In the end, isn’t all about retirement planning? We work hard all our lives. When its time to retire, we want to insure we have a retirement plan that will sustain market changes and provide enough income for us for the remainder of our lives. In today’s day and advance, having a proper retirement plan is easier said than done. Because of the poor economy we have sustained these past few years, many of us need to work longer. In some European countries like France and Italy, the official retirement age has been advanced. Scientific breakthroughs and advances in medicine are also helping us live longer than ever. The days of making a retirement plan, putting it aside and waiting, are gone. The economic environment changes so quickly, retirement plans need to be reviewed on a regular basis. That’s where Profit Confidential comes in. In our daily writings, we attempt to analyze the market and the economy so our readers can make the proper adjustments to their retirement plans to insure their plans survives and prospers with the ups and downs of today’s economy.

There is no doubt we live in unchartered times for the various markets.

The Internet has changed the world. Instantaneous communication has resulted in the global economy moving faster than ever. The stock market can jump or fall 400 to 500 points in a single day. The bond market can wipe billions of dollars off the value of bonds in minutes.

For about 50 years, the 10-year U.S. Treasury never traded below a yield of two percent. This past Thursday morning, the yield of the world’s most popular government bond hit 1.99% for the first time in more than 50 years.

But half a century ago, the U.S. was a very different country than it is today. It had won World War II. Manufacturing and housing in the U.S. was booming. It was a creditor nation (countries borrowed money from us.). Fifty years later, Americais the world’s biggest debtor nation. Some say we face a debt crisis. But investors still run to our bonds. Why?

Two reasons…two things the bond market is telling us.

Firstly, the bond market is telling us that the new “norm” for the markets everywhere will be a very low rate of return on investment. It’s telling us the economy is going to slow down.

Secondly, we are dealing with the lesser of two evils. Right now, investors are focused on getting their money out of Europe. Where else can money go but to the safety of gold (which is booming) and U.S. Treasuries (which are rising in price).

Interest rates’ being low is playing havoc with anyone sitting with a large cash position. I wrote a couple of weeks ago about Bank of New York Mellon planning to charge customers with $50.0 million or more in cash to “hold” their money. And how about those poor retirees…how can they make a living off of what they have saved through a lifetime of working? The retirement plan idea, it’s out the window.

But what investors have not caught on to yet (or should I say only a few of us have) is the fact that the U.S. is actually in worse fiscal shape than the two largest economies in Europe, Germany and France. Our national debt-to-GDP is much higher here in the U.S. than it is in either France or Germany.

Each month, our government piles on billions of new debt to our already bloated national debt.  It’s ironic that the country with the greatest amount of debt, the country that creates more debt than any other, the country with the weakest currency, the country that will only see its debt rise as the economy weakens would have the most valuable bonds.

Dear reader, there is a term in economic analysis we refer to as “regression to the mean.” Basically, in time, all forms of investment return to their true value. Gold bullion has been going to that true value for 10 years now. Ten-year U.S. Treasuries? This investor wouldn’t touch them with a 10-foot pole.

Michael’s Personal Notes:

I’m against the market’s treatment of Hewlett-Packard Company (NYSE/HPQ) shares subsequent to the company’s announcement that it was contemplating exiting the personal computer (PC) business. In my opinion, getting out of the PC business would be an excellent move for HP.

HP controls about 20% of the PC market. Margins are tight on desktop computers; maybe only two percent to six percent. Let’s face the facts. Computing and communicating, once a function of the desktop, are now done on pocket-sized devices. Apple Inc. (NASDAQ/AAPL) owns that market. Google Inc. (NASDAQ/GOOG) is trying to get in the space by buying Motorola Mobility Holdings, Inc. (NYSE/MMI). HP cannot compete in this arena.

Leave the PC desktop market to Dell. They’re good at it. If I could read between the lines, I would say HP would like to take a chapter out of International Business Machines Corp.’s (NYSE/IBM) book. IBM decided years ago to leave the computer hardware market and focus on the software market. The change in focus was eventually a boon to IBM.

HP could be following in IBM’s footsteps. But the market is very short-term in nature. They are not thinking HP 10 years out. They are thinking HP today. There’s no money in the PC manufacturing business. There’s plenty of money in customized computer software and consulting. Hewlett-Packard is making the right move.

Where the Market Stands; Where it’s Headed:

The Dow Jones Industrial Average opens this last full trading week of August down 6.5% for 2011. What a month it’s been. These big 400- to 500-point drops on the Dow Jones have literally scared the retail investor away from stocks. I really don’t think that’s what the bear market wants to—it wants the opposite. It wants to take in more investors before taking their money away.

The pullback in equities has increased the attractiveness of both the price/earnings (P/E) multiples and the dividend yields of stocks. The Dow Jones now trades at a P/E multiple of 12.2 and an average dividend yield of 2.8%. This compares to a 10-year U.S. Treasury yield of 2.06%. Stocks are attractive again.

The bear market rally that started in March 2009 remains intact.

What He Said:

“Why Google stock will go higher: Most investors in Google, surprisingly, are retail investors. And that’s why the stock can go higher—because only 20% of the stock is owned by institutions. If the institutions jump in and buy Google, the stock will certainly move higher.” Michael Lombardi in PROFIT CONFIDENTIAL, June 2, 2005. Michael recommended Google stock as a buy on June 2, 2005, when the stock was trading at $288.00. On November 5, 2007, when Google reached $700.00 U.S. per share, Michael advised his readers to sell their Google stock and to put the proceeds into gold-related investments. Coincidently, gold bullion was also trading at about $700.00 per ounce in November 2007. Michael’s message was to trade each $700.00 share of Google into $700.00 of gold, because he saw gold as a much better investment.

The New Year has started positively and it looks like we could be set for another up year.

The key is to make sure you are well-diversified. I would like to discuss the concept of asset allocation as a critical part of any prudent portfolio management strategy.

Asset allocation refers to the asset mix of your portfolio, which is divided into the three major asset classes—cash, fixed income, and equities (stocks).

As the macro and micro factors change, as well as your investment objectives, you should rebalance your asset mix accordingly to the new conditions.

In general, without going into portfolio theory, the risk and expected return of an investment increases as you move along the spectrum from cash to fixed income to equities. The more risk assumed, the higher the expected rate of return, albeit this is not always the case in reality.

The relationship between risk and return should be used as a guideline.

The proportion of each asset class within your portfolio is dependent on your individual risk profile. For instance, the more risk adverse investors or those who are close to retirement may want a higher mix of fixed income/cash and to steer clear of too much equity.

On the other hand, risk-tolerant investors or those investors who are young may want to take a more aggressive approach and maintain a higher mix of equities in conjunction with less fixed income/cash.

A general rule for asset allocation is that the weighting of the fixed income portion as a percentage of your total portfolio should approximate your age.

Let’s say you are 25 years old. The basic guideline tells us you should have about 25% of your assets in fixed income and up to 75% in equities. On the other end of the spectrum, a 50-year-old entering the final phase of his or her working life should have a conservative 50% weighting in fixed income securities. And, of course, a person at the retirement age of 65 should have a minimum of 65% in fixed income.

Keep in mind that this rule should only be used as a guideline and is not meant to be conclusive.

Prudent asset allocation tries to achieve the highest rate of return given the risk. The most basic of investing is to understand how to create an appropriate blend of equity, fixed income and cash.

To determine your risk profile, you should first understand your investment personality.

Investors range from the ultra-conservative investor who wants to sleep at night to the highly aggressive speculator who thinks of the stock market as a roll of the dice. It is crucial that you stay within your risk boundaries if you are very conservative. For example, if you tend to get jittery when the stock market gyrates, you may want to focus on fixed incomes and less on stocks, otherwise you’ll be reaching for that bottle of “Prozac” a bit too often.

Asset allocation is often dependent on your age; but, in reality, understanding each person’s risk profile is also very important. The only rule that generally applies is that, the older you get, the less exposure to equities you should have, as you don’t want to risk your life savings for a hot tip.

Among market watchers, there’s an old saying in the market: Bulls make money, Bears make money, Pigs get slaughtered! Translation:

Don’t get too greedy, and live within your risk profile.