Bob Brinker on Portfolio Withdrawal Rate and the Dollar

This is an excerpt from David Korn’s May 3-4 weekly newsletter (Click for a FREE SAMPLE ) that comments on Bob Brinker’s Money Talk.

WITHDRAWAL RATE AND PURCHASING POWER OF THE DOLLAR

Caller: A caller wanted Bob's advice on what her rate of withdrawal should be in retirement. Bob said he favors using a 4% withdrawal rate from your portfolio during retirement. That is a conservative number which should allow you to make annual withdrawals but keep your portfolio in tact. For someone a little more aggressive, Bob said you could go up to 5%, but recognize that depending on the economy and stock market, you may lose purchasing power of your portfolio over time. Bob said he wouldn't go above 5% for a withdrawal rate.

Kirk's Comment: See What Is A Safe Withdrawal Rate in Retirement?

Caller: Our dollar has been getting killed. What can we do to improve its status around the world? Bob said one thing that would help the most would be if we had a bona fide energy policy which did not put us at the mercy of relying on oil production around the world. Throughout the weekend, Bob discussed the need for a more comprehensive plan for reducing our reliance on foreign oil and suggested our government needed serious action, something in the nature of the Manhatten project, but one for energy.

Brinker Comment: Another thing that would help the dollar would be fiscal responsibility and a balanced budget. If we had that, we would not need to sell our Treasuries to foreign governments. Those two things would be huge in providing positive momentum for the dollar. The last 15 years, under both Bush and Clinton, have been a disaster in terms of energy policy. Fiscal policy has been a disaster as well. Even with a Republican Congress and Republican President, the spending went unchecked and Bob said the new Democratic-controlled Congress doesn't seem to be any better.

Later in the broadcast, Bob said he has not seen anything from any of the Presidential candidates that would suggest they have a program to reduce the national debt. In terms of at least getting a balanced budget, Bob doesn't see that happening either as none of the Presidential candidates have offered any kind of plan to get there. Obama and Clinton have proposed many new programs, not the least of which is health care for everyone which under Clinton will cost $110 billion and which many think will be much higher.

DAVID KORN: The dollar is near a two-month high against a basket of major currencies, but still has been getting hammered over the longer term. Just try to go travel in Europe and you will how painful it is when you exchange your dollars for euros.

Get a FREE SAMPLE ( January 2008 Issue ) of Henry, David and Kirk's newsletter, "The Retirement Advisor."

Excerpts:

• Our strategy paid off in handsomely this year. Our Aggressive Growth and Income Model Portfolio 1 produced an annual return of 9.52% for 2007. This portfolio handily beat the S&P 500 by almost double, despite only having 50% of the portfolio invested in equities.
• Our Moderate Growth and Income Model Portfolio 2 produced an annual return of 8.58% for 2007. This portfolio also handily beat the S&P 500, despite only having 29% of the portfolio invested in equities.
• Our Conservative Capital Preservation Model Portfolio 3 produced an annual return of 8.32% for 2007. Like our other two portfolios, this portfolio also handily beat the S&P 500, despite having no investments in stocks.

See "The Retirement Advisor" Model Portfolio Performance through 3/31/08 for more information.

Bob Brinker on New iBond Rates

See I Bond Rates (iBonds) for current rates.

This is an excerpt from David Korn’s May 3-4 weekly newsletter (Click for a FREE SAMPLE ) that comments on Bob Brinker’s Money Talk.

Caller: This Caller wanted to know if Bob would recommend purchasing I-Bonds at this juncture given that the rate was reset on May 1st.

Bob said when they reset the rate on May 1st, they decided that the fixed rate, which lasts the life of the bond, will be ZERO. Yup, nada, zippo, zero. The inflation component will be at an annualized 4.84% over the next six months. Bob said he would not buy them now because he doesn't want to get stuck with a 0% fixed rate for the life of the bond.

DAVID KORN: I agree. Unless you think inflation is about to get out of control, I wouldn't go for the I-Bonds right now. The Series EE bonds, which pay a fixed rate, also got a haircut this week. EE bonds now pay just 1.4% a year down from 3.0% on bonds bought in the last six months. Our government seems to be trying to push some people out of savings bonds and into regular Treasuries.

Kirk Comment: We've done very, very well with TIPS in "The Retirement Advisor" model portfolios and we continue to like those at the current base rates. We update this each month. Here is an excerpt from our May 2008 Newsletter (Volume 2, Issue 5):

• 5, 10, 20 and 30-year TIPS currently pay a higher fixed (base) rate than I bonds so their total interest payments will be higher for any inflation adjustment. The base rate or “coupon” is set at the time of purchase but it changes with market demand just like Treasury bills, notes and bonds that have net asset value fluctuation. The principal amount is adjusted for inflation and paid at maturity. If there is deflation, then you get your original investment back For full details, see http://xrl.us/TIPSInfo
  
• The base rates for TIPS continue their recovery. All TIPS have significantly higher base rates now than I-Bonds. The “flight to quality” by fixed income investors seeking safe returns and fears of inflation after the FOMC cut rates has continued to benefit our TIPs fund, VIPSX, which was up 11.6% in 2007 and is up 3.1% YTD for 2008.
  
• We do not recommend the 30-yr TIPS and no auctions for them are scheduled.
  

Get a FREE SAMPLE (January 2008 Issue) of our NEW newsletter, "The Retirement Advisor."

Excerpts:

• Our strategy paid off in handsomely this year. Our Aggressive Growth and Income Model Portfolio 1 produced an annual return of 9.52% for 2007. This portfolio handily beat the S&P 500 by almost double, despite only having 50% of the portfolio invested in equities.
  
• Our Moderate Growth and Income Model Portfolio 2 produced an annual return of 8.58% for 2007. This portfolio also handily beat the S&P 500, despite only having 29% of the portfolio invested in equities.
  
• Our Conservative Capital Preservation Model Portfolio 3 produced an annual return of 8.32% for 2007. Like our other two portfolios, this portfolio also handily beat the S&P 500, despite having no investments in stocks.

See "The Retirement Advisor" Model Portfolio Performance through 3/31/08 for more information.

==> Very Best CD Rate with FDIC <==

Bob Brinker on Warren Buffett

This is an excerpt from David Korn’s May 3-4 weekly newsletter (Click for a FREE SAMPLE ) that comments on Bob Brinker’s Money Talk.

THE ORACLE OF OMAHA

Brinker Comment: Warren Buffett's company, Berkshire Hathaway, is holding is annual shareholders meeting. Buffett told his shareholders that the Fed did the right thing by stepping in for Bear Stearns because "just imagine the thousands of counterparties around the world having to undo contracts." Buffett said that the big investment banks are almost too big to manage their risk and you need someone whose "DNA is very, very much programmed against risk." Bob said he agreed totally with Buffett and the reality is that many of the big Wall Street firms don't have managers that are capable of handling risk and the recent write-downs of billions show just how much incompetence there is.

DAVID KORN: Buffett has also previously stated that he thinks we are in a recession and it won't be a short or swift one. At the annual meeting this weekend, Buffett said there will be a "lot of pain to come" for mortgage holders but that he does think that the worst of the global credit crunch is over.

EC: For more on Warren Buffett and his market views see the May 5, 2008 article

Warren Buffett Answers To Becky Quick's Questions

Get a FREE SAMPLE (January 2008 Issue) of David's NEW newsletter, "The Retirement Advisor."

Excerpts:

• Our strategy paid off in handsomely this year. Our Aggressive Growth and Income Model Portfolio 1 produced an annual return of 9.52% for 2007. This portfolio handily beat the S&P 500 by almost double, despite only having 50% of the portfolio invested in equities.
  
• Our Moderate Growth and Income Model Portfolio 2 produced an annual return of 8.58% for 2007. This portfolio also handily beat the S&P 500, despite only having 29% of the portfolio invested in equities.
  
• Our Conservative Capital Preservation Model Portfolio 3 produced an annual return of 8.32% for 2007. Like our other two portfolios, this portfolio also handily beat the S&P 500, despite having no investments in stocks.

See "The Retirement Advisor" Model Portfolio Performance through 3/31/08 for more information.

Richard Russell says Secular Bull Market Continues

Richard Russell says Secular Bull Market Continues

This is an excerpt from David Korn’s May 3-4 weekly newsletter (Click for a FREE SAMPLE ) that comments on Bob Brinker’s Money Talk.

Richard Russell, one of the most widely followed and perhaps the oldest newsletter writer and proponent of Dow Theory, has just published an article in Barron's magazine that is worth commenting on. In the article, Russell takes the position that the secular bull market that began in the 1980s is still in tact. He basis his reasoning on a few things. First, is the 50% Principle which can be traced back to Charles Dow (the originator of Dow Theory) and George Schaefer (one of the later Dow Theory interpreters) which says that the primary trend of the market remains intact and bullish if the Dow doesn't fall below a 50% retracement during the course of the pull back. Russell points out that the Dow reached a low of 759.13 in 1980, to a high of 11,722.98 in 2000. In its bear market low of October 9, 2002, the Dow managed to stay above the 50% retrenchment level. This positive technical development was confirmed in the most recent correction. Russell also points out that Dow Theory as applied this year (the action of the Dow transports and Dow industrials) further bolsters the view that the primary trend is bullish. And finally, Russell points out that short interest on the NYSE has reached a record 15.2 billion shares which will ultimately need to be covered. Russell concludes with his forecast that the U.S. economy will improve and the bull market will end with a surge of stocks surprising everyone along the way. You can read Richard Russell's article entitled, "A Rally With Serious Muscle" at this url:

http://tinyurl.com/4y6pln

One of the reasons for bringing up Russell in today's newsletter, is because I am of the opinion that Russell's view on the secular trend is one of the reasons that Bob Brinker changed his view that we were in a secular bear market. You may recall that last year, Bob abandoned his long held view that we were in a secular bear market and retroactively declared the end of it to 2006.
The implication that we are in a secular bull market is important because if you follow that belief than you should be expecting record all time new highs in the major indices BEFORE ANY BEAR MARKET ARRIVES. That would mean significant gains, even from these levels. Indeed, a record new high in the S&P 500 would mean a close above 1565.15 and a record high in the Dow would mean a close above 14,164.53. Those gains won't come quickly, or easily if history is a guide. The market doesn't move in a straight line as we all well know. But I thought you would find this information interesting as it certainly jives with the outlook of the market timer, Bob Brinker, whom many of you follow.

Get a FREE SAMPLE (January 2008 Issue) of David's NEW newsletter, "The Retirement Advisor."

Excerpts:

• Our strategy paid off in handsomely this year. Our Aggressive Growth and Income Model Portfolio 1 produced an annual return of 9.52% for 2007. This portfolio handily beat the S&P 500 by almost double, despite only having 50% of the portfolio invested in equities.
  
• Our Moderate Growth and Income Model Portfolio 2 produced an annual return of 8.58% for 2007. This portfolio also handily beat the S&P 500, despite only having 29% of the portfolio invested in equities.
  
• Our Conservative Capital Preservation Model Portfolio 3 produced an annual return of 8.32% for 2007. Like our other two portfolios, this portfolio also handily beat the S&P 500, despite having no investments in stocks.

See "The Retirement Advisor" Model Portfolio Performance through 3/31/08 for more information.

Bob Brinker Stock Market Outlook for 2008

This is an excerpt from David Korn’s May 3-4 weekly newsletter (Click for a FREE SAMPLE) that comments on Bob Brinker’s Money Talk.

Bob Brinker’s Stock Market Outlook

Caller: Given the problems with the huge national debt and foreign countries not wanting to purchase our stock, where do you think the stock market is going forward?

Bob said the stock market is not dependent on foreign purchases which are a negligible factor for stock prices. What's important for the U.S. stock market is corporate earnings and the U.S. economy going forward. People looking in the past and don't know why the market is going up. They don't understand why the S&P 500 is already above 1400 and the Dow above 13,000. The stock market is looking into an economic recovery later this year, and it is looking at rising corporate earnings going into 2009. That is what smart investors are looking at.

David Korn: Bob's response to this call shows his bullish outlook for stocks. The next caller is even more evidence of Bob's confidence of that view.

Caller: This 59-year old caller has a portfolio of over $800,000, and has adopted a very aggressive position in terms of her asset allocation with 99% in stocks. She practically apologized to Bob for taking that kind of risk.

Bob said she did not need to apologize for being a fully invested position because he thinks the people in cash look more foolish every day. The caller said she has only lost 4% this year to which Bob said when you look at the gains over the last 20 years, 4% is nothing. The caller said she agrees with Bob that the stock market is going to be positive going forward this year. They then had a virtual hug (as I imagined it anyhow).

The caller said she wanted to switch from the retirement plan she was with over to Vanguard.

Bob said to find out how long it takes to get the money transferred. Ideally, it could be done in one day, but if you find out it takes many weeks, the market could be at a different level by then and that is potentially a situation you won't like.

David Korn: The fact that Bob didn't even balk at the fact that this caller was pretty much 100% invested in stocks, even at her age, shows just how strong he feels that the stock market is moving higher. Bob's comments about getting the money transferred over to another fund also shows that he thinks the potential exists for the market to continue its rise even in the coming weeks. Of course, Bob isn't always right about the short term (or long term for that matter), so if the market corrects again a delay in the transfer could actually be beneficial. We have had quite a few summer-time "corrections" in recent years, so it certainly is not out of the range of possibilities. I think a lot depends on how fast and furious this rally is.

Get a FREE SAMPLE ( January 2008 Issue ) of Henry, David and Kirk's newsletter, "The Retirement Advisor."

Excerpts:

• Our strategy paid off in handsomely this year. Our Aggressive Growth and Income Model Portfolio 1 produced an annual return of 9.52% for 2007. This portfolio handily beat the S&P 500 by almost double, despite only having 50% of the portfolio invested in equities.
• Our Moderate Growth and Income Model Portfolio 2 produced an annual return of 8.58% for 2007. This portfolio also handily beat the S&P 500, despite only having 29% of the portfolio invested in equities.
• Our Conservative Capital Preservation Model Portfolio 3 produced an annual return of 8.32% for 2007. Like our other two portfolios, this portfolio also handily beat the S&P 500, despite having no investments in stocks.

See "The Retirement Advisor" Model Portfolio Performance through 3/31/08 for more information.