These Mutual Funds Can Ruin Your Retirement Plans
Posted: July 6, 2012 at 6:17 am
Investing wisdom sometimes comes from unlikely sources. Tess Wilkinson-Ryan and Jill Fisch are both law professors at the University of Pennsylvania Law School. Their recently published paper, An Experiment on Mutual Fund Fees in Retirement Investing, attempts to answer a vexing question: Why do investors ignore the impact of fund fees when making investment decisions?
With the decline of defined-benefit plans and the rise of 401(k) plans, investment decisions are being made more by individuals and less by professional investment managers. The SEC requires that investors in mutual funds be given a staggering amount of information. Unfortunately, many investors are confused and overwhelmed. This is one reason why the authors of this study accurately refer to "the phenomenon of systematic under-attention to mutual fund fees".
This is a "phenomenon" because, as the study notes, everyone from the director of mutual fund research at Morningstar to former SEC Chair Arthur Levitt agrees that the management fees charged by mutual funds (expressed as expense ratios) can dramatically affect the returns of the fund.
Expense ratios are expressed as a percentage of assets (as low as 0.1 percent up to 2.5 percent) which makes them seem less consequential. This is misleading. An investment of $10,000 with an average annualized gain of 10 percent would grow to $152,203 if the fund had an expense ratio of 0.5 percent. If the expense ratio was 1 percent, the fund would be worth $132,677--a difference of $41,817.
The study found that investors routinely underestimate the effect of fees on their returns. In a series of experiments, the authors were able to change this behavior by explicitly explaining to the subjects the importance of fees. This information caused those in the study to incorporate fee information into their investment choices. The study concludes that presenting fee information "simply and transparently" and educating investors about the impact of fees has the desired effect of helping investors make decisions likely to yield higher returns.
The typical expense ratio for an actively managed fund (where the fund manager attempts to beat a designated benchmark, like the S&P 500 index) is 1.5 percent. Compare this cost to the typical index fund (where the fund manager attempts to replicate the performance of an index, minus fees) cost of approximately 0.25 percent. If you pay attention to the conclusion in this study, you would select index funds over comparable actively-managed funds, based on the difference in cost.
Is this analysis too simplistic? Not according to Standard & Poors. It compares the performance of actively-managed funds to index funds in a scorecard published twice a year. At the end of 2011, it found the majority of active stock and bond managers underperformed comparable benchmark indexes over a five-year horizon.
Investing does not have to be complex. If you focus on fees and purchase a globally diversified portfolio of low management fee stock and bond index funds in an asset allocation suitable for you, you will have made a decision likely to improve your returns. In stark contrast, owning actively managed mutual funds is likely to lessen your returns and make your retirement goals more difficult to attain.
Dan Solin is a senior vice president of Index Funds Advisors. He is the New York Times bestselling author of The Smartest Investment Book You'll Ever Read, The Smartest 401(k) Book You'll Ever Read, The Smartest Retirement Book You'll Ever Read, and The Smartest Portfolio You'll Ever Own. His new book, The Smartest Money Book You'll Ever Read, was published on December 27, 2011.
The views set forth in this blog are the opinions of the author alone and may not represent the views of any firm or entity with whom he is affiliated. The data, information, and content on this blog are for information, education, and non-commercial purposes only. Returns from index funds do not represent the performance of any investment advisory firm. The information on this blog does not involve the rendering of personalized investment advice and is limited to the dissemination of opinions on investing. No reader should construe these opinions as an offer of advisory services. Readers who require investment advice should retain the services of a competent investment professional. The information on this blog is not an offer to buy or sell, or a solicitation of any offer to buy or sell any securities or class of securities mentioned herein. Furthermore, the information on this blog should not be construed as an offer of advisory services. Please note that the author does not recommend specific securities nor is he responsible for comments made by persons posting on this blog.
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These Mutual Funds Can Ruin Your Retirement Plans
Retirement bill to save billions, end shortfall
Posted: at 6:17 am
A new law signed last week by Gov. Nikki Haley will cut $2 billion from South Carolinas $15 billion retirement shortfall and eliminate it completely by 2044, according to a recently released analysis.
The new law makes it difficult for public employees to retire early, which forces them to work longer and means less money will be withdrawn from the states $25 billion retirement fund. Without the changes, taxpayers would have had to increase their annual contributions to the system by nearly 4 percent, or about $337 million, according to the most current payroll information. But because the changes make the retirement system more financially strong, taxpayers will have to increase their contributions by 0.42 percent, or about $39.4 million. That means they can spend that $300 million difference on other things.
Thats huge, said Rep. Brian White, R-Anderson and chairman of the House Ways and Means Committee. Thats what we were after.
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Accountants estimate the states $25 billion retirement fund will run out of money sometime over the next 30 years, falling about $15 billion short. The retirement fund has three sources: investment returns, employee contributions and taxpayer contributions. The funds shortfall was getting larger every year because of two problems: poor investment returns and people retiring earlier while living longer.
Lawmakers have now addressed those issues. Last summer, the State Budget and Control Board lowered the projected investment return on the retirement fund to 7.5 percent from 8 percent. And the new law eliminates some popular retirement incentives that encouraged public employees to retire early, including:
Eliminating the TERI program. TERI, short for Teacher and Employee Retirement Incentive, allowed workers to retire and continue working for up to five years, receiving a retirement check and a paycheck at the same time. The program will be phased out gradually, closing for good on June 30, 2018.
Restricting the states return-to-work program. Beginning in January, if employees retire and return to work at their same job, they will have to forfeit their retirement checks once they earn $10,000 in salary in one year.
Making it tougher to retire early because of a disability. The law adopts the federal Social Security standards, which are more difficult to meet than the existing state standards. This does not take effect until Dec. 31, 2013.
Police officers and firefighters are upset about the disability changes. They have more dangerous jobs than the average state employe and have a higher rate of disability retirements. That is why lawmakers delayed the disability changes for nearly two years.
Why Planning for Retirement is So Hard, and What to Do About It
Posted: at 6:16 am
Fears that baby boomers havent saved enough for retirement are constantly dominating headlines, but theres also the flipside of that problem that can also be a financial disaster: outliving our savings.
According to a recent study by Ernst & Young, almost three out of five new middle-class retirees will outlive their financial assets if they attempt to maintain their pre-retirement standard of living. Finding the right spending balance and developing a financial plan leading up to and in retirement is an arduous process and often requires assistance from a professional.
When choosing a financial expert, its important to check their credentialsbut where do we begin looking? To help boomers find a pro to help evaluate and plan their retirement picture, The American College launched The Retirement Income Certified Professional (RICP) credential will help advisors master retirement income planning. I had a chance to speak with Director of the New York Life Center for Retirement Income at The American College David Littell, who is in charge of designing the program curriculum. Here is what he had to say:
Boomer: What is the Retirement Income Certified Professional (RICP) credential and how will it help advisors with retirement income planning?
Littell: The RICP is an advanced professional designation for financial advisors who assist clients with retirement income planning. It helps advisors address the specific tasks, such as when to retire, choosing a claiming age for Social Security benefits, how to elect company sponsored retirement benefits and how to convert assets into sustainable income during retirement. The program provides advisors with a comprehensive planning process, to help them create customized plans to meet their clients specific retirement goals.
Boomer. Whats included in the coursework consist and who is getting this designation?
Littell: Students are required to take three, college-level courses. The courses are online, self-study courses, followed by completion of a final exam at a testing center.
The first course (HS 353 Retirement Income Process, Strategies and Solutions) focuses on how to build a retirement income planwhat has to be considered, what steps are involved and what are some of the strategies and solutions to solve client problems. This course addresses new retirement risks like tax and legal issues that can undermine a plan, and some of the common approaches being used to generate income from assets.
The second course (HS 354 Sources of Retirement Income) reviews things like the Social Security claiming issue, distribution options from retirement plans, annuity products used in retirement income planning and building a retirement portfolio. The third course, (HS 355 Managing the Retirement Income Plan) begins with important retirement decisions including choosing appropriate Medicare and other health insurance options, addressing long-term-care needs and housing decisions. It also addresses retirement portfolio management and issues that arise as clients age.
To earn the designation students must also satisfy a three-year experience requirement, ongoing CE requirements and abide by the Colleges ethic pledge.
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Why Planning for Retirement is So Hard, and What to Do About It
Larry Winget Interview. The Pitbull of personal development shares crucial success secrets. – Video
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Larry Winget Interview. The Pitbull of personal development shares crucial success secrets. - Video
Success adds up at summer math camp
Posted: at 6:16 am
Getting kids to wake up early and give up a chunk of their summers to attend math camp sounds like a tough sell.
But the Stanislaus County Office of Education and a crew of local teachers have pulled off that feat.
The Summer Algebra College Awareness and Math Proficiency program, which aims to help area middle school students find success in the classroom, has exceeded attendance expectations, according to Kandy Woerz, a program coordinator at the Stanislaus County Office of Education.
We realize the importance of mathematics, Woerz said. The community and the parents also know the importance of mathematics. The teachers do a really good job of motivating. They give positive reinforcement, praising the kids, and kids love to go where they get praise.
Locally, about 15 Creekside Middle School students are honing their math skills from 8 a.m. to noon five days a week at Patterson High.
Patterson Joint Unified and Newman-Crows Landing Unified school districts are hosting the summer programs as part of a trial aimed at improving students success in math and sparking interest in careers in science, technology, engineering and mathematics, often collectively called S.T.E.M. careers.
Summer C.A.M.P. students are in the gap neither failing nor proficient or advanced (in math), Woerz said. Hopefully, by their participation in C.A.M.P., it will move them into the advanced or proficient range.
Seventeen school districts in California are participating in the S.T.E.M. Learning Opportunities Providing Equity project. S.L.O.P.E. is funded through the U.S. Department of Educations Investing in Innovation grant program and aims to help students become proficient in eighth-grade-level algebra.
Students also learn about S.T.E.M. careers and other academic career paths through college-awareness curriculum that has been customized for each district participating in the project.
The grant program is providing new and innovative techniques for teachers, Woerz said. The project-based curriculum, in conjunction with the college-awareness component, connects math to the real world for students.
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Success adds up at summer math camp
Spain Highlights Success Of 2011 Income Tax Campaign
Posted: at 6:16 am
06 July 2012
On the last day of the 2011 personal income tax campaign (IRPF), the Spanish finance ministry announced that the tax office has now paid EUR6.1m (USD7.7m) in tax refunds to 10.2 million taxpayers.
According to the finance ministry, this years campaign has been marked by a notable acceleration in the pace of tax refunds, primarily attributable to the Internet as a means with which to swiftly process declarations.
The ministry notes that around 16.7 million IRPF returns have been filed, 7.8% more than last year. Of that total, 10.3 million taxpayers, or 61.6%, elected to submit their returns via the Internet, marking an increase of 21%. This means that 1.8 million more taxpayers preferred to use the Internet, which has become the simplest and fastest way to obtain a rebate.
The ministry highlights the fact that the RENO service was used by 12.5 million taxpayers this year, marking an increase of 92% compared to last year, and significantly up from the 8 million expected initially. The RENO service is an express service allowing users to obtain pre-completed returns and tax data certificates in real time, without a digital certificate and without having to wait for postal delivery.
The ministry reiterates that in this years campaign there was also the obligation for taxpayers to file a wealth tax return for individuals with assets in excess of EUR2m.
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Spain Highlights Success Of 2011 Income Tax Campaign
Nutter declares parkway party a success, despite gunfire
Posted: at 6:16 am
DESPITE TWO teens getting shot near the half-million-strong crowd on Benjamin Franklin Parkway for the city's Fourth of July festivities, Mayor Nutter said Thursday that this year's concert-and-fireworks celebration was successful.
"I'm not gonna let some little asshole 16-year-old who had a beef with somebody a month ago up in Germantown negatively impact the image of the city," Nutter said, adding that most of the people enjoying the festivities were unaware of the shootings.
About 9:30 p.m. on July 4, as hordes of people converged on Center City, gunfire erupted near 17th Street and John F. Kennedy Boulevard, police said, leaving two males one 19 and another 17 hospitalized with gunshot wounds to their legs.
Cops witnessed the shooting and chased the 16-year-old boy who police said is the shooter. They caught up with him about a block away, where cops said he pulled a gun and pointed it at an officer, prompting the officer to fire back.
The alleged shooter, identified by police as Nafis Scott, of Price Street near Germantown Avenue, in East Germantown, remained at Hahnemann University Hospital Thursday in stable condition with a graze wound to his chest. Police said that Scott will face two counts of aggravated assault, assault on police, illegal gun charges and related offenses.
Nutter and police officials blamed the shooting on a neighborhood dispute among teens from Germantown and said that the groups clashed at LOVE Park Wednesday night.
Scott and one of the males he allegedly shot were taken to Hahnemann where, cops said, tensions boiled over. Police said a man who claimed to be the brother of one of the wounded teens pulled a gun possibly a fake one on someone inside the ER. Police said that that man, who remained unidentified Thursday, was arrested by Highway Patrol officers about 10 minutes after he made the threat.
In all, officials said that there were nine arrests during the Parkway celebrations, most for disorderly conduct.
"By anyone's evaluation or estimates, that certainly demonstrates that a vast, vast, vast majority of the people came to the Parkway and other areas of the city just to have a good time, not to create a disruption," Nutter said.
Asked about revelers' safety at Philadelphia's upcoming Labor Day Weekend concerts organized by rapper Jay-Z, both Nutter and Police Commissioner Charles Ramsey said that they haven't decided on any modifications to the event or the gathering space.
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Nutter declares parkway party a success, despite gunfire
Innovative Ways For Students To Make Money During Summer
Posted: at 6:15 am
The summer job was once a childhood rite of passage, and one that empowered the growth and personal development of youngsters throughout the United States. This is a quickly diminishing trend, however, with seven out of 10 youngsters expected to remain unemployed throughout the summer months of 2012. This is the continuation of a sharp and unrelenting decline in youth employment levels across the nation, which has left the jobless rate among the 16 to 19-year-old demographic at its highest rate since World War II. If this is not disturbing enough, a projection by the U.S. Bureau of Labor Statistics suggests that teen employment may struggle to return to pre-recession levels at any point in the foreseeable future.
SEE: How To Combat Youth Unemployment
A Cultural Shift or a Depressed Job Market?While the drop in teen employment remains steeper than within any other demographic, the situation is scarcely any better for the current generation of young adults between 18 and 29. This social group is currently experiencing an unemployment rate of 12.4%, while balancing an average debt of $45,000 per individual. So, while the rising level of teen unemployment may well be partially attributed to a cultural shift and the growing popularity of summer school and learning camps, it is clear that traditional working opportunities are limited for students and graduates who are looking to take their first steps in the world of work.
While the fluctuating nature of employment in the current economy is certainly impacting job creation throughout the U.S., this does not mean that students and young adults cannot adapt and seek out innovative ways of earning and managing their money in 2012. With just 69,000 jobs added to the economy during May, there is a pressing need for individuals who are on the fringes of the employment market to alter their perception of work in a way that suits the prevailing macro environment. This starts with education, and a willingness to learn the key skills that are required to thrive in such a changeable and unpredictable economy.
Financial Education and InnovationThe first thing that students, in particular, must do is address the fundamental principles of financial success, and acquiring money management skills enables them to make the most of any wealth that they are able to accrue. Contemporary students are fortunate that many regional education bodies are beginning to realize this, and subsequently implementing programs to aid financial literacy and awareness. Indiana University is one institution to lead the way in this field, as it aspires to assist students in managing college debts and teaches money management skills that can be used in later life.
Another factor for students to bear in mind is the changing nature of entrepreneurship, which has empowered a generation of "accidental entrepreneurs" who have developed startup ventures out of circumstance rather than a deep rooted desire to be their own boss. According to a study commissioned by Forrester Consulting, this is a direct consequence of the Great Recession in 2008, where millions of people were forced to evaluate new ways of making money and supplementing diminished household incomes. This has made entrepreneurship a viable option for students in 2012, as their agile minds and educated nature allows them to capitalize on increasingly accessible technology and minimal cost startup ventures.
SEE: Can't Get A Summer Job? Be Your Own Boss
Innovative Business Ideas for StudentsFor students rendered idle this summer, there are a number of business models and concepts that could suit their requirements. An e-commerce operation is one, as not only does this require minimal start-up investment but it can also be run by a single individual without requiring the creation of a complex or difficult to manage infrastructure. The simplistic and flexible nature of ecommerce and the fast transaction processes involved also allow the venture to be continued on a part-time basis or ended abruptly as required, without causing a significant disruption to an individual's studies.
Similarly, students can focus on areas of interest and industries where they would like to work and replicate a simple service to earn income during the summer months. For example, those who prefer outdoor activity and have a passion for landscaping may find it profitable to approach residents in their local area and offer gardening or general yard services in exchange for a fixed fee. This ensures that students can take control of their own destiny rather than rely on a depressed job market, without compromising on their interests or sacrificing experience that could benefit a career they would like to pursue once they have graduated.
SEE: Starting A Small Business In Tough Economic Times
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Innovative Ways For Students To Make Money During Summer
The 911 Truth – Government Psychopaths. – Video
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CI Outdoors: Acro Play Yoga
Posted: at 4:13 am
It's just another Wednesday for husband and wife Steve and Sharon Willette. Together, they own the Living Yoga Center in Urbana. Once a week, they head outdoors to practice "Acro Play."
"Acro Play is a combination of acrobatics, yoga, and often Thai yoga massage," says Steve.
"About five years ago, Steve and I went to a Valentines Day partner yoga partner yoga practice at a studio in Chicago," says Sharon. "That's where this kind of play was first introduced to us. And I just thought, 'This is so much fun!' In a normal or regular yoga practice it's an individual thing, but when you play with yoga or practice yoga with a partner it's about connecting with another person. It's about communication, and it's about trust."
While it may seem hard to believe, Steve and Sharon say yoga itself is a safer and more calming practice than your regular workouts. Steve even thinks there are fewer injuries with yoga.
"There's more focus on the entire body rather than specific muscle groups," he says. "You're more attentive because yoga is about being present. The idea is to not necessarily analyze it but to be able to feel it and know where you are. To know where you are in space and know where you are in the inner space, too."
With as much fun as they have, they recognize that it may not be as easy for those new to the practice to stand on someone else's wobbly arms.
"We've all been doing this for four or five years," says Sharon.
For the less experienced (and perhaps less trusting), they offer partner yoga classes at their studio. It is similar in principal but less airborne.
"It's not, because I wouldn't want to scare anyone away," Sharon says. "A lot of what you do in partner yoga is you work together in stretches. It's slow and it's deliberate and you help that person find a space that they may not have been able to find on their own."
To Steve and Sharon, yoga and Acro Play are as much a workout for the body as they are for the spirit.