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Dr. David Eifrig's Retirement Confession

By Dr. David Eifrig, editor, Retirement Millionaire
Thursday, March 26, 2009

If you've been reading DailyWealth for the past few months, you may recall some loopholes I've covered on how to get early retirement moneycheap drugscheap food, and cheap vacations.

These articles are all part of what we're calling the "Retirement Millionaire lifestyle"... a lifestyle that lets you lead a rich retirement no matter how much money you might have. We've gotten thousands of people interested in this new way of looking at life and retirement. But I have a confession for all of those people:

When I sit down to write Retirement Millionaire, I don't have them in mind.

You see, I write to my mother.

My mother lives in the Midwest and has always been a housewife. While she knows she can depend on me for serious financial assistance if she ever needed it, she'd rather stay independent. So she guards her nest egg like a pit bull. She can't afford to take big risks with her money... She's more concerned with return OF capital than return ON capital.

And as many folks are finding out these days, Wall Street couldn't care less about returning your capital. In addition to the $150,000 cars and million-dollar New York condos, Wall Streeters are far more concerned with keeping their clients ignorant. This keeps their "fee faucet" flowing day and night. I saw this mindset every single day when I worked on Wall Street. That's why my No. 1 job is to protect my mother and my readers from big money mistakes.

It's also why I dedicated much of my most recent issue to saying (not in these exact words), "Mom... it's still too dangerous to buy stocks right now. You're retired, and stocks just aren't safe enough or cheap enough for your money yet."

Call me old-fashioned, but I like to be heavily in stocks only when they present outstanding values. I like to buy world-class companies for five to 10 times earnings (the so-called price-to-earnings ratio, or P/E). Those are the values you get when the markets have truly bottomed out... when the public totally gives up on stocks. Take 1980, for instance...

Back then, the Dow Industrials and stocks like ExxonMobil traded between seven and eight times earnings. Right now, P/E ratios are above those levels... and earnings are still decreasing. So either the ratios must rise or stocks need to get even cheaper. For retirees who need to avoid risk, I just can't recommend buying stocks yet.

Mind you, I understand Steve Sjuggerud's idea that we should see a big rally in stocks. Sentiment toward the market is improving right now. And if you have some "play money," you might do well betting on a rally.

But if you're over 70, remember that stocks aren't trading for "can't miss" valuations... Keep in mind the time-tested "100 minus your age" rule. To follow this money management strategy, take 100% and subtract your age. So if you're 70, the rule says you should have 30% of your portfolio in the stock market. 

This is a great place to start when trying to decide how much to have in stocks. And if you're skeptical of the values out there right now, consider backing this number off toward 20% or 10% of your portfolio.

So again, the market is likely to keep rallying. But if you're in my mom's position, make sure you bet just a small amount of "play money." There's nothing wrong with holding a large percentage of your wealth (like 30% to 50%) in cash right now.

Exactly how much cash you hold will depend on your individual situation. It's all about sleeping well at night knowing your nest egg is safe. And anyone who has read my writing on health knows good sleep is one of the most important things in life.

Here's to our health, wealth, and a great retirement,

Dr. David Eifrig, MD

Market Notes


This winter, we ran an unusual chart that predicted – almost to the day – the new rally in crude oil. The chart displayed the "gold/oil" ratio.

The gold/oil ratio is the amount of crude oil one ounce of gold will buy. If gold is $800 an ounce and oil is $80 per barrel, the ratio is 10. If gold is $800 and oil is $40, the ratio is 20. When the ratio dips below 10, gold is cheap relative to crude oil, and it's a safe bet gold will outperform oil over the following year. When the ratio climbs above 20, the opposite is true... crude oil is cheap.

Last winter, thousands of investors fled economically sensitive assets like crude oil and piled into crisis assets like gold. The ratio shot up from a sleepy 8-10 reading to a "boiling" reading of 24 around Christmastime. It was like a teapot set on a hot burner. The pressure had to be released in the form of lower gold, higher oil, or a mixture of both. We got the latter.

Gold is down $75 an ounce from its February high. Oil is up $14 per barrel from its low reached around the same time. As you can see this "gold down/oil up" situation has relieved the pressure a bit… but oil is still cheap. Considering the black stuff broke out to a new four-month high in the face of terrible economic news, it's a good bet oil will keep rising and the ratio will keep falling.

In The Daily Crux

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