Invest or Die Poor

Do I have your attention? Good. This is serious stuff. If you are like the vast majority of Americans, you are primarily responsible for your own financial future. And the deck is stacked against you. In the old days, before the 1990’s or so, it used to be that you got a job, worked there for 20 or 30 or 40 years, retired at 60 or 65 with a nice pension, then lived your remaining lives playing golf, tending your garden or doting on your grandchildren. Unfortunately for you, the rules have changed and you must change with the times, before it’s too late.

Today, you must save and invest for yourself, and basically by yourself. Your investing options include a 401k (or 403b or a 457), various IRA’s (traditional, rollover, beneficiary Roth, SEP, SIMPLE) and basic taxable accounts. Within these basic frameworks you can invest in individual stocks and bonds, REITs, MLPs, mutual funds and ETFs, options, etc. The key word in all of that is “invest”.

Unfortunately, traditional avenues for “saving”, like bank deposits and certificates of savings (CDs), are no longer viable options for building, or even protecting, your wealth. With interest rates at or near zero, and inflation around 2%, you actually lose money (after taxes and inflation) by putting your money in the bank. To put that in some perspective, if you put $100,000 in the bank in an account that earns 0.10% (which is generous), you would earn a paltry $100¬†per year. Assuming you pay about 30% in taxes, that leaves you with a meager $70, or about enough money to pay for one tank of gas.

Even bonds (in this case I mean high quality government or corporate bonds), a staple of many investment plans, offer far too little yield today to compensate you for taking enormous interest rate risk. Sometime in the next 12 months or so rates will likely begin to increase, at which point bond investors will start to lose money on their current holdings. High yield, or junk bonds, do offer slightly better yields, but the easy money has already been made there. The spread between treasuries and high yield is far to small today to warrant new investments in high yield.

So what are your options? What can you do to generate a decent return on 30 or 40 years of saving and investing, that will outpace inflation, and create sufficient wealth to live out your days without running out of money? You MUST invest in the stock market in some way. Whether it be through individual stocks or via mutual funds and ETFs, stocks give you the only viable way, TODAY, to achieve a viable financial future.

I recommend putting your money in high quality, dividend-paying equities that have a history of paying those dividends, in increasing amounts, year after year. Properly selected, a portfolio of stocks like Verizon (VZ), ExxonMobil (XOM), Lockheed Martin (LMT), Pfizer (PFE), Emerson Electric (EMR), Union Pacific (UNP), Medtronics (MDT) and JP Morgan (JPM) just to name a few, will very likely grow much faster than inflation, or any other liquid investment option. (*Disclosure: I own every one of those stocks in my own accounts and for clients).

To summarize, I believe that we must all take responsibility for our own financial futures. In doing so, we must also recognize that times and conditions change. The current conditions dictate that we have to invest the vast majority of our savings in order to have any reasonable hopes of achieving a secure retirement. Looked at over a 5, 10, 15, 20 or 25 year time horizon, this type of investment plan isn’t as risky as you might think, and it offers the only reasonable way to earn enough money to fund your retirement. So if you aren’t already investing your retirement money, you better get started before it’s too late.

Government Lies (and Statistics)

The government is lying to us. I know this isn’t exactly news, because they lie to us all the time. But in this case, I’m talking about inflation. According to the most recent “official” government announcement by the Bureau of Labor Statistics on September 14, “The Consumer Price Index for All Urban Consumers (CPI-U) increased 0.6 percent in August on a seasonally adjusted basis. Over the last 12 months, the all items index increased 1.7 percent before seasonal adjustment. The seasonally adjusted increase in the all items index was the largest since June 2009. About 80 percent of the increase was accounted for by the gasoline index, which rose 9.0 percent and was the major factor in the energy index rising sharply in August after declining in each of the four previous months.”

In effect, what they’re telling us is that, according to their barometer, inflation is running at only 1.7% over the past twelve months, and it’s only that high because of rising gas prices. In prior months it had been below 1% annualized. This “low inflation” is just one of the many factors used by the Federal Reserve to justify QE2 and QE Forever (aka QE3). The problem is that the government keeps changing the way they calculate CPI to suit their needs, which means they will use any tools at their disposal to show the lowest possible level of inflation. Anybody who lives in the real world knows that true inflation is rampant today, and is putting a death grip on ordinary citizens struggling to make ends meet.

Consider how much more expensive it is today to buy groceries, or fill up your tank, or go to the movies, or buy a pair of jeans, or send your child to college. I could go on and on. The government is insulting our intelligence every time they tell us there is little to no inflation. Where do they live? Who’s paying for their health care, or their cable bill or for the cost of a ticket to a concert or ballgame? When is the last time they went out to dinner and paid for a steak with their own money?

The cold hard reality is that the average American is earning less and less while everything we consume costs more and more. You’ll never hear that in any of the government pronouncements. Keep that in mind next time you read or hear a report telling us that we’ve conquered inflation. Don’t believe it; the government is lying.