Let me be brutally honest for a moment - most folks reading this will not retire with enough money to have a financially secure retirement. I do not say this because I went door to door taking a survey. The facts come from researchers far smarter than me, and they do not paint a pretty picture.
The "Team Alpha Retirement Portfolio" has been developed and followed for about 15 months and has done admirably well. It was designed for dividend income seeking investors who also seek some capital appreciation, but are not highly risk tolerant. If we take a look at what the most current collection of research reports show, anyone looking for a better retirement will realize that investing in the stock market, right now, offers the best shot for most regular folks to become financially secure.
Let's Look At Some Basic Facts
The wealthiest nation on Earth is slowly but surely going backwards when it comes to personal income as well as savings.
Over a period of 10 years, individuals are earning less, even as the economy heals. As much as I have extolled the virtues of saving a lot, often, and early, it does not appear that the general population is following our lead. Simply by virtue of the fact that they are not earning enough.
This will mean greater pressure on all entitlement programs to keep regular folks from abject poverty later in life. For those of us fortunate enough to have a good income, and to have begun saving money at a young age, as well as a large enough amount, we will have an easier time of it.
In this article, it was noted that in 2010/2011, the USA suffered the largest drop in personal income since 1981.
Average take-home incomes fell in 2010-11 despite a modest recovery in the wider economy, as rising inflation and the delayed effects of the late 2000s recession acted to reduce living standards.
Median household income fell by 3.1%, after accounting for inflation. This large fall follows surprising growth in median income during the years of the recession itself (2008- 09 and 2009-10) when falling inflation and increases in benefits and tax credits supported household incomes in the face of rising unemployment. "Looking ahead, our forecasts suggest that median incomes will have fallen further in 2011-12 and median incomes will be no higher in 2015-16 than they were in 2002-03."
As you can see, even as our economy becomes healthier, our savings rates have dropped nearly to pre-recession levels. I suppose it is human nature for us to save more when "things" are tough, and spend more when we feel "things" are getting better. Earning less does not help the situation either.
If we are spending more and saving less, then how in the world will regular folks ever hope to have a financially secure future? Take a look at overall household debt:
It is higher than the Reagan era of the 1980s, and the Clinton era of fiscal responsibility, in the 1990s (the budget surplus for the country).
Earning less, saving less, and spending more, is a prescription for financial disaster later (or even earlier) in life. The issue becomes - what can we do about it?
Taking Control Of Our Financial Future
Every single one of my readers understands the mantra I have been harping on to become financially secure.
- Start saving as soon as possible.
- Save as much as possible, but 10-20% of gross income would be nice.
- Cut down on every possible expense, and live within your means (after savings), for as long as you work.
- Spend less during retirement than you will have coming in, forever.
- Keep as much cash on hand as you feel you need, to pay all of your bills during a particularly difficult period of time, like a great recession. I personally have 5 years of cash set aside before I make one investment.
- Invest in a core group of dividend paying stocks from companies that have great business models, wonderful track records, and that pay dividends commensurate with their risks.
While I am not discussing brain surgery here, it is evident from the research charts above that most Americans are doing the exact opposite, and that INCLUDES not investing in this stock market, today, right now.
The facts speak for themselves:
The S&P has gone up. Yes it nose dived a few times but recovered, and during that time, if an investor stayed the course, they still would be well ahead of the game by reinvesting all dividends, and by BUYING THE DIPS AND ADDING TO THE CORE.
The Dow Industrials are approaching all time highs. It was not long ago that many investors fled the market, and have never returned. Truth be told, there are less individual investors now than there were since the last all time high was reached.
I cannot blame folks for selling and not coming back, however. Given the facts that are shown in the graphs above, most folks had either very little, or nothing, to fall back on, and HAD to sell low, just to pay the rent. Obviously if my mantra had been part of the education system of our nation, there might be a completely different story to tell today.
The NASDAQ has not gotten back to the roaring tech bubble levels, but the indexes have been steadily increasing since the bubble burst. Keep in mind that this market index contains some of the "coulda, woulda, shoulda" stocks that I have placed in our new portfolio; "The Young And Restless"
If You Want To Create Retirement Wealth, Invest In Stocks Now
I happen to believe that we are in the early stages of a secular bull market. Some folks say it has been orchestrated by the policies of the Federal Reserve, as well as our elected government officials. Some would say that the market and the economy is being propped up by the massive amounts of spending our Government has done. Is that actually true?
I especially like this article from the Washington Post. It reports that the current administration has actually spent (or "invested") less than several of the fiscally conservative administrations of the recent past.
In effect, all things being equal, our government has spent less these days than in years past (as a% of GDP)! I was somewhat taken aback by this, but the facts speak for themselves.
In 10 of the past 12 quarters, total government spending and investment has fallen, dragging down the Obama economy. That's in large part because state and local cutbacks have been so severe, but it's also because federal spending and investment has, on the whole, been falling since 2010.
This isn't an unusual analysis. You can see the numbers for yourself if you head to the Bureau of Economic Analysis' GDP data and scroll through column 21 of table 1.1.2. It's simply a fact that real government spending fell in three of President Obama's first four years.
Just for fun, let's look at another chart:
If the government has been "propping up" our GDP and our economy, it is really hard to tell when compared to other administration spending as part of total GDP.
The point I am getting at is this; if our economy and markets have been recovering as they have, with less of a percentage of government spending included in the GDP, just think of what our economy could do when it REALLY gets back to 100% health.
Not to mention what the stock markets can do. Keep in mind some basic macro-economic facts:
- As the economy regains health, more folks will be working.
- More folks working could further production of every business.
- Greater production by business could lead to greater revenues and earnings.
- Greater revenues and earnings could lead to higher stock prices.
- Higher stock prices could create greater corporate and individual wealth.
- Greater corporate wealth could lead to higher dividends being paid.
- Greater individual wealth could promote more spending right back into the very companies that we are investing in.
Is this a pipe-dream? Not in my book. To me this is capitalism, and it works. It can also create retirement wealth if investors take a long term approach, and invest wisely. Having a diversified, well balanced portfolio, with allocations that make sense, is one path that could create impressive personal wealth.
There are plenty of "perma-bears" out there who scream and yell that this stock market is not real and will implode. Ok, it is an opinion many subscribe to, but I look at this one little chart to give me a different opinion:
I believe that stocks are cheap from a historical standpoint, and although we will have our ups and downs, I think this market is headed higher. Much higher.
Where Should An Investor Begin?
I have 2 portfolios being followed here on Seeking Alpha. The Team Alpha portfolio is geared for investors who are seeking income, either current or for the future. It has a much lower risk profile and I believe it is a good start for those close to, or already retired.
Our Team Alpha portfolio now consists of Apple (NASDAQ:AAPL), McDonald's (NYSE:MCD), Exxon Mobil (NYSE:XOM), Johnson & Johnson (NYSE:JNJ), AT&T (NYSE:T), General Electric (NYSE:GE), BlackRock Kelso Capital (NASDAQ:BKCC), KKR Financial (KFN), Procter & Gamble (NYSE:PG), CSX Corp. (NASDAQ:CSX), Realty Income (NYSE:O), Coca-Cola (NYSE:KO), Linn Co, LLC (LNCO), Annaly Capital (NYSE:NLY), Cisco (NASDAQ:CSCO), Bristol-Myers Squibb (NYSE:BMY), Healthcare Select Sector SPDR (NYSEARCA:XLV), General Dynamics (NYSE:GD), and iShares S&P U.S. Preferred Stock Index Fund (NYSEARCA:PFF).
The portfolio has increased in value by roughly 33% in the last 15 months.
The new portfolio that we have been following for a few months is called "The Young And Restless." This portfolio was established for a very youthful investor who also has all of the qualities of our more senior investors, but they are also young enough to take on more risk for potentially greater capital appreciation. The portfolio is geared to create great wealth in a shorter period of time, while an investor is young enough to recoup potential losses.
The "Young and Restless" portfolio consists of Apple, Amazon (NASDAQ:AMZN), Google (NASDAQ:GOOG), Zynga (NASDAQ:ZNGA), Facebook (NASDAQ:FB), Netflix (NASDAQ:NFLX), Yahoo (NASDAQ:YHOO), and Achillion (ACHN).
In just a few months time, this aggressive portfolio has returned about 168% on an annualized basis. More than impressive I would say, and Apple has not even performed well as of yet.
The Bottom Line
For regular folks, investing in the stock market, in a prudent manner, based on your financial goals and circumstances, offers a strong potential for the creation of wealth, and/or a more secure retirement.
It is your choice to make, and your responsibility. Thus far the government has not mandated that an individual invest!
Disclosure: I am long AAPL, BKCC, BMY, CSCO, CSX, GD, GE, JNJ, KO, LNCO, MCD, NLY, O, PFF, T, WMT, XLV, XOM. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.