David Kirkpatrick

October 23, 2009

Some thoughts on retirement investing

Retirement planning is an ongoing process, and you really can’t count on Social Security to take care of all your retirement income needs. This means a major part of any retirement income plan is retirement investing.

Retirement investing is a different animal from other financial investments. Saving money for retirement isn’t enough because inflation is going to erode the future value of your savings, and wild speculation is not the investment answer because it’s simply too risky. For retirement investing you want a return that keeps you ahead of inflation and does some work in building your nest egg, along with exposing your investment to low or moderate risk. As you get older you want to invest in less and less risky vehicles to protect your retirement fund.

Here are some retirement investment options:

  • Stocks — over the long term stocks have historically performed better than savings accounts or bonds.
  • Bonds — you are more likely to get your investment back with bonds compare to stocks.
  • Annuities — provide a monthly income stream after a lump-sum investment.
  • Mutual Funds — pool many investors and invest that money through an investment strategy devised by the fund manager
  • Investment Partnerships and Hedge Funds — private investment partnerships and hedge funds are an alternative to mutual funds with a few significant differences including participating in a much wider assortment of investment vehicles and borrowing money for additional investment. Investment partnerships and hedge funds are riskier investments and typically require a sizable minimum investment to participate.
  • Exchange-traded Funds — ETFs are another alternative to mutual funds and hold large “baskets” off well-defined slices of the investment universe. Two ETF advantages over mutual funds are low expenses and very high liquidity.
  • Commodities — investing in commodities is investing the raw materials — metals, petroleum, agriculture, etc. — that go into production and consumption. Commodities trading is also a risky investment strategy.

September 19, 2009

Americans are $2T wealthier

Filed under: Business — Tags: , , , , — David Kirkpatrick @ 3:42 pm

At least on paper for Q2 against Q1. All thanks to a stock market recovery.

From the link:

After nearly two years of declines, the net worth of Americans rose by $2 trillion to an estimated $53.1 trillion in the second quarter compared with the first three months of the year.

The soaring stock market accounted for much of the gain. Stock holdings rose by 22% to $6.3 trillion, while mutual funds’ value jumped 15% to $3.7 trillion, according to a Federal Reserve report released Thursday.

To be sure, these are not exactly flush times for many people. Unemployment stands at 9.7%, the highest level in 26 years. And many people have yet to see their home values and portfolios recover from their recent trouncing.

Since only half of Americans own stocks, with even fewer having significant holdings, only a narrow group of people benefited from Wall Street’s springtime gains. The Dow Jones industrial average and the Nasdaq had their best performances since 2003 and the broader S&P 500 since 1998.

Homeowners, who make up about two-thirds of the population, also saw a little relief. Real estate rose in value for the first time since the end of 2006, climbing 2% to $18.3 trillion.

Still, Americans have a long way to go before they recover the wealth they once had. U.S. net worth peaked at $65.3 trillion in the third quarter of 2007. That’s 18.7% higher than the current level.

August 5, 2009

401(k) fees and small business

Fees are the silent assassins in retirement plans and often small business pays a premium with 401(k) fees. The Wall Street Journal offers a solid overview on the topic.

From the link:

But small-business 401(k) savers also labor under an additional burden: They pay substantially higher retirement-plan fees on average, which reduces their investment returns. Moreover, many small-business workers and employers are unaware of the magnitude of those charges.

That could be changing: Momentum is building in Congress to require expanded 401(k) disclosures that could be of particular benefit to small-business owners and their employees.

Under legislation approved by the House Education and Labor Committee in June, employees in 401(k) plans would get a more specific breakdown about how much they pay in fees on their quarterly statements. Other changes could assist employers when they are choosing among retirement-plan providers.

The bill would require 401(k) plan providers or administrators to thoroughly disclose, before a contract is signed, the investment-management, administrative, transaction and various other fees that employers and employees would pay in estimated total dollar amounts. The legislation would also require providers to reveal any financial relationships they have with investment advisers and others who market the plans to business owners.

Many large providers of 401(k)s for small businesses don’t give their customers a detailed breakdown of the estimated annual costs and where the fees go, making it difficult for employers to comparison shop. In some cases, the plan providers give a total dollar amount or the expense ratios of various investments in the plan, but not a complete breakdown of the various fees, such as the commissions brokers receive.

January 12, 2009

Worried about retirement funds?

Filed under: Business — Tags: , , , — David Kirkpatrick @ 2:42 pm

Unless you’re going pretty exotic with your investments, there shouldn’t be much concern.

Hedge funds are basically the casino of investment vehicles — you only play with money you can afford to lose. At least that’s the theory. Mutual funds? I suggest just sitting tight and don’t even think about that money right now. The markets will improve eventually.

From the link:

REVELATIONS that hedge fund investors lost millions of dollars in the Bernard L. Madoff scandal have made many people nervous about their own money, even when it is held in plain-vanilla instruments like mutual funds.

Do mutual fund investors actually have cause to worry that their nest eggs could disappear?


There are no guarantees, of course, and there are plenty of ways to lose money in mutual funds. But compared with investors in hedge funds or other alternative instruments, mutual fund investors have less cause for concern about outright fraud, according to Russel Kinnel, director of research at Morningstar.

”Mutual funds are pretty well protected from fraud,” Mr. Kinnel said. ”There is much greater transparency in reporting and oversight. They don’t hold their own securities, and they don’t ask you to take it on faith.”

That may not have provided much comfort in the declining market of the last year, in which most mutual funds fell sharply. Aside from the direction of the overall market, poor investment decisions and high fees can eviscerate fund performance.

Can you guard against huge losses under these circumstances? Not entirely. Many mutual funds had miserable returns last year. Mr. Kinnel cites as an example the horrendous performance of several former Regions Morgan Keegan funds. The Select High Income fund, for example, fell 75.8 percent last year, while Select Intermediate Bond was down 84.5 percent. (Since August, the funds have been managed by Hyperion Brookfield Asset Management and have been renamed Helios Select High Income and Helios Select Intermediate Bond.)