April is financial literacy month. I believe that lack of financial knowledge is one of the most critical problems that our country faces. (more…)
Archive for the ‘Retirement’ Category
Financial Literacy: State of the Union in 2013
Posted in Bonds, Books, debt, Diversification, financial planning, Inflation, pensions, Portfolio Investing 101, Retirement, Stock Investing, tagged college costs, Fees, fiduciary resposibility, financial literacy, saving on April 18, 2013 | Leave a Comment »
Target Date Strategies Over The Last Five Years
Posted in 401(k), Asset Allocation, Diversification, Long-term investing, Mutual Funds, pensions, Retirement, Risk, tagged glidepath, pension protection act, retirement plan participants, risk targets, Target Date Folios, Target Date Funds, target percentage, traditional target on January 29, 2013 | Leave a Comment »
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. (more…)
A Picture is Worth a Thousand Words: The State of the Economy
Posted in Asset Allocation, Bonds, Inflation, Retirement, tagged bond yields, Consumer Price Index, Federal Reserve Economic Database, labor participation rate, recession, Treasury bonds, unemployment, unemployment rates, US economy on December 7, 2012 | 1 Comment »
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. (more…)
An Alternative Approach for Drawing Income from Your Portfolio
Posted in 401(k), Asset Allocation, Commodities, Diversification, financial planning, Investors, Retirement, retirement income, retirement planning, tagged 4% rule, IRAs, Monte Carlo Simulation, probability of failure, Quantext Portfolio Planner, TIPS, ZVI Bodie on November 23, 2012 | 1 Comment »
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. (more…)
Sector Watch: Municipal Bonds
Posted in 401(k), Asset Allocation, Bonds, ETFs, pensions, Retirement, retirement income, retirement planning, Risk, Taxes, Uncategorized, tagged Bill Gross, fixed income, folios, high yield bonds, income exempt, interest rates, Meredith Whitney, muni, Municipal Bonds, public pensions, QE, Quantitative Easing, Target Date Folios, Treasury bonds on November 19, 2012 | Leave a Comment »
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. (more…)
Do We Live in the Golden Age of Investing?
Posted in 401(k), Bonds, Diversification, ETFs, Markets, Mutual Funds, Retirement, Risk, Stock Investing, tagged Burton Malkiel, Fees on November 9, 2012 | Leave a Comment »
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?). (more…)
Game Theory, Behavioral Finance, and Investing: Part 4 of 5
Posted in Behavioral Finance, Investors, Retirement, retirement planning, Stock Investing, tagged behavioral bias, delayed gratification, EBAY, Herd Behavior, self-attribution bias on November 7, 2012 | Leave a Comment »
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.). (more…)
Managing Your Portfolio’s Exposure to Interest Rates
Posted in 401(k), Asset Allocation, Bonds, Diversification, financial planning, Investors, Long-term investing, Market Outlook, Retirement, retirement planning, Risk, tagged 10 year treasury bonds, Beta, bond yields, interest rates, QE, Quantitative Easing, REITs, Treasury bond yield, Treasury bonds, u s treasury bonds, Utility stocks on October 24, 2012 | 3 Comments »
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. (more…)
The Changing Universe of Public Companies
Posted in Investors, Long-term investing, Mutual Funds, Retirement, tagged employees, IPOs, jobs, manufacturing, public companies, publicly-listed companies, retailers, unemployment, US corporations, US listed firms on October 17, 2012 | 1 Comment »
A new article in Knowledge@Wharton highlights a body of research that suggests that the universe of public companies is very different than in the past. There are, for example, 44% fewer publicly-listed companies on U.S. exchanges than there were only fifteen years ago. The Wharton article is a review of a range of work, including both experts who believe that we are seeing a decline in the role and significance of public firms and those who conclude that we are seeing a natural part of the business cycle. In the late 90’s, it seemed as though every small company, with or without a proven product of earnings, was rushing to cash in on IPO fever. Many of these companies subsequently failed. Today, after a decade of weak market performance and with individual investors increasingly skeptical of the stock market, it is not surprising that fewer firms are going public. The Wharton article also cites increased oversight and regulation of public companies as encouraging firms to remain private. (more…)
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