Barron’s had a brief article about absolute return funds. The article leaned a little skeptical but it brings up a good point. Generally speaking absolute return funds have not participated in the massive rally that started in March. Many are even down a little.
When the market was puking down there was some sentiment about going very heavy into the space which was never a good idea, IMO, for the simple reason that too much of anything is usually a bad idea. During the worst of the declines some of the funds did heroically and now not so much.
This brings up a crucial concept but if you really have a diversified portfolio then not every holding should be going in the same direction. If every holding went up 50% together with the market then how did they do when the market went down 50%?
Small exposures to things like this give a chance to own a few things that either go up a little if the market goes down a lot and even if they go down a little as the market cuts in half they are reducing the volatility. That is great for a down market but not for an up market. That doesn’t make an absolute fund a sell because they still offer the same thing as the did seven months ago, they will likely offset a portion of a swift decline.
Last Sunday I spoofed the Best Places to Retire theme by writing about a few towns, very small towns, in states with no income tax bordering states with no sales tax. Reader Stephen Drone amusingly referred to it as a tax arbitrage.
On Friday Yahoo Finance re-ran an article from MarketWatch called 15 Top Rural Areas To Retire and somehow none of the five towns isolated last week made the cut.
The article listed 15 “recreation” counties, three of which were in Colorado. And as mentioned above somehow Rancester, WY didn’t make the cut. The article itself was incredibly short on details. It listed estimates of people, by region, of where people are expected to move in this context and vagueness as to and what portion of the population might choose to relocate to rural areas.
The cost of living is unambiguously cheaper and anyone disciplined enough to really live below their means can have a very easy time of it most of the time. There are some serious drawbacks to living away from a big city the biggest probably being healthcare. If anyone in Prescott needs something done they go to Phoenix which is not quite two hours away. Ranchester is about two hours away from Billings, MT. I have no idea whether Billings has adequate medical care or not but that is something that any retiree moving there for the tax arbitrage would need to sort out ahead of time.
This also applies to people who want to go live in Uruguay or New Zealand or wherever.
Now from the how to budget for the unbudgetable file last Monday we had a lightning strike right out side our cabin (it sounded like artillery not thunder) that fried one TV, the washing machine and a wireless headset for the TV.
The new washer comes Wednesday ($800), if the TV needs to be replaced (the coax port works the rest of the back is fried somehow) that will be $400 and the headphones don’t have to be replaced but they are $100. I spoke to the insurance company Friday about filing a claim (that is when we found out the washer was broken) but I will remain leery of the insurance company until there is a check in my hand.
Many times in posts about retirement stuff I mention that there are always unexpected things that come up and use examples of new tires and vet bills. If the insurance company jacks us then that is $1200 of unexpected expense. Trust me when I say I realize how fortunate we are to be able to just go take care of it but that could be a big obstacle for a retired couple otherwise happily living on $4000 a month.
I mention the unexpected a lot because I think it is the biggest gap in peoples thought process.