Financial Frontlines®

A friendly reminder for those Stop-Lossed between 11 Sept 2001 and 30 Sept 2009 from the DOD:

The 2009 War Supplemental Appropriations Act established Retroactive Stop-Loss Special Pay (RSLSP), providing $500 for each month/partial month served in stop-loss status.  Service members, veterans, and beneficiaries of service members whose service was involuntarily extended under Stop-Loss between Sept. 11, 2001 and Sept. 30, 2009 are eligible for RSLSP.

To receive this benefit, those who served under stop-loss must submit a claim for the special pay.  Since it went into effect, the services have been reaching out to service members, veterans and their families through direct mail, veteran service organizations, and the media.  But there is still money left to be claimed, and the deadline is approaching.

We’re reminding all service members who are eligible to submit a claim for the benefit available to them.  The average benefit is $3,700 but those eligible must submit their claim by Mar 18, 2011.

The DoD Web site (http://www.defense.gov/releases/release.aspx?releaseid=14306) links to service-specific sites, where you can get more information, or begin the RSLSP claim process.

If you know people who separated/retired and may be eligible for this benefit, remind them to submit a claim before the deadline!

Sometimes it is difficult to tell the difference between luck and skill.  This is particularly true in the stock market.

What clouds the issue is our natural tendency to rely on results (“what happened”) to tell us if we made a smart decision instead of determining whether the process for making the decision actually worked.  This becomes even more difficult when the situation involves a high degree of risk.

Take Donald Trump for example.  “The Donald” is reputed to be a financial genius. Despite his obvious talent, is his reputation the result of a series of brilliant decisions, or has he simply been lucky?  His successes in New York City real estate are the stuff of legend but they are somewhat offset by the huge losses posted by his New Jersey casino investments not to mention the recent difficulties with his condo projects in Florida and Dubai. Were these results due to his decisions, lady luck, or a combination of the two?

This distinction is important when “experts” give investment advice.  Often the “expert” earned a reputation by making a big bet on the market that turned out to be correct.  His followers now expect his advice to lead to similar profitable results.  But what if the original “win” was merely a lucky guess?

A long time ago, a client proposed a high risk strategy and asked for my advice.  I told him not to do it.  As it turned out his bet would have paid off and he called to tell me I was wrong.  I responded that despite the fact that he would have won the bet this time, continuing to make such high risk bets would eventually lose him a lot of money.  The advice was correct even if, as in this instance, he would have won the bet. I posed the following question to him: “If you were considering taking your retirement money to the race track to bet on the daily double and I advised against it, would you consider that to be bad advice even if your horses came in?” 

Not surprisingly, we disagreed about what was the correct answer. 

I have often heard people say “I’d rather be lucky than smart” but simply relying on luck is a poor substitute for a logical investment strategy.

Due to changes at the Treasury Department in how they will issue U.S. Savings Bonds, DFAS will stop all Savings Bond allotments effective 31 July 2010.  The Treasury Department will issue bonds through their TreasuryDirect web site or you can buy bonds from financial institutions.

See the TreasuryDirect web site at http://www.treasurydirect.gov/tdhome.htm.

For more information from DFAS, see http://www.dfas.mil/news/ussavingsbondallotments.html.

I recently returned from trips in New York and Chicago after listening and talking to numerous mutual fund and private money managers. I went to these meetings and conferences not just looking for the golden nuggets but expecting to find them. If only.

Discussions were all over the map. We are living in strange times. No one has a grip on the current economic environment. When looking into a complex situation, depending on their area of specialization, you get positive and negative opinions. Common themes surfaced; interest rates, inflation, taxes, future laws and regulations, the country’s budget, the world’s budget issues, and finding opportunities in this confusion.

As an investor with similar goals and means as you, here’s what I came away with: “The more things change, the more they stay the same.” While some of the individual pieces have changed in this economy, in a big picture way, this country and world have always gone through turbulent and confusing times—and always will.

For those of us who continue to work and invest through our employer plans, I believe even more in the philosophies and strategies we have shared on the pages of this blog and in our presentations. You can be successful if:

• You understand some of the history of our country and our economy.
• You take the emotion out of your investment plan.
• You use strategies that take advantage of known market conditions.
               o  Average down, Proper Allocation, Re-balance

You can read about the details of these points in past blog posts.

•  The Average Investor, Part 1, Part 2, Part 3, Part 4.
•  In a Bear Market
•  Market in Perspective
•  Before You Pull the Trigger

If you are closing in on retirement (within 5 years), you have it a bit more challenging. It is possible that stocks won’t have a strong rebound within this period and bond values may take a hit. Continue your systematic investing by maxing out your contributions. If stocks continue their volatile ways, wild swings up and down but basically remaining flat over time, systematic investing will allow you to pick-up more shares in the down times. When stocks return to their normal course, you will be glad you have more shares. Consider a balanced allocation among your stock and bond positions and add alternative investments to a portion of your allocation.

TSP members, you are very limited in the alternative world. This is one reason why I recommend you roll your TSP into an IRA after you leave the Service. Pick an IRA with investment options and low cost. You have to go with your I, S and G funds. For illustration: C 35%, F 35%, S 10%, I 10%, G10%.

For you folks with more choice, consider adding REITs, international stocks, international bonds, cash, short-term bonds, dividend paying stocks, high-yield bonds. These would be added to a base of balanced stock-bond holdings.

Not to throw cold water on anyone’s dreams but some of you may need to delay your retirement plans to build more assets. Y’all be careful out there.