RIDIN THE STORM OUT

    Reo Speedwagon recorded this song in 1981 and the tune is still bouncing around in my head. With the volatility that we've seen lately in the stock market, many investors are wondering where they can hide to ride out the coming storms in financial markets. The answer is that it depends on many things like: your age, your risk tolerance, where your money is located ie. IRA, 401K, your tax situation, and so on. If you are 20 years away from retirement and are still building up your retirement account in an IRA or other retirement account, you should do almost nothing. Think of the increased volatility as a chance to buy good stocks a little cheaper. I doubt that the current economic climate will affect your portfolio 20+ years from now. If you're closer to retirement, like 5 years or so, then you should be thinking of derisking your portfolio by adding safe income producing assets like Cd's to the mix. I still don't like bonds because the increasing interest rate environment will create a capital loss if a sale is necessary. Most retirement plans within 401K's have a fixed income option, it doesn't pay much but it does provide safety during market downturns. Given the current level of interest rates paid to investors for fixed income products, dividend-paying stocks with reasonable valuations are still the best choice for most investors. A dividend yield of 4-6% is available on some blue chip companies in the utility sector, communications sector and some mature tech names. For those who are already retired, income often trumps growth as an investment objective. Building a laddered CD portfolio that is FDIC insured can create income and provide peace of mind. As rates increase, maturing CD's are reinvested at higher rates. I have just completed my taxes for 2017 and am reminded what a pain the K1 tax reporting for MLP's can be. Even tax software doesn't handle this task very well. After over 10 years of doing this, I still feel incompetent. That being said, MLP's provide excellent income, sometime tax-free, and are an excellent estate planning tool. I won't go into details here but most brokers can explain how they work. Another option is REITS this stands for RealEstate Investment Trusts. They are stocks that hold realestate assets that produce income. The income is then distributed to investors at a rate established by statute. Exposure to both REITS and MLPs can be achieved through ETF's and mutual funds. Finally, market volatility gives investors a chance to buy some stocks that are currently being taken to the woodshed.and whooped like Facebook is currently. I have recently placed a limit order for FB that is much lower than the current price. I believe that a P/E ratio of 17x is reasonable for the stock after the breach of trust and the mismanagement of the scandal. The limit price is easily calculated by using the methods described in my post from 11/19/2016 "More on the P/E ratio".

Change The World

     In past posts,I have described how investing is highly individualized. Every investor has unique needs that can be met by using a targeted approach with their asset allocation. There is also a way to achieve your investment goals while supporting your environmental, social and governance (ESG) agenda. I personally feel that tobacco is one of the most damaging products openly sold to American citizens. Tobacco related illnesses cost all tax payers millions of dollars each year not to mention the people who die from smoking every year. My solution to the problem of big tobacco companies who knowingly sell death is to avoid buying their stocks. I could have profited handsomely over the past 40 years by holding Phillip Morris but I decided to stick to my convictions by investing elsewhere. I also include producers of alcoholic beverages in my list of sin stocks to avoid. I realize that I look like a hypocrite because I enjoy my cocktails and an occasional cigar as much as anybody but I refuse to profit from the sale of these products. Recently, the worlds largest asset manager, Blockrock, has taken steps to address the problem of gun violence after the slaughter of 17 kids in Parkland Florida. Blackrock holds a significant stake in several major gun makers. With already distressed stock prices, the gun makers cannot afford to ignore such a major stock holder. Other asset managers have also joined the effort to reform the gun industry by threatening to divest their holdings unless action is taken to reduce violence. Unlike my puny effort to reform big tobacco, I'm sure that the large asset managers have the attention of the gun industry. How can the individual small investor aid in the effort to improve society? Pay attention to the holdings in your mutual funds and ETF's. Most financial sites post a list of the top 10 holdings of each fund. If you see any stocks that produce products that you find offensive, then don't buy. It can take a lot of time and trouble to research your retirement accounts and other investments but there is an easier way. Most large asset managers now offer some socially responsible investments (SRI) for clients. The long term performance is pretty good also; the MSCI KLD index for socially responsible investing has returned 10.46% per year vrs 9.93% for the S&P500 index since 1990. Money talks so when large asset managers and pension fund managers hear from participants that they care about (ESG) investing, then we can change the world.