Retirement planning

With this post, we are not dealing with the financial preparation to retire, but with the mental changes to ensure a smooth transition to the new phase of our lifes.

The time to start thinking about retirement is BEFORE we actually do it. There are two key elements: being realistic and involving our partners in the planning.

Of course there will be problems such as loss of identity, anxiety and boredom. The best shield against these hurdles is a combination of long-term and short-term planning. Prepare a bucket list of things to do, be more social, schedule trips with friends, create a gourmet group, join your favorite political party, spend time practicing sports... Each one of us knows what is best for us, but remember don’t wait until we face the problems, visualize it first, when everything is still cool and calm.

Happiness

Summer is almost gone. The markets have been a little bit crazy (as always with low volume). Short traders have tried to dump some stocks like Rural Funds in Australia or General Electric. It is logical, the less volume, the better for the short sellers.

On the other hand, our permanent portfolio has behaved amazingly well because of the rise in the price of gold. Gold is a great protection for stocks as it is shown in our book Against the Tide.

However, setting money aside, lately I’ve been thinking that the main purpose in life should be to achieve a reasonable level of happiness. It is not proportional to spend so much time improving our skills as money managers and not so much as happiness seekers. So, I’ve started from some interesting TED Talks about the link between happiness and strong relationships. Here you have a couple of talks:

• Longest study on happiness
• Why are we happy?

I hope you enjoy them.

Daily Sentiment Index

Jake Bernstein’s Daily Sentiment Index (DSI) is a proprietary contrarian indicator very commonly used by traders.

We recommend the following interview with Mr. Bernstein himself to see how he uses the DSI (link).

In a very simplistic way, above 85% we are near a top, around 10% we are close to a bottom.

A very interesting web full of “sentiment” charts on different markets is sentimentreport.com.

Against the Tide. Portfolio evolution

As most of the readers know, in SimplyNoRisk we try to reduce pain. When fund managers compete to see who has a greater yield every year, we observe it from a healthy distance. That is not our target, but to CONSTANTLY create a sustainable portfolio that never suffers a terrible year.

On the right of our web, you can click on Portfolio Model for an example or here for a direct link.

As we show on the chart above, we have beaten REAL inflation (we use double the official one) and the drawbacks have never been awful. For instance:

2016  8.2%
2017  9.3%
2018  -7%
2019  2.3% (until today)

The idea of this portfolio, as explained in our book, is based on Harry Browne’s permanent portfolio, but with a more realistic approach. As you can imagine, we are very happy with the results.

Seriously, mutual funds don’t beat the market

People believe in their financial advisors. Most of them say that the fund managers are better understanding the market conditions and they will play safe when necessary. All wrong. Why?

1. It is almost impossible to time the market.
2. The more they buy and sell, the more commissions we pay and the more we suffer from the  buy-sell spread.
3. On top of the above, we have to pay a high fee to the fund.

In case you have any doubt, check this link.

Again, as we have been saying lately, the easiest solution for a retail investor is the use of ETFs to have exposure to the stock or bond market.

Desire through...

René Girard is a brilliant French philosopher who developed the idea of mimetic desire. Basically, we borrow our desires from others. A desire for a certain object is created by the desire of another person for the same object. Therefore, we don't have a direct relationship with the object but a triangle: subject, object and mediator. In a twisted way, it is the model or mediator who is at the end sought (Deceit, Desire and the Novel -1961).
Humans make up many tricks to fool ourselves into thinking that we only desire the object in a simple manner. Mimetic rivalry is contiguous, so it leads to violence. At the end the object is forgotten or used as an excuse to fight our newly created enemies.
In Things Hidden Since the Foundation of the World (1978) he expanded the idea of the scapegoat mechanism. When rivalry threatens the existence of the community itself, a common solution is to project all the communal violence upon a single individual to restore the peace.
His interesting theories are finally starting to be considered in many circles from psychology to economics.
For more information you can click here.

This could be crazy, but...

... there is a lot of money to be made if we enter into a new recession in 1 or 2 years. By the way, this scenario is very likely.

If you have read simplynorisk.com during the last years, you know we don´t like bonds in general. However, there are some exceptions to this rule. For instance, we are experimenting with P2P lending or very specific perpetual bonds for certain moments of the market. In our public portfolio we don´t hold any bond with maturity longer than 2 years.

Imagine for a second that the FED and the ECB drop the interest rates to zero in the next year or years, what happens to a 10y bond? It goes up in price..., a lot. Some people don´t know how to manage bonds, and for these people a good idea could be to buy an ETF, such as BLV (US exposure, government and corporate) or IEGZ for the investor focused on Europe. There are many options, even with leverage (3x).

Just something to think about...

Gold, finally?

The chart above shows the gold price in USD. Lately, we have witnessed the last attack to the red line on the right. Too many, so this time could be the good one. First target could be the red line on the left.

However, if we are wrong and the price of gold just goes up momentarily and then goes down (window dressing), the fall could be huge and the bearish target could easily make a new minimum.

Smart ETFs

As explained in the previous post, in general, an ETF tracks a simple index such as S&P 500. But also they can include some algorithm trying to achieve better returns or to reduce the risk. Here we want to show you some interesting ones:

LRGF, iShares Edge MSCI Multifactor USA. From investorplace.com: the ETF screens for stocks that meet four of the biggest determinates for success. These include financially healthy firms, stocks that are inexpensive, smaller companies and trending stocks. Better known as quality, value, size and momentum. Expense ratio: 0.2%.

SPLV, Invesco S&P 500 Low Volatility. From investorplace.com: SPLV tracks an index of stocks that exhibit the lowest realized volatility over the past 12 months or the lowest magnitude of price fluctuations over time. By betting on the least-volatile stocks, investors are able to capture plenty of upside, while limiting the drawdowns. Expense ratio: 0.25%.

ALFA, AlphaClone Alternative Alpha. From etf.com: ALFA tracks an index that aims to deliver outperformance by mimicking hedge funds' positions in US equities. The index relies on lagged published holdings to determine long exposure. Expense ratio: 0.69%.

MNA, IQ Merger Arbitrage. From etfdb.com: this ETF offers exposure to a merger arbitrage strategy that has been popular among hedge funds and other sophisticated investors for decades. By seeking to capture the gap between the ultimate transaction price and current price levels for takeover targets, MNA is capable of delivering relatively stable returns that should exhibit low correlations to asset classes such as stocks and bonds. Expense ratio: 0.78%.

ETF explained

ETF or Exchange-Traded Fund is a very convenient tool to invest in stocks or other types of securities.

Imagine you want to invest in the American Nasdaq. You want to overweight the tech sector, but you don’t know exactly which are the best stocks. To do that you have 3 options basically:

- Buy a normal fund that invests in Nasdaq.

- Select a basket of shares from the Nasdaq based on size, behavior...

- Buy an ETF, like QQQ.

More or less it has been proven that you cannot systematically beat the market, therefore using a normal fund might not be a good idea because of the fees (1-2%). Selecting a basket of shares can be complicated if we don’t have enough money and we won’t be totally diversified. The best thing would be to buy the Nasdaq index as a whole and for that we use an ETF. For instance, QQQ tracks the Nasdaq and its annual fee is just 0.2%.

The process of buying an ETF is exactly the same as the one we use when buying shares. We just go to our broker, find the ticker, set the price and number of shares and that is all.

Extracto del nuevo libro...

Ya en proceso de edición, les presentamos un extracto de la Introducción del nuevo libro Pequeña Guía de Finanzas Novedosas para Familias Inteligentes. Avisaremos en breve cuando la edición esté completada.

“El Tao Te Ching, para muchos el mejor libro nunca escrito, fue supuestamente creado por Lao Tse en el s. VI A.C. en China. Es un compendio filosófico completamente innovador compuesto por 81 capítulos de perfecta aplicación práctica. Uno de los aspectos más curiosos para los occidentales se refiere al hecho de desvincular la acción del resultado, esto es, se obra de determinada forma correcta sin esperar el premio que conlleve la acción.

El presente libro utiliza este mismo principio y solo expone cuál ha de ser la mejor forma de gestionar las finanzas personales sin pretender atarse a ningún tipo de objetivo. Unas familias a duras penas sobrevivirán, otras tendrán la capacidad de crear un patrimonio para cuando se jubilen sus miembros activos, otras incluso estarán pensando en una jubilación tempranera..., cada una según sus capacidades, suerte o intención. Lo que sí es cierto es que a niveles similares de ingresos existen unas diferencias financieras más que notables entre unas personas y otras. Con este libro se intenta explicar las razones de esta disparidad y poner las soluciones para siempre ser el vecino o amigo que hace “las cosas bien” en materia de dinero.

Los que juegan a cartas entenderán este concepto perfectamente. La gran mayoría de los juegos de cartas combina azar y sapiencia. Se tiene que jugar con las cartas que se han recibido, no con las que se desearían en un mundo perfecto. A todo el mundo le gustaría ganar más con su mismo trabajo y en idénticas circunstancias, pero esto no es de lo que va este libro. Hay mucha literatura para mejorar profesionalmente, pera aquí solo se pretende tratar de optimizar la realidad que se vive en términos de ahorro y gasto.”

Liberty and Austrian economics

There is a clear relationship between Austrian economics and being libertarian politically. Here we have selected some webs so that YOU can decide for yourself:

• Mises Institute (mises.org)
• Foundation for Economic Education (fee.org)
• The Library of Economics and Freedom (econlib.org)
• Ayn Rand (aynrand.org)

Besides there are more and more papers finding a strong correlation between prosperity and economic freedom. Are we going in the right direction?

If you buy real estate abroad...

..., do your own research and not only online.

You might think it could be a good moment to buy a nice apartment in Istanbul, because of the terrible drop of the Turkish lira. You start surfing the web (in English), and you end up reading British pages with outrageous prices in pounds. However, if you physically travel to Istanbul and meet local realtors, you can find some great deals, even taking the typical overpayment for being a foreigner into account.

A similar situation happens in Asia, mainly in Thailand.

It is a great idea to buy real estate abroad, but we shouldn’t be lazy and visit the properties in advance and prepare the set up for the future management.

After the crisis, I was told to pay off my mortage

If governments want to pay the huge amount of debt they have incurred after the financial crisis, the most likely macro scenario I forecast is based on what it is called financial repression:

• Negative real interest rates (bond rates under inflation).
• Capital controls (difficult to move money abroad).
• Moderate to high inflation.

The idea behind this method is to shrink the debt in a couple of decades in real terms. It is not new. It has happened in the 70s.

But how do we protect ourselves if the above is correct? 

• First, obviously keep no bonds and the minimum cash for emergencies.
• Second, invest in assets that pay back like certain stocks or real estate to rent. You manage your own risks.
• And third and most important, use reasonable mortgage, the longer the better. Why? Because it is the only way normal people can jump to the other side of the shore and take advantage of what the government does to diminish its debt as we will have debt ourselves.

¿Son mejores las empresas que reparten dividendos?

Cuando un negocio tiene beneficio, este se puede repartir entre los accionistas en forma de dividendo, pero también se puede dejar dentro de la empresa para hacerla crecer. Las dos soluciones tienen lógica según el tipo de mercado y el momento en que opere esta empresa. Además, dependiendo de los países, pueden también existir matizaciones fiscales.

Esta es la teoría, pero como el inversor pequeño no tiene forma de dilucidar la solución óptima tiene que encontrar la que estadísticamente le sea más favorable. En este sentido hay infinidad de artículos académicos al respecto, con disparidad de opiniones. Como casi siempre en el ámbito financiero “el demonio se encuentra en los pequeños detalles”.

La Constitución de Estados Unidos se basa en el juego de contrapoderes, donde el Presidente puede vetar al Congreso y el Congreso al Presidente, por ejemplo. La idea detrás de este esquema es que el incremento de leyes y regulaciones resulta perjudicial para el país, por tanto, los vetos que impidan aprobar nuevas leyes son buenos. De la misma forma que el incentivo de los políticos es hacer el estado más grande (no el país), el incentivo de los directivos de las empresas es hacerlas crecer, en muchos casos por motivos bien discutibles. Si realmente una empresa tiene un proyecto nuevo, claro y rentable, no le resultará difícil buscar financiación para el mismo. Esta búsqueda servirá como filtro adicional para evitar ideas peregrinas.

El dividendo resulta un freno para el crecimiento de la empresa, lo que en muchos casos es positivo. La idea primordial de cualquier compañía es servir a la sociedad ofreciéndole algo valioso en contraprestación por un dinero que en parte debiera retornar a los accionistas de la compañía. En el caso ideal, una empresa se centra en lo que hace mejor, busca su tamaño perfecto adecuándose a su mercado y se convierte en un cajero automático para sus accionistas.

Comparando el comportamiento de acciones que consistentemente reparten dividendo con el mercado en general, se desprende que no hay una ventaja clara para ninguna de las 2 opciones. Según los períodos de tiempo elegidos se pueden sacar unas conclusiones u otras. En cualquier caso, sí parece que las acciones que reparten dividendo son menos volátiles (¿menos riesgo?), lo cual es lógico al filtrar en principio empresas que no ganan dinero.

Para estos estudios, en muchas ocasiones, se utilizan lo que se llaman los Aristócratas del Dividendo. El índice de bolsa americano S&P 500 creó en mayo del 2005 un subíndice con estos Aristócratas. Para poder pertenecer a este selecto grupo, las empresas tenían que haber incrementado su dividendo durante más de 25 años consecutivos y tener una gran capitalización bursátil. Ejemplos de empresas que pertenecen a este índice son: Coca-Cola, Colgate, Wal-Mart, Johnson & Johnson, Nucor, Chevron o AT&T. Hasta ahora los Aristócratas han dado una rentabilidad de casi un 3% más anualmente que el S&P con una volatilidad sustancialmente menor.

Sobre los beneficios, el porcentaje que se reparte como dividendo se llama ratio de distribución de dividendo o en inglés payout ratio. Una ratio de 90%, por ejemplo, implica que casi todos los beneficios se reparten cada año a los accionistas. En ocasiones se verán ratios superiores al 100% pero puede ser debido a ajustes contables o simplemente a estar usando deuda para pagar los dividendos. Obviamente, esto no es lo más sano en el tiempo.

Sin entrar en muchas más profundidades, hay dos conceptos que se han de separar: las acciones que pagan mucho dividendo y las acciones que hacen crecer el dividendo. Estas últimas son las que se encuentran en tendencia hoy en día.

Desde el punto de vista del inversor individual, lo que más interesa es valorar hasta qué punto el dividendo es sostenible en el tiempo. Muchas veces, operar con sentido común en sectores defensivos, esto es, los que en un momento de crisis siguen funcionando bien como la comida, la electricidad o la sanidad..., puede ser la mejor arma.