Leverage, Risk and the Future

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Yes, short term bonds are a good place to hide.

In an annuity, there is very little risk and its actually fun to see your money grow with the monthly staments. Its even better when the day comes when you cash in your annuity and do not have to work a day in your life. But be sure to do your homework about choosing a broker and a company. Choose well known companies with good track records. Best place to look is in money magazines and even the Securities and Exchange Commission may help.

I am glad that you are happy with your investment.

There is a place for tax advantaged investment accounts in most portfolios. Whole life insurance, as well as annuities, are useful when taxes are high. They can be replicated using short term bonds in Roth IRA or 401k accounts. This way, the management fees are much less and I keep more of my hard earned money.

My philosophy on investing is more traditional, dollar cost average, diverse portfolio, rebalance and take profits. The past couple of years have been tough with the markets topping out. Taking the good with the bad is a hard lesson to learn.

I like your portfolio but I use term life insurance.The disadvantages of whole life are the inflexibility of its premiums and the fact that the internal rate of return of the policy may not be competitive with other savings and investment alternatives. I am used to term life because that is all I sold.

Yes, I agree. Some people use whole life insurance to avoid probate.

China closed down 5.2%.

It hits here in three hours.

Europe is slightly positive at the open

RBS warns of a coming global financial sell off. Is this Henny Penny, aka Chicken Little, saying the "Sky is Falling" or another prescient forecast. The following text is from an article in The Guardian.

Investors face a “cataclysmic year” where stock markets could fall by up to 20% and oil could slump to $16 a barrel, economists at the Royal Bank of Scotland have warned.

In a note to its clients the bank said: “Sell everything except high quality bonds. This is about return of capital, not return on capital. In a crowded hall, exit doors are small.” It said the current situation was reminiscent of 2008, when the collapse of the Lehman Brothers investment bank led to the global financial crisis. This time China could be the crisis point.

Stock markets have already come under severe pressure in 2016, with the FTSE 100 down more than 5% in its worst start since 2000. In the US, the Dow Jones industrial average has made its poorest ever start to a year.

Oil prices have also fallen sharply on fears of lower demand and a supply glut, especially with Iran due to start exporting once more when sanctions are lifted. Tensions between Iran and Saudia Arabia make it less likely that Opec can agree to cut production to halt the slide in prices. Brent crude is down another 1% at $31.18, its lowest level since April 2004.

Investors have been spooked by fears of a severe slowdown in the Chinese economy and a fall in the value of the yuan, not helped by a crash in the country’s stock market despite attempts by the country’s authorities to curtail selling.

Andrew Roberts, RBS’s credit chief, said: “China has set off a major correction and it is going to snowball. Equities and credit have become very dangerous, and we have hardly even begun to retrace the ‘Goldilocks love-in’ of the last two years.”

Markets have been supported for some time by low interest rates, stimulus measures from central banks including quantitative easing, and hopes of economic recovery. But with the Federal Reserve raising rates and the Bank of England expected to follow suit, that prop is being removed.

Roberts said European and US markets could fall by 10% to 20%, with the FTSE 100 particularly at risk due to the predominance of commodity companies in the UK index. “London is vulnerable to a negative shock. All these people who are long [buyers of] oil and mining companies thinking that the dividends are safe are going to discover that they’re not at all safe.

“We suspect 2016 will be characterised by more focus on how the exiting occurs of positions in the three main asset classes that benefited from quantitative easing: 1) emerging markets, 2) credit, 3) equities … Risks are high.”

RBS is not the only negative voice at the moment. Analysts at JP Morgan have advised clients to sell stocks on any bounce.

Morgan Stanley has said oil could fall to $20 a barrel, while Standard Chartered has predicted an even bigger slide, to as low as $10. Standard said: “Given that no fundamental relationship is currently driving the oil market towards any equilibrium, prices are being moved almost entirely by financial flows caused by fluctuations in other asset prices, including the US dollar and equity markets.

“We think prices could fall as low as $10 a barrel before most of the money managers in the market conceded that matters had gone too far.”

Link to The Guardian article:Sell everything ahead of stock market crash, say RBS economists