I think that the American public has largely tuned out the myriad studies showing that most households are woefully under-saving for retirement. Even if we’d prefer not to think about this issue, however, it is crucial to regularly check on how we are doing. There are two major questions. First, during your working years, are you saving enough? Second, during retirement, how much income can you sustainably plan to draw from your savings each year? The good news is that there are some simple tools that you can use to do a fast estimate of how you are doing, how much you need to save to stay on track, or how to get on track. Continue reading
April is financial literacy month. I believe that lack of financial knowledge is one of the most critical problems that our country faces. Continue reading
The intent of target date strategies is to provide investors with fully-diversified portfolios that evolve appropriately as investors age. Target date funds have enjoyed enormous growth over recent years, not least because the Pension Protection Act of 2006 allows employers to direct retirement plan participants into these funds as the default investment option. Consultancy Casey Quirk projects that target date funds will hold almost half of all assets in 401(k) plans by 2020.
Target Date Folios are an alternative to traditional target date funds, launched on the Folio Investing platform in December of 2007. These portfolios now have more than five years of performance history. Prior to the design of the Folios, a detailed analysis of target date funds suggested that they could be considerably improved. The Folios were designed to provide investors with an enhanced target date solution. In this article, I will discuss the design and performance of the Folios and target date mutual funds over this tumultuous period. The risk and return characteristics of these funds and Folios provides insight into the effectiveness of different approaches to portfolio design and diversification. Continue reading
Guest post by Contributing Editor, John Graves.
Editor’s Note: John Graves has been an independent financial advisor for 26 years. He is one of the two owners of The Renaissance Group, a Registered Investment Advisor based in Ventura, CA. John’s book, The 7% Solution: You Can Afford a Comfortable Retirement, was published in 2012. When I read this book, I was impressed with John’s approach and thinking and I recommend it as a good read. I contacted John and asked if he would consider contributing to this blog. After we bounced around some possible topics, he sent me the following piece that describes his process for designing income plans for retirees. Continue reading
Availability of timely data is at the core of effective financial and economic analysis. The Federal Reserve Economic Database (FRED) provides a vast array of economic time series via an intuitive graphical interface. If you want to get a read on the U.S. economy, FRED is an outstanding resource. The ability to quickly create customized charts makes it quick and easy to examine a wide range of data. In this article, I am going to show a number of these charts, while exploring the overall economic U.S. economic picture. Continue reading
The question of how to safely generate income from a retirement portfolio is one of the most challenging in financial planning. In the days when people had traditional pensions, their employers simply promised them a constant inflation-adjusted income for the duration of their retirements. As we have moved away from traditional pensions and into self-directed savings plans such as 401(k)’s and IRA’s, investors and advisors must create their own customized income plans. New research from Morningstar highlights what appears to be a better approach to creating a stable income stream from an investment portfolio. Continue reading
Municipal bonds are issued by states and municipalities and typically have tax advantages relative to other fixed income assets. In general, income from muni bonds is tax exempt at the federal level and at the state level for investors living in the issuing state. Municipal bonds have historically been favored by investors in high tax brackets who, of course, derive more benefit from the tax exemptions by virtue of being in the highest tax brackets. Continue reading
Guest post by Contributing Editor, Matthew Amster-Burton, Mint.com.
Do we live in the golden age of investing?
Moronic question, right? Of course we don’t. The S&P 500 sits at about the same level it did five years ago. Bond interest rates have never been lower, and the Fed says it’s planning to keep them that way through mid-2015.
Turn on any financial channel and you’ll find as many gloomy predictions as you care to sit through: debt-fueled implosion in Europe, the next flash crash, the shrinking dollar, a stagnant labor market, Great Depression 2.0 (or is it 3.0 by now?). Continue reading
In earlier installments of this article, I have discussed some behavioral biases that tend to influence people to make bad investing decisions. In this post, I explore several more of these biases. The focus of this piece is on how we perceive ourselves and our ability to make independent decisions. One of the key ideas within rational markets is that people gather public information and make informed decisions. Without rational market participants, it is unlikely that markets themselves will converge to appropriate prices for traded assets (stocks, bonds, real estate, etc.). Continue reading
Today, the yields on ten-year Treasury bonds are at a fifty-year low, and no period prior to the last few years reflects yields that even come close. From 1962 to 2005, the lowest the 10-year Treasury bond yield ever got to was just below 4%, more than twice the current yield.
The chart below shows how unusual our current environment is. The vertical axis is the yield from 10-year Treasury Bonds and the horizontal axis is time and we are looking at a period from 1962 to present. From 1980 to today, we have seen the yield of 10-year Treasury bonds go from about 12% per year to below 2%. The 10-year Treasury yield is considered a benchmark measure of bond yield and interest rates. The Fed funds rate and the 10-year bond yield are very closely tied to one another. For another illustration of how interest rates, the Fed funds rate and 10-year bond yield are related, see here. Continue reading