Friday July 18, 2008
Turbulent Times
Since my book Cash-Rich Retirement first came out earlier this year, most of us have been on a roller coaster ride. We’ve seen our investments whiplash up and down. The country’s credit, stock and bond markets have been severely battered. Confidence in the financial system has been shaken. In fact, it is still not clear whether U.S. banks need to write off many more billions of dollars of problem mortgages as part of the correction process. And housing prices in a number of communities still need to undergo corrections of 15 or 20 percent or more.
At the same time, fuel prices, commodity prices, health-care and food prices continue to spiral upwards. We are now experiencing heavy-duty inflation as I predicted in the book. Some economists say we now have double-digit inflation, in fact. And many agree that inflation will become the next pressing concern and national policy issue.
These developments put the Federal Reserve in a jam. On one hand, it must eventually increase interest rates to curb inflationary pressures and prevent further harm to people living on fixed incomes. On the other hand — and perhaps even more urgently — it also needs to stimulate the economy, stimulate job creation, and stimulate consumer spending by keeping interest rates low.
Meanwhile, our federal, state and municipal governments are on spending sprees, demonstrating fiscal irresponsibility at every turn. As they spend and spend, they ignore the dangers of sky-high deficits and a weak currency.
So we’re in tough spot. And there is no easy way out.
Greed, fiscal mismanagement, and the weak performance of government “regulators” who have done precious little to deflate one spat of investment excesses after another have all contributed to inflated prices, high debt, feeble balance sheets, and investment turbulence. There is, indeed, no easy cure. Today, the repair of one financial malady invariably compromises the cure of two or three others.
So the retirement dilemma I describe in Cash-Rich Retirement is substantially more serious today. Faced with shrinking wealth and rising costs, many Americans have stopped saving for retirement altogether. Many are prematurely drawing down their savings before retirement in order to make ends meet. Many corporate, state and municipal pension funds are mightily under-funded. And many employers are cutting back on their retirement benefits.
It’s a recipe for great retirement pain in the decades ahead.
The good news is that the recommendations in my book will help you. Cash-Rich Retirement explains why inflation-protected bonds, income-producing investments, and “safe haven” investments in energy, basic materials, and precious metals can be helpful. Indeed, the specific investments recommended in my book have tended to fare better than most in recent months as the investment markets teeter.
Of course, there is no magical way of protecting yourself from the corrections taking place. There is no sure-fire way of avoiding them entirely. But you can enjoy less turmoil than most as the markets correct and realize better returns than most when the markets rebound. My book shows you how.
In view of the country’s current financial woes, let me also underscore the importance of making saving and investing automatic processes. I explain how in my book. It’s easy to put off saving in times like these. But don’t lose the opportunity to amass capital for your future — even if it means some extra belt-tightening right now.
And now more than ever, it’s also wise to extra cautious when you invest. I believe we will see more home foreclosures, more banks in distress, more hedge funds closing, and eventual upheavals in the derivatives market, which is yet another under-regulated, greed-stoked area of our financial system and , I believe, the next shoe to drop.
We are going through painful changes. But there are helpful lessons to be learned from them and important investment opportunities as well. One lesson is that exceptionally large returns on any fund or investment (like the abnormally high returns on tech stocks in late 1990s and from real estate earlier this decade) invariably represent large risk. Don’t chase investments with the highest recent returns. You want to keep your retirement capital out of high-risk investments. You want broadly diversified, speculation-adverse investments that will help protect your savings from harm.
At the same time, changing demographics are opening many exciting investment opportunities. Don’t be discouraged by the barrage of bad financial news out there. You can enjoy a sound and secure retirement. Read Cash-Rich Retirement and I explain how.
[For more information about Cash-Rich Retirement, visit its website at www.cashrichretirement.com]
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