"Pension Security" Myths Shattered, and The Three Rules for Taking Back Your Future...
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With the seemingly unending torrent of bad news pouring in from TV reporters and newspapers, you've probably felt the urge to shut it all off and just ignore it. Well, today we're telling you that you should ignore it...at least most of it.
Ignore the credit crisis for a moment. Ignore the fact that ex-Goldman Sachs employee Hank Paulson is throwing hundreds of billions at the same banks that got us into this  mess. Ignore the fact that you hate Ben Bernanke, and ignore the fact that this ‘house' sold for US$103,000 just a few years back.
Because it turns out that the same kind of "geniuses" piloting Wall Street's investment banks and mutual funds were in charge of state and municipal pension plans...
Pensions Buckle under
a Shaky Market
On Tuesday of this week, Bloomberg reported that pension plans across the nation lost some US$865 Billion through the course of 2008. And this massive loss comes at a time when states can least afford it..."The $865 billion in losses, which exceed the $700 billion Troubled Asset Relief Program that Congress approved in October, comes as states face budget deficits totaling $42 billion."
To be sure, though, the blame doesn't belong exclusively to the managers of these funds. Some of the onus is on the investors themselves - as is the case with Wisconsin's Retirement System. In that system, some 113,000 workers pledged some portion of their savings to the "Variable fund," an all-stock option that lost 39% in the last year. "The portion of their pension checks covered by the Variable Fund will plummet by up to 45%," according to Matt Stohr of the state Department of Employee Trust Funds.
But regardless of investor mistakes, fund managers across the board and across the country (even including some in Canada) are refusing to accept reality and adjust to the whirlwind climate of today's markets. The Fort Worth Employees' Retirement Fund, for example, clings to its highly unrealistic estimate of an 8.5% rate-of-return on its long-term investments. And the California Public Employees' Retirement Fund (CalPERs) just recently - and begrudgingly - agreed to move its asset allocation review up from 2010 to early 2009.
Canadian fund managers are attempting to "play it cool," extending fulfillment windows from five years to ten and are assuming that they'll be able to recover losses in that time period. Anyone looking to retire soon might be frightened if that development turns into a trend. How long should retirees have to wait to collect deferred wages (pensions)? Ten years? Perhaps twenty?
Forget About these Clowns! Build Your Own Battle Plan
We've been saying it since the beginning of this crisis, and we'll say it again at the risk of beating a dead horse:
YOU don't have to be a part of this crisis!
 And that statement just becomes more and more true every day. One of the core tenets of the Sovereign Society is self-reliance, and it's doubly so in the case of retirement savings. These are your hard-earned savings, your future. To these fund managers, your savings are just a statistic...and with the threat of "bailout psychology," ("We'll stay the course," your fund manager says, "everything will get better. And if it doesn't...well, then the government will just bail us out."). You may not want to trust these clowns any farther than you can throw them.
No, the events of the past year are proof positive that fund managers and Wall Street Gurus are about as reliable as a Ford Pinto, and that you might want to seek a self-directed option for your retirement money. But where do you start? Well, let me tell you what's working for us here at the Sovereign Society...
The Sovereign Solution
In times like these, you can't just leave things to chance. As such, any effective strategy will have these three components; value, yield, and aggressive risk management.
In terms of value, look for cash-rich, blue-chip non-cyclical stocks. One of our favorite examples is Kraft. They have a huge amount of organically generated cash flow based on sales from their existing operations, and you can bet they're more financially sound than most of the nation's banks. And with Kraft's dividend currently yielding over 4%, you're not banking on capital appreciation to grow your nest egg.
That brings us to the second point; yield. Investment Director Eric Roseman has been very interested in some of the high-yielding, investment-grade corporate debt now out there in the marketplace. And with federal guarantees now in place for a good portion of these bonds, they're even more attractive.
But the key element of any Sovereign retirement portfolio - the one point that you should take away from this, if nothing else - is aggressive risk management. That means 20% trailing stops on any and all stock holdings in your retirement portfolio, no if's and's or but's about it. The markets are treading water today, but we could soon hit another bump in the road. Anyone unprepared could get caught in the crossfire, and end up crossing their fingers, hoping and praying Uncle Sam has enough left for them in the bailout piggy bank.
(For more information on our, "Portfolio Turnaround Plan," just click here)
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