Advice After Stock Market Drop: Take Some Deep Breaths, and Don’t Do a Thing – The New York Times 08-21-15

Salient to Investors:

Stocks are most useful for long-term goals so it does not make sense to change your investment strategy based on a blip (sic) of market activity. There is absolutely nothing abnormal going on in the market. Research shows that long-term portfolio performance suffers badly by missing just a few days of the market’s biggest gains.

The fundamentals of capitalism have not changed, not should your confidence in very long-term ownership of equities. Few investments deliver the kinds of returns that stocks can without their own accompanying anxiety. It would take decades of systemic economic erosion to prove that stocks are not the most accessible route to earn the returns you will need to retire.

Read the full article at http://www.nytimes.com/2015/08/22/your-money/stocks-and-bonds/advice-after-stock-market-drop-take-some-deep-breaths-and-dont-do-a-thing.html

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No Joke: American Workers Are Leaving $24 Billion in Free Money on the Table – Motley Fool 08-08-15

Salient to Investors:

Sean Williams writes:

  • FRB of St. Louis reports the US personal savings rate averaged 4.8% in June, 2015, no change from a year ago. The OECD reports the rate in 2011 for Germany was 11.4% and for France 16%.
  • Hearts & Wallets reports that in 2014, 45% of surveyed households set aside money for unexpected expenses. 56% of households participated in employer-sponsored retirement plans (ESRPs). 22% of savings went into ESRPs. In 2013, 37% of surveyed households set aside money for unexpected expenses. 60% of households participated in employer-sponsored retirement plans, and 29% of savings went into ESRPs.
  • Financial Engines found that 25% of all workers insufficiently contributed to their ESRP to earn full matching funds from their company. 25% of ESRPs don’t match funds.

Read the full article at http://www.fool.com/retirement/401k/2015/08/08/no-joke-american-workers-are-leaving-24-billion-in.aspx

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They’re Old, They’re Rich and, Too Bad for the Economy, They’re Kind of Tight – Bloomberg 11-12-14

Salient to Investors:

William Emmons at FRB St. Louis said:

  • Americans born between 1928 and 1945 have become the richest old generation ever by benefiting from improved health, a more generous social safety net, an exit from the job market ahead of the past recession, rebounding stock and home values, and a diversified approach to investing.
  • The hit to net worth for the two subsequent generations will be difficult to recoup before they leave the workforce.
  • New retirees may release pent-up demand for travel and restaurant meals, but that behavior usually does not last for most people.

Neil Howe at Saeculum Research said the Silents have done very well, mostly from just being in their location in history – they planned ahead, were risk averse, played by the rules and the system worked for them.

Prime-age workers typically spend more than their elders.

Compared to other age groups, the median net worth for the oldest Americans has climbed to near the top from near the bottom just 20 years ago.  The median family net worth, adjusted for inflation, of Americans 75 and older was $194,800 in 2013 versus $130,900 in 1989.

JPMorgan Chase found that household spending peaks at age 45 and then falls in every category except health care, dropping about 43 percent by the age of 75.

Pew Research Center said 34% of the Silent Generation self-identifies as Democrats, 32% as independents and 29% as Republicans.

From 1962 through 1991, GDP grew an annual average of 3.5%, but 2.6% since.

The SP 500 Index rose almost 14 times from the start of 1977 through the end of December 2007. The HFA home price gauge rose 472% since 1975.

The Urban Institute said federal outlays on programs benefiting those 65 and older rose to $27,975 in 2011 per capita adjusted for inflation from $4,000 in 1960, or 7.5% of GDP from 2.1%.

In 2013, 9.5% of Americans aged 65 and older were in poverty, the lowest of any age group. In 1959, 35% of Americans aged 65 and older were in poverty, the highest of any age group.

In 2009, a 65-year-old could expect to live another 19.2 years, versus 12.2 years in 1930.

Read the full article at http://www.bloomberg.com/news/print/2014-11-12/silent-generation-wins-life-lottery-as-richest-u-s-age-group.html

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Global AgeWatch Index: Norway best for older people – BBC News 09-30-14

Salient to Investors:

HelpAge International said:

  • Norway is the best of 96 countries to grow old in, followed by Sweden, Switzerland, Canada and Germany. Afghanistan is the worst.
    Australia, Western Europe and North America rank highly.
  • By 2050, 21% of the global population will be over 60, when 40 of the 96 countries will have 30% of their population aged 60 or over.
  • Mexico, Peru and some other Latin American countries have risen in the rankings.
  • Mexico (30th) ranks ahead of Brazil, Russia, India, China and South Africa.

The tradition of caring for the elderly within extended families is weakening.

The growth of tax-financed, non-contributory “social pensions” is key to helping tackle inequality for seniors.

In Mexico, nearly 9 out of every 10 people aged 65 or older receive a social pension.

Read the full article at http://www.bbc.com/news/world-29426285

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Largest Public Pensions Face $2 Trillion Hole, Moody’s Says – Bloomberg 09-25-14

Salient to Investors:

Moody’s Investors Service said:

  • The 25 largest US public pensions – 40% of the $5.3 trillion in US public pensions – face $2 trillion in unfunded liabilities, showing that investment returns cannot keep up with ballooning obligations and inadequate pension contributions – from 2004 to 2013 an average 7.45% investment return versus the expected 7.65% rate.
  • Liabilities tripled in the 8 years through 2012.
  • Its latest estimations of pension liabilities are higher in every case than those reported by the systems.

Read the full article at http://www.bloomberg.com/news/2014-09-25/largest-u-s-public-pensions-face-2-trillion-gap-moody-s-says.html

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No Magic Bullet for Pensions as Calpers Exits Hedge Funds – Bloomberg 09-17-14

Salient to Investors:

  • Calpers’ exit from hedge fund investing underscored that there is no magic bullet to dealing with mounting pension fund costs. Chris Mier at Loop Capital Markets said the problem cannot be fixed very rapidly.
  • Wilshire Consulting said that in 2013, state pension plans had 75% of what they needed to cover retirement obligations. State and local governments put $95 billion into the 100 largest pension funds in 2013, up $23 billion from 2009.
  • Peter Hayes at BlackRock said those plans that take action will have a better rating profile, all things equal, and those that do not are going to be penalized with lower ratings and higher interest costs.
  • Riskier investments are luring pensions, which typically need to earn more than 7% annually to avoid falling behind.

Read the full article at http://www.bloomberg.com/news/2014-09-18/no-magic-bullet-seen-for-pensions-as-calpers-exits-hedge-funds.html

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The Dumb Money Is Getting Smarter Every Day – Bloomberg 09-17-14

Salient to Investors:

  • Amateur investors are giving up on trying to beat the market, while even the most sophisticated investors are rejecting strategies that require advanced math and managers with million-dollar salaries. ICI reports the average expense ratio on an equity mutual fund is down 25% in 10 years.
  • Boston Consulting estimates the market share of index funds and ETFs has doubled since 2003.
  • Target-date funds are taking over retirement plans, and are the favorite of young workers.
  • Grant Easterbrook at Corporate Insight said that the new online advisors eliminate a million features that only 5% of the user base actually wants.

Read the full article at http://www.bloomberg.com/news/2014-09-17/the-dumb-money-is-getting-smarter-every-day-.html

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Financial Strategies for the New Single Majority – Bloomberg 09-09-14

Salient to Investors:

  • More than half of US adults are single versus 37% in 1976.
  • Singles need bigger emergency funds more insurance protection.
  • Couples who wait to have kids in their 30s end up with three big financial burdens all at once: retirement planning, saving for a house and saving for college.
  • People are less likely to be declined long-term care insurance coverage in their late 40s and early 50s.
  • The overall divorce rate has doubled since 1990 for people over age 50.
  • Eric Klinenberg found that many older singles, especially women, were just as happy and more social than married peers.

Read the full article at http://www.bloomberg.com/news/2014-09-09/financial-strategies-for-the-new-single-majority.html

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Boomer Wealth Dented by Mortgages Poses U.S. Risk – Bloomberg 08-28-14

Salient to Investors:

  • The Consumer Financial Protection Bureau reports the share of Americans 65 and older with mortgage debt rose to 30% in 2011 with a median debt adjusted for inflation of $79,000,  from 22% in 2001 with a median debt of $43,400.
  • The increase in mortgage debt makes these households more susceptible to economic swings, increasing the risk of inability to recoup losses.
  • John Gist at George Washington University said reasons include the surge in refinancing in the early 2000s and in the post-recession years, the ability to buy with smaller down payments during the housing boom, and the acquisition of vacation homes. Gist said the highest rates of refinancing occurred among boomers – over half in 2004 and 2007.
  • The median duration of joblessness for adults 65 years and older was 17.8 weeks in July, versus 13.5 weeks for those 25 to 34.
  • Julia Coronado at Graham Capital Mgmt said a mortgage is a source of risk for older households, particularly given the labor market experience.
  • Barbara Butrica and Nadia Karamcheva at Urban Institute said 65% of homeowners with mortgages are still working at age 64, versus 54% of those without housing debt.
  • Greg Frost at Frost Mortgage Banking said boomers will be the first generation to take advantage of reverse mortgages on a large-scale.
  • Donald Frommeyer at the National Association of Mortgage Brokers said boomers do not have the same desire to pay off mortgages as the WWII generation.
  • Sam Khater at CoreLogic said as millennials delay buying homes, they may prolong the trend.
  • Homeownership for Americans 35 years old and younger fell to 35.9% in Q2, 2014, the lowest quarterly level since 1994, and versus the high of 43.6% in 2004.

 

Read the full article at http://www.bloomberg.com/news/2014-08-28/boomer-wealth-depressed-by-mortgages-poses-u-s-spending-risk.html

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Millennials End Up in Stocks for Head Start on Retirement – Bloomberg 08-04-14

Salient to Investors:

  • The Transamerica Center for Retirement Studies said millennials – born from 1979 to 1996 – began saving for retirement at a median age of 22, versus 27 for Generation X and 35 for baby boomers. 71% of millennials offered 401(k) or similar plans contributed a median 8% of their salaries.
  • Sarah Holden at the Investment Company Institute said millennials were nervous about stocks and were less willing to take risk, but 401(k) plans are keeping them in equities. In 2012, 22% of heads of households younger than 35 owning mutual funds said they would only invest in financial instruments with zero or below-average risk even for a below-average return – more than any other age group except 65 and older.
  • Bankrate.com said 39% of adults aged 18 to 29 said cash was their preferred investment for money not needed for at least 10 years, 3 times the percent that picked the stock market.
  • Jean Young at Vanguard said defined contribution retirement plans, especially those with automatic enrollment or options that reduce risk as an employee ages, is keeping millennials invested in equities despite their risk wants.
  • Alicia Munnell at the Center for Retirement Research said the total effect is positive for the economy because in the long-term, more savings means more investment which means more growth.
  • Social Security’s trust funds will be depleted by 2033, after which tax income would be able to pay 75 percent of scheduled benefits through 2088.
  • Pew Research Center said 51% of millennials do not think there will be any money left in the Social Security system by the time they retire, while 39% said SS will only be able to provide benefits at reduced levels.
  • William Emmons at FRB of St. Louis said millennials have a large amount of student-loan debt but are cutting back on other borrowing, like not buying houses or maxing out credit cards.

 

 

 

Read the full article at http://www.bloomberg.com/news/2014-08-04/millennials-end-up-in-stocks-for-head-start-on-retirement-saving.html

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