Perspective on
Market High Fears

Now that markets have bounced back and the S&P 500 Index has crossed another significant threshold (3,000 points), the financial media is, once again, doing what it does best: subtly distorting facts to perpetuate a well-crafted narrative in order to create doubt and unrest so you will continue to tune in.

As we have discussed on numerous occasions, being a successful long-term investor at this critical stage in your life is not easy.  Understanding markets and history is certainly part of the job.  However, proactively filtering and putting the daily deluge of misinformation into proper perspective is of equal or greater importance to your success because of its impact on your mindset and potential actions.

Here are two very important examples we are hearing over and over right now that you have to be aware of:

1)“The market is at an all-time high: How many times have you seen this in the news, or heard it from friends or colleagues? In nominal terms, i.e. 3,000 points vs. 2,500 points, etc., it is true. However, like any financial number, the nominal figure itself  is of zero significance or value to you unless it’s compared with one or many other numbers for perspective.

As I shared with you in my book, The Relaxing Retirement Formula, in October of 1987, the Dow Jones Industrial average fell 508 points in one day.  Back then, 508 points represented a 22.6% drop, a very significant number!

Today, 508 points represents only a 1.8% drop which is Twelve and a Half Times LESS significant than a 22.6% drop.

However, the financial media continues to report “points” on the news each day.  Why do they do this instead using percentages which would be a far more accurate way to report the true significance of the drop?

You and I both know why intellectually: reporting points has a much larger impact on you emotionally!  And, the more emotion they can stir up, the more likely you are to tune in and remain tuned in for the next dose, thus increasing their ratings and the amount they can charge their advertisers.

Now, let’s go back to the market’s at an all-time highfear messaging and place it in proper perspective by comparing it to another relevant number.  The S&P 500 Index (as I write this) is at 3,085.  The consensus forward 12-month earnings estimate for the S&P 500 is 176 (per Yardeni).  Dividing this earnings estimate by the market price provides us with a 12-month P/E (Price-to-Earnings) estimate of 17.5.

For perspective, at the peak of the dot com bubble back in 2000, the 12-month forward P/E estimate of the S&P 500 Index was 29.0 (i.e. 66% higher than it is today)!

By any rational evaluation, that was an all-time high, and it doesn’t even take into consideration two other crucial variables as a backdrop to current market valuations, i.e. our current historically low inflation and interest rates.

The bottom line is the nominal figure of the market’s price (i.e. 3,000) is irrelevant without placing it into proper perspective.  However, the media will continue to tout the phrase, “the market’s at an all-time high” because it stirs up the fearful emotion they want to instill in you that the shoe is about to fall at any moment…so stay tuned.

2)  “The longest bull market of all time”:  The corollary to my first example is the continued storyline that we’re experiencing the longest uninterrupted bull market run of all time dating back to the financial crisis when the market bottomed out on March 9, 2009 after a 57% peak-to-trough drop.

To continue that narrative, the financial media has strategically chosen not to acknowledge two significant events.

You may recall that in 2011, we experienced a bear market brought on by the Eurozone meltdown, the debt ceiling crisis, and Standard & Poor’s downgrade of U.S. government debt.

(For reference, the pure definition of a “bear” market is a peak-to-trough fall in market prices of 20% on a closing basis, i.e. not intra-day.)

Between April 29th and October 2nd of 2011, market prices fell 19.4% on a closing basis, just shy of the 20% threshold. Although it didn’t close down 20%, if you measure the fall by the level of hysteria and equity fund redemptions, it certainly would have qualified as a bear market.

The same holds true for last year between September 20th and Christmas Eve when the value of the S&P 500 Index fell 19.8% on a closing basis, again just a hair shy of the 20% bear market threshold.

Ask all of those who panicked and sold out over $100 billion of equity mutual funds in just a two week period in December if they thought it was a bear market.

The financial media’s decision not to acknowledge these two large market downturns as “bear” markets allows them to strategically continue calling this the “longest running bull market of all time”, thus perpetuating the emotionally charged underlying fear that the market is long overdue for a large correction and it will do so at any moment.

None of this is in any way a prediction of what markets will do tomorrow, next week, or even next year.  Any honest person will readily admit that they don’t know either.

What’s so important to take away from this is to begin each day consciously aware of all attempts to strategically manipulate your emotions.  Don’t just take everything you read and hear at face value.  Always try to put it into proper perspective.

Protect your confidence by filtering all dispensed information for the truth so that you can make decisions based on fact instead of opinion.

 

Do We Have Enough?

When I meet with someone for the first time, one of the things they want to know very early in our conversation is “do you think we have enough?”

That’s the question on the tip of everyone’s tongue.

My answer is always the same, “I don’t know……yet…. because the number is so different for everyone. But I can show you how to find out!”

Why Is Everyone’s Number So Different?

Let’s take a look at two couples, Jim and Mary, and Ron and Rose, both age 65.

To keep it simple using round numbers, assume each couple has:

  • $2 million dollars in investments,
  • the same social security retirement income, and
  • the same

Beyond that, here’s what else we know about them:

Jim and Mary have no mortgage or home equity line of credit, and they’ve recently completed many of the major upgrades to their home, i.e. a new roof, siding, a new furnace, and updated bathrooms. They have always lived a very modest lifestyle with little or no debt.

Ron and Rose, on the other hand, still have a $300,000 balance on their home equity line of credit that they took out to pay for their kids’ college tuitions and weddings, and a condo down in Florida they bought a few years back. They each drive high end cars. And, while their home is very nice, after 31 years, it’s starting to look “tired” and could use some upgrades.

Can you see how each couple’s number is drastically different?

What’s the difference?

Even though both couples have the exact same level of investments, and the same amount of income coming in from social security and pensions, the amount they need to have in their Retirement Bucket™ is drastically different because they spend so differently.

In short, Ron and Rose are a lot more dependent on their Retirement Bucket™ than Jim and Mary.

The income that will be required to support Ron and Rose will be much greater than Jim and Mary. As such, Ron and Rose will need to withdraw a much bigger amount each year from their Retirement Bucket™, thus requiring a bigger number.

But, Have They Reached Their “Number”?

With that said, however, have Ron and Rose reached their “number”?

How about Jim and Mary?

At this point, we don’t know. And, that’s a very important point!

Most people make their decisions based on their perception of how they “measure up” to others. Based on what they hear on television, or on what a friend or colleague tells them.

The reason we don’t know if Ron and Rose or Jim and Mary have reached their “number” is that we haven’t thoroughly quantified what it costs them to support their lifestyle yet.

And, that’s the key. Yes, it’s true that Jim and Mary are more likely to have reached their “number”. But, Ron and Rose may have as well.

It’s ALL in the Numbers

This is why it’s so critically important for you to have a clear handle on what it costs you to live the way you want. Otherwise, you will have unnecessary anxiety and you will “pull your punches” by restricting your spending for the rest of your life because you don’t know if you have enough.

Or, you will continue to work because you think you “have” to, when in fact you may not “have” to.

So, as we kick off a brand new year together, the first critical step in The Relaxing Retirement Formula™ is to get a really good grasp on just how dependent you are on your retirement savings.

Become infatuated with knowing your numbers cold!

I’m going to show you the fastest and most accurate way to accomplish that.

 

Brother #1 vs. Brother #2

Imagine for a moment that you’re having a conversation over dinner last Friday night with your brother and his wife. Answering the common question, “what’s new”, he dives right in and shares what he’s been up to.

In addition to the nice home he owns and lives in with his family, he also owns a two-family home in town which he has been collecting rent on for 15 years.

He explains to you that he called up his real estate broker last week on a Tuesday afternoon and asked the broker what she believed he could sell the rental property for that day. He didn’t want to know what he could sell it for in a month or two, but right then.

Given the demand for a quick response, her answer was $600,000.

He then called back on Wednesday morning at 9:43 a.m. and asked how much she thought he could receive if he sold it then.

He then called back at 11:57 a.m. and asked the same question.

Finally, he called her back that same afternoon at 3:26 p.m. and asked how much she thought he could sell it for then.

Before you called the local hospital for the men in the white coats to come and take him away in a straight jacket, you asked him if he did this often.

“Oh, I do it all the time,” he said

Why, you ask, do you waste your time if you’re not selling?

“I like to stay on top of things so I know how I’m doing.”

Brother #2

Imagine for a moment that you’re visiting your brother and his wife at their home in Florida.

In the first morning of your visit, you notice that he’s watching CNBC’s Squawk Box on television and there are two guys shouting conflicting opinions on the effect of The Fed raising interest rates on market prices.

As you’re all waiting on him to head out for lunch, you notice that he has Yahoo Finance pulled up on his iPad checking the prices on the different stock market exchanges.

“The Dow is down 120 points,” he laments as you’re walking out the door to the car.

At the conclusion of lunch at the restaurant, he asks the waiter to switch the channel on the television over to CNBC so he can see what the market is up to.

After some shopping in town, you head home in his car. On the way, he has business radio tuned in on the radio so he can hear how the market closed at the end of the day.

After a nice meal at his home that night, you all settle in to watch Jim Kramer discuss his take on the market activity that day, and what he recommends everybody do in reaction to the day’s events.

After a futile attempt to get him to change the channel over to a comedy show that you can all watch, you gently ask him if he “paid this much attention to the market every day.”

“Of course,” he said. “Don’t you?”

After replying that you don’t, you then ask him why he does it.

“I like to stay on top of things so I know how I’m doing.”

 What Do You Think?

Is the behavior exemplified by the brother in story #1 (real estate) any different than the brother in story #2 (stock market)?

The answer is no. There is no difference at all! They’re both equally bizarre and destructive.

The only difference is the investment vehicle they’re using.

Upon first glance, I suspect the behavior of Brother #1 (real estate) appears more outrageous.

I also suspect you know someone who mirrors the behavior of Brother #2 (stock market). Perhaps you know someone like this quite well.

We all do and it’s becoming way, way too common. The media has turned investing into a sport with minute by minute reporting of “points” on the Dow. Why do you think they use that terminology?

The truth is that the behavior of Brother #2 (stock market) is no more bizarre and destructive than the behavior of Brother #1 (real estate).

Randomly ‘checking in’ via the internet, the radio, or the television, etc. multiple times a day to “see how ‘the market’ is doing” is the same as Brother #1 calling his real estate broker on three separate occasions in one day to find out how much she could sell his rental property for at that precise moment.

Neither accomplishes anything.

What Are They Looking For?

The bigger question is what is each brother looking for?

What they’re both looking for is a sense of certainty in the short and long run. They want to make sure they’re not “falling asleep at the wheel” and missing out.

The reason they have this feeling and desire is their overall ‘big picture’ interpretation, and thus ingrained belief of the world on a day to day basis, i.e. that world economies and financial markets are completely fragile, erratic, ungrounded, and out of control. And, that the bottom could permanently fall out of their financial lives without any warning whatsoever, and they could be permanently bankrupt because of it.

Please take a moment to go back and read that paragraph again. It’s that important.

This is the psychological state of most retirees in America today, and it is my strong opinion that it is not necessarily their fault (in the short run). I emphasize ‘in the short run’ because in the long run, everyone has a responsibility to continuously seek the objective truth, and discard everything else which has not objectively been proven to be true.

What everyone is fed by the financial media over and over on a day to day basis confirms that economies and financial markets are completely fragile, erratic, ungrounded, and out of control. And, that the bottom could permanently fall out of their financial lives without any warning whatsoever and they could be permanently bankrupt because of it.

If anyone were to take a step back and unemotionally evaluate this assertion, they could and would arrive at the truth which is that it is completely false.

However, it is not reported because of its level of truth. It is reported because it keeps millions and millions of viewers tuned in day after day after day.

Think about it. If the financial media can perpetuate this myth, and they can get millions to buy into it, then they condition those millions (like Brother #2) to tune in multiple times each day in order to fulfill their conditioned desire to “stay on top of things”.

If engaging in this activity was of any value to you, I’d strongly endorse it in a heartbeat. It is not. Do everything you can to avoid the trap.

Investing is not a sport, thus scoring it on a minute by minute basis, as the financial media would like you to do, is not only unhealthy, but it is ineffective as a means of helping you achieve your long term goals.

This does not mean that you should aimlessly bury your head in the sand. What is does mean is that, in the face of the endless barrage of information coming at you every day, you must exercise extreme levels of awareness of the “intent” of the information, remember that you are in control, and protect your confidence.

 

Retirement Coach Jack Phelps Publishes New Article Illustrating a Great Strategy for Dealing with Market Turbulence

Jack Phelps, founder of The Relaxing Retirement Coach, contrasts what massively successful investors focus on vs. what the overwhelming majority focuses on

Wellesley, MA – October 12, 2015Jack Phelps, founder of The Relaxing Retirement Coach, a Retirement Coaching company, recently published an article on his website (https://www.theretirementcoach.com) demonstrating why focusing on “the stock market” is a recipe for disaster.

In his article titled “Take a Look Under Your Hood, Jack Phelps writes, “Why does it seem as though Buffett, and other great investors like Ron Baron, always keep on buying great companies they believe in despite market turbulence all around them that paralyzes the masses?”

The Relaxing Retirement Coach, Inc. provides their members with the ‘missing structure’ they need to make a seamless and relaxing transition to their retirement years so they can confidently do everything they want to do without worrying about money.  Their Relaxing Retirement Coaching Program™ provides members with a personalized, one-on-one retirement coaching relationship with constant attention to each and every detail necessary for them to consistently enjoy a relaxing retirement experience.

The entire article can be found at https://www.theretirementcoach.com/articles/take-a-look-under-your-hood-3.php

To learn more about The Relaxing Retirement Coach, Inc., please visit https://www.theretirementcoach.com.

About Jack Phelps

Prior to developing The Relaxing Retirement Coaching Program back in 1994, Jack spent five years as a registered representative with Prudential Financial Services. In 1989, Jack graduated from Holy Cross College in Worcester, Massachusetts with a B.A. ask powersports . in Economics.

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Take a Look Under Your Hood

Days before the recent market panic in late August, Warren Buffett made the biggest acquisition in Berkshire Hathaway history. With oil prices down as low as they’ve been in years, he bought $5 Billion worth of Phillips 66, and added to his already hefty IBM holdings.

What is equally interesting to note is that he also didn’t sell anything during that laser quick period in August when market index prices fell 11% in a week.

Why does it seem as though Buffett, and other great investors like Ron Baron, always keep on buying great companies they believe in despite market turbulence all around them that paralyzes the masses?

The biggest reason is that they’re not focused on investing in “the stock market”. They recognize that “the stock market” is nothing other than a medium to buy and sell shares of all the companies in which they own shares.

They’re focused on the prospects of the companies they own, and those they’re looking to acquire, and their ability to prosper for years to come.

Investing is Owning

During market corrections like we’ve recently experienced, it’s always a great idea to focus on the big picture of what investing really is, and why you’re even engaging in it.

Investing is owning plain and simple. We can never forget that. Long term growth is not obtained through “trading”, i.e. buying and selling.

The growth we need our Retirement Buckets to experience is achieved when the value of the companies we own (and the dividends they pay) grow over the long term.

What Do You Own?

When you think about investing, or you discuss it with friends and/or family, how do you describe your experience? Do you talk about investing in “the market” or do you talk about the great companies you own?

One of my strongest recommendations is to focus on the latter: owning companies. After all, that’s what you’re doing.

For example, if you own shares in Schwab’s Large Cap ETF, you own a piece of 767 companies.

Let’s look under the hood for minute and examine the companies you own if you’re invested in that fund or a similar large cap index:

  • Apple
  • Microsoft
  • Exxon Mobil
  • Johnson & Johnson
  • GE
  • Berkshire Hathaway
  • Wells Fargo
  • JP Morgan Chase
  • Facebook
  • Amazon
  • Boeing
  • Walgreens
  • Honeywell, and
  • UPS to name a few of the top holdings

If you own the iShares MSCI EAFE Index ETF or The Schwab International Index ETF, you own a piece of 934 and 1,216 companies respectively including:

  • Nestle
  • Novartis
  • Roche Holdings
  • Toyota
  • HSBC
  • Sanofi
  • Bayer
  • British Petroleum
  • Novo Nordisk, and
  • Royal Dutch Shell to name a few.

Quite a List

Stop and think about this for a moment. If you’re invested in any of those funds, or a similar fund, you own a piece of each of those incredible companies. And, we’ve only listed the top holdings in a few of your funds in just two of the asset classes where you own.

During temporary market corrections like we’ve experienced lately, a great idea is to take a look at the list of the top companies you own pieces of and give some thought to their prospects in the years ahead.

What will the demand for the company’s products and services be in the future given technology and all the demographic shifts going on all over the world?

Given that only one billion out of the 7.3 billion people in the world own smart phones, what is the likelihood that Apple’s long term future is bright?

Given the explosion of diabetes due to the ‘westernization’ of diets throughout the world, do you think that Novo Nordisk has a bright future given that it currently has a 50% market share of the global insulin market?

Given the infrastructure and database put in place for millions of buyers who have been conditioned to shop on-line for anything and everything, how well do you believe Amazon is positioned to perform in the future?

Given the massive ascension of millions and millions of people in developing countries into the middle class, how many more cars do you believe Toyota will sell in the next 20 years? How many airplanes will Boeing sell to airlines catering to increased business and pleasure air travelers? How many Walgreens locations will open up to handle the massive demand for prescriptions and personal care products?

Focus on Owning

If I had to identify the top characteristics of my most successful members, and those whom I’ve studied for over two dozen years who have created true financial independence for themselves, one of the most important would be what they focus on and how they talk about their investing experience. They don’t talk about “the market”, or points on the Dow.

They talk about the companies they own.

 

Retirement Coach Jack Phelps Publishes New Article Revealing a Startling Analogy Between the Leading Causes of Death and Financial Dependence

Jack Phelps, founder of The Relaxing Retirement Coach, shares the revelation he had after a dinner conversation with friends and his ensuing research with the World Health Organization

Wellesley, MA – August 11, 2015Jack Phelps, founder of The Relaxing Retirement Coach, a Retirement Coaching company, recently published an article on his website (https://www.theretirementcoach.com) illustrating the incredible similarities between the perception and reality of poor physical and financial health.

In his article titled “Playing the Odds, Jack Phelps writes, “Our dinner conversation kicked into high gear when our friend said something I’ve heard so many times, ‘All your exercise and attention to healthy eating is great, but there’s no guarantee you won’t still drop dead of a heart attack if it’s in your genes. My father and grandfather both died of a heart attack before they were 62.’”

The Relaxing Retirement Coach, Inc. provides their members with the ‘missing structure’ they need to make a seamless and relaxing transition to their retirement years so they can confidently do everything they want to do without worrying about money.  Their Relaxing Retirement Coaching Program™ provides members with a personalized, one-on-one retirement coaching relationship with constant attention to each and every detail necessary for them to consistently enjoy a relaxing retirement experience.

The entire article can be found at https://www.theretirementcoach.com/articles/play-the-odds-3.php

To learn more about The Relaxing Retirement Coach, Inc., please visit https://www.theretirementcoach.com.

About Jack Phelps

Prior to developing The Relaxing Retirement Coaching Program back in 1994, Jack spent five years as a registered representative with Prudential Financial Services. In 1989, Jack graduated from Holy Cross College in Worcester, Massachusetts with a B.A. in Economics.

 

 

 

Play The Odds

While having dinner with friends in Chatham last week, we had a long conversation about health.

The “spirited” debate essentially boiled down to the leading causes of death and the role that ‘luck’ and genetics play vs. the choices we make.

I’d like to share parts of that conversation with you, and the revelation I arrived at about the remarkable similarities to ‘financial health’.

This will take a few moments, but I promise you this extended discussion and research on health has an extremely important lesson in it for all of us about the financial health you and your family members will experience.

Our dinner conversation kicked into high gear when our friend said something I’ve heard so many times, “All your exercise and attention to healthy eating is great, but there’s no guarantee you won’t still drop dead of a heart attack if it’s in your genes. My father and grandfather both died of a heart attack before they were 62.”

I’m sure you’ve heard some version of this comment before. Ultimately, it’s the same as, “you can do everything right and still get hit by a bus!” Or, “I know a guy who was ‘healthy’ who collapsed and died while running.”

Driving home from dinner, I made a mental note to do some research before seeing them again.

 World Health Organization

My ‘fact finding’ mission brought me to The World Health Organization website. (www.who.int)

Here are some very important facts about the four leading causes of death (The italicizing and bolding is mine for emphasis):

Non-communicable diseases (NCD) were responsible for 68% of all deaths globally in 2012, up from 60% in 2000. The 4 main NCDs are cardiovascular diseases, cancers, diabetes and chronic lung diseases. Communicable, maternal, neonatal and nutrition conditions collectively were responsible for 23% of global deaths, and injuries caused 9% of all deaths.

  1. Cardiovascular Diseases (CVDs)

 CVDs are the number one cause of death globally: more people die annually from CVDs than from any other cause.

An estimated 17.5 million people died from CVDs in 2012, representing 31% of all global deaths.

Most cardiovascular diseases can be prevented by addressing behavioral risk factors such as tobacco use, unhealthy diet and obesity, physical inactivity and harmful use of alcohol using population-wide strategies. 

  1. Cancer

Cancers figure among the leading causes of morbidity and mortality worldwide, with approximately 14 million new cases and 8.2 million cancer related deaths in 2012.

Around one third of cancer deaths are due to the 5 leading behavioral and dietary risks: high body mass index, low fruit and vegetable intake, lack of physical activity, tobacco use, alcohol use.

Tobacco use is the most important risk factor for cancer causing around 20% of global cancer deaths and around 70% of global lung cancer deaths.

  1. Diabetes

In 2012, an estimated 1.5 million deaths were directly caused by diabetes.

Type 2 diabetes comprises 90% of people with diabetes around the world and is largely the result of excess body weight and physical inactivity.

Healthy diet, regular physical activity, maintaining a normal body weight and avoiding tobacco use can prevent or delay the onset of type 2 diabetes.

  1. Chronic Obstructive Pulmonary Disease (COPD)

More than 3 million people died of COPD in 2012, which is equal to 6% of all deaths globally that year.

The primary cause of COPD is tobacco smoke (through tobacco use or second-hand smoke).

What’s the Commonality?

As you read through all of this, do you notice any commonalities?

First, two thirds of all deaths are related to non-communicable diseases (NCDs), i.e. not an epidemic and not an accident.

Among the four leading NCDs, the startling commonality is that they are not random, and not genetic. They’re primarily brought on by lifestyle choices and the physical effects these choices have on our body:

  • Eating: what do we eat, when do we eat, and how much do we eat?
  • Drinking: how much alcohol do we consume? How much water do we consume?
  • Smoking
  • Exercise: how often, and what type
  • Stress
  • Sleep: how much do you get, and what’s the quality of your sleep?

There’s No Guarantee

Armed with these facts, let’s now go back to my dinner conversation with our friend and her comment: “All your exercise and attention to healthy eating is great, but there’s no guarantee you won’t still drop dead of a heart attack if it’s in your genes. My father and grandfather both died of a heart attack before they were 62.”

I sympathize with the loss of her father and grandfather because I lost my mother to cancer at age 57, but the fact that they both died of a heart attack before age 62 doesn’t necessarily suggest that it was genetic. What are the chances that their lifestyle choices, and the negative long term effects they had on their bodies, were similar?

More important, however, was our friend’s choice of the word “guarantee”. It’s a very, very important word and one that led to my “revelation”.

Everyone yearns for certainty in their lives. In other words, they desire and would much prefer guarantees with everything (health, finances, etc.)

Unfortunately for those who seek it, life is not a straight line. There are no guaranteed results in anything.

Given this, to achieve whatever it is that you want, use your freedom to choose.

Research and play the odds at every turn!

In health, it’s 100% true that you could get hit by a bus and die. It’s also true that genetics plays a role in your longevity.

However, as The World Health Organization statistics suggest, your lifestyle choices (a nicer word than behavior) have a far, far greater impact on your health, vitality, and ultimately, your longevity.

If you have a sincere desire to be healthy and live a long life, why would you not study how to eat better, drink much more water and less alcohol, stop smoking cigarettes, exercise rigorously on a daily basis, etc.

Those like our friend who choose to focus on the role that genetics or accidents play in our long term health, etc. prefer believing it’s out of their control because it absolves them of any responsibility or role in the outcome. After all, “there’s no guarantee”.

What they’re really saying is they prefer not to make the proper choices and just do whatever feels good in the moment without any regard to the long term ramifications.

It’s easier to say it’s out of our control, it’s random, or it’s predetermined.

However, that’s a rejection of the reality that we all have the freedom to make the choice to play the odds at every turn and reap the rewards the statistics demonstrate.

My Revelation:

The Analogy to Financial Health

 At this point, you’re probably wondering what this has to do with financial health!

In short….everything!

When you step outside of our Relaxing Retirement membership community, and you read or listen to the majority of individuals (and, by extension, the financial media) talk about those who have achieved financial success, what do you hear?

  • Right Place, Right Time, Luck: Those who have done well had the luck of good timing, choosing to work for many years for company X vs. Y, the business they created benefitted from outside events, etc. and they earned a large income,
  • Trust fund kid, i.e. they inherited it (despite Forbes annual statistics of the remotely small minority to have sustained wealth coming from inheritance),
  • Magic Investment: they somehow obtained information, probably unethically or unfairly, that lead to a great investing outcome,
  • Education: they went to X school

Do you see the commonality in all of this?

It all adds up to the belief that financial independence is all random, luck, and good fortune, and you have very little influence over the financial outcomes in your life.

As potentially mean spirited as this may sound, just as it is with the health examples I gave, it’s easy and convenient to believe that financial independence is all random, luck, and good fortune.

Believing that absolves them of the responsibility of focusing on the long term, and making the necessary choices you have made which have generated your financial independence!

It’s easier to just block all of that out and focus on what brings instant, short term pleasure today, i.e. a new car I can’t afford, a 60 inch flat screen television, eating out five nights a week and running up the balance on my credits cards, or investing in a new “can’t miss hitting a home run” venture I heard about with money borrowed from my home equity line of credit.

Stark Contrast

The reality that I have witnessed amongst our members over the last 26 years is that almost none of you inherited anything. The majority did not earn extraordinarily large incomes during your working years. And, very, very few of you went to Harvard or Yale!

The reason you’re in the top 6% club has nothing to do with any of the traditional dogma most folks conveniently buy into.

You made decisions long ago that you stuck with over your lifetime to spend much less than you made, i.e. live within your means, and save and intelligently invest the difference.

You took 100% responsibility for the outcome you’ve experienced. You didn’t look for a mystical guarantee, or a magic pill (investment). You never panicked. And, you stuck with your plan.

In short, you played the odds.

And, this is what it all boils down to. There are no guarantees and no magic pills, so you may alert anyone and everyone you know to call off the search.

There are, however, successful formulas built on highly probable odds in both health and finance that are in plain view for all of us to see.

I’ve often said that if I fail, it’s certainly not going to be because I wasn’t prepared or I wasn’t willing to accept 100% responsibility for whatever outcome I realized.

In health, and in finance, we should all welcome our wonderful freedom to exercise control and choose our actions. And, happily do whatever is necessary to play the odds at every turn.

Retirement Coach Jack Phelps Publishes New Article answering the question of why we would want to ‘invest internationally’

Jack Phelps, founder of The Relaxing Retirement Coach, shows why demographic changes should play a major part in your investment decisions

Wellesley, MA – July 3, 2015Jack Phelps, founder of The Relaxing Retirement Coach, a Retirement Coaching company, recently published an article on his website (https://www.theretirementcoach.com) clarifying international investing misconceptions, and how to evaluate a company in today’s world.

In his article titled “Part II – International Investing”, Jack Phelps writes, “Whether it’s an American based company like Apple increasing sales in China or India, or a Swiss based pharmaceutical company selling insulin in the United States and abroad, who they’re selling to and the potential that brings is the critical factor.”

The Relaxing Retirement Coach, Inc. provides their members with the ‘missing structure’ they need to make a seamless and relaxing transition to their retirement years so they can confidently do everything they want to do without worrying about money.  Their Relaxing Retirement Coaching Program™ provides members with a personalized, one-on-one retirement coaching relationship with constant attention to each and every detail necessary for them to consistently enjoy a relaxing retirement experience.

The entire article can be found at https://www.theretirementcoach.com/articles/part-ii-international-investing-3.php

To learn more about The Relaxing Retirement Coach, Inc., please visit https://www.theretirementcoach.com.

About Jack Phelps

Prior to developing The Relaxing Retirement Coaching Program back in 1994, Jack spent five years as a registered representative with Prudential Financial Services. In 1989, Jack graduated from Holy Cross College in Worcester, Massachusetts with a B.A. in Economics.

 

 

 

Part II: International Investing

In my last article, we examined the misconception that international investing equals investing in the “economy” of the country or region in which the company is headquartered.

In short, there were two important distinctions:

  1. When we all invest, we’re investing in companies, not countries or the “economy” of a country,
  2. Where a company’s headquarters is located has become much less relevant when evaluating their potential success. A more accurate method of evaluating a company’s opportunities is through a “revenue lens”, i.e.  where their revenue comes from.

However, this stopped short of answering the question of why we would want to ‘invest internationally’.

The answer to that question lies in demographics. The United States, and the model in which it was built with free enterprise and the protection of personal property rights, has spawned the greatest advancement of living conditions and individual wealth in human history.

Unfortunately, many other nations took a longer period of time to institute and protect the personal freedoms which led to this explosion of improvements.

Slowly but surely, however, this is all changing. The living conditions and wealth of billions of individuals all over the world are rising rapidly, especially in developing market nations.

By the end of the decade, it is estimated that 440 million individuals will move into the middle class in Brazil, Russia, and China alone! (For reference, the United States has approximately 330 million total citizens.)

As you might imagine, this move up the wealth ladder has led to a rapid change in consumption patterns, and an increased need and desire for upscale goods and services including luxury apparel, health care, automobiles, and travel.

Health Care

In health care, for example, Novo Nordisk has a 50% share of the global insulin market. Just think about controlling half the world’s supply of insulin! Currently, 40% of their revenue comes from sales in the United States.

Now, let’s look into the future for Novo Nordisk. With the rapid movement into the middle class in so many developing nations that I noted above, the ‘westernization’ of diets has led to increased levels of diabetes. Increased diabetes leads to increased demand for insulin.

Just imagine what their marketplace will look like in 20 years.

Consumer Products

On the heels of the announcement that Apple’s cash reserves alone would make it the 17th largest company, many have questioned CEO Tim Cook’s plan to continue their stellar growth.

Cook talked about two major markets in which he thinks Apple has potential to sell many more iPhones.

The first is China. Apple is already doing well there, but Cook believes there’s an opportunity to do even more.

The next major market for Apple to attack, Cook said, is India. “We’ve started making investments in India, we’re growing rapidly in India, but we’re on a very small base there. But in some number of years, you could envision India being really significant, too, and should be.”

Air Travel

Another example is air travel. As the lifestyles of these upwardly mobile millions of people begin to increase, so will their desire to travel for pleasure, and for business in order to actively participate in global trade.

Companies who create the infrastructure necessary will also benefit, including roads, railroads, electricity, and telecommunications. All of these are crucial to the movement of goods and services to this growing group of individuals.

Takeaway and Strategy

The marketplace for all companies today has expanded rapidly, and will continue to expand based on these demographic shifts and future trade agreements.

The key point to grasp is that the location of the headquarters of a company is less and less important in evaluating their future.

Whether it’s an American based company like Apple increasing sales in China or India, or a Swiss based pharmaceutical company selling insulin in the United States and abroad, who they’re selling to and the potential that brings is the critical factor.

When you’re building your diversified Retirement Bucket™ of investments, it would be very shortsighted to limit your holdings to companies headquartered in the United States alone.

By doing so, you’re missing out on the opportunity to own companies headquartered outside the United States who not only sell to individuals in these rapidly expanding developing market countries, but also right here in the United States.

That would be the equivalent to fighting the heavyweight champ with one arm tied behind your back!

In your never ending battle to have your Retirement Bucket™ keep pace with your rising lifestyle costs, you want to stockpile and own as many good companies as you can who are positioned to take advantage of these growth patterns all over the world.

 

Retirement Coach Jack Phelps Publishes New Article Clarifying Common Misconceptions Surrounding International Investing

Jack Phelps, founder of The Relaxing Retirement Coach, provides a very simple method to understand international investing

Wellesley, MA – June 4, 2015 – Jack Phelps, founder of The Relaxing Retirement Coach, a Retirement Coaching company, recently published an article on his website (https://www.theretirementcoach.com) exposing common misconceptions about international investing and how you can understand the critical topic more easily.

In his article titled “International Investing”, Jack Phelps writes, “There is a lot of confusion over the issue of international (or global) investing so I’d like to clarify a few misconceptions so you can be a more educated investor in your retirement years.”
The Relaxing Retirement Coach, Inc. provides their members with the ‘missing structure’ they need to make a seamless and relaxing transition to their retirement years so they can confidently do everything they want to do without worrying about money. Their Relaxing Retirement Coaching Program™ provides members with a personalized, one-on-one retirement coaching relationship with constant attention to each and every detail necessary for them to consistently enjoy a relaxing retirement experience.

The entire article can be found at https://www.theretirementcoach.com/articles/international-or-global-investing-3.php

To learn more about The Relaxing Retirement Coach, Inc., please visit https://www.theretirementcoach.com.

About Jack Phelps

Prior to developing The Relaxing Retirement Coaching Program™ back in 1994, Jack spent five years as a registered representative with Prudential Financial Services. In 1989, Jack graduated from Holy Cross College in Worcester, Massachusetts with a B.A. in Economics.

International (or Global) Investing

When you hear the phrase “investing overseas”, what is the first thought that comes into your mind?

If you’re like many Americans, you might respond by saying:

“Isn’t investing overseas risky?”, or

“Why would anyone want to invest overseas?  Isn’t Europe’s ‘economy’ struggling?”

There is a lot of confusion over the issue of international (or global) investing so I’d like to clarify a few misconceptions so you can be the most educated investor.

Let’s begin by taking a big step back for a moment and clarifying why we all invest in the first place.  We all choose to invest in order to accomplish multiple goals, but in the big picture, they all fall under two main goals:

  1. Build our Retirement Bucket™ large enough to achieve complete financial independence so we don’t have to depend on the income from work in order to support our desired lifestyles.
  2. Maintain our purchasing power into the future in a world which has witnessed staggering levels of price increases throughout history.

In order to accomplish these goals, we all must own assets (investing) which have the potential to grow fast enough to keep pace with our rising lifestyle costs.

The $64,000 question is then always, “what should we invest in”?

A better way of stating that is “what companies should we own” since owning is what investing is all about?

One way of distinguishing one company from another is where the company is headquartered, i.e. in the United States vs. anywhere else around the world.

International investing simply means owning pieces of a company (or companies) who has their headquarters located outside the United States.

That’s it.

An example of this would be owing companies like Toyota (automobile manufacturer headquartered in Japan), Novartis (pharmaceuticals company headquartered in Switzerland), or Burberry (luxury apparel headquartered in the United Kingdom).

Companies vs. Countries

One big misconception is that international investing equals investing in the economy of a certain country.

If that was true, owning shares of Toyota would mean investing in Japan.

Owning shares of Novartis would mean investing in Switzerland, or Switzerland’s economy.

Clearly, this is off base given that each company is a truly global doing business all over the world.

Toyota derives a very large percentage of their revenue from buyers located outside of Japan, predominantly in North America.  I’m one of them!

In contrast, McDonalds, which is based in the United States, has locations in more than 100 countries around the world.

When we all invest, we’re investing in companies, not countries.

Headquarter Location vs. Revenue Location

Before the liberalization of trade policies throughout the world, companies did the overwhelming majority of their business in their home region.

Today, this is no longer true.  Large multinational companies now earn the majority of their revenue outside of their original geographic boundaries.

For this reason, where a company’s headquarters is located has become much less relevant when evaluating their potential success, and thus the trajectory of their stock price.

A more accurate method of evaluating a company’s opportunities is through a “revenue lens”.

Companies now report where their revenue comes from so we can get a much more accurate picture of where their business is generated.

This critical piece of information tells you so much more about a company’s prospects than where it is headquartered.

When you hear the term “international investing”, always keep these points in mind.

Stay tuned as we now delve into why we want to invest in companies located outside the United States.  This is a very important issue.

Retirement Coach Jack Phelps Publishes New Article Revealing Warren Buffett’s Unique Thoughts on Risk and Volatility

Wellesley, MA –April 22, 2015Jack Phelps, founder of The Relaxing Retirement Coach, a Retirement Coaching company, recently published an article on his website (https://www.theretirementcoach.com) sharing Warren Buffett’s critical thoughts on volatility and risk for retirees.

In his article titled “Warren Buffett’s Annual Report”, Jack Phelps writes, “While I strongly disagree with Warren on many national policy issues, his investment philosophy and process are sensational and worthy of careful attention by all of us.”

The Relaxing Retirement Coach, Inc. provides their members with the ‘missing structure’ they need to make a seamless and relaxing transition to their retirement years so they can confidently do everything they want to do without worrying about money.  Their Relaxing Retirement Coaching Program™ provides members with a personalized, one-on-one retirement coaching relationship with constant attention to each and every detail necessary for them to consistently enjoy a relaxing retirement experience.

The entire article can be found at https://www.theretirementcoach.com/articles/warren-buffett%E2%80%99s-annual-report-3.php

To learn more about The Relaxing Retirement Coach, Inc., please visit https://www.theretirementcoach.com.

About Jack Phelps

Prior to developing The Relaxing Retirement Coaching Program back in 1994, Jack spent five years as a registered representative with Prudential Financial Services. In 1989, Jack graduated from Holy Cross College in Worcester, Massachusetts with a B.A. in Economics.

Warren Buffett’s Annual Report

If you’ve never taken the opportunity to read Warren Buffett’s annual letter to Berkshire Hathaway shareholders, I highly recommend it.

While I strongly disagree with Warren on many national policy issues, his investment philosophy and process are sensational and worthy of careful attention by all of us.

In his 42 page letter, he dissects the performance of all of the Berkshire’s companies which is fascinating.  You can’t help but marvel at the depth of thinking that goes into each of their holdings.

Warren is also refreshingly forthcoming about his mistakes.  While his overall long term investment track record is spectacular, he has made his share of mistakes and he spells several of them out for his shareholders with brutal honesty.

Rather than summarize the entire letter, which is well worth reading, I want to provide you with an excerpt from page 18 on risk and volatility that says it all.

I strongly recommend having a yellow highlighter in hand while you read this:

“Our investment results have been helped by a terrific tailwind.  During the 1964-2014 period, the S&P 500 rose from 84 to 2,059, with reinvested dividends, generated an overall return of 11,196%.  Concurrently, the purchasing power of the dollar declined a staggering 87%.  That decrease means that it now takes $1 to buy what would be bought for 13 cents in 1965 (as measured by The Consumer Price Index).

There is an important message for investors in that disparate performance between stocks and dollars.  Think back to our 2011 annual report, in which we defined investing as “the transfer to others of purchasing power now with the reasoned expectation of receiving more purchasing power – after taxes have been paid on nominal gains – in the future.”

The unconventional, but inescapable conclusion to be drawn from the past 50 years is that is has been far safer to invest in a diversified collection of American businesses than to invest in securities – Treasuries for example – whose value has been tied to American currency.  That was also true in the preceding half-century, a period including the Great Depression and two world wars.  Investors should heed this history.  To one degree or another, it is almost certain to be repeated during the next century.

Stock prices will always be far more volatile than cash equivalent holdings.  Over the long term, however, currency-denominated instruments are riskier investments – far riskier investments – than widely diversified stock portfolios that are bought over time and that are owned in a manner invoking only token fees and commissions.  That lesson has not customarily been taught in business schools, where volatility is almost universally used as a proxy for risk.  Though this pedagogic assumption makes for easy teaching, it is dead wrong.  Volatility is far from synonymous with risk.  Popular formulas that equate the two terms lead students, investors, and CEOs astray.

It is true, of course, that owning equities for a day or a week or a year is far riskier (in both nominal and purchasing power terms) than leaving funds in cash equivalents.  That is relevant to certain investors – …..any party that may have meaningful near-term needs for funds should keep appropriate sums in Treasuries or insured bank deposits.

For the great majority of investors, however, who can – and should – invest with a multi-decade horizon, quotational declines are unimportant.  Their focus should remain fixed on attaining significant gains in purchasing power over their lifetimes.  For them, a diversified equity portfolio, bought over time, will prove far less risky than dollar-based securities.

If the investor, instead, fears price volatility, erroneously viewing it as a measure of risk, he may, ironically end up doing some very risky things.  Recall, if you will, the pundits who six  years ago bemoaned falling stock prices and advised investing in “safe” Treasury bills or bank certificates of deposit.   People who heeded this sermon are now earning a pittance on sums they had previously expected would finance a pleasant retirement.  (The S&P 500 was then below 700; now it is about 2,100.)  If not for their fear of meaningless price volatility, these investors could have assured themselves of a good income for life by simply buying a low cost index fund whose dividends would trend upward over the years and whose principal would grow as well (with many ups and downs, to be sure).

Investors, of course, can, by their own behavior, make stock ownership highly risky.  And many do.  Active trading, attempts to “time” market movements, inadequate diversification, the payment of high and unnecessary fees to managers and advisors, and the use of borrowed money can destroy the decent returns that a life-long owner of equities would otherwise enjoy.  Indeed, borrowed money has no place in the investors’ tool kit; Anything can happen anytime in markets.  And, no advisor, economist, or TV commentator – and definitely not Charlie nor I – can tell you when chaos will occur.  Market forecasters will fill your ear but will never fill your wallet.”

As shampoo bottle instructions have always said: “Shampoo, Rinse, Repeat.”

My recommendation for this excerpt: “Read, Pause for Reflection, Read again!”

This is bulletin board material for all of us to read almost on a daily basis!

Retirement Coach Jack Phelps Publishes New Article Exposing The Reality of Inevitable Bear Markets

Wellesley, MA –March 24, 2015Jack Phelps, founder of The Relaxing Retirement Coach, a Retirement Coaching company, recently published an article on his website (https://www.theretirementcoach.com) illustrating how retirees must prepare for and deal with the inevitable bear market.

In his article titled “Did You Hear The Bell”, Jack Phelps writes, “Six years removed, it may be difficult to recall the exact feelings you had had during the crisis.  But, I’m sure you can recall that it wasn’t peaches and cream!”The Relaxing Retirement Coach, Inc. provides their members with the ‘missing structure’ they need to make a seamless and relaxing transition to their retirement years so they can confidently do everything they want to do without worrying about money.  Their Relaxing Retirement Coaching Program™ provides members with a personalized, one-on-one retirement coaching relationship with constant attention to each and every detail necessary for them to consistently enjoy a relaxing retirement experience.

The entire article can be found at https://www.theretirementcoach.com/articles/did-you-hear-the-bell-3.php

To learn more about The Relaxing Retirement Coach, Inc., please visit https://www.theretirementcoach.com.

About Jack Phelps

Prior to developing The Relaxing Retirement Coaching Program back in 1994, Jack spent five years as a registered representative with Prudential Financial Services. In 1989, Jack graduated from Holy Cross College in Worcester, Massachusetts with a B.A. in Economics.

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Did You Hear The Bell?

Did you hear the bell ring this past Tuesday?

If you didn’t, don’t feel cheated!

A bell didn’t exactly ring, but there are those who believe that significant market movements should be preceded by the ringing of a bell.  (More on that in a minute)

Tuesday was the six year anniversary of the “bottom” of the bear market when prices reached their lowest point.

On March 9, 2009, the value of the S&P 500 Index bottomed out at 677.

Now fast forward to the end of February, 2015 (last Friday): the value of the same S&P 500 Index stood at 2,105!

That represents a price increase of over 210% over that six year span.  And, this doesn’t include the dividends you would have received for maintaining ownership during those years which represented approximately 2% more in return per year.

Over that same time frame, the price of the small cap Russell 2000 Index grew from 343 to 1,233 (almost 260%)!

Remarkable, but why is all of this significant?

It’s enormously significant because of the lesson and reminder that it provides us all.

Six years removed, it may be difficult to recall the exact feelings you had had during the crisis.  But, I’m sure you can recall that it wasn’t peaches and cream!

The media had a field day and relentlessly pounded the message that “this time is different”, and that it would take “decades” to climb out of this mess.

How wrong they were, and how wrong they always are about bear markets.

What We Know About Bear Markets

1)    While they don’t feel very good while we’re in the middle of one, bear markets are a “normal” part of our investing experience.
Yes, normal!

In the last 70 years, there have been 14 of them, and the average peak to trough price drop was 31%.

That’s an average of once every 5 years.

And, every one of them was treated as if it was the end of the world while it was occurring.

The last drop of 19.4% came in 2011 when the euro imploded, the U.S. government was threatening shutdown, and the S&P downgraded sovereign debt for the first time in history.

If history is any indicator, what this tells us is that another one of these “bears” is coming.

However, please don’t take this as a predication that one is upon us or even approaching.

Neither I nor anyone else has any idea when the next one will come.

A bell will NOT ring indicating a bear market is about to kick in.  There never has been a bell and there never will be. We simply want to be emotionally prepared.

2)    The good news about bear markets, which we’ve all just lived through, is that they have all been temporary declines wedged into the permanent historical advancement of stock market prices.

The average “peak to peak again” timeframe of bear markets has been 40 months (3.3 years).  This represents the time it took for market prices to rise back up to its previous high after a significant drop.

3)    During the next bear market, there will be pressure and temptation to forget this lesson and “sell” when signs of a bear market are in place.

However, by the time it officially becomes a bear market, an average of two thirds of the total decline will have already occurred.

In other words, by the time you decide to “get out”, you will likely have already suffered the worst.

4)    Here’s a recent example to illustrate all of this.  In addition to cash you set aside in money markets and short term instruments to fund your spending needs over the coming years, let’s assume that you had an even $1 million invested in an S&P 500 Index fund back at the last market peak on October 9, 2007.

(The example is easiest to follow using round numbers and one investment in an index fund.  You would never have everything invested in one fund.)

Because you intelligently set aside funds to take care of your spending needs, you didn’t need to sell or even feel compelled to sell your S&P 500 Index fund shares over the following 17 months when the value fell to almost $440,000 on March 9, 2009 when the market reached bottom.

This represented a 57% peak to trough drop, the largest broad market drop since 1929!

You were tempted because the news was bleak, but you stayed with your plan and maintained your ownership of all your shares.

Six years later, on February 28, 2015, your shares are now worth just shy of $1,350,000!

Keep in mind that this was what took place after the worst broad market price decline since 1929!

What can we learn from this about bear markets?

  • Bear markets are psychologically challenging, but only to the degree that you believe they’re permanent (which they never have been).
  • Trying to “time” bear markets, i.e. when they will begin and when they will end so you can “be out” at the precisely the right time, insures that you will end up worse than if you had just stayed the course.
  • At any point in a bear market, it’s easy to “get out” and sell.  The hard part is attempting to determine when to get back in.

Decisions to buy and sell are not made looking through a rear view mirror.  They’re made at individual points in time without any definitive knowledge about what’s about to occur next.

  • A “bell” doesn’t ring indicating it’s time to sell, and then again when it’s time to buy.
  • Finally, if you’re investing in the first place, you’re doing so because you need the investment returns provided by equity markets.

Getting the full returns that equities provide is entirely predicated on our ability to ride out temporary bear market declines.

The key lesson and strategy is that if (and only if) you’ve done your homework and prepared properly, then you have the structure in place to weather bear markets like we all experienced together back in 2008-2009, and maintain your financial confidence.

I can’t begin to tell you the number of Relaxing Retirement members who have confided in me that they would never have been able to stick it out if they weren’t involved in our program.

Doing your homework and adhering to a plan like The Relaxing Retirement Formula doesn’t insure that you will never experience temporary price declines.

What it does is allow you to do is completely ignore the dominant media culture who will pronounce that “it’s completely different this time”, and respond to bear markets with full confidence that they’re normal and temporary, and not an event that leads you to abandon and dismantle your ownership of what you’ve carefully planned to provide the lifestyle sustaining income you need for the rest of your life.

Why You Must Protect Yourself Now

Warning: This article contains graphic descriptions that might be unsettling.

The smell of Fall is in the air.  There’s nothing like it.

The sun is bright, and the brown, orange, and yellow leaves are falling.

It’s 3:30 on a Saturday afternoon and you’re driving home from your granddaughter’s soccer game so proud of her for scoring the winning goal.

There’s nothing quite like the screams of an excited group of 9 year old girls.

As you’re driving along, you have the Notre Dame football game playing on your radio, but you’re not listening very carefully because you’re still caught up in the buzz of your granddaughter’s soccer game and the beautiful Fall foliage.

Pulling into your neighborhood, you catch the tail end of a breaking news sports update about the Patriots.

Unable to hear it clearly, you reach down to turn up the volume so you can hear the announcement more clearly.

At that very same instant, some neighborhood children are playing soccer in their yard.  As your car approaches, the soccer ball rolls out into the middle of the street where you’re driving and one of the kids chases after it in full speed forgetting to look both ways to see if a car is coming.

Just as you’re reaching for the volume knob on your radio, in the corner of your eye, you see him run out from behind that parked car, so you instinctively jam on your brakes.

But, it’s too late.  You hear the sound you prayed you’d never hear, and he’s now lying on the ground motionless in front of your car.

As the paramedics arrive, the good news is the little boy is still breathing.

The bad news is that he’s not moving as they struggle to keep his body still and place him on the stretcher.

After what seems like an eternity, he’s taken in the ambulance to the hospital and you are left there to talk with the police about what just happened.

Two detectives are snapping pictures of the car and measuring your skid marks in the street.

2 Weeks Later

A few weeks have now passed.  The shock of what happened has not gone away, but it has come into perspective.

The boy has just returned home from the hospital.  Several bones in his body were broken, and after 3 separate surgeries, the doctors are confident that he’ll be able to walk just fine after a good 6 months of physical therapy.

However, the permanent damage done to his right leg may prevent him from playing competitive sports for the rest of his life.

What Does This Mean For You?

As if dealing with the emotional torment of accidentally injuring a young boy wasn’t enough, now comes the worst part.  The police reports come back concluding that you were driving 36 miles an hour in a 30 mile an hour zone.  And, because of that, you’re considered to be 100% at fault for negligence.

You didn’t mean to hit the child.  You’re a careful driver.  You’ve never had an accident in your life.  Your driving record proves it.

But, all of that doesn’t matter right now because unfortunately, you’re going to be at the wrong end of a very expensive lawsuit.  You can expect that within a few weeks, you will be summoned by an aggressive attorney requesting, among other things, a listing of all your income and assets.

And, the only form of compensation the attorney will get from the case will be from receiving a percentage of the damages collected from you.

And, it probably won’t be a small number.

Where Will This Money Come From?

The question for you is where will this money come from to pay for you to hire an attorney and to pay the eventual damages that will be brought against you?

It’s taken 40 years to build up enough money for you to be able to retire.  You’ve given up so much in order to save for your future.

And, now, you’re finally reaping the rewards of your lifetime of hard work and disciplined savings.  You’re retired and enjoying life like never before.

But now, everything you’ve worked your entire lifetime to save could be taken from you in an instant.

This Week’s “Strategy”

This is a horrible story that I hope never happens to you. And, I would prefer not to have to share it with you.

However, as you can see, it can happen to anybody, so I’m telling it to you to motivate you to protect yourself.

The strategy and solution in most circumstances is to have the highest liability limits on your auto insurance possible.  But, even more importantly, because potential damages could easily exceed the limits on your auto insurance, is to have a separate Personal Catastrophe Insurance Policy, otherwise known as an “Umbrella” Policy, also known in small circles as Lawsuit Insurance.

In most cases, if you have a quality policy with a quality insurance company, the combination of these 2 policies can protect you from the financial devastation of this horrible occurrence.

It won’t help in dealing with the emotional toll of injuring someone, but it can save you from the financial fallout, and preserve what you’ve taken your entire lifetime to accumulate.

And, the good news is that it’s inexpensive.  Each million dollars of umbrella liability coverage costs only about $250 per year.

That’s a small price to pay for the peace of mind it can provide for you in case this ever happened to you.

Visit with your property and casualty insurance agent today and coordinate your homeowners, auto, and umbrella liability insurance.  Discuss precisely what each policy covers and what it doesn’t.

This may take only 30 minutes but it could turn out to be the most important 30 minutes you’ve ever spent on your finances.

Retirement Coach Jack Phelps Publishes New Article Celebrating 27 Years of Being an Owner (and Not a Trader)

Jack Phelps, founder of The Relaxing Retirement Coach, provides historical perspective on two distinctly different methods of investing.

Wellesley, MA –October 14, 2014 – Jack Phelps, founder of The Relaxing Retirement Coach, a Retirement Coaching company, recently published an article on his website (https://www.theretirementcoach.com) evaluating two different investment styles, and their effectiveness toward accomplishing the stated goal of every retiree in America.

In his article titled “Celebrating 27 Years of Being an Owner (and Not a Trader)”,  Jack Phelps writes, “How did this approach work to help you achieve your desired goal of having your Retirement Bucket™ grow fast enough and not run out of money while it was providing you with the lifestyle sustaining income you needed to offset the 245% increase in the cost of everything you needed to buy over these 27 years since 1987?”

The Relaxing Retirement Coach, Inc. provides their members with the ‘missing structure’ they need to make a seamless and relaxing transition to their retirement years so they can confidently do everything they want to do without worrying about money.  Their Relaxing Retirement Coaching Program™ provides members with a personalized, one-on-one retirement coaching relationship with constant attention to each and every detail necessary for them to consistently enjoy a relaxing retirement experience.

The entire article can be found at https://www.theretirementcoach.com/blog/celebrating-27-years-of-being-an-owner-and-not-a-trader.php.

To learn more about The Relaxing Retirement Coach, Inc., please visit https://www.theretirementcoach.com.

About Jack Phelps

Prior to developing The Relaxing Retirement Coaching Program™ back in 1994, Jack spent five years as a registered representative with Prudential Financial Services. In 1989, Jack graduated from Holy Cross College in Worcester, Massachusetts with a B.A. in Economics.

Retirement Bucket Dependence

Good Morning Relaxing Retirement Member,

Dependence is not exactly an inviting term!  Who wants to be ‘dependent’ on anything or anybody?

However, if you want to develop true financial independence, and be in a position to make rational decisions about your future based on fact, then you have to first determine your level of Retirement Bucket Dependence.

In last week’s Strategy, we discussed two couples, both age 65.  As a refresher, here’s what we know about them:

Each couple has $1 million dollars in investments in their Retirement Bucket™, the same social security retirement income, and the same pensions.

John and Mary Independent have no mortgage or home equity line of credit, and have recently completed many of the major upgrades to their home, i.e. a new roof, vinyl siding, a new furnace, and new bathrooms.  They have always lived a very modest lifestyle with little or no debt.

Ron and Rose Reactionary still have $260,000 outstanding on a second mortgage they took out to pay for their kids’ college tuitions and weddings, and a condo down in Florida they bought a few years back.  They both drive high end cars.  And, while their home is very nice, after 29 years, it’s starting to look “tired” and could use some upgrades.

The obvious difference between the two couples is the COST of their lifestyle.

Ron and Rose’s lifestyle is much more expensive.  The key is knowing just how expensive so we can determine your level Retirement Bucket™ Dependence.

And, that’s the first step in The Relaxing Retirement Formula™ that we’re going to tackle today.

How Much Does Your Lifestyle Cost?

As unexciting as the task appears, the first step toward you realizing your Relaxing Retirement is for you to have a clear handle on what it costs you to live exactly the way you want!

If you don’t know, I can guarantee, from 22 years of experience working hands-on with so many of you, that you will have unnecessary anxiety for the rest of your life and “pull your punches” by restricting your spending because you don’t know if you have enough.

Or, you will continue to work because you think you “have” to, when in fact you may not “have” to.

So, the first step toward a relaxing retirement is to have a clear handle on what it costs you to support your desired lifestyle.

As I mentioned, I recognize that this may not be the most pleasant exercise you’ve ever been through.  However, it’s the key to reducing your anxiety level.

Do I Now Have To Live On a Budget?

Before we delve into the best way to calculate your level of Retirement Bucket Dependence, I want you to know that this is NOT about living on a “budget” and restricting your spending.

This is about having an “accounting” of what it costs you to live the way you want so that you can have a measuring stick to make decisions.

There’s a big difference.

How to Carve Up Your Spending into Bite-Sized Chunks

There are two major categories of ways that you spend your money.  The first is the typically bigger, one-time expenses, like renovating your kitchen or bathroom, landscaping projects, paying for your children’s wedding (hopefully only once), or purchasing a car, etc.

Think about the next five years.  Is there anything you’d really like to do that would fall into this category?  Write down your wish list right now, and then rank them in order of priority.

You want to know right now what you’re going to need to spend money on, not five years from now when you “suddenly” need the money.

Fixed and Discretionary Expenses That Repeat

Once you’ve done this, you can jump to the other category of spending; those which repeat themselves year after year.  And, under this category, there are some which are “fixed” or mandatory, and some which are “discretionary” (your choice based on your priorities).

Typical “fixed” expenses include utilities, insurances, groceries, clothing (at least most clothing falls under this category), mortgages, real estate taxes, etc.  These are expenses that must be paid, and typically they’re paid every month.

“Discretionary” spending, on the other hand, is where we’d like to spend all of our money!  However, when planning, most people don’t account for them as much as they should.  Things like vacations, presents for your grandkids, meals out, and entertaining, etc.

Remember, this is all about living exactly the way you want, so you want to be generous with your estimates.  If you guess too low, you’re only shortchanging yourself.

Looking Forward

Once you’ve identified precisely what it costs you to support the lifestyle you want, we now want to see what your spending looks like, not just today, but many years into the future.

And, when we talk about the future, we have to talk about INFLATION because what costs a dollar today certainly won’t cost a dollar ten years from now.

When you project your spending into the future, you have to build in a conservative inflation figure (the amount by which your expenses will go up each and every year on the same goods and services you currently purchase right now).

For example, if inflation averages a mere 3%, that $100 worth of groceries you just picked up will cost you $135 in ten years.  And, this only assumes a 3% inflation rate.

To be more realistic and conservative in your planning, I recommend that you build in a higher inflation figure.  That’s not being negative.  It’s being realistic, especially in light of the massive amount of debt financing being used by our federal government right now.

The Next Step

Once you have this information in your hands and you have your own unique set of numbers, you’re well on your way to enjoying a relaxing retirement where you’re not dependent on the income from work to support your lifestyle.

Next week, we’re going to delve into the next step of The Relaxing Retirement Formula™, and determine your level of Retirement Bucket Dependence so you can identify how much you can confidently spend.

And, that’s what it’s all about.  You want to be able to confidently live exactly the way you want without worrying if you’re going to run out of money.

Committed To Your Relaxing Retirement,

Jack Phelps

The Retirement Coach

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