Go Lean Commentary
The old practice was for couples to have a lot of children so that there would be assurances for their old age; the many children would be able to leverage caregiving roles among themselves. With a high infant-mortality rate, there was the need to hedge the risk with a few more children – an “heir and a spare” many times over.
(This writer is the youngest of 6 children).
Then “the road turned”… change came.
After World War II, modern medicine improved (i.e. childhood vaccines), more family planning options were introduced, governments adopted social safety-net strategies (Social Security, National Insurance and other pensions) and a consumer culture took hold. It was no longer necessary, in the First World (North American and Western Europe), to have so many children. Couples in these countries, during the decades of the 1970’s to 1990’s, averaged only 2.1 children; today that figure is down to 1.8.
(This writer has 3 children).
This standard is now universal, even in the Third World Caribbean.
Here is where the “rubber meets the road”; without those old-world family planning strategies, care for aging parents now becomes an issue, a cause and an advocacy.
The book Go Lean … Caribbean addresses this issue head-on. It first declares that the Caribbean is in crisis, that most Caribbean citizens, residents in the homeland or the Diaspora, are not prepared for retirement and their “golden years”. Then with the propensity for societal abandonment, so many Caribbean citizens live abroad, away from their aging parents, so there is no practicality normally associated with a close proximity; (children cannot just simply cohabitate with their parents). To make matters worse, many Caribbean member-state governments have failing economic structures, so fulfilling their Social Contract responsibilities have been strained; consider currency devaluations, unchecked inflation, dependency on foreign imports and higher taxation with import Customs duties.
Alas, the book also declares that “a crisis is a terrible thing to waste”.
The Go Lean book serves as a roadmap for the introduction and implementation of the technocratic Caribbean Union Trade Federation (CU). This CU is proffered to provide economic, security and economic security solutions for the 30 member Caribbean states and their 42 million people. It is our quest to be prepared for the changed landscape. This mandate is detailed early on in the book’s Declaration of Interdependence with the following statements (Page 11 – 13):
viii. Whereas the population size is too small to foster good negotiations for products and commodities from international vendors, the Federation must allow the unification of the region as one purchasing agent, thereby garnering better terms and discounts.
ix. Whereas the realities of healthcare and an aging population cannot be ignored and cannot be afforded without some advanced mitigation, the Federation must arrange for health plans to consolidate premiums of both healthy and sickly people across the wider base of the entire Caribbean population. The mitigation should extend further to disease management, wellness, mental health, obesity and smoking cessation programs. The Federation must proactively anticipate the demand and supply of organ transplantation as developing countries are often exploited by richer neighbors for illicit organ trade.
xxiv. Whereas a free market economy can be induced and spurred for continuous progress, the Federation must install the controls to better manage aspects of the economy: jobs, inflation, savings rate, investments and other economic principles. Thereby attracting direct foreign investment because of the stability and vibrancy of our economy.
While the Caribbean may be in crisis today, conditions would get even worse tomorrow (near future) if left unchecked; if there is no remediation and mitigation for retirement. The Go Lean roadmap posits that retirement is a community issue, and that the mandate for the CU is to manage economic security issues – strong messages and incentives – to encompass retirement planning as well.
It should be duly noted that this issue is not one that the US shows leadership with. Far too many American citizens have not fully developed solutions for their retirement, despite the myriad of financial products available in that advanced economy. This is not a community choice issue; this is a community ethos issue. The Go Lean book (Page 21) defines community ethos as the “fundamental character or spirit of a culture; the underlying sentiment that informs the beliefs, customs, or practices of a group or society”. The ethos associated with retirement planning is that of “deferred gratification”, setting aside immediate benefits for more long-term benefits.
“A good person leaves an inheritance for their children’s children, but a sinner’s wealth is stored up for the righteous”. – The Bible; Proverbs 13:22 – New International Version
While Americans need to adopt this ethos – Social Security benefits alone are grossly insufficient to satisfy retirees’ needs – Caribbean citizens need to “double-down” on this spirit all the more so. In either case, there must be supplemental retirement income. With a patient, future-focused attitude, the stage is set for individuals to glean the benefits of the time value of money. This concept is fundamental in finance – it allows for greater future rewards of monies invested today. The very approach for retirement is to glean returns tomorrow (after a person retires) on the investments made today (while the person is still working).
Compliance in this regards, does not require intellectual genius, just financial discipline. Consider here, the example of a simple man, a “blue-collar” worker in the US State of Vermont. He is a role model for us all for “how to get rich slowly”:
Title: Janitor bequeaths millions to library, hospital
(Retrieved from CNBC.com – Consumer News & Business Channel site – http://www.cnbc.com/id/102404530)
Reuters; Friday, 6 Feb 2015 – Perhaps the only clue that Ronald Read, a Vermont gas station attendant and janitor who died last year at age 92, had been quietly amassing an $8 million fortune was his habit of reading the Wall Street Journal, his friends and family say.
It was not until last week that the residents of Brattleboro would discover Read’s little secret. That’s when the local library and hospital received the bulk of his estate, built up over the years with savvy stock picks. “Investing and cutting wood, he was good at both of them,” his lawyer Laurie Rowell said on Wednesday, noting that he read the Journal every day.
Most of those who knew Read, described as a frugal and extremely private person, were aware that he could handle an axe. But next to no one knew how well he was handling his financial portfolio.
Read, the first person in his family to graduate from high school, dressed in worn flannel shirts and spent his free time scavenging for fallen branches for his home wood stove. He drove a second-hand Toyota Yaris.
“You’d never know the man was a millionaire,” Rowell said. “The last time he came here, he parked far away in a spot where there were no meters so he could save the coins.”
Read graduated from Brattleboro High School in 1940 and during World War II served in North Africa, Italy and the Pacific theater. Returning home, he worked at Haviland’s service station and then as a janitor at a JCPenney store, marrying a woman with two children.
Before his death on June 2, 2014, Read’s only indulgence was eating breakfast at the local coffee shop, where he once tried to pay his bill only to find that someone had already covered it under the assumption he did not have the means, Rowell said.
Last week, Brooks Memorial Library and Brattleboro Memorial Hospital each received their largest bequests ever. Read left $1.2 million to the library, founded in 1886, and $4.8 million to the hospital, founded in 1904.
“It was a thunderbolt from the sky,” said the library’s executive director, Jerry Carbone. While a surprise, he said the gift made sense once he learned more about the quiet, shy library patron appropriately named Read.
“Being a self-made man with his investments, he recognized the transformative nature of a library, what it can do for people,” Carbone said.
Read’s stepchildren survive him but were not immediately available for comment.
VIDEO 1: – Investing like Vermont’s secret millionaire stock-picker – http://video.cnbc.com/gallery/?video=3000353159
VIDEO 2: – Janitor’s $8 million fortune – http://video.cnbc.com/gallery/?video=3000353167
In a previous blog/commentary, it was reported that the US does not make a good role model for its administration of the elderly. The American standard is to delegate elderly family care to professionals, rather than to family, and that this is not an example we want in our region; the referenced quotation was entitled 10 Things We Do Not Want from the US:
# 7: Family Abandonment – Senior Living Facilities are a big industry in the US. This is due to the family habit of abandoning elderly parents to the care of professional strangers. The Caribbean way traditionally is to house their Senior Citizens with families, whether the economics apply or not.
On the other hand, we do admire the US capital markets, as the Go Lean book reports that Wall Street is the most liquid in the world (Page 200). So among the 10 Things We Want from the US, American capital is prominent:
# 3: Capital – There are many Financial Centers around the world (London, Zurich, Hong Kong, etc.) but none with the liquidity like Wall Street. They have the capital the Caribbean needs for Direct Foreign Investments. After the 2008 Financial Crisis, the US Federal Reserve Banks have maintained a policy of flooding the money supply to keep the cost of capital (borrowing) low.
The roadmap uses the model of Wall Street to structure more robust investment vehicles in the regional Caribbean securities markets – the book identifies 9 exchanges. Imagine this one great US product that a Caribbean Diaspora member, a CPA, Clifton Rodriquez, strongly campaigns for: Dividend Re-Investment Plans or DRIPs. His blog entry is attached in the Appendix with his strong urging.
The Go Lean book describes this heavy-lifting to empower Caribbean society to prepare for change and challenges that confront modern financial management, for the macro (national economy) and the micro (individuals and families). There is no “get rich quick” scheme in the roadmap, but rather a comprehensive plan for all Caribbean stakeholders to “get rich slowly” and ensure economic success at home, “prospering where they are planted”. The book describes the turn-by-turn directions for all the community stakeholders to follow to reach the 3 goals defined as the CU/Go Lean prime directives:
- Optimization of economic engines in order to grow the regional economy to $800 Billion and create 2.2 million new jobs.
- Establishment of a security apparatus to protect the resultant economic.
- Improvement of Caribbean governance to support these engines.
The Go Lean roadmap calls for the emergence of the Caribbean Dollar (C$) managed by a regional technocratic Caribbean Central Bank. This structure allows for more liquidity in the existing stock exchanges in the regions. Products like DRIPs can be successfully promoted and regulated under the Go Lean’s vision for a more robust regional capital/securities market using Caribbean Dollars (C$).
The CU also embarks on a mission to encourage repatriation of the Diaspora back to the Caribbean homeland and assuage societal abandonment. The book asserts that, senior citizens should avoid the cold climates of North American and EU, especially in the winter months:
“Come in from the cold” – Song title of Caribbean Music Icon Bob Marley from 1980 Album Uprising.
The Go Lean/CU roadmap portrays the need for public messaging to encourage savings/investments, describing deferred gratification as a community ethos that is required to forge permanent change in the Caribbean homeland. In addition, these additional ethos, strategies, tactics and advocacies are trumpeted in the book to optimize financial/retirement planning:
|Ethos – Deferred Gratification||Page 21|
|Ethos – People Respond to Incentives in Predictable Ways||Page 21|
|Ethos – Consequences of Choices Lie in the Future||Page 21|
|Ways to Impact the Future||Page 26|
|Ways to Better Manage Debt||Page 114|
|Reasons to Repatriate||Page 118|
|Ways to Control Inflation||Page 153|
|Lessons from New York City – Wall Street Power||Page 137|
|Ways to Improve Communications – Messaging||Page 186|
|Reforms for Banking Regulations – Central Banking||Page 199|
|Ways to Impact Wall Street||Page 200|
|Ways to Impact Retirement||Page 231|
|Ways to Improve Elder-Care||Page 225|
There are many Go Lean blog commentaries that previously stressed the dynamics of technocratic management of regional finances, at the micro level and at the macro level for the Greater Good of Caribbean communities. See sample here:
|http://www.goleancaribbean.com/blog/?p=2930||‘Too Big To Fail’ – Caribbean Version|
|http://www.goleancaribbean.com/blog/?p=2830||Jamaica’s Public Pension Under-funded|
|http://www.goleancaribbean.com/blog/?p=1433||Caribbean loses more than 70 percent of tertiary educated to brain drain|
|http://www.goleancaribbean.com/blog/?p=665||Great Investment Vehicle – Real Estate Investment Trusts explained|
|http://www.goleancaribbean.com/blog/?p=510||Canadian Retirees – Florida’s Snowbirds Chilly Welcome|
|http://www.goleancaribbean.com/blog/?p=467||Barbados Central Bank records $3.7m loss in 2013|
|http://www.goleancaribbean.com/blog/?p=372||Dominica Government raises EC$20 million on regional capital market|
|http://www.goleancaribbean.com/blog/?p=364||Time Value of Money – The basis for retirement planning|
|http://www.goleancaribbean.com/blog/?p=360||How to Create Money from Thin Air|
|http://www.goleancaribbean.com/blog/?p=273||10 Things We Want from the US: #3 – American Investment Options|
The book Go Lean…Caribbean posits that many problems of the region are too big for any one member-state to solve alone, that there is the need for the technocracy of the Caribbean Union Trade Federation. The purpose of this Go Lean/CU roadmap is to make the Caribbean homeland, a better place to live, work, learn and play. This effort is more than academic; this involves many practical mitigations and heavy-lifting. While this charter is not easy, it is worth all effort.
The roadmap posits that to succeed as a society, the Caribbean region must arrange for economic, security and governance solutions. Any failure in this regard results in immediate abandonment – people leave – this undermines any empowerment efforts. We need to keep our people at home: the older retirees and the younger workers; they are all important for pension plans and actuarial tables.
Now is the time for all of the Caribbean, the people and governing institutions, to lean-in for the changes/empowerments described in the book Go Lean … Caribbean. We must all be able to prosper where we are planted at home.
Download the book Go Lean … Caribbean – now!
APPENDIX – Successful Retirement Investment in the Caribbean – DRIPs
Title: Drip-a Proven Approach to Wealth Building
(Retrieved from: http://cliftonhrodriquez.hubpages.com/hub/DRIP-A-PROVEN-APPROACH-TO-WEALTH-BUILDING)
By: Clifton H. Rodriquez
What Are DRIPS?
Direct stock and dividend reinvestment plans, or to use the acronym, DRIP’s have been around for some eighty (80) years. As the name suggests, they permit investors to directly invest in any a significant number of public companies without going through a stock broker. Investors are able to buy stocks directly from the companies, or via a transfer agent. In general, the purchase would entail a modest down payment coupled with automatic monthly payments. The term “IRM 72’s” is also used to describe DRIPs. The two names are one in the same and should not be viewed as different investment vehicles.
WEALTH BUILDING OVER TIME
As aforementioned, DRIP’s maybe referred to as IRM 72’s as well. They are an efficient and effective mechanism for building substantial financial nest-eggs over time. They are efficient investment vehicles because they allow investors to pay a small investment fee, usually for administrative purposes, while investing substantially more of their money in a particular stock. In some cases, a number of companies will cover some of the administrative fees, especially ones involving reinvestment of dividends, associated with DRIP investing. It is a fact that even discount brokers cannot match the low costs associated with DRIP investing. Furthermore, greater efficiency is realized with DRIPs due to “dollar cost average” associated with purchasing risk assets (stocks) over time. In a nutshell, investors are able to acquire more of a particular stock when the market price declines, but less when the price increases. However, over the extended period of time, the actual costs averages out.
It is an effective mechanism because unlike investing lump sums of money and taking greater risk, DRIPs allow for gradual investing over time and investors tend not to feel the pain of the volatility that often arises from time to time in the market. Thus, DRIP investors are less likely to panic and pull money out of their DRIP portfolios whenever bad news hits the market and causes chaos and panic (i.e., the root cause of volatility in the stock market). DRIP investors tend to appreciate market dips because they view them as opportunities to pick up their stocks at bargained prices. Picking up the stocks at these bargained prices tend to add to DRIP investors capital appreciation whenever other investors return to the stock market and chase stocks to higher prices. This is merely one way in which DRIP investors make money on their investments, and the other way is in effect “icing on the cake”.
DRIP investors experience icing on their investment cakes from the high dividend yields that they get from their investments. It is not inconceivable for DRIP stocks to give dividend yields as high sixteen (16%) percent. The yield is determined by taking the annual dividend and dividing it by current market price. Of course the higher the annual dividend, and the lower the current stock price, the greater the dividend yield. The opposite also is true. Most DRIP stock pay quarterly dividends, but several also pay monthly dividends which provide a higher effective yield to investors. Even if a DRIP stock does not increase in market price, if it has a high single or double digit yield that maybe enough for investors to maintain their positions in the stocks. Thus, it is a rarity to see many of these stocks decline in value. Investors tend to chase them for their dividend yields.
Investors chase these stocks for their dividend yields because these yields tend to fuel geometric growth in DRIP accounts, especially when an investor re-invests their dividends (i.e., use their dividends to buy additional shares of stocks). The re-investment of the dividends coupled with automatic monthly investment tend to bring about a profound compounding effect in the DRIP accounts. This effect can only be described as geometric in nature, and the value of the account tend to quickly double in most cases over a short period of time. Thus, the dividend yield of any DRIP stock is very important. The higher the yield the less time it takes for the DRIP account to grow geometrically.
DRIPs are the only investment vehicle that can create a greater wealth effect. No other investment (i.e., real estate or anything else) is more effective at creating wealth than investing in stocks. However, only forty nine (49%) of Americans are actively trading stocks (December 2014 Issue of “DRIP Investor”). Thus, 51% of Americans have their money tied up in other investment vehicles like real estate, or in most cases, institutions (i.e., banks or insurance companies). Thus, the wealth gap will continue to widen as long as a minority of Americans is invested in the stock market. Why? Again, the US Stock Market creates more millionaires and billionaires than any other investment institution. The stock market, in effect, provides an effective way in which US and other investors can not only stay abreast of inflation, but soundly beat inflation.
Unfortunately, the majority of Americans will not beat inflation. They will continue to receive negative real returns on their investments because many of them simply do not understand “time value of money”. They are convinced that banks and insurance companies are the safest places for their money, despite the fact that banks in general pay as little as a 1/2 of one percent return on passbook savings, while insurance companies will pay about two point five (2.5) percent on their best financial vehicles (annuities). Treasury bonds yields are somewhere in between what a bank will pay on its passbook savings and certificate of deposit (COD) account. The dividend yield pickings are slight to none whenever investors look at alternative investments to the stock market. According to time value of money (future value of a lump sum and future value of an annuity), money will not grow well whenever simple interest is paid. Thus, banks and insurance companies are simply middlemen which must be cut out of the equation if an investor wants to realize geometric growth (compounding effect).
In most cases, the banks and insurance companies simply take the very dollars that investors entrust to them, and lend them out to other customers (in form of secured loans) at much higher rates. The banks in particular cannot directly invest depositors dollars into the US Stock Market, and they do have to maintain certain reserve balances in accordance with the Feds’ guidelines and regulations. Nevertheless, these banks and insurance companies, collectively known as institutional investors, do move the Markets with the huge amount of dollars that they invest in stocks. They realize tremendous returns, but continue to pay nominal returns on their passbook savings and CODs. They get away with it because 51% of American investors fear investing their money in the stock market. They believe that their money is “safe” in a bank because the banks will claim that they are “FDIC” insured up to $250,000.00 per bank account. This insurance actually comes from the American Taxpayer who ultimately foots the bill for any failed commercial depository, or savings and loans. This was the case in 1989-1991 when the U.S. taxpayers bailed out the savings and loans industry. What the banks do not tell their customers is that they are actually getting negative real returns on their passbook savings and COD accounts. Why is that? If inflation is running at 2.5% in the U.S.,and the banks are merely paying a half (1/2) of one (1) percent, then it stands to reasons that most investors are losing purchasing power by keeping their money in a passbook savings or COD account.
A bank customer will not experience any degree of wealth by simply putting money in a passbook savings or COD account. As a matter of fact, given time value of money concepts, it would be better for a bank customer to keep their money under their mattress, given the negative returns that they experience by putting it in a passbook saving or COD account. The only real way to build any meaningful wealth over time is by investing directly into stocks. Stocks are risk assets, but given the fact that the US Stock Market is down roughly 20% to 25% of the time and up 75% to 80% of the time, it is a “no-brainer” for investors to stay in the stock market, especially if their investment time horizon is long-term (1-30 years). It is a fact that substantial wealth in the stock market can be built over time with consistent investing and reinvesting of dividends and capital gains. Unfortunately for the 51% of Americans who look to bank and insurance companies, the stock market is the only profitable game in town.
Anyone, even workers on minimum wages, can invest in the stock market via DRIP investing. This author started a DRIP portfolio back on November 1, 2012 with four stocks, AGNC, COP, COST, and TM (see below for details). The initial investment over the one year period amounted to $6,500.00. As of October 31, 2013, the DRIP Portfolio grew by five (5) additional stocks and had an accumulated market value of $13,078. The estimated return during the first year of investment was roughly 52.6%, most of the return came from the performance of Toyota Motor Corporation (TM), ConocoPhillips Corporation (COP) and JP Morgan Chase Bank (JPM) Over the next one year period that it grew to 15 stocks (AFLAC is not clearly shown in the depiction). Additional capital investment totaled $15,000, but most of the growth resulted from re-investment of dividends and capital gains. As of the close of the stock market on December 19th, 2014 the value of the author’s DRIP Portfolio is $50,700 plus. By this time next year (i.e., December 20, 2015), the projected value of the Portfolio will be around $80,000 to $85,000, given that the same investment strategy will be maintained, and additional capital investment of $15,000 to 20,000 will be made in American Capital Agency Corporation (AGNC), which has an effective dividend yield of 11.5%, a net book value of $25.25.
Investing in the U.S. Stock Market, or any of the capital markets entails considerable risk. Any potential investor exposing their capital to these markets need to do their homework prior to buying risk assets. This homework may entail in depth consultation with financial and investment advisers prior to any funds being committed to risk assets. An investor should never under any circumstances expose capital to the markets if they cannot afford to lose said capital. A potential investor should never rely solely upon anything that is written in this article, or any other article as the only source of prudent investment advice and basis for any decision making. Again, a proper research and consultation coupled with professional investment advice from reliable source should govern any investment decisions, regardless of the amount of capital involved, or the investment strategy employed.
My DRIP Portfolio