Category Archives: Investment Planning

Biggest Retirement Threat? It’s Not Running Out Of Money

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Social SecurityMy Comments: This is certainly a different slant on things. As a financial planner and advisor these many years, running out of money has been the major threat for those of us thinking about retiring or who are already retired. How do we make sure we’re not broke before we die?

Just what I need; something else to worry about.

May 15, 2013 • Robert Laura

Some say retirement’s greatest threat is inflation, the cost of adult children or the potential of getting ripped off. As financial professionals, we try to warn clients about these downsides to retirement life by suggesting ways to combat the rising cost of living, to keep Junior from squandering the family fortune, or to run away when something sounds too good to be true. Yet retirees face even greater threats, some of which never get discussed and are rarely planned for, including the loss of one’s ability to see, hear, taste, touch and smell.

When was the last time a client cancelled or rescheduled a meeting because of a 3-cent rise in canned peaches, they needed to pick up or drop off an incapable son-in-law, or they had a meeting come up with a charming snake oil salesman? On the other hand, if your practice is like mine, a week doesn’t go by without at least one appointment change because of a client’s eye, ear, nose, mouth, hand or foot problem. Much to my surprise, many new retirees still don’t realize that medical costs attributable to the three most common senses — vision, hearing and dental — are not covered by Medicare and can siphon much needed savings out of their retirement accounts if problems arise and persist.

I wish I could tell you I always discussed this issue with clients, but its significance has only come to light in recent years. As I have shared before, much of everyday life in retirement is like an iceberg, wherein a large portion of what takes place remains below the surface, or out of mainstream conversations and preparation. The more time I have spent engaging clients and prospects at my Naked Retirement workshops, the more I learn about retirement life. Last year I asked one group to discuss what their biggest retirement fear was. A woman in her early sixties replied, “Losing my hearing and the ability to enjoy my friends.”

I had never heard that response before, so I asked her to expand on her answer. “I’m losing my hearing in my right ear,” she said, “and have trouble following group conversations.” She put an exclamation point to the subject by saying, “I don’t know what I would do if I couldn’t communicate with my family and friends!”

It’s an eye-opening perspective, to be sure, making it more important than ever to encourage clients to do things now instead of assuming that time and their five senses will be on their side throughout retirement.
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Why Medicare Won’t Cover You Overseas

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My Comments: It’s been a few years since my wife and I last travelled out of the country. During this time, she and I both became eligible for Medicare benefits. And given my health history over these past few years, without Medicare we would have been financially stressed.

We still have expectations of visiting family in Europe and fulfilling an item on my bucket list which is a visit to New Zealand. This article adds another element when it comes to making plans to travel overseas.

By Kathleen Peddicord | U.S.News & World Report LP – Mon, May 13, 2013

If you’re an American considering the idea of retiring overseas, your Medicare won’t travel with you. The United States generally prohibits Medicare from paying for medical services for retirees outside the country and its territories. The more than half a million retired Americans living overseas and the millions more who travel extensively abroad must either go without care until they return to the United States or pay out-of-pocket for the care they need.

Many retired Americans who have paid into Medicare their entire working lives and then choose to move overseas find this situation to be unfair. This restriction on Medicare coverage also ignores the potential cost savings to Medicare offered by lower-cost health care options abroad.

Currently about 50 million Americans receive Medicare benefits. In less than a generation, that number will increase to 80 million. In 2012, Medicare spending was $560 billion, about 15 percent of the total federal budget. By 2022, Medicare spending is expected to reach $1.1 trillion, or more than 19 percent of the federal budget. The Medicare Part A trust fund is expected to be exhausted by 2024.

As policy-makers grapple with this financial crisis, may people believe that more of the cost of health care will be shifted to Medicare beneficiaries in a mix of higher deductibles, co-pays and reduced benefits. While allowing seniors to receive Medicare coverage abroad is not a cure-all to this fiscal crisis, the potential savings could be significant. Health care costs for a procedure overseas can be less than half of the cost of the exact same procedure performed in the United States, saving both Medicare and the retiree money.

For example, if a Medicare beneficiary could get a hip replacement performed in Costa Rica, Panama or Israel by a highly-trained (often U.S.-educated) surgeon at an internationally accredited hospital for half of the cost of the same procedure at a U.S. hospital, the Medicare system would realize significant savings.

Studies indicate that the age of retirees living abroad peaks at about 72. One reason that older retirees are less likely to live abroad is that, as healthcare needs and concerns increase with age, they are returning to the United States where Medicare covers them.

The current Medicare rules create a disincentive for Americans seeking a lower cost of living (and lower health care costs) abroad. Medicare-eligible Americans living abroad, even part time, must continue to pay their Medicare premiums but either forgo health care while abroad or pay out of pocket for it. If they pay out of pocket, they are in effect paying twice for health care coverage. If they do not continue their Medicare premium payments, they are penalized upon their return to the United States and enrollment or re-enrollment in Medicare.

This disincentive may also be causing unnecessary costs to Medicare and poorer health outcomes for some Americans. Because of the double cost, retired Americans often choose to forgo health care while abroad, even skipping routine doctor visits until their condition has festered into one requiring extensive and costly treatment. Then they return to the United States to receive Medicare coverage.

A non-partisan group called the Center for Medicare Portability, formed in 2011 and based in Washington, D.C., is working to try to change Medicare’s rules for overseas retirees. The objective of the CMP is to make it possible for retired Americans who live overseas to have access to the Medicare benefits they have paid for throughout their lives.

International health care coverage for American retirees is not new. In fact, it’s fairly common. The federal government already provides health care coverage abroad for retired military and their families, retired federal employees, some veterans and even some Medicare beneficiaries. The CMP hopes that Congress will see that the global health care market offers part of the solution to the Medicare spending crisis.

The CMP does not advocate any one mechanism for Medicare portability, but has proposed several ideas. One option, which could be administratively feasible in countries with large and growing U.S. expatriate retiree communities, would be to set up a traditional Medicare system, including Medicare Part A (mainly inpatient care), Part B (mainly outpatient care) and perhaps Part D (prescription drug coverage).

A Medicare-contracted insurance intermediary (for example, a U.S. insurer that already operates in the specified foreign country and that has a network of providers and administrative capabilities in that country) could manage beneficiary enrollments and relationships, oversee provider accreditation and certification issues, negotiate reimbursement rates (based on usual and customary costs in that country and with Medicare approval), administer billing and payments and manage fraud and abuse.

Another option could be a capitated care system in which a network of providers would agree to provide care to a beneficiary for a set price. That price would be based on the expected actuarial cost of care for the beneficiary in the foreign country, based on age, pre-existing conditions and other factors, just as Medicare Advantage does in the United States.

A third option, possibly the simplest one, would be to create a voucher system for retirees who live abroad. A voucher could be provided to Medicare beneficiaries who agree to receive their care abroad, valued, for example, at 75 percent of the expected cost of care for the beneficiary in the United States. This would immediately save Medicare 25 percent of the cost of covered benefits for that beneficiary, and the beneficiary could use the voucher to purchase a health insurance policy from a private insurer in the country where he or she retires.

Sea Levels in Europe Could Rise up to 1m by 2100, Say Scientists

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My Comments: As a resident of Florida, I’m pleased that I chose to live in Gainesville, which is significantly higher above sea level than say, most of the suburbes in the Jacksonville area. And as a planner, I recognize I’ll be long gone in 2100 but probably not members of my family, some of whom do live in Jacksonville.

You can deny global warming ‘till the cows come home, but the reality is the planet is getting warmer, which means the ice at the poles is thawing, and the resultant extra water will first be seen along the coast lines. Which makes my decision to build a solid, permanent home in Gainesville a good one, sooner or later.

By Pilita Clark, Environment Correspondent

Cities around Europe could face sea level rises of a metre or more by the end of the century when storm surges are factored in, according to research that helps address some of the biggest uncertainties about climate change.

A mix of melting ice sheets, warming oceans, storm surges and other drivers mean places such as Sheerness, at the mouth of London’s Thames river, face rises reaching just under 1 metre by 2100 – enough to overwhelm the capital’s existing flood protection barriers – though the risk is relatively low and any increases would be intermittent.

Denmark’s seaport of Esbjerg could experience even higher rises of up to 1.15 metres, according to a four-year programme of study by scientists from 24 leading EU institutions, known as Ice2Sea.

The work was done to try to fill in some of the gaps left after the last big report by the Intergovernmental Panel on Climate Change, the UN body set up to produce regular assessments of the latest state of climate knowledge.

Its 2007 report identified a number of shortcomings in scientists’ ability to predict how ice sheets contribute to sea level rises as they flow towards the coast, break away as icebergs and eventually melt into the sea.

Scientists are relatively confident about how warming oceans and melting mountain glaciers drive sea level rises but have been far less certain about the impact of ice loss from the ice sheets resting on Greenland and Antarctica.

The Ice2Sea work, which has been submitted to the IPCC for its next big report, due in September, suggests this continental ice loss could contribute between 3.5cm and 36.8cm to global average sea level rises up to 2100. There is also a small chance this rise could be as high as 84cm by the end of the century, but the probability is less than 5 per cent.

Though it will not be known for sure how this will affect the projections in the IPCC’s new report for overall sea level rises, it could push it up by about 10cm to 69cm, the Ice2Sea scientists say.

The EU-funded research, which focuses on consequences for Europe, shows sea level rises are likely to differ around the world, sometimes by tens of centimetres. The overall increase around European coastlines is expected be 10-20 per cent less than the global average, though regional variations mean some parts face much higher rises.

The flood barriers built to protect London, for example, are only expected to be breached once in 1,000 years. But a 1 metre rise in the Thames Estuary means “you would take that level of protection down from one in 1,000 years down to one in 10 years”, said the programme co-ordinator Professor David Vaughan, of the British Antarctic Survey.

“Obviously, one in 1,000 is probably acceptable to most people who live in London, 0.1 per cent per year. One in 100 years is maybe not acceptable. One in 10 years is clearly not acceptable.”

Stuck in the Mud: Beyond America’s Fiscal Trench Lines

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world economyMy Comments: I recall a conversation I had some three years ago where someone asked me if I followed Keynes or did I follow the Austrian approach. Not knowing at the time just what this person was asking, I responded “Keynes” since I knew more or less how Keynes mind worked and had no idea yet about how Hayeks mind worked.

Today that boils down to a political chasm between Democrats and Republicans. It need now be so but it is. And who is ulitmately right or wrong remains to be seen. Perhaps neither to the degree that today they are almost polar opposites. Meanwhile, the folks in Washington, those whom we presumably elected to represent us and every other citizen of this country, are mired in ideology and incapable of looking beyond their own narrow vision. Wish it were not so but …

By Edward Luce | The Financial Times | May 12, 2013

When historians look back on the meltdown of 2008 they will conclude that the country that triggered it – the US – was among the least bad in its continuing monetary and in its initial fiscal response. What a frustration, then, that the US finds itself endlessly relitigating the debate between Keynesians and anti-Keynesians.

In the past few weeks, the intellectual tide has turned sharply towards the former following revelations of errors by Kenneth Rogoff and Carmen Reinhardt. This has been assisted by the IMF’s change of heart about the merits of short-term stimuli. Moreover, austerians, such as Niall Ferguson, the Harvard historian, continue to aid their own discrediting by dredging up the canard about John Maynard Keynes’s “childless vision” – linking his homosexuality to an alleged reckless disregard for the long term.

Yet for all the academic sound and fury, US politics is unchanged and apparently unchangeable: mild fiscal contraction is set to dilute the US recovery for at least another year. Democrats are impotent against Republican stonewalling in the House of Representatives. And Republicans can do nothing about Barack Obama’s veto – or Democratic control of the Senate. Which means we are condemned to at least another year of hypothetical fiscal debates. Here, vindicated though they may be on counter-cyclical fiscal policy, Keynesians are guilty of sins of omission.

Like Gresham’s law, the fiscal debate tends to drive out others. Keynesians want bigger deficits. The Tea Party wants smaller government. The more dominant these battle lines, the harder it is to craft ways out. New federal investment may be off the menu. But US companies are sitting on almost $2tn in cash reserves and have almost the same again parked offshore – a multiple of any possible federal investment. Public action could crowd-in private investments without troubling the taxpayer. And the resultant boost to productivity would reduce the burden of future obligations. “What we need is not bigger or smaller government for growth, but narrower and stronger government,” says Paul Romer, the growth economist.

Might there still be ways in Washington around these entrenched positions? Next week, John Delaney, a freshman Democratic congressman, will test that proposition when he launches a bill designed with an eye both on what is economically useful and politically sellable. The Rebuild America Act would give companies that repatriate foreign earnings a tax break on whatever they invest in a new infrastructure fund. Unlike a public bank, the fund would underwrite bonds to fund state, local and municipal projects – there would be no new federal bureaucracy.

It is hard to see how Republicans could object on substance to a bill that gave tax breaks to companies to improve US infrastructure. We shall see if they treat it on merit or politics. It will also be interesting to see how many other Democrats, and Keynesians, embrace its logic. Mr Delaney, who had a long career in private equity, has an accurate diagnosis of US politics. “Intransigent partisanship is getting in the way of our country having a proactive, pro-growth government,” he says. “Our tired fiscal impasse is not only a daily headache in Washington, it’s become a real competitiveness issue for our economy.”

To be sure, his biggest challenge – and that of almost any legislator taking any initiative – will be to get around the scorched-earth caucus in the Republican party, that opposes anything that could be seen as a success for public action. But there are cynics on both sides. Last month, Barack Obama appointed an industry insider, Tom Wheeler, as the next head of the Federal Communications Commission. People who have donated generously to Mr Obama’s campaigns were happy with Mr Wheeler’s nomination. Others less so.

The FCC could make simple changes to stimulate more investment in the cable and wireless sectors, which would help return US average internet speeds to the top of international tables. Mr Wheeler could also accelerate the FCC’s dilatory schedule for auctioning off public spectrum. “In just the same way that mergers result in job losses, creating and licensing multiple platforms for technology will create jobs,” says Reed Hundt, who was Bill Clinton’s highly successful FCC chair in the booming 1990s.

Defenders of Mr Wheeler say he will be keen to establish his distance from an oligopolistic industry that hired him as their advocate. They make the same argument, too, for Mary Jo White, the new chair of the Securities and Exchange Commission, who has spent her career representing Wall Street. Recent SEC moves give little cause for cheer. In isolation, bills such as Mr Delaney’s, or the rulings of federal agencies, do not match the importance, or scale, of the fiscal debate. But the US budget is stuck in the mud. And there are other sources of growth.

It is worth remembering that Keynes was a champion of the “middle way”. Yet foes, and occasionally friends, reduce him to a free-spending caricature. “I suggest that the state encouragement of new capital undertakings by employing the best technical advice … and by lending the credit and the guarantee of the Treasury to finance them more boldly, is becoming an inevitable policy,” Keynes wrote in the 1920s. These are the thoughts of an economist looking to the long term. With the possible exception of the final clause, they are also a good description of Mr Delaney’s bill.

Goodbye Capital Gains Tax Breaks

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USA EconomyMomentum is building for a tax code overhaul, and lower taxes on stock transactions could be doomed.
By Joy Taylor, May 6, 2013

Tax breaks for capital gains and dividends are likely to end by 2015, as lawmakers look for ways to broaden the tax base, allowing income tax rates on individuals to be cut. There is precedent for this — the tax break for long-term capital gains was axed in 1986, the last time that lawmakers significantly reformed the tax code.

Tax overhaul won’t happen swiftly. Lawmakers won’t have time to complete tax reform until 2014, and when they do finish it, the effective date probably will be prospective, so changes aren’t likely to occur until 2015. There will be plenty of time to mull the impact on your investment portfolio and contemplate actions to minimize the tax wallop.

But discussions will intensify in the coming months. One reason: Senator Max Baucus (D-MT), who heads the Senate committee responsible for writing tax laws, has announced that he’ll leave the Senate when his term ends at the end of 2014. Look for him to push hard for tax reform before he leaves, making a revamped tax code his policymaking legacy.

In the end, we expect long-term capital gains and dividends to be taxed as ordinary income — a big change from the 20% maximum rate they now incur. If President Obama succeeds in winning a top income tax rate on individuals of more than 28%, however, it’s possible that the maximum rate on long-term capital gains and dividends will be limited to 28%.

Consider taking gains before 2015 to lock in the lower rate currently in place. But be careful not to let the tax tail wag the investment dog. Tax savings aren’t the only consideration when culling your portfolio; your moves should also make financial sense. Note that we expect taxwriters to keep the stepped-up basis rule for inherited assets, so 100% of pre-death appreciation on those assets will escape income tax when the heirs sell, regardless of the capital gains rate.

Take care in engaging in installment sales before then. The 1986 law provided that installments received after the capital gains rate rose weren’t protected, even though the sale occurred before the rate change. We expect that a similar rule will be passed this time, too.

Weigh the impact on succession plans for family firms. Corporate redemptions of shareholders’ stock will be hit. Family firms hoping to redeem stock of senior owners to shift control to the next generation will need to take that into account.

Keep in mind that the relative advantages and disadvantages of components in your portfolio may need reevaluating. Dividend paying stocks will lose their tax-favored status if dividends are taxed at ordinary income rates. And there will be no tax disadvantage for having growth stock in retirement plans. Without a capital gains preference, it won’t matter that appreciation on the stock will be taxed as ordinary income when distributed to the owner of the retirement plan or IRA.

And it’s worth noting one other tax reform proposal that affects investors: Stock sellers could lose the right to direct that the highest-basis stock be sold first. They may be forced to use the average basis of their shares to compute the gain or loss recognized on a sale, rather than use the specific identification method. The tax reform plan drafted in the House includes such a provision, and we think it has a good chance of making it into law.

US Expects First Cut in Debt Since 2007

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MyWorld copyMy Comments: There is good news here and there if you look beyond the crisis de jour.

By: Michael Mackenzie / Published: Tuesday, 30 Apr 2013 / The Financial Times, London

The U.S. Treasury expects to pay down debt in the second quarter of 2013 as the budget deficit that has dominated national politics starts to shrink.

The forecast of a quarter of net debt repayment for the first time since 2007 shows how tax increases, a cyclical recovery in tax revenues and a squeeze on spending are ratcheting down the budget deficit.

Ahead of an announcement on Wednesday on the details of its quarterly borrowing schedule, the Treasury said it expects to repay a net $35 billion in the second quarter, compared with a February estimate that it would have to borrow $103 billion.

“The decrease in borrowing relates primarily to higher receipts, lower outlays, and changes in cash balance assumptions,” said the Treasury.

The second quarter is always the best for government cash flow because tax returns are due in April. The Treasury expects to issue $223 billion of debt again in the third quarter.

But the return to one quarter a year of debt repayment highlights how aggressively the US has cut the deficit this year, despite concerns about growth and political wrangling over tax and spending decisions.

Nominal spending is basically unchanged since the final quarter of 2010, one of the longest periods of restraint in postwar U.S. history. Meanwhile, tax revenues have picked up with the economic recovery, and the expiration of a payroll tax break at the start of the year is adding about $10 billion a month to revenues.

“The paydown this quarter—the first since 2007—is emblematic of the turn in budget finances from horrible, to grim on their way to steadily better,” said Eric Green, chief economist at TD Securities in New York.

The International Monetary Fund forecasts that the U.S. will borrow 6.5 percent of gross domestic product in 2013, down from 8.5 percent in 2012 and 10 percent in 2011. But analysts at Goldman Sachs estimate that in the first quarter of 2013 the deficit was running at a cyclically adjusted level of just 4.5 percent.

Bond investors have been expecting better U.S. fiscal data. Expectations of a falling net supply of Treasurys helped the yield on 10-year Treasury notes to approach their lows for the year on Monday, briefly dropping below 1.65 percent.

Steven Ricchiuto, chief economist at Mizuho Securities, said the Treasury borrowing figures for this year suggest “no government funding pressure on the markets. This fits nicely with our call of returning to the July 2012 low in yields.”

Ian Lyngen, strategist at CRT Capital, said falling net issuance while the Fed buys $45 billion of Treasurys a month represents “a shift that will surely keep downward pressure on yields.”

He added: “As an aside, the improving fiscal situation of the U.S. Treasury does allow more time before the debt-ceiling becomes an issue again.”

Investor Optimism Rose in March

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yellow smile in field of blue frownsMy Comments: I have no idea what I’m having for supper tonight, much less how the markets are going to perform over the next several months and years.

However, assuming I haven’t left the building, I expect to eat something, and in like manner, I expect the markets to move up and down with a generally upward trend. To do otherwise would be to fly in the face of what’s happened over the past 70 plus years (mine and the markets).

If you want to see what some clients experienced over the past few years, click on the smiley face.

By Paula Aven Gladych

Investor optimism jumped 31 points in March, but not everyone is upbeat about the markets.

Retirees are not nearly as optimistic as their non-retired counterparts, according to the latest Wells Fargo/Gallup Investor and Retirement Optimism Index.

More than half of investors believe now is a good time to invest in the financial markets, up from 39 percent last quarter. Fifty-four percent of the non-retired say this is a good time to invest while 43 percent of retired investors hold this same view.

Despite a rise in the stock market in the first quarter of the year, the bulk of investors didn’t make any changes to their investments in the stock market. Only 10 percent increased their stock market investments during the first quarter.

“The emerging optimism is encouraging, but the disparity in optimism between the non-retired and retired is notable. The lack of action on the part of investors during the first quarter rally shows that people stayed the course and didn’t have a knee-jerk reaction that caused them to change their investment allocations,” said Laurie Nordquist, director of Wells Fargo Institutional Retirement and Trust.

Half of retired investors surveyed between March 14-24 say low interest rates have done a great deal or quite a lot of harm to savers and investors compared to 25 percent of non-retired investors. Nearly 70 percent of non-retired investors believe the benefits of low interest rates have outweighed the costs, but only 51 percent of retirees agree with them.

Nearly half of all investors believe that today’s low interest rates will make their retirements less comfortable, with 35 percent of retirees and 46 percent of workers fearing low rates will mean they will outlive their money in retirement. One-third of investors think low rates will force them to delay their retirement.

Housing is one area that has been positively affected by the low interest rates. A third of those surveyed said they took advantage of the rates to refinance their home.

Nearly 70 percent of those surveyed are worried they will have to pay higher federal taxes in retirement and will have a more difficult time living comfortably in retirement. Because of this, 39 percent of investors say they are more likely to seek after-tax investments.

More than 1,000 investors across the country were surveyed for this study.

The Disclosure Paradox: How Much Information Is Too Much?

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Too much information can be as harmful to retirement plan decisions as too little.

investment choicesMy Comments: Somewhere along the way during my last 40 years in the world of financial services, I read or was told that at some point you have to make a decision. You cannot simply attempt to absorb more and more information and expect to suddenly have a revelation about what to do. And many of us have heard the comment that says “paralysis by analysis.”

I’ve had clients who second guess every single decision made by their investment professionals who live and breathe this stuff 24/7, have lots of staff and mountains of computers and who live and work in New York. How someone in Trenton can expect to replicate their skills is beyond me. But it happens. Typically not for long however as I gently suggest they find a new advisor.

By the way, how many of you have read a mutual fund prospectus from cover to cover? This is what I do for a living, but I’ve never done it. But every client has to acknowledge receipt of such a document, since that implies you have read it cover to cover and your remedies if something goes wrong become severely limited.

By Michael Finke | April 1, 2013

The defined contribution revolution saw employers shift responsibility for funding retirement to employees who weren’t well equipped to become their own pension manager. One easy solution would seem to be information. Give people the right tools and they’ll be better able to select the right investments, the right advisors, and save the right amount of money. But is more information the key to improving retirement security?

New research provides insight into the promise and perils of disclosure as a policy tool. At its worst, disclosure is a waste of time and resources, draining millions of dollars from the financial services industry and achieving few measurable improvements in investor outcomes. At its best, disclosure can instantly achieve efficiency improvements within markets where it’s difficult for investors to assess price or quality.

KNOWLEDGE LIMITS
First, some basic consumer theory. Investors make the best decisions they can but are limited by their knowledge.

Collecting knowledge can be costly. A new employee must select among numerous investment options by reading through fund prospectuses or looking for cues of growth. Most people have made investments in learning a work-related skill in order to earn a living, but they haven’t made an investment in how to be their own pension manager. But creating 300 million pension managers doesn’t sound like a sensible public policy goal.

One way to help workers is to give them the information they need to make better choices. This is the appeal of information policy. If ignorance is the problem, then give them a detailed brochure that contains everything they’d need to know to make a better choice. Unfortunately, consumers may have no idea what to do with this information. And more information makes the problem worse.

There is perhaps no sadder example of failed information policy than the mutual fund prospectus. At an SEC roundtable, Don Phillips, Morningstar’s president of investment research, said that fund prospectuses were “bombarding investors with way more information than they can handle and that they can intelligently assimilate.” To its credit, the SEC tried to streamline the fund prospectus to only the most important information. Unfortunately, research shows that investors given a simplified prospectus still focus the most on fund characteristics that are irrelevant (like past performance) and ignore characteristics that matter (like fees).

Disclosure can even be counterproductive. In a 2011 paper, Sunita Sah, then at Duke University, and George Loewenstein of Carnegie Mellon University found that advisors were more likely to give self-serving advice if they first disclosed a conflict of interest to their client. When an advisor admits to a conflict of interest in a face-to-face transaction, this creates two problems. First, the client now feels that if they don’t accept the recommendation they are admitting they don’t trust the advisor—something that is taboo in human interactions.

The second problem is that the advisor now feels less pressure to make a recommendation that isn’t self-serving. It is as if one can absolve one’s sins by admitting to being a sinner. The authors found that recommendations given by participants in the role of advisor were significantly worse for the consumer if they had to disclose conflicts of interest.

Source: http://www.advisorone.com/2013/04/01/the-disclosure-paradox-how-much-information-is-too?utm_source=dailywire40113&utm_medium=enewsletter&utm_campaign=dailywire

Record U.S. Stocks at Lowest Valuation Since 1980

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USA EconomyMy Comments: Many of my clients are elderly clients. For many, their investment horizon going forward is not 20 years or more. They have little need to take what many of them think of as aggressive steps to grow their money.

On the other hand, good advisors today are encouraging their clients to be more aggressive. There is a pervasive and collective sense that the next 12 to 24 months are going to be very positive months for the stock market. Not that there might not be a 4% correction or two along the way, but nothing that suggests anything like what we saw in 2008-2009.

So this article is yet another that if you believe the world is NOT coming to an end anytime soon, you should put some of your money to work in the stock market. Call me, I have a good solution.

Source: http://www.investmentnews.com/article/20130324/REG/303249997

Even though U.S. stocks more than doubled during the four-year bull market, individual investors’ aversion to equities has left companies in the S&P 500 cheaper than at any record high since 1980.

The S&P 500 rose to an all-time closing high of 1,563.23 March 14, up more than 130% from its 2009 lows.

The index trades at 15.4 times reported profit, below the average 19.9 reached in bull markets since 1962, according to data compiled by Bloomberg.

The Dow Jones Industrial Average erased all losses from the financial crisis March 5 and has gained about 11% this year.

Although individuals have added almost $20 billion to U.S. stock funds so far this year, the amount is just 3.5% of the withdrawals since 2007 and compares with $44 billion placed with fixed-income managers in 2013, according to the Investment Company Institute.

For bulls, the absence of private buyers shows that there is plenty of money to keep the rally going.
Bears contend that the pessimism means the rally is too dependent on Federal Reserve stimulus and will fizzle once central bank support ebbs.

“I was down on the floor of the New York Stock Exchange when the Dow hit its new high, and there weren’t any champagne corks popping or people getting excited,” Michael Holland, chairman and founder of Holland & Co., said March 14.

“Valuations are extremely low. When there’s an absence of really bad news, the path of least resistance is up,” said Mr. Holland, whose firm oversees more than $4 billion.

REACHING RECORDS
The S&P 500 has risen about 9% this year. The Dow industrials were trading above 14,530.11 last Wednesday.
In March, the number of Americans filing for jobless benefits fell to the lowest level in almost two months, retail sales increased more than forecast and the housing market strengthened.

Indexes did give back a bit last week as the euro area imposed a levy on Cypriot bank deposits to reduce the cost of rescuing the nation’s lenders.

About $10 trillion has been added to U.S. share values since the market bottomed on March 9, 2009, during the worst financial crisis in seven decades. Confidence among households was shattered by the S&P 500′s 57% plunge from its October 2007 highs.

Institutions have been the main beneficiaries of the rally.

Individuals drained more than $600 billion from equity mutual funds in the six-year period though 2012 before becoming net buyers in January, data from the ICI show.

Even now, private investors remain skittish, withdrawing an estimated $1.7 billion in the two-week period through March 6 and pushing $10.5 billion into bonds.

“This big rotation from bonds to equities is not in full swing,” Alan Zlatar, who helps oversee $65 billion as head of multiasset class investments at Vontobel Asset Management Inc., said March 13.

“Our clients are seeking returns, and so far most of them have tried to stay within the bond space,” he said. “What speaks in favor of equities is, of course, that the alternatives are extremely pricey.”

Stocks are close to the least expensive ever versus government bonds, as measured by a valuation method favored by former Fed Chairman Alan Greenspan that compares earnings with interest payments.

S&P 500 companies currently generate profit equal to 6.5% of their share prices, about 4.5 percentage points more than yields on 10-year Treasuries.

The average spread in the past 10 years was about 2.5 percentage points, data compiled by Bloomberg show.

The combination of stocks being near all-time highs and declining trading volume indicates that money isn’t coming into the market and that equities are rising because fewer people are selling, according to Murray Roos, co-head of European equities at Deutsche Bank AG.

On average, 2.53 billion shares changed hands in S&P 500 companies each day this year, Bloomberg data show. That compares with 3.59 billion between 2009 and 2012.

“There aren’t sellers. That’s why the equity market is looking fundamentally cheap,” Mr. Roos said.
“We’ve got latent demand for equities,” he said. “We are at the start of a protracted move up in equity markets.”

Two Lists You Should Look at Every Morning

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My Thoughts on This: I saved this article when I found it about a year ago. This morning, I happened upon it again and saw when it was first published. Almost FOUR YEARS AGO! And I’ll bet nothing has improved since then. But the message is still very real. Enjoy.

11:00 AM Wednesday May 27, 2009

I was late for my meeting with the CEO of a technology company and I was emailing him from my iPhone as I walked onto the elevator in his company’s office building. I stayed focused on the screen as I rode to the sixth floor.

I was still typing with my thumbs when the elevator doors opened and I walked out without looking up. Then I heard a voice behind me, “Wrong floor.” I looked back at the man who was holding the door open for me to get back in; it was the CEO, a big smile on his face. He had been in the elevator with me the whole time. “Busted,” he said.

The world is moving fast and it’s only getting faster. So much technology. So much information. So much to understand, to think about, to react to. A friend of mine recently took a new job as the head of learning and development at a mid-sized investment bank. When she came to work her first day on the job she turned on her computer, logged in with the password they had given her, and found 385 messages already waiting for her.

So we try to speed up to match the pace of the action around us. We stay up until 3 am trying to answer all our emails. We twitter, we facebook, and we link-in. We scan news websites wanting to make sure we stay up to date on the latest updates. And we salivate each time we hear the beep or vibration of a new text message.

But that’s a mistake. The speed with which information hurtles towards us is unavoidable (and it’s getting worse). But trying to catch it all is counterproductive. The faster the waves come, the more deliberately we need to navigate.

Otherwise we’ll get tossed around like so many particles of sand, scattered to oblivion. Never before has it been so important to be grounded and intentional and to know what’s important.

Never before has it been so important to say “No.” No, I’m not going to read that article. No, I’m not going to read that email. No, I’m not going to take that phone call. No, I’m not going to sit through that meeting.

It’s hard to do because maybe, just maybe, that next piece of information will be the key to our success. But our success actually hinges on the opposite: on our willingness to risk missing some information. Because trying to focus on it all is a risk in itself. We’ll exhaust ourselves. We’ll get confused, nervous, and irritable. And we’ll miss the CEO standing next to us in the elevator.

A study of car accidents by the Virginia Tech Transportation Institute put cameras in cars to see what happens right before an accident. They found that in 80% of crashes the driver was distracted during the three seconds preceding the incident. In other words, they lost focus — dialed their cell phones, changed the station on the radio, took a bite of a sandwich, maybe checked a text — and didn’t notice that something changed in the world around them. Then they crashed.

The world is changing fast and if we don’t stay focused on the road ahead, resisting the distractions that, while tempting, are, well, distracting, then we increase the chances of a crash.

Now is a good time to pause, prioritize, and focus. Make two lists:

List 1: Your Focus List (the road ahead)
What are you trying to achieve? What makes you happy? What’s important to you? Design your time around those things. Because time is your one limited resource and no matter how hard you try you can’t work 25/8.

List 2: Your Ignore List (the distractions)
To succeed in using your time wisely, you have to ask the equally important but often avoided complementary questions: what are you willing not to achieve? What doesn’t make you happy? What’s not important to you? What gets in the way?

Some people already have the first list. Very few have the second. But given how easily we get distracted and how many distractions we have these days, the second is more important than ever. The leaders who will continue to thrive in the future know the answers to these questions and each time there’s a demand on their attention they ask whether it will further their focus or dilute it.

Which means you shouldn’t create these lists once and then put them in a drawer. These two lists are your map for each day. Review them each morning, along with your calendar, and ask: what’s the plan for today? Where will I spend my time? How will it further my focus? How might I get distracted? Then find the courage to follow through, make choices, and maybe disappoint a few people.

After the CEO busted me in the elevator, he told me about the meeting he had just come from. It was a gathering of all the finalists, of which he was one, for the title of Entrepreneur of the Year. This was an important meeting for him — as it was for everyone who aspired to the title (the judges were all in attendance) — and before he entered he had made two explicit decisions: 1. To focus on the meeting itself and 2. Not to check his BlackBerry.

What amazed him was that he was the only one not glued to a mobile device. Were all the other CEOs not interested in the title? Were their businesses so dependent on them that they couldn’t be away for one hour? Is either of those a smart thing to communicate to the judges?

There was only one thing that was most important in that hour and there was only one CEO whose behavior reflected that importance, who knew where to focus and what to ignore. Whether or not he eventually wins the title, he’s already winning the game.