Objective information about financial planning, investments, and retirement plans

How Much Apple Stock Do You Really Own?

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Apple (AAPL) stock has been a great investment over the years. Based upon its stock price and the number of shares outstanding it is the largest U.S stock based upon market capitalization.  This means it is the largest holding in popular index mutual funds and ETFs like Vanguard 500 (VFINX) and the SPDR S&P 500 ETF (SPY).

Chuck Jaffe recently wrote an excellent piece for Market Watch discussing the impact that a recent drop in Apple stock had on a number of mutual funds that hold large amounts of Apple.  He cited a list of funds that had at least 10% of their assets in Apple.  On a recent day when Apple stock fell over 4% these funds had single day losses ranging from 0.22% to 2.66%.

The point is not to criticize mutual fund managers for holding large amounts of Apple, but rather as a reminder to investors to understand what they actually own when reviewing their mutual funds and ETFs.

Stock overlap 

In the late 1990s a client had me do a review of their portfolio as part of some work I was doing for the executives of the company. He held 19 different mutual funds and was certain that he was well-diversified.

The reality was that all 19 funds had similar investment styles and all 19 held some of the popular tech stocks of the day including Cisco (CSCO), Intel (INTC) and Microsoft (MSFT). As this was right before the DOT COM bubble burst in early 2000 his portfolio would have taken quite a hit during the market decline of 2000-2002.

Understand what you own 

If you invest in individual stocks you do this by choice. You know what you own. If you have a concentrated position in one or more stocks this is transparent to you.

Those who invest in mutual funds and other professionally managed investment vehicles need to look at the underlying holdings of their funds.  Excessive stock overlap among holdings can occur if your portfolio is concentrated in one or two asset classes. This is another reason why your portfolio should be diversified among several asset classes based upon your time horizon and risk tolerance.

As an extreme example someone who works for a major corporation might own shares of their own company stock in some of the mutual funds and ETFs they own both inside their 401(k) plan and outside. In addition they might directly own shares of company stock within their 401(k) and they might have stock options and own additional shares elsewhere. This can place the investor in a risky position should their company hit a downturn that causes the stock price to drop.  Even worse if they are let go by the company not only has their portfolio suffered but they are without a paycheck from their employer as well.

Concentrated stock positions 

Funds holding concentrated stock positions are not necessarily a bad thing. A case in point is Sequoia (SEQUX) which has beaten its benchmark the S&P 500 by an average of 373 basis points (3.73 percentage points) annually since its inception in 1970.  Sequoia currently has about 26% of its portfolio in its largest holding and another 8% in the two classes of Berkshire Hathaway stock.  Historically the fund has held 25-30 names and at one time held about 30% of the portfolio in Berkshire Hathaway (BRK.A).  Year-to-date through August 14, 2015 the fund is up 16.5% compared to the benchmark’s gain of 2.88%.

The Bottom Line 

Mutual fund and ETF investors may hold more of large market capitalization stocks like Apple and Microsoft than they realize due to their prominence not only in large cap index funds but also in many actively managed funds. It is a good idea for investors to periodically review what their funds and ETFs actually own and in what proportions to ensure that they are not too concentrated in a few stocks, increasing their risk beyond what they might have expected.

Please feel free to contact me with any questions, comments or suggestions about this article or anything else on The Chicago Financial Planner. Thank you for visiting the site.

What is a Hedge Fund?

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The term hedge fund is used often in the financial press.  I suspect, however, that many investors do not really know what a hedge fund is.

What is a Hedge Fund?

 

 

 

 

Investopedia defines a hedge fund as follows:

“An aggressively managed portfolio of investments that uses advanced investment strategies such as leveraged, long, short and derivative positions in both domestic and international markets with the goal of generating high returns (either in an absolute sense or over a specified market benchmark).” 

Here are a few basics about hedge funds to help you understand them.  Note this is certainly not meant to be an in-depth tutorial but rather is meant to provide an introduction to hedge funds.

Who can invest in hedge funds? 

In order to invest in a hedge fund you must be an accredited investor.  The current definition of an accredited investor is someone with a net worth of $1 million (excluding the equity in their home) and at least $200,000 in income ($300,000 with a spouse) over the past two years.  Many hedge fund investors are institutional investors such as foundations, endowments and pension plans.  About 65 percent of the capital invested in hedge funds comes from institutional investors.

What is the minimum investment? 

The minimum required to invest is often $1 million or more though some smaller hedge funds and funds of funds may have lower minimums.  New companies like Sliced Investing are seeking to change these high minimums by allowing investors to invest as little as $20,000.

Do I have access to my money? 

Unlike mutual funds, ETFs, closed-end funds and individual stocks hedge funds typically do not offer daily access to your money.

Some hedge funds allow investors to subscribe (invest) or redeem their money monthly, for others this might be quarterly or based upon some other time period.  Most hedge funds will require advanced notice for redemptions which might be as long as 180 days.  This allows the fund managers time to raise sufficient cash and allows for an orderly sale of fund investments especially if the redemption is a significant amount.

Some hedge funds also require a lock-up which means that there are no redemptions allowed during this initial period.  A typical lock-up period is one year, though some are as long as two years.  In some cases the lock-up period is “soft” meaning that redemption can be made but there will often be a penalty ranging from 2 percent to as high as 10 percent. 

Some hedge funds may also have the ability to enforce “gates” on redemptions which means they can decide to process only a portion of the redemptions requested.  This provision came into focus during the 2008-2009 market downturn as hedge fund redemptions requests swelled as many investors sought to raise cash.

What types of fees are charged? 

The fees charged by hedge funds vary widely.

Many hedge funds charge a management fee of 2 percent or more.

There might also be incentive fees of 10 to 20 percent of the fund’s profits or more.  This rewards the fund manager for superior performance.  The flip side of this is that the manager generally only collects an incentive fee if the fund’s performance exceeds its former highs, known as a high water mark.

If a fund loses 5 percent in a given year, no incentive fees will be paid to the manager the following year until the 5 percent loss is made up.

The term two and 20 is a common one in the hedge fund world meaning that the fund would charge a 2 percent management fee and a 20 percent incentive fee.  This may seem pricey but if the performance is stellar then investors won’t mind paying it. 

What types of investment strategies are available? 

There is a vast range of investment strategies across the hedge fund landscape.  These might include long-short, global macro, market neutral, convertible arbitrage, distressed securities and many others.  Additionally there are a number of fund of funds offered which means that the fund offers a collection of strategies and fund managers under one umbrella.   

What should I consider before investing in a hedge fund?

From reading the above you might ask yourself why would I invest in hedge funds?  Let’s remember that hedge funds are considered alternative investments.  Ideally they will have a relatively low correlation to the traditional long-only equity and fixed income investments in your portfolio.  At their best well-managed hedge funds can add balance and reduce the overall risk of your portfolio, in some cases the strategies are designed to provide absolute returns across all investing environments.

Before investing in a hedge fund or any alternative investment make sure you have considered and fully understand the following:

  • The fund’s investment strategy.
  • How this investment strategy fits with your overall portfolio and investing strategy.
  • What the fund “brings to the table” that you can’t get with more traditional long-only stock and bond investments.
  • Who is managing the fund and their history and investment track record.
  • The required minimum investment.
  • Any redemption restrictions and/or lock-up periods.  Make sure that you won’t need to tap this money during this time period. 

The Bottom Line 

Like any investment option you might consider it is important to understand the pros and cons of hedge funds in general and any specific fund or strategy that you might be considering for your portfolio.

Disclosure: This blog post was written for Sliced Investing pursuant to a paid content arrangement I have with the company’s representatives as part of an effort to raise awareness about alternative investment options. All views expressed are entirely my own, and were not influenced or directed by Sliced Investing.

Photo courtesy of Wikipedia

Why Using Home Equity to Invest in the Stock Market is a Bad Idea

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Not that I needed one but an email newsletter that I received from attorney Dale Ledbetter recently served as an excellent reminder what a poor idea using home equity to invest in stocks really is.  From his email:

Strong stock market encourages the resurrection of a bad practice – borrowing money against the value of your home to play the market. The horror story set out below is likely to be repeated if these practices continue.

A married couple, both of whom were in their late 80s, was persuaded by their bank to take out 100% value equity line of credit against their home. They were then persuaded to turn these “borrowed assets” over to the bank’s securities subsidiary where they were told the return would easily exceed the cost of the credit line. 

The broker then advised the couple to put 95% of the total proceeds into a single stock. The securities account tanked, resulting in an almost 100% loss. In the meantime, the house dropped in value by $100,000, resulting in a foreclosure proceeding. The bank then refused to permit a $150,000 short sale to bona fide buyers. 

The husband died. The wife, who now lives in a constant care facility, is entering bankruptcy to force the bank to take the house. 

Of course, the bank and their securities subsidiary blame it all on the elderly couple who they described as “sophisticated investors.” Both husband and wife had been schoolteachers and had no training or experience in the securities industry or in investment strategies. The fact that both were in their late 80s and suffering from diminished capacity, was not enough to deter the aggressive sales tactics of their “trusted advisors.” 

Aside from what would seem to be blatant investment fraud on the part of the bank and their advisory unit, this piece reiterates why using your home equity to invest in the stock market is such a bad idea.  Here are a few specific reasons that I discourage this practice.

Did you really forget the 2008 housing market crash this soon? 

For those with short memories an overinflated housing market crashed and triggered a meltdown in the economy and drastically reduced the value of many homes.  We are still recovering from this and although home values have improved in many parts of the country we learned that home prices will not always go up and that real estate is not the safe store of value we were led to believe.

To put this another way let’s say you tap your home equity to invest in the stock market.  What if the value of your home decreases 10 percent, 20 percent or more?  Now you have to pay back that home equity loan on a house that isn’t worth nearly as much as when you took out the loan.  You could find yourself underwater on your home or worse in foreclosure.  You could also find that your plans to fund a comfortable retirement or your children’s college education are out the window.

What if your investments tank?

Much like these poor folks in Mr. Ledbetter’s example above, not all investments are a sure thing.  What happens if you borrow against your home equity to invest in the stock market and things don’t work out?  If the specific investments you or someone else chose drop in value you are now stuck with investments worth less than your original investment and you will be stuck paying off the loan which is still based upon the amount borrowed.

Even if you went with a few index funds and the stock market drops you will find yourself in the same boat.  Again this is a great strategy to ruin your otherwise well-planned financial future.

Who exactly is suggesting this idea? 

Like the poor folks in Mr. Ledbetter’s example take a look at anyone suggesting this idea to you with a very jaundiced eye.  What is in it for them?  Are you the only one with any real skin in the game?

In the example above the bank won at last twice.  They got the interest on the loan and their brokerage unit made money via fees and perhaps other sources on the investment side.  They had no skin in the game and will likely come out whole even after the foreclosure.  

The Bottom Line

Generally, in my opinion, anyone who would suggest this idea to an investor is motivated by greed and does not have the best interests of their clients at heart.  Using your home’s equity to invest in the stock market is just not a sound idea.

There might be instances where tapping home equity to invest can be a good idea, but these are very limited and should only be undertaken by truly sophisticated investors who fully understand the risks involved.

Please feel free to contact me with your questions. 

Please check out our Resources page for more tools and services that you might find useful.

7 Tips to Become a 401(k) Millionaire

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According to Fidelity, the average balance of 401(k) plan participants grew to a record high of $91,300 at the end of 2014.  This data is from plans using the Fidelity platform.

According to Fidelity about 72,000 participants had a balance of $1 million which is about double the number at the end of 2012 and about 5 times the number at the end of 2008.  What their secret?  Here are 7 tips to become a 401(k) millionaire or to at least maximize the value of your 401(k) account.

Be consistent and persistent 

Investing in your 401(k) plan is more of a marathon than a sprint.  Maintain and increase your salary deferrals in good markets and bad.

Contribute enough 

In an ideal world every 401(k) investor would max out their annual salary deferrals to their plan which are currently $18,000 and $24,000 for those who are 50 or over.  If you are just turning 50 this year or if you are older be sure to take advantage of the $6,000 catch-up contribution that is available to you.  Even if you plan limits the amount that you can contribute because of testing or other issues this catch-up amount is not impacted.  It is also not automatic so be sure to let your plan administrator know that you want to contribute at that level. 

According to the Fidelity study the average contribution rate for those with a $1 million balance was 16 percent, while the average contribution across all 401(k) investors they surveyed was about 8 percent.  The 16 percent contribution rate translated to a bit over $21,000 for the millionaire group.

As I’ve said in past 401(k) posts on this site it is important to contribute as much as you can.  If you can only afford to defer 3 percent this year, that’s a start.  Next year try to hit 4 percent or more.  As a general rule it is a good goal to contribute at least enough to earn the full matching if your employer offers one.

Take appropriate risks 

As with any sort of investment account be sure that you are investing in accordance with your financial plan, your age and your risk tolerance.  I can’t tell you how many times I’ve seen lists of plan participants and see participants in their 20s with all or a large percentage of their account in the plan’s money market or stable value option.

Your account can’t grow if you don’t take some risk.  

Don’t assume Target Date Funds are the answer 

Target Date Funds are big business for the mutual fund companies offering them.  They also represent a “safe harbor” from liability for your employer.  I’m not saying they are a bad option but I’m also not saying they are the best option for you.

I like TDFs for younger investors say those in their 20s who may not have other investments outside of the plan.  The TDF offers an instant diversified portfolio for them.

Once you’ve been working for a while you should have some outside investments.  By the time you are say in your 40s you should consider a more tailored portfolio that fits you overall situation.

Additionally Target Date Funds all have a glide path into retirement.  They are all a bit different, you need to understand if the glide path offered by the TDF family in your plan is right for you. 

Invest during a long bull market 

This is a bit sarcastic but the bull market for stocks that started in March of 2009 is in part why we’ve seen a surge in 401(k) millionaires and in 401(k) balances in general.  The equity allocations of 401(k) portfolios have driven the values higher.

The flip side are those who swore off stocks at the depths of the 2008-2009 market downturn have missed one of the better opportunities in history to increase their 401(k) balance and their overall retirement nest egg.

Don’t fumble the ball before crossing the goal line 

We’ve all seen those “hotdogs” running for a sure touchdown only to spike the ball in celebration before crossing the goal line.

The 401(k) equivalent of this is to just let your account run in a bull market like this one and not rebalance it back to your target allocation.  If your target is 60 percent in stocks and it’s grown to 80 percent in equities due to the run up of the past few years you might well be a 401(k) millionaire.

It is just as likely that you may become a former 401(k) millionaire if you don’t rebalance.  The stock market has a funny way of punishing investors who are too aggressive or who don’t manage their investments.

Pay attention to those old 401(k) accounts 

Whether becoming a 401(k) millionaire in your current 401(k) account or combined across several accounts the points mentioned above still apply.  In addition it is important to be proactive with your 401(k) account when you leave a job.  Whether you roll the account over to an IRA, leave it in the old plan or roll it to a new employer’s plan if allowed do something, make a decision.  Leaving an old 401(k) account unattended is wasting this money and can be a huge detriment to your retirement savings efforts.

The Bottom Line 

Whether or not you actually amass $1 million in your 401(k) or not the goal is to maximize the amount accumulated there for retirement.  The steps outlined above can help you to do this.  Are you ready to start down the path of becoming a 401(k) millionaire?

Please feel free to contact me with your questions. 

Check out an online service like Personal Capital  to manage all of your accounts all in one place.  Please check out our Resources page for more tools and services that you might find useful.

Robo Advisors – A Brave New World?

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The piece below is written by Doug Dahmer and originally appeared under the title “Robo-Advisors” – rise of the machines on Jon Chevreau’s site Financial Independence Hub.  Jon is at the forefront of a movement he calls “Findependence.”  This is essentially looking at becoming financially independent so that you can pursue the lifestyle of your choosing.   Jon is a Canadian author and journalist, check out his book Findependence Day.  Jon has contributed several prior posts here as well. 

I know Isaac Asimov’s Three Laws of Robotics, I read Arthur C. Clarke’s 2001: A Space Odyssey and I love the Terminator movies (I’ll be back!).

From all this I know three things: Robots are very smart. Robots always start off to help you. Robots have a tendency to turn on you.

One of the newest crazes and buzzwords in personal finance is: “Robo-Adviser.” If you’re not familiar with the term, it refers to investment management by algorithm in the absence of human input.

With a “Robo” you are asked to complete an on-line risk assessment questionnaire. Your responses determines the prescribed portfolio of ETFs (Exchange-Traded Funds) with a built-in asset allocation best suited to your needs. Once a year the portfolio is rebalanced to this prescribed asset allocation recipe. 

Dynamics change as shift from Saving to Spending

The “Robo” approach relies heavily upon a basic “buy/hold/rebalance” investment strategy. This passive strategy can work to your advantage during your accumulation years. These are the years when time is your friend, and dollar cost averaging through market cycles offers the opportunity to give your returns a boost.

However, as we get older and begin to prepare for and transition into our spending years, things change. Unfortunately, too few people realize that the investment strategies that served us well during our savings years turn on their head and work to our disadvantage as the flow of funds reverses and savings turns to spending. 

Dollar Cost Ravaging

Suddenly time changes from friend to foe where “dollar cost averaging” turns to “dollar cost ravaging” or what we call, the Mathematics of Catastrophe. (More about which in our next Hub blog). During the second half of your life the simplistic money management approach followed by “Robo- Advisers” can start to look like a “deed of the devil.”

Another concern is that “Robos” are unable to deal with the reality of expense variability. If you believe that in retirement, a fixed, annual withdrawal rate from a diversified portfolio will address your income needs I can with confidence suggest you are at best short-changing yourself and at worst setting yourself up for a cataclysmic financial failure.

I have been in this business a long time and know beyond a shadow of a doubt that a properly constructed life plan is very important in the second half of your life. It is only when you know what you want to do, when you want to do it and what it will cost to do it, that you can start to build the financial framework to make it happen.

Only through your life plan are you able to anticipate years of surplus and years of deficits and take the steps to bend them to your benefit. You need to bring together cash flow optimization, tax management and pension style investment management to make it happen and in the process add hundreds of thousands of dollars to your lifetime assets and cash flow. 

Robos ill equipped to link life to investment plan

Linking your life plan to your investment plan is the secret to success, but “robo investing” is not equipped to handle the nuances of that linkage. A Retirement Income Specialist knows that the type of money management you need is much more complex where the cash-flow demands outlined in your life plan need are linked to your investment plan. Tax planning, income optimization and risk mitigation means it is dangerous to leave your investment management running on auto-pilot.

Isaac Asimov’s first law of robotics holds that: A robot may not injure a human being or, through inaction, allow a human being to come to harm.

“Robo-adviser” firms would do well to review this law. When it comes to investors heading into the second half of their lives, “Robo Advisers” may well be about to break it. 

Doug Dahmer, CFP, is founder and CEO of Emeritus Retirement Income Specialists. With offices in Toronto and Burlington, Emeritus’ C3 process is one of the industry’s most comprehensive retirement planning processes. 

Online financial advisors or Robo Advisors are popping up all over the place and if you believe the financial press they are the future of financial advice.  In part I believe they are or will at least shape the future of financial advice.  I weighed in on this topic recently via  Is An Online Financial Advisor Right For You? for Investopedia.

Please feel free to contact me with your questions.  

Check out an online service like Personal Capital  to manage all of your investment and retirement accounts all in one place. Please check out our Resources page for more tools and services that you might find useful.

Are Brokerage Wrap Accounts a Good Idea?

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A reader recently emailed a question regarding a brokerage wrap account he had inherited from a relative.   He mentioned that he was being charged a one percent management or wrap fee and also suspected that he was incurring a front-end load on the A share mutual funds used in the account.

Upon further review we determined that the mutual funds were not charging him a front-end load.  Almost all of the funds being used, however, had expense ratios in excess of one percent plus most assessed 12b-1 fees paid to the brokerage firm as part of their expense ratios.

Are brokerage wrap accounts a good idea for you?  Let’s take a look at some questions you should be asking.

What are you getting for the wrap fee? 

This is the ultimate question that any investor should ask not only about wrap accounts but any financial advice you are paying for.

In the case of this reader’s account it sounds like the registered rep is little more than a sales person who put the reader’s uncle into this managed option.  From what the reader indicated to me there is little or no financial advice provided.  For this he is paying the brokerage firm the one percent wrap fee plus they are collecting the 12b-1 fees in the 0.25 percent to 0.35 percent on most of the funds used in the account.

Before engaging the services of a financial advisor you would be wise to understand what services you should expect to receive and how the adviser and their firm will be compensated.  Demand to know ALL aspects of how the financial advisor will be compensated.  This not only lets you know how much the relationship is costing you but will also shed light on any potential conflicts of interest the advisor may have in providing you with advice.

What’s special about the wrap account? 

While the reader did not provide me with any performance data on the account, from looking at the underlying mutual funds it would be hard to believe that the overall performance is any better than average and likely is worse than that.

Whether a brokerage wrap account or an advisory firm’s model portfolio you should ask the financial advisor why this portfolio is appropriate for you.  Has the performance of the portfolio matched or exceeded a blended benchmark of market indexes based on the portfolio’s target asset allocation?  Does the portfolio reduce risk?  Are the fees reasonable?

What are the underlying investments? 

In looking at the mutual funds used in the reader’s wrap account there were a few with excellent returns but most tended to be around the mid-point of their asset class.  Their expenses also tended to fall at or above the mid-point of their respective asset classes as well.

Looking at one example, the Prudential Global Real Estate Fund Class A (PURAX) was one of the mutual funds used.  A comparison of this actively managed fund to the Vanguard REIT Index Fund Investor shares (VGSIX) reveals the following:

Expense ratios:

PURAX

VGSIX

Expense Ratio

1.26%

0.24%

12b-1 fee

0.30%

0.00%

 

 Trailing returns as of 12/31/14:

1 year

3 years

5 years

10 years

PURAX

14.03%

14.47%

11.12%

6.66%

VGSIX

30.13%

16.09%

16.84%

8.41%

 

While the portfolio manager of the wrap account could argue the comparison is invalid because the Prudential fund is a Global Real Estate fund versus the domestic focus of the Vanguard fund I would argue what benefit has global aspect added over time in the real estate asset class?  Perhaps the attraction with this fund is the 30 basis points the brokerage firm receives in the form of a 12b-1 fee?

Looking at another example the portfolio includes a couple of Large Value funds Active Portfolios Multi-Manager A (CDEIX) and CornerCap Large/Mid Cap Value (CMCRX).  Comparing these two funds to an active Large Value Fund American Beacon Large Value Institutional (AADEX) and the Vanguard Value Index (VIVAX) reveals the following:

Expense ratios:

CDEIX

CMCRX

AADEX

VIVAX

Expense Ratio

1.26%

1.20%

0.58%

0.24%

12b-1 fee

0.25%

0.00%

0.00%

0.00%

 

Trailing returns as of 12/31/14:

1 year

3 years

5 years

10 years

CDEIX

10.01%

NA

NA

NA

CMCRX

13.11%

19.30%

12.98%

5.78%

AADEX

10.56%

21.11%

14.73%

7.57%

VIVAX

13.05%

19.98%

14.80%

7.17%

 

Again one has to ask why the brokerage firm chose these two Large Value funds versus the less expensive institutionally managed active option from American Beacon or the Vanguard Index option.  I’m guessing compensation to the brokerage firm was a factor.

Certainly the returns of the overall wrap account portfolio are what matters here, but you have to wonder if a wrap account uses funds like this how well the account does overall for investors.

The lesson for investors is to look under the hood of any brokerage wrap account you are pitched to be sure you understand how your money will be managed.  I’m not so sure that my reader is being well served and after our email exchange on the topic I hope he has some tools to make an educated evaluation for himself.

The Bottom Line 

Brokerage wrap accounts are an attempt by these firms to offer a fee-based investing option to clients.  As with anything investors really need to take a hard look at these accounts.  Far too many charge substantial management fees and utilize expensive mutual fund options as their underlying investments.  It is incumbent upon you to understand what you are getting in exchange for the fees paid.  Is this investment management style unique and better?  Will you be getting any actual financial advice?

The same cautions hold for advisory firm model portfolios, the offerings of ETF strategists and managed portfolios offered in 401(k) plans.  You need to determine if any of these options are right for you.

Please feel free to contact me with your questions. 

Check out an online service like Personal Capital to manage all of your accounts all in one place.  Also check out our Resources page for more tools and services that you might find useful.

What I’m Reading NFL Wildcard Edition

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Its Wild Card weekend, in plain English the first round of the NFL Playoffs.  The Carolina Panthers are on the verge of beating Arizona in game one.  I’m rooting for the hated Detroit Lions so that my Packers can face the Panthers next weekend at Lambeau Field.

Here are a few financial articles I suggest for some good weekend financial reading:

Ben Carlson shares Updating My Favorite Performance Chart  at his blog A Wealth of Common Sense.

Victor Reklaitis thinks the Big threat to your portfolio is overpaying for active funds, not being misled by index funds at Market Watch.

Mary Childs wrote Pimco Total Return Fund suffers worst year of redemptions in history at the Globe and Mail.

Barbara Friedberg shares her Top 5 Money Tips for 2015 at her blog Barbara Friedberg Personal Finance.

Troy Onik offers Paying For College: 7 Myths And Mistakes Costing Families Thousands at Forbes.

Kay Bell writes Two giant lottery jackpots await lucky winners, tax collectors at her blog Don’t Mess with Taxes.

I continue in my role as a contributor to Investopedia and here is my most recent article for them:

Pros And Cons Of Annual Tax-Loss Harvesting

Enjoy the rest of your weekend.  Here’s hoping that 2015 is a year of health, happiness and prosperity for you and your family.  As far as the NFL playoffs its Let’s Go Packers!

What I’m Reading – Jay Cutler Superstar Edition

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Far too much time on the local newscasts has been devoted to the demotion of quarterback Jay Cutler to backup for this week’s game against the Detroit Lions.  The Bears have had a dismal season and the very sub-par play of Cutler has been cited almost universally among fans and the media as a main cause.

What I’m Reading – Jay Cutler Superstar Edition

For those who don’t follow the NFL it should be noted that Cutler signed a huge contract extension just this past January that made him the highest paid quarterback in the league.  This means he makes more than Aaron Rodgers, Peyton Manning and Drew Brees to name a few.

As a finance blogger how could I refer to him as anything less than a superstar, a financial superstar to be precise?  His agent clearly did a masterful selling job on the Bears. This is likely why the Bears last great quarterback was a gentleman named Sid Luckman back in the 1940s.

Full disclosure I am an avid Green Bay Packers fan and love the dysfunction that is the Chicago Bears.

In the spirit of Jay Cutler’s superstar agent here are some financial articles that you might find interesting.

3 Reasons Not to Raid Your Retirement Accounts by Eric McWhinnie via Retirement Cheat Sheet.

Retirement vs College Saving in a Nutshell by Jim Blankenship at his blog Financial Ducks in a Row.

The World Economy In 2015 Will Carry Troubling Echoes Of The Late 1990s according to The Economist via Business Insider.

Opinion: The hidden truth about rebalancing your portfolio by Mark Hulbert via Marketwatch.

5 RMD Pitfalls to Avoid by Christine Benz via Morningstar.

Why Does Everybody Recommend Complex Portfolios? by Mike Piper at his blog Oblivious Investor.

14 Holiday Activities to Build Wealth and Memories by Barbara Friedberg at her blog Barbara Friedberg Personal Finance.

I continue in my role as a contributor to Investopedia and here are my last three articles for them:

Is An Online Financial Advisor Right For You?

How To Manage A Cash Windfall

Tips For Managing Inflation In Retirement

Here’s hoping for a long Packers run through the playoffs.  Is that Jay Cutler I hear laughing all the way to the bank?

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Photo source:  Mike Shadle and Wikipedia

Tis the Season for Stock Market Predictions

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As I listen to CNBC in the background and read the financial press it is the season for the pundits to make their 2015 stock market predictions.  Some of these predictions relate to the level of the market in general, others include “hot stocks for 2015.”

Many of these people are pretty smart and I’m not dismissing their research.  What I am saying is that that I’m not so sure any of this is useful.  But in the spirit of the season here are my 2015 stock market predictions.

The stock market might go up 

The consensus seems to be that 2015 will be a good year for the stock market.  They might well be right.  The U.S. economy is improving, oil prices are low, etc.

The stock market might go down 

The experts could be wrong or worse there could be some sort of adverse event that spooks the market and perhaps the economy.

My official stock market predication is that I have no clue 

While this is all fun and provides something for the cable news talking heads to discuss, at the end of the day nobody has a clue what 2015 or any year holds for the stock market or the economy.

Focus on what you can control 

We have no control over what the financial markets will do or over how your stocks, mutual funds, ETFs, or any other holdings will do.  But as investors you can control a number of things including:

  • The cost of investment advice
  • The expense ratios of mutual funds and ETFs owned
  • Your asset allocation
  • Your overall investment strategy
  • How much you save and invest in our 401(k) and elsewhere
  • How much you spend.

I’m not denigrating the value of stock market research and analysis.  But for most of you reading this post I’m guessing that you are long-term investors versus being traders.  If that is the case you are, in my opinion, far better off controlling what you can control and investing in line with your financial plan than in trying to chase predictions and hot segments in 2015 or in any year.

Start 2015 out right, check out an online service like Personal Capital to manage all of your accounts all in one place.  Check out our Resources page for more tools and services.