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Everything posted by Chrysopylae

  1. "On a related issue, automatic enrolling is, in part, supported by financial behavioral literature. People feel more "pain" because of lower take home pay when they do it (so most avoid self enrollment) and feel less "pain" when someone else does it for them and actually look forward to putting more money away when they get raises. That’s why the later has been quite successful." You have probably already read it, but, if not, Predictably Irrational is a fun, quick read on behavioral economics. In it the author discusses the benefits of automatic enrollment in terms of increasing investors' savings. I am OK with the concept of automatic enrollment, provided it is explained explicitly and up front (not buried in the contract). I am very weary of just providing an allocation for individuals without consideration for each individual's investment goals, broader financial picture, and an explanation of the expected outcomes (again explicitly and up front). I would be extremely angry if a company decided to change a client's allocation without considering these factors.
  2. The more I think about the article, the more I dislike it. First, who is deciding that the employees have poorly allocated their assets? Second, the notion that a company has the right to take an individual's money and allocate it as the company sees fit sounds revolting to me. Can you imagine your school district automatically re-allocating your funds for you without consulting you about your personal investment goals? (Imagine: Hi school employee, we have decided that you should have some of your money in this annuity rather than that Vanguard fund to improve your allocation.) Also, the current state of the financial industry does not prove that nobody knows anything. Consider for a moment the proposition that we do not know anything. In that case, how should you allocate your funds? Should you put all your money in stocks? Or should you put all your money in bonds? Or should you put all your money in short term paper or bank accounts? Should you put your money in an actively managed account to try to beat the indexes or should you put your money in an index fund? If you truly do not know anything, then you have no reason to have a preference for one investment or another. But we do know something about the markets. We know how they performed in the past and we can describe how they performed using various statistical methods. Using these methods, we can make an informed opinion about how to allocate the funds in the future. I am not sure how I am ending up in an argument with you. It seems like we are generally on the same page. Oh well. On a side note, The Economist (January 24th - 30th, 2009) had an interesting special report about the financial markets.
  3. As a ruler, companies do not pay for investment advisors to assist their employees - so no need to impugn our reputation. "Employers have used re-enrollment when changes are made to the plan, such as a new administrator or a new lineup of funds, Combs said. Instead of reinvesting workers' money in funds that are most like their old choices, employers have been moving the money into the diversified default option, she said." That sounds like a law suit waiting to happen. While I can understand the reasoning behind such a move, I believe that such a move is completely unethical and I would advise any client of mine to sue a company that arbitrarily decided to change their asset allocation. Sometimes asset allocations are not "diversified" for a reason. Clients may have funds in multiple accounts, have other expected sources of income, or have purposes for their retirement accounts that do not fit the traditional mold.
  4. Actually, index funds do have managers. For instance, if you are on the Vanguard site, once you select your fund, you may find the fund manager by selecting the Portfolio and Management tab. For example, the Vanguard 500 Index Fund Investors Shares (VFINX) is managed by Michael H. Buek, CFA. Managers of index funds may make proxy votes. Vanguard managers do vote. See for example these two articles (I think the second article is particularly pertinent): http://news.morningstar.com/newsnet/ViewNe...1A47E0_univ.xml http://articles.latimes.com/2004/sep/07/business/fi-proxy7 This website provides a quick overview of how often fund managers vote. http://www.proxydemocracy.org/data/funds/62
  5. I don't think there is a problem with choosing to or not to invest in stocks, bonds, CD's, or other investment vehicles using betting principles. I use these principles to make most of the decisions in my life (although many times the calculations are more intuitive than explicitly stated). What are the odds that I will die tomorrow, next year, 30 years from now, or 50 years from now? What are the odds that the light bulb will last 400 kilowatt hours? What are the odds that I will not get hit by a car while riding my bicycle? I said that the OP could use Statistics 101 to get a better understanding of how stocks performed in the past. I hope that most people interpret this assertion as meaning that investors do NOT require advanced mathematical skills or knowledge to make informed decisions regarding their portfolios. I make no claim as to exactly what the future holds, except that it will in some way reflect what has happened in the past. If the future is entirely different from the past, then I do not know how to make a decision regarding the future. Interestingly, I believe that you will find most of the posters to this forum hold the same view point. For instance, in the past actively managed domestic stock funds have not consistently even matched the returns of their respective index benchmarks; therefore, many of the regulars on this forum choose to use passive index funds. For another example, in the past stocks have exhibited greater volatility and a wider range of returns on a monthly basis than returns on bonds, or short-term paper, so when they plan for the near future (especially in retirement) they typically shift their portfolio allocation away from stocks. I hope that clarifies my viewpoint a little bit.
  6. Like a broken record... If you invest through a mutual fund (e.g. one of Vanguard's index funds), you can encourage those fund managers to put forth resolutions and use their votes to improve corporate governance.
  7. Sorry, I wasn't answering your request directly. I was just trying to bring a positive point that some infrastructure do have a positive impact on the economy in both the short and long runs. I should have been more clear.
  8. I agree that we should be cautious in expecting infrastructure projects to stimulate the economy in the short and long run, and it is rather depressing to consider the money wasted on pet projects meant to funnel money to political insiders. None-the-less, I think there are some projects that have provided employment in the short term and proven a stimulus to the economy in the longer run. Among the projects that I would include on such a list are the: Tennessee Valley Authority Interstate Highway System Hoover Dam Colorado aqueduct
  9. I defer to your knowledge on this matter and anyone else who can provide better answers.
  10. Throwing in all the caveats that I am not a lawyer and all necessary hold harmless clauses (etc., etc., etc.), the general answer is that, yes, your assets in a 403b plan are protected thanks to a change in the bankruptcy law in 2005. Here are two additional links that provide a general overview. http://en.wikipedia.org/wiki/403(b) http://www.nationmaster.com/encyclopedia/403(b) You can use the links on those sites to learn more and read the original documents. Also, for more information than you might ever have wanted to know about the legal side of investing, here is a link to a lawyers blog: http://www.benefitscounsel.com/benefitsblog/
  11. This link might answer some of your questions: http://banking.about.com/od/securityandsaf...ountinsured.htm
  12. "1) I have no idea what is meant by "socially responsible." 2) I don't want CalSTRS to invest according "socially responsible" principles." Nice. Anyway, for other people who are interested in trying to change the world for the better, you can take action now. Consider, for instance, if you hold a Vanguard index fund. Vanguard can (and does) participate in proxy voting. It can also put forward resolutions and pressure executives to act in more socially responsible ways. For example, I have seen numerous complaints against AXA Equitable's sales tactics. AXA Equitable is a subsidiary of AXA Financial Inc., which is part of the global AXA Group. AXA ordinary share trades under the symbol AXA on the Paris stock exchange. In addition, AXA Equitable and AllianceBernstein, L.P. are affiliated companies. So, if you dislike AXA's practices, the way it lobbies the government, and the funds it offers, in addition to lobbying your local school district, you could seek to have the funds (including index funds) that you hold that have AXA or Alliance Bernstein shares pressure the executives to change their policies. I know that I am an idealist and change will rarely occurs overnight. Never-the-less, I can find no reason to complain about how a company treats/treated you when it costs you money but give no regard to these same practices from the exact same companies when you are the one profiting from them.
  13. I wonder how people would choose if they were asked the question in a slightly different way. For example, would you prefer to direct your money in such a way that your investments do not benefit directly from child labor, genocide, the blatant destruction and waste of natural resources, selling lethal products with enhanced addictiveness without warnings to consumers, dumping lethal, carcinogenic, or toxic amounts of chemicals directly into the environment, or companies that screw teachers and schools by knowingly selling them bad debts (e.g. Lehman Brothers). I suspect the response to the choice of SRI would depend in part on the delivery. I do know people who insist on investing in as socially responsible a manner as is available in their investment plans. Of course, there is still the question of how SRI funds with different SRI strategies perform relative to other funds in their categories. Do they outperform, under perform, or perform in-line with other funds?
  14. If you want to compare the returns of stocks in China, ######, and India over the past year to the returns of CalSTRS or CalPERS, you can find data on the MSCIBarra web site. http://www.mscibarra.com/products/indices/...performance.jsp http://www.mscibarra.com/products/indices/...erformance.html BRIC = Brazil, ######, India, China Wow, it looks like naming that country whose name starts with an R and ends in ussia is not acceptable on 403bwise.
  15. Predicatbly Irrational was a good book to read to think about how presentation and circumstances influence us to behave in particular ways and take actions that might not maximize our utility.
  16. I think this might be the study link: https://institutional.vanguard.com/VGApp/ii...?File=RetResPPA
  17. As long as you are not putting yourself out there as a paid financial professional, I don't think there should be any liability (though I am not a lawyer) - so I would say share away. Sorry, I don't have a power point presentation, but if you need some specific information, I am always happy to share.
  18. Yes, (some) things I can't stand hearing: 1. Arithmetic mean - no, use the geometric mean 2. "in the long run" - and how long exactly is this long run 3. Dollar cost averaging - if you put the money in as soon as you get it, you are not dollar cost averaging (it doesn't mean you shouldn't do it, it just means that it is not DCA) 4. If you missed the 5 best days in the stock market ... (and what if you also missed the 5 worst days? Why is that assumption being made and is it valid). To be clear, I am not advocating market timing, I just don't think this argument disproves the efficacy of market timing. 5. Stock returns are normally distributed (actually, I rarely hear this statement, but it is a necessary assumption for certain statistical methods to be valid). US stock returns are NOT normally distributed, in case you were wondering. 6. Standard Deviation (see above). I prefer discussing the range of returns. 7. The long term mean return is ######.xx. Technically, I am OK with giving the mean return to 2 decimal places PROVIDED the person understands the degree to which the returns can change. 8. Risk and reward go together. 9. Risk = Standard Deviation. In my viewpoint, we should use past returns to make informed decisions about the future. Investors should always remember that if an event happened in the past, we should certainly expect that it can happen again, and if an event did not happen in the past, we should be aware that it could happen in the future. Big Red, French and Fama have one of the most complete domestic stock data sets I have found, and if you go into their working papers (which are interesting to read in themselves), they explain how they gathered the data.
  19. If you plan to put the money in a Roth IRA, I would suggest doing it sooner than later. Your bank should allow you to keep your funds in FDIC insured CDs inside a Roth IRA. Also, at least some of us investment advisors do look at past data and so my clients have not been shocked by this years returns. Also, if you look at returns over any 20 year period from 1928 (as opposed to just 10 year returns), you will find that returns can be well below returns we have seen in the last 50 years. There is plenty of free data going back to the 1920's (check out French and Fama's data or the data on the St. Louis Fed web site), and I recommend people use it. I do. I am called an investment advisor (fiduciary responsibilities do apply), but really I am just doing applied math from Statistics 101. If this year's returns are shocking, then I highly recommend you go back to the historical data to refine your expectations and put them more in line with what has occurred in the past. Returns for the past year, past 5 years, past 10 years, etc. are within line with how the markets performed in the past.
  20. "Thats why diversification matters. Coming out of a recession small caps usually lead a market rally." Good points. "I have been looking closer at socially responsible funds lately since you mentioned them here. Haven't commited to them but you've gotten me taking a closer look." :) One of the things I think that gets overlooked in SRI is that it can actually be good for the bottom line and relatively easy to impliment. For instance there is an article in SFGate today that discusses ways for small businesses to cut waste. "Your screen saver uses as much power as when the monitor is on - all it does is cover up what's underneath," said Terri Reece of Reece Computer Systems, a Half Moon Bay computer consulting firm that works with small businesses. To genuinely save energy, businesses need to activate their computers' power-management option, which directs the computer and monitor to enter a low-power sleep mode after being left idle for some minutes. The energy savings can be dramatic: A typical non-Energy-Star computer would use 741 kilowatt-hours of energy over the course of a year if left on all the time, compared with 123 kilowatt-hours with power management, according to the Climate Savers Computing Initiative. "Just by turning on power management, you're cutting energy use by up to 90 percent - power management is huge," said Climate Savers spokeswoman Barbara Grimes. http://www.sfgate.com/cgi-bin/article.cgi?.../BU6510VIK7.DTL It got me to wondering how many businesses that I own (as a share holder) take these simple steps. I don't see any particular reason that an index fund couldn't raise issues with companies to take simple steps to reduce energy use to save money and improve their environmental impact and introduce and vote for proxy statements in support of such actions. Just food for thought.
  21. Even within the world of indexing, debates continue (e.g. which securities to include or exclude, what market weight to give each security). Here is a critique of the Russell small cap indexing strategy from the May/June issue of Journal of Indexes. http://www.indexuniverse.com/component/con...2&Itemid=11 Russell posted a response in the magazine, but I'm not sure where it is on the web site.
  22. "It would seem to me that long term investors would be better off in A or B shares, depending on the investment time horizon, while C shares would probably be better for short term investments of 5 to 8 years. I completely agree that no load funds would be the best option, but for us investors who must choose, it would clearly be between either A or B, depending upon the amount invested." (underline added.) That is why I chose to just address whether he should choose A, B, or C shares. Ceteris paribus, yes, choose the least expensive option. "Also, don't you think that a "broker" who sells funds has a conflict of interest, and generally is a saleman first and also, generally not university educated in developing strategies for investment. " Certainly the broker representative may have a conflict of interest. Yet, a broker representative may act in the best interest of their clients, even when it may mean a lower commission. Although, I have known highly ethical broker representatives, I have also heard examples of broker representatives who did not put their clients' interests first. For me, I do not care if a person is university educated in developing strategies for investment. They should know their business, but I am not particular about how they learned it (university education, understudy of another professional, personal study, etc.). As an investment advisor, I draw on knowledge I gained in school, from one highly ethical broker representative, from client feed back, and on going from books, magazines, journals, and other news resources. Personally, I would expect on going advice and support from a broker representative who receives on going commissions. As an investment advisor, broker/dealer representatives who act as financial advisors are direct competition for me.
  23. Regarding service requirements for 401ks, the IRS specifies certain maximum service requirements that an employer may choose. However, your organization does not have to impliment the maximum service requirements. Your organization may impliment less severe requirements or no requirements for eligibility. For instance, your organization could make the 401k available to all employees as of the date of hire. If you choose a 401k, you will need to determine whether you want a traditional, safe harbor, or SIMPLE 401k, and if you want the option to make contributions on a pre-tax or after tax (ROTH) basis. http://www.irs.gov/retirement/participant/...=151753,00.html http://www.irs.gov/retirement/article/0,,id=151752,00.html If your employer is willing to contribute on a pre-tax basis, then a SIMPLE IRA may also work. http://www.irs.gov/retirement/article/0,,id=111420,00.html As intruder mentioned, the SEP may be your better choice. http://www.irs.gov/retirement/article/0,,id=111419,00.html To clarify, in my previous post I was not recommending that you choose a 401k. I am just suggesting that you include it in your consideration. One key question is how much (if anything) your or your colleague would like to contribute beyond the amount that your employer is willing to contribute on a pre or after tax basis.
  24. http://www.finra.org/InvestorInformation/I...Grade/index.htm http://www.americanfunds.com/funds/classes/charges.htm Keep in mind the "Statement of Intention". (Why pay more if you don't have to?) In my opinion, you should not worry about how the charges break down. It is the aggregate charge that matters. If you believe that your broker is advising you in a way that is not in your best interest, then find a new one. You seem to indicate that you plan to hold the funds for 8 years or more. In this case, A shares are probably the better choice. But run the numbers for yourself (or have your broker run the numbers for you).
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