Most people’s portfolios have been hit hard. They’ve come back some but we’re still down. People who are close to retiring are the most worried. However, we all have to think about having enough money for retirement.
We have three options – invest more, risk more, or plan to live on less when we do retire. None of those sound particularly attractive, do they?
Unless you can live like a king or queen on less!
That’s why a recent article in Business Week caught our attention. It says that Panama is becoming a popular destination for retirees. It’s been going on for a few years now but really seems to be gaining momentum.
We hasten to say that, even if you’re not thinking about retiring soon or you wouldn’t even consider retiring outside your country, you still might consider putting Panama on your list of vacation destinations.
In addition to the Business Week article, we referred to PanamaInfo.com as a source for the information we’ll discuss today.
From everything I saw as we prepared for this show, I’d say a trip to Panama is in our future! I want to check it out.
I’m on board, George. When are we leaving? Actually, let me rephrase that … I’m good with our weather this time of the year. I want to go there in the winter when it’s freezing cold here and 80 degrees there!
It’s tropical and humid during the day most of the year in the highlands, which includes the capital of the country, Panama City. Temperatures range between eighty and ninety degrees Fahrenheit during the day.
The main tourist season corresponds with their dry season which runs from mid-December through May. In the rainy season, though, it rains for an hour or two about every day. That’s also when the hotels offer special rates.
Panama is an isthmus that connects Central America with South America. Hence the Panama Canal!
It has about 1,000 miles of coastline and 1,500 islands nearby. A mountain slices through the middle of the country. Panama also has five million acres of parks and more species of birds than the U.S. and Canada combined.
Cost of living
The main reason retirees are flocking to Panama is its low cost of living. The government encourages retirees to spend their golden years there. Seniors get discounts on just about everything.
For example, they save 50% on tickets to concerts, the theater and movies. A movie ticket normally costs $4 (dollars are the currency in Panama). Seniors pay $2.
They also get 25% off at restaurants, a 30% discount on most travel, except flights on which they save 25%. You name it and seniors likely get a discount, even on things like dentist and doctor visits.
Not that the price is high, relatively speaking, in the first place. The Business Week article points out that Panama has first-class health care at Third World prices.
Seniors even get a 50% discount on home closing costs. Once you buy your property, you have all the ownership rights any Panamanian would have.
And you don’t have to pay any property taxes for 20 years or pay any tax on your foreign income.
To give you some perspective on how inexpensive homes are there, the Business Week article mentions a couple who bought a 3,000 square foot oceanfront penthouse in 2007 for $250,000. At that time, it would have cost $3,000,000 to buy that same property in Miami.
Of course, it’s a lot cheaper in Miami now, but it’s still not close to $250,000. Speaking of Miami, Panama is only about a 2½ hour flight from Miami.
There’s a local joke that Panama is just like Miami. Except that it is safer. More people speak English. There are no hurricanes. And Americans are more popular!
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Thanks for reading our post today. Please join us next time when we ask, “Can you have too much money?” Until then, here’s to your bigg success!
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(Image in today's post by carlosve)
We are continuing our discussion on how to make 55-percent more money.
Last time, we discussed using the way a venture capitalist invests as a model for how we invest our time. We talked about a 4-step process to create a portfolio of activities that generates the greatest return.
Now we want to look at an example. Let’s say that you make $100,000 a year. You invest 2,500 hours a year – 50 hours a week for 50 weeks – to earn that money. We immediately see that you’re making $40 an hour.
Last time, we talked about a new trend – people stuffing their mattresses the 21st century way. Baby boomers seem to be the main group behind this trend. They are buying treasury bills and gold coins as safe harbors from the volatile stock market.
It’s understandable that baby boomers are looking for alternatives because many of them are so close to retirement.
But what if you’re not about to retire … should you stick with stocks?
We’ve heard a lot about how the recent decline in stock prices has wiped out all of the last ten years worth of gains. So it’s a really good question. We decided to do some analysis of our own.
Before we start, allow us to make one disclaimer: We’re going to provide an example to help you understand how the market works. Your decisions about your portfolio should be based on your specific situation. We recommend that you talk with a certified financial advisor to help you with that.
Stocks and Certificates of Deposit
To keep it simple, we looked at just two assets – stocks, represented by the S&P 500 (Source: Yahoo! Finance) and risk-free investments, represented by one-month CDs (Source: Federal Reserve) in FDIC-insured institutions.
There may be better assets to invest in (e.g. a broader stock market index), but we still felt that these represented risky assets and risk-free assets relatively well. We were curious about what has happened in the past, looking at various scenarios, with these two assets. This is a good place to insert a couple of caveats:
- We are looking at historical numbers. We’re not psychic nor do we possess any other ability to project the future.
- We used nominal pre-tax rates of return, so inflation and taxes have not been factored in to the returns we’ll discuss.
The last ten years
When we look at the last ten years (going back from December 31, 2008), we see that the stock market underperformed its historical average through almost the entire decade.
The best mix of these two assets for the last ten years would have been no mix at all. Investing 100 percent in CDs provided the best return. Even then, the return was not that great: 3.62% per year by our calculations. The worst return, as you might guess, was being 100 percent invested in stocks over the last ten years. They lost about one percent per year.
What about prior ten-year periods?
One ten-year period isn’t all that instructive. So we went back ten more years (January 1, 1989 to December 31, 1998) and looked at those returns. The highest returns in that period came from a portfolio of 100% stocks, which returned 17.28% annually.
So stocks are one for two. Let’s break the tie and go back another ten years. Can you hear the disco music playing?
A portfolio that was fully invested in stocks delivered the best return in that period (January 1, 1979 to December 31, 1988) as well. They earned a return of 14.36% per year.
Is ten years long enough?
Financial advisors have said for years that stocks perform best over longer periods of time. They used to tell us that we should have at least five years before we needed the money or we shouldn’t invest in stocks. Now we’re hearing more and more that ten years is the magic number.
But here’s the thing … we really shouldn’t even count on that as we’ve learned the last ten years.
How long until you retire?
Let’s think about this … if you’re 40-years old, you might have twenty years before you want to retire. At 30, let’s say you have 30 years. How have the returns looked over that period?
Looking back twenty years, even with the most recent decade, our best bet would have been to be fully invested in stocks. Our return would have been 8.14% annually. It’s ditto for the most recent thirty years. An all-stock portfolio returned 10.21% per annum, about its historical average.
So, our research shows that history shows that you should stick with stocks over the long term. But is there a way to lower your risk without sacrificing returns unjustly?
The price of a higher return
There is a price to pay to get a higher return. That price is more volatility and volatility equals risk. Riskier investments should pay more to compensate you for the risk you’re taking. Stocks are riskier than CDs; therefore, they should pay more.
The price of less risk
We just said that riskier investments generally offer higher returns as compensation for the risk. So why not just invest in CDs and other risk-free assets? Because they may not return enough to get you where you need to go. There is a better answer.
Diversification smoothes it out
When you diversify your assets – investing part of your portfolio in risky assets like stocks and a portion in risk-free assets like CDs, you smooth out the volatility, relative to just investing in stocks, while still getting a higher return than if you invested all your money in just CDs.
Example: A 50/50 Mix
As we discussed earlier, had you just invested in stocks over the last thirty years, you would have made about 10 percent per year on your investment. However, you would have lost about one percent a year in the most recent decade.
What if you can’t stomach losses like that?
Obviously, any money invested in stocks is at risk. However, if we had invested 50 percent in stocks and 50 percent in CDs over the last thirty years:
- We wouldn’t have lost money over the last decade. In fact, we would have made 1.31% per year.
- The thirty-year return on our portfolio would have been 8.32% a year. While it’s less than the 10 percent we could have earned by just investing in stocks, it’s not that much less. Looks pretty good right now, doesn’t it?
We want to emphasize again that we’re not saying a 50/50 mix is right for you. Consult your financial planner. We just picked 50/50 to see what would have happened with an even mix of these two assets.
Long on stocks
As you can see from the returns we quoted earlier, the experts are right – stocks are good long term investments. If you need the money ten years from now, you need to be careful. If you’re a 30- or 40-year old funding your retirement, a good basket of stocks as part of a well-diversified portfolio is a great place to stick your money.
Short on dollars
Going back to where we started, more people are investing very conservatively in treasuries right now. The problem is, if you invest too conservatively, you have to make a choice. Will you be short on dollars now or at retirement?
If you choose to fully fund your retirement, it means you’ll have to invest more now to reach your goal, which means you’ll have to sacrifice more now than is probably necessary.
We still don’t know if we’ve hit bottom on the stock market. But here’s what we do know – most market timers get it wrong most of the time. That’s why we won’t try!
If you have time until you need the money, invest in a well-diversified portfolio. You won’t be quite as happy in the good times, but you won’t be nearly as upset during the bad.
We really appreciate you spending some time with us today. Join us next time when we interview John Jantsch, The Duct Tape Marketer, about how to make customers stick without busting the bank. Until then, here’s to your bigg success!
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(Image in today's post by woodsy)
By Bigg Success Staff
Bigg Success with Money
There’s one thing you should know about your money – no one will watch over it better than you. So you must take control of your money and your investments.
Now you may be thinking, “I don’t understand money.”
Well, the cold, hard truth is that you better learn the basics because otherwise you will find people who take your money without giving you the returns you deserve.
You may be saying, “I don’t have time to manage my investments.”
There are ways to compensate for that, but you need to understand that being entirely “hands-off” increases your risk of undesirable net returns.
We dug up a great article from Money, written by Jason Zweig. It’s an interview with William Sharpe, the dean of financial markets. Sharpe is revered in academic financial circles, winning a Nobel Prize, for his revolutionary work on market principles.
Sharpe reduces all of his knowledge into 4 key principles of investing:
#1 – Diversify
Owning assets that represent the entire market gives you the best return given your risk.
#2 – Economize
Just as you would with any other outlay, look for the lowest cost way to manage your money and conduct transactions, without sacrificing quality.
#3 – Personalize
Tilt your portfolio toward your unique circumstances, thinking about risks you have outside financial assets.
#4 – Contextualize
Anytime you’re thinking of straying from just buying the market, think again. Make sure you can justify the reasons behind your action.
Putting it into practice
You can use these four key principles to guide you as you make investment decisions. Let’s look at a simple way to put them into practice:
- Buy shares in a mutual fund that targets a specific retirement date.
- Make it a no-load fund with low expenses.
- Buy additional shares in mutual funds that target assets where you have significant exposure. For example, if you have a long commute, you can hedge by investing in stocks that will profit from high gas prices.
- Don’t stray. When you’re thinking of buying a stock you just got a “hot tip” on, think again and ask yourself why you’re buying. Don’t sell just because the market falls. Stick with your plan.
There are other ways to execute Sharpe’s principles. However, this is the simplest way to do it, especially if you don’t have much time to manage your investments or you don’t understand investing that well.
Just don’t forget – you are the Chief Investment Officer for your organization. Ultimately, you have to take responsibility for how well your portfolio performs. For most of us, it’s best to outsource and inspect – make sure your chosen managers are performing well. If not, find one that will. Your future depends on it!
(Image by woodsy)