Three Ways to Sting Your Wallet

Steve McDonald
by Steve McDonald, Bond Strategist, The Oxford Club

Editorial Note: At the Investment U Conference last week, The Oxford Club’s resident bond expert, Steve McDonald, led four packed sessions on how to safely prep for retirement. His talks clearly struck a nerve with attendees. So to start off our week, we wanted to approximate the experience for Investment U readers by sharing the article below. Steve originally wrote this piece for our sister publication, Wealthy Retirement. We hope you enjoy.

The urge to do crazy things with money has always amazed me. There seems to be a drive in most of us to make really dumb choices when it comes to how we spend and invest.

Aging and life experience don’t seem to make much of a difference. Even as we approach retirement and have less time to recover from bad choices, we still insist upon swinging for the fences.

It’s not until most of us get stung bad and we have no other choice but to cut back and try to recoup our losses does this behavior change. And when it does, it is usually to the other extreme.

Here’s an example: new cars.

The moment you drive off the lot you lose between 20% and 30% of the purchase value. A car costs a lot of money these days, so that can be a big loss. As much as $10,000 gone in a heartbeat!

The last new car I bought dropped by almost 40% the second I left the dealership.

It only took a couple years of giving my money away to car dealers before I finally took my father’s advice and started buying used cars. I have had fewer problems with the used vehicles I have owned. And I saved, on average, about 50% on the purchase price.

Here’s another one: cellphones.

I had a guy who worked for me in the mid-2000s who bought every new phone and gadget that came out. He spent a small fortune on them. All because he felt he gained some kind of edge by owning them.

I didn’t and still don’t get it! It’s a phone, not an investment, right?

I recently went into an AT&T store to look into a new phone. I have had mine for about five years. It works fine, but is difficult to text on. (And texting is the email of the ‘90s. Everyone wants to text, not talk.)

There were two phones: One was almost free - $29 - and did exactly what I wanted. Another was close to $600. They both had keyboards and would allow me to text more easily and look at things on the Web.

It turns out the almost-free phone does not display the same kind of Web page quality the $300 to $600 phones do... $600 and a two-year contract. You still access the Web on both, but the picture is different.

The nice young salesperson grabbed the most expensive phone and said the magic words, “This is the one everyone is buying.”

“Everyone” is another word for “the herd.” In my younger days, I spent and lost enough money trying to run with the herd, just like my employee back in the mid-2000s.

Since I didn’t really need one, I did not get a new phone. If someone needs to get in touch, let them call me.

The Retirement Sting

And, of course, an area we all sting ourselves is investing...

While not all of you buy new cars or the most expensive phones, I’d bet there is not a single person reading this article who has not owned a small or micro cap stock that had no earnings, no revenues, lots of debt and a great story...

Or the pharma company that was days away from approval from the FDA that never came...

The tech company that had software that would revolutionize computing, except it didn’t...

The small company that had a huge contract with a big one and would be bought out by it, but... well, you know the rest, I’m sure.

Stories like these are endless, but they always end the same. You either reach the point where you hit the sell button and take the loss or the stock sits in your portfolio for years at pennies per share.

The bad news is, even after 25 years of working with small investor, I don’t have an easy answer or a quick fix for these bad money decisions. That’s because the only fix that seems to work consistently is experience and learning from the bad experiences.

Some learn quickly, most don’t. Most conclude they have been misled or the market is no better than betting on horses, which is wrong. Or worse, they say it’s rigged and go back to cash. They then lose money slowly, rather than quickly, to taxes and inflation.

Retirement doesn’t allow for any of these missteps.

You cannot lose money long term to inflation or taxes or you will wake up in your 80s and not be able to afford your lifestyle. In many cases, it is a lot more serious than just losing a few notches in lifestyle.

And I’m sure I don’t have to tell any of you not to throw your money away trying to keep up with the herd or enjoying that new car smell at instant losses of 30% and 40%. At least, I hope I don’t have to.

But here is a simple exercise I have used over the years to help me stay out of the great story/small cap stock trap.

First, and the most difficult, keep a file that has all the trade confirmations or statements for your big mistakes. I know, it’s painful, but that’s why it is the most difficult.

Next, make notes on each page that include:

  • How you found out about the trade. I promise you it will not be from any credible source. The most likely is a friend, a person at work or a relative. None of whom have any more experience in the market than you do.

  • How much did you dream of making? I always tell folks in my presentations that most inexperienced investors dream of at least 100% to 400%. Think about it! Be honest and write it down.

  • And what was your exit strategy? When did you plan to get out and under what circumstances, for both losses and gains?

Keep this file where you can get to it. The top drawer of your desk is a good place.

Before you buy anything, large or small cap, read every page and every note, especially the sell confirmation where you took the loss. Make absolutely certain none of the information you have written down on your confirms or statements even vaguely resembles what you are considering now.

Of course, this exercise cannot prevent all losses. We are talking about investing and that implies losses. It is part of the game.

What it will do is help to remind you of that stinging feeling in the pit of your stomach when you pushed that “sell at a loss button.” When 100%-plus gains went down the drain. When money just vaporized.

The next time your cousin or best bud gives you another great story about another great company that could be the next Apple (Nasdaq: AAPL) or Bristol-Myers Squibb (NYSE: BMY), remember that sting!

When the next urge to get that new phone you really don’t need or a new car that will do nothing but depreciate, rust, eventually stop running entirely and at some point be worth zero, remember that feeling, too.

In retirement we are in a totally different game than we were 10 or even five years ago. And this new game has new rules. Learn them or get used to the sting!

Good investing,


Have thoughts on this article? Leave a comment below.

P.S. If you’re concerned about retirement (or looking to safely grow your account), Steve has just uncovered a way to increase your income by at least $56,744 almost instantaneously. Even better, this doesn’t involve stocks... Social Security... real estate... banks... or annuities. Click here for details.


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A Rising Yield to Get Your Retirement on Track

Many people think they have a handle on their retirement - particularly young people. They contribute to a 401(k) or IRA, pay off their credit card debt each month (okay, most months) and put a little something away whenever they can. Unfortunately, that probably won’t be good enough. Thanks to inflation and the fact that we’re living longer than ever before, the majority of Americans won’t have nearly enough to maintain their current lifestyle in retirement.

That’s part of the reason why Steve and Marc Lichtenfeld founded The Oxford Income Letter: to give everyday investors the chance to pull in above-average income during their golden years.

To show you precisely what we’re talking about, let’s look at Macquarie Infrastructure Company LLC (NYSE: MIC). The stock currently pays a 5% dividend yield. And there’s reason to believe that number will grow exponentially in the years ahead.

Here’s what Marc has to say about the company when he recommended it to Oxford Income Letter subscribers in October:

“As a reminder, companies pay dividends out of free cash flow. So earnings growth is certainly nice, and is desired, but free cash flow growth is critical for our income-producing stocks. In the first half of 2014, Macquarie grew free cash flow by 13.5% over last year to $121.6 million from $107.1 million... The company also has $1 billion in cash and credit, which can be used to fund growth and ramp up free cash flow even more, likely resulting in a higher payment to shareholders.”

Want more evidence to support a rising yield? Marc interviewed Macquarie’s management at the end of December. In that meeting, they said they expect to grow the dividend 12% per year over the next two years, which is, in Marc’s words, “pretty darn good growth.” And if you’re investing for retirement, it’s certainly the kind that can help you pad your account in short order.

- Alexander Moschina with Marc Lichtenfeld

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