Opinion

John Wasik

How to identify overpriced target date funds

Nov 8, 2011 14:38 UTC

Nov 8 (Reuters) – Not all target date funds are created
equal.

While these prepackaged, risk-reducing portfolios make a
lot of sense for retirement saving, you don’t know if the funds
within them are good choices unless you open them up and peel
them apart.

The lowest-cost among them contain index funds that track
baskets of securities. While neither a perfect nor risk-free
solution, these funds offer an efficient way to invest in the
entire stock or bond market without engaging costly active
management.

The products are designed to ratchet down stock exposure –
and then hold more bonds — the closer you get to a planned
retirement age or “target date.”

Generally, all-index funds are the best place to start when
considering target date portfolios because of their lower cost
and better diversification. There are only seven fund groups
that offer an all-index line-up within their target date
offerings, according to Brightscope.com President Ryan Alfred,
whose firm tracks and rates 401(k) plans. Here they are:

* Fidelity Freedom Index group, which has funds like the
Fidelity Freedom Index 2010 W Fund

5 reasons to defy the bears and buy stocks now

Nov 4, 2011 17:24 UTC

Nov 4 (Reuters) – Buying stocks shouldn’t make sense
now.

Yet despite all of the growling in Europe, there are still
reasons why you should invest in U.S. stocks.

This is a contrarian view, to be sure. The last quarter was
the worst for stocks since 2008, with the S&P 500 index
suffering a 14 percent loss. For those keeping score at home,
that wiped out some $2 trillion in wealth.

Adding salt to that wound is the Federal Reserve’s slashing
of its growth forecast for next year and anemic U.S. job
growth.

Zap zombie funds within your portfolio

Nov 1, 2011 15:39 UTC

zombie index fundsDo you have zombie index funds within your portfolio?

Instead of eating up your brains, they devour your nest egg with high expenses and walking dead performance. They may be lurking within your 401(k)-type plan or individual retirement account.

I like index funds because they generally can track nearly any kind of asset class. As such, they are the white bread of investing and should cost about the same from fund to fund. The cheaper the better. Why pay Nieman-Marcus prices for the same thing you can get at Costco or Sam’s Club for less?

You can vanquish these funds without overtly violent acts, but first you have to identify them. Unfortunately, mandated fee disclosure is still pending, so you have to take the initiative.

5 ways income inequality happened, and will continue

Oct 28, 2011 15:14 UTC

By John Wasik

(Reuters) – As if on cue for an Occupy Wall Street commercial, the latest Congressional Budget Office report highlighted the large crevasse between the upper 1 percent of U.S. households and the rest of us.

When it comes to income inequality, this is what U.S. politicians should be digesting now. While it’s hardly a major revelation that for the top 1 percent of earners real after-tax income rose 275 percent between 1979 and 2007, the top 20 percent made more in after-tax income than the remaining 80 percent. That’s quite a difference since the lowest-income group’s median income only rose 18 percent.

Income inequality couldn’t be more of a mainstream issue as some 70 percent of Americans surveyed want wealth shared more equally.

Meditations on money mania: Why we gorge on the financial buffet

Oct 24, 2011 14:41 UTC

Are you a money maniac? While finishing up Michael Lewis’s “Boomerang,” his latest book on the financial meltdown, I was intrigued by a few of his observations on a cultural and psychological malady.

Since some of my academic training is in psychology, I’ll take a stab at what I think is going on. We spend (and eat) too much because the culture encourages it at every turn, but we have the ability to resist temptation. We’re hardwired to do the wrong thing, yet can still make rational decisions.

There’s also a part of the brain that Lewis didn’t really explore in much depth. I’m not sure what it’s called, but it involves conflating risk with the likelihood of financial success. Behavioral economists have many descriptions of these miscues. One might call it intentional and persistent denial.

Big banks want your big bucks, but ask questions

Oct 21, 2011 15:52 UTC

NEW YORK, Oct 21 (Reuters) – Despite receiving some $4.7
trillion in taxpayer bailout funds, the largest of them are
moving more towards wealthy customers with assets to invest and
away from low-margin checking accounts. That doesn’t mean you
should invest with them, though.

The banks side of things is that that want well-heeled
wealth management or brokerage clients, not people who are
writing small checks to pay bills. For instance, Bank of
America , which recently announced a $5-a-month
debit-card fee, said about two weeks later that it was planning
to nearly double the number of “Financial Solutions Advisors”
for its mass affluent clients.

The growing array of banking fees — common at most big
banks now — are a red herring for bankers’ larger agenda of
generating more income from advisory and brokerage accounts, as
brokerage accounts have the potential to generate hefty
commissions and advisory fees.

Big banks want your big bucks, but you have other options

Oct 21, 2011 14:27 UTC

Big banks just don’t want to sweat the small stuff.

Despite receiving some $4.7 trillion in taxpayer bailout funds, the largest of them are moving more towards wealthy customers with assets to invest and away from low-margin checking accounts. That doesn’t mean you should invest with them, though.

The banks side of things is that that want well-heeled wealth management or brokerage clients, not people who are writing small checks to pay bills. For instance, Bank of America, which recently announced a $5-a-month debit-card fee, said about two weeks later that it was planning to nearly double the number of “Financial Solutions Advisors” for its mass affluent clients.

The growing array of banking fees — common at most big banks now — are a red herring for bankers’ larger agenda of generating more income from advisory and brokerage accounts, as brokerage accounts have the potential to generate hefty commissions and advisory fees.

5 tips to surviving a bear market

Oct 18, 2011 15:06 UTC

Do you need a special kind of financial adviser to deal with a bear market?

Few will debate that the months ahead will be challenging, and that the extreme market volatility will continue. There are a number of steps you can take with your adviser — or on your own — to weather these changes.

The first thing to consider is that the cards are lining up for the U.S. and European economies to backslide into recession. The Economic Cycle Research Institute is calling for two quarters of negative growth. The European sovereign debt crisis is like a wounded beast. The Federal Reserve doesn’t seem to be able to help, despite lowering short and long-term interest rates.

But a more telling indicator might be the gold-to-copper ratio, which is diligently tracked by Jack Ablin, U.S. portfolio strategist at Harris Private Bank in Chicago.

Analysis: Tactical asset allocation might become your new normal

Oct 17, 2011 18:13 UTC

NEW YORK (Reuters) -Market volatility is like a headache that hangs on. The cure may lie in shifting your mind from keenly focusing on risk instead of returns.

For many, this is an obvious no brainer, but it involves much more than simply shifting into cash, bonds or gold. What if you don’t want to exit stocks entirely? Then you may need what money managers call tactical asset allocation.

Instead of a long-only, hold-on-for-dear life approach of traditional investing, tactical planning involves shifting in and out of assets as market conditions dictate. In a turbulent market, there are several asset classes that can buffer stock downturns that can be found in several off-the-shelf mutual funds.

Tactical asset allocation might become your new normal

Oct 17, 2011 16:10 UTC

Market volatility is like a headache that hangs on. The cure may lie in shifting your mind from keenly focusing on risk instead of returns.

For many, this is an obvious no brainer, but it involves much more than simply shifting into cash, bonds or gold. What if you don’t want to exit stocks entirely? Then you may need what money managers call tactical asset allocation.

Instead of a long-only, hold-on-for-dear life approach of traditional investing, tactical planning involves shifting in and out of assets as market conditions dictate. In a turbulent market, there are several asset classes that can buffer stock downturns that can be found in several off-the-shelf mutual funds.

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