Ah, The Regrets

Some people may harbor a few regrets as they get older, but a full three-quarters of Americans have at least one big financial regret, according to Bankrate.com.

The financial website asked more than 1,000 adults what their number one financial regret is and came up with some expected — and some surprising — results.

For a little background, a person who starts saving $300 a month for retirement at age 25, with a 5 percent return on investment, will have about $450,000 saved by age 65, despite only contributing $144,000 into his retirement account.

Meanwhile, if that person waits until 35 to save the same amount each month, he will contribute a total of $108,000 toward retirement but only have about $250,000 saved at age 65. “If you don’t start saving early enough, you will start to notice that later,” says Greg McBride, the chief financial analyst for Bankrate.com.

According to 2015 data from the Employee Benefit Research Institute, 28 percent of workers say they have less than $1,000 saved and 17 percent have between $1,000 and $9,999.

At the same time, 62 percent of Americans have no emergency savings, according to a 2015 survey by Bankrate.com, while experts recommend having at least three months of living expenses in savings for emergencies.

The following are what the respondents say are their biggest financial regrets, including the percentage of those that listed it No 1. (No other concern garnered more than 3 percent of answers.)

No. 6 Buying a bigger house than I could afford: 3 percent

No. 5 Not saving enough for children’s education: 8 percent

No. 4 Taking on too much credit card debt: 9 percent

No. 3. Taking on too much student loan debt: 9 percent

No. 2 Not saving enough for emergency […]

BlackRock: Expect Only 4% Yearly Stock Gains

Twenty years ago investing was much easier. Between 1995 and 1999 the Standard & Poor’s 500 staged a remarkable streak of five straight years in which total return exceeded 20%. But that period was followed by a prolonged period of subpar returns.

Is history repeating itself? Few would confuse the last seven years with the late 1990s, but equities, particularly U.S. stocks, have once again been producing outsized returns. Even including 2015’s flat performance, between 2009 and 2015 the average price return on the S&P 500 was nearly 13%. This is unlikely to hold over the next seven years.

But if price appreciation becomes harder to come by, investors need to consider the role of positive cash flow, whether through dividends, or yields. This is referred to as “carry” by financial professionals. Three trends support the case for a greater focus on carry in a portfolio:

Lower equity returns

The BlackRock Investment Institute forecasts just 4.3% annual returns for domestic large-cap stocks over the next five years, mostly due to elevated valuations. Today the S&P 500 trades at roughly 19 times trailing earnings.

In our opinion, this bodes poorly for future long-term returns. Other markets, notably emerging markets (EMs), are likely to perform better thanks to much lower valuations. However, EMs come with considerably more risk, a problem for more conservative investors.

Higher risk

While volatility has been on the rise since last August, much of the past five years has been characterized by unusually low volatility. Today the VIX Index is around 15, roughly 25% below the long-term average. Looking at the futures curve for the index, investors expect volatility to rise back to around 20 by the fall. Even this may understate the potential rise in volatility. Volatility normally […]

3 Cool Facts About The Dow Jones Industrial Average

The Dow Jones industrial average has long been used as a benchmark of the health of the U.S. economy, even if the average itself includes only a selected few blue-chip companies—30 in total—making it hardly representative to the U.S. equity space.

Still, as we mark 120 years since the DJIA’s inception, consider these interesting facts about one of the most well-known benchmarks globally:

Originally, the DJIA had only 12 components. The number of holdings was increased later, and only General Electric has lasted from inception to today in the mix.
The DJIA is price-weighted, not market-cap-weighted. That’s why it’s known as the industrial “average” rather than “index.” It was originally calculated by just adding up the prices of the component stocks and divided by the number of components. As stocks split, or were replaced, or made large distributions, the divisor was adjusted accordingly.
The composition of the DJIA—what stocks it includes—used to be determined by the Wall Street Journal’s markets editor. Today it’s the Averages Committee—including three S&P Dow Jones Indices employees and two WSJ employees—that handles the selection process.

Source:  Cinthia Murphy


48% of Americans saving for retirement are pretty sure they have no idea what they’re doing

The US has a retirement problem.

In the Federal Reserve’s 2015 report on US household economic well-being, about half of respondents who said they were working towards saving for retirement were less than confident they were making good investment choices.

According to the Fed, 48% of respondents who had either a defined contribution plan or a self-directed retirement plan were either “not confident” or just “slightly confident” in their ability to make the right investment decisions in these accounts.

These plans are basically standard 401(k) plans you manage alone or similar accounts in which your employer matches a certain amount of what you set aside but promises no future benefit; 48% of non-retirees with savings have these kinds of accounts.

Pensions, in contrast, are “defined benefit” plans, meaning your contributions promise certain benefits down the road; just 25% of non-retirees saving for retirement possess these plans.

So just barely over half of those saving for retirement on their own think they know what they’re doing. Though as we’ve written: if you’re trying to beat the market on your own — which is not necessarily what these people are doing, just a possibility! — you will lose.

This is a bit discouraging.

The Fed also notes, “In general, men express somewhat greater levels of confidence in their investment capabilities, with 58 percent of men compared to 45 percent of women reporting that they are mostly or very confident that they will make the right investment choices.”

Of course.

Like, it’s one thing to refuse to ask for directions. But it’s another to not ask for advice on how to save for retirement (though this is, I’ll concede, not retirement advice).

The Fed’s report added that 40% of those saving for retirement with self-directed accounts received advice from a broker, lawyer, or financial planner and 28% of these […]

5 things rich people do with money — that you should be doing

You can learn a lot from how rich people handle their money.

The very rich — those with investable assets of at least $3 million — have a lot in common when it comes to their financial management, according to a survey of nearly 700 high-net-worth investors released Monday by U.S. Trust.

Here are five of the things that most rich people do with their money that financial advisers say you should consider doing, too.

1. Delay gratification. More than eight in 10 high-net worth investors say that investing in long-term goals is more important than funding current wants and needs. “If you are going to boil down wealth-building down to one simple thing, I’m hard-pressed to think of a better characterization than the ability to delay gratification,” says Greg McBride, the chief financial analyst for finance site Bankrate.com. “If you are spending first and trying to save what is left over, you will often find that nothing is left over.”

Consider: If you put $100 toward your retirement each month — rather than spend that money — at the end of 20 years, you’d have roughly $40,000, assuming a 5% rate of return. If instead, you had just spent that $100 each month, you would have missed out on more than $15,000 in earnings. Of course, not everyone can heed this advice as “you can’t ignore your current needs” if they need funding, says Joe Duran, CFA, the chief executive of financial firm United Capital and author of “The Money Code.” Just make sure that you understand the difference between needs (basic food, shelter, clothing, etc.) and wants, he adds.

2. Use credit strategically. Roughly two in three high net worth investors say they consider credit a decent […]

‘I’m leaving my job — what do I do with my 401(k)?’

I’m leaving my job of the last five years and have a couple thousand dollars in a 401(k).

My new job has a 401(k) as well. What should I do with the money I’ve already saved at my old job?

Congrats on your new job! You have a few different options of what you can do with your old 401(k):

You can cash it out. (IMPORTANT: DON’T DO THIS!)
You can leave it in your old 401(k) plan.
You can do a rollover into your new 401(k) plan.
You can roll it over into an IRA
You can roll it over into a Roth IRA.

Here’s what you should know about each option:

Don’t cash it out
Some people choose to cash out their old retirement accounts without realizing how that choice will affect them in the long run. When you cash out your 401(k) you’ll pay a 10% penalty plus taxes on the money you take out.

This means that if you had $10,000 in your 401(k), you’d have to pay a $1,000 penalty plus taxes on the amount withdrawn. If you’re in the 25% federal tax bracket and pay 5% in state taxes, you’ll pay an additional $3,000 in taxes. The check you receive is down to only $6,000.

However, the real financial impact is the future value of that  $10,000. Let’s say you plan on retiring in 35 years. That $6,000 check you received could have been been valued at more $100,000 by the time you retire. Check out this calculator from Wells Fargo to see the impact that cashing out your 401(k) could have based on your tax bracket.

You probably shouldn’t do nothing, either
Many people choose No. 2: doing nothing. But this isn’t necessarily the best option because of a few […]

Stop Worrying About the Stock Market Crashing!

What’s the likelihood the stock market this year will experience a 1987- or 1929-style crash?

Evidently quite high, according to billionaire investor Carl Icahn. His net equity position as of the end of March was 150% short—a very aggressive bet that the stock market will plunge.

Nor is Icahn alone. A new study from the National Bureau of Economic Research finds that the average investor believes there to be a greater than one-in-five chance of a huge crash at some point in the next six months. The study, “Crash Beliefs From Investor Surveys,” was conducted by Yale University finance professors William Goetzmann and Robert Shiller (the Nobel laureate) and Dasol Kim, a finance professor at Case Western Reserve University.

Their study is based on surveys conducted periodically since 1989 that asked respondents to assess the risk over the subsequent six months of a 1987- or 1929-magnitude crash. In 1987, of course, the Dow Jones Industrial Average dropped 22.6% in a single session; the 1929 crash involved a 12.8% single-session plunge.

On average over the last three decades, respondents believed there to be a 19% risk of such a daily plunge in the subsequent six months. Though the average probability varied over time, in no single survey did it drop into the single digits. In the most recent survey it was 22.2%, above the historical average.

To put these survey responses into context, consider that the 1987 and 1929 crashes were the two worst one-day plunges since the DJIA was created in 1896. Given that there have been more than 32,000 trading sessions since then, the judgment of at least this swath of history is that in any given six-month period there is a 0.79% chance of a daily crash […]

Wall Street banks see a painful summer

If you gathered a group of stock analysts in a room, odds are each analyst would have a different view on the market.

So when analysts from three big investment banks are on the same page, it might pay to listen.

Bank of America Merrill Lynch, Goldman Sachs and J.P. Morgan are all urging investors to rotate out of equities because they see a painful summer ahead.

An increasing number of trends worry us as we head into summer,” said Savita Subramanian, an equity and quantitative strategist at Bank of America Merrill Lynch.

The fact that corporate buybacks are near an all-time high while the number of companies projected to post losses has also risen is a huge red flag for Subramanian.

Furthermore, an interest-rate hike during an earnings recession never ends well, she said.

“Since 1971, the Fed has begun tightening during a bona fide profits recession only three other times – 1976, 1983, and 1986; two out of those three instances saw stocks drop over the next twelve months. The S&P is just 1% off its Dec. 16 level when the Fed initially hiked,” said the strategist in a report.

An earnings recession, like an economic contraction, is two consecutive quarters of negative year-on-year profit growth. First-quarter earnings fell 7.1% from a year earlier, marking four consecutive quarters of declines, according to FactSet.

Subramanian also sees signs that capital is drying up with initial public offerings at an all-time low while commercial lending standards have tightened.

Meanwhile, oil prices, despite the recent rebound, are likely to weaken again and fall more than 15% before bouncing back. June WTI oil rallied 3.3% to settle at $47.72 a barrel, its highest settlement since Nov. 3.

And to top it all off, investors must contend […]

Municipal Bonds to Supplement Your Income

Fixed-income investors who follow the benchmark Barclays U.S. Aggregate Bond Index may be missing out on the stability and yield opportunity found in municipal debt securities. Consequently, traders should consider including a muni bond exchange traded fund to round out their investment portfolios.

Muni bonds help diversify a fixed-income portfolio and augment yields for those in the highest income bracket. The Barclays U.S. Aggregate Bond Index, a widely observed fixed-income benchmark, along with other broad aggregate bond indices focus on U.S. Treasuries, mortgage-backed securities and investment-grade corporate debt but would exclude municipal debt, which have historically provided lower correlations to both equities and other fixed-income assets. Consequently, investors should look to a muni bond ETF to complement an existing core bond position.

Since municipal bond interest is exempt from federal taxes, muni ETFs are also a good way for investors to generate tax-exempt income, especially those in higher tax brackets. Because the debt category enjoys a tax-exempt status, investors would maximize the benefits of muni exposure in taxable accounts.

The tax-exempt status has made munis popular among high-income investors, so the perceived bond yields are usually lower than their taxable counterparts. For example, the iShares National AMT-Free Muni Bond ETF (NYSEArca: MUB), the largest muni-related ETF, has a 1.32% 30-day SEC yield but that comes out to a 2.33% taxable equivalent 30-day SEC yield for those in the highest income bracket.

Looking ahead, as the U.S. economy continues to improve, the ongoing growth growth in personal, corporate and sales tax will help bolster state finances. The prolonged low-interest rate environment has also helped support the muni market, even in the face of some high-profile defaults, such as Puerto Rico’s recent default on $422 million in Government Development Bank […]