Monday, October 12, 2009

Retirement Planning for Traders

Maybe it's youth; maybe it's the result of watching markets on short time frames: Traders can be notoriously non-savvy when it comes to investing and planning for retirement. But making money is only half the equation when it comes to achieving financial security. The other half is what you do with your money.

The old wisdom is not always so wise. Buy and hold for the stock market has produced negative returns over the past decade. During the financial crisis, we saw money market funds break the buck and AAA-rated securities plunge in value.

Meanwhile, stocks and bonds have been on the rise, but the U.S. dollar has been flirting with multi-year lows, eroding our purchasing power in an insidious manner. Should inflation rear its head, all the Treasury buyers who have been salivating over 10-year yields between 3 and 4 percent (and bank certificate of deposit yields lower than that) are going to find themselves facing negative real returns.

One worthwhile resource for retirement planning is the Retirement Advisor blog and its electronic newsletter. Editors David and Kirk are offering free samples of the newsletter, which tracks everything from recommended mutual funds to model portfolios to where to find the best interest rates. It's practical, well-written and free of the kind of sales hype and promotion that often accompanies investment advice.

From my perspective, two big issues loom on the investment horizon: navigating the twin threats of deflation and inflation and hedging against further declines in the value of the U.S. dollar. With the political climate more attuned to problems with unemployment than potential inflation, we may see an extended period of monetary ease, sustaining investment challenges in a low-yield, weak dollar environment.