Finding Winning Fund Manager
Posted on: August 8, 2010
Can you find a needle here?
When it comes to mutual fund investing, the focus of most investors is to find outperforming fund managers. Many financial advisors justify their hefty fees by claiming they can do just that.
Finding a skilled manager is actually a daunting challenge, because it is hard to separate skill from luck. Take Bill Miller, the legendary manager of Legg Mason Value Trust, for example. He outperformed the S&P 500 index for 15 consecutive years. Iron-clad proof he has the skills, right?
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Small Business 401k, Big Plan Fees
Posted on: July 15, 2010
Your retirement fund?
A recent study of 401k fees by Deloitte has revealed a troublesome fact. For companies that have less than 100 employees, the average “all-in” 401k plan fee is 2.03% of plan assets each year; for plans that have assets less than $1mm, the average “all-in” fee is 2.37%.
As a point of reference, large companies that employ more than 10,000 people on average pay only 0.48%; the federal government’s own TSP retirement plan has an expense ratio of less than 0.03%!
Keep in mind that small businesses employing less than 100 people account for 99% of all US businesses and employ more than 50% of the workforce. Why should they suffer the injustice of paying 80 times the fee of federal employees to have a retirement plan?
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Investment Tax Hike One-Two Punch
Posted on: June 5, 2010
Most wealthy Americans (those in the top two tax brackets) are not aware that taxes on their investments will get a bump in 2011, and again in 2013. The first one is due to the expiration of Bush tax cuts; the second is due to a 3.8% new “Medicare” tax on investment incomes.
The following table sums up the investment tax increases for the top-bracket taxpayers. Read the rest of this entry »
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Jim Cramer on Greek crisis
Posted on: May 20, 2010
On April 15:
Bad news for the euro and Greece is good news for US. Get in at a better price than you should be able to, on the Dow 12,000 freeway
On April 26:
It because of Greece the market is going higher
On May 7:
Don’t buy any stocks until DOW 9000. The Dow’s decline was the natural result of Europe’s debt troubles and the riots in Greece. Investors should wait for the decline before they buy anything again
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Will Greece sink your portfolio?
Posted on: May 6, 2010
In the last few days, news of Greece’s bankruptcy has rattled the markets. Pundits are predicting a spiraling debt crisis spreading to other PIIGS (Portugal, Ireland, Italy, Greece, and Spain) countries. Investors are worrying out loud that the crisis is going to sink their portfolios, again.
Not if they have a balanced portfolio. Here is why …
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[Guest post by Mike Piper] Conventional investing wisdom states that the risk of holding stocks decreases as the length of the holding period increases. But is that true?
The answer depends primarily upon how you define “risk.”
Decreasing Risk Over Time
If you define risk as “chance of losing money,” then yes, stocks have historically become less risky the longer the holding period:
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When China runs out of cheap labor
Posted on: April 22, 2010
China has 1.3 billion people. In the last two decades, it is the source of seemingly limitless supplies of cheap labor to the world’s manufacturing industries. Believe it or not, this pool is about to run dry. When that happens, there will be huge implications for the world.
Even before my trip to China, I had read with incredulity that China’s exporting provinces are experiencing severe labor shortages requiring firms to raise wages 20%–30% just to keep the workers they have. My first stop in China was Shenzhen, a city that is home to Walmart’s worldwide procurement center. I stayed in the Evergreen Resort, a facility owned and operated by my friend Mr. Lin.
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Living with uncertainty
Posted on: April 15, 2010
[Guest post by Tom Warburton] Last week a buddy walked into my office distressed over unemployment, the economic malaise, gold prices, the prospect of inflation, government debt, currency fluctuations, trade imbalance and future prospects for the stock market. He basically covered the waterfront of issues we see on the front page of financial magazines and issues we hear talked about on CNBC.
When my buddy left my office (somewhat soothed – I believe – in the knowledge that his portfolio was positioned to achieve his financial goals without regard to the speculations of Jim Cramer), I found myself thinking about the many obstacles that humans have overcome and the unlikelihood that ‘conditions will last’.
In the words of John Allen Paulos, Professor of Mathematics at Temple University and versatile author with books on a wide range of philosophical topics:
“Uncertainty Is The Only Certainty There Is, And Knowing How To Live With Insecurity Is The Only Security”
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Is China a big bubble?
Posted on: April 1, 2010
What a difference eighteen years have made.
Eighteen years ago, I was awarded a scholarship to study mathematics in the U.S. The China I left behind was very different from the China of today:
- Then there was no private ownership of automobiles; now China boasts the world’s largest car market.
- Then there was no private ownership of houses; now there is little public housing left.
- Then China had a grand total of 28 kilometers (17 miles) of expressway; now China’s expressway network is second only to the U.S.
- Then there was no high-speed train service to speak of; now China has the fastest high-speed train service in the world covering the equivalent distance of New York to Chicago in three hours.
- Then China’s economy was the 13th largest; now it is the second largest.
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Inflation is the silent killer of wealth. It does not have the “bark” of a full-blown financial crisis, but it certainly has the “bite.” Just imagine if the inflation rate is 4% over the next 10 years; within a decade you would lose nearly 40% of your wealth if you didn’t do anything about it.
Inflation over the next decade is highly probably because of two simple macro realities:
- America – from the federal government to the states down to individual households – is heavily in debt. The easiest way to get out of debt is to print money. There is a tremendous political incentive to do so.
- China, which has been the low-price setter for the past two decades, has seen labor costs galloping at a 20% to 30% annual clip lately (thanks to the one-child policy). Before long, that will translate into higher prices at your local Walmart.
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Guest author: Mike Piper
“Much rides on how you take your money out, not simply how much you have in.” –Lee Eisenberg in The Number
It’s true. Yet, for whatever reason, there’s much more written about strategies for accumulating assets than about strategies for intelligently spending down your assets.
Investors nearing retirement have a lot of questions, and so far they’ve gone more or less unanswered by mainstream financial media.
Asset Allocation in Retirement
During the accumulation stage, the goal when crafting a portfolio is simply to achieve the maximum return over the period in question without giving yourself a heart attack due to volatility.
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Few people know that there are 2,613,000 financial advisors in the U.S. It is the fifth largest vocation, right after truck drivers and before janitors. Even fewer people know that, unlike attorney and CPA, financial advisor is a free title – there is no uniform legal standard or educational requirement for the title. Nobody will get into trouble calling himself or herself a financial advisor.
In practice, there are two types of professionals who call themselves financial advisors: registered representatives (aka brokers) and registered investment advisors (aka RIAs).
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When talking to a prospect about my advisor services, I would ask him his philosophy about risk. The conversation would usually go like this:
Prospect: “I don’t like losing money.”
Me: “What do you mean? Can you be more specific?”
Prospect: “I don’t mind giving up a little upside; I just don’t want to lose too much on the downside.”
Me: “So you are concerned about volatility risk?”
Prospect: “That’s it.”
Me: “Other than that, are there risks you are concerned about?”
.. (long pause)
Prospect: “Not that I can think of.”
It is not surprising that most investors equate investment risk to volatility; they see assets prices (and their portfolio values) fluctuate every day. But there is much more to investment risk than what meets the eye. And what investors don’t see usually is far more insidious. For example:
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“Stir-Frying” Chinese Stocks
Posted on: January 26, 2010
Is it how you treat you stocks?
At the end of last October, the Chinese stock market index was up 70% for the year. One would expect Chinese investors to be making money hand over fist. Not so, the Chinese Securities Investor Protection Agency, the equivalent of SIPC, did a survey of investors in November that garnered 2,791 valid responses. The result was shocking.
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“Good intentions” doesn’t cut it
Posted on: January 25, 2010
Guest author: Mike Piper
There are inherent conflicts of interests between for-profit mutual fund companies and the investors in funds run by such companies. For example:
- Investors benefit from low expense ratios. Fund management benefits from high expense ratios.
- Investors benefit from plain-English, thorough disclosures regarding costs and conflicts of interests. Fund management benefits from poor disclosures.
A reader (we’ll call her Martha) recently asked me if such problems could be avoided by using mutual fund managers who have the interests of their investors at heart.
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Roth IRA conversion examples
Posted on: January 17, 2010
There is one important rule to keep in mind when it comes to converting a traditional IRA to a Roth IRA – you need to pay federal income taxes on any portion of the conversion that you haven’t already paid taxes on.
Example 1
For example, let’s say you started to fund traditional IRAs in 2006 and by 2010 you’ve got $20,000 in your account. Furthermore, let’s say this account consisted of four years of $4,000 non-deductible contributions – a total of $16,000 in non-deductible contributions and $4,000 in account growth.
In this example, you’d need to pay income taxes on the $4,000 in fund growth when you convert to a Roth IRA. But the good news is you’ll never have to pay income taxes on this account again.
The Investment Scientist 