9 Simple Ways to Worry Less About Retirement

There are some great ideas in this article by Joe Udo.

Steve

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Last week, the Employee Benefit Research Institute released their 2013 Retirement Confidence Survey, and the results aren’t unexpected. About half of the people surveyed have no or little confidence that they will have enough money to retire comfortably.

Workers know they have to save more, but they aren’t able to do it. Some 20 percent say they need to save between 20 and 25 percent of their income, and 23 percent say they should save more than 30 percent of pay.

What if you are in your 40s and have no retirement savings? It would have been better if you started saving for retirement earlier, but it is not too late. Here are nine simple things you can do now to prepare for retirement:

1. Cut spending. If you are in the half of the population that worries about retirement, you can do something about it now by reducing your spending. The first step toward retirement saving is to examine your monthly expenses and see what you can cut. You’ll have to ask yourself if you’d rather spend $1,092 a year on coffee or prepare for retirement. Once you reduce your spending, the rest of the steps will be much easier to do.

2. Increase your income. Cutting spending is an essential first step, but you also need to increase your income so you can save more. The economy is starting to get better, so hopefully there will be some opportunities in your field. Some ways to increase your income are higher education, training, switching jobs, or just finding an extra job.

3. Pay off your consumer debts. Credit card and other high-interest debt can take a huge bite out of your income. Many households carry credit card balances and pay a lot of interest to the bank every month. Wouldn’t it be better to channel that money to your future self instead?

Read the complete article here:  9 Simple Ways to Worry Less About Retirement – On Retirement (usnews.com).

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Market Boom or Bust? Don’t Rely on Pundits

This is an excellent article by Daniel Solin in which he talks about how the guessing about what the short term future of the market is is bad place for you to focus.  Quoting Dan, he says “This debate is particularly insidious because it keeps you from focusing on issues you can control, like your asset allocation, costs and tax efficiency.”

I couldn’t agree more.  I hope you enjoy the article.

Steve

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It’s hard to view the financial news without seeing speculation about whether the stock market is poised to continue its remarkable run or is about to burst and send the country into another recession. This debate is particularly insidious because it keeps you from focusing on issues you can control, like your asset allocation, costs and tax efficiency.

On September 20, I wrote a blog post titled “The Great Hedge Fund Myth”, in which I noted the poor historical performance of hedge funds and questioned what value investors were receiving for the obscene fees they were paying. I referenced a September 14 blog post by Jeff Macke, the supremely confident host of Yahoo’s Breakout. Macke observed that hedge fund managers had two basic choices. They could write their investors and explain their refusal to “take part in this bogus rally based on little more than a possibly corrupt Fed chair dumping money into the system”. Alternatively, he told them: “You need to buy Amazon (AMZN), Apple (AAPL) and Google (GOOG). You have to take fliers on left-for-dead names like JC Penney (JCP) and, yes, even Facebook (FB).”

On September 14, the DJIA closed at 13,593. It closed on March 22, 2013 at 14,512. The “bogus rally” continued its upward trajectory. Here are the stocks recommended by Macke, along with their closing prices on Sept. 14 and March 22:

Read the complete article here: Market Boom or Bust? Don’t Rely on Pundits – On Retirement usnews.com.

Timeshares are expensive, look closely at costs

An interesting and practical article from Rick Kahler.

Steve

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For residents of places like the Black Hills, where the first day of spring usually brings a snowstorm, timeshares for resorts in Florida or Mexico can have a lot of appeal.

They seem like a fun idea for a vacation in the sunshine as well as a good deal financially.Over the past 30 years I’ve researched hundreds of timeshare offers.

I’ve never bought one. When you take a close look at the numbers and the restrictions, they simply don’t add up to a good value.One of the biggest problems with timeshares in general is that they can lock you into a specific vacation.

Spending a week at that resort in Mexico in February, exploring the local area and relaxing by the pool, might be wonderful for a year or even several years. But eventually you may get tired of going to the same location, doing the same things, and seeing the same people. After a while, even a rut person like me might want to do something different.  Some timeshares mitigate this problem by participating in vacation exchanges like RCI, Interval International, and others. These services, however, will add on a fee.

Read the complete article here Rick Kahler: Timeshares are expensive, look closely at costs | Financial Awakenings.

Harold Evensky to SEC: Employ the ‘YOU’ Standard in Fiduciary Rule

‘Achilles’ Heel’ of the current regulatory system is ‘the public’s belief that all professionals providing investment advice place their interest first’

By Melanie Waddell, AdvisorOneMarch 22, 2013

High-profile planner Harold Evensky says the Securities and Exchange Commission, as part of its fiduciary rule, should require anyone providing personalized advice to provide a “mom and pop” statement describing the advisor’s responsibilities.

In response to the SEC’s March 1 request for data regarding the costs and benefits of the current standards of conduct for broker-dealers and advisors, Evensky left told the agency in his March 8 comment letter—one of four the agency has received thus far—that the “Achilles Heel” of the current regulatory system is “the public’s belief that all professionals providing investment advice place the client’s best interest first, coupled with an inappropriate allocation of responsibility; i.e., ‘where the buck stops.”’

read the complete article here:  Harold Evensky to SEC: Employ the ‘YOU’ Standard in Fiduciary Rule.

8 rules of prudent investing from Larry Swedroe

I think that Larry Swedroe always does a great job making complex ideas more simple.  He has done this again in compiling this list.

Steve

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While we search for the answers to the complex problem of how to live a longer life, there are simple solutions that can have a dramatic impact.

For example, it would be hard to find better advice on living longer than: do not smoke, drink alcohol in moderation, eat a balanced diet, get at least a half an hour of aerobic exercise three to four times a week, and buckle up before driving.

The idea that complex problems can have simple solutions is not limited to the question of living a longer life.

I have spent almost 40 years managing financial risks for two financial institutions as well as advising individuals and multinational corporations on the management of financial risks. Based on those experiences, I have compiled a list of rules that will give you the greatest chance of achieving your financial goals:

1. Do not take more risk than you have the ability, willingness, or need to take. Plans fail because investors take excessive risks. The risks show up unexpectedly, which leads to the abandonment of plans. When developing your plan, consider your horizon, stability of income, ability to tolerate losses, and the rate of return required to meet your goals.

read the complete article here:  8 rules of prudent investing | Toronto Star.

A Look Back at 2012

It took nearly 4½ years, but the cumulative wealth of an S&P 500 strategy with dividends reinvested finally reached an all-time record (measured on a month-end basis) in March 2012, and finished the year 3.3% above the previous high-water mark set in October 2007. Results were slightly better for a small-company Russell 2000 strategy: As of December 2012, cumulative wealth was 8.5% higher than the previous peak in May 2007.

The table below shows how many years were required to achieve a new high in terminal wealth during some of the major market cycles in the past. Although many investors have expressed frustration with stock market fluctuations in recent years, the time required to recover losses from the peak in October 2007 appears broadly consistent with past cycles. We can draw some measure of solace in acknowledging that past generations of investors often found their patience sorely tested, as well.

Market Cycles Based on Month-End Value of S&P 500 Index with Reinvested Dividends

Peak Month Trough Month Loss at Trough Recovery Month Years to Recovery
Oct 2007 Feb 2009 –50.9% Mar 2012 4.4
Mar 2000 Sep 2002 –43.8% Oct 2006 6.6
Aug 1987 Nov 1987 –29.5% May 1989 1.8
Dec 1972 Sep 1974 –42.6% Jun 1976 3.5
Dec 1961 Jun 1962 –22.3% Apr 1963 1.3
Feb 1937 Mar 1938 –50.0% Mar 1944 7.1
Aug 1929 Jun 1932 –83.4% Jan 1945 15.4

Every year brings its share of surprises. Perhaps the biggest surprise of 2012 was the strength in stock and bond prices around the world despite a steady stream of discouraging news events. Individual investors and professionals alike were often flummoxed by markets that failed to behave in accordance with their pessimistic assessment of the future. A few examples are listed below.

(Index performance data represents total return for each respective three-month period.)

First Quarter 2012

S&P 500 Index: 12.59%

MSCI World ex-USA Index: 11.34%

“Investors go into 2012 hunkered down, frustrated, and skeptical. … If there is a common theme among analysts’ forecasts for stocks, commodities, and currencies, it is to brace for more of the wild swings that were the hallmark of 2011.”

Tom Lauricella, “World’s Woes Leave Lasting Scars,” Wall Street Journal, January 3, 2012.

“Morgan Stanley’s chief US equity strategist is the most bearish market strategist at any major Wall Street firm when it comes to forecasting the outlook for stocks in 2012. He took the same pessimistic view last year—and it turned out to be the most accurate.”

Jonathan Cheng, “A New Year But the Same Ol’ Pessimism,” Wall Street Journal, January 7, 2012.

“Clearly we are in a cycle of reaching pinnacle earnings, and at some point we are going to drop.”

Quotation attributed to John Butters, senior analyst, FactSet. Michael Mackenzie and Ed Crooks, “Earnings Growth Falters for S&P 500,” Financial Times, January 9, 2012.

“The world economy will experience a brutal slowdown. … Every European country will be in recession in 2012, and probably in 2013. … Equity markets around the world will top out during this quarter and then enter the next down leg in the cyclical bear market that started last spring.”

Quotation attributed to Felix Zulauf, Zulauf Asset Management. Lauren R. Rublin, “Barron’s 2012 Roundtable, Part One,” Barron’s, January 16, 2012.

“Unemployment in the euro zone jumped to a 15-year high Thursday, while inflation unexpectedly accelerated.”

Brian Blackstone, “Poor Economic Data Slam Europe,” Wall Street Journal, March 2, 2012.

Second Quarter 2012

S&P 500 Index: -2.75%

MSCI World ex-USA Index: -7.38%

“Nearly one Spaniard in four is unemployed, according to data released yesterday, as the country’s financial predicament prompted a government minister to talk of a ‘crisis of enormous proportions.’ ”

Victor Mallet and Robin Wigglesworth, “Spain Jobless Rate Nears One in Four,” Financial Times, April 28, 2012.

“Suddenly it has become easy to see how the euro—that grand, flawed experiment in monetary union without political union—could come apart at the seams. We’re not talking about a distant prospect, either. Things could fall apart with stunning speed in a matter of months, not years.”

Paul Krugman, “Apocalypse Soon,” New York Times, May 18, 2012.

“Feeble hiring by US employers in May roiled markets and dimmed the already cloudy outlook for an economy that appears to be following Europe and Asia into a slowdown.”

Josh Mitchell, “Grim Jobs Report Sinks Markets,” Wall Street Journal, June 2, 2012.

“Greece will be forced to return to the drachma and devalue, and the default will cause bank runs and money flowing into Germany and the United States as the only viable safe haven bet.”

Quotation attributed to Mark J. Grant, managing director, Southwest Securities. Andrew Ross Sorkin, “One Wall Street Seer Says the Greek Tragedy Is Near,” New York Times, June 18, 2012.

“With leading investors shunning shares, a six-decade passion for equities has come to an end—leading to a less flexible, more conservative model of corporate financing.”

John Authers and Kate Burgess, “Out of Stock,” Financial Times, June 24, 2012.

“There is no natural flow into equities for the next five to 10 years. The rules of the game have changed.”

Quotation attributed to Andreas Uttermann, Allianz Investment Management. John Authers and Kate Burgess, “Out of Stock,” Financial Times, June 24, 2012.

“The quarterly rite known as earnings ‘preannouncement’ season is under way—and so far it isn’t boding well for stocks. … The downward revision in [earnings] guidance could portend a long slog for stocks and the overall economy, say analysts.”

Joe Light, “Earnings Bode Ill for Stocks,” Wall Street Journal, June 30, 2012.

Third Quarter 2012

S&P 500 Index: 6.35%

MSCI World ex-USA Index: 7.49%

“Investors already fretting about the health of the world’s biggest economies now face another worry: disappointing earnings. ‘The pillar of strength is US corporate earnings, and now we’re seeing signs that that is cracking,’ [says Morgan Stanley’s chief stock analyst].”

Jonathan Cheng, “New Jolt Looms for Investors: Earnings,” Wall Street Journal, July 9, 2012.

“The US economy slowed sharply in the second quarter, growing just 1.5% as consumers slashed spending and businesses grew more cautious about hiring and investing, underscoring that an already wobbly recovery is losing even more steam.”

Neil Shah, “Weak Economy Heads Lower,” Wall Street Journal, July 28, 2012.

“If small investors needed any more reason to be disgusted with the stock market, they got it Wednesday. … Wednesday’s tumble wasn’t quite as scary as the nearly $1 trillion drop of May 6, 2010, but it conveyed the same sense of markets spinning out of control and trading machinery gone mad.”

Jason Zweig, “When Will Retail Investors Call it Quits?” Wall Street Journal, August 2, 2012.

“The global slowdown in demand is hitting the manufacturing sector in the world’s largest economies, with activity sinking to its lowest level since June 2009, when most industrialized countries were mired in recession.”

Norma Cohen, “Manufacturing Hits Three-Year Low,” Financial Times, August 2, 2012.

“Activity in China’s manufacturing sector—the engine for much of Asia’s economy—shrank at the fastest pace since the depth of the global financial crisis.”

Arran Scott and Alex Brittain, “Manufacturing Downturn Spreads Gloom across Asia, Europe,” Wall Street Journal, September 4, 2012.

Fourth Quarter 2012

S&P 500 Index: -0.38%

MSCI World ex-USA Index: 5.89%

“The slowdown in the global economy and anemic US recovery are expected to result in one of the worst US quarterly earnings seasons since late 2009.”

Mahmudova and Michael Mackenzie, “Slowdown Set to Take Toll on US Earnings,” Financial Times, October 8, 2012.

“This is unquestionably the worst earnings season relative to expectations that we’ve had in two or three years.”

Quotation attributed to Chris Jones, J.P. Morgan Asset Management. Jonathan Cheng and Kate Linebaugh, “Weak Earnings Spark Selloff,” Wall Street Journal, October 24, 2012.

“Wall Street’s post-election stupor is turning into a real headache for some stocks, as many well-known and even ballyhooed names fall into bear market territory. … Nearly a quarter of the stocks in the Standard & Poor’s 500—122—are in a bear market, unofficially defined as a 20% decline from a recent high.”

Matt Krantz, “Big Name Stocks Hit Bear Markets,” USA Today, November 9, 2012.

“China’s main stock index closed at its lowest level in almost four years Tuesday and slipped below a key psychological level, indicating investor worries over the health of the nation’s public equity market.”

Shen Hong, “Shares Hit 4-Year Low in China,” Wall Street Journal, November 11, 2012.

“Fears that Washington will prove unable to avoid looming tax increases and spending cuts have eclipsed concerns about Europe’s debt crisis, top business executives said Tuesday, and they worry that political gridlock might tip the economy into recession next year.”

Damian Palette and Sudeep Reddy, “Business Leaders Spooked by Fiscal Cliff,” Wall Street Journal, November 14, 2012.

“Moody’s downgrades France sovereign debt rating, citing its ‘persistent structural economic challenges.’ ”

William Horobin, “France Loses Another Top Rating,” Wall Street Journal, November 20, 2012.

2012: The Year It Didn’t Happen

2012: The Year It Didn’t Happen

Judging by the headlines in the financial press, investors spent much of the past year anxiously awaiting one calamity after another that failed to occur. The plunge off the so-called fiscal cliff was averted. The euro zone did not fall apart. China’s economy and stock market did not crash. The bond market did not implode. The re-election of President Barack Obama did not derail the US market. The “flash glitch” in early August did not lead to further trading disruptions. Doomsday did not arrive on December 21, as some interpreters of the Mayan calendar suggested it would.

Instead, the belief that owning a share of the world’s businesses is a sensible idea appears to be alive and well, despite suggestions from some observers that the “cult of equity” is dead. For the year, total return was 16.42% for the MSCI World Index in local currency, and 16.00% for the S&P 500 Index. Among forty-five global stock markets tracked by MSCI, only three posted negative results in local currency (Chile, Israel, and Morocco), and twelve markets had total returns in excess of 25%, with Turkey leading the pack at 55.8%. Although much of the financial news over the past year highlighted Europe’s fragile financial health, most of the region’s equity markets outperformed the US, including Austria, Belgium, Denmark, France, Germany, the Netherlands, Sweden, and Switzerland. For US dollar-based investors, results were further enhanced by a modest decline in the US dollar relative to the euro, the Danish krone, and the Swiss franc.

As is so often the case, earning the rewards offered by the world’s capital markets may have required a combination of discipline and detachment that eluded many investors.

2012 Index and Country Performance

Total return (gross dividends) for 12-month period ending December 31, 2012.

MSCI Index Local Currency USD
WORLD 16.42% 16.54%
WORLD ex USA 16.73 17.02
EAFE 17.89 17.90
EMERGING MARKETS 17.39 18.63
EMERGING + FRONTIER MARKETS 17.15 18.35
TURKEY 55.80 64.87
EGYPT 54.66 47.10
BELGIUM 38.56 40.72
PHILIPPINES 38.16 47.56
THAILAND 30.84 34.94
DENMARK 30.37 31.89
GERMANY 30.07 32.10
INDIA 29.96 25.97
HONG KONG 28.01 28.27
POLAND 27.05 40.97
AUSTRIA 25.07 27.02
SOUTH AFRICA 25.07 19.01
COLOMBIA 23.87 35.89
SINGAPORE 23.54 30.99
NEW ZEALAND 23.28 30.38
CHINA 22.85 23.10
JAPAN 21.78 8.36
FRANCE 20.93 22.82
AUSTRALIA 20.77 22.30
MEXICO 20.09 29.06
PERU 19.73 20.24
THE NETHERLANDS 19.35 21.21
SWITZERLAND 18.91 21.47
SWEDEN 17.11 23.41
USA 16.13 16.13
FINLAND 14.71 16.50
KOREA 12.89 21.48
TAIWAN 12.84 17.66
HUNGARY 11.86 22.79
INDONESIA 11.83 5.22
ITALY 11.72 13.46
NORWAY 11.63 19.70
UNITED KINGDOM 10.24 15.30
MALAYSIA 10.23 14.27
BRAZIL 10.14 0.34
RUSSIA 9.73 14.39
CANADA 7.46 9.90
IRELAND 4.66 6.29
GREECE 4.11 5.73
PORTUGAL 3.36 4.98
SPAIN 3.12 4.73
CZECH REPUBLIC 0.26 3.48
CHILE –0.14 8.34
ISRAEL –6.24 –3.91
MOROCCO –12.63 –11.48