Tag Archives: retirement plans

Even Skilled Investors Can Use a Financial Advisor

Leave a reply

profit-loss-riskMy Comments: Yesterday, the focus of my comments was that if you want to go it alone, that’s OK. Here, however, are some reasons for not attempting to go it alone and be solely responsible for your decisions. I can confirm, after 38 years in this business, that emotions play a huge role in whether or not you are successful as an investor. It’s not about fees, or lack of skill. It’s whether you can make objective choices when it comes down to YOUR MONEY THAT IS AT RISK.

Steve Garmhausen | Special to CNBC.com | Monday, 29 Apr 2013

In the past ten years, more investors have been turning to professionals for help with their portfolios. One measure of the industry—assets under management at registered advisors—swelled from $22 trillion in 2002 to nearly $50 trillion in 2012.

What’s behind that surge? More people need help as employer-sponsored pensions give way to self-guided retirement plans such as 401(k)s and they realize that investing in a globally linked market is complicated.

Yet, a growing number of investors and experts are embracing financial advisors for a more surprising reason: to help them avoid the most costly error investors can make, which is listening to their emotions.

People tend to buy when markets are on the way up and sell on the way down. That costs the average mutual fund investor nearly 4 percent a year, based on data from research firm Dalbar Inc. If you invested $100,000, losing nearly 4 percent a year would mean you’d end up with about $130,000 instead of $280,000, assuming a 6 percent annual return.

Dalbar found that “psychological factors” account for 45 percent to 55 percent of the persistent gap in investment returns. In short, investors can’t resist running with the herd.

Case in point is the Great Recession. In March 2009, when the markets hit a trough, household net worth had fallen from a high of $64.4 trillion in second-quarter 2007 to $50.4 trillion in first-quarter 2009. Americans’ stock holdings plunged 5.8 percent to $5.2 trillion, and mutual funds holdings slid 4.1 percent to $3.3 trillion, as investors pulled $300 million out of their equity funds at the bottom of the market, according to data from the Investment Company Institute.

“I do think there is a very strong case to be made for a sensible advisor to help you make the right decisions,” said Charles Ellis, founder of consulting firm Greenwich Associates and former chair of the investment committee for Yale University’s endowment, as well as a longtime proponent of buying inexpensive index mutual funds directly.

An advisor may also be able to help you establish a plan you feel comfortable sticking with.

Dalbar President Louis Harvey argues that the seeds of bad buying and selling decisions are planted well before ill-timed transactions. An investment strategy must meet needs as well as risk tolerance, he said.

“We found that when there is a mismatch; you have reactions that lose people money,” Harvey said.

While not a sure-fire solution, a financial advisor can provide a counterpoint and a reminder that staying invested through downturns yields the best returns over time.

“I don’t think there’s any dispute that a lot of people out there could do a good job of investing their own money,” said Michael Branham, president of the Financial Planning Association. But, he added, “there’s so much volatility in the market that it’s easy to get emotionally charged either way.”

The surging stock market is most likely emboldening investors again. Current low bond yields can make it tempting to jump at higher-risk fixed-income investments. It’s tempting to pour in more money, right? But then you’d run the risk of buying high—falling into an emotionally driven move, such as investors who sold during the March 2009 low.

An outside voice of reason can be a major advantage for many investors, said Mark McNabb, clinical professor of finance at the University of Texas at Dallas. “You need someone to act as your filter sometimes,” he said.

Dean Harman, president of Harman Wealth Management, recalled meeting with a client who told him that, on one hand, she didn’t want to lose money. “On the other hand, she was saying, ‘Should I get aggressive so I can make more money?’ ”

Dean reminded her of the long-term goal they had agreed on—funding her retirement to the tune of $56,000 a year.
“I brought her back to what her goal is,” Harman said. “As long as we can deliver the income she needs, and a modest amount of growth, she doesn’t need more than that.”

He said he views an aggressive stance on behalf of this client, who has $1.5 million with Harman Wealth, this way: If it were successful and increased her assets under management to $3 million, her life wouldn’t change that much. But if the posture were to backfire and the portfolio fell to $700,000, “then she’s in real jeopardy of not being able to generate the income she needs to meet her goals,” he said.

“Manage to your goal, not to what the markets are doing,” Harman advised.

Austerity Exposes the Global Threat from Tax Havens

Leave a reply

My Comments: Unless you have been to the Cayman Islands, or happen to make far more money than you actually need to live your life, the idea of an offshore tax haven is pretty remote. You’ve heard about them, but since they are so far removed from your reality, they seem to stay under the rug. Here’s an article from the Financial Times that suggests we should pay more attention to what they represent for all of us.

By Jeffrey Sachs

The curtain has been pulled aside on the once secret world of tax havens, and the scale of abuse is nearly beyond reckoning. Week after week, Americans and Europeans worn down by budget austerity have learnt about the secret accounts of their politicians, tax evasion by leading companies and hot money destabilising the world economy. The darker truth is that these havens are not gaps in the world’s financial system; they are the system.

How many politicians and political parties have secret accounts abroad? Inevitably, given the nature of the arrangements, we cannot say for certain – but the list of those that have come to light is long. US presidential candidate Mitt Romney was found to have huge wealth in the Cayman Islands, never adequately explained. In France, Jérôme Cahuzac has resigned in disgrace from his position as budget minister following the revelation that he held a secret account in Switzerland. He has since been charged with tax fraud. Spain’s ruling party has been making payments from secret Swiss accounts for years. One senior Greek politician has been sentenced to jail for falsifying financial declarations. Many more revelations will come, especially now that investigative journalists have their hands on the records of hundreds of thousands of offshore accounts.

Groups such as Apple, Google and Starbucks have been shown in recent months to have used outlandish accounting gimmicks to shelter their profits. These include Google’s claim, approved by the US Internal Revenue Service, that its intellectual capital resides in Bermuda. There are thousands more like them working with the tax authorities to keep their money out of reach. Banks such as HSBC and UBS have been caught in the money laundering that facilitates this process.

How much tax revenue is lost to the global havens? Here, too, we can only guess but the numbers are likely to be vast. Recent estimates by the Tax Justice Network suggest that deposits are in the range of $21tn.

The havens serve countless purposes, yet not one is for the social good. They support massive tax evasion. They underpin a global system of bribery to corrupt officials. They service the accounts of drug runners, arms traders and terrorist groups. They create veils of secrecy through shell companies, which allow tax evasion, land grabs and environmental destruction.

The prime movers of the world’s tax havens are the US, Switzerland and the UK. Indeed, many of the leading havens, including the British Virgin Islands, Cayman and Bermuda, are British Overseas Territories. The secreting of trillions of dollars in the Caribbean has been undertaken with the support of America’s IRS, and with the approval of the US political class and Wall Street.

These playgrounds of the rich and powerful were largely hidden from the public’s view during the long financial boom. In the new world of austerity following the 2008 crash, however, they are increasingly seen as a cancer on the global financial system that must be excised.

The public’s animus was greatly accelerated by the Cyprus crisis. The island has for many years been a notorious secrecy-and-tax haven, especially for Russian money. Yet this was winked at rather than controlled. Then Cyprus blew up – a reminder of how an unregulated financial centre can quickly turn into a mortal threat to the world economy.

Many of the reforms that are required are obvious. All foreign bank accounts in any jurisdiction should be reported back to the national tax authorities of the account holders. Unreported incomes diverted to overseas accounts in the past should then be taxed at national rates with penalties for evasion. The thousands of hedge funds and corporations domiciled in the Caribbean for operations in the US and Europe should be required to redomicile in the US and Europe. Beneficial ownership should be disclosed on all foreign-owned companies.

Angela Merkel, the German chancellor, François Hollande, the French president, and David Cameron, the UK prime minister, have recently acknowledged the need for a serious clampdown, yet the real actions still lie ahead. Barack Obama, the US president, has spoken in the past about cracking down but has not said much recently. All eyes are now turning to US and European leaders in advance of the summits of the Group of Eight leading nations in June and the Group of 20 in September to see whether the politicians are beholden to the needs of the public or to heedless and destabilising private greed.

The writer is director of the Earth Institute and author of the forthcoming book, ‘To Move the World: JFK’s Quest for Peace’

Retirement Ratio: Portfolio Performance and Uncertainty Measurement

Leave a reply

investment-tipsMy Comments: This was written a couple of years ago, but the message will resonate today with many people. For those who have expectations of retiring at some point, there is an incentive to accumulate as much retirement money as possible. All the while being sensitive to how that money is put to work.

The article is a little heavy on the math, so if you’re an engineer, this will not faze you. If you’re an English major, perhaps a little bit. But I encourage you to make the effort anyway.

A fundamental argument is that your money has to grow at least as fast as inflation, otherwise in terms of purchasing power, you are losing ground. In days past, we used to talk about the safety of Certificates of Deposit where the interest rate might have been 4%. Lost in the discussion was that inflation was 3% and taxes consumed more than 1% of the interest, which meant you were simply going broke safely.

Today, the markets are as uncertain as ever. But it doesn’t take specific knowledge or total acceptance of risk to allow yourself to think that an annual rate of return over the next several years can be in the 7% – 9% range. Click on the image that accompanies this post to get an idea what I’m talking about.

April 20, 2011 by Lowell http://itawealthmanagement.com/author/lowell/

What is the Retirement Ratio (RR)? I never heard of such a ratio, at least as it is defined below. Before going into an explanation, let me digress and address similar ratios. Portfolio performance measurements that combine both return and risk are readily available to investors. The Sharpe ratio is perhaps the best known “efficiency ratio” where it measures the amount of return earned per unit of risk. This Wikipedia reference may be easier for ITA readers to make sense of the Sharpe Ratio.

Scrolling down the Wikipedia Sharpe ratio page, one sees other performance/uncertainty measurements. Those of interest are Jensen’s Alpha, Treynor ratio, Information Ratio (IR), and Sortino ratio. Of these five ratios, my favorite is the Sortino although the Information Ratio is used for portfolios tracked using the Captool software. It is possible to extract performance and volatility data from Captool to come up with a ratio that closely approximates the IR.

Originally, the Sortino ratio was written as follows.
S = (R – MAR)/DR where
R = portfolio return
MAR = target return or Minimal Acceptable rate of Return.
DR = downside risk (DR sets the Sortino Ratio apart from other Return/Uncertainty ratios.)
MAR was changed to DTR™ for reasons given below.

In Chapter 3 of “The Sortino Framework for Constructing Portfolios” page 24 I quote, “I think the Sortino ratio was an improvement at that time in that it measured risk as deviations below the investor’s DTR™. What we now call DTR™ was called MAR in the original Sortino ratio. Attorney’s advised Sortino Investment Advisors (SIA) of a potential liability because referring to something as a “minimal acceptable return” could lead people to think we were promising that return at a minimum, so we changed it to DTR™.” Note that Desired Target Return™ is now a trademark term. One can only hope the entire English language will not be trademarked over the next 100 years.

One very important difference with the Sortino ratio (SR) is the denominator or Downside Risk. Instead of using the common mean-variance, the SR uses a semi-variance calculation. Why is this so important? Instead of measuring the portfolio volatility both above and below a mean, the semi-variance calculation only penalizes the money manager for downside risk, hence the DR designation.

The importance of DR came to my attention through two sources. 1) “Wealth Management” by Harold Evensky and 2) Captool software manual.

Quoting Evensky, “When Markowitz wrote his paper on Modern Portfolio Theory (MPT), he noted that a measure of distribution known as semivariance would, theoretically, be the best measure of risk. At the time, most computers did not have the computational power to handle semivariance. Consequently, Markowitz opted for the more practical measure of mean-variance. Today with greater computational power available at very low cost, there is an increasing interest in considering more complex solutions to investment issues, including the use of semivariance.” I suspect the difficulty of programming semivariance with the computers of the 1950s was a major hurdle as well as inadequate computing power.

The second source that peaked my interest in semivariance is more obtuse and it comes from the Captool manual. In describing Sigma (Standard Deviation) it is defined as follows. “This is a measure of the volatility of an investment’s ROI performance, and is often considered a good indicator of the investment’s risk. It is computed as the standard deviation of a number of ROI performance observations for the security or portfolio being evaluated. This standard deviation should not be confused with other, more simplistic standard deviation measures of an investment’s price. These suffer as a measure of risk, in that they penalize upside price movements as well as downside movements. Captool’s “sigma”, on the other hand, does not penalize consistent upward price movement. Furthermore, it is superior to simplistic price-based “Ulcer Indices” in that those can fail to properly handle price movements due to dividend distributions. Distributions are properly accounted for by a total return on investment measure such as is computed by Captool.” While I don’t know exactly how Captool calculates their Sigma, I strongly suspect it a semivariance calculation as it does not penalize “consistent” upside volatility.

With this background, we finally come to describing the Retirement Ratio (RR).
Retirement Rato = (P – R)/DU where
P = Internal Rate of Return (IRR) of Portfolio
R = Greater of either the IRR of Benchmark or the sum of Inflation Rate plus Retirement Withdrawal Rate. We currently use ITA Index, a customized benchmark.
DU = Downside Uncertainty or the semi-variance of the benchmark. I prefer the term, Uncertainty, as it does not carry the variety of meanings laid on the term, Risk.

This form of the ratio looks identical to the Sortino ratio only we use R instead of DTR™. R sets a higher standard than Desired Target Return (DTR™).

A little more detail or description of R is in order. To determine R, we are looking for the greater of two values. The first value we look for is the Internal Rate of Return of the benchmark. If P > R, then the portfolio is performing better than the benchmark. This is a desired goal, but extremely difficult to reach as active mutual fund managers well know.

The second value we look for is Retirement Target Return. The second form of the Retirement Ratio looks identical to the first form shown above, only we substitute Retirement Target Return (RTR) for R. Exactly what is the RTR? It is the sum of the current inflation rate plus the percentage the investor needs or anticipates withdrawing from the portfolio during retirement. Normally this value ranges from a low of 0% plus inflation to a maximum of 5% plus inflation. Should we experience deflation, that would factor into this form. Anything higher than a 5% withdrawal rate greatly increases the probability of the retiree running out of money. Withdrawal rates around 2% to 4% are recommended.

To calculate the Retirement Ratio, and this is built into the TLH spreadsheet, we use an IF THEN equation to look for the higher of either the IRR for the benchmark or RTR.

If the Retirement Ratio is greater than zero, we have a high probability of not running out of money regardless what the market is doing. To check this logic we also run a Monte Carlo calculation based on another set of variables. The Monte Carlo analysis gives us a long-term probability picture while the Retirement Ratio informs us how well we are doing from month to month and year to year.

Should readers need an example to better explain the Retirement Ratio calculation, you only need to request it in the comments section and I will go through a few with assumptions. Many times examples shed light on difficult concepts, and the RR is a tad complicated.

Record U.S. Stocks at Lowest Valuation Since 1980

Leave a reply

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.”

Americans Take Payroll-Tax Increase in Stride to Keep Spending

Leave a reply

world economyMy Comments: There is a lot of evidence and sentiment that 2013 will be a solid year. Housing starts are strong and will continue to be at least until interest rates start to climb.

The jobs report continues to be positive with roughly 200K new jobs every month for the past four months.

GDP growth this year could be around 3%. Not fantastice but solid.

Monday, 11 Mar 2013 06:16 AM

Consumers and businesses are treating higher payroll taxes and federal spending cuts as just a speed bump for a U.S. economy poised to accelerate later this year.

Americans are saving less and spending more for purchases such as new automobiles, as household net worth climbs with rising home values and stock indexes surging to record highs. Companies are ramping up hiring, adding 246,000 to private payrolls in February. They’re also expanding investment and rebuilding inventories as they put profits accumulated during the recovery to work.

“A lot of things are going the right way,” said Brian Jones, a senior U.S. economist at Societe Generale in New York, whose private employment forecast was closest to the February gain among economists surveyed by Bloomberg. “The labor market is picking up momentum. Businesses are seeing demand. More people working means more people will be spending money. To a certain extent, this neutralizes the effects” of higher taxes.

Growth will pick up in the second half of the year as the fallout from the budget cuts dissipates, paving the way for even stronger spending by businesses and consumers, projections from Barclays Plc and JPMorgan Chase & Co. show. Gross domestic product will rise at a 2 percent annual average pace in the latter six months of 2013 after a 1.5 percent rate in the first two quarters, said Dean Maki, chief U.S. economist at Barclays.

“The economy is at a point where it can handle the fiscal tightening without screeching to a halt,” said New York-based Maki, who is also a former Federal Reserve board economist. “We’ll see some slowing, certainly, but the economy is not as fragile as it was.”

Still Shopping
Even as Congress is forcing Brent Phipps’s employer, the U.S. government, to reduce spending by $85 billion this fiscal year, the 25-year-old paralegal is still going shopping.

Browsing through an aisle of neon green, pink and transparent plastic storage containers at a Target Corp. store in Washington, Phipps, who works for the Justice Department, said the payroll tax increase hasn’t altered his spending habits.

“I didn’t really pay any attention to it,” he said. “I can’t say I had any particular, ‘oh no, I’m not going to do X, Y and Z thing.’”

Americans are opening their wallets for bigger-ticket purchases too. General Motors Co. and Ford Motor Co. predict automobile sales, on pace for the best year since 2007, will remain resilient. Cars and light trucks sold at a 15.3 million annual rate in February after 15.2 million a month earlier, according to Ward’s Automotive Group.

New Cars
“Consumers appear to be taking higher payroll taxes in stride, at least when it comes to replacing older vehicles,” Kurt McNeil, vice president of U.S. sales operations for Detroit-based GM, said on a March 1 conference call.

Norris Home Furnishings, a Fort Myers, Florida-based furniture retailer with three stores, exceeded its goal for 15 percent sales gains in January and February from a year earlier, company owner Larry Norris said. Rising home prices in the region have improved consumer attitudes even in the face of higher taxes, the 70-year-old business owner said.

“People are a lot more cautious with their money than they were at one time, but they are still spending,” he said. “Consumer attitudes are improving, no question.”
Continue Reading HERE...

Obama Planned Big Budget Cuts All Along

Leave a reply

My Comments: I’m trying to decide if the author of this article is fundamentally to the left of the Obama administration and therefore critical of his lack of fire in promoting new revenue sources for the country, ie higher taxes, or whether the writer is critical because virtually everyone on the right is critical, regardless of the message or desired outcome.

I’d appreciate hearing from some of you how you react to this.

By Jeffrey Sachs

The president had a Faustian pact on tax and spending, says Jeffrey Sachs

To hear US President Barack Obama tell it this week, the budget sequestration – the automatic spending cuts that are due to commence on March 1 – will decimate the government. Each party is blaming the other, as if something new and unexpected was about to begin. Many of the cuts are indeed ill-advised – but the fact is that from the start of his presidency Mr Obama has planned a steep reduction in discretionary spending as a share of national income.

The A-List provides timely, insightful comment on the topics that matter, from globally renowned leaders, policymakers and commentators.

Each year he has put a budget on the table calling for a sharp decline in discretionary spending as a share of gross domestic product in 2012 and beyond. Most of his supporters have been unaware of the contradiction between this and his rhetoric about increasing public investments in America’s future.

The administration is now vigorously blaming the Republicans for the pending cuts. Yet the level of spending for fiscal year 2013 under the sequestration will be nearly the same as Mr Obama called for in the draft budget presented in mid-2012. So deep were the proposed cuts in discretionary spending that the budget narrative pointed out that the plan would “bring domestic discretionary spending to its lowest level as a share of the economy since the Eisenhower administration”.

The squeeze on domestic programmes dates to the start of Mr Obama’s first term. In July 2009, he presented the details of his 10-year budget framework. Discretionary outlays (defence and non-defence) would rise from 7.9 per cent of GDP in 2008, the final full year of George W. Bush’s presidency, to 8.8 per cent in 2009; and 9.8 per cent in 2010, mainly because of stimulus spending and the surge in Afghanistan. But then they would fall to 8.7 per cent in 2011, 7.8 per cent in 2012, 7.4 per cent in 2013, and to just 6.3 per cent in 2019, the final year of the 2009 10-year budget framework.

These cuts are now taking hold, and they will hurt. Mr Obama’s supporters will be puzzled; many will doubt that these cuts have long been ordained by the president, at least in general terms, though not exactly as they will now occur. Why would a progressive leader plan for deep cuts in discretionary spending relative to GDP even as he advocates larger investments in health, education, infrastructure, clean energy, science and technology, job training, early childhood development and more?

There is a simple answer that is the key to the federal politics of our time. Mr Obama ran in 2008 and 2012 promising to make permanent the Bush-era tax cuts for almost all Americans. These tax cuts were unaffordable from the start and were scheduled to expire in 2010. But to say so, while the Republicans were promising to make them permanent for everybody, would probably have cost Mr Obama both elections.

So he made a Faustian bargain. He would champion the permanent extension of the tax cuts except for a tiny number of rich Americans, and he would silently plan for deep cuts in discretionary outlays as a share of GDP to compensate for the lack of adequate budget revenues in later years. In effect, he would allow rising outlays on mandatory programmes such as Medicaid and Social Security and debt servicing to crowd out public investments vital for America’s long-term economic future. And indeed, on January 1, Mr Obama and the Congress agreed to make the tax cuts permanent for 99 per cent of households.

Mr Obama probably hoped that when the moment of truth arrived, when the spending cuts started to bite, the American people would support higher taxes rather than the spending cuts long called for in his own budget proposals. And perhaps they will still do so. Yet he has never presented an alternative with more robust tax revenues in order to fund a higher sustained level of public investments and services.

So the moment of truth has arrived: we are on the path of deep cuts in discretionary programmes relative to national income. The fact is that America needs higher public investments and more tax revenues to fund them. Mr Obama is finally saying some of these things, though still without specific tax proposals.

Yet it is very late in the day. Now the Bush tax cuts are permanent, Mr Obama lacks the political leverage to achieve a boost of revenues. After years of deflecting public attention from the coming budget squeeze, he will now preside over sharp cuts in public services and investments that are the opposite of his stated goals.

The writer is director of the Earth Institute at Columbia University

Retirement Security Gets More Complicated

Leave a reply

My Comments:global investing While this was written a few weeks ago, the underlying theme is entirely valid today. There is little chance that interest rates are going to see any significant increase over the next 24 months. The Fed has said they are not going to mess with them for perhaps two more years.

There is also a high expectation that life spans are going to get longer and not shorter. This simply means the need for money will be greater than it is now. I have no idea what Prudential is talking about when “retirement income insurance” becomes something they are offering for sale. Whatever it is, it’s going to cost the consumer something since neither Prudential or any of the other companies that will follow suit work for free.

So those of us attempting to live on whatever we’ve accumulated are going to find outselves in an increasingly smaller box from which it will be hard to escape, short of pulling the plug. Not a pleasant thought. The only offset I can offer that has a reasonable chance of success is to choose from among the investment programs we offer from a group in Tacoma called Purcell Advisory Services. Call or email me for a no strings attached conversation.

December 18, 2012 • Jim McConville

A generation ago, workers who got Social Security and pension payments could generally count on having enough money to see them through their golden years.

But today that retirement income formula won’t necessarily provide the financial security it once did, according to Prudential’s new report Should Americans Be Insuring Their Retirement Income?

Sustained low interest rates, market volatility and longevity risk are the most significant risks to Americans’ retirement security, says Prudential. And if interest rates stay low, retirement assets invested conservatively will have little investment growth and may be exhausted earlier than expected.

Continued volatility in the equity markets creates significant “sequence of returns risk,” when the order of investment returns results in losses at or near retirement, making those losses difficult to make up. Plus, people are living longer, so it increases the chances that they’ll exhaust their retirement savings while still alive.

Prudential’s white paper discusses the likelihood of the average retiree exhausting his or her retirement savings based on three scenarios for a hypothetical retiree named “Jean,” age 65. She has a $300,000 portfolio that is invested 60 percent in equities and 40 percent in bonds and carries expenses of 1 percent a year. She plans to withdraw $15,000 a year to supplement Social Security.

In scenario one, she lives to her expected lifespan of 90, there’s no market volatility and her gross return is 8 percent annually. In each Monte Carlo simulation for that scenario, she avoids exhausting her nest egg. But the report acknowledges that it’s unrealistic to think investment returns won’t vary or that she’s certain to live to her life expectancy. When those variables are introduced, her assets are depleted in 420 of 2,000 simulations. In scenario three, the risk of interest rates remaining at Dec. 31, 2011, levels is also introduced, and Jean’s assets are depleted in 1,080 of 2,000 simulations.

Prudential’s report recommends consumers invest in “retirement income insurance” — such as individual annuities or guaranteed income products built into defined contribution plans — to reduce the risk of outliving one’s assets.

Kimberly Supersano, chief marketing officer for Prudential Annuities, says retirees are facing a number of key risks. Those circumstances, including the low interest rate environment, means many of them won’t meet their retirement goals, she said.

Coalition Fights Florida Retirement System Changes

Leave a reply

By Paula Aven Gladych

A bill scheduled for consideration today in the Government Operations Subcommittee of the Florida House of Representatives would weaken a healthy retirement system, raise taxpayer costs and force more Floridians to rely on social services, according to opponents of the measure.

The bill would close the Florida Retirement System defined benefit plan Jan. 1, and force all public employees hired by government agencies after that into defined contribution plans.

“There’s no fire threatening the Florida Retirement System except the fire the Legislature is lighting with unnecessary and costly legislation,” said Gary Rainey, president of Florida Professional Firefighters, a member of the Florida Retirement Security Coalition.

The coalition objected to committee action on the bill, despite the chair’s assurances that his committee would not vote on the legislation before an actuarial study detailing the costs and impacts on current and future retirees is complete.

“It’s ridiculous for legislators to consider a proposal without even knowing how much it will cost taxpayers and how it will affect workers who serve Florida and in many cases put their lives on the line every day to protect Floridians,” Rainey said.

The bill also would make no provision for the families of fallen first responders if they became disabled or died on the job.

The coalition highlighted other problems with the proposed legislation. The first being that the Florida Retirement System is in good shape financially and that by closing the plan to new hires it would not only cost more for both employees and taxpayers, current workers and retirees would be hurt by an unstable future funding source for their retirement funds, the coalition stated.

The coalition also pointed out that the Florida Retirement System is currently funded at 86.9 percent, well above the recommended 80 percent. In 2011, the Legislature reduced compensation for public employees by 3 percent as a means to fund retirement. The money should have gone into the retirement system, but the Legislature used the money to balance the state budget instead of to reduce the pension plan’s unfunded liability.

Originally published on BenefitsPro.com

Doll Predicts New U.S. Stock High, Slow Economic Growth

Leave a reply

investment-tipsMy Comment: I first met Bob Doll some 25 plus years ago when he was a regional representative for what I recall as Oppenheimer Funds. He made intelligent presentations and clearly had his act together.

Over the years he has appeared in various high profile positions within the industry and has always been pretty close to the mark. What he says here makes sense and encourages me to make sure my clients are appropriately exposed to the stock market as we wait and watch for history. Unfortunately, many people will wait until he’s proven right, by which time it will be appropriate to sell and get back into cash.

Please notice he says nothing about whether interest rates will rise or stay the same.

January 8, 2013 • Karen DeMasters

U.S. stocks will hit an all-time high in 2013 despite a “muddled” economic recovery, according to Robert C. Doll of Nuveen Investments.

Robert C. Doll, chief equity strategist and senior portfolio manager for Nuveen Asset Management, the $117 billion multi-asset affiliate of Nuveen Investments based Chicago, said he is cautiously optimistic about the year ahead.

“In the broadest terms, 2013 will see the United States experience a more muddle-through economy and a grind-higher equity market,” Doll said. “Our somewhat constructive outlook is not driven by expectations for a strong acceleration in global growth, but rather a modest improvement leading to increased business spending, which will make the recovery broader and more sustainable than has been the case since the Great Recession ended.”

For most countries in Europe, there will be fewer recessionary reports in the second half of the year, he said.

Domestically, Doll said the double-digit percentages in dividend growth will continue, despite higher taxes on dividends.

“In many cases, cash and cash flow are so strong that increased hiring and reinvestment by corporations could happen along with increased dividend payouts,” he predicted.

“We believe we will witness an increase in manufacturing jobs and GDP as a percentage of total jobs and GDP, admittedly from a low base,” Doll said. “Realization of this prediction in 2013 and beyond should have a positive impact on trade, capital expenditures, jobs and inflation.”

Doll further predicts U.S. stocks will record a new all-time high for the fifth year in a row, emerging market equities will outperform developed market equities and U.S. multinationals will outperform domestically focused companies.

Doll made 10 predictions for 2013:
• The U.S. economy continues to muddle through with nominal growth below 5% for the seventh year in a row.
• Europe begins to exit recession by the end of year as the ECB eases and financial stresses lessen.
• The U.S. yield curve steepens as financial risks recede and deflationary threats lessen.
• U.S. stocks record a new all-time high as stocks advance for the fifth year in a row.
• Emerging market equities outperform developed market equities.
• After two years of underperformance, U.S. multinationals outperform domestically focused companies.
• Large-cap stocks outperform small-cap stocks and cyclical companies outperform defensive companies.
• Dividends increase at a double-digit rate as payout ratios rise.
• A nascent U.S. manufacturing renaissance continues, powered by cheap natural gas.
• The U.S. government passes a $2–3 trillion 10-year budget deal.

Big GM Investment in China

Leave a reply

http://thomaspmbarnett.com/storage/GM-Wuhan-plant-groundbreaking-ceremony-582x348.jpg?__SQUARESPACE_CACHEVERSION=1354556361864My Comments: Not talked about much during the recent election campaign but in the back of my mind as I pondered the merits of the GOP vs Dems.

The neo-con crowd who were backing Romney were the same people who pushed as hard as anyone to get us into Iraq in 2002-03 and have been pushing the Pentagon to get ready to bomb China before they get too important. How better to keep the US identified as the biggest, baddest, kick-their ass country on the planet?

Never mind that companies like GM have been building business relationships with China for over 15 years now. Here is an example of how this is all likely to play out over the next generation as the emerging middle class in China, car buyers all, want what we have, which is freedom to express themselves, grow families, take vacations and enjoy life.

Monday, December 3, 2012 at 12:30PM

GM reached out to China’s auto firm SAIC in the late 1990s, and the fruits of that joint venture continue to pile up, according to the Wall Street Journal last Thursday:

General Motors China and Chinese joint-venture partners agreed to build a third commercial vehicle factory in southwest China to meet growing demand and protect GM’s status as the largest auto maker by volume in the country.

The $1billion plant is looking to crank out 400k vehicles per year by 2015, giving GM and its partners a total capacity of 2m vehicles. China’s light vehicles market will top 20m next year, while the US remains around 15m. 600 or so new dealerships planned across China, bringing the volume to 3500 total.

Nothing marks you more fully as globalization’s demand center than to have the car market. That was America in the 20th century, and it’s China in the 21st.

Referenced from: http://thomaspmbarnett.com/globlogization/2012/12/3/big-gm-investment-in-china.html#ixzz2E1PwSFqR