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A Recession Won’t Wreck Your Retirement…But This Will

Here is what matters if you’ve made it and want to keep it.Do the financial markets have your attention? I assume so. After all, Wednesday’s 800-point drop in the Dow was the worst day in the U.S. stock market this year. And while many investors missed it, the December 2018 plunge in stock prices capped off a 20% decline which started in October. That could have put a big divot in the plans of folks recently retired or in the late stages of their careers.

Stumbling at the finish line?

Demographics tell us that there is massive group of people who are between 55 and 70 years old. They are the majority of the “Baby Boomer” generation. Many of them have built very nice nest eggs, thanks to a robust U.S. economy over the last 40 years. That period of technological innovation and globalization of the economy also produced four decades of generally falling interest rates. That’s provided a historic opportunity to build wealth, if you saved well and invested patiently.

But now here we are, with a stock market near all-time highs and interest rates crashing toward zero. The tailwind that lifted Baby Boomers in their “accumulation” years may flip to a headwind, just in time for them to start using the money.

Focus on what matters

At this stage of their investment life, Baby Boomers are tempted from all directions. They are told to bank on index funds, 60/40 portfolios, structured products and private partnerships. And, while there are merits to each, I am telling you what I see as someone who has been hanging around investment markets since this Baby Boomer was a Wall Street rookie in the beloved World Trade Center in NYC: much of it is bunk. It’s a distraction. It’s a sales pitch.

Take these over-hyped attempts by wealth management firms to boost their bottom line and scale their businesses, and bring your attention to your own priorities. Today, as much as any time in the past 10 years, your focus should be on true risk-management.

That does not necessarily mean running to cash. That is an outright timing move, and it borders on speculation. But it does mean that the intended use of your accumulated assets (when you need it, how much you need, and how you will navigate the markets of the future) should be

inward-looking. It should not be based on trying to guess what the stock market is going to do.

Rate cut? Check. Inversion? Check. Giant stock market drop? We’ll see.

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Source: ycharts.com

The big news on Wednesday was the “inversion” of a closely-watched part of the U.S. Treasury yield curve. Translated to English, that means for the first time since 2007, U.S. Bonds maturing in 10 years yielded less than those due in 2 years. This is far from the first inversion we have seen between different areas of the Treasury market. However, it is the one that is most widely-followed as a recession warning signal.

The chart above shows 3 things that were essentially in sync around the time the last 2 stock bear markets began. The 10-2 spread inverted, but then quickly reverted to normal. The Fed cut interest rates for the first time in a while. And, the S&P 500 peaked in value, and fell over 40% from that peak.

Let that sink in, given what we have witnessed in just the past 2 weeks. Then, fast-forward to today, where we find ourselves in a very similar situation regarding inversion and the Fed. See this chart below:

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Source:ycharts.com

What stands out the most to me in that chart is how the spread between the 10-year and 2-year yields is almost perfectly opposite that of the S&P 500’s price movement. That is, when the 10-2 spread is dropping, the S&P 500 is usually moving higher. But when that spread starts to rise, at it is likely to soon, the S&P 500 falls…hard. As a career chartist, I just can’t ignore that.

I have been writing about the threat of an eventual “10-2 inversion” in Forbes.com since April, 2017. It finally happened this week, 19 months into what increasingly looks like a period of muted returns for investors. That is, if they follow rules identical to those they followed for the past 10 years.

Recessions are bad, but this is worse

We saw on display this week what I have been talking about since early last year: that it will not take the declaration of a recession to tip the global stock market into a panic-driven selloff that rips through retirement efforts. All that is needed is for stock prices to follow through to the downside is to actually see the market react to the preponderance of evidence that has been building for a while now.

In other words, it is the market’s fear of the future (recession) and not the actual event that is most important. By the time a recession is officially declared, you won’t need to react. The damage will already be done.

Specifically, a slowing global economy, excessive “easy money” policies by the Fed and its global counterparts, and a frenzied U.S. political environment. This has shaken investor confidence, and now the only thing that ultimately matters in your retirement portfolio: the prices/values of the securities you own, is under pressure.

What to do about it

First, don’t fall prey to the hoards of market commentators whose livelihood depends on progressively higher stock prices. Corrections are not always healthy, diversification is often a ruse, and long-term investing is for 25 year-olds!

For those who have “fought the good fight” to get to the precipice of a retirement they have darn well earned, the last thing they want is to have this inanimate object (the financial markets) knock them back toward a more compromised retirement plan.

The best news about today’s investment climate is that the tools we have to navigate through them are as plentiful as ever. Even in a period of discouragingly low interest rates for folks who figured on 4-6% CDs paying their bills in retirement, bear markets in stocks and bonds can be dealt with, and even exploited for your benefit.

Bull or bear? You should not care!

Maybe this is not “the big one” that bearish pundit have been warning about. Perhaps it is just another bump in the road of a historically long bull market for both stocks and bonds. But again, market timing and headline events like 10-2 spreads, recessions and the like are not your priority.

What your priority is, if you want to improve your chances of success toward and through retirement, is something different. Namely, to get away from the jargon and hype of financial media, simplify your approach, and take a straightforward path toward preserving capital in a time of uncommon threats to your wealth. I look forward to sharing insight on that in the coming days.

Comments provided are informational only, not individual investment advice or recommendations. Sungarden provides Advisory Services through Dynamic Wealth Advisors

To read more, click HERE

Follow me on Twitter or LinkedIn. Check out my website.

Rob Isbitts

I am an investment strategist and portfolio manager for high net worth families with over 30 years of industry experience. A thought-leader, book author and founder of a boutique investment advisory firm in South Florida. My work for Forbes.com aims to break investment myths and bring common sense analysis to my audience. Connect with me on Linked In, follow me on Twitter @robisbitts. Visit our website at http://www.SungardenInvestment.com

Source: A Recession Won’t Wreck Your Retirement…But This Will

Creative Planning President and Founder Peter Mallouk discusses why he thinks the economy is in good shape, who should look to alternative investing and how to invest for retirement. He also discusses why he is not a fan of crypto.

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Why Attitude Is More Important Than IQ

When it comes to success, it’s easy to think that people blessed with brains are inevitably going to leave the rest of us in the dust. But new research from Stanford University will change your mind (and your attitude). Psychologist Carol Dweck has spent her entire career studying attitude and performance, and her latest study shows that your attitude is a better predictor of your success than your IQ.

Dweck found that people’s core attitudes fall into one of two categories: a fixed mindset or a growth mindset.With a fixed mindset, you believe you are who you are and you cannot change. This creates problems when you’re challenged because anything that appears to be more than you can handle is bound to make you feel hopeless and overwhelmed. People with a growth mindset believe that they can improve with effort. They outperform those with a fixed mindset, even when they have a lower IQ, because they embrace challenges, treating them as opportunities to learn something new.

uncaptionedCommon sense would suggest that having ability, like being smart, inspires confidence. It does, but only while the going is easy. The deciding factor in life is how you handle setbacks and challenges. People with a growth mindset welcome setbacks with open arms. According to Dweck, success in life is all about how you deal with failure. She describes the approach to failure of people with the growth mindset this way,

“Failure is information—we label it failure, but it’s more like, ‘This didn’t work, and I’m a problem solver, so I’ll try something else.’” Regardless of which side of the chart you fall on, you can make changes and develop a growth mindset. What follows are some strategies that will fine-tune your mindset and help you make certain it’s as growth oriented as possible.

Don’t stay helpless. We all hit moments when we feel helpless. The test is how we react to that feeling. We can either learn from it and move forward or let it drag us down. There are countless successful people who would have never made it if they had succumbed to feelings of helplessness: Walt Disney was fired from the Kansas City Star because he “lacked imagination and had no good ideas,” Oprah Winfrey was fired from her job as a TV anchor in Baltimore for being “too emotionally invested in her stories,” Henry Ford had two failed car companies prior to succeeding with Ford, and Steven Spielberg was rejected by USC’s Cinematic Arts School multiple times.

Imagine what would have happened if any of these people had a fixed mindset. They would have succumbed to the rejection and given up hope. People with a growth mindset don’t feel helpless because they know that in order to be successful, you need to be willing to fail hard and then bounce right back.

Be passionate. Empowered people pursue their passions relentlessly. There’s always going to be someone who’s more naturally talented than you are, but what you lack in talent, you can make up for in passion. Empowered people’s passion is what drives their unrelenting pursuit of excellence. Warren Buffett recommends finding your truest passions using, what he calls, the 5/25 technique: Write down the 25 things that you care about the most. Then, cross out the bottom 20. The remaining 5 are your true passions. Everything else is merely a distraction.

Take action. It’s not that people with a growth mindset are able to overcome their fears because they are braver than the rest of us; it’s just that they know fear and anxiety are paralyzing emotions and that the best way to overcome this paralysis is to take action. People with a growth mindset are empowered, and empowered people know that there’s no such thing as a truly perfect moment to move forward. So why wait for one? Taking action turns all your worry and concern about failure into positive, focused energy.

Then go the extra mile (or two). Empowered people give it their all, even on their worst days. They’re always pushing themselves to go the extra mile. One of Bruce Lee’s pupils ran three miles every day with him. One day, they were about to hit the three-mile mark when Bruce said, “Let’s do two more.” His pupil was tired and said, “I’ll die if I run two more.” Bruce’s response? “Then do it.” His pupil became so angry that he finished the full five miles.

Exhausted and furious, he confronted Bruce about his comment, and Bruce explained it this way: “Quit and you might as well be dead. If you always put limits on what you can do, physical or anything else, it’ll spread over into the rest of your life. It’ll spread into your work, into your morality, into your entire being. There are no limits. There are plateaus, but you must not stay there; you must go beyond them. If it kills you, it kills you. A man must constantly exceed his level.”

If you aren’t getting a little bit better each day, then you’re most likely getting a little worse—and what kind of life is that?

Expect results. People with a growth mindset know that they’re going to fail from time to time, but they never let that keep them from expecting results. Expecting results keeps you motivated and feeds the cycle of empowerment. After all, if you don’t think you’re going to succeed, then why bother?

Be flexible. Everyone encounters unanticipated adversity. People with an empowered, growth-oriented mindset embrace adversity as a means for improvement, as opposed to something that holds them back. When an unexpected situation challenges an empowered person, they flex until they get results.

Don’t complain when things don’t go your way. Complaining is an obvious sign of a fixed mindset. A growth mindset looks for opportunity in everything, so there’s no room for complaints.

Bringing It All Together

By keeping track of how you respond to the little things, you can work every day to keep yourself on the right side of the chart above.

Do you have a growth mindset? Please share your thoughts in the comments section below as I learn just as much from you as you do from me.

Follow me on Twitter or LinkedIn. Check out my website or some of my other work here.

Travis Bradberry

I am the author of the best-selling book Emotional Intelligence 2.0 and the cofounder of TalentSmart, a consultancy that serves more than 75% of Fortune 500 companies and is the world’s leading provider of emotional intelligence tests and training (www.TalentSmart.com). My books have been translated into 25 languages and are available in more than 150 countries. I’ve written for, or been covered by, Newsweek, BusinessWeek, Fortune, Forbes, Fast Company, Inc., USA Today, The Wall Street Journal, The Washington Post, and The Harvard Business Review. I’m a world-renowned expert in emotional intelligence who speaks regularly in corporate and public settings. Example engagements include Intel, Coca-Cola, Microsoft, Fortune Brands, the Fortune Growth Summit, The Conference Board: Learning from Legends, and Excellence in Government. I hold a dual Ph.D. in clinical and industrial-organizational psychology. I received my bachelor of science in clinical psychology from the University of California – San Diego.

Source: Why Attitude Is More Important Than IQ

This Hedge Fund Superstar Thinks Climate Change Will Impact All Your Investments—And Soon

Robert-Gibbins-by-Levon-Biss-for-Forbes

Since November, Robert Gibbins has crisscrossed the globe attending scientific conferences, traveling from his home in Geneva, Switzerland, to Arizona, Spain and Austria. The events had a common theme—climate change—and were well attended by academics, bureaucrats and politicians. One group was conspicuously absent. “I didn’t see any other investors there,” he says.

That boggles his mind. “Climate change is something we have to include in every single analysis, every investment,” he says. Most people think—or hope—that global warming is something their children or grandchildren will have to reckon with. Gibbins disagrees. The 49-year-old founder of Autonomy Capital ($5.5 billion in assets) thinks that climate change is happening suddenly and soon.

He structures every bet his hedge fund makes around his belief that the world is skidding toward a future that’s overheated and underwater—and that carbon will be treated as a costly waste product that needs to be captured and stored. Gibbins has already made good money betting on European carbon-futures contracts and expects richer plays to come.

Gibbins has an impressive track record making big calls. His fund, which places large bets on sweeping economic and political trends, is an industry standout, returning an annualized 12.85% net of fees since its November 2003 inception, compared to 8.9% for the S&P 500 index.

The ski-happy, outdoors-loving son of a Vancouver real estate agent, Gibbins made stops at the University of Pennsylvania and the trading desks of JPMorgan and Lehman Brothers before starting Autonomy. For many countries, he believes, climate change will be a major stress on economic stability. If a country is a basket case now, it’s only going to get worse as the seas keep rising and other fast-paced changes hit. “It’s not enough anymore to create a cheap T-shirt, car or semiconductor,” he says. To that end, Gibbins recently shorted the debt and currencies of Turkey and South Africa. He views both countries’ governments—led by Recep Tayyip Erdogan in Turkey and the ANC party in South Africa—as totally inept. “You can choose to be ruled by the ANC or Erdogan, or you can be a modern industrial economy,” he says. “You can’t have both.”

By contrast, he’s going long on Argentina. On recent trips there, Gibbins found people were exhausted after a decade of economic hardship and failed policies, convincing him the country won’t return populist Cristina Fernández de Kirchner to power (she last held the presidency in December 2015). The country’s debt is priced for disaster. “My view is, in Argentina, the society has had enough. It doesn’t want policies that are designed for the next three days,” Gibbins says.

As he sees it, all sophisticated investors these days have access to the best government and economic data. He travels 150 days a year in the pursuit of an edge and expects the 24 investment pros and economists working for him to do the same. He meets with local bureaucrats, journalists and business executives to gauge how decisions are made and how well local institutions function—and whether they can handle chal­lenges like climate change.

What about individual stocks? One obvious thought is to avoid property insurers like AllState and Travelers, which seem likely to get clobbered by rising costs, paying out more as weather-related damage piles up. Gibbins doesn’t buy it. He thinks insurers could fare just fine because much of their business is writing coverage for short periods, giving them the chance to reprice their products. Gibbins says REITs have a lot more risk.

You want even more against-the-grain thinking? Despite President Trump’s decision to pull out of the Paris climate accord, Gibbins anticipates the U.S. will eventually take the lead with Europe on a global deal to limit carbon emissions and penalize countries that don’t comply. So Gibbins thinks big oil stocks, like Exxon, or the currencies of oil-addicted nations, like Nigeria, are vulnerable.

Nathan Vardi

Forbes Staff

I am a senior editor at Forbes who likes digging into Wall Street, hedge funds and private equity firms, looking for both the good and the bad.

Source: This Hedge Fund Superstar Thinks Climate Change Will Impact All Your Investments—And Soon

Move Over Warren Buffett–For This $200 Billion Man From Japan

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SoftBank Group Chairman and CEO Masayoshi Son delivers a keynote speech during the SoftBank World 2018 conference on July 19, 2018 in Tokyo, Japan. (Photo: Tomohiro Ohsumi/Getty Images)

Everybody is wondering what Warren Buffett will buy next. With more than $100 billion in cash, aspirations for another megadeal and an 89th birthday approaching, the Sage of Omaha says he’s on the prowl for big targets.

One wonders, though, if the investment world is looking in the wrong direction. The focus on Buffett, the man and the legend, is about more than nostalgia, of course. In today’s chaotic and disorienting economic climate, the next big move by this value-investment icon will turn many heads.

But 6,000 miles away from Nebraska, SoftBank’s Masayoshi Son is pioneering a new era of value investing. Whether Japan’s richest man can live up to the Buffett-of-Japan hype is anyone’s guess. The report card on the $100 billion Vision Fund he rolled out in 2016 is incomplete, at best. And that’s vital to keep in mind as Son ups his firepower to the $200 billion mark.

Before launching a second $100 billion fund, Son might want to convince the globe that his first one hit his own intended targets. Son can start by answering three questions.

One: What’s the theme here? Don’t get me wrong–Japan needs more risk-takers like Son. Prime Minister Shinzo Abe spent the last six-plus years urging ultra-conservative Japan Inc. to rekindle the innovative mojo that drove the nation to such great heights in the 1970s and 1980s. By becoming the world’s top venture capitalist, Son, 61, is showing peers in Asia’s No. 2 economy how it’s done.

Well, we hope so. His splashy investments smash the Japanese CEO mold. But they also raise questions about the grander strategy at play. SoftBank’s journey from software company in 1981 to telecom titan–gobbling up Vodafone and Sprint–has a certain Buffett-esque logic. His aggressive bets on everything from Uber to WeWork to messaging system Slack to online lender SoFi to robot-pizza-maker Zume to Fortress Investment to food-deliverer DoorDash to solar panels to AI (artificial intelligence) to indoor farms to satellite makers, though, are as scattershot as you’ll find among today’s billionaires.

Son doesn’t often swing for the fences the way Buffett does at times. Buffett’s 2016 megadeal purchase of Precision Castparts for $37 billion is a case in point. Consider Son more of a “Moneyball” player who tried to recreate the Buffett-like income streams in the aggregate. Still, investors are anxious to know how dominating the ride-sharing space, betting $3.3 billion on money-manager Fortress and overpaying for startups around the globe can gel together in profitable ways.

Two: Where’s Son’s General Re? One year ago, a tantalizing story swept the markets: Son might be buying a nearly $10 billion stake in Swiss Re AG. It seemed classic Buffett to stabilize Son’s broader constellation of futurist bets the way General Re helps anchor the sprawling Berkshire Hathaway. What better way to reconcile the gap between an increasingly eclectic balance sheet, a discounted SoftBank share price and Son’s global ambitions?

Those ambitions have their roots in a 2000 investment Son made in a then-little-known Chinese visionary. The $20 million Son wagered on Jack Ma helped seed Alibaba. It paid off spectacularly, too. By 2014, when Ma took his e-commerce juggernaut public, Son’s bet was worth some $50 billion. The Vision Fund aims to recreate that success in the aggregate, as many times over as possible.

Anchors are important, though. Son’s talks with Swiss Re ultimately failed. Yet it’s time to build in some Vision Fund cash-flow stability.

In 2016, here’s how Son explained his strategy: “I think I’m better than others at sniffing out things that will bear fruit in 10 or 20 years, while they’re still at the seed stage, and I’m more willing to take the risks that entails.”

Great, so long as there are ample shock absorbers for when some of those risks go awry. The need becomes greater as Son’s arsenal doubles to $200 billion.

Three: How to finesse the Saudi dilemma? A major source of Vision Fund’s seed money–$45 billion–resulted from a September 2016 meeting between Son and Muhammad bin Salman. The Saudi Arabian crown prince, you might’ve noticed, has been in a few headlines since then. None flattering, and it’s not a great look for SoftBank.

The apparent murder of dissident and Washington Post contributorJamal Khashoggi in a Saudi consulate put a cloud over Riyadh. That, coupled with a gruesome war in Yemen and locking up relatives, made MBS, as the prince is known, a less appealing business partner. In late October, a who’s-who of chieftains dropped out of MBS’s “Davos in the Desert” conference–from JPMorgan’s Jamie Dimon to HSBC’s John Flint.

Can SoftBank avoid the taint? Time will tell, but Son may have another Saudi challenge on his hands: divergent visions. So many of Son’s Vision Fund bets are in the renewable energy space. How, though, does that track?

The Saudi royal family has expressed a desire to diversify its fossil-fuel-reliant economy. And yet that effectively means replacing the industry from which Saudi royals derive their wealth. If MBS changed his mind, restoring the primacy of the petrodollar model, the source of Son’s liquidity dries up.

Perhaps Son can indeed reconcile this disconnect. There’s a great deal riding on Son’s ability to juggle–and ultimately answer–these three questions. I’m certainly rooting for him. Few visionaries are doing more, at this very moment, to empower startups with the potential to alter humankind’s trajectory.

A key Son priority, for example, is helping seismically-active nations from Japan to India replace nuclear reactors with safer renewables. If Son and his ilk succeed, future generations won’t know from petrostates, oil rigs or gas stations. Cars, airplanes, ships and indeed buildings will be powered by batteries or other clean-energy sources.

Getting there, though, requires out-of-the-box thinking and even bigger risk-taking. That’s why the trajectory of the global economy will likely owe more to Son’s moves than Buffett’s.

William Pesek

Contributor

I am a Tokyo-based journalist, former columnist for Barron’s and Bloomberg and author

Source: Move Over Warren Buffett–For This $200 Billion Man From Japan

The Business Case for Positive Company Culture

Carin Taylor, chief diversity officer at Workday, shared some of the results during a Business Leader Forum at the most recent Workday Rising. Nearly 40 percent of all respondents indicated that unfairness or mistreatment played a major role in their decision to leave a company; 30 percent of women of color felt they had been passed up for a promotion; and a large percentage of Asian and Caucasian men and women felt they were treated unfairly by leadership and management…………

Source: The Business Case for Positive Company Culture

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