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Everything posted by Chrysopylae

  1. You might also consider a 401k. Since you are interested in choosing SRI funds, you might consider www.socialk.com For disclosure, I have registered with socialk as an investment advisor.
  2. 1) In SEP IRA it seems the employer would be unable to contribute uneven percentages on employee's salaries. Correct, an employer must make an equal percentage contribution of salary for each qualifying employee. 2) Also one employee is only there six months and cannot wait for 2 years of service. The employer may use less restrictive requirements to determine an eligible employee. 3) Also, is SEP for staff of non-profits too? Any employer can establish a SEP.
  3. My understanding is that, at least in California, any person that holds himself or herself out as an investment advisor or investment advisor representative must act as a fiduciary.
  4. http://www.financial-planning.com/asset/ar...-coats.html?pg=
  5. PAX World Balanced http://www.paxworld.com/funds/balanced-fund http://paxworld.com/investment-approach/
  6. "The company makes contributions of up to 3%." You might also consider a SIMPLE IRA. Here is a link to the IRS FAQ on SIMPLE IRAs: http://www.irs.gov/retirement/article/0,,id=111420,00.html Here is a link to more information on 401k plans from the IRS: http://www.irs.gov/retirement/article/0,,id=120298,00.html You could also choose a SEP IRA for contributions by you the employer to employee retirement while maintaining another plan for employee contributions (SIMPLE IRA excepted). Her is a link to more information on SEP IRAs from the IRS http://www.irs.gov/retirement/article/0,,id=111419,00.html In considering a 401k plan, you might look at www.socialk.com. For disclosure, I have registered with socialk as an investment advisor. Quotes from website: Why must advisors register with Social(k)? Advisors who register with Social(k) at www.socialk.com get access to all the information and tools needed to offer a superior web-based retirement plan option to your clients. Using the information garnered from the registration process, we can also then contact you to provide updated information and notices of trainings etc. In addition, when we receive inquiries from clients looking for advisors versed in socially responsible investing and Social(k), we will refer these leads to registered local advisors. How can my current financial advisor offer Social(k)? If your company already has an advisor but you're not happy with the limited SRI selections offered by your existing plan, have your advisor contact us about replacing your plan with Social(k) or adding Social(k) as a second option alongside your existing plan.
  7. "My husband has his own business so we can put more money into his SEP and depending upon how good business is a Roth is an option sometimes." Without knowing more about the business (e.g. number of employees, details on hours and pay of employees, consistency of income. how the business is set up (e.g. LLC, partnership, corporation, sole proprietorship), potential legal liabilities), it's not possible to provide a recommendation. However, your husband might consider an additional retirement plan, like a profit sharing plan (the business does not have to be profitable to implement such a plan). a money purchase plan, or a Traditional or Roth 401k. If your husband's business grows significantly, he might even consider a defined benefit plan. If he has employees, of course, he should carefully weigh the potential liabilities that could result from funding employee pensions. To be clear, I am suggesting that you might consider a plan that allows your husband to contribute more and use the income you were going to allocate for your 403b to pay household expenses.
  8. You might find this site helpful: http://www.plansponsor.com/hp_type2/?page_id=14566
  9. In my experience, part of the issue may be that the fees in 401k plans are hard to find. It's very annoying when trying to advise a client.
  10. "I'm just starting to learn about asset allocation, and this article leaves me slightly more puzzled than before." If it makes you feel any better, I was a bit confused by the article myself. Since you didn't say whether one particular issue confused you, or just the article over all, here is a quick review of the paper "Hitting or missing the retirement target: comparing contribution and asset allocation schemes of simulated portfolios" written by Harold J. Schleef and Robert M. Eisinger. Focusing on retirement, "the problem of investing is to build a retirement portfolio that achieves a specified value at retirement". So let's look at historical data to try to better understand the issue. Specifically, let's take a hypothetical person who invests for 30 years. In our first analysis, let's assume that our investor contributes a set amount each year and look at the odds that he/she will achieve a target retirement amount of $1 million using different allocation strategies. The risk in these cases is that the investor will fall short of the portfolio target return. In our second analysis, let's assume that our investor changes the contribution each year to meet yearly return targets. For instance, if the returns last year leave the investor $1,000 short of the target for that year, then our investor will contribute an additional $1,000 to bring the portfolio up to the target amount for that year. The risk in these cases is "that poor portfolio performance may require substantial increases in contribution amounts in some years to achieve year-to-year targeted portfolio amounts." The authors write: "We demonstrate that for all of the hypothetical portforlios analyzed, the chances are less than one-half of meeting the one million dollar retirement goal if oneemploys a strategy of investing a constant real dollar amount annually. Furthermore, there is substantial risk fo failing to meet the one million dollar target, even if one significantly increases the annual amounts invested. In contrast, the strategy that invests the minimum amount each year to achieve a predetermined balance is guaranteed to achieve or exceed the target. We observe, however, that the amount one must invest in certain years may be significantly greater than the mean, so much, so that such a strategy may be impractical for many investors." "Second, we observe the effects of various asset allocation 'life-cycle' strategies on meeting the retirement portfolio target. We compare several ###### asset allocation strategies ot portfolios that mimic life-cycle fund allocations promoted by financial services companies. Our results...indicate that asset allocations should be weighted towards equities, even when few years remain in the non-retirement investment years. This result contradicts the conventional wisdom inherent in most life-cycle allocations that call for shifts away from equities and toward less volatile investment instruments as an investor ages." A few comments: 1) The authors consider an allocation between large cap stocks and long-term corporate bonds from 1926 through 2005. It is possible that a more diversified portfolio might show different results. In particular, their second strategy might have required less onerous contributions if a more diversified portfolio resulted in fewer or smaller draw downs. 2) The $1 million target is arbitrary - though it is a target that seems to bandied about quite a bit. Perhaps, the issue is not the odds that the investor will achieve $1 million after 30 years, but that the investors expectations are unrealistic. 3) Adjusting contributions at the end of each year according to the data may be impossible for some investors. I don't know about you, but I don't have an extra $100,000 to put in if the portfolio drops by about 11% as it nears $1 million. There may be some alternative methods for achieving the end that are less painful than one lump payment. 4) Keep in mind that the authors used 30 year segments from 1926 through 2006. When they analyzed portfolios that did not have 30 years of data (for instance, one that assumes an investment start date in 1985), the authors randomly selected returns from other years. For example they might select data from 1985 through 2005, and then select the returns from 1959, then 1971, and so on until they had 30 years of data. 5) This article is important for focusing our attention on the real risk that we might not meet our retirement goals. Target allocations and most investment plans and advice I have seen (most, not all) call for moving assets away from equities and into fixed income near retirement. The purpose is to reduce the risk of major draw downs in the portfolio value near retirement. Investors should be aware of the trade off between these two risks (not meeting a retirement goal verses suffering a severe drawdown in the value of a portfolio) when they plan their allocations. I hope this brief overview of the article and comments help. Here is the link to the paper: http://www.lclark.edu/faculty/schleef/obje...ef_eisinger.pdf In reviewing the post, I'm not sure what is wrong with the word ######, so here is a hint as to what the word is: If it's not name brand, it must be a ######.
  11. "I think that these SRI funds are just all marketing, plain and simple. It's a way to encourage people to feel good about themselves while separating them from their capital. Nothing unique about that." Do some people or companies take on the mantle of SRI without the spirit just for profit? I would not be shocked to discover that some do. Of course, if the market demand entices a company to take a socially responsible path that it would not otherwise take, I feel it is a step in the right direction. "That may sound harsh, but heavens you could avoid a fund that owns US Government bonds simply on the basis that you disagree with U.S. policy on Darfur, or Cuba, or the environment, or farmers; you get the idea. " Yes, moral action may require serious thought. If the US government does something that violates our moral principles, what do we do? Do we boycott government bonds, vote, petition, protest, withhold taxes? Rather than saying the matter is difficult and therefore let's not consider it, I prefer that people engage these moral dilemmas. "You've mentioned SRI funds in many of your posts and you appear to be a fee-only advisor. What's so compelling about SRI funds to you? Do you recommend them frequently to clients?" Yes, I hold myself out explicitly as an SRI advisor. In fact, I have learned quite a bit of science from some of my clients and the impact we have on our environment. Obviously if a person does not wish to invest SRI, then that person should choose a different advisor. "Which of these, if any, would you screen out as not being "socially responsible?" I don't believe SRI is as simple as screening out bad companies or countries. Rather, I believe in the active engagement of companies. In some cases, we may decide to exclude a company. Or we might try to coerce a company with the threat of short-selling shares. Or we might try to change a company through company dialogue, proxy voting, election of board members, or filing shareholder resolutions. And, of course, we can support companies who act according to our criteria or, importantly, are taking steps to improve their governance and actions by buying shares. An investor may decide to take action at an individual level, with a group of like minded individuals, or via a fund manager. If an investor decides to use a fund manager, they should carefully read the prospectus (actually, an investor should ALWAYS read the prospectus), read the website, read the quarterly reports, and look at the current portfolio to ensure that the fund matches their own criteria (or comes close enough). Not all funds employ the same criteria or actions. In addition to SRI considerations, investors should also carefully consider the investment objectives of the fund, any loads, fees and expenses, performance, and investing methodology of the manager(s). Here is a link to an article about an SRI hedge-fund that engages some of these issues: http://www.greencayasset.com/Barrons.pdf I think these paragraphs from the article provide some demonstration on the potential and power of people to change companies for the better: "Siebels [the hedge fund manager] takes issue with Calpers' decision to pull out of some Southeast Asian countries. It's a "hostile" gesture, she says; making blanket generalizations isn't encouraging. After all, many companies behave more ethically than their governments do. Siebels prefers to say, "You're moving in the right direction, and most importantly, your stock is undervalued. We'll back you up."" "An even more powerful weapon in Siebels' arsenal is short-selling, which has provided the bulk of her profits over the past few years. To select stocks for shorting, the hedge-fund manager begins with a computer screen that produces a list of candidates that appear overvalued, based on fundamentals and momentum. Then, she ranks them on ethical factors. While she doesn't confine herself to only socially irresponsible firms, she tries to short those first. And it's here that Siebels employs one of her most effective tactics as an ethical investor. In the past, ethical investors have tended to vote with their feet. Siebels prefers to deliver a swift kick. "If a company is socially irresponsible, we call them up, tell them we're going to short them, and why. If I go in and say "I'm shorting you," that gets an immediate reaction," she asserts." "Consider Vestel Elektronik Sanayi, a Turkish outfit that makes televisions and monitors for IBM, Philips, and Toshiba. Vestel's manufacturing operations ran afoul of emissions standards, and the firm was in disputes with workers. Siebels informed Vestel's chief executive, Sertac Beller, that she planned to short the stock. Immediately, Beller invited her to view the firm's plans to reduce emissions and improve labor relations." "In some countries -- South Korea and Taiwan, among them -- short-selling is prohibited. In such lands, she thus can have an impact in only a non-activist way, by simply refusing to buy a stock."
  12. "My goal is to make money managers, fianancial companies, and financial advisors socially responsible by giving the little guy a bigger piece of the action than he/she is currently getting when investing for retirement." I see companies like American Express and Met Life excoriated for their high expenses. Some of these companies are publicly traded and people on this site hold them in their portfolio. So why not encourage teachers to vote to change company policies and contact their fund managers to push managers in these companies to change their policies. I realize that if we try collectively, we might fail. We might also succeed.
  13. SRI does encompass a wide range of opinions. It can be applied as simply an exclusionary measure for portfolios. It may also be applied in a more active manner to encourage companies to act more socially responsible through proxy voting and the selection of board members. SRI investors may choose to select from one or more vehicles of security ownership (e.g. individual stocks and bonds, mutual funds, closed end funds, separately managed accounts, or hedge funds). Anyone considering SRI has many choices to make, including what constitutes SRI for them. If an investor decides to use a money manager (for instance a mutual fund), then the investor will need to consider the specific criteria the manager uses for selecting stocks and bonds, as well as, how active the manager is in voting and influencing company policies. The prospectus may be consulted for some of the answers to some of these questions. Diversification may be achieved for an SRI portfolio through diversified stock and bond selection, fund management selection, or a combination of both. For me, the most important point for investors to remember is that as stock holders, we own the company. As an owner, I want the company to represent my values. I feel that since I have a vote - a say in how the company is run - I am responsible for making the best decision possible under the circumstances given the information available. As to arrogance, I hope that I am always arrogant when it comes to my fellow human beings well being. I find it totally reprehensible and unacceptable that a company may lock the fire escape doors, or hire subcontractors who lock fire escape doors, dispose of toxic and carcinogenic wastes irresponsibly, subject human beings and animals to unnecessary and painful work or laboratory conditions, or take advantage of the customers to charge excessive fees or unload bad investments. As a share holder I have a unique opportunity to tell management to change and to push management to develop and implement positive policies for their employees, community, and the environment. It seems to me that sometimes people disassociate investment from their personal morality as if to say that if there is plausible deniability, they have no responsibility. And so people who would never throw garbage in their neighbor's yard or poor toxins into their neighbors well because it's cheaper than disposing of these items responsibly will readily own a company that takes these actions on a much larger scale. We have a wonderful opportunity to take direct action to make the world a better place for ourselves and future generations, to ensure the efficient use of resources, promote recycling and the responsible disposal of wastes, to require companies to treat their employees, customers, and community responsibly ... but ... we actually have to take responsibility for our actions.
  14. Have you considered a loan from your 403b? Are you willing to withdraw funds from your Roth IRA? Do you have funds you contributed to your Roth available for withdrawal?
  15. Is this point of view shared by everyone on this forum?
  16. "frankly I think an advisor should be a teacher beyond being a salesperson" - Agreed! The Series 7 is not a joke, but alone it is not sufficient to provide all the knowledge to be a competent financial advisor. The other exams, in my opinion, are easier, and they require less test time. To be a Registered Investment Advisor in the state of California, one must take the Series 65. I didn't find it particularly challenging (but then it would be scarey at this point in my carreer if I did find it challenging). The Series 65 is not a joke, but likewise is not sufficient in itself to prove the competence of an investment advisor. One point on which I totally agree is the lack of disclosure of fees. I find it totally frustrating when looking on a 401k website for a client and not finding a single disclosure of fees. I find some sites to be extremely frustrating due to the lack of information. "I just read that a financial advisor can sit through a one hour seminar and then be called a "senior citizen financial specialist"." If I have an extra hour tomorrow maybe I will become a "senior citizen financial specialist" too. :) Please keep posting the articles. Although I am quibbling over the details, that shouldn't stop people from reading the articles.
  17. If you only have your insurance license, then you may not sell all investment products. Likewise, if you have only your series 7, you may not sell all investment products and you may not sell insurance. If you have only your series 3, you may sell certain futures and commodities related products. If you have your series 31, you may sell certain managed futures products. Etc, etc, etc. Although some people seem to have it in for sales people, the fact of the matter is that we live in a capitalist society. So people outside the government sector must at some point or another sell their products or services or hire someone else to sell their products or services. There are many ways to sell a product or service (e.g. word of mouth, referrals, adds, seminars), but someone, somewhere must do the selling. "It is the rare investment adviser (anyone running more than +100 million for a family) that adds value" I am truly at a loss for how you came to that conclusion. Maybe it is in how you define value added. "SD, uncompensated risk, asset correlations, monte carlo...snooze. puhlease. This is just lingo that sounds impressive and is used by retail reps to make the sale, not to manage money." ??? Again, I am at a loss. Exactly what would you suggest using to determine an asset allocation? My opinion: Statistics are a wonderful tool for understanding the world and the financial markets. They are only a tool and only useful, however, when we understand the data and assumptions being used and have a sound knowledge of the theoretical underpinnings. Otherwise, statistics can be used to confuse and mislead. When we look at time series data, we must be particularly careful on a number of issues, including selecting an appropriate sample, understanding how the data changes over time, and being cognizant of outliers and how they affect our results. When speaking with a client, I do not go teach them a statistics, finance, or economics course. I attempt to distill the information in a clear and concise manner so they know what to expect from their portfolio, how the portfolio is intended to meet their investment goals, and the risks involved in their portfolio. Although I am capable, I am not writing a professional dissertation for my clients. My clients, some of whom are fully capable of understanding a professional dissertation, do not want one. They want an investment plan written in plain English with simple to follow instructions. I am in business to help people who do not understand the financial markets and/or find more valuable uses of their time than to create their own investment plan. In economics, you might see a reference to opportunity cost. In this case, a client could create their own investment plan or they could spend the time gaining new business, spending time with their children, or (and this really is the case for some people) going clubbing. Although not all my clients would put it in these terms, they must do a cost-benefit analysis. If they believe that the value of my services is greater than the (opportunity) cost of learning about the markets on their own or running the statistics on their own, then they use my services. It's the same as determining whether to learn how to do plumbing or hire a plumber, teaching your children or hiring a teacher, fixing your car or hiring a mechanic, building your own computer or buying one. One absolute limitation for human beings is time. What is the most valuable use of each part of your day. The answer will determine what you decide to or not to do. An individual's decision to use an investment advisor, or not, is an individual one, and the right choice for one individual may not be the right choice for another.
  18. Some answers: "I have a continuing debate with a classmate of mine regarding why a financial adviser does not include calculations/spreadsheets when determining asset allocation." The feedback I get generally involves "include less information". So more and more of the calculations and data get relegated to an appendix. If a client wants the spreadsheets, I provide them. In my experience, most people that would want that data, want to do their own investment planning and don't really need an investment advisor. "Even though the adviser in question appears to be a theoretical one, generally speaking such calculations are done by the adviser's back office with he or she having little understanding of how they were calculated or even what they mean." Even though I understand the stats, I use a program for calculating them. Re-calculating the stats each time myself is not time efficient. "In my opinion, the most important skill in making money as a financial adviser is the ability to sell. " Yep. "1. What's the annual standard deviation of my portfolio?" SD is a stat I provide in the appendix, but one I generally ignore. First of all, the distribution of financial data generally makes SD a less than perfect tool for analyzing a portfolio. Second, I find clients don't really care about SD. I've never heard of anyone running to their advisor and complaining that their return was 2 SD above the mean. I tend to high light data on the historical drawdown of a portfolio. "2. What asset classes in my portfolio have low correlations with each other?" I cerainly use various correlation statistics, but again, it is a piece of data that tends to get relegated. "3. Do I have much uncompensated risk in my portfolio?" Of course I optimized your portfolio. Read the glossary in the appendix. Actually, optimization is a point that I do try to take some time with my clients to explain because assumptions made can have heavy implications for future returns. "4. Could you do a Monte Carlo simulation on my portfolio?" Certainly. Understand that there is debate on the usefulness of a Monte Carlo simulation.
  19. Just curious, what's your opinion on SRI?
  20. At the risk of sounding like a broken record, you might consider selecting some SRI funds. You may find details about some funds available at www.socialfunds.com or www.socialinvest.org. It will take a bit more work than just selecting a target date fund, but you can create a diversified portfolio within a Fidelity IRA account. Also, if you are considering contributing more than $5,000 this year, you might contribute funds to a 2007 IRA up to your tax filing deadline.
  21. It's a bit of a moot point, I understand. And I don't want to be in the position of defending actively managed funds in general on performance grounds. I just find a range of returns depending upon the particular benchmark used for comparison and time frame.
  22. "Only 20% ever beat the index over time." Point taken, but that number might be a bit low according to studies I have read.
  23. ###### < $25,000 Let's assume that you invest ###### dollars in the funds for N years and there is no growth and no reinvestment of dividends: Return on A shares: ###### * 0.9425 * (.9926 ^ N) = ReturnA Return on B shares: ###### * (0.985 ^ N) = ReturnB ###### * 0.9425 * (0.9926 ^ N) = ###### * (0.985 ^ N) "Class B shares automatically convert to Class A shares in the month of the eight-year anniversary of the purchase date." BUT, what if there are non-zero returns. What if you have dividends that you re-invest? (Remember, reinvestments are not subject to the initial load.) What if ###### is greater than or equal to $25,000, or what if you expect to eventually have $25,000 or more invested in this fund or a group of American Funds? Here's a link to the prospective for American Funds New Perspectives: http://www.americanfunds.com/pdf/mfgepr-907_npfp.pdf Check my math. It's Friday night and time to go! Best of Luck!
  24. Let's start by assuming a simple scenario with two periods and no distributions or dividends in between. I start with a certain initial prinicple (P), that is taxed either today at a rate of Tt or in the future at a rate of Tf. The investment grows at a rate of I over a certain number of years (N). What is my final return if I am taxed initially Ri versus if I am taxed finally Rf? (P * (1 - Tt)) * (I ^ N) = Ri (P * (I ^ N)) * (1 – Tf) = Rf If we rearrange these equations, we see P * (I ^ N) * (1 – Tt) = Ri P * (I ^ N) * (1 – Tf) = Rf What am I missing? (I'm probably missing a lot since it's still in the AM and my brain tends not to kick in until the afternoon.)
  25. "Suppose you are in the 25% federal income-tax bracket and you earn an extra $5,000 this year, which you want to invest. The stock fund you pick goes on to notch 9% a year, and it doesn't make any taxable distributions. Would you make more if you held the fund in a regular taxable account, where the fund's appreciation will eventually be taxed at the top 15% long-term capital-gains rate, or in a 401(k), where withdrawals will be taxed as ordinary income? The surprising answer: Even if your income-tax rate jumps sharply, the 401(k) will likely be the better bet, calculates Allan Roth, a financial planner in Colorado Springs, Colo. Indeed, if you have 15 years to invest, the 401(k) will leave you with more money, as long as your tax bracket doesn't climb above 33%. If your time horizon is shorter, things are dicier. But even if you have a mere five years to invest, the 401(k) will leave you richer, provided your tax bracket doesn't rise above 28%. How can the 401(k) be a better investment, given the hefty tax on withdrawals? In the example above, if you fund the 401(k), you can invest the full $5,000. But if you opt for the taxable account, you will first lose 25% of your earnings to taxes, leaving you with just $3,750 to invest. Given that initial hit, it's no surprise the taxable account rarely wins." What assumption am I missing here that allows the above conclusion to be drawn?
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