In this 0%-interest-rate environment, public pensions like Rhode Island’s are using an assumed rate of return of 7.5%. If and when that estimate goes unmet, it’s up to taxpayers to make up the difference. It’s preposterous that public pensions are assuming a 7.5% rate of return. The only way they’ll meet their mark is to take on more risk. That’s a bad four-letter word for any investor—never mind retirees. Money managers will attempt to meet their hurdle with other people’s money. But they have no skin in the game, so why not swing for the fences? In the private sector, the idea of … [Read more...]
Future Dividends, Coupons, and Principal
Your purchasing power is your lifeblood in retirement. On my office credenza is The Theory of Investment Value by John Burr Williams, first published in 1937. Chapter five is titled “Evaluation by the Rule of Present Worth, Section I. Future Dividends, Coupons, and Principal.” Burr writes: [D]ividends, or coupons and principal, must be adjusted for expected changes in the purchasing power of money. The purchase of a stock or bond, like other transactions which give rise to the phenomenon of interest, represents the exchange of present goods for future goods—dividends, or coupons and … [Read more...]
Owning the Best Performers
In its quarterly funds report printed on January 9, The Wall Street Journal lists the 45 largest stock and balanced funds by assets. The best performers of this group for 2011 were a gold ETF, SPDR Gold (GLD), up 11.2%, and a balanced fund, the Vanguard Wellesley Admiral shares (VWIAX), up 9.7%. The worst performers of the group of 45 were both emerging market funds, each down about 19%. On average, U.S. stock funds were down 2.9% and U.S. taxable-bond funds were up 4.6% last year. The two best five-year average returns on the list were, once again, SPDR Gold and Vanguard Wellesley Admiral … [Read more...]
Annuities Are Challenged
The realities of annuities are being revealed to both buyers and sellers as interest rates in the United States creep along near 0%. Sellers are finding it harder to live up to promises of guaranteed return rates, and buyers are finding it harder to believe them. As the Wall Street Journal’s Hester Plumridge writes, on Wednesday, ING Group “booked a €1 billion ($1.34 billion) charge to cover higher-than-expected liabilities on U.S. variable annuities.” Insurance companies have made a fortune selling annuities to unwary investors looking for what were described as “guaranteed” returns. As a … [Read more...]
Best Buy Annuities
You don’t want to forget your sunglasses. I made that mistake before going in to a Best Buy recently. Blinded by the bright lights, I felt like I was in an airplane hangar with a wall of TV echoes to match. It’s no surprise to me the stock is off by 50% in five years. The same HD marketing blitz reminds me of the sales tactics used for annuities. A major provider of annuities is using HD in its ads to lure investors—“HD” in this case meaning highest daily value. It’s a flashy-red sales gimmick that takes your eye off of the costs you’ll incur or the time you’ll waste trying to understand … [Read more...]
The $100,000 Range Rover Boom!
You can go to a local U.S. Range Rover dealership this weekend and buy a nicely equipped Range Rover HSE for $85,000 or a Supercharged for over $100,000. If you finance it in U.S. dollars, at least you know what you owe. If you want to be as fancy as your new car, you can borrow in a foreign currency and pay it back with your local currency. You’ll be styling with the best of the hedge fund managers if your currency appreciates. But what happens if the bottom falls out? That’s exactly what happened in Iceland this decade. In his new book, Boomerang, Michael Lewis writes about what happens … [Read more...]
Retirement Stocks
You want to be paid well for investing in this market. Young Research’s 32-stock Retirement Compounders portfolio average dividend yield pays 5%. Compound that for 15 or 16 years and you double your money. Run your finger along the black line, the performance of the Dow Jones Industrial Average, beginning in 1965. It’s not until 1982 that it starts turning up. That period before the upturn lasted the whole span of a retirement for some. A similar trend began in 2000. Now check out the gray line and see how federal spending has crowded out the market. High-yielding stocks are one way to make … [Read more...]
A Pathetic Payday
Doing less, with less, is one way to describe retirement on a fixed income today. This sad truth is illustrated by Young Research’s proprietary Payday Indicator, the average of the Dow Jones Industrial Average yield plus the three-month Treasury bill yield. In the history of the series, it has never looked so pathetic. Stocks and bonds compete for investor money. The accommodative Federal Reserve policy hasn’t helped matters. Treasury bill yields are so low that stocks don’t need to offer much yield to attract money. The Dow is certainly not a good value at a 2.59% dividend yield. At the … [Read more...]
Rollover that 401k
My first job after Babson College was with Fidelity Investments. I worked at Fidelity Institutional Retirement Services Company (FIRSCO). It managed the 401(k)s of large companies. On big up or down days in the stock market, phone volume would pick up exponentially. Everyone had to help answer calls—including the CEO, to his dismay. Participants in the company plans would call up and ask about the market. Ironically, I wasn’t able to offer any advice to clients, and that’s what I do all day now. Back then, participants wanted to know what they should buy or sell. All I could do was read … [Read more...]
Twisted Risk to Savers, Pensions, and Annuities
The Federal Reserve has left savers, pensions, and annuities twisting in the wind. Buying long-term Treasuries has resulted in the 10-year bond yielding less than 2%.If we take into account inflation, especially of items needed for survival like food and energy, investors are essentially paying to lend the government money. The Fed is pushing investors into riskier assets. Higher yields don’t make the downward volatility any easier on the heart. Savers live with the pain day to day. But for pensions and annuities, the pain may not become evident for months. For some investors, it will be too … [Read more...]
- « Previous Page
- 1
- …
- 24
- 25
- 26
- 27
- 28
- …
- 31
- Next Page »