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7000 Carroll Ave Ste 201A
Takoma Park MD 20912
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All in Investing
If you checked your 401k statement for the last quarter, you lost money. (If you didn’t, I want to invest with you!) Even your usually boring and reliable bonds are down a lot. Bonds, broadly, are down more in the last three months than any same period since 1980. Worse, they are going down at the same time stocks are going down, another rare occurrence. Since last September the entire US bond market is down more than the entire US stock market by 5 percent!
What is a 403(b) and why does it exist? If you’ve ever asked you were probably told ‘it’s the nonprofit version of a 401(k)’ and that’s true more or less. The 403(b) was indeed created by Congress 1958 specifically for nonprofit organizations. It is the grandparent of the 401(k). 403(b) plans are fine if set up correctly, but there are many bad ones with lousy investments and high fees sold to trusting nonprofits by consultants and brokers that are not fiduciary financial advisors.
You are no doubt familiar with the group of mostly anonymous investors who last year coordinated the leveraged buying of GameStop, AMC, and other stock options, pushing up the price to the point that some hedge funds lost a lot of money. It was a good David and Goliath story and a new development in consumer investing. When I placed my first and only stock trade for GameStop in January of 2021, it was not with the idea that I believed in the stock. I simply wanted to see what it was like to buy into a frenzy. (I’ll cut to the chase; it was terrifying.)
According to Morningstar.com, smaller 401k plans, which includes most nonprofit orgs, are paying double the 401k fees of larger plans. Smaller 401k plans are defined as $25M total plan assets or smaller and make up 27% of the nation's 401k assets. Though fees have come down over time, small 401k plans have total expenses that are more than double the national retail investor average and larger 401k plans. That difference, .47%, doesn't sound like much but it is. In the meantime, how do you find out if your plan is expensive?
In 2007, Trish and I took the girls abroad to France, the UK and Ukraine, as my late wife's ancestors were from that area. As kids, 3 and 6, my daughters played on the Volga. Our hearts are with the people, the defenders, the vulnerable, and the families losing loved ones. I shed no tears for the men causing this war — my cynicism expects them to not suffer deeply. For nearly two decades of my professional life, I worked for international nonprofit organizations promoting rule of law, freedom of speech and fair elections. So where are the Socially Responsible Investing funds supporting democracy?
I-bond purchases in the last two months of 2021 were almost equal to purchases the entire five years prior. They are offering 7.12% interest at the moment are very safe. If you can wait a year to get your money back a bit like a CD, they are an incredible choice for your ‘safe’ money.
The other week, a client called me from Mexico on her new vanlife journey around North America. She has modest assets and is trying to define herself less by her job, which she is doing part-time remotely. I’m proudly responsible for the financial plan supporting her life goal. I mentioned to her that the US stock markets were down over 11%. “Oh yeah, look at that,” she said, reviewing her online statements, with interest but not worry. If, like her, you were living your best life last month and not paying attention to the stock market, kudos. It’s not good for investor health or wealth to pay close attention to stock market returns.
On a coarse level, it was the German Empire under William I and Otto von Bismarck that created the first general (non-military) welfare program for older workers introducing the concept of retirement for the working class. It was a plan, along with mandatory health insurance, to counter growing support for Marxism. One would get a modest pension from the state at age 70, a seemingly cynical choice for a population with a life expectancy in the mid 40’s that was declining.
Last week I wrote about who is exposed to inflation risk and identified low-income workers and retirees as the most endangered. To minimize exposure to inflation risk retirees can use both planning techniques or investment strategies. One planning technique we don’t like is to simply spend less, although sometimes that’s the best choice. Technically, one could die younger. We really do not like that. But the math undeniably works. But, here are some planning techniques I do like.
Most 401k plans offer ‘target date funds,’ one-stop investment portfolios with a mix of US stocks, international stocks and bonds that automatically get more conservative (less stocks, more bonds) as we approach retirement. But it’s not that simple. Here are the four things most common mistakes I see with target date funds.
Donor Advised funds are ‘a waiting room’ for charitable donations. The donor gets a current tax deduction, pays fees to a custodian (for instance, .60% for first $500,000 by Schwab), and then later suggests when and to whom the money should go.
One could reasonably take the position that a company better poised to manage the changing environmental future would deserve to be priced higher. But is that the case?
More than 50% of Americans are financially anxious, according to a 2018 study. Is better financial literacy the answer?
ESG are environmental, social and governance standards used to evaluate a company’s operations and help investors screen potential investments. It attempts to quantify the relationship between adherence to ESG criteria and financial performance. Can we rely on ESG?
Conventional conservativism was traditionally pro-corporation, profit-first, and generally liked business to stay out of politics. But the more current version of conservativism is more explicitly anti-progressive, and is interested in more than profits.
