{"id":68709,"date":"2015-02-26T18:05:58","date_gmt":"2015-02-26T23:05:58","guid":{"rendered":"http:\/\/countingpips.com\/?p=68709"},"modified":"2015-02-26T18:05:58","modified_gmt":"2015-02-26T23:05:58","slug":"investing-inertia-wont-keep-your-cash-safe","status":"publish","type":"post","link":"https:\/\/www.investmacro.com\/forex\/2015\/02\/investing-inertia-wont-keep-your-cash-safe\/","title":{"rendered":"Investing Inertia Won\u2019t Keep Your Cash Safe"},"content":{"rendered":"<div id=\"inves-922837481\" class=\"inves-below-title-posts inves-entity-placement\"><div id =\"posts_date_custom\"><div align=\"left\">February 26, 2015<\/div><hr style=\"border: none; border-bottom: 3px solid black;\">\r\n<\/div><\/div><h4>By Dennis Miller &#8211;\u00a0<a href=\"http:\/\/www.millersmoney.com\/go\/umzqe-2\/PIP\">millersmoney.com<\/a><\/h4>\n<p>A dear friend asked for help\u2014the sort of help you might need too. She\u2019s retired, lives alone, and has a modest nest egg. But the thought of losing any of her life savings <em>terrifies <\/em>her.<iframe loading=\"lazy\" src=\"http:\/\/trk.caseyresearch.com\/f\/?content_id=1189&amp;code=PIP&amp;editorial=investing-inertia-wont-keep-your-cash-safe\" width=\"1\" height=\"1\" frameborder=\"0\"><\/iframe><\/p>\n<p>Let\u2019s call my friend \u201cSally.\u201d Sally doesn\u2019t trust stockbrokers or any commission-based investment advisors, and she confided that all of her money is in a cash account, earning 0.01% interest.<\/p>\n<p>Sally understands that at that rate, she\u2019ll likely outlive her nest egg. She knows she needs to do <em>something<\/em> but is understandably afraid and feeling vulnerable.<\/p>\n<p>Sally played my own warnings right back to me\u2026<\/p>\n<ul>\n<li>The stock market is near an all-time high.<\/li>\n<li>The government, not solid business fundamentals, is propping up the stock market.<\/li>\n<li>Junk bonds have a higher rate of default than top-quality bonds and are currently paying some of the lowest interest rates in several decades.<\/li>\n<li>Preserving capital and earning decent yields are <em>both<\/em> essential to making a lifetime portfolio last.<\/li>\n<li>CDs are risky because they tie up your money and might lose against inflation.<\/li>\n<\/ul>\n<p>These are real fears. Sally understands the risks of investing; however, she underestimates consequence of doing nothing.<\/p>\n<p>Several <a href=\"http:\/\/www.millersmoney.com\/go\/umsc5-2\/PIP\" target=\"_blank\"><em>Money Forever<\/em><\/a> subscribers have expressed similar concerns. So, to answer Sally and company we\u2019re sharing a conversation between Money Forever chief analyst Andrey Dashkov, Casey Research senior analyst Chris Wood, and me.<\/p><div id=\"inves-764281820\" class=\"inves-in-content inves-entity-placement\"><hr style=\"border: 1px solid #ddd;\">\r\n<div id=\"inpost_ads_header\">\r\n<p style=\"font-size:10px; float:left; color:#666;\">Free Reports:<\/p><\/div>\r\n<div id=\"inpost_ads\"> \r\n<p style=\"font-size:15px; float:left;\"><a href=\"https:\/\/goo.gl\/1ApBOV\"><img loading=\"lazy\" decoding=\"async\" src=\"https:\/\/investmacro.com\/wp-content\/uploads\/2018\/06\/graph_techs_PD.png\" align=\"left\" width=\"80\"  height=\"55\"\/><\/a>\r\n\t     <a href=\"https:\/\/goo.gl\/1ApBOV\"><b><u>Get Our Free Metatrader 4 Indicators<\/u><\/b><\/a> - Put Our Free MetaTrader 4 Custom Indicators on your charts when you join our Weekly Newsletter<\/p><br><br>\r\n<br>\r\n<br>\r\n<p style=\"font-size:15px; float:left;\"><a href=\"https:\/\/goo.gl\/f3RrHX\"><img loading=\"lazy\" decoding=\"async\" src=\"https:\/\/investmacro.com\/wp-content\/uploads\/2019\/01\/cot_pie_80.png\" align=\"left\" width=\"80\"  height=\"55\"\/><\/a>\r\n\t    <a href=\"https:\/\/goo.gl\/f3RrHX\"><b><u>Get our Weekly Commitment of Traders Reports<\/u><\/b><\/a> - See where the biggest traders (Hedge Funds and Commercial Hedgers) are positioned in the futures markets on a weekly basis.<\/p><br><br>\r\n<\/div>\r\n<hr style=\"border: 1px solid #ddd;\">\r\n<br><\/div>\n<p><strong>Dennis Miller:<\/strong> Andrey, I\u2019ll start with you because I know you\u2019re something of a financial advisor to your mother. What would you say if she asked these questions? Where would you tell her to start?<\/p>\n<p><strong>Andrey Dashkov:<\/strong> Dennis, yes, my mother does indeed turn to me for financial advice. Let me start by giving you a little context. She still lives in Belarus, where I was born. I will not get into great detail about the country\u2019s crumbling economy, but as we speak, the Belarusian National Bank has hiked its interest rates (called refinancing rates) by 5 percentage points, from 20% to 25%. You can get 50% annually on a bank deposit denominated in rubles; consumer credit rates go upward of 70%.<\/p>\n<p>You heard me right. I never stop admiring people who can navigate an environment like this. Granted, some go the obvious route and spend their money as fast as they can, while others try to save. But despite the attractive deposit rates, few are willing to trust the banking system. Most of the people just buy foreign currency in cash, really. Almost every new year, rumors about another devaluation start popping up, and people line up at ATMs to withdraw US dollars and euros. At the beginning of this year, the ruble was devalued by 7% in an instant.<\/p>\n<p>So Belarusians are natural risk avoiders and natural hedgers. Earning interest is less of a concern; preserving buying power and liquidity is what matters. Most people just buy US dollars and euros, hoping that if one of the two depreciates, the other will move up. Compared to the local currency, they feel more comfortable.<\/p>\n<p>Back to your friend, though. Since her main concerns are liquidity and stability, I would recommend she try one of the six Stable Income funds in the <a href=\"http:\/\/www.millersmoney.com\/go\/umsf6-2\/PIP\" target=\"_blank\">Money Forever<\/a> portfolio. She isn\u2019t mentally prepared to take on risk, so she needs to start slowly and build confidence. As you know, these funds function as <a href=\"http:\/\/www.millersmoney.com\/go\/ums27-2\/PIP\" target=\"_blank\">cash alternatives<\/a>. One in particular\u2014a fund we\u2019ve held since November 2012\u2014comes to mind. While it pays a low rate of return, it\u2019s still 80 times more than she\u2019s currently earning. It\u2019s a step in the right direction.<\/p>\n<p>Diversification is important, though, so I\u2019d also recommend that she add other vehicles to her portfolio. Her well-being shouldn\u2019t depend on any single position.<\/p>\n<p>This idea is easy to understand; my mother totally gets it. Many people of her generation have acted as amateur currency hedgers for the better part of the last decade.<\/p>\n<p>I\u2019d start by taking easy steps, allocating some of your friend\u2019s cash into our cash-like investments. While they aren\u2019t as safe as cash or top-quality bonds, the additional returns would have an immediate, positive impact on her savings with minimal default risk.<\/p>\n<p>It\u2019s as simple as this. If she earned 4% interest and had a 1% default, her net gain would be 3%\u2014300 times what she\u2019s earning now.<\/p>\n<p>When she\u2019s ready, I\u2019d encourage her to buy some stocks, too.<\/p>\n<p><strong>Dennis:<\/strong> Chris, where would you suggest she start?<\/p>\n<p><strong>Chris Wood:<\/strong> Dennis, you aren\u2019t the only one who gets these types of questions. Once your friends and family learn what you do for a living, it\u2019s natural that they start asking these questions. Much like your friend, they know they should \u201cdo something.\u201d They just don\u2019t know how to go about it.<\/p>\n<p>But back to your friend\u2014I think Andrey is spot-on. Her primary goal should be preserving capital, but she really does need to go into the market to have any chance of keeping up with inflation, actually growing her nest egg in real terms, and generating enough income to continue to live a long and happy life.<\/p>\n<p>A good way to start is to dip your toes into safe, cash-like instruments that provide a better yield than a cash account at a brokerage. Then branch out into <a href=\"http:\/\/www.millersmoney.com\/go\/ums58-2\/PIP\" target=\"_blank\">dividend-paying stocks<\/a> that also provide the opportunity for robust capital appreciation (diversified geographically and across sectors, of course). Finally, add in some higher-yield income vehicles, like <a href=\"http:\/\/www.millersmoney.com\/go\/ums89-2\/PIP\" target=\"_blank\">floating-rate funds<\/a>, preferred stocks, and even high-quality venture-debt BDCs. This three-tiered approach should provide the capital appreciation and income necessary for her nest egg to live as long as she does, and it should do that as safely as possible.<\/p>\n<p>Speaking of safety, as she adds to her positions, she should limit each investment to a small portion (say 2-5%) of her entire portfolio. Other things like rebalancing on a regular basis, using limit orders so she doesn\u2019t buy an investment at a price above what she\u2019s comfortable with, and setting trailing stops to prevent catastrophic losses and lock in gains are important too.<\/p>\n<p><strong>Dennis:<\/strong> One of my fears with friends is giving good advice that later goes stale. How do you update friends and family? Chris, do you want to go first on this one?<\/p>\n<p><strong>Chris:<\/strong> Sure. Unfortunately, there\u2019s no \u201cset it and forget it\u201d way to deal with markets <em>\u00e0 la<\/em> the Ronco Rotisserie. Probably the most important thing to communicate to friends and relatives who ask for advice is that it will take some work on their part. Vigilance is paramount. Even if you\u2019re working with a financial professional, it\u2019s important to know what\u2019s going on, because the decisions you\u2019re making now will affect the rest of your life.<\/p>\n<p>Obviously, there are cost\/benefit tradeoffs in terms how much time you have to dedicate to such things. But in general, the more self-directed you are, the better the outcome.<\/p>\n<p><strong>Dennis:<\/strong> Andrey, do you have anything you want to add to Chris\u2019 remarks?<\/p>\n<p><strong>Andrey: <\/strong>Sure. As Chris says, it\u2019s important to stay informed about what\u2019s going on around you, both in the economy and on the stock market. The caveat, though, is that there is just too much information around, and most of it is useless. So when people ask me how to become better informed, I recommend consuming <em>less<\/em> information, not more; however, you have to be selective.<\/p>\n<p>Pick a couple of weekly magazines that cover the economy and business from different angles, and you\u2019ll do two things: first, you\u2019ll dramatically reduce the amount of information you need to consume per week; and second, what you read will often be better researched and more comprehensive than the bite-sized, out-of-context crap scattered around the Internet in the form of news and blog posts written with speed in mind, not comprehension. Also, treat <em>all<\/em> TV as entertainment.<\/p>\n<p>So that\u2019s step one. Step two is finding reliable investment advice. Granted, there are excellent people in the business, but they\u2019re often slow to adapt to the changing environment. They keep selling you \u201c100 minus your age,\u201d \u201c60\/40,\u201d or other schemes, even though they won\u2019t produce the results you need.<\/p>\n<p><strong>Dennis:<\/strong> How do you deal with concerns about the stock market? When we put together the <a href=\"http:\/\/www.millersmoney.com\/go\/umsua-2\/PIP\" target=\"_blank\">bulletproof income portfolio<\/a>, we started by asking, \u201cWhat\u2019s the smallest amount we can put in the market and still safely make enough yield to ensure the money lasts?\u201d<\/p>\n<p>With the S&amp;P 500 at all-time highs, the prices of companies like Apple are soaring. It\u2019s pretty hard to say, \u201cBuy high and hope to sell higher.\u201d<\/p>\n<p>What are your thoughts in this regard? Andrey?<\/p>\n<p><strong>Andrey:<\/strong> I don\u2019t think about the stock market in terms of aggregates; in a sense, I don\u2019t care how expensive the S&amp;P 500 is. What I do care about is helping our subscribers enjoy the opportunities the market brings\u2014and minimizing the risks.<\/p>\n<p>The first risk is in following the crowd. Most retail investors tend to hold the same 20-30 stocks in their portfolio: companies they know\u2014or think they know about. This means brands like Apple, Chrysler, Coke, Ford, and now possibly Facebook, since it\u2019s so pervasive.<\/p>\n<p>This approach is a losing proposition for two reasons. First, buying what everybody else does is irrational investing. Crowds buying (and then selling) stocks en masse creates volatility and hurts returns. Second, brands are not companies: if you like your Apple computer (or your Ford car or your Diet Coke), it doesn\u2019t mean Apple or Ford or Coke are good investments.<\/p>\n<p>Investors should look at companies with as little emotion as possible. I read once that if you\u2019re excited about any of your investments, you\u2019re doing it wrong. Staying objective and disciplined is the way to go.<\/p>\n<p>In short, the market does what it wishes while we cut our own path. I think the <a href=\"http:\/\/www.millersmoney.com\/go\/umsxb-2\/PIP\" target=\"_blank\"><em>Money Forever<\/em><\/a> way, with our emphasis on risk management, income, and individual opportunities, is the right one.<\/p>\n<p>There are still opportunities out there for great appreciation and returns. It\u2019s a matter of finding them ahead of\u2014and while mostly ignoring\u2014the emotional crowd.<\/p>\n<p>When the crowd starts buying is when we start looking to lock in profits. In 2014, we did this in several ways: tightening up stop losses; selling off part of our position; and in the case of HES, selling it all for a nice 78% gain.<\/p>\n<p><strong>Dennis:<\/strong> Chris, anything to add?<\/p>\n<p><strong>Chris:<\/strong> No, I think Andrey summed that up very nicely.<\/p>\n<p><strong>Dennis:<\/strong> Guys, thank you both for chiming in here.<\/p>\n<p>To distill it down, there are three basic steps that Sally and those in similar predicaments should take: stop doing nothing; start small; and, start now. Don\u2019t let investing worries paralyze you. You can check off the simplest first step\u2014and find out if you\u2019re at risk of outliving your nest egg\u2014in the next three minutes by <a href=\"http:\/\/www.millersmoney.com\/go\/umzic-2\/PIP\" target=\"_blank\">running your personal portfolio projection here<\/a>.<\/p>\n<p>&nbsp;<\/p>\n<div id=\"xvMdV95u77zU\" style=\"clear: both;\">The article <a href=\"http:\/\/www.millersmoney.com\/go\/umzmd-2\/PIP\" rel=\"permalink\">Investing Inertia Won\u2019t Keep Your Cash Safe<\/a> was originally published at <a href=\"http:\/\/www.millersmoney.com\/go\/umzqe-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","protected":false},"excerpt":{"rendered":"<p>By Dennis Miller &#8211;\u00a0millersmoney.com A dear friend asked for help\u2014the sort of help you might need too. She\u2019s retired, lives alone, and has a modest nest egg. But the thought of losing any of her life savings terrifies her. Let\u2019s call my friend \u201cSally.\u201d Sally doesn\u2019t trust stockbrokers or any commission-based investment advisors, and she [&hellip;]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[],"tags":[],"class_list":["post-68709","post","type-post","status-publish","format-standard","hentry","no-post-thumbnail"],"_links":{"self":[{"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/posts\/68709","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/comments?post=68709"}],"version-history":[{"count":0,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/posts\/68709\/revisions"}],"wp:attachment":[{"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/media?parent=68709"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/categories?post=68709"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.investmacro.com\/forex\/wp-json\/wp\/v2\/tags?post=68709"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}