Debunking Retirement Myths

Debunking Retirement Myths
March 28, 2012 | 48 comments
By Roger Nusbaum

A contributor at Seeking Alpha who goes by the handle Regarded Solutions wrote a post about a month ago that sets out to debunk 10 retirement lies. Per their bio page, Regarded Solutions is retired, there is no mention of gender and because of the liberal use of the word we in the bio I'm not sure if this is husband and wife but to keep things simple I will just use the word he when a pronoun is called for.
Before getting into the retirement lies he provides very transparent information on a dividend based portfolio.

Lie number 1 was "You will need multi-millions of dollars to retire 'comfortably'" which of course is good timing after I tried to explore a reader's comment about needing $2 million. His point here seems to be you can't spend more than what comes in. This is true of course. So then what is comfortable? One person's idea of comfortable could easily require millions. He goes on to say "it's more about how much you spend" so if that is true (and I agree it is) then I am not sure any lie was debunked. This is a good reminder about living within your means and again, I agree.

Lie number 2 was "Social Security will not be around for those over 50 when you retire." I don't see this one very often. I don't believe it will be around for people under 50 at least not the way we now know it. I have said many times that I, in my mid 40s, expect nothing, which is the more conservative planning approach. If I am wrong then maybe I'll be able to get a sweet grille like Gator (Will Ferrell in the movie The Other Guys).

Lie number 3 was "Medicare will not be available for those approaching retirement". Again, I've not read that people approaching retirement are in jeopardy.

Lie number 4 was "Keep a much smaller % of cash invested in equities." I'm not sure that the advisor community says this anymore. Bogle does however, but he is correct that people tend to become too conservative with their asset allocations. If you're 60 and either of your parents are alive then you need to plan on being around long enough for even "normal" inflation to eat away at your purchasing power.

Lie number 5 was "The 4% withdrawal rule is the best to follow." Obviously I believe in not exceeding 4%. His argument here is that he says he believes in the die broke philosophy. He talks about not wanting to eat saltines and then leave it all to the kids. How much someone does or does not leave to their heirs is a personal decision with no wrong answer so no quibble there. As a stark example the risk to the die broke scenario could thought of as planning at 70 to die broke at 95 and somehow being quite fit well past 100.
Also I may have missed it but this idea would seem to conflict with not spending more than what comes in. It looks like he believes in just spending the dividends, so in theory he would never be broke. He is a very prolific writer and so I am sure this is addressed somewhere else in his posts.

Lie number 6 was "Annuities 'guarantee' money for life." I don't care for annuities either. I was picked on about this a few weeks ago to the point of someone doubting my integrity but I simply don't believe in relying on an insurance company in this way.

Lie number 7 was "Stocks are too risky in retirement." This seems like a repeat of number 4 and I agree people often become too conservative.

Lie number 8 was "Make sure you have a professional advisor to 'help' you." Managing a portfolio requires time and a certain amount of understanding of markets and human behavior. Almost anyone can learn these things for themselves and manage their own portfolios. Not everyone wants to spend the time. Someone who does not want to spend the time should hire some help. An advisor can be a big help even if all they do is prevent clients from succumbing to their own behavioral flaws.
I tend to believe a portfolio needs time devoted to it but that does not have to mean hiring someone. Assuming Regarded Solutions is a do-it-yourselfer he is someone who wants to spend the time on his portfolio. This blog is written in part because I expect very few of the people reading it will ever hire me or anyone else to manage their money.

Lie number 9 was "Make sure you leave enough for the kids." This is a repeat from above and to be blunt I'm not sure the industry says this. I've worked at two buyside firms and at both the approach was along the lines of "what are your thoughts about leaving money to your kids or anyone else" and then the plan is built with that wish in mind.
I know people who view how much they leave to their children is a measure of their value as people and at the other extreme I know very wealthy people who believe the obligation ends once college is paid for and think it is crazy to leave anything to children. An advisor who questions that, as opposed to simply trying to execute the client's wishes, will have one less client. And of course an advisor may need to deliver bad news on this front but that is not the same thing as questioning the intention.

Lie number 10 was "Retirement is an outdated idea, work forever." I'm not sure this is a lie foisted upon an unsuspecting public by the financial services industry as I have been reading comments along these lines on my blog and in other places for many years. Recently I talked about one line of comments though, that believes there is some sort of conspiracy to train us into believing we need to work longer and won't get the social security benefits we think we have coming.
Like a couple of things above, the manner in which we "retire" is very subjective. I could argue that I am retired now. I work from home doing things that I love doing and that I hope to do for a very long time. My personal belief is that working is a better way to stay mentally sharp for longer. Based on what I can tell Regarded Solutions stays very busy. I have no idea if the investment writing pays him anything but it is a vocation.
As for the potential financial benefit from working I've written about this many times in the context of trying to relieve some of the income burden that would otherwise be place on the portfolio. To his first point if your idea of comfortable can't quite be covered by the dividend income (I believe he is a dividend investor) then maybe another $500 or $1000 from some part time work could bridge the gap to "comfortable."
I agree with most of the ideas spelled out in the article, the common sense notion was very good but it is not clear to me that too many lies were actually debunked.

Comments (48)
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David Van KnappComments (4575)
Good article. Well-explained points of view. So much about retirement is subjective, and your article captures the importance of the individuality of retirement.
Dave 28 Mar, 10:45 AMReply! Report AbuseLike2

LarryMelmanComments (179)
Good job of laying out the basic issues and ways to think about them. A much more reasonable attitude than simply labeling statements (which may or may not ever have been made) as "lies". 28 Mar, 11:40 AMReply! Report AbuseLike1

kwm3Comments (763)
I doubt whether the many profligate people under 40 will ever be able to retire. many work at companies that will boot them out the door at some age, probably 65-67, they will not have the option of, say, a lawyer to work as long as they want. many have spent massively beyond their means, without saving much, if any, money. unlike boomers, they don't have pensions, and SS is very likely going to be pared back, as will medicare.... plus, they'll be taxed alot more during their future working years courtesy of government profligacy. upon departure from their company they will likely be forced to take a low paying menial job. retirement for many under 40 would seem a dream that is quickly fading. 28 Mar, 11:57 AMReply! Report AbuseLike4

Roger NusbaumComments (1080)
"retirement for many under 40 would seem a dream that is quickly fading."

I prefer to think of it as a challenge to be solved. 28 Mar, 12:13 PMReply! Report AbuseLike8

kwm3Comments (763)
Roger, I like the attitude, and prefer to think of it that way too; however, I know too many people who have leveraged 45-55% of their income for the next 30 years into a gorgeous house that's now deeply underwater--and as you know real-adjusted incomes don't rise--so it's a very large challenge to solve... I hope you can help people in these situations. 28 Mar, 01:18 PMReply! Report AbuseLike4

TomF75Comments (422)
kw,

I assure you they are beyond hope...no one in their 20's and early 30's is going to make anywhere near enough (nor have the desire) to saddle themselves with those beutiful albatrosses 60-80 minutes from where all the jobs are, when those folks need to unloaded them in about 10-15 years. 28 Mar, 04:20 PMReply! Report AbuseLike1

AgAuMoneyComments (840)
If someone is paying 50% of their income for a house, and now find themselves "deeply under water", it is time to seriously consider exercising the full terms of their mortgage contract by turning in the keys and taking the hit on the credit rating. Yes, it might be 2 to 7 years before they can buy their next house. But if they are "deeply underwater" it will be at least that long before they can sell. And 50% is way too much to be spending on housing.

Of course, maybe they are willing to pay that much to be in a home they love even if they never break even.

And if they haven't yet learned their lesson, they'll soon find themselves in some other equally bad situation. 29 Mar, 12:33 AMReply! Report AbuseLike0

Rhianni32Comments (1432)
Agreed AgAuMoney. The mortgage is pretty clear that a person has two choices
1: Pay and keep the house
2: Do not pay and lose the house.
If someone wants to pick 1 each month which financially hinders them for the rest of their life (by not allowing to save for retirement) that is certainly their choice.

I disagree with kwm3 that its a hold problem to solve. Its very easy to solve actually. 29 Mar, 12:21 PMReply! Report AbuseLike0

SanDiegoNonSurferComments (982)
Retirement is actually a fairly recent concept. In times past, people worked pretty much indefinitely. As the industrial revolution matured into a more genteel industrial society, a number of companies began offering retirement benefits to workers. Eventually that came to be viewed as the norm -- that one would work only for a while, then retire on one's pension. Pensions started disappearing rapidly in the 80's and 90's -- along with another casualty, corporate loyalty. Nevertheless, people still expected that, somehow, they would not need to work after the magical age of 65. I think we're only now returning to reality on this whole concept of retirement. People no longer expect a benevolent company pension to provide for them in their old age and are realizing that SS won't necessarily cover retirement either. While recognizing that the transition may be very painful, there's actually something healthy in the idea that we return to taking personal responsibility for our entire life. I would hope that everyone can find stimulating and fulfilling work at every age that engages their mind and allows them to make a contribution to something they care about -- whether they need to do that for financial reasons or not. 28 Mar, 03:03 PMReply! Report AbuseLike3

Regarded SolutionsComments (3145)
I completely agree nonsurfer.....people should absolutely continue to keep active in whatever form that takes....Whether it is working, volunteering, writing, whatever. Letting our minds idle will run down the engine without getting us anywhere.

That being said, yes in the past prior to social security and the like, people continued to work for as long as they could. Life spans were not as long, even when we take into account that newborn mortality rate drops have made up the majority of our longevity numbers. Illness' which are managable now or cured now, led to an earlier demise as well, so people litterally worked until they dropped.

Todays world is changing and people hopefully will take responsibility for their own lives....retirement or not. It is challenging yet probably much more rewarding anyway. 28 Mar, 03:16 PMReply! Report AbuseLike1

williamwilliamComments (270)
Labor shortage is on the horizon. By 2020, 10 new retirees for 1 labor market entrant. 10:1 retirees: new workers. GenY and Millenials will have a chance to 'reboot' their careers. 28 Mar, 04:14 PMReply! Report AbuseLike2

Regarded SolutionsComments (3145)
very well could be......the more things change, the more things stay the same. 28 Mar, 07:56 PMReply! Report AbuseLike0

Regarded SolutionsComments (3145)
So if i am to understand what you have stated in your article, is that you agree with most of the myths out there, that they ARE myths, which I have given my opinion on, yet you do not think that the myths were "debunked" enough to your satisfaction???????

I wont get into a long diatribe with you on it because your opinion is less than what i would have expected quite frankly, but to me it seems obvious that you MIGHT have missed the entire point of my article......regular folks are spoon fed BS.

Here is my bottom line.....you have done nothing to debunk my debunking! LOL.....Let's let the readers decide. 28 Mar, 12:41 PMReply! Report AbuseLike5

Roger NusbaumComments (1080)
I agree with the common sense approach you wrote about. I don't think that too many of the bullet points are lies being pushed onto the investing public. 28 Mar, 12:46 PMReply! Report AbuseLike4

Regarded SolutionsComments (3145)
ok, fair enough Rog, but I am the public and read lots of stuff myself......just as you do.....I also just yak with folks just like me...regular people.....and thats what i have come away with for a long time now......who knows, perhaps I am completely wrong about the public being spoon fed the BS.....me being the public, maybe i have been reading the wrong newspapers and listening to the wrong politicos......whateve... we still luv ya! 28 Mar, 01:04 PMReply! Report AbuseLike3

Regarded SolutionsComments (3145)
BTW, just to make it clear....I DO like this article, and am simply sticking my nose in to make an appearance here!

RS

From US to you Roger! LOL 28 Mar, 12:48 PMReply! Report AbuseLike5

torypdxComment (1)
This is good. One thing not mentioned is having no debt (including mortgage) gives one much freedom. Taxes do become a big expense for traders unclear how this is figured in. Energy if you combine gas, home utilities plus food for the human tank is next biggest expense. Diversifying how you consume energy is good strategy for freedom.
Inheritance tax by states is awful, this should be banished but that isn't going to happen. So I agree it's best to give away as much as possible while alive and get a lot of shiny letters on buildings. 28 Mar, 01:50 PMReply! Report AbuseLike1

Regarded SolutionsComments (3145)
Tory....you must be one of those regular folks i bet!......read my article that roger has linked his to......see what i say about debt and spending and giving while living!

I think I make pretty damn good sense actually!

RS 28 Mar, 02:27 PMReply! Report AbuseLike1

TradevestorComments (1200)
Was waiting to see where Roger and RS were heading in this - looks like its been all amicable :) well and good 28 Mar, 04:02 PMReply! Report AbuseLike1

Regarded SolutionsComments (3145)
Did you expect a replay of the disclosure issue another author has faced? LOL.....whew, that was a beaut! 28 Mar, 07:55 PMReply! Report AbuseLike0
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Student Loans: The Elephant In The Room?

Student Loans: The Elephant In The Room?
March 30, 2012 | 16 comments | includes: CLP, CPT, EQR, ESS, IYR, VNQ

Everyone tries to predict the next big bubble, black swan event, or bear market. We may not directly think of these events but they are often factored into the "downside risk" question we ask when investing. Government bonds tend to be a hot topic, and rightfully so... But one subject that is often overlooked is educational loan debt. The purpose of this article is to identify the known and unknown facts about student loans, and my opinion as to how this will affect our overall macro economic conditions.
Educational loans more popularly known as "student loans" are a unique lending vehicles that are possibly known as the best and safest way to make money, should you be on the lending end.
Why would I say "best and safest" for lenders?
1. Borrowers can NEVER get rid of student loans, even in bankruptcy (well there are very specific circumstances, mainly death, total disability, or severe financial hardship)
2. Guaranteed payment (at some point) because borrowers can never get rid of their loans. The government is already profiting hugely from collecting from default borrowers.
No that wasn't a typo, student loans will haunt those who borrow for the rest of their life and sometimes even into the afterlife as those who cosigned for their child that dies are still on the hook. There are whispers of possible reform, allowing for private student loan debt to be discharged, but the reality of that happening is unlikely (at least until after elections).
To illustrate I will take you through a example of a typical student:
Bill decided to go to college. He has no money to pay for it but the college he wants to attend has a financial aid office to help find a variety of options. Bill gets a small scholarship, an offer from the gov't to lend him money (some accruing interest while in school, some deferred), and for the remainder of his need a private student loan (not backed by the gov't).

Bill is accepted and the financial aid office gets everything set for him so that he can start classes. A short time later loan docs arrive, along with the bill for school. It shows the charges, the loan covering the charges and usually a remaining balance of cash that typically is given to the student.

Bill is a college student and studies hard but likes to have some fun and uses that extra money to "live life." Over four years Bill received nearly 5000 in excess funds. It's his name on all the docs so his parents are unaware of what's happening.

Bill graduates and gets a reasonable job. He received his loan docs and a letter telling him it's time to start paying. He looks at the number and is stunned, looking diligently seeing why it's so much money. He sees the distributions made to him that he used for "fun", as well as the interest that was building on certain sets of loans. Bill realizes he was in over his head, but what can he do now. His current job isn't bringing in enough money to pay for his living expenses and the loans.

No problem, says the loan company, we can defer them, for a while. Your interest will still accrue and you will have to pay that...

Great, solution, Bill can defer them for a while until he makes more money to start paying.

Years go by and the interest compounds, suddenly Bill gets a call from the loan company and says we can't defer your loans anymore. You need to start paying. The amount has now grown significantly since he first started deferment and agreed he needed to pay something. They set up a payment plan the covers just the interest on the new larger principal balance.

The reality is that this is the typical student. Unaware until it's too late what their actions have caused.
As they say, where there is distress, there is profit to be made...
With this we look at the flip side of the coin. The patient lender is more than happy to allow interest to accrue and will work with the student to defer and reduce payments. While it seems they are doing this to help borrowers, they make more money by being patient and less when you pay off more. Since the lender knows you can never discharge these types of loans they have no reason to worry as long as you are paying your minimum interest payment. As soon as that stops, watch out; they wield a massive sword reaching into your pockets in this life and beyond. If there is more debt left over and you have cosigners they will turn and go after them as well. The only other organization that wields this type of power is the IRS.
The lenders can get judgments and garnish any income you make including but not limited to Social Security payments. Yes, if you are lucky enough to have student loans into old age, and you default, they will get a judgment and garnish your social security income.
Default rates in student loans have been raising slightly but the reporting requirements for these types of securities are skewed, as I said earlier deferment and forbearance, which are technically a default, but not counted because the lender allows it. In addition there is a big disconnect on how much debt there is and what state is it in? Felix Salmon wrote a great article in October of 2011 regarding the spotty reporting of student loan statistics.
Even without student loan defaults there is a much different phenomena happening; Since these students already have a "mortgage" (their student loans) they will reduce their ability to purchase a home, and other discretionary items.
I keep hearing the housing market is coming back but the investors are the only ones increasing their purchase of homes. With the number of students now paying student loans and not saving for a down payment on a home, I expect this trend will continue. Student loan borrowers are even putting off getting married due the immense burden of these loans.
Rep. Hansen Clarke introduces The Student Loan Forgiveness Act of 2012 (H.R. 4170): "This bill would forgive outstanding student loan debt for Americans who have made payments equal to 10 percent of their discretionary income for 10 years."
While some can toy with "forgiving" student loans, the reality is that government lenders possibly could, but private lenders would never. Even if the government forgave their students loans, how would that impact the economy, more importantly how would that affect our fiscal state of the union?
Forgiveness by the government would destroy money, reducing the amount of money in circulation thereby increasing inflation. (I am oversimplifying this) With loans paid off and disposable income available to the ex-borrower they are now able to purchase more goods, thereby further aggravating inflation.
On top of this we rely to a certain extent on the payment of interest on these loans (I)(II). There is more profit to be made from defaulted loans.
In my opinion, from a macro view, student loans will cause a significant amount of stress on our system. It will most likely not affect the lenders but the borrowers and their economic movement indirectly. We will see less and less buying homes, and more renting. Even with rising rental rates those affected will have no choice but to continue to rent because they can't build up enough of a down payment.
For those seeking to short Sallie Mae or other financial institutions it is most likely a long shot that the lenders will suffer from student loans (I). Sallie Mae failing is always a possibility but I doubt our government would allow it to fail.
Seeking to short educational institutions, based on growing student loan debt, wouldn't be a sufficient method to determine if that particular institution was a good investment. The universities do not have exposure to these types of loans, but they do have other exposures (an article for another day). There are some institutions that will stand apart from the rest, those who are over leveraged will feel the squeeze at some point.
I think a more practical alternative to approach the situation would be to seek out multi family REITS, Essex Property's (ESS), which i feel is a bit expensive per share, but on a decent pullback 3-4% could be a good buying opportunity. Other comparable companies Equity Residential (EQR) - seems expensive, Camden Property Trust (CPT)- which actually looks attractive as I write this, Colonial Properties Trust (CLP) - just don't understand why this has not out performed like the rest.
Another alternative to the individual companies would be to go with a fund such as (IYR) or possibly (VNQ) - the low expense ratio is attractive.
Focusing on investments that will make money off the growing number of people relying on that particular company/product will be smart decisions. What will the students laden with debt that they can't get rid of do? They hunker down, rent, have used cars or public transport, discount shop every chance they get. A trend I don't see disappearing for some time.
In short, yes students loans are the "Elephant in the Attic" growing ever larger. No I don't think it's something that can "pop" like the housing bubble, unless... but I do think the longer term consequences facing a vast majority of every day individuals are much greater. If we don't stop feeding the elephant then it will continue to grow. The consequences will be on the borrowers.

Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in CPT over the next 72 hours.

TakeFiveComments (157)
During the last decade their were politicians who, when in front of cameras, demean government and extol the virtues of the private sector IN ALL CASES.

Sooo, they made it sweet for private "universities" to feed at the public trough through easy access to guaranteed loans. To listen to anecdotal stories from "recruiters" is quite the eye opener. There's a large pile of crap that never had any chance of being paid back from the get-go.

That's not to say there wasn't education that some benefited from just that, like with mortgages the liar loans were rampant.

From the father/son billionaire owners: THANK YOU TAXPAYERS.
Any guesses where their heavy political contributions flow? 30 Mar, 05:46 PMReply! Report AbuseLike3

James ShellComments (304)
Thought questions:

1. Should the current generation, who learned through their copious use of video games that all of the problems in the world can be solved by hitting "reset", get the message that the same thin will happen in life?

2. Should the parents of these young people share in the responsibility somehow? Sub-question: To what extent are these parents, 50% of whom are single moms, failing them somehow by not preparing them to enter into contracts, etc.

3. To what extent is anybody entitled to a post-high-school education?

4. If the banks, auto companies, and various other businesses can be bailed out a-la 2008, and the young people cannot, is that not a problem?

5. From a practical standpoint: how do you pull the plug on these student loans without pulling the plug on any of a variety of other financial problems? Auto loans, perhaps, since we all like to drive cars, and so many of them are behind that two TV shows now are on cable on the topic of repo-ing these cars...or even zombie mortgages? Where do you draw the line? 30 Mar, 05:53 PMReply! Report AbuseLike1

wwalkerjrComments (22)
#1 - IMO individuals, companies etc. hit reset all the time with Chapter 7. Hitting the reset button was around long before video games.

#2 - Parents should NOT be responsible for their child's education. Parents should be responsible for educating their children on the choices they will face when going to college (not that most will listen).

#3 - Nobody is entitled to anything, including post education. One of my big problems is everyone in society today is entitled to something, it's unreal.

#4 - This is a tough problem, and we should have rules that are fair across the board.

#5 - I think if you make an obligation your are responsible for that/those obligations. If you are unable to meet those obligations there are remedies that can happen within our current system (Chapter 7, Chapter 13). I don't know the correct solution, and I certainly can't begin to go into it here in a comment. 31 Mar, 08:39 AMReply! Report AbuseLike0

sethmcsComments (1312)
"Forgiveness by the government would destroy money, reducing the amount of money in circulation thereby increasing inflation."

This is incorrect. Destroying money is deflationary not inflationary. Governments hate deflation it reduces taxes. They love inflation it increases taxes.

Other than having financially impaired consumers out there I see no problem of making students pay back their loans. May teach them a important lesson about the power of compound interest.

btw I worked and paid for my education in cash. It can be done. 30 Mar, 10:54 PMReply! Report AbuseLike1

wwalkerjrComments (22)
I should have clarified, I understand that destroying money "in" circulation reduces the amount of money in circulation, and is deflationary in nature. But forgiving student loans will actually increase the money supply (M1 & M2).

If the government just "forgave" all student loans, then all these borrowers would suddenly have hundreds of dollars a month free to spend. If you get millions of people with new income to spend on goods/services, that would be inflationary in nature, IMO.

I see no problem making students pay back loans either, however, they are not fully aware of what they are getting into. Rates are our of this world, and allowing students to take on more debt than they can afford to payback in a reasonable amount of time is a problem.

Indeed it will teach a hard lesson.

Lastly, I am working and paying on my student loans. One very interesting thing is that I locked in a 3.25% interest rate. I looked at doing another refi, out of curiosity, and was looking at rates from 6-8%... How is that fair, the interest charged currently is out of this world.

If I had to make a suggestion, make all government backed loans at a fixed low interest rate. Does our government have to profit from our educational borrowing? How much profit is enough? You can get cheaper mortgages than student loans. 31 Mar, 08:30 AMReply! Report AbuseLike1

pdtorComments (899)
I have 3 children in university. In the liberal arts, most of the education is propaganda. Freedom of speech, as long as you agree with their point of view. Useless courses such as feminist studies, and all sorts of other agendas. I have nothing against these courses, but if you are paying several thousand $, that you will be on the hook for, and will not lead to income, than what have you done. In earlier times, you went to university to become a better citizen, and become more worldly and knowledgeable. Today's universities are dropping the ball , today's students are among the most ignorant generation, and can be sold any propoganda by main stream media. No critical thought, you cannot discuss global warming in a logical discussion.
In effect these student loans that will take all your life to pay up are a form of SLAVERY.
I read an article last year where 2 young people where going to get married, and at the last moment need to pool resources. The woman thought she had a student loan for $100,000, but was in fact $170,000. After looking at financial the groom to be changed his mind. 31 Mar, 07:13 AMReply! Report AbuseLike5

wwalkerjrComments (22)
Slavery indeed! 31 Mar, 08:31 AMReply! Report AbuseLike0

pdtorComments (899)
Although I do not agree with the refinancing of banks, and car companies I am in complete agreement to amend these loans, as most young people are gullible and do not know what they are signing up for. ?At least credit card debt can be negotiated and refinanced or forgiven.
The students should be protesting these loans and not global warming, and other socialist causes. They have no idea what they have signed up for.

Time for an education in responsibility and finance

WW thanks for bring this article to our attention 31 Mar, 11:51 AMReply! Report AbuseLike1

wwalkerjrComments (22)
I have to admit I was one to fall into the student loan trap, although I wizened up over the year and am finally in control.

I was discussing it this morning with my mom, again, and when you get a car loan, you start paying immediately. I had a car and a loan at 18, paid on it on time every time, and paid it off. I had a student loan too, and they said you don't have to pay! Wonderful, more money for fun! Well the kicker is that if you were forced to pay immediately you might choose to pay as you go or go to a cheaper college. I should have started paying much earlier, looking back. That would be my one critical piece of advise for college students, start paying while in college, no matter what, because I promise you will regret it later!

I was at least fortunate to get a decent rate locked in by time it was over, around 3.25% and 4%. Today you can't get a student loan under 6%. American Ingenuity my rear, we subsidize so many companies, homebuyers etc. but they take minimal action when it comes to educational loans backed by the government, unreal.

I have no idea why the federal government is in the education space. - That's just my two cents. 31 Mar, 12:12 PMReply! Report AbuseLike0

Old TraderComments (5168)
pdtor,

In line with your comment, yesterday, I got together with a friend for a couple of beers, after work (for me, and school, for him). He's Danish, here studying for an MBA. Evidently, a female classmate asked him where he was from (he's got a slight accent). When he replied "Denmark", she thought that was a city in Ireland!!! ROTFLMAO!!! 31 Mar, 11:51 AMReply! Report AbuseLike0

wwalkerjrComments (22)
*smack my head, shaking in disbelief. Oh Dear! 31 Mar, 11:58 AMReply! Report AbuseLike0

R we there yetComments (129)
You have brought up a very important issue.
I know a young unmarried couple that are actually contemplating leaving the US to escape their loans. They are desperate.
She spent $250,000 in total educational loans to become a lawyer. She has a job at least and makes a whopping $50k as a first year in FL. She can barely live and pay interest. She is subject to increasing panic attacks. Her live in boyfriend who was planning on marrying her is now not so sure due to the financial implications for him and her increasingly unstable emotional state.
These kids are hopeless. It is unending servitude.
There are many stories on the way to this sad state of affairs. Loans to go to U of Phoenix, loans to study worthless majors,loans so they could " enjoy life a bit as they are young". And then the unfortunate fact that many graduated with huge loans into a jobless market.
I don't know the answer or what will happen to our future generation of workers if they feel such desperation but it can't be good. 31 Mar, 09:17 AMReply! Report AbuseLike3

wwalkerjrComments (22)
Thank you.

I think it's slightly sad because of not fully understanding the long term consequences. I guess we all share a little bit of fault in that...We focus on history, english, math and science, yet as "Old Trader" points out above, after 12 years of education we can't even get the basics right. We spend years training these subjects and maybe one economics class in high school. 12 years of history vs 1 economics class? 12 years of science vs 1 economics class?

There is a reason I/we/they are not prepared. Parents are hesitant to share financial information with their kids, "it's none of their business right"? Well if your kids knew from a young age what was going on, and what their impact was, they would be much better off making decisions regarding incurring debt. -Just my opinion 31 Mar, 12:20 PMReply! Report AbuseLike1

ba419advComments (40)
A big cause of the student loan crisis is the large increase in the price of tuition at public colleges and university. A large part of this increase has been caused by the decrease in public funding of higher education by the states. When I attended the University of Nebraska in the late 1960's tuition was less than 25% of the cost of providing my education while the taxpayer picked up more than 75%. This had been the case for several generations. Gradually this ratio has changed where today the reverse is true. Students pick up 75% and the taxpayers 25%. This disinvestment in higher education has had several less than desirable consequences. The US has fallen to 16th among nations in the percentage of adults with a college education. And students and their families have taken on crushing levels of debt that threaten the economy.

The real solution to the student debt crisis is a return to a reasonable level of public funding for higher education. This would benefit everyone, not just students. A person with more education usually makes more income and thus pays more taxes. And young people with less debt are better for society and the economy.

I am 63 years old. I got a great deal on college. I will probably get to collect my full social security and Medicare benefits. My grandkids' generation will pay for my SS and Medicare while my generation refuses to pay the taxes for their education. Not only do I find this unfair, I find it stupid for the reasons I cite above.

Why not forgive 50% of student loan debt. That would restore the public private cost ratio my generation enjoyed. 31 Mar, 12:03 PMReply! Report AbuseLike1

Old TraderComments (5168)
ba419adv,

You bring up some good points. Adding insult to injury, not only are today's students paying a greater percentage of the tab for their education, but the quality of that "education" has diminished remarkably.

In fact, I'd suggest that, with the exception of certain technical fields, today's "average" college grad is likely to be "dumber" than the "average" high school grad of 40-50 years ago. (See my comment about the MBA student, above). 31 Mar, 12:21 PMReply! Report AbuseLike0

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Bond ETFs For Every Objective

Bond ETFs For Every Objective
by MICHAEL JOHNSTON on FEBRUARY 1, 2012 | ETFs Mentioned: BAB • BLV • BSCC • BSCD • BSCE • BSCF • BSCG • BSCH • BSJC • BSJD • BSJE • BSJF • CSJ • CVRT • CWB • EEM • ELD • EMB • FLOT • FLRN • FLTR • GSY • GTIP • HYD • ITIP • LEMB • LTPZ • MINT • MLN • MUAA • MUAB • MUAC • MUAD • MUAE • MUAF • PCY • PZA • STIP • STPZ • SUB • TLT • VCLT • VCSH • VWO • WIP

As the lineup of exchange-traded products has expanded dramatically in recent years, financial advisors have found themselves with more tools at their disposal than ever before. The extreme granularity of many of the equity products out there allows for cheap, low maintenance targeting of specific corners of the investable universe, while the development of some increasingly complex products has opened up strategies that were previously inaccessible.

But perhaps the most impressive innovation in recent years has come on the bond side of the market, where the arsenal has expanded considerably over the past two years. Whatever your objective for the fixed income side of client portfolios, odds are there is an ETF that can be used to help you out. Below, we highlight ten common objectives when it comes to managing a bond portfolio–as well as the ETFs that can be used to achieve those goals [for more ETF insights, sign up for the free ETFdb newsletter]:

1. Dollar Diversification
Historically, the bond portfolios of U.S. investors have been dominated by securities denominated in U.S. dollars. But recent innovation in the ETF space has delivered up dozens of options for achieving access to debt denominated in currencies beyond the greenback, ranging from the Canadian dollar to the Chinese yuan. For those looking to achieve some degree of dollar diversification in their portfolios, the ETF options are numerous:

Canada bonds
German bonds
Emerging markets bonds
Australia bonds
[see International Bond ETFs: Reviewing All The Options].

2. Fine Tune Duration
When evaluating the risk components of fixed income securities, investors tend to focus on the credit risk components–the risk that the issuer will be unable (or unwilling) to make good on their obligations. Interest rate risk, however, can be considerably more important in certain environments, as moves in prevailing benchmark rates can have a major impact on bond valuations (rates and prices generally move in opposite directions) [see also Bond ETFs That Steer Clear Of Interest Rate Risk].

There are number of ETFs out there that can be used to fine tune the interest rate risk taken on in a portfolio. Those looking to extend duration have a number of long-dated ETFs such as the Vanguard Long-Term Bond ETF (BLV), Long-Term Corporate Bond ETF (VCLT) and Barclays 20 Year Treasury Bond Fund (TLT). Conversely, those looking to shorten up duration might like products such as Short-Term Corporate Bond ETF (VCSH) or Barclays 1-3 Year Credit Bond Fund (CSJ).

3. Beef Up Yield
With interest rates continuing to plumb record lows, many investors have become more active in their quest to achieve a meaningful current return from their fixed income portfolio [see Six Juicy High Yield Bond ETFs For 2012]. Of course, higher yields generally are achieved through taking on additional risk, but for those willing to increase the volatility a bit there are a number of options out there for juicing yields.

For investors looking to beef up the yield from their fixed income holdings, there are a number of ETF options:

High yield bonds
Long-term bonds
Bank loans
Preferred stock
4. Plan Cash Flows
Most bond ETFs deliver a "cash flow experience" that differs quite a bit from actual bonds; because ETFs generally operate indefinitely, there is no return of principal that occurs when investors hold an individual security. But for those looking to plan against a future liability or to gradually reduce duration over time, there are a number of "target date" ETFs out there that are designed to function more like traditional bonds and deliver a repayment of principal upon maturity [see 12 Rapid Fire ETF Ideas For 2012]. These ETFs have the potential to be useful for a wide variety of investors, ranging from a family planning for college tuition to a multi-billion dollar pension contemplating future obligations.

There are currently multiple suites of target date bond ETFs, covering three different types of bonds:

Target date munis (MUAA, MUAB, MUAC, MUAD, MUAE, MUAF)
Target date junk bonds (BSJC, BSJD, BSJE, BSJF)
Target date investment grade corporate bonds (BSCC, BSCD, BSCE, BSCF, BSCG, BSCH)
5. Preserve Capital
For investors who are less concerned about maximizing current returns and more focused solely on preserving the value of their assets, there are ETFs that fall much closer to the "zero risk" end of the spectrum. A couple of active ETFs function essentially as money market funds, striving primarily to preserve capital by minimizing both credit risk and interest rate risk:

PIMCO Enhanced Short Maturity Strategy Fund (MINT)
Guggenheim Enhanced Short Duration Bond ETF (GSY)
6. Protect Against Inflation
In the wake of massive injections of liquidity into the global financial system in recent years, it should be no surprise that investors are concerned about an upcoming climb in inflation [see Inflation-Focused ETPs]. While the effectiveness of Treasury Inflation Protected Securities (TIPS) are debatable, those who believe these bonds will offset inflation have a number of choices from the ETF lineup. There are currently a dozen different TIPS ETFs, including funds that target short term securities (STIP, STPZ), long-dated TIPS (LTPZ), international TIPS (WIP, ITIP), and the global market (GTIP).

7. Round Out Emerging Markets Exposure
Many investors have increased their allocations to emerging markets in recent years, utilizing funds such as EEM or VWO to beef up exposure to the stock markets of developing countries. There are also ETFs for those looking to tap into the bond markets of these economies, asset classes that can deliver both attractive current returns and diversification against the dollar [see also Better-Than-AGG Total Bond Market ETFdb Portfolio ].

Emerging markets bonds generally come in two flavors: funds that invest in debt denominated in the local currency (ELD, LEMB) and those that focus on dollar-denominated securities (EMB, PCY)

8. Eliminate Interest Rate Risk
For those looking to steer clear of interest rate risk altogether, there are some interesting ETFs that have debuted in recent months that hold floating rate debt. While the vast majority of bond ETFs are dominated by fixed rate debt, funds such as the iShares Floating Rate Note Fund (FLOT), Market Vectors Investment Grade Floating Rate ETF (FLTR), and SPDR Barclays Capital Investment Grade Floating Rate ETF (FLRN) focus on debt securities whose coupon payments adjust based on movements in benchmark interest rates.

For those concerned about the adverse impact of a rate hike campaign on debt valuations, the floating rate bond ETFs mentioned above can be compelling ways to strip out interest rate risk while still capturing the component of returns associated with credit risk.

9. Maintain Some Upside
Most bond ETFs offer access to traditional fixed income securities that deliver relatively stable returns compared to equities but that miss out on the potential upside of a stock investment. There are, however, a couple ETFs that deliver access to securities that generally act like bonds but keep some of that upside potential on the table. Specifically, the SPDR Barclays Convertible Bond ETF (CWB) and PowerShares Convertible Securities Portfolio (CVRT) both hold convertible bonds, securities that deliver coupon payments similar to traditional bonds but also afford the holder the right to convert into equity (generally at a predetermined ratio).

For those willing to sacrifice a bit of return for some upside potential, convertible bond ETFs might be worth a closer look.

10. Max Out Tax Efficiency
When it comes to the effective returns realized on just about any security, the tax situation of the investor will go a long ways towards determining how much falls through to the bottom line. The universe of bond ETFs consists of a wide range of tax treatment; some securities are fully taxable, while others are entirely tax exempt [see also Tax Loss Harvesting With ETFs: 6 Ideas To Lower Client Liabilities].

Muni bonds have long been a popular choice with investors in higher tax brackets, since the tax-exempt nature of these securities can be an effective way to maximize the cash collected. The lineup of muni bond ETFs is extremely diverse, including products that target New York, California, high yield munis (HYD), short-term munis (SUB), long-term munis (MLN), Build America Bonds (BAB), and insured munis (PZA).

Disclosure: Long ELD.

ETF Database is not an investment advisor, and any content published by ETF Database does not constitute individual investment advice. The opinions offered herein are not personalized recommendations to buy, sell or hold securities. From time to time, issuers of exchange-traded products mentioned herein may place paid advertisements with ETF Database.
All content on ETF Database is produced independently of any advertising relationships. Read the full disclaimer here.

Post as …

Matias Romero Ausejo
1 month ago
I've always on this. Are all bond ETFs distributions come as dividends? If so, are those taxed as dividend income? I would lose interest in a bond ETF vs a bond fund or vs directly investing in a company's debt if I, as a non-resident alien, would be taxed 30% on each dividend received from the ETF distributions.

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3 ETFs For The End Of Operation Twist

3 ETFs For The End Of Operation Twist
by STOYAN BOJINOV on MARCH 28, 2012 | ETFs Mentioned: BTAL • FSG • OFF

If the second half of 2011 was characterized by rampant stock market volatility and looming uncertainty, the atmosphere on Wall Street could be described as the exact opposite thus far in 2012. Economic data releases on the home front have taken center stage in recent months as better-than-expected results from the labor and housing markets have helped to restore confidence back in the recovery. Underneath the growing euphoria, however, lies an ugly truth; monetary stimulus from the Federal Reserve has been a major driver of equity market appreciation, which could point to troublesome times ahead as the latest quantitative easing program nears an end [see also Doomsday Special: 7 Hard Assets You Can Hold In Your Hand].

Ben Bernanke embarked on the latest round of stimulus back in September of 2011 with the start of "Operation Twist". This cleverly titled program consists of the Fed buying $400 billion of longer-dated Treasuries and selling ones with remaining maturities of three years or less through June of 2012. The announcement of "Operation Twist" lit a fuse under domestic stocks as investors cheered on the ongoing stimulus efforts by the Fed [see Bond ETFs For Every Objective].

A Predictable Ending To "Operation Twist"?
Although price action has been overwhelmingly positive on Wall Street over the past few months, a look back at history may help to foreshadow some concerning developments. In a recent article at BusinessInsisder.com, author Simone Foxman offers an interesting take on a frightening observation regarding stocks and stimulus. The author takes a look at a recent note from Barclays U.S. equities strategists Barry Knap and Eric Slover; the experts contend that U.S. stocks are due for a pullback as "Operation Twist" comes to an end.

Knap and Slover believe that a sustainable period of equity market appreciation is unlikely until the Fed begins normalizing policy. What this means is that the ongoing bull-run has been fueled artificially so to speak, and history reveals that the announcement of stimulus sparks a rally on Wall Street, while the end of a quantitative easing program signals the beginning of a stock market correction [see How To Hedge For A Market Correction With ETFs]. After the first round of quantitative easing, U.S. stocks took a brief nose-dive until QE2 was launched into action. History repeated itself again as stocks tumbled after QE2 came to an end, only to bounce back higher following the most recent announcement of "Operation Twist".

With "Operation Twist" set to expire by the end of June 2012, many investors are looking ahead to how equity markets will react if no additional stimulus measures are announced this time around. Additional stimulus is a double-edged sword; investors could interpret this is as a pessimistic sign that the economy is still in the gutter, while others may be spooked by resurfacing fears of inflation if the Fed continues to ramp up the printing presses [see also Greedy When Others Are Fearful ETFdb Portfolio ].

Below we highlight three ETFs that could perform well if history repeats itself and stocks turn lower as quantitative easing ends:

FactorShares 2x Gold Bull/S&P 500 Bear (FSG): The premise behind this ETF is quite simple; FSG tracks the difference in daily returns between the price of gold and equities by taking a long position in the precious metal along with a short position in U.S. stocks. This spread ETF could perform well as investors scale back their risk exposure by jumping ship from stocks and into safe havens like gold [see also How To Play A Treasury Bubble With ETFs].
UBS ETRACS Fisher-Gartman Risk Off ETN (OFF): This fairly new offering allows investors to make a "risk off" bet that spreads across a variety of asset classes through the purchase of a single ticker. OFF consists of short positions in risky assets like international stocks and emerging market currencies along with long positions in "safer" assets such as the Swiss franc and U.S. Treasuries. If a wave of risk aversion strikes, the asset classes in which this product maintains short positions should generally decline in value, while safer assets will get a boost from investors looking to avoid the turmoil.
QuantShares U.S. Market Anti-Beta Fund (BTAL): This ETF offers investors a creative way to bet on a market correction without taking on risky short positions. BTAL's underlying index is equal weighted, dollar neutral, and sector neutral consisting of long positions in the lowest beta U.S. stocks coupled with short positions in the highest beta stocks. In essence, BTAL allows investors to profit when uncertainty arises as lower beta securities are likely to outperform "riskier" stocks. This approach may appeal to investors who anticipate an increase in volatility, but wish to avoid taking an outright short position in the market.
[For more ETF analysis, make sure to sign up for our free ETF newsletter or try a free seven day trial to ETFdb Pro]

Disclosure: No positions at time of writing.

ETF Database is not an investment advisor, and any content published by ETF Database does not constitute individual investment advice. The opinions offered herein are not personalized recommendations to buy, sell or hold securities. From time to time, issuers of exchange-traded products mentioned herein may place paid advertisements with ETF Database. All content on ETF Database is produced independently of any advertising relationships. Read the full disclaimer here.

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7 New Market-Neutral ETFs

7 New Market-Neutral ETFs
Specialty: ALTERNATIVE INVESTMENTS
Play Interview
Wednesday, March 28, 2012
By Bill DeRoche
Tickers mentioned: SIZ, QLT, CHEP

QuantShares' new funds provide low correlation to the market, explains CEO Bill DeRoche. He tells MoneyShow how the various approaches can complement investors' existing portfolios.
Kate Stalter: Today's guest is Bill DeRoche, CEO of QuantShares. Bill, I know that just a few months ago, you launched a number of ETFs, categorized as "market neutral." Can you explain what you mean about that?
Bill DeRoche: Yes. Market neutral means that for each dollar that an investor invests in our fund, they will have $1 of long exposure to equities, they will have $1 of short exposure, and $1 of cash exposure. In many instances that is referred to as dollar neutral, in addition to being market neutral.
Kate Stalter: There seem to be a number of different ETFs, as well. Say a little bit about what they are, and how they would fit into an overall strategy?
Bill DeRoche: Our funds, we refer to them as factors. Basically, factors are groupings of equities that help explain return differences among securities; they are distinct from industries.
A good example would be US Market Neutral Size Fund (SIZ). The idea is that we want to provide a very different return stream to investors, and by doing that we basically construct a portfolio that is both long and short, that allows us to insulate investors from market moves.
Additionally, the funds are sector neutral, so what you see is that the biggest determinant of the returns in the fund is going to be the theme that we are trying to emphasize, whether it be small securities, cheap securities, or high-quality securities.
What you end up with is a fund that has very low correlation to the overall market. So it provides investors with significant diversification.
Typically, most funds—if you look at a value fund that is long only—the biggest driver of the returns in that fund will be the market. It is typically 90% to 95% correlated with the market, where ours are going to be very low.
So investors are getting a very different return source, but at the same time, since we are building these funds from the largest US equities, they are getting a very liquid pool of assets, something that they can trade. It also provides transparency, since it is in ETF format.
So we do have seven funds. Three of them I would like to highlight as what we think of as strategic investments. They are basically assets that people can buy and hold; these strategies have typically delivered outperformance over significant periods of time.
These would be US Market Neutral Value Fund (CHEP); Our small size fund, its ticker is SIZ; and our quality fund, US Market Neutral Quality Fund (QLT).
We do have four other funds, but they tend to be more tactical in nature. They are basically focused on momentum and beta. The idea here is, there are a lot of volatility explained by both momentum and beta, but they tend to switch very rapidly. So we think of them as much more tactical investments.
Kate Stalter: Who would the other four be mostly appropriate for?
Bill DeRoche: Yeah, so the other four first and foremost would be people looking to hedge. It's not uncommon for folks that have, say, exposure to a growth manager, that they have a lot of momentum exposure in their funds. So it is very easy to hedge that risk out if they don't want to eliminate that particular manager.
At the same time, since momentum is a very large explainer of equity volatility, it is an easy way to take a view on whether momentum stocks are going to do well, or whether the market is going to go up and down with our beta funds. So again it is more for people that have a particular view over a shorter period of time.
Kate Stalter: Most of our listeners are invested in broad portfolios and various asset classes—fixed income and so forth. How would you suggest that these funds would fit into that overall investment strategy that they already have?
Bill DeRoche: These are typically thought of as liquid alternative investments. In the past, if you wanted to get exposure to these types of portfolios, you would need to purchase a hedge fund.
What we have done is basically take the rules for the investing and created an index from those rules, so these are passive funds. They are also registered under the Investment Act of 1940, so you have all the protections associated with it.
At the end of the day, you end up with a return source that is very different from your typical equity or fixed income portfolio. So these blend very nicely with basically anything. I would highly encourage people to look at these in terms of providing diversification; they can be thought of as more of an absolute return-type strategy.
Most people are looking for a diversifier, something with low correlation. The beauty with these is they do have a tremendous amount of liquidity associated with them, which is different from a lot of other asset classes that do have low correlation to the broad equity market.

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6 reasons why Wall Street hates Lazy Portfolios

6 reasons why Wall Street hates Lazy Portfolios
By Paul B. Farrell, MarketWatch
SAN LUIS OBISPO, Calif. (MarketWatch) — March 27, 2012, 10:55 a.m. EDT

"America's investors have been ripped off as massively as a bank being held up by a guy with a gun and a mask," former Securities and Exchange Commission Chairman Arthur Levitt warned in an article in Fortune magazine a decade ago. That same year in his classic "Take On The Street," Levitt lambasted the fund industry as "a culture that thrives on hype … withholds important information," a "cutthroat business" that "misleads investors." Today, it's worse.

Lazy Portfolios were born as a defensive move against this relentless war by guys with "masks and guns … ripping off" America's 95 million Main Street investors. And the strategies of men like Levitt, Vanguard's Jack Bogle, Nobel Economist Daniel Kahneman, Warren Buffett, Yale's Robert Shiller and other industry giants were the inspiration.

Lazy Portfolios give investors a far superior alternative than gambling retirement savings in Wall's Street's casino. Simple solutions:

Just three to 11 no-load low-cost index funds, and zero trading. And in the past decade we've discovered eight great Lazy Portfolios that investors are using as guides to building their own portfolios, without brokers or advisers.

Today, Wall Street, the fund industry and brokers hate these eight Lazy Portfolios even more. Not just because they consistently beat the S&P 500 on a long-term basis. Not because they're based on the exact same Nobel Prize-winning model Wall Street's top wealth managers use. Not because you don't need any fancy algorithms to rebalance your portfolio. And not because Bogle calls industry insiders casino "croupiers" because they skim a third of your market returns off the top, leaving you leftover crumbs.

The more you trade at Wall Street's casino, the richer your broker gets.

Listen closely: The No. 1 reason Wall Street, fund insiders and your stock broker hate our Lazy Portfolios strategy is simple: They don't make money unless you buy, sell and trade. No commissions. No fees. They can't get rich, or richer, unless you're playing at their rigged casino, where the house always wins.

Since my days at Morgan Stanley it's been obvious that Wall Street gets rich on "the action," on all the hot trading going in their casinos. More commissions and fees mean they can skim off America's retirement money. Want hard evidence? In the decade ending in 2010, Wall Street's stock market lost an inflation-adjusted 20% of America's retirement money. Your money. So yes, Wall Street brokers and other insiders hate Lazy Portfolios. They want business as usual.

Several years ago I started tracking the best portfolios in America: Simple portfolios used by Nobel Prize winners, multi-millionaires, conservative institutional fund managers, neuro-economists and average Main Street investors.

We also found solid examples in popular books and publications like "The Coffeehouse Investor," "Motley Fool Investment Guide," "Investing for Dummies," "The Idiot's Guide to Investing," "The Gone Fishin' Portfolio," even "Dilbert and the Way of the Weasel." All winners.

Take a look at Farrell's Lazy Portfolios page, including total returns for eight great portfolios.

Early on we discovered something amazing and brilliant. All these winners were saying the exact same thing: All you need is a simple, well-diversified portfolio of between three and 11 low-cost, no-load index funds to create a long-term portfolio that wins in bear and bull markets. And you do it with no market timing, no trading, no commissions. Lazy Portfolios are that simple.

What about the thousands of other stocks, bonds and mutual funds being hustled by brokers? Forget them! But don't you need an adviser? No. As personal finance guru Jane Bryant Quinn put it in her classic, "Making the Most of Your Money": "Most of us don't need professional planners. We don't even need a full-scale plan. Conservative money management isn't hard. To be your own guru, you need only a list of objectives, a few simple financial products, realistic investment expectations, a time frame that gives your investments time to work out, and a well-tempered humbug detector, to keep you for falling for rascally sales pitches. Don't put off decisions for fear you're not making the best choice in every circumstance. Often, there isn't a 'best' choice. Any one of several will work."

Follow six simple secrets and create your own Lazy Portfolio winner

Here's how it works: Get a feel for the eight portfolios in our Lazy Portfolios group. Track them a bit. Then use your judgment. Forget your broker and adviser. Trust yourself. Customize a portfolio that fits your needs, your age, your lifestyle. You can do it yourself. Many start with one of the eight.

Then over time, fine-tune their portfolios, rebalancing by adding new money. It really is that simple. This strategy is being used successfully by working Boomers and millionaires, young families with modest savings, college students just starting out, even a grade-school kid.

Here's what our eight Lazy Portfolio masterminds tell us are the keys to successful investing; six simple secrets help you diversify, lower risk, level-out bull/bear cycles and generate returns that beat the long-term market without having to waste your time and retirement gambling in Wall Street's casino.

Build your own Lazy Portfolios following these six secrets. You'll win, and more important, you'll have lots of time left to enjoy what really counts: your family, friends, career, sports, hobbies, living life to the fullest.

Being average wins. Lazy Investors win by being average. No big deals. No-Load Stocks guru Charles Carlson uses a baseball analogy: "Swing for singles." Forget hitting home runs. In "Ordinary People, Extraordinary Wealth," Ric Edelman uses this metaphor: "You're not in a horse race. You're playing horseshoes ... merely being close is good enough to win … If successful investors know they can't pick the right horse, what do they do? Simple: They pick every horse." Seriously, think about it: Even if you're starting with a small portfolio of three low-cost, no-load index funds — for example, one diversified across the Wilshire 5000 stock index, one across the global stock market index and one across the total bond market index — you're spread across more than a thousand specific stocks and bonds in these three index funds picked by pros. They do all the picking and trading while you just buy and hold, sit quietly, never playing the casino.

Buy and hold. Buy and hold. Buy and hold. Warren Buffett was once asked by Bogle about his favorite holding period. "Forever," said the Sage of Omaha, the best time to sell is "never." Index funds are the perfect long-term hold. If you buy quality companies and index funds with proven long-term track records, you won't be tempted to sell when the market dips and talking heads on cable news shows freak out. Trust yourself, just do it. Remember, your most important decision is the up-front buy decision: You pick quality securities on the assumption you'll never sell! In fact, one of our Lazy Portfolios was built by an industry leader who also manages a $20 billion institutional fund. He bought Bogle's first index fund in 1976. And still has it. If you invested $10,000 in it back then it'd be worth over $200,000 today. Buy and hold works.

No market timing, no active trading. Never. Markets are random and unpredictable, says Wharton economist Jeremy Siegel in "Stocks for The Long-Run." Siegel researched the stock market's 120 biggest up and biggest down days between 1801 and 2001. Only 25% had a explanation. Buy-and-hold investors beat traders by big margins. The most active traders turned over their entire portfolios 258% annually. Their after-tax returns were only 11.4%. Why? Active traders lose by paying transaction costs, higher expenses, commissions, fees and taxes. In contrast, buy-and-hold investors turned their portfolios over just 2% annually for 18.5% returns, that's 50% higher.

Not saving 10% for your retirement? Then you're spending too much. In "The Millionaire Next Door," Tom Stanley and Bill Danko reveal the one habit all millionaires share: "Frugality: They live well below their means … The opposite of frugal is wasteful. We define wasteful as a lifestyle marked by lavish spending and hyper-consumption. … Being frugal is the cornerstone of wealth-building." Simple math: Nothing saved equals nothing invested, equals nothing for retirement. Start saving at least 10% if you want to retire comfortably.

Forget short-term market swings. Focus on long-term retirement goals and harness the power of compounding interest. A 25-year-old investing $3,000 annually can retire with a million at 65 at 10% average returns. Start early and at 65 most of your retirement portfolio will be in the growth of your savings. For example, a 25-year-old could have a million bucks investing their $120,000 slowly over 40 years, the rest is compounded interest and appreciation. And that's just one part of the nest egg if you start early.

Forget stock market news. Invest lazily, then go do what you love. As the legendary Fidelity investor Peter Lynch once put it in "One Up on The Street": "If you spend more than 15 minutes a year worrying about the market, you've wasted 12 minutes." And in researching 5,000 millionaires for his book, Edelman discovered that they spend an average of about six minutes a day on personal finance. They don't waste time watching cable news, reading brokers reports, attending seminars, studying stocks tables, subscribing to newsletters, and reading financial newspapers. Just six minutes a day, the rest is precious time wasted: That leaves them 23 hours, 54 minutes every day to do what they really love. Remember, there are far more important things in life, not just a career that turns you on every day, but your loved ones, kids and parents, socializing, hobbies, movies, sports, making the world a better place, ordinary stuff, living a full life.

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**$2 Million Needed To Retire?

**$2 Million Needed To Retire?
March 26, 2012 | 15 comments
Roger Nusbaum

The other day a reader left the following comment;
I read a lot and figure someone needs $2M to really have a good shot at living well and retiring with few worries. Roger your thoughts?
The reader also shared that he is 58 with the implication that he is close to retirement age. Another reader left a comment on a Seeking Alpha post of mine agreeing that $2 million is the figure. Between the two comments I feel like I am being asked in part for my personal views and choices.
The best generic advice I can give is to live below your means, don't accumulate debt, save a lot and if you ever do need to fund your expenses/lifestyle out of your savings take no more than 1% per quarter. My use of the word generic is not meant as a slight, I believe the above combo is an essential foundation to a successful financial plan and we live by the first three now (we are a few decades from the withdrawal stage).
Assuming the 4% rule, a $2 million portfolio would allow for $80,000 in portfolio withdrawals. Are you then going to assume getting social security or not? How does the $80,000 (plus social security or not) compare with how much you live on now? Not how much you earn but how much you live on.
There are several types of expenses that we have to contend with and try to plan for one way or another. I've written about these before; things that probably can be easily planned, those that cannot and one-offs--things like vet bills, new tires and home repair.
Our recent three foot snow storm lead me to come up with another category which is things we probably will need. At some point I may not be able to shovel out a three foot snow storm. If we want to stay where we are, then at some point we will need either a snow blower or an ATV that we put a plow blade on. These are not disastrous expenses but also not $100 to go to a baseball game either. We have a long uphill driveway which probably rules out a snow blower-- the cheapest option. A more expensive option would be the ATV and blade and an even more expensive option would be moving. Where we are it would not be wise to rely on being able to hire someone to do this for us.
This category is vague and obviously not completely knowable. There is visibility for needing to spend money on snow removal. This will take shape over time and become more visible. For some people there might be visibility for taking in a parent. Figuring out your variables here is obviously very important.
Once you figure your expenses (as best you can) you probably need to figure out what you need to be happy, what that costs and whether you can afford it as you envision or whether you need to make some sort of concession. Maybe you want to spend a month in France but you should really only spend a week. Maybe you want to spend $1000 on World Series tickets when you should really watch on TV from home. The compare and contrast possibilities are endless but you get the idea.
The other day I shared that we spent a lot (relative to us) on our New Zealand trip but that we incurred no debt in doing so which means the trip won't weigh on our finances in the future. The reason to mention this example is that spending on things that then stay with you for a couple of years will obviously add to the monthly financial burden which should be avoided at all cost--my own sense of priority would make an exception for medical events.
It is important for both partners to be on the same page with this issue and I know from professional experience that is not always the case. Getting the monthly nut down, saving a lot and doing some things that cost nothing creates a lot of options for doing other things and going places. We hike a lot and it costs us nothing. We spend a lot of hours on our volunteer endeavors which does not have to cost much if anything.
I also hit this topic with the idea of working much later than 65 or some other traditional retirement age. This will sound snobby but I have developed a low tolerance for staying with a job I don't like. This is a "life's too short" sort of thing. I realize I have been given a luxury that many people do not have but I think many people who read this site may have been given a similar luxury. I have three jobs that I love, two that pay and one that does not. I hope to do all three as long as I possibly can and with Mr. Backhoe as an example that could be a very long time.
This leads me to believe that plenty of people can find something they love that can pay them a little such that it removes some portion of the income burden they would otherwise place on their portfolios. Success here requires thought, time and planning.
I realize that was long winded but it addresses how I personally come at trying to figure this out. My nut is low enough that ex-a medical catastrophe we get by within the 4% rule. Let me be clear this is about living cheaply not having millions in the bank.
In today's dollars how much do you need to feel fulfilled in life and can you make the numbers work? If not, then something will have to give.

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This article is tagged with: Investing for Income, Retirement
by Roger Nusbaum

Kevin CooperComments (82)

There's too much focus on "reaching your number". Not enough focus on how much do you need? As you show, we need to first look at our expenses. And in that context, what sort of retirement do we expect. It's all about expectations. And once you understand your income needs, where does it come from. My preference is income from my investments not reducing the portfolio by 4% per year. Thanks for the article.

Good perspective.26 Mar, 11:07 AMReply! Report AbuseLike3

Alex FilonovComments (1245)

View from Minnesota:

Don't buy an ATV. If your driveway is longer than 100 feet, snowblower is not an option. What you need is a lawn tractor with a snowblower attachment. Total cost is about $3000. If you have a lawn tractor already, check if it's possible to attach a snowblower to it. Of course, some assembly required...26 Mar, 11:21 AMReply! Report AbuseLike0

Roger NusbaumComments (1073)

thanks Alex,

The driveway is longer than 100 feet but we have no lawn it is all forest floor. ATVs are almost an essential up here, we are about the only ones who don't have one :-)26 Mar, 03:30 PMReply! Report AbuseLike0

Alex FilonovComments (1245)

Then you need an ATV with snowblower attachment. More expensive, but works better than a plow.26 Mar, 03:54 PMReply! Report AbuseLike2

Regarded SolutionsComments (3071)

income - outgo = left over to splurge = secure retirement

The rest is all individual priorities.

K.I.S.S.

RS

Read my article "Retirement strategy: The 10 biggest Lies about retirement (part 11)"26 Mar, 02:08 PMReply! Report AbuseLike1

Regarded SolutionsComments (3071)

forgot the link:

http://seekingalpha.co...26 Mar, 02:12 PMReply! Report AbuseLike1

bg6638Comments (32)

Should Obama and the Dems score a major victory this fall, the only person who is going to have ANY retirement savings will be Obama himself! Think I'm joking? Research the work of Teresa Ghilarducci, and you will see that she proposed having the gov't confiscate our retirement accounts, then having the gov't "guarantee" a 3% return thru the Social Security system! If that were to happen, our retirement money would be WASTED, and the only people who would get a decent retirement would be the corrupt people who wasted our hard earned $$$$$$$$$$$26 Mar, 02:14 PMReply! Report AbuseLike0

SkipKComments (160)

bg6638,

don't panic and fall for the old "Obama is a socialist" scare. not going to happen. He's not going to suddenly begin to go crazy. stay calm, and live longer.26 Mar, 08:24 PMReply! Report AbuseLike0

Donn SoderquistComments (13)

Retired at 57. Now 71. Married Couple in Kentucky.
1) Been debt free including home mortgage since 1996.
2) No kids in college or financially dependent since 2000.
3) Do not use 3% or 4% or any other form of depleting your principal. Protect your capital.
4) "Downsized" in 2005 from Silicon Valley home to Louisville, KY.
Got double the house for half the money and no state income tax
since 2005. Goodbye Taxifornia. Live in a state where doctors
accept Medicare patients. Difficult in Silicon Valley.
5) Annual Healthcare Costs for retired couple.
Medicare Part B..........$2398
Medicare Part D..........$960
Supplement F..............$4344
Dental...................
Out of Pocket...............$...
Total.............$12983
6) Live on Social Security and Investment Income. If you are debt
free and live in lower cost areas, $1M will work. Big city and
expensive lifestyles, $2M is needed. We live within 600 miles of
30 states and 1/2 of the US population. Lots of car travel.

Supplement F meant no expense whatsoever for Prostate Cancer
(2008) and for Bladder Cancer (2010), both in remission now.
You must have Supplement F, top priority spending item.

Be your own financial planner. Nobody else cares more about your
money.

Donn in Kentucky27 Mar, 09:23 AMReply! Report AbuseLike5

Roger NusbaumComments (1073)

great stuff Donn thank you for sharing and best of luck on your health.27 Mar, 11:24 AMReply! Report AbuseLike0

amehra1237Comment (1)

Thanks for sharing the info. I am 55 and plan to retire by 58. Challenge of medical coverage from 58 to 65 remains and your information will help me in planning things better.27 Mar, 12:53 PMReply! Report AbuseLike0

mkatz2mComments (48)

Where do you get Supplement F and if a retiree does not have any cancer, does that retiree really need Supplement F? I have been retired also since I was 57 two years ago. I can't wait until I can get Medicare coverage. For our family HSA high deductible self bought Anthem health plan, we have to pay now about $7600/year. It is a real ripoff when you now have to buy your own health coverage on the open market. Each year, Anthem raises our premium more than 20% and also reduces coverage by changing policy provisions. Right now, they don't cover EKGs during a physical and exclude office expenses for a pap smear for my wife if any other problem is discussed or done at the same time with your doctor. Anthem covered both 2 years ago. Our government needs to address the individual health problems I have mentioned. I joke we need to move to Canada or France.27 Mar, 10:14 AMReply! Report AbuseLike0

Donn SoderquistComments (13)

mkatz2m:

Nobody plans on cancer, heart trouble, or serious health problems.
Supplement F is not optional. One major illness can cost hundreds
of thousands of dollars. Do not take that risk. I did not have cancer when we got Supplemental F.

My wife is 3 years younger than I am. We had the Anthem increases
in premiums and reductions in coverage, too, for her.

From 59 to 65 you have little choice other than living in another
country that has cheaper medical care. When I retired, COBRA
was $247/Month. I did not see the huge medical care costs coming.

You better ask your doctors now if they will treat you when you turn
65 and are on Medicare. Our doctors in San Jose would not.
We left California on my 65th birthday.

Donn in Kentucky27 Mar, 11:00 AMReply! Report AbuseLike0

TexasRedNeckComments (28)

Expenses are very much dependent on where you live. It costs a lot more to have a decent retirement in California or New York than Texas or Wyoming. It also depends a lot on what you like to do.
Thank you for an excellent article to give people an idea of why trying to get to a specific number is not useful27 Mar, 10:28 AMReply! Report AbuseLike0

FMHouserComments (12)

Donn,
Love your comments! All down to earth, practical, and loaded with common sense. Keep at it!27 Mar, 11:05 AMReply! Report AbuseLike0

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**There Is Always A Bear Case

**There Is Always A Bear Case
March 26, 2012, Roger Nusbaum

Yesterday, I was reading an article about one of the stocks we own. It was generally a favorable article. It drew several comments including a longish one laying out something of a bear case for the stock. The comment was articulate and possibly compelling.
The name of the stock is not relevant but like many of the stocks we own, we have held it for years and coincidentally it has been an outstanding long term performer; one of our best holds.
As I continue to monitor the stock and what is going on for the company from the top down in markets it sells into, from the bottom up and thematic factors, the conclusion I draw is that the positives continue to far outweigh the negatives. I have felt this way about the name for a long time, it continues to be correct, at some point the story may change and hopefully I will catch such a change.
If you use narrower holdings in your portfolio, either country funds, sector funds, niche funds or individual stocks, there is some amount of monitoring you must do. No matter how much work you do here there will always be holders who know the story better than you and other holders who know far less than you.
Only reading things that support your side of the trade is clearly not a great idea, but allowing yourself to be overly influenced by one article about something that you've spent a lot of time studying is not great either. If an article causes you to wonder if you've missed something and sends you back to re-learn a story or reorient to the thesis for owning the stock or fund then I think that is a positive.
The bigger point is one of emotion and insecurity. It may seem obvious, but one article does not necessarily invalidate a thesis for owning a particular stock. There is a well reasoned bear case for everything in your portfolio. A well reasoned bear case is not necessarily the correct case. Even King Apple (AAPL) has threats to further prosperity. The threats may not play out anytime soon or ever matter, but they exist. Of course threats to Apple could be correct and play out soon. If it is a name you own, then it is up to you to keep tabs and decide based on a reasonably sized sample of inputs not just one article.

Sent from my iPod

The Trend Is Still Your Friend - Weekly Market Outlook March 26

March 26, 2012  |  includes: DIA, IWM, QQQ, SPY, VXX, VXZ

Despite Friday's rebound, it wasn't anywhere near enough to offset steep losses suffered in the middle of the week. Yet, even the pullback doesn't necessarily mean the rally is over, since the bears didn't actually push the market under any key support levels. All the dip did was give back a modest piece of the prior week's big 2.4% advance.

So now what? Well, as the saying goes, "The trend is your friend (at least until it isn't)." As overdue as a correction is, that doesn't mean the bulls won't keep defying the odds. We'll dissect the red flags of a real correction in a moment. First we want to start with the bigger economic picture.

Economic Calendar

The big news last week mostly came on the real estate front, and it was all good. Housing starts poked above an annual rate of 700K, and permits reached an annual rate of 695K. The strong numbers continue a growth streak that started in April of last year. Existing homes sales edged upward just a tad, to an annual rate of 4.61 million, while new home sales rolled in at a rate of 321K again. None of this is to say the real estate market is back to what it was in 2007, but things are getting better.

Speaking of getting better, we also saw more progress on the unemployment front last week. Both are at multi-year lows, with initial claims hitting 355K last week, and ongoing claims reaching 3.363 million. Though it wasn't part of last week's data set, the total number of employed Americans is rising, and the total number of people who are not working - whether they're receiving any kind of benefit or not - is shrinking. It's not "good", but it's getting measurably better.

All the rest of last week's numbers are on the table below.

Economic Calendar

(Click to enlarge)

We'll get a little more real estate data this week, but the big story will be Wednesday's durable orders number for February, and Friday's personal income and personal spending updates. The former is expected to be up 1.0% not counting autos, and up 2.5% with cars. (Of course, even those big improvements don't offset the prior month's big plunges.) The latter is supposed to be better too, with incomes up 0.4% and spending higher by 0.6% last month.

It's also going to be a big week for consumer confidence measures. The Conference Board's consumer confidence reading for March is expected to drift a little lower, from 70.8 to 70.0, while the Michigan Sentiment Index is expected to be finalized (for March) at 74.3. That's a pullback for both for the month, but both are in rather sharp bigger-picture uptrends. And, both also still have plenty more room to rise before reaching what could be considered excessive levels.

S&P 500

When it was all said and done, the S&P 500 Index fell 0.5% (-7.06 points) to close at 1397.11. Volume was modest.

It was the first losing week in the last five, and only the third in the last fourteen weeks. More than that though, the pullback from last week doesn't disrupt the overall uptrend the market's been in since mid-December. Ergo, we have to remain in the bullish camp based on the present momentum. Yet, we also have to acknowledge this rally has now reached historical limits.

Just for perspective, let's open up with a weekly chart of the S&P 500 this week to explain the case the bears are making.

Between December and 2010 and February of 2011, the S&P 500 gained 13.8% over the course of 59 days. Before that, the index rallied 16.8% gain over 47 trading days. In early 2010, the S&P 500 gained 14.4% in 58 days. Over the past 72 trading days, the S&P 500 has gained 15.9% (but had been up as much as 17.3% a couple of weeks ago) . Point being, the current rally has already exceeded most time and distance norms.

That's not to say it can't keep going. It is to say, however, we're getting into unusual territory where it would be wise to be skeptical. Take a look at the weekly chart of the SPX & CBOE Volatility Index.

S&P 500 - Weekly

(Click to enlarge)

The problem with any bearish theory at this point is that we haven't seen any real clues the bulls are giving up. Oh, we've seen a couple of blips, but the blips have only materialized after exceedingly bullish weeks… a bit of a pullback could have been expected.

The good news is, though, we at least know where the bearish lines in the sand are.

For the S&P 500, a move under the 20-day moving average line (blue) at 1381.12 would be a meaningful first step. The index fell under it briefly back on March 6th, but the market immediately recovered. Until we see it happen again, we don't even need to worry about a pullback.

The real make-or-break level, however, is around 1342/1352, where the lower 20-day Bollinger band (gray) and 50-day moving average line (purple) are close to intercepting. As you can see, the lower 20-day Bollinger band was the push-off point for the rebound in early March; we can reasonably assume it's still a key floor. A move to that level from the recent high of 1414 would only be a 4.7% dip, though that's enough to bleed off enough of this overbought pressure and the let uptrend renew itself.

If the 1342/1352 area doesn't act as a support level, then the next one is 1288.3, where the lower 50-day Bollinger band (orange) and the 200-day average line (green) have intercepted. A move to that level would be an 8.8% correction, which is more in line with a normal, healthy corrective move.

S&P 500 - Daily

(Click to enlarge)

First things first though. The overall uptrend in the broad market indices is still intact, and will be until further notice.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

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Sent from my iPod