Alternative Investments

What are alternative investments?

Alternative investments are assets you purchase for investment purposes that do not fall into the most common investment categories you think of, like stocks or bonds.

There are many different types of alternative investments, some you may never think of, but overall they are tend to be held long term and are attractive in that they tend not to be correlated to world or domestic financial markts.

Some alternative investment types are:

  • Real Estate Investment Trusts or REITs
  • MLPs – Master limited partnerships usually in oil and gas.
  • Insurance Linked Securities – like life settlement investments
  • Timber Land
  • Art
  • Wine
  • Beanie Babies?

The main draw for institutional and accredited investors is the low correlation to financial markets. That means the returns investors expect on their alternatives are not very dependent on things like GDP, company earnings and market sentiment.

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Exchanging Your Life Insurance to boost retirement savings

With the knowledge that as many as 9/10 permanent life insurance policies never end up with the death benefit being paid, in retirement every person should re-evaluate their insurance needs. Aside from canceling the life insurance policy to save on premium expenses there are additional options available from companies like Sable Life who offer a Life Insurance Policy Exchange option as a reasonable alternative. Policy owners can exchange their life insurance for a cash lump sum, a retained benefit or convert the value of their policies into an annuity providing lifetime additional income.

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Demographic Trends Indicate Investing in the United States Stock Market is a Bad Idea

An investment in the Japanese stock market has been a losing proposition since 1989. Slowly but surely the Nikkei has fallen over time. The problem with Japan is the lack of growth in earners/spenders in their economy. Here is a breakdown of the number in billions of residents in three separate age groups in 1990, 2000 and 2010

JapanAge # people
199015-2927
30-4427
45-5925
200015-2925
30-4424
45-5928
201015-2920
30-4426
45-5924

We can see that across all three age groups, 15-29 (young earners), 30-44 (middle income earners), and 45-59 (peak income earners), there is relatively the same amount of residents.  If we look out ten and twenty years, in order for an economy to be robust, there has to be many more people in each of the bottom two tiers than the top tier.  The reason for this is as folks move from one tier to the next, they earn and spend more.  Over time, if each tier group is simply being replaced with the same number of people, the economy stagnates.

Let’s take a look at the same age brackets in the United States starting in 1980.

United StatesAge # people
198015-2962
30-4443
45-5934
199015-2958
30-4460
45-5935
200015-2960
30-4465
45-5951
201015-2965
30-4461
45-5965

Notice in 1980 the United States had 62 Billion in the first tier, 43 in the second tier and 35 in the third tier.  This demographic profile is conducive to growth.  As the 62 Billion people moved up the age tiers, they earned/spent more, and the economy grew because they were replacing only 43 Billion people in the next tier.  In 1990, the situation was still good, with 58, 60, and 35 Billion respectively in the three age tiers.  There were 60 Billion people replacing 35 Billion in the next age tier.  So, many more people were moving from the middle tier to the top earning/spending tier, which again, was good for growth. The 1980s and 1990s were boom years in the stock market, and this was all due to a positive setup in demographics.

But then it all changed in 2000.  The population was aging and although there were more people in the middle tier than the third tier, it wasn’t enough to help the economy on its upward trajectory.  If we look at the United States demographic profile of these three tiers in 2010, it is exactly like Japan’s has been since 1990 with all three tiers relatively equal.

What this means is, the United States stock market will likely see stagnation with many boom and bust cycles for decades to come until the demographic trends shift.  We have already seen a gyration in the stock market since 2000 where it has not provided any growth.

So where can you invest in order to make money over the long term?  Here is the same information for 8  countries that have ETFs/mutual funds available for investment.


RussiaGermanyChinaBrazilVietnamS. AfricaMexicoTurkeyAGE15-293214327512616302130-44301733344209241745-593218259311361512

As we can see, Russia is in the same exact demographic situation as Japan and the United States.  Germany is in for a disastrous situation.  Therefore, stay away from investing in Germany and Russia.  China looks okay.  The rest of the countries on this list look fabulous.  The conclusion is it might be a good idea to begin overweighting  investments in countries that have positive demographic trends for economic growth.

Note: All information was taken from U.S. Census Bureau and was rounded.

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Saratoga Handicapping Tips

For horse players, the Saratoga meet marks the beginning of the real racing season.  The Saratoga meet features the best horses in the country competing at a venue that is turning 150 years old next year.  Here is a little known fact.  The term upset is used to describe a shocking win where a big underdog beats a favorite.   This term stemmed from a horse named Upset beating who is considered to be the greatest thoroughbred ever, Man O’ War.  Man O’ War was 20 for 21 lifetime, and the only loss was to Upset.

Here are an experts tips for betting Saratoga:

1. Speed on the dirt dominates the meet.  There are very few horses that win from far back on the dirt, and most horses that go to the lead on turf make it into the trifecta.  In the first two racing days last year, 17 out of 21 horses that went to the lead were in the trifecta.

2. Horses that ran in Kentucky their last race perform terribly.

3. Most shippers from all other East coast tracks are only good enough to win cheaper claiming races.  If a horse is shipping in from Monmouth, Parx or other East coast tracks, they are not good enough to win an alowance or stakes race.  This is assuming they have run more than one race at those tracks.

4. If a horse is in the 1, 2, or 3 gate on the turf and does not have the speed to be first or second down the backside, the horse will usually get blocked on the far turn and lose all chance of winning.

5. If a horse is coming off a layoff of more than 60 days, he has very little chance of winning.

6.  Long shots rarely win on the dirt.  Long shots occasionally win on turf, but that is due to favorites running into traffic on the far turn.

7.  David Cohen is an excellent long shot speed rider.  If he is on a speed horse, he is a solid bet.

Enjoy the best horse racing meet of the year!

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Cadillac CTS-V When Dreams Come True

Yesterday I participated in the Cadillac Experience at Monticello Motor Club.  This was an event put on by Cadillac to show how awesome the new CTS-V is.  Historically, the thought of a Cadillac conjures up memories of huge, boat-like vehicles that were comfortable and rode beautifully, but were not exciting or fun to drive.   In recent years, Cadillac has tried to change that image.  Cadillac wants their cars to be seen as high performance vehicles that are also comfortable, everyday drivers, so they offered the Cadillac experience.

The day began with registration, lunch and then 30 minutes of class time to discuss the car and proper driving techniques.  The Cadillac CTS-V is a beast of a machine with a 556 Horsepower engine that delivers 551 lb.-ft. of torque.  It is the fastest production sedan in the world and has a 0-60 time of 3.9 seconds.   Needless to say, trips to the grocery store in this machine would be more exciting than in your typical everyday driver.

Our first experience on the track was sitting shotgun as an instructor drove us around the course.  The entire Cadillac experience was driven on the South Course of Monticello Motor Club, which is a 1.6 mile course with 12 turns.  To feel the power and handling of the Cadillac CTS-V as it whipped around the course nearly knocked my socks off – and this was while merely riding shotgun.

The second part of the Cadillac Experience involved the participants driving the cars to test handling and braking.  As I sat in the vehicle, I felt like the seat was hugging me.  It was plush yet supportive.  The steering wheel gave me the feeling of being in a sports car.  The interior was classy, yet modern.  I was already impressed.  As I stepped on the gas, the engine roared like a fire-breathing dragon, yet it was muted beautifully by the vehicle’s impressive sound diminishing technology.

The first stop was at the accelerating and braking area.  As I arrived at the start cones, the instructor said, “FLOOR IT”.  We got up to 60 m.p.h in the blink of an eye, then the instructor said, “Firm brake”.  The car came to a halt as if a parachute flew out of the back of it, yet there was no skidding.  The next part was a drive around a hairpin turn.  This is when I became ultra impressed with this vehicle.  Even though this vehicle is heavy, it cornered impressively, with almost no body lean.

Next was the slalom course, where I was instructed to go as fast as I could while going through 4 sets of cones.  So I floored it.  I made it through the first three sets of cones but was going too fast to recover and make it through the fourth cone.  The instructor told me how valuable a lesson this was.  It wasn’t about flooring it, it was about figuring out how fast I could go to make it through the cones.

The third stop was the passing portion.  Cones were set up to simulate passing a vehicle.  The purpose of this portion of the course was to test handling, acceleration, and braking.  I stopped at the cones.  The instructor said, “floor it”.  So I whipped around the cones, flew into the braking area, and stomped on the brakes.  The massive brembo brakes brought the car to a quick stop, again with no skidding.   We performed these exercises 5 more times to get a feel for the car.

Then we went back to the classroom for more instruction.  The next portion of the Cadillac Experience involved driving the course behind an instructor in order to view the proper lines to take around the course.  It was difficult to keep up with the instructor the first couple times because I couldn’t seem to harness the power of the car coming out of the turns without creating under-steer.  But the third time, I was able to keep my car behind the instructor as if we were connected by a steel rod.  This provides a testament to how easy the Cadillac is to drive.  The steering is not too stiff, and not too loose.  It is just right, and the car is superbly responsive.  The most amazing thing about this vehicle is the lack of body roll as it zooms through the turns, considering it is over 3800 pounds.

The third portion of the Cadillac Experience allowed us to drive the car around the course on our own.  I had only driven the car a few times, yet already felt like it fit me like a glove.  The final part of the Cadillac Experience was a “hot lap” sitting shotgun as the instructor showed us the true abilities of the car, and how fast a professional driver could make it around the 1.6 mile course.  My heart was in my throat.  I could not believe how fast we were going and at many points thought to myself, “there is no way we are are going to make it around this turn at this speed.  Yet, the Cadillac CTS-V handled it like it was a walk in the park.

I have always owned foreign cars, and have driven a BMW 650i and the BMW B7 Alpina.  In fact, I have said that I would never buy an American car.   Participating in the Cadillac Experience, and driving this world class car, has completely flipped my belief system on its  head.  As of the day before the Cadillac Experience, I coveted the aforementioned BMW’s.   I now covet the Cadillac CTS-V.

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A Rock Solid Mutual Fund

When choosing funds to diversify their invesment portfolios,  most people simply consider the various forms of stock and bond mutual funds.  They assume that having x% in large cap, small cap, and international and x% in bond funds makes their investment portfolio diversified.  The problem with this thinking is the near 30 year bond bull market is nearing its end.  When interest rates rise, bond funds will perform terribly.  Also, when interest rates rise substantially, the stock market will also perform poorly because higher rates = higher borrowing costs for companies = lower earnings.  Considering interest rates are near 0, and Ben Bernanke is a believer in the Taylor rule, when rates rise, they will rise quickly.

In order to squeeze out more performance in our portfolios when interest rates begin to rise, it will be necessary to thing outside of the box.  One mutual fund to consider is the Permanent Portfolio (PRPFX).   This fund consists of 20% gold, 5% silver, 10% Swiss Franc assets, 30% stocks, and 35% dollar assets.   It is considered a conservative allocation fund and has performed admirably over the last 10 years.  Here is a link to the semi-annual report if you want to view the holdings and other information about the fund.

The fund is not designed to have huge returns, and investors should not expect the fund to return 10% per year, as it has over the last ten years.  It is designed to be a conservative place to put your money.  Average annual returns are

1 yr: -1.92%

3 yr:  11.52%

5 yr: 7.72%

10 yr: 10.44%.

Very recent performance has been poor, mainly due to the price of gold and silver collapsing over the last year.  However, a very attractive characteristic of this fund is it has only been down one out of the last 12 calendar years.  In 2008 it was down 8.36%.  But, almost all mutual funds were down that year due to the financial crisis.  If you are looking for a conservative mutual fund that is diversified among several asset classes, the Permanent Portfolio should be high on your list.

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How To Find Value Stocks Using Finviz

As the old saying goes, there are many different ways to skin a cat.  Ask 20 people how they go about finding value stocks and you will get 20 different answers.  Today, I will share with you how I go about finding value stocks.  I don’t think this is the best time to buy stocks.  Although I believe we will be seeing a rally in the markets over the next few weeks, I believe the DJIA is going to go below 12k in the summer, and head towards 11k, which will be the time when I buy stocks.

The criteria I use to screen for value stocks yields 17 stocks at this time.  If the market falls to the levels I expect, this screen will yield many more stocks.  I use Finviz.com for my stock screens.  I love Finviz because it allows me to screen using both technical and fundamental analysis.

When you go to Finviz.com look at the top and click on screener.  There are 4 tabs below that allow you to choose criteria for your screen (Descriptive, Fundamental, Technical, and All).  I will go tab by tab for this screen to make it easier to read.  If you don’t know what a certain criteria means, simply mouse over it and a bubble will pop up and give you a basic definition.  I use five criteria to find value stocks.

First, I want a company that has average trading volume above 200k (under the Descriptive tab).  My reasoning is, if a stock trades under this level, the company doesn’t have much of a following, therefore, it is too risky for me.  If I wanted my screen to yield only companies that are very well known, I would limit my stock screen to companies that trade over 1 million shares per day.  The problem with limiting my screen to greater than 1 million shares per day is I will miss out on smaller companies.

Criteria number two I use is a positive payout ratio.  This means that the company pays a percentage of its earnings out to investors in the form of a dividend.   Dividend paying stocks are generally less volatile than non dividend paying stocks, and when I look for a value stock, I want to find less volatile stocks.  Click on the Fundamental tab for the payout ratio.

Criteria three is PEG ratio (Fundamental tab).  PEG stands for Price to earnings to growth ratio.  I could write an entire blog post explaining PEG ratio, but for the purpose of this article I will only note that the industry standard for a reasonable PEG ratio is under 1.  If a stock is trading at a PEG ratio of over 1, it has extremely high expectations, and any misstep by the company in meeting or beating earnings expectations could lead to a stock crash.

Criteria 4 is Beta (Technical Tab).  Beta is a measure of a stock’s price volatility.  A beta of one indicates the stock is as volatile as a benchmark index, such as the S&P 500.  We want a stock with a beta of under 1 because we don’t want to invest in highly volatile stocks.  Sure, the high volatility stocks are the ones that are sexy, and can double in a year.  But 99% of the time, those stocks are bad long term investments.  In a recent post I showed a study that low volatility stocks outperform high volatility stocks.

Criteria 5 I use is 200 day simple moving average.  Again, rather than confusing you with the definition of this criterion, I will simply say that stocks above their 200 day moving average are in some sort of uptrend.  I want to see some sort of positive movement in a stock price before I invest in it.  There is an old saying in the stock market “Never try to catch a falling knife”.  If a stock is not in some sort of uptrend, it is a falling knife.

The result of the screen using the above mentioned 5 criteria is the following 17 stocks.

As I look through this list I only recognize 5 company names. I only invest in companies that I am familiar with.   Wellpoint, Toyota, Advance Auto Parts, Kohls, and Bank of New York Mellon are the ones that I recognize.  When the market gets to a level that I am comfortable with, I will likely buy one or more of these five stocks.

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My Top 5 Pet Peeves

We all know what a pet peeve is, but apparently no one knows where the term came from.  Searching through the Internet yields no concrete answer.  The past week has been a very annoying week for some reason.  Usually things don’t bother me, but I have had a lot of stuff happen this past week that has set me off a bit.  Here are 5 pet peeves that I experienced this past week.

1. If you don’t know the answer, don’t try to come up with one out of thin air.  If I ask a question, it’s because I want to know the answer,  not an assumption.  I am intelligent enough to guess what the answer may be.  If you are trying to impress me with your “knowledge”, you aren’t.  You are simply aggravating me because you are wasting my time.

2. Wash your freakin hands after you go to the bathroom sir!  CAN YOU PEE INSIDE THE FREAKIN URINAL SIR, SO THAT OTHER PEOPLE USING THAT URINAL AFTER YOU DON’T HAVE TO STAND IN YOUR PUDDLE OF URINE?  I hate using public restrooms.  I am not a germophobe, but the bathroom is a disgusting place.  I don’t touch the door handle with my hand.  I do not flush the toilet with my hand either, FOR OBVIOUS REASONS (you should see me flushing the urinal with my foot – yes, I am pretty flexible!).  But what really annoys me is seeing someone at the gym not washing his hands.  Is it really that hard?  I guess it is so hard that everyone who uses a machine after you has to share in your filth.  THANKS PAL!

3. If you put a list on the Internet,  don’t make it a list of pictures that I have to click through one by one in order to set the whole list.  Listen here,  website programmer, your list is not captivating enough for me to sit through clicking for ten minutes just to find out what you think are the top 20 franchises to buy.   There are 100 other sites that have the same information.  You just lost me as a reader!

4. Parents with small children – FAST FOOD PLACES ARE FOR CHILDREN, sit down restaurants are for adults.  Please find a babysitter if you want to go to dinner at a restaurant.  If I am paying $100 for a meal for two, I don’t want to listen to your child throw a tantrum because he is tired, sick, hungry, not hungry, or just a plain ole pain in the ass.  I have an 8 year old.   I wouldn’t think of bringing him to a restaurant if I thought he would cause a scene.  Please, please, if you are going to a restaurant, don’t torture me by bringing your whining kid.

5.  HEY PEOPLE, I realize that this gas station has gas that is 3 cents per gallon lower than the one down the street, but do you have to wait in line and block the damn road just to save 3 cents per gallon?  I was driving down the street and people were backed up waiting for gas at a gas station that had gas at $3.79.  Down the street the gas was $3.82 and there wasn’t one car at this station.  HEY GENIUSES, DO SOME MATH.  15 gallons times 3 cents saves you 45 cents.   The strange thing is, if I threw 9 nickels on the ground in a parking lot, most people wouldn’t pick it up because they feel that they are “above” picking change up off the ground.  Yet, they will wait 15 minutes idling in their car to save 45 cents.

Okay, I feel better now.  Back to finances tomorrow.  Thank you blogging world for providing me an outlet for my frustration!

Do you have any pet peeves that you would like to share?

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Gas Prices: The New Reality

This chart fascinates me.  Between 1987 and 2005, The demand of Oil in the U.S., Western Europe and Japan was on an upward slope.  In the last few years the demand for oil has been declining.  In fact, the demand for oil in these three countries has declined so much in the last few years, that it is lower than it was in 1996.

The demand in the rest of the world has skyrocketed.  If you want to read the story that Ed Yardeni did regarding this chart, click here.    Next I will show you a chart of the price of gasoline since 1990.

This data comes directly from The U.S. Energy Information Administration.  From 1990 to 1999 our gas price stayed in a range of roughly $1.00 to $1.50.  On a side note, remember when gas was below $1?  It was actually below 90 cents per gallon on average in February of 1999.  So what caused this rise in the price of gasoline?  One reason is the falling dollar.   Remember, oil is only traded in dollars.  Iran is trying to trade oil in something other than dollars because of the sanctions, but we shall see how far they get.  Here is a chart of the dollar.

If you put the huge increasing in demand together with the falling dollar, it makes sense why the price of gasoline has skyrocketed.  So the answer is simple, right?  Increase the value of the dollar and the price of gasoline will come down.  On the face of it, that is the easiest way to do it.  The problem is, the only way to get the value of the dollar to rise is by raising interest rates.  We all know Bernanke can’t do this because we will fall back into the Great Recession.  The economy has stabilized, but in no way can it grow on its own without the massive amount of stimulus being provided by the Fed.  The reality of it is we simply have to get used to gas prices peaking out around $4 and dropping back down towards $3.25.  That is the new normal.  Fortunately, gas prices tend to peak in May and slide for a few months as shown in the chart below, so our pain at the pump is going to be at a maximum very shortly.

What are your thoughts? Is the government responsible for bringing gas prices down?

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Half Price Gift Certificates

Eating out should be avoided on your trip down The Short Road To Retirement unless you can get an outstanding deal.  Type in half price gift certificates plus your city and state in Google and you will get many results.  Restaurant.com will be the first, but other ones will come up too.  Your local radio station website is very likely to have discounts and half price deals.  In New Hampshire and Massachusetts, all the radio stations offer half price certificates.  Check your local radio station website and eat for half price as you mosey on down The Short Road To Retirement.

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