How to Catch Up on Your Retirement Funding

How to Catch Up on Your Retirement Funding

Become An Active Investor!

A great Emerging Markets Stock Idea


Let's suppose that you actually want to retire at some point in the future. If you're like most people, you're probably a little behind in funding that retirement and you're wondering if you can catch up.

It's important to know how this exact scenario has happened to so many people, and the answers are actually pretty simple. Most people in their twenties don't save; they're hormone-addled crazies who can spend half a decade or more just celebrating not being in school any more. (I still miss those days!) There are bars and clubs to visit, clothes, electronics and cars to buy, apartments to furnish, maybe some travel and probably a wedding. Even if there aren't those college loans to pay off, there isn't much excess income to be salted away.

In their thirties, people want to move out of that apartment and into a house, which means a mortgage and more furniture. The relentless ticking of the biological clock usually militates the addition of small humans to the household of our rapidly maturing non-investors. Small people don't eat that much, but their other needs are pricey and absolute. Any excess funds that the house doesn't eat will likely flow in Junior's direction. There is probably some investing going on in the form of an employer-matched 401(k) or an IRA and a college-directed 529 plan, but that's about it.

The fascinating forties find most people with a growing income that is more than matched by the requirements of a growing family. A move to a bigger house, family vacations and the beginning crunch of college costs keep the lid on any investing that isn't part of the work/match program.

By the time people reach their fifties, their costs are finally coming under control as earning power peaks, children graduate from college and expensive marriages are planned and survived. But just as people see the light at the end of the financial tunnel, they also see the freight train of retirement coming right at them. And it's a lot closer than they ever thought it would be!

All of us analysts at Cabot get lots of inquiries from people who need to play catch-up with their retirement funds, and wonder if such a thing is possible.

Our response is that we give advice about investing, not retirement planning. At the same time, we clearly believe that investors who are willing to invest the time, energy and (of course) money in a disciplined and systematic way can indeed make AND KEEP big money over time.

I work on the growth stocks side of Cabot, writing the Cabot China & Emerging Markets Report. I have a lot of confidence in the ability of Cabot's growth disciplines to produce market-beating results. Partly this is because we have a system for selecting growth stocks that makes sense. But it's also because the Cabot system of market timing requires us to exit the market and go to cash when the market is in a confirmed downtrend- staying out of the way of the bears is every bit as important as running with the bulls, or even more so.

So, do you have the capital to invest, the discipline to follow the rules and a source of good advice to point you toward strong stocks at good technical buy points? If you do, you stand a good chance of being able to help yourself make up some ground on your retirement. It may even be enough to put you onto that 78-foot sailboat cruising the Caribbean that you've been dreaming about.

At the very least, becoming an active growth investor will get you off your financial duff, which is what your mutual fund managers have had you sitting on since the 20th century. The mutual fund industry has done a wonderful job of selling the notion that you can't time the market and that the only sensible strategy is to shovel money into your 401(k) and keep shoveling no matter what the market is doing or what the results are. Just keep shoveling, they say, and eventually the historical uptrend in the market will catch up with you and lift your little boat out of the mud.

The passive mindset engendered by that kind of self-serving advice makes investors vulnerable to the kind of damage that the 2008-09 bear market inflicted. And the resulting pain often keeps investors from riding the bull market that follows.

How do you get started? It's actually quite easy. If you have money in a savings account, you establish a brokerage account-my personal preference is for an online account, which will let you make your own trades with the lowest possible commission costs-and move an amount of money to that account and start trading. (Obviously I believe that having a Cabot growth advisory like Cabot Market Letter, Cabot Top Ten Trader or Cabot China & Emerging Markets Report in your back pocket will go a long way toward getting you off on the right foot.)

If you have an IRA, so much the better. You can use a portion of it to trade stocks tax-free.

The Cabot website has extensive free resources to help you get started and make your decisions. For my own growth investing, I use a 10-position, equal-dollar allocation that allows me to keep a close eye on my stocks and move to cash when markets turn threatening.

If you've actually been investing since you were in your twenties, congratulations! You probably have a big enough account balance to actually retire, and even the Big Bear of 2008 didn't sink you.

For those who have been putting off investing until you could count the years until retirement on both hands, I say it's time to get active.


Chinese stocks have been on a tear recently, rebounding from a short, sharp correction in late June and running to new multi-year highs. This has left some stocks stretched pretty far above their 25- and 50-day moving averages, which are used in the Cabot growth disciplines as stand-ins for the stock's short- and intermediate-term trends. When a stock gets too far above its moving averages, a phenomenon called "reversion to the mean" tends to exert some drag. The result is often either a correction of a period of sideways trading while the moving averages catch up.

One way to get around this problem is to look for attractive stocks that have only recently come public and are still largely unknown to a wide audience. And in that category, one recent IPO I like is LightInTheBox Holding ( LITB ) , a Chinese online retailer whose websites are available to 80% of Internet users worldwide.

LightInTheBox specializes in apparel, small accessories and gadgets, and home & garden products. The company has been around since 2007, and has developed ties with a wide variety of Chinese manufacturers, allowing for direct delivery of products at big discounts, and, in the case of wedding dresses and evening dresses, customized to meet customers' needs.

LightInTheBox recorded its first profitable quarter in Q1 2013, but revenue growth (up 72% in 2012) indicates that its method of expediting factory-direct sales is gaining traction. The company's website is available in 19 different languages and more than half of 2012 revenue came from sales in Europe and about a quarter from North America.

LITB is now trading just south of 17, and its 25-day moving average (it hasn't been trading long enough to have a 50-day!) is at 14.85. Considering that the stock came public at 9.5 in early June, it has made excellent progress.

LITB is a stock I would classify as an attractive speculation. It's probably best to let it settle down a bit from the excitement of its IPO. But it's a great example of what emerging market stocks can do when investors are feeling adventurous, as they are now.

If you'd like to follow the fortunes of more emerging market stocks, Cabot China & Emerging Markets Report (which I write) is a great source of ideas and guidance.


Paul Goodwin

Editor of Cabot China & Emerging Markets Report

And Cabot Wealth Advisory

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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