Inflation Ahead?
[Adapted from my Morningstar contribution] A year ago this month, after a trip to China I wrote ominously about inflation hitting the US economy like a tsunami.
My opinion was based on two observations:
- China’s labor costs were galloping at a 20% to 30% clip per year, and so much of what we consume is produced in China now.
- The Fed was printing money like crazy.
So far I have been wrong. The February 2011 inflation rate was 2.11%; though a slight uptick from 1.63% in January, it was by no mean a tsunami. Recently, Fed Chairman Ben Bernanke testified before the Senate Banking Committee that the Fed projects an inflation rate of less than 2% for the next 3 years.
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April Wealth Management Roundup
Posted on: April 16, 2011
Conflict of Interest
Goldman Sachs, Rating Agencies Blamed in Senate Crisis Probe by CNBC
Where to Find Financial Advice? Probably Not Your Brokerage Firm by Oblivious Investor
Asset Protection
Protecting 401(k)s, IRAs From Creditors by WSJ.com
Investing
10 Ways to Beat the Market by Nathan Hale of Money Watch
Variable Annuities Don’t Belong in Retirement Plans by Mel Lindauer of Bogleheads.org
5 Sexiest Things about Indexing by Allan Roth of Money Watch
Value of Full-Service Brokers? By CXO Advisory
What’s My Job? By DIY Investor.
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Roth 401k vs Traditional 401k
Posted on: April 14, 2011
Many companies now offer employees the option to contribute to a Roth or traditional 401k. For a long while, I have advised my clients to go for the traditional 401k; they are all high-income earners and the tax deductions can be substantial. Besides, what’s not to like about taking money out of the clutches of the IRS?
The other day I googled “US tax rate history.” I was shocked to learn that out of the last 100 years, there were 48 years when the top rate was above 70%. There was even a period when the top rate was 94%! For heaven’s sake, that’s not taxation, that’s deprivation!
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US Stock Market Returns
What an indelible mark on many investors’ psyche the financial crisis in 2008 has left! Despite two years of strong equity returns, many investors are still on the sideline, afraid even to dip their toes into the market.
That’s understandable. Most investors’ perspectives are shaped by their most recent experiences. They are now doing things they wish they had done prior to the economy’s plunge into crisis. But does this make sense now that we are recovering?
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You may not believe it: the term “financial advisor” is a free title. Anybody can use it; there is no legal requirement, nor educational qualification. In practice, though, generally there are three types of people who use this title: insurance agents, stockbrokers, and registered investment advisors (RIAs). Whether they are required to disclose fees all depends on what type they are.
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As a small business owner, you are caught in a conundrum. On the one hand, you need to offer good health benefits to your employees to attract and keep talent; on the other hand, you can’t afford to lose an arm and a leg doing so.
There is a simple option that enables you to kill two birds with one stone—Section 125 Premium Only Plan (POP).
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Doctor’s Tax Saving
[Adapted from my post for Physicians Practice] Generally speaking, physicians make good money while in practice. Many of them are in the top tax brackets. Upon retirement, however, their earned income often drops to zero. If they can defer some of their compensation to the future, they can effectively move money from the top tax brackets to lower tax brackets.
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Today, my friend Jiefei Yuan of Givology.org passed on to me a message asking for help. The message was from Nasrine, who runs an inspiring women’s organization in Afghanistan called Kabultec that is the training ground for women’s rights, studies and education. The message starts like this
As many of you know, every year my non-profit organization, Kabultec, assists ten needy schools and three orphanages in Afghanistan. We gather goods (mainly used) here in the US, ship them to Afghanistan, and distribute them to schools and orphanages across the country. The goods are raised through donations like the drive some of you helped with last year.
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MZ Capital 70/30 model vs S&P 500
(Performance stats last updated on 8/16/2011) I have maintained 4 model portfolios since the beginning of 2007 to show that successful investing can be extremely simple: one only needs to do 1)prudent allocation, 2)disciplined rebalancing. One does not need Harry Dent’s prescience nor Jim Cramer’s encyclopedic knowledge to be successful in investing.
This report shows the construct and performance of the 70/30 model portfolio, the most aggressive of the four. The chart on the right shows the portfolio value of $100 invested on the first day of 2007, relative to the S&P 500.
Asset Classes and Fund Selection
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A Fretless Life
Posted on: March 31, 2011
[Guest Post by Tom Warburton of Tulsa, OK] So…a life-long buddy walks into my office. We exchange pleasantries until the inevitable ‘philosophizing’ begins. We normally begin with complex issues like ‘what’s the meaning of life’ and as the afternoon progresses we wallow in less mundane initiatives such as ‘why does my wife think I’m crazy’
At a rare quiet moment my buddy states “he is living a fretless life”.
A Fretless Life!
What a nice thought…this sounds ideal.
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Suze Orman Talk Money at Google
Posted on: March 30, 2011
My friend DIY Investor found this pearl. I thought it contains incredibly good advice for young investors.
I personally had a few encounters with Google employees (to do their financial review.) In the end, I had to tell them they are fine on their own, they don’t need my help by and large. This is owing to three factors:
- Google provides strong continuous education on money, like this Suze Orman talk.
- They have a vibrant discussion forum about money inside Google.
- Their 401k plan is with Vanguard.
About Suze Orman, her show is the only show on CNBC that actually gives good information. Enough said. Enjoy the talk!
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Small Cap Value: Risk and Returns
Posted on: March 29, 2011
If you invested $1 in the small cap value index at the beginning of 1927, you would have had $52,892 by the end of 2010. This is according to the recently published Dimensional Fund Advisors’ annual Matrix Book. Included in the book are historical risk and returns of various indices based on capitalization and book-to-market valuation.
Table 1 presents a summary of historical returns. The best returns are marked in green; the worst, marked in red. As one can see, the small cap value index is the best for all the periods considered. And it is the best by a huge margin.
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Recently I asked my assistant John to pull up Harvard Endowment’s 13F filing for Q4 of 2010 and compare it to that for Q4 of 2009 (shown in table below).
Apparently, Harvard Endowment’s year-end position in 2010 had changed significantly from that of 2009. The way I see it, there are three significant changes:
1. At the end of 2009, Harvard Endowment was extremely bullish on emerging markets; the top 10 positions were emerging market positions. That number was reduced to 5 at the end of 2010. On top of that, the size of each emerging market position has been reduced. Take China for example; the value of shares of FXI was reduced from 365k to 203k.
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I must confess: I have fallen short of the standards and requirements to become one of America’s Best Financial Advisors. To be exact, I am $497 short.
In March of last year, I received an email with a congratulatory title: “You Have Been Nominated To Be One of America’s Top Advisors.” I eagerly opened the email. It read:
You have been nominated to be listed on the most Exclusive List of Financial Advisors in America….We would love to have you as a member of this exclusive club and I have attached additional information regarding how our unique marketing model works. We will be advertising the list of Top Advisors in the Wall Street Journal next week so I would like to get you included before the deadline on Monday.
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The Consequence of Random Kindness
Posted on: March 23, 2011
- In: Charitable
- 4 Comments
This is a story sent to me by a client. It’s about how we live our lives, which I think is more important than how we make our investments.
His name was Fleming, and he was a poor Scottish farmer. One day, while trying to make a living for his family, he heard a cry for help coming from a nearby bog. He dropped his tools and ran to the bog.
There, mired to his waist in black muck, was a terrified boy, screaming and struggling to free himself. Farmer Fleming saved the lad from what could have been a slow and terrifying death
The next day, a fancy carriage pulled up to the Scotsman’s sparse surroundings. An elegantly dressed nobleman stepped out and introduced himself as the father of the boy Farmer Fleming had saved.
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The 2011 Estate Tax Changes
Posted on: March 21, 2011
[Guest Post by Christopher Guest] I guess I was slightly off on my prediction on what the 2011 estate tax environment would look like. On December 17, 2010, President Obama signed the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010, or TRUIRJCA, but I will call it the “tax compromise.” One thing I will discuss is that this estate tax regime only exists for 2011 and 2012 and the “old” 2011 rules that had many people indecisive in 2009 and 2010 returns in 2013.
Exemption Level and Rate
The Investment Scientist 