At the Retirment Advisor, we do not recommend chasing the "hot performing" sectors. This is what typically burns investors. In February 2007, we took up the issue of Real Estate Investment Trusts, at a time when many advisors were advocating that fixed-income investors use them as a key part of their portfolios. We chose not to. Here is an excerpt from our newsletter at the time:
A Primer and a Forward View on REITs
For retirees who are interested in squeezing a little bit more income from their retirement portfolios, Real Estate Investment Trusts (REITs) have historically offered dividend yields that are higher than what longer-term Treasuries have offered, with the additional benefit of them being an inflation hedge (which Treasuries or bonds do not provide).
REITs (based on its benchmark, the FTSE NAREIT All REIT Index) have also performed wonderfully, beating the S&P 500 seven years in a row starting from 2000 (its last year of negative return was 1999). In the current environment, is an investment in REITs still appropriate for retirees?
What are REITs?
Before we go further, let us take a “time out” and discuss what REITs really are. For individuals who want to diversify into real estate but don't want to directly invest in properties or who want to remain relatively liquid, the best way to invest in real estate is through indirect means, such as through buying shares of REITs (they are traded on the exchanges), real estate exchanged traded funds (ETFs), real estate service companies, or mortgage-backed securities. Today, the global REIT market is approximately $750 billion, with the U.S. making up the majority of the
market at $400 billion.
Congress established the framework for REITs in 1960 as a way to allow the public to more easily invest in a diversified portfolio of real estate properties. REITs are essentially companies that own and manage income-generating real estate, such as office buildings, shopping centers, apartments, manufactured homes, and self-storage facilities. REITs are also highly liquid investment vehicles, most of which are traded on the national stock exchanges.
Forward View
As we previously mentioned, the performance of REITs has literally been “on a tear” ever since 2000. The obvious question is: What kind of performance can we continue to expect, and is investing in REITs appropriate for retirees or those who expect to soon retire going forward?
As we mentioned previously, one of the historical advantages of investing in REITs have been the higher dividend yields that were offered relative to what longer-term Treasuries have offered. With the exception of a brief 18-month period from late 1996 to early 1998, REITs have historically provided a yield that were 0% to 3% higher than ten-year treasury yields from 1990 to 2005. Not coincidentally, REITs subsequently lost 18.8% in 1998 and an additional 6.5% in 1999. Since the beginning of 2006, REIT dividend yields have been below those of ten-year Treasuries. In fact, REIT dividend yields are now 100 basis points (1%) lower than ten-year Treasuries – representing the most negative spread in history. In other words, REITs are no longer a good investment for income purposes.
Finally, it is no longer obvious that REITs will provide a good inflation hedge for retirees going forward. No doubt, rental prices will generally rise with higher inflation, but keep in mind that the value of REITs has appreciated tremendously in recent years despite a generally low-inflation environment from 2001 to 2006. In other words, there are many other factors which have a greater impact on the prices of REITs, including factors such as foreign investment, a greater ease of financing deals (given the financial innovations in recent years, such as in the mortgage-backed securities markets), and a generally low interest rate environment. Buyers beware.
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http://www.theretirementadvisor.net/Sample_Issue.pdf
Thursday, February 12, 2009
Saturday, January 24, 2009
FINANCIAL PREPAREDNESS CHECKLIST
FINANCIAL PREPAREDNESS CHECKLIST
At The Retirement Advisor, we recommend that investors approaching or in retirement keep a financial preparedness checklist.
#1 ENSURE YOU HAVE ADEQUATE LIQUID ASSETS
Most financial advisors recommend that people have anywhere from 1-3 months of savings in cash available for emergencies. We believe that for someone who is young and carefree, that should be enough. After all, with youth there comes mobility and the capacity to start over quickly. For individuals approaching or in retirement, we believe you should consider maintaining cash reserves that would provide you living expenses of 3-9 months. The liquidity of this cash will provide you financial and emotional security. If there is a natural disaster (hurricane, earthquake, tornado, flood, etc.) a man-made crises (terrorist attack, computer virus, etc.), or simply an unexpected calamity in your life (illness, accident, etc.), knowing that you have cash available to you will be one less thing you need to worry about and make it much easier for you to get through the difficult times.
The good news is that in today’s world, there is a lot more competition for your investment dollar. Thus, if you shop around, you can maintain cash reserves and get yields that approach what you might get with a certificate of deposit.
I am aware of two online savings accounts where you can currently earn 4% on your savings. The first is Dollar Savings Direct, which is a division of Emigrant Bank. Here is a link to their web site:
http://tinyurl.com/5lkdwj
The other is EverBank which guarantees 4.08% on its savings account for 3 months. Here is a link to that url:
http://tinyurl.com/6fnxfd
You can also try a high yield checking account. I will provide a summary of those in an upcoming newsletter.
#2 REVIEW YOUR INSURANCE POLICIES
After living through several hurricanes, one of the disconcerting truths to emerge is that most consumers are not familiar with what their insurance policies cover. A corollary to this is that many people have not taken the time to update their insurance. For example, homeowners often stick with the same coverage for the house on the day they purchased it, without ever updating it based on improvements made or other change in circumstances. The biggest insurance polices are home, flood, car, health and life. Take the time to read these policies and if you do not understand a provision, call your insurance company and have them explain it to you. While you are doing this, it might not hurt to shop around. According to J.D. Power and Associates, 33% of people who shop around for car insurance quotes end up switching companies. Thus, in addition to being on top of what your policy covers, you might save some money in the process. Also, make a list or take pictures or a video of your home contents and put it in a safe deposit box. This documentation will aid in getting claims filled quickly.
On a personal note, I have USAA for my auto, home and life insurance and would recommend them to others. (http://www.USAA.com) In August of this year, USAA increased its membership eligibility to include military retirees, regardless of when they retired and after they join, their spouses and children. I was able to join because my father was in the military. Captain Korn!
#3 ACCOUNT FOR ALL OF YOUR DEBTS AND ASSETS
Over the years, you may have accumulated many assets. You should create a list of everything substantial that you own, including stocks, CDs, mutual funds, real estate, jewelry, cars, etc. Likewise, you should account for all of your debt outstanding. You can then create your own personal financial balance sheet that will be of invaluable assistance in your financial planning, as well as estate planning. You can download a free excel worksheet to do that at the following url:
http://tinyurl.com/7l496h
#4 ORGANIZE RECORDS, PHOTOS AND VIDEOS
Everyone knows that they should maintain records of important documents, but have you made the effort to organize them and protect them against a disaster? For your financial well-being, you should keep all of your insurance policies, titles, marriage/birth/death certificates and account numbers for your financial institutions (banks, brokerage and investment houses). Consider keeping these records secured in plastic, and if possible, make a copy and put it in a safe deposit box, or a different location than your primary residence. Missing paperwork after a disaster can actually create more stress than the event itself. And lest you forget, when all is said and done, your photos and videos of family and friends are even more important. Unlike financial records that can eventually be recreated, photos and videos may never be recovered. Those reflect your life and taking the time now to ensure that they are protected against a disaster will pay off later on.
And of course in the digital age, it didn’t take long for a company to come up with an online safe deposit box. I can’t vouch for this site, but I read about it in the Wall Street Journal on a recent plane ride and wrote it down so I could share with you all. The name of the site says it all:
http://www.keepyousafe.com/
#5 LONG TERM CARE/LIVING WILL
People are living longer and longer. The reality of the situation, however, is that when people live to ripe old ages, they may have long-term health care needs. There is insurance for such needs available, although it can be expensive and so buyers need to do their research. However, that is something you can plan for now. A more serious and difficult issue for many people is whether to have a living will usually covers specific directives as to the course of treatment that is to be taken by caregivers, or, in particular, in some cases forbidding treatment and sometimes also food and water, should the principal be unable to give informed consent due to incapacity.
Each state has its own approach and laws governing living wills, so best to check with a lawyer. Time Magazine had a good article on Living Will Resources at this url:
http://tinyurl.com/5wwjn
#6 THE AFTERLIFE
While we may not know what awaits us after our demise, we can plan for what will remain after we are gone. If you do not decide while you are alive how you want your assets divided up, then someone else will decide for you. There are many choices to make such as whether you are going to donate to a specific charity, how much you are going to leave your children and whether you are going to fund a grandchild’s education. Making these decisions now also has the added benefit of you being able to tell the recipients of your decisions and enjoying the moment with them. Finally, many of these decisions have tax consequences associated with them and by planning now; you can optimize your estate so that it makes the financial sense to you while simultaneously benefiting the ones you care about.
You do not need a PayPal account to use a credit card. After you click the link, on the lower left of the PayPal page click the "Continue" link near the pictures of credit cards to pay.
Send us an email if you have any troubles.
At The Retirement Advisor, we recommend that investors approaching or in retirement keep a financial preparedness checklist.
#1 ENSURE YOU HAVE ADEQUATE LIQUID ASSETS
Most financial advisors recommend that people have anywhere from 1-3 months of savings in cash available for emergencies. We believe that for someone who is young and carefree, that should be enough. After all, with youth there comes mobility and the capacity to start over quickly. For individuals approaching or in retirement, we believe you should consider maintaining cash reserves that would provide you living expenses of 3-9 months. The liquidity of this cash will provide you financial and emotional security. If there is a natural disaster (hurricane, earthquake, tornado, flood, etc.) a man-made crises (terrorist attack, computer virus, etc.), or simply an unexpected calamity in your life (illness, accident, etc.), knowing that you have cash available to you will be one less thing you need to worry about and make it much easier for you to get through the difficult times.
The good news is that in today’s world, there is a lot more competition for your investment dollar. Thus, if you shop around, you can maintain cash reserves and get yields that approach what you might get with a certificate of deposit.
I am aware of two online savings accounts where you can currently earn 4% on your savings. The first is Dollar Savings Direct, which is a division of Emigrant Bank. Here is a link to their web site:
http://tinyurl.com/5lkdwj
The other is EverBank which guarantees 4.08% on its savings account for 3 months. Here is a link to that url:
http://tinyurl.com/6fnxfd
You can also try a high yield checking account. I will provide a summary of those in an upcoming newsletter.
#2 REVIEW YOUR INSURANCE POLICIES
After living through several hurricanes, one of the disconcerting truths to emerge is that most consumers are not familiar with what their insurance policies cover. A corollary to this is that many people have not taken the time to update their insurance. For example, homeowners often stick with the same coverage for the house on the day they purchased it, without ever updating it based on improvements made or other change in circumstances. The biggest insurance polices are home, flood, car, health and life. Take the time to read these policies and if you do not understand a provision, call your insurance company and have them explain it to you. While you are doing this, it might not hurt to shop around. According to J.D. Power and Associates, 33% of people who shop around for car insurance quotes end up switching companies. Thus, in addition to being on top of what your policy covers, you might save some money in the process. Also, make a list or take pictures or a video of your home contents and put it in a safe deposit box. This documentation will aid in getting claims filled quickly.
On a personal note, I have USAA for my auto, home and life insurance and would recommend them to others. (http://www.USAA.com) In August of this year, USAA increased its membership eligibility to include military retirees, regardless of when they retired and after they join, their spouses and children. I was able to join because my father was in the military. Captain Korn!
#3 ACCOUNT FOR ALL OF YOUR DEBTS AND ASSETS
Over the years, you may have accumulated many assets. You should create a list of everything substantial that you own, including stocks, CDs, mutual funds, real estate, jewelry, cars, etc. Likewise, you should account for all of your debt outstanding. You can then create your own personal financial balance sheet that will be of invaluable assistance in your financial planning, as well as estate planning. You can download a free excel worksheet to do that at the following url:
http://tinyurl.com/7l496h
#4 ORGANIZE RECORDS, PHOTOS AND VIDEOS
Everyone knows that they should maintain records of important documents, but have you made the effort to organize them and protect them against a disaster? For your financial well-being, you should keep all of your insurance policies, titles, marriage/birth/death certificates and account numbers for your financial institutions (banks, brokerage and investment houses). Consider keeping these records secured in plastic, and if possible, make a copy and put it in a safe deposit box, or a different location than your primary residence. Missing paperwork after a disaster can actually create more stress than the event itself. And lest you forget, when all is said and done, your photos and videos of family and friends are even more important. Unlike financial records that can eventually be recreated, photos and videos may never be recovered. Those reflect your life and taking the time now to ensure that they are protected against a disaster will pay off later on.
And of course in the digital age, it didn’t take long for a company to come up with an online safe deposit box. I can’t vouch for this site, but I read about it in the Wall Street Journal on a recent plane ride and wrote it down so I could share with you all. The name of the site says it all:
http://www.keepyousafe.com/
#5 LONG TERM CARE/LIVING WILL
People are living longer and longer. The reality of the situation, however, is that when people live to ripe old ages, they may have long-term health care needs. There is insurance for such needs available, although it can be expensive and so buyers need to do their research. However, that is something you can plan for now. A more serious and difficult issue for many people is whether to have a living will usually covers specific directives as to the course of treatment that is to be taken by caregivers, or, in particular, in some cases forbidding treatment and sometimes also food and water, should the principal be unable to give informed consent due to incapacity.
Each state has its own approach and laws governing living wills, so best to check with a lawyer. Time Magazine had a good article on Living Will Resources at this url:
http://tinyurl.com/5wwjn
#6 THE AFTERLIFE
While we may not know what awaits us after our demise, we can plan for what will remain after we are gone. If you do not decide while you are alive how you want your assets divided up, then someone else will decide for you. There are many choices to make such as whether you are going to donate to a specific charity, how much you are going to leave your children and whether you are going to fund a grandchild’s education. Making these decisions now also has the added benefit of you being able to tell the recipients of your decisions and enjoying the moment with them. Finally, many of these decisions have tax consequences associated with them and by planning now; you can optimize your estate so that it makes the financial sense to you while simultaneously benefiting the ones you care about.
You do not need a PayPal account to use a credit card. After you click the link, on the lower left of the PayPal page click the "Continue" link near the pictures of credit cards to pay.
Send us an email if you have any troubles.
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