Wednesday, October 16, 2013

Sticking with the U.S. economy. Warren Buffet is. So am I.

Three years ago this month the U.S. economy was just beginning to come out of a dark tunnel -- the worst economic downturn of the past 50 years. Terrible timing, it would seem, for rolling a 401(k) nest egg into a self-directed Individual Retirement Account, right? Wrong.
The timing couldn't have been better for moving my accumulated tax-deferred savings from 26 years of full-time newspaper work into an IRA at Fidelity.com.
Thanks to a combination of Social Security benefits (at age 64), my marriage to a great guy later that year and my continuing part-time freelance work, I've not been forced to tap into this nest egg, which has grown along with the U.S. economic recovery.
These investments have generated a 13.3 percent annual rate of return over the past three years, which is better than market averages of the past 40 years of 11 percent. Certainly far better than I expected. I would have been totally happy with 5 percent.
So while analysts continue to lament tepid U.S. job growth and a lackluster economy, I say thanks to Wall Street and the American corporations who live there for making my financial future a lot brighter as I celebrate my 67th birthday this week. How did I do this? I saved through my employer's 401(k) program and planned for the long-term.
Oh sure, there were set backs. I didn't plan for a divorce at age 60. The good news is that I kept my head and kept my house. The split did not financially blow me out of the water. Since then, I've refinanced my mortgage, stayed away from credit card debt and remained careful with spending and our household budget.
Three years ago in making the transition from full-time work to retirement and to a self-managed rollover IRA, I was excited. Several savvy friends advised me on investing strategies. I read a few money management advice books, I followed current financial news and continued to use my mother as a role model for good investing habits. She likes buying stock in individual companies that pay dividends, which she then reinvested. So despite the dysfunction of Congress, despite this month's federal debt crisis, despite Europe's struggle to deal with the EU banking crisis and the drumbeat of negative news from the Middle East my investments have performed well. Going forward I am sticking with large-cap U.S. corporations that show good quarter-to-quarter performance and that pay a decent dividend (somewhere above a 2 percent inflation rate).
My philosophy: The best place to be is in America where great corporations and businesses operate within our regulated capitalist society and where we are blessed with exceptional natural and human resources.
As I've said before at sixtyandsingle.com, Europe faces the issues of socialism while Asia must contend with societal corruption and red tape. Can we say China and India.
And besides most large U.S. corporations do business in these markets anyway, so if things begin to look better off-shore, American businesses will benefit from those global operations.
In spreading my investment chips around the board, I put chunks of money into an S&P 500 Index fund, which performs as well as the 500 largest companies in the U.S stock market. In the past three years, that fund has grown by 52 percent in value. Nice.
Additional money went into a telecom and utilities mutual fund. That's up 47 percent in value. Individual winners include Trimble Navigation, up 288 percent, Umpqua Bank, up 73 percent, Bristol Meyers, up 78 percent, Coca-cola, up 42 percent and Ford Motor Co., up 49 percent (this year.)  Most of these companies pay a dividend in the 3 percent range. That's far better than bond funds and certainly better than money market or bank savings accounts.
Yes I've had some losers (mostly this year). Alcoa, ConAgra and Fidelity's Spartan Real Estate Index Fund to name them.
Parking my money and walking away was never my plan. Half the fun is checking on their performance, making adjustments as needed, although I try to buy and hold for at least a year. That's been psychologically tough in the scary 24-7 economic news environment where Congress has us on the brink of disaster at any given moment because of the debt ceiling debacle or the federal government budget shutdown.
Turning to Warren Buffett
In times of high anxiety, I turn to Warren Buffett who has said that he's never delayed an investment decision because of what might happen in Washington D.C. This week during a live interview at CNBC, he reemphasized the importance of being a long-term investor and that most people are long-term investors.
"If you take the people I meet in Omaha," Buffet said, "If you take the people who own farms, you take the people who own apartment houses, most people are long-term investors, thank heavens.”
Buffet emphasized that our banks have never been in better shape. That American corporations continue to rise to the challenge of our economy and business environment.
As for me, I couldn't have asked for a better performance from my Rollover IRA than I've received over the past three years.
Yes, the timing was good in that I invested my money at the bottom of the Great Recession and what turned out to be the beginning of a recovery. I expect that our recovery will continue and America will remain the best place to invest.
Despite short-term ups and downs, strong U.S.-based corporations are not suddenly going to fall into a pit. That's unless Congress completely fails to adjust government spending to the reality of the deficit, fails to adjustment Social Security and other entitlement costs in light of an aging baby boomer population and fails to address tax reform. Oh yes, reforming our health care system is part of what's needed if we expect to compete in the global economy. Obamacare is a good first step. It needs more work.
1 percent "real" growth
Buffett told interviewers that he continues to see slow improvement in the U.S. economy and that 2 percent-a-year growth with less than 1 percent of population gain means 1 percent of "real growth per capita." In 20 years that’s 20 percent of real economic growth, he pointed out.
"If every generation lives 20 percent better than the generation before them, that’s not terrible,” he said.
My Rollover IRA is going to stay fully invested in the American economy where problems are being solved, new ideas are tried out and fabulous innovation continues to make us the greatest economy on earth. Along with Warren Buffet, let's call on both political parties "to pledge not to use the nation's debt limit as a weapon."
"Credit worthiness," Buffet said,"is like virginity, it can be preserved but not restored very easily, so it is crazy to play around with it.”
Let's call on all Congressional representatives to get to work on a financial plan for the long-term. We have to do it, so does Congress!!

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