Posts Tagged ‘Retirement’
Thursday, April 25th, 2013
If you’ve been watching any commercial television lately, you are well aware that the financial services industry is very busy running expensive ads imploring us to worry about our retirement futures. Open a new account today, they say.
They are not wrong that we should be doing something: America is facing a retirement crisis. One in three Americans has no retirement savings at all. One in two reports that they can’t save enough. On top of that, we are living longer, and health care costs, as we all know, are increasing.
But, as Martin Smith found when investigating the retirement planning and mutual funds industries in Frontline documentary ‘The Retirement Gamble’, those advertisements are imploring us to start saving for one simple reason. Retirement is big business – and very profitable.
Some highlights of his report and the documentary include:
“…they don’t have to give you the best advice, just advice that isn’t too egregiously terrible…”
“You’ll get lots of advice, but chances are it won’t be worth much. Eighty five percent of all financial advisers and financial planners are really just brokers or salesman. Their incentive is to sell you a product that makes them a higher commission, not necessarily a product that maximizes your chances of saving more. Only 15 percent of advisers are “fiduciaries” – advisers who by law must operate with your best interests in mind.”
“…While reporting on retirement plans, nothing has been more surprising to me than the corrosive effect of fees on our retirement savings. It’s this simple: Fund fees can erode as much as half or more of your prospective gains…”
“…Sadly, a recent AARP study reported that 70 percent of mutual fund savers were not even aware that they were paying any fees at all.
Is there hope for change? The Labor Department says they plan to reintroduce a new fiduciary rule this summer that will force the financial services industry to think of us first when it comes to retirement. We’ll see how that goes.”
We believe everyone should watch this documentary as, in Martin Smith’s own words, “What I uncovered while making this documentary made me rethink my financial future. It just might do the same for you.”
Chapter 1 – The Retirement Circus
Americans entrust trillions to financial service providers, but is the system working?
Chapter 2 – It Used To Be Much Easier
Pensions were once the main road to retirement until an IRS loophole changed everything?
Chapter 3 – The Tyranny of ‘Fees’
The father of index funds explains how 401(k) fees can diminsh your retirement savings.
Chapter 4 – Are Index Funds The Answer?
Martin Smith asks whether index funds offer the safest way to save for retirement.
Chapter 5 – Advisers or Salesmen?
Why your financial planner may not always have your best interests in mind
Thursday, August 18th, 2011
by Kevin Feldman, iShares
My phone has been ringing a lot more than usual the past two weeks, mostly from family members seeking guidance or reassurance as market gyrations test their nerves. Is this 2008 all over again? Have we just transferred liabilities from banks to governments? And so on.
I’ll leave the post-downgrade economic analysis to the far more capable Russ Koesterich on our team, but I would like to weigh in on some financial planning considerations for volatile times like these. Let me start by sharing how I evaluate my own portfolio choices, and some changes I’ve made over the past year.
I’ll warn you upfront: My personal portfolio is not very sexy, and there’s no “market-beating” formula below. But I do take risks at times when I think I will be compensated for them.
Like most of my friends and colleagues who are also in their forties, my biggest savings goal is retirement. As I’ve blogged about previously, getting your retirement assumptions right is both critically important and a bit tricky. I opt to be more conservative on assumptions, so I’ll hopefully end up saving more than I need for retirement.
With 20 plus years to go until I retire and then (I hope) 30 plus years enjoying retirement, I have a long time horizon. Normally, planning for a longer retirement would encourage me to tilt toward riskier assets like stocks, which are more volatile in the near-term but have historically produced higher returns over longer periods.
On the other hand, given my profession, I would also like my asset allocation to tilt a bit toward bonds to help balance the volatility of future income which tends to rise when markets are doing well and fall when they are doing poorly.
Lastly, we’re in this highly unusual extended period of zero interest rate policy (ZIRP). Shouldn’t I do something to improve on the 2.2% the US government is offering to pay me for holding its bonds for the next ten years?
The short answer to all of the above is yes: I do think about all of this when reviewing my asset allocation, and I occasionally make adjustments as a result.
My “default” allocation the last few years has been 60% equities / 30% bonds / 10% alternatives (mostly real estate and gold).
In terms of how I implement this asset allocation, it’s pretty straightforward. I use mutual funds and ETFs. I’m more of a passive investment type of guy, but I do have a few favorite active managers and have owned their funds for many years. Since I still have a few investing scars following the dot-com era, I rarely invest in individual stocks, but I do own one—BLK— the firm where I work.
So, what changes have I made in the past year?
- Equities: I usually prefer broad market exposure both domestically and internationally without any long-term preference to size or style. I have been favoring US large caps recently, partly for their tax-favored dividends (might as well take advantage of qualified dividend income (QDI) while we have it; who knows how long it will last) and partly based on Russ’s thoughts on relative value. I’ve been pushing past my own home country bias the past few years and now hold 60% US equity / 40% international. I was overweight to EM for many years, but am now back to market weight as both valuations and correlations to other markets have risen.
- Fixed Income: No great options in a ZIRP environment, but remember bonds are in most portfolios primarily to balance equity risks and even at very low yields, government bonds have historically done that better than higher yielding bonds, as we’ve been reminded the past few weeks. With that said, I have reallocated half of my previous aggregate bond exposure (AGG) to a combination of high quality corporate bonds, munis and a stable value fund (unfortunately, only available in 401(k) plans, but at 3% yields, a handy option in the current environment).
- Alternatives: The only change I’ve made here recently was to significantly reduce my allocation to REITs (consistent with the rationale Russ discusses here) and also because unusually strong market appreciation had taken them far above the original allocation target.
At work, I’m surrounded by a lot of very smart people with very interesting investing strategies, but I know my limitations in terms of the risk I’m comfortable with and the amount of time I have to review my portfolio. So I try to stay pretty disciplined on this and not fiddle with it too much. My aversion to paying capital gains taxes usually keeps that impulse in check!
Copyright © iShares
Tags: Asset Allocation, Assumptions, Bonds, Economic Analysis, Financial Planning, Forties, Interest Rate Policy, Liabilities, Market Gyrations, Nerves, Personal Portfolio, Reassurance, Retirement, Russ, Savings Goal, Time Horizon, Us Government, Volatile Markets, Volatile Times, Volatility
Posted in ETFs, Markets | Comments Off
Thursday, July 21st, 2011
by Kevin Feldman, iShares
Young investors who keep their money in cash may think they’re playing it safe, but the strategy could cost them in the long run.
A recent Bank of America-Merrill Lynch survey found that almost half (47%) of 1,000 affluent Americans—defined by Merrill as Americans with investable assets in excess of $250, 000—describe themselves as “conservative investors,” meaning that they favored low to moderate risk investments intended to deliver modest but steady gains. Among young investors aged 18 to 34, that number soared to 59 percent. (As compared to 41% among investors aged 35-64.)
What’s striking about these findings is that they’re basically a reversal of conventional financial wisdom, which holds that younger investors should take on more risk than older ones; since they have more time before retirement, they can afford to be more aggressive in search of greater gains, which are then compounded over decades. Older investors, however, won’t have as many years before retirement to recover from potential large downturns in riskier investments. Younger investors are typically the ones who buy growth-oriented equities, while older folks are typically the investors moving their portfolio into less risky and income-generating investments.
What’s going on? The consensus is that older investors’ attitudes were shaped by the long-running bull market of the mid-1970s through the late 1990s. Younger investors, however, had less time to form positive impressions of the market before being hit by two crises in less than a decade: the bursting of the tech bubble in 2000 and 2001, and the recent market plunge of 2008 and 2009. So while older investors saw a quarter-century of upward movement before a sustained plunge, younger investors saw deep drops bracketing a few years of growth.
Given the economy, younger investors are also likely to have an understandable fear of unemployment, and so want to keep cash on hand—as opposed to investing it in equities that, in their experience, can suffer massive drops in value. It’s the modern equivalent of people who lived through the Depression stuffing cash under their mattress.
I can understand why younger investors lack confidence in equities, but I can’t endorse the strategy. Playing it safe in reaction to past crises is investing by looking in the rear view mirror, and ironically, it really isn’t playing it safe at all—more like the opposite.
For two reasons. One, investors who allocate too much of their retirement portfolio to cash or fixed income will likely lose out on the higher gains that equities have historically generated over long-term periods. They’ll also lose out on the compounded value of those gains between now and their future retirement years.
And two, they may lose money by not keeping up with inflation, as is entirely possible when keeping your money in cash or short-term bonds, particularly at current interest rates. Most financial advisors would tell you that only if you strongly believe we’re headed for deflation, or if you have a near-term plan for a major purchase such as a home, does it make sense for a younger investor to hold 1/3 of his or her portfolio in cash.
This is the kind of longer conversation that investors should really have with their financial advisors, of course. But broadly speaking, for younger investors the old advice is still sensible: Start saving as early as you can and don’t stop. Diversify, diversify, diversify. Keep costs low and be tax savvy in where you place your investments.
Keeping your money under the mattress—figuratively or literally—is not the road to a comfortable retirement.
Diversification may not protect against market risk. Past performance does not guarantee future results.
Tags: 1990s, Affluent Americans, Bank Of America, Consensus, Conservative Investors, Crises, Financial Wisdom, Impressions, Investable Assets, Market Plunge, Merrill Lynch, Mid 1970s, Moderate Risk, Older Investors, Quarter Century, Retirement, Risk Investments, Survey Found That, Unemployment, Upward Movement
Posted in Markets | Comments Off
Monday, November 8th, 2010
On this week’s Consuelo Mack WealthTrack: the first of a two part series on “The New Retirement Reality.” Kiplinger’s retirement guru, Mary Beth Franklin and award winning financial planner, Mark Cortazzo bring us up-to-date on what to expect and how to plan for the new retirement climate.
Copyright (c) WealthTrack.com
Tuesday, January 19th, 2010
Jonathan Zweig, of WSJ’s Intelligent Investor column writes that investors are out of touch with reality as far as their expectations for investment returns are concerned.
The faith in fancifully high returns isn’t just a harmless fairy tale. It leads many people to save too little, in hopes that the markets will bail them out. It leaves others to chase hot performance that cannot last. The end result of fairy-tale expectations, whether you invest for yourself or with the help of a financial adviser, will be a huge shortfall in wealth late in life, and more years working rather than putting your feet up in retirement.
Source: Why Many Investors Keep Fooling Themselves, Jonathan Zweig, January 16, 2009
Tags: Advertisement, Article Source, Avw, Cb, Ck, End Result, Fairy Tale, Faith, Feet, Financial Adviser, Img Src, Intelligent Investor, Investment Returns, Investor Column, Investors, Jonathan, Leads, Lt, Openx, Personalfinance, Pf2, Random Number, Retirement, Shortfall, Wsj
Posted in Markets | Comments Off