Steve Cordasco and David Evanson
, Summer, 2012
NEW YORK (TheStreet) — Few people would suggest that Mick Jagger is a good source of advice on lifestyle, especially during his younger days.
As a matter of fact, the metaphor continues with the album name, Let It Bleed, because bleeding is exactly what most Baby Boomer investors have been doing lately.
However, old Mick comes through with …”but if you try sometime, you just might find, you get what you need.”
The notion that you canzzt always get what you want stems from the realization, by me as well as many others living through it, that the traditional apparatus for building and storing wealth has failed us, and that there isnzzt going to be a return to “normalcy” any time soon.
Think about what boomers have lived through over the long haul, and in the very recent past. The transition of the economy from manufacturing to service, and the attendant loss of high-paying, secure employment that offered health care and retirement benefits. Two stock market crashes. A 10-year period with zero — zero — gains in the market (as measured by the S&P 500).
The collapse of the real estate market, and with it the security that comes from knowing that your largest asset will always be worth more than you bought it for. The attenuation of interest rates to the point where fixed-income has become associated with the idea of no income.
Between inflation and taxes, fixed-income investors are allocating their precious capital for the privilege of simply getting their money back.
Therezzs more of course, but I think these points spell things out pretty clearly.
The source of this malaise is the collapse of what I like to call the wealth storage industry. Therezzs never been another industry of the size and scale of wealth storage — not autos, or steel or energy — and it has collapsed both in functionality and in the number of jobs and opportunities it offers.
The scale of the wealth storage industry is immense and it stretches from banking, to brokerage, to credit cards companies, to the mortgage banking and lending business, to mutual funds, pension management, all the way through to real estate.
All of our primary consumer industries were driven in large measure by financial engineering. Itzzs what enabled lower-income families to buy houses they could not afford, for people to buy cars with a sticker price that matched their annual earnings, and for college students to study Russian literature without much concern for what would follow after graduation.
One of the most tragic outcomes from this collapse are lifestyle beliefs lodged inside the minds of Baby Boomers that can no longer be supported by the remaining economic and financial environment. Izzm here to tell you the paradigm shift has arrived and is very real.
So, with these ideas in mind, the lyrics You canzzt always get what you want… take on more meaning. But so, too, does, …but if you try sometime, you just might find, you get what you need.
Specifically, in this context, trying will mean for most investors assuming more risk and by doing so moving way out of their comfort zone.
To get what you need, investments selection must now include high-yield debt, corporate bonds, utility stocks, mortgage bonds, and what I like to call global cash flow securities.
These are high-dividend-paying stocks from companies situated around the world that are industrial or commodity based, which produce tangible products that consumers and businesses need.
A representative list of the kinds of investments I am referring to follows. Keep in mind, these investment selections are part of a comprehensive and diversified portfolio.
Metropolitan West Total Return Bond I(MWTIX_). The fund buys a variety of investment- and non-investment-grade securities currently yielding about 4.4%.
Ivy High Income I(IVHIX_). The fund invests in a variety of investment- and non-investment-grade debt securities as well as loan participations. Currently yielding approximately 7.7%
Touchstone Sands Capital Inst Gr(CISGX_). The fund seeks long-term capital appreciation through investments in large capitalization growth stocks. The year-to-date return is approximately 15.5%.
Market Vectors Gold Miners(GDX_). This seeks to replicate the price and yield performance of the NYSE Arca Gold Miners Index, which tracks gold miners and invests in common stocks and ADRs. Year-to-date return is approximately -13.0%.
AQR Managed Futures Strategy I(AQMIX_). The fund invests primarily in a portfolio of futures contracts, futures-related instruments and equity swaps. Year-to-date return is approximately 0.0%.
Annaly Capital Management(NLY_). Annaly is a so-called mortgage REIT and invests in a wide variety of mortgage-related securities. Currently yielding approximately 12.9%.
Kinder Morgan Energy Partners LP (KMP_). Kinder Morgan Energy Partners is a publicly traded limited partnership that operates as a pipeline transportation and energy storage company in North America. The current dividend yield is approximately 5.6%.
AT&T(T_). The company provides telecommunications services to consumers, businesses, and other providers worldwide. A staple of dividend investors forever, T is currently yielding approximately 4.9%.
GDF Suez ADR(GDFZY). This global energy firm does not have ADRs, and as such here in the U.S. trades on the “Pink Sheet” market. The company operates Europezzs largest gas pipeline network and is currently yielding approximately 7.9%.
As you can see, when I said Boomers will need to move out of their comfort zone, I meant it. Also, be wary of insurance of insurance related investments and over engineered Wall Street products that challenge simplicity.
An important byproduct of the investment selection in the new paradigm is that you will remain fairly liquid, which will take on more importance as the global financial landscape reshapes itself.
Above all, get a plan for how you are going to move into and live through retirement, as investors who entered 2008 with a roadmap fared much better than those who did not.