You may have learned about the trouble with annuities. In its simplest form, an annuity is an arrangement in which you give an insurance company a lump sum of money and in exchange you receive payments over time. For a fee, that is. At the end of the day, what you’re really doing is giving up control over your money to some investment board that promises to pay you back over time. Assuming, of course, that it stays solvent. When you enter an annuity contract, liquidity can become an issue. I hope you don’t need the money right away, because it becomes costly to withdraw in an emergency. … [Read more...]
Inflation Threatens Long Bond Yield
The Labor Department released July numbers for consumer, producer, and import price inflation this week. The results were troubling. Consumer prices increased 3.6% compared to last year, producer prices increased by 7.6%, and import prices increased by a whopping 14%. Even the Federal Reserve’s preferred measure of inflation (core consumer price inflation, known as core CPI, which is inflation minus food and fuel) came in ahead of expectations. Core CPI increased by 1.8% over the last year. The Fed’s unspoken growth target for core CPI is 2%. Because the Fed still believes inflation is … [Read more...]
The Biggest Annuity Mistake
I don’t like annuities. I know there are ways they can make sense in some portfolios, but for the majority of investors they’re a bad move for several reasons. First, they’re pushed on unsophisticated investors by well-trained salesmen. Second, the fees, especially surrender fees, can be devastating if you need your money in an emergency. Third, many investors make the egregious mistake of investing in tax-deferred annuities in a tax-deferred account. Unfortunately, common sense is lost on most because of the aggressive sales tactics of the guys closing the deal, who are compensated heavily … [Read more...]
Where It’s Expensive to Die
According to Forbes.com: As of June 10, 2011, the District of Columbia and 22 states imposed estate and/or inheritance taxes. Illinois is the latest of the states to adopt a tax; it acted in January. In May Connecticut lowered the amount it exempts from its tax from $3.5 million to $2 million per estate, retroactive to Jan. 1. (As in the federal system, bequests to a spouse are state-estate-tax-free.) States with estate taxes typically exempt $1 million or less per estate from their tax and impose a top rate of 16%. Six states levy only an inheritance tax, with the rate depending on the … [Read more...]
Baby Boomers Place Their Bets
You may be surprised at how ill prepared baby boomers are for retirement. In his Wall Street Journal article “Retiring Boomers Find 401(k) Plans Fall Short,” E.S. Browning writes: The median household headed by a person aged 60 to 62 with a 401(k) account has less than one-quarter of what is needed in that account to maintain its standard of living in retirement, according to data compiled by the Federal Reserve and analyzed by the Center for Retirement Research at Boston College for The Wall Street Journal. Even counting Social Security and any pensions or other savings, most 401(k) … [Read more...]
Are You Financially Prepared for Retirement?
I just finished wading through the Employee Benefit Research Institute (EBRI) 2011 Retirement Confidence Survey (RCS). My findings are problematic. The EBRI is a private, non-profit, nonpartisan public-policy market research firm. The 2011 RCS is the EBRI’s 21st annual retirement survey. The survey attempts to measure the attitudes of working-age and retired Americans regarding retirement, their preparation for retirement, and their confidence in various aspects of retirement. It is based on an interview of more than 1,200 individuals over 25 years old. The survey’s margin of error is +/- … [Read more...]
Stocks Get Bernanke Bounce
In his twice-a-year economic report before Congress Wednesday, Federal Reserve chairman Ben Bernanke’s comments helped stocks rally during the morning session, with the Dow Jones Industrial Average surging 164 points—for a Bernanke bounce. He told the House Financial Services Committee that “We have to keep all options on the table” in fighting inflation or deflation. Well, that clears things right up, doesn’t it? Bernanke went on to say that “If we get to the point where the recovery is faltering” and inflation drops to zero, then he would consider additional stimulus options. Great, more … [Read more...]
Absolute Return
The next time you see an advertisement for an absolute return fund, make sure you do your homework and understand exactly what you’re getting yourself into. I’ve been digging through the 100-plus prospectus pages of the Putnam Investments Absolute Return suite of funds and can tell you the reading isn’t as straightforward as I’d like it to be. Even in the reduced format of the Putnam Absolute Return 100 Fund’s summary prospectus 2/28/11 (only seven pages), there’s some mind-numbing small print. Here’s what I gather you’re up against for the Class A shares: a 1% sales load (charged at the … [Read more...]
This One Thing Could Save Your Life and Your Portfolio
You might think I’m crazy buying $175 sneakers. I’ve never spent that kind of money on sneakers before, and it’s at least double what I’ve normally spent in the past. So I’m calling my Newton sneakers an investment. I was introduced to Newton sneakers by my Pilates teacher and trainer, Jane Beezer, as we were discussing the book Born to Run by Christopher McDougall. It’s reshaping the sneaker industry. And as it turns out, less is more. Years of running injuries can be tied back to a sneaker industry that babied our feet with too much cushion, encouraging a heel-first strike point rather … [Read more...]
A Little Mistake That Can Cost Hundreds of Thousands of Dollars
You being in the top 97th percentile in good looks and wealth might be good. But being in the top 97th percentile in the fees you pay your investment advisor is…not so good. PriceMetrix, a wealth-management software firm, has come out with a report showing that a significant variation in pricing exists between investment advisors. The firm has quite a database to pull from—15,000 advisor books, 2.3 million investors, 380 million transactions, 1 million fee-based accounts, and over $850 billion in investment assets. The study examined the pricing on balanced accounts for households with … [Read more...]
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