Page 50 - MetalForming March 2011

Blackman on Taxes
By Irving Blackman
The Wall Street Business Model is Broken
The most common request for nontax help I receive: How should I invest ______? Okay, let’s fill in the blank: 1) my personal funds, 2) my IRA, 3) my company’s excess funds and 4) my company’s pension plan, profit- sharing plans or 401(k).
These constant cries for help have motivated me—not to become an investment expert, but to determine if there is a logical, profitable and safe alternative to the current way Wall Street does business. Typically, an investor ( Joe) purchases a stock, bond or mutual fund, and pays a commission. If Joe has an investment advisor (Sam), he also pays Sam a manage- ment fee. Okay with me, as long as Joe’s portfolio goes up in value, following Sam’s advice.
But what if the value of Joe’s portfolio goes down...way down, like 30 or 40 percent, or more? Everyone knows the same commissions and fees continue, increasing his losses.
How has this insane business model survived? Jim Shepherd, the author of the Shepherd Investment Strategist, has the answer: “The media now calls the last 10 years the ‘lost decade.’ ...Viewers (of TV, radio listeners and print readers) were hit with an unceasing litany of omission and positive spin (that)...kept most investors in equities, even though equities
lost almost 35 percent over the last 10 years!”
Even worse: My research reveals what should be a nation-
al scandal. Based on an article by Eleanor Laise, 401(k) plans shift all retirement planning to untrained individuals, who don’t have the time, inclination nor know-how to manage [the risks]. The plain fact is that investment losses incurred throughout the recession resulted from an invest-in-equities buy-and-hold mentality.
To be thorough, I researched traditional, conservative investments, starting with municipal bonds. A large number of reliable sources have recently opined that municipal bonds (and bonds in general) could be the next bubble about to break. Why? Historically low interest rates, and when the rates go up (as predicted, along with anticipated inflation) the value of bonds will plummet.
Any hope for other conservative investments? Here’s what Kiplinger wrote in November 2010:
Irv Blackman, CPA and lawyer, is a retired founding partner of Blackman Kallick Bartelstein, LLP and chairman emeritus of the New Century Bank (both in Chicago). Want to consult? Need a second opinion? Contact Irv:
Blackman, Kallick, Bartelstein 10 S. Riverside Plaza, Ste. 900 Chicago, IL 60606
tel. 847/674-5295 Blackman@EstateTaxSecrets.com www.taxsecretsofthewealthy.com
“Short-term interest rates are headed even lower...to zero on certificates of deposit with terms under 12 months as well as money-market accounts. The average for CDs now is 0.85 percent, and is likely to slip an additional 5 basis points per month...Money-market accounts are typically paying even less, roughly 0.5 percent.”
Now we are ready for the good stuff... information that will help you recapture the profits of yesteryear. Let’s start by look- ing back at how easy it was during the ’80s and ’90s to hire an investment advisor and enjoy those delightful, profitable results as the equity markets soared higher.
What changed? Well, as we entered the 21st century, the market switched from a bull market to a secular bear market, defined as periods of great volatility of investment returns with little or no upward price movement, even though the trading range is large. Such secular bear markets last—based on market history—between 17 and 25 years, on average.
Following are the unhappy numbers of what actually happened during a few secular bear markets:
The lesson is clear: Buying and holding securities does not work during secular bear markets.
The real question is, can you make money during a secu- lar bear market? Yes, but only if you have a proven plan that identifies when market conditions (related to your portfolio) clearly predict a coming change in market direction.
This is where the investment strategy known as trend following shines. This strategy does not attempt to predict market or stock movements. Instead, it capitalizes on the nat- ural market’s movements, whenever or wherever they occur. Trend-following managers take advantage of what actually is happening in the market, rather than trying to guess what may happen in the future. They wait for the market to devel- op a new trend and invest with that trend, holding that posi- tion until the trend reverses. They don’t invest at the bottom, nor do they sell at the top. Rather, the manager will buy or sell only after recognizing a change in the trend.
So where can we find a trend-follower manager with a proven track record? If you’re looking for a conservative, steady and proven return, send me a fax (847/674-5299) with your name, address and phone numbers (business, home, cell) on your stationery, marked “Trend Following.” MF
Market Period
Annualized Rate of Return
1966 to 1982
Gain of 0.83 percent
1929 to 1953
Gain of 1.69 percent
1906 to 1924
Loss of 4.29 percent
Note: The current secular bear market should end between 2017 and 2025
48 MetalForming/March 2011
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