The 401(k) plan is now the primary retirement plan for employees in the private sector and Ted Benna isn’t happy. Benna is regarded as the “father” of the 401(k) plan but now he calls his child a “monster.”
There are several problems modern with 401(k) type plans.
What’s the answer? Until there are major revisions to 401(k) plans, it’s up to the employee to get help. One answer is to meet with a financial advisor – an RIA – who is able and willing to accept the responsibility of providing advice and creating an appropriate portfolio using the options available in the plan. There will probably be a fee associated with this advice, but the result should be a portfolio that reflects the employee’s financial goals and risk tolerance.
A passive mutual fund invests in a portfolio that mirrors the component of a market index. For example, an S&P 500 index fund is invested in the 500 stocks of Standard & Poor’s 500 Index. There is no attempt made to try to determine which stocks are expected to do well and which are not.
Actively managed funds are managed by an individual manager, co-managers, or a team of managers. The mangers try to buy stocks that they think will outperform the market.
The costs associated with passive investing are lower than the costs of active management. Active managers attempt to justify their higher costs by doing better in either up or down markets.
We thought that our readers would be interested in reading the thoughts of some of the leading money management companies. We get information from these companies on a regular basis, and wanted to start passing some of it along. Today we look at the view from the money management shop INVESCO.
Thoughts on the global economy:
U.S. money and credit markets will be on the path toward normalization after seven years of abnormally low rates. This is a sign that, despite the weakness in other developed and emerging economies, the U.S. is back on the road to normal growth.
On U.S. Growth Stocks
As we look forward, considering today’s evidence, we believe the bull market will continue, but is likely moving into later stages. As sales continue to grow, profit margins remain high, and valuation growth slows, annual equity market returns in the mid-to-high single digits seem more likely than outsized gains.
We’ll bring you more commentary from major investment firms on a regular basis. Feel free to contact us with your own questions.
Note: We are passing this information along for educational purposes only; it is not an endorsement of the profiled company or their views.
Remember the race between the tortoise and the hare? The tortoise won because he kept plugging along while the hare took a nap. Everyone would like to get rich quick; it’s the reason that people buy lottery tickets. But the chances of actually striking it rich are astronomical.
The way to get financially well-off is within the reach of almost anyone, even people who start out poor. What it takes is following a few simple rules.
The temptation to parlay a small bundle of cash into a fortune is what gets most people into trouble. Consistent saving over time is much more likely to pay off than strategies such as timing the market. Risk-the-farm investing strategies have a high probability of failure, but saving and prudent investing always wins.
Getting rich slowly is the primary way that most people achieve their financial dreams. The advantage of saving 10% or more of your income cannot be overemphasized. Do that and then let compounding go to work for you.
Compounding does a lot of the heavy lifting for investors. But it needs time to work. That means starting the process as early as possible and staying with it as long as possible. Waiting until you’re in your 40s or 50s means that you have given up twenty to thirty years of financial growth that you will never get back.
Want to have a million dollars by the time you’re 65? If you begin when you’re 25 with $25,000, save $3000 a year and invest the money to get a 7% return you’ll have $1 million when you’re 65. Of course as you get older and make more money you’ll be able to increase your savings rate, and end up with more than a million.
Finally, control your emotions or – better yet – hire an investment manager who will help control your emotions for you. Markets don’t go in one direction forever and that’s a good thing to keep in mind when the inevitable correction happens. An investment portfolio that lets you sleep well at night helps to cushion the blow of a decline and avoid the temptation to “bail out” at exactly the wrong time. In fact, investing more when the market’s “on sale” is a way to increase your wealth.
This is New Year‘s Eve; 2016 starts at midnight. It’s a great time to start if you have not done so already.
Even the savviest investor can have a bad year. Buffett’s Berkshire Hathaway is down over 11% in 2015.
The reason for the decline is the declining price of oil and other commodities. Berkshire Hathaway has a big investment in railroads that make much of their money hauling commodities such as oil and coal.
It also has big positions in American Express and IBM which declined 24% and 13% respectively this year.
If you broke even this year you beat the “Wizard of Omaha.”
We contribute to several forums that provide advice to novice investors. One of the most popular questions goes like this:
• I’m 28 and will start a new job soon. I have accumulated $10,000 in a savings account and will be able to save an additional $1000/month when I start my new job. I need advice on how to start an investment plan.
It’s a good question. The person asking it usually has some money in the bank and has enough income to add to his or her savings. But because interest rates are so low the savings are not growing. There are three common reasons for not starting an investment program.
Not knowing where to start. The mechanics of opening an investment account can be complicated.
Fear of making a mistake. People work hard for their money and don’t want to lose if because they made some rookie error.
Not knowing who to trust. Who will provide good, honest advice for you?
Here’s how to begin an investment plan that works for people of all ages.
At Korving & Company, we’ve been helping people just like you make better decisions about their money and their lives for thirty years.
It appears that the Bank of England sent a letter to the U. S. Treasury asking why Berkshire Hathaway is not on the list of “too big to fail” institutions.
If you are on the list it is deemed that you are a financial institutions “whose distress or disorderly failure, because of their size, complexity and systemic interconnectedness, would cause significant disruption to the wider financial system and economic activity.”
MetLife, along with a number of other primary insurers, has sued the U.S. government about it’s designation as an SIFI (‘Systemically Important Financial Institution.”) Being designated an SIFI brings along with it considerably more regulation.
New regulations under the Dodd-Frank legislation, mandate that financial institutions that fit SIFI qualifications, will have to meet higher capital standards and develop contingency plans for potential future failures.
But here’s something that most people are not aware of: insurance companies often take out insurance against catastrophic losses from other insurance companies. The companies that insure the insurance companies are called “reinsurers.” Berkshire Hathaway, run by Warren Buffett, is the largest of these reinsurers in the U.S. and the third largest in the world.
So who is more important to the financial stability of the financial system, retail insurance companies or the big global reinsurance companies that insure the insurers? To me, the answer seems obvious.
To use your local bank as an example. If it goes broke (and many have) it’s no big deal because your money is insured by the FDIC (Federal Deposit Insurance Corporation). But if the FDIC went broke, that would be a BIG DEAL. Then no one’s bank deposits would be safe.
Insurance is Berkshire’s most significant business – accounting for 27% of net earnings last year – and providing Warren Buffett with the capital to invest in stocks and acquisitions. But Warren Buffett has friends in high places which may explain the reason he’s not on “the list.”
There are several common mistakes that many investors make when they view their investments.
Quite often, the best thing that you can do is to ask the advice of an RIA, an experienced financial advisor, a fiduciary, who is can provide unbiased advice and has the knowledge and experience to know what to look for and what questions to ask.