You Lost Me At Hello

Yesterday Yahoo Finance ran this article from BusinessWeek about a “rule” for assessing where your savings compares to where it should ideally be. Meaning if you are 50 years old you should have X. X is not a number but a multiple of your salary. The basis for the formula cited “starts with one of the basic tenets of retirement planning—that people need at least 70% of their pre-retirement income during post-working years.” Insert scratched record audio file. Rules like this are woefully incomplete. Complications arise in individual circumstances, vagaries of the market beyond anyone’s control and any number of other things. For what it is worth, the article says that a 45 year old should have 3.6 times his salary saved, a 55 year old should have 5.4 times and when you retire you should have 7.7 times your annual salary. If you still work what are your biggest expenditures? If you are retired what are your biggest expenditures? What are the likeliest changes to expenses between working and retiring? Our biggest expenses are estimated tax payments and savings. If I ever stop working and start living off of savings then I would think tax payments would go down and savings would mean taking less out of the portfolio one quarter. If your biggest expense is your mortgage do you plan to have that paid off when you are retired? Many people say yes but some say no. Do you have car payments and credit card debt? Do you plan to eliminate that debt when you retire? If you answer that question with a yes, then you must...

You Lost Me At Hello

Yesterday Yahoo Finance ran this article from BusinessWeek about a “rule” for assessing where your savings compares to where it should ideally be. Meaning if you are 50 years old you should have X. X is not a number but a multiple of your salary. The basis for the formula cited “starts with one of the basic tenets of retirement planning—that people need at least 70% of their pre-retirement income during post-working years.” Insert scratched record audio file. Rules like this are woefully incomplete. Complications arise in individual circumstances, vagaries of the market beyond anyone’s control and any number of other things. For what it is worth, the article says that a 45 year old should have 3.6 times his salary saved, a 55 year old should have 5.4 times and when you retire you should have 7.7 times your annual salary. If you still work what are your biggest expenditures? If you are retired what are your biggest expenditures? What are the likeliest changes to expenses between working and retiring? Our biggest expenses are estimated tax payments and savings. If I ever stop working and start living off of savings then I would think tax payments would go down and savings would mean taking less out of the portfolio one quarter. If your biggest expense is your mortgage do you plan to have that paid off when you are retired? Many people say yes but some say no. Do you have car payments and credit card debt? Do you plan to eliminate that debt when you retire? If you answer that question with a yes, then you must...

More Stock Picking vs Fund Picking

GlobalTrends has a post adding to the ongoing debate about stock picking versus fund picking. Generally they come down on the side of using ETFs. My take has always been to use whatever you think is the best tool to capture whatever you want to capture. It doesn’t make sense that one product/wrapper can be the single best way in to every asset class and market segment. Obviously ETFs, maybe we should say exchange traded products, are covering more and more ground and covering it with useful products even if many of the funds never really catch on with the investing public. For a while I have expected that I will write a post one day called The Only Stock You’ll Ever Need and be referring to the one part of the market still not covered by ETFs. I’m only half joking. There are plenty of spots in the market not covered ETPs. I’ve been a big fan of Norway for years now. There is no ETF and I doubt there ever will be. There is the Fidelity Nordic Fund (FNORX) but that takes in at least four countries and being an open end fund you never know how much Norway you have today. While I could probably make an argument that these countries are preferable to the bigger countries in Europe, Swedish bank exposure to Latvia notwithstanding, Norway has specific attributes that I doubt the fund captures very often. Indeed the fund has lagged the OBX index at almost every turn in the last few years. There are other potentially important, or maybe more correctly interesting, segments that...

More Stock Picking vs Fund Picking

GlobalTrends has a post adding to the ongoing debate about stock picking versus fund picking. Generally they come down on the side of using ETFs. My take has always been to use whatever you think is the best tool to capture whatever you want to capture. It doesn’t make sense that one product/wrapper can be the single best way in to every asset class and market segment. Obviously ETFs, maybe we should say exchange traded products, are covering more and more ground and covering it with useful products even if many of the funds never really catch on with the investing public. For a while I have expected that I will write a post one day called The Only Stock You’ll Ever Need and be referring to the one part of the market still not covered by ETFs. I’m only half joking. There are plenty of spots in the market not covered ETPs. I’ve been a big fan of Norway for years now. There is no ETF and I doubt there ever will be. There is the Fidelity Nordic Fund (FNORX) but that takes in at least four countries and being an open end fund you never know how much Norway you have today. While I could probably make an argument that these countries are preferable to the bigger countries in Europe, Swedish bank exposure to Latvia notwithstanding, Norway has specific attributes that I doubt the fund captures very often. Indeed the fund has lagged the OBX index at almost every turn in the last few years. There are other potentially important, or maybe more correctly interesting, segments that...

A Little Process Down Under

Part of the process for navigating market cycles is looking a couple of steps down the road to try to figure out what you might own in the future. I’ve talked many times about my expectation of needing more foreign exposure. For now I don’t typically exceed 3% in a single country but as I mentioned a couple of weeks ago some countries will probably increase to 5-6% of the portfolio. They way I tend to do things that probably means adding a second stock from some of these places or rebuilding the exposure entirely with new stocks or an ETF or stock ETF combo. One case in point is Australia. For most clients the Australian exposure has been one of the banks. It was of course hit hard but there was never any realistic chance of a deathblow. While I still like the bank I will not put 6% of the portfolio into it and I do not think owning two banks from one foreign country is a great idea. If I turn out to be catastrophically wrong about the bank I own I imagine all the banks would feel that pain. This leaves me needing to figure out another way in. One obvious place to look would be in the materials sector, it is a commodity based economy after all and there are a couple of mega caps to go with as well as dozens much smaller miners. My hesitancy here is that there are other countries with fewer investment choices but for which materials is a way in so I’d like to try to find something...