Single Point of View

Single Point of View is our way to occasionally share planning ideas relating to personal finance. Our goal is to pass along concepts that you may not be exposed to on a daily basis.

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Roll-BACK Your IRA?!

A quick Google search yields HUNDREDS of articles explaining why you should roll a 401(k) to an IRA – but as our Chief Investment Officer, Rene, alluded to in his recent post “The Twisted Logic of IRA Rollovers”, there may be reasons to keep retirement assets in an employer sponsored qualified plan (401(k), 403(b), etc.) or roll the balance to a new employer’s plan.  Depending on the plan, potential benefits of an employer sponsored qualified plan that are not afforded to Rollover IRAs include: -          Loan capabilities -          Additional creditor protection -          Access to funds without penalty as early as 55 -          Possible access to lower cost investments (typically via larger company plans) -          Roth conversions for nondeductible IRA contributions (avoid pro-rata tax treatment) -          Delaying required minimum distributions if you work past 70   Simply put, while a Rollover IRA may make sense in many situations,...
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The Twisted Logic of IRA-Rollovers

Rolling your 401(k) or 403(b) retirement balance into a broker’s ‘managed IRA’ program is too often the wrong choice done for the wrong reasons.  ‘Financial Advisors’ will justify the roll-over based on claims of broader choice, greater control and simplification at no extra cost.  More often than not, these arguments are based on incomplete disclosures of costs/benefits; and in some cases there is nothing more behind the ‘advice’ than just a revenue grab at the client’s expense.  After all, ‘gathering assets’ is the end-all, be-all in the brokerage business. In the last few years institutional retirement plans have come under massive legal pressure to offer their employees lower-cost investment options, mainly via Index-Tracking funds (‘Index Funds.’)  This is an immensely positive development for the investing public and a very negative one for the private wealth management industry.  Every major brokerage, insurer and bank has their eyes trained on this massive retiree...
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Stock-picking Mutual Funds die hard… for now

The ability of traditional Mutual Fund stock-pickers to deliver out-performance has been decaying for 2 decades. A recent WSJ editorial by renowned finance scholar Burton Malkiel sites the most recent stats published by Standard-&-Poor's and they are absolutely ugly. •“More than 90% of active US managers under-performed their benchmark indexes over a 15-year period.”  •“Over 85% of small-cap managers under-performed the S&P Small-Cap Index.” •“Since 2001, 89% of actively managed International funds had inferior performance. “ •“Even in less efficient Emerging markets, index funds outperformed 90% of active funds” The total value of US public stocks is worth 25 Trillion dollars, and though active stock-picking funds still dominate with market share at around 67%, over the last 5 years their share has declined by 12%.  In terms of new money flows, the Market-Tracking index products have been taking 75-80% of the available dollars. This is partly a reflection of younger investors’...
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Markets are not always efficient, nor right

Of the 46 previous declines of -10% or more in the stock market (S&P500), a little more than a third (19) became bear markets, defined as a drop of at least -20%.  Most of the -10% pull-backs – as sharp and painful as they are - turned out to be just false signals and momentary detours as the market resumed its upward march within months.  The Market at times becomes divorced from fundamentals, and over-obsessed with ‘headline’ risk.  Over-interpreting the ‘signal’ from these pullbacks is almost always a losing proposition.  Discipline in the face of noise is essential to long term out-performance. I have also observed that every now and then different asset markets go through bouts of over-pessimism or over-optimism. You may hear that a certain asset class (e.g. high-yield bonds) or sector (e.g. pharma) is ‘trading on sentiment’ rather than fundamentals; or that its price reflects an implausibly negative...
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Rene Jarquin - My Personal Story

I believe America’s economy is exceptional.  Despite the many head-winds faced in the last decade, there is no country where I would rather raise my family and pursue my passion - investing. In my first blog I thought that you should get a sense of who I am, so let me do so through a short personal statement. I was 9 years old when my family fled the communist take-over of Nicaragua.  My parents were 42 and 36, so I have first-hand experience of economic loss born of political risk - and what it means to start over.  I suppose like most immigrants to the US, I tend to think there is no better place to invest than here.  I am aware of my bias, and I am not blind to our flaws – perhaps none more glaring than the conditions that led to the sub-prime crisis a decade ago.  Even...
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