The Habits Of Supremely Happy People

This article from Kate Bratskeir of the The Huffington Post is very interesting and worth reading – but only if you are interested in being Supremely Happy.

Steve

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Martin Seligman, the father of positive psychology, theorizes that while 60 percent of happiness is determined by our genetics and environment, the remaining 40 percent is up to us.

In his 2004 Ted Talk, Seligman describes three different kinds of happy lives: The pleasant life, in which you fill your life with as many pleasures as you can, the life of engagement, where you find a life in your work, parenting, love and leisure and the meaningful life, which “consists of knowing what your highest strengths are, and using them to belong to and in the service of something larger than you are.”

After exploring what accounts for ultimate satisfaction, Seligman says he was surprised. The pursuit of pleasure, research determined, has hardly any contribution to a lasting fulfillment. Instead, pleasure is \”the whipped cream and the cherry\” that adds a certain sweetness to satisfactory lives founded by the simultaneous pursuit of meaning and engagement.

via The Habits Of Supremely Happy People.

S&P has bad news for this year’s top-performing funds

This article, By Jason Kephart, reinforces a fact that DFA and others have been talking about for years, and which is a key aspect of my investment philosophy: the hot fund this year will probably NOT be the hot fund next year – and the hot manager this year will probably NOT be the HOT manager next year.  The best strategy is to use low-cost mutual funds and tilt your asset allocation toward asset classes that have performed well over time.

I would love to hear your comments.

Steve

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S&P Dow Jones Indexes are playing the Grinch for this year’s top-performing mutual funds. In its newly released Persistence Scorecard, the index company reports that the odds of the top-performing funds repeating that success are low at best and only get worse the longer the time frame. The bottom line: If you were thinking about buying new funds that have done well lately, you may want to think again.

Only 7% of the 692 domestic mutual funds that ranked in the top quartile of returns in September 2011 managed to continue to rank in the top quartile through September 2013, according to the report. Only 21.24% managed to stay in the top quartile over two straight years.

via S&P has bad news for this year’s top-performing funds.

The Case for Taking a ‘Gap’ Year in Midlife

A client shared this article from the Wall Street Journal with me today.  I love the article and think it has some great ideas in it.  The “Gap Year” concept is worth thinking about!

Steve

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Baby boomers are calling for a timeout.

After decades of raising children and climbing the corporate ladder, they’re weary of the same old routine. But they’re so caught up in high-pressure jobs that they don’t have the time and energy to figure out what to do next.

Enter the career break.

Inspired by high-school and college students who take “gap” or “bridge” years, more baby boomers are taking an extended leave from the working world. Their goal: to relax, re-energize and reflect upon what they want to do next—which often means heading down an entirely new and more fulfilling career path.

via The Case for Taking a ‘Gap’ Year in Midlife – WSJ.com.

Outside the Flags: Rate Expectations

Here is an interesting article by Jim Parker, Vice President of DFA, about trying to figure out what interest rates will do and how that will impact stock and bond fund prices.

Steve

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Interest rates around the world are at historic lows. They can only go in one direction from here, right? And aren’t rising interest rates bad for bond investors? The truth might surprise you.

Central banks in developed economies have injected extraordinary stimulus into the system since the recession arising from the global financial crisis five years ago.

The stimulus has come from these steep reductions in official interest rates and from more unconventional measures aimed at holding down long-term interest rates.

In 2013, markets became unsettled when the US Federal Reserve signaled it was contemplating a timetable for reducing its stimulus—the so-called “taper.” The central bank later changed its mind, and markets cheered the news.

In the meantime, many investors are asking what will happen to their portfolios when central banks do decide to start restoring rates to more normal levels.

The market values of bonds rise or fall depending on investors’ views about the outlook for inflation and interest rates, their perceptions about the creditworthiness of individual issuers, and their general appetite for risk.

The yield on a bond is the inverse of its price. So if the price falls, it means investors are demanding an additional return, or yield, on that bond to compensate for the risk of holding it to maturity. This sensitivity to interest rate change is called term risk.

So if interest rates can only go up from current levels, why hold bonds? There are a few points to make in response.

First, it is very hard to forecast interest rates with any consistency. Standard & Poors regular scorecard shows most traditional forecast-based managers fail to outpace bond benchmarks over periods of five years or more.1

Second, there is nothing to say that rates will return to normal very quickly. In the case of Japan, benchmark lending rates have been at or close to zero for the best part of 15 years. We have already seen many large bond fund managers make badly timed calls on when the cycle will turn.

Third, bonds perform differently from stocks. So regardless of what is happening with the rate cycle, there is a diversification benefit in holding bonds in your portfolio. Diversification is a way of managing risk and helping to target a smoother ride.

Fourth, if you look at history, there is no guarantee in any case that longer-term bonds will under perform shorter-term bonds when interest rates are rising.

We carried out a case study of four periods of rising rates from the past 30 years. To meet the test, the rate increases had to be spread out over 12 months or more and cumulative increase had to be at least 1.5 percentage points.

The four periods were December 1976–March 1980 (when rates skyrocketed by 15.25 percentage points), September 1992–June 1995 (3 points), November 1998–December 2000 (1.75 points) and June 2003–August 2007 (4.25 points).

The chart below looks at the performance of US government bonds during those four periods. We use standard indices: the Barclays Intermediate (1–10-year maturity, in blue) and the Barclays Long (10–30-year maturity, in green).

Government Bonds: Annualized Total Returns

Indices are not available for direct investment. Their performance does not reflect the expenses associated with the management of an actual portfolio. Performance data shown represents past performance and is no guarantee of future results. Performance for periods greater than one year is annualized. For illustrative purposes only.

Source: Barclays Capital data provided by Barclays Bank PLC.

What’s notable in the chart is that in two of these four periods of rising interest rates long-term bonds did better than shorter-to-intermediate-term bonds. In the other two periods (1998–2000 and 1976–1980), longer-term bonds underperformed.

This may seem counterintuitive, but it can be explained by the fact that long-term bond holders, whose biggest concern is inflation, can be comforted by a central bank moving aggressively and pre-emptively against this threat by raising official rates.

Also note that seven of these eight bars show positive returns, which contradicts the view that bonds always deliver negative returns in periods of rising interest rates. The exception in this study is the late 1970s, when the longest-term bonds (10–30 years) suffered during a period of very sharp increases in rates.

So, the first lesson is that an increase in official lending rates set by central banks is not always replicated across bonds of all maturities. Indeed, in some cases, as we have seen, longer-term bonds have outperformed in rising rate environments.

The second lesson is that bonds can play an important role in your portfolio whatever the stage of the interest rate cycle. How much term (or credit) risk you take with bonds will depend on your own risk appetite and investment goals.

Trying to forecast interest rates is not a sustainable way of investing in bonds. But there is plenty of information in today’s prices on which to base a strategy. In the meantime, you can help temper risk by diversifying across different types of bonds, different maturities, and different countries.

Ultimately, the reasons for investing in bonds should be driven by your own needs, not by everybody else’s expectations.

(The author would like to thank senior portfolio manager Dave Plecha for his help with this article).

via Outside the Flags: Rate Expectations.

Your Year-End Tax To-Do List: A 5-Step Plan

The end of the year is a great time to take some action to reduce you taxes for 2013.  The following article has some good ideas for you to think about.

Steve

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Tens of millions of Americans don’t even start thinking about their taxes until a few days before April 15. But if you’re interested in turning over less of your hard-earned money to Uncle Sam, it pays to start paying attention to your taxes before the end of the year. Doing so could add hundreds or even thousands of dollars to your tax refund.

Here are five things to do to uncover tax savings between now and New Year’s Eve.

1. Figure Out Where You Stand.

The first key to successful year-end tax planning is getting a rough estimate of your income and deductions for the year. Your pay stub should give you a good idea of year-to-date gross income, as well as 401(k) contributions, flexible spending account money, and other tax-saving items. For deductions, look at your checkbook or bank account statements to see what you’ve given to charity throughout the year, and consult with your mortgage lender about getting information on taxes and mortgage interest.

Once you have an idea of your total income and deductions, you can estimate your tax bracket and get an idea of whether you\’ll want to itemize deductions to get a bigger tax break. That will help you determine which of the following moves will save you the most.

via Your Year-End Tax To-Do List: A 5-Step Plan – DailyFinance.

15 Tax-Saving Steps to Take Now

With the end of the year quickly approaching, you are probably focused on finalizing travel plans and squeezing in last-minute holiday shopping. There’s a good chance that the last thing on your mind is tax planning. However, now is the time to consider strategies to reduce your tax burden come next April, especially given the recent tax law changes and the uncertain future of tax reform.

via 15 Tax-Saving Steps to Take Now – Yahoo Finance.