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.
So how do you identify a zombie fund? First you need a reliable benchmark for comparison purposes. The easiest way is to look at the index that the fund is supposed to be tracking. A good proxy for the U.S. bond market, for example, is the Barclays Capital Aggregate Bond Index. It’s a basket of listed bonds. If a fund tracks the index return within 0.20 percentage points or less, then that’s pretty good and not expensive.
The mention of bond laddering often makes one think of retirees sitting on the sidelines of the market, buying individual bonds with staggered maturities to goose up their yields, but lately it’s not such a doddering strategy.
With bond yields low, savings account interest rates microscopic and stock volatility scary, younger investors and even college savers are starting to embrace the time-honored laddering strategy. If can work for people who don’t want to lock up all of their money in long-term investments but want more yield than they can typically get in short-term savings vehicles.
Yields on certificates of deposit, Treasury bonds, and other interest-bearing securities have gotten so low that a mundane investment usually associated with birthdays and bar mitzvahs looks enticing by comparison.
But if you’re thinking of buying Series I savings bonds you might want to do it soon, since new regulations set to take effect next year will limit purchase amounts and make them harder for many people to buy.
It’s too soon to tell and most of us will guess wrong anyway. As Washington and global traders sort out the impact of the U.S. “Tea Party debt downgrade,” you should employ the best hedging strategies possible.
The fact that U.S. Treasury bonds managed to cling to their coveted triple-A rating this week failed to impress several prominent bond fund managers, who say they are lightening up on Treasuries and stocking their portfolios with corporate bonds instead.
Despite the debt ceiling deal, U.S. sovereign debt remains in the crosshairs of ratings agencies like Moody’s and Standard & Poor’s. The rating agencies remain concerned that the U.S. is “not doing enough to reduce spending and/or increase revenues to bring down the trajectory of the country’s mounting debt,” warns BlackRock’s head of fixed income portfolio management, Peter Fisher, in a report issued earlier this week. If the U.S. were to be downgraded by one or more agencies, he observes, “the odds are very high that there would be knock-on consequences of other borrowers getting downgraded — both corporate and public, in the U.S. and overseas.”
With the U.S. debt ceiling crisis: It “ain’t over ‘til it’s over,” to quote my favorite philosopher Yogi Berra. And this one is definitely not over by a long shot.
Some $1.5 trillion in cuts in federal programs will be considered toward the end of the year. Credit agencies may still downgrade U.S. debt. And the harsh plan may ultimately damage the floundering American economy. Fortunately, you have time to protect your portfolio before another politico-economic reign of terror ensues.
Yet the idea that rampant inflation will trigger an investment debacle is perhaps overblown. A touch of inflation can be a good thing and it depends on how you invest.
Data expected out of Washington this week may raise anxiety levels of investors and consumers who are already worried about inflation and rising interest rates.
On April 12, the Bureau of Labor Statistics reported that U.S. import prices jumped in March. We’ll also get data on producer prices on April 14 and consumer prices on April 15. But here’s what we already know: It costs more to fill your car, and your belly. And what doesn’t run on food or fuel?
PIMCO gets plenty of attention for its bond funds. The fund company is best known for PIMCO Total Return, America’s largest mutual fund, with a staggering $237 billion in assets. When manager Bill Gross talks, markets move.
For the past few years, however, PIMCO, which is based in Newport Beach, California, is gaining notoriety for its stockpicking prowess. At the Lipper Fund Awards on March 23 in New York, PIMCO took the best equity award among large mutual fund families. (Loomis Sayles won in the large fixed-income category.) And that’s no easy feat for a firm that is going head to head with equity powerhouses like Fidelity Investments and T. Rowe Price, says Tom Roseen, senior analyst at Lipper.
Driving a team of a dozen horses toward the same destination, when they are tied to one another by a strong harness and responsive to commands, may appear to be easy, but it may not be.
Driving a team of a dozen mutual funds toward different distant years, connected by a common investment strategy within the parameters of a finely spun web of government regulations of securities and retirement plans, doesn’t appear to be easy, and it probably isn’t.