It's Time to Enjoy Your Retirement

Enjoying your retirement may seem difficult with all of the craziness in the world today such as:

China’s Growth Rate - Increased demand, fueled by China’s growth, has been pushing up prices of commodities for some time. Their rate of growth going forward will have a significant impact on world financial markets. Low growth will create one set of problems, and high growth will create another. Bottom line, China will significantly affect the world markets one way or another.

Oil Prices - Increased oil costs have the same negative effect as a hidden tax on individuals and businesses. The price level of oil will drive the net effect.

European Debt Crisis - A contagion may spread across Europe as the weaker countries get taken down. This would affect world markets negatively.

U.S. Debt and Deficits - How our politicians deal with our national debt, which was created by them for them, and how they deal with their fiscal mess will have a significant affect on world investment markets.

There are some serious issues facing investors in these uncertain times. For our younger clients who have time on their side, it makes sense to adjust their risk tolerance so it matches their objectives and let the market go through its normal cycles. The fact that time is on their side should make the ride less stressful.

RETIREMENT SHOULD BE ENJOYABLE, RIGHT?

If you are retired, it is important to stay focused on the purpose of retirement. What is your goal? Retirement should be a time that is enjoyable and relatively stress free. You should be able to spend your time doing the things you have always wanted to do such as travel, provide service, and enjoy relationships with those close to you.

Your list of daily activities should not include checking CNBC and being worried about the financial markets. You should not worry when the markets goes down or feel euphoric when they go up. You should not care what they do because you have other things to keep you busy. Investing according to your risk tolerance will help you do this.

When you are invested properly you should be completely comfortable with your investments. If you feel anxious or concerned about them, you should consider lowering the level of risk in your portfolio. You are probably invested correctly when you do not care what the market does on a day-to-day basis.

While it is impossible to have a completely stress-free experience, it is possible to reduce stress significantly by building a portfolio that is aligned with your specific risk tolerance. Your risk tolerance determines how aggressive or conservative you are invested. Your particular mix might be 20 percent conservative and 80 percent growth, 50/50, 70/30 or some other combination. It is different for each person. It depends on your individual goals and objectives and what you are comfortable with.

You cannot control world events or the “Big Scary” issues that are announced each day on the news. While there are a lot of things in life you cannot control, the key is to figure out what you can, and focus on that.

At Paragon, we can help you with the things you can control, such as having your portfolio managed in a way that is as conducive to your retirement goals as possible. We can also help you set your risk tolerance properly in order to reduce stress. Every investor has an amount of risk they are comfortable with. Let us help you make your retirement as stress free as possible.

SECOND QUARTER INVESTMENT UPDATE

This year feels a lot like last year. The market went up, and the future looked bright. Then, the media told us everything was awful, and the world as we know it was going end soon. It turned again and everything was OK after all. Then the cycle repeated itself.   

Last year the “Big Scary” event was the economic crisis in Europe. It started in May and took the market to its low point on July 1. In Deja Vu style, starting again this year in May, the fear of a European economic crisis returned and pushed the market down again through June 27. So far the market action has been a re-run of what happened last year. 

In addition to the European events, this year provided some new issues to contend with. U.S. growth indicators started slowing in the second quarter, causing concern that we might enter a new recession. Since investor perceptions are driven by what has happened recently, those fears morphed into concerns of a double dip recession or a repeat of 2008. 

On the political side, uncertainty has been created with the world wondering if our politicians are really going to stop spending more than they take from us. The upcoming August 2 debt ceiling drama adds an interesting element to the current mix of issues. Another political uncertainty is how the end of the Fed’s quantitative easing program is going to work out. 

Unfortunately, two steps forward and one step back is the way the investment world works. Last year after the weakness in May and June, the market was down 6.7 percent and just about everyone was giving up. That was followed by a gain of 23.3 percent in the second half of 2010.  Stay tuned to see if that trend repeats itself over the next 12 months.

PARAGON’S PORTFOLIOS

This is a very difficult environment for conservative investors. It is like walking on eggshells.  Interest rates are extremely low, and the threat of increasing interest rates is ever present. Economic and geopolitical uncertainty abound. 

Considering these obstacles, our conservative portfolio, Managed Income, continues to do well. Year-to-date through June 30, it is up 4.38 percent versus 2.74 percent for its benchmark, the Barclays Bond Index. 

Managed Income continues to hold an eclectic mix of conservative investments in order to generate its returns. We own some individual REIT’s as well as a real estate ETF. In addition we own some ETF’s that hold short-term bonds, dividend stocks, preferred stocks, inflation protected bonds, and high yield bonds. Those ETF’s represent the conservative sectors that our models currently have on a “buy” signal.   

Top Flight, our growth portfolio, has also performed relatively well. With all of the uncertainty our models have required it to hold 10 to 20 percent cash most of the year. Top Flight is up 4.32 percent year-to-date.

This year the movement of most asset classes has been highly correlated. When the markets are highly correlated, Top Flight’s performance will likely match the broad market. Historically, this type of market correlation comes and goes, depending on the internal market dynamics. When the asset classes become less correlated, it will make it easier for Top Flight to outperform. As we look at Top Flight’s track record, it is during periods of lower correlation that we see significant outperformance.

Out of the 250 asset classes we track, the ones that are currently towards the top of our rankings are:  Aerospace and Defense, Healthcare Providers, Russell Midcap Value, Software, Tech, Basic Materials, Energy, Oil and Gas and Retailers. For the first time in quite a while, banks have surprisingly moved into the top 20 percent of our rankings. We also have a short bond position that will benefit if interest rates go up. We have not had much international exposure for quite a while, but the international asset classes have started moving up in our rankings.

CONCLUSION

Feel free to contact us at any time by email or phone if you have any concerns about your portfolios or would like to adjust your risk tolerance. We hope to make your investment experience as enjoyable as possible to help you have a worry-free retirement.