressive run over the past couple of years causing many people to shed the apprehensions that followed a disastrous 2008.

Which side of the fence are you on?  Is this rally the real deal.  Since most investors are cheering the market’s run I want to remind people not to get too excited.  Brett Arends of the WSJ talks about this “Santa Rally” at length in a recent column.  Read Brett’s article here…

The article presents several good reasons why it may be a good idea to take some chips off the table and protect your gains.  It’s the difference between a big mistake and a little mistake.  Do you want to continue to carry high risk or protect your assets?  The market is at it’s highest level in two years and although economic conditions seem to be improving, we still have several lingering problems that can end the party in a hurry.

Whatever happens is entirely your choice and the big disclaimer here is that I’ve always been conservative with investments.

Call or email anytime for a honest discussion of how safe investment vehicles, such as annuities, hold pace with other assets through all the up and down years.  Do you want to worry about your money disappearing or not?

Best Wishes For a Prosperous 2011!!!

Bryan J. Anderson

800.438.5121 bryan@annuitystraighttalk.com

How Has The Stock Market Treated You?

I recently came across this article in the September edition of The Atlantic titled The Great Stock Myth that should give everyone something to think about.

We are all taught to believe the the stock market should offer a premium return in exchange for the associated level of risk. That has mostly been true for much of the past century. Recent history, however, shows that the premium steadily decreased as more and more people poured money into the equity markets.

This article mentions a couple of studies, one completed in 1999 that show investors expected annual returns of 30%. Another notes that even after the 2008 crash, one in four investors expects annual returns of 10-20%.

Where do such high expectation originate? Actual performance results over the past decade have been slim to negative in most cases. Forecasts for the next ten years don’t offer much hope, either.

What are your expectations for retirement asset growth? Can you afford to shoulder the risk of the markets without any reward?

It seems a wise move to not rely solely on equities for placement of sacred retirement assets when volatility is least wanted.

One of the fundamental purposes of Annuity Straight Talk is to offer honest information to people who are tired of getting battered and bruised in the stock market. You can safely and predictably grow your assets while assuming little to no risk. It is likely an annuity of one form or another is exactly what you need.

Curious? Just ask me how. Sign up now to receive the free reports on this site or feel free to call or email any time. I can be reached at 800.438.5121 or bryan@annuitystraighttalk.com

To read The Atlantic Monthly aricle click here.

Increase Your Retirement Nest Egg Through Fixed Index Annuities

From an early age, we are taught to work hard, save money, and deposit our money  in a savings account. Savings go towards buying a house, education, or for our retirement.

We are also taught to scrimp and save and make deposits faithfully every month. When our savings reaches a threshold, say $5,000 or $10,000, we may then consider converting that amount to a CD for a higher rate of return than our savings account. While it will earn more money in a CD than in savings, you do have other vehicles that can earn you even more than a typical savings rate, and may also be tax deferred.

Fixed Index Annuities are a viable alternative to traditional CDs or money market savings accounts. When you purchase an annuity you are buying a contract from an insurance company. The terms of the contract provide you a specified rate of return and your gains are tax deferred. The Federal government ensures your money is safe by enforcing  cash reserve levels on the carrier  to cover the annuity. States also have guarantee funds to safeguard your money.

All annuities offer returns based upon your premiums paid. But annuities come in many shapes and sizes. There are immediate annuities which offer immediate income payments. There are also deferred annuities which still earn returns, but in which you do not collect income payments until a future date. You may pay a one time premium for these or make yearly contributions, which is also known as a flexible premium annuity.

The most common annuity is a fixed deferred annuity and quite popular for funding college tuition or retirement income. This is because these annuities guarantee a specified rate of return for a specified time frame. This rate of return is usually better than any bank CD or money market savings account can offer. This product is more conservative than a fixed index annuity, which can garner higher rates of return.

While a fixed index annuity guarantees a base rate of return on your principal balance, the actual rate can vary.  Annuity funds are invested usually in a bond portfolio, and returns are based upon the performance of another stock market index such as the S&P 500 or the Dow Jones Industrial Average. Thus, if the stock market performs well, you share some of the gains. If the stock market does not perform well, you do not incur any losses. It’s really a win-win scenario for you, as you can experience some of the rewards without any risk to your money.

When you take into account a higher rate of return on your money, a risk free guarantee on your money, tax deferment and bonuses, you may well earn more on a fixed index annuity in a fraction of the time it would take you to earn it through an account with your savings bank.

Learn more about this on the The Annuity Report by signing up below or to the right.  Or, explore these  pages on Fixed Index Annuities or these pages on their popular income- rider siblings, Hybrid Annuities.

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Traditional Asset Management Does Not Work For Retirement Income Planning

10 Year Average Returns Are Not A Safe Guide F...

10 Year Average Returns Are Not A Safe Guide For Retirement Income Planning

Now that we know the major threats a portfolio will face through retirement, it’s time to look at the traditional approach to conquering those challenges.

As you work and save for retirement you are taught to be flexible and adjust to the constantly changing economic environment. Over the years the typical advice has led people to save incrementally, use dollar cost averaging, buy low/sell high, and shift toward more stable fixed return assets like bonds and treasuries as retirement approaches.

These asset accumulation strategies fail to offer the kind of assurances investors need when it’s time for those assets to support you entirely. These traditional management strategies will have a place in a well-balanced portfolio, but not the leading role that the major management firms would like you to believe.

Regardless of how traditional asset management advice has worked for you to date, there is good reason to diverge from that path, at least in part, when it’s time to withdraw assets.

As luck would have it, this great article on the subject of the 4% Withdrawal Rule was published in the Wall Street Journal recently. And This Recent Post explores the topic further.

In summary, recommendations based on complex computer models have traditionally suggested it’s safe to withdraw 4% to 5% of a portfolio for income. The equities markets return 10% in an average year so over time your income should increase to combat inflation. As long as the balance increases you’ll never run out of money no matter how long you live…..

Seems easy enough, right? Well, for various reasons that strategy hasn’t performed to plan when put into practice. Recent market performance models now put safe withdrawal rates at just 1.5% to 2% of a portfolio, or recommend drastically reducing consumption in bad years.

The first red flag is the ‘probability of success’ attached to a strategy when the computer spits out your numbers.  And most distressing is the sheer random, insecure nature of a total reliance on the markets….

The Problems With Probabilities:

When you put your faith in a system with a low probability of success, market fluctuations will require income adjustments and constant changes to spending patterns to stay on track.

As we understand from the previous page, there are numerous financial threats in retirement.   And with a statistical model, there is no guarantee for success, only a statistical chance. Sure the market may average 10% in the long run but volatility affects you differently when withdrawals are needed for income, regardless of whether the market is up or down today.

The Vanguard study noted in the article further asserts the point this way: If investors are relying on either gains in the stock market or bond-market yields to make their money last, “then investors must either accept continuous, relatively smaller changes in spending or else run the risk of having to make abrupt and significantly larger adjustments later.” Feel free to download read the Vanguard study here.

In essence, suffer now or suffer more later. That may not be the kind of worry-free retirement plan you’re looking for.

Furthermore, new variables that take into account market conditions at the time of retirement are given no consideration in current models.

Low interest rates and high stock valuations create a double whammy.
Low interest rates mean that the bond yields your portfolio will need to meet projections aren’t available in the current market.

And currently high stock valuations increase the probability of a market correction that could spell early disaster for the most carefully designed market based retirement income plan.

So what is “probability of success”? In realistic terms, it is the chance of failure.  When it comes to retirement income and taking care of your basic expenses, failure is unacceptable.  Why expose yourself to probability risk at all?

The biggest problem to this approach, in my opinion, is the fact that a single strategy is applied to planning for the major financial threats we’ve talked about, namely, Longevity Risk, Market Volatility, and Inflation.

Your income therefore all depends on the mood of the market, and not just now but every day for the next 20 or 30 years.

If you had a choice, when would you like your retirement income to be reduced? I vote never.

I’ll repeat myself: the traditional asset management approach to retirement income planning does not work, because it has absolutely no guarantee of success.

It is true that if assets are sufficient, continued market participation will lend many benefits in retirement.  But this participation could come at a steep cost if the majority of your assets are exposed.

While you are working, current spending depends on your paycheck, and market dips are affordable because you don’t need that money right now.

Spending in retirement shouldn’t be any different. Income assets and growth assets should be held separately so you can get the most from both.

Separation of powers, so to speak, is an easier approach and will yield more for your future benefit.

Next I will come full-circle and talk again about how the pension-approach will alleviate this unacceptable ‘probability of success’ that is inherent when too much weight is given to an algorithm. Computers don’t care about your finances but I do.

Carry On To See The Solution…..