{"id":47948,"date":"2014-02-27T15:25:08","date_gmt":"2014-02-27T20:25:08","guid":{"rendered":"http:\/\/countingpips.com\/forex-news\/?p=47948"},"modified":"2014-02-27T15:25:08","modified_gmt":"2014-02-27T20:25:08","slug":"ty-cobb-approach-retirement-investing","status":"publish","type":"post","link":"https:\/\/www.investmacro.com\/forex-news\/2014\/02\/27\/ty-cobb-approach-retirement-investing\/","title":{"rendered":"The Ty Cobb Approach to Retirement Investing"},"content":{"rendered":"<h4><span style=\"font-size: small;\">By Dennis Miller<\/span><\/h4>\n<p>When baseball fans talk about players from the early 1900s, Babe Ruth is normally the first person mentioned. He was a great home-run hitter with 714 career home runs, a record that stood for almost 40 years. Only two men have surpassed it. Ruth struck out 1,330 times\u2014a record that also stood for several decades.<iframe loading=\"lazy\" src=\"http:\/\/trk.caseyresearch.com\/f\/?content_id=751&amp;code=PIP&amp;editorial=the-ty-cobb-approach-to-retirement-investing\" height=\"1\" width=\"1\" frameborder=\"0\"><\/iframe><\/p>\n<p>Most people think of Ty Cobb as a gritty player who held the career stolen-base record for many years. But let\u2019s look a bit deeper. Ty Cobb broke into major-league baseball in 1905 at the age of 19 and hit .240 his first season. For the next 23 seasons, he hit over .300.<\/p>\n<p>Cobb holds a lifetime batting average of .367, a record that still stands today:\u00a0<strong>85 years and counting<\/strong>. His career strikeout total is 357. He averaged 14.9 strikeouts per season, striking out 3.1% of the time, a remarkably low average.<\/p>\n<p>Young people love to swing for the fences and hit those huge gains. With retirement money, an occasional home run is nice; however, our overriding goal is to\u00a0<strong>preserve capital and avoid catastrophic losses<\/strong>. Ty Cobb didn\u2019t hit as many home runs as Babe Ruth, but he was a model of consistency.<\/p>\n<p>Once you\u2019ve built your nest egg, you\u2019re not trying to run up the score; you\u2019re trying to stay ahead.<\/p>\n<p>Anyone who has tried to play catch-up with his portfolio can tell you there\u2019s no such thing as a five-run homer. Newsletters touting the chance to double or triple your money can grab our attention, but experienced investors realize that those gains are only possible if you\u2019re willing to take on the commensurate risk.<\/p>\n<p>Swinging for the fences with retirement money won\u2019t get the job done. With money that must last <em>forever<\/em>, putting your emotions aside and focusing on safety and consistency is paramount.<\/p>\n<h3><strong>Safety First<\/strong><\/h3>\n<p>Have you ever watched a thin-ice rescue scene? A person standing with all of his weight on thin ice can easily fall through as all his weight is concentrated. The rescuer trying to reach this person normally lies flat across the ice, spreading out his weight.<\/p>\n<p>The same approach works for today\u2019s retirement investor. <em>Step one<\/em> is to spread risk through diversification among (and within) asset classes, selective investments, position limits, and real-time monitoring of your portfolio via stop losses. While we like the income, avoiding catastrophic losses is our mantra.<\/p>\n<p>It\u2019s also worthwhile to reassess just what \u201csafe\u201d means. We can\u2019t count on inflation remaining at historical 2% levels. FDIC-insured CDs and US Treasuries are now guaranteed money losers when you factor in inflation. (\u201cFDIC insured\u201d does not shield us from inflation.)<\/p>\n<p>This brings us to the <em>Step two<\/em> in the Ty Cobb approach:\u00a0<strong>inflation protection<\/strong>. Investing in long-term, fixed-income investments during times of high inflation can result in catastrophic losses\u2014precisely what we need to avoid.<\/p>\n<p><em>Step three<\/em>: find investments with\u00a0<strong>low interest-rate sensitivity<\/strong>. Ross Perot coined the phrase \u201cgiant sucking sound\u201d to describe jobs leaving the US. That will pale in comparison to the giant sucking sound when interest rates start to rise and everyone tries to exit the market at once. The scene after Bernanke\u2019s tapering remark was a small preview. Interest-rate-sensitive investments will be hit hard and fast.<\/p>\n<p>The long-term bond market offers a good example of interest-rate sensitivity. Take an A-rated, ten-year corporate bond paying 3.68%, for example. Now imagine you bought $10,000 worth; you\u2019d receive $368 per year in interest until maturity. If, however, market interest rates rise during that time, you\u2019d have to discount your selling price to resell that bond in the aftermarket to compensate for its below market interest rate.<\/p>\n<p>\u201cDuration\u201d is the term for calculating that discount. The duration for this bond is 8.41. For every 1% rise in market interest rates, the resale value of your bond will drop 8.41%, or $841.00\u2014more than two years\u2019 accumulated interest. Should this happen, you\u2019d have two lousy choices: You could hold on to the bond at a lower-than-current-market-value interest rate until it matures; or you could sell your bond for less than you paid for it.<\/p>\n<p>If inflation is the reason interest rates are rising, that decreases your buying power even further, particularly if you choose to hold on to the bond.<\/p>\n<p>While top-quality bonds are considered safe, that safety stops at the borrower\u2019s ability to repay you. It does not protect your investment from a reduced resale value in the aftermarket, nor does it protect you from inflation. At the risk of sounding like a broken record, let me repeat myself: holding long-term, low-interest-paying bonds at the wrong time can produce catastrophic results.<\/p>\n<p>Interest-rate sensitivity isn\u2019t limited to bonds. The stock market now has a similar problem. Many companies paying high dividends are so flooded with cash that they\u2019ve become interest-rate sensitive. Utility stocks, for one, come to mind. When Bernanke said \u201ctaper,\u201d the prices of utility stocks tumbled.<\/p>\n<p>It is important to understand that this is a distinct type of risk. Should the market rise dramatically, stocks and bonds with high interest-rate sensitivity will be extremely vulnerable.<\/p>\n<p>The final step in the Ty Cobb approach is finding a way to maintain your quality of life while managing your portfolio. While \u201cset it and forget it\u201d isn\u2019t an option, no one wants to spend all of his or her time fretting about money. Finding ways to accomplish your investment goals\u00a0<em>and<\/em>\u00a0to sleep comfortably at night is what it\u2019s all about.<\/p>\n<p>So, to recap, your overriding objectives are to:<\/p>\n<ul>\n<li>avoid catastrophic losses;<\/li>\n<li>protect ourselves from inflation;<\/li>\n<li>minimize interest rate sensitivity; and<\/li>\n<li>free up time to enjoy life.<\/li>\n<\/ul>\n<h3><strong>Your Investment Pyramid<\/strong><\/h3>\n<p>Core holdings should make up the base\u00a0your investment pyramid. Core holdings\u2014precious metals, farmland, foreign currencies\u2014are about survival. Hopefully you\u00a0<em>never<\/em>\u00a0have to touch them. No, I\u2019m not suggesting that you prepare for the apocalypse, but we all need survival insurance. Mentally and practically, it should be separate from your active portfolio.<\/p>\n<p>On the other hand, the investments recommended in the\u00a0<em>Money Forever<\/em>\u00a0portfolio are for income and profit. These investments are meant to keep you going for the rest of your life.<\/p>\n<p>Here are the allocations you should use in today\u2019s market. As conditions change, you may have to make adjustments, but we\u2019ll help you do just that as events unfold.<\/p>\n<p>The Ty Cobb approach uses three investment asset classes:<\/p>\n<ol>\n<li>Equities providing growth and income and a high margin of safety;<\/li>\n<li>Investments made for higher yield coupled with appropriate safety measures; and<\/li>\n<li>Conservative, stable income vehicles.<\/li>\n<\/ol>\n<h3><strong>50-20-30 Equals Bulletproof<\/strong><\/h3>\n<p>You can balance yield and safety in today\u2019s market. How safe is the <a href=\"http:\/\/www.millersmoney.com\/go\/vwjhc-2\/PIP\" target=\"_blank\"><em>Miller\u2019s Money Forever<\/em><\/a> approach? Bulletproof, in my opinion. And that comes from a former Marine who understands that bulletproof is doggone safe\u2014but nuclear trumps all. There are some cataclysmic events that are effectively impossible for individual investors to predict or protect against. So, unless you\u2019re the \u201cbuild a nuclear bunker\u201d type, our approach should let you sleep well at night and enjoy retirement with minimal financial stress.<\/p>\n<p>We currently recommend holding\u00a0<strong>50% of your portfolio in solid, diversified stocks<\/strong>. These stocks should provide dividend income and growth through appreciation. Invest <strong>no more than 5% in any single pick<\/strong>, and use a <strong>20% trailing stop loss<\/strong>. This way, the most you can lose on any single pick is 1% of your portfolio. Sometimes we recommend tightening our stop losses on specific stocks\u2014we\u2019ll notify you of those circumstances in a timely fashion.<\/p>\n<p>If you follow the 5% rule, you should have no more than 10 stock positions in this 50% slice of your portfolio.<\/p>\n<p>You might be wondering: Why not just invest in an S&amp;P 500 fund? When the market swings, S&amp;P 500 fund investors will be the first ones headed for the door, with the program traders that short the S&amp;P chasing them out. We got our clue with the \u201ctaper caper,\u201d and we want to mitigate that risk.<\/p>\n<p>For the <a href=\"http:\/\/www.millersmoney.com\/go\/vwj4d-2\/PIP\" target=\"_blank\"><em>Money Forever<\/em> portfolio<\/a>, we searched for solid companies that are not so flooded with investor money that they\u2019ve become interest-rate sensitive. Dealing with our picks individually allows us to limit our positions and set stop losses. We\u2019re better off trading a little bit of yield for the safety of investing in solid companies that are less volatile than the market as a whole.<\/p>\n<p>Catching a peek our Bulletproof portfolio is risk-free if you try today. Access it now by subscribing to <a href=\"http:\/\/www.millersmoney.com\/go\/vwj7e-2\/PIP\" target=\"_blank\"><em>Miller&#8217;s Money Forever<\/em><\/a>, with a 90-day money-back guarantee. If you don&#8217;t like it, simply return the subscription within those first three months and we&#8217;ll refund your payment, no questions asked. And the knowledge you gain in those months will be yours to keep forever.<\/p>\n<div id=\"xvMdV95u77zU\" style=\"clear: both;\">The article <a href=\"http:\/\/www.millersmoney.com\/go\/vwjsf-2\/PIP\" rel=\"permalink\">The Ty Cobb Approach to Retirement Investing<\/a> was originally published at <a href=\"http:\/\/www.millersmoney.com\/go\/vwjvg-2\/PIP\">millersmoney.com<\/a>.<\/div>\n<div style=\"clear: both;\"><\/div>\n<div style=\"clear: both;\"><\/div>\n<div style=\"clear: both;\"><\/div>\n<div style=\"clear: both;\"><\/div>\n<div style=\"clear: both;\"><\/div>\n<div style=\"clear: both;\"><\/div>\n","protected":false},"excerpt":{"rendered":"<p>By Dennis Miller When baseball fans talk about players from the early 1900s, Babe Ruth is normally the first person mentioned. He was a great home-run hitter with 714 career home runs, a record that stood for almost 40 years. Only two men have surpassed it. Ruth struck out 1,330 times\u2014a record that also stood &hellip; <\/p>\n<p class=\"link-more\"><a href=\"https:\/\/www.investmacro.com\/forex-news\/2014\/02\/27\/ty-cobb-approach-retirement-investing\/\" class=\"more-link\">Continue reading<span class=\"screen-reader-text\"> &#8220;The Ty Cobb Approach to Retirement Investing&#8221;<\/span><\/a><\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[],"tags":[],"class_list":["post-47948","post","type-post","status-publish","format-standard","hentry"],"_links":{"self":[{"href":"https:\/\/www.investmacro.com\/forex-news\/wp-json\/wp\/v2\/posts\/47948","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.investmacro.com\/forex-news\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.investmacro.com\/forex-news\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.investmacro.com\/forex-news\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.investmacro.com\/forex-news\/wp-json\/wp\/v2\/comments?post=47948"}],"version-history":[{"count":0,"href":"https:\/\/www.investmacro.com\/forex-news\/wp-json\/wp\/v2\/posts\/47948\/revisions"}],"wp:attachment":[{"href":"https:\/\/www.investmacro.com\/forex-news\/wp-json\/wp\/v2\/media?parent=47948"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.investmacro.com\/forex-news\/wp-json\/wp\/v2\/categories?post=47948"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.investmacro.com\/forex-news\/wp-json\/wp\/v2\/tags?post=47948"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}