Home' Trinidad and Tobago Guardian : November 29th 2015 Contents NOVEMBER 29 • 2015 www.guardian.co.tt SUNDAY BUSINESS GUARDIAN
MUTUAL FUNDS | SBG13
Sometimes the best choice is
to make none at all, partic-
ularly when all the options
So if you're deciding whether to invest
in stocks, bonds or something else, remem-
ber that you could leave some of it in cash.
So says Matt Freund, chief investment officer
of USAA's mutual funds.
He says stocks are likely due to deliver
lower returns than before, maybe 7 per cent
annually, partly because of how high their
prices have become relative to corporate
profits. And as the Federal Reserve gets
closer to raising interest rates, Freund expects
price swings for stocks to get bigger. Bonds,
too, are likely to get more volatile.
Instead of taking on a lot of extra risk for
only a little bit more return, the right choice
may be to get more conservative, says Fre-
und, who manages several bond mutual
funds. He recently talked about why it can
make sense to stash some cash under the
mattress. The interview has been edited for
length and clarity.
Q: How much more volatility should
we be expecting once the Fed begins
A: We've already seen it. We saw it in
August, when people were trying to make
a huge news story about a 10 per cent decline
for stocks. I think it is going to get worse.
I think these sorts of 5 and 10 per cent cor-
rections are going to be much more com-
monplace. They're not going to be as news-
Aren t stocks supposed to do well,
even after the Fed starts raising rates?
A: Everybody talks about how stocks
typically don't peak until two or three years
after the Fed begins raising rates. Is that
going to happen this time? Is it safe for
stocks? Well, we're not sure, but I suspect
that it's not.
Typically, when the Fed raises rates, the
economy is accelerating. And at USAA,
while we're not calling for a recession, we're
not calling for an acceleration either. We
think we're going to be seeing more of the
same, where the economy is kind of grinding
along at very modest growth.
Stock valuations today are not cheap, and
they are (based on the assumption that)
economic activity will return to normal, will
Q: So stocks don t look like the better
investment versus bonds?
A: People implicitly make the assumption
that the market owes them a good choice.
People always talk about how you need
to buy stocks today because they're a TINA;
there is no alternative. And I completely
disagree. Stocks may beat cash or bonds.
But that doesn't mean you're being paid for
the risk, and that doesn't mean it's appro-
priate for you and your time horizon.
Q: What kinds of investments do you
A: I actually do like high-yield.
Q: Don t managers of high-yield bond
funds always say they like high-yield?
A: If I gave you the choice of two asset
classes, and one was going to earn seven
per cent and be really volatile, and the other
was going to earn almost seven per cent
but with a lot less volatility, which one is
better? I think that for the same returns,
take less risk.
Q: I assume the first choice is stocks,
and the second is high-yield bonds.
Can they really produce nearly seven
per cent returns?
A: The high-yield index is yielding close
to eight per cent. After expenses, it's close
to seven. So then you have to worry about
defaults and price swings. If you're investing
for three to five years, I think the ballpark
is in the low six per cent to high six per
cent for returns.
Q: And stocks don t look good at all?
A: Let's say that you are the perfect,
rational investor who invests without any
emotions. Or you're going to program the
computer to do it. If you told the computer,
"My time horizon is five years or 10 years,"
it would put you in stocks. It would put you
in emerging markets.
But if you said, "Look, I'm really a six-
month investor," the offered returns don't
compensate for the risk, and it would keep
you out of those markets.
Q: Do you really think people are
investing in stocks with expectations
to hold for just six months?
A: People are exceptionally short term.
Maybe it's for a year. But look at all the arti-
cles that happened in August. It was a 10
per cent correction. It was long overdue. It
was no big deal. But it created a lot of worry
Q: That advice wouldn t have been
any different 10 years ago, though,
A: Yeah, but people always seem to forget
it. There's nothing wrong with holding some
Imagine you were that lucky person who
was sitting on a big stockpile of cash in
August. Everyone is running for the door.
You would have been very well rewarded
for putting that money to work. But how
do you get that dry powder? You have to
pull back when the market feels good, and
that's times like now. AP's Stan Choe
In this undated photo provided by USAA, Matt Freund, chief investment officer of USAA's
mutual funds, poses for a photo. When deciding whether to invest in stocks, bonds or
something else, Freund says it's fine for investors to hold cash.
Fund manager Q&A:
Transitioning into retirement can be
tough to do even when it is planned
for. But when it happens unexpect-
edly, it can be devastating. Being
blindsided by a sudden retirement
for whatever reason is going to be
hard to accept and will conjure up fear, anxiety and
even depression. And while it isn't how you want
to head off into your supposed golden years, it's
doesn't have to mean the end of the world either.
The change in lifestyle isn't going to be a walk in
the park, but you can successfully transition into
an unexpected retirement. Here's how to do it.
Think about what your second act will
The reasons for early retirement are many, but
unless your health is suffering retiring from one
career doesn't mean the end of work altogether.
Countless retirees have left one career only to launch
a new one. If you find yourself at the wrong end
of corporate layoffs or downsizing, it's OK to have
a pity party for a little while. But then it's time to
start thinking about your second act. If you possess
a certain expertise you can try to get consulting
gigs, and if you don't there are always retailers that
are hiring part-time workers.
You can even go back to school or transition into
a new field and get a new full-time job. When
unexpected retirement happens, people have two
choices: either downgrade their lifestyle drastically
or generate comparable income.
Come up with a new budget
Unless you have a good pension or put a lot away
for retirement, losing your job earlier than planned
is going to require a change in your lifestyle.
Depending on your current financial situation,
the cutbacks may be small. But if you haven't saved
much for retirement, it could mean downsizing by
a lot. Some retirees are forced to sell their homes
and rent to free up income, while others get rid of
their cars and other pricey belongings to shore up
funds. The last thing you want to do is start drawing
down on your retirement savings sooner than you
You want to keep that money working while you
are still healthy and able and tap it later on in life
when employment is out of the question.
Put your house to work
One of the biggest investments many people will
ever make is a home. And while the end game is
to pay off your mortgage and own property outright,
your house can also generate retirement income for
While the pros and cons of doing a reverse mort-
gage are many, for some retirees who have enough
equity in their home and need cash flow, a reverse
mortgage can save the day. There are costs and
risks associated with a reverse mortgage, and it
won't make sense for everybody. But it can be a
way to deal with a cash flow shortage if you get
pushed into retirement sooner than planned.
The bottom line
Entering retirement without enough money saved
is a bad situation in and of itself, but if the retirement
comes sooner than planned it can be particularly
hard to deal with.
While transitioning to retirement unexpectedly
can be quite challenging, by thinking about a second
career, budgeting for the new reality, tapping gov-
ernment services and making smart decisions about
benefits, you can successfully ease into the new
phase of your life.
Suddenly pushed into
retirement? Here's how
to handle the transition
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