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Asset protection

Solution to Low Interest Rates

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Posted by Andrew Ruhland

on Friday, 14 October 2016 12:56

yield sign

Arithmetic is beautiful, elegant, and stunningly objective. Sometimes the truth of our own arithmetic is unpleasant…but if you can accurately identify the core problem to be solved, then you can get to work on actually solving it.

So let’s start with some typical retirement Arithmetic. If you need $50,000 of pre-tax income from your portfolio, at a 3% yield you need $1.67 million. At a 5.5% return (including current income AND capital gains), you need $909,090. The difference is significant, and affects when you can retire, or how much you can receive in retirement income.

Are you just going to sit back and take this “yield abuse” dished out on mature investors by Central Banks who’ve helped drive down interest rates, or recognize the problem and get it solved? Let’s get to work.

Having been indoctrinated for decades about how “safe” top-rated government bonds are, we find ourselves at or very near historic low yields, with lots of risk to your principal if you’re investing in long-term government debt. It’s happened before, at least a couple times in your grandparents’ lifetime. http://awealthofcommonsense.com/2015/03/the-blueprint-for-a-bond-bear-market/   The problem is real, the results are serious, only the timing is unknown.

As Jim Dines says, “Over-efforting creates countervailing forces,” so don’t ignore volatility of market prices simply because an investment has a high yield. Focus on total return, with yield (interest and dividends) as part of the overall return, along with prudent capital gains.

Below is a compilation of strategies for dealing with the low interest rate environment from the IWM stable of discretionary portfolio managers…not specific recommendations for the reader. All portfolios are managed within the framework of an Investment Policy Statement (IPS), which is a best practice among Fiduciaries. “Process provides protection,” and here’s an intelligent process:

  • Step 1: Seek Higher Yielding Fixed Income alternatives to Government Bonds, with a focus on credit quality, including:
  1. Corporate Bonds, preferably under 5 years to maturity to be able to reinvest at higher rates in the future
  2. Preferred Shares with a guaranteed floor-rate reset provisions, ideally at rates 3% or more > 10 year govt. bond yields…and tax efficiency
  3. Commercial Mortgages, with Loan:Value ratios > 75%, and
  4. Structured Real Estate Trusts
  • Step 2: Consider “higher than traditional” allocations to High-Yielding Equities. The old rules about no more than 30 or 40% equities in retirement are outdated. Consider the following:
  1. Blue-Chips are boring and effective. Utilities and other sectors like telecoms and consumer staples with stable cash flows and great dividend coverage are a start
  2. High Yielding Corporate Bonds behave more like Equities, so an ETF helps diversify away individual credit risk but not sector risk. HYG, JNK and XCB are a few well-known options that can fit the bill, but see notes on timing and currency below
  3. Alternatives like structured Asset-based Lending and Factoring pools yielding 6 to 8%
  • Step 3: Dynamic Strategies. Markets are fluid and dynamic, and management of your portfolio should be as well:
  1. Writing Covered Calls on your blue-chip equities to add 1 or 2% to your current yield
  2. Active Currency management, sometimes to grow but most importantly to protect
  3. Buy volatile assets like stocks and high-yielding corporate during pullbacks, not just because you have cash
  4. Think of cash as a tactical asset class, not a strategic one, unless you’re already drawing income during retirement
  5. Lock in gains with a disciplined risk management framework. Be one of the strong hands who are selling to the late-comer weak hands when valuations are stretched. You never go broke by taking a profit, and great assets can be bought back later at lower prices.

Increasing the yield within your portfolio almost always decreases its volatility, and the less volatile your portfolio is, the less likely you are to do something that is financially destructive like selling volatile assets near panic lows.

And remember, everything included in your Investment Plan should be consistent with the Life Goals ™ expressed in your Wealth Management Plan.

Andrew H. Ruhland, CFP, CIM

Founder and President, Integrated Wealth Management Inc. in Calgary



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Asset protection

"This Cannot End Well" Bill Gross Warns

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Posted by Bill Gross via ZeroHedge.com

on Tuesday, 04 October 2016 07:02

OB-RG382 gross E 20120105085605In one of his starkest warnings about the endgame of existing unorthodox, monetary policy, in his latest letter titled "Doubling Down", Bill Gross repeats a familiar tune, warning that "our financial markets have become a Vegas/Macau/Monte Carlo casino, wagering that an unlimited supply of credit generated by central banks can successfully reflate global economies and reinvigorate nominal GDP growth to lower but acceptable norms in today's highly levered world."

Once again he slams central bankers such as Carney and Yellen whom he describe as "Martingale gamblers" adding that "they do have an unlimited bankroll and that they can bet on the 31st, 32nd, or "whatever it takes" roll of the dice.

....continue reading HERE

...related:

Scams & Fantasies – An Even Dozen



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Asset protection

WARNING: We Are Going To Be Living In An Incredibly Chaotic World

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Posted by King World News

on Friday, 30 September 2016 07:44

King-World-News-If-This-Is-True-We-Will-Be-Living-In-An-Incredibly-Chaotic-And-Unstable-World-864x400 cAs the monetary madness continues, some of what you will read below is difficult to comprehend because it seems totally unimaginable.

If you have the power to print money, you’ll do it. Regardless of any ideologies or statements, that you should limit your counterfeit operations to three percent a year as the Friedmanites want to do. Basically you print it. You find reasons for it, you save banks, you save people, whatever, there are lot of reasons to print.” — Murray N. Rothbard

....continue reading HERE

...also from Martin Armstrong:

Why Are the Markets Coiling?



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Asset protection

Scams & Fantasies – An Even Dozen

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Posted by Gary Christenson - The Deviant Investor Deviant Investor

on Wednesday, 28 September 2016 07:27

scamSteve Saville: “…there is no limit to how much new money the central bank can create.”

 

  • The Federal Reserve – the central bank of the United States – issued over $16 trillion in loans, swaps, guarantees and more following the 2008 financial crisis. They also increased their balance sheet by nearly $4 trillion – thanks to their (digital) printing press. Much of that newly created currency was used to purchase dodgy bank debt that was worth little. “Money from nothing” is their specialty and they used it to “stimulate” the economy, a fantasy. The ECB and BOJ indulged in the same fantasy/scam.
  • The Swiss Central Bank has created billions in new Swiss currency and used that currency to purchase the stocks of corporations. They created the currency from nothing, thereby diluting all existing Swiss currency units, and then purchased assets that have real value. Something from nothing is used by all central banks and is both a fantasy and a scam.
  • If the Swiss Central Bank can create currency from nothing and purchase Facebook stock or gold mining stocks, other central banks can create currency from nothing and purchase physical gold from anyone who will sell the metal. Creating currency and using it to purchase gold is a great scam for those who can get away with it.


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Asset protection

What Blows Up First, Part 3: Really, Deutsche Bank?

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Posted by John Rubino - DollarCollapse.com

on Tuesday, 27 September 2016 06:28

Calling Wall Street’s banks stupid and dangerous is like calling the sun “big and warm.” It’s a clear understatement of an obvious fact. The same goes for calling Japan and China economically clueless. Their actions pretty much guarantee that they’ll ultimately enter some sort of death spiral. 

Germany, meanwhile, is many things, but clueless and stupid aren’t normally on the list. So why is that country’s biggest bank causing nightmares for global policy makers and investors? Because – in a sign of just how close we are to the end of the fiat currency/fractional reserve banking era – Deutsche Bank is behaving in ways that would make executives at Lehman Brothers and Bear Stearns step back in alarm. It seems, for example, to have become a derivatives junkie. Like a Vegas high-roller who can’t stop raising his bets, DB’s exposure to this unregulated, largely off-balance-sheet market now exceeds not just its host country’s GDP, but that of its entire continent:

DB-derivatives-Sept-16-1

And it recently joined its Wall Street cousins-in-crime by attracting a $14 billion fine for mortgage fraud. This amount seems puny next to a trillions-with-a-T derivatives book, but it’s enough to force DB to raise capital at an extremely inauspicious time. Here’s an excerpt from a Bloomberg article on the bank’s — and Germany’s — plight:



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