In a day where fundamentals were actually being given some credence, the markets traded mixed following a high-profile earnings report.
Shares of J.P. Morgan ( JPM ) moved lower this morning as the company's supposed earnings beat was given a closer look by analysts. A key factor in the report was an accounting shift based on a new valuation of the company's debt, which accounted for a one-time favorable gain of $1.9 billion. The reaction to JPM's earnings isn't helping the financials build on the sector's recent attempt to lift off 52-week low levels. Also pushing lower were shares of Morgan Stanley ( MS ) and Bank of America ( BAC ), which could very well be under the magnifying glass for accounting changes as well (to help the bottom line on paper, of course). Credit-card related plays like Mastercard ( MA ) and Visa ( V ) were getting back some of the momentum mojo, finishing with nice gains.
There were a few names bucking the early weakness, including shares of PetSmart ( PETM ) and Mead Johnson Nutrition ( MJN ). Both companies released statements saying they're tracking ahead of analyst estimates for the current quarter. Other names performing well today included Qualcomm ( QCOM ) and Yum Brands ( YUM ). Unfortunately there was some not-so-good jobs-related news out of Gap Stores ( GPS ) saying the company will be closing 34% of its U.S. stores by the end of 2013 as it pursues more of an international focus.
Growing Risk of Pension Time Bombs
A big story broke yesterday surrounding the city of Harrisburg, Pennsylvania (the state's capitol), filing for bankruptcy protection. Harrisburg's bankruptcy filing comes as a growing number of municipalities across the country are struggling with mounting debt.
Losses within state and local pension funds have been tied to fund directors' growing appetite for alternative investments, such as private equity and hedge funds. As a result of those investment losses, taxpayers face larger pension contributions, other government programs are starved of resources, and some public employees may face benefit cuts. Pension fund managers are making the mistake of assuming high returns on risky assets in the years ahead.
They're also not being helped by the extremely low interest rate environment we have been experiencing. The Federal Reserve could soon find that higher risk levels in pension plans could exacerbate matters even more. Many pension managers tend to build overly-optimistic returns into their forecasting models, so room for error is practically non-existent. Hence, we see growing frustrations from taxpayers all over who are on the hook for guaranteed pensions. And you wonder why the public sentiment for members of Congress is at all-time lows! Local elected officials are not immune from the growing public oversight, either. The days of politicians milking city coffers with large staffs and all the other perks that have come with their positions should be winding down amid an ever-growing public outcry.
Japan Looks to Raise Retirement Age (The U.S. Will Probably Be Next)
News coming out of Japan today says the country is seriously looking to raise the minimum retirement age to 70 years old. The nation is looking to stabilize financial sources for pension programs in the face of its rapidly aging population.
Here in the U.S., legislators have been kicking the can on what can be done to stabilize a social security system that appears to be headed for serious trouble in the next couple of decades. Delaying the retirement age once again will buy time, and is probably one of the easiest decisions for Washington to make. Such a policy change won't inspire many to believe in an eventual endgame to the work grind.
We have been sharing some of the more eye-opening retirement data points with readers that have been released over the last year. Here is a partial recap of some of the more profound statistics we have covered.
- A record 33% of Americans now plan on working past the age of 70.
But here's what American workers actually have: 43% have less than $10,000 in retirement savings, while 31% of workers have saved NOTHING for retirement.
- 30% of adult children contribute financially to their parents. That number will grow. (N.Y. Times)
- Even as fears mount, only 46% of workers have tried to calculate what they need to save for retirement. A record 51% doubt they can pay for medical expenses in retirement. Long-term care is no longer an affordable option for most retirees.
- There were 36 million "senior" Americans in 2000. There will be 70 million by 2030. (Census Bureau)
- Back in 1950 each retiree's Social Security benefit was paid for by 16 workers. Today, each retiree's Social Security benefit is paid for by approximately 3.3 workers. By 2025 it is projected that there will be approximately two workers for each retiree.
- 35% of Americans over the age of 65 rely almost totally on Social Security alone.
- Starting in January 2011, more than 10,000 baby boomers a day will turn 65, a pattern that will continue for the next 19 years.
- Nearly three out of four people file to claim Social Security benefits as soon as they're eligible at age 62. That locks them in at a much lower amount than they would get if they waited. The monthly checks are about 25 percent less if you retire at 62 instead of full retirement age, which is 66 for those born from 1943 to 1954. If you wait until 70, your check can be 75 to 80 percent more than at 62. (Source: Employee Benefit Research Institute)
The retirement picture hasn't suddenly started deteriorating overnight. We have been seeing gloomy data for years indicating how poorly prepared individuals are for retirement, how little money they have saved up, and the lousy job many do investing with what little they have to invest. I can go on and on, but you probably get the picture.
No one ever wants to worry about running out of money or being a financial burden to your kids, especially when you can put a system in place now to prevent those potential struggles. Start cutting your debt immediately, especially high interest debt (credit cards, etc.). Keep your living expenses in check so you can free up money every month that can be invested into assets that produce income. You need to get the power of compound interest in place to begin generating long-term wealth. If your home is going to be your biggest expense when you near retirement, think about downsizing or even relocating to an area where the cost of living can work well with your financial situation.
Taking a part-time job to help alleviate some of your health insurance costs is a great idea as well. To be successful in long-term investing, you need a plan. Let's take a look at some of the basics that any financial plan should include:
- First of all, you must have ultimate goals in order to put together a financial map to follow.
- Understand your risk profile and where you are in life, in relation to what the top-line goals are.
- A good financial planner can help you construct your short-term and long-term goals, analyze where your money is currently being spent, as well as figuring out where you may want to look for investment ideas that fit your risk profile.
The key thing to remember about a financial plan is to be flexible. Your life changes, and so should your plan. As families come into play, you'll eventually need to consider your estate situation, identifying the beneficiaries for specific holdings, and make sure you have enough insurance to protect your loved ones. Make it a habit to perform an annual evaluation of where you are financially, as well as the situation regarding the economy and how that could affect your investment holdings.
The biggest misconception many people have as they approach retirement is that their cost of living will automatically decline. While fore some this may be true (ex: mortgage could be paid off), the reality is their everyday/monthly bills increase (property taxes/rent, health care costs, food/utilities, etc.). If your retirement income is not sufficient, the golden years become much less enjoyable as the focus becomes centered on cutting back. Dreams of traveling and pursuing hobbies can get shelved quickly. Each day you have a chance to make investment moves into income-producing assets that can make your retirement dreams or other financial goals much more of a reality.
Finding the right strategy for investing is essential (and we wholeheartedly believe in dividend investing as the solution for readers out there). Putting what you've learned into practice is the second step. We advocate investors develop a monthly system of putting money to work in your brokerage accounts. Automate this process as best you can, so you remove any barrier of thinking whether you want to skip a month or two if the market is pulling back. Embrace the learning process of what you decide your investing strategy is. This basically means you are willing to keep an eye on what your money and investments are doing. Staying in the loop is a great thing and you will get the biggest benefit out of it. Just dabbling in the markets will not get you to where you need to be. Putting money to work every month should be a regular routine. If you have a habit of jumping in and out of the markets, dividend investing is the best remedy for that affliction. You will get a new perspective on what long-term investing and the power of compound interest can deliver.
New Watchlist Article Out Today
Be sure to check out our weekly "Top 50 Watchlist Names" post that is out today, only for Dividend.com Premium members. Some high-beta dividend stocks will certainly be on this list as we keep everyone up-to-date on names that are working better than others in this current market environment. Our focus is more on yield, so be sure to recognize the risk of buying lower-yielding stocks.
Thanks for reading, and I'll see you tomorrow! P.S. Please pass this e-mail on to someone you think can use some financial motivation as well as being kept in the financial news loop that could affect them.
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