On June 13th, a Financial Advisor, Mr. Adam Butler of Butler Philbrick Associates, appeared on CNBC and said that "Our models suggest there is almost a 50% chance that a couple will run out of funds before they die if they adhere to a traditional financial plan." The reasons, he said, are that traditional financial plans miss two pretty serious risks: The risk they might live too long and the risk of lower than expected market returns. Traditional financial plans generally assume a linear sequence of financial returns of say, seven percent year-in and year-out, and that is unlikely to occur. So what does one do if they dramatically underestimate what they need? Mr. Butler said retirees should put their money in two layers. The first layer should be the "guaranteed" layer for food, shelter and so on. The second layer should include an allocation of riskier assets which provide an upside for "retirement life style needs," such as bequests, charitable giving, etc. He advocates investors broaden their asset allocations to include REITS, commodities and international stocks, in addition to traditional domestic stocks, bonds and cash. He also believes investors should have some sort of systematic exit strategy for each asset class so that they can move to the sidelines when market risk is high and move back in when market risk is favorable. Finally, he said investors also should consider a third layer, a "momentum" overlay, which can really increase returns with a small increase in risks. My goodness, was he talking about market timing and the use of Options to augment income? Much of this interview came to me as a breath of fresh air because most of the retirement plans I've read fail to advise retirees of the extreme importance of being able to augment their retirement income by some independent means. You simply cannot run the risk of running out of money and the returns you will get from annuities, dividends and bonds are not going to provide the security you should have. Of course, you could always work at McDonalds or Wal-Mart, but I prefer to make my extra money by investing in the stock market. I presume that you do too. That's why we have been making presentations on retirement strategies at the Money Shows and VectorVest events. We will be making three presentations on the subject of retirement at the Money Show in San Francisco on Friday, August 20th and we will also be giving a One-Day Options Course on Sunday, August 22nd. "The PayDay Portfolio" will be featured at the Options Course. This portfolio was started with $100,000 on January 8, 2010, and had a total value of $122,364 as of yesterday. It was down 1.69% on stock trades, but has garnered $24,470 in cash deposits so far. You may learn more about this portfolio by reading my essay of June 4, 2010. You may also register for the Money Show by clicking on the link shown above under Coming Events. We're going to have a great series of talks in San Francisco, and it's all going to start with Planning for a Secure Retirement. P.S. The PayDay Portfolio Report has been completed and will be shipped out this coming week. We have had many requests for this report from subscribers who have not taken our Options Course, but claim to know how to trade Options and want to buy the report. If you are among them, you may buy the report for $95.00. If you have previously attended a VectorVest Options Course or bought our Options Course CD set, you may purchase the report for only $29.00.
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