You’re right if you guessed that the largest stock fund is an exchange-traded fund (ETF), a fact I always find somewhat surprising when studying the list of the largest stock funds in The WSJ’s monthly fund report. The one at the top of the list is the SPDR S&P 500 ETF (SPY), with $91.11 billion in assets. When I first started working in this industry, back in 1995, Fidelity Magellan was the largest stock fund. It was an actively managed fund, so it was a big deal when it was surpassed by Vanguard’s Index 500, a passive index fund. With the index fund, investors knew what they owned, … [Read more...]
Investment of the Decade
Trust has been kicked to the curb by Washington and Wall Street. Not a smart move, as the former prepares for mid-term elections and the latter feels the effects of investors voting with their feet. Many clients and brokers have fled the big Wall Street firms for independent advisors. Washington and Wall Street may realize too late that trust is a terrible thing to waste. The bailout of Bear Stearns, Lehman's bankruptcy, the controversial merger between Merrill Lynch and Bank of America, and Citigroup's near collapse had little to do with their client brokerage accounts. In fact, brokerage … [Read more...]
Class A American Fund Nightmare
My mother is always finding things because she pays attention. And she's passing that skill along to my kids. After a recent walk, they came back cheering about finding $2. It may as well have been $2,000. You too may be a person who knows how it pays to pay attention, and if so, you've probably taught that lesson to someone you love. Here's another lesson for you to teach, from a box titled "How the Largest Mutual Funds Did" in The WSJ's "Money and Investing" section. The box illustrates how most investors are sold what they own, how little attention they pay to fees, and how a ratings … [Read more...]
Learn an Investment Lesson from an Ivy League’s Mistakes
Your debt load in retirement will determine who's in control, you or someone else. My father taught us that lesson. I remember when he brought my sister and me as kids to the bank to set up a savings account. The teller politely counted our money and printed the sum on the first page of the passbook. It wasn't much, of course, but it was a beginning, and that was what was important to my dad. Through the years, we continued to save, and over time the numbers began to add up. This was in the late '70s, so interest rates were much higher than they are today. By adding up all the interest lines, … [Read more...]
Don’t Miss the Boat: Investment Advisers See Inflow of $108 Billion
In 2008 alone $108 billion flowed into the top three custodians for investment advisers while the big-four Wall Street brokerages had an outflow of $8 billion, according to The WSJ. If you have a 401(k), I suggest you do what many others have already done and roll it over to an IRA the moment you are eligible to do so. And I advise you to seek out the help of an investment adviser. Once in retirement, you don't have time to make up for investment mistakes like you did when you were younger. You face difficult big picture investment decisions and unlike before indecision cannot be … [Read more...]
The 401(k) is Broken
The 401(k) is broken. Year-end 401(k) assets were $2.4 trillion, down $600 billion from year-end 2007 including the inflow from employer match and employee contributions. Average participant investment performance was down 27%. That's average. Many did much, much worse and some people are retiring this year facing the grim possibility of outliving their money. In fact, four of the top five holdings in 401(k) plans by asset value had one-year returns through March 9, 2009, of -46.2%, -53.3%, -41.5%, and -40.8%. The S&P 500 was down 47%. Nearly four dozen target-date funds did even worse … [Read more...]
Your Retirement Future Today and Tomorrow
Have you looked at interest rates lately? 3-month T-Bills are at 0.20%, 3-month CDs 0.38%, money markets 1.29%, 5 year CDs 2.62% and 10-year Treasury bonds are at 3.68%. Compare this to the near peak of the tech bubble ten years ago when the 10-year Treasury was at 6.02%. $1 million in a 10-year Treasury Note paid $60,000 annually. Today it pays $37,000 or 40% less. In retirement your ability to understand income and values are paramount to your investment success. Thinking in terms of 10 year periods allows your portfolio time to breath. And in terms of values, think about each asset class … [Read more...]
Default Risk Among the Many Concerns with Annuities
The recent turmoil in the equity and credit markets has created angst and panic among investors. Emotionally charged investment decisions are being made without consideration to the long-term consequences. The insurance industry thrives in this type of environment. They offer neatly packaged products with bells and whistles that befuddle even the most experienced investors. The opportunities offered appear too good to be true and they are. A popular product with investors is variable annuities because they offer guarantees. The truth is, they are expensive and are anything but risk free. … [Read more...]
WARNING! Avoid the Catastrophic Thinking of Retirement Investing
Ah, retirement. Congratulations. You made it. Whether you got here by selling your business or working your way through corporate America, you’ve made it and you must feel relieved, excited, and probably a little nervous. Your retirement years should be some of the best in your life. But they are also some of the most nerve-racking, with no job to easily fall back on. With this in mind I’ve constructed a list of potentially catastrophic thoughts you might have and how to handle them. Picture yourself 10 years from now with the memories you might have of you and your spouse with grandchildren, … [Read more...]