Ken Himmler.com

In today’s plunging real estate market, more and more properties are being sold for far less than their previously held value from years past. While it is certainly a buyer’s market in many communities, this doesn’t mean that investment properties are the best investments if you are retired or retiring soon.

Traditionally, real estate investments appreciate in value but this typically takes a considerable amount of time, especially when you consider any fix-up repairs, mortgage interest, property taxes, and the commissions you would have to pay to the selling agent.

There are pros and cons to both short-term and long-term property investments so you’ll want to speak with an investment advisor to see if real estate is a viable option based on your long-term plans. For example, if the plan is to keep the property for 15-20 years then a higher return is more probable but your long-term repair liabilities will also be much higher than if you only planned to hold a property for five years.

With a short-term property investment you will typically face a greater risk because of the volatile nature of the market and the need for retirement funds to be more easily accessible. As well, if the idea is to turn the home into a rental property then you’ll want to make sure that you’re up for the typical tasks and frustrations of being a landlord.

For some, taking on the role of landlord can become stressful and expensive, whereas others find it enjoyable. It really comes down to the tenants you lease to and the price you paid for the property. If you pay too much for the property then this will affect both your long-term return when it’s time to sell and your short-term gains because you’ll be pocketing less each month after making your payments.

Another huge consideration before deciding to purchase investment property is the threat of unforeseen expenses such as roof repairs, replacing carpeting, electrical issues, etc. The last thing you want is to be forced to use retirement funds to repair a home you don’t plan on holding for the long term because this will severely impact how much you profit or lose in the ultimate sale of the property.

If you do decide to pursue a rental property, it’s critical that you leave emotion out of it. While your own home may have been an emotional purchase, which can lead to bloated "I gotta have it!" type offers, you can’t afford to fall into the same trap when pursuing investment property. You need to be logical and if you’re going to be emotional over anything, become emotional over the numbers and make sure the return on investment is going to pay off.

In today’s volatile market environment, more and more investors are seeking refuge in stability. When most people think about investment bonds they conjure up words such as safe, steady, reliable.

In reality, it is still possible to lose money in bond investing which is why investors are urged to diversify their bond investments. By building a portfolio of investment bonds with varying interest rates, maturity dates, and associated risks such as creditworthiness, you can better protect the overall return on your investment.

Many people are aware of the obvious risks in bond investing, such as the issuer going bankrupt or defaulting on scheduled interest payments, but what about the less obvious risks that can still impact bond investment return?

While it’s true that the interest payments you will receive from owning an investment bond will be steady, the actual return that you receive when you sell your bond can vary. Let’s explore how the risk of interest rate fluctuation can influence the profit or a loss you take on your bond investments.

You may think that a higher interest rate would equate to a higher return, but the opposite is true in bond investing. When interest rates rise, it is highly probable that the issuer will offer new bonds with a higher paying interest rate. If this happens, then the value of older, lower-yielding bonds will take a hit. Given the choice, investors will opt for the higher interest return and this will impact your ability to sell.

It’s important to note that this fluctuation only applies to investors who opt to sell or trade bonds before their maturity date. If you hold an investment bond to maturity then you will be paid the full face value of the bond. That said, planning to hold a bond to maturity still doesn’t guarantee a return. In fact, interest rate fluctuations, especially a fall, can still impact your bond investments.

For example, if interest rates fall significantly, as they certainly have over the past year, bond issuers may opt to exercise their right to call in their bonds even before maturity. In our next post, we’ll explore why this happens and how exposed you are to the risk of having a bond called in early by an issuer.
 

Today we see news that Social Security will be increasing by approximately 5.8%. While this might seem like a boom to those who are retired it will be a grim result. On average those who are on retirement only have 50% – 60% of their annual expenses covered by Social Security. As an example if you have a monthly expense of $3,000 then Social Security may be paying $1,000 of this. If you get on average $63.00 increase (that by the way will be the average increase) it really only increases the total income by 2.1%. Considering that inflation Read more…

While I am on a roll I have to go back to another crash. October 19th 1987. The market dropped from 2246 on October 16th 1987 to 1738 on the 19th. This represented a drop of 29%.�We dropped only 7% today, not quite a comparison and oh by the way did I say the Dow was at 1738?

As I went back onto my PC tonight I couldn’t help but notice the headlines "Dow Drops 770 – More Than After The Sept 11 Terrorist Attacks"! For those that read at first glance it would seem scary. For those that have better memories than that I have the real information for you. I have downloaded the Dow Index Table from September 4th 2001 to December 20, 2001. I want you to notice on September 5th 2001 the Dow was at 10,033. It then dropped to a low of 8235 on September 21st. While the 770 drop may have been bigger than the single day drop – who gives a rip?. What does that really have to do with the companies profitability that make up the Dow? – NOTHING. If you note on the table again on 12/19/2001 the Dow went back to 10,070. I feel really sorry for all those emotional people who jumped out at 8235 and only a few months later it was back above where it was before.

I wish I had better news about how to stay retired but the recent market scare has a lot of people making rash and emotional decisions. This usually comes from a lack of a financial plan and the lack of working with someone that has designed a (RDP) retirement distribution plan. When you are retired look at your funds as being broken into four different pie slices. Stocks, Bonds, Cash and Real Estate. Each one of these should behave differently and they should have the right amount of diversification. Usually, when someone has a scare it is because they see what is happening in the stock market. If the plan was set up correctly, they should have thier distributions coming from cash or bonds when the market drops. When the market goes up it is then time to re-balance – and replenish the cash or bond accounts. If you currently have a plan that depends on taking distributions only from stock then I do feel for you. What can you do to save your retirement portfolio?

1) Make sure that you have an adequate (RDP) retirement distribution plan.

2) Make sure that you have a plan that allows you to pay the least amount of tax possible.

3) Make sure that you have a plan to re balance the assets when they get out of tolerance to the model you use.

4) Make sure that you do not act on emotions and try to time the ups and the downs.

5) Have a process and and a system in place that calls for specific action tasks when certain things happen that may affect your stability.

6) Make sure you have your plan balanced into

Domestic Stocks Small cap, Mid Cap, Large Cap

International Stocks Emerging and developed

Real Estate, Income producing diversified between residential, commercial and industrial

Cash and cash equivalents Money Markets and Fixed Annuities (also could include equity indexed annuities)

And lastly, remember the past – there have been many other market drops and no matter how much media sensationalizes the drop remember that as long as we keep having babies we will continue to need products and services. (Historical birth rates have been directly tied to economic growth and we just had a spike as big as the baby boom in the 40s and 50s)

Tells us how you are handling the recession?

As I sat at my desk today and watched the crazy tumble of the Dow Jones it really reinforced the difference between accumulation and distribution. Everyday I meet with retirees or people about to retire and see the stress and the worry on their faces. Their worries are more founded lately because of this massive recession that we are in. In many of their cases I can understand why they are worried. Their entire future is dependent on the outcome of the stock market and they go up and down like a slinky. If you are twenty years old then you should by all means be invested in the stock market and probably 100% in. If you are in your sixties or in your seventies and you are dependent on at least 3% to 4% coming to you in a distribution and you are more than 40% in the stock market then you should be worried. Is this because I think the stock market wont come back – no, it is because I don’t think it will come back and grow for at least another two to three years. If you think I am crazy look at the business cycle. Just now the main street businesses are starting to go out of business. I know main stream financial media says that we are coming out of this recession but all the economic factors point the other way. Just yesterday Warren Buffett stated that this recession will last even longer than he originally anticipated. Lets look at the oil crisis. The oil supply has not kept up with the demand and therefore the sellers of oil have the market ability to increase prices and the world must pay it. If you think that this isn’t true just look at what is happening in Dubai. They expect to get over 1.7 trillion in profits over the next two years. They have at least 70% of the worlds tall cranes in one city – for building high rises. To add insult to injury now they are building another mall with another inside ski slope. This sudden increase in demand cannot be met in a short term. It will take a period of time for alternative fuel sources, alternative energy (solar), alternative transportation (hybrid and hydrogen cars) to not only be designed but produced. Once this happens then the oil produces don’t have as much power as they do now. What this means for people trying to plan their retirement income is that they may have a hard time living in today with inflation above 4%.� The real question is how can a person possibly feel comfortable with their retirement income when they don’t have a good asset allocation plan in place that includes a way to get an income from a fixed – no risk investment over the next two to four years. Let me know what are your thoughts and guesstimates of what will happen in the next few years in regards to the economy?