Boomer Investment Pitfalls

A Personal Note      Attacks in Libya, earthquakes in Japan and rising commodity prices were some of the most memorable events of the first quarter of 2011.     Through all of this anguish, the equity markets persevered and posted a return of +5.4%.  Once again, small and mid cap stocks outperformed the large quality names.  The two most remarkable shifts we have seen in the first quarter, are rising bond yields (which means bond prices are trending lower), and money flowing into equity mutual funds.  According to Barrons, equity-fund net inflows averaged $4.5 billion for the four week period ended last week.      While it may be difficult to think about investing in the equity markets in light of all the disturbing headline news, one cannot ignore the powerful shift that could take place when massive amounts of money start shifting from bonds and money market funds into stocks.  The foundation for a positive stock market has been the strength we are seeing in corporate profits and we expect this trend to continue.   In light of such strong performance in the first quarter, it would not be unlikely for the market to correct or move sideways at some point.  As Liz Ann Sonders of Schwab said in her piece this week, “Investing can be frustrating when the world looks as it does today”.      A reminder that when investing in equities, one must always keep a long term perspective. Have a great weekend! Warm regards, Catherine Maniscalco Avery CAIM specializes in creating and managing customized and fully diversified investment portfolios for private investors. 203.966.2712  p 203.966.5697  f www.caimllc.com BOOMER INVESTMENT EXPECTATION PITFALLS      There are several potential pitfalls Baby Boomers face when determining their expected income needs for retirement.   In this newsletter we’ll take a look at four major mistakes Baby Boomers make when it comes to planning their retirement.   1. Never underestimate your life expectancy It used to be that financial planners routinely created retirement plans that stopped at age 85.  This was when chances seemed pretty good their clients would have passed on by then. Not today, however.  Fidelity Investments found that the chances of one member of a couple living beyond 90 are about 50%.   So, be very careful about how you plan your retirement finances.   2. Will you really be working past 70? “Oh, I’ll be working past retirement, that’s for sure.”  We’ve all heard that statement too often from Baby Boomers.  How they’ll actually feel once they are in their 60’s and 70’s may be an entirely different matter. Right now, the typical retirement age is 62, according to the Employee Benefit Research Institute. And nearly 40% of retirees say they left the workplace earlier than they’d planned, often because of illness, disability or layoffs.   3. Factor in Health Care Costs Employers increasingly are eliminating retiree health coverage. You can’t get Medicare coverage until you’re 65.  And there are plenty of costs this government program doesn’t cover. For many Baby Boomers it makes sense to consider home care providers wherever possible.  The latest study published by Genworth Financial, Inc. notes that while the cost of facility-based providers has steadily increased (a 4.5% annual growth rate since 2005), non-skilled related home care costs have remained relatively flat. Still it makes sense to consider buying long-term care insurance in your 50s or 60s to help cover the expense. Boomers should be planning ahead to cover the cost of their health care, as health care costs are expected to grow even more going forward.    4. Avoid the low-yield, safety net investments When investing for income, locking in subpar returns found in certificates of deposit (CDs) and immediate annuities can become damaging.  While great in concept i.e. a way to lock in a lifetime stream of income, the annuities only offer payments that reflect the prevailing interest rates.  If you buy an immediate annuity now, you could be locking in rates that are still near record lows. Remember. bond annuities and bonds do not keep up with inflation.  So the dollar you have today will not be enough to keep food on the table in the next couple of years. All of these factors point to one key message:  invest in value stocks that pay dividends! Copyright 2011, CAIM LLC   Disclaimer: NO CONTENT PUBLISHED AS PART OF THE CAIM LLC NEWSLETTER CONSTITUTES A RECOMMENDATION THAT ANY PARTICULAR INVESTMENT, SECURITY, PORTFOLIO OF SECURITIES, TRANSACTION OR INVESTMENT STRATEGY IS SUITABLE FOR ANY SPECIFIC PERSON.  TO THE EXTENT ANY OF THE CONTENT PUBLISHED AS PART OF THE BLOG MAY BE DEEMED TO BE INVESTMENT ADVICE, SUCH INFORMATION IS IMPERSONAL AND MAY NOT NECESSARILY MEET THE OBJECTIVES OR NEEDS OF ANY SPECIFIC INDIVIDUAL OR ACCOUNT, OR BE SUITABLE ADVICE FOR ANY PARTICULAR READER.  EACH READER AGREES AND ACKNOWLEDGES THAT ANY SPECIFIC ADVICE OR INVESTMENT DISCUSSED IN THE BLOG MUST BE INDEPENDENTLY EVALUATED BY THE READER AND HIS OR HER ADVISER IN VIEW OF THE READER’S INVESTMENT NEEDS AND OBJECTIVES. For those of you with questions, feel free to call me at 203.966.2712 or visit www.caimllc.com   *Please pass along this newsletter to friends and family*  to spread the word!