Most Popular
1. It’s a New Macro, the Gold Market Knows It, But Dead Men Walking Do Not (yet)- Gary_Tanashian
2.Stock Market Presidential Election Cycle Seasonal Trend Analysis - Nadeem_Walayat
3. Bitcoin S&P Pattern - Nadeem_Walayat
4.Nvidia Blow Off Top - Flying High like the Phoenix too Close to the Sun - Nadeem_Walayat
4.U.S. financial market’s “Weimar phase” impact to your fiat and digital assets - Raymond_Matison
5. How to Profit from the Global Warming ClImate Change Mega Death Trend - Part1 - Nadeem_Walayat
7.Bitcoin Gravy Train Trend Forecast 2024 - - Nadeem_Walayat
8.The Bond Trade and Interest Rates - Nadeem_Walayat
9.It’s Easy to Scream Stocks Bubble! - Stephen_McBride
10.Fed’s Next Intertest Rate Move might not align with popular consensus - Richard_Mills
Last 7 days
Stocks, Bitcoin and Crypto Markets Breaking Bad on Donald Trump Pump - 21st Nov 24
Gold Price To Re-Test $2,700 - 21st Nov 24
Stock Market Sentiment Speaks: This Is My Strong Warning To You - 21st Nov 24
Financial Crisis 2025 - This is Going to Shock People! - 21st Nov 24
Dubai Deluge - AI Tech Stocks Earnings Correction Opportunities - 18th Nov 24
Why President Trump Has NO Real Power - Deep State Military Industrial Complex - 8th Nov 24
Social Grant Increases and Serge Belamant Amid South Africa's New Political Landscape - 8th Nov 24
Is Forex Worth It? - 8th Nov 24
Nvidia Numero Uno in Count Down to President Donald Pump Election Victory - 5th Nov 24
Trump or Harris - Who Wins US Presidential Election 2024 Forecast Prediction - 5th Nov 24
Stock Market Brief in Count Down to US Election Result 2024 - 3rd Nov 24
Gold Stocks’ Winter Rally 2024 - 3rd Nov 24
Why Countdown to U.S. Recession is Underway - 3rd Nov 24
Stock Market Trend Forecast to Jan 2025 - 2nd Nov 24
President Donald PUMP Forecast to Win US Presidential Election 2024 - 1st Nov 24
At These Levels, Buying Silver Is Like Getting It At $5 In 2003 - 28th Oct 24
Nvidia Numero Uno Selling Shovels in the AI Gold Rush - 28th Oct 24
The Future of Online Casinos - 28th Oct 24
Panic in the Air As Stock Market Correction Delivers Deep Opps in AI Tech Stocks - 27th Oct 24
Stocks, Bitcoin, Crypto's Counting Down to President Donald Pump! - 27th Oct 24
UK Budget 2024 - What to do Before 30th Oct - Pensions and ISA's - 27th Oct 24
7 Days of Crypto Opportunities Starts NOW - 27th Oct 24
The Power Law in Venture Capital: How Visionary Investors Like Yuri Milner Have Shaped the Future - 27th Oct 24
This Points To Significantly Higher Silver Prices - 27th Oct 24

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

The Most Dangerous Myth About Retirement Investing

Personal_Finance / Pensions & Retirement Jul 23, 2013 - 12:18 PM GMT

By: Money_Morning

Personal_Finance

Robert Hsu writes: The most dangerous myth out there right now is that Treasuries are the key to safe wealth building.

Forget about Fed Chairman Ben Benanke's latest palliative.

This misconception will turn your nest egg into a pile of sticks faster than you can say quantitative easing.


And this is a huge problem because the baby boomers are starting to retire in droves.

I call this the Great Retirement Funding Crisis. And I am determined not to be a part of it. And I have a plan.

Over the next 15 years, over 70 million Americans - over one-third of the adult population - will reach retirement age, but most of these folks have nowhere near the amount of funds it takes to retire comfortably.

What's even more troublesome is the fact that nearly half of those soon-to-retire have not even thought about how much it will take to finance a comfortable retirement.

And when I talk about retirement, I'm talking about financial independence.

Right now, safe investing is turned on its head and you need adapt or put at risk all you've have working for you.

Beyond Wealth Preservation

Over the years I have derived two simple but important axioms that guide my investing:

1. Even if you're rich, wealth, if not replenished, will run out. If you're not rich, growing your funds is even more important.

2. If you can get rich and know how to make wealth grow, then you can truly be financially independent.

My work at hedge funds and inside Wall Street powerhouse Goldman Sachs reinforced my view of wealth building versus wealth preservation.

And as the saying goes, I learned not to "fight the tape;" I learned to make money with the market regardless of what it threw at me.

For example, I made a very nice return from technology stock investing in the 1990s. And I continued to make money between 2000-02 even though the NASDAQ declined 70 percent. I was able to do this because I listened to the markets and I changed my strategy when the market changed.

It's Never Too Late

The key to investing and business success is the ability to identify favorable risk-reward situations. I only invest when the upside potential outweighs the potential risks.

For instance, when investing in growth stocks, I usually limit downside risk by cutting losses quickly and letting profits run when big winners emerge.

On the other hand, when buying value stocks, getting them on the cheap mitigates some downside risk by buying them at low valuations.

The point is that there needs to be enough potential profit in the game to justify risking your capital. If the potential pay-off in an investment is low, then it makes no sense to invest in it if any downside volatility exists.

And the current poster child for this kind of investment now is the long-term U.S. Treasury bonds in the current super-low but rising interest rate environment.

Long-term Treasuries - A Bad Bet

Treasury bonds are widely perceived as a "safe" investment because of their extremely low default risk.

Although Treasuries won't default, that's not really the point.
The value of Treasury bonds is subject to fluctuations in long-term interest rates, can be quite volatile these days. And that's not a market you want to be in as an investor feathering a nest egg for retirement.

Because of global central bank easing, 10-Year Treasury Notes have tanked (prices have fallen and yields have risen). And it's not because the US is breaking down. Ironically, it's because the US economy is getting back on its feet.

And the bond selloff accelerated after June 18 when Fed Chairman Ben Bernanke talked about winding down the central bank's $85 billion-a- month bond buying program.

In the 10 weeks since May 1, investors in the iShares Barclays Treasury Bond ETF (NYSE: TLT) lost over 12% as 10-Year Notes yield jumped from one full percentage point from 1.63% to 2.63% on July 9.

That kind of risk-reward simply doesn't sense: you lose 12% in 10 ten weeks trying to earn less than 2% a year in yields.

Because interest rates won't drop below zero, the capital appreciation potential is limited and the downside risk is significant; rates can easily move up to 5%, which was the level before the 2008 Financial Crisis.

Most investors in Treasury bonds were probably not expecting to take a double-digit hit in such a short time. But when too many investors seek the same safe harbor, the overcrowding and resulting overvaluation turns that safe harbor into a big target. makes the said harbor less safe. There's a difference between the perception of risk and true risk.

I expect bonds and most other conventional fixed income investments to perform poorly in the next two years as interest rates move higher.

Income investors beware: As we enter a new rising rates environment, it's actually more risky to aggressively chase yields than to aggressively chase growth.

Sometimes, the best defense is going on offense, and right now is one of these times.

Source :http://moneymorning.com/2013/07/23/the-most-dangerous-myth-about-retirement-investing/

Money Morning/The Money Map Report

©2013 Monument Street Publishing. All Rights Reserved. Protected by copyright laws of the United States and international treaties. Any reproduction, copying, or redistribution (electronic or otherwise, including on the world wide web), of content from this website, in whole or in part, is strictly prohibited without the express written permission of Monument Street Publishing. 105 West Monument Street, Baltimore MD 21201, Email: customerservice@moneymorning.com

Disclaimer: Nothing published by Money Morning should be considered personalized investment advice. Although our employees may answer your general customer service questions, they are not licensed under securities laws to address your particular investment situation. No communication by our employees to you should be deemed as personalized investent advice. We expressly forbid our writers from having a financial interest in any security recommended to our readers. All of our employees and agents must wait 24 hours after on-line publication, or after the mailing of printed-only publication prior to following an initial recommendation. Any investments recommended by Money Morning should be made only after consulting with your investment advisor and only after reviewing the prospectus or financial statements of the company.

Money Morning Archive

© 2005-2022 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in