Oh, see the storm is threatening
my very life today
if i don't get some shelter
yeah, i'm gonna fade away
my very life today
if i don't get some shelter
yeah, i'm gonna fade away
"Gimme Shelter" by The Rolling Stones
Safe Money...Is There Such A Thing:
Most of my clients are a lot like me (scary thought, huh) they are just looking to preserve and protect their hard earned dollars from a world full of risks, in other words they're looking to "shelter" their money. This is exactly why I created Rockhaven, and have instituted our Global Tactical Asset Allocation program. The goal is simply to preserve and increase purchasing power over time. We use technical analysis to shift assets amongst nine separate investable markets, including cash. While this has been working admirably for the bulk of my assets (currently about 45%) I also have three other buckets where my wealth is "sheltered."
One, is simply a cash cushion. Cash as defined as money markets, checking, etc., that you feel comfortable holding. My cash holdings amount to about 15% of my net worth.
Two, is real estate (net of mortgages). My home and condo in the mountains account for about 20% of my net worth.
And Three, my municipal bond holdings, which make up the final 20%.
Now there is no right or wrong mix, everyone has various levels of risk tolerance. Some may want more or less in cash, others may have much more in their homes, again there is no right or wrong number...we all have to find our own personal "shelter from the storm."
Back to Safe Money. Safety is a relative term, there is no such thing as risk free! All investments, even cash, have risk. Obviously cash/money market assets can be considered pretty safe, the biggest risk is inflation and the devaluation of the dollar. The other area I consider as pretty safe is my municipal bond portfolio. But not all municipal bonds are created equal, like all bonds they are only as good as the issuers ability to repay them. And obviously with the increased stress on many municipalities repayment risk has been on the rise. Municipal bonds predominately fall into two categories; general obligation, and revenue bonds. General obligation bonds are considered less risky because they are backed by the municipalities ability to tax. Revenue bonds are backed by the revenues generated by the issuer; utilities, parking fees, hospitals, etc.
I prefer owning municipal bonds outright as opposed to muni bond funds because, if interest rates rise over time, muni bond funds will fall in value while individual muni's will mature at par, and enable you to reinvest the proceeds at the new higher rates.
In today's market, high quality Pennsylvania municipal bonds yield between 3.0% and 4.0%, depending on the maturity and issuer. If you live in PA these are double tax-exempt, PA and Federal. The PA tax rate is 3.07%, and most of you are probably paying 33% to 35% in Federal taxes (soon to be 36% to 39.6%). So a laddered (issues maturing in various years) portfolio of PA muni's with an after tax yield of 3.5% would equate to a taxable equivalent yield of between 5.5% and 6.1% (depending on your tax bracket). Not a bad return when two year treasuries yield 0.60% and the ten year yields 2.94%, before taxes!
While the Global Tactical Asset Allocation product is my main job, I recently created a laddered muni bond portfolio for a client at a nominal fee. If this is something that may be of interest to you please give me a call. "The floods is threatening, my very life today. Gimme, gimme shelter or I'm gonna fade away."
Lies Revisited-- My Readers Comments:
I had some very interesting comments from my readers regarding the White House's recently released YouTube video on the Dodd-Frank FinReg Bill (DRANK for short), I thought I would share a few (the ones that weren't profane): In case you missed it, view with caution ... What Wall Street Reform Means for You brought to you by The Obama White House.
--Thanks Chris, I feel dumber for having watched it. The sheer arrogance of this White House amazes me!
--Is it me, or is it all of us Neanderthals that he insulted! 2:33 Add to queueAdded to queue All Geico Cavemen Commercial435,454 viewsri4162
--The White House is walking a very fine line. They have been treating us like we are totally incapable of taking care of ourselves, and now they step it up a notch to full retard...and as we all know "Full Retard" doesn't win you the Oscar, it just makes you look stupid. View Clip Full Retard Scene
And my favorite:
--You know, when flipping houses was like totally cool, I don't remember lots of forms. They just handed me a mirror and said, "blow on it." I didn't see any blow on it, so I laughed and got it all fogged up. I said sorry, cuz now the mirror was damp and liners get gunky on damp mirrors, but they thanked me and gave me a set of keys. Is it gonna be easier than that now that the government cares about me?
Computational Knowledge Engine:
If knowledge is power...consider yourself more powerful!
This is one of the most amazing knowledge sites I've ever seen, please share!
Be careful out there,
Chris Wiles
This article contains the current opinions of the author but not necessarily those of the Rockhaven Capital Management. The author’s opinions are subject to change without notice. This article is distributed for informational purposes only. Forecasts, estimates, and certain information contained herein are based upon proprietary research and should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. Information contained herein has been obtained from sources believed to be reliable, but not guaranteed.
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