Posted on Thursday, 24th March 2016 by

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Updated 8/12/2025

The bull market in 2016 was the longest in history at the time. All bull markets eventually end in a significant downturn or recession. The Federal Reserve applied its low-interest policies until they started to rise dramatically several years ago. When interest rates are low, more individuals are forced into the stock market to earn a higher rate of return, which in turn artificially increases stock prices as interest rates decrease.

 

 

Since interest rates were near zero in 2016, the only way they could go was up, unless we enter a negative interest rate environment. With negative interest rates, savers pay banks to keep their money!  If they charge a negative 1 percent rate on a $100,000 bank deposit, you’ll have only $99,000 in your account at the end of the year. Not a good thing.

If the Federal Reserve allows interest rates to rise, stocks tend to fall in value, and the interest on newly issued bonds and our national debt increases correspondingly. You have to understand how markets work to protect your assets.

In essence, the Federal Reserve essentially robbed Peter to pay Paul. They reduced interest rates in years past to almost zero for an extended period. All of the interest that everyone had been earning on our savings and other accounts was transferred to the government when interest rates were artificially low.

The government used these low interest rates to borrow vast amounts of money, estimated to be as much as 40% of the government’s annual operating expenses, at very low interest rates to overspend and fund government programs.

Informed Investment Decisions

Significant losses are hard to recover from, especially when you are retired and living on a fixed income. Unfortunately, retirees can’t simply print money like the Federal Reserve does to balance the books. Successful Investing requires understanding market basics, rational thinking, and attention to detail.

When I was in my late twenties, I joined the National Association of Investors Corporation (NAIC).  They are the nation’s largest non-profit organization dedicated to investment education, and they publish Better Investing Magazine, an unbiased, independent source of investing news and insights for all experience levels.

NAIC encourages members to start investing early, offers courses on investing fundamentals, and supports local chapters. They showed me how to buy stocks directly from major corporations through Dividend Reinvestment Direct Purchase Programs with as little as $25 a month and no brokerage commissions.

Fidelity offers several online investing tutorials that you may find helpful. Their Essentials of Investing interactive tutorial can help you learn about risks, priorities, and common strategies used by other retirees. They also offer a mutual fund evaluator and many different tools to help you select and manage your investments.

Basic investment knowledge also helps federal employees and annuitants grow their Thrift Savings Plan (TSP).  You stand to lose if you panic during market corrections and invest in the wrong funds at the wrong time. Fortunately, for those who don’t have the time or inclination to learn investing concepts, the TSP offers Life Cycle funds, often referred to as one-decision funds, that automatically change to a more conservative mix as you approach retirement.

Stocks, Bonds, Mutual Funds, and ETFs

The purchase of stocks and bonds should be made based on fundamentals, not on gut feelings or general observations. Before purchasing a stock, check the company’s price to earnings (PE) ratio, yield, debt, industry outlook, book value, and so much more.  Once you learn what to look for and understand the principles, you will be able to make sound investment decisions. With bonds, it’s about credit quality, duration, and other factors.

If you aren’t familiar with these terms, consider taking a beginning investor’s course, such as the one offered by NAIC mentioned earlier in this article. There are rating services that provide prepared reports for thousands of companies, mutual funds, and exchange-traded funds (ETFs). I use Value Line, Morning Star, and my brokerage house stock rating sheets to validate stock selections.

You can view the DOW 30 ValueLine Investment Surveys on their site at no cost.  You have to subscribe to their service to view the 5,000 or so stocks they track, or visit your local library’s reference section. Most brokerage firms provide rating sheets for stocks, mutual funds, and ETFs. Services like Value Line and Moody’s are often available at your local library.

A good publication for investors is Kiplinger Magazine; I’ve been a subscriber for many years and find each issue insightful.  They also publish a list of recommended mutual and exchange-traded funds, including building block, one-decision, and custom funds for your consideration.  They publish articles on how to select a balanced portfolio using their recommended funds or you can do the same with a funds such as Vanguard Wellington (VWELX) or Fidelity Balanced (FBALX).

Vanguard and Fidelity both offer tools to help you select a diversified portfolio of funds based on your situation after answering a few basic questions. Vanguard’s Fund Selection Tool is easy to use and provides a list of recommended mutual funds and the amount to invest in each.  It only takes a few minutes to complete.

Gold & Silver Discussion

I receive several flyers each year offering to double or even triple your investment in short order. I relegate these offers to the trash and don’t read them. They talk about doom and gloom and how the market is going to crash, and gold or certain other investments are your only protection. If you have considered purchasing gold and silver, there are many sellers ready to take advantage of the uninformed.

Several companies sell gold and silver at huge markups, well above the spot price for that metal. The spot price reflects the price paid for a precious metal based upon immediate delivery and is expressed as the ask or selling price or the bid or buyback price.

The reason your cost is above spot price for precious metal coins, bars, and rounds is to compensate the miners, refiners, mints, and retail outlets for producing and selling the product. You will rarely buy at or below spot, and newly minted coins and bars, referred to as bullion, typically sell for between 3 to 15 percent above spot, depending on the coin denomination and size.

Large gold and silver dealers often sell a single one-ounce gold American Eagle coin for approximately 4 to 5 percent above current spot/melt values. They will purchase them from customers at about two to five percent under their current selling price. If the spot price of gold is $3450 per ounce, you can expect to pay approximately $3622 per one ounce coin.

Some sellers offer the same coins for considerably more, so shop around to get the price as close to spot as possible. Smaller-denomination coins sell for a higher premium because they cost more to produce. A tenth of an ounce coin requires the U.S. Mint to strike a smaller blank ten times to make the same one ounce of metal coins. Costco now sells gold and silver coins and bars online with very low markups.

I’ve seen several 1-ounce silver bars selling from some vendors for twice their silver content spot price, so buyer beware. Silver would have to increase by more than 100% for you to break even at those prices. You can purchase silver rounds or bars for several dollars less than the silver American Eagle coins. Gold and silver bullion can be bought from sellers across the country and also directly from the U.S. Mint. If you are interested in gold and silver coins, check the spot prices online before buying precious metal coins.

Many companies offer loss leaders, selling you a limited number of gold and silver coins just above spot at a very reasonable price. When you call, they attempt to sell you graded or collector coins for 3 to 4 times the price of the loss leader coins. If you do decide to buy collector coins, you can check prices at the CPGS site to ensure you aren’t getting ripped off.  They also offer a grading service for coins you’d like to have graded for your collection.

Market Fundamentals

If you don’t understand market fundamentals, learn about them before investing. Even if you hire an advisor, it’s essential to know investing principles so you can understand and approve of his or her recommendations. Financial security is the foundation of a successful life and retirement. A little time, preparation, and pre-planning go a long way to achieving this goal, and there is a lot of help available to get you there.

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Disclaimer: The information provided may not cover all aspects of unique or special circumstances.  Federal regulations, medical procedures, investment information, and benefit details are subject to change. To ensure the accuracy of this information, contact relevant parties for assistance, including OPM’s retirement center. Over time, various dynamic economic factors relied upon as a basis for this article may change.

The information contained herein may not be suitable for your situation. This service is not affiliated with OPM or any federal entity. You should consult a financial, medical, or human resource professional where appropriate. Neither the publisher nor the author shall be liable for any loss or other commercial damages, including but not limited to special, incidental, consequential, or other damages.

Last 5 posts by Dennis Damp

Posted in BENEFITS / INSURANCE, ESTATE PLANNING, FINANCE / TIP, RETIREMENT CONCERNS, SURVIVOR INFORMATION | Comments (0)


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