Slap an AAA rating on any complex investment and make it too hard to understand in under 5 minutes and you have Bankers who should know better buying them by the wheel-barrow full. Saying they were triple A rated is their only requirement it seems.

The CDO might have started out as a smart way to distribute risk on a large number of smaller investments but once they started shovelling in sub prime mortgages and selling it as a triple A investment it was doomed. CDO factories were set up in Investment banks to create product as fast as they could it seems. So it was only a matter of time and the “greater fool theory” coming into operation to doom the great money-making machine.

Mum and Dad Banks should have known better but they were desperate to keep up with the Investment Banks that were making huge paper profits for their shareholders but mostly buckets of real money for their financial marketers and senior managers. They at least were paid real money every quarter so when the house of cards fell down they had their money in another bank safely squirreled away. A bank they no doubt checked out thoroughly. Read the rest of this entry »

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Today for the first time I read an article that is inciting a revolution amongst American Workers with Employer Sponsored 401(k) Retirement Funds to get seriously involved in managing them. Hooray! Hooray! Hooray!

Bill Donoghue is the hero who may start the revolution. He is calling for American Workers to unite to protect their 401(k) savings. Thank you Bill for your article, “Bear-market revolutionaries“. I just hope Baby Boomers in particular read it and take action.

Unless the mainstream financial commentators who know and understand the problems take the initiative and write about it, nothing will happen. Bill please keep this problem front and center.

Read the rest of this entry »

Right now Fund Managers want to hang on to your money at all cost. So they are resorting to deceptive TV Advertisements. Their livelihood depends on keeping the fund intact. The redemptions are up and some funds are down 30% or more through these redemptions and the stock market losses. This seriously affects the wallets of those entrusted with your retirement nest egg funds.

So now they are resorted to TV advertising with old tried and true scare-mongering using the “What if you missed out on the top 30 Days on the stock market?” premise. Some smartly dressed executive-looking actor tells you what fools you would have been to be out of the market at any time in the last X years because you would have missed out on significant stock market gains. The implication being, don’t be stupid now and exit their fund or you will miss out on future gains. Read the rest of this entry »

The more I watch what is happening in the markets, the more I am convinced the professional fund managers have no idea about how and when to invest. Many are bottom fishing speculators who buy the rumours and sell the facts or buy the dips. All their tools are out of action right now and they don’t trust anyone either.

Just look at the volatility in the last few days. The

Australian ASX 200 is a prime example. Yesterday the ASX was down almost 150 points but closed 67 points down. Today it has been as high as 150 points. At around 4,900 that represents a 6% move over a 24 hour period.

Look at the diagram on historical moves in the US Stock market on the right by Benoit Mandlebrot, a Yale University mathematician. It makes sobering reading.

Read the rest of this entry »

I thought it might be a good idea to summarize where I believe I am at with my own strategy for managing my nest egg in retirement. To me the hardest thing to do is to get your head around what you can do to take control and protect your nest egg in retirement. Unless you are very lucky it is just foolish to believe that a financial planner or adviser will take care of your money as well as you will.

You are the President of your nest egg fund and as such you are responsible for making the final decisions on what you will invest in and how you will manage it. Your financial planner is just one of a number of trusted advisers, and that is all.

As with most things in life you need to use your own common sense and employ people with specialist skills for the investment knowledge you don’t possess yourself. By this I mean if you have a framework for investing your nest egg and managing risk then you can employ people to advise you on what you should invest your nest egg funds in.

As with almost any business technical information is often cheap to buy, but management skills and good judgement are hard to find. So you need to find good sources of technical advise and learn to evaluate it yourself and input it into your overall strategy. Any investment has to meet your investment rules.

I am gradually formulating the rules and strategies I hope to use for managing my nest Egg in retirement.

Rules for Managing Your Nest Egg

• Avoid Large Losses to my Nest Egg
• Minimize Fees and Charges
• Minimize Taxes
• Control the effects of Inflation (this one I still need to research on)
• Separate Risk-Based Assets from Safe Assets and set a balance.
• Risk no more that 10% on any risk-based asset.
• Be prepared to be in Cash for periods at a time.
• Use the Teeter Totter principle to balance Risk-Based Assets with Safe Assets.
• Set up an Income Ladder with at least 5-7 years worth of cash for a pension.
• Use the Otar Retirement Optimizer to monitor my nest egg over time.

Strategy for Managing Your Nest Egg

I have already revised my strategic model on how I think I can manage my retirement nest egg. It is based on using three buckets, the teeter totter and Jim Otar’s Retirement optimizer. That will become my framework for investing. The buckets are empty right now because I am in cash. But over the next few months I will begin to fill the buckets according to my rules.

Tactics for Managing Your Nest Egg

Risk-Based Investments

The tactics are really the investments I will use to fill the buckets. Do I invest in ETFs, Stock Indexes, or other risk-based investments and add them to the risk-based bucket? I don’t have all the answers yet so I have to do more research on what types of investments I can make.

Safe Investments

What sort of income ladder do I want to create for the safe investment bucket and how can I maximise the return from this bucket over the long term? Do I need to consider an annuity for a time?

These are the tactical decisions and once the strategy is in place you can concentrate on them properly.

Summary

The strategy should be a framework to allow you to change tactics as new investment products become available or market or investment conditions change which you may want to take advantage of. The point is if you can create a system that can be used to manage any type of investment and can be adjusted for risk without having to reinvent it, then you can concentrate on the important thing of managing your nest egg in retirement.

What’s more if the model is clear and concise you can define your rules such that your trusted financial planner can help manage it in your absence. Isn’t that the essence of what we want to do? It then frees you to enjoy your retirement but still have your finger on the pulse as it were.

The one big question asked by almost every baby boomer that has a nest egg is, ” Will my nest egg be enough to live on in my retirement?”

This is one of the initial questions in Greg Heiple’s new Book BalanceZone Investing. Although he puts it another way. “How do I make sure that I do not out-live my saving?”

Greg is the creator of The Teeter Totter Principle which I have already mentioned on this blog as being an excellent tool for understanding and managing your nest egg.

BalanceZone is version 2.0 of the Teeter Totter Principle. It comprises a 214 page book that goes into some detail to explain what BalanceZone Investing is all about. Plus there are two software programs.

He talks a lot about navigating the “Investment-to-Retirement Road” and says that with an understanding of BalanceZone Investing and by using its tools you should be able to successfully navigate your way to retirement income success.

The software comprises two programs.

• BalanceZone Investment Decision Skill Builder
• Investment Statement Consolidator

The main theme you need to grasp is that you should always separate risk-based assets like equities from safe assets like bonds. Greg says you need to categorize your assets into two parts: safe savings and risk investments.

The Skill Builder is designed to help you learn how to manage the balance between the two categories over time. In the process of using the Skill Builder you will learn what risk tolerance you really are comfortable with especially when you see your nest egg reducing because you risk too much or the risk based results suddenly take a large portion of your nest egg simulating a stock market decline.

The Skill Builder does:

• A great job of managing fear and wise buy and sell decisions.
• It educates Baby Boomers on how much money they can take from their nest egg without depleting it.

Once you have built your skills using the Skill Builder you can then use the Investment Statement Consolidator to enter all the totals from your different investments into either the safe or the risk Account columns. It will then give you a current picture of your BalanceZone.

If that BalanceZone is not what you are comfortable with based on your Skill Builder training you need to then plan how you are going to adjust your investments to achieve the BalanceZone you want. You can either do this yourself or with your trusted financial planner

There are a couple of important points worth making here. Greg says it is important to watch the BalanceZone Balance NOT the $ Balance. I have also said on this blog that by watching the $ balance of a Portfolio the safe assets can hide the risk-based assets losses so you get lolled into a false sense of security.

Right now in Australia we are told the average loss on a Balanced Portfolio is only -6.4%. But I have shown that my friend’s portfolio is down 22.9% on his risk-based assets. This is what you need to find out about your portfolio.

The BalanceZone Skill Builder can be used for FREE at Balance Zone Investing. I strongly urge you all to try it and learn how to balance safe and risk-based assets in your nest egg.

As soon as I have the details on where to get the book and the software programs I will let you know.

I emailed my financial planner in August of 2007 about my concerns for protecting my nest egg. Subsequent event show they were well-founded. Between the letter, this email and several other emails asking more and more questions to which I really didn’t get any answers I could rely on, I waited until the November 12th before asking for my money to be redeemed. I thought 3-4 months was enough time for them to satisfy my concerns. I really got nothing from them.

This Post is the last one I’ll do showing I was trying to get answers to my questions. But it could form the framework for others to use if you are not sure what to ask.

It is very important that you make sure your financial planner knows who you are whether you have your own retirement funds or are in a company fund. You need to establish contact and ask serious questions.

Greg Heiple of The Teeter Totter Principle has just released a new book call the BalanceZone I have been reviewing over the weekend.

My next post will be about it as I believe the BalanceZone is an evolutionary step from TTP to help us Baby Boomers manage our nest egg with or without the help of a financial planner. Read the rest of this entry »