I found the following story in my emails yesterday. If you purchased $1,000 of shares in Delta Airlines one year ago, you will have  $49.00 today. If you had purchased $1,000 of shares in AIG one year ago, you will have $33.00 left today. If you had purchased $1,000of shares in Lehman Brothers one year ago, you will have $0.00 today. But, if you had purchased $1,000 worth of beer one year ago, drank all the beer, then turned in the aluminum cans for recycling refund, you will have received a  $214.00. Based on  the above, the best current investment plan is to drink heavily and recycle.  It is called the 401-Keg. Now I do not know if the number match up, but the story got me thinking about security of long term asset management and as so often when things get really bad in the market, you have to look back 20 years or so and figure out what went wrong, what is salvageable and what type of security you need as a baby boomer retiring or on the verge of retiring. It will help you put things in perspective and not to panic.

Looking back you learn that being in the stock market is a relatively recent thing.
There actually was a time when people talked about something other than the stock market. The market was considered taboo for most. Too risky. Too foreign. The generation of the Great Depression put their money in the bank. Some still kept it in cans buried under the front porch.
But then, in the early eighties something totally new appeared on the investing horizon: the IRA and life has never been the same.
It seems impossible that they have been around for less than 25 years. But, there was a time when people didn’t invest in mutual funds, stocks or options. IRA’s changed all that.

For the first time in the history of the markets the average guy had enough long-term money to venture into stocks, the sacred land of the gurus. There was an explosion of investors who poured their money into areas they knew almost nothing about. The result was stock market averages sky rocketing to levels unimaginable to even the most optimistic.
2,000 on the Dow – earth shattering. 3,000 – in the stratosphere. 14,000 plus? Ballistic Bubble. You would have been laughed off Wall Street for even suggesting it in those days.

I clearly remember the day the Dow Jones Industrial Average broke 5,000. We cheered. And we worried about what was coming next. This couldn’t possibly continue!
These 25 years of the investment explosion have had good and bad results.
The people on Wall Street, and those who work for Wall Street firms, have made more money than even they could have imagined. The average guy is a different story.
Sure, it looks great as the averages fly and the talking heads marvel at the huge gains, but for a hundred reasons of deceit and accounting, the average guy has come up with a big zero.

As the markets tumble from the latest debacle an aging U.S. population is crying for relief. We are looking for something safer than stocks, but certainly offering more reward than the 3% you might get from a bank. For most, the losses are getting to be too much to put up with the stock market lottery.

One tip is to re-consider bonds… long ignored as too boring, not enough action or for older folks only. Perhaps these things are true. But there is a whole lot more security in bonds, with almost none of the downside of the stock market and most of the return.
As the cry has gone out for safer investments, more and more downhome investors are pulling back from the fast track and finally making consistent returns in the safety of bonds.
The secret to making money in investments is not to give any back. That’s what bonds do; you keep a whole lot more of your gains than you do in stocks. And it adds up.

The biggest problem with bonds isn’t their security. Investment grade bonds default around one half of one per cent of the time, or a default rate of .5 out of 100. That’s very secure.

The biggest problem is that most people know less about bonds than they do about stocks. There is less information readily available. It’s a different language, and bonds have been out of favor with investors for a long time.
But, as the population ages and has less time for their stock portfolios to recover from the latest Wall Street disaster, bonds will regain prominence as the investment of choice. The baby boomers will make it so.

We have been getting away with our love affair with stocks because we have had enough time to recover from the downside of the market cycles. But, as the boomers reach retirement, and the “almost boomers” (like myself) approach retirement, we have to seek investments that aren’t coughing us up every 18 months. We will not have the time recover our losses in our investments before we have to start living on them.

Bonds are really very easy to understand but you need to stick with a few hard and fast rules.

- Quality, quality, quality
- Do not be a rate pig
- Do not buy a bond you can’t hold until maturity
- Ladder your portfolio
- Stay diversified

More on this in future issues.

Here is another one for the record: A recent  study found that the average American walks about 900 miles a year. Another study found that Americans drink, on average, 22 gallons of alcohol a year.  That means that, on average, Americans get about 41miles to the gallon! Makes you proud to be an American!