retirement concerns

[notes1]

just as lower interest rates can often increase the selling price of homes, the fed's low interest rate policy was intended to increase the value of stocks. the TINA affect was by design.

Friday, the market was down by more than 2%, largely due to just the hint of a rate increase possibility. one day, not a couple of days and maybe not a couple of weeks decides the direction of the market. but, it does provide an indication of what the effect on stocks might be, if rates were to actually go higher.

many believed home prices would never drop. the fed's low interest policy, adopted to curb effects of the dot com bubble busting and 9/11, helped lead to another bubble...housing prices. we are still trying to recover from that disaster.

with GDP growth at a dismal 1% rate thru the first 6 months of 2016, with 5 consectutive quarters of negative earnings growth from corporate America, Europe still a financial mess, the question is, are stock valuations too high? if they do raise rates, will the high dividend payers be as attractive?

we may find out the answers to these questions, over the next couple of months.

[case]

You are 100% right what you said about just a hint about a rate increased caused the markets to react. When the actual rate increase does come you will see big correction as the markets will drop fast. However it will come back and I believe after the shock succeeds. Remember Brexit. The markets dropped fast and then went right back up.

A correction is due as most dividend stocks are over priced. However higher interest rates would help some undervalued stocks such as those in the insurance field. Low interest rates hurt some sectors.

I firmly believe it will be a rocky road ahead but not all doom and gloom. I always keep cash ready to buy when stocks go on sale. But nothing is guaranteed and all we can do is push forward. I would love to see a 5% GIC once again, but it will be a long time off.

[case]

Might be a buying opportunity on ATT right now. It's off about 10%from recent highs and pays a strong dividend.

And AT&T is also a dividend aristocrat with dividend increases for 31 straight years. It was just getting priced a bit high in 2016 and maybe going back to its 5 year average. 5% dividend though is nice!

[olds442jetaway]

I don't have the exposure that I did years ago, but what closed end funds I still have are doing well. I got gun shy on individual stocks in the early 2000s. Got burned with fraud by the owners on a big company and another one that was a reit. I even took out another life insurance policy to cover those two losses and have been paying on it ever since. The best research in the world cannot fully protect the investor from fraud. Uncle Sam paid for part of the losses. I wish gambling and especially vp followed the same tax rules as stocks. Wish the states had to follow those rules too. Don't think that will ever happen though. Ever since then though, what little I do now is strictly closed end funds with good dividends.

[notes1]

i'll leave the stock picking advice and market projections to others. the vast majority of workers today, outside of government, do not have a pension to fall back on. they must manage their monies, for the balance of their lives. and, with historic low rates, one of the most commonly used financial tools, the guaranteed account, has effectively been eliminated.

what retirees/investors need to know is they are purposely being lead down an investment path, by the very same people that regulated the banks and set interest rate policy, before the recession. we all know how things turned out. we are being told, this time they will get it right. I have no idea.

[olds442jetaway]

Nor do I have any idea. I used to complain about the 4% passbook account rate. Now I wish for it. Something is up. Unfortunately, only a select few are privy to what is coming down the road.

[billryan]

 Savings accounts have rarely done much more than keep up with inflation, if that. What good was getting 5% interest when inflation was 6%?Sure it was nice getting 15% on Six Month Treasury notes in the early 80s, but it sucked getting 13% mortgages. Has anyone ever gotten rich by the savings book style of investing?

[olds442jetaway]

Not rich, but when you just wanted to park and not tie up money, it wasn't a bad deal at 4 or 5 percent. Especially, it you rarely bought any big ticket things that inflation would affect like homes, cars, boats, expensive jewelry, and the like. The main goal at the time was to use it as strictly a parking place while waiting to guess when and if the CD rates would go higher. Did pick a really good stock years ago that I sold way to early. B & G pickels. You made out with great dividends, mergers, and price appreciation too. I haven't looked at it lately, but I think it is still doing well.

[notes1]

the idea is not to get rich using passbook, cd's or any traditional bank savings vehicle, but no retiree should have all their money at risk. after two stock market corrections of 50% or more over the past 15 years, it would be foolish not to have a secure pot of money, that can provide immediate and short/mid term income. for those without a pension, this pot might be substantial in size.

and, what about those who do not wish to have a lot of risk in their portfolio or those who need income, but may not have the capacity to make informed and ever changing financial decisions. what about the majority of retirees, who did not save near enough and cannot afford the risk of putting the majority of their savings at risk. 30% of retirees have no pension or savings.

the last DOW correction, started in October of 2007 and did not return to those levels, until 2013. those who ended up among the worst and there were tens of millions of them, were those who sold out early, because they needed money.

guaranteed accounts have been an essential financial tool used by savers/retirees, since.. forever. they have been decimated and people are being forced to substitute financial products they do not understand, such as emerging market debt for income. ask the average retiree what that is, but many would be surprised they may have some money invested in it.

[olds442jetaway]

Well said Notes. I know several seniors who got out with a huge hit because they didn't know if everything was going to zero. They never got back in due to fear and will never recover financially.