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‘Seventy-two percent of people say their overall investment knowledge is ‘weak.’
Similarly, 89% say their current investment approach is on track to provide them
with a steady income in retirement,” according to the Natixis Asset Management
2013 Global Investment Survey.
“Well, I think we tried very hard not to
be overconfident, because when you get overconfident, that’s when something
snaps up and bites you,” Neil Armstrong said.
The recent Natixis survey
showed growing investor confidence in the future and a sentiment that their
financial situation has shown improvement over the last year. It also showed
that while investors were honest in their lack of knowledge, they may well be
fooling themselves regarding their retirement prospects. While they acknowledge
that they have little investment knowledge, they maintain that their current
investing methods will be more than enough to provide the income needed for
Why this disconnect? If I had to hazard a guess, I’d blame
the mainstream financial media. The incessant call for investors to manage their
own money – and then follow a few basic steps to ensure financial success – has
left investors realizing they know little but have confidence that they will be
fine in the long run.
Unfortunately there is a lot more involved in
retirement planning than buying a few stocks and holding them
Investors need to understand that what may be appropriate for
their neighbor has no relevance to them. Just ask someone currently trying to
navigate their retirement. In today’s near-zero interest-rate environment,
retirees have been scrambling to find ways to generate income. If it was just
about buying and holding some stocks, retirees wouldn’t be so
stressed.How to plan?
To figure out how much money you will need for
retirement, you need to understand your current expenses. Sit with a pen and
paper and start figuring out how much money you spend each month, as well as
annual, one-time expenses. Once you have a handle on how much money you need to
live off of each month, you can get a good estimate of how much money you will
need to retire. The general rule in financial-planning circles is that you need
80% of your current income to meet your expenses at retirement.
readers of my column already know, I am skeptical of this “general rule.” From
my experience with clients, expenses actually increase during retirement.
Retirees tend to travel, eat out at restaurants and spend on leisure at much
higher rates than when they were working. This means you should shoot for
retirement income similar to or even a bit higher than what you were making
Enhanced income International stocks?
For many investors
just the words “international stocks” raise a red flag. After all, many
investors tend to have a “home bias” when it comes to investing, meaning that
they want to invest in things they are familiar with. Not many investors, let
alone retirees, are in the know about semiconductor companies in Taiwan or
utilities in Peru.
Why go global? Because that’s where the economic
growth is. While the US muddles around with virtually no growth, there are
places in the world that are growing at a decent clip. According to the
Conference Board’s global economic outlook, it appears that either next year or
by 2015 the predicted share of global GDP attributable to advanced economies
will dip below 50% for the first time, compared with 64% in 1996 and 54% in
According to most economic forecasts the future is in Asia and
Brazil, not France and Spain.More income
According to an article from
the MarketWatch website: “In 2008, dividends paid out by companies in emerging
markets were less than half of those distributed by US firms and around a third
of what European corporations doled out.
Midway through 2011 the dividend
stream looked markedly different, with Asian firms’ dividend disbursements
rising to $175 billion, compared to about $254 billion from the US and $361
billion from Europe, according to figures from WisdomTree and Standard &
Poor’s. In the 12 months through May 31, dividends paid by emerging market firms
rose 54.6% from the previous year, compared to a 26.4% increase among European
companies and 12.6% in the US.”
This trend has continued into 2013 as
A great example of this is the WisdomTree International SmallCap
Dividend Fund. It sports a dividend of around 4.5%. Compare that to the iShares
S&P SmallCap 600 Fund, with a 1.3% dividend yield. This comparison holds
true consistently as US companies pay far lower dividends than their
Speak to your financial adviser to see if you
can enhance retirement income by incorporating foreign stocks into your
The information contained in this article reflects the opinion
of the author and not necessarily the opinion of Portfolio Resources Group, Inc.
or its affiliates.
firstname.lastname@example.org Aaron Katsman is a
licensed financial adviser in Israel and the United States who helps people with
US investment accounts.
He is the author of the book Retirement GPS: How
to Navigate Your Way to A Secure Financial Future with Global Investing.