Saturday, February 26, 2011

Targeting Fees in Target Date Funds

Targeting Fees in Target Date Funds

The real issue is not how much you are paying, it is are you getting what you are paying for? In the case of target date funds the answer is no. The idea that you should get more conservative as you approach 65 ultimately being near or at 100% in fixed income investments is a holdover from when people used to retire at 65 and didn't live past 70. Today a 65 year old could easily live past 100. The combination of retirement as a permanent vacation at age 65 with a portfolio mostly in fixed income is a recipe for disaster.

Saturday, February 19, 2011

Retiring Boomers Find 401(k) Plans Fall Short .

Wall Street Journal Article

Many people don't realize how long their 401k would last if they retired cold turkey. The old idea of retire at 65, move to FL, play golf, and have early bird dinners worked fine when people didnt live much past 65. Now people could easily live until 100 or more, no matter how much you like golf this could get boring and it takes a large portfolio to support you for 35 years. People need to rethink what retirement means as it is unhealthy not to stay engaged doing something. For some it could mean cutting down hours, others could be a job change to something they enjoy more. When people think like this they can often retire a lot sooner than they think.

Saturday, February 12, 2011

Markets are Uncorrelating

After QE2 was announced last year we saw all markets basically going up in unison. Gold, Commodities, Treasury Bonds, and stocks everywhere were all going up at the same time. We remarked at the time that something had to give, and this year it has in a big way. Below is a table of how some ETFs that track a number of different markets are doing this year. Many of them are negative and they are all underperforming the S&P 500 and the NASDAQ.

Performance of ETFs as of 2/11/11
Long Term Treasury Bonds (TLT) -4.61%
Barclays Aggregate Index (AGG) -1.07%
Gold (GLD) -4.61%
Silver (SLV) -3.21%
GSCI Commodity (GSG) 1.32%
Emerging Markets (EEM) -4.23%
Asia (AIA) -1.93%
International Small Cap (SCZ) 2.56%
International (EFA) 4.48%
US Small Cap (IWM) 4.90%
S&P 500 (SPY) 5.84%

A Broken Clock is Right Two Times a Day

How Now, 36,000 Dow? The Ominous Undertone of Rallies

Bottom line is that nobody knows what the market is going to do. Just by the law of averages somebody will predict major moves in the markets. We predicted on Fox News that the market would continue to go down in March 2008 when it looked like the market was recovering and we predicted on in October of 2008 that the Dow would drop to 7200 (it eventually went below that). That doesn't mean we will get the next one or the one after that. History is littered with people who got famous from one call and never got anything right again.

Thursday, February 10, 2011

Municipal Bond Fund Flows

According to the Investment Company Institute money has been flowing out of municipal bond funds. Ever since Meredith Whitney came out with her call on munis there has been a lot of heated discussion about the risks. At the end of the day who knows what direction munis will go in but if you are in harmony with the trends of the market you would want to avoid them as the trend is down.

The Next Repeal Target

The Next Repeal Target

It is crazy to think the government can make a go of long term care insurance. Most insurance companies have exited this marketplace because they figured out they cannnot make a profit. I have seen some real sad stories of long term care costs wiping people out. While I would love to see some sort of long term care benefit for seniors this would be a black hole.

Monday, February 7, 2011

Your Employer Knows Best, Perhaps

Your Employer Knows Best, Perhaps Or perhaps not. More employers are moving employees out of their 401k investment options into target date funds. This is due to the misguided view that as someone nears age 65 they need to get more conservative because they have a shorter time horizon. This is nonsense, a 65 year old could easily live until 100 or beyond. Having most of their money in bonds yielding 4-5% in a rising interest rate environment is a good way to make sure that they run out of money.