Have you added the cost of healthcare to your retirement planning? Fidelity has estimated that a 65-year old couple retiring in 2014 will need $220,000 to cover their healthcare expenses through retirement. It's no surprise if you've paid attention to the fast increasing costs of medical care. Since 1997, costs for nursing homes have nearly doubled. And costs of hospital services are on their way to tripling. You need to start planning now to cover any extra medical expenses during retirement. You might even change your retirement timeline. Fidelity estimates that just prolonging … [Read more...]
Alternative Investments Beaten-Up
Pension funds and endowments made a dreadful mistake by loading up on market neutral alternative investments in 2009—the market crashed in 2008—a year too late. When I think of pensions and endowments I picture conference rooms and meetings and not a lot of independent thinking. At the end of the day pensions and endowments are managed by group thinking about yesterday’s problems. What sound and look good today wins—much like a beauty contest. That’s why it’s no surprise pensions and endowment loaded up on alt investments at exactly the wrong time and they've been beaten badly by the stock … [Read more...]
Your Success is a Choice
Over the weekend I read an article on the top 50 annuities. It was the weekly feature in a major financial publication. I can only conclude that someone has to pay to keep the lights on at the publication. Most investors have a number of investing options they should do first, like max out their 401(k), IRA, Profit Sharing etc., before buying an annuity. The guys that need annuities most tend to have more pressing problems such as whether they should weekend on Nantucket or in the Hamptons. They have money. Investors that don’t have a lot of money to spare should stay away from … [Read more...]
10 Best States for Working
Here’s the latest rundown of the 10 best states for working courtesy of moneyrates.com: Washington. Washington repeats as the best state for all-round employment conditions, and it held the No. 2 spot in the two years before that. Washington's strengths include one of the highest average incomes in the nation, no state income tax and workplace conditions that ranked in the top 10 in the Gallup-Healthways survey. The state's unemployment rate and cost of living are above average, but only slightly, so this is not enough to undermine its positives. Texas. Another state with no income tax, … [Read more...]
401(k) Nightmare: Part II
Your money growing tax-deferred is one of the best if not the best feature of a 401(k). When you choose to rollover to an IRA, your money is still growing tax-deferred. That’s it, say no more. That’s why it boggles my mind that retirees are tricked into putting their 401(k) money into variable annuities. The sales pitch from the broker is, one, you’ll get money sent to you every month and two, your investments will grow tax-free. Well they’re tax free anyway. “It’s scary. There are days when I go to sleep and I can’t stop thinking about it,” says Maria Lew, a retiree from AT&T. She was … [Read more...]
Good Morning from Castle Hill
Downtown Newport is buzzing as sailors prepare for today's Newport to Bermuda race. I walked down to the docks at lunchtime yesterday to check-out the scene. Lots of boats scrambling to get ready for today's 12:50pm start. As of 5:00am this morning the weather report is calling for light winds out of the northwest. It will be a beautiful day to catch the scene from Castle Hill or boat. The Newport Bermuda Race is a 635-mile ocean race, much of it out of sight of land, usually lasting three to six days. It crosses a stretch of the Atlantic Ocean known for challenging weather, especially in the … [Read more...]
Catalyst for a New High
The S&P 500 closed at yet another new high yesterday. The market was flat until about 2:00 pm. What was the catalyst that drove prices higher after 2:00? The nation’s esteemed and astute Federal Open Market Committee announced the results of their latest policy meeting. Despite building evidence that inflation is accelerating and that the labor market is tightening, Yellen & Co., said inflation is still too low. They also told us that even though the unemployment rate has come down faster than the Fed expected, the labor market is actually worse than the headline unemployment rate … [Read more...]
401(k) Nightmare: Part I
Twenty years ago, after graduating from Babson College with a finance/investments degree, I spent the summer backpacking through Europe. In the winter I worked as a ski instructor. And in the spring I got a job at Fidelity Investments. You can imagine how “proud” my parents were. I worked in Fidelity’s 401(k) business which managed plans for Fortune 500 sized companies. This was the golden age of 401(k)s. It was the savings vehicle of choice for large companies, baby boomers were investing like mad—nervous about not having enough money in retirement, and the Dow Jones Industrial Average was … [Read more...]
Risk and Iraqi Banking
Thinking about risk is often difficult. Small persistent risks often take a backseat to catastrophic risks that are easier to conceptualize. Skiing is a good place to understand the differences in risk perception. Hopping on a steep double black diamond slope your first day out could end your fun very quickly. But if you’re headed down a gradual slope lined by trees, the journey may be smooth but one mistake is all it takes to ruin your trip. The point is that the trees along the trail present a persistent risk to any skier not paying attention. Where you put your money is similar in its … [Read more...]
Win By Not Losing
If you have a dollar and lose $0.25 you’re left with $0.75. You’ve lost 25% of what you had, but to get back to $1.00, you’ll have to generate 33% of what you have now. To get it back you could go to work or you could hope the market helps you out. In real life when a husband and wife watch their portfolio go from $1 million to $750,000, they get out of the market. It’s too painful to watch. That tends to make their losses even worse because they lose the power of compounding. There’s a better way—it's counterbalancing. As you can see in the following charts, counterbalancing helps you win … [Read more...]
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