Baby Boomers (1946-1964) are now between 56 and 74 years old; at or near the end of their working careers. When it comes to saving and protecting their retirement nest egg, they have very little wiggle room!
What if we have a Great Depression type market crash? It took 25 years for the market to return to the all-time high.
Without the benefit of time, will Baby Boomers be able to recover? Some may have the luxury of government pensions, while others have saved; many through 401k type programs. Whatever wealth Boomers accumulated has to pay the bills for the duration. Don’t let any financial advisor pooh-poo your concerns by saying, “The market always comes back.” The question is, “Can you guarantee it will come back in MY lifetime?”
I found some Great Depression charts.
Recently John Williams told us the government statistics are bogus; unemployment and inflation are much higher than reported. Factoring real inflation into your retirement projections is a big challenge.
Chuck Butler focused on the worldwide debt levels, predicting corporate and government defaults, in turn causing the stock market to collapse, and perhaps a currency revaluation.
Pundit Bill Bonner predicts, “Stocks will rise (“a dead cat bounce”, the old timers call it) on the “bailout” news, and then give up another 50% of their value.”
The Great Depression website explains, “By 1933, 11,000 of the nation’s 25,000 banks had disappeared.”
Combine the market crash with bank failures and much of the nation’s wealth disappeared.
In 1933, the Federal Deposit Insurance Corporation (FDIC) was established to protect citizens against bank failures. For the last 87 years, Americans felt their money was safe. You could buy Certificates of Deposit (CD) or treasury bonds, earning enough interest to grow your wealth and stay ahead of inflation.
Today, FDIC insured CD’s and US Treasures are a cruel joke! They may be safe from default but gimme a break! While these numbers change regularly, even 30-year yields don’t come close to keeping up with inflation.
To make matters worse, John Williams also warns that Social Security will not keep up with real inflation either.
| No matter how you slice it, investors hoping to earn safe fixed income with a decent yield, or counting on Social Security to protect their buying power through their retirement years are currently screwed. |
So, what options are left?
The stock market is shaky, the bond market is not keeping up with inflation, and appears on the verge of collapse.
I contacted Tim Plaehn, a member of our panel of experts, and editor of The Dividend Hunter.
DENNIS: Tim, on behalf of our readers, thank you for making some time for our benefit. Things are pretty scary right now, particularly for Baby Boomers. We certainly can’t count on a quick recovery.
How is this impacting your Dividend Hunter portfolio?
TIM: Dennis, the unprecedented shut down of much of the U.S. economy put a lot of stress on the business operations of most of the high yield, dividend paying companies. Many companies made the decision to reduce or suspend dividends until they had a clearer picture of the how and when things will shake out.
In March we also experienced what I call a “liquidity event” when leveraged funds in the high yield space were forced to quickly liquidate holdings at any cost. Share prices crashed by as much as 90% from pre-crisis levels and several dozen funds went out of business.
On the flip side, the stock market crash produced some great investment opportunities in the different income sectors. Preferred stocks went from boring 5% to 6% yield investments to ones with 10% plus yields and 40% upside potential. I’ve created a whole new sub-portfolio of preferred stocks for my Dividend Hunter readers to take advantage of this opportunity.
DENNIS: Chuck Butler tells us:
“Cheap money encouraged corporate binge borrowing to astronomical levels. Instead of building plants, innovating and creating jobs, trillions of dollars went into dividends, stock buybacks and executive bonuses.”
I’m very concerned, particularly with the downturn, about their ability to pay off their big binge borrowing bonds (Pun intended). I fear many will take advantage of the current situation to cut dividends they might still afford to pay, so they can, amid much hoopla, raise them later and justify nice bonuses.
Are you seeing any evidence of that?
TIM: I have seen indications. I tell investors that each dividend cut is a unique situation. I have recommended selling some stocks after dividend suspensions. These are the companies where it looks like management took the crisis as an opportunity to permanently reduce payouts.
There are others I have recommended holding and buying more shares to average down. These are the companies where my analysis shows the dividends are likely to be restored.
It has become more apparent that stronger balance sheets matter. All companies, especially in the high yield sectors, need to use some level of debt. However, there is conservative use and aggressive use, and that matters.
One difference in the high yield world is that many companies operate under pass-through rules that require them to pay out 90% of net income as dividends. Some of the sectors covered by pass-through laws include REITs and BDCs.
To analyze these stocks, I focus on free cash flow generated, to make sure each company earns enough to support the current dividend, and hopefully, future dividend growth.
DENNIS: All of the aforementioned pundits feel investors must hold gold. They are very worried about inflation. Gold doesn’t pay dividends, and Boomers need income to survive. How are you advising your readers to hedge the inflation challenge?
TIM: Even though I am an income guy, I have been talking to my subscribers about precious metals investing. I think gold, silver, and platinum do make a great hedge against both inflation and disruption.
Right now, precious metals are doing well, and I think there is plenty of upside. The spot prices are not reflecting the actual supply and demand imbalances.
I do caution against paying too much of a premium for any type of precious metal investments. The mining stocks have had quite a run, and may have gotten ahead of the actual metals.
I recommend buying gold, silver and platinum at the lowest spreads to spot an investor can find. Personally, I am accumulating all three metals with regular monthly investments.
Another attractive way to invest in precious metals are through the royalty companies. These companies pay upfront to own a portion of the future production from gold mines. The royalty stocks pay dividends, and typically grow the dividends over time. A couple of these are Wheaton Precious Metals Corp (WPM) and Franco Nevada Corp (FNV).
DENNIS: One final question. Boomers need income to pay the bills and have few, if any safe options. I know you look for quality companies, paying good dividends, that do well in tough times.
Historically, many people, seeing their portfolio drop 90% like the Great Depression chart shows, eventually panic and sell. Baby Boomers don’t have that much time remaining on the clock.
What should investors do to hedge against the worst case?
TIM: Dennis, thanks for inviting me.
That exact scenario is why I focus on income producing investments. When stocks crash, the share prices may not (and often do not) reflect the ability of the investments to continue to pay dividends. Each investment must be individually analyzed to determine the ability to continue to pay investors.
Staying on top of the portfolio, knowing what is happening within each company, and paring the list down to the real keepers versus those that may continue to struggle, is my full-time job.
Once I have done that, then my job is to educate our readers to help deal with their emotions. Panic selling at the wrong time is a huge mistake.
I have long recommended building a diversified, high yield portfolio to fund a retirement income. Part of that strategy is to not spend all the income, but to reinvest a portion. That way, even with some dividend cuts, the cash keeps flowing to pay living expenses.
I also encourage readers to diversify into precious metals, cash and some fixed income so they don’t have all their eggs in one basket.
The good news is this crash has turned into a great buying opportunity to build up a portfolio of quality high yield stocks producing an excellent income stream. Quality dividend payers continue to pay, and I still see dividend increases.
Dennis here. Since the 2008 bailout, investors were FORCED into the market in order to survive. Many stocks thrived by growing with the rising tide. With the current world chaos, who knows whether the market will rise or collapse like it did in the Great Depression?
Good companies will survive and continue to provide income to their stockholders. Today, safe fixed income investments appear to be guaranteed losers when you factor inflation into the numbers.
I place great stock in investment newsletters that do real research; educating their readers so they can make intelligent decisions. Additionally, I prefer an editor who invests along with us; they have their own money in the game. Tim is committed.
I am very concerned for our generation and those that follow. The chart showing the 1929 crash, dead cat bounce, and then dropping another 86% is scary.
For more information, check out my website or follow me on FaceBook.
Until next time…
Dennis
“Economic independence is the foundation of the only sort of freedom worth a damn.” – H. L. Mencken
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Ha ha ha!. Dennis is so cute, pretending to believe in the U$ dollar as a store of wealth, and the FDIC as a real thing, and such. So funny. And the advice to the boomers…. precious. Really.
Get ready to see what you thought of as “your money” as a store of value go completely away faster than you could possibly have predicted. Get ready to have almost everything you “own” that has a dollar value become worthless, unsellable at any price, and not even fit for much on the barter market. Get ready for the politicians to be real, real sorry, whichever party you favor. Get ready to have to work, one way or another, with as much vigor as you can muster, up until very shortly before you die.
Get ready to stop whining. No one will care, most of all not your kids. A very few of you boomers will get the golf course style retirement, but damn few. Probably none who read this blog. We got away with it fr a good long while. We all wanted to believe in magic, and voted for people who whispered sweet lies. Oh well, time to pay.
Furthermore… the generation that is literally hording most of the wealth in the nation grasping onto it as if it will ward off their inevitable demise. Leaving a trail of cultural, social, and economic carnage in their wake the world has never witnessed. I’m really up nights worrying about how the most selfish and solipsistic generation in history will hold on to their wealth. There is no irony beyond these people.
Spot on!
Two words: Weimar Republic.
Go look up the wealth of the information on what happened to them to see where we and its all headed.
Buy a piece of dirt somewhere, get an RV. You will be better off than the millions who will be losing their homes. Big changes are a-coming. Remember if you cant hold on to that money and if it’s in a bank or on your computer screen it can just go away. The stock market is propped up and can come apart like a house of cards. Just go for a drive and look around at the empty stores and the light traffic. Most people don’t have much in savings either. The car businesses are getting crushed. Restaurants? I think its really sad.
Tl:Dr — “Invest in companies that will give you back a good return on your investment. I get paid for making investments for other people, and for talking a lot, so I talk a lot and I tell you that you should invest in good stuff that will make you money and then you keep paying me money to tell you how you can get ahead of everybody else whom I advise. But that’s okay because all of you will pay me for talking and giving you advice so no matter what happens to the economy, I’ll get paid for it.”
At the higher range of the Boomer scale I’m in the process of converting 95% of my remaining fiat and digital assets into hard assets, prepping, and self-sufficiency living.
No stocks for me, too old and too fond of sleep.
Gotta love this TBP site.
I knew the comment section would be full of jocularity and better ideas than the article!!!
Ahh pensions and defined benefits oh and 401K scam all a pot boiling over ! The mention of the security of government pensions is hilarious ! Secure as long as the private sector can be taxed off the cliff ! That is all those still hanging by a thread . Fact that private pensions have been deliberately bankrupted systematically leaving working Americans in the dust under the bus . Government pensions are a mostly so underfunded mess that those left with no pension and declining wages are going to be expected to bail out government pensions for people retiring with life left to live and the means to do it while private working Americans must now work till they literally drop .
In comes the 401K plans where the employee puts up 100% of the investment , assumes 100% of fees and loses but only receives 30% of any gains . Now who brought this retirement plan to the private sector working person : The Big Club Circle Jerk from Wall Street to K-Street to Capital Street all benefit on the backs of flash trades that rape all those little 401K and IRA working people in piss over land .
Civil unrest , riots , looting & burning and many government employees think the American people will support their retirement as the private sector gets taxed into the street ? Now you are looking at a probable revolt !