Economic Survival in the 21st Century - the Three Key Questions to ask

Written by Henry To, CFA


In this “special report”, I want to pose a few important “philosophical questions” to my readers. Firstly -- our Federal Reserve Chairman, Alan Greenspan, addressedrepparttar effects and implications of our aging population on things such as Social Security again in a speech that he made last Friday. Readers may remember that I also briefly mentioned this issue in my June 24th commentary. I urge you to keep this worldwide phenomenon ofrepparttar 112400 aging population firmly onrepparttar 112401 back of your minds. If you are like most people, then you earn you living by producing a certain thing – such as a consumer good, or a service thatrepparttar 112402 masses want. Let’s face it – how many people really “struck it rich” by being pure traders or investment managers? The stock market and other financial markets are definitely very important to us investors/traders but this “super secular trend” ofrepparttar 112403 aging ofrepparttar 112404 worldwide population will impact every aspect of our lives, whether it is losing our relative competitiveness onrepparttar 112405 world arena, increasing pension and healthcare costs, or even a potential fundamental change of our political system.

The second question that I want my readers to think about isrepparttar 112406 potential end torepparttar 112407 era of cheap energy prices – an era which we have basically enjoyed forrepparttar 112408 last two decades without thinking ofrepparttar 112409 long-term repercussions. The United States, with less than five percent ofrepparttar 112410 world’s population, currently consume approximately 25% ofrepparttar 112411 world’s energy each year. Supply is maturing while demand continues to surge – as exemplified byrepparttar 112412 surging in demand from China and India. Inrepparttar 112413 meantime, spare energy-producing capacity and inventory levels have been at all-time lows – potential for a perfect storm?

Finally, I want to ask my readersrepparttar 112414 following question: What kind of investor are you? What investing style do you adopt and what investing style are you most comfortable with? Can you be a contrarian and buy whenrepparttar 112415 crowd is selling or are you merely a follower who is only comfortable if you fit in? These are straightforward questions – but these are questions that you really need to ask yourselves in order to truly make money in investing overrepparttar 112416 long run. If my readers takerepparttar 112417 time out to thinking about these three questions or issues – and ultimately have a firm grasp of even just one ofrepparttar 112418 issues – then you will be in a much better economic situation than most Americans five to ten years from now.

To begin, what arerepparttar 112419 potential implications ofrepparttar 112420 “aging population” phenomenon? Readers my recall that in my June 24th commentary, I stated: “Assuming thatrepparttar 112421 current level of benefits remain intorepparttar 112422 future and assumingrepparttar 112423 level of taxes is not raised, then public benefits to retirees would dramatically increase going forward. Onrepparttar 112424 extreme end, Japan and Spain will see a more than 100% increase in their outlays to retirees. Clearly, this is not sustainable. Either things such as defense or education spending will need to be cut, orrepparttar 112425 above countries will need to raise their taxes. Neither ofrepparttar 112426 two scenarios is optimal. Borrowing more of their funds is not a long-term solution. Cutting funding in defense and education will comprise a country’s future, and raising taxes will place a huge social and financial burden onrepparttar 112427 population ofrepparttar 112428 developed world – where taxes are already at a historically high level. Think about this: If you were a bright, young, French industrialist and you were forced to pay 60% of your income as taxes to supportrepparttar 112429 elderly, what would you do? Why, you would vote with your feet and relocate to another country that is more tax-friendly and business-friendly – and so will other great talent that may have been a great contribution torepparttar 112430 French economy. The governments ofrepparttar 112431 developed world recognize this – but there are no easy solutions.”

“This picture gets grimmer when one takes note of a study that was done byrepparttar 112432 Bank Credit Analyst. In that study,repparttar 112433 BCA predicts that byrepparttar 112434 year 2050,repparttar 112435 percentage share ofrepparttar 112436 developed countries ofrepparttar 112437 global population will drop from over 30% in 1950 to less than 14% -- or about equal torepparttar 112438 population ofrepparttar 112439 Islamic nations ofrepparttar 112440 world. Similarly, Yemen will be more populous than Germany in 2050; while Iraq will be 30% more populous than Italy (Iraq is less than 40%repparttar 112441 size of Italy today). Russia’s population is projected to continue to decrease – at a rate such thatrepparttar 112442 population of Iran will be even higher to that of Russia’s in 2050. India will berepparttar 112443 most populous nation inrepparttar 112444 world, and Pakistan will only lagrepparttar 112445 U.S. by approximately 50 million people. Ifrepparttar 112446 developed countries of today do not choose to work harder or become more efficient, then they will ultimately lose their comparative advantage, asrepparttar 112447 younger population ofrepparttar 112448 world is inherently more hard-working, energetic, innovative, and creative. In today’s globalized world, this will be a killer forrepparttar 112449 average worker inrepparttar 112450 developed countries –repparttar 112451 more so oncerepparttar 112452 language barrier is eliminated (the successful commercialization of universal language translators is projected to happen in ten to fifteen years). I am generally more optimistic, asrepparttar 112453 elimination ofrepparttar 112454 language barrier will greatly enhance business opportunities and efficiencies, but a person such asrepparttar 112455 average American worker will loss his or her comparative advantage inrepparttar 112456 global workforce. The availability of a huge supply of labor should also drive down wages inrepparttar 112457 global marketplace – and most probably increaserepparttar 112458 maldistribution of wealth in today’s developed countries.”

Like I have mentioned before, there are no easy solutions. Ifrepparttar 112459 average American sees an increase of 10 years in his or her life expectancy, can he or she reasonably or logically retire atrepparttar 112460 current normal retirement age of 65 (which was determined duringrepparttar 112461 Roosevelt administration duringrepparttar 112462 1930s) without placing an undue burden onrepparttar 112463 system? The answer is most probably “no.” Applyingrepparttar 112464 same working-years-to-retirement-years ratio to his or her new life expectancy, thenrepparttar 112465 average American should probably work around five to six years more – thus giving a revised normal retirement age of 70 or so. Moreover, all this analysis is based onrepparttar 112466 outdated population distribution inrepparttar 112467 form of a pyramid – whererepparttar 112468 younger and more able workers represent a majority ofrepparttar 112469 population (and whererepparttar 112470 elderly represents only a small minority ofrepparttar 112471 general population). The pyramid distribution has historically facilitated government support ofrepparttar 112472 elderly – asrepparttar 112473 monetary and social burdens have been shouldered by a relatively large younger population. The current experience of Europe and Japan suggests a more uniform distribution inrepparttar 112474 population of those countries going forward – asrepparttar 112475 birthrate in those countries are now dismally belowrepparttar 112476 replacement rate ofrepparttar 112477 population. The situation inrepparttar 112478 United States is not currently as drastic (given our relatively lax immigration policy) but we are heading towardsrepparttar 112479 same direction. Thus to maintainrepparttar 112480 current standard of living at retirement, my guess is thatrepparttar 112481 general population will not only have to work longer, but work longer hours inrepparttar 112482 present (and save more) as well.

How to create wealth in the stock market

Written by Charles M. O'Melia


How to create wealth inrepparttar stock market

First and foremost, an opportunistic strategy for creating wealth inrepparttar 112399 stock market is needed. Andrepparttar 112400 opportunistic strategy for creating wealth inrepparttar 112401 stock market must have two ingredients, a plan and a goal. The plan must be a definite, concrete plan of investing that would profit you and your family forrepparttar 112402 rest of your lives.

This opportunistic investment plan you begin should not profit anyone else – not a stockbroker, a mutual fund or a financial advisor. This means you have to have confidence in yourself and in your own judgment as to whetherrepparttar 112403 investment plan you begin has merit. And this means thatrepparttar 112404 investment plan would and should have already been proven to you!

This definite, concrete plan you begin for creating wealth through opportunities inrepparttar 112405 stock market must also have a goal. The goal should be clear and specific, and once your have made up your mind to achieve that goal, then go forward and make that goal a reality.

What arerepparttar 112406 opportunistic traits of a strategic investment plan built on concrete that would actually allowrepparttar 112407 shareholder to profit through allrepparttar 112408 turmoil of an up and down stock market? The secret for creating wealth inrepparttar 112409 stock market; no matter what directionrepparttar 112410 market is heading?

As in what appears to berepparttar 112411 most difficult investment question of all to answer,repparttar 112412 answer lies in simplicity itself – investing in those companies that have a historical record of raising their dividend every year. Whether or not you can take this statement of fact to heart is your own judgment call. But it is this opportunistic trait that can and will create wealth for you and your family forrepparttar 112413 rest of your lives.

A company’s ability to raise its dividend every year, coupled with stock appreciation is a very powerful wealth creating formula!

I’m going to provide you with two examples, though there are many more, some with even better results. The two examples are from my book, soon to be published by American Book Publishing – The Stockopoly Plan (where an investment plan and a goal are written in stone).

The first example would be a stock purchased in 1990, Comerica (CMA). What led torepparttar 112414 purchase of CMA? – In 1990 CMA had a 21 year history of raising their dividend every year. Today’s CMA has a 35 year history of raising their dividend every year. This opportunistic trait in CMA stock has garnished a little better than a 15 percent return a year, compounded annually (just by havingrepparttar 112415 dividends reinvested back intorepparttar 112416 stock each quarter through those years – I prove this to you in The Stockopoly Plan), forrepparttar 112417 past 14 plus years. Today’s CMA stock just recently touched a new high at $60 dollars a share, with a dividend yield of around 3˝ percent. In April of 2003repparttar 112418 stock was selling around $37.50 a share, paying a dividend yield of around 5% a year. Am I tempted to sell my position in CMA? Do I care ifrepparttar 112419 stock drops from this lofty price back to $37 a share? Why should I? Ifrepparttar 112420 stock drops back to $37 a share, my dividends being reinvested back intorepparttar 112421 stock each quarter purchases more shares, and my dividend income from CMA simply and dramatically accelerates. I am also already prepared that if a buy-out offer is ever made forrepparttar 112422 company to reaprepparttar 112423 profits of owningrepparttar 112424 stock (as well asrepparttar 112425 possibility of another stock split).

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