A one-time $7,500 contribution at birth could potentially change everything for a future retiree.

Many Americans havent saved enough for retirement, and end up relying on Social Security to fund their old age. For some, Social Security makes up 90% of their retirement income. For others, it could be about 50%. This federal program, which doles out an average monthly benefit of about $1,500, was never meant to be the sole source of retirement income for older Americans. One recent proposal aims to change that.

As part of his work with the Stanford Center on Longevity, Ric Edelman, chairman and co-founder of Edelman Financial Engines, proposed a new vehicle to generate an additional source of retirement income. This account, just like Social Security, would be untouchable, Edelman said.

See: Everyone should be worried about Social Security and 401(k) plans including the presidential candidates

The program, called the T.R.U.S.T. Fund for America (short for Tomorrows Retirement for the U.S. Today), looks like this: when born, every baby receives $7,500 in an account managed by an independent agency of the federal government. The money is placed in a new type of EE Savings Bond, called the T.R.U.S.T. EE Bond, which would be issued by the Treasury Department. The total amount of bonds issued would be about $29 billion a year, assuming about 4 million babies are born, and would be self-funding, he said.

At age 70, the account would begin generating monthly income to be, on average, equivalent to Social Security benefits. The benefit is meant to supplement Social Security.

The money would last them until their 100th birthday, well past the 80-plus-year life expectancy for Americans.

If someone were to die before turning 100, the leftover funds in that account would be returned to the Treasury Department to be distributed to those who live to be older than 100.

Americans need as many sources of retirement income as they can get. The trust funds that support Social Security are expected to run out of money within the next 15 years, and if that happens, beneficiaries would only receive 80% of what theyre owed. At the same time, many Americans do not save enough for their futures sometimes because they cant afford to do so, and other times because they dont have access to efficient accounts. Even when workers do have a nest egg, they may have to tap those accounts for emergency situations, or other financial obligations, like paying down debt or buying a home. Private-sector pensions are increasingly rare, and more companies have shifted to a defined-contribution plans, like a 401(k).

Also see: The Secure Act is changing retirement here are the most important things to know

Having money stashed away for their entire lives, instead of just their careers, could make all the difference in a persons quality of life in retirement, Edelman said. The benefit of a program like his proposal would be utilizing compound interest to its fullest, he said.

Most Americans can only begin saving for retirement in their 20s and 30s, if theyre starting early, but by beginning their contributions at birth their eventual nest egg would increase exponentially. Someone saving $100 a month for 20 years would have contributed $24,000 in total, and have an account grow to $52,000 with a 7% rate of return. If that same person were to save $100 a month for 60 years with the same rate of return, shed eventually have an account balance of $1.1 million. The T.R.U.S.T. EE proposal would generate about $650,000 by age 66 with a one-time contribution at birth.

The government is trying to improve the countrys retirement system. The Secure Act was recently passed, which allows small businesses to band together to offer employees retirement accounts, as well as other provisions to expand retirement security. States are also getting involved by creating their own state-sponsored retirement plans for small businesses, which allows workers to automatically enroll and contribute to individual retirement accounts with their paychecks like one would a 401(k) plan.

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Want to solve the retirement crisis? Invest $7,500 for every baby born in America - MarketWatch

Income investors have choices.

Investing for income is an appealing concept for investors of all kinds. If you're focused on increasing your nest egg's size, then a reliable stream of cash is appealing because it removes some of the guesswork. And if you're at or near retirement, income-generating investments are a great way to have your portfolio pay you a little at a time instead of generating a big chunk of cash by selling off assets forever. Regardless of your age, strategy or portfolio value, income investing is an important area that should be at least a small part of how you allocate your money. Here are seven ways that have something to offer.

Bonds

One of the most common ways to invest for income is via the bond market. However, bonds are also one of the most varied and complicated asset classes. There are government bonds that involve loans to local municipalities, the U.S. federal government or even foreign governments. There are also corporate bonds that involve loans to enterprises of all shapes and sizes. And finally, the yield generated by a given bond varies based on the specifics, including the borrower's risk profile and the maturity of the bond. Properly researching individual bonds can be quite a task. As a result, most individual investors instead opt for bond funds.

Dividend stocks

Dividend stocks are generally riskier than bonds, since companies pay them out of their profits. As the financial crisis of 2008 demonstrated, even the most stable companies can have a crisis that dries up profits. Consider Citigroup (ticker: C), which slashed payouts from 54 cents a quarter in 2007 to a measly penny per share after the financial crisis. Still many are willing to take on this extra risk if it means they can enjoy the potential of a regular payday with the long-term hopes of seeing their initial investment grow alongside the rest of the stock market. Dividend stocks can be a win-win when they deliver capital appreciation and consistent income.

Preferred stock

Preferred stock is a kind of hybrid between stocks and bonds. It is less stable than bonds, since the stock value can fluctuate thanks to market forces. Preferred shares take a back seat to bondholders in the event of bankruptcy, but offer more stability than common shares. And income investors will be particularly interested in the fact that these assets tend to provide a significantly higher yield. As the name implies, preferred stock isn't just handed out to anyone. But several ETFs, such as the iShares Preferred and Income Securities ETF (PFF), allow you to invest in this asset class with only a modest amount of cash.

Real estate

Another popular investment class for income investors is real estate. That includes buying a property in your hometown and renting it for income, as well as the arms-length strategy of investing in publicly traded real estate stocks. There's a special class of stock known as the real estate investment trust that grants favorable tax treatment to a corporation if it distributes nearly all of its net income to shareholders. This creates a leg up for firms that need a ton of capital to purchase and manage properties, but also for investors seeking income. Investors can buy individual REITs or put money in an ETF for ease and diversification.

Asset allocation funds

Can't decide how to build an income portfolio with some or all of these publicly traded investments? Then consider a one-stop investment fund that will build the portfolio for you. These include a variety of asset allocation ETFs, but also income-oriented mutual funds like the iconic Vanguard Wellesley Income Fund (VWINX) that has been providing a mixed portfolio for yield-hungry investors for more than 40 years. Right now the fund is about 40% stocks and 60% bonds, but it will pivot its mix and makeup depending on market conditions, so you don't have to.

Nontraditional sources

There are several nontraditional sources that can help supplement your income potential if you're willing to put in the time and energy to seek them out. Some living near shale oil fields may find they can earn a regular paycheck by selling mineral rights to the energy under their land. Others may participate in peer-to-peer lending, where you act as a banker to loan cash to someone starting a business or expanding their house. Those with means could consider a silent partnership in a local business. These nontraditional sources all require diligence, since they are not typical investments. But they can be a useful source of diversification and, in certain cases, bigger income potential.

Story continues

Interest-bearing accounts

Another income opportunity is the tried-and-true method of parking your cash at your bank or credit union to generate surefire monthly interest payments. With a guarantee by the Federal Deposit Insurance Corp. up to $250,000, these are perhaps the most certain income investments on the planet. The tradeoff for that safety comes in the lower yield. A one-year certificate of deposit account offers about 2% in potential income at current rates, which would amount to $5,000 annually on that FDIC-insured maximum of $250,000. Unless you have other sources of income or wealth, a CD alone likely won't grow your nest egg or provide the cash you need in retirement.

Ways to invest for income:

-- Bonds

-- Dividend stocks

-- Preferred stocks

-- Real estate

-- Asset allocation funds

-- Nontraditional sources

-- Interest-bearing accounts

More From US News & World Report

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7 Ways to Invest for Income - Yahoo Finance

The market was hot in 2019, but investors shouldn't count on a repeat performance going forward. With that in mind, here are four smart moves to position yourself well in 2020.

What a year: 2019 is in the books and many investors experienced strong investment results. The Standard & Poors 500 Index finished 2019 with gains of over 31% including dividends its strongest performance since 2013. With 2020 upon us, some investors are wondering if the market rally will continue or if a pullback is looming especially in a presidential election year.

While many people are concerned that the 2020 election could put the brakes on stock prices, the markets track record is strong. In five of the past seven presidential elections, the U.S. stock market has produced positive returns.

However, history does show us that its unlikely the 2020 stock market will enjoy results similar to 2019. The S&P 500 has only experienced two consecutive years of double-digit returns five times in the past 20 years.

Given this scenario, what is an investor to do?

Here are four actions to take that can help investors manage fluctuations in the stock market in 2020:

With recent large gains in stocks, many people now own portfolios that are heavily weighted maybe too heavily weighted in equities. For example, if you prefer a mix of 60% stocks and 40% bonds, gains by Apple, Microsoft and other technology companies in 2019 could have easily pushed stocks much higher than 60% of your portfolio.

Consider rebalancing your investment account so stocks are back to your ideal target range. This can be done by taking some of the gains from your stock returns and redeploying those funds into bonds, real estate, cash or other parts of your portfolio.

Investors with taxable brokerage accounts can offset some gains by selling individual stocks that performed poorly and lost money. Some department store stocks, such as Kohls and The Gap, were down double digits in 2019. By selling or harvesting these losses, investors are able to offset taxes on both gains and income. The security that is sold can be replaced by another stock, maintaining an optimal asset allocation and expected returns.

Keep in mind that stocks owned less than 12 months will incur a higher short-term capital gains tax than those stocks youve held more than 12 months, so look at your purchase date before selling any stocks you own in taxable brokerage accounts. On the other hand, because there is no tax on stocks that have appreciated as part of 401(k) and 403(b) plans retirement plans, as well as deferred compensation accounts, investors have more flexibility to sell winners and reinvest those funds.

Investors who need to withdraw money in coming years to pay for major expenses, such as college tuition, a vacation home or their retirement, should look carefully at how aggressively invested that money currently is. A good rule of thumb is to place funds needed for large expenses in the next one to two years in a bank account instead of investing it.

Even mid-term cash needs could become more conservative now. For example, if you own a 529 college savings plan and your child is in high school, consider dialing back the risk in the fund by moving some money into bonds, cash or other safe investments.

With many bank accounts and certificates of deposit paying less than they were a decade ago, retirees have looked to other investments for income, including bonds and dividend-paying stocks. Many retirees will enjoy a longer retirement than their working years, spanning several decades, where inflation becomes a risk that must be addressed. As such, stocks will continue to play an important role in a retirees portfolio.

For many early retirees, a portfolio consisting of 50% to 70% stocks works well, especially for those with cash set aside to pay for their living expenses for two years or more. For older retirees, dropping the stock mix to 30% to 40% of their total investments is reasonable, because they will need income for a shorter period and face less chance that inflation will erode their purchasing power.

Another year where equities jump 30% or more would please most investors. Rather than hoping for another strong year, instead use your 2019 gains to make strategic short- and long-term decisions that fit your own financial goals.

Lisa Brown, author of "Girl Talk, Money Talk, The Smart Girl's Guide to Money After College," is the Chief Strategy Officer for corporate professionals and executives at wealth management firm Brightworth in Atlanta. Advising busy corporate executives on their finances for nearly 20 years has been her passion inside the office. Outside the office she's an avid runner and supporter of charitable causes focused on homeless children and their families.

Comments are suppressed in compliance with industry guidelines. Click here to learn more and read more articles from the author.

This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

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2019 Was a Great Year for Investors. How Should You Invest Your Money in 2020? - Kiplinger's Personal Finance

The rise of the cloud has been one of the best investment themes of the last decade. What started out as little more than a buzzword among techies has grown into a massive industry, hauling in hundreds of billions of dollars a year worldwide. A quick look at the First Trust Cloud Computing ETF (NASDAQ:SKYY), which tracks an index focused on the accelerating cloud computing industry, shows that cloud stocks are collectively up 200% since the fund's inception in July 2011.

In spite of their fast rise, though, cloud stocks will likely continue as a prominent driver of investment returns in the next decade, serving as a key ingredient in the "digital transformation" of many organizations as they update operations for the 21st century. This guide will help get you started selecting the best of the many dozens of pure-play cloud companies available to invest in.

Image source: Getty Images.

So what is this high-in-the-sky technology term actually referring to? In simple terms, the cloud is a global network of data centers. These remote servers are used to deliver a service or complete a task for a user via the internet or other network. Functions of these data centers are diverse: They store data, run applications like email and business software, operate social networks, and deliver services like streaming TV. Generally, there are four methods by which the cloud is delivered to end users.

Organizations are making use of the cloud in myriad ways, but no matter the type of data center, all of them are still on the rise after a decade of busy construction activity.

The concept of services being stored remotely and available on demand is nearly as old as the concept of the internet itself, but it wasn't until the 1990s that the term "cloud" actually came into use in the tech world. An early pioneer of the concept was salesforce.com (NYSE:CRM), which was founded in 1999 and was the first software application developed from scratch to run in the cloud. In 2002, Amazon (NASDAQ:AMZN) quietly launched its cloud service, dubbed Amazon Web Services, or AWS. The e-tailer hit on the concept of renting out its excess computing power to businesses and quickly became a leader in the cloud movement as a result.

Since the late 2000s, a flood of cloud businesses has come online. However, the marketplace is dominated by several big players, such as Amazon's AWS, Microsoft's (NASDAQ:MSFT) Azure, IBM's (NYSE:IBM) Cloud, and Alphabet's (NASDAQ:GOOGL) (NASDAQ:GOOG) Google Cloud. Across the Pacific, Alibaba (NYSE:BABA) and Tencent (OTC:TCEHY) are leading the charge in China's fast-growing cloud industry and are also an important part of the conversation.

Just like different layers of the atmosphere, there are layers to the cloud, too. Generally, cloud services are split into three tiers. Some companies offer just one tier of service, while larger companies often span two or all three.

The first tier and the base for all cloud offerings is infrastructure-as-a-service (IaaS). IaaS provides the nuts and bolts for a business wanting to operate in the cloud. An IaaS provider offers the actual server space for storage, computing, networking, and security. Notable IaaS companies include Amazon, Microsoft, Google, IBM, and VMware (NYSE:VMW). Companies that don't operate their own cloud infrastructure host their services on another company's IaaS.

Many tech companies tout their software "platforms." Sometimes this is a generic term for their overall suite of software, but as it pertains to the cloud, a platform-as-a-service (PaaS) enables software developers to build, manage, and deploy applications. PaaS is built on top of an IaaS service, and many of the abovementioned IaaS providers also operate as a PaaS as well. Some software providers, like Salesforce for example, offer a PaaS in addition to SaaS (see below), as they allow developers to custom build apps using a set of tools. Another notable example of a PaaS is communications company Twilio (NYSE:TWLO).

Built on top of IaaS and PaaS is the end result of the cloud, the applications themselves. Companies that operate and sell software applications are known as software-as-a-service (SaaS) providers. SaaS outfits build and provide ready-to-use apps for a wide variety of both business and consumer tasks. Often the most visible part of the cloud to everyday consumers, notable SaaS apps many people run daily are Netflix and Spotify (NYSE:SPOT) for entertainment and Microsoft Office 365 and Salesforce on the business productivity end of the spectrum.

The cloud has grown to epic proportions in relatively short order and has become a driving force behind technological advancement. According to researcher Gartner (NYSE:IT), global public cloud spending should come in around $266 billion in 2020, up from $228 billion in 2019. When considering the entire realm of cloud computing, research from Statista and CenturyLink (NYSE:CTL) expects general global cloud spending to top $400 billion in 2020.

Digital transformation -- a phrase describing the wave of businesses and organizations using data center-based computing to update their operations -- is expected to fuel double-digit growth in cloud spending for the foreseeable future. Gartner's report expects global spending to increase by 13% a year in both 2021 and 2022. Fellow researcher IDC thinks spending will more than double by 2023 and top $500 billion.

Image source: Getty Images.

Business analysts and economists generally think the 2010s were the first half of the cloud's development and that the 2020s will be phase two of the computing concepts' rapid global deployment.

As it gets bigger, though, it is playing a role in the advance of other technologies. Edge computing, for example, is the move to push computing from the cloud to locations closer to the end user -- either at smaller localized data centers or within devices themselves. Edge computing is quickly becoming a new category for cloud providers as they try to speed up the computing and data delivery process and is on its way to being worth tens of billions of dollars a year. The cloud is also powering applications like artificial intelligence as businesses use data centers to train and then deploy AI-based systems. Over the next decade, these could be powerful investment trends to watch that the cloud is making possible behind the scenes.

For those who want a comprehensive cloud portfolio, IaaS and PaaS providers are the place to start. Incidentally, even though IaaS and PaaS are already covered by some of the largest stocks around -- Microsoft, Amazon, Alphabet's Google, Alibaba, even Facebook (NASDAQ:FB) and its PaaS for advertisers -- these building blocks for cloud-based services are expected to be the fastest-growing segments of the cloud. Gartner expects annual IaaS and PaaS spending, which came in at $40 billion and $32 billion, respectively, to nearly double by the end of 2022. As large, diversified tech giants, these companies can make up the core of an investment portfolio.

Not to be forgotten, though, are the hardware companies that make cloud infrastructure and platform services possible. Hardware must exist before applications can be built. Arista Networks and NVIDIA are two of the largest companies in this space, but investors who want to broaden their search even further should look for companies categorized as "network hardware, storage, and peripherals." The best bets will have business segments labeled as "cloud" or "data center" revenue, with those segments at least keeping up with the double-digit average growth forecast.

Now on to the software itself. SaaS is the largest portion of the cloud pie, making up nearly half of annual spending in 2019 per Gartner. As the largest chunk, it is also, on average, the slowest-growing segment, expected to "only" increase 50% by 2022 and top $150 billion a year.

Within this massive subset of the industry, though, are an overwhelming number of options. For every nontech company, there is a SaaS that can help (or disrupt) the industry -- from retail to finance to healthcare. Here are a few examples by sector.

Image source: Getty Images.

There is no shortage of cloud stocks to choose from, but choosing which ones to own is the real trick. For the well-established, large, and profitable cloud companies, traditional valuation metrics still apply. For smaller firms operating at little or negative profitability, some business and revenue growth metrics are the best indicators to consult.

Many investors look at price-to-earnings multiples (the stock price divided by earnings per share from the last 12 months) when selecting a stock, but that metric only tells part of the story. In the high-growth cloud computing industry, the PEG ratio can be more helpful, as it accounts for elevated price-to-earnings multiples by comparing to expected growth rates.

Another profitability metric to weigh is price to free cash flow. Free cash flow is revenue minus cash operating expenses and capital expenditures. Unlike basic earnings, free cash flow excludes noncash items like depreciation, amortization, and stock-based compensation and thus provides a clearer picture of a company's true profitability profile. For example, Salesforce currently has a sky-high price-to-earnings ratio of 173.8, but price to free cash flow values it at 39.6. Using price to free cash flow makes quite the difference here and would indicate Salesforce isn't all that bad a deal for a company that has consistently been able to grow over 20% year-in and year-out.

Traditional methods of valuing a stock often break down when evaluating the cloud industry -- especially the fastest-growing SaaS providers. When a company is expanding fast and sees ample opportunity ahead, profits are often foregone in lieu of reinvestment for rapid growth.

Fortunately, business growth metrics provide an alternative method. Growth in total users or customers can be telling. Is customer count accelerating? Then quickly rising expenses might be an acceptable situation. Is customer count decelerating? If so, expense growth should also be falling.

Another key component is the dollar-based net expansion rate, sometimes called the revenue retention rate. This metric shows investors how much money the average existing customer is spending on a cloud service. A rate of less than 100% implies the average customer is spending less than a year ago (not good), while greater than 100% implies they are spending more. If customer count is decelerating, a dollar-based net expansion rate over 100% means a cloud company can afford to add customers at a slower pace. For example, cloud communications firm Twilio reported dollar-based net expansion of 132% in Q3 2019, implying existing customer spending jumped an impressive 32% higher compared to the year prior.

All of those business metrics ultimately feed into revenue, the headline figure that investors watch when it comes to the cloud. Increased revenue, however, is only good if it translates into increased profits -- or at least the promise of an eventual bottom-line payoff.

Whatever your findings may be when searching for high-growth cloud companies, it's important to remember that stocks such as these tend to be very volatile -- both up and down. Therefore, diversify your holdings, keep individual positions small, and add to them periodically -- monthly, quarterly, or on the dips, perhaps whenever a stock dips by a certain percentage (like 10% from recent highs). Consistency is key, as is some patience with small companies that are in expansion mode and tend to bounce around a lot in value.

Above all, remember that investing in the cloud is all about the long game, whether the companies owned are large or small. The industry has had a lot of success, and there's plenty more to come. The 2020s should provide more strong returns for the cloud, so don't get too hung up on what happens in the short term, and remember that investing results play out over years -- not days, months, and quarters.

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How to Invest in Cloud Stocks - Motley Fool

Ray Dalio, multi-billionaire and founder of investment firm Bridgewater Associates, said investors should not miss out on traditional markets, CNBC reported on Jan. 21.

Dalio warned from holding Bitcoin, saying that its neither a medium of exchange nor a store of value.

Dalio was interviewed at the World Economic Forum in Davos, Switzerland, where he advised investors to hold a global and diversified portfolio in this market, while increasing their stake in stock markets.

While Dalio acknowledged recession concerns, he argued that cash is trash due to the governments ability to print it at will something he believes they will be forced to do during a market downturn. Due to this, jumping into cash just before the eventual market fall is ill-advised, according to Dalio.

The billionaire still cautions balance, advising investors to hold a certain amount of gold in their portfolios.

His stance on Bitcoin (BTC) was far more negative, however, noting that it is not currently functioning as money:

Theres two purposes of money, a medium of exchange and a store hold of wealth, and Bitcoin is not effective in either of those cases now.

He added that the volatility of Bitcoin makes it unattractive for serious investment, while something like Libra could be a better option. Elaborating on his preference of gold as a store of value, he noted that central banks are some of the largest metal holders:

What are they going to hold as reserves? What has been tried and true? Are they going to hold Bitcoin digital cash Theyre going to hold gold. That is a reserve currency.

Bitcoin is often touted as digital gold, a reserve asset independent from government control.

But while many believe in the store of value thesis of Bitcoin, its performance so far has not indicated meaningful correlation with global markets. While it does appear to have slightly positive correlation to gold, the indexes are small enough that they can be attributed to coincidence.

These may still be teething problems due to the relative novelty of cryptocurrencies. As noted by Duke University professor Campbell Harvey, the sample size is still too small. Over thousands of years of history, even gold was not always a reliable safe-haven asset.

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Ray Dalio Calls for Investment Diversification, But Not in Bitcoin - Cointelegraph

SALEM The Oregon Division of Financial Regulation is warning people to avoid investing with Robert Lee Adams, also known as Bob Adams, and his business, SimTradePro Inc. The division issued a cease-and-desist order against Adams and his business for operating as a state investment adviser without a license, and he may still be soliciting Oregon consumers.

Adams, a Bandon resident, formed a related company, Winning Investments, LLC, in 2017 allegedly to pool investor funds and invest them in the foreign currency exchange market, according to a press release from the Oregon Department of Consumer and Business Services. Four investors who participated lost more than $279,000 in less than a year. An elderly victim lost most of her retirement savings.

Adams charged each investor a $3,000 origination fee, offered the group investment strategies he selected, and pooled the investors funds in a local bank account. Adams then allegedly invested their funds in foreign currency trading programs that operated offshore. Adams and SimTradePro have never been licensed with the division as an investment adviser or investment adviser representative.

Investments in foreign currency trading programs are extremely risky, and they are not for everyone, said Andrew Stolfi, division administrator. Before investing money you cannot afford to lose, and certainly before parting with your life savings, learn as much as you can about the firms and individuals you are considering. Make sure your investment adviser is licensed by the division and works with registered, reputable industry professionals.

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The division encourages everyone to protect their money. Ask questions to learn about your advisers registration status, disciplinary record, and complaint history. The first step before making an investment is to carefully choose a financial professional by checking their licensing status and background.

Oregonians are also encouraged to contact the divisions advocates at 888-877-4894 (toll-free) with questions or concerns about a financial adviser or product. If you have information or questions specifically regarding Robert Lee Adams and his business activities, contact Investigator Rachel Royston at 503-947-7093.

About DCBS: The Department of Consumer and Business Services is Oregon's largest business regulatory and consumer protection agency. For more information, visitwww.dcbs.oregon.gov.

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Consumers warned of investing with unlicensed Bandon business - Coos Bay World

The next market downturn, crash and bear market are coming.

Not particularly soon, if you believe most experts, but theyre somewhere on the road ahead.

They will happen with little warning, with few soothsayers calling them out, and despite political, societal and monetary efforts to keep them at bay.

Investors who invest to avoid that downturn or who dont invest at all in fear of it will miss out on the next uptick, and possibly much more. While the long-in-the-tooth bull market cant go on forever, the message now from all sorts of Wall Street observers is that even in a slowing environment, theres a lot of upside left before the next turn. Moreover, the next decline may not last so long.

In short, this is not a time to invest in ways that avoid the next downturn, its time to invest despite that inevitable event.

Scott Wren, senior global market strategist at the Wells Fargo Investment Institute, has said for years that too many average investors have simply not recovered emotionally from the shock of seeing their portfolio cut in half during the financial crisis of 2008.

While investors who rode out the troubles recovered in short order, Wren talks about the investors who couldnt stand the pain and who pulled out of the market at the worst time when their portfolios were down 40 or 50 percent and who have ever really known how or when to get back in.

While they may have dipped a toe back into the bull market and recovered some of their losses, they havent felt comfortable enough to fully reinvest.

Overall, if you look at our client base, they have held and continue to hold meaningfully more cash in their portfolios than what we would recommend, Wren said in a recent interview on Money Life with Chuck Jaffe. Clearly that has cost them some upside here, and I would argue that sentiment is nowhere near where it would be at a market top and the lack of action from our clients is telling us that this bull market is not likely over.

Market sentiment measures have been on the rise, but Wrens point that good feelings have not gotten to euphoric levels that keep the bull running on fumes is well taken.

Meanwhile, a growing number of market observers say they dont see a meaningful downturn occurring in the near future.

For example, Abhay Deshpande of Centerstone Investors, said on Money Life last week that The era of the 50 percent bear market is behind us.

He was not suggesting that declines and bear markets have been canceled, but rather that the conditions necessary to create massive downdrafts are nowhere in sight. Moreover, he suggested that those conditions may not occur again in our lifetimes.

By comparison, Marc Chaikin, the founder of Chaikin Analytics, noted on Money Life that the end of the long bull market is on the horizon just becoming evident in numbers showing slower growth but he noted that the final phase of a bull market is a period where you can make a lot of money.

Chaikin calls the final stages of a bull market blue-sky territory, the point with no signs of a recession in sight and little to no resistance to stop a market run and make investors unhappy.

Yes, that changes in time often as investors become too happy and irrationally exuberant but Chaikin noted that investors can make a lot of money while the skies are blue and the warning signs are nowhere to be seen.

Consider that the most common comparison veteran observers are making for the current market is to 1999 and the period leading to the bursting of the internet bubble. That triggered a bear market that lasted roughly three years, with the Standard & Poors 500 dropping 10 percent, 13 percent and 23 percent in consecutive years.

While similarities can be drawn, few of the experts making the comparisons believe any downturn will be that protracted.

So an investor looking to avoid the next bear market is trying to miss something that, by most accounts, will be relatively short and not too steep. Even if it is a 20 percent decline, thats not a problem so long as it is within expectations.

Meanwhile, the market appears likely to keep moving forward until it doesnt, to treat each setback as a buying opportunity rather than the start of something bad.

Investors who were pulling out a year ago when the market suffered through a miserable fourth-quarter wound up missing out on a much bigger than expected 29 percent gain in 2020.

The S&P 500 already is up more than 3 percent this year; the strong December stretch run means that the gains of the last six to eight weeks are equal to what many Wall Street firms were expecting for the entire year.

Investors should be changing with the times, building all-weather portfolios that anticipate downturns without necessarily avoiding them; dont expose more of your money to even a temporary 25 percent or 50 percent loss than you can afford to, but do expose money that you need to grow to the long-term ability to grow in the market, even if that means slogging through downturns in the interim.

Find the balance, because staying out of the market because you fear the next downturn is not an option for most individual investors.

The conditions for a major, major decline in the economy dont exist, excluding the prospects for war or something, said Deshpande. If nothing like [war] happens, what we are looking at is muddling through economically not enough to drive the US into a recession

You can lose a lot of ground by standing still while the market is moving forward toward that next downturn. Its better to keep pace, sensibly, then to wait for something bad to happen and hope you can catch up afterward.

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Better to invest through troubled times than to try avoiding them - Seattle Times

Humans like complexity. Clever, elaborate schemes makes us believe we're accomplishing something -- even when the results don't bear that out. The vast majority of the time, painfully simple solutions are actually the best option.

Consider the question University of Michigan professor Robert Axelrod tried to answer in 1980: What's the best strategy in the prisoner's dilemma?

Image source: Getty Images

The prisoner's dilemma is a famous thought exercise.

Over the long run, what strategy works the best in such situations?

After getting various strategies from credentialed game-theorists, Axelrod ran lengthy computer simulations.The winning strategy was also the simplest: Start by cooperating, then do exactly what your partner does thereafter. This is referred to as the "tit-for-tat" (TFT) strategy.

Thousands of hours were likely spent on more clever designs, but that didn't mean they were effective. Writing about the phenomenon in his 2017 bookBarking Up The Wrong Tree, author Eric Barker says:

TFT was the simplest of them all...Getting too clever muddies the waters, and the other person can quickly become very skeptical of you.

Now, in zero-sum games like chess, you want your intentions to be unclear, but in the iterated Prisoner's Dilemma, it's the exact opposite. You want the other player to see what you're doing so they can join you.

Life is more often like the latter(emphasis added).

Not only does keeping it simple force us to find the signal in the noise, it also provides advice we're far more likely to follow through on.

This is true when it comes to finances, investing, and life in general.

Helping people get out of debt and build a sustainable financial foundation is an enormous industry. That's a big part of what we do here at The Motley Fool.

You'll find a lot of suggestions about how to improve your financial life, but I've found that readers tend to get the most benefit from a pretty short list. Pareto's Principle says that 1% of your input can account for 50% of your output.In other words, if you get a list 100 personal finance rules to follow, a decade later, it's likely that just one accounted for half of the improvement in your finances, and four of them accounted for two-thirds of the improvement.

Exactly which rules will help you the most depends on you and your particular situation. But my best guess is that the most important one would be:

Live within your means.

As writer and former Fool columnist Morgan Housel is fond of saying: "When most people say they want to be a millionaire, what they really mean is 'I want to spend a million dollars,' which is literally the opposite of being a millionaire."

What would the next three be? My best guess:

If you want to stay out of trouble and rest easy at night, don't buy stuff you don't need.

When I started investing, I came up with complicated ways to measure how "expensive" a company's stock was, how its sales "should" grow, and what the price of the stock "would" be in a few years' time. Needless to say, this didn't work. Over time, my goal has been to keep the process of investing simple.

Of all the investing rules that we hear, I think one plays the biggest role:

Buy a stock (with money you don't need in the immediate future), and then forget it.

In a 2013 study,Fidelitydiscovered that its best investors were the ones who never touched their accounts. More often then not, they forgot about them or -- as my UK colleague Paul Summer pointed out -- they were simply dead.

As long as you don't need the money soon, just buy and hold. Sure, if you time the market you might get out before a crash -- but you're also just as likely to miss a huge upswing.

The next three rules, in my opinion, would be:

Finally, I feel compelled to point out that keeping it simple matters in the most important realm of all: our personal lives.

The single rule above all else:

Maintain and nurture meaningful relationships.

Back to Housel, who in 2013 provided us with what the next three should be:

Of course, there's lots of overlap between these factors. But my guess is that by keeping it simple and focusing on these steps, you're going to appreciate the results.

Read this article:
In Investing -- Like in Life -- It Doesn't Pay to Be Too Clever - The Motley Fool

Saturday, 25 January 2020

Greeces debt was upgraded by one notch on Friday by the Fitch rating agency, announcing that the countrys debts sustainability continued to improve.

Thus, the Greek rating went from BB- to BB, meaning it is more prone to changes in the economy, but is still in the speculative category. The grade is accompanied by a positive outlook, meaning it could be raised again in the coming months.

The general sustainability of the debt continues to improve, supported by a stable political environment, Fitch announced, which also expects the debt to continue to decrease.

The Greek State Budget for 2020 forecasts a surplus just over the threshold imposed by its lenders.

Despite the end of the financial assistance plans between Athens and its creditors in August 2018, Greece is still required to comply with a primary budget surplus (excluding debt charges) of 3.5% of GDP until 2022.

Greece plans to borrow between 4 and 8 billion from the markets in 2020, after a year in 2019 when interest rates sometimes reached below 0%.

The national debt agency forecasts the 2019 debt rate to decrease to 173% of gross domestic product (GDP) compared to 181% in 2018 (335 billion euros).

The Brussels Times

Read more:
Greece upgraded to 'BB' investment rating - The Brussels Times

Warren Buffett (Trades, Portfolio) has warned investors about the risks of borrowing money to buy stocks again and again. He has also said that he has never borrowed a significant amount of money to invest and never plants to.

Buffett on borrowing

Buffett's comments on borrowing are very sensible. It all comes down to volatility.

In the Oracle of Omaha's 2017 letter to investors of Berkshire Hathaway (NYSE: BRK.A) (NYSE: BRK.B), he presented a table showing the returns of the conglomerate's stock price between 1973 and 2009.

During this period, on four occasions, Berkshire's stock price dropped by between 59% and 37%. According to Buffett:

"This table offers the strongest argument I can muster against ever using borrowed money to own stocks. There is simply no telling how far stocks can fall in a short period...

Even if your borrowings are small and your positions aren't immediately threatened by the plunging market, your mind may well become rattled by scary headlines and breathless commentary. And an unsettled mind will not make good decisions."

In an interview with CNBC after the letter was published, he said, "It is crazy in my view to borrow money on securities. It's insane to risk what you have and need for something you don't really need... You will not be way happier if you double your net worth."

But here's the thing, while both Buffett and his right-hand man, Charlie Munger (Trades, Portfolio), have tried to discourage investors from using leverage, they both have, in the past, borrowed significant amounts of money to turbocharge returns.

Buffett's big loan

Glen Arnold's book, "The Deals of Warren Buffett (Trades, Portfolio), Volume 1: The First $100m," explains how a young Buffett borrowed about 25% of his net worth to increase his capital available for investment in the stock market in 1951.

At the time, Arnold reports that the young investor had around $20,000 of savings, and despite receiving advice from his mentor, Benjamin Graham, as well as his father, not to invest in the stock market because prices were too high, he went ahead and started buying anyway:

"He did not agree with their logic and made up his own mind, deciding that 1951 was a perfect time to pick up good companies. He thought the potential was so great for the first time he borrowed money to buy shares (he borrowed a quarter of his net worth $5,000)."

Unfortunately, Buffett ended up making a few mistakes with his capital. He bought a Sinclair gas station with his friend for $2,000, which ended up being a total loss.

He also bought shares in Cleveland Worsted Mills, a deep value stock. Arnold describes the company in his book:

"As well as Cleveland Worsted Mills selling at half its NCAV, it paid a high proportion of its earnings in dividends. These combined factors made Cleveland appear an attractive investment and Buffett sold the idea of this investment to stockbroker clients in Omaha. Then it went wrong -- the company faced intense competition from textile plants in the Southern US states and from synthetic fibers. It made large losses, cut its dividend and its share price dropped."

As I have explained in a previous article, Buffett was able to make back the money he lost on the Sinclair station and Cleveland Worsted Mills in a relatively short space of time. Nevertheless, this scenario makes it clear how risky it is to borrow money to invest. Buffett took his loss as well and went back into the market to try and find opportunities. If he had let them get the better of him, he might not have become the world-famous billionaire that he is today.

Disclosure: The author owns shares in Berkshire Hathaway.

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The Time Buffett Borrowed 25% of His Net Wealth to Invest - Yahoo Finance