Golden Years May Be A Bust For Millions Of Retirees

By Kathy Lynch, Financial Advisor Magazine

Millions of people will need to lower their standard of living in retirement because they haven't saved enough, according to a recent report by the Center for American Progress.

The report found an American public that is struggling to prepare for retirement and one that is less prepared than previous generations. In addition, a large portion of individuals may have to rely on family, charity and government aid programs for financial support and forgo their pre-retirement lifestyles.

Three clear trends illustrate the extent to which people are underprepared for retirement, according to the report.

• A large percentage of people are saving nothing for retirement. Approximately 31 percent of Americans reported having zero retirement savings and lack a defined-benefit or pension plan.

Among respondents nearest to retirement, ages 55 to 64, the share that reported having no savings was 19 percent, or approximately one out of every five near-retirement households.

One reason is the lack of access to workplace retirement plans. As of 2014, only 65 percent of private-sector workers had access to a retirement plan through their jobs, and only 48 percent participated in one, according to the report.

And studies show that the share of private-sector workers with access to workplace plans is actually lower now than it was in the late 1980s.

• Families that are saving often have insufficient assets. As defined-benefit pensions become increasingly rare, workers need to build up savings in defined-contribution plans such as 401(k)s or in individual retirement accounts (IRAs), the report found.

However, as of 2013, the median retirement account balance among all households headed by people ages 55 to 64 was only $14,500. After excluding households that had saved nothing, the median account balance of near-retirement households was still only $104,000.

If all of this money was used to purchase an annuity that would pay a guaranteed monthly income for the rest of the individual’s life, this income would provide only about $5,000 per year in retirement, the report said.

• Households should increase their savings relative to prior generations but they are not doing so. One simple way, according to the Center for American Progress, to measure how capable households will be of maintaining their standards of living in retirement is to look at the ratio of their total wealth to their income. This gives an idea of how much in total assets a family has built up relative to approximately how much they consume in a given year.

Christian Weller, one of the authors of the report, said that after taking many factors into consideration such as pensions, Social Security and home equity, "The rule of thumb for the wealth to income ratio is about 10 to one, meaning a person making $50,000 for the majority of their career would need about $500,000 to maintain their standard of living in retirement."

These ratios did improve for near-retirement households during the 1990s and early 2000s, but collapsed following the Great Recession and have shown no signs of recovering. According to data from the Survey of Consumer Finances, households near-retirement age were worse off in 2013 than they were in 1989.

This represents an even bigger problem for retirees because their needs have grown significantly in recent decades, according to the report. Life expectancy has increased, and the retirement age for full Social Security benefits has risen to age 67.

Health care costs have also risen substantially, and the decline in real interest rates since 1983 means that a given amount of wealth accumulated today produces less retirement income than it would have in previous decades.

For all of these reasons, the Center for American Progress says workers should be approaching retirement with greater wealth relative to their income than previous generations did.

However, the opposite is occurring, which may force people to continue working beyond when they intended and they may need to rely on families, charities and government aid to make ends meet in retirement.

The views expressed here are that of myself or the cited individual or firm and do not constitute a recommendation, solicitation, or offer by myself, D2 Capital Management, LLC or its affiliates to buy or sell any securities, futures, options or other financial instruments or provide any investment advice or service. D2, its clients, and its employees may or may not own any of the securities (or their derivatives) mentioned in this article.

 The Jacksonville Business Journal has ranked D2 Capital Management in the top 25 of Certified Financial Planners in Jacksonville.  The Firm is also a member of the Financial Planning Association of Northeast Florida, the Jacksonville Chamber of Commerce, the Southside Businessmen's Club, and the Beaches Business Association. 

Fewer Americans Have Retirement Plans

By Ted Knutson, Financial Advisor Magazine

Fewer Americans have retirement plans than a year ago and five years ago, according to a new study by the Investment Company Institute, the mutual fund industry trade group.

ICI reported Wednesday 63 percent of U.S. families had retirement plans through work or individual retirement accounts in 2014, down from 67 percent in 2013 and 68 percent in 2009.

While participation has dropped, assets have skyrocketed.

Americans’ retirement savings have nearly doubled in five years to $7.3 trillion.

That number was helped by a growing stock market, but not an increased willingness of adults to put money away for the future.

The number of households contributing to IRAs declined to 12 percent for the 2013 tax year from 15 percent in 2012 and 15 percent again five years previous.

Rollovers dropped as well. According to ICI, among families with rollovers in their IRAs, 81 percent said they had transferred the entire balance in their most recent rollover, a dip from 85 percent the previous year and 89 percent five years ago.

More people are talking to financial advisors before withdrawing money from IRAs, according to ICI.

The study showed 64 percent of adults taking out funds in 2014 consulted with a financial advisor about making the decision, an increase from 58 percent in 2013 but down from 72 percent five years earlier.

Likewise, individuals are becoming more hesitant to make the move on their own: 7 percent did so in 2014, half the number that did in 2013.

Roughly a third of withdrawals were $20,000 or more in the 2013 tax year against only 20 percent for 2012 and 16 percent in 2008.

The bigger withdrawals may be to meet legal requirements triggered by growth in the value of individual IRAs because of the rising stock market. “Typically withdrawals from traditional IRAs were taken to fulfill required minimum distribution requirements,” said ICI in the report.

The views expressed here are that of myself or the cited individual or firm and do not constitute a recommendation, solicitation, or offer by myself, D2 Capital Management, LLC or its affiliates to buy or sell any securities, futures, options or other financial instruments or provide any investment advice or service. D2, its clients, and its employees may or may not own any of the securities (or their derivatives) mentioned in this article.

 The Jacksonville Business Journal has ranked D2 Capital Management in the top 25 of Certified Financial Planners in Jacksonville.  The Firm is also a member of the Financial Planning Association of Northeast Florida, the Jacksonville Chamber of Commerce, the Southside Businessmen's Club, and the Beaches Business Association. 

Municipal Bonds: What Comes After Perfect?

By Peter Hayes, Managing Director, head of BlackRock’s Municipal Bonds Group

As records go, you can’t beat 12 for 12. Perfection is good … and bad.

Muni investors enjoyed a perfect run in 2014 as the market notched a positive return each and every month, leading the S&P Municipal Bond Index to an annual return of 9.26%.

What could be bad about that? It sets some pretty lofty expectations for 2015. I’d like to provide some context and perspective for investors.

The Stars Aligned in 2014

The stars aligned in spectacular fashion for the municipal bond market in 2014: Low supply amid solid demand, improving fiscal conditions among state and local issuers, and a broad drop in interest rates (and rise in bond prices) helped make munis one of the top-performing fixed income asset classes of the year.

Many of the favorable dynamics remain firmly intact at the start of 2015. But we don’t expect 2015 to be a 2014 repeat, if only for the simple fact that munis aren’t built to provide 9% returns. They are intended to be a high-quality, relatively low-volatility source of income. Also consider the fact that the Federal Reserve is likely going to start raising interest rates this year, and that will create volatility and some measure of uncertainty for all fixed income assets.

What Is in the Stars for 2015?

In setting expectations for 2015, a look at long-term patterns is informative. Historically, returns in the year following a bounce back year (and yes, 2014 was a big bounce from a dismal 2013) have been two-thirds lower than the bounce. Given a return of 9.26% in 2014, that would equate to a return of roughly 3%-3.5% in 2015.

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The D2 Capital Management Tax Free Income Portfolio is currently yielding 4.47% (Trailing 12 month Tax Equivalent Yield at 28% Tax Bracket, as of 4 February 2015).  Year to date the portfolio is up 1.22%

The views expressed here are that of myself or the cited individual or firm and do not constitute a recommendation, solicitation, or offer by myself, D2 Capital Management, LLC or its affiliates to buy or sell any securities, futures, options or other financial instruments or provide any investment advice or service. D2, its clients, and its employees may or may not own any of the securities (or their derivatives) mentioned in this article.

 The Jacksonville Business Journal has ranked D2 Capital Management in the top 25 of Certified Financial Planners in Jacksonville.  The Firm is also a member of the Financial Planning Association of Northeast Florida, the Jacksonville Chamber of Commerce, the Southside Businessmen's Club, and the Beaches Business Association. 

Where to Look For Opportunities Amid Turbulence

By Russ Koesterich -- BlackRock Chief Investment Strategist

Market volatility hadn’t let up this past week: sharp swings can be seen in stocks, interest rates and oil prices. For now, we believe investing in a combination of international stocks and credit offers the best relative value.

With stocks, favor international. Stocks struggled last week, although the losses again were most pronounced in the United States. For January, U.S. stocks were down, while stocks in Japan, Europe and even emerging markets experienced gains. Part of the problem: The stronger U.S. dollar is negatively affecting earnings of U.S. large cap companies. This could change down the road, as benefits of cheaper energy catch up to offset that drag. In fact, a pickup in housing spending is emerging: in the fourth quarter personal consumption rose at the fastest pace since the first quarter of 2006. But for now, a fast appreciating dollar and high expectations are acting as headwinds for the U.S. equity market.

Given this dynamic, we believe it makes sense to look outside the U.S. for value. European equities are benefiting from the European Central Bank’s quantitative easing, as well as stabilization in economic indicators and improvements in lending. Japan’s market is aided by a slight decrease in the jobless rate and a pickup in industrial production. Going forward, as Japanese companies raise their notoriously low return on equity, Japanese stocks should be supported by relatively cheap valuations and rising dividends. Sector-wise, energy stocks are unsurprisingly struggling, but we see value in integrated oil companies, which could benefit from a stabilization in the price of crude.

With bonds, prefer credit. With stocks remaining under pressure, investors continued to favor U.S. Treasury debt, causing interest rates to grind lower (as prices rose). Last week, the yield on the 10-year Treasury note broke below 1.70%, the lowest level since the spring of 2013, despite an upgrade in the Federal Reserve’s (Fed’s) assessment of U.S. economic conditions. The Fed faces a difficult balancing act: trying to reconcile the competing trends of a strong U.S. labor market with a soft global economy and declining inflation expectations. Nonetheless, we still believe the Fed will increase interest rates at either its June or September meeting.

With yields down, investors are exploring other parts of the bond market that offer the prospect of higher income. We prefer tax-exempt municipal bonds, as well as U.S. high yield debt.

Oil nears its bottom?

Oil prices pushed lower for most of last week on the news that U.S. commercial crude inventories rose to the highest level for this time of the year in at least 80 years, though prices reversed sharply on Friday. While we think oil prices are approaching their bottom, we are beginning to see the dramatic impact depressed oil prices have on energy company behavior. For example, Shell announced a $15 billion cut in capital expenditures, and the number of U.S. horizontal oil rigs dropped by more than 200 in just the last two months. This slowdown in future exploration and production should lead to a price stabilization in oil.

The views expressed here are that of myself or the cited individual or firm and do not constitute a recommendation, solicitation, or offer by myself, D2 Capital Management, LLC or its affiliates to buy or sell any securities, futures, options or other financial instruments or provide any investment advice or service. D2, its clients, and its employees may or may not own any of the securities (or their derivatives) mentioned in this article.

 The Jacksonville Business Journal has ranked D2 Capital Management in the top 25 of Certified Financial Planners in Jacksonville.  The Firm is also a member of the Financial Planning Association of Northeast Florida, the Jacksonville Chamber of Commerce, the Southside Businessmen's Club, and the Beaches Business Association. 

More Upside Seen for a Popular Real Estate Investment Trust

By Todd Shriber, ETF Trends

Last year started with scores of market observers and pundits calling for interest rates to rise. That thesis was, of course, proven wrong and as Treasury yields tumbled, an array of rate-sensitive asset classes soared.

That included real estate investment trusts (REITs) and exchange traded funds such as the Vanguard REIT ETF (VNQ). The new year has started in similar fashion. Ten-year yields slid 23.5% last month, helping launch rate-sensitive bond funds, such as the iShares 20+ Year Treasury Bond ETF (TLT) and the PIMCO 25+ Year Zero Coupon US Treasury (ZROZ) to double-digit gains.

All of that is good news for VNQ, the largest REIT ETF, and rival funds. It is also enough to make VNQ S&P Capital IQ’s focus ETF for February.

“REITs performed well in 2014 and in early 2015 as investors sought out alternative income opportunities with the yield on the 10-year Treasury falling below 2.0%. However, we think REITs can still perform well even if yields climb higher in 2015, depending upon the confirmation and timing of potential rate hikes by the Federal Reserve. We believe the industry is economically sensitive and many of its constituents will be aided by a still-improving U.S. economy. REITs have little to no exposure to weaker geographies in Europe and Asia,” said S&P Capital IQ in a new research note.

After surging 30.4% last year, VNQ is up 5% to start 2015. REITs provide a liquid alternative to owning physical commercial real estate properties. REITs investments also share similar attributes with stocks and bonds. Since REITs are required to distribute at least 90% of their income from rent payments to investors, these real estate investments can generate attractive yields.

Some may be concerned that REITs are sensitive to changes in interest rates. Notably, the fall in interest rates have made the asset more attractive as a yield-generating alternative, but some fear the asset will fall out of favor once rates rise.

“S&P Capital IQ has a positive fundamental outlook on the retail REITs sub-industry. Although challenges remain, we think increasing absorption of retail space should present retail landlords with more pricing power. We expect consumer spending and retail sales to improve over the next 12 months, which should prompt a further slowdown in store closings. We still look for same-property revenue and net operating income to be positive across the sub-industry over the next 12 months. Most retail REITs have long-term leases with their customers that possess embedded rent adjustments that should help insulate them from economic fluctuations,” said the research firm.

After pulling in over $4.7 billion in new assets last year, enough to place it among the top 10 asset-gathering ETFs, VNQ has already added nearly $500 million in new assets in 2015.

“VNQ trades approximately 5 million shares on a daily basis and has a tight $0.01 bid/ask spread. We also believe the ETF is trading with bullish technical trends. Investor interest has been strong with more than $5 billion of fresh money moving into the ETF in the last 12 month,” said S&P Capital IQ.

The research firm rates VNQ overweight, S&P’s highest ETF rating.

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Vanguard REIT ETF (VNQ) is a component of the D2 Capital Management Multi-Asset Income Portfolio. Current yield on the portfolio is 5.57% and year to date the portfolio is down 0.35%, compared to the S&P 500 which is down 2.96% (as of 2 February 2015).

Disclosure:  I own the D2 Capital Management Multi-Asset Income Portfolio

The views expressed here are that of myself or the cited individual or firm and do not constitute a recommendation, solicitation, or offer by myself, D2 Capital Management, LLC or its affiliates to buy or sell any securities, futures, options or other financial instruments or provide any investment advice or service. D2, its clients, and its employees may or may not own any of the securities (or their derivatives) mentioned in this article.

 The Jacksonville Business Journal has ranked D2 Capital Management in the top 25 of Certified Financial Planners in Jacksonville.  The Firm is also a member of the Financial Planning Association of Northeast Florida, the Jacksonville Chamber of Commerce, the Southside Businessmen's Club, and the Beaches Business Association. 

‘Super Bowl Predictor’ Says Patriots Could Deflate the Stock Market

By William Power, Wall Street Journal

The New England Patriots could deflate the stock market in 2015.

The so-called Super Bowl Predictor—the quirky indicator that predicts what stocks will do based on the outcome of the big game—is on a six-year winning streak. It now has accurately predicted the direction of the market for the year following 39 of the 48 Super Bowls, for an accuracy rate of more than 81%.

And this year, just like in 2014, stock-market bulls should root for the Seattle Seahawks. The reason: Based on the Predictor, the market will go up after a win by an “original” National Football League team (one that traces its history to before the merger with the American Football League) and go down when a team from the old AFL, such as the Patriots, manages to win it.

Seattle is a bullish team since they are a postmerger expansion team in the National conference; such teams count for the conference they are in.

This indicator, with that 81% success rate, is better than just about every other market-forecasting method. There is no science to it (not even air-pressure measurements), of course.

“It’s doing better every year,” says 88-year-old market strategist Robert H. Stovall of National Investment Services Inc. in Sarasota, Fla., who has long tracked the Predictor.

“It’s on a good streak.” He calls it an “amusing but accurate predictor.”

Last year’s win by the bullish Seahawks preceded a 7.5% rise in the Dow Jones Industrial Average for 2014. The Predictor hasn’t failed since 2008, when the bullish New York Giants won the Super Bowl, and the Dow fell anyway.

As The Wall Street Journal points out every year, there is a bit of Patriots-level gamesmanship to the Predictor. Markets tend to rise more than fall, and the American conference’s Pittsburgh Steelers, winners of six Super Bowls, fortunately “count” for the original-NFL side since that is where they got their start.

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The views expressed here are that of myself or the cited individual or firm and do not constitute a recommendation, solicitation, or offer by myself, D2 Capital Management, LLC or its affiliates to buy or sell any securities, futures, options or other financial instruments or provide any investment advice or service. D2, its clients, and its employees may or may not own any of the securities (or their derivatives) mentioned in this article.

 The Jacksonville Business Journal has ranked D2 Capital Management in the top 25 of Certified Financial Planners in Jacksonville.  The Firm is also a member of the Financial Planning Association of Northeast Florida, the Jacksonville Chamber of Commerce, the Southside Businessmen's Club, and the Beaches Business Association. 

Real Estate Investment Trusts Keep Rocketing Higher

By Tom Lydon, ETF Trends

Aided by a significant drop by 10-year Treasury yield, real estate investment trust (REIT) funds were among 2014’s top performing sectors and that trend is continuing this year as income investors continue the hunt for yield.

The Bloomberg REIT Index is nearing its record high set almost eight years ago. So is the MSCI REIT Index, the benchmark for the Vanguard REIT ETF (NYSEArca: VNQ), the largest U.S. REIT exchange traded fund.

“The Bloomberg index’s dividend yield as of yesterday was 3.38 percent, or a full percentage point greater than the yield on the Treasury’s 30-year bond. The gap exceeded 1 point last week for the first time since June 2012, according to data compiled by Bloomberg. The MSCI index had an even higher yield, 3.53 percent,” writes David Wilson for Bloomberg.

VNQ gained 30.4% last year, about double the gains for the benchmark financial services index, on its way to collecting $4.76 billion in new assets. VNQ is up nearly 7% in 2015.

Investors’ affinity for REIT has not dampened in 2015 as VNQ has added over $439 million in new assets.

REITs provide a liquid alternative to owning physical commercial real estate properties. REITs investments also share similar attributes with stocks and bonds. Since REITs are required to distribute at least 90% of their income from rent payments to investors, these real estate investments can generate attractive yields.

Some may be concerned that REITs are sensitive to changes in interest rates. Notably, the fall in interest rates have made the asset more attractive as a yield-generating alternative, but some fear the asset will fall out of favor once rates rise.

Nevertheless, many analysts argue that REIT shares will continue to perform, despite rate risks, since interest rates alone don’t dictate REIT performance and other factors may override rate concerns. For example, a strong economy and greater mergers-and-acquisitions activity could outweigh rate fears.

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Vanguard REIT ETF (VNQ) is a component of the D2 Capital Management Multi-Asset Income Portfolio. Current yield on the portfolio is 5.51% and year to date the portfolio is up 0.44%, compared to the S&P 500 which is down 1.20% (as of 21 January 2015).

Disclosure:  I own the D2 Capital Management Multi-Asset Income Portfolio

The views expressed here are that of myself or the cited individual or firm and do not constitute a recommendation, solicitation, or offer by myself, D2 Capital Management, LLC or its affiliates to buy or sell any securities, futures, options or other financial instruments or provide any investment advice or service. D2, its clients, and its employees may or may not own any of the securities (or their derivatives) mentioned in this article.

 The Jacksonville Business Journal has ranked D2 Capital Management in the top 25 of Certified Financial Planners in Jacksonville.  The Firm is also a member of the Financial Planning Association of Northeast Florida, the Jacksonville Chamber of Commerce, the Southside Businessmen's Club, and the Beaches Business Association.