March 25, 2014
Retirement Planning in a Changing World
The Investment View from Prescott, Arizona
Here at Hepburn Capital our primary objective is to keep our clients from experiencing a life altering loss of principal.
The stock market just finished a rough dozen years. Investors who lost a lot of money in the declines of 2001 or 2008 also lost something else: time. If you don’t have time to make up losses before drawing retirement income, it is critical to successful retirement that you avoid significant losses.
Many investment advisers were unprepared to guide their clients through the “lost decade”, as the 2000s are being called, and the lucky ones may just now be getting back to even. The unlucky ones may be spending down their assets faster than the financial markets can grow them back.
Much of the reason for this was a belief that a single strategy, buy-and-hold investing, would work all of the time, so it was blindly followed even as the stock market headed lower and lower. In the end, those advisers failed to provide their clients with adequate diversification because they offered only one strategy.
Back in 1999, long before active management became popular, Hepburn Capital began to develop systems that Adapt to Changing Markets®, which are the foundation of our way of protecting your money.
You need smarter investment solutions today, more than ever as the economy is still going through massive change. Because of this, any investment management approach you use must be ready to change as well.
The things an investment plan must deal effectively with today are:
1. Flexibility: With all the changes in the world economy, flexibility is the most valuable asset in an investment portfolio. It can reduce the biggest danger to your retirement portfolio – the danger of catastrophic, life-style altering losses that can cause the depletion of your retirement savings.
2. Complexity: Today’s financial decisions are more complex than they have ever been, but someone still has to make those decisions for you. Many retirees enjoyed being part-time investors during simpler times, but in retirement the consequences of a wrong decision, or even indecision, are far larger and the growing complexity of daily finances can make them feel overwhelming. For this reason alone, many retirees hire Hepburn Capital to make those day-to-day decisions and put themselves in a much better role – enjoying retirement!
3. Work: You spent a lifetime of working to accumulate your nest egg. You now have the opportunity to never work again unless you choose to work. Any investment strategy must provide a foundation to grow your financial security and expand your choices without the kind of risk that could force you to look for work.
4. Worry: Few of us go through life without some financial worry along the way, but no amount of money is worth worrying about. Any retirement investments must preserve your ability to live (and sleep) with peace of mind – despite the events going on around you in the world. This is not only possible, but you deserve it. You’ve earned it.
5. Inflation: The financial foundation you’ve created should continue to grow so that you can decide to give yourself a raise in the future to keep up with rising inflation and let you cope with a rising cost of living.
In short, you need the same proven strategy HCM provides to our clients.
Here is what you get as a client of Hepburn Capital:
• A proven investment plan that has guided clients like you safely through bear markets, government crises, wars, and recessions spanning 4 decades.
• Results that you can be comfortable with.
• A team to make your investing easy so that you can enjoy the opportunity to relax that being retired brings.
• Protection for your money during tough markets.
• Strategies designed to help you keep what you earned and enjoy peace of mind along the way.
• Regular, understandable statements so that you always know what you own, and how much, with your total account value, measured in dollars.
• Your account established at a world class custodian – Fidelity, a subsidiary of National Financial Services, with SIPC protection for each of your accounts.
• Calculating mandatory IRA withdrawals for you when you turn 70½.
• Retirement pay checks directly deposited into your bank account – just like when you worked.
• A relationship with a nationally known financial expert who is as close as your telephone.
Many investors believe a decline in the financial markets is coming soon because of the end of the government’s program to prop up the economy – payback time, so to speak. If you are not yet an HCM client, don’t put off having our systems that Adapt to Changing Markets® protect your savings. Active management can only help if you have it in place before the market begins to decline. If you wait to see losses on your statements before making a change, it may be too late.
If you are not already a client, call (928) 778-4000 today for a free appointment to discover what we can do for you.
And, please don’t keep me a secret. Tell your friends about my work before the next bear market sets in. It may be the best thing you can do for them.
Slice of Life
Our parking lot is full these days, as we have a new neighbor downstairs, Salon 3 West. This is a high-end hair salon run by long-time hairdresser, Julie Jones, who seems to be doing a booming business.
The annuity sales at The Interest Rate Store, which was downstairs until recently, has been rolled into our operation upstairs. I don’t generally mix annuity sales and investment management, so don’t worry about me calling you to sell annuities. That ain’t gonna happen if you are an investment management client.
But welcome to Julie Jones and Salon 3 West!
During a recent password audit by a company, it was found that an employee was using the following password:
When asked why she had such a long password, she rolled her eyes and said: “Hello! It has to be at least 8 characters and include one capital.”
How’s The Market Doing?
Playing Financial Chicken
The stock market continues to struggle, having gained less than ½% since the end of last year, despite strong sounding headlines (the market did touch a new high for the year on Friday, March 21, 2014).
Although the headlines sound good, fewer and fewer stocks are actually participating in the rally – if you want to call a ½% gain in 3 months a rally. It seems everyone just assumes the market will continue up, but with the Federal Reserve Board plans for further reductions in the stimulus being added to the economy and the market stalling out, we may need more than just assumptions.
In some ways it feels like we are in a gigantic game of financial chicken.
Like every successful investor I have my normal ways of gauging the market’s health. But, I also have a list of about 150 indicators that I go through periodically to ensure that I don’t miss something in my daily work. These indicators include items such as the lease rates of bulk carrier ships (raw materials need to be shipped to factories, so the usage of these ships is a measure of economic strength), inflation, rates of increase in the money supply, state of various market cycles that might reinforce or offset another, currency fluctuations and inter-market relationships such as bonds vs stocks, US vs foreign, and on and on.
When I recently reviewed my indicator list, the number of positive indicators was at an all-time high. That tells us that the markets have been good in the recent past. But I’m really more interested in next month than last month, so what should we prepare for? That is the big question.
As I mention occasionally, when everything seems to be going really well, those who can do so buy investments. Fund managers and individuals alike all get fully invested when times are good as they have been.
The trouble with this rosy scenario is that once all the buyers have invested they are no longer potential buyers, they are now potential sellers. Since the health of the financial markets is determined by the balance of buyers and sellers, we have fewer and fewer potential buyers left, and an unusually large number of potential sellers. That could lead to problems before long, perhaps big problems.
An analogy I use in my teaching at Yavapai College is one of all investors being in the same boat. If everyone moves to the selling side and there is no one left on the buying side the boat might just flip, giving everyone on board a plunge in the cold water of reality.
As my friend Dave Landry of Sentive Trading said recently,” I’m not going to rush out and sell the farm. However, the fact that internals are weakening suggests that it might be a good time to have it appraised.”
Even though we don’t often sell the whole farm, every day at Hepburn Capital we analyze the markets and every investment we own for you so we recognize when it is time to put our systems that Adapt to Changing Markets® into action.
So, a market downturn is going to happen, the question is when? When it comes to playing financial chicken with your savings, how lucky do you feel?
Scottsdale Office Date
Will would be happy to meet with you in Scottsdale if this better suits your schedule. Please call the office for an appointment.
What’s Going On In Your Portfolio?
Both of our main investment models, Flexible Income* and Shock Absorber Growth* are fully invested, and are close to new high values. Individual accounts are invested as close to the models as is logistically possible.
The model accounts mentioned in this article are hypothetical examples of how the strategy may work as designed. Activity in client accounts may be different from that in the model in the amount of each investment, specific timing of trades, and actual security used, which may vary from account to account, but the variations in performance between model accounts and client accounts, when they occur are generally small.
The Flexible Income* model currently holds a mix of gold, high yield, adjustable rate and diversified bond funds.
The Shock Absorber Growth* model holds a mix of stocks and funds including gold, health care and pharmaceutical, defense, electronics, banking and diversified stock funds.
Our municipal model* is fully invested, also.
Prescott Center for the Arts Presents:
Don’t Dress For Dinner
I had the pleasure of seeing PCA put on a performance of Don’t Dress For Dinner, one of the funniest shows I have seen in years that had the whole audience in stitches too many times to count.
This is the show’s last week with performances Thursday and Friday with two shows on Saturday. Call 445-3286 or go to pfaa.net for tickets.
Our Spotlight Strategy
With our Adaptive Balance strategy we strive to provide high total return from a combination of investments in both the equity and income markets with an emphasis on the income markets.
Our proprietary indicators are used to determine a stock market exposure that adapts to both strength and weakness in the market, directing exposure to the HCM Shock Absorber Growth strategy from 0% to a maximum of 50% of account value. The balance, 50% to 100% of account value, is invested in the Flexible Income Strategy. The HCM Safety Net indicator is designed to warn of sudden potential declines in which case stock market exposure is quickly reduced.
* The model accounts mentioned in this article are hypothetical examples of how the strategy may work as designed. Performance and activity in client accounts may be different from that in the model in amount of each investment, specific timing of trades, and actual security used, which may vary from account to account. Not all trades are profitable. It should not be assumed that current or future holdings will be profitable. A list of all trades in these accounts for the past 12 months will be provided upon written request.
** Indexes are unmanaged lists of stocks considered representative of a broad stock market segment. Investors cannot invest directly in an Index.
Shock Absorber Growth
This newsletter may contain forward-looking statements, including, but not limited to, statements as to future events that involve various risks and uncertainties. Forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause actual events or results to differ materially from those that were forecasted. Information in this newsletter may be derived from sources deemed to be reliable, however we cannot guarantee its accuracy. Please discuss any legal or tax matters with your advisors in those areas. Neither the information presented nor any opinions expressed herein constitute a solicitation for the purchase or sale of any security.
In all investing, past performance cannot assure future results, and as such, our efforts are not guaranteed. Losses can occur. All strategies offered by Hepburn Capital Management, LLC, adapt to changes in the markets by changing the investments they hold, therefore, comparisons to broad stock market indexes such as the unmanaged indexes mentioned may not be appropriate. Sometimes client accounts are invested in stocks or markets not included in these indexes. Past performance does not guarantee future results. Investment return and principal value will vary so that when redeemed, an investor’s account values may be worth more or less than when purchased. Mutual fund shares and other investments used in our managed accounts are not insured by the FDIC or any other agency, are not obligations of or guaranteed by any financial institution and involve investment risk, including possible loss of principal. Advisory services offered through Hepburn Capital Management, LLC, an Arizona Registered Investment Advisor. Adviser will not transact business unless properly registered and licensed in the potential client’s state of residence.
Copyright (C) 2014 William T. Hepburn. All rights reserved.