Rick Kahler Advises Caution With Investment Real Estate | Kahler Financial Group

An interesting perspective from Rick Kahler.

Full Disclosure:  I like REITS.



Want a good way to build wealth? Own commercial real estate.

Or not.

Real estate is one of the largest asset classes in the world. The family home is the largest asset many middle-class Americans own. And real estate makes up a significant portion of the net worth of many wealth accumulators.

Directly owning real estate is not an investment for the faint of heart, the armchair investor, or the uneducated. Most wealth accumulators would do well to leave direct ownership of real estate to the pros and invest in real estate investment trusts REITs instead.

Still, the lure of investing in a tangible asset like real estate is enticing for high risk tolerant investors who need a sense of control and interaction with their investments. If you are among them, here are a few guidelines that may keep you on a profitable path.

via Rick Kahler Advises Caution With Investment Real Estate | Kahler Financial Group.

Why 65 is too young to retire- MSN Money

This post comes from Dave Bernard at partner site U.S. News & World Report.

U.S. News & World Report on MSN MoneyThe magical age 65 that signaled retirement time for our parents might not hold true for the baby boomer generation.

Retired couple © Rubber Ball/Getty ImagesSure, the idea is appealing to call it quits before we are too old to appreciate and enjoy our second act. But the reality may be that 65 is just too young to retire. Some 76 percent of employees say they will continue working past retirement age, with 40 percent working because they want to and 35 percent because they will have to, according to a 2013 Gallup survey. Here’s when it might make sense to delay retirement past age 65:

When you still have a job. If you are currently employed, still able to effectively perform your duties and the job itself is not driving you crazy, it can make sense to stay at it for a while more. The longer you can delay taking Social Security, the more your monthly checks will ultimately be. For each year beyond your full retirement age that you delay collecting Social Security benefits up to a maximum age of 70, you will receive an additional 8 percent. You can also delay the time when you will become 100 percent responsible for your own health insurance premiums as long as your employer is picking up part of the tab.

via Why 65 is too young to retire- MSN Money.

5 ways to get rich . . . or poor – 1 – money management – MSN Money

I\’ll break this to you gently: You\’re probably not going to end up filthy rich.

Only about 80,000 U.S. households (out of 115 million) qualify as \”the glittering rich,\” which is what author Thomas J. Stanley calls the people with seven-figure incomes and eight-figure wealth. (Stanley co-authored the classic money book \”The Millionaire Next Door\” and authored \”Stop Acting Rich . . . And Start Living Like a Real Millionaire.\”)

But you have a pretty good shot at accumulating a substantial net worth over your lifetime, depending on your choices. A relatively small number of factors can make a big difference in your wealth. Such as:

The easiest ways to get rich

The easiest ways to get rich

1. Marriage

Two can\’t live as cheaply as one, but sharing household expenses can have an impressive impact on your wealth.

The median net worth of all married-couple households in a Census Bureau wealth study (.pdf file) was more than four times higher than that of single men and five times higher than single women.

via 5 ways to get rich . . . or poor – 1 – money management – MSN Money.

Study This to See Whether Harvard Pays Off: Laurence Kotlikoff – Bloomberg

This is a very interesting article by Laurence Kotlikoff – about the economic value of a college education.  It is only one scenario – but it is worth looking at.

Study This to See Whether Harvard Pays Off: Laurence Kotlikoff By Laurence Kotlikoff

The notion that education pays and that better education pays better is taken for granted by almost everyone. For college professors like me, this is a very convenient idea, providing a high and growing demand for our services.

Unfortunately, the facts seem to disagree. A recent study by economists Stacy Dale and Alan Krueger showed that going to more selective colleges and universities makes little difference to future income once one accounts for the underlying ability of the student. Their work confirms other studies that find no financial benefit to attending top-tier schools.

It’s good to know that Harvard applicants can safely attend Boston University my employer, and that \”better\” higher education doesn’t pay better. But does higher education pay in the first place?

The answer seems obvious. On average, doctorate holders earn more than those with master degrees, who earn more than those with bachelor degrees, who earn more than high school graduates. How can education not pay?

via Study This to See Whether Harvard Pays Off: Laurence Kotlikoff – Bloomberg.

IRA Rule Changes In President’s Proposed Budget | Kahler Financial Group


Lost in the hoopla over the government shutdown, defunding Obamacare, and raising the debt ceiling are some proposals contained in President Obama’s budget that will have a significant impact on retirees, inheritors, and savers. Most of the President’s proposals are aimed at enforcing higher taxes on savers who maximize their retirement plans. This is a way to raise revenue for government entitlement programs, like subsidies for health insurance, Medicare, and Social Security.

Back from last year is his proposal to cap contributions to IRA’s and 401k’s when the balance reaches a level determined by a set formula which is tied to interest rates. The proposal sets the cap at $3.4 million initially. As interest rates rise, the cap will lower. When a saver’s IRA balance hits the cap, he or she will not be allowed to make further contributions to any retirement plan.

This will mostly affect savers who terminate employment and roll large accumulations from profit-sharing plans and lump-sum distributions from defined benefit plans into their IRA’s. It will shut down their ability to save into the future.

via Rick Kahler: IRA Rule Changes In President’s Proposed Budget | Kahler Financial Group.

Should Older Clients Pay Off their Mortgages? | Retirement Planning content from WealthManagement.com

Are you in denial about your older clients’ mortgage debt? Pre-retired households are carrying larger mortgages in the wake of the housing bubble and bust, and many are carrying that debt into retirement.

Consider these statistics:

● AARP reports that 53.6 percent of households age 55-64 carried a mortgage in 2010, compared with 37 percent in 1989; among households age 65-74, the figure jumped to 40.5 percent from 21.7 percent. Meanwhile, the median value of mortgage debt among the 55-64 crowd soared to $97,000 in 2010, up from $33,800 in 1989. For households age 65-74, median loan values soared to $70,000 from $15,400.

● The media loan-to-value ratio among homeowners age 50-59 jumped from 10 percent to 38 percent between 1989 and 2010, according to the Joint Center for Housing Studies of Harvard University.

The figures show many households are overweight in real estate due to the run-up in housing prices prior to the bust. Many families invested in larger, more expensive homes or undertook renovations and expansions, and they’re carrying big debt loads.

via Should Older Clients Pay Off their Mortgages? | Retirement Planning content from WealthManagement.com.

Riding the Emerging Markets Tiger

The following article by Jim Parker, includes some very interesting insights on investing in Emerging Markets.  I recommend that everyone have at least some of their portfolio investing in Emerging Markets equities because of the high returns over time.
October 2, 2013

Many investors fell for emerging markets in recent years when they delivered sizable returns. More recently, the associated risk has reasserted itself and the infatuation has faded. What’s the right approach?

A major theme in media commentary since the turn of the century has been the prospect of a gradual passing of the baton in global economic leadership from the world’s most industrialized nations to the emerging economies.

Anticipating this change, investors have sought greater exposure to these changing economic forces by including in their portfolios an allocation to some of the emerging powerhouses such as China, India, and Brazil.

An emerging market is broadly defined as the market of an economy that is in the process of rapid growth and industrialization. The chart below shows that these markets historically have provided higher average returns than developed markets.

Growth of Wealth (Monthly Jan 1988-Aug 2013, USD)
Growth of Wealth (Monthly Jan 1988-Aug 2013, USD)

Past performance is no guarantee of future results. Indices are not available for direct investment; therefore, their performance does not reflect the expenses associated with the management of an actual portfolio.

But the flipside of these returns is that emerging markets also tend to be riskier and more volatile. That’s because their systems of law, ownership, and regulation are still developing, and they are often less politically stable. This is reflected in their higher standard deviation of returns, which is one measure of risk.

Developed Markets vs. Emerging Markets (Jan 1988-Aug 2013 US)
Developed Markets vs. Emerging Markets (Jan 1988-Aug 2013 US)

Past performance is no guarantee of future results. Indices are not available for direct investment; therefore, their performance does not reflect the expenses associated with the management of an actual portfolio. Standard deviation is a statistical measurement of historical volatility. A volatile stock tends to have a higher standard deviation.

The risk associated with emerging markets has reasserted itself in recent months. Expectations of the US Federal Reserve “tapering” back its monetary stimulus have led to a retreat by many investors from these developing markets.

In its latest economic assessment released in September, the Organization of Economic Cooperation and Development (OECD) noted that while advanced economies were growing again, some emerging economies were slowing.1

“One factor has been a rise in global bond yields—triggered in part by an expected scaling back of the US Federal Reserve’s quantitative easing—which has fueled market instability and capital outflows in a number of major emerging economies, such as India and Indonesia,” the OECD said.

Naturally, many investors will be feeling anxious about these developments and wondering whether emerging markets still have a place in their portfolios. There are number of points to make in response to these concerns.

First, this information is in the price. Markets reflect concerns about the impact on capital flows of the Fed tapering. Changing an agreed portfolio allocation based on past events is tantamount to closing the stable door after the horse has bolted.

Second, just as rich economies and markets like the US, Japan, Britain, and Australia tend to perform differently from one another, emerging economies and markets tend to perform differently from rich ones.

This just means that irrespective of short-term performance, emerging markets offer the benefit of added diversification. And we know that historically, diversification across securities, sectors, industries and countries has been a good source of risk management for a portfolio.

Third, emerging markets perform differently from one another, and it is extremely difficult to predict with any consistency which countries will perform best and worst from year to year. That’s why concentrated bets are not advised. Rather than taking a bet on individual countries or even groups of countries (like the “BRICs”), the key to investing in emerging markets is to take a cautious approach—investing in a number of countries, keeping an eye on costs, and regularly reviewing risk controls.

Fourth, in judging your exposure to emerging markets, it is important to distinguish between a country’s economic footprint and the size of its share market. According to the IMF, the world’s 20 biggest economies last year, ranked by GDP in current prices and in US dollars, were the US, China, Japan, Germany, France, the UK, Brazil, Russia, Italy, India, Canada, Australia, Spain, Mexico, South Korea, Indonesia, Turkey, the Netherlands, Saudi Arabia, and Switzerland. Of that top 20, eight nations are classed by index providers as emerging markets: China, Brazil, Russia, India, Mexico, South Korea, Indonesia, and Turkey.

Yet despite the size of those individual economies, the size of their markets in a global sense is relatively small. China makes up only about 2% of the global market—and that is the biggest single emerging market. Combined, emerging markets make up 11% of the total world market.

This is not to downplay the importance of emerging markets. The global economy is changing, and the internationalization of emerging markets in recent decades has allowed investors to invest their capital more broadly. Emerging markets are part of that. The increasing opportunities for investment also increase diversification, so while one group of markets, countries, or sectors experiences tough times, another group may be posting strong returns.

While emerging market performances in recent times have been less than stellar, it is important to remember that they are still providing a diversification benefit and that over the long term they have delivered strong returns.

We know that risk and return are related, so getting out of emerging markets or reducing one’s exposure to them after stock prices have dropped means forgoing the increased expected return potential.

Volatility is part and parcel of the emerging markets experience. A bumpy ride on this tiger is not unexpected. But for those adequately diversified with an asset allocation set for their needs and risk appetites, it is worth holding on.