Category: Investing

Target Date Funds Misunderstood

Traders Crop Time to revisit target date funds. I wrote about them three years ago. Come to think of it, I did it twice.

I have a lot of issues with target date funds. These are asset allocation mutual funds that contain a mix of stocks and bonds, and sometimes more exotic things, formulated to meet the investing needs of a person intending to retire in a given year.

To begin with, I object to the basic premise, that a manager can select a risk-return tradeoff for an investor based only on his expected retirement date. Partly, this is because I am not a believer in the conventional view that a person should take a lot of investment risk when young and less as they age. But I concede that I belong to the radical fringe on that particular subject.

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How to Beat Inflation

Wise Bread just ran a post on How to Understand and Protect Yourself From Inflation. I often think pieces on inflation are obvious. But perhaps I am just showing my age.

Since 1984 (when I graduated high school) inflation has averaged about 2.9%. And it has been pretty stable, falling outside the 1.1% to 4.6% range onlyChicklet-currency twice. (0.1% in 2008 and 6.1% in 1990.) That is almost 30 years of smooth sailing, a period when inflation was an easily ignored background hum.

Indeed, inflation of 3% is not something you usually notice directly. Prices for things change all the time, some up, and even some down. Only when the government totals it all up do we find out prices were up 3% on average.

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401k Fees are Not the Problem

Park Bench Crop Dēmos is one of those lobbyist think tank organizations. I do not know if there is a better term for that kind of outfit, but I think we all know what I am talking about. They raise money, issue reports, and generally attempt, constructively or not, to influence debate on one or more issues. There are hundreds, maybe thousands of them, filling a spectrum from far right to far left.

Dēmos  (the bar over the e tells you it is pronounced deemos and that they are hugely sophisticated) describes itself as “a non-partisan public policy research and advocacy organization.” A quick scan of their website will make it clear that they are towards the left end of the political spectrum. That is not where you will find me, but this is, last I looked, a free country. They can write about the tragedy of declining union membership and the subversive nature of Louisa May Alcott’s Little Women, and I can ignore them.

But last month they put out a “report” entitled The Retirement Savings Drain: The Hidden & Excessive Costs of 401ks. Sadly, it was not as universally ignored as it deserved to be.

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The Great Facebook IPO

Today is the big day. This morning Facebook, the great behemoth led by Mark Zuckerberg, the greatest industrialist of our time, went public.  At a market capitalization of $104 billion (based on the original offering price, which was exceeded immediately and will never be seen again) Facebook is the 23rd largest US company, just edging out Amazon.com.

NYSE-Mod-Small Is anybody buying this hype? Apparently so, as quite a few people seem to be buying the stock.

McDonalds has a market capitalization of $92B as I write this. It has a brand name that is at least as well known and globally ubiquitous as Facebook’s. It has 420,000 employees to Facebook’s 3500. And in the 12 months ending 3/31/12, McDonalds made a profit of $5.56B on revenues of $27.4B. Facebook made $0.65B on $4.04B in revenue.

As any stock market novice knows, the value of a company relative to its profits is a function of the expected future growth of those profits. A fast growing company gets a higher multiple.

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How Much Do I Need to Retire?

Park Bench Crop Much of personal finance revolves around the effort to amass sufficient financial resources to retire. And at the center of all that is a simple and powerful question: just how much will I need to pull it all off, to stop working once and for all?

I have never worked with a financial planner, and I have certainly never worked as one, but I will speculate that this is a question that often pops up very early in the conversation. I can imagine an earnest middle-aged couple outlining what they want to do in 25 years and then asking “So, how much will we need to have?”

If the planner is being honest, he will answer “Nobody knows.” I am betting few of them say this. At least not in so many words. Bad for business.

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